South Australia Nov 2, 2015 (Thomson StreetEvents) -- Edited Transcript of Sundance Energy Australia Ltd earnings conference call or presentation Thursday, October 29, 2015 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Carlos Slim Domit America Movil SAB de CV - Chairman * Daniel Hajj Aboumrad America Movil SAB de CV - CEO * Carlos Garcia Moreno Elizondo America Movil SAB de CV - CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Unidentified Company Representative [1] -------------------------------------------------------------------------------- Good morning, it's my great pleasure to welcome you to America Movil's Investor Day. With our senior management and all of our regional directors, we have put together a series of presentations to discuss our strategy and to walk you through results of what we think would be a very promising future. We have -- I mean, it's also a very special time for the company. America Movil just turned 15 years old. So we want to thank you for celebrating with us. In our first panel, we have Mr. Carlos Slim Domit. He has a history of different positions, mainly in the retail and telecom sectors. He's Chairman of the Board of America Movil, Telmex, Grupo Carso, and Grupo Sanborns. Mr. Daniel Hajj, has 18 years of experience in the telecom sector. He became CEO of Telcel in 1997 and leads America Movil since its inception. Also, Mr. Carlos Garcia Moreno, our Chief Financial Officer. He occupies this position since 2001. Prior to this, he held various senior positions in the financial and public sectors. Please come. -------------------------------------------------------------------------------- Carlos Slim Domit, America Movil SAB de CV - Chairman [2] -------------------------------------------------------------------------------- Good morning to everyone. We're very glad to have all of you here. Our last investor day was five years ago. From that time, we were still don't know -- finishing the plaza. Today, we are all here to the -- this week, the [mission] passed 5 million visitors, and it has happened a lot of things since the last time we went -- we worked together. As well in next year, we are going to be 25 years since we took the operation of Telmex. It's 25 years of our start in the telecommunications industry, and I will try to be very brief in giving some explanation of how things have happened in the past, where we are today, what we are going -- where our strategy is focused. Daniel and Carlos will have very good presentation, and then we can go on the questions to be much more in detail. (Foreign Language Spoken) So in 1990, Telcel was born. At the moment of the privatization, Telcel had 35% market share. Telcel developed the prepaid mobile so as you know. Today, the prepaid mobile has more than 80% of the industry. It gives access through its mobile to 80% of the industry. The prepaid mobile was one of the biggest impulses to increase the penetration rate and to give access to people to telecommunications. On 1998, the privatization of Embratel. At that time, Embratel was mainly a long distance company with more than 75% of the income of Embratel was regarded to long distance. Today in Brazil as you know, we have a full scale operation and long distance is not anymore the main revenue stream. But we have been able to develop a huge -- full service telecom, a telecom company. In 1990, the calling party place came in place, and as well was a big boost in increasing penetration rates. (Foreign Language Spoken) We passed from a local company to one of the top multi-national players. We're present in 25 countries, and we active in America, as well in Europe. Going through a history in 2000, it was spinoff of America Movil. And on that time, in 2001, Telmex had a 28% market share in broadband. They're once was on the cable companies. And it has been a history of development of in some of the regions of acquisitions, but most of them, it has been through huge investments and particularly a very strong work within the team, developing all the different services and participating in the full print of telecommunication services. We've completed the footprint in 2017. And we've launched the triple play bundles that todays is one of our most important revenue service growth in the area -- in all the regions. And in 2014, last year, we had the acquisition of Telekom Austria. This is our footprint in America -- (Foreign Language Spoken). We are -- we have our presence in almost all the countries in America. We are having a network that is -- that includes fiber optic cables and includes satellites, that includes big amount of capacity in data -- in datacenters. And we just launched the -- we just completed the America Movil One Cable that goes from the bottom of the sea, connecting 11 countries in America. So our infrastructure is very complete, very broad. And it keeps growing to the requirements that we have within the strategy. Well, we are used to intensive competition. We compete actively in 25 countries. And our goal is to keep maintaining our position as a best option for our customers. We reach our services within platforms for communication, information, entertainment, productivity, connectivity, and particularly inclusion. We have seen the trends of changing the industry. (Foreign Language Spoken) Oh Christ. And we see how the data usage is increasing, and this is something that we keep growing. So the requirements in the CapEx within the network and to gain more efficiencies in the use of the network is going to become -- it's becoming our most important CapEx demand. There are places where data is duplicating every eight months, and this trend is going -- as I was mentioning, going to continue. We're facing challenges, particularly three cases that could be relevant. One is Mexico. As you know, with the new regulation in telecommunications, we assume that it was passed in the constitution. We are working to get out of preponderance so we can be distributing video services. But we have been working with preponderance for two years already. And we can be -- and we are very confident that we can continue to work on preponderance even though the strategy is to -- try to get out so we can start the distributing video [signups]. One of the points in the regulation is that effective competition is put in place. Not only us, but all of our competitors, the regulators have stated that the effective competition is happening in the country. There is no reason why