America Movil's (AMX) CEO Daniel Hajj on Q4 2015 Results - Earnings Call Transcript

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America Movil SAB de CV (NYSE:AMX)

Q4 2015 Earnings Conference Call

February 10, 2016, 10:00 ET

Executives

Daniela Lecuona - IR

Daniel Hajj - CEO

Carlos García Moreno - CFO

Analysts

Amir Rozwadowski - Barclays

Michel Morin - Morgan Stanley

Vera Rossi - Goldman Sachs

Walter Piecyk - BTIG

Richard Dineen - UBS

Mauricio Fernandes - Bank of America Merril Lynch

Operator

Welcome to the America Movil Fourth Quarter 2015 Earnings Conference Call and Webcast. My name is Stephanie, and I'll be your operator for today. [Operator Instructions]. I would now like to turn the conference over to host for today Ms. Daniela Lecuona, Investor Relations Officer. You may proceed.

Daniela Lecuona

Thank you. Thanks everyone for joining us this morning to discuss our fourth quarter '15 financial and operating results. We have today on the call, Mr. Daniel Hajj, our Chief Executive Officer; Mr. Carlos García Moreno, Chief Financial Officer; Mr. Oscar Von Hauske, Chief Operating Officer and also Mr. Carlos Robles, Chief Financial Officer of Telmex.

Daniel Hajj

Thank you, Daniela. Welcome everybody. Carlos is going to make a summary of the fourth quarter results. Carlos?

Carlos García Moreno

Thank you, Daniel Hajj. Good morning everyone. Thank you for attending the call. While 2015 came to a close and finally moving to increase its benchmark interest rate for the first time and renewable activity in financial markets has intensified throughout the year on the continued decline of the first quarter and on a speculation the a changed economy maybe weaker than expected, maybe also the U.S. economy.

In major market financial assets and currencies among them those from Latin America have been impacted by these factors. We added 1.5 million postpaid subscribers in the fourth quarter including 513,000 in Brazil and 351,000 in Mexico.

Our postpaid subscribers increased 5.9% year-on-year. We had net disconnections of 4.3 million prepaid wireless subscribers of which 4.9 million were in Brazil, 651,000 in Ecuador and almost 300,000 in Peru. All-in-all our wireless subscriber base ended 2015 at 286 million clients and our fixed-line RGUs reached 81 million units, for a total of 367 million access lines.

Our fourth quarter revenues [Technical Difficulty] were up 0.6% year-over-year to MXN231 billion bringing to MXN894 billion for the full year 2015. At constant exchange rate service revenues were down 0.6% from year-on year quarter, the same rate that was with the preceding quarter and we’re seeing stable [indiscernible].

But product line, there wasn’t much change in the growth of service revenues in fourth quarter relating to the prior one. we dedicated revenues continue to expand on both in mobile and fixed lines 10.3% and 7.9% respectively. PayTV revenues grew 6.6%. There was significant improvement in service revenue growth in the fourth quarter relative to the third in our [indiscernible] 34% to 35% in the fourth quarter [indiscernible].

It is important to note that the consolidated level the share of mobile service revenues in total service revenues kept on increasing which is 58.5% in the fourth quarter compared to 65.8% in the earlier quarter. Within mobile service revenues the share of data based revenues reached 50% for the first time.

In Mexico service revenues [Technical Difficulty] downward trends as can be seen in the chart while mobile service revenues are stabilizing and this is important. We have seen the decline in service revenues mostly on account of the elimination of national long distance revenues [ph] beginning of January 1, 2015 and we’re seeing this reduction of voice revenues have leveled off and it's now making some increase. We expect that the first quarter of this year we will have clean comparison after the regulatory measures but we will see even better fees and as you can see also in the chart these mobile services in Mexico have stabilized most of it initially out of the [Technical Difficulty] in 2015.

