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: First Quarter ended March 31, 2013
Business Overview: América Móvil is a leading telecommunications provider in Latin America and the United States, offering wireless, wireline, broadband, and PayTV services. As of March 31, 2013, the company reported 328.2 million total accesses, comprising 262.9 million wireless subscribers, 30.3 million landlines, 17.8 million broadband accesses, and 17.2 million PayTV clients.

Key Financial Metrics

Note: Revenue growth at constant exchange rates was 6.1% year-over-year. EBITDA at constant exchange rates declined 1.4% year-over-year.

Material Changes vs. Prior Period

• Subscriber Growth: Total accesses increased 7.4% year-over-year. Wireless subscribers grew 6.9% to 262.9 million. However, Colombia reported disconnections of 2.7 million subscribers due to a change in reporting policy to count only active consuming clients.
• Revenue Drivers: Service revenues grew 4.6% at constant exchange rates, driven by mobile data (+25.6%) and PayTV (+20.6%). Equipment revenues rose 20.1% year-over-year.
• Profitability Pressure: EBITDA and Operating Profit declined in peso terms, primarily due to the appreciation of the Mexican peso against other Latin American currencies (e.g., +16.2% vs. Brazilian Real, +18.8% vs. Argentine Peso) and increased subscriber acquisition costs in high-growth markets like Brazil and the US.
• Net Income Volatility: Net income decreased 17.4% year-over-year. While operating profits fell, the decline was exacerbated by significantly lower foreign exchange gains compared to the prior year (17.4 billion MXN gain in 1Q13 vs. 19.3 billion MXN gain in 1Q12).
• Debt Reduction: Net debt decreased by 8.2 billion pesos despite 20.4 billion pesos in capital expenditures and 16.0 billion pesos in share buy-backs, aided by the stronger peso.

Guidance, Outlook, and Risks

• Strategic Investments: Management highlighted major investments in 4G-LTE and fiber-optic networks to support data services. 4G-LTE coverage was expanded to 10 cities in Mexico and 18 cities in Brazil.
• Market Outlook: The company expects rapid uptake of smartphones and tablets as device prices decline. Fixed-line growth is being driven by triple-play bundles, which accounted for 56% of net fixed additions outside Mexico.
• Corporate Actions:
  • Announced support for KPN's recapitalization program (3 billion euros equity, 2 billion euros hybrid bonds).
  • Issued 7.5 billion pesos in Global Peso bonds (maturing 2022, 6.45% coupon).
  • Acquired exclusive broadcasting rights for the 2014 Sochi and 2016 Rio Olympics across Latin America (excluding Brazil).
• Risks and Contingencies:
  • Foreign Exchange: Continued appreciation of the Mexican peso negatively impacts reported revenues and EBITDA from international operations.
  • Regulatory/Competition: Intense competition in high-density areas (e.g., Mexico's A segment) and regulatory changes affecting mobile termination rates (e.g., 50% reduction in Colombia).
  • Macroeconomic: Global economic headwinds and weakening economies in Latin America due to softer commodity prices.

Key Facts for Investor Verification

• Colombia Reporting Change: Verify the long-term impact of the 2.7 million subscriber disconnection in Colombia on future revenue and churn metrics.
• Currency Sensitivity: Assess the exposure of future earnings to the Mexican peso's strength against the Brazilian Real and Argentine Peso.
• US Growth Sustainability: Review the sustainability of Tracfone's 127% increase in net subscriber additions and the associated impact on EBITDA margins (which fell to 4.5% due to acquisition costs).
• Debt Profile: Confirm the trajectory of net debt reduction given the high capital expenditure requirements for 4G and fiber deployment.
• KPN Investment: Monitor the progress and financial impact of the KPN recapitalization and the resulting equity credit from rating agencies.