America Movil should subsidize the biggest company in the world and the biggest company in Europe. So we believe that the market is on a stage where the preponderance rules can be -- make with the stage that we are now. The regulators can shoot -- be able to allow America Movil to start participating as well in the convergence. That's something that we are working. And complementing this, we have accomplished all the regulations' requirement. We're investing a lot in growth, particularly in the top markets. And we are as well investing in improving service. We know that in our business service is key, and this has been our commitment always. And it's -- as you will see later, one of our areas -- one of our most important areas. As well, we are working in getting more efficiencies in cost and expenses, and then it will go -- as Carlos go deeper into it. But gaining efficiencies will be relevant for our strategy, for all the key -- the continuous process. Brazil, we're facing microeconomic -- difficult microeconomic conditions. And we are very focused on efficiencies in lowering cost and expenses to increase the penetration rate among the home passes that we have and continue to keep developing the triple play services. And in Telekom Austria, we are setting the priorities. We are working to get a strong focus in the strategy within every country, to focus on the growth of triple play services outside of Telekom Austria, and have this work within each one of the countries on the external strategy and the internal strategy, getting all the efficiencies that we can -- the cost and expenses that we are looking a big potential seen in gaining more efficiency. As well, we spoon off the cell towers, the wireless towers in a company called Telesites. This will create more value. We see is happen sometimes in the real estate market knowing the real estate is inside the retail company that doesn't have value when it's outside. It gains more value. It's very important to industry on having the wireless cell towers in Telesites will have that view on generating value through the company. As well is strategic and fundamental area for our business. So having it on a separate entity, getting updated, getting the maintenance it require, getting services, getting revenue streams for more participants will make -- we feel that we will make it a good business and as well to keep -- not to lose the trend in getting to operate that it requires on the future. So it's a very interesting spinoff that as well you will -- we will walk more into details through the presentations. Then the strategy -- we're developing different views on the strategy. I think the two main of them is what related to corporate and to individuals. In corporate, we're moving from becoming a telecom platform solution, to becoming an IT -- ICT -- full ICT solutions. That means getting more partnership within the service development, that means getting more vertical developments with customers that we are already working. For example, [Samuels], a customer of America Movil -- what other services we can -- in telecommunications, what other services related to ICT we can be developing for a specific customer. In the hotel industry, we were talking the other day how can we develop, for example, an app that can be the control -- remote control of your television, that can be the content of music and video that you want to watch in your room, how can it be the many of the room service, how can it has ecommerce of within the stores that are in the hotel, and as well to be your check-in, your check-out, your rewards for all. So all these kinds of vertical solutions, we believe that there are good potentials within the market to increase these services that we do with our partners. And of course create strategic partnerships, alliances, to be able to develop all these developments that we see in place. On individual, keep building the bundling, bundling more services every time, getting better value added service, and Marco, I'm sure he will go in much detail after his presentation. Keep being aggressive on data plans and promotions without losing the profitability of the company. No, we are not sacrificing the profitability for promotions. We want to go with an intelligent, smart, and particularly good strategy on the promotion outside. But we will keep being aggressive in the promotions. And then alliances as well to keep building value added services for our customers. On efficiency, we've seen different stages where we should be working stronger in efficiency. Network optimization, you know, training of -- keep doing the training within the people. We launched a platform mainly in the foundation, but now it's becoming relevant in the companies to be trained online for different activities. And what we're receiving in the people that came from this program is that they come better prepared that usually with the traditional system. So getting more combinations in training on online capabilities, as well we will be doing this more for the training, particularly the development of the people within the organization. Doing smart promotions. We're passing from subsidizing to be more creative on financing to support the promotions within the customers. Maximize the CapEx returns. Getting more profit from big data, but particularly creating more services within big data. Big data is an area of opportunity that we should be targeting with different levels. One is with the customers, know how can we know better our customers and have better -- or more accurate promotions or services to give them. More usage of big data internally that can help us understand better the network, how it's -- how the behavior of the network and how that can allow to be more accurate in the CapEx plans. And the other is as well to have big data solutions to our customers, to sell big data and analytics solutions to our customers. Continue with efficient administration and keep the final soundness of America Movil. Customer experience -- we see customer experience in three different levels. First is infrastructure. And that means places where my lines get cut off, places where we have intermittence in the connectivity, everything that is related to the infrastructure of America Movil with the service. The other part is physical contact; noise, the stores, the attention -- the attention centers that we have. That requires training of the people require support, requires to have good processes of people