América Móvil, S.A.B. de C.V. (AMX) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the América Móvil Fourth Quarter 2014 Earnings Conference Call and Webcast. My name is Winnie, and I’ll be the operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now turn the conference over to Daniela Lecuona, Investor Relations Officer. Please proceed.

Good morning everyone. Thank you for joining us to discuss our fourth quarter results. We today on the line, Mr. Daniel Hajj, our Chief Executive Officer; Mr. Carlos Garcia Moreno, Chief Financial Officer; Mr. Oscar Von Hauske, Chief Operating Officer; and also with us, Carlos Robles, Chief Financial Officer of Telmex.

Good morning. Thank you for been in the call and Carlos is going to make a summary of the fourth quarter results of America Movil. Carlos García Moreno: Thank you, Daniel. Good morning everyone. While the fourth quarter of 2014 was characterized by significant foreign exchange volatility throughout the world alongside increased expectations of interest rate hikes this year by the FED as U.S. economic activity appeared to gain momentum. Emerging market currencies suffered vis-à-vis the U.S. dollar, as did the euro, the latter on expectations of quantitative easing by the European Central Bank. The U.S. dollar rose 12.6% in the quarter against the Mexican peso; 13.4% against the Brazilian real; 24.2% versus the Colombian peso and 13.6% vis-à-vis the euro. We ended 2014 with 368 million access lines, 8.4% more than a year before, reflecting the consolidation of Telekom Austria. Altogether we had 289.4 million wireless subscribers, 34.3 million landlines, 22.6 million broadband accesses and 21.5 million PayTV units. On a pro forma basis, the organic growth rate of our access base was 1.2% relative to 2013 with our fixed RGUs expanding 6.5% and our wireless subscribers contracting 0.2%, after net disconnections of wireless subscribers toward the year as we move to standardize churn policies in the region. Our postpaid subscriber base actually rose 5.1% in the year with fixed broadband accesses increasing 8.6% and PayTV accesses rising 10.1%. Brazil was our largest and fastest growing operation in the quarter up 5.7% from the year before to 107.2 million accesses. As you can see in the chart, it’s the largest operation we have in terms of total access. Our fourth quarter revenues totaled 229.3 billion pesos, 2.7% more than a year before in Mexican peso terms, bringing to 883.8 billion pesos in total for the year. Pro forma, assuming the consolidation of Telekom Austria have taken place at the end of last year. At constant exchange rates, and this is very important, at constant exchange rates service revenues were up 3.2% in the quarter with growth rates decelerating in some markets, partly as a result of the introduction of the regulatory measures including lower interconnection rates. In the Americas, the rate of growth of service revenues ended up being 3.9% in the fourth quarter, in Europe, it ended up being slightly negative, minus 3.9% in the same period, but partly have to do with the booking of extraordinary items a year before in the days and the phasing in of new accounting policies on revenue recognition. At 14.6%, mobile data revenues continued to be the more important driver of growth, followed by PayTV, at 12.7%. Fixed broadband revenues grew 12.0%, while voice revenues continued to deteriorate in both platforms, partly on account of the regulatory measures mentioned above. The South American block continued to lead in terms of service revenue growth, with 5.6% in the fourth quarter, followed by Central America-The Caribbean, at 4.5% - Central America-The Caribbean block has been improving also at the year and they ended up having a very, very good quarter. In Europe, service revenues were down. Belarus had a positive contribution for the Group, albeit at a lower rate than it used to because of the crisis in Russia. Consolidated EBITDA totaled 67.7 billion pesos in the quarter and 279.2 billion pesos for the full year. At constant exchange rates it was up 1.9% with that of the Americas expanding at a 4.4% pace. The EBITDA margin for the period stood at 29.5% of revenues, reflecting the fact that in most operations there were margin improvements relative to the prior year. Again, this is important in most operations, we saw margin improvements in local currency terms throughout the year. EBITDA was affected by a one-time non-cash charge of favorable devaluation of pension obligations of civil servants in Austria, which amounted to 1.2 billion pesos in all and one-time cash cost of sale with the fulfillment of certain obligations under our concession in Colombia, including the distribution of tablets. Those charges amounted to approximately 600 million pesos. Our operating profits were down 11.2% in Mexican peso terms, as depreciation and amortization charges rose 12.5%. Relative to revenues, these charges went up nearly by 1% point to 14.8%. Depreciation and amortization charges include 2.3 billion pesos for amortization and depreciation of intangible assets, brands and plant and equipment associated with our European investments. This is important, since we consolidated Telekom Austria and with the – the booking of the investments in Europe based on the fair market value of assets we need to depreciate the assets amortized the brands and goodwill et cetera. So, those are the things that need to be considered. We raised a net profit of 3.6 billion pesos in the quarter, it was down 77.8% from the prior year, reflecting partly the abovementioned decline in operating profits but also our comprehensive financing costs. At 27.8 billion pesos, they were 42% higher than a year before on account of foreign exchange losses. Such losses are unrealized losses that accrue on the currency exposure of our debt, which has a 12-year average life with most of our currency exposure centered in euros. Our net profit was equivalent to 5 peso cents per share or 8 dollar cents per ADR. We finished the year with a net debt of 533.4 billion pesos, up from 518.6 billion pesos a year before assuming we had consolidated Telekom Austria then. It was equivalent to 1.7 times Last Twelve Months EBITDA adjusting for our currency exposure, this is important. Throughout the year, we funded capital expenditures in the amount of 149.7 billion pesos and distributed 52 billion pesos to shareholders, including 35 billion pesos via share buybacks. In addition, we acquired minority interests and subscribed new equity in the aggregate amount of 10.2 billion pesos. Furthermore, we contributed 16 billion pesos to our pension funds. So that’s what for the year as a whole. But in the fourth quarter, in flow terms, our net debt increased by 13 billion pesos, having covered capital expenditures of 58 billion pesos in the quarter including spectrum payments of nearly 15 billion pesos and having made a shareholder distributions of 18 billion pesos. This was the second dividend payment close our share buybacks of the month, of the quarter. And on top of that, we had acquisitions of 5 billion pesos. So, again, to sum it up, in flow terms, in the fourth quarter, we had an increase in net debt of 13 billion pesos and this mostly to do with CapEx and shareholder distributions and the CapEx have the payment of spectrum as an important component. Well, with that, I would like to pass the call back to Daniel Hajj. Thank you.

