America Movil de CV : Q3 2018 Transcript

Company Name: America Movil	Market Cap: 960,971.26	Bloomberg Estimates - EPS
Company Ticker: AMXL MM	Current PX: 14.54	Current Quarter: 0.270
Date: 2018-10-17	YTD Change($): -2.41	Current Year: 0.939
Event Description: Q3 2018 Earnings Call	YTD Change(%): -14.218	Bloomberg Estimates - Sales
Current Quarter: 258026.200
Current Year: 1019419.318

Q3 2018 Earnings Call

Company Participants

• • Daniela Lecuona Torras

• • Daniel Hajj Aboumrad

• • Carlos José García Moreno Elizondo

• • Unverified Participant

• •

• • Company Representative

Other Participants

• • Matthew Niknam

• • Leonardo Olmos

• • Diego Aragao

• • Rodrigo Villanueva Bravo

• • Daniel Federle

• • Andre Baggio

• • Maria Tereza Azevedo

• • Cesar A. Medina

• • Maurício Fernandes

MANAGEMENT DISCUSSION SECTION

Operator

Good morning. My name is Lisa and I'll be your conference operator today. At this time, I would like to welcome everyone to the América Móvil's Third Quarter 2018 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions].

Thank you. Now I'll turn the call over to Ms. Daniela Lecuona, Head of Investor Relations. Please go ahead.

Daniela Lecuona Torras

Thank you. Good morning, everyone. Thank you for joining us today in our third quarter 2018 conference call. With us today on the line Mr. Daniel Hajj, Chief Executive Officer, Mr. Carlos José García Moreno, Chief Financial Officer and Mr. Óscar Von Hauske, Chief Operating Officer.

Daniel Hajj Aboumrad

Good morning. Carlos, as always he's going to give us a summary of the third quarter 2018 financial and operating report.

Company Name: America Movil	Market Cap: 960,971.26	Bloomberg Estimates - EPS
Company Ticker: AMXL MM	Current PX: 14.54	Current Quarter: 0.270
Date: 2018-10-17	YTD Change($): -2.41	Current Year: 0.939
Event Description: Q3 2018 Earnings Call	YTD Change(%): -14.218	Bloomberg Estimates - Sales
Current Quarter: 258026.200
Current Year: 1019419.318

Carlos José García Moreno Elizondo

Okay. Thank you. Good morning, everyone. Well, the continued expansion of the U.S. economy through the summer with strong job creation even in the face of historically high levels of employment and they're pushing 10-year U.S. treasury yields decisively above 3%, bringing about a new bout of dollar trend that affected emerging markets in general, including several of the currencies in the region as we operate, more importantly in Argentina and Brazil.

This effect was partially offset by the reduced political uncertainty in some countries with their currencies appreciating versus the dollar the presidential elections were left behind. This is particularly in case of Mexico and Colombia and already partly through halfway in Brazil. In this context, we gained 1.1 million postpaid subscribers in the third quarter, including

postpaid subscribers in the third quarter, including 420 - 472,000 in Brazil, 184,000 in Mexico and a 100,000 in Colombia. All together even after net disconnections of 750 - 7,000 prepaid clients, we ended up with 339,000 net gains of mobile clients as compared to a net loss of 73,000 clients in prior quarter. This is important because I think most analysts were estimating a reduction of net adds for the quarter. This goes to show the importance of our ongoing commercial effort.

In fact, if we look at growth of subscriber rate, still have to correct our prepaid disconnections, they were up 2.9% versus the year earlier quarter, but Brazil and [indiscernible] offsetting the fastest growth 7.9% and 9.7% respectively. This again is the rate of growth of gross subscriber additions.

On the fixed-line platform, broadband continued to be the fastest growing segment at 6.2% year-on-year after adding 284,000 new accesses in the quarter, including 105,000 in Brazil and 93,000 in Central America. In Brazil, with numbers from [indiscernible] through August, we've been increasing market share over the last several quarters practically across the board in the fixed-line platform.

Mobile postpaid is our fastest growing segment with 7.6% followed by fixed-broadband at 4.7%. The declines in PayTV accesses have leveled off. Mobile Prepaid subscribers have continued to come down and we have gone ahead with various disconnections, most notably in Brazil.

