America Movil, S.A.B. de C.V.

Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to the America Mobile first quarter 2021 conference call and webcast. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Now, I'll turn the call over to Ms. Daniela Laquana, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. We're here today to discuss our first quarter financial and operating results. We have on the line Mr. Daniel Hash, CEO, Mr. Carlos Garcia Moreno, CFO, and Mr. Oscar Borjauske, CEO.

Thank you, Daniela. Good morning, everyone. Carlos is going to make a summary of the first quarter financial and operating results.

Thank you, Daniela. Good morning, everyone. Well, the strong economic expansion in the United States that had gained momentum in the second half of 2020 continued unavated in the first quarter of the year, propelled by news of a second fiscal stimulus plan talk of a new infrastructure program, and solid progress on vaccination. U.S. economic growth forecasts for 2021 were upgraded and initially led to an appreciation of the U.S. dollar versus most other currencies on the back of rapid increases in medium and long-term dollar interest rates. Various Latin American countries, including Mexico and Brazil, experienced new COVID waves that led to renewed confinement, constrained mobility, and a slowdown in economic activity. As part of this, in the first quarter, we managed to obtain 6 million net subscriber additions, which was fully wanted more than a year before. 3.3 million, a little bit more than half of the MedApps were posted subscribers, most of them coming from Brazil, 2.4 million, followed by Peru, Colombia, and Austria. As regards prepaid, we gained 2.8 million, of which 812,000 came from Brazil, approximately half a million each from both Central America and Mexico, Some 300,000 from Colombia and 200,000 from Argentina. On the fixed-line platform, we added 246,000 broadband clients, with almost every operation showing an increase in access lines, except for Austria, where we had disconnections of low bandwidth clients. Colombia, Peru, Ecuador, and Argentina were the main contributors. At the end of March, our mobile postage of squatter base was up 7.8% year-on-year, followed by our fixed total accesses, up 4.7%. Even our prepaid base registered an increase from the prior year. Our first quarter revenues totaled 248 billion pesos, were nearly flat in nominal peso terms, with service revenues declining 1.1% year-on-year. At constant exchange rates, however, savings revenues actually increased 1.2%, slightly lower than in the preceding quarter, where they had risen 2.2%. As we saw in the prior quarter, the main reason for our consolidated nominal peso revenues to decline, even though they had risen in local currency terms, had mostly to do with the sharp depreciation of the filial real vis-a-vis the Mexican peso, which was fully 20.4%. The expansion of service revenues was driven by that of mobile service revenues, which decelerated to 1.7% from 4.1% the prior quarter, and was supported by the continued recovery of fixed-land services. The deceleration of mobile service revenues near that of postage, which slowed down in Brazil, Colombia, and Austria. Prepaid revenues for the park maintained a pace of growth of 2.4% for the third quarter in a row. Prepaid revenue growth showed a marked improvement relative to the year-earlier quarter, except for Mexico, Brazil, and Colombia. In these countries, economies appear to have been more affected by the pandemic in the first quarter of this year. Fixed line service revenue growth turned positive, 0.1%, after several quarters of negative growth, on the back of continued strong performance of fixed broadband services, which became our most important revenue line in the quarter, maintaining its nearly 8% annual pace. We registered an important improvement in corporate networks, with revenues expanding 2.4% in the quarter compared to a 2.9% decline in the fourth quarter. this tipped into positive territory in the overall expansion of fixed-line revenues. Fixed-line revenue growth has accelerated sharply in some countries, including Peru, 42 percent, Colombia, 21 percent, the Dominican Republic and Ecuador, between 15 and 20 percent, with revenue growth staying on trend at around 7 to 8 percent in Chile, Brazil, and Central America. EBITDA rose 5.2% to a 1.7 billion pesos. At constant exchange rates, it was up 8.1%, with EBITDA margin expanding almost 2 percentage points to 32.9%, supported by strict cost controls, lower selling and marketing expenses, again, having to do with restrictions on mobility and new confinements, and reduce bad loan provisions. We have had a very good experience collecting our invoices. Most countries registered some EBITDA growth, 59% in the U.S., 47% in Puerto Rico, 36% in Peru, 15% in Dominicana, with Colombia and Central America expanding approximately 10%. Even the margins rose across the board, increasing almost seven points in Peru, five in the Caribbean, both Puerto Rico and the Dominican, four in Central America, followed by Mexico, Brazil, and Argentina with 2.6. With our operating profits increasing 5.7% to 41.1 billion pesos, and our comprehensive financing costs coming down by 55% year-on-year, to 35.9 billion pesos. We were able to post a net profit of 1.8 billion pesos, reversing the 29 billion loss raised the year before on account of foreign exchange losses. Our net profit was equivalent to 3 pesos per share or $3 per ADR. Our operating cash flow allowed us to fund capital expenditures in the amount of 25 billion pesos and to buy back shares worth 4.4 billion pesos. In addition, it allowed us to reduce our debt in cash flow terms by nearly 10 billion pesos. Our free cash flow, this chart is interesting. Our free cash flow, this is looking at EBITDA minus CAPEX, has exceeded a solid path of growth over the last five years, even in the midst of the pandemic. So the free cash flow has gone from $5.6 billion in the year 2015 to $9.4 billion in the year 2020, and has kept on rising in the 12 months to March to $9.6 billion. So even in spite of this deceleration in sales and revenue that we have had, we have seen continued strong performance on EBITDA and free cash flow. Our net debt fell by 20 billion pesos in the first quarter, ending March at 27 billion pesos. This includes the capital leases on the IFRS 16. At this time, it was equivalent to 1.77 times the EBITDA for the last 12 months. So with that, I would like to pass the floor back to Daniel, and we can begin the Q&A session. Thank you.