Yes, thank you, Carlos. And we can start, please with the questions.

[Operator Instructions] Our first question comes from Amir Rozwadowski with Barclays. Please proceed.

Thank you very much for taking the question. I was wondering if we could dive a little bit more into the competitive landscape in the market of Mexico. Clearly, we’ve seen some recent developments take place where AT&T plans to invest in the marketplace. I knew you folks have obviously been working in order to meet various regulatory dynamics around divesting certain assets. We’d love to hear your latest thought process on the competitive environment, where you see it going over the mid to longer-term with the potential entrance of a new competitor, one that you may know well and what progress if any has been on sort of sort of the ability to meet some of these new regulatory dynamics? Thank you very much.

Thank you for the question. Well, talking a little bit as you may know, while AT&T has been – they already purchased Lusacell and they are in the process of buying Nextel they announced that they are going to buy that and I think they are in the process of closing the transaction. So as you may – as you are saying the competitive landscape in Mexico is changing, what we are going to – what we are seeing right now is that, there is a new competitor. There are two companies merging in one and this new competitor AT&T of course is going to invest and it’s going to develop the telecommunications in Mexico. We are sure of that and what is going to happen is that, everybody is going to invest more and everybody has to have better networks, better costs, and I don’t know exactly how those AT&T is coming. What AT&T today, if you see Lusacell and Nextel are the second company in the wireless in terms of revenues. They are bigger than Telefonica in terms of revenues smaller in terms of subscribers. So, what we are seeing as they will sell is that we are going to have more competition and that we are going to have a competitor that is going to invest more so what is going to force is that everybody is going to need to invest. I think Telefonica is need to invest more also. So, I think, is what we are going to see in the picture. On the process that we are making, we are still in that process. What we want is and what we said last time is that, what we are looking is, we are going to divest some – we are going to divest assets of America Movil. What we want is, first, that the price would be a market price of that sale and the second is that we could be out of being that preponderant player. So, those are the two things that we are looking. We are still in the process as you could see the competitive is changing. So we are looking also other alternatives of how we can divest that. So we are in the process. Nothing to say more than that and still looking the alternatives to divest and to reduce our market share to be out of being a preponderant player. That’s more or less what we can say on that.

Thank you very much for the incremental color.

Thank you.

Our next question comes from Vera Rossi with Goldman Sachs. Please proceed.

Thank you. Good morning. Could you talk about Brazil and the impact of the macro environment in the fourth quarter results and what do you expect for 2015, especially in ARPUs or reduction of subscriber growth the credit concerns, et cetera? Thank you.

