Business Context and Reporting Period
Company: América Móvil, S.A.B. de C.V. (AMX)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2016 (Unaudited)
Filing Date: September 29, 2016
Business Overview: AMX provides telecommunications services (mobile/fixed voice, data, internet, paid TV) across 25 countries in the Americas, Europe, and the Caribbean. The functional and reporting currency is the Mexican Peso (Ps.).
Key Financial Metrics
| Metric (in thousands of Ps.) | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 (Adjusted) |
|---|---|---|
| Operating Revenues | 456,367,778 | 439,871,016 |
| Operating Income | 53,800,506 | 74,029,573 |
| Net Profit (Consolidated) | 13,731,332 | 22,941,337 |
| Net Profit Attributable to Parent | 12,498,515 | 22,275,505 |
| Earnings Per Share (Basic/Diluted) | Ps. 0.19 | Ps. 0.33 |
| Operating Cash Flow | 98,342,617 | 73,001,512 |
| Total Assets (June 30, 2016) | 1,439,490,510 | 1,296,486,813 (Dec 31, 2015) |
| Total Debt (June 30, 2016) | 715,020,053 | 683,216,744 (Dec 31, 2015) |
| Cash and Cash Equivalents | 46,909,470 | 45,160,032 (Dec 31, 2015) |
Margins: Operating margin decreased to approximately 11.8% in 2016 from 16.8% in 2015. The effective tax rate was 33.0% for the period ended June 30, 2016, compared to 38.7% in the prior year.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 3.7% year-over-year, driven primarily by growth in mobile data services (up 8.5%) and equipment sales (up 18.3%). Conversely, mobile voice services declined by 7.2%.
- Profitability Decline: Net profit attributable to equity holders of the parent dropped significantly by 43.9% (from Ps. 22.3 billion to Ps. 12.5 billion). This was primarily due to a decrease in operating income and a significant loss on the valuation of derivatives and other financial items (Ps. 5.5 billion loss in 2016 vs. Ps. 7.5 billion gain in 2015).
- Foreign Exchange: While the net foreign currency exchange loss improved to Ps. 13.7 billion from Ps. 30.8 billion in the prior year, the translation effect on foreign entities contributed positively to Other Comprehensive Income (Ps. 73.7 billion gain) compared to a loss in 2015.
- Balance Sheet: Total assets increased by Ps. 143 billion, largely due to an increase in Property, Plant, and Equipment (PP&E) and Intangibles. Total debt increased by Ps. 31.8 billion.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Outlook: The filing does not contain specific forward-looking financial guidance or quantitative outlook for the remainder of 2016. Management notes the company is evaluating the impact of new accounting standards (IFRS 9, IFRS 15, IFRS 16) which will be effective in future periods.
Unusual Items & Contingencies:
- Colombia Arbitration: Significant legal proceedings are ongoing regarding the reversion of telecommunications assets in Colombia. The Colombian Ministry of Information Technology and Communications (ITC) initiated arbitration seeking asset reversion and liquidation of concession contracts. AMX has initiated a separate international arbitration (ICSID) against the Republic of Colombia alleging breach of the Mexico-Colombia Free Trade Agreement.
- Ecuador Fine: In August 2016, the Ecuadorian regulator (SCPM) imposed a fine of Ps. 1,526 million (approx. US$82 million) on subsidiary Conecel for alleged monopolistic practices. The company has challenged this and posted a guarantee but has not established a provision for the loss.
- Derivatives: A net loss of Ps. 5.5 billion was recorded on the valuation of derivatives and other financial items, contrasting with a gain in the prior year.
Subsequent Events: In July and August 2016, AMX sold portions of its stake in Telekom Austria AG, reducing its holding from 59.70% to 51.0%. The company received Ps. 6.4 billion in cash; these are recorded as equity transactions as control is retained.
Investor Verification Checklist
- Colombia Asset Dispute: Verify the current status of the ITC Ministry arbitration and the ICSID claim, as the outcome could materially impact asset values and future operations in Colombia.
- Ecuador Regulatory Risk: Monitor the resolution of the Ps. 1,526 million fine imposed on Conecel and the potential for additional penalties.
- Derivative Valuation: Review the specific drivers behind the Ps. 5.5 billion loss on derivative valuations and the exposure to foreign exchange and interest rate fluctuations.
- Debt Covenants: Confirm continued compliance with financial covenants, specifically the Debt-to-EBITDA ratio (limit 4:1) and EBITDA-to-Interest ratio (minimum 2.5:1).
- Telekom Austria Stake: Assess the strategic implications of reducing the stake in Telekom Austria to 51.0% and the impact on future consolidation or dividend flows.