Revenues were up 2.1% year-on-year in Mexican peso terms, and were just shy of MXN 250 billion, whereas

EBITDA came in at MXN 71.8 billion and was 7.7% higher to year before. Compared to the prior year, the Mexican peso appreciated sharply 15% versus the Brazilian real, but depreciated moderately around 5%, 6% versus the dollar, the euro and the Colombian pesos, all of which had an impact on the Mexican peso value of the respective operations.

At constant exchange rates, service revenues were up 3.4% year-on-year, the best performance in five quarters. Our service revenue growth improved practically across the board, while EBITDA increased 8.6%, not including the release of certain provisions in Brazil. Relatively our proceedings are stated with taxes. During the latter, EBITDA increased by 13%.

Postpaid mobile revenues led the way with an 8.6% increase, followed by prepaid revenues of 7.7% and by fixed-broadband revenues at 6.2% as you can see in the chart. So the main business lines are growing in the neighborhood of 8% to 7% year-on-year.

In the mobile space, service revenue shot up in Brazil and Mexico, 10.5% and 9.5% respectively, with mobile APRUs rising 13% in Brazil, 11% in the U.S., and 8% in Mexico, as we gain more postpaid clients and in the U.S., more straight top subscribers. Our EBITDA margin 28.8% increased 2 percentage points from a year before. Approximately 1 point of the margin is related to the release of provisions in Brazil.

related to the release of provisions in Brazil. Substantially, all of our operations posted increases in the EBITDA margins in the period.

Our operating profit increased 23.4% to MXN 35.3 billion. Together with a comprehensive financing income and that cost of MXN 3.3 billion mostly driven by foreign exchange gains, but also the relief of provisions in Brazil, it brought

Company Name: America Movil	Market Cap: 960,971.26	Bloomberg Estimates - EPS
Company Ticker: AMXL MM	Current PX: 14.54	Current Quarter: 0.270
Date: 2018-10-17	YTD Change($): -2.41	Current Year: 0.939
Event Description: Q3 2018 Earnings Call	YTD Change(%): -14.218	Bloomberg Estimates - Sales
Current Quarter: 258026.200
Current Year: 1019419.318

about our net profit of MXN 18.6 billion for the business.

Through September, we funded our capital expenditures of MXN 91.7 billion, reviewed by MXN 14 billion of our net debt. Paid out net dividend and share buybacks is the amount of MXN 10.4 billion and contributed MXN 50.6 billion to our pension funds. Our net debt stood at MXN 584 billion at the end of September, down MXN 45 billion from December.

Relative to our last 12 months EBITDA, our net debt stood at 2.0 times, the lower leverage ratio we have attained in at least two years. So, I think that we continued to gain traction in reducing our leverage ratios and I think that we are very much on track to deliver to get to our target of net debt to EBITDA over one and half times in the next few quarters.

Well, with this, I would like to turn the floor back to Daniel and we will begin the Q&A session.

Daniel Hajj Aboumrad

Thank you, Carlos. We can start with the Q&A session.

Operator

[Operator Instructions]

[Operator Instructions] And our first question comes from the line of Matthew Niknam from Deutsche Bank. Your line is open.

: Hey guys, thank you for taking the question. Just two if I could, one on Mexico, you see insurance stabilized their solid ARPU growth. Any updates that you can share on the competitive landscape in Mexico? And then secondly, Carlos, on the point on leverage now at 2 turns, you've talked about getting to 1.5 turns in the next couple of quarters. Is that sort of the timing we should look at in terms of a potential acceleration in the rate of shareholder returns once you get to that 1.5 turn target? Thanks.

: Thanks. Starting with Mexico, I think, on overall our results in Mexico are very good. Talking a little bit about wireless in Telcel, I think everything that we have been doing on the network, remember that we launched 4.5G and we are investing a lot in wireless network has been very successful. I think people is using more and more data and that's the reason why ARPUs are going - are going up. So, we to - this quarter we are more or less in the highest level of service revenue, at the same service revenue that we have two years ago, two-and-a-half years ago. So, on overall, Mexico is doing very good. We are also working very hard on the digital transformation, improving the coverage, improving capacity and the market as you know is very competitive, still our competitors are in some things are doing very aggressive promotions, but I think we feel comfortable and with everything that we have been doing here in Telcel quality coverage, capacity, the digital transformations, our stores, our dealers, I think we feel very, very - we have very good support to maintain what we have been achieving.