that come in these service centers, can be attended fast, can be attended in a good way, and improve -- keep improving the quality of service in the physical contact spaces. The other pat is digital and remote. Remote, for example, are the call centers. The people that is calling and they want their service solved since their first call quickly. So that means that the call -- that the remote service contact needs to be integrated within the corporate organization to be able to solve any problems that the customer have. Digital means basically the internet page and the app. How many of the services that the people goes to the store, to the centers to solve or the call centers, how many of them can be solved online, and then how they are presented in online, how easy for the customer is to get that experience of solving problems within service online. So we're rebuilding all our web page. We're rebuilding as well our app. And we believe that we have that -- that is a very strong point of service solution to our customers. And then it's how we are receiving and attending and be very present within the comments around digital and social media. The last part is the social part. We believe that we are leading a new era, that this is an era that will bring a lot of good things for people, is basing the welfare of the others. And in the combination of the digital solutions within the social progress, that those are the ones that I'm going to focus on in this part within the foundation. We're focusing education, health and employment development. In education, we're working with the digital libraries. We have around 3,600 in Mexico. They are mainly public schools. And this, what we do is we digitalize one classroom within every public school within one of the three -- the 3,600 schools that we have. So students can be connected through the class -- through the school times. On the afternoons and the weekends, we are having the parents and the teachers coming to understand technology getting involved with it. And it has been very interesting way to give access in these communities. We have people trained to teaching how to use it, how to search a web, how to develop more sophisticated programs. And it has been very -- a very successful program. The digital village that we have in downtown has been awarded twice with the Guinness record of the biggest inclusion event in the world. We have close to 240,000 people visiting the digital village. It has from basic training to sophisticated training. And we have many people came to speak -- we have Steve Wozniak and many people relevant within the industry to come and give a keynote speeches, open free to the public for close to a little more than -- close to three weeks. Then on the scholarships, we keep building the -- we keep supporting the program of scholarship. This program is regarded to the top students in the country. So they are the ones that in the future will create, or would be the leaders in the different activities they are regarded. On academic, we are connecting universities, public and private, from Mexico, somewhere, universities in Central and South America and Spain. And the idea with the academic is that they can create this link to share content, to share if a teacher is going -- a relevant teacher is going to give a class in one university. The others can be connected to it or can watch that class on demand. And create an internal hub that where investigators can be carrying information of their investigations. [Cam Academy] in Spanish. We've already reached 1.5 million students and teachers. And we believe that the potential of Cam Academy, it's still very strong -- we keep adding courses and we keep adding more contact within the universities to start training more particular training within where the job employment is -- the offer of -- the job offering is also we can close the gap between education and getting a job. And then we have as well the deal with the MIT through edX, where they have the contents of the MIT, Stanford, Berkley and Harvard available. All held -- we're working many different programs. But particularly the ones that are related to telecommunications, we're developing apps for measuring your -- if you have diabetes for example, it has all the measures that you require, all the different advices that you need to know about it and the follow up. That can be connected to doctors so they can give you more feedback on what you should do. We're doing apps for epilepsy, we're doing apps for all other people that live alone, you know, that they have an emergency button, that they have a localization, that they have as well the possibility of sending pictures if they're required, et cetera. We have an app for kids regarding nutrition and we are developing some more strategies. We're working with public hospitals to digitalize, to have their clinical files developed, to have a moral automation process internally so they can be more efficient, and as well to have a better balance and management of the inventory of beds they have, of the different diseases they are taking care of. So going into full scale -- into full digitalizing of the health systems. And then employment. Training for jobs of (Foreign Language Spoken) is an effort that was launched some months ago, where you can be trained -- the format of Cam Academy of videos, study materials and exams with different levels and different stages, to be trained for, right now we have around 49 different technical jobs, technical positions. You can be trained for a job in three months, you can get certified, even though these trainings still doesn't have an official recognition, it's gaining recognition from the companies. We are working with some companies to do the training together. I give a quick example. Waitress for example, it's a training course that was developed together from Sanborns and [Intelnics]. And the people that we have -- that Sanborns has been hiring from that program has close to 70% less turnover than that one that was hired through the traditional method. You can as well have the -- as well see who are your classmates. You can be sharing content with them, and the next stage will be as well to try to promote within them to create the small companies and start developing businesses around it. But right now for technical services, we have more than 500,000 people being trained. From those, the ones that [Ariacalicab] been hired the demonstrations of the course are