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, 2013
Announcement Date: February 11, 2014

América Móvil is a leading telecommunications provider operating primarily in Latin America and the United States. The company reported financial and operating results for Q4 2013, highlighting growth in wireless subscribers, fixed-line RGUs, and service revenues driven by mobile data and PayTV.

Key Financial Metrics

Capital Allocation: Net borrowings funded 244 billion MXN in outlays, including 130 billion MXN in capital expenditures, 86.5 billion MXN in shareholder distributions (dividends and buybacks), and 15.4 billion MXN in acquisitions.

Material Changes vs. Prior Period

• Subscriber Growth: Total accesses reached 339 million (+4.2% YoY). Wireless subscribers grew 3.2% to 270 million, while fixed-line RGUs increased 8.2% to 69 million.
• Revenue Drivers: At constant exchange rates, total revenues rose 7.8%. Mobile data (+18.8%) and PayTV (+21.8%) were the primary growth engines. Service revenues increased 5.4% at constant rates.
• Cost Structure: Equipment costs rose 15.4% YoY, significantly outpacing total cost growth, driven by increased smartphone sales. Depreciation and amortization remained flat.
• Financing Costs: Comprehensive financing charges increased 52.5% to 17.8 billion MXN, largely due to a 10.2 billion MXN foreign exchange loss caused by currency fluctuations (Euro, Real vs. Peso).
• Regional Performance:
  • Brazil: Revenues up 10.9%; EBITDA surged 29.3%.
  • USA: Revenues up 13.8%; EBITDA tripled to 119 million USD following the Page Plus acquisition.
  • Mexico: Revenues up 2.3%; EBITDA declined 3.6% due to equipment costs.
  • Chile: EBITDA dropped 28.3% due to higher link costs pending submarine cable operations.

Outlook, Risks, and Contingencies

Management Commentary: Management noted signs of economic recovery in Mexico and the U.S. The company expects continued growth in mobile data and PayTV. Share buybacks contributed to the increase in EPS.

Risks and Contingencies:

• Regulatory (Mexico): Received a notice from the Federal Telecommunications Institute (Ifetel) on December 5, 2013. A response was submitted, with a final resolution expected by March 9, 2014.
• Regulatory (Ecuador): Imposed a fine of 138.4 million USD for alleged anticompetitive practices regarding network deployment rights. The company considers the fine unjustified and plans to challenge it in court.
• Currency Volatility: Significant foreign exchange losses impacted net income. The Argentine peso floated freely in January 2014, depreciating 19% against the USD before recovering slightly.
• Acquisition Integration: Completed acquisition of Page Plus (Start Wireless Group) in the U.S., adding 1.4 million customers.

Investor Verification Checklist

• FX Impact: Verify the sensitivity of future earnings to currency fluctuations, particularly the Mexican Peso, Brazilian Real, and Argentine Peso, given the 10.2 billion MXN FX loss in Q4.
• Regulatory Resolution: Monitor the outcome of the Ifetel notice in Mexico and the Ecuador antitrust fine challenge, as these could impact operations and costs.
• Equipment Costs: Assess the sustainability of EBITDA margins given the 15.4% rise in equipment costs driven by smartphone subsidies.
• Debt Levels: Review the trajectory of net debt, which increased to 442 billion MXN (1.7x EBITDA), and the company's ability to service this debt amidst currency volatility.
• Chile Performance: Investigate the timeline for the new submarine cable operations to determine when EBITDA margins in Chile may recover from the 28.3% decline.