RNS No 133e
CEMEX S.A. DE C.V.
13th February 1998
PART ONE
1997 Fourth Quarter Results
Strong group cash flow and lower interest expense result in significant
higher cash earnings and interest coverage ratios
* CEMEX's consolidated net sales increased 8% in real terms (see explanation
on page 10) to Ps. 7.953 billion during the fourth quarter of 1997 versus
1996. Approximately 5 percentage points of this increase is attributable to
the consolidation of Colombian subsidiary Samper beginning in 1997. Net
sales also increased 8% for the full year 1997 to Ps. 30.573 billion. In
dollar terms, net sales increased 13% in the both the fourth quarter and the
full year to US$985 million and US$3,788 million, respectively.
* In Mexico, CEMEX's fourth quarter domestic grey cement sales volumes
increased 2%, while prices in dollar terms increased 18%. Mexican ready-mix
sales volumes were 27% higher versus the same quarter a year ago with a 13%
price increase in dollar terms. For all of 1997, cement volumes increased
12% and ready-mix volumes grew 33%.
* CEMEX's operating margin was 23.9% during the fourth quarter versus 21.8%
for the prior year period. The operating margin for the year was 23.6% as
compared to 23.8% in 1996.
* Cash earnings (EBITD less net financial expenses) in the fourth quarter grew
111% in real terms versus the prior year, to Ps. 1.553 billion (Ps. 1.27 per
share), or 119% in dollar terms to US$192 million (US$0.16 per share). For
the year, cash earnings increased 47% to 5.815 billion (Ps. 4.70 per share),
or 52% in dollar terms to US$721 million (US$0.58 per share).
* Cash flow (EBITD) increased 15% in real terms during the fourth quarter to
Ps. 2.475 billion. In dollar terms, cash flow grew 19% to US$307 million
during the fourth quarter as compared to US$257 million during the same
period a year ago. Cash flow from January through December 1997 grew 6% to
Ps. 9.631 billion or US$1.193 billion.
* Net income during the fourth quarter of 1997 was Ps. 1.470 billion or US$182
million (including monetary position gains of Ps. 1.017 billion). Net
income during the same period in 1996 was Ps. 1.868 billion or US$223
million (including monetary position gains of Ps. 2.396 billion). For the
full year 1997, net income for the full year 1996 was Ps. 8.202 billion or
US$977 million (including monetary gains of Ps. 10.203 billion).
* Net income per ADR (ratio 2:1) in the fourth quarter was Ps. 2.40 (US$0.30),
versus Ps. 3.00 (US$0.36) during the same period a year ago. For the full
year 1997, net income per ADR was Ps. 9.94 (US$1.24), versus Ps. 13.38
(US$1.57) in 1996. Excluding shares held in trust for equity swaps, the
average number of shares outstanding during the quarter and the full year
1997 totaled 1,222.8 million and 1,236.0 million, respectively, reflecting
purchases under CMEX's previously announced share repurchase program.
* Interest coverage in the fourth quarter was 2.42 times, and 2.34 times for
the trailing twelve months. When measured using cash flow before lease
payments and cost restatements for inflation, interest coverage was 2.49
times in the fourth quarter and 2.41 times for the trailing twelve months.
In comparison with the fourth quarter of 1996, financial expenses decreased
30% to US$127 million in the fourth quarter of 1997.
* Net debt (on-plus off-balance sheet debt minus cash and cash equivalents)
was US44,738 million, over US$250 million lower than the fourth quarter of
1996. This marks the third consecutive quarter that CEMEX reduced its net
debt.
* The debt to total capitalization ration at the end of the quarter was
reduced to 49.6% due to a reduction of debt and despite the acquisition of a
30% stake in Rizal Cement in the Phillippines, the US$119 million of shares
bought back under the stock repurchase program and the acquisition of the
30% remaining minority interest in Cementos Nacionales of the Dominican
Republic.
