Cemex' Third Quarter 2001 Results

Second Quarter 2004 Embotelladoras Arca (ARCA) Marcela Martínez Suárez [email protected] (52-55) 5169-9384

August 3, 2004

ARCA * Lower Average Prices per Case Price: Mx Ps 21.70 • Competitors are pressuring Arca. Arca's results came 52 Week Range: Ps 24.51 to Ps 15.40 in below our expectations, as we had not expected such Shares Outstanding: 806.0 million a strong decline in average prices, in turn due to the Market Capitalization: US$ 1.52 billion entry of PBG into the region—our biggest concern, as Enterprise Value: US$ 1.55 billion this should cause Arca's volumes to remain under Avg. Daily Trading Value US$ 775.0 thousand pressure. We also feel that margin expansions are

Ps/share unlikely, as sugar and other input prices have been 2Q EPS 0.57 steadily increasing, thus exerting downward pressures T12 EPS 1.48 on Arca's gross margin. At the operating level, we T12 EBITDA 3.95 should continue to see substantial savings in T12 Net Cash Earnings 3.68 administrative and selling expenses, albeit insufficient to Book Value 10.99 absorb input cost increases. For the full year of 2004, we expect savings of around Ps 160 to Ps 180 million, as T12 2004e P/E 14.70x well as cash inflows from the sale of non-strategic P/BV 1.97x assets. We should also see significant savings from the P/NCE 5.89x coming on line of two sugar clarifiers and the sale of the EV/EBITDA 5.57x PET bottle segment to AMCOR. Our 2004 estimates originally included 1% sales volume growth, but T12 1Q04 quarterly results have caused us to place our estimates ROE 13.4% 20.8% and price target under review, as we believe that Arca ROA 17.3% 21.3% will most likely be unable to apply soft drink price Interest Coverage Ratio 13.46x 26.93x Total Debt to EBITDA 0.49x 0.44x increases.

T12 = Trailing 12 months as of June 30, 2004 • Arca's strong points are a healthy financial condition, ENTERPRISE VALUE (EV) = Mkt cap.+ Net Debt+ Min.Int. strong cash flows and dividend distributions. We believe NCE=Net income+Montry Loss+Fx Loss+Depr.+Deffered Tax that as Arca is able to improve its profitability, investors ROA=T12m Op.Profit to Avg. Assets could start to value the company. ROE=T12m Net Profit to Avg. Equity • Sales were down 9.2% as a result of 2.1% lower sales volumes and declining average prices. It is important to 28.00 Arca * IBMV note that 2-lt PET presentation prices dropped from Ps 12 to Ps 10, and that 3-lt presentations were eliminated 25.80 10, 998 at supermarket and convenience stores in Monterrey. We believe that the price war will continue, as a result of 23.60 10, 060 which Arca will need to find the ideal mix to improve its sales. For now, Arca is conducting promotions to attract 21.40 9,122 consumers, but we feel these efforts may prove to be insufficient and that Arca will most likely continue to 19.20 8,184 lower its prices. Also worth noting is that the price war is going on in the cola segment, and cola soft drinks were the ones to post a 4.4% contraction during the 17.00 7,246 quarter. 14.80 6,308 • Gross profit declined 15.7%, while the margin J-03 A-03 O-03 N-03 D-03 F-04 M-04 A- 04 J-04 contracted by 3.8 pp to 49.8%, as a result of a shift in sales mix towards non-returnable (PET) presentations, and sugar and PET bottle price increases. The company

MATERIAL DISCLOSURES AT THE END OF THIS REPORT. 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. Neither Casa de Bolsa Banorte nor Banorte Securities International Ltd. accepts any liability for any losses arising from any use of this report or its contents. 1 Second Quarter 2004 Embotelladoras Arca (ARCA) Marcela Martínez Suárez [email protected] (52-55) 5169-9384

