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 interim condensed consolidated financial statements for the three and nine months ended September 30, 2012.
Business Overview: The Company provides telecommunications services (mobile/fixed voice, data, internet, paid TV) in 18 countries across Latin America, the United States, and the Caribbean. Operations are segmented by geography, with Mexico (including Telcel) and Telmex reported as distinct segments.
Key Financial Metrics (Nine Months Ended Sept 30, 2012)
| Metric | 2012 (Ps. in thousands) | 2011 (Ps. in thousands) |
|---|---|---|
| Total Net Revenues | 577,057,537 | 501,207,508 |
| Operating Income | 121,958,978 | 116,234,013 |
| Net Profit (Total) | 77,038,877 | 70,916,846 |
| Net Profit (Attributable to Parent) | 76,478,456 | 66,344,225 |
| Earnings Per Share (Basic/Diluted) | Ps. 1.00 | Ps. 0.83 |
| Operating Cash Flow | 152,188,356 | 126,792,176 |
| Total Debt | 411,113,210 | 380,618,802 |
| Cash and Cash Equivalents | 47,954,902 | 59,123,996 |
Note: All figures are in thousands of Mexican pesos (Ps.).
Material Changes vs. Prior Period
- Revenue Growth: Total net revenues increased 15.1% year-over-year, driven by growth in services revenues (up 15.3%) and equipment sales (up 13.0%).
- Profitability: Net profit attributable to equity holders of the parent increased 15.3% to Ps. 76.5 billion. Operating income rose 4.9%.
- Exchange Gains: A significant contributor to profit growth was a net exchange gain of Ps. 12.2 billion in 2012, compared to a net exchange loss of Ps. 15.7 billion in 2011.
- Debt Levels: Total debt increased by Ps. 30.5 billion (8.0%) to Ps. 411.1 billion, reflecting new issuances of senior notes in various currencies (USD, EUR, GBP, CHF, CNY) to fund operations and acquisitions.
- Investing Activities: Net cash used in investing activities surged to Ps. 159.2 billion (from Ps. 72.9 billion in 2011), primarily due to Ps. 71.5 billion in acquisitions of investments (including KPN and Telekom Austria) and Ps. 92.6 billion in capital expenditures.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Strategic Moves
- Acquisitions: The Company significantly expanded its European footprint by acquiring a 27.7% stake in Koninklijke KPN N.V. (Netherlands) and a 22.76% stake in Telekom Austria AG. It also consolidated control of NET Serviços de Comunicação, S.A. in Brazil.
- Technology Deployment: Launched 4G LTE services in major Mexican cities and the Star One C3 satellite in Brazil to expand coverage for TV, data, and voice.
- Dividends: Shareholders approved a cash dividend of Ps. 0.20 per share, payable in two installments.
Risks and Contingencies
- Regulatory: A Ps. 11.99 billion fine previously imposed on Telcel by the Mexican Federal Antitrust Commission (Cofeco) was revoked in May 2012, subject to Telcel complying with specific undertakings. However, certain operators have challenged this revocation.
- Accounting Changes: Beginning Jan 1, 2012, the Company changed its accounting treatment for distributor commissions, recording them as expenses rather than revenue reductions. This resulted in a retrospective adjustment to 2011 comparative figures, increasing both reported revenue and expenses.
- Future Standards: The Company is evaluating the impact of new IFRS standards (IFRS 9, 10, 11, 12, 13, and amendments to IAS 19). Preliminary estimates suggest the adoption of IAS 19 (Employee Benefits) could decrease shareholders' equity by up to Ps. 52.0 billion upon adoption in 2013.
- Debt Covenants: The Company maintains a debt-to-EBITDA ratio limit of 4:1 and an EBITDA-to-interest coverage ratio of 2.5:1. As of September 30, 2012, the Company was in compliance with all covenants.
Investor Verification Checklist
- Acquisition Valuation: Verify the preliminary purchase price allocations and goodwill calculations for the KPN and Telekom Austria investments, as these are marked as preliminary.
- Regulatory Status: Monitor the status of the challenge to the Cofeco fine revocation regarding Telcel, as this could impact future liabilities.
- IFRS 19 Impact: Assess the potential Ps. 52 billion equity reduction from the upcoming IAS 19 adoption and its effect on future reported earnings and balance sheet strength.
- Currency Exposure: Review the sensitivity of results to exchange rate fluctuations, given the significant net exchange gain in 2012 and the large portion of debt denominated in foreign currencies (USD, EUR).
- Cash Flow Sustainability: Analyze the ability to sustain high capital expenditures (Ps. 92.6 billion in 9 months) and acquisition spending while maintaining dividend payouts and debt service obligations.