Business Context and Reporting Period
Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2011
Accounting Standards: International Financial Reporting Standards (IFRS)
Reporting Currency: Mexican Pesos (MXN)
América Móvil is the largest provider of wireless communications services in Latin America, operating in 18 countries including Mexico, Brazil, Colombia, and the United States. The company provides mobile and fixed voice services, data services, and Pay TV. In 2011, the company completed a tender offer to acquire a controlling interest in Telmex (Telefónica de México), increasing its ownership to approximately 93%.
Key Financial Metrics (2011)
| Metric | 2011 (MXN Millions) | 2010 (MXN Millions) | Change |
|---|---|---|---|
| Operating Revenues | 665,302 | 607,856 | +9.5% |
| Operating Income | 154,776 | 152,321 | +1.6% |
| Net Profit | 88,124 | 98,905 | -10.9% |
| Net Profit Attributable to Parent | 82,854 | 91,123 | -9.1% |
| Operating Margin | 23.3% | 25.1% | -1.8 pts |
| Capital Expenditures | 121,186 | 81,942 | +47.9% |
| Total Debt | 380,619 | 303,100 | +25.6% |
| Cash and Cash Equivalents | 59,124 | 95,938 | -38.4% |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by 9.5% (Ps. 57.4 billion), driven primarily by growth in Pay TV revenues (+78.8%), mobile data (+32.8%), and mobile voice (+5.2%). This was partially offset by a decline in fixed voice revenues (-0.7%).
- Profitability Decline: Net profit decreased by 10.9% to Ps. 88.1 billion. The decline was primarily attributed to a significant net foreign exchange loss of Ps. 22.4 billion (compared to a gain of Ps. 5.6 billion in 2010) due to the depreciation of the Mexican peso against the U.S. dollar, and higher interest expenses resulting from increased indebtedness.
- Margin Compression: Operating margin decreased from 25.1% to 23.3%. This was driven by higher subscriber acquisition costs, increased network maintenance and customer service costs, and higher content costs for Pay TV and data services.
- Capital Expenditures: Capital expenditures surged by 47.9% to Ps. 121.2 billion, reflecting heavy investment in network expansion and the acquisition of licenses, particularly in Brazil and Mexico.
- Debt Levels: Total consolidated indebtedness increased by 25.6% to Ps. 380.6 billion, driven by the Ps. 62.5 billion tender offer for Telmex shares and the depreciation of the peso against dollar-denominated debt.
Guidance, Outlook, and Risks
- Capital Expenditure Budget: The company has budgeted capital expenditures of approximately U.S. $8.9 billion (approx. Ps. 124.5 billion) for 2012, with roughly one-third allocated to Brazil and one-fifth to Mexico.
- Regulatory Risks (Mexico): The company faces significant regulatory scrutiny from the Federal Antitrust Commission (Cofeco). In April 2011, Cofeco imposed a fine of Ps. 11,989 million on Telcel for alleged monopolistic pricing practices. Telcel is contesting this fine, and the resolution is suspended pending a petition for reconsideration. Additionally, there are ongoing disputes regarding mobile termination rates, which could materially reduce revenues if resolved adversely.
- Regulatory Risks (Brazil): The company is subject to various tax assessments and regulatory proceedings regarding interconnection fees and inflation adjustments. In 2011, the Brazilian Congress lifted the 49% cap on foreign ownership of cable operators, allowing América Móvil to acquire control of Net Serviços (Pay TV), which it did in March 2012.
- Foreign Exchange Risk: The company is highly exposed to currency fluctuations, as a significant portion of its debt is denominated in U.S. dollars while revenues are largely in local currencies. The 2011 results were heavily impacted by the peso's depreciation.
- Competition: Intense competition in Latin American markets continues to pressure pricing and increase subscriber acquisition costs.
Key Facts for Investor Verification
- Telmex Acquisition Status: Verify the final ownership percentage of Telmex (Telefónica de México) and the impact of the tender offer on consolidated financials, as the company moved from a 59.5% stake to over 93% in 2011.
- Cofeco Fine Resolution: Monitor the outcome of the Ps. 11.9 billion fine imposed by Mexico's Cofeco on Telcel, as the company believes payment is not probable but acknowledges the risk if legal challenges fail.
- Mobile Termination Rates: Track the resolution of interconnection rate disputes in Mexico, as lower rates mandated by regulators could significantly impact Telcel's revenue stream.
- Net Serviços Consolidation: Confirm the timing and accounting treatment of the consolidation of Net Serviços (Brazilian Pay TV), which was acquired in March 2012 but accounted for under the equity method in the 2011 report.
- Foreign Exchange Hedging: Review the effectiveness of the company's hedging strategies given the significant foreign exchange losses recorded in 2011 and the high proportion of dollar-denominated debt.