Hi, Vera. Well, in Brazil, talking a little bit about Brazil. I think, we feel comfortable about what we are doing in Brazil. This – we, last quarter, in fourth quarter, we finalized, let’s say the integration and merged of all the companies in Brazil. I think that was the last steps to have one company in Brazil. We have been doing that in the networks, in the commercial area, in all the operations. So, I could see that, in Brazil, we feel comfortable. We are investing in Brazil, the last three years and you could see that the results in broadband, in fixed, in TV and also in wireless, we are gaining traction on the market. So, well, Brazil as economically it looks like it’s going to be a little bit more – we are going to have a slowdown in Brazil for this year. Both we are going to be very close to the market and see if we still have the growth that we are having and we are going to still investing there and when we see that, we’ll still have a little bit more of a slowdown on the net gains and on the market, then we are going to reduce a little bit more our CapEx. Data in wireless is being strong with us. We are changing a lot of feature phones to smart phones, 2G phones to feature phones. So, we are moving in a good pace in Brazil. We feel comfortable in Brazil. Carlos García Moreno: I think, the only thing I would say Vera, as Daniel pointed out, I mean, the country is already in the middle of a slowdown. If you look at the EBITDA for last year, expectation, that it didn’t grow very much, at all, this year, the expectation in the market is that it will be also close to zero, probably below 1%. So that’s obviously something that as Daniel said, we need to pay a lot of attention to be very close to the market. But having said that, irrespective of the fact that the overall economy is – it seems that would be weak. I think that our competitive position in the country is especially strong and it has become strong highly because of the investments that we have made and are continuing to make. Thanks.

And last, I think a lot of our CapEx, part of our CapEx in Brazil is related to the sales. So, if we have a sales, then we are going to have more CapEx. If we have a slowdown in sales, then our CapEx is going to be less. So, what – as Carlos is saying, we are going to be very, very close to the market on taking decisions as we are seeing the develop of the country.

Okay. Thank you.

Our next question comes from Rodrigo Villanueva with Merrill Lynch. Please proceed.

Thank you. Good morning, Daniel, Carlos. My first question is related to the elimination of domestic long-distance in Mexico. I was wondering if you could share with us an estimate of the potential impact that this could have on AMX’s Mexican revenues and EBITDA in 2015. And the second question is regarding the MTR cuts that we saw, that you will be paying to your competitors beginning 2015, these termination rates were cut by around 17% and they are expected to fall again by around 35% in 2016. So, I was wondering if you could give us an estimate of the savings that you would be having sort of this. Thank you.

I don’t have exactly, talking about the MTRs, as you could see the interconnection rates in Mexico are low. So, all the cuts and the reductions that we could have are gaining in our costs. But, they are small in terms of the cost on America Movil, I think are important, I also expect that they go down every year and I think everything is gaining for Telcel in Mexico. So, I don’t have exactly the number and I think we don’t open those numbers. But the interconnect, I think interconnection in Mexico right now is the low as that’s very low compared to other countries. So, we are going to have gains, but they are not big in terms of percent that’s on the cost on America Movil. The long-distance, the long-distance is interesting, just to let you know, what we have been having. In April, when we were preponderant, we have roaming out, then, other things like interconnection and we are seeing that the customers are paying less in – let’s say in roaming. They are going to pay less in long-distance. But they are starting to use more other products like data. So, it’s not so fast. They change on that. But, we think that in the next year or something we can recuperate part of the long-distance. So, I think the reform in Mexico is working. The reform in Mexico is bringing more investment, new competitive landscape and all these things are going to be good for the consumer. So, I don’t have exactly the number, because the number is going to be related a lot with some packages that we are going to do some new commercial things that we are doing and I am not so sure what is going to be the - exactly the number in first quarter and then in second quarter and then in third quarter. But I think, the companies can have – we can change part of this long-distance and they can use other services in Mexico is what we could see. We don’t have a number exactly. But, it depends a lot on how the customers are going to behave with the new commercial packages and new commercial things that we are doing. But, let’s see, let’s see as they move on.

Thank you, very much, Daniel. Could you please share with us your CapEx plan for 2015?

I think the CapEx for 2015 is going to be more or less the same as we said last year, it could be – we are targeting around $10 billion on CapEx, 5% less, 5% more depending also on frequencies, depending a lot on the economies of the countries, depending a lot of the growth. More or less we are having around $10 billion on CapEx.

Thank you, Daniel. Does that include Telekom Austria as well?

That includes Telekom Austria, yes.

Perfect, thank you, very much.

Thank you.

Our next question comes from Michel Morin with Morgan Stanley. Please proceed.

