Business Context and Reporting Period
Company: AMÉRICA MÓVIL, S.A.B. DE C.V. (AMX)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2017 (Unaudited)
Filing Date: September 27, 2017
AMX is a Mexican corporation providing telecommunications services (mobile/fixed voice, data, Pay TV, equipment sales) across 25 countries in the Americas, Europe, and the Caribbean. The financial statements are presented in thousands of Mexican pesos (Ps.).
Key Financial Metrics
| Metric (in thousands of Ps.) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|
| Operating Revenues | 513,586,207 | 456,367,778 |
| Operating Income | 61,525,470 | 53,800,506 |
| Net Profit (Year-to-Date) | 52,013,437 | 13,731,332 |
| Net Profit Attributable to Parent | 50,168,209 | 12,498,515 |
| Earnings Per Share (Basic & Diluted) | Ps. 0.76 | Ps. 0.19 |
| Operating Cash Flow | 96,588,751 | 98,342,617 |
| Capital Expenditures (PP&E) | (49,145,322) | (52,505,460) |
| Total Debt | 621,078,292 | 707,801,403 |
| Cash and Cash Equivalents | 20,897,722 | 23,218,383 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by approximately 12.5% year-over-year, driven primarily by significant growth in Mobile data services (up Ps. 32.4 billion) and Fixed data services.
- Profitability Surge: Net profit attributable to equity holders of the parent increased nearly 300% (from Ps. 12.5 billion to Ps. 50.2 billion). This was largely due to a massive foreign currency exchange gain of Ps. 35.3 billion in 2017, compared to a loss of Ps. 13.7 billion in 2016.
- Debt Reduction: Total debt decreased by approximately Ps. 86.7 billion, reflecting active debt repayment and favorable currency translation effects on foreign-denominated debt.
- Comprehensive Loss: Despite strong net profit, Total Comprehensive Income was a loss of Ps. 13.3 billion due to a Ps. 66.8 billion negative translation effect on foreign entities, contrasting with a Ps. 73.7 billion positive effect in the prior year.
Outlook, Risks, and Unusual Items
- Dividends: Shareholders approved a 2016 dividend of Ps. 0.30 per share. The first installment (Ps. 0.15) was paid in July 2017, with shareholders having the option to receive cash or Series L shares.
- Strategic Transactions:
- Announced a joint venture with JCDecaux for out-of-home advertising in Mexico (AMX to own 40%).
- Acquired 97.68% of Metronet (Croatia) in February 2017 and the remaining non-controlling interest in Q2 2017.
- Legal Contingencies (Colombia):
- Local Arbitration: An arbitral tribunal ordered Comcel (subsidiary) to pay Ps. 18.3 billion regarding asset reversion. Comcel paid under protest and is challenging the award.
- ICSID Arbitration: AMX initiated arbitration against the Republic of Colombia under the Mexico-Colombia FTA regarding the same asset reversion measures. The tribunal was constituted in July 2017.
- Regulatory Update (Mexico): The Mexican Supreme Court granted an injunction to Telcel against the "Zero Rate" interconnection provisions, restoring the IFT's authority to set cost-oriented rates effective January 1, 2018.
- Accounting Standards: The company is preparing for the adoption of IFRS 15 (Revenue) and IFRS 16 (Leases), which will impact revenue recognition timing and balance sheet liabilities for operating leases.
Investor Verification Checklist
- Verify the sustainability of the foreign currency exchange gain (Ps. 35.3 billion) and its impact on future earnings volatility.
- Monitor the outcome of the Colombia arbitration proceedings (both local and ICSID) and potential financial exposure.
- Assess the impact of the Mexican Supreme Court ruling on interconnection rates ("Zero Rate") on Telcel's future revenue streams starting 2018.
- Review the progress of the JCDecaux joint venture and the integration of the Metronet acquisition.
- Confirm the company's compliance with debt covenants (Debt/EBITDA < 4.0x; EBITDA/Interest > 2.5x), which were met as of June 30, 2017.