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: Six months ended June 30, 2013 (Interim Financial Statements)
Filing Date: September 3, 2013
América Móvil is the largest provider of wireless communications services in Latin America, operating in 18 countries under brands including Telcel, Telmex, and Claro. The company provides wireless, fixed-line, and Pay TV services. This report supplements the 2012 Form 20-F and includes unaudited condensed consolidated financial data.
Key Financial Metrics (Six Months Ended June 30, 2013)
| Metric | 2013 (Unaudited) | 2012 (Restated) | Change |
|---|---|---|---|
| Total Operating Revenues | Ps. 387.8 billion (U.S.$ 29.4 billion) | Ps. 384.2 billion | +0.9% |
| Operating Income | Ps. 79.2 billion (U.S.$ 6.0 billion) | Ps. 83.1 billion | -4.6% |
| Net Profit | Ps. 41.2 billion (U.S.$ 3.1 billion) | Ps. 46.0 billion | -10.5% |
| Operating Margin | 20.4% | 21.6% | -1.2 pts |
| Total Assets | Ps. 982.8 billion (U.S.$ 74.5 billion) | Ps. 984.6 billion | -0.2% |
| Total Debt | Ps. 458.5 billion | Ps. 404.0 billion (Long-term only) | N/A |
| Net Debt | Ps. 426.9 billion | Ps. 372.2 billion | +14.7% |
| Cash and Equivalents | Ps. 31.6 billion | Ps. 45.5 billion | -30.6% |
Note: U.S. dollar amounts are for convenience only, using an exchange rate of Ps. 13.1884 to U.S.$ 1.00.
Material Changes vs. Prior Period
- Revenue Composition: While total revenue grew slightly (0.9%), organic growth at constant exchange rates was 8.1%. This was driven by a 19% increase in mobile data revenues and a 5.8% increase in Pay TV revenues. Conversely, mobile voice revenues declined 7.9% and fixed voice revenues declined 11.0% due to regulatory rate reductions and promotional strategies.
- Profitability Pressure: Operating income decreased 4.6% and net profit decreased 10.5%. The decline in operating margin (from 21.6% to 20.4%) was primarily caused by higher subscriber acquisition costs (handset subsidies), increased content charges for Pay TV, and higher royalty expenses.
- Foreign Exchange Impact: The company recorded a net exchange loss of Ps. 6.5 billion in 2013, compared to a gain of Ps. 3.2 billion in 2012, largely due to the depreciation of the Mexican peso against the U.S. dollar and Brazilian real.
- Segment Performance:
- United States: Revenues surged 31.2% due to subscriber growth, though the segment turned to an operating loss (margin -0.4%) due to high acquisition costs.
- Brazil: Revenues decreased 7.7% (reported) but increased 5.5% at constant rates. Operating income fell 10.3% due to aggressive pricing and content costs.
- Central America: Operating loss improved significantly (decreased 70.8%) following operational consolidations.
Guidance, Outlook, and Material Developments
Proposed KPN Tender Offer
América Móvil announced a voluntary cash tender offer for all outstanding ordinary shares of Koninklijke KPN N.V. (KPN) at €2.40 per share. The company currently owns 29.77% of KPN and aims to acquire a majority stake to achieve geographical diversification. The offer requires approximately €7.2 billion in financing, for which a credit facility has been secured.
Contingency: The KPN Preference Shares B Foundation exercised a call option to acquire preference shares representing nearly 50% of KPN's voting rights, citing the offer as a threat to KPN's independence. This reduced América Móvil's voting interest to 14.86%. The company stated it is prepared to withdraw the offer if the Foundation maintains its position to block the transaction.
Other Acquisitions
- Start Wireless Group: Agreed to acquire assets of this U.S. mobile virtual network operator (approx. 1.4 million customers) for completion in Q3 2013.
- Shazam: Acquired a 10.8% interest in Shazam Entertainment Limited and entered a strategic alliance.
- CIE Media Unit: Completed acquisition of 100% of Corporación de Medios Integrales.
Risks and Regulatory Environment
A new telecommunications bill in Mexico entered into force on June 12, 2013, requiring extensive implementation and new regulatory measures. The company faces risks related to economic conditions, inflation, exchange rates, and competition across its 18 operating countries.
Investor Verification Checklist
- KPN Offer Viability: Verify the status of the KPN Foundation's opposition and whether the tender offer will proceed or be withdrawn.
- Debt Servicing: Confirm the impact of the €7.2 billion credit facility for the KPN offer on the company's leverage ratios and liquidity.
- U.S. Segment Profitability: Monitor the United States segment (TracFone) to determine if revenue growth can offset high acquisition costs to return to profitability.
- Regulatory Impact in Mexico: Assess the long-term financial impact of the new Mexican telecommunications law on interconnection rates and market competition.
- Currency Exposure: Evaluate the sensitivity of future earnings to fluctuations in the Mexican peso, Brazilian real, and U.S. dollar.