As for EBITDA, it totaled MXN63.9 billion in the quarter, a 5.1% reduction relative to prior year in Mexican peso terms although at constant exchange rates it was down by 2.9%. I think it's important to note here that we had a one off in Ecuador that basically it has to do with for the most part litigation that was something that was the company from even before we acquired it. It had to do with rounding off of [indiscernible] and it applied to all the operators in Ecuador [ph] this is something that has been litigation for several years and finally few more were notified that we were supposed to.

So it was again something that was in the company for the most part and it's something we materialize in this product. It is important in Mexico and we have something to highlight, in Mexico as we mentioned before net ads -- these number of net ads posted was 51% higher than what we seen in earlier quarter and that explains part of the reduction in EBITDA in Mexico.

It is also important also to note that in Mexico [indiscernible]. Equipment revenues linked of the year exchange rate have increased much faster than service revenues therefore looking at the EBITDA margin in relation to total revenues will amplify the real impact on margins. The reduction in EBITDA margin for instance is 50% higher if expressed in relation to total revenues than if it is expressed in relation to service revenues. So it is important to correct [indiscernible] impacted by FX volatility on total revenues. This is very important.

So I will say this will continue the reduction, the values [ph] in Mexico, once it's attributable simply to the compulsion to total revenues for the equipment revenue component have increased a lot in the FX. One a little bit less deferred [ph] could probably be attributable to Telesites and the remaining is attributable to the faster pace of [indiscernible] in Mexico which have really taken place also in a more competitive environment.

Anyway our fourth quarter operating profit was 5.9% year-on-year to MXN2.2 million but our net profit was six times high than in the year late quarter, as our comprehensive financing cost came down along with foreign exchange losses. Our net profit was equivalent to MXN24 to MXN28 ADR.

Net debt ended the year at MXN585 billion as compared to MXN537 billion a year earlier. The former TV [ph] consists of MXN44 billion in marketable securities available for sale. That will be value our stake after deducting the value of [indiscernible] shares 500 billion mandatory exchangeable bond issue in September in the amount of €750 million.

Our capital expenditures totaled MXN164 billion in 2015 while our shareholder distributions amounted to MXN71 billion, including the extraordinary dividend paid out in September. Our net debt to EBITDA ratio is 2.1 times at the end of December allowing for [Technical Difficulty] and for the market value of our derivatives position. We have strong balance sheet which is an important reason for the profile that we have, the best ratings in the telecom sector today, but basically need to show that we’ve a lot of financial flexibility which will be prepared to use when needed.

So with that I would like to finalize this part of the call. Turn it back to Daniel. We will begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Amir Rozwadowski from Barclays. You may proceed.

Amir Rozwadowski

If I may, thank you first for the color on how to think about sort of the margins in Mexico in the various impacts there. But I was wondering if you could give us an update on how you folks are viewing the competitive landscape. Obviously we've seen some new competitors in the market, they've just started to report some of the results and would love to hear your thought process in terms of how we should think about the potential impact to pricing trends in the market and your own sort of subscriber acquisition cost?

Daniel Hajj

As Carlos said he give us an overview on the costs. First I’ve to say that in Mexico the valuation of peso is increasing a little bit overall cost so we’re having not only Mexico, Mexico, Brazil, Colombia are program on cost on all studies very important. As the exchange rates go higher than some of our costs are in dollar so we have to review them and work on all of our costs in the company.

Second, in terms of the competition I think as you can see Mexico there is effective competition even everybody is in the news even some regulatory persons are saying that the -- we already have effective competition in Mexico. We have some changes in the structure of the market with these new competitor plus the other competitors that we’ve plus the NBA notes that we’ve in Mexico.

We've more services and that all of that is bringing a big reduction in the prices in the markets. So the consumers are the ones that are gaining here in Mexico. As you could see in the fourth quarter prices are going down. We have been very successful and in the [indiscernible] market, we have 51% more postpaid subscribers than what we have in the fourth quarter of 2014. So we're doing good we’re doing good in the market even that the market is very competitive. It's going to higher cost of acquisitions, it's going to bring us higher cost on retain our subscribers. But all overall I think Telesite is doing good in Mexico. In number portability we're gaining, still gaining number portability and we feel that these year is still is going to be very competitive market and that’s what you could see for 2015.