Consolidated Results (in real terms)
Monterrey, N.L., Mexico February 12, 1998 Cemex, S.A. de C.V. (OTC: CMXBY) today
announced fourth quarter 1997 results:
Consolidated net sales increased 8% in real terms versus the same period a year
ago to Ps 7.953 billion. This increase is attributable to higher volumes and
prices in most subsidiaries, and the consolidation of Colombian subsidiary
Samper beginning in 1997 which contributed 5 percentage points of the increase.
In dollar terms, net sales grew at a faster pace to US$985 million, or 13%,
resulting from the relative strength of the peso versus the dollar during the
last twelve months.
Mexico represented 43% of the net sales for the fourth quarter, Spain 19%.
Venezuela 11%, Colombia 10%, the United States 11% and Central America and the
Caribbean 6%.
Gross margin increased from 38.8% in the fourth quarter of 1996 to 39.9% in the
fourth quarter of 1997 as increases in volumes and prices in most subsidiaries
were accompanie3d by an overall decline in costs.
Operating margin in the fourth quarter increased from 21.8% last year to 23.9%
this year, attributable to the higher gross margin and a decline in SG&A
expenses as a percentage of sales.
Operating income increase 19% in real terms to Ps. 1.904 bilion for the quarter
and increased 24% in dollar terms to US$236 million.
Operating Cash flow (EBITD) in the quarter was Ps. .475 billion, an increase of
15% in real terms over the fourth quarter of 1996 due to improvements in the
Mexican and Venezuelan opeations and the full consolidation of Samper, which
represented 4 percentage points of the increase, in dollar terms, cash flow
increased 19% over the same period a year ago to US$307 million. Cash flow
margin was 31.1% in the quarter versus 29.4% in the fourth quarter of 1996.
In the fourth quarter, Mexico represented 51% of the total cash flow, Spain 17%.
Venezuela 14%, Colombia 10%, the United States 4% and Central America and the
Caribbean 4%.
Cash flow before lease payments and cost restatements for inflation (non-cash)
increased 15% in the quarter to Ps 2.544 billion, or US$315 million. CEMEX
believes it is more appropriate to measure operating cash flow before lease
payments, particularly when calculating interest coverage, since the interest
component of these leases payments is already included in financial expenses.
Cash earnings (EBITED less net financial expenses) were Ps 1.553 billion (Ps
1.27 per share) in the quarter. 111% higher in real terms. This increase was due
mainly to a significant reduction in financial expenses year over year (down 32%
in real terms). In dollar terms, cash earnings increased 119% to US$192 millon
(US$0.16 per share) from the fourth quarter of 1996.
Fourth quarter financial expenses were Ps. 1,021 billion, a 32% decrease over
the same period in 1996 in real terms. In dollars, financial expenses were
US$127 million, a 30% decrease.
Interest coverage improved to 2.34 times for the full year 1997, from 1.63 times
during 1996. Interest coverage before lease payments improved to 2.41 for the
full year 1997, from 1.67 times during 1996. Starting in the first quarter of
1998, interest coverage will only be calculated using cash flow before lease
payments. Financial Expenses will continue to be calculated including the
interest component of lease payments.
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. As of December 31, 1997 the interest expense plus cash
tax coverage was 2.21 times for the trailing twelve months.
Total on-balance sheet debt, in millions of constant pesos and billions of
dollars, as of December 31, 1997:
Dec.31 1997 Sept.30 1997 Dec.31 1996 Var.Sept-Dec Var. Dec-Dec
Pesos 37,269 37,359 40,033 0% (7%)
Dollars 4.618 4.608 4.769 0% (3%)
Net debt (on-plus off-balance sheet debt minus cash and cash equivalents),
decreased 5% to US$4,738 million compared to the fourth quarter of 1996, as a
22% reduction in off-balance sheet obligations and a 3% decrease in on-balance
sheet debt more than offset a 7% decrease in cash and cash equivalents.
