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: Second Quarter ended June 30, 2010 (and first half of 2010)
Business Overview: América Móvil is a leading telecommunications provider in the Americas, operating wireless, fixed-line, broadband, and television services. The company reported significant subscriber growth and revenue expansion driven by data services across its major markets including Mexico, Brazil, Argentina, and the United States (via Tracfone).
Key Financial Metrics
| Metric | 2Q 2010 | 2Q 2009 | Y/Y Change |
|---|---|---|---|
| Total Revenues (MXN Billions) | 100.9 | 90.1 | +11.9% |
| Service Revenues (MXN Billions) | 93.2 | 84.1 | +10.9% |
| Data Revenue Growth | +41.6% (Year-over-Year) | ||
| Operating Income (MXN Billions) | 28.9 | 27.3 | +5.8% |
| Net Income (MXN Billions) | 18.7 | 22.8 | -17.9% |
| Earnings Per Share (EPS) (MXN) | 0.58 | 0.69 | -16.0% |
| Net Debt (MXN Billions) | 71.6 | 83.5 (Dec 2009) | -11.9 Billion reduction |
| Capital Expenditures (MXN Billions) | 20.3 | N/A |
Note: Net Income decline is attributed to the absence of extraordinary foreign exchange gains recorded in the prior year.
Material Changes vs. Prior Period
- Subscriber Growth: Added 4.9 million wireless subscribers in 2Q10, a 30.7% increase over the same period in 2009. Total wireless base reached 211.3 million.
- Consolidation Changes: Completed tender offers for Carso Global Telecom (CGT) and Telmex Internacional (TII). As of July 1, 2010, the company began consolidating Telmex and TII results using the global consolidation method, increasing outstanding shares from 32.1 billion to 40.5 billion.
- Revenue Mix: Data revenues grew 41.6% annually, increasing their share of service revenues to 22% from 17.6% a year prior.
- Debt Reduction: Net debt decreased by 11.9 billion pesos since December 2009, despite a 26.8 billion peso cash payment for TII shares.
- Financing Activity: Issued the largest bond offering to date for a Latin American entity in European markets (Euro and Sterling), totaling approximately $2.4 billion equivalent.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted strong demand for data services, with several countries doubling data revenues year-over-year. Voice revenues grew slightly faster than regional GDP. The company expects continued expansion of 3G coverage and data services.
Outlook:
- Spectrum Acquisition: Telcel successfully bid for 1.7/2.1GHz spectrum in Mexico, enabling expansion of data services.
- Market Penetration: Wireless penetration in the region (excluding the U.S.) is estimated near 94%.
- Postpaid Growth: Postpaid subscriber bases are growing faster than prepaid in most regions, driven by coverage expansion and new technologies.
Risks and Contingencies:
- Foreign Exchange: Significant volatility in local currencies (e.g., Brazilian Real, Argentine Peso) impacts reported earnings and debt servicing.
- Regulatory: Ongoing spectrum auctions and regulatory changes in various Latin American markets.
- Integration: Risks associated with the full consolidation and integration of Telmex and TII operations.
Investor Verification Checklist
- Consolidation Impact: Verify the full financial impact of the July 1st consolidation of Telmex and TII on future quarterly reports, particularly regarding share count dilution and debt levels.
- Foreign Exchange Exposure: Assess the sensitivity of net income to currency fluctuations, given the significant drop in net income was due to the lack of prior-year FX gains.
- Data Revenue Sustainability: Confirm if the 41.6% data revenue growth rate is sustainable across all key markets (Brazil, Mexico, Argentina) or if it is concentrated in specific regions.
- Debt Servicing: Review the terms of the new Euro and Sterling bond issuances and their impact on future interest expenses.
- Churn Rates: Monitor churn rates in competitive markets like Brazil and the U.S. (Tracfone), where subscriber growth is high but ARPU may be under pressure.