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 2014 (Ended March 31, 2014)
Business Overview: América Móvil is a leading telecommunications provider operating across Latin America and the United States. As of March 31, 2014, the company reported 342.9 million total accesses, comprising 272.2 million wireless subscribers, 31.4 million landlines, 19.6 million broadband accesses, and 19.7 million PayTV units.

Key Financial Metrics

Note: At constant exchange rates, revenues increased 6.9% and EBITDA increased 6.7% year-over-year.

Material Changes vs. Prior Period

• Subscriber Growth: Total accesses grew 4.5% year-over-year. Wireless subscribers increased 3.5% (2.3 million net additions), driven by the acquisition of Page Plus (1.4 million users) and postpaid growth. Fixed RGUs grew 8.2%.
• Net Income Decline: Net income dropped 48.3% primarily due to the absence of a 17.4 billion MXN foreign exchange gain recorded in Q1 2013. In Q1 2014, the company recorded a foreign exchange loss of 91 million MXN.
• Financing Costs: Comprehensive financing costs turned from a 1.4 billion MXN income in Q1 2013 to an 8.3 billion MXN expense in Q1 2014, largely due to net interest payments on debt.
• Regional Performance:
  • Brazil: Revenues up 8.5%; EBITDA up 15.4%.
  • USA: Revenues up 9.6%; EBITDA tripled to 218 million USD.
  • Chile: Revenues declined 1.4% due to a 75% cut in interconnection rates, though EBITDA surged 64.7% due to cost reductions.
  • Mexico: Revenues up 2.3%; EBITDA down 0.8%.

Guidance, Outlook, and Risks

• Regulatory Environment (Mexico): On March 7, 2014, the regulator (IFT) designated América Móvil and its subsidiaries (Telcel, Telmex) as "preponderant economic agents," subjecting them to asymmetric regulation. This includes lower interconnection rates, infrastructure sharing, and unbundling of the local loop. New implementing legislation was pending congressional vote as of April 2014.
• Strategic Acquisitions: The company entered a shareholders' agreement with the Austrian Government (ÖIAG) regarding Telekom Austria, committing to a 1 billion euro capital increase and launching a public tender offer for remaining shares at €7.15 per share.
• Capital Allocation: The company utilized cash flow to fund 19.1 billion MXN in capex, reduce net debt by 2.2 billion MXN, and execute 12.6 billion MXN in share buybacks.
• Operational Risks: Management noted increased subscriber acquisition costs (SAC) due to the shift toward postpaid plans and smartphone adoption, which requires higher device subsidies.

Investor Verification Checklist

• Regulatory Impact: Verify the final terms of the Mexican telecommunications reform legislation and its specific financial impact on interconnection revenues and infrastructure costs.
• Foreign Exchange Sensitivity: Assess the volatility of local currencies (particularly the Argentine Peso and Brazilian Real) against the Mexican Peso and USD, as this significantly impacts reported Net Income.
• Telekom Austria Integration: Monitor the regulatory approval status of the tender offer and the financial implications of the 1 billion euro capital commitment.
• Chile Interconnection Rates: Confirm the long-term sustainability of EBITDA growth in Chile following the 75% reduction in interconnection rates.
• Debt Profile: Review the maturity schedule of the 481 billion MXN gross debt and the company's ability to maintain the 1.6x Net Debt/EBITDA ratio amidst high capex requirements.