Business Context and Reporting Period
Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2018
Business Overview: América Móvil is a leading telecommunications provider operating primarily in Latin America and the United States, offering wireless, wireline, and PayTV services. Key subsidiaries include Telcel (Mexico), Claro (various Latin American markets), and Tracfone (USA).
Key Financial Metrics
| Metric | 4Q 2018 | 4Q 2017 | Full Year 2018 | Full Year 2017 |
|---|---|---|---|---|
| Total Revenues (MXN Billions) | 262.0 | 263.9 | 1,022.9 | 1,021.6 |
| EBITDA (MXN Billions) | 70.6 | 70.5 | 285.6 | 278.9 |
| EBITDA Margin | 27.0% | 26.7% | 27.9% | 27.3% |
| Operating Profit (EBIT) (MXN Billions) | 35.9 | 28.6 | 133.6 | 118.7 |
| Net Income (MXN Billions) | 9.5 | -10.6 | 45.7 | 42.1 |
| Net Debt (MXN Billions) | 568.2 | 628.7 | 568.2 | 628.7 |
| Net Debt / EBITDA | 1.88x | n/a | 1.88x | n/a |
| Capital Expenditures (MXN Billions) | n/a | n/a | 152.0 | n/a |
Note: Figures are in Mexican Pesos (MXN) unless otherwise noted. 4Q 2017 Net Income was negative due to a one-time arbitrage ruling expense in Colombia.
Material Changes vs. Prior Period
- Subscriber Growth: Postpaid subscribers increased by 1.5 million in 4Q18 (7.2% YoY), driven by 1.2 million additions in Brazil and 200,000 in Mexico. Prepaid net gains accelerated in Mexico, Colombia, and the U.S., while Brazil and Central America saw net losses due to subscriber base clean-ups.
- Revenue Performance: Total revenues were nearly flat in MXN terms (-0.7% YoY) but grew 3.0% at constant exchange rates. Fixed-broadband (+9.5%) and mobile postpaid (+7.9%) were primary growth drivers, offsetting a 2.5% decline in PayTV revenues.
- Profitability Surge: Operating profit jumped 25.6% YoY to 35.9 billion pesos, largely due to reduced depreciation charges in Brazil following a revision of asset useful lives. Net profit turned positive (9.5 billion pesos) compared to a loss of 10.6 billion pesos in 4Q17.
- Financing Costs: Comprehensive financing costs dropped 68% to 12.1 billion pesos, attributed to the release of provisions in Brazil related to a resolved tax dispute involving the former subsidiary Embratel.
- Debt Reduction: Net debt decreased by 46.2 billion pesos year-over-year to 568.2 billion pesos, supported by strong cash flow used to amortize financial debt (41.6 billion pesos) and pension obligations (14.3 billion pesos).
Outlook, Risks, and Unusual Items
- Acquisitions: On January 24, 2019, the company agreed to acquire 100% of Telefónica Móviles Guatemala for US$333 million and 99.3% of Telefónica Móviles El Salvador for US$315 million. The Guatemala deal was completed; El Salvador awaits regulatory approval.
- Unusual Items:
- Brazil Tax Dispute: A favorable judicial resolution regarding PIS-Cofins taxes for Embratel led to a significant release of provisions, boosting operating profit and reducing financing costs.
- Colombia Arbitrage: 2017 figures excluded a one-time expense associated with an arbitrage ruling paid in August 2017, which impacted year-over-year comparisons.
- Central America Charges: Extraordinary charges were booked in Honduras related to tax credits under litigation.
- Risks and Contingencies:
- Currency Volatility: Significant depreciation of Latin American currencies against the U.S. dollar (except the Brazilian Real) impacted reported figures in MXN terms.
- Regulatory Environment: Ongoing tax disputes in Honduras and regulatory approvals for acquisitions in El Salvador present potential risks.
- Competition: Intensified competition in prepaid segments in Chile, Colombia, and Ecuador, and the introduction of virtual players in Colombia.
Investor Verification Checklist
- Constant Currency Adjustments: Verify the impact of exchange rate fluctuations on reported revenue and EBITDA growth, as MXN figures mask underlying operational growth in some regions.
- One-Time Adjustments: Confirm the sustainability of the 25.6% operating profit increase by isolating the impact of the Brazil depreciation revision and tax provision releases.
- Subscriber Quality: Analyze the "subscriber clean-up" in Brazil and Central America to understand the long-term impact on prepaid revenue stability.
- Debt Servicing: Review the composition of the 568.2 billion pesos net debt and the company's ability to maintain the 1.88x Net Debt/EBITDA ratio given future capital expenditure needs.
- Acquisition Integration: Monitor the regulatory approval status and integration costs for the Telefónica acquisitions in Guatemala and El Salvador.