Thank you, Carlos. We're gonna start with the first question.

At this time, I'd like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for a moment while we compile the Q&A roster. Our first question comes from the line of Marcelo Santos with JP Morgan. Go ahead, please. Your line is open.

Good morning. Thank you for taking the question. I have two. The first is if you could provide an update on the power spin-off operation that you're planning for America Mobile in Latin America. And the second, if you could comment on the competitive environment in Colombia now that UOM has officially launched their mobile brand, mobile operations. Thank you.

Good morning. Well, talking about the towers, we are currently implementing the structure within the American Mobile Group. to separate locally the towers and obtain the required approvals in the different countries prior to the final step, the spin-off at the American mobile level. So, we think and we expect that this implementation will occur in this year, end of this year, is what we have right now. On the Colombia one and the competition, well, I think they already launched their plans at the beginning of April, mid of April. They were very aggressive plans, but I think we are well prepared to compete in Colombia. There's not only price in Colombia. We have a very good coverage. We have foreplay, so we have a lot of our customers in convergence, so in foreplay offer. But it's very important, reduce a lot our churn. We have one of the best qualities in Colombia in terms of in mobile and in PIX also. Good distribution. We have a very good distribution all around Colombia. good image net promoter score very high and very good image and very good service so i think it's not only price we are prepared to compete in price but also we are prepared to compete in all these other things so We have a strong competition. Their plans were aggressive. We know that they are coming very aggressive, these plans, and we prepare for that. So we are competing. So I don't have any news. It's only 10 or 20 days of competition. This competition is going to take all these years. So we are prepared to compete. So that's what I can say.

Perfect. Just to follow up on the first question, the stock that's going to be listed on the Tower spin-off, which exchange will it be listed? Is there any update there?

We haven't decided anything until right now, so we don't know if it's going to be on Mexico or it's going to be also… Mexico, Mexico. or Mexico and the U.S. So we still don't, we're not, we need to make that definition in the next month. Perfect. Thank you very much.

Our next question comes from the line of Alejandro Galastro from BBVA. Go ahead, please. Your line is open. Hi.

