RNS No 2878m
CEMEX S.A. DE C.V.
20th April 1998
PART 1
1998 First Quarter Results
67% Increase in Cash Earnings from a 34% Growth in Operating Cash Flow
and Additional Reduction of 5% in Interest Expense
* CEMEX's consolidated net sales increased 22% in real terms to Ps. 8.489
billion during the first quarter of 1998 versus 1997. In dollar terms, net
sales increased 26% in the first quarter to US$993 million.
* Consolidated cement and ready-mix volumes increased 13% and 30% year over
year, respectively, driven by strong domestic growth in almost every
subsidiary.
* Representing 52% of CEMEX's cash flow, CEMEX Mexico's first quarter domestic
gray cement sales volumes increased 20%, while prices in dollar terms
increased 19%. Mexican ready-mix sales volumes were 45% higher versus the
same quarter a year ago with a 10% price increase in dollar terms.
* CEMEX's operating margin was 27.1% during the first quarter, versus 23.0% for
the prior year period. Operating income increased 44% to Ps. 2.300 billion
in the first quarter 1998.
* Cash earnings (operating cash flow less net financial expenses) in the first
quarter grew 67% in real terms versus the prior year, to Ps. 2.006 billion
(Ps. 3.29 per ADR), or 72% in dollar terms to US$235 million (US$0.39 per
ADR). (ADR ratio 2:1)
* Operating cash flow (EBITD before lease payments and cost restatements)
increased 34% in real terms during the first quarter to Ps. 2.985 billion.
In dollar terms, cash flow grew 38% to US$349 million during the first
quarter as compared to US$254 million during the same period a year ago.
* Net income during the first quarter of 1998 was Ps. 1.553 billion, or US$182
million (including monetary position gains of Ps. 1.411 billion). Net income
during the same period in 1997 ws Ps. 1.488 billion or US$169 million
(including monetary position gains of Ps. 1.575 billion).
* Net income per ADR in the first quarter was Ps. 2.55 (US$0.30), versus Ps.
2.39 (US$0.27) during the same period a year ago. Excluding shares held in
trust for equity swaps, the average number of ordinary shares outstanding
during the quarter totaled 1,217.6 million, a 2% decrease from the first
quarter 1997.
* Interest coverage was 2.84 times in the first quarter and 2.62 times for the
trailing twelve months. Interest expense plus cash tax coverage was 2.41
times on a trailing twelve months basis during the first quarter of 1998.
Financial expenses decreased 2% in dollar terms to US$123 million in the
first quarter of 1998.
* Net debt (on- plus off-balance sheet debt minus cash and cash equivalents)
was US$4,657 million, over US$300 million lower than the first quarter of
1997.
* Leverage as defined by net debt to operating cash flow declined to 3.55 times
versus 4.55 times in the first quarter of 1997. The debt to total
capitalization ratio at the end of the quarter declined to 49.4% primarily to
a reduction of debt.
Consolidated Results (in real terms)
Monterrey, N.L., Mexico April 20, 1998 CEMEX, S.A. de C.V. (OTC: CMXBY) today
announced first quarter 1998 results:
Consolidated net sales increased 22% in real terms versus the same period a year
ago to Ps. 8.489 billion. This increase is attributable to higher volumes and
prices in most subsidiaries. In dollar terms, net sales grew at a higher rate
of 26% to US$993 million.
Mexico represented 43% of the net sales for the first quarter, Spain 19%,
Venezuela 12%, Colombia 9%, the United States 11% and Central America and the
Caribbean 6%.
Gross margin increased from 38.5% in the first quarter of 1997 to 42.0% in the
first quarter of 1998 as increases in volumes and average prices in most
subsidiaries were accompanied by an decline in certain production costs,
particularly energy costs.
Operating margin in the first quarter increased to 27.1% in the first quarter
1998 from 23.0% last year, attributable to the higher gross margin and greater
operating efficiencies.
