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 ended March 31, 2015
Business Overview: América Móvil is a leading telecommunications provider operating primarily in Latin America, the United States, and Europe. The company reported 368 million total access lines as of March 31, 2015, comprising 289.6 million wireless subscribers, 34.5 million landlines, 22.3 million broadband accesses, and 21.6 million PayTV units. Brazil remains the largest and fastest-growing operation.
Key Financial Metrics
| Metric | 1Q 2015 | 1Q 2014 | Change |
|---|---|---|---|
| Total Revenues | 220.0 billion MXN | 213.4 billion MXN | +3.1% |
| Service Revenues | 193.8 billion MXN | 192.6 billion MXN | +0.6% |
| EBITDA | 68.2 billion MXN | 70.5 billion MXN | -3.1% |
| EBITDA Margin | 31.0% | 33.0% | -2.0 pp |
| Operating Profit (EBIT) | 37.7 billion MXN | 40.4 billion MXN | -6.6% |
| Net Income | 8.2 billion MXN | 14.2 billion MXN | -42.1% |
| Earnings Per Share (MXN) | 0.12 | 0.20 | -40.3% |
| Capital Expenditures | 29.0 billion MXN | N/A | N/A |
| Shareholder Distributions | 11.4 billion MXN | N/A | N/A |
| Net Debt | 536 billion MXN | 530 billion MXN (Dec '14) | +1.1% |
| Net Debt / LTM EBITDA | 1.75x | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 3.1% in MXN terms, driven by a 26.3% surge in equipment revenues. However, service revenues grew only 0.6% (1.0% at constant exchange rates) due to regulatory impacts in Mexico.
- Profitability Decline: Net income dropped 42.1% year-over-year. This was primarily caused by a sharp increase in comprehensive financing costs (up 163.6%) due to foreign exchange losses of 17.8 billion MXN, largely attributed to the depreciation of the Brazilian real against the U.S. dollar.
- EBITDA Pressure: EBITDA declined 3.1% in MXN terms and 2.1% at constant exchange rates. The EBITDA margin compressed to 31.0% from 33.0%.
- Subscriber Base: Total access lines grew slightly with net additions of 125,000. Wireless subscribers increased by 197,000 net, though the company performed a cleanup of inactive clients in various countries. Brazil added 611,000 mobile subscribers, while Mexico added 611,000 (273k postpaid).
- Regional Performance:
- Mexico: Revenues fell 1.9% and EBITDA dropped 7.7% due to regulatory measures eliminating termination charges and national long-distance fees.
- Brazil: Revenues rose 4.9% and EBITDA increased 4.1%, driven by mobile data growth (+30.0%).
- Argentina/Paraguay/Uruguay: Revenues surged 33.8% and EBITDA rose 41.8%.
Guidance, Outlook, and Material Events
- Dividends and Buybacks: The Board proposed an ordinary dividend of MXN $0.26 per share (payable July/November) and an extraordinary dividend of MXN $0.30 (payable September). A proposal to increase share repurchase allocation by MXN $35 billion was also presented.
- Telesites Spin-off: Shareholders approved the spin-off of Telesites, S.A.B. de C.V., comprising approximately 10,800 towers and passive infrastructure in Mexico. The new entity will carry MXN $21 billion in net debt, with the transaction expected to close by July 2015.
- Legal Settlements: The company settled disputes with Axtel and Avantel regarding termination rates and interconnection matters dating back to 2005. Telcel and Telmex paid MXN $950 million in disputed amounts. Reseller and infrastructure-sharing agreements were also executed.
- Risks and Contingencies:
- Currency Volatility: Significant foreign exchange losses impacted net income. The Brazilian real depreciated sharply against the U.S. dollar.
- Regulatory Environment: Ongoing regulatory measures in Mexico (elimination of termination charges) continue to negatively impact service revenues and EBITDA.
- Macroeconomic Factors: Potential interest rate hikes in the U.S. could increase financial volatility in Latin America.
Investor Verification Checklist
- FX Exposure Impact: Verify the sensitivity of future earnings to fluctuations in the Brazilian real and Mexican peso, given the 17.8 billion MXN loss in 1Q15.
- Regulatory Headwinds in Mexico: Assess the long-term revenue impact of the elimination of termination charges and national roaming fees on the Mexico segment, which saw a 6.0% drop in service revenues.
- Telesites Spin-off Execution: Monitor the July 2015 spin-off timeline and the allocation of the MXN $21 billion net debt to the new entity.
- Subscriber Quality vs. Quantity: Review the impact of the "client base cleanup" (disconnection of inactive users) on future churn rates and ARPU stability.
- Capital Allocation: Confirm the approval and execution of the proposed MXN $35 billion increase in share repurchase authorization and the dividend payout schedule.