One important thing that I have to mention is that still Mexico is one of the lowest markets in Latin America in terms of net ratio. Still we have a big share of growth in the future so we still can grow in the smartphones and in the markets, new subscribers. It's also one important thing for Mexico, specifically for Mexico.

Amir Rozwadowski

And then if I may you know you talked about the ability to sort of lap some of the regulatory measures that are in place and the impact to sort of the service revenue going forward. Based on where you sit today, you know obviously there are some regulatory review going on around the competitive initiatives that have been put into place. You know what are the prospects for further potential regulatory initiatives to spur ongoing competition? It seems as though you feel comfortable with sort of the competitive dynamics of the marketplace currently and supporting the need for increased competition but would love to hear your thoughts around incremental regulatory measures that could come up. [Technical Difficulty]

Operator

And your next question comes from Michel Morin from Morgan Stanley. You may proceed.

Michel Morin

I don't know if you going to want to answer that earlier question from Amir but in any case, I wanted to ask about the buyback. You’ve made an announcement of MXN12 billion earmark for buybacks this year, that seems to be lower than what you've been doing in recent years. So was hoping to hear what the plan is there, what the thought process was in targeting that amount? And then secondly regarding your comment on Mexico and the impact on margin of handset sales if you can comment also on how you've changed your subsidy policies? Are you being more aggressive or less aggressive on handset subsidies? Thank you.

Operator

We are having technical difficulties. Please standby. And your next question come from Q - Michel Morin. You may proceed.

Michel Morin

So the question was regarding buybacks you've announced MXN12 billion plan. I was wondering if you could elaborate a little bit more on the thinking around that number considering that it seems to be lower than what you've been doing in recent years. And then secondly, Carlos on your comment on the impact of handset sales in Mexico and the impact on margin. Did you actually also increase your handset subsidies in Mexico or what is the trend on that front? Thank you.

Daniel Hajj

In terms of subsidies I think all around America Movil we’re trying to reduce the subsidies, we’re reducing a little bit the subsidies. It has been like a raise because all the handsets, dollars as the exchange rate is moving so we have to actualize -- the prices what all over all I think the numbers are that we are reducing our subsidies in Mexico and in Latin America.

In the buybacks we announced yesterday that MXN12 billion because we have a remaining balance of last year of MXN17 billion. So we're going to add the MXN17 billion to the MXN12 billion that we have and we’re always open to ask for more if we need in the future.

Carlos García Moreno

As you know we have done it before and we’re really -- at the beginning of the year our financial planning look like, as Daniel said we have some balance left over from last year that will be added to whatever we are increasing. But I think the important thing to note is if I mentioned today we have financial flexibility to do what we think makes sense and having these limits is really not an issue because all this [indiscernible] overtime as we’ve done in the past.

Operator

And your next question comes from the line of Vera Rossi for Goldman Sachs. You may proceed.

Vera Rossi

Could you talk about your discussions with the regulator about the [indiscernible] and what will be the priorities in this discussions that are likely to start in March, what are the AMX priorities to get from these questions and second is about your 4G users. What is the percentage of subscribers you already have with 4G devices and what countries are you ahead and behind in these migration to 4G? Thank you.

Daniel Hajj

In terms of the regulation in Mexico, I think the process starts in March two years since they have declared [indiscernible] player. What they are going to review are the effects that the measures that they put they have in the markets. So I think in America Movil we have accomplished in Telcel and Telmex everything on terms of the regulation. During these two years we have the regulator review with us all the measures and I think they -- we are happy the way we have been accomplished all these measures. What they are going to review in March and I don't know how long it's going to take for the regulator to review, if there is some in the market, so a structure in the market, new competitors NBAs [ph] reduction in prices. I think more services, more investment in Mexico. And looking for all these things that they are going to review. I'm optimistic that there's as they said more effective competence in the market and that their review is going to be in good terms for America Movil, it's my personal view.