Operating income increased 44% in real terms to Ps. 2.300 billion for the
quarter and incresed 48% in dollar terms to US$269 million.
Operating cash flow (EBITD before lease payments and cost restatements) in the
quarter was Ps. 2.985 billion, an increase of 34% in real terms over the first
quarter of 1997 due to improvements in all major operations. In dollar terms,
cash flow reached US$349 million, a 38% increase over the US$254 million
reported during last year's first quarter. Cash flow margin was 35.1% in the
quarter versus 32.1% in the first quarter of 1997.
In the first quarter, Mexico represented 52% of the total cash flow, Spain 17%,
Venezuela 14%, Colombia 9%, the United States 4% and Central America and the
Caribbean 4%.
Cash earnings (operating cash flow less net financial expenses) were Ps. 2.006
billion (Ps. 3.29 per ADR) in the quarter, 67% higher in real terms. In dollar
terms, cash earnings increased 72% to US$235 million (US$0.39 per ADR) from the
first quarter of 1997.
First quarter financial expenses were Ps. 1.051 billion, a 5% decrease over the
same period in 1997 in real terms. In dollars, financial expenses were US$123
million, a 2% decrease. Interest coverage improved to 2.84 times, up from 2.02
times during the first quarter of 1997. On a trailing twelve month basis,
interest coverage improved to 2.62 times from 1.73 a year ago.
CEMEX also believes it is worthwhile to analyze the ratio of interest expense
plus cash tax coverage because it better reflects the coverage of the Company's
mandatory obligations. Interest expense plus cash tax coverage was 2.41 times
on a trailing twelve months basis at the end of the first quarter of 1998.
Total on-balance sheet debt, in millions of constant pesos and billions of
dollars, as of March 31, 1998:
Mar 31 Dec 31 Mar 31 Var. Dec - Mar Var. Mar - Mar
1998 1997 1997
Pesos 39,153 39,259 41,373 0% (5%)
Dollars 4.579 4.618 4.708 (1%) (3%)
Net debt (on-plus off-balance sheet debt minus cash and cash equivalents)
decreased 4% compared to the first quarter of 1997 to US$4,657 million, as 3%
decrease in on-balance sheet debt and a 28% increase in cash and cash
equivalents. Off-balance sheet debt remained flat during the last three months.
Between the fourth quarter 1997 and first quarter 1998, net debt fell 2% in
dollar terms due to an 11% increase in cash and cash equivalents and a 1%
decrease in on-balance sheet financing.
Leverage (Net debt to operating cash flow for the previous twelve months) was
reduced from 4.55 at the end of the first quarter of 1997, to 3.55 in the same
period of 1998.
Total debt/total capitalization at the end of the quarter was 49.4%, lower than
the 51.9% at March 31, 1997 and the 49.6% level at December 31, 1997.
Long-term debt: 87.6% or Ps. 34,302 million (US$4,012 million)
Short-term debt: 12.4% or Ps. 4,852 million (US$567 million)
Denomination Dollars Pesetas Bolivares Col.Pesos
1998 96% 4% 0% 0%
1997 92% 6% 1% 1%
Average Cost Dollars Pesetas Bolivares Col. Pesos
1998 8.1% 5.1% 22.8% 10.2%
1997 8.1% 6.2% 19.2% 24.6%
To actively manage interest rate and curreny exposure arising from its ordinary
business, CEMEX has entered into financial arrangements in the derivatives and
swaps markets. At the end of the first quarter of 1998, the outstanding
transactions have been designated for either interest rate or capital hedges.
The financial effect of these operations is reflected as part of the interest
expense or the stockholders equity, as it corresponds.
Net Foreign Exchange Gain (Loss) in the first quarter was a loss of Ps. 509
million, a significant increase versus the Ps. 24 million reported during the
first quarter of 1997, principally from the greater depreciation of the Mexican
Peso versus the US dollar during the first quarter 1998 as compared to the same
period a year ago.
