América Móvil, S.A.B. de C.V. — FY 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017; filed April 26, 2018. Although the request refers to 2017 Q4, this is an annual report and the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash flow. Financial statements are prepared under IFRS and reported in Mexican pesos (Ps.); amounts below are generally Ps. billions unless stated otherwise.
Business context
América Móvil provides wireless and fixed-line voice and data, broadband, Pay TV, OTT and related services in 25 countries. Mexico and Brazil together represented more than half of its revenue-generating units (RGUs). At year-end, it reported approximately 279.0 million wireless subscribers and 82.8 million fixed RGUs, or 361.9 million total RGUs.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 | Change / context |
|---|---|---|---|
| Operating revenue | Ps. 1,021.6 | Ps. 975.4 | +4.7% reported; +2.0% at constant exchange rates |
| Operating income | Ps. 100.1 | Ps. 109.6 | −8.6%; operating margin 9.8% versus 11.2% |
| Net profit | Ps. 32.2 | Ps. 12.1 | +166.2%; profit attributable to parent equity holders was Ps. 29.3 versus Ps. 8.6 |
| Basic and diluted EPS | Ps. 0.44 | Ps. 0.13 | Improved year over year |
| Operating cash flow | Ps. 217.8 | Ps. 235.8 | −7.6% |
| Capital expenditure | Ps. 136.7 | Ps. 155.0 | Includes plant, property, equipment and license acquisition or renewal |
| Cash and cash equivalents | Ps. 24.3 | Ps. 23.2 | Year-end balance |
| Total debt | Ps. 697.9 | Ps. 707.8 | Net debt was Ps. 614.5, down Ps. 15.2 from 2016 |
Mobile data revenue grew 20.1% and fixed data revenue 10.3%; Pay TV revenue increased 11.0%. These gains were partly offset by declines in mobile voice revenue (8.5%) and fixed voice revenue (5.7%). Cost of sales and services was 48.6% of revenue, down from 49.7%; selling, administrative and general expenses were 23.6%, up from 23.4%. Depreciation and amortization rose 7.8% to Ps. 160.2 billion.
The 2017 income statement included Ps. 18.5 billion (approximately US$1.0 billion) related to a Colombian arbitration award. Management said operating income would have increased 8.3% year over year excluding this item. Net foreign-exchange loss narrowed to Ps. 13.8 billion from Ps. 40.4 billion; derivative valuation and related financial items were a net loss of Ps. 1.9 billion versus Ps. 16.2 billion in 2016. The effective tax rate was 43.7%, compared with 48.6%.
At year-end, current assets were Ps. 342.2 billion and current liabilities Ps. 413.3 billion (a derived current ratio of approximately 0.83). Total assets were Ps. 1,486.2 billion and total equity Ps. 260.6 billion. Debt due within one year was Ps. 51.7 billion. Management stated working capital was sufficient for present requirements. The weighted average cost of third-party debt was approximately 4.3%; approximately 88.1% of debt was denominated in currencies other than Mexican pesos before the effects of derivatives.
Material changes and operating developments
- Reported revenue growth exceeded constant-currency growth, reflecting foreign-exchange translation as the peso weakened against several operating currencies.
- Net profit recovered substantially from 2016, while operating income and operating margin declined, primarily due to the Colombian award and increased depreciation and amortization.
- Wireless subscribers declined 0.6% overall; fixed RGUs were broadly flat. Postpaid plans rose to 25.3% of the wireless base from 23.7%.
- Colombia reported a Ps. 4.7 billion operating loss, primarily reflecting the arbitration charge. Excluding that charge, management reported higher adjusted operating income.
- Puerto Rico operations incurred extraordinary reconstruction and operating costs following Hurricane Maria. Mexico’s network experienced overloads and power outages after the September 2017 earthquake.
- Telekom Austria rebranded regional operating companies under A1; the related brand amortization contributed to higher depreciation and amortization.
Outlook, risks and unusual items
- Investment outlook: Management budgeted 2018 capital expenditures of approximately US$8 billion (Ps. 148.3 billion), primarily to be funded from operating activities, and targeted rollout of 4.5G LTE coverage in most operations by the end of 2018.
- Regulatory exposure: Mexican asymmetric regulation continues to affect operations. An IFT-mandated functional separation of Telmex and Telnor wholesale fixed services has a two-year implementation period; the company said consequences remain uncertain and could be material. Telcel was permitted to charge a specified mobile termination rate beginning in 2018; Telmex was expected to be able to charge fixed termination rates beginning in 2019, subject to rates set by the IFT.
- Contingencies: The company is contesting significant tax assessments, particularly in Brazil, Mexico and Ecuador, and faces regulatory, labor, civil and other legal claims. It paid the Colombian award under protest and is challenging the underlying decisions. Adverse outcomes could materially affect results, financial condition or liquidity.
- Market and operating risks: Management cited intense competition, pricing pressure, declining voice usage, regulation, currency volatility, spectrum constraints, economic and political uncertainty, customer churn, network outages, cyber risks, and reliance on key suppliers. The consolidated monthly churn rate was 4.1% in 2017 versus 4.2% in 2016.
- Funding commitments: Contractual obligations totaled Ps. 990.9 billion, including debt, leases and purchase obligations; this table excludes accounts payable, pension liabilities, interest and derivative payments. The company reported no off-balance-sheet arrangements requiring SEC disclosure and was in compliance with debt covenants at year-end.
- Accounting changes: The company expected IFRS 9 adoption to reduce opening receivables/equity by approximately Ps. 2.5–2.75 billion. It estimated IFRS 15 adoption would increase equity by approximately Ps. 30–32 billion, principally through deferral of contract acquisition costs and changes to bundled handset/service revenue timing. IFRS 16, effective in 2019, was expected to bring most operating leases onto the balance sheet; the impact was still under assessment.
- Subsequent events and distributions: Telekom Austria redeemed a €600 million hybrid bond on February 1, 2018. Shareholders approved a Ps. 0.32-per-share cash dividend, payable in two installments in 2018.
Most important facts for investors to verify
- Review the audited financial statements and segment disclosures to assess constant-currency growth, margin trends, and the effect of the Colombian award on reported and adjusted results.
- Check the full debt, maturity, currency and derivative disclosures, including Ps. 51.7 billion due within one year, net debt of Ps. 614.5 billion, and exposure to foreign-exchange movements.
- Track the Colombian arbitration challenge and material tax, regulatory and other litigation, along with the related provisions and potential cash requirements.
- Monitor the costs, timetable and financial consequences of the Mexican mandated separation, as well as changes to interconnection regulation.
- Verify 2018 capital spending, cash generation, subscriber and RGU trends, and the realized impact of IFRS 9, IFRS 15 and IFRS 16.