AMX

Business Context and Reporting Period

Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2018
Business Overview: América Móvil is a leading telecommunications provider operating across Latin America, the United States, and Europe. The company offers wireless and wireline services, including mobile voice, data, fixed broadband, and PayTV.

Key Financial Metrics (3Q 2018)

Note: Figures are in Mexican Pesos unless otherwise noted. Net Income includes a comprehensive financing income of 3.3 billion pesos driven by foreign exchange gains and provision releases.

Material Changes vs. Prior Period

• Subscriber Growth: Gained 1.1 million postpaid subscribers (7.6% YoY growth), led by Brazil (+472k), Mexico (+184k), and Colombia (+100k). Total wireless base declined slightly (-0.4% YoY) due to prepaid disconnections in Brazil and the U.S.
• Revenue Drivers: Service revenues grew 3.4% at constant exchange rates, the best performance in five quarters. Postpaid mobile revenues rose 8.6% and fixed-broadband revenues rose 6.2%.
• Profitability: EBITDA margin expanded to 28.8% from 27.3% a year prior. Approximately 1 percentage point of this expansion is attributed to the release of provisions in Brazil following a legal victory regarding tax regimes.
• Balance Sheet: Net debt decreased by 45 billion pesos from December 2017 levels. The company reduced net borrowings by 14.0 billion pesos in the first nine months of 2018.
• Regional Highlights:
  • Mexico: Service revenues up 4.7%; EBITDA margin expanded to 33.5%.
  • Brazil: Mobile service revenues up 10.5%; EBITDA margin surged to 35.1% (including one-time legal provision release).
  • Argentina: Revenues up 27.8% in local currency due to high inflation; EBITDA up 31.6%.
  • USA: Subscribers down 8.2% YoY, but ARPU increased 10.7% to $26.

Guidance, Outlook, and Risks

• Management Commentary: Management highlighted strong data traffic growth (up 78.2% YoY) and successful cost-reduction initiatives. The company continues to focus on postpaid growth and fixed-broadband expansion.
• Unusual Items:
  • Brazil Provisions: A significant portion of the EBITDA margin improvement in Brazil is due to the release of provisions related to a tax dispute (ICMS on PIS-COFINS).
  • Foreign Exchange: Net profit was bolstered by foreign exchange gains. Conversely, the strengthening U.S. dollar negatively impacted emerging market currencies, particularly in Argentina and Brazil.
• Risks and Contingencies:
  • Currency Volatility: Significant devaluation of the Argentine peso (down 50% since April) and Brazilian real creates economic contraction risks and translation impacts.
  • Political/Economic Instability: Ongoing political uncertainty in Nicaragua and economic challenges in Argentina are noted as headwinds.
  • Competition: Intense competition in Peru and Chile has pressured service revenues and ARPU in those markets.
• Capital Actions: The company called a hybrid bond due 2073 (900 million euros) and delivered KPN shares (5% stake) following the maturity of an exchangeable bond.

Investor Verification Checklist

• Quality of Earnings: Verify the sustainability of the EBITDA margin expansion in Brazil, specifically isolating the impact of the one-time legal provision release.
• Currency Exposure: Assess the impact of continued volatility in the Argentine peso and Brazilian real on consolidated revenue and debt servicing.
• Subscriber Mix: Monitor the shift from prepaid to postpaid subscribers and the associated ARPU trends, particularly in the U.S. and Brazil where prepaid churn is high.
• Debt Reduction: Confirm the trajectory of net debt reduction relative to the 2.0x LTM EBITDA target and future capital expenditure requirements.
• Regulatory Environment: Review ongoing regulatory risks in key markets like Peru (interconnection rates) and Colombia (arbitrage rulings).