getting very good results and we believe that this is a problem that can be expanded fast, and that can offer job opportunities to many people. As well, I believe that we will go deeper into it. And I will allow the microphone to Daniel and we will after be ready for any questions that you might have. Thank you. -------------------------------------------------------------------------------- Daniel Hajj Aboumrad, America Movil SAB de CV - CEO [3] -------------------------------------------------------------------------------- Thank you Carlos. Good morning everyone. I want to welcome you to our Investor. America Movil is a dynamic company, always committed to its customers and to its shareholders. The last five years have been truly transformational. We have become an integrated carrier, expanded our frontiers and led our customers to the digital era. The last time we met, we were in the process of integrating a number of fixed line assets through Latin America including Telmex, [The Link], and [Net Servicios]. We were transitioning from being a mobile company to being an integrated one. With all our investments, we have achieved a fully convergent platform. Our objective to become an integrated carrier through Latin America has been accomplished. Furthermore, we were able to expand our footprint to Europe where new -- where we now control Telekom Austria, operating in Austria and six more countries in Eastern Europe, where we want to replicate the strategy we follow in Latin America. This effort requires a strong investment commitment to develop the telecom infrastructure in the countries where we operate. We increased our pace of capital expenditures. Today, I can tell you that our five year, $50 billion investment plan has been completed. In only five years, we doubled our fiber optic network to almost 600,000 kilometers, with most of the growth dedicated to urban areas. Since 2012, we've began offering 4G LTE services in several countries. Today our 4G networks are the most advanced networks in Latin America. We've doubled the number of cell sites to 134,000 with more than 60% of them connected to fiber. And we increased the number of home passes by 16 million to reach 56 million houses in Latin America. We launched three satellites, reaching a total of eight. I have a short video that I will show to you. It's a two-minute video. (Video Presentation) -------------------------------------------------------------------------------- Daniel Hajj Aboumrad, America Movil SAB de CV - CEO [4] -------------------------------------------------------------------------------- Datacenters were expanded to 18, all of them through the region. And we installed a new 70,000 kilometer submarine cable that stretch from Miami to Fortaleza in Brazil, with 12 landing points. (Video Presentation) -------------------------------------------------------------------------------- Daniel Hajj Aboumrad, America Movil SAB de CV - CEO [5] -------------------------------------------------------------------------------- America Movil has built the best telecommunications platform in Latin America. Our investment program could not have been more timely. Shortly after we initiate it, we began to see sign of decline in our legacy mobile business. Our ability to massively deliver new data services was key in allowing us to transitioning from the old business lines to the new value added services. While voice and SMS traffic peaked in 2013, data traffic has grown exponentially, and has plumped 13 faults in the five years. On the fixed platform, we observe a similar phenomenon. As voice traffic declined, we turned toward data, pay TV and another value added services. Our new platform completely changed the structure of our revenues. In 2010, our voice revenue were 73% of the total, and now account only for 47% of our service revenue. While data services and pay TV increased at a dynamic pace. In only five years, we've transformed America Movil into a new company, focused on a whole new set of products and services. The platform we have built will be able to support the surge in the demand for data services that we expect will take place over the next few years. But we need to continuously upgrade it. It will be key to be the best option in the market as regards as the speed of our networks, their coverage, their capacity, and their overall quality. We have a modern platform to allow us to offer a wide variety of commercial plans. And our prices give our customers the possibility of being connected and choose a plan according to particular needs and specific budgets. It was not very long ago since we all have our first smartphone. In earliest stages, they were very simple. They had email capabilities and not much more. The smartphone industry really began to change with the introduction of the iPhone in 2007, with a bigger screen and a revolutionary interaction model. This gave a hint to the whole industry of what phones should be like in the future. In 2008, when the iPhone 3G has introduced, there were already several handset makers coming to the market with handsets including similar features. The most important ones were a real internet browser at speeds that could actually compete with a computer. And a number of applications that were available for the client in an instant go to market. The device that you have today in your pocket are easily 100 times faster than the first smartphones. And the use of that you give to them has evolved as well. What initially seems to be an expensive toy, today is your primary connection to the world. There is a great opportunity in our regions to further increase the penetration of smartphones. Our clients now can choose from more than 100 different models. You'll still find the fancy at high prices, but also have entry level smartphones below $80. As handset prices decline, data will come -- will become a more relevant service in our regions. Handset vendors are well aware that most of the growth will be coming from developing markets. This means that the race to gain share in the next billion would be with more affordable smart devices. Some carriers can give them a big push. America Movil has, along with some handset manufacturers, developed a specific product tailored for the user in our region, which enables us to reach the $80 price point. If the smartphones are deem to be used by everyone, then everyone must have high speed internet coverage. Going forward, in addition to smartphone penetrations, we