Sputtering Latin America growth hits the world’s richest man, and his telecom empire

February 14, 2013
February 14, 2013

Carlos Slim, the richest man on the planet, lost almost $4 billion yesterday and the IPC index, a stand-in for the Mexican stock market, took its most damaging hit since 2008.

The reason was that shares in América Móvil, Mexico’s largest mobile phone operator (it makes up 20% of the IPC index’ weight), dipped 10% after the company reported lower than expected revenue.

Net profit for the fourth quarter fell 8.2% from a year earlier, to 14.9 billion pesos ($1.2 billion.) The company blamed the slump on an unexpected bout of slowing growth in Mexico, whose GDP expanded less than 3% in the fourth quarter. América Móvil has already set its sights in other directions, seeking new sources of growth, but some of these ventures have already soured. Last year the company took a stake in Dutch carrier KPN, but the investment quickly plunged in value.

The erratic nature of much Latin Américan growth did a lot to dampen earnings. Brazil, where América Móvil generates 35% of its revenues, has also had tepid growth (expanding just 0.5% in the second quarter of last year, and 0.9% in the third.) But Mexico is expected to grow between 3 and 4% this year, and Brazil, 3.3%. Profit margins across Latin América are being squeezed as growth moves along a sputtering trajectory.

There have been other, non growth-related complications. The Mexican regulatory environment, which President Nieto has promised to liberalize, is still a challenge. Mobile phone prices have fallen as authorities lowered the fees companies charge each other to complete calls (and not without reason, as the telecom industry in Mexico is largely oligopolistic).

There’s also the issue that other currencies strengthened against the Mexican peso last year, denting América Móvil’s profits. The company says its revenue would have increased 5.8% last quarter, rather than lost 1.1%, factoring out exchange-rate challenges.

América Móvil also spent large sums of its own capital to invest in television, improve network capacity, and to subsidize smartphones for customers it hopes will buy longer-term contracts. This has all affected América Móvil’s profit margins but will benefit the company in the long term.

And in case you were wondering, Slim is still the world’s richest man, $7.9 billion ahead of Bill Gates, with a net worth of $74.2 billion. In fact, he is rich enough to own his own bank, Grupo Inbursa, which swooped in yesterday afternoon to buy up 40 million shares in América Móvil and support its stock price.

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