Good morning. Thank you. So, two questions on Mexico if I may. The first is on, your fixed line business performed quite well. You were up 3% on revenues, I think that’s the strongest growth rate we’ve seen in a while. So I was wondering if you can comment on – as to whether or not there was anything unusual there. I know, sometimes they have IT projects or things like that that can move the needle a little bit. And then, secondly, you mentioned in your press release that on the mobile side, you’ve changed your commercial approach, you are being less aggressive. Can you help us quantify what the benefit of that has been? For example on handset subsidies, have those been eliminated completely or are you actually making a profit now on handset sales? Whatever you can tell us to help us quantify that benefit would be really helpful. Thank you.

Well, I think on the fixed side, we are being successful more in broadband. In broadband, it’s been part of our growth and also in IT products. So, those two products I think are the ones that you could see are growing in and we have less reduction on the voice and all of these products. So, that’s what you could see in the fixed side. And on the mobile, well, on the mobile, there is a lot of things and we are not - we are subsidizing less the handsets, but it’s not all of them in all the segments in all the places. So, we have been more – that’s not something, that’s not a commercial decision. We have been doing something less in prepaid. We are little bit aggressive, more aggressive in postpaid. So it’s a different commercial approach, Michel, and also we are cutting costs in the company being more rational in some cost, some expenses and that’s more or less what is giving us – what you could see this – why you could see these results in Mexico in the wireless side. So, we are going to see how those - the long-distance is – without long-distance, how our prepaid subscribers are reacting if they are going to instead of using long-distance, they are going to use more data. That we are changing a lot all the 2G phones to 3G and 3G to 4G. Everybody is using more data, data in Mexico, it’s more or less 50% of our revenue at this time. So, we are doing a lot of things, that’s not only one thing, Michel.

Great. That’s very helpful, Daniel and just a follow-up on your comment on the subsidies. Is there still and on the cost-cutting in general, do you still have room to cut more in Mexico?

Well, it’s going to depend, you always have room and that’s our job not to be more careful – to take – to realize which CapEx are the ones that are going to be good CapEx that is going to give you more revenues. But all overall, we are investing a lot in data. We still think that data is going to be very important. We are upgrading our networks meaning by upgrading the networks means that, we are going to have less OpEx there. So we are trying to be more competitive in all those expense as it comes up.

Okay, thank you, Daniel.

Thank you very much.

Our next question comes from Valder Nogueira with Santander. Please proceed.

Good morning gentlemen. Running on Michel’s question, it seems that you guys are gaining cushion, EBITDA and cost cushion in order to face whatever comes in the future and you already experienced in terms of competition. In the first stage, it seems that it’s most likely driven in the mobile business, but so far in the fixed line business, you guys have done, I believe way better than the market expected. My question is, how much more competition have you noticed or you have seen or have you able to force down your teams from – since new regulation was implemented? Are you seeing your competitors more aggressive and are they taking this opportunity to try to move their gains or so far no? There isn’t a perception that yes, you guys are being cost-efficient, extremely cost efficient, but there are some perceptions also that you have also jumping to be more aggressive on the pricing or mainly on bundling in how you play out with the tools that you have. How do you view competition playing out in Mexico? That’s the first question.

Well, let me first talk about Latin America. I think you see very different scenarios in all Latin America. Different economies are different in all the countries. We have 18 countries, all US and Latin America and the behavior of the competition and the economics in the country are different. So, you could see a little bit more competition, let’s say in Peru, we are being – it has been more competitive. US, in the fourth quarter, you see more competitiveness. Mexico, in the fourth quarter also you are seeing also the competition from some of our competitors. So, it’s different in all the countries. We cannot, we are not having one strategy in – for Latin America. We are having different strategies. We have been doing very well in Central America, Central America has been improving a lot. Then in some countries there is more competitive in the fixed and in the TV, less in the wireless are different. So, just want to let you know that we – does not have one strategy, not one strategy on CapEx, not one strategy in one country and not one strategy if it’s wireless or fixed. So, it’s different strategies. Talking a little bit about Mexico, of course, we are preparing. We are working hard as I said, we are upgrading the networks, working a lot. What we want is to give the best experience to our customers or to the new customers, best experience means, quality, coverage, pricing in all the segments, okay, in fixed, in wireless, in postpaid, in prepaid. So we are working on that and what we want is to be very competitive in costs. So if you are competitive in cost, then you could be as aggressive as the market needs in terms of pricing and in terms of commercial promotions. So, it’s more or less what we are doing. I don’t think we are doing something different right now in Mexico because, we are having, I think the reforms in Mexico is working because it’s bringing new competition that it’s going to invest. But I think these companies that are coming are companies long-term companies and they are also want to develop the market and to have also good commercial promotions. So, I think, we are working on that we are dealing with that and that’s what we do all day not trying to be most cost-efficient and having the best technologies and the best networks in the country.

