Business Context and Reporting Period
Company: America Movil S.A. de C.V.
Filing Type: Form 6-K (Current Report)
Reporting Period: Third Quarter ended September 30, 2002 (Announced October 15, 2002)
Key Context: The quarter marks the first full period of consolidation for Telecom Americas (Brazil) into America Movil's financial statements, beginning July 2002. The company also launched GSM services in Mexico via Telcel.
Key Financial Metrics
| Metric | 3Q 2002 | Jan-Sep 2002 (YTD) | YoY Change (3Q) |
|---|---|---|---|
| Total Revenues | 15.44 billion Mex$ | 40.50 billion Mex$ | +40.7% |
| EBITDA | 5.77 billion Mex$ | 14.73 billion Mex$ | +60.9% |
| EBITDA Margin | 37.4% | 36.4% | +4.7 pts |
| Operating Profit (EBIT) | 3.06 billion Mex$ | 8.72 billion Mex$ | +28.5% |
| Net Income | 256 million Mex$ | 1.95 billion Mex$ | -32.2% |
| Free Cash Flow | 2.8 billion Mex$ | Filing text does not provide YTD total | N/A |
| Net Debt | 38.6 billion Mex$ | N/A | N/A |
| Wireless Subscribers | 29.9 million | N/A | +28.7% (vs 3Q01) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues surged 40.7% year-over-year, driven significantly by the consolidation of Telecom Americas. Excluding Telecom Americas, organic revenue growth was 5.6% for the quarter.
- Profitability: EBITDA increased 60.9% year-over-year. Operating profit rose 28.5%. However, Net Income declined 32.2% to 256 million pesos, primarily due to higher comprehensive financing costs (up 346.2% YoY) and foreign exchange losses from currency devaluations in Latin America.
- Subscriber Growth: Net additions totaled over 1 million in the quarter. Telcel (Mexico) added 587k subscribers; Conecel (Ecuador) showed the highest relative growth at 18.4% sequentially. Telecom Americas (Brazil) growth slowed to 1.2% sequentially due to economic uncertainty.
- Debt Structure: Net debt increased to 38.6 billion pesos due to Telecom Americas consolidation. However, the aggregate debt of America Movil and Telecom Americas (in USD equivalent) decreased from $5.7 billion (Dec 2001) to $4.3 billion (Sep 2002). The proportion of short-term debt improved, falling from 41.3% to 19.7%.
Guidance, Outlook, and Risks
- Management Commentary: Capital expenditures are on track with the original budget. The company prepaid $50 million in non-interest bearing notes to Bell Canada International, reducing outstanding notes to $170 million.
- Strategic Developments: Telcel launched GSM services covering 56 major Mexican cities, with plans to expand to 67 cities by year-end. America Movil acquired a PCS license in Nicaragua for $7 million.
- Risks and Contingencies:
- Currency Risk: Significant foreign exchange losses were incurred due to the devaluation of the Mexican peso and other Latin American currencies against the U.S. dollar.
- Brazilian Economy: Economic and political uncertainty in Brazil has slowed subscriber growth and economic activity for Telecom Americas.
- Balance Sheet Impact: Consolidation of Telecom Americas reduced shareholder equity by 12.8 billion pesos due to translation effects (assets in Reais vs. investments in Dollars) and the incorporation of accumulated losses previously held off-balance sheet.
Investor Verification Checklist
- Net Income Volatility: Verify the impact of foreign exchange losses and financing costs on the 32% decline in Net Income despite strong EBITDA growth.
- Debt Consolidation: Confirm the details of the $4.3 billion USD equivalent debt reduction and the specific terms of the remaining $170 million notes owed to Bell Canada International.
- Brazilian Operations: Monitor the sustainability of Telecom Americas' subscriber growth given the cited economic slowdown in Brazil.
- Equity Reduction: Review the balance sheet impact of the 12.8 billion peso reduction in equity resulting from the Telecom Americas consolidation and currency translation.
- GSM Rollout: Assess the revenue contribution and churn impact of the new GSM network launch in Mexico.