RNS No 6866p
CEMEX S.A. DE C.V.
27th October 1997
1997 Third Quarter Results
Favorable dollar prices in Mexico and Venezuela and
strong domestic volumes in most subsidiaries leads to 45%
increase in net income
* Cemex's net sales increased 11% in real terms (see explanation on page 9) to
Ps. 7.799 billion during the third quarter of 1997 compared with the same
period in 1996. In dollar terms, net sales increased 18% to US$1.002 billion.
* In Mexico during the third quarter, Cemex's domestic cement sales volumes
increased 13% compared with the same period of 1996, while ready-mix sales
volumes increased 47%.
* Operating margin for the Group in the third quarter was 23.9% compared with
24.0% during the same period a year ago.
* Cash earnings (EBITD less net financial expenses) in the third quarter grew
50% in real terms, to Ps. 1.585 billion (US$204 million) versus the same
period in 1996. Cash flow (EBITD) increased 9% in real terms, to Ps. 2.489
billion (US$320 million).
* Net income was Ps. 1.903 billion (including monetary gains of Ps. 1.039
billion), or US$245 million, during the third quarter of 1997. Net income for
the third quarter of 1996 was Ps. 1.308 billion (including monetary gains of
Ps. 1.843 billion), or US$158 million. Net income per ADR (ratio 2:1) was Ps.
3.08 (US$0.40) based on an average of 1,234,179,807 shares outstanding during
the quarter (excluding shares held in trust for equity swaps).
* Interest coverage in the third quarter was 2.55 times, and 2.03 times for the
trailing twelve months. When measured using cash flow before lease payments
and cost restatements for inflation, interest coverage was 2.63 times in the
third quarter and 2.09 times for the trailing twelve months. Financial
expenses decreased 22% to US$126 million in the third quarter of 1997.
* The debt to total capitalization ratio at the end of the quarter was 49.9%
versus 52.7% at the end of the third quarter 1996.
* Net debt (on- plus off-balance sheet debt minus cash and cash equivalents) was
US$4.845 billion, US$54 million, or 1%, lower than the second quarter of 1997,
and was flat over the third quarter of 1996.
* During the third quarter, a total of 7,273,119 shares were bought back at an
average price of Ps. 40.88 per share as part of the share repurchase program.
In addition, forward contracts ensure the purchase of 1,800,000 B share ADRs,
at US$11.16 per ADR, at future dates. Since inception of the share repurchase
program on June 1, 1997, 10,530,119 shares have been bought back at an average
price of Ps. 38.06 per share, and the purchase of 5,797,500 Cemex B share ADRs
has been assured though forward contracts at a price of US$9.64 per ADR.
* On October 17, Cemex announced the acquisition of a 30% minority stake in
Philippine company Rizal Cement Inc. for US$91 million and signed an agreement
in which Cemex will provide technical and consulting services to Rizal. The
total cement production capacity of Rizal is 2.8 million tons per year.
Consolidated Results (in real terms)
Monterrey, N.L., Mexico October 24, 1997 Cemex, S.A. de C.V. (OTC: CMXBY) today
announced third quarter results:
Net sales increased 11% in real terms versus the same period a year ago to Ps.
7.799 billion. This increase is attributable to higher volumes, and the
consolidation of Samper beginning in 1997 which contributed 5 percentage points
of the increase. In dollar terms, net sales grew at a faster pace to US$1.002
billion, or 18%, resulting from the relative strength of the peso versus the
dollar.
Mexico represented 43% of the net sales for the third quarter, Spain 18%, the
United States 12%, Venezuela 11%, Colombia 10% and the Caribbean and Panama 6%.
Gross margin fell to 38.4% from 39.6% in the third quarter of 1996 as higher
dollar production costs in most subsidiaries offset improving volumes and dollar
prices.
Operating margin in the quarter decreased to 23.9% from 24.0% in 1996, as an
improvement in SG&A expense as a percentage of sales nearly offset the decline
in gross margin.
Operating income increased 10% in real terms to Ps. 1.866 billion for the
quarter and increased 18% in dollar terms to US$240 million.
