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, 2013 (Q1 2013)
Filing Date: July 15, 2013
Business Overview: América Móvil is the largest wireless provider in Latin America, operating in 18 countries under brands such as Telcel, Telmex, Claro, and TracFone. The company provides wireless, fixed-line, and Pay TV services.
Key Financial Metrics
| Metric | Q1 2013 (Unaudited) | Q1 2012 (Restated) |
|---|---|---|
| Total Operating Revenues | Ps. 192,959 million (U.S.$ 15,618 million) | Ps. 192,498 million |
| Operating Income | Ps. 38,656 million (U.S.$ 3,129 million) | Ps. 42,998 million |
| Operating Margin | 20.0% | 22.3% |
| Net Profit (Period) | Ps. 26,906 million (U.S.$ 2,178 million) | Ps. 32,731 million |
| Net Profit Attributable to Parent | Ps. 26,871 million (U.S.$ 2,175 million) | Ps. 32,532 million |
| Total Assets | Ps. 948,969 million (U.S.$ 76,813 million) | Ps. 984,604 million (Dec 31, 2012) |
| Total Liabilities | Ps. 702,856 million (U.S.$ 56,892 million) | Ps. 729,756 million (Dec 31, 2012) |
| Long-term Debt | Ps. 379,304 million (U.S.$ 30,701 million) | Ps. 404,048 million (Dec 31, 2012) |
| Net Debt | Ps. 364.0 billion | Ps. 372.2 billion (Dec 31, 2012) |
| Cash and Cash Equivalents | Ps. 37.0 billion | Ps. 45.5 billion (Dec 31, 2012) |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased slightly by 0.2% (Ps. 0.5 billion) year-over-year. However, at constant exchange rates, revenues grew by 6.1%, driven by mobile data and Pay TV growth, offset by declines in mobile and fixed voice services.
- Profit Decline: Net profit decreased by 17.8% (Ps. 5.8 billion) to Ps. 26.9 billion. This was primarily due to lower operating income and a reduced net exchange gain.
- Operating Margin Compression: Operating margin fell from 22.3% to 20.0%. The decline was attributed to higher subscriber acquisition costs (handset subsidies), increased content charges for Pay TV, and higher costs to support mobile data growth.
- Currency Impact: The appreciation of the Mexican peso against the U.S. dollar and Brazilian real resulted in a net exchange gain of Ps. 17.3 billion (down from Ps. 19.3 billion in Q1 2012) and a valuation loss on derivatives of Ps. 11.0 billion.
- Segment Performance:
- Brazil: Operating income dropped 24.0% due to regulatory caps on rates and aggressive promotions.
- United States: Revenues surged 36.0% due to subscriber growth, but the segment swung to an operating loss (margin -3.3%) due to high acquisition costs.
- Mexico: Revenues were flat (+0.7%), but operating income fell 4.6% due to discounts and subsidies.
Guidance, Outlook, and Recent Developments
- Capital Expenditures: The company spent approximately Ps. 20.4 billion in Q1 2013 on capital expenditures, focusing on 4G/LTE technology and network deployment.
- Share Repurchases: In Q1 2013, the company repurchased approximately 1.4 billion Series L shares and 159.2 thousand Series A shares for Ps. 16.0 billion. In Q2 2013, an additional Ps. 30.0 billion was spent on repurchases.
- Recent Acquisitions and Investments:
- 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% stake in Shazam Entertainment Limited and entered a strategic alliance.
- CIE Media Unit: Acquired 100% of CMI, the media and advertising unit of Corporación Interamericana de Entretenimiento.
- KPN Rights Offering: Subscribed to a rights offering in KPN N.V., increasing ownership to 29.77%.
- Regulatory Environment: A new telecommunications bill in Mexico entered into force on June 12, 2013, requiring extensive implementation and new regulatory measures.
- Forward-Looking Statements: Management cautions that actual results may differ due to economic conditions, exchange rates, regulatory developments, and competition.
Investor Verification Checklist
- Currency Sensitivity: Verify the impact of Mexican peso appreciation on reported earnings versus constant currency performance, particularly in Brazil and the U.S.
- Margin Pressure: Assess the sustainability of operating margins given the high costs of handset subsidies and content acquisition in competitive markets like Brazil and the U.S.
- Debt Structure: Review the maturity profile of long-term debt (Ps. 379 billion) and the 48.2% exposure to U.S. dollar-denominated debt.
- Regulatory Risks: Monitor the implementation of the new Mexican telecommunications law and its potential impact on interconnection rates and market structure.
- Integration of Acquisitions: Track the regulatory approval and integration progress of the Start Wireless Group acquisition and the financial impact of the Shazam investment.