Good morning. I have a couple of questions. First, you mentioned different reasons to explain the margin expansion in each country. But what are the main reasons that are currently driving that margin expansion in all geographies if there is a common reason behind that expansion across the board? And how much margin expansion do you expect going forward at a consolidated level? And second, could you comment about your FTTH deployment strategy in Mexico? and how much of your network is currently FTPH and how you're expanding your FTPH footprint, even the aggressive investment plans of your competitors. Thank you.

Well, as Carlos said previously, I think part of the margin of the EBITDA growth that we have is controlling costs and expenses. But we have been having the last two, three years digital transformation that is allowing us to reduce costs. And that's mainly one of the reasons why we are reducing costs because everything that we're doing, we're trying to do digital, saving people and reducing costs in a lot of ways. With a lot of parts of the companies, okay? So in every country is different. In every country, the budget is different than in the other countries. the expenses, the commercial expenses are gonna be different because we have different competition. Let's say in Colombia, we are putting more efforts in the commercial side. In other places, it's more on the administration or In the network, we are saving a lot with new technologies in the networks. We're going to start to roll out 5G. So we are already virtualized all the networks that we have in all the countries. We're virtualizing all the networks. So it's a program, cost, expenses, technology, digital, that we have been having for the last two, three years. And it's not ending this year. It's going to go for the next year. the five years. So, it's a big program that we're having and is what we're doing. In the revenues, as Carlos said, in constant exchange rates, we grow a little bit on revenues. But as he said, there's a new wave of COVID in the south of Latin America. And we have more stores close and our commercial has been hit a little bit, but I think as the economy gets better in all these countries, I think we're gonna return with the revenue. So that's more or less. In the FPTH, Oscar can tell us a little bit on Telmex, what we have been doing, no?

We've been operating in Mexico. We have around and we are the leaders in the market. with the internet connection with the fiber to the home. So we have a 4.4 million connect home with fiber. And we'll be growing every month to improve the network to SPTH and to migrate customers from copper to SPTH. So adding a little bit to what Daniel was mentioning to give you a little bit more color. The cost of service stayed in line with service revenues, but selling and marketing expenses were down 6% at constant exchange rates, and administrative expenses were down 14%. So we did have very major reductions as a lot of that came, as Daniel was saying, out of the digitalization that has been implemented in the company.

Thank you, Daniel, Carlos, and Oscar.

Thank you. Thank you, Bernardo.

Our next question comes from the line of Andres Coelho with Scotiabank. Go ahead, please. Your line is open.

Thank you. Good morning, and thank you for taking my questions. Two quick ones. First, can you give us an update on the negotiations with the Telmex Union regarding the patient liability? And second, given TratFunds' strong results How do you feel about achieving the performance measures established in the agreement with Verizon regarding the 500 million in additional payment? Thank you.

Well, talking first track fund, okay? So I think the regulatory approval process for the sale of track fund is ongoing. It's going well. We're working very closely with Verizon and the regulatory authorities to get clearance on that transaction. And we think and we believe that this transaction will be closed in the third quarter of this year. So that's the first step. Second, the earnouts that we have, I'm sure since the beginning, nothing changed with the performance of the company. Both the indicators that we put, I'm sure that we're going to comply with that and we're going to take the earnouts of what we agree in the transaction. It's around $500 million, and I think that we're going to get that. It's more or less that amount of money. I don't remember if it's 500 or 700, but we are sure that we're going to get the 100% or a big part of that earn out. On the... Telmex negotiation, we're still negotiations, nothing else to say, so we are still negotiating with them, and we hope we can get on an agreement with the unions, okay? So that's mainly what I can tell you.

Thank you very much.

Thank you. And our next question comes from the line of Arturo Langa with ICAO VBA. Go ahead, please. Your line is open.

Hi. Good morning, everyone. I apologize if this was already answered. I had some trouble in my line. But with regards to the acquisition of Foy, when should we see that being consolidated into your financials? When do you expect to see that? And then two other questions, if I may, but also similarly, when can we expect the acquisition of or sorry, the sale of U.S. operations to be excluded from your reporting files. And lastly, if there's any color regarding the pay TV license request in Mexico, that would be useful. Thank you.