Okay, thanks for the clarification. And second, you guys put forth a very important step in changing the game that you play in Brazil by collapsing the assets into one single unit. That’s a very huge plus for you guys. Again, on the cost side, that’s going to make you way more effective and on the physical side as well. On the potential benefits that we could see from it, do you have any ballpark figure that we could guide yourselves into meaning, how much we’d expect to be – to gain from that on the physical front and on the cost front? Is that a ballpark figure that we could rely on?

We don’t have a number on that, but I can tell you that part of these savings and what we agree with the government is with these savings part is going to go to some promotions to the customers and part of these savings are going to go as saving on taxes. So, that’s more or less what we agree and what the permission of the integration said, and it’s what we are doing and I think that’s very important in all the ways, because it’s not only on the tax saving, it’s also the way the company is operating. So, we have only one company and we are working in all the fronts with one company. So, as you could see in the next two or three years, you are going to see a more efficient and it’s integrating company in Brazil. We are still investing and the investments that we have been having for the last three years, we are having good returns. We are doing very good on TV. We are doing very good on data on mobile and triple play, I think more than 50% - 54% of our customers have triple play and we are starting to offer the wireless also to have quadruple play. And all these things are the things that we are doing in Brazil.

Okay. Thank you gentlemen.

Thank you.

Our next question comes from Andrew Campbell with Crédit Suisse. Please proceed

Yes, hi. Thanks for taking my question. I was wondering if we could get an update on the tower spin-off process if you guys still remain committed to that and what the next milestones would be in that process? Thank you.

I think we are very advanced in this tower spin-off process. We are going to present the tower spin-off in our Shareholders Meeting to approve that. It’s going to be on April. And I think on May, if everything is okay, I think on May, you could see that May, June, you could see the spin-off working, Andrew.

Okay, thank you and as I understand that that new entity may continue to be labeled as preponderant with that, do you believe have a big impact on the opportunity to increase the tenancy ratio to go after new customers for that company?

No, I think, no. I think, the tower spin-off – at the beginning it’s going to have the same shareholders, but I don’t think there is other companies and we are working on that with Ifetel. But there is other companies in Mexico, American Tower and other ones who are renting that. So, I think this company is going to be opened. It’s going to be a new entity. Nothing to do with America Movil and this company I think, what they want to do is to rent the towers and have their own business and I think it’s more or less what they are going to do. I am not so sure that they are going to be looking at a preponderant company, Andrew. Still discussing with Ifetel, but there is other companies with – there is some market in Mexico for the towers. So this company is going to compete with other ones and it’s what you are going to see.

I see, so you think there is a chance that may not able actually labeled preponderant?

Yes, we are discussing that with Ifetel at this moment.

Okay. Okay, thank you, Daniel.

Thank you.

Our next question comes from Soomit Datta with New Street Research. Please proceed

Yes, good morning. Just one question, please on Mexico. I got you – sort of discussions with a number of operators in terms of wholesale pricing and which relates to presumably mobile access, the TelCel leased lines, network sharing, these kinds of issues. Could you help sort of give us an update as to where you are in that process? I assume that has kicked off, I am not 100% sure, but if you can give us an update that would be very helpful and I guess, ultimately, when are we likely to see new input prices established in the market? Thank you.

I think, we are complying with all the rules that we are having on time and let’s say in Mexico, we already having with TelCel and new MVNO, I think also TelMex is signing some contracts with other companies. So, we are assessing on that and we are complying with all the rules that the Ifetel is putting to TelCel and TelMex and I think, we are going to comply with everything. We already have an MVNO and we are talking with a lot other companies on shared networks on MVNOs, on roaming, on leased lines as you are saying. So, we are open, we are complying with everything and I think this year you are going to see more and more companies working and making agreements with us.

Okay, fine. Can you say who is the new sort of MVNO is with us of interest?

I don’t remember the name, but Daniela can give you the name of the company. Because I don’t have it, but Daniela can give you the name, okay.

Okay, thank you.

Our next question comes from Andre Baggio with J.P. Morgan. Please proceed

Hi, good morning. This question is regarding the PayTV. Is there any news in Mexico with regarding to possibilities of America Movil offering PayTv?

Well, what we are – I think it’s what the first question was on divesting, and take it being out of being a preponderant player. So, if we are going to be out of being a preponderant player, what we are going to be allowed is to give PayTV services and it’s what we are looking for.

