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: Unaudited preliminary results for the year ended December 31, 2014, compared to the audited year ended December 31, 2013.
Business Overview: América Móvil is the largest wireless provider in Latin America, operating in 25 countries under brands such as Telcel, Telmex, Claro, and TracFone. The company provides wireless, fixed-line, and Pay TV services. A significant development in 2014 was the consolidation of Telekom Austria (Europe segment) starting July 1, 2014, which impacts year-over-year comparability.
Key Financial Metrics
| Metric (in millions USD) | 2013 (Audited) | 2014 (Unaudited Preliminary) |
|---|---|---|
| Total Operating Revenues | $53.3 billion (Ps. 786.1 billion) | $57.6 billion (Ps. 848.3 billion) |
| Operating Income | $12.1 billion (Ps. 154.3 billion) | $10.1 billion (Ps. 149.2 billion) |
| Operating Margin | 19.6% | 17.6% |
| Net Profit | $5.1 billion (Ps. 75.0 billion) | $3.2 billion (Ps. 47.5 billion) |
| Net Debt | Ps. 442.2 billion | Ps. 529.9 billion |
| Cash and Equivalents | Ps. 48.2 billion | Ps. 66.5 billion |
| Capital Expenditures | N/A | Ps. 146.7 billion |
Note: USD figures are derived from the filing's conversion rate of Ps. 14.7348 to $1.00 as of Dec 31, 2014.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 7.9% (10.9% at constant exchange rates). Growth was driven by mobile data (+22.1%), fixed data (+14.7%), and Pay TV (+12.4%), partially offset by declines in mobile voice (-3.6%).
- Profitability Decline: Net profit decreased 36.6% to Ps. 47.5 billion. This was primarily due to a significant increase in foreign currency exchange losses (Ps. 28.6 billion in 2014 vs. Ps. 19.6 billion in 2013) and a higher effective tax rate (45.1% in 2014 vs. 28.8% in 2013).
- Operating Income: Decreased 3.3% to Ps. 149.2 billion. Excluding the consolidation of Telekom Austria, operating income decreased 1.2% due to higher subscriber acquisition costs and network maintenance expenses.
- Subscriber Base: Total wireless subscribers grew to 289.4 million (from 269.9 million in 2013). Total Revenue Generating Units (RGUs) increased to 78.4 million (from 69.4 million).
- Debt: Total indebtedness increased to Ps. 596.4 billion. Net debt rose to Ps. 529.9 billion, driven by the consolidation of Telekom Austria and capital expenditures.
Guidance, Outlook, and Recent Developments
- Telekom Austria Consolidation: The company increased its stake in Telekom Austria to 59.70% and began full consolidation in July 2014. This significantly altered the financial structure and comparability of the 2014 results.
- Regulatory Changes in Mexico: New telecommunications laws eliminated interconnection rates and domestic long-distance charges, negatively impacting mobile voice revenues in Mexico.
- Share Repurchases: The company repurchased approximately 2.32 billion Series L shares and 4.1 million Series A shares for Ps. 35.0 billion in 2014.
- Legal and Regulatory Contingencies:
- FTC Settlement: TracFone agreed to pay $40 million to settle FTC and class action claims regarding advertising practices for unlimited data plans.
- IFT Fine: Telmex was fined Ps. 14.4 million by Mexico's Federal Telecommunications Institute for failing to file a merger notification in 2008; the company is challenging this resolution.
- Spectrum Acquisitions: Paid $1.755 billion to acquire spectrum in Brazil, Argentina, Ecuador, and Puerto Rico to expand 4G LTE networks.
- Spin-off Plan: The Board approved a plan to spin off Telcel's towers and related infrastructure in Mexico, subject to regulatory approvals.
Investor Verification Checklist
- Exchange Rate Impact: Verify the sensitivity of future earnings to the Mexican peso's volatility, particularly against the U.S. dollar and Brazilian real, given the significant foreign exchange losses recorded in 2014.
- Telekom Austria Integration: Assess the long-term profitability contribution of the newly consolidated European segment versus the integration costs and debt load.
- Regulatory Risks in Mexico: Monitor the ongoing impact of the 2013 constitutional amendments and the Federal Telecommunications Institute (IFT) on voice revenue and interconnection fees.
- TracFone Settlement: Confirm the final terms and consumer refund process for the $40 million FTC settlement.
- Capital Allocation: Review the balance between high capital expenditures (Ps. 146.7 billion in 2014) for network expansion and the company's ability to service its growing debt load (Ps. 596.4 billion).