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: Unaudited interim condensed consolidated financial statements for the nine-month and three-month periods ended September 30, 2014.
Filing Date: March 4, 2015
Business Overview: AMX provides mobile and fixed voice services, data services, internet access, and paid television across Latin America, the United States, and Europe. The company operates through segments including Mexico (Telcel and Corporate), Telmex, Brazil, Southern Cone, Colombia, Andean, Central America, U.S.A., Caribbean, and Europe.
Key Financial Metrics
All figures in thousands of Mexican pesos (Ps.) unless otherwise noted.
| Metric | 9 Months Ended Sep 30, 2014 | 9 Months Ended Sep 30, 2013 | 3 Months Ended Sep 30, 2014 | 3 Months Ended Sep 30, 2013 |
|---|---|---|---|---|
| Operating Revenues | 618,957,639 | 581,980,689 | 220,883,984 | 194,221,095 |
| Operating Income | 115,570,120 | 117,009,605 | 37,638,253 | 37,795,057 |
| Net Profit (Total) | 44,109,914 | 57,802,459 | 11,203,821 | 16,651,444 |
| Net Profit (Attributable to Parent) | 42,839,347 | 57,448,148 | 10,119,700 | 16,384,305 |
| Earnings Per Share (Basic/Diluted) | Ps. 0.62 | Ps. 0.78 | Ps. 0.15 | Ps. 0.22 |
| Cash and Cash Equivalents (Sep 30, 2014) | 89,728,451 | — | — | — |
| Total Debt (Sep 30, 2014) | 576,622,790 | — | — | — |
| Operating Cash Flow (9 Months) | 160,865,360 | 125,804,220 | — | — |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 6.4% year-over-year for the nine-month period, driven primarily by growth in mobile data services (up 19.7%) and fixed data services (up 12.3%). Mobile voice services declined slightly (3.8%).
- Profitability Decline: Net profit attributable to equity holders of the parent decreased 25.4% year-over-year for the nine-month period. This decline is attributed to higher effective tax rates (45.8% vs. 33.4% in 2013) due to non-deductible losses on the sale of KPN shares and derecognition of equity investments, as well as increased interest expenses.
- Debt Increase: Total debt increased from Ps. 490.3 billion at December 31, 2013, to Ps. 576.6 billion at September 30, 2014. This increase is largely due to the acquisition of Telekom Austria (TKA) and new debt issuances.
- Acquisition of Telekom Austria: In July 2014, AMX obtained control of Telekom Austria AG (TKA), consolidating its results. The acquisition generated Ps. 37.9 billion in goodwill.
- Investment in Associates: The carrying value of investments in associates decreased by Ps. 40.7 billion, primarily due to the sale of KPN shares (resulting in a Ps. 5.3 billion loss) and the derecognition of the TKA investment upon consolidation.
Guidance, Outlook, Risks, and Unusual Items
- Regulatory Risks (Mexico): The Board approved measures to reduce AMX's market share in Mexico to under 50% to cease being a "preponderant economic agent." This includes the potential separation of cellular sites and passive infrastructure. The company is analyzing assets for potential sale under IFRS 5, though conditions have not yet been met.
- Regulatory Risks (Brazil): Claro Brazil was granted 20MHz of 700MHz spectrum for 15 years, paid for in December 2014 (Ps. 9.7 billion).
- Legal Contingencies:
- FTC Settlement: In January 2015, AMX (via Tracfone) finalized a stipulated order with the U.S. FTC regarding data marketing practices, agreeing to pay US$40 million. A provision of US$35.1 million was recorded in 2014.
- IFT Fine: On January 9, 2015, the Mexican Federal Telecommunications Institute (IFT) fined Telmex Ps. 14.4 million for failing to disclose a 2008 merger. AMX intends to challenge this resolution.
- Corporate Restructuring (Brazil): Approved in July 2014 and effective January 1, 2015, the merger of Embratel, Claro, and NET into a single entity (Claro).
- Financial Covenants: The company remains in compliance with debt covenants, including a debt-to-EBITDA ratio not exceeding 4:1 and an EBITDA-to-interest ratio not below 2.5:1.
Investor Verification Checklist
- Telekom Austria Integration: Verify the final purchase price allocation and the impact of TKA's consolidation on future earnings and debt levels.
- Regulatory Compliance in Mexico: Monitor the progress of the "preponderant economic agent" divestiture plan and the potential impact on asset sales and revenue.
- Tax Rate Volatility: Assess the sustainability of the effective tax rate, which spiked to 45.8% in 2014 due to non-deductible investment losses.
- Debt Maturity Profile: Review the debt maturity schedule, noting significant maturities in 2016 (Ps. 67.5 billion) and the weighted average cost of funds (4.7%).
- FTC Settlement Impact: Confirm the full financial impact of the US$40 million FTC settlement and any related class action liabilities.