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: Second Quarter ended June 30, 2016
Announcement Date: July 28, 2016
América Móvil is a leading telecommunications provider operating primarily in Latin America, the United States, and Europe. The company reported results for Q2 2016, highlighting a mixed performance driven by currency fluctuations, competitive pressures in Mexico, and subscriber churn in Brazil.
Key Financial Metrics
| Metric | Q2 2016 | Q2 2015 | YoY Change |
|---|---|---|---|
| Total Revenues | 233.4 billion MXN | 219.9 billion MXN | +6.1% |
| Service Revenues | 199.8 billion MXN | 193.6 billion MXN | +3.2% |
| EBITDA | 61.0 billion MXN | 68.3 billion MXN | -10.7% |
| EBITDA Margin | 26.1% | 31.1% | -5.0 pts |
| Net Income | 7.7 billion MXN | 14.0 billion MXN | -45.2% |
| Earnings Per Share (MXN) | 0.12 | 0.21 | -42.9% |
| Net Debt | 608 billion MXN | 582 billion MXN (Dec '15) | Up (FX impact) |
| Net Debt (USD) | $32.2 billion | $33.8 billion (Dec '15) | -4.9% |
Operational Highlights:
- Total Access Lines: 364.5 million (-0.9% YoY).
- Wireless Subscribers: 282.9 million (-2.1% YoY), driven by 1.6 million prepaid disconnections, primarily in Brazil.
- Fixed RGUs: 81.7 million (+3.6% YoY), driven by broadband growth (+8.9%).
- Cash Flow: Operations, distributions (notably from KPN), and currency swap unwinding financed $57.2 billion MXN in CapEx, $5.2 billion MXN in buybacks, and $3.4 billion MXN in acquisitions.
Material Changes vs. Prior Period
Revenue and Profitability: While reported revenues rose 6.1% due to currency appreciation (Brazilian Real, Colombian Peso), service revenues at constant exchange rates declined 2.1%. EBITDA fell 10.7% in MXN terms (13.2% at constant rates), and Net Income dropped 45.2% due to revenue losses in Mexico and higher operating costs.
Subscriber Dynamics:
- Postpaid Growth: The postpaid base grew 5.9% globally, with strong performance in Mexico (+10.4%) and Colombia (+4.7%).
- Prepaid Decline: Prepaid subscribers fell 4.2% globally, with significant net disconnections in Brazil (-1.1 million) and Mexico (-575 thousand) as the company purged non-traffic generating accounts.
Regional Variances:
- Mexico: Service revenues declined 10.7% YoY due to aggressive unlimited plans and competitive pricing. EBITDA margin compressed to 33.0% from 41.4%.
- Brazil: Revenues were flat; EBITDA declined 4.5% due to rising maintenance costs and energy prices. Subscriber base dropped 9.7% YoY.
- Argentina/Paraguay/Uruguay: Strong growth with revenues up 40.1% and EBITDA up 33.7%.
- USA (Tracfone): Subscriber growth of 110k drove revenue up 5.0%, but EBITDA fell 61% due to high subscriber acquisition costs.
Guidance, Outlook, and Risks
Management Commentary: Management noted that the Mexican mobile market has become highly competitive, with operators offering unlimited usage at low costs. In Brazil, the company is managing the economic recession and rising costs. The company highlighted successful 4G-LTE launches in Paraguay and Peru.
Strategic Actions:
- Peru: Acquired 30 MHz of 700MHz spectrum for $306 million and agreed to acquire Olo del Perú and TVS Wireless S.A.C.
- Telekom Austria: Reduced stake from 59.7% to 51.9% in July 2016.
- Regulatory: Received a favorable resolution from Mexico's IFT regarding UnoTV content distribution.
Risks and Contingencies:
- Currency Volatility: Significant exposure to exchange rate fluctuations, particularly the Mexican Peso, Brazilian Real, and Argentine Peso.
- Competition: Intense price competition in Mexico and Brazil affecting ARPU and margins.
- Regulatory/Tax: New taxes in Ecuador (15% telecom tax, VAT increase) impacted service consumption and revenues.
- Macro Environment: Economic recession in Brazil and uncertainty in global capital markets.
Investor Verification Checklist
- Constant Currency Performance: Verify the 2.1% decline in service revenues at constant exchange rates to understand organic growth trends separate from FX effects.
- Mexico Margin Compression: Analyze the sustainability of the 33.0% EBITDA margin in Mexico given the shift to unlimited prepaid plans and competitive pricing.
- Brazil Subscriber Churn: Assess the long-term impact of the 9.7% YoY subscriber decline in Brazil and the effectiveness of the "purge" of non-traffic generating accounts.
- Debt Servicing: Review the net debt position of $32.2 billion USD and the impact of interest rate fluctuations on the $13.4 billion USD-denominated debt.
- US Acquisition Costs: Evaluate the impact of high subscriber acquisition costs on the US segment's profitability, which saw a 61% drop in EBITDA despite revenue growth.