AMX

Business Context and Reporting Period

Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 6-K (Report of a Foreign Private Issuer)
Reporting Period: Second Quarter 2020 (Ended June 30, 2020)
Context: The quarter was characterized by widespread lockdown measures across the company's region of operations to control the spread of COVID-19. These measures disrupted commercial activities, closed retail shops and customer-care centers, and restricted client mobility, leading to significant disconnections in the prepaid wireless segment.

Key Financial Metrics

Note: Net debt increased primarily due to the revaluation of dollar and euro-denominated debts against the Mexican peso. On a cash flow basis, net debt was reduced by 8.3 billion MXN in the first six months of 2020.

Material Changes vs. Prior Period

• Subscriber Base: The company disconnected approximately 5 million wireless clients in the quarter (4.6 million prepaid, 0.5 million postpaid). Disconnections were most severe in Mexico (1.7M prepaid), Peru (1.0M prepaid), and Central America (1.0M prepaid). Conversely, the fixed-line platform gained 450,000 new broadband accesses.
• Revenue Composition: While total revenues grew slightly, this was driven by service revenues (+6.5% in MXN terms, +0.8% at constant exchange rates excluding Argentina) and currency effects. Equipment revenues plummeted 27.2% due to store closures and restricted handset financing.
• Profitability: Net income surged 40% year-over-year, aided by a 6.3% reduction in financing costs and a 10.5% jump in operating profit. EBITDA margins improved across the majority of operations.
• Regional Performance:
  • United States (TracFone): A standout performer with 214,000 net subscriber additions and a 76.2% increase in EBITDA, driven by US government stimulus and a new cost-reduction agreement.
  • Brazil: Revenues were flat proforma, but EBITDA grew 10.7% with a record 40.0% margin.
  • Colombia: The only major operation to add clients across all segments (mobile and fixed) during the quarter.
  • Argentina: Revenues declined 10.1% in constant peso terms due to inflation and equipment sales drops, though fixed-line service revenues grew 13.9%.

Outlook, Risks, and Management Commentary

• Recovery Trends: Management noted that as confinement restrictions began to lift, an improving trend became apparent in practically all operations, particularly in the mobile segment.
• Debt Management: The company issued a $1 billion ten-year note in May 2020 at a 2.875% coupon, the lowest for that tenor. Management is exploring alternatives to monetize tower assets to further reduce debt.
• Risks:
  • COVID-19 Impact: Continued lockdowns and economic contraction threaten prepaid rechargeability and postpaid plan downgrades.
  • Currency Volatility: Significant exposure to foreign exchange fluctuations, particularly the depreciation of the Brazilian Real and the hyper-inflationary environment in Argentina.
  • Bad Debt Provisions: Increased provisions in Colombia and Peru due to economic hardship.
• Unusual Items: The filing excludes Argentina from constant exchange rate comparisons due to the adoption of hyper-inflationary accounting (IAS 29). Significant foreign exchange losses were recorded in the first half of 2020.

Investor Verification Checklist

• Subscriber Churn: Verify the sustainability of the 5 million subscriber loss and the pace of recovery as lockdowns ease.
• Argentina Accounting: Review the specific impact of IAS 29 hyper-inflationary accounting on consolidated figures and future comparability.
• Debt Maturity Profile: Assess the impact of the rising net debt (765 billion MXN) and the effectiveness of the new $1 billion issuance in managing liquidity.
• Fixed-Line Growth: Confirm the trajectory of broadband growth (450k new accesses) as a counterbalance to wireless declines.
• TracFone Margins: Validate the sustainability of the 76.2% EBITDA growth in the US following the new cost-reduction agreement.