see massive growth in the connect -- in other connected devices like wearable, cars, connected homes, among others, the internet of things. One person will have several connected devices through one single user ID. Therefore we have made in the last few years to integrate our platforms have result in tremendous efficiencies. Yet far from what we think can be achieved in the medium term. Our first task was to converge to one single backbone from multiple networks, where they used to be fixed, broadband, mobile and corporate network to name a few, today, single converted all IP networks remain. The next priority is to move to software-defined networks and network function virtualization. By further virtualizing the physical network elements into our software layer, we're able to automate the management of our whole network stack, reducing the complexity and cost of our network's operations. With a convergence software defined networks environment, we are able to redistribute traffic automatically, optimizing our capacity and provide agility to deliver service in a shorter time to market. We're moving away from the world in which the physical location of a single server or router is important, and into a world in which the network elements are hosted in the cloud, fully accessible, programmable, remotely, and at the fraction of the cost and time. To manage the continuous growth in our mobile broadband traffic, we have increased the densification of our networks through small cell solutions that thing to reduce congestion in hotspots and have provided better in building coverage. We have modernized our mobile access network infrastructure with the latest single run technologies which will provide their flexibility to continuously migrate from 2G to 3G to 4G. We continue to lead the way in the speed we offer to our customers. We recently launched a series of LTE advance pilot in Brazil and Mexico. By using the latest technologies, we have been able to reach 200 megabits per second. In the next few years, we deploy 5G -- we will deploy 5G, to connect the avalanche of devices that will come from the internet of things at a lower cost. We're moving away from the prominence of linear TV and towards more on demand and catch up video consumption, on any device, what is traditionally known in the industry as TV everywhere. More than 50% of the traffic in our fixed platforms is video, and we are the number one broadband provider in almost every country in Latin America. In 2012, we launched Clarovideo, our OTT platform for video. We have a library of 34,000 titles from the number of different producers. This has been a great complement to our pay TV offer, and a very attractive product for everyone that wants video on demand. As we lead in video, we developed Claromusica, with 25 million songs. These platforms have given us some leverage to cross-sell with our more traditional services, increasing value, loyalty, and reducing churn. There are a number of services hosted I the cloud that we just started offering. These productivity services will give a big boost to our economies. We're very well positioned to capture growth in this segment. We know who the clients are. We speak the same language. Another area of work is mobile banking applications. In Latin America, mobile penetration is more than four times greater than credit card penetrations, which is barely growing. We consider this on serve market as a great opportunity. And in partnership with banks, developed transfer. This is the best way to secure store money. Make mobile payments. Transfer money and when needed, cash out your balance in thousands of establishments and ATMs. This big value -- the big value of this is that even the most basic phones are compatible to our work services. In the end, all of our efforts are focused on keeping our customers delighted. America Movil and all of its runs stand for reliable service. With increasingly demanding customers and companies competing for their attention, we are capitalizing on our existing relationships, but also utilizing analytics to understand customer needs and opportunities. As we learn even more about our clients, we make targeted offers and quickly change processes as needed. We are focusing on making the experience seamless for clients in all of their interaction with our company, for personal attention to self-service. Let me end with the following thoughts. With a most modern infrastructure and with a reach and unprecedented catalog of products and services, America Movil is the best position company in the region. Today, we provide full service and integrated solutions to all of our clients. In the residential or massive market, with triple and quadruple play. In the corporate market, with vertical integrated solutions for telecommunications and IT services. And in the small and medium enterprise with convergence services, that cloud computing allow us to provide at low cost. I am convinced of the huge opportunities ahead, where experienced profound change, and change that will produce a new society with everyone connected. This forced us to remain creative. America Movil is responding to many challenges. We have a chance not only to connect society, but also to introduce its path towards the full benefits of digital inclusion. We live in an era of good technological fortune. I am sure we can do much good through this use, and we're grateful to you for being our partners in this endeavor. Be sure that America Movil is and will remain a key player in this transformation. Thank you for your attention. -------------------------------------------------------------------------------- Carlos Garcia Moreno Elizondo, America Movil SAB de CV - CFO [6] -------------------------------------------------------------------------------- Good morning everyone. First of all, thank you for attending this seminar. As Carlos said, it's been sometimes it's we last -- has such a combination of investors, bankers, analyst, friends overall, that are actually with us. Well, I'd like to focus my presentation on diversification. Diversification has been a key theme for America Movil all throughout our history. And I would like to elaborate on this. We were already five years ago, when we have met, a well-diversified company. But we have become even better, diversified geographically as Carlos and Daniel mentioned. We have reached new frontiers. We have become more diversified by [business last] already both of them elaborated