Vera Rossi

And what will be the priorities of AMX in this discussions? It's eliminate a symmetric regulation or there are other things that AMX would like to discuss with the regulator in this revision?

Daniel Hajj

Of course, there is a lot of revisions in terms of commercial issues that we want to review with them, small commercial issues, things that we have to get to our customers that the competition is not giving or in our position is that we give them to all the customers or nobody give that to all the customers. So there is still a lot of small things that we want to review. We want also to review as you said they are symmetric interconnection, the price of unbundlings we want to review because in something's we’re not on an agreement with them but there is a lot of things we’re going to start to review on March. There is no doubt that what they were looking two years ago the regulator were looking with this telecom reform is that they won more competition than they are looking for more competition in the market and if you could see prices, if you could see investments, if you can see the structure of the market there is no doubt that we have that.

Chuck Hong

Vera, you remember in Mexico and in other countries it was, when all of the penetration, valid penetration was increasing and it was happening very quickly there was a lot of advertising. There was a lot of investment, they were very lively market, well that’s exactly what you’ve today in Mexico is that a lot of new investment for the first time in years, second from the competitors. There is much, much more advertising. You see a very energetic market out there as Daniel said before. It's a market that we think is going to grow so I think there will be share for everyone in these expanded market.

While [indiscernible] Mexico last count is probably still there a 90% which is believe what we have in our region. We think that there is going to be some increase of penetration over the next several years, several months that we have been out in this effect.

Daniel Hajj

And all of this is for the benefit of consumers Vera, if you can review some of the commercial information in internet you could see that the prices in Mexico to-date are much lower than the prices let's say in the United States. So, you could see that in this last two years and specifically in the last six months the prices has been dropping Mexico a lot, much lower than let's say what you could see in U.S.

Vera Rossi

And could you also talk about the 4G migration and what are the countries that are ahead and behind in this migration?

Carlos García Moreno

Yes. I don’t have exactly the 4G numbers. What I can tell you a little bit about the penetration on the smartphones I think Mexico is doing good. Mexico, Chile, Colombia are the ones that are the higher countries penetrated, let's Central America, Ecuador, Peru, we need to do more and more penetration on that. Brazil is in the mid -- on the chart it's in the mid-place on the chart and America Movil in terms of smartphone penetration is around 36% penetration is all over all.

In postpaid we have around 56, the average penetration of the smartphones in America Movil. With Mexico, one of the highest with 78%, it's more less than numbers that I can remember. If you want to go deeper on that you can talk with Daniel to give you the more sense on that.

Operator

And your next question comes from the line of [indiscernible] from Credit Suisse.

Unidentified Analyst

My first question related to CapEx, it was mentioned during the AMX Investor Day last year that a CapEx to sales ratio could decline in 2016 in one words. Now with the current depreciation how do you see CapEx evolving in the coming years? That is the first question and the second question is related to PayTV because the company has been saying it's ready to ask for a PayTV license in Mexico. I'd like to hear from you how the company's evolving in these matters as well? Thank you.

Daniel Hajj

Let's start from PayTV, the PayTV I think we are working on the PayTV permission and when we think it's the right moment then we're going ask for that permission. So we're working -- we're doing things but we’re waiting to see when is the right moment to ask for the PayTV permission. In terms of the CapEx, well we said last year in the Investor Day what we want is to have around 15% CapEx to service revenues and we are conduct trend. What I can say is that the last three years, ‘15, '14 and '13 we have a big investment $33 billion on CapEx for the last three years. I think we invest good, we put all our networks on shape, as we grow coverage. We move from 2G to 3G and from 3G to 4G, so we do big investments and I think this year we can reduce the CapEx it's around 25% of what we do last year. So we’re starting to reduce our CapEx. It's difficult to give you a number today because with all the exchange rates that we're having, we are working on that and when we have already the number we can give it to you. So it has been difficult for us because it's moving some of the things are in local currencies, other ones are in dollar. So we are reviewing very good -- we're reviewing exactly what are going to be the number for this year. What I can tell you that we can reduce from 20% to 25% the CapEx of last year.

