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: Three months ended March 31, 2014 (Q1 2014)
Filing Date: May 28, 2014
América Móvil is the largest wireless provider in Latin America by subscriber count, operating in 18 countries under brands including Telcel, Telmex, Claro, and TracFone. The company provides wireless, fixed-line, broadband, and Pay TV services. This report supplements the 2013 Form 20-F and includes unaudited financial data.
Key Financial Metrics
| Metric | Q1 2013 (Ps. Millions) | Q1 2014 (Ps. Millions) | Q1 2014 (US$ Millions) |
|---|---|---|---|
| Total Operating Revenues | 192,959 | 195,439 | 14,936 |
| Operating Income | 38,656 | 38,721 | 2,957 |
| Net Profit (Period) | 26,906 | 13,981 | 1,067 |
| Net Profit (Parent Equity) | 26,871 | 13,887 | 1,060 |
| Operating Margin | 20.0% | 19.8% | - |
| Effective Tax Rate | 32.3% | 53.9% | - |
| Total Assets | 1,025,592 (Dec 2013) | 1,018,223 (Mar 2014) | 77,824 |
| Long-term Debt | 464,478 (Dec 2013) | 431,795 (Mar 2014) | 33,003 |
| Net Debt | 442,200 (Dec 2013) | 440,000 (Mar 2014) | - |
Note: Ps. = Mexican Pesos. US$ conversion uses the rate of Ps.13.0841 to US$1.00 as of March 31, 2014.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 1.3% (Ps.2.5 billion) year-over-year. At constant exchange rates, revenue grew 6.9%, driven by mobile data (+13.0%), fixed data (+4.5%), and Pay TV (+7.8%). This was partially offset by declines in mobile voice (-5.8%) and fixed voice (-7.5%).
- Profit Decline: Net profit dropped 48.0% to Ps.14.0 billion. The primary drivers were a significant reduction in foreign currency exchange gains (from Ps.17.4 billion in Q1 2013 to Ps.0.1 billion in Q1 2014) and a higher effective tax rate (53.9% vs. 32.3%) due to taxable inflationary effects in Mexico.
- Operating Income: Remained relatively flat, increasing only 0.2% to Ps.38.7 billion. Operating margin decreased slightly to 19.8% due to higher subscriber acquisition costs and growth in lower-margin businesses like Pay TV and TracFone.
- Subscriber Growth: Total wireless subscribers increased to 272.2 million (from 262.9 million in Q1 2013). Total Revenue Generating Units (RGUs) rose to 70.7 million (from 65.3 million).
Guidance, Outlook, and Recent Developments
Recent Developments
- Telekom Austria Tender Offer: On May 15, 2014, the company launched a mandatory public tender offer for all outstanding shares of Telekom Austria not held by the company or OIAG at €7.15 per share. The total potential purchase price is approximately €1.4 billion. The offer expires July 10, 2014, subject to regulatory approvals.
- AT&T Divestiture: AT&T announced its intention to divest all interest in América Móvil to facilitate regulatory approval for its acquisition of DIRECTV. Consequently, two AT&T-nominated board members resigned on May 19, 2014.
Liquidity and Capital Allocation
- Cash Flow: Cash and cash equivalents decreased to Ps.40.7 billion from Ps.48.2 billion at year-end 2013.
- Capital Expenditures: Approximately Ps.19.1 billion was spent on capital expenditures in Q1 2014, focusing on 4G/LTE technology and network deployment.
- Share Repurchases: The company repurchased approximately 885.4 million Series L shares and 18.0 thousand Series A shares for an aggregate price of Ps.12.3 billion.
Risks and Contingencies
- Regulatory and Political: Risks include government policies, inflation rates, and regulatory developments in Mexico, Brazil, Colombia, and other operating countries.
- Competition: Intense competition in the telecommunications sector, particularly regarding pricing and data services.
- Exchange Rates: Significant exposure to currency fluctuations, particularly the Brazilian real and Argentine peso, which impact reported results in Mexican pesos.
Investor Verification Checklist
- Exchange Rate Impact: Verify the extent to which the 48% drop in net profit is driven by the one-time absence of large foreign exchange gains compared to Q1 2013, rather than operational deterioration.
- Tax Burden: Confirm the sustainability of the 53.9% effective tax rate and the specific impact of Mexican inflationary tax rules on future profitability.
- Telekom Austria Deal: Monitor the progress of the €1.4 billion tender offer for Telekom Austria and potential regulatory hurdles in Central and Eastern Europe.
- AT&T Exit: Assess the strategic implications of AT&T's complete divestiture and the resulting changes in corporate governance.
- Subscriber Quality: Review the trend in Average Revenue Per User (ARPU), which declined in key markets like Brazil (-12.4%) and Southern Cone (-21.5% in some countries) despite subscriber growth.