Between the third and fourth quarters of 1997, net debt fell 2% in dollar terms
as a 6% reduction in cash and cash equivalents was offset by a 22% decrease in
off-balance sheet financing. On-balance sheet debt remained essentially flat
during the last three months, despite stock repurchases of Ps. 537 million and
the US$93 million invested in Rizal Cement of the Philippines.
Leverage (total debt/total capitalization) at the end of the quarter was 49.6%,
lower than the 53.0% at December 31, 1996 and the 49.9% level at September 30,
1997.
Financial leverage as measured by comparing total on-balance sheet debt to
operating cash flow for the previous twelve months, was reduced from 4.39 at the
end of the fourth quarter of 1996, to 3.87 in the same period of 1997,
representing a reduction of 12% during 1997.
Lond-term debt: 86% or Ps. 31,964 million (US$ 3.961 billion)
Short-term debt: 14% or Ps. 5,305 million (US$ 657 million)
Denomination Dollars Pesetas Bolivares Col Pesos
1997 95% 4% 1% -
1996 90% 7% 1% 2%
Average Cost Dollars Pesetas Bolivares Col Pesos
1997 8.2% 5.6% 18.7% 8.8%
1996 8.1% 7.4% 23% 25%
At the end of the fourth quarter, off-balance sheet transactions totaled
approximately US$ 500 million. The reduction in off-balance sheet transactions
was principally due to the expiration of the SRUs (Share Repurchase Units) and
the associated contingent liability of US$ 90 million which resulted in an
extraordinary gain of approximately US$36 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 fourth quarter of 1997, the outstanding
tansactions 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 Exchange Gain (Loss) in the fourth quarter was a loss of Ps. 132 million, a
decline of 27% versus the fourth quarter of 1996.
During the fourth quarter, the peso depreciated 4% (in peso terms) with respect
to the dollar, as measured by the interbank exchange rate. The depreciation for
CEMEX also totaled 4% 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 December 31, 1996 and December 31, 1997,
were Ps. 7.88 and Ps. 8.07 per dollar, respectively.
A net monetary position gain of Ps. 1.017 billion was recognized during the
fourth quarter, a decrease of 58% in real terms versus the comparable period a
year earlier due to lower inflation in Mexico as well as the implementation of a
new subsidiary-weighted inflation conversion method mandated under Mexican
Accounting Principles beginning in 1997. The weighted average inflation factor
used in the fourth quarter to calculate the net monetary position gain was 3.0%,
or 13.3% for the full year 1997. By comparison, the factor used in the fourth
quarter of 1996 was based on Mexican inflation of 6.1% , or 27.9% for the full
year. The effect of this change in methodology during the fourth quarter of 1997
is a reduction in the net monetary position gain of Ps. 120 million. (Please see
the Changes to Mexican Accounting Principles section on page 10 of this report).
Other Expenses and Income were an expense of Ps. 463 million, a 3% decrease in
real terms from the fourth 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 in
both periods. Actual cash expense in the fourth quarter of 1997 was Ps. 271
million or US$34 million.
The total effective tax rate was 7.0% in the quarter, comprised of income tax
-ISR- (3.6%) and of workers participate in net income -PTU- (3.4%). In
antipation of CEMEX's annual cash tax payments, approximately Ps. 132 million
were paid during the fourth quarter against the provision accumulated for 1997.
Minority interest income decreased 29% in the quarter in real terms due to the
purchase of the remaining minority interest in Cementos Nacionales of the
Dominican Republic and the reclasification of minority interest related to
Valenciana equity swap. These reduction offset incremental increases related to
the consolidated of Samper and higher net income at the subsidiary level.
The average number of shares outstanding during the fourth quarter (not
including shares held in trust for equity swaps) was 1,222.8 million (A shares
489.4 million; B shares; 383.3 million; A shares held in the form of CPOs: 350.2
million). Transaction related to shares that were put into trust for equity
swaps comprised an aggregate of 20.6 million CEMEX CPOs and 25.6 million
CEMEX B shares.
