Business Context and Reporting Period
Company: América Móvil, S.A.B. de C.V.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2008
Accounting Standards: Mexican Financial Reporting Standards (Mexican FRS). The company ceased recognizing the effects of inflation in its financial statements beginning January 1, 2008, as the economic environment was deemed non-inflationary. Prior year data is presented in constant pesos as of December 31, 2007.
América Móvil is the largest provider of wireless communications services in Latin America, operating in 17 countries. As of December 31, 2008, the company reported approximately 182.7 million wireless subscribers and 3.8 million fixed lines. Mexico remains the largest single market (39.1% of revenues), followed by Brazil (20.4%).
Key Financial Metrics (2008)
| Metric | Amount (Mexican Pesos) | Amount (U.S. Dollars) |
|---|---|---|
| Operating Revenues | Ps. 345,655 million | U.S.$ 25,532 million |
| Operating Income | Ps. 95,546 million | U.S.$ 7,058 million |
| Net Income (Majority Interest) | Ps. 59,486 million | U.S.$ 4,393 million |
| Net Income (U.S. GAAP) | Ps. 54,162 million | U.S.$ 4,001 million |
| Operating Margin | 27.6% | - |
| Capital Expenditures | Ps. 57,134 million | U.S.$ 4,221 million |
| Total Debt | Ps. 143,486 million | U.S.$ 10,600 million |
| Cash and Cash Equivalents | Ps. 22,092 million | U.S.$ 1,632 million |
| Dividends Paid | Ps. 8,815 million | U.S.$ 651 million |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by 10.9% to Ps. 345.7 billion, driven by a 19.1% increase in the wireless subscriber base (to 182.7 million) and increased traffic. This growth was partially offset by declining Average Revenue Per User (ARPU) due to competitive pricing and a shift toward prepaid customers.
- Profitability: Operating income rose 12.2% to Ps. 95.5 billion. However, Net Income increased only marginally (1.5%) to Ps. 59.5 billion under Mexican FRS, primarily due to significant foreign exchange losses.
- Foreign Exchange Impact: The company recorded a foreign exchange loss of Ps. 13.7 billion in 2008, compared to a gain of Ps. 2.5 billion in 2007. This was caused by the depreciation of the Mexican peso against the U.S. dollar and other operating currencies. This was partially offset by Ps. 7.5 billion in fair value gains on currency derivatives.
- Accounting Changes: The cessation of inflation accounting in 2008 resulted in the elimination of monetary gains/losses previously recognized under Mexican FRS. Additionally, the company recognized impairment charges totaling Ps. 740 million (goodwill, plant, and licenses) in 2008.
Guidance, Outlook, and Risks
- Capital Expenditures: The company budgeted approximately U.S.$3 billion (Ps. 40.5 billion) for capital expenditures in 2009, focusing on network expansion and 3G deployment. Spending is expected to be financed by operating cash flows and new debt.
- Dividends: Shareholders approved a dividend of Ps. 0.30 per share for 2009, payable in July 2009.
- Regulatory Risks:
- Mexico: Ongoing investigations by Cofeco regarding substantial market power and monopolistic practices. Disputes over interconnection fees with fixed-line operators (specifically Axtel) remain unresolved and could materially reduce interconnection revenues.
- Colombia: The regulator (CRT) determined Comcel has a dominant position, imposing regulations on "off-net" call rates. Comcel is challenging this resolution.
- Brazil: Potential implementation of cost-based interconnection fee methodologies by Anatel in 2010 could impact revenues if the company is deemed to have significant market power.
- Economic Risks: The global economic crisis and recessionary environments in Latin America may adversely affect subscriber growth and ARPU. Currency fluctuations remain a significant risk to reported results.
Investor Verification Checklist
- Interconnection Fee Disputes: Verify the status of the interconnection fee litigation in Mexico (specifically with Axtel) and the potential financial impact of the "February 2009 Interconnection Plan."
- Currency Hedging: Review the effectiveness of the company's derivative instruments in mitigating the Ps. 13.7 billion foreign exchange loss and the exposure of U.S. dollar-denominated debt.
- Regulatory Outcomes: Monitor the final rulings on the "dominant carrier" investigations in Mexico (Cofeco) and Colombia (CRT), as these could impose tariff restrictions.
- Impairment Charges: Assess the sustainability of goodwill and asset valuations, particularly in the Honduran operation where impairment was recognized in 2008.
- U.S. GAAP Reconciliation: Note the difference between Mexican FRS Net Income (Ps. 59.5 billion) and U.S. GAAP Net Income (Ps. 54.2 billion), driven by differences in capitalized interest, depreciation methods, and non-controlling interest treatment.