Cash flow (EBITD) in the quarter was Ps. 2.489 billion, an increase of 9% in
real terms over the third quarter of 1996 due to improvement in the Mexican,
Venezuelan and US operations and the full consolidation of Samper, which
represented 4 percentage points of the increase. In dollar terms, cash flow
increased 17% as compared to the same period a year earlier to US$320 million.
Cash flow margin was 31.9% versus 32.4% in the third quarter of 1996.
Cash flow before lease payments and cost restatements for inflation increased
11% to Ps. 2.582 billion, or US$331 million. The interest component on these
leases has always been registered in financial expenses, therefore Cemex
believes it is more accurate to measure operating cash flow before lease
payments, particularly when calculating interest coverage.
Cash earnings (EBITD less net financial expenses) were Ps. 1.585 billion in the
quarter, 50% higher in real terms. This increase was due mainly to a significant
reduction in financial expenses year over year (down 27% in real terms). In
dollar terms, cash earnings increased 60% to US$204 million from the third
quarter of 1996.
In the third quarter, Mexico represented 48% of the total cash flow, Spain 18%,
Venezuela 14%, Colombia 11%, the Caribbean and Panama 5%, and the United States
4%.
Third quarter financial expenses were Ps. 976 million, a 27% decrease over the
same period in 1996 in real terms. In dollars, financial expenses were US$126
million, a 22% decrease. This decrease was achieved mainly as a result of a
reduction of Mexican and Colombian peso denominated debt and lower interest
rates in all currencies in which Cemex has debt. In addition fees related to
acquisitions and financings have been reduced substantially this quarter. We
expect this level of quarterly financial expense, which is almost identical to
that of the first and second quarters, to be similar throughout the remainder of
the year.
Total on-balance sheet debt, in billions of real peso and billions of dollars,
as of September 30, 1997:
Sept.30,1997 June 30,1997 Sept.30,1996 Var.June-Sept.Var.Sept-Sept
Pesos
(real terms) 35.850 37.486 38.587 (4)% (7)%
Dollars 4.608 4.735 4.648 (3)% (1)%
Net debt, or on-balance sheet debt plus off-balance sheet financings minus cash,
was flat at US$4.845 billion when compared to the third quarter of 1996, as a 1%
decrease in on-balance sheet debt was offset by a 12% decrease in cash and cash
equivalents.
Between the second and third quarters of 1997, net debt fell 1% in dollar terms
as off-balance sheet financings increased 15% due to the refinancing of the
Societe Generale equity swap, offsetting a 2% increase in cash and 3% reduction
in on-balance sheet debt.
Leverage (total debt / total capitalization) at the end of the quarter was
49.9%, lower than the 52.7% at September 1996 and the 51.7% level at June 1997.
The calculation of total debt includes balance sheet debt plus the SRUs. The
SRUs, and the associated contingent liability of US$90 million, will expire on
October 28, 1997. Cemex expects to report an extraordinary gain of approximately
US$30 million at maturity.
Long-term: 84% or Ps.29.960 billion (US$3.850 billion)Short-term: 16% or
Ps. 5.890 billion (US$757 million)
Denomination Dollars Pesetas Mex.Pesos Bolivares Col.Pesos
1997 94% 5% - 1% -
1996 86% 8% 3% 1% 2%
Average Cost Dollars Pesetas Mex.Pesos Bolivares Col.Pesos
1997 8.1% 6.0% - 18.7% -
1996 8.5% 7.9% 32% 30% -
During the
quarter there were two changes in off-balance sheet financings, the refinancing
of the Societe Generale/Valenciana equity swap and the retirement of the
exchangable note used in the purchase of the Dominican Republic subsidiary. At
the end of the quarter, off- balance sheet transactions totaled approximately
US$640 million.
To actively manage interest rate and currency exposure arising
from its ordinary business, Cemex has entered into financial arrangements in the
derivatives and swaps markets. At the end of the second quarter these
transactions had an aggregate notional amount of US$500 million and involved
interest rate swaps. The mark-to- market value of these transactions at
September 30 was a net amount of approximately US$784 thousand in favor of
Cemex.
Net Exchange Gain (Loss) in the third quarter was a gain of Ps. 84
million versus a loss of Ps. 183 million a year earlier. A large portion of
foreign exchange gain in the third quarter of 1997 was due to the 0.17 pesos per
dollar appreciation of the Mexican peso.