Carlos García Moreno

I think it's important to know that the imported [ph] component, FX component of CapEx is only about 40%, so the rate of that is basically civil works [ph] and things that are basically local cost. So what Daniel said it's difficult to get what the impact in dollars will be because really there's been different depreciations in different countries. So if you look at the 60% of CapEx in each country it's going to be local currency. We don’t really know exactly where that will be coming out in dollar terms. But we have just finished a phase of heavy investment in last five years, $50 million [ph] as you know were invested in our infrastructure. From here now on we do not need to invest that heavily, a lot of what needed to be done has already been done and that's why we are stepping down the intensity of CapEx for the next five years. These are not only something to for these year alone but it's something that will happen in the next five years.

Unidentified Analyst

Just to clarify this 20% - 25% decline is in U.S. dollars, right?

Daniel Hajj

Yes. But again the final impact is going to be dependent on the exchange rates of -- as I just explained but didn’t give you a feel.

Carlos García Moreno

But it could be in dollars but it's approx., I cannot give you a number today. We’re reviewing new pricing, we’re reviewing exchange rates. There is a lot of things that is still we’re working on.

Operator

And your next question comes from the line of [indiscernible] from JPMorgan. You may proceed.

Unidentified Analyst

My first question is about the U.S. dollar component of course, you gave a little bit of detail on the handset side. Are there other relevant costs which are not handset that are also denominated in U.S. dollars in certain areas. This is my first question, a little bit of clarification on that and the second question is how much of your data revenues are comprised of SMS? I ask this because in some countries the data growth at single digits so I was wondering if that was not because you have internet growing and SMS shrinking, so an idea of how much SMS left would be interesting. Thank you.

Daniel Hajj

Well in terms of the first question on the dollar, there is other costs that are in dollar, IT, software, content, there is other things that I don’t have it right now but there is other things that we have purchased and they are in dollars and we’re reviewing and seeing exactly. But part of our cost is in dollars and that's why you see that the margins are and the cost can increase a little bit. The second question can you repeat it please?

Unidentified Analyst

We see in some operations that mobile data growth below 10% and would expect sometimes them growing faster so I wonder if that's not because of SMS component which might be shrinking. So I just want to get a general idea of how much SMS do you’ve--?

Daniel Hajj

I think SMS is, in my view SMS is very related to WhatsApp, people are using more smartphones and based on the availability to use WhatsApp then they use WhatsApp instead of using SMS. I think that’s the relation that we are having mostly in all the countries. As they use more WhatsApp, they use less SMS, so that’s what you could see.

Unidentified Analyst

But how much of the data revenues rough numbers are SMS? Just percentage wise.

Daniel Hajj

I don’t have the number, very different in each country. Some countries they use a lot -- still they use a lot of SMS, in the other ones on the contrary they don’t use a lot of SMS and they start to use more of WhatsApp so I don’t have the number right now.

Carlos García Moreno

Directly linked to the penetration of smartphones in this country.

Operator

Your next question comes from the line of Walter Piecyk from BTIG. You may proceed.

Walter Piecyk

I just want to go back to the capital investment questions. So you’re saying 2016 versus 2015 is going to drop 20% to 25% so you're talking basically like $8 billion as far as capital investment, did I hear that correct?