MEXICO (Constant Peseos)
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 fourth quarter were Ps. 3.732 billion, an increase of 2%
compared with the equivalent period in 1996 primarily due to higher domestic
cement prices. In dollar terms, net sales increased 15% to US$463 million.
The breakdown of total sales in Mexico during the fourth quarter was as follows:
70% from domestic cement sales, 19% from ready-mix sales, 7% from exports and 4%
from tourism and others.
Domestic gray cement volume grew 2% in the fourth quarter of 1997 versus 1996,
while the sales volume of ready-mix increased 27% on increased private sector
construction.
Increases in both cement and ready-mix volumes year over year where driven by
the continuing recovery of the Mexican cement market and slight market share
gains in certain regions resulting from new product offerings, distribution
network improvements, and other marketing initiatives. All sectors showed
improvements, especially industrial and commercial construction, fueled
primarily by the private sector and informal construction supported by higher
employement and real wage increases. Going forward, CEMEX believes housing
construction should improve due to lower interest rates, a continued housing
shortage and the allocation of funds for housing construction as part of the
government' new retirement savings plan (AFORE).
During the fourth quarter of 1997, ready-mix volume growth was attributable to
formal sector construction and, to a lesser extent, to Government public works
recovery. 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 in 1998. Despite the Mexican government's recent announcement that
certain non-cement intensive projects (mainly Comision Federal de
Electricidad-and Pemex-related) are likely to be placed on hold during 1998 due
to budget cuts, CEMEX believes ready-mix demand should continue to enjoy rapid
growth in 1998.
CEMEX-Mexico's total export volume declined 39% during the quarter compared with
the fourth quarter of 1996 as an increase in higher-value exports to Latin
America were not sufficient to ffset a significant decline in exports to
Southeast Asia. Exports from Mexico during the quarter were distributed as
follows:
Central and South America: 38% The Caribbean:24% The Far East:16%
United States:16% Africa:6%
CEMEX's average realized cement price (invoice) in Mexico during the fourth
quarter increased 7% versus the third quarter of 1997 and increased 5% from the
fourth quarter of 1996 in contant peso terms. In dollar terms, prices rose 4%
versus the previous quarter and 18% versus the same period a year ago.
The average ready-mix price increased 1% in constant peso terms and increased
13% in dollar terms over the fourth quarter 1996.
The average cash cost of goods sold per ton in the fourth quarter of 1997
decreased 10% in real terms versus the fourth quarter of 1996 primarily due to a
22% reduction in fixed costs coupled with a 3% decrease in variable costs. Fuel
oil costs decreased 4% in real terms when comparing the fourth quarter of 1997
to that of 1996 due to lower petroleum prices and increased usage of petcoke,
while electricity costs increased 5% in the same period. Labor costs decreased
5% in real terms versus the fourth quarter of 1996. In dollar terms, the cash
cost of goods sold decreased 2%. Although not considered part of the cash cost
of goods sold, distribution costs increased 10% in real terms year over year due
to higher transport fees.
Gross margin increased from 41.9% in the fourth quarter of 1996 to 46.4% in
1997.
Operating margin in Mexico increased to 34.4% during the period from 29.4% in
1996. Operating income was Ps 1.283 billion, 19% higher than in 1996.
Cash from operations (EBITD) in Mexico increased 10% in real terms to Ps. 1.468
billion in the fourth quarter and in dollar terms grew 24% to US$182 million.
EBITD margin was 39.3% in the fourth quarter versus 36.5% in the fourth quarter
a year ago. Cash flow before lease payments and cost restatements for inflation
(non-cash) increased 10% in real terms to Ps.1.493 billion, or US$185 million.
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. 27.598 billion during the
fourth quarter, a 29% 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. 21%
Domestic cement volume increased 32%, and ready-mix volume 18% during the fourth
quarter of 1997 as compared to the same period of 1996 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 unsatisfied demand for new housing. Non-residential
construction is continuing to improve as well, primarily in commercial centers
and new office space. Going forward, we believe 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 37% compared to the fourth quarter of
1996 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 Valencian and other Spanish
producers.