During the third quarter, the peso
appreciated 3% (in peso terms) with respect to the dollar, as measured by the
interbank exchange rate. The appreciation for Cemex totaled 3% as the company
uses an average exchange rate based on the following rates: (i) bank transfer,
(ii) cash, and (iii) bank document.
Exchange rates used by the Company at
September 30, 1996 and September 30, 1997 were Ps. 7.55 and Ps. 7.78 per dollar,
respectively.
A net monetary position gain of Ps. 1.039 billion was recognized
during the quarter, a decrease of 44% in real terms versus a year earlier due to
lower inflation in Mexico as well as the implementation of a new subsidiary-
weighted inflation conversion method which is being implemented in 1997. The
weighted average inflation factor used in the third quarter of 1997 was 2.97%.
By comparison, the factor used to calculate the monetary position gain in the
third quarter of 1996 was based on Mexican inflation of 4.41%. (Please refer the
Changes to Mexican Accounting Principles section on page 9 of this report).
Other Expenses and Income were an expense of Ps. 140 million, a 60% decrease in
real terms over the third quarter of 1996 due to the cancellation of tax
provisions which were registered in 1996. Amortization of goodwill, anti-dumping
duties and a provision for severance payments comprise the majority of these
expenses. Actual cash expense was Ps. 135 million.
The total effective tax rate was 1% in the quarter, comprised of ISR (0.7%) and
PTU (0.3%). In anticipation of the Company's annual cash tax payments,
approximately Ps. 62 million were paid during the third quarter against the
provision accumulated in the first nine months of 1997.
Minority interest increased 38% in the quarter in real
terms due to the consolidation of Samper and higher net income at the subsidiary
level. The increase was partially offset by the elimination of minority
interest related to the Valenciana equity swap on beginning on August 1, 1997.
Cemex retains the right to repurchase the shares committed to this equity swap
at specified times and prices over the next two years, and retains the economic
rights to these shares. As such, the consideration of this equity swap in the
calculation of minority interest was unnecessary.
The average number of shares outstanding during the period (not including shares
held in trust for equity swaps) was 1,234,179,807 (A shares: 495,341,321; B
shares: 391,078,361; CPO shares: 347,760,125). Transactions related to shares
that were put into trust for equity swaps comprised an aggregate of 23,606,558
Cemex CPO shares and 33,450,568 Cemex B shares.
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 than
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 third quarter were Ps. 3.548 billion, an increase of 2%
compared with the equivalent period in 1996 as volume increases more than offset
lower prices in constant peso terms. In dollar terms, net sales increased 18% to
US$456 million.
The breakdown of total sales in Mexico during the third quarter was as follows:
69% from domestic cement sales, 17% from ready-mix sales, 8% from exports and 6%
from tourism and others.
Domestic grey cement volume grew 13% in the third quarter of 1997 versus 1996,
while the sales volume of ready-mix increased 47% on increased private sector
construction.
Increases in both cement and ready-mix volumes year over year were driven by the
continuing recovery of the Mexican cement market and slight market share gains
in certain regions resulting from an increase in the number of points of sale
versus a year ago and other marketing initiatives. All sectors showed
improvement, especially housing and private sector building construction. Both
of these sectors are benefiting from lower interest rates, with housing
construction also supported by higher employment and real wage increases. Going
forward, housing construction should remain strong due to currently low interest
rates, a continued housing shortage and the allocation of funds for housing
construction as part of the government's new retirement savings plan (AFORE).
Government public works spending and formal sector construction are slowly
recuperating as evidenced by the strong growth in ready-mix during the quarter.
The toll- road restructuring is not expected to have an immediate impact, but
should help clear the way for an increase in highway spending beginning around
the end of 1997.
Cemex-Mexico's total export volume declined 23% during the quarter compared with
the third quarter of 1996 as an increase in higher-value exports to Latin
America were not sufficient to offset a decline in exports to Southeast Asia.
Exports during the quarter were distributed as follows:
The Far East: 39% Central and South America: 31% United States: 12%
The Caribbean: 15% Africa: 3%
Cemex's average realized cement price (invoice) in Mexico increased 10% versus
the second quarter of 1997, but decreased 12% from the third quarter of 1996 in
constant peso terms. In dollar terms, prices rose 16% versus the previous
quarter and 2% versus the same period a year ago.
