AMX

Business Context and Reporting Period

Company: America Movil, S.A. de C.V.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Full Year 2003 (Reported February 2, 2004)
Business Overview: America Movil is a leading Latin American telecommunications provider operating in Mexico, Brazil, Argentina, Colombia, Ecuador, Central America, and the U.S. The company reported significant expansion through organic growth and strategic acquisitions, including CTE (El Salvador), CTI (Argentina), BCP (Brazil), and Enitel (Nicaragua).

Key Financial Metrics

Note: Full year figures are in millions of constant Mexican pesos unless otherwise noted. Net debt increased primarily due to the devaluation of the Mexican peso against the U.S. dollar.

Material Changes vs. Prior Period

• Subscriber Growth: Total wireless subscribers reached 43.7 million, an increase of 12.1 million from 2002. This includes 7.9 million from organic growth and 4.2 million from acquisitions. Equity-weighted subscribers rose 40% to 42.9 million.
• Revenue Surge: Consolidated revenues grew 44% year-over-year, driven by strong organic performance and the consolidation of new acquisitions (CTE, CTI, BCP) in the latter part of the year.
• Profitability Expansion: Net profit more than tripled to 15.3 billion pesos, aided by a shift from financing costs to financing income (a net gain of 1.4 billion pesos in 2003 vs. a loss of 1.5 billion in 2002) due to favorable foreign exchange variations.
• Balance Sheet: Shareholders' equity increased by 19.6 billion pesos, and plant and equipment rose by 11.8 billion pesos, reflecting heavy investment and consolidation of acquired assets.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Acquisitions: The company completed major acquisitions in 2003 and closed the purchase of a 49% stake in Enitel (Nicaragua) in January 2004. These moves are expected to drive future growth.
• Brand Strategy: In Brazil, the company launched the "Claro" brand and expanded GSM services into new regions (Bahia-Sergipe, Parana-Santa Catarina). Management noted these greenfield operations will incur initial EBITDA losses.
• Divestiture: In January 2004, America Movil sold its 49% interest in CompUSA for approximately $178 million, registering a loss of 279 million pesos relative to book value. Proceeds were partially used to acquire shares in US Commercial Corp.

Risks and Contingencies:

• Unefon Transaction: Telcel prepaid $268 million to Unefon for a 16-year capacity agreement. Management stated they were unaware of any potential misuse of funds by Unefon at the time of payment, presenting a potential reputational or legal risk.
• Foreign Exchange: Net debt levels are sensitive to the devaluation of the Mexican peso against the U.S. dollar.
• Seasonality: Q4 results in Brazil were impacted by high subscriber acquisition costs and extraordinary expenses related to brand launches and network integration.

Investor Verification Checklist

• Acquisition Integration: Verify the financial consolidation status and performance of recently acquired entities (CTE, CTI, BCP, Enitel) in upcoming quarters.
• Brazilian Operations: Monitor the timeline for EBITDA recovery in Brazil's new greenfield regions and the impact of the "Claro" brand launch on margins.
• Unefon Exposure: Assess any ongoing legal or regulatory developments regarding the $268 million prepayment to Unefon.
• Debt Service: Confirm the stability of the debt-to-EBITDA ratio (currently 1.2x) given the company's aggressive capex and acquisition strategy.
• CompUSA Sale: Review the strategic rationale and financial impact of the CompUSA divestiture and the subsequent investment in US Commercial Corp.