Exchange rates used by the Company at March 31, 1997 and March 31, 1998 were
Ps. 7.92 and Ps. 8.55 per dollar, respectively.
A net monetary position gain of Ps. 1.411 billion was recognized during the
first quarter, a decrease of 10% in real terms versus the comparable period a
year earlier. The weighted average inflation factor used in the first quarter
to calculate the net monetary position gain was 3.9%.
Other Expenses and Income was an expense of Ps. 257 million, a 9% increase in
real terms from the first quarter of 1997. Amortization of goodwill,
anti-dumping duties and a privosion for severance payments comprise the majority
of these expenses in both periods. Actual cash expense in the first quarter of
1998 was Ps. 26 million or US$ 3 million.
The total effective tax rate was 8.3% in the quarter, comprised of income tax
-ISR- (6.3%) and of workers participation in net income -PTU- (2.0%). In
anticipation of CEMEX'S annual cash tax payments, approximately Ps. 162 million
(US$ 19 million) were paid during the first quarter of 1998.
Minority Interest income increased 7% in the quarter in real terms due to higher
consolidated net income.
Mexico (Constant Pesos)
In the following section we analyze the results of our businesses in Mexico on a
proforma basis, but only the operational aspects as a business unit rather then
an independent company. For this reason we won't analyze the remaining items
in the financial statements, and these figures are not included in the tables.
Net Sales during the first quarter were Ps. 3.937 billion, an increase of 27%
compared with the equivalent period in 1997 due to higher domestic cement prices
and strong volume growth. In dollar terms, net sales increased 36% to US$461
million.
The breakdown of total sales in Mexico during the first quarter was as follows:
72% from domestic cement sales, 17% from ready-mix sales, 5% from exports and
6% from tourism and others.
Domestic gray cement volume grew 20% in the first quarter of 1998 versus 1997,
while the sales volume of ready-mix increased 45% driven by private sector
demand.
Both domestic cement and ready-mix volumes continue to increase from strong
growth in the Mexican cement market. Sales volumes have been driven by
continued strength in the housing and commercial segments of the market.
Housing growth has been supported by increased consumer purchasing power
(attributable to higher real wages) and stable interest rates. Since less
than 10% of CEMEX's volume is sold directly or indirectly to government
entitles. CEMEX has not been negatively impacted by the recent budget cuts.
CEMEX believes housing, industrial and commercial construction will continue to
support demand growth through the rest of this year.
During the first quarter of 1998, ready-mix volume growth was driven by
increases in industrial and commercial construction. As recent budget cuts are
most likely to impact non-cement intensive projects (mainly Comision Federal de
Electricidad- and Pemex-related), CEMEX believes ready-mix demand should
continue to enjoy strong growth in 1998.
Total export volumes declined 41% during the quarter compared with the first
quarter of 1997, principally the result of the elimination of exports to
Southeast Asia following the Asian economic crisis. Exports from Mexico during
the quarter were distributed as follows:
Central/South America: 40% The Caribbean: 33% United States 27%
CEMEX's average realized cement price (invoice) in Mexico during the first
quarter increased 11% versus the first quarter of 1997 in constant peso terms.
In dollar terms, prices rose 19% versus the same period a year ago. Effective
March 25, 1998 CEMEX raised average cement prices 6.5% in peso terms.
The average ready-mix price increased 3% in constant peso terms and increased
10% in dollar terms over the first quarter 1997.
The average cash cost of goods sold per ton in the first quarter of 1998
decreased 24% in real terms versus the first quarter of 1997 primarily due to a
1% reduction in fixed costs coupled with a 18% decrease in variable costs. Fuel
oil costs decreased 26% in real terms when comparing the first quarter of 1998
to that of 1997 due to lower fuel oil prices and increased usage of petroleum
coke, while electricity costs decreased 10% in the same period. CEMEX estimates
reduced energy costs saved nearly US$6 million during the first quarter versus
last year. In dollar terms, the cash costs of goods sold decreased 19%.