The average ready-mix price decreased 5% in constant peso terms and increased
11% in dollar terms year-over-year.
The average cash cost of goods sold per ton decreased 9% in real terms versus
the third quarter of 1996 primarily due to a 5% reduction in variable costs.
Fuel oil costs decreased 6% in real terms when comparing the third quarter of
1997 to that of 1996 due in part to an increased use of petcoke, while
electricity costs increased 6% in the same period. Labor costs decreased 15% in
real terms versus the third quarter of 1996. In dollar terms, costs increased
13%.
Gross margin was 44.1% in both the third quarter of 1997 and 1996.
Operating margin in Mexico increased to 31.8% during the period from 31.3% in
1996. Operating income was Ps. 1.129 billion, 4% higher than in 1996.
Cash from operations (EBITD) in Mexico, after charges of Ps. 15.890 million
associated with operating leases, increased 4% to Ps. 1.402 billion in the third
quarter, due to the above mentioned factors. In dollar terms cash from
operations (after leases) grew 20% to US$180 million. EBITD margin was 39.5% in
the third quarter versus 39.0% a year ago.
Spain ( Pesetas)
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. 28.436 billion during the
third quarter, a 23% increase compared with the same period in 1996. This
increase was due to substantial volume growth and the inclusion of Cementos
Especiales de las Islas, SA. Excluding Islas, sales grew 15%.
Domestic cement volume increased 29%, and ready-mix volume 19% during the
quarter as growth in the housing construction sector was strong enough to offset
reduced public works spending by the government. The housing sector's strength
is due to a general improvement in the Spanish economy, particularly decreasing
interest rates and increasing employment levels, and an overall lack of new
housing. Non-residential construction is continuing to improve as well,
primarily in commercial centers and new office space. Going forward, growth
should be driven by continued strength in the housing and commercial building
sectors, as well as increasing public spending.
Imports into Spain during the quarter fell 21% compared to the third quarter of
1996 due to the weak peseta. This decrease has had a positive impact on
Valenciana's market share as imports which would have otherwise been sold in
Valenciana's coastal markets have been replaced by Valenciana and other Spanish
producers.
Exports decreased 32% in the third quarter, distributed as follows:
United States: 83% Africa: 16% Europe & the Middle East: 1%
The average domestic sales price for cement declined 4% in peseta terms, when
compared with the same period of the previous year, and decreased 20% in dollar
terms due to the devaluation of the peseta during 1997. The average price for
ready-mix during the period decreased 1% in peseta terms and 17% in dollar
terms.
The average cash cost of goods sold per ton increased 3%, in peseta terms, in
the third quarter of 1997 versus 1996. Fuel costs increased 11% in the period
due in large part to the devaluation of the peseta against the dollar during
1997 as fuel costs are based in dollars. This increase was partially offset by a
reduction in electricity costs, labor and raw materials purchased from third
parties. In dollar terms the cash cost decreased 12%.
Gross margin decreased to 34.5% in the third quarter, from 37.5% in the previous
year due to lower prices in peseta terms, higher costs and non-cash charges,
including a 84% increase in depreciation expense resulting from new fiscal
accounting laws in Spain.
Selling and administrative expenses increased 11% in the quarter on an absolute
basis, due primarily to the increased depreciation, a non-cash item, and the
consolidation of Islas. However, SG&A as a percentage of sales declined
year-over-year and now represents 12% of sales versus 13% in the third quarter
of 1996.
Operating margin in the third quarter fell to 22.6% from 24.4% in 1996, due
mainly to the increase in depreciation. Operating income was Ptas. 6.435
billion, 14% higher than in 1996.
Cash from operations (EBITD) increased 33% year over year to Ptas. 10.415
billion. In dollar terms, cash from operations grew 15% to US$70 million. EBITD
margin was 36.6% in the third quarter versus 33.7% a year earlier.
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.
Net sales in the United States during the third quarter were US$121 million, a
12% increase over the same period a year ago as prices and volumes for both
cement and ready-mix were higher.