The information was on your preponderant, can you offer PayTV? Sorry.

Yes, it’s – sorry, what’s the question?

If you are maintained as preponderant, can you still offer PayTV or that’s not a possibility?

No, I think, no, we cannot offer PayTV. So what we want is to, we can offer PayTV. Carlos, can talk to this. Carlos García Moreno: As I understand it, Andre, if you are in compliance of your preponderant player for a period of 18 months then you can request and then we will be obliged to provide the PayTV concession with a period of three months. So, that’s basically where we have been.

Okay.

Let me, Carlos can explain again the process. Carlos García Moreno: It’s very clear, so, if we are in compliance as we are for a period of 18 months of the obligations that have been important as that preponderant player then we can request the PayTV concession and the regulator would be obliged to provide it within a period of 90 days.

It’s what the law and the secondary law says.

Perfect. And, Carlos, you made 16 billion pesos contribution to the operational front, I guess, it relates to TelMex. Is there still a lot of contributions to be made in the next few years? Carlos García Moreno: Well, really, depending on the interest rates as you know. So this is not something that you can consider as a fixed payment obligation over time. The reason for the contributions basically have had to be – as have indicated in other places in the US and the Europe on account of the reduction in discount rate. But, to the extent that discount rates can stay where they are or even go back up. Then the need to contribute anymore funds to the pension plans would be diminished. Okay, so it’s difficult really to say, that there is a fixed payment obligation.

Okay, perfect. Thanks a lot.

Thank you.

Our next question comes from Walter Piecyk with BTIG. Please proceed.

Thanks. Carlos, the first question is for you. Historically, if we look at your use of cash flow, and you commented on this on many conference calls over the years. You talked about – while when we invest in a year then we don’t have these massive special dividends that you had back in like, I guess, 2007, 2009. It looks like the share repurchase also going to up and down. So if I look at 2014 and 2012, when you are making these big investments in Europe, the dividends kind of the stayed the same, you haven’t shifted into those special dividends like you used to those massive ed of the year special dividends, but it seems like, you are more willing to go into share repurchase like last year when you spend a lot more on share repurchase in 2013. So can you just give us – obviously, there could be new investment opportunities, new acquisitions that may or may not happen in 2015, but assuming that you are not making big investments in new markets. How are you thinking about the use of free cash flow in 2015, dividends versus share repurchase? Carlos García Moreno: Well, Walter, thanks for the question. Indeed we have commented often on these. We have always said – so long as we are within our leverage targets, whatever excess cash flow we end up having at the end of the day is it flows back to the market via share buybacks or via dividends or to the extent that we have more cash at the end of the day than we require and we were expecting than we are willing to offer extraordinary dividends. As you point out, twice we have given extraordinary dividends of some size. I think if you look at overall distributions, they’ve been fairly stable, with the exception of the use we have made the investments, so you are right to point that out to the extent that we don’t have any major new investments this year. All things equal we should have a little bit more cash available for distribution. So, that’s consistent with past practice and again, the cash flow in the absence of acquisitions and so longer we are putting our target, our leverage target, I think the excess cash all have to flow back to shareholders.

But in 2013, when you also didn’t have much investment, I think there was a KPN rights issue. Rather than taking your distributions up that year, you actually increased your share repurchase significantly to 70 billion pesos. So, is it – are you saying that, you would go back using the special dividends or is it possible that you could also jack up the share repurchase? Carlos García Moreno: I think, remember that cut up has happened in the past is that we have increased our leverage target, remember, so we had been at one time net debt to EBITDA and then we will have that we want to be closer to 1.5 and that was basically what a lot of what is both in the acquisitions and in the distributions. This time around, we are not seeing any change in the leverage target and what that means, that you look at our cash flow and we do not engage in any acquisitions and we are not talking about anyone at the moment, then, it means that the cash flow will be available for distribution.

Okay, thank you. And then, Daniel, just a question on the US market. Your TracFone had a really great year, I mean, the revenue was up 15%, EBITDA was up 20%. It seems like and the critical mass of those customers, it would seem like the value to existing players in the US to gain a scale of buying TracFones and the EBITDA and the free cash flow is generating would be very high right now. I am just curious if you would consider a sale of that business? And if so, how high of a price would it take for you to consider getting out of the US market?

Well, it’s a very good question. But, I think the only thing that I can tell you right now is that we are focusing on growing – that TracFone is growing on the subscribers. The competitiveness in this market has been growing. So, competition in the fourth quarter has been more aggressive with a lot of commercial activity there and, well, we are open to everything, but we are right now focusing on growing – taking care of all the cost, having good EBITDA and growth in the US market in the prepaid US market. So, we are open to everything, but right now, we are just looking to develop the company as we have been doing for the last years now.

