Buy-Top Industry Pick

Second Quarter 2001
Cemex (CEMEX)

Francisco Suárez Savín(52) 5169-9386

7/16/2001 /

Buy-Top Industry Pick

The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Casa de Bolsa Banorte nor Afin Securities International Ltd. accepts any liability for any losses arising from any use of this report or its contents.

Second Quarter 2001
Cemex (CEMEX)

Francisco Suárez Savín(52) 5169-9386

Cemex CPO / CX
Price: Mx / ADR / Ps 48.02 / US$ 25.96
52 Week Range: / Ps 50.85 To 31.86
Shares Outstanding: / 1.5 billion
Market Capitalization: / US$ 7.5 Billion
Enterprise Value: / US$ 14.6 million
Avg. Trading Ps Volume / US$ 12,761.3 thousand
Ps/share / US$/ADR
2Q EPS / 2.54 / 1.36
1H EPS / 4.29 / 2.31
T12 EPS / 7.91 / 4.25
T12 EBITDA / 14.51 / 7.80
Book Value / 36.81 / 19.79
T12 Net Cash Earnings / 8.39 / 4.51
T12 / 2001e
P/E / 6.07x / 5.25x
P/BV / 1.30x / 1.08x
P/NCE / 5.73x / 4.98x
EV/EBITDA / 6.42x / 5.67x
T12 / 2Q01
ROE / 23.1% / 13.8%
ROA / 12.5% / 2.8%
Interest Coverage Ratio / 4.85x / 5.77x
Total Debt to EBITDA / 2.49x / 4.75x
T12 = Trailing 12 months as of June 30, 2001.
ENTERPRISE VALUE (EV) = Mkt cap.+ Net Debt+ Min.Int.
NCE = Net income+ Monetary Loss+ Fx Loss+ Depreciation
ROA=T12m Op.Profit to Avg. Assets
ROE=T12m Net Profit to Avg. Equity

A Mixed-Bag, as expected. Medium/Long term prospects remain strong.

Mexico (48% of Cemex’ quarterly EBITDA), experienced a 6% contraction in volume, partially compensated by an 8% dollar rise in cement prices that lead to zero growth in EBITDA in that market.
Southdown, the newly acquired operation in the US market (22% of quarterly EBITDA), contributed to most of the growth for the quarter. A good volume performance in Spain (10% of EBITDA), was mitigated by higher costs and the weakness in the Euro.
Operations in South America/Caribbean (17% of EBITDA) remain relatively strong, particularly at Venezuela. The Philippines continues to disappoint. Egypt contributed only with 2% of EBITDA, due to extraordinary margin pressure (Assiut’s kiln closed for 70 days), and weakness in the Egyptian Pound.
Overall, EBITDA of US$ 611 million (we forecasted an EBITDA of 617 million), grew by 22% YoY. Thanks to the future sale of Cemex’ stake in Banacci to Citigroup, the company posted an extraordinary gain of US$ 131 million –6.2% of net sales. The deal also helped to reduce net debt by US$ 398 millions QoQ, approaching fast to Cemex’ targeted financial ratios.
Investors should note that in spite of a weak quarter in Cemex’ main market, EBITDA grew 1% YoY excluding the acquisition of Southdown. Therefore, outlook remains positive as long as Mexico’s growth gradually recovers –which should begin to do so in 2H01. EBITDA growth and net debt reduction lead to a drop in Cemex’ EV/EBITDA multiple from 6.88x to 6.42x, QoQ. On a T12 basis, it compares favorably with Cemex’ European peers, whom on an average basis trade at 7.11x. On the near-term, it seems that the stock has left out of steam, however, we urge investors to build positions on price weakness, if any. Our price target is Ps 68.00 for February/2002.

Second Quarter 2001
Cemex (CEMEX)

Francisco Suárez Savín(52) 5169-9386

7/16/2001 /

Buy-Top Industry Pick

Second Quarter 2001
Cemex (CEMEX)