Cement sales volume increased by 5% during the third quarter of 1997 as compared
to the same period in 1996. Ready-mix volumes increased 13% during the quarter,
while aggregates volumes increased 4% over the same period a year ago.
Volume increases are currently being driven by non- residential construction
(offices, malls, commercial buildings, etc.) in Texas, residential and highway
construction in Arizona, and growth in all sectors in California. Going forward,
residential construction in Texas is expected to soften, but should be
compensated by continuing strength in non-residential construction. Overall
public construction in Arizona may begin to decline, but highway and residential
construction should remain steady. All sectors, especially highway construction,
are expected to continue to improve in California.
Average realized cement prices increased 4% in the third quarter versus the same
period in 1996 as local cement producers are operating at capacity. Average
ready-mix prices increased 1% from a year ago, while the average price of
aggregates increased 2%.
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.
Gross margin increased to 14.6% in the quarter from 13.3% in 1996 as a result of
higher prices. A lower margin petcoke trading operation was consolidated in the
third quarter of 1996 and the current quarter is the first quarter in which
results are directly comparable.
Operating margin increased to 7.9% in the third quarter from 6.2% in 1996 due to
a higher gross margin and lower operating costs as a percentage of sales. The
operating margin for the core businesses was 9.5% vs 8.7% a year ago.
Operating income was 43% higher than the third quarter of 1996 and cash from
operations (EBITD), after charges of US$3 million associated with operating
leases, increased 25% to US$14 million. EBITD margin was 11.4% in the third
quarter versus 10.2% a year ago.
Venezuela (Constant bolivares)
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 third quarter of 1997, net sales in Venezuela were Bs. 56.354
billion, a 10% increase in constant bolivar terms over the same period in 1996.
In dollar terms, net sales increased 46% to US$113 million due to the improved
volume and strong dollar prices resulting from the stable bolivar.
Domestic cement volume increased 37% compared to the third quarter of 1996 and
ready-mix volume increased 45%. Cement demand has been increasing across all
sectors recently due to the improved economic situation, and increased
confidence by foreign investors in the government's commitment to continued
economic reforms and privatizations. Housing construction is recovering due to
the government's recent reforms of labor laws and recent growth in wage levels.
In addition, a new government guarantee placed on mortgage lending has had the
effect of significantly increasing the availability of mortgage financing.
Concession-related spending is also increasing rapidly, with highway and
railroad construction projects currently underway and the potential for
hydroelectric and other infrastructure projects in the future.
Resulting from the ongoing privatization 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. The full impact of this
impending investment, however, is not expected to be felt until 1998.
The volume of exports from Venezuela fell 17% as compared to a year ago and
currently comprise 45% of total sales volumes versus 57% a year ago. Vencemos
currently operates at near full capacity, therefore, exports are expected to
continue to decrease as production is shifted to the growing domestic market.
Exports during the quarter were distributed as follows:
United States: 68% The Caribbean & Central America: 26% South America: 5%
Africa: 1%
Domestic cement prices declined by 1%, while ready-mix prices increased by 1%,
in constant bolivar terms, when compared with the third quarter of 1996. In
dollar terms, cement and ready-mix prices increased 32% and 34%, respectively,
as inflation between September 1996 and September 1997 was approximately 39%,
while the bolivar devalued only 5% during the period.
The average cash cost of goods sold per ton increased 8% in constant bolivar
terms in the third quarter of 1997 compared to the third quarter of 1996. Fixed
costs decreased 2%, but were offset by a 24% increase in variable costs due
primarily to an increase in the cost of purchased raw materials and to a lesser
extent, energy costs. Increased labor costs, however, were offset by a decrease
in replacement part usage and other fixed costs. In dollars, the cash cost per
ton increased 43%.
Gross margin increased to 44.5% in the third quarter from 41.1% in 1996 as sales
grew 10% but costs of goods sold only increased 4%.
Selling and administrative expenses remained flat in the quarter, and now
represent 7.7% of sales versus 8.5% in 1996.
As a result of the increase in gross margin, operating margin increased to 36.9%
in the third quarter from 32.6% in the prior year, on operating income of Bs.
20.777 billion, 25% higher in real terms than a year ago.
