Business Context and Reporting Period
Company: America Movil S.A. de C.V.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter ended June 30, 2006 (and Year-to-Date)
Business Overview: America Movil is a leading telecommunications provider operating primarily in Latin America and the United States. The company reported strong subscriber growth across its major markets, including Mexico, Brazil, Colombia, and Argentina, reaching a combined total of 109.9 million lines (107.8 million wireless and 2.0 million fixed) by the end of June 2006.
Key Financial Metrics
| Metric (Millions of Mex$) | 2Q 2006 | 2Q 2005 | Y/Y Change | YTD 2006 | YTD 2005 |
|---|---|---|---|---|---|
| Total Revenues | 55,938 | 43,979 | +27.2% | 106,621 | 84,085 |
| EBITDA | 20,361 | 12,184 | +67.1% | 38,695 | 25,212 |
| EBITDA Margin | 36.4% | 27.7% | +8.7 pts | 36.3% | 30.0% |
| Operating Profit (EBIT) | 13,788 | 6,961 | +98.1% | 26,167 | 15,164 |
| Net Income | 10,834 | 8,157 | +32.8% | 20,772 | 12,798 |
| Earnings Per Share (Mex$) | 0.30 | 0.22 | +34.6% | 0.58 | 0.35 |
| Net Debt (Mex$) | 44,000 | 56,200 (Dec '05) | -21.7% | N/A | N/A |
Liquidity and Cash Flow: Cash and securities increased to 41.8 billion pesos (up 224.6% from Dec 2005). Operating cash flow was sufficient to cover capital expenditures (16.6 billion pesos YTD), share buybacks, and dividend payments (3.4 billion pesos combined).
Material Changes vs. Prior Period
- Subscriber Growth: Added 7.2 million net subscribers in 2Q06, bringing the total wireless base to 107.8 million (up 46.2% YoY). Major contributors included Colombia (+2.1M), Mexico (+1.6M), Brazil (+1.5M), and Argentina (+0.75M).
- Margin Expansion: EBITDA margins improved significantly across the portfolio. Brazil saw a 23.3 percentage point increase, Colombia 18.2 points, and Argentina 19.3 points, driven by scale efficiencies and falling subscriber acquisition costs relative to revenue.
- Debt Reduction: Net debt decreased by 12.2 billion pesos to 44.0 billion pesos by June 30, 2006, reflecting strong operational cash generation.
- One-Time Gain: Net income included a one-time gain of 1.2 billion pesos due to the cancellation of duties paid to the Mexican government under new license terms for Region 9.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted that the deceleration in the rate of subscriber growth (relative to the massive scale of operations) has improved the ability to accommodate new users, driving margin expansion. The Brazilian operation showed the most significant sequential service revenue increase (11.2%).
Outlook and Events:
- Acquisitions: Confirmed agreement to acquire Verizon's operations in the Dominican Republic, Puerto Rico, and Venezuela (jointly with Telmex).
- Network Rollout: GSM network rollout in Chile is expected to be operational before the end of Q3 2006.
- Rating Actions: Moody's confirmed the A3 rating; S&P and Fitch confirmed BBB+ ratings following the acquisition announcements.
Risks and Contingencies:
- Forward-Looking Statements: Results are subject to risks including general economic conditions, industry competition, and operating factors.
- Currency Fluctuations: Revenue growth was partly influenced by the depreciation of the Mexican peso against other regional currencies (except the Colombian peso).
- Regulatory: Changes in license terms and government duties (as seen in the Region 9 adjustment) can materially impact net income.
Investor Verification Checklist
- Subscriber Quality: Verify the sustainability of ARPU trends, as blended ARPU remained flat or declined in several key markets (Mexico, Brazil, Argentina, Chile) despite revenue growth.
- Debt Structure: Review the composition of the 7.5 billion USD total debt, noting the significant portion denominated in U.S. dollars (5.3 billion) versus local currencies.
- Acquisition Integration: Assess the financial impact and integration risks of the pending acquisitions in the Dominican Republic, Puerto Rico, and Venezuela.
- One-Time Items: Adjust net income analysis to exclude the 1.2 billion peso one-time gain from the Mexican government duty cancellation to gauge recurring profitability.
- Regulatory Environment: Monitor regulatory changes in key markets (Mexico, Brazil, Argentina) that could affect licensing fees and operational costs.