Well, on OI, the approval process before CAVE and Anatel in Brazil is advancing accordingly with its different stages. All parties are committed to cooperate with the authorities during this process, and we think that we can close this transaction this year also. So we hope that this year we can consolidate all in our financials. So that's the first one. The second one, I don't hear you very well. Can you repeat it, please? Yes, sorry.

With regard to the sale of Tracfone to Verizon, What do you expect to discontinue the U.S. operations or stop reporting the U.S. operations in the results?

When it's closed, and I think we are thinking that this transaction is going to be closed in the third quarter of this year. So that's our expectations. And the pay TV license, we hope that we can get the pay TV license. We're working to get the pay TV license. And, well, nothing to say, only we are hoping, yeah, to really get the pay TV license. So, yeah, that's a lot of time working on that.

Perfect. Thank you very much.

Thank you. Thank you. Our next question comes from the line of Carlos Legareta from GVM. Go ahead, please. Your line is... Hi.

Thank you. I have two questions, please. The first one, in Mexico, you're mentioning a negative effect from the chip shortage from handset sales. However, this doesn't seem to have affected most of the other operations at all. So can you give us some color on whether this is an isolated effect in Mexico, or can we expect any problems like this in any other countries on the road? That's the first one. And the second, please, in your financial statement for 2020, you show a significant revaluation of what it seems is your tower portfolio. Can we take this figure as a proxy for the value unlocking associated with tower transactions? Thank you.

Well, I think it's not a secret that there's no chips for the handsets, and not only for the handsets, for the set of boxes and for even cars. I read that there's some shortage in the chips for cars. So there's a shortage in the chips all around the world, and it's... getting worse. I think all the operations we have been having some problems getting the handsets and the brands in the segments that we need. And also we have been having some shortage in the sets of boxes and the broadband boxes. So all around, we're having some problems, but I hope, and I don't think it's gonna get fixed immediately, but we have been placing orders for some time ago, and it's been helping us to have the amount of equipment that we need. So that's where we are. Carlos can talk a little bit about the revaluation.

Carlos, as you point out, there was a process for revaluing the towers. As you know, on the IFRS 16, you can choose whether you keep your assets or a certain category of assets at cost or whether you have it at market. We had a valuation on the towers, and then we kind of cut the valuation based on that we have to come up with for various operations. But what we have is a first proxy, you know, particularly for what's the value, mostly the value in Latin America, okay? It is all of the full category of towers have been revalued, but as you know, we have not yet determined anything regarding towers in Telecom Austria. So it's, but nonetheless, we have to bring all the category of towers within our consolidated results, and we've had a certain revaluation, okay? Thank you, Carlos. So that sets the base for the spin-off eventually, no?

But this would be an incremental value over the book value you have over the towers, right?

That's correct. That's correct. We have already affected the increment in value as of the end of December, which was when we changed the accounting policy to be able to adopt the new policy of booking towers based not on cost, but on market value.

Great. I appreciate the answer. Thank you.

Our next question comes from the line of Leonardo Olmos from UBS. Go ahead, Cedric. Your line is open.

Hi. Good morning, everyone. My question is related to content and over-the-top content. We noticed that you have some new launches. For example, the ClaraBox TV in Brazil My question is, do you intend to roll out that to other regions? And what are the other content or other top strategies that you have waiting to be launched in 2021? Thank you.

I think we launched ClaroVox in Brazil, and we are thinking to launch that ClaroVox all around Latin America, in all the other countries. And I think it's a good idea that Oscar can talk a little bit what's the ClaroVox and please, Oscar.