Although not considered part of the cash cost of goods sold, distribution costs
increased 1% in real terms year over year due to higher transportation fees.
Gross margin increased from 36.8% in the first quarter of 1997 to 49.7% in 1998.
Operating margin in Mexico increased to 38.0% during the period from 23.8% in
1997. Operating income was Ps. 1.499 billion, 104% higher than the prior year.
Operating cash flow (EBITD before lease payments and cost restatments) in
Mexico increased 67% in real terms to Ps. 1.749 billion in the first quarter and
in dollar terms grew 78% to US$205 million. Operating cash flow margin was
44.4% in the first quarter of 1998 versus 33.9% a year ago.
Spain (Pesetos)
For analysis purposes, Spanish results are presented in pesetas. When
consolidated into CEMEX's results, these figures are converted into dollars and
then into pesos under Mexican GAAP.
The Spanish operations reported net sales of Ptas. 29,502 million during the
first quarter, a 22% increase compared with the same period in 1997. This
increase was due primarily to significant domestic cement and ready-mix volume
growth.
Domestic cement volume increased 29%, and ready-mix volume 21% during the first
quarter of 1998 compared to the same period of 1997 as the housing construction
sector continued to grow. The housing sector's strength is due to a general
improvement in the Spanish economy, particularly decreasing interest rates and
increasing employment levels. Non-residential construction is continuing to
improve as well, primarily in commercial centers and new office space. For the
first time in over two years, public sector construction has begun to show
improvement and is expected to contribute to volume growth in 1998. Finally,
all sectors benefited from improved weather conditions during the first quarter
of 1998 versus the same period a year ago.
Imports into Spain during the quarter fell 37% compared to the first quarter of
1997 due to the weak peseta. This decrease has had a positive impact on CEMEX's
market share in Spain as imports which would have otherwise been sold in
Valenciana's coastal markets have been replaced by Valenciana and other Spanish
producers.
Due to a redirection of production to domestic demand, exports from Spain
decreased 9% in the first quarter compared to the first quarter of 1997,
distributed as follows:
United States: 69% Africa 23% Europe & the Middle East 8%
The average domestic sales price for cement decreased 1% in peseta terms, when
compared with the same period of the previous year, and decreased 10% in dollar
terms due to the devaluation of the peseta during 1997. The average price for
ready-mix during the period increased 1% in peseta terms and decreased 8% in
dollar terms.
The average cash cost of goods sold per ton decreased 1%, in peseta terms, in
the first quarter of 1998 versus 1997. Fixed costs per ton in Peseta terms
decreased 7% from lower labor and maintenance costs. Variable costs per ton
increased by 4% in Peseta terms as increased demand has mandated the utilization
of some kilns that were previously not in use and which require raw material
augmentation from other plants. In dollar terms the cash cost decreased 10%
year over year.
Gross margin increased to 35.4% in the first quarter of 1998 from 31.9% in the
first quarter of the previous yuear. This increase was primarily due to higher
capacity utilization rates from the increase in cement and ready-mix volumes.
Operating margin in the first quarter was 24.4% as compared to 18.9% in 1997.
Operating income was Ptas. 7,213 million, 59% higher than in 1997.
Operating cash flow (EBITD) increased 34% year over year to Ptas 10,057 million.
In dollar terms, operating cash flow grew 21% to US$64 million, despite the
devaluation of the Spanish Peseta year-over-year. Operating cash flow margin
was 34.1% in the first quarter versus 31.1% a year earlier.
Venezuela (Constant Bolivars)
For analysis purposes, Vencemos' figures are presented in constant Bolivares
considering Venezuelan inflation. When consolidated into CEMEX's results, these
figures are converted into Dollars and then into Pesos and Mexican GAAP.