Due to a redirection of production to domestic demand, exports from Spain
increased 3% in the fourth quarter compared to the fourth quarter of 1996,
distributed as follows:
United States: 74% Africa:20% Europe & the Middle East: 6%
The average domestic sales price for cement declined 4% in peseta terms, when
compared with the same period of the previous year, and decreased 16% in dollar
terms due to the devaluation of the peseta during 1997. The average price for
ready-mix during the period was flat in peseta terms and decreased 13% in dollar
terms.
The average cash cost of goods sold per ton decreased 5%, in peseta terms, in
the fourth quarter of 1997 versus 1996. Lower labor costs led to a 17% decline
in fixed costs but variable costs increased by 4%, in each case in Peseta terms.
In dollar terms the cash cost decreased 19% year over year.
Gross margin decreased to 32.9% in the fouth quarter, from 34.4% in the fourth
quarter of the previous year from a 72% increase in depreciation expense
resulting from new fiscal accounting laws in Spain.
Selling and administrative expenses increased 10% in the quarter in Peseta
terms, 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 represented 13% of sales versus 15% in the fourth quarter
of 1996.
Operating margin in the fourth quarter was 20.2% as compared to 19.6% in 1996,
as a decrease in SG&A expenses as a percentage of sales offset as increase in
depreciation. Operating income was Ptas. 5.580 billion, 33% higher than in
1996.
Cash from operations (EBITD) increased 46% year over year to Ptas. 9.198
billion. In dollar terms, cash from operations grew 25% to US$61 million. EBITD
margin was 33.3% in the fourth quarter versus 29.4% a year earlier.
Venezuela (Constant Bolivares)
For analysis purposes, Vencemos' figures are presented in constant Bolivares
considering Venezuelian inflation. When consolidated into CEMEX's results,
these figures are converted into Dollars and then into Pesos and Mexican GAAP.
During the fourth quarter of 1997, net sales in Venezuela were Bs. 58.779
billion, a 13% increase in constant Bolivar terms over the same period in 1996,
due to higher domestic volumes. In dollar terms, net sales increased 47% to
US$116 million due to stong dollar resulting from the stable Bolivar.
Domestic cement volume increased 28% in the quarter compared to the fourth
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 7% during the fourth quarter as
compared to same period a year ago and currently comprised 49% of total sales
volumes versus 55% 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: 56% The Caribbean & Central: 21% South America: 23%
Domestic cement prices declined by 4%m, while ready-mix prices increased by 5%,
in constant Bolivar terms, when compared with the fourth quarter of 1996. In
dollar terms, cement and ready-mix prices increased 25% and 37%, respectively,
as inflation between December between December 1996 and December 1997 was
approximately 38%, while the Bolivar devalued ony 6% during the period.
The average cash cost of goods sold per ton increased 13% in constrant Bolivar
terms in the fourth quarter of 1996. Fixed costs increased 1% as higher labor
costs were almost entirely offset by a reduction expenses related to replacement
parts. Variable costs increased 37% due to an increase in the cost of purchased
raw materials and mining expenses. In dollars terms, the cash cost per ton
increased 45%.
Gross margin increased to 41.6% in the fourth quarter from 37.5% in the fourth
quarter of 1996 as sales grew 13% but costs of goods sold only increased 5%.
Selling and administrative expenses declined 10% in the quarter and represented
9% of sales versus 11% in 1996.
Operating margin increased to 32.7% in the fourth quarter from 26.4% in the
prior year, on operating income of Bs. 19.231 billion, 40% higher in constant
Bolivars terms than during the fourth quarter a year ago.