August 3, 2004

INCOME STATEMENT intends to counteract raw material cost increases (millions of constant pesos as of June 30, 2004) with sugar clarifiers and other strategies regarding 1H04 1H03 Change 2Q04 2Q03 Change PET bottles. Gross margin should trend downward Net Sales 6,505 6,917 -6.0% 3,596 3,958 -9.2% Gross Profit 3,254 3,650 -10.9% 1,789 2,121 -15.7% through the end of the year, as the lack of increases EBITDA 1,537 1,653 -7.0% 892 1,034 -13.7% in soft drink prices should lead to poor fixed cost Operating Profit 1,146 1,137 0.9% 695 766 -9.3% absorption. ICF 2 59 -96.8% -5 38 #N/A Interest Expense 66 124 -46.8% 34 62 -45.4% • Savings in expenses continue. Selling and Interest Income 46 57 -19.5% 25 29 -16.2% administrative expenses were down 13.1% and Foreign Exchange Loss -14 4 #N/A -16 5 #N/A 22.3% during the quarter, as a consequence of Monetary Loss -4 -12 -65.3% 1 -0 #N/A Arca's synergies and cost-cutting programs. The Other Financial Expenses -60 78 #N/A -58 49 #N/A company should continue to reap the benefits of Pretax Income 1,204 1,000 20.4% 758 679 11.7% these programs, and could perhaps post Taxes 488 450 8.4% 300 276 8.9% improvements in profitability as compared to 2003. Non-Cons. Subsidiaries 4 3 49.9% 3 2 79.8% Net Income 721 553 30.4% 461 405 13.8% • Sound financial position. We believe Arca is indeed capable of improving its financial position, Gross Margin 50.0% 52.8% 49.8% 53.6% as the company moves up the learning curve in Ebitda Margin 23.6% 23.9% 24.8% 26.1% managing the new group. Company management Operating Margin 17.6% 16.4% 19.3% 19.3% should also be capable of finding the right moment Net Margin 11.1% 8.0% 12.8% 10.2% to place an interesting percentage of its equity on the MSE, something that should enable the A/R Turnover (days) 23 17 Inventory Turnover (days) 54 64 company to pay off its liabilities and improve its A/P Turnover (days) 28 25 balance sheet even further. Arca has already started WC net of debt to Sales 15.1% 16.6% to manage a repurchase fund in order to add liquidity to the stock. BALANCE SHEET (millions of constant pesos as of June 30, 2004) • Arca has entered an agreement with The Coca- Jun-04 Dec-03 Jun-03 Cola Company. Recently, Arca signed a letter of Total Assets 13,053 13,096 13,354 intent with The Coca-Cola Company to improve Cash & Equivalents 1,308 1,534 1,490 Arca's competitive position in the market by taking Other Current Assets 1,863 1,704 1,879 the following steps: a) Sale of the Joya flavor soft Long Term 458 446 93 drink brand to The Coca-Cola Company. This Fixed (Net) 7,220 7,248 7,687 brand will complement Coca-Cola's and Arca's Deferred 2,118 2,154 2,148 domestic brand portfolio; b) The company might Other 86 11 56 Total Liabilities 4,195 4,028 4,507 complement its portfolio with Coca-Cola's domestic Short Term Debt 12 12 27 brands throughout Arca's stronghold, allowing Arca Other Current Liab. 1,200 1,040 1,069 to offer several different flavor soft drink brands. If Long Term Debt 1,552 1,557 1,910 this transaction is completed, Arca would receive Other Liabilities 1,431 1,419 1,502 Ps 650 million. Shareholders Equity 8,858 9,068 8,847 Minority Interest 0 0 0

FINANCIAL ANALYSIS Current Ratio 2.6x 3.1x 3.1x ST Debt to Totl Debt 0.8% 0.7% 1.4% Foreign Liab/Totl Liab 1.9% 2.0% 3.9% Net Debt/Total Equity 2.9% 0.4% 5.0% Totl Liab./Totl Equity 47.4% 44.4% 50.9%

AR CA Ini tia l Opi nio n: Ma r c e la Ma r t in ez ' S ummar y Re co mmen d at io n $26.00 BUY TGT Price Ps$ 27.50 $24.00 SELL 14% $22.00

$20.00

$18.00 HOLD 36%

$16.00

$14.00

$12.00 BUY 50%

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Analyst Certification I, Marcela Martínez Suárez, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies), its (their) affiliate(s) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific opinion(s) in this report. Material Disclosures Casa de Bolsa Banorte and its affiliates, including Grupo Financiero Banorte, provide a vast array of services in addition to investment banking, such as corporate banking, among others, to a large number of corporations in Mexico and abroad. The reader should assume that Casa de Bolsa Banorte or its affiliates receive compensation for those services from such corporations. Under Mexican laws currently in force, Research Analysts are permitted to directly hold long positions in shares of companies listed on the Bolsa Mexicana de Valores and mutual funds. However, Research Analysts must keep observance of certain bylaws that regulates their participation in the market preventing, among other things, misuse of private information in their own benefit.

Analyst compensation Analyst compensation is based on activities and services intended for the benefit of investor clients of Casa de Bolsa Banorte and its affiliates. Compensation is determined on the basis of individual performance and impacted by overall firm profitability. However, investors should note that our analysts do not receive any direct compensation for any specific transaction in investment banking.

Investment Banking Activities over the Past Twelve Months Casa de Bolsa Banorte or its affiliates have received compensation for investment banking services from the following companies or their affiliates, which may be the subject of analysis in this report: Alfa, Cablemas, CEMEX, Corporación GEO, DeMet, G. Acción, Grupo Financiero Banorte, Hylsamex, Hipotecaria Nacional, Jugos Del Valle, Su Casita, Urbi, Xignux.

Investment Banking Activities during the Next Three Months Casa de Bolsa Banorte or its affiliates expect to receive or intend to seek compensation for investment banking services from companies or their affiliates that may be discussed in this report.

Guide to Investment Ratings RATING is a parameter that indicates the expected total RETURN over the next twelve months. The total return required for a given rating depends on each stock's level of RISK. The following table outlines the parameters used to determine the rating given in the document attached hereto. These parameters are placed under revision on a regular basis, and modified as a function of several factors, including interest rate levels and future expected interest rate performance, as well as equity market trends and volatility.:

Risk/Rating Low Medium High BUY >13.5% >16.5% >19.5% HOLD <13.5% > 9.0% < 16.5% > 11% < 19.5% > 13% SELL <9.0% <11% <13% Risk takes into account three factors: 1) relative volatility to the local index, 2) the stock's marