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: Nine months ended September 30, 2012 (filed November 27, 2012)
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 mobile and fixed-line voice, data, and pay television services.
Key Accounting Change: Beginning January 1, 2012, the company began presenting commissions paid to distributors as a gross commission expense rather than a reduction in revenue. This change was retroactively applied to 2011 comparative data.
Consolidation Impact: The company acquired control of Net Serviços de Comunicação, S.A. (Net Serviços), a Brazilian pay TV provider, in Q1 2012. Results for Net Serviços are consolidated for the nine months ended September 30, 2012, whereas they were previously accounted for using the equity method.
Key Financial Metrics (Nine Months Ended Sept 30, 2012)
| Metric | 2012 (MXN Billions) | 2011 (MXN Billions) | 2012 (USD Millions) |
|---|---|---|---|
| Total Operating Revenues | 577.1 | 501.2 | 44,675 |
| Operating Income | 122.0 | 116.2 | 9,442 |
| Net Profit | 77.0 | 70.9 | 5,964 |
| Net Profit Attributable to Parent | 76.5 | 66.3 | 5,921 |
| Operating Margin | 21.1% | 23.2% | - |
| Total Assets | 966.1 | 945.6 | 74,792 |
| Total Liabilities | 662.8 | 650.0 | 51,313 |
| Long-Term Debt | 390.8 | 354.0 | 30,254 |
| Net Debt | 363.2 | 321.5 | - |
| Cash and Cash Equivalents | 48.0 | 59.1 | - |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 15.1% (MXN 75.9 billion). At constant exchange rates and excluding Net Serviços consolidation, revenue grew 7.2%.
- Segment Performance:
- Mobile Data: Increased 36.4% (32.8% at constant rates) driven by value-added services and device usage.
- Fixed Data: Increased 18.3% (6.0% at constant rates) due to residential and corporate broadband growth.
- Paid Television: More than tripled primarily due to the consolidation of Net Serviços.
- Fixed Voice: Decreased 8.0% due to lower long-distance traffic and interconnection rates.
- Cost Structure: Cost of sales and services rose 22.4%, increasing from 41.2% to 43.8% of revenue. This was driven by the Net Serviços consolidation, higher content costs, and equipment sales.
- Operating Margin: Declined from 23.2% to 21.1% due to higher subscriber acquisition costs, content programming costs, and network maintenance expenses.
- Financial Items:
- Exchange Gain: Recorded a net exchange gain of MXN 12.2 billion (vs. a loss of MXN 15.7 billion in 2011) due to the appreciation of the Mexican peso.
- Derivatives: Recognized a net fair value loss of MXN 7.0 billion (vs. a gain of MXN 8.5 billion in 2011) related to hedging instruments.
- Interest Expense: Net interest expense increased 43.4% due to higher net debt levels.
Guidance, Outlook, and Recent Developments
Recent Developments:
- Antitrust Fine Revocation: The Mexican Federal Antitrust Commission revoked a MXN 11.989 billion fine imposed on Telcel in 2011, subject to certain undertakings.
- Investment in KPN: Completed a tender offer to acquire approximately 27.7% of Koninklijke KPN N.V. (Netherlands) for approximately €3.047 billion (MXN 52.2 billion).
- Investment in Telekom Austria: Acquired approximately 22.76% of Telekom Austria AG for approximately €954 million (MXN 15.977 billion).
- Acquisition of Simple Mobile: TracFone acquired Simple Mobile, Inc. (U.S. MVNO) for approximately USD 118 million.
Liquidity and Capital Allocation:
- Capital Expenditures: Approximately MXN 92.6 billion spent in the first nine months of 2012, including 4G/LTE deployment.
- Dividends: Paid MXN 7.6 billion in dividends.
- Share Repurchases: Repurchased approximately 931 million shares (Series L and A) for MXN 15.2 billion.
- Debt Profile: Total indebtedness was MXN 411.1 billion. Approximately 51% is denominated in U.S. dollars, and 91% bears fixed interest rates.
Risks and Uncertainties: The filing includes a cautionary statement regarding forward-looking statements. Key risks include economic and political conditions in Mexico and Brazil, inflation, exchange rate fluctuations, regulatory developments, and competition.
Investor Verification Checklist
- Verify the impact of the accounting change regarding distributor commissions on year-over-year revenue comparisons.
- Assess the sustainability of the 36.4% growth in mobile data revenues and the associated cost of equipment.
- Review the integration progress and financial contribution of the newly consolidated Net Serviços (Brazil Pay TV).
- Monitor the status of the challenged revocation of the Telcel antitrust fine by other operators.
- Evaluate the strategic fit and financial impact of the new European investments (KPN and Telekom Austria).
- Track the company's ability to manage net debt levels (MXN 363.2 billion) amidst high capital expenditure requirements for 4G/LTE.