Sure. Well, as you know, we think the traditional business has been... there is a lot of streaming in the market. So we did like analyze how the market is moving on. And I think Clarovox TV in Brazil, there is a full IP technology and as well has a new functionality like voice recognition, touch up TV, remote, DVR. But the good commercial proposition in the market is that you could start with basic packages and then you could add on different streams that is more related to what the customer content likes. So you could add on, in the case of Brazil, Globoplay, or you could add on Netflix, or Telecine, or Paramount, or sports. So you could bundle your services given the profile of the customer. So we feel that this is more cost efficient because it doesn't require installation. It's self-stored by the customer. And as I mentioned before, it's the full IP that help us to manage better the traffic in the network. So I think there is a unique proposition in the market. We will start in Brazil, and as Daniel mentioned, we are ready to open in all the properties the same concept. And I think that we are adapting the trends that is happening in the pay TV. And let me add that this is not only pay TV. We see this as an entertainment hub. So we do put out on music as well. We put out on Facebook Watch and another add-on that are in the market. to set up like a hub, like an ecosystem of entertainment that we are offering the market.

Very interesting proposal. Okay, thank you very much. Have a good day.

Thank you. Thank you. Our next question comes from the line of Maria Azevedo with Banco Santander. Go ahead, please. Your line is open.

Hi, thank you for the call. My first question is on the CapEx. Can you comment a little bit on the CapEx outlook for the next years? You have a very strong network, so can we assume that 5G is not going to require an aggressive cycle of CapEx going forward? Any call around that would be very helpful.

no i i we already give you the color of what's going to be the capex of this year and i don't think even for this year or for the next year we are not going to have an increase substantial increase of capex tested for 5g so as we said in previous calls we have been working to implement 5g virtualizing networks putting fiber in the in the towers uh putting the photonics in the backbone so a lot of things we have been doing so we are ready to launch 5g in many countries and we are not thinking to put more money because we are going to launch 5g so it's in our numbers 5G is included in this capex and in the future capex that we have. So no substantial capex for next years.

Perfect. Thank you. This is very positive. And my second question is on the competitive environment in Brazil and Mexico for mobile. If you can comment a little bit on how the offers are, if you see any opportunities for price and ARPU increases. And if you can also comment on QuattroPay, that would be very helpful. Thank you very much.

Well, let's talk first on Brazil. I think on Brazil, we've been gaining good market share, good subscribers on post-paid and also in prepaid. Our uh what we said what carlos said at the beginning the new wave of kobe is slowing down a little bit brazil but i think it's slowing down for everybody for all the companies we have at this moment some store closes so our commercial activities is slowing down a little bit Also, the helps in money that the government is giving to the people is reducing, so also reduce a little bit the amount of money in the people in prepaid that they are spending. But all over all, I can tell you that we have a very good network. Very good proposal. We're doing and making our combos with PIX, broadband, and TV, also with wireless. So we have a very good proposal for the customers. with quality. So we are very competitive in Brazil at this moment in pre-paid and in post-paid. And in Mexico, well, Mexico, we're seeing that a lot of... subscribers, not a lot, but some subscribers are moving and wants to be more careful and moving from post-paid to prepaid, but they are starting to consume a little bit more. So all over all, we are also competitive in Mexico, and I think we're doing good in both countries in the wireless side, in the prepaid and post-paid side. On ClaroPay, we are advancing. We are advancing in all the countries. We are doing ClaroPay in Colombia, Brazil, Mexico, and putting ClaroPay in other ones. And, well, that's going to be a new offer that we're going to do, and we're working on that. Nothing else to say right now.

Perfect. Thank you very much. Thank you.

And again, as a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from the line of Walter Pysik with LightShed. Go ahead, please. Your line is open. Thanks, Daniel. I just wanted to talk about the Sherry purchase. I think, like, if I haven't read, you did in pesos, I think it was $6 billion. Last April, you upped it again another $6 billion, so you probably should have a couple hundred million left. Then you added $25 billion. I think historically, you have utilized whatever you've been authorized to do over the course of the year. Is there any reason we should think about that differently as we look over the next four quarters when you get to next April when you can look at your regular reauthorization plan?

well let's wait until that time but we we let's say in february we ask for for an extra fund and we use it in this this assembly we do 25 billion pesos on on a fund so we're thinking to spend it we think that share is a very good price and we're thinking to spend all the funds that we have so If in the future we use it and we need more, then we're going to do another one and ask for another fund. So that's what we're thinking. We are increasing. In the first quarter, we do a good buyback, and we think that we're going to do more or less the same for the rest of the year. So that's mainly what I can tell you.

