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: Six months ended June 30, 2011 (Filing Date: August 31, 2011)
Business Overview: América Móvil is a leading telecommunications provider operating in Mexico, Brazil, and various other Latin American and Caribbean markets, offering mobile and fixed voice, data, and pay TV services.
Key Financial Metrics
Revenue and Profit (Six Months Ended June 30, 2011):
- Total Operating Revenues: Ps. 315.9 billion (U.S.$ 26.7 billion), an increase of 7.1% year-over-year.
- Operating Income: Ps. 76.9 billion (U.S.$ 6.5 billion), a decrease of 3.2% year-over-year.
- Net Profit: Ps. 50.8 billion (U.S.$ 4.3 billion), an increase of 6.9% year-over-year.
- Operating Margin: 24.3% (down from 26.9% in the prior period).
- Effective Tax Rate: 31.9% (down from 33.8% in the prior period).
Liquidity and Debt (As of June 30, 2011):
- Total Assets: Ps. 895.7 billion (U.S.$ 75.7 billion).
- Total Liabilities: Ps. 560.9 billion (U.S.$ 47.4 billion).
- Net Debt: Ps. 216.8 billion (up from Ps. 206.7 billion at year-end 2010).
- Total Indebtedness: Ps. 304.2 billion (43% denominated in U.S. dollars).
- Cash and Cash Equivalents: Ps. 87.5 billion.
- Ratio of Earnings to Fixed Charges: 7.7x for the six months ended June 30, 2011.
Material Changes Versus Prior Period
Revenue Drivers:
- Mobile Data: Revenues increased 30.6% (Ps. 11.1 billion) driven by value-added services (SMS, web browsing).
- Pay TV: Revenues surged 69.5% (Ps. 3.1 billion), primarily due to subscriber growth in Brazil.
- Fixed Voice: Revenues declined 2.5% due to reduced long-distance traffic and lower interconnection rates.
Expense and Margin Pressures:
- Cost of Sales and Services: Increased 11.0%, outpacing service revenue growth (6.9%) due to higher handset costs, airtime resale expenses (U.S. plans), and content acquisition costs.
- Operating Income Decline: Despite revenue growth, operating income fell 3.2% due to higher subscriber acquisition costs, network maintenance, and royalty payments.
- Net Profit Growth: Net profit increased despite lower operating income, aided by a net foreign exchange gain of Ps. 6.5 billion (vs. Ps. 3.6 billion prior year) and a lower effective tax rate.
Guidance, Outlook, Risks, and Recent Developments
Recent Developments:
- Acquisitions/Divestitures: Agreed to acquire Digicel operations in Honduras and El Salvador while divesting operations in Jamaica (expected Q3 2011 completion).
- Star One Acquisition: Subsidiary Embratel acquired the remaining 20% interest in Star One S.A. for U.S.$ 235 million in July 2011.
- Telmex Tender Offer: Announced a tender offer for approximately 40% of Telmex shares not owned by América Móvil, with a total price of approximately Ps. 75.8 billion (U.S.$ 6.5 billion), expected to close in Q4 2011.
- Stock Split: Completed a 2-for-1 stock split in June 2011.
Risks and Contingencies:
- Regulatory Fine: The Mexican Competition Commission (Cofeco) levied a fine of Ps. 11.99 billion on subsidiary Telcel for alleged monopolistic pricing. Telcel is contesting the fine; no provision has been recorded as payment is not deemed probable, though a negative financial impact is possible if legal challenges fail.
- Interconnection Rates: Cofetel mandated significant reductions in interconnection rates for Telmex (e.g., long-distance rates reduced from Ps. 0.11550 to Ps. 0.03951 per minute). The company plans to challenge these resolutions but will comply pending the outcome.
- Forward-Looking Statements: Management cautions that actual results may differ due to economic conditions, exchange rates, regulatory developments, and competition.
Investor Verification Checklist
- Verify the status and potential financial impact of the Ps. 11.99 billion Cofeco fine against Telcel.
- Monitor the outcome of the legal challenges regarding the mandated reduction in Telmex interconnection rates.
- Assess the financing structure and completion timeline for the Ps. 75.8 billion Telmex tender offer.
- Review the integration progress and regulatory approvals for the Digicel acquisition in Honduras and El Salvador.
- Track the sustainability of the 30.6% growth in mobile data revenues versus rising content and airtime resale costs.