Cash from operations (EBITD) was Bs. 24.243 billion for the quarter, a 22%
increase over the same period in 1996. In dollar terms, operating cash flow
increased 58% to US$ 48 million. The EBITD margin was 41.2% in the fourth
quarter of 1997 versus 38.2% in 1996. Cash flow before cost restatements for
inflation (non-cash) increased 30% to Bs. 25.796 billion, or US$ 51 million in
dollar terms.
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 fourth quarter of 1997 the Colombian operations
includes both Diamante and Samper for the full three months. In this analysis,
for comparison purposes only, we are presenting a proforma for the Colombia
operations (which includes Diamante and Samper) for the full fourth quarter of
1996.
Net sales in the Colombian operations, in constant Colombian pesos, were CPs.
130.825 billion (US$101 million), 22% higher than the CPs. 107.171 billion
proforma net sales in the fourth quarter of 1996.
Gross margin was 36.3% for the 1997 fourth quarter versus 23.9% in the fourth
quarter 1996 on a proforma basis.
Selling and administrative expenses increased 21% from the proforma fourth
quarter of 1996 and represented 17% of sales in the 1997 fourth quarter. These
expenses should continue to decline in coming quarters as savings are realized
from the continued integration and optimization of the operations.
Operating margin was 19.6% in the fourth quarter on operating income of CPs.
25.627 billion (US$20 million). This compares to an operating margin of 7.1%
and operating income of CPs. 7.575 billion, in constant terms, in the fourth
quarter of 1996 (proforma).
Cash from operations (EBITD), after charges of CPs. 60 million associated with
operating leases, was CPs. 49.995 billion (US$36 million) in the 1997 fourth
quarter, with a margin of 35.9%. Cash flow before leases during the quarter was
CPs. 47.055 billion, or US$36 million.
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 of the United States operations during the fourth qurter of 1997 were
US$109 million, an 8% increase over the same period a year ago from stronger
prices and volumes for both cement and ready mix.
Cement sales volume increased by 2% during the fourth quarter of 1997 as
compared to the same period in 1996. Ready-mix volumes increased 8% during the
quarter, while aggregates volumes increased 4% over the same period a year ago.
Despite these year-over-year improvements, volumes decreased from the third to
the fourth quarters 1997 from distribution problems associated with Union
Pacific Railroad service disruptions negatively affected volumes in Texas and
Arizona.
Average realized cement prices increased 3% in the fourth quarter versus the
same period in 1996 as local cement producers are operating at or near capacity.
Average ready-mix prices during the quarter increased 1% versus a year ago,
while the average price of aggregates decreased 3%.
Cement and aggregate volumes and prices have been converted from short 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 13.1% in the quarter from 13.0% in 1996 primarily as a
result of higher volumes and prices.
Operating margin increased to 5.7% in the fourth quarter from 4.9% in 1996 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 6.6% vs 7.7% a year ago.
Operating income in the fourth quarter of 1997 was 25% higher than the fourth
quarter of 1996 and cash from operations (EBITD), after charges of US$3 million
associated with operating leases, increased 7% to US$10 million. EBITD margin
of 10% in the fourth quarter remained stable versus the same period a year ago.
Cash flow before lease payments increased 6% to US$13 million.
Central America and the Caribbean (Dollars)
During the fourth quarter of 1997, net sales in Central America and the
Caribbean region were US$56 million, an increase of 29% year over year. For the
full year 1997, net sales increased 19% to US$207 million as compared with 1996.
The operating margin in the area was 8% for the fourth quarter of 1997. This
margin reflects an extraordinary maintenance expense incurred in the last
quarter of 1997 in our Central America operation. For the full year 1997
operating margin was 20%.
In 1997, operating income for the fourth quarter was US$4 million, and US$41
million for the full year.
Operating cash flow in the fourth quarter of 1997 was US$9 million. For the
full year 1997, operating cash flow remain almost flat as compared with the same
period a year ago, being US$57 million and US$56 million respectively.