Are you also open to owning networks in that market? Because I think, on past conference calls, you’ve at least rolled that concept out?

Again, sorry, I don’t hear you.

Would you say open to everything, are you also open to being a network operator actually building network or buying network in the market, because I think on past conference calls, you’ve kind of said that that wasn’t one of the options?

I think that’s going to be very difficult. When I said open to everything, it’s open to as you said, if we are going to sell the company, no, we don’t think we are going to make a network in the US. You know that it cost a lot of money. You need to have a lot of – you need to have frequency, so no, no, we don’t have – we are not thinking to do that. And in the other sites, we are also not thinking to do that. What we are thinking and we are really our strategy today in TracFone is to develop grow more and being more – look on the market, better EBITDA, so that’s more or less what we are looking at this stage on TracFone, to develop the company in the US and grow the company in the US.

Thanks, Daniel.

Thank you.

Our next question comes from Ric Prentiss with Raymond James. Please proceed.

Yes, good morning. Thanks for taking the question. I’ve got a follow-up question on the tower question from earlier. Can you let us know how many towers that you have in Mexico that you are looking to put into the spin-out? And is there any possibility that you would consider taking some of your towers in your other markets, Brazil and elsewhere and putting them into a similar spin-out?

The spin-off in Mexico is going to be around 11,000 sell sites, the other ones, we have some sell sites for rent to other ones and – but more or less the spin-off is going to be around 11,000 and we don’t have and we are not working on making any spin-off of the other ones at Brazil or Colombia or other places. Right now, what we are doing is only in Mexico, no – and we are doing that to accomplish some of the rules with Ifetel, not to have this company as a preponderant company.

Makes sense. Telekom and Telia Brazil is selling some towers to American Tower and there was a right of first refuse or there was some ability for existing tenants to take on ownership of towers in Brazil. Any interest in increasing your tower count in Brazil in case you are able to do that?

No, I think they already do that. The decision is done, I think American Tower, they just bought or they are in the process of doing that. We decided not to get in that business. So we are not going to buy the towers of that they are selling at this moment.

Makes sense. And then a final question in Telekom Austria mentioned last night, this morning that they might be interested in some M&A particularly in their footprint for converged offerings. Any thought about what magnitude of transactions might be possible in looking into Central and Eastern Europe?

I think what we are looking on Telekom Austria is to – we are in Austria and in other six countries. So, what we are looking for is to have a convergence in all the countries, not only to have mobile, also to have to fixed, to have broadband and to have TV. And I think it’s what they are referring. I don’t hear anything and I don’t hear the call today or yesterday. So I don’t know exactly what they are referring for, but I think the strategy on Austria today is giving all the services in the countries that we have. Now, it’s more or less the strategy that we have now. We are starting to understand more or less the business there. We have some people working and they are going to start to – we are going to start to have people working more closely to the management there. And we are moving on that direction.

Very good. Thank you. Have a good day.

Thank you.

Our next question comes from Kevin Smithen with Macquirie. Please proceed.

Thanks. Maybe I can follow up a little bit on the TracFone. It looks like you are paying AT&T, which is going to be a large competitor of yours in Mexico, a lot of money in the US for use of their network. If you were to pull that traffic away and give it to one or all three of the other remaining players, it would certainly hurt their ability to fund their CapEx and compete with you in Mexico. How do you think about continuing with them as a partner for TracFone, when you're going to be competing head-to-head very quickly in Mexico?

I think, TracFone is in the US. It has the business in the US and what we have been doing for the last year is we are committing traffic to the one that give us the better rates and I think it’s more or less what we are going to do in the future no, if it’s AT&T the one that give us good rates, it could be AT&T. If it’s Verizon, it’s Verizon. I think today the traffic is with the three operators. It’s with Verizon, with AT&T and with T-Mobile. So, those are the three big ones that where we have the traffic and we are going to – I think, what’s going to be the most convenient for TracFone is what we are going to do, no. Any change on that.

And also, there has been press reports that Google is going to be launching an MVNO in the US space. Whether - are there opportunities for partnership with Google for TracFone? And also, in the Mexican market?

Well, I think, I read those press. It’s interesting what they are doing in the US as we are not talking with them and so, we are not doing anything with them right now. Then as I said, a few minutes ago, we are focusing in the US market, TracFone growing the company is what we are looking right now in the US market.