During the first quarter of 1998, net sales in Venezuela were Bs. 63,951
million, an 18% increase in constant Bolivar terms over the same period in 1997,
due to higher domestic cement and ready-mix volumes. In dollar terms, net sales
increased 48% to US$122 million due to the strong dollar resulting from the
stable Bolivar.
Domestic cement volume increased 37% in the quarter compared to the first
quarter of 1997, principally driven by private sector demand. Ready-mix volume
increased 58% supported by the participation in a railroad concession project.
Cement demand has been increasing across all sectors due to the improved
economic situation. Construction projects that started last year have continued
affecting cement demand. Concession-related spending is also increasing
rapidly, with highway and railroad construction projects currently underway and
hydroelectric and other infrastructure projects expected in the future.
Resulting from the ongoing privatizaiton of the oil industry, private investment
has been flowing into the country in order to modernize the sector and establish
the necessary infrastructure in eastern Venezuela. Despite Venezuelan
government budget cuts, demand is expected grow from the private sector,
concession-related spending and long-term focused government petroleum sector
spending. Pre-election spending has not yet impacted demand in 1998, but is
expected to generate additional cement demand closer to the elections scheduled
for December 1998.
The volume of exports from Venezuela fell 7% during the first quarter as
compared to same period a year ago and in the period comprised 43% of total
sales volumes versus 53% a year ago. Vencemos currently operates at near full
capacity, therefore, exports are expected to continue to decline as production
is shifted to the growing domestic market. Exports during the quarter were
distributed as follows:
United States: 51% The Caribbean & Central America: 36%
South America: 13%
Domestic cement prices declined by 11%, while ready-mix prices increased by 1%,
in constant Bolivar terms, when compared with the first quarter of 1997. In
dollar terms, cement and ready-mix prices increased 14% and 28%, respectively,
as inflation between March 1997 and March 1998 was approximately 38%, while the
Bolivar devalued only 10% during the period.
The average cash cost of goods sold per ton decreased 12% in constant Bolivar
terms in the first quarter of 1998 compared to the first quarter of 1997.
Fixed costs per ton decreased 13% as a reduction expenses related to replacement
parts offset higher labor costs. Variable costs per ton decreased 3% from lower
costs associated with the extraction and transportation of raw materials. In
dollar terms, the cash cost per ton increased 10%.
Gross margin increased to 42.2% in the first quarter from 40.3% in the first
quarter of 1997 as sales growth outpaced cost increases.
Operating margin increased to 33.7% in the first quarter from 31.6% in the prior
year, on operating income of Bs. 21,517 million, 26% higher in constant Bolivar
terms than the first quarter last year.
Operating cash flow (EBITD before cost restatements) was Bs.28,210 million for
the quarter, a 13% increase over the same period in 1997. In dollar terms,
operating cash flow increased 42% to US$54 million. The operating cash flow
margin was 44.1% in the first quarter of 1998 versus 46.1% in 1997.
Colombia (Colombian pesos)
For analysis purposes, Diamante's figures are presented in constant Colombian
pesos. When consolidated into CEMEX's results, these figures are converted into
dollars and then into Mexican pesos and Mexican GAAP.
Net sales in the Colombian operations, in constant Colombian pesos, were CPs.
128 billion (US$94 million), 11% higher than the CPs. 115 billion net sales in
the first quarter of 1997.
High interest rates and inflation continue to impact the Colombian economy and
the construction sector. Pre-election spending is expected to begin to provide
additional cement demand beginning in the second quarter of 1998.
Gross margin was 37.6% for the 1998 first quarter versus 41.1% in the first
quarter 1997.
Operating margin was 21.9% in the first quarter on operating income of CPs. 28
billion (US$21 million). This compares to an operating margin of 23.7% and
operating income of CPs 27 billion in the first quarter of 1997.
Operating cash flow (EBITD before lease payments) was CPs. 47 billion (US$35
million) in the first quarter of 1998, an increase of 5% versus the same period
in 1997. Operating cash flow margin decreased from 39.2% last year to 37.1% in
the first quarter of 1998.