Cash from operations (EBITD), after charges of Bs. 1.395 billion associated with
cost restatements for inflation, was Bs. 25.579 billion for the quarter, a 13%
increase over the same period in 1996. In dollar terms, operating cash flow
increased 49% to US$51 million. The EBITD margin was 45.4% in the third quarter
of this year versus 44.4% in 1996.
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. Note: The results of
Cemex's Colombian operations in 1996 included only Cementos Diamante. In the
third quarter of 1997 the Colombian subsidiary includes Diamante and Samper for
the full three months. In this analysis, for comparison purposes only, we are
presenting a proforma Diamante (which includes Diamante and Samper) for the full
third quarter of 1996.
Net sales in Cementos Diamante, in constant colombian pesos, were CPs. 122.209
billion (US$98 million), higher than the CPs. 109 billion proforma net sales
from the third quarter of 1996.
The cement industry in Colombia continues to be affected by the current
recession of the economy, and as a result industry demand fell by 5.8% versus
the third quarter of 1996, and 1.5% versus the second quarter this year
according to the ICPC .
Gross margin was 35.7% for the quarter versus 35.0% in the third quarter 1996.
Selling and administrative expenses declined 12% from the third quarter of 1996,
and now represent 13% of sales versus 17% in the year ago period. These expenses
should decline further in coming quarters as savings are realized from continued
integration and optimization of the operations.
Operating margin was 22.3% in the quarter on operating income of CPs. 27.281
billion (US$22 million) This compares to an operating margin of 18% and
operating income of CPs. 19.598 billion, in constant terms, in the third quarter
of 1996 (proforma).
Cash from operations (EBITD), after charges of CPs. 1.474 billion associated
with operating leases, was CPs. 44.896 billion (US$36 million) in the quarter,
with a margin of 36.7%.
The Dominican Republic and Panama
Net sales in the Dominican Republic were US$32 million in the third quarter, up
28% year over year.
The operating margin in the Dominican Republic was 29%, versus 35% a year ago,
on operating income of US$9 million. The operating cash flow was US$10 million,
an increase of 2%. EBITD margin was 31.8%, down from 39.9% in the same period a
year ago.
Net sales in Panama were US$14 million in the quarter, 54% higher than the third
quarter of 1996.
The operating margin in Panama was 25.7%, versus 15.6% a year ago, on operating
income of US$4 million. The operating cash flow was US$6 million with a margin
of 46.6%.
Financing Activities and Strategy
The following is a summary of the transactions carried out during the third
quarter:
Philippine Acquisition
On October 17, Cemex announced the acquisition of a 30% minority stake in
Philippine company Rizal Cement Inc., for US$91 million and signed an agreement
in which Cemex will provide technical and consulting services to Rizal. The
transaction was realized through Cemex's Spanish subsidiary, Valenciana de
Cementos.
Cemex has formed a new subsidiary, Cemex Investment Holdings Asia Pte. Ltd.,
through which this acquisition and others in the region will be made. The
capital of Cemex Investment Holdings Asia will initially be provided by Cemex,
with a maximum of 75% of its committed capital coming from institutional
investors in coming months.
Renegotiation of Societe General Equity Swap
Cemex renegotiated its existing peseta equity swap transaction with Societe
Generale during the quarter. It was replaced with a US dollar equity swap of a
similar structure but at a lower financial cost and a longer average life. The
US$320 million total amount renegotiated corresponds to the same original dollar
amount of the previous peseta transaction.
The equity swap, which was syndicated by Societe Generale among fourteen banks,
is denominated in dollars at a cost of LIBOR plus 70 basis points, matures in
July 2000, has a two-year grace period and maintains the same structure as the
original instrument.
Syndication of Two-year U.S. Commercial Paper Program
The syndication of a two-year US$300 million U.S. Commercial Paper Program was
concluded during the third quarter. This is the first time the program is being
renewed for a two year period, extending its original maturity of one year. The
structure of the program, which is backed by a letter of credit from CS First
Boston, allows Cemex paper to obtain an investment grade of A1/P1. The company
will use the proceeds of the commercial paper issuance to refinance its
short-term obligations. Bank of America acts as arranger and administrative
agent on the transaction, which was syndicated among 22 international banks.