And just a quick question on Europe, KPN shares crossed €3 today, what is your strategic view on KPN given the appreciation in the value of that investment? And then on Telekom Austria, I think you've got 58%, your target is 51%, how do you think about lowering that stake to your target level? Carlos García Moreno: As we’ve said before in the case of KPN, it’s an investment where we have a minority position. We have not defined whether we want to reduce it or whether we want to increase it from certain levels. Today we have close to 22% of the company which is bit less than we used to have at some point. But we have decided to stay – up until now we have decided to stay with a position greater than 20% and that’s where we are.

We have time for one additional question. Mauricio Fernandes with Merrill Lynch. Please proceed.

Thank you. Carlos or Daniel, if you look at the operations and the results in the fourth quarter and margins specifically, the EBITDA margins, there are a few countries like the US, Colombia or as you’ve mentioned in the press release Telekom Austria and you made some comments on Colombia and the US as well of what seem to us non-recurring expenses or costs. Can you elaborate on whether that is - those are really non-recurring expenses, because that's important from an expectations perspective in those countries? Thank you.

Well, let me talk a little bit only about Colombia. I think, on Colombia as we said, we have some – we have to sell some tablets as we win the frequencies, we were to sell – not to sell, I think to give some tablets that we have been doing that. Maybe 80% of the tablets that we have at the commitment to do, we already put it in the market. Still 20%, see, that’s one-time. The other important thing is - one-time is, a cleaning the spectrum for using that, that’s also one-time. The other thing in Colombia is that it’s not one-time is that the market is a little bit more aggressive and more promote and more of aggressiveness on the market. I think, we also have some provisions about some injunctions that we are having that maybe we can finish in the quarter. But I think you are going to see better results in Colombia during this year. We could see better results than what we have the last six months in Colombia having the benefits of these one-time items that we are not going to make. Carlos García Moreno: Well, Mauricio, just to give you this reference, in Mexico, in Brazil, in Argentina, and it’s a block in Paraguay, in Chile, in Central America, it’s a block in Caribbean and as a block, and all of those, we had better EBITDA margins this year than last year at the same time. I think, in many countries we are seeing very strong operating trends and I think that that’s the case to a large extent because of the interest structure edge that we broadly have with our competitors. So – I mean, we are seeing a lot of FX noise in the translation of revenues from different countries to Mexican peso. There is a little bit of that but I would say, if you look at the metrics for local currency in the various operations we are seeing very significant trends to improve the margins. What we did see that was extraordinary was, as we mentioned before, in Colombia, we had paid close to 600 million pesos for one-time obligations that included distribution of tablets and some more things. So that all was accounted for in the quarter, but we don’t see those going forward. There is probably 80% of the products that we are supposed to have to deliver. So most of that is already be kind of, in the case of Telekom Austria, as we mentioned, there has been the need to reduce it – the pension obligations on account of a certain ruling that came out towards the end of last year. This is not a definitive ruling. The Austrian government is actually fighting it in the courts itself. So it may end up coming back, but what it means that at this point, it affected us by something like 1.2 billion pesos. Again, this was a one-time charge, non-cash, probably maybe reverted down the road. But it was an exceptional and extraordinary item here. So, if you look at the operating trend, I think, very strong across the board in the main markets, Mexico, Brazil, we are seeing a lot of progress. We have to give you an example, in Mexico, we went from an EBITDA margin of 48.5% to 50 – a year ago, it’s nearly four points increase. So, we are seeing good trends in the main market and we are seeing some exceptional items, some of them cash, some of them non-cash that took place in the fourth quarter. The cash ones were in Colombia have to do with the mandatory compliance of certain regulations under the concession – obligation through the concession, particularly distribution of tablets. In the case of Telekom Austria, a non-cash item that had to do with the pension obligation with it. We are seeing – in some markets a bit more competition, probably Peru, it’s the case in Colombia even in the US, no, it’s been a bit more competitive, but as is said, I think in the main markets there is good operating trends across the board, we, I think just mentioned number of countries and I think that we are going to continue to make progress here.

Thank you, Carlos. Just wanted to understand, when you mentioned 600 million pesos, that's Colombian pesos, not Mexican, right? Carlos García Moreno: No, Mexican pesos.

It’s around 50… Carlos García Moreno: $40 million

It’s all $40 to $50 million.

Got it. Okay, thank you.

Thank you very much.

Well, thank you. Thank you everybody for been in the call.

This concludes today’s question and answer session. I will now turn the call back over to Mr. Daniel Hajj for any closing remarks. Please proceed.

Well, I just want to thank everybody for been in the call and thank you very much.

This concludes today’s conference. You may now disconnect. Have a great day everyone.