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: First Quarter 2016 (Ended March 31, 2016)
Announcement Date: April 27, 2016

América Móvil is a leading telecommunications provider operating primarily in Latin America and the United States. The quarter was characterized by significant currency volatility, particularly in Mexico and Brazil, and a strategic shift toward postpaid and fixed-line services amidst a decline in prepaid wireless subscribers.

Key Financial Metrics

Material Changes vs. Prior Period

• Subscriber Base Shift: Total wireless subscribers declined 2.0% year-over-year to 284 million due to the disconnection of 2.4 million prepaid clients (primarily in Brazil and Colombia). Conversely, the postpaid contract base grew 6.1% year-over-year, adding 723,000 subscribers.
• Fixed-Line Growth: Fixed-line Revenue Generating Units (RGUs) increased 3.8% to 81.3 million, driven by a 9.3% jump in broadband accesses and 5.9% growth in PayTV revenues.
• Profitability Pressure: EBITDA declined 9.6% in peso terms (8.8% at constant exchange rates) due to stronger competition, sharp reductions in interconnection rates, and a 10.3% increase in depreciation and amortization charges.
• Regional Performance:
  • Argentina: Strong growth with revenues up 34.7% and EBITDA up 43.9%.
  • Mexico: Revenues declined 2.6% and EBITDA fell 16.7% due to lower mobile voice revenues and currency impacts.
  • Brazil: Revenues were flat (-0.7%) while EBITDA rose slightly (1.2%) despite a 9.2% drop in total wireless subscribers.
  • USA (TracFone): Revenues declined 3.3% and EBITDA fell 24.2% following subscriber disconnections.

Guidance, Outlook, and Risks

• Management Commentary: Management highlighted that despite a difficult start to the year for emerging markets and currency volatility, economic activity remained stable in most regions. The company is focusing on 4G deployment, fiber-optic expansion, and capacity building.
• Capital Allocation: The company distributed 2.8 billion pesos to shareholders, primarily through share buy-backs. Shareholders approved a cash dividend of MXN 0.28 per share and allocated an additional 12 billion pesos to the buyback program.
• Spectrum Acquisition: Telcel (Mexico) secured 60 MHz of spectrum in a February auction, paying an upfront amount of 2.1 billion pesos, to enhance data speeds and capacity.
• Risks and Contingencies:
  • Currency Volatility: Significant depreciation of the Mexican peso and other local currencies impacted equipment sales and financial results.
  • Regulatory Changes: Sharp reductions in mobile termination rates in Peru, Colombia, Brazil, and Chile negatively impacted voice revenues.
  • Competition: Aggressive commercial environments and price wars in several markets pressured service revenues.

Investor Verification Checklist

• Prepaid Disconnections: Verify the sustainability of the 2.4 million prepaid disconnections and the long-term impact on the revenue base in Brazil and Colombia.
• Constant Currency Performance: Review service revenue growth at constant exchange rates (-1.1%) to isolate operational performance from currency fluctuations.
• EBITDA Margin Compression: Analyze the drivers behind the 330 basis point decline in EBITDA margin, specifically the impact of interconnection rate cuts and increased depreciation.
• Debt Servicing: Confirm the impact of the 12 billion pesos in "other financial expenses" (derivative valuation changes) on future liquidity and interest coverage.
• Postpaid Conversion: Assess whether the 6.1% growth in the postpaid base is sufficient to offset the decline in prepaid subscribers and maintain overall revenue stability.