Business Context and Reporting Period
This Form 6-K filing by América Móvil, S.A. de C.V. reports unaudited consolidated results for the first quarter of 2004 (ended March 31, 2004). The financial data is presented in constant Mexican pesos with purchasing power as of March 31, 2004, adjusted for inflation. The company operates as the leading wireless operator in Latin America, with significant operations in Mexico, Brazil, and the U.S.
Key Financial Metrics
- Revenue: Total revenues reached Ps. 27,917 million, driven by service revenues of Ps. 23,700 million and equipment revenues of Ps. 4,217 million.
- Profitability: Operating income was Ps. 5,277 million. Net income attributable to the majority interest was Ps. 4,214 million, with basic earnings per share of Ps. 0.33.
- Margins: Operating margin decreased to 18.9% of total revenues (down from 21.6% in Q1 2003).
- Debt and Liquidity: Total debt increased slightly by 2.6% to Ps. 51,385 million. Cash and cash equivalents rose significantly by 33.2% to Ps. 12,559 million.
- Subscriber Growth: Added 2.9 million wireless subscribers in Q1 2004, bringing the total wireless subscriber base to 46.7 million and total lines (wireless + fixed) to 48.3 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 55.8% year-over-year (vs. Q1 2003) and 4.0% sequentially (vs. Q4 2003). Service revenues grew 48.3% year-over-year.
- Operating Income: Increased 36.4% year-over-year to Ps. 5,277 million, though the margin compression was noted due to higher acquisition costs and depreciation.
- Net Income: Majority net income grew 35.5% year-over-year to Ps. 4,214 million.
- Acquisitions Impact: The current period includes consolidated results from BSE S.A., CTE, CTI Holdings, and BCP S.A., which were not consolidated in Q1 2003.
- Cost Structure: Selling, General & Administrative expenses rose 56.1% and Depreciation & Amortization rose 57.9% year-over-year, reflecting rapid expansion and new consolidations.
Outlook, Commentary, and Risks
- Management Commentary: The decline in operating margin is attributed to increased subscriber acquisition costs, non-recurring expenses in Brazil (related to start-up operations and GSM rollout), and higher depreciation from recent acquisitions and capital expenditures. Management expects non-recurring Brazil costs to decline gradually in 2004.
- Financing Activity: The company issued U.S.$500 million of 4.125% Senior Notes due 2009 and U.S.$800 million of 5.500% Senior Notes due 2014, guaranteed by Telcel. Foreign exchange gains and inflation effects on monetary assets offset net interest expenses.
- Capital Allocation: Approximately Ps. 2,863 million was spent on share repurchases, and U.S.$49 million was used to purchase a 49% interest in ENITEL.
- Risks/Contingencies: The filing notes that financial statements are not directly comparable to the 2003 20-F due to different constant peso valuation dates. Non-recurring costs in Brazil represent a temporary pressure on margins.
Investor Verification Checklist
- Verify the sustainability of the 55.8% revenue growth rate given the inclusion of new acquisitions (CTI, CTE, BCP) not present in the prior year.
- Monitor the trajectory of non-recurring costs in Brazil and their impact on future operating margins.
- Assess the impact of the new U.S.$1.3 billion senior notes issuance on future interest expense and debt service coverage.
- Confirm the pace of subscriber acquisition costs relative to the 2.9 million new subscribers added in Q1.
- Review the specific details of the ENITEL acquisition and its integration status.