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DIRECTV (DTV)

Morgan Stanley Technology, Media & Telecom Conference

February 26, 2013 5:30 pm ET

Executives

Bruce B. Churchill - Executive Vice President, Chief Executive Officer of Directv Latin America Llc, President of Directv Latin America Llc and President of New Enterprises

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Presentation

Benjamin Swinburne - Morgan Stanley, Research Division

Good afternoon, everybody. I'm Ben Swinburne, Morgan Stanley's Media analyst. And please note that important disclosures, including my personal holdings disclosure, the Morgan Stanley disclosures, all appear as a handout available in the registration area and on the Morgan Stanley public website.

And with that, I am pleased to be joined, to my left, by Bruce Churchill, EVP and CEO of DIRECTV Latin America. For those of you who may not know, DIRECTV Latin America ended the year with over 10 million subscribers on a consolidated basis, and over $6 billion of revenue for the year, up 20 percent-plus, representing truly one of the fastest-growing media businesses in the world. Bruce, thanks for being here.

Bruce B. Churchill

Thank you for having me.

Benjamin Swinburne - Morgan Stanley, Research Division

Maybe we could start out with an update on the long-term vision for the business. You guys had an Analyst Day almost like a...

Bruce B. Churchill

Almost a year ago.

Benjamin Swinburne - Morgan Stanley, Research Division

Almost a year ago, yes. You laid out some pretty lofty goals long term. Maybe lay those out here, at the audience, and sort of how you're feeling about those today.

Bruce B. Churchill

Okay. So that was last March. That was March of 2012. So we're kind of using end 2011 as our starting point back then. And we had roughly, in the consolidated businesses -- again, we have Brazil -- a business in Brazil, which we own 93% of, and a business in Spanish-speaking South America, which we call PanAmericana, which we own 100% of. Separately, we have a 41% stake in SKY Mexico where our partner there is Televisa. So in a consolidated, the Brazil and PanAmericana businesses, I think, at the end of -- around the time we had the Investor Day, we had a business of about 8 million subscribers. And our view was that we could basically double that business in a 5-year time frame, with pretty strong growth out of both platforms. I think we talked about a business of $10 billion of revenues and $3 billion of EBITDA, and about $1.6 billion or so of CapEx every year.

So that was sort of the 5-year vision back then. We're now actually -- well, obviously, into 2013. So we're a bit of a ways into that. Based on our performance last year, I would say that we remain very highly confident about that plan and that vision. Still believe there's a lot of room for growth in the pay-TV business in Latin America. And pretty confident that we'll reach those kind of numbers and stay within those kinds of parameters by the time we get to 2016.

Benjamin Swinburne - Morgan Stanley, Research Division

Great. Let's talk about 2013. We recently had the earnings call and you laid out your outlook for this year, which is for mid-teens revenue growth, but flat EBITDA. And there's a lot of sort of moving pieces to the guidance, particularly on the margin front. So I'd love to hear you sort of walk people through the puts and takes, and then if you can, boil it down to kind of the underlying trends that you're seeing in the business.

Bruce B. Churchill

Yes, look, maybe the best way to talk about it is in its component pieces. So Brazil is the biggest business. And everything that we've talked about, with respect to Brazil, I think we remain at least as bullish about, if not more so. So we're looking for continued growth in Brazil. In local currency terms, it's sort of well above that market that we've talked about. The margins there remain relatively constant. And if we talk about sort of 30%-ish off margin in that business. And we'd be looking to add, rough numbers, another million or so in Brazil again this year. In PanAmericana, that's made up of a lot of different territories, Argentina, Venezuela, Colombia, Chile, Peru, et cetera. And from a subscriber metric point of view, again, we'd be looking for another very strong year out of that platform. Probably maybe a touch shy of a million subs, but not far off from where they were last year. And on the financial side, what provided I think a bit of the confusion there is that, obviously, there was a large devaluation in Venezuela right at the -- towards the end of January or middle of February. So as a result of that, we had to take a write-down or we will have to take a write-down in this quarter, pretax write-off of about 160 million, and for the cash that we had on hand in Venezuela. And then, obviously, the comps within PanAmericana going to be a little challenging because now Venezuela will be having to compete with itself with a currency that's worth 30% less. So when you take that kind of mid-teens revenue growth, which is in U.S. dollars. So, again, after factoring in all the FX, not just Venezuela, but any other FX issues. And the mid-teen revenue growth, factor in the write-down of the cash and then the comps within Venezuela, which is a pretty big part of PanAmericana, that's where you get to the flattish EBITDA growth. Excluding, let's say, the write-down, we're sort of low double-digits EBITDA growth for the year, OPBDA growth for the year.

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