on this. But again, like to focus on what this has done to our numbers in the company. We have been a very well diversified company by funding, by the funding of our debt obligations. So overall, diversification means that we have had greater revenue stability, and diversification means that we have become a better credit risk. So again, before I go on and look at the point to point comparisons, let me just make some important comments on the recent FX volatility that you will see in the next slide. Here, we're showing what has happened to the currency, demand currency that we have in the Latin America over the last five years. As you can see for most of the time, it was relatively stable. But we have had only a very significant increasing volatility over the last year in particular. So you see some currencies -- orange one is the real that had been devaluing from its high point five years ago, but devaluing steadily over time. It has accelerated recently. You see the euro in green, which today have roughly the same value than it had a year ago or two years ago. It had gone up a little bit over the last quarter, but it's now back -- it's practically identically flat with the peso. And then you see over here the dollar which has been the currency that has gone up against most in the last few years. Well it is the case at America Movil we have -- we're operating in 26 countries. We manage revenues denominated in 19 different currencies. Some of them probably not as important as you would think. And you can see this in the next page. Because they are essentially pegged to the dollar. You can see this is for the last year, we have had the largest FX range. You can see in orange, the currencies of Central America and countries, the ones that are not properly dollars. They are almost dollars. They could do movement over a year, have been 2% than others. So anyway, let me begin with the comparison for the period and [lagness]. We see the service revenues. Here, we are presenting the numbers in Mexican pesos. We are talking about loss. We are looking at constant exchange rate, and we are utilizing the average exchange rate for the period. Because if we use only one of things five years ago, then things look very good in Brazil. If you look at the exchange rate only of today, things look really bad in Brazil. So that changes a lot the composition. So what you're seeing here the average exchange rate for the period. And everything is at constant rate and translated to pesos. Two things to look at in revenues. You have had three blocks that have had very significant and very consistent occurrence in service revenues. They were clearly Brazil in orange, the rest of South America in green, and the U.S. in yellow. They've been very, very consistent for quite some time, expanding their revenues, all while the revenues in Mexico had been fat flat. Fat flat, but not declining, unless until recently, and very slightly so. You look at the next slide, we see the EBITDA by region. It's a little bit as with the revenues. In Mexico, it's been very stable in spite of all the situations we've been in. It's been fairly stable in Mexico and we have seen increases -- consistent increases in South America, and then more recently also in Brazil. So when we look at the point to point comparison of 2010 and 2015 in the next slide, you will see that in the middle chart, we're not including yet Telekom Austria. But you see that the share of Mexico in blue in revenues came down from 39% to 31%, Okay. So there's been a very significant reduction in the weight of Mexico in our revenues. But very interestingly, the size of Brazil today is -- at these exchange rates is very much the same as that in Mexico. In fact if you focus in one of these last before, we would have seen that in the last two or three quarters, the revenues in Brazil would have been identical to those of Mexico. So again, very important to correct for all of the FX noise. Today, Brazil at normal say, exchange rates would be the same size as Mexico. Really the big change here is also the share of revenues in South America, going from 19% of revenues in 2010 to 25% in 2015. Really if you look at the right hand chart, right hand bar, you see that with the consolidation of Telekom Austria, we see further declines in the weight of Mexico. Mexico now weighs less than 30% of services revenues for America Movil. We see the same situation with EBITDA, rightly anything, even more marked, because the reduction in the contribution of Mexico to EBITDA went from 51% in 2010 to 39% before we consolidate Telekom Austria. And only 37% after the consolidation of Telekom Austria. So again, Mexico now accounts for less than 30% of service revenues, and not much more than 1/3 of EBITDA. Again, the other big increases have been the rest of Latin America, of South America in particular, with from 20 to 25, and Brazil that is now growing very rapidly from 22% to 23%. In the next slide, we'll see not a geographical diversification, we see at how the business has changed by business lines. The voice -- I mean, the blue line refers to voice revenues, both on the fixed and on the mobile platform. And a lot has happened again from 2010 to 2015. So we always had a reduction of roughly 25 points. It had already been noted by Daniel. But most of these reductions was made up by mobile data. Mobile data is the line that you see here in orange. It picked up most of the decline of both revenues, Okay. And the rest of the decline was particularly completely made up by pay TV which was again a new business line. So Pay TV entering the picture in a big way. And the next slide, we see again point to point, you know, what happened to service revenues. So by 2015 and before we factor in the reductions that were attributable to regulatory measures and probably some natural things as well like in -- this is the case of interconnection revenues, long distance, roaming, et cetera, all of those are shown separately. But before we get to that, revenues would have increased 43%, 43% in this period. Most of the growth of revenues, 75% came from data services. That's mostly mobile, but also includes fixed. And then pay TV accounted for roughly 20% of this increase that you see in the [pitch]. Interestingly, there was still some increment that was attributable to both revenues. But then we had to factor in the declines mentioned, the connection, long distance, roaming, and then total revenues point to point and then off