Daniel Hajj

That’s what we have as a previews number. As we are saying we have good investments and big investments are heavily investment in 2013, 2014, and 2015 and they think we can reduce our investments in 2016. I don't know it could be 8, it could be 7.5, it could be I don’t know exactly the number, what I can tell you that our investment in 2016 is going to be lower than what we do in 2015. It's going to depend -- it's still too early for us to say depends a lot on pricing, dollar and growth -- the economies is important about what's going to be the growth let's say in the fixed now because part of the CapEx is vital, set top box and all of those things. So it's going to depend on a lot of things that we don't is clear today what we have bought. As I said I believe that we can reduce 20% to 25%.

Walter Piecyk

So I think it was asked earlier maybe I missed the answer. I think there's a pretty low percentage of your customers that are using LTE phones today. So I get that there was capital investment, but as data grows theoretically you have to keep up with the networks, I mean I think in Brazil as an example. One of your competitors in [indiscernible] is like spending 20% or 25% of revenue in anticipation of this LTE growth, so your strategy seems a bit different given this kind of expectation of data growth which is hopefully what's going provide revenue growth. So I'm just trying to understand where exactly are you cutting the CapEx? Is it U.S., dollar denominated type things like radios from Nokia and Ericsson, and are you spending more on the local stuff until the currency recovers? Help us understand, that's a very big cut that no other operator I think is identified yet.

Daniel Hajj

Well I don't want to -- my answer to you is going to be we are not reducing the CapEx because we're going to cut LTE or we’re going to cut capacity or we’re going to cut moving 3G subscribers to LTE subscribers. We’re not going to do anything on that. I think the last two years we have been investing heavily. We have been investing in the backbone in the links, in the fiber, in everything and that’s exactly what it's, let's say in some quantitative if you’ve some more frequency then you don't have to go anything. Then you’ve to do little bit more of radios and then you have a lot more of capacity.

So I don't want to get involved in the engineering side and how we’re going to grow but we have been investing a lot, we’ve a very robust networks in all of our countries compared to a lot of our competitors and that's what going to give us the ability to invest less this year. So in terms of competitiveness I think still in 2016 and 2017 with investments that we’re going to do we’re still going to be very competitive in the market in terms of our infrastructure.

Carlos García Moreno

We have said repeatedly Walter in the past to manage data you really need to have a good fixed line platform and a lot of the $50 billion that we have in five years were deployed precisely to build a more fiber optic links, fiber towers, a lot of the things that are really required. All of that is behind us. When you look at the cost of radios as you say relative to the rest of [indiscernible] is nothing. So the fact that we are reducing CapEx is simply because we have already finished with a lot of construction that needed to be done on the fixed line side, if not that we’re going to be curtailing now. Now that we have everything done we’re going to be curtailing DC [ph] part which will be radios.

We win best last year the cable submarine satellite the fiber metropolitan rings. So look what net is doing in Brazil, net is the one is in cable, that is the one in PayTV, it's the one that it's growing in subscribers in Brazil. So and that’s really because we have the network to go to all these new houses. I feel pretty comfortable on what we have been doing the last years and what we're going to this year.

Daniel Hajj

It's been an integrated player as supposed to being only a mobile one.

Operator

And your next question comes from the line of [indiscernible]. You may proceed.

Unidentified Analyst

I think it will be helpful for all of us to understand what's at stake at this regulatory review in March. Obviously aside from the possibility of getting the PayTV license. I mean some people are thinking about a worst case scenario, I mean certainly the symmetric regulation we've seen so far has been pretty stringent and I think the federal competition it's pretty obvious but if I was wondering there is any issues that are currently being discussed with the regulator that we could be looking at?

Daniel Hajj

As I told you in March, we’re going to review the facts that the measures that they put to us two years ago we’re going to review it if they work or they don’t work. And they can put more symmetric regulation. They stay where they are or they can reduce their regulations that they put to America Movil. So it's what they are going to do.

In terms of their symmetric interconnection well the position of America Movil is that America Movil should not subsidize companies like a AT&T and Telefonica that are a strong international operators and that I don't think that America Movil will subsidize paying them interconnection and they don't pay interconnection to America Movil. So that’s the position of America Movil and those are the things that we're going to review. Thus as I said before there is effective competition in the market. So if there's not competition there price look on the pricing that we have not, I think Mexico today is one of the lowest pricing countries maybe in the world. So I think those are the things that if at all are going to review and well let's see what's going to happen.

