Business Context and Reporting Period
Company: América Móvil, S.A.B. de C.V. (AMX)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited interim condensed consolidated financial statements for the six months ended June 30, 2013.
Business Overview: AMX provides telecommunications services (mobile/fixed voice, data, internet, paid TV) across 18 countries in Latin America, the United States, and the Caribbean. The financial statements are presented in thousands of Mexican pesos (Ps.).
Key Financial Metrics (Six Months Ended June 30, 2013)
| Metric | 2013 (Ps. in thousands) | 2012 (Ps. in thousands) |
|---|---|---|
| Operating Revenues | 387,759,594 | 384,236,778 |
| Operating Income | 79,214,548 | 83,075,709 |
| Net Profit (Parent Equity Holders) | 41,063,843 | 45,689,027 |
| Earnings Per Share (Basic/Diluted) | Ps. 0.55 | Ps. 0.60 |
| Operating Cash Flow | 74,434,273 | 114,033,674 |
| Total Debt | 458,498,715 | 417,670,088 |
| Cash and Cash Equivalents | 31,585,252 | 62,360,982 |
Margins: Operating margin decreased to approximately 20.4% in 2013 from 21.6% in 2012. The effective tax rate was 32% in 2013 compared to 34% in 2012.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 0.9% year-over-year, driven by a 23% increase in net sales of equipment and accessories, partially offset by a 1% decline in services revenues.
- Profitability Decline: Net profit attributable to equity holders of the parent decreased by 10.1% to Ps. 41.1 billion. This was primarily due to a Ps. 6.5 billion net exchange loss (compared to a Ps. 3.2 billion gain in 2012) and increased interest expenses.
- Debt Expansion: Total debt increased by Ps. 40.8 billion (9.8%) to Ps. 458.5 billion. Short-term debt rose significantly from Ps. 13.6 billion to Ps. 57.4 billion, largely due to increased utilization of lines of credit.
- Cash Position: Cash and cash equivalents decreased by Ps. 13.9 billion, reflecting a net cash outflow from operations and significant investing and financing activities.
- Share Repurchases: The company repurchased approximately 3.6 billion Series L shares and 310.7 thousand Series A shares for an aggregate price of Ps. 46.9 billion during the first six months of 2013.
Guidance, Outlook, Risks, and Unusual Items
- Accounting Changes: The company adopted IAS 19 (Revised) regarding employee benefits, requiring retrospective restatement of prior periods. This resulted in a net decrease in equity of Ps. 57.5 billion at the beginning of 2013 due to the reclassification of actuarial gains/losses to Other Comprehensive Income (OCI).
- Foreign Exchange Risk: A significant net exchange loss of Ps. 6.5 billion impacted results, highlighting exposure to currency fluctuations in its multi-country operations.
- Investment in Associates: The carrying value of investments in associates (primarily KPN and Telekom Austria) increased by Ps. 17.3 billion. Notably, the carrying value of the KPN investment (Ps. 71.7 billion) exceeded its Level 1 fair value (Ps. 34.7 billion) by Ps. 37.0 billion as of June 30, 2013.
- Subsequent Events (Post-June 30, 2013):
- Acquired a 10.8% interest in Shazam Entertainment Limited.
- Issued EUR 750 million and GBP 300 million in bonds.
- Terminated the Relationship Agreement with KPN and announced a voluntary tender offer to acquire all outstanding KPN shares at EUR 2.40 per share (approx. 35.4% premium).
- Secured a credit facility of up to EUR 7.2 billion to finance the KPN offer.
- Contingencies: No material changes in legal contingencies were reported, though certain operators challenged the revocation of fines related to COFECO-Monopolistic practices investigations.
Investor Verification Checklist
- KPN Valuation: Verify the rationale for maintaining a carrying value of Ps. 71.7 billion for KPN when the market fair value is Ps. 34.7 billion, especially given the subsequent tender offer announcement.
- Debt Structure: Review the significant increase in short-term debt (from Ps. 13.6B to Ps. 57.4B) and the weighted average cost of borrowed funds (4.9%) to assess liquidity risks.
- Foreign Exchange Impact: Assess the sensitivity of future earnings to currency fluctuations, given the Ps. 6.5 billion exchange loss in the current period.
- Share Repurchase Program: Confirm the impact of the Ps. 46.9 billion share repurchase on cash reserves and future capital allocation.
- IAS 19 Adoption: Understand the long-term impact of the new pension accounting standard on reported net income versus comprehensive income.