increasing by 30%. But again, these regulatory measures were, and one would say one-off. They took place in several countries. Interconnection happened in at least four or five countries. So we are not likely going to see too much of these going forward. Now what happened with our cost position? The cost position interestingly, before we look at taxes, cost and expenses increased practically the same as service revenues would have. That is 42%. It's practically identical, the increase of service revenue and increase in cost. But we now have a new cost element in the family which is the cost of content, and if we haven't had this cost of content already, we would have had lower cost -- lower increasing in cost and expenses. So we would have had a bit better margin. But you see that most of our cost lands were very much subdued in our cost of service, cost of operating and maintenance, subscriber acquisition cost. They were all very limited, only in the neighborhood of 30 billion pesos overall each one. So again, very good cost control. And we are talking again about an area that looks at 19 countries, which is basically Latin Americano. Now let me look at with some more detail and some of the cost and expenses. We have a methodology internally that we have developed. It has been the best that we can use for benchmarking with different operations. It's very difficult to benchmark even companies when they have different market shares, different sizes, they are in different countries. So what we have done is that they would look at what we call their own revenues. This is the revenue they are left with after they make payments to other operators. So if you have a mobile call coming in from a client, that's your revenue, but then the money flows out because you have to pay interconnection to the other company, and then you are only left with the margin. So we look at this on revenues measure. And what we [issue] here is that the blue line which is the cost of service has actually been declining. We were very flat, very steady and has been declining in the last couple of years. You see subscriber acquisition cost in orange, very stable throughout the period from point to point. They didn't change at all relative to our own revenues. And the only line that is increasing a little bit is the green line which is the cost of the content, the content provider, Okay. To the right you see administrative and operating cost, again, relative to our own revenues. They were flat and increased together, less than 1% in the period. So very, very good cost control where a company that is managing so many operations. So point to point, and then in casual -- from a casual perspective, we increased 12% the cash flow after including Telekom Austria, which you will see we are now doing here. The main detractor from our cash flow was the increase in working capital that you see it's 16 in the orange bar. It's the main [subtractor], but this has to do practically with this year, and this has to do with as CapEx that has come down. The accounts payable that we had, come down as well, Okay. So that's something that happens when you are moving down from a high level of CapEx to a lower level of CapEx. But that is not something that we should have around going forward. Now from here now on, I'm going to not to talk about the constant exchange rates and the figures and pesos. I'm going to look at nominal values, because we are going to look at cash flows. And we need to know exactly how much money we will have at any point in time, no abstractions needed. So here, I'm showing you the CapEx to service revenues we have had in America Movil. The orange line looks at the CapEx on infrastructure. The blue line looks at the CapEx including the cost of the spectrum that we have acquired. So you see, the orange line has been trending down since two years ago. It reached a peak of 18.4% in 2013. It's coming down. And we expect it to continue to come down. It will probably be below 15% or around 15% going forward. So this is very important because it's a very substantial determinant of our free cash flow. And as we got spectrum, this year was important. Last year was important. We had into by spectrum in Brazil, importantly our cantina, in Ecuador, in other places. But this is not going to be consistent expenditure in the future. In the next slide, you see what I was referring to in terms of the free cash flow. When you look at 2010, last time that we were here, the CapEx was absorbing approximately of the operating cash flow that we had. So the difference -- the orange line which is the free cash flow, what we are left with after CapEx, was quite substantial. And then this is narrow substantially. Why is this narrow? Because our real CapEx went up significantly. And now we are today more or less at the same level than we have had for most of this period. But then again, to the extent that we continue to reduce CapEx as I mentioned before and to the extent that we continue to maintain and grow our revenues that we're offering cash flow, we should have more discretionary cash flow to the (inaudible) 1:00:20.4. And this brings me to the next slide, which is some interesting slide. We are showing you the uses of funds, how have we allocated our funds. Everything that is above the black line is the actual use of funds, to the extent that there's anything below, that's net new debt, Okay. That's net new borrowings. So what you see here is that in 2010, 2011 and 2012, we spent a very significant amount of our cash flow in acquisitions. They were the payment for Telmex, [Telinks], [Net Servicios] and so on. And eventually also KPN and [Telecombust]. We had stable distributions to the shareholders. They came down a little bit in 2012. But we had to also resort to borrowing, Okay. So our net debt as you can see in the negative -- [DBURS] and they are negative, those were increases in net debt. Last year, we practically didn't have anything in acquisitions. So the cash flow was utilized solely for distributions and a little bit for that prepayment. And this year, we are back in the blue, which is I'm showing you it here in orange, we're reducing debt, Okay. So we have maintained the distributions to shareholders. We have actually increased them this year. We're going to show you in a moment. But this is the first year in this last five years that we are paying down debt in important fashion. That's how it will continue in the next several years. That's what we are