Equity Related Information
The change in the number of shares outstanding during the third quarter of 1997
is explained as follows:
Number of shares outstanding as of June 30, 1997 1,238,877,463
Change in the number of total shares subscribed and paid between
periods resulting from the exercise of stock options
(not including Share Repurchase Program activity) 403,246
Share Repurchase Program activity (July 1-September 30) (7,273,119)
Cemex operations at subsidiaries (including change in number of
shares held in trust for equity swaps) (14,682)
Number of shares outstanding as of September 30, 1997 1,231,992,908
Share Repurchase Program
As part of Cemex's share repurchase program, with a minimum amount of Ps. 920
million (US$115 million) and maximum of up to Ps. 1.6 billion (US$200 million),
the Company repurchased in the third quarter 4,780,000 Cemex A shares at an
average price of Ps. 39.26 per share, and 2,493,119 Cemex B shares at an average
price of Ps. 43.99 per share. In addition, forward contracts were acquired
during the quarter which guarantee the purchase of 1,800,000 Cemex B share ADRs,
at US$ 11.16 per ADR, at future dates. In total the Company has now repurchased
a total of 7,987,000 A shares at an average price of Ps. 36.25 per share, and
2,543,119 B shares at Ps. 43.77 per share. The purchase of 5,797,500 Cemex B
share ADRs has been assured though forward contracts at a price of US$9.64 per
ADR.
Employee Stock Options
In 1995, the Company adopted a stock option plan under which the Company is
authorized to grant, to directors, officers and other employees, options to
acquire up to 72,100,000 Cemex B shares. As of September 30, 1997 options to
acquire a total of 19,772,885 Cemex B shares had been granted as follows:
5,345,789 granted in 1995 with an exercise price of Ps. 20.00 per share;
8,493,710 granted in 1996 with an exercise price of Ps. 29.60 per share;
5,933,386 granted in 1997 with an exercise price of Ps. 33.13 per share. Each of
the outstanding options vests at a rate of 25% per year on each of the first
four anniversaries of the date of its grant and expires on the tenth anniversary
of such date or when the employee ceases to be employed by Cemex. Under this
type of program, the company is not required to register a liability for the
options.
Changes to Mexican Accounting Principles
Beginning January 1, 1997, the following changes were adopted in the
consolidated financial information of Cemex:
In 1997, the restatement of the consolidated financial statements from the prior
period to "real terms" will be calculated using a weighted average of the
inflation from each country in which we operate and the change in exchange rate
of each country, in place of using an inflation factor based only on Mexican
inflation. The September 1996 to September 1997 inflation factor based on
inflation in Mexico is 1.1883, while the weighted average factor used by Cemex
in the consolidated financial statements is 1.0996.
In the same manner, the calculation of consolidated Monetary Position Gain or
Loss will be determined using the inflation from the country of origin for each
of the operations of the Cemex Group (in accordance with bulletin B-15, which
will be implemented January 1, 1998, with the recommendation that these changes
be retroactive to January 1, 1997); through 1996 Mexican inflation was used in
this calculation (in accordance with bulletin B- 10). In the third quarter of
1997, inflation in Mexico was 3.09% while the weighted average used by Cemex was
2.97%. The effect of this change in methodology during the third quarter of 1997
is a reduction in the Monetary Position Gain of $40 million pesos.
With the implementation of the Fifth Amendment to Bulletin B-10 (5o Documento de
Adecuaciones al Bolet-n B- 10), the practice of using independent appraisers to
determine the factor by which fixed assets are to be revalued has been
eliminated, and the revaluation of the assets in each country of operation will
be calculated according to the inflation in the assets country of origin and
converted using the end of period exchange rate.
At September 30, 1997, Mexico represented 43.1% of the total assets, Spain
26.1%, Colombia 12.2%, Venezuela 10.1%, the United States 5.2%, and the
Caribbean and Panama 3.3%.
