Business context and reporting period
América Móvil, S.A.B. de C.V. filed this Form 20-F on April 11, 2019, covering the fiscal year ended December 31, 2018. Although the request references 2018 Q4, the provided filing text reports annual results and does not provide a clear standalone fourth-quarter financial summary. The company provides wireless and fixed telecommunications, broadband, Pay TV and related services in 25 countries, reporting in Mexican pesos under IFRS.
Key financial metrics
Unless stated otherwise, amounts are Mexican pesos (Ps.) in billions. U.S. dollar conversions are for convenience and use the filing’s stated exchange rate.
| Metric | FY 2018 | FY 2017 | Change or context |
|---|---|---|---|
| Operating revenue | 1,038.2 | 1,021.6 | +1.6% reported; +3.5% at constant exchange rates |
| Operating income | 139.6 | 100.1 | +39.4%; operating margin 13.4% vs. 9.8% |
| Net profit | 54.5 | 32.2 | +69.5% |
| Net profit attributable to parent shareholders | 52.6 | 29.3 | Basic and diluted EPS Ps. 0.79 vs. Ps. 0.44 |
| Operating cash flow | 248.3 | 217.8 | Increased by Ps. 30.6 billion |
| Capital expenditures | 151.8 | 136.7 | Management’s measure includes network assets and license purchases |
| Cash and cash equivalents | 21.7 | 24.3 | Year-end balance |
| Total debt | 638.9 | 697.9 | Net debt Ps. 568.2 billion vs. Ps. 614.5 billion |
Cash flow from operations less reported capital expenditures was approximately Ps. 96.5 billion, a simple derived measure rather than a company-reported free-cash-flow figure. Year-end current assets were Ps. 349.1 billion and current liabilities Ps. 467.1 billion; management stated working capital was sufficient for present requirements. Short-term debt and current maturities rose to Ps. 96.2 billion from Ps. 51.7 billion. Total assets were Ps. 1,429.2 billion and total equity Ps. 245.9 billion.
- Service revenue was Ps. 863.6 billion, down 1.7% reported but up 0.5% at constant exchange rates. Equipment sales increased 21.9% to Ps. 174.6 billion, reflecting higher sales of data-enabled devices.
- Wireless operations represented 51.0% of revenue and fixed operations 21.4%. Total revenue-generating units were 359.9 million, down from 361.9 million: wireless subscribers declined to 275.8 million, while fixed RGUs increased to 84.1 million.
- The company reported Ps. 151.8 billion of capital expenditures and Ps. 4.2 billion of spectrum-license purchases. Cash dividends paid were Ps. 22.4 billion.
Material changes versus the prior comparable period
- Revenue growth was driven by mobile and fixed data and equipment sales, partly offset by declining mobile and fixed voice revenue. Wireless voice rates fell an average 11.12% at constant exchange rates.
- Operating costs and expenses fell 2.5% to Ps. 898.7 billion. Commercial, administrative and general expenses declined 5.6%, and depreciation and amortization fell 2.8%. Cost of sales increased 5.8%, partly due to higher-end handsets and financing plans.
- Operating income and margin improved substantially. The comparison benefits from the Ps. 17.4 billion reduction in other expenses, principally because 2017 included payment of a Colombian arbitration award of approximately US$1.0 billion.
- Net foreign-exchange losses narrowed to Ps. 7.3 billion from Ps. 13.8 billion. However, losses on derivative valuation and other financial items increased to Ps. 10.2 billion from Ps. 1.9 billion. Income tax expense rose 86.3% to Ps. 46.5 billion; the effective tax rate was 46.0%, versus 43.7%.
- Debt declined, but the near-term maturity burden increased. Approximately 88.7% of debt was denominated in currencies other than pesos before derivative effects; management reported a weighted average third-party debt cost of approximately 4.3%.
Outlook, risks, contingencies and unusual items
- Management budgeted 2019 capital expenditures of approximately US$8.5 billion (Ps. 169.0 billion), primarily to be funded from operating activities. The filing provides no specific revenue or earnings guidance.
- For 2019, approximately Ps. 96.2 billion of principal and amortization was due. Contractual obligations totaled Ps. 1,002.1 billion, including debt, purchase obligations and leases; the table excludes accounts payable, pensions, interest and derivative payments.
- After year-end, the company completed its acquisition of Telefónica Guatemala for US$333 million and agreed to acquire Telefónica El Salvador for US$315 million, subject to conditions including regulatory approval. It also agreed to acquire Nextel Brazil for US$905 million, subject to shareholder and regulatory approvals.
- Argentina was treated as hyperinflationary from 2018 under IAS 29. IFRS 15 was adopted in 2018 without restating prior periods; the company reported a Ps. 2.9 billion increase in 2018 net profit versus figures calculated without IFRS 15. IFRS 16 was adopted January 1, 2019; management estimated initial right-of-use assets and lease liabilities would increase by Ps. 113–132 billion, with no significant expected net-income impact.
- Key exposures include intense price and customer-acquisition competition, currency and interest-rate movements, spectrum availability, litigation and significant tax assessments, and regulatory changes. In Mexico, asymmetric regulation and mandated functional separation of Telmex and Telnor wholesale services remain important; implementation was due by March 2020. A new review of asymmetric measures was expected to conclude in 2020.
- Material proceedings include Brazilian tax and regulatory disputes and a Mexican fine of Ps. 2.5 billion against Telmex over alleged service-quality breaches, which Telmex is challenging. The filing also describes unresolved proceedings in Mexico and elsewhere; outcomes and potential effects are uncertain.
The independent auditor issued an unqualified opinion on the IFRS financial statements and on internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2018.
Important facts for investors to verify
- Confirm the annual-period basis: the filing is for FY 2018 and does not provide standalone Q4 results in the supplied text.
- Assess the sustainability of the operating-margin recovery, including the impact of the 2017 Colombian arbitration payment and 2018 tax-contingency resolutions.
- Review debt maturities, refinancing plans and currency exposure, particularly the Ps. 96.2 billion due in 2019 and the increase in current debt.
- Track the 2019 capex plan, cash generation, working-capital needs and the funding and closing conditions for announced acquisitions.
- Examine the outcome and provisioning for material tax, litigation and regulatory matters, including Mexico’s mandated wholesale separation and review of asymmetric regulation.
- Consider comparability effects from IFRS 15 and Argentina’s hyperinflation accounting, as well as the balance-sheet effects of IFRS 16.