: And well on the leverage, just to repeat, I will say the next two quarters - after the next few quarters, but yes the expectation is that sometime soon we're certainly rolling probably as soon as the middle of the next year, depends on the exchange rates, so it's very difficult to say exactly when, but we don't really have any M&A of any significance that we're looking at. So that means that once that we get to our leverage ratio, we basically don't have any other way out for our cash other than our shareholder distributions, which is your request. So, yes, once we get to our target I mean the absence of M&A which we're not really looking at, then we will have to think of our shareholder distributions.

: Got it. Thank you.

: Thank you.

Company Name: America Movil	Market Cap: 960,971.26	Bloomberg Estimates - EPS
Company Ticker: AMXL MM	Current PX: 14.54	Current Quarter: 0.270
Date: 2018-10-17	YTD Change($): -2.41	Current Year: 0.939
Event Description: Q3 2018 Earnings Call	YTD Change(%): -14.218	Bloomberg Estimates - Sales
Current Quarter: 258026.200
Current Year: 1019419.318
Operator

Our next question comes from the line of Leonardo Olmos from Santander. Your line is open.

: Hi. Good morning, everyone. My question is on 5G. On last week, we saw some statements about $1 billion in Dominican Republic, being the first one in Mexico to launch 5G and in Brazil and for telecom, Claro is very advanced on 5G tests this week.

cloud is very advanced on 5G that's this week. So, my question is regarding 5G. Regardless if the investments begin in 2019 or 2020 or 2021. How do you see it impacting the long-term guideline of $8 billion CapEx? Can it be sustained? Can it be fitted into that $8 billion or should we expect in those years some type of increasing CapEx?

: So, I think what we said in - in Dominican Republic and everything that we have been doing and what we're going to do, it doesn't change a lot the guidance that we have in CapEx. I think, we can sustain our $8 billion, $8.5 billion in CapEx for the next years and we're going to launch 5G when we feel it's the right time to do it. But we are doing a lot of things to launch 5G. So, we're not - the networks are - are not this way. So, you wait until you decide to launch 5G now. We are virtually - virtualizing our network right now putting fiber to the node more and more fiber all around Latin America. So, all these things that we're doing right now are preparing to launch 5G. So that's not something that we're going to do and then we're going to spend more money. The money and the CapEx that we're spending right now, part of this CapEx is to, we do the photonic and more and more of these technologies that we're doing. So, we - we are not thinking to change the CapEx, okay? We're buying some frequencies in some country so we are as everyday improving

the everyday improving our networks to do 5G in the future.

: Very good. And on the other side and this side of opportunities, also [indiscernible] mentioned, sorry, Brazil's management mentioned about IoT, Internet of Things and opportunities and some specific verticals specifically agri business. So, how do you see the B2B opportunities for América Móvil, either in Brazil as a whole with 4.5G or 5G, do you see in the mix changing more to B2B?

: Well, our new network of 4.5G, I think at the end of the year I -- probably we're going to have 4.5G in all of the countries where we operate. So -- but the ones that we already have like Mexico, Dominican Republic, Brazil, all those places, I think people is using more and more -- more and more data.

So, when we talked the last question about the ARPUs in Mexico is because people say the megabytes of use, let's say in América Móvil are growing around 80%. So, people is using more and more data and that's the reason why people is spending and ARPUs are growing. So, it's very important. The networks in the terms of IoT, we think that we're going to do a lot of things in IoT, we have a good platform of IoT, we have a good platform for the verticals, we are doing the cloud and we're doing all these new services and we are being successful, so we are prepared to do all the -- I think América Móvil today is the company

to do all the, I think América Móvil today is the company that - we are well prepared to be the first ones in our country to do all these services. I think what we need a little bit more is that the countries start to be more digital that we have more e-government or more services in health or more services in other things but we are prepared for everything. Brazil is doing very well in that scenario. So, I think we are in the right way to do that.

: Great. Thank you, Daniel.