CONSOLIDATED FIGURES
(Convenience translation in thousands of dollars)
JANUARY - SEPTEMBER %
INCOME STATEMENT 1997 1996 VAR
Net Sales 2,790,123 2,453,928 14%
Cost of Sales (1,721,315 (1,483,436) 16%
Gross Profit 1,068,808 970,493 10%
Selling, General and
Administrative Expenses (412,583) (367,666) 12%
Operating Income 656,245 602,826 9%
Financial Expenses (381,742) (480,138) (20%)
Financial Income 24,930 41,728 (40%)
Exchange Gain (Loss), Net 4,518 (78,162) (106%)
Monetary Position Gain (Loss) 449,006 916,041 (51%)
Total Comprehensive Financing
(Cost)Income 96,712 399,469 (76%)
Gain or (Loss) on Marketable
Securities 28,551 22,337 28%
Other Expenses, Net (79,796) (111,885) (29%)
Other Income (Expense) (51,245) (89,548) (43%)
Net Income Before Income Taxes 701,712 912,748 (23%)
Income Tax (42,257) (77,599) (46%)
Employees' Statutory Profit (9,113) (14,359) (37%)
Sharing
Total Tax & Profit Sharing (51,371) (91,958) (44%)
Net Income Before Participation of
Uncons. Subs. and Ext. Items 650,341 820,790 (21%
Participation of Unconsolidated
Subsidiaries 15,640 17,549 (11%)
Consolidated Net Income 665,981 838,339 (21%)
Net Income Attributable to
Min. interest 89,910 95,224 (6%)
NET INCOME AFTER MINORITY INTEREST 576,072 743,115 (22%)
EBITD (Op. Inc. + Depreciation) 882,588 817,702 8%
EBITD + Leases + Cost Actualization 910,681 841,741 8%
CONSOLIDATED FIGURES
(Convenience translation in thousands of dollars)
Quarters %
INCOME STATEMENT 111 1997 111 1996 Var.
Net Sales 1,002,488 847.824 16%
Cost of Sales (617,718)(512,106) 21%
Gross Profit 384,771 335,718 15%
Selling, General and Administrative Expenses (144,899)(132,281) 10%
Operating Income 239,872 203,437 18%
Financial Expenses (125,502)(161,079) (22%)
Financial Income 9,223 13,772 (33%)
Exchange Gain (Loss), Net 10,842 (22,043) (149%)
Monetary Position Gain (Loss) 133,522 222.047 (40%)
Total Comprehensive Financing 28,086 52,696 (47%)
(Cost)Income
Gain or (Loss) on Marketable
Securities 14,774 632 2236%
Other Expenses, Net (18,002) (42,157) (57%)
Other Income (Expense) (3,228) (41,524) (92%)
Net Income Before Income Taxes 264,730 214,608 23%
Income Tax (1,799) (41,289) (96%)
Employees' Statutory Profit (868) (4,174) (79%)
Sharing
Total Tax & Profit Sharing (2,667) (45,463) (94%)
Net Income Before Participation of
Uncons. Subs. and Ext. Items 262,062 169,145 55%
Participation of Unconsolidated
Subsidiaries 9,098 6,414 42%
Consolidated Net Income 271,161 175,560 54%
Net Income Attributable to 26,519 17,991 47%
Min. interest
NET INCOME AFTER MINORITY INTEREST 244,641 157,568 55%
EBITD (Op. Inc. + Depreciation) 319,960 274,590 17%
EBITD + Leases + Cost Actualization 331,852 281,294 18%
BALANCE SHEET
JANUARY - SEPTEMBER %
1997 1996 VAR
Total Assets 10,219,570 9,786,756 4%
Cash & Temporary Investments 402,586 456,571 (12%)
Trade Accounts Receivables 473,050 443,449 7%
Other Receivables 198,660 139,168 43%
Inventories 451,955 438,198 3%
Other Current Assets 91,265 122,669 (26%)
Current Assets 1,617,515 1,600,055 1%
Fixed Assets 6,012,035 5,627,285 7%
Other Assets 2,590,020 2,559,416 1%
Total Liabilities 5,497,985 5,507,475 (0%)
Current Liabilities 1,313,596 1,665,405 (21%)
Long-Term Liabilities 3,850,859 3,557,345 8%
Other Liabilities 333,530 284,725 17%
Consolidated Stockholders' Equity 3,527,832 3,332,820 6%
Stockholders' Equity Attributable
to Minority Interest 1,193,753 946,461 26%
Stockholders' Equity Attributable
to Majority Interest 4,721,585 4,279,281 10%
END
QRTBLBBGUXDCCRR
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