Business Context and Reporting Period
Company: America Movil, S.A. de C.V. (America Movil)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2001
Business Overview: America Movil is the leading provider of wireless communications services in Mexico through its subsidiary Telcel, which held approximately 77.6% of the Mexican cellular market share as of March 31, 2002. The company also operates in Guatemala, Ecuador, the United States (TracFone), and holds significant interests in Brazil (Telecom Americas), Colombia, Argentina, and Uruguay. The financial statements are prepared in accordance with Mexican GAAP and presented in constant Mexican pesos.
Key Financial Metrics (Year Ended Dec 31, 2001)
| Metric | 2001 (Mexican GAAP) | 2001 (U.S. GAAP) | 2000 (Mexican GAAP) |
|---|---|---|---|
| Operating Revenues | Ps. 41,364 million | Ps. 41,364 million | Ps. 30,095 million |
| Operating Income | Ps. 6,074 million | Ps. 5,588 million | Ps. 2,906 million |
| Net Income (Loss) | Ps. (828) million | Ps. (610) million | Ps. 905 million |
| EBITDA | Ps. 12,530 million | N/A | Ps. 4,570 million |
| Total Assets | Ps. 92,663 million | Ps. 96,449 million | Ps. 91,775 million |
| Total Debt (Short + Long Term) | Ps. 21,477 million | Ps. 21,477 million | Ps. 8,168 million |
| Stockholders' Equity | Ps. 56,629 million | Ps. 56,976 million | Ps. 68,370 million |
Note: U.S. dollar equivalents provided in the filing for 2001 are approximately $4,524 million in revenue and $664 million in operating income. Net loss under U.S. GAAP was approximately $66 million.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 37.4% year-over-year, driven primarily by a 37.1% increase in Mexico (Telcel) and significant growth in the U.S. (TracFone) and Ecuador (Conecel) operations.
- Profitability Decline: Despite a 109% increase in operating income, the company reported a net loss of Ps. 828 million in 2001 compared to a net income of Ps. 905 million in 2000. This reversal was primarily due to:
- Equity in Losses of Affiliates: A loss of Ps. 3,701 million, largely attributable to Telecom Americas (Brazil) and other non-strategic investments.
- Impairment Charges: A one-time charge of Ps. 1,941 million for the impairment of investments in four non-strategic telecommunications companies (ARBROS, Iberbanda, Network Access, and Armillaire).
- Debt Expansion: Total indebtedness increased significantly from Ps. 8.17 billion in 2000 to Ps. 21.48 billion in 2001, reflecting increased borrowing to fund capital expenditures and acquisitions.
- Subscriber Growth: Telcel's subscriber base grew 62.2% to 16.965 million lines. Total consolidated wireless subscribers increased 63.3% year-over-year.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capital Expenditures: The company estimates capital expenditures of approximately U.S.$1.4 billion for 2002, with roughly two-thirds allocated to Telcel's network build-out and upgrades (including the launch of GSM technology in the second half of 2002).
- Consolidation: America Movil expects to fully consolidate Telecom Americas (Brazil) and Comcel/Occel (Colombia) in 2002 following reorganization and acquisition of partner interests. This will increase consolidated revenue and debt.
- Dividends: Shareholders approved a dividend of Ps. 0.044 per share for 2002, payable in four installments.
Key Risks and Contingencies
- Competition: Intensifying competition in Mexico and international markets is expected to drive down prices and increase marketing costs, potentially compressing margins.
- Regulatory Risks: Operations are subject to extensive regulation in Mexico (Cofetel) and other countries. Risks include potential rate regulation if Telcel is deemed to have substantial market power, and the possibility of concession termination for failure to meet build-out requirements.
- Foreign Exchange: Approximately 74.4% of indebtedness is denominated in foreign currencies (primarily U.S. dollars). Depreciation of the peso increases the local currency cost of debt service.
- Legal Proceedings:
- Telgua (Guatemala): Ongoing settlement of privatization disputes requiring significant investment commitments.
- Comcel (Colombia): Tax authorities are challenging value-added tax filings; potential fines and damages from antitrust proceedings remain pending.
- CompUSA: Pending appeal of a jury verdict regarding contractual disputes, though a judgment notwithstanding the verdict was entered in favor of CompUSA.
Investor Verification Checklist
- Telecom Americas Consolidation: Verify the timing and financial impact of the full consolidation of Telecom Americas and the acquisition of BCI's and SBCI's interests, which are expected to close in mid-to-late 2002.
- Debt Covenants: Review compliance with financial covenants (Debt/EBITDA ratio not greater than 4.0 to 1; EBITDA/Interest ratio not less than 2.5 to 1) given the significant increase in leverage.
- Impairment Reversal: Confirm that the Ps. 1,941 million impairment charge was a one-time event and assess the ongoing viability of remaining equity method investments.
- Regulatory Status in Mexico: Monitor Cofetel's stance on Telcel's market dominance and any potential imposition of price controls or specific rate requirements.
- Currency Exposure: Assess the impact of peso fluctuations on debt service costs, particularly given the high percentage of dollar-denominated debt.