Francisco Suárez Savín(52) 5169-9386

INCOME STATEMENT
(millions of constant pesos as of June 30, 2001)
1H01 / 1H00 / Change / 2Q01 / 2Q00 / Change
Net Sales / 31,073 / 25,173 / 23.4% / 16,449 / 12,892 / 27.6%
Gross Profit / 13,619 / 11,252 / 21.0% / 7,201 / 6,397 / 12.6%
EBITDA / 10,460 / 9,266 / 12.9% / 5,539 / 4,759 / 16.4%
Operating Profit / 7,768 / 7,619 / 1.9% / 4,161 / 3,940 / 5.6%
ICF / (700) / 838 / #N/A / (354) / 727 / #N/A
Interest Expense / 2,069 / 2,243 / -7.7% / 980 / 1,106 / -11.4%
Interest Income / 163 / 130 / 25.5% / 115 / 67 / 70.8%
Foreign Exchange Loss / (1,103) / 219 / #N/A / (442) / 297 / #N/A
Monetary Loss / (1,504) / (1,494) / 0.7% / (777) / (608) / 27.8%
Other Financial Expenses / 212 / 967 / -78.1% / (281) / 410 / #N/A
Pretax Income / 8,255 / 5,814 / 42.0% / 4,797 / 2,803 / 71.1%
Taxes / 1,061 / 1,120 / -5.3% / 610 / 613 / -0.5%
Non-Cons. Subsidiaries / 86 / 91 / -5.1% / 42 / 52 / -18.0%
Extraord. Items (gains) / 0 / 0 / #N/A / 0 / 0 / #N/A
Minority Interest / 1,030 / 239 / 330.4% / 536 / 89 / 499.6%
Net Income / 6,251 / 4,545 / 37.5% / 3,694 / 2,153 / 71.6%
Gross Margin / 43.8% / 44.7% / 43.8% / 49.6%
Ebitda Margin / 33.7% / 36.8% / 33.7% / 36.9%
Operating Margin / 25.0% / 30.3% / 25.3% / 30.6% / #REF!
Net Margin / 20.1% / 18.1% / 22.5% / 16.7%
A/R Turnover (days) / 58 / 57
Inventory Turnover (days) / 68 / 68
A/P Turnover (days) / 42 / 56
WC net of debt to Sales / 21.2% / 17.4%
BALANCE SHEET
(millions of constant pesos as of June 30, 2001)
Jun-01 / Jun-00
Total Assets / 149,818 / 111,660
Cash & Equivalents / 5,201 / 3,176
Other Current Assets / 18,217 / 13,933
Long Term / 6,681 / 6,956
Fixed (Net) / 82,398 / 62,991
Deferred / 37,320 / 24,605
Other / 0 / 0
Total Liabilities / 77,942 / 53,932
Short Term Debt / 20,376 / 8,662
Other Current Liab. / 10,252 / 8,324
Long Term Debt / 32,237 / 29,530
Other Liabilities / 15,078 / 7,417
Shareholders Equity / 71,875 / 57,728
Minority Interest / 18,253 / 11,494
FINANCIAL ANALYSIS
Current Ratio / 0.8x / 1.0x
STerm Debt to TDebt / 38.7% / 22.7%
Foreign Liab./Ttl Liab. / 78.1% / 82.9%
Net Debt/Total Equity / 66.0% / 60.7%
Ttl Liab./Total Equity / 108.4% / 93.4%

EBITDA in Mexico of US$ 313 million remained virtually flat YoY. As growth hit bottom this quarter, and as utilization of new capacity is now at higher levels, it is expected that this market should begin to recover gradually beginning on 3Q01. Mexico’s EBITDA margin dropped 1.9pp to 46.9%.

EBITDA in the US grew 348% to US$ 142 million thanks to Southdown’s consolidation –acquired in 4Q00. Volumes in the US grew 9% on a pro-forma basis, as public infrastructure spending remains high. Cement and Ready-mix volumes in Spain grew 6% and 4% respectively, YoY. Venezuela’s and Colombia’s EBITDA grew 22% and 12%, respectively, YoY.

Taxes for the period should be seeing as abnormally low. Increased operating profitability, lower net interest expense and the extraordinary gain lead to a majority net income of US$ 408 million, a 79% YoY growth .The margin in Net Cash Earnings was 23.4%, a 2.8pp gain compared to 2Q00.

Cemex’ EBITDA margin reduction was due to incorporation of Southdown (1.3%), higher energy costs (1.2%), and the rest is attributable to a change in the sales mix.

Due to a reclassification of Cemex’ 1.32% stake at Banacci, the company increased its cash holdings while reducing its Long-term investments by US$ 160 million.

As of July 9th, Cemex’ has redeemed US$ 600 million in preferres equity, of the US$ 1,500 million issued to finance the acquisition of Southdown. During the quarter, Cemex-Asia Holdings acquired Saraburi Cement for an enterprise value of US$ 73 millions, of which US$ 10 million is debt. This facility of 700,000 metric tons operates at full capacity.

The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Casa de Bolsa Banorte nor Afin Securities International Ltd. accepts any liability for any losses arising from any use of this report or its contents.