Unidentified Analyst

And a follow-up if I may, in Brazil you acquired a small cable company, I was wondering if you could give us any details about that particular acquisition or any others that could be on radar going forward? Thank you.

Daniel Hajj

The company name was Blue, it's a small company. A company that has close to 8000 home passes [ph], 300,000 customers. The company is already upgrade the network, it's fully direction and so it compliment well of what we've been doing net. So that company will be integrated through net, I think the expand the range that we have and we're getting to a market that we don't have network. So we complement the network position on that. So we will integrate in the next 3 or 4 months of the company and we have been some approvals to roll the integration that we look during the -- in the next two or three months.

Operator

And your next question comes from the line of Richard Dineen from UBS. You may proceed.

Richard Dineen

You mentioned in the release about cost reduction efforts behind the margin gained specifically in the U.S. and Brazil just wondering if you can specify whether the cost reduction is more driven by internal efficiencies you know streamlining operations or whether it's more a case of being less aggressive in your commercial strategy lower subsidies discounts and promotions and so forth and then you know secondly to that you know whether the Brazil and the U.S. are perhaps unique situations in that regard or whether you think there are opportunities to lift margins by similar methods in other markets. So that's my question. Thank you.

Daniel Hajj

Let me start on Brazil, I think on Brazil what we have been doing in the last two, three years is we’re integrating the networks. We’ve one platform for fixed, for mobile and for PayTV and that integration is giving us a reduction on costs. So I feel very competitive in Brazil. I feel we’ve the best platform in Brazil for the growth and the best platform for taking a share in the market. We're still growing good in the fixed platform. We're growing in the PayTV and I think this last quarter looks much better in the mobile we have gaining in the number portability in postpaid. So the indicators that we have looks like in Brazil we’re doing good even that the economic situation that we’re leaving there. We feel that Brazil could give us a better margins for this year.

In the U.S., well the competition in U.S. is tough, so as an MVNO we’ve to being also more aggressive in the market and that reduce a little bit our cost but we’re for this 2016 reviewing new plans for the market that will give us again growth and give us again margin. Still we think 2016 for TracFone is going to be very competitive but I'm sure that we could have a good plans to compete in the market. So that's what we have in Brazil and in the U.S. The other question?

What about cost control that we have, we're putting cost control in all the countries. As Carlos said in the beginning of the conference. There are some countries that let's say El Salvador, Puerto Rico, Ecuador that we sell in dollars so the exchange rate don’t keep -- in other ones like in Central America, we haven't had any devaluation there so we still having cost controls. And in the other ones like Colombia, Mexico, Peru that we have big devaluations on the exchange rate. We are putting more and more cost controls and we're working very hard to maintain as much as possible our cost down. So that’s more or less, what we need to do all 2016.

Carlos García Moreno

I think fair to what Daniel is saying, as you know we have what we call our core EBITDA which is basically the EBITDA that we have before factoring in subscriber acquisition cost. But what you can see is that in substantially all the countries and I would tell there is small countries in South America that are an exception but off the rest all of them have seen increases in core EBITDA margins. So that’s important because it basically shows that other than in the commercial networks there have been important provisions in terms of streamlining costs. So it's not through a reduction in commercial presence. It's simply by having a more efficient structure.

Operator

And your next question comes from the line of Mauricio Fernandes from Bank of America Merril Lynch. Please proceed.

Mauricio Fernandes

So I want to go back to the buyback and in fact a capital question, Carlos and then Daniel. But the renewal of the fund doesn’t mean much since you can renew the fund whenever the Board meets. But it seems they've done what you’ve said on at the investor day last year the plan is to achieve 1.5 times -- I just wanted to confirm is that still the case given a lot of exchange particularly in a macro-environment and in fact since then? And two, when would you expect to achieve that 1.5 times? Thank you.

