AMX

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: Third Quarter ended September 30, 2017
Announcement Date: October 24, 2017

América Móvil is a leading telecommunications provider operating primarily in Latin America, the United States, and Europe. The third quarter of 2017 was significantly impacted by natural disasters, including earthquakes in Mexico and Hurricane Maria in Puerto Rico, which affected network operations and revenue recognition. Additionally, the quarter included a material non-recurring expense related to an arbitration ruling in Colombia.

Key Financial Metrics

Note: Adjusted figures exclude the 18.5 billion peso expense from the Colombian arbitration ruling. At constant exchange rates, service revenues increased 1.5% and Adjusted EBITDA increased 1.3% year-over-year.

Material Changes vs. Prior Period

• Subscriber Growth: Postpaid wireless subscribers grew 6.0% annually, adding 1.4 million net subscribers (699k in Brazil, 202k in Mexico). Total wireless lines declined 1.3% year-over-year due to prepaid disconnections.
• Revenue Impact of Disasters: Revenues were negatively impacted by natural disasters in Mexico and Puerto Rico. In Mexico, networks were opened free of charge for five days. In Puerto Rico, fees were credited and bonuses provided to customers following Hurricane Maria.
• Colombian Arbitration: A non-recurring expense of 18.5 billion pesos (approx. $1.07 billion USD) was recorded due to an arbitration ruling requiring the payment of asset value to the Colombian government. This turned a potential net profit into a reported net loss.
• Foreign Exchange: Comprehensive financing costs included 11.8 billion pesos in foreign exchange losses, primarily due to the depreciation of the Mexican peso against the U.S. dollar and the euro.
• Regional Performance:
  • Latin America: Mobile data revenues grew 24.3% annually.
  • Mexico: Mobile service revenues recovered strongly, up 8.5% year-over-year despite the earthquakes.
  • Europe: PayTV revenues grew 22.0%.
  • Caribbean: Puerto Rico service revenues collapsed 17.4% due to the hurricane.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted the resilience of operations in Mexico and strong data growth across Latin America. The company noted that excluding Puerto Rico and the U.S., revenue trends remained consistent with the second quarter. The net debt position improved to 2.0 times LTM Adjusted EBITDA.

Key Risks and Contingencies:

• Legal/Regulatory: The company is challenging the Colombian arbitration ruling in all available forums. Additionally, the Mexican Supreme Court ruled the "zero-interconnection-rate" regime unconstitutional; the IFT is defining new rates effective January 2018.
• Natural Disasters: Ongoing recovery efforts in Puerto Rico, where power and network infrastructure remain damaged, pose continued operational and financial risks.
• Foreign Exchange: Volatility in emerging market currencies, particularly the Mexican peso, continues to impact reported financial results and financing costs.

Investor Verification Checklist

• Colombian Arbitration Status: Verify the progress of legal challenges against the 18.5 billion peso ruling and potential for future liabilities or recoveries.
• Puerto Rico Recovery: Assess the timeline for full network restoration and the long-term impact on subscriber retention and revenue in the Caribbean region.
• Interconnection Rates: Monitor the new interconnection rates set by the Mexican IFT effective January 2018 and their impact on Telcel's margins.
• FX Exposure: Review the company's hedging strategies given the significant foreign exchange losses reported in the quarter.
• Postpaid vs. Prepaid Mix: Analyze the sustainability of postpaid growth (6.0%) versus the decline in prepaid subscribers across key markets like Brazil and the U.S.