Business Context and Reporting Period
This Form 6-K filing by América Móvil, S.A. de C.V. reports unaudited consolidated results for the second quarter and first half of 2004, filed on July 30, 2004. Financial data is presented in constant Mexican pesos with purchasing power as of June 30, 2004, adjusted for inflation. The company operates primarily in Mexico, Brazil, Argentina, and Central America, offering wireless and fixed-line services.
Key Financial Metrics
| Metric | Q2 2004 | Q2 2003 | YTD 2004 | YTD 2003 |
|---|---|---|---|---|
| Total Revenues | Ps. 30,558 million | Ps. 20,550 million | Ps. 58,489 million | Ps. 38,481 million |
| Operating Income | Ps. 6,089 million | Ps. 4,306 million | Ps. 11,369 million | Ps. 8,177 million |
| Operating Margin | 19.9% | 21.0% | 19.4% | 21.3% |
| Majority Net Income | Ps. 3,054 million | Ps. 4,742 million | Ps. 7,270 million | Ps. 7,855 million |
| EPS (Basic) | Ps. 0.24 | Ps. 0.37 | Ps. 0.58 | N/A |
| Total Debt | Ps. 51,166 million (as of June 30, 2004) | |||
| Cash & Equivalents | Ps. 9,036 million (as of June 30, 2004) |
Material Changes vs. Prior Period
- Subscriber Growth: Added 3.5 million wireless subscribers in Q2 2004 (1.1M in Mexico, 1.2M in Brazil). Total lines reached 52.3 million as of June 30, 2004.
- Revenue Growth: Revenues increased 48.7% year-over-year in Q2 and 52.0% for the first half, driven by subscriber growth and the consolidation of acquisitions (CTI, BCP) made in late 2003.
- Profitability Decline: Despite revenue growth, majority net income fell 35.6% in Q2 and 7.4% YTD. Operating margins compressed due to higher subscriber acquisition costs and start-up losses in Brazil.
- Financing Costs: Comprehensive financing costs turned from a Ps. 1,212 million income in Q2 2003 to a Ps. 1,433 million cost in Q2 2004, primarily due to foreign exchange losses from the depreciation of the Mexican peso and Brazilian real against the U.S. dollar.
- Balance Sheet: Total debt increased only 2.1% since year-end 2003. Cash decreased 4.2%, while marketable securities increased significantly (over 8x) due to reclassifications and new government bond investments.
Outlook, Risks, and Management Commentary
- Operational Challenges: Management highlighted larger-than-anticipated costs in Brazil (Bahia-Sergipe and Paraná-Santa Catarina regions) related to distribution network development and marketing. Operating losses were reported in Argentina and Brazil, while all other geographic markets remained profitable.
- Acquisitions: In July 2004, the company acquired an additional 8% interest in CTI, reaching 100% ownership. During the first half, the company also acquired Megatel (Honduras) and increased stakes in ENITEL.
- Capital Allocation: The company spent approximately Ps. 7.6 billion on share repurchases and dividends in the first half of 2004, alongside Ps. 0.7 billion for acquisitions.
- Risks: Significant exposure to foreign exchange fluctuations, as evidenced by the shift from financing income to cost. Rapid expansion entails higher acquisition costs, temporarily pressuring margins.
Investor Verification Checklist
- Verify the sustainability of operating margins given the high subscriber acquisition costs in Brazil and Argentina.
- Monitor foreign exchange exposure, specifically the impact of peso and real depreciation on financing costs.
- Assess the integration progress and profitability timeline for the newly acquired 100% stake in CTI and other recent acquisitions.
- Confirm the classification and liquidity of the Ps. 6,778 million in marketable securities.
- Review the specific cost drivers in the Brazil start-up regions to determine if losses are temporary or structural.