The United States (Dollars)
For analysis purposes, CEMEX USA's figures are presented in dollars. In the
consolidation process, CEMEX USA's figures are converted into pesos and to
Mexican GAAP. Cement and aggregate volumes and prices have been converted from
short tons to metric tons using 1.102311 short tons per metric ton, and ready-
mix volumes from cubic yards to cubic meters using 1.3079 cubic yards per cubic
meter.
Net sales in the United States operations during the first quarter of 1998 were
US$108 million, a 14% increase over the same period a year ago from stronger
prices and volumes for both cement and ready-mix.
Cement sales volume increased by 13% during the first quarter of 1998 as
compared to the same period in 1997. Ready-mix volumes increased 14% and
aggregated volumes increased 7% over the same period a year ago.
Average realized cement prices increased 4% in the first quarter versus the same
period in 1997 as local cement producers are operating at or near capacity.
Average ready-mix prices during the quarter increased 2% versus a year ago,
while the average price of aggregates was flat.
Gross margin increased to 13.9% in the quarter from 10.8% in 1997 primarily as a
result of higher volumes and prices coupled with lower energy costs. The import
of less expensive cement from China has also favorably impacted margins during
the first quarter.
Operating margin increased to 6.6% in the first quarter from 2.8% in 1997 due to
a higher gross margin and lower operating costs as a percentage of sales. The
operating margin for the core businesses (cement, ready-mix and aggregates) was
10.1% vs 4.1% a year ago.
Operating income in the first quarter of 1998 was US$ 7 million, 166% higher
than the first quarter of 1997 and operating cash flow (EBITD before lease
payments) increased 51% to US$ 14 million. The operating cash flow margin
increased to 13.2% from 10.0% in the first quarter of 1997.
Financing Activities and Strategy
The following is a summary of the transactions carried out during the first
quarter:
Extension of Revolving Credit Facility Commitment Period
The existing US$ 600 million Revolving Credit Facility is currently in the
process of documentation to extend the commitment period an additional year.
The participation banks have agreed the terms and the Company expects to
maintain the amount at US$ 600 million.
Refinancing of Equity Swap
An equity swap amounting to US$ 60 million was refinanced during the first
quarter. The new instrument has a scheduled maturity of three years and a
spread that is 50 basis points lower than the previous equity swap.
Equity Related Information
The breakdown of the average number of shares outstanding during the first
quarter of 1998 is as follows:
Average number of shares outstanding 1,217,638,016
CEMEX A shares 485,297,866
CEMEX B shares 383,108,736
CEMEX CPO shares 349,231,414
Average number of shares held in trust for equity swaps 51,202,012
CEMEX B shares 34,943,296
CEMEX CPO shares 16,258,716
Change in period end shares outstanding as of March 31, 1998:
Number of shares outstanding as of December 31, 1997 1,218,512,851
Change in the number of total shares subscribed and paid
between periods resulting from the exercise of stock options 7,500
Decrease (Increase) in CEMEX shares held at subsidiaries
(including change in number of shares held in trust for
equity swaps) 623,658
Number of shares outstanding as of March 31, 1998 1,219,144,009
Employee Stock Options
In January 1998, CEMEX introduced a new stock option plan as part of the
variable compensation for key executives. Under this program, CEMEX has granted
ten-year options to acquire a total of 3,427,624 CEMEX B shares. Each option
fully vests only if the 240 day moving average price of the stock doubles in
dollar terms over the first five years of the life of the option.
To further align CEMEX executives' interest with those of its shareholders, in
February 1998 the company initiated an Employee Stock Option Plan (ESOP). Under
this voluntary stock option purchase program, executives elected to purchase a
total of 6,810,000 five year options on CEMEX B shares, with an escalating
strike price indexed quarterly in dollar terms reflecing market funding costs.
The information regarding the stock option plan begun in 1995 to grant options
to directors, officers and other employees remained unchanged from year end
1997.
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