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: First Quarter 2019 (Three months ended March 31, 2019)
Filing Date: May 24, 2019

América Móvil is a leading telecommunications provider in Latin America, operating in 25 countries with a focus on Mexico and Brazil. As of March 31, 2019, the company reported 277.4 million wireless subscribers and 84.5 million fixed revenue-generating units (RGUs). The company adopted IFRS 16 (Leases) effective January 1, 2019, which significantly impacted the presentation of debt and operating expenses compared to prior periods.

Key Financial Metrics

Note: USD figures are translated at Ps. 19.3201 to $1.00. Net debt excludes Ps. 116.3 billion of lease debt recognized under IFRS 16.

Material Changes vs. Prior Period

• Revenue: Reported total operating revenues decreased 3.1% year-over-year (YoY) due to the depreciation of operating currencies against the Mexican peso. At constant exchange rates, revenues increased 3.0%.
• Profitability: Operating income increased 15.7% YoY, driven by cost savings and improved margins in key segments. Net profit rose 6.8% YoY.
• Accounting Standard Change: The adoption of IFRS 16 resulted in lower reported operating costs but higher depreciation and interest expense. Without this change, operating income would have been lower, and net profit higher.
• Foreign Exchange: Net foreign currency exchange gain decreased significantly to Ps. 8.3 billion from Ps. 22.9 billion in Q1 2018.
• Subscriber Growth: Total wireless subscribers grew 0.6% to 277.4 million. Mexico Wireless added 1.6 million subscribers, while Brazil saw a 4.1% decline in total wireless subscribers.

Guidance, Outlook, and Risks

Management Commentary & Segment Performance

• Mexico Wireless: Strong performance with operating income up 23.3% and margin expansion to 28.7%, driven by postpaid growth and cost reductions.
• Brazil: Operating income surged 61.8% despite a 10.5% revenue decline (reported), primarily due to reduced interconnection costs and handset subsidies. Adjusted revenues grew 1.3%.
• Southern Cone: Reported operating income dropped 85.7% due to currency impacts in Argentina; however, adjusted operating income increased 62.2%.
• United States: Operating income fell 93.5% due to the termination of the Safelink program and increased costs.
• Europe: Operating income increased significantly (2,381%) due to lower brand amortization charges.

Risks and Contingencies

• Regulatory (El Salvador): The Salvadoran antitrust authority rejected the company's request to purchase Telefonica's operations in El Salvador due to missing documentation. A new request will be filed.
• Supply Chain (Huawei): U.S. restrictions on exports to Huawei, a key supplier, pose a risk to the timely delivery of equipment and services, though the specific impact is currently unpredictable.
• Forward-Looking Statements: The company cautions that actual results may differ due to economic conditions, regulatory developments, and competitive pressures in Mexico, Brazil, and other operating regions.

Investor Verification Checklist

• IFRS 16 Impact: Verify the specific impact of the new lease standard on debt ratios and operating margins, as it significantly alters comparability with prior periods.
• Currency Sensitivity: Assess the exposure to the Mexican peso versus the Brazilian real and Argentine peso, given the significant variance between reported and constant-currency results.
• Brazil Segment: Confirm the sustainability of margin improvements in Brazil amidst subscriber declines and competitive pressures.
• El Salvador Acquisition: Monitor the status of the regulatory approval for the Telefonica El Salvador acquisition.
• Debt Maturity: Review the debt maturity schedule, noting Ps. 69.6 billion due in 2020 and Ps. 52.6 billion in 2021.