Business Context and Reporting Period
Company: América Móvil, S.A. de C.V.
Filing Type: Form 20-F (Annual Report)
Period Ended: December 31, 2002
Reporting Currency: Mexican Pesos (Ps.) restated for inflation to constant pesos as of Dec 31, 2002; U.S. Dollar (U.S.$) translations provided for convenience.
Accounting Basis: Mexican GAAP (with reconciliations to U.S. GAAP provided).
Overview: América Móvil is the largest wireless provider in Latin America, operating primarily through its Mexican subsidiary Telcel. The company expanded significantly in 2002 through the consolidation of Telecom Americas (Brazil) and Comcel (Colombia).
Key Financial Metrics (Year Ended Dec 31, 2002)
| Metric | 2002 (Mexican GAAP) | 2002 (U.S. GAAP) | 2001 (Mexican GAAP) |
|---|---|---|---|
| Operating Revenues | Ps. 57,461 million (U.S.$ 5,572 million) | Ps. 57,461 million | Ps. 43,722 million |
| Operating Income | Ps. 12,485 million (U.S.$ 1,211 million) | Ps. 12,804 million | Ps. 6,420 million |
| Majority Net Income | Ps. 4,601 million (U.S.$ 446 million) | Ps. 5,807 million | Ps. (875) million (Loss) |
| EBITDA | Ps. 20,802 million (U.S.$ 2,017 million) | N/A | Ps. 13,203 million |
| Total Assets | Ps. 113,050 million (U.S.$ 10,962 million) | Ps. 115,012 million | Ps. 97,945 million |
| Total Debt | Ps. 46,202 million (U.S.$ 4,480 million) | Ps. 46,202 million | Ps. 22,701 million |
| Stockholders' Equity | Ps. 49,193 million (U.S.$ 4,770 million) | Ps. 48,465 million | Ps. 59,857 million |
Note: 2002 U.S. GAAP Net Income is higher than Mexican GAAP primarily due to the non-amortization of goodwill under SFAS 142.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 31.4% to Ps. 57.5 billion, driven by organic growth in Mexico and the consolidation of Telecom Americas (Brazil) and Comcel (Colombia).
- Profitability Turnaround: The company returned to profitability with a majority net income of Ps. 4.6 billion, reversing a Ps. 875 million loss in 2001. The 2001 loss was largely due to impairment charges and equity losses in affiliates prior to consolidation.
- Debt Increase: Total indebtedness more than doubled to Ps. 46.2 billion (from Ps. 22.7 billion in 2001), primarily reflecting the consolidation of debt from acquired Brazilian and Colombian subsidiaries.
- Subscriber Growth: Telcel (Mexico) reached 20.1 million subscribers (18.3% growth). Total consolidated subscribers across all regions exceeded 31 million.
- Exchange Rate Impact: The Mexican peso depreciated significantly in 2002 (average rate Ps. 9.66 to U.S.$1.00 vs. Ps. 8.94 in 2001), resulting in a net exchange loss of Ps. 1.47 billion.
Guidance, Outlook, and Risks
Outlook and Capital Expenditures
- Capital Expenditures: Budgeted at approximately U.S.$1.1 billion for 2003, focused on completing GSM network rollouts in Mexico, Brazil, Colombia, and Ecuador.
- Technology Transition: Management is transitioning from TDMA to GSM technology to improve service quality and prepare for 3G deployment. GSM networks were launched in Mexico (Oct 2002) and planned for other regions in 2003.
- Dividends: A dividend of Ps. 0.06 per share was declared in April 2003, payable in four installments.
Key Risks and Contingencies
- Competition: Intensifying competition in Mexico (Iusacell, Movistar) and internationally is expected to drive down prices and increase customer churn.
- Regulatory Risks: Operations are subject to extensive regulation in Mexico (Cofetel) and other Latin American countries. Risks include potential fines for alleged monopolistic practices (COFECO proceedings against Telcel) and changes in concession terms.
- Legal Proceedings: Significant litigation includes tax disputes in Colombia (Comcel), antitrust fines, and challenges to the privatization of Telgua in Guatemala (though a settlement was reached in 2001).
- Financial Covenants: The company must maintain a debt-to-EBITDA ratio not greater than 3.5:1 and an EBITDA-to-interest expense ratio not less than 2.5:1.
- Concentration Risk: Heavy reliance on a small number of suppliers for network equipment (e.g., Ericsson) and handsets.
Investor Verification Checklist
- Debt Service Coverage: Verify the company's ability to service the doubled debt load (Ps. 46.2 billion) given the high proportion of floating-rate debt (approx. 90%) and foreign currency exposure (approx. 77% non-peso).
- Goodwill Valuation: Review the U.S. GAAP reconciliation regarding the non-amortization of goodwill (SFAS 142) and the potential for future impairment charges, particularly in the newly consolidated Brazilian and Colombian operations.
- Regulatory Status: Monitor the outcome of COFECO proceedings regarding alleged monopolistic practices in Mexico, which could result in fines or operational restrictions.
- Exchange Rate Sensitivity: Assess the impact of further peso depreciation on reported earnings and debt service costs, as the company holds significant U.S. dollar-denominated debt.
- Capital Expenditure Execution: Track the progress of the U.S.$1.1 billion 2003 capex budget, specifically the GSM network rollout, to ensure competitive positioning.