More or less the same meaning basically at the run rate you did in Q1. Thank you. And then on dividends, at the April meeting, was there any discussion of kind of the dividend policy? I know that you kind of do this in the second half of the year. You've been kind of around, you know, 19, 20 peso cents per share. Should we think about a similar dividend policy going forward or are you shifting more of your capital to share repurchase?

what we discussed in this assembly was the dividend for this year that is going to be 40 cents and it's going to be like last year in I think it's July and November and you're asking me for next year and what we're going to do I really don't know first we need to sell what we need to sell to close all the transactions that we have and then we're going to decide what to do so that's more or less uh we have a lot of things we have oil transaction we have transform transaction and then we have the towers transaction all of these we're working hard and try to close everything this year so depending on that is what decision we're going to take no thank you and just one last question if you don't mind um in mexico uh i think there was some press reports very recently about

Maybe the struggles that Alton Redis has had to sign up subscribers and maybe hit some of their coverage targets. Has there been any discussion within Mexico about whether that spectrum is better utilized by yourself or AT&T in Mexico?

No, no, no, no discussions with us. What you're telling me, I just read it in the press as you, and I don't have any discussions with nobody about the spectrum or about the company. So, no, I don't know nothing about that. Okay. Thank you, Daniel. Thank you. Thank you very much.

Our next question comes from the line of Gilberto Garcia with Barclays. Go ahead, please. Your line is open.

Hi, good morning. Thank you for the call. Just a quick follow-up on the towers. Have you decided yet whether you will lift the company in the U.S. market or only in Mexico?

Thank you. They asked us at the beginning of the call. We don't know still if it's going to be on Mexico only or it's going to be on Mexico and then the U.S. So, still, we're deciding, you know.

Okay.

Thank you. And we're deciding also if it's going to be only the Latin towers and the European. We're still deciding when they are going to be. So still we're working and having all the authorizations on the spin-off of all the towers that we're going to get. So a lot of work to do still.

Thank you. Thank you.

Thank you.

And our next question comes from the line of Arturo Langa with ITOW BBA. Go ahead, please. Your line is open.

Hi. Thank you. Just a follow-up. And it's maybe more of a strategic question, but we're seeing a lot of telecom groups around the world sort of reduce their footprint. For example, Telefonica pulling out of Latam, or Vodafone out of India, UGAX is out of the U.S. Is there any read-through for your footprint? I mean, for example, looking at Europe, is there a possibility you could be reducing or selling assets going forward? Is there any consideration regarding that?

No, I think we're very happy with Telekom Austria. It's a very good performance. The company is doing very good. We're growing in all Eastern Europe also. So, no, we haven't think of doing something like that. I think we're really, really happy with the performance of the company, being a partner with the government. So what we already do is track phone, and what you're saying is track phone. Yes, we decide to sell track phone, and that's an MVNO in the U.S., so it's a little bit different. So, yes, we are looking what's the best for American Mobile, where we are, and the expectations, the future expectations of the companies where we are is important. okay and maybe just on that for simple regions like chile or argentina uh which continue to consume cash um could there be a possibility maybe of of reducing your strategy there argentina is not consuming cash argentina is a very profitable company i think they're giving very good cash flow and chile also is doing very good so both companies are are are doing good No, we haven't think also in doing something in Argentina. Okay, understood.

Thank you. That's very helpful. Thank you. Thank you.

And there are no further questions at this time. I'd like to turn the call back over to Mr. Daniel Hash for some final comments.

I just thank everyone for being in the call, and Daniela, Carlos, and Oscar, thank you very much. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.