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: Unaudited interim condensed consolidated financial statements for the six months ended June 30, 2011.
Business Overview: The Company provides telecommunications services (mobile/fixed voice, data, internet, paid TV) in 18 countries across the United States, Latin America, and the Caribbean. Financial statements are presented in thousands of Mexican pesos (Ps.) and prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric (in thousands of Ps.) | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 |
|---|---|---|
| Operating Revenues | 315,934,675 | 295,028,844 |
| Operating Income | 76,913,037 | 79,440,449 |
| Net Profit for the Period | 50,751,378 | 47,549,115 |
| Net Profit Attributable to Parent | 47,661,868 | 42,129,996 |
| Earnings Per Share (Basic & Diluted) | Ps. 0.60 | Ps. 0.54 |
| Net Cash Flow from Operating Activities | 70,923,467 | 90,674,754 |
| Net Cash Flow Used in Investing Activities | (42,752,946) | (54,923,700) |
| Net Cash Flow Used in Financing Activities | (36,080,305) | 84,295,024 |
| Total Assets (June 30, 2011) | 895,667,220 | 876,694,534 (Dec 31, 2010) |
| Total Debt (June 30, 2011) | 304,157,902 | 303,100,156 (Dec 31, 2010) |
| Cash and Cash Equivalents (June 30, 2011) | 87,459,781 | 95,938,465 (Dec 31, 2010) |
Profitability Ratios:
- Operating Margin (2011): 24.3% (2010: 26.9%)
- Net Profit Margin (2011): 16.1% (2010: 16.1%)
- Ratio of Earnings to Fixed Charges (Six months ended June 30, 2011): 7.7
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by 7.1% year-over-year, driven by growth in services (Ps. 288.1B vs. Ps. 269.5B) and equipment sales (Ps. 27.9B vs. Ps. 25.6B).
- Operating Income Decline: Despite revenue growth, operating income decreased by 3.2% to Ps. 76.9B. This was primarily due to increased operating costs and expenses, which rose 10.9% to Ps. 239.0B. Depreciation and amortization increased by 8.3% to Ps. 45.1B.
- Net Profit Increase: Net profit attributable to equity holders of the parent increased by 13.1% to Ps. 47.7B. This improvement was supported by a significant net exchange gain of Ps. 6.5B (compared to Ps. 3.6B in 2010) and higher equity interest in net income of associated companies.
- Cash Flow Shift: Operating cash flow decreased by 21.8% to Ps. 70.9B, largely due to higher income tax payments (Ps. 30.7B vs. Ps. 22.9B) and working capital adjustments. Conversely, investing cash outflows decreased by 22.2%, and financing activities shifted from a net inflow in 2010 to a net outflow of Ps. 36.1B in 2011, driven by significant share repurchases (Ps. 29.6B).
- Debt Structure: Total debt remained relatively stable. The weighted average cost of borrowed funds decreased from 5.2% (Dec 31, 2010) to 4.7% (June 30, 2011).
Guidance, Outlook, Risks, and Unusual Items
- Forward-Looking Statements: The filing contains standard cautionary statements regarding risks such as economic/political conditions, inflation, exchange rates, regulatory developments, and competition. The Company does not undertake an obligation to update these statements.
- Significant Contingency (Cofeco Fine): In April 2011, the Mexican Competition Commission (Cofeco) imposed a fine of Ps. 11,989 million on subsidiary Telcel for alleged monopolistic pricing practices. Telcel contests the fine and plans to seek legal injunctions. The Company believes payment is not probable and has not recorded a provision, but acknowledges potential negative financial impact if legal challenges fail.
- Major Corporate Actions:
- Telmex Tender Offer: On August 1, 2011, the Board approved a tender offer to acquire all remaining outstanding shares of Teléfonos de México (Telmex) at Ps. 10.50 per share. If successful, América Móvil would own 100% of Telmex. The total potential cost is approximately Ps. 75.8 billion (US$ 6.5 billion).
- Share Repurchases: The Company repurchased shares totaling Ps. 29.3 billion during the six-month period.
- Stock Split: A two-for-one stock split became effective on June 29, 2011.
- Dividends: Cash dividends of Ps. 16.2 billion were paid during the period.
- Subsequent Event: In July 2011, subsidiary Embratel acquired the remaining 20% interest in Star One S.A. for Ps. 2.7 billion, resulting in 100% ownership.
Key Facts for Investor Verification
- Regulatory Risk: Verify the status of the Ps. 11.99 billion Cofeco fine against Telcel and the likelihood of the Company's legal defense succeeding.
- Telmex Acquisition: Monitor the progress and regulatory approval of the Ps. 75.8 billion tender offer to acquire 100% of Telmex, including potential delisting implications.
- Currency Exposure: Assess the impact of exchange rate fluctuations on reported earnings, given the significant net exchange gain (Ps. 6.5B) contributing to net profit.
- Capital Allocation: Review the sustainability of the current capital return strategy, which included Ps. 29.3 billion in share repurchases and Ps. 16.2 billion in dividends during the first half of 2011.
- Operating Margins: Investigate the drivers behind the decline in operating margin (from 26.9% to 24.3%) despite revenue growth, specifically regarding cost of sales and depreciation increases.