Business Context and Reporting Period
Company: América Móvil, S.A. de C.V.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2003
Accounting Basis: Mexican GAAP (with U.S. GAAP reconciliations provided)
Overview: América Móvil is the largest wireless communications provider in Latin America, operating in nine countries including Mexico, Brazil, Colombia, Argentina, and the United States. The company reported 43.7 million wireless subscribers as of December 31, 2003, a 38.4% increase from the prior year, driven by both organic growth and significant acquisitions.
Key Financial Metrics (2003)
| Metric | 2003 (Mexican GAAP) | 2003 (U.S. GAAP) | 2002 (Mexican GAAP) |
|---|---|---|---|
| Operating Revenues | Ps. 85,941 million (U.S.$ 7,649 million) | Ps. 85,941 million (U.S.$ 7,649 million) | Ps. 59,743 million |
| Operating Income | Ps. 17,960 million (U.S.$ 1,599 million) | Ps. 18,536 million (U.S.$ 1,650 million) | Ps. 12,980 million |
| Majority Net Income | Ps. 15,032 million (U.S.$ 1,338 million) | Ps. 14,899 million (U.S.$ 1,326 million) | Ps. 4,784 million |
| EPS (Basic) | Ps. 1.16 (U.S.$ 0.10) | Ps. 1.15 (U.S.$ 0.10) | Ps. 0.36 |
| Total Assets | Ps. 149,979 million (U.S.$ 13,349 million) | Ps. 158,586 million (U.S.$ 14,114 million) | Ps. 117,538 million |
| Total Debt | Ps. 49,313 million | Ps. 49,313 million | Ps. 48,036 million |
| Cash & Equivalents | Ps. 9,287 million (U.S.$ 826 million) | Ps. 9,287 million (U.S.$ 826 million) | Ps. 9,513 million |
| Capital Expenditures | Ps. 13,653 million | N/A | Ps. 11,250 million |
Note: U.S. dollar translations are based on the exchange rate of Ps. 11.2360 to U.S.$1.00 as of December 31, 2003.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 43.9% year-over-year. This was driven by organic growth in all segments (particularly Mexico, up 23.7%), the full-year consolidation of Telecom Americas (Brazil) and Comcel (Colombia), and the consolidation of five new acquisitions made in 2003 (Celcaribe, BSE, CTE, CTI, and BCP).
- Profitability: Majority net income surged 214% to Ps. 15.0 billion. This improvement was fueled by higher operating income, a shift from comprehensive financing costs to income (primarily due to a Ps. 1.35 billion foreign exchange gain in 2003 versus a loss in 2002), and improved results from affiliates.
- Subscriber Base: Total wireless subscribers grew by 12.1 million (38.4%). Approximately 4.2 million of these subscribers were acquired through M&A activity.
- Segment Performance:
- Mexico (Telcel): Remains the core revenue driver (61% of total revenue), with operating income up 44% and margins expanding to 33.7%.
- Brazil (Telecom Americas): Reported an operating loss of Ps. 2.1 billion in 2003, an increase from the prior year, due to integration costs, brand unification ("Claro"), and GSM network deployment.
- United States (TracFone): Achieved operating income of Ps. 200 million for the first time in its history, driven by a 50% increase in subscribers.
Guidance, Outlook, and Risks
- Capital Expenditures: The company budgeted approximately U.S.$1.4 billion (Ps. 15.7 billion) for 2004. Spending will focus on completing GSM network rollouts in Argentina, Mexico, and Brazil.
- Outlook: Management expects continued growth driven by low penetration rates in Latin America and economic recovery in Mexico and Brazil. The company anticipates that the full-year impact of 2003 acquisitions will further diversify revenue streams.
- Key Risks:
- Competition: Intensifying competition in wireless markets, particularly in Mexico and Brazil, could pressure prices and margins.
- Regulation: Significant exposure to regulatory changes in Latin America, including potential price caps, spectrum auction restrictions (specifically in Mexico), and interconnection fee disputes.
- Currency Fluctuation: A substantial portion of debt is denominated in U.S. dollars, while revenues are in local currencies. Depreciation of local currencies against the dollar increases debt service costs and can result in foreign exchange losses.
- Legal Proceedings: Ongoing antitrust investigations in Mexico (Cofeco) and tax disputes in Colombia and Brazil pose potential financial liabilities.
Investor Verification Checklist
- Acquisition Integration: Verify the timeline and cost of integrating the five major 2003 acquisitions (CTI, BCP, BSE, CTE, Celcaribe) and their impact on 2004 margins.
- Brazil Performance: Monitor the path to profitability for Telecom Americas, given the reported operating loss and heavy investment in GSM infrastructure.
- Debt Structure: Review the maturity profile of the U.S. dollar-denominated debt (approx. 67% of total debt) and the company's hedging strategies against currency devaluation.
- Regulatory Status: Track the outcome of the Mexican antitrust proceedings and the status of spectrum auctions in Mexico, which are critical for network expansion.
- GAAP Reconciliation: Note the differences between Mexican GAAP (which includes inflation restatement) and U.S. GAAP, particularly regarding goodwill amortization and deferred taxes.