América Móvil, S.A.B. de C.V. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; filed April 29, 2020. This is an annual report, not a standalone fourth-quarter filing, and the text does not provide a clear set of Q4-only financial results. Statements are prepared under IFRS as issued by the IASB and presented in Mexican pesos (Ps.). Unless stated otherwise, figures below are in billions of pesos.
Business context
América Móvil provides wireless and fixed-line voice and data, broadband, Pay TV, IT and OTT services in 25 countries. Mexico and Brazil are its largest markets. At year-end, it reported 278.0 million wireless subscribers and 81.3 million fixed RGUs, for 359.3 million total RGUs. The company completed its acquisition of Telefónica Guatemala in January and Nextel Brazil in December 2019.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Operating revenue | 1,007.3 | 1,038.2 | Down 3.0% reported; up 2.3% at constant exchange rates |
| Service revenue | 834.4 | 863.6 | Down 3.4% reported; up 2.1% at constant exchange rates |
| Operating income | 154.8 | 139.6 | Up 11.0% |
| Operating margin | 15.4% | 13.4% | Expanded 2.0 percentage points |
| Net profit | 70.3 | 54.5 | Up 29.0% |
| Net profit attributable to parent shareholders | 67.7 | 52.6 | Basic and diluted EPS: Ps.1.03 versus Ps.0.79 |
| Operating cash flow | 234.3 | 248.3 | Down 5.7% |
| Capital expenditures | 151.8 | 151.8 | Includes plant, equipment and license spending |
| Cash and cash equivalents | 19.7 | 21.7 | At year-end |
| Total debt | 624.3 | 638.9 | Includes Ps.129.2 billion short-term/current debt in 2019 |
| Net debt | 556.8 | 568.2 | Management measure; deducts cash and certain investments |
| Total assets / total equity | 1,531.9 / 226.9 | 1,429.2 / 245.9 | Balance-sheet amounts at year-end |
Wireless revenue was Ps.523.0 billion and fixed operations revenue was Ps.292.2 billion. The filing reports that reported revenue was weighed down by currency translation; at constant exchange rates, growth reflected mobile, corporate network and broadband services. Commercial, administrative and general expenses fell to 21.4% of revenue from 21.9%.
Material changes and unusual items
- Operating income and margin improved, supported by cost savings and lower reported service costs. The company attributed the decline in service costs partly to its cost program and adoption of IFRS 16.
- IFRS 16 was adopted on January 1, 2019 using the modified retrospective method. It added approximately Ps.119.4 billion of lease liabilities and right-of-use assets at adoption; year-end lease liabilities were Ps.120.6 billion. The standard reduced operating costs while increasing depreciation and interest expense, limiting comparability with 2018; management said it had no significant impact on net income.
- Net interest expense increased 49.7% year over year, but would have increased 12.1% excluding IFRS 16. Foreign-exchange results shifted from a Ps.7.3 billion loss in 2018 to a Ps.5.2 billion gain in 2019. The effective tax rate was 42.1%, down from 46.0%, and above Mexico’s 30% statutory rate.
- The company acquired Telefónica Guatemala for approximately US$333 million and Nextel Brazil for an adjusted US$948.5 million. Nextel Brazil contributed only from its December 18, 2019 closing; purchase accounting remained provisional.
- Argentina was treated as hyperinflationary under IAS 29. Its reported 2019 inflation rate was 53.83%, adding another factor to year-over-year comparability.
Liquidity, debt and capital needs
Operating activities provided Ps.234.3 billion of cash, while investing activities used Ps.163.1 billion and financing activities used Ps.71.3 billion. The company reported working capital sufficient for present requirements. Contractual obligations totaled Ps.883.5 billion, including Ps.224.4 billion due in less than one year; the table excludes accounts payable, pension liabilities, interest payments and derivatives.
Debt carried a weighted average cost of approximately 4.2% at year-end, and approximately 10.1% of consolidated debt bore floating rates before considering derivatives. The company was in compliance with debt covenants, including maximum debt-to-EBITDA of 4.0x and minimum EBITDA-to-interest of 2.5x. Ps.129.2 billion of principal and amortization was due in 2020. Dividends paid in 2019 were Ps.24.2 billion; shareholders approved a Ps.0.38-per-share dividend for 2020.
Outlook, risks and contingencies
- 2020 investment: Management budgeted approximately US$8.5 billion (Ps.170 billion) of capital expenditures, primarily funded by operations, but said the amount could change in light of COVID-19.
- COVID-19: Management described the first-quarter 2020 financial impact as limited as of the filing, but said the duration, severity and financial effects remained highly uncertain. It drew the full US$2.5 billion and euro-equivalent US$2.0 billion revolving facilities on March 25, 2020 to preserve liquidity. The facilities were undrawn at year-end 2019.
- Exchangeable bonds: A tender offer completed April 17, 2020 repurchased €1.3182 billion principal of zero-coupon bonds due May 2020; €1.6073 billion remained outstanding, according to the filing.
- Operating risks: The filing highlights intense pricing and customer-acquisition competition, regulation and asymmetric rules in Mexico, spectrum and network-capacity requirements, foreign-exchange exposure, economic and political volatility, cybersecurity and service interruptions, and pandemic-related disruption.
- Regulatory and legal exposure: Material matters include significant disputed tax assessments, particularly in Brazil; Telmex’s challenged Ps.2.544 billion service-quality fine; interconnection-rate disputes; and class actions against Telcel. Brazilian subsidiaries reported Ps.137.4 billion of aggregate tax contingencies, with Ps.20.6 billion provided for losses considered probable. Outcomes and potential financial effects remain uncertain.
- Accounting and estimates: Deferred-tax-asset recoverability, goodwill impairment, asset useful lives and employee-benefit obligations involve significant management estimates. The auditor issued unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded acquired Nextel Brazil.
Most important facts for investors to verify
- Reconcile reported revenue contraction with 2.3% constant-currency growth, and assess the effects of currency movements and Argentina’s hyperinflation accounting.
- Assess operating-margin improvement after adjusting for IFRS 16, cost savings and other unusual or nonrecurring items.
- Review 2020 maturities, the €1.6073 billion exchangeable-bond balance, and liquidity after the March 2020 facility draw.
- Test whether the Ps.170 billion capital-spending budget and approved dividends remain appropriate under COVID-19 conditions and weaker cash generation.
- Monitor the outcome and provisioning adequacy for major tax, regulatory and litigation matters, and the integration and performance of the Guatemala and Brazil acquisitions.