Business Context and Reporting Period
Company: América Móvil, S.A.B. de C.V. (AMX)
Filing Type: Form 6-K (Report of a Foreign Private Issuer)
Reporting Period: Unaudited interim condensed consolidated financial statements for the nine-month and three-month periods ended September 30, 2015.
Business Overview: AMX provides mobile and fixed voice services, mobile and fixed data services, internet access, and paid television across Latin America, the United States, and Europe. The company operates through segments including Mexico (Telcel and Telmex), Brazil, Southern Cone, Colombia, Andean, Central America, U.S.A., Caribbean, and Europe.
Key Financial Metrics (Nine Months Ended Sept 30, 2015)
| Metric | 2015 (Unaudited) | 2014 (Unaudited) |
|---|---|---|
| Operating Revenues | Ps. 663,639,184 | Ps. 618,957,639 |
| Operating Income | Ps. 109,227,593 | Ps. 121,232,860 |
| Net Profit (Consolidated) | Ps. 20,825,396 | Ps. 44,109,914 |
| Net Profit Attributable to Parent | Ps. 19,391,632 | Ps. 42,839,347 |
| Earnings Per Share (Basic & Diluted) | Ps. 0.29 | Ps. 0.62 |
| Total Assets | Ps. 1,293,672,634 | Ps. 1,278,356,669 |
| Total Debt | Ps. 720,754,217 | Ps. 603,754,987 |
| Cash and Cash Equivalents | Ps. 69,874,151 | Ps. 66,473,703 |
| Operating Cash Flow | Ps. 126,895,110 | Ps. 160,865,360 |
Note: All figures are in thousands of Mexican pesos (Ps.).
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by approximately 7.2% year-over-year, driven primarily by growth in mobile data services (up 23.3%) and fixed data services (up 9.6%), partially offset by declines in mobile voice services (down 2.2%) and fixed voice services (down 0.9%).
- Profitability Decline: Net profit attributable to equity holders of the parent decreased by 54.7% to Ps. 19.4 billion. This significant drop was primarily due to a foreign currency exchange loss of Ps. 75.9 billion (compared to Ps. 5.8 billion in 2014) resulting from the depreciation of the Mexican peso and Brazilian real against the US dollar and euro.
- Debt Increase: Total debt increased by Ps. 117 billion (19.4%) to Ps. 720.8 billion. This increase reflects new borrowings, including the issuance of exchangeable bonds related to the divestiture of the KPN investment and increased lines of credit.
- Investment in Associates: The carrying value of investments in associates decreased significantly by Ps. 45.5 billion due to the decision to divest the ownership interest in Koninklijke KPN N.V. (KPN). The company discontinued equity method accounting for KPN and reclassified the remaining interest as a financial asset at fair value.
Guidance, Outlook, Risks, and Unusual Items
- Foreign Exchange Risk: The filing highlights significant adverse impacts from currency depreciation in Mexico and Brazil. A substantial portion of the company's debt is denominated in US dollars and euros, while a significant portion of operations in Brazil use the Brazilian real as the functional currency.
- KPN Divestiture: The company initiated a scheme to divest its KPN shares via exchangeable bonds. This resulted in a one-time gain of Ps. 12.0 billion recorded in "Valuation of derivatives, interest cost from labor obligations and other financial items, net."
- Regulatory and Legal Contingencies:
- Mexico: Ongoing challenges regarding "preponderant economic agent" status, mobile termination rates, and tax assessments (SAT). A provision of Ps. 1.1 billion was established for probable losses related to mobile termination rates.
- Brazil: Significant tax contingencies exist regarding ICMS, PIS/COFINS, and IRPJ/CSLL. The company has established provisions totaling approximately Ps. 17.2 billion for probable losses, though total assessed amounts are significantly higher (e.g., Ps. 35.0 billion for ICMS).
- Ecuador & Bulgaria: Tax assessments and monopolistic practice fines are pending resolution in these jurisdictions.
- Subsequent Events:
- Spin-off of Operadora de Sites Mexicanos (tower assets) completed in October 2015.
- Acquisition of a controlling interest in BRTel (Brazil) in January 2016.
- Telcel won spectrum auctions in Mexico for AWS-1 and AWS-3 bands in 2016.
Investor Verification Checklist
- Currency Exposure: Verify the sensitivity of future earnings to fluctuations in the Mexican peso and Brazilian real against the US dollar and euro, given the high level of foreign-denominated debt.
- Tax Provisions: Review the adequacy of provisions for tax contingencies in Brazil (ICMS, PIS/COFINS) and Mexico, as the total assessed amounts significantly exceed the provisions recorded.
- KPN Divestiture Execution: Monitor the progress of the KPN share divestiture via exchangeable bonds and the potential impact on future financial results if the exchange option is exercised.
- Regulatory Outcomes: Track the resolution of the "preponderant economic agent" challenges in Mexico and the mobile termination rate disputes, as these could materially affect pricing and profitability.
- Debt Maturity Profile: Assess the liquidity position relative to the Ps. 132.9 billion in short-term debt and current portion of long-term debt due within the next 12 months.