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: Fourth Quarter and Full Year ended December 31, 2014
Announcement Date: February 10, 2015
América Móvil is a leading telecommunications provider in Latin America and the United States, with significant operations in Europe via Telekom Austria. The reporting period reflects the full consolidation of Telekom Austria (acquired July 2014) and significant foreign exchange volatility affecting emerging market currencies against the U.S. dollar.
Key Financial Metrics
| Metric | 4Q 2014 | 4Q 2013 | Full Year 2014 |
|---|---|---|---|
| Total Revenues (MXN Billions) | 229.3 | 223.4 | 883.8 |
| EBITDA (MXN Billions) | 67.7 | 68.1 | 279.2 |
| EBITDA Margin | 29.5% | 30.5% | 31.6% |
| Operating Profit (EBIT) (MXN Billions) | 33.6 | 37.9 | 152.3 |
| Net Income (MXN Billions) | 3.6 | 16.3 | 47.2 |
| EPS (MXN) | 0.05 | 0.23 | N/A |
| Net Debt (MXN Billions) | 534.4 | 518.6 | N/A |
| Capital Expenditures (MXN Billions) | N/A | N/A | 149.7 |
Access Lines: Ended 2014 with 368 million total access lines (8.4% growth YoY), including 289.4 million wireless subscribers and 78.4 million fixed RGUs.
Material Changes vs. Prior Period
- Net Profit Decline: Net income plummeted 77.8% in 4Q14 compared to 4Q13. This was driven by an 11.2% drop in operating profit and a 42.3% surge in comprehensive financing costs.
- Foreign Exchange Impact: Significant unrealized foreign exchange losses (MXN 22.8 billion in 4Q14) resulted from the strengthening U.S. dollar against the Mexican peso, Brazilian real, and Euro. The dollar rose 12.6% against the peso in the quarter.
- Revenue Growth: Total revenues grew 2.7% in MXN terms. At constant exchange rates, service revenues grew 3.2%. Mobile data (up 14.6%) and PayTV (up 12.7%) were primary growth drivers, while voice revenues declined due to regulatory measures.
- Subscriber Base: Wireless subscribers were practically flat YoY (-0.2%) due to the disconnection of inactive prepaid clients to unify churn policies, though the postpaid base grew 5.1% organically.
Outlook, Risks, and Management Commentary
- Regulatory Environment: New Federal Telecommunications Law in Mexico (effective August 2014) eliminated national roaming charges and imposed asymmetric interconnection rates on Telcel. Management is seeking an injunction against these measures. Additionally, domestic long-distance charges will be eliminated in Mexico starting January 1, 2015.
- Telekom Austria: Completed a €1 billion capital increase in November 2014, securing investment-grade ratings (BBB by S&P, Baa2 by Moody's). EBITDA was impacted by one-time non-cash pension adjustments which are currently being contested in court.
- Spectrum Investments: Committed approximately $1.755 billion for spectrum usage across Brazil, Argentina, Ecuador, and Puerto Rico to deploy 4G LTE services.
- Legal Contingency: TracFone (USA) entered a settlement agreement with the FTC regarding unlimited data plan advertising practices, agreeing to pay $40 million.
- Market Outlook: Management expects the Mexican economy to grow around 2% in 2014, potentially increasing in 2015 despite falling oil prices.
Investor Verification Checklist
- FX Sensitivity: Verify the impact of continued USD strength on reported earnings and debt service costs, given the company's significant Euro-denominated debt.
- Regulatory Impact in Mexico: Monitor the outcome of the injunction against asymmetric interconnection rates and the financial impact of eliminating domestic long-distance charges.
- Telekom Austria Pension Liability: Track the legal proceedings regarding the contested pension benefit calculation methodology which caused a significant EBITDA reduction.
- Subscriber Quality: Assess the long-term revenue impact of the aggressive disconnection of inactive prepaid subscribers versus the growth in the higher-value postpaid segment.
- Capital Allocation: Review the sustainability of the dividend and buyback program (MXN 52.1 billion distributed in 2014) against the high capital expenditure requirements for 4G rollout and spectrum auctions.