Financing Activities and Strategy
The following is a summary of the transactions carried out during the fourth
quarter:
Philippine Acquisition
On October 17, CEMEX announced the acquisition of a 30% minority stake in
Philippine company Rizal Cement Inc. for US$93 million all in cost, and signed
an agreement in which CEMEX will provide technical and consulting services to
Rizal. The transaction was realized through CEMEX's Spanish subsidiary. The
return on this investment will be reflected beginning in the first quarter 1998
following the integration of Rizal's accounting records. However, the
investment is accounted for on the balance sheet as an investment in
subsidiaries at the end of the fourth quarter of 1997.
CEMEX, through its Spanish subsidiary, 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, however approximately 75% its capital is
expected to be contributed by venture capital investors and third parties.
Committed Underwriting Facility
CEMEX closed a three-year facility with Bankers Trust and Santander for US$300
million which provides contingent refinancing for Euro Commercial Paper (ECP).
Through this facility CEMEX has the option to place ECP with the participant
banks should short-term market conditions become unfavorable for refinancing of
ECP. In addition, an option also exists to allow ECP placed with the
participant banks to convert into a long-term notes.
Refinancing of the US$358 million Convertible Bond
The outstanding US$358 million Convertible Bond, which matured in November 1997,
was liquidated through a combination (40/60%) of short- and long-term
instruments. CEMEX presently intends to refinance the short-term portion with
Euro Commercial Paper issuances supported by the Committed Underwriting
Facility.
Refinancing of Equity Swaps
Equity swaps amounting to US$120 million were refinanced during the fourth
quarter. The new instruments have a scheduled maturity of three years and
average spreads that are approximately 60 basis points lower than that of the
previous equity swaps.
Equity Related Information
The change in the number of shares outstanding during the fourth quarter of 1997
is explained as follows:
Number of shares outstanding as of September 30, 1997 1,231,992,908
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) 89,425
Share Repurchase Program activity (October 1 - December 31) (13,598,980)
Decrease (Increase) in CEMEX shares held at subsidiaries
(including change in number of shares held in trust for
equity swaps) 29,498
Number of shares outstanding as of December 31, 1997 1,218,512,851
Share Repurchase Program
During the fourth quarter of 1997, a total of 13,598,980 shares were bought back
at an average price of Ps. 39.70 per share as part of CEMEX's share repurchase
program. Since inception of the share repurchase program on June 1, 1997,
24,129,099 shares have been brought back at an average price of Ps. 38.99 per
share, completing the minimum of Ps. 957 million (constant pesos as of December
31, 1997) stipulated for the share repurchase program.
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 December 31, 1997 options to
acquire a total of 21,152,885 CEMEX B shares had been granted as follows:
5,345,789 granted in 1995 with an exercise price of Ps. 20.00 per share;
9,873,710 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, and in accordance with the new requirements of
Mexican Accounting Principles 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" have been calculated using a weighted average of
the inflation from each country in which the Company operates and the change in
exchange rate of each country, in place of using an inflation factor based only
on Mexican inflation. The December 1996 to December 1997 inflation factor based
on inflation in Mexico is 15.72%, while the weighted average factor used to
CEMEX in the consolidated financial statements is 6.53%.
In addition, the calculation of the consolidated Monetary Position Gain has
been determined using a weighted average inflation factor based on the inflation
of each country in which CEMEX operates. Prior to 1997, only Mexican inflation
was used by CEMEX in the calculation in accordance with Bulletin B-10. The
change in inflation factors is in accordance with Bulletin B-15, which was
approved in August 1997 and will be officially implemented beginning January 1,
1998, with the recommendation that these changes be retroactive to January 1,
1997.
With the implementation of the Fifth Amendment to Bulletin B-10 (5 Documento de
Adecuaciones al Boletin 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 is
calculated according to the inflation in the assets country of origin and
converted using the end of period exchange rate.
At December 31, 1997, Mexico represented 45% of the total assets Spain 24%,
Venezuela 11%, Colombia 11%, the United States 5% and Central America and the
Caribbean 4%.
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