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: Fourth Quarter ended December 31, 2017 (Announced February 13, 2018)
Business Overview: América Móvil is a leading telecommunications provider in Latin America and the United States, operating under brands such as Telcel, Claro, and Tracfone. The company provides wireless, fixed-line, broadband, and PayTV services across multiple countries including Mexico, Brazil, Argentina, Chile, Colombia, and the USA.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Performance: Consolidated revenues declined 2.0% in Mexican peso terms due to foreign exchange (FX) movements. At constant exchange rates, revenues increased 0.5%, with service revenues rising 1.4%.
• EBITDA Growth: Adjusted EBITDA increased 6.8% in MXN terms and 9.8% at constant exchange rates. Excluding the Puerto Rico operation, EBITDA would have risen 12.0%.
• Net Loss: The company reported a net loss of 11.3 billion pesos for the quarter, compared to a loss of 6.0 billion pesos in 4Q16. This was primarily driven by a comprehensive financing cost of 37.3 billion pesos, largely due to FX losses from the depreciation of the Mexican peso against the USD and Euro.
• Subscriber Trends:
  • Postpaid Wireless: Increased 6.4% year-on-year with 1.7 million net additions (1.0 million in Brazil, 206k in Mexico).
  • Fixed Broadband: Increased 4.2% year-on-year with 321k net additions.
  • Prepaid Wireless: Declined slightly, with total wireless lines down 0.6% year-on-year.
• Regional Highlights:
  • South America & Mexico: EBITDA rose 13.5% at constant exchange rates in both regions.
  • Puerto Rico: Revenues dropped 16.1% year-on-year due to Hurricane Maria, causing an EBITDA margin collapse to -3.5%.
  • USA (Tracfone): Revenues declined 8.3% and EBITDA fell 26.4% due to Safelink subscriber disconnections.

Guidance, Outlook, and Risks

• Management Commentary: Management highlighted strong data revenue growth driving mobile ARPU increases across most regions. Investments in fiber optics and 4G/4.5G networks are providing a competitive edge. The company successfully reduced net debt by 47.9 billion pesos during the year.
• Regulatory Risks:
  • Mexico: Ongoing discussions with the regulator (IFT) regarding the functional separation of Telmex and Telnor. Final terms were expected in March 2018.
  • Colombia: An arbitration claim against the Republic of Colombia regarding the reversal of telecommunications assets remains pending. A cash payment of 3.155 trillion COP associated with this ruling was excluded from full-year adjusted EBITDA.
• Operational Risks:
  • Puerto Rico: Continued challenges in restoring fixed-line services due to lack of electrical power (approx. 50% of the territory affected) and high operational costs for diesel-powered base stations.
  • FX Exposure: Significant volatility in the Mexican peso continues to impact reported financing costs and consolidated results.
• Strategic Initiatives: Secured broadcast rights for the Olympic Games in Latin America (2018-2024) and expanded PayTV operations in Argentina.

Key Facts for Investor Verification

• FX Impact: Verify the sensitivity of future earnings to Mexican peso depreciation, as FX losses drove the Q4 net loss despite operating profit growth.
• Puerto Rico Recovery: Monitor the timeline for full power restoration in Puerto Rico and its impact on fixed-line revenue recovery and EBITDA margins.
• Colombia Arbitration: Track the status of the arbitration claim against the Colombian government regarding asset reversion, which could result in significant financial adjustments.
• Mexico Regulatory Separation: Assess the financial impact of the functional separation of Telmex and Telnor as mandated by the IFT.
• USA Subscriber Mix: Evaluate the long-term sustainability of the USA segment (Tracfone) following significant Safelink disconnections and the shift to higher-ARPU brands.