expecting. We're adding shareholders these distributions, as I mentioned. They average 63 billion pesos per year. This year is going to be the second year with the largest payments. Most of them in blue have been share buybacks. But we have obviously done dividends, and this year as you know, we paid an extraordinary dividend last month. So all together, we have been able to maintain dividend yield, or distribution yield of 6% from our shareholders, 6.1%, the average for the period. Now let me talk a little bit about the third element that I mentioned at the beginning, the diversification of our funding sources. We have always believed that it is important never to rely only in one market. Capital markets tend to be volatile and at least uncertain when they would be there for you. So it's important to maximize the number of options that a company like America Movil has available for funding. We have always thought that refinancing and having access to capital is key for any company but particularly for one of this size. So today we have other significant funding in pesos, dollars and euros. They account for roughly 80% of our funding. We have gone to the sterling market. We have done funding in yen, in Swiss francs, in local currencies, in Chilean pesos, in Colombian pesos. So we have gone to several markets, is very important for all of us. And we intend to maintain a presence all throughout in these markets. When we borrow, we need to make sure that we have access to the capital. Managing the foreign exchange risk is a different matter. That is something that we need to do always taking into consideration the structure of our revenues and our EBITDA. I was mentioning at the beginning we operate in 26 countries. We see revenues and EBITDA in 19 different currencies. And if we look solely at the top two, which are dollars and euros and their currencies that are essentially pegged to them, we can see that almost 1/3 of our revenues is made up in dollars and euros. And roughly 22%, and this is in the last quarter by the way, roughly 22%. But we think that on average, we'll be closer to 25% of our EBITDA, is denominated in these hard currencies. So that's probably an element that we take into consideration when we manage our FX risk, which we do actively. Refinancing risk is often underestimated. And it comes to bite people at the worst possible times. And we have seen already some of these last month for many issuers, coming from emerging countries. But not only from emerging countries. So it's important to have a good distribution of your maturities. We have an average life of our debt of more than eight years. The average maturity that we have is $2.4 billion per year. $2.4 billion for a company that generates EBITDA give or take of $20 billion equivalent. So we are in a very good financial position. Because of our debt has been trending down not surprisingly, but it's now at roughly 4%, that again includes all the derivatives that we have in place. So far of this debt has been denominated in pesos at higher rates. Some of these is denominated in other currencies at lower rate. The average is 4.15%. The next slide shows us our leverage ratio. As you know, we have wanted to keep it at one, one and a half times. We have been covering a little bit higher than that. But we intend to keep our target. We intend to keep the one and a half times that with the target, and we are going to be reducing our debt correspondingly in the next several quarters. Give me the case already that we have the lowest leverage of any of the measured telecom players. Here, we're showing you information for your third quarter for most of these players. But we have as I said the lowest leverage ratio, which is very important in having us keep the best ratings -- if you can show the next slide, please. Here, we're showing you particularly the major telecom operators that I can think of. And you can see -- I mean, we are the only one that has all ratings in the single A category. All ratings. By Moody's, we have a two notch difference relative to the next in line, Okay. So it is very important. We know this is a special situation for America Movil, and we are a company that very much about our ratings and we tend to hold onto them. But of course if you look at the next slide, it is not only -- it is not only the leverage ratio that the rating agency looks at. They look at the average life of debt, the maturity profile, and then look at the overall diversification of the revenues that I have mentioned before. And they look at the backup liquidity facility that [like] us. Well today in America Movil, we have committed facilities $4.6 billion, and an additional EUR1 billion committed at the level of Telekom Austria. So we have good access to capital. We have good access to liquidity. And we have good credit ratings because of that. Just to finalize, you know, I'd like to say, you know, America Movil, clearly a very, very well diversified company, as I think it's evident to you. It's financially strong. It is committed to its ratings. And it has been committed to its shareholders. We have loyally been paying shareholder distributions, and we have -- and the currency is single most important focus that we have had over the years. It's a company that is disciplined and consistent. And you can see that we have a strong focus on cost. We have all been conservative, which is not an overstatement. You know that we always expense out most of the things that other operators tend to amortize over the years. So we are very, very conservative. It's a company that you've seen with Carlos, with Daniel, that has been very innovative. And it's a company that has been able to navigate very stormy weather financially and otherwise. So this is a stable company. And it's a stable company that's growing, it's built at the best platform in the region, and it's going to build a similar platform in Europe, in Eastern Europe rather, we have. So I think it's -- we'll have a lot to talk about next time that we have a five-year period -- five years from now. I hope -- we met you before, but if not in five years, we'll have a lot to show. Thank you very much. -------------------------------------------------------------------------------- Unidentified Company Representative [7] -------------------------------------------------------------------------------- Thank you. This ends the webcast portion of our presentation.
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