Business context and reporting period
América Móvil, S.A.B. de C.V. filed this Form 20-F on April 28, 2021, covering the fiscal year ended December 31, 2020—not a standalone fourth quarter. The company reports under IFRS in Mexican pesos and operates telecommunications businesses in 25 countries. Mexico and Brazil are its largest markets. Unless otherwise noted, financial amounts below are Mexican pesos (Ps.) billions.
Financial results and liquidity
| Metric | 2020 | 2019 | Change/comment |
|---|---|---|---|
| Operating revenues | 1,016.9 | 1,007.3 | +0.9% reported; -0.4% at constant exchange rates |
| Service revenues | 857.9 | 834.4 | +2.8% reported; +1.7% at constant exchange rates |
| Equipment sales | 159.0 | 173.0 | -8.1% reported; -10.7% at constant exchange rates |
| Operating income | 165.4 | 154.8 | +6.8%; operating margin 16.3%, up from 15.4% |
| Net profit | 51.0 | 70.3 | -27.4% |
| Net profit attributable to parent shareholders | 46.9 | 67.7 | EPS Ps.0.71, down from Ps.1.03 |
| Cash from operating activities | 280.8 | 234.3 | +19.9% |
| Cash and cash equivalents at year-end | 35.9 | 19.7 | Increased year over year |
| Capital expenditures | 129.6 | 151.8 | 2021 budget approximately US$7.5 billion (Ps.152.1 billion), subject to change |
| Total debt, excluding lease liabilities | 628.4 | 624.3 | Short-term and current portion: Ps.148.1 billion |
| Net debt | 537.8 | 556.8 | Company-defined; deducts cash and specified investments |
Cost savings helped contain service and administrative costs. Depreciation and amortization rose 3.4% to Ps.164.2 billion. Net interest expense increased 6.2%. The company recorded Ps.65.4 billion of net foreign-exchange losses, versus a Ps.5.2 billion gain in 2019, as the peso weakened against currencies in which much of its debt is denominated. Derivative valuation and other financial items produced a Ps.1.3 billion net gain. The effective tax rate fell to 24.3% from 42.1%, principally reflecting Brazilian tax recoveries and reversals.
Current assets were Ps.360.2 billion against current liabilities of Ps.507.3 billion at year-end. Management stated that working capital was sufficient for current requirements and expected operating cash generation to meet longer-term liquidity needs. Lease liabilities were Ps.109.3 billion, comprising Ps.25.1 billion current and Ps.84.3 billion long-term. Approximately 87.5% of debt was denominated in currencies other than pesos before derivatives; weighted-average third-party borrowing cost was 3.72%. The company reported compliance with its debt covenants and no disclosed off-balance-sheet arrangements requiring SEC disclosure.
Material changes and operating performance
- Service-revenue growth offset lower handset and equipment sales and lower Pay TV revenue. At constant exchange rates, total revenue edged down.
- Total revenue-generating units rose to 368.2 million from 359.3 million: wireless subscribers increased to 287.5 million, while fixed RGUs declined to 80.7 million.
- Operating income and margin improved despite the pandemic. Management cited cost controls, lower commercial and administrative expenses, and lower service costs at constant exchange rates.
- Performance varied by segment. Mexico Wireless operating margin rose to 30.5%; Europe and the U.S. also reported higher segment operating income. Southern Cone and Central America experienced material declines in segment operating income. Brazil’s reported results were affected by currency movements and increased depreciation and amortization.
- At December 31, 2020, the company changed towers from the cost model to the IAS 16 revaluation model. The Ps.107.2 billion uplift was recognized in other comprehensive income, increasing reported property, plant and equipment and equity; it did not affect 2020 profit.
Outlook, commentary, risks and unusual items
- COVID-19: Lockdowns, store and service-center closures, mobility limits, and handset supply disruptions affected operations. In the second quarter, the company disconnected about five million wireless customers, including 4.6 million prepaid customers; restrictions also temporarily prevented some disconnections for non-payment. Management reported economic recovery in many markets during the second half, but future pandemic effects remained uncertain.
- Capital allocation and transactions: The company budgeted approximately US$7.5 billion of 2021 capital expenditures, primarily funded from operations. Shareholders approved a Ps.0.40-per-share dividend for 2021, payable in two installments. The company agreed to sell TracFone to Verizon for US$6.25 billion at closing, half cash and half Verizon shares, plus up to US$650 million in future performance-related and commercial consideration; closing remained subject to regulatory approvals. Claro also agreed to acquire a 32% stake in Oi Group’s Brazilian mobile business for R$3.6 billion, subject to approvals. A Latin American tower spin-off was approved in February 2021, subject to required processes and approvals.
- Key risks: Intense competition and pricing pressure; extensive and changing regulation, including Mexico’s asymmetric preponderant-agent rules and fixed-service separation requirements; spectrum availability and network investment needs; foreign-exchange volatility; economic, political, inflation and currency risks across operating countries; and cyber, service-continuity, supplier and COVID-related risks.
- Contingencies: Brazilian subsidiaries reported Ps.119.2 billion of tax contingencies, with Ps.17.6 billion provided for probable losses. The company also disclosed Mexican regulatory and tax matters, class-action litigation against Telcel, and a Brazilian antitrust proceeding for which the potential penalty could be substantial but was not reasonably estimable. Management contests significant assessments and proceedings; outcomes are uncertain.
- Accounting and estimates: Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included realization of deferred tax assets, goodwill impairment, Mexican pension discount rates, and tower revaluation. No goodwill impairment was recognized in 2020.
Important facts for investors to verify
- Whether service-revenue growth, customer trends, and cost savings can continue as pandemic effects and competitive conditions evolve.
- The drivers and potential recurrence of the Ps.65.4 billion foreign-exchange loss, and the company’s exposure to non-peso debt despite derivatives.
- Debt maturities, refinancing and liquidity needs, including Ps.148.1 billion of debt due within one year and the 2021 commercial paper maturity.
- Regulatory approvals, final consideration and closing timing for the TracFone sale; and approvals, price and integration implications for the Oi transaction and tower spin-off.
- The assumptions supporting the Ps.107.2 billion tower revaluation and the recoverability of Ps.66.3 billion of net deferred tax assets, including tax-loss assets.
- Potential financial exposure from tax, regulatory, antitrust and class-action matters, including the Brazilian tax contingencies and related provisions.