: Thank you.

Operator

Our next question comes from the line of Diego Aragao from Goldman Sachs. Your line is open.

Company Name: America Movil	Market Cap: 960,971.26	Bloomberg Estimates - EPS
Company Ticker: AMXL MM	Current PX: 14.54	Current Quarter: 0.270
Date: 2018-10-17	YTD Change($): -2.41	Current Year: 0.939
Event Description: Q3 2018 Earnings Call	YTD Change(%): -14.218	Bloomberg Estimates - Sales
Current Quarter: 258026.200
Current Year: 1019419.318

: Hi. Good morning, Daniel, Carlos and Daniela, thank you for taking my question. Two questions if I may. The first one is a follow-up related to your business in Mexico. You mentioned that prepaid revenue grew almost 11% year-on-year while postpaid expanded by 7% on a yearly basis. So my question is how can - can you share these numbers and how these numbers would compare to the past two quarters? I mean, I just want to understand whether or not postpaid and prepaid are accelerating or decelerating on a sequential basis? Thank you.

: I think we are accelerating a little bit. We have two quarters also with good growth, and first quarter, second quarter are also quarters that we have good growth in revenues in Mexico, and this one is also good one. So, people is using, people is prepare - is - we are the preferred network for the customers in Mexico and we - we are selling a lot of data and

we are selling a lot of data and people is happy with that. We also have the World Cup and people use a lot of data, because of the World Cup. But I think people is happy with the network that we have. We have a very, very good speed, a lot of capacity and very good coverage. So, by far we are the best network in - in Mexico.

: Perfect. So, just to make sure that I understood correctly, so this 11% growth in prepaid, we should expect the trends to continue going forward, right?

: Yes, we think we can expect the same trend for the fourth quarter and we're growing at a very good pace right now.

: Okay, perfect. And my second question is related to Brazil. Can you provide further details on the one-time items accounted in the quarter? I just want to understand where our margins could eventually benefit from lower provisions in the upcoming quarters. And also, if you don't mind to provide more colors on the PayTV revenue dynamic in Brazil, when do you expect for instance to see broadband revenue growth to fully offset the structure headwinds from both long distance and PayTV? Thank you.

: I'm going to talk a little bit about the market in Brazil and the results in Brazil. Óscar can add something, but what I see is if you compare our results quarter - year-over-year, we're growing. I think we have our EBITDA is growing. Our revenues are growing. So, we - right now, we - we - I feel that we have the best platform in Brazil. We're modernizing our network we are modernizing our network, we're working a lot on giving more for LTE as the capacity in more rural areas. So, I think we're working a lot in the conversion network that we said that we're working. We're very advanced on that. And all overall, if you see year-over-year, we're gaining market share in postpaid, we're gaining market share in broadband, we're gaining market share in PayTV even that the PayTV is losing and we have these connections in DTH, our cable TV is also growing.

So, I think in the commercial side, we're doing very well. Even in the corporate business, I think we're doing also very strong. So, in the commercial side in Brazil, I feel very comfortable on that. And in terms of the digital transformation that we're looking, we're investing in our stores, we're investing in platforms, we're working in paper less. So, we're trying to improve a lot all this digital. And we're selling more and more digital. So, we feel that we are working very hard. I cannot see, of course this quarter is -- we don't --- does not have the same growth that we have been having in the last quarters in terms of EBITDA. But in year-over-year, we're growing in EBITDA and we're doing very good.

So, if Oscar can talk a little bit more about the networks and a little bit more about the market share. So, Oscar in Brazil and how do you see the market?

: Sure. What we -- if you do look at the total fixed market revenues are decreasing, I mean the total market is obviously 3.4%. We are decreasing

I mean the total market is decreasing 3.4%. We are decreasing less than the market. But if you look at the breakdown of the revenues in fixed-broadband, we are growing 12% revenues. Of course, in cable TV, we are steady. I mean, the revenues are not growing. We have the impact of satellite TV mainly is coming for the disconnections and the fact of the disconnection is on collection that people could not pay, so we need to disconnect some of the DTH customer, because this product was really focused on the PayTV e-market of the population and as you can see the economy is not very good in the past. So when we look at the economy, the trend of the economy it looks better than the last