Carlos García Moreno

What we have 1.5 times of our middle term target. We have always had a middle term target, you’re never exactly there and but yes we intend to remain hovering around the target. We’re today as we showed in the presentation 1.8 times EBITDA and when you factor in the [indiscernible] so I think that we’re pretty much where we need to be today on that. We don’t need to make any special arrangements to our financial plan. But what is important Mauricio, is to understand that having the financial flexibility is something that is important when you’re willing to use it and I think the bottom line is we’ve the financial flexibility and Daniel said at the beginning, it's something that we may use even when we think it makes sense so that’s where I would leave it. There is a long term goal in terms of overall leverage, I think that we’re satisfied with where we’re today. I think that we’re going to see good progress on the financial front and this does not impede us from continuing with what we have basically said in terms of overall distributions. But having said that we have the flexibility and may use it if it makes sense.

Mauricio Fernandes

Is there any intention, Carlos to reduce the activity of buybacks particularly given the share price has come down. You know it will make sense actually to perhaps increase buybacks, not to reduce buybacks inspite the strategies, not that far away from being close to around the level of 1.5 times on net EBITDA.

Carlos García Moreno

The leverage ratio is middle term ratio. It's something that we’re covering around. We do not have -- we need to be at 1.5 tomorrow, no we don't. We have flexibility and this is obviously something that we can always we said we would be with these rating agencies. But having said that you do have an outstanding plan, and as I said we have roughly MXN30 billion already in reserve and as you say it maybe increased as we’ve done in the past. We increased in the middle of the year. We think it would make sense.

Operator

And due to time constraint we’re going to take one last question and your last question comes from a line of [indiscernible]. Please proceed.

Unidentified Analyst

My first question is just more of a clarification on what you spoke about at the beginning of the call in terms of the contribution to the margin contraction in Mexico, it was a little bit difficult to hear you. I think you're saying a third from one factor, a third from another and a third from a third factor. So if you could just repeat that and my second question is related to your capital market plans considering the debt that you’ve coming due this year and in which currencies would you prefer to issue and refinance that?

Daniel Hajj

What Carlos has said that in Mexico we have very competitive market. So part of the reduction of our margins are first because we grow a lot on postpaid subscribers, second because we have a lot more competition reduction on prices it's very important and the third is because their exchange rates, okay, the exchange rates, focusing two things, first because their revenue in handsets are growing more. Second, because we have other costs like Telesites, Telesites is more or less costing 1.5% of our EBITDA because the spin-off of service revenue and the last one is because the exchange rates and the cost that we’re having in dollar. So all of those things are playing all around in the margins of Mexico. So that’s what -- Carlos can explain a little bit what we think we can--

Carlos García Moreno

On the refinancing, this year I think we can see reductions in debt. Already Telecom, most were paid €750 million I think 2 or 3 weeks ago which means that already -- at the end of December -- today they have already paid roughly €1 billion so that’s been a net reduction, that’s not been refinanced. We’ve approximately €3 billion - €4 billion in amortizations that’s left for the year, €3 billion of amortization left for the year and I don’t expect we will go to a market for more than €1 billion.

Unidentified Analyst

And do you’ve a currency preference?

Carlos García Moreno

That’s really dependent on time of when we launch the transaction depending on the conditions in different markets, as you know we have established a presence in various markets where we can afford to look at which appears to be for our objectives. But I don’t think that we will have more than one operating market this year, maybe 1 billion and so we’re going to actually see good reduction in gross debt for America Movil in principle and all of this consisting with everything else that we’ve mentioned in the absence of further extra-ordinary situations where we would want to use more financial flexibility.

Operator

And now I would like to hand the call over to Daniel Hajj for final remarks.

Daniel Hajj

I just want to thank for everybody for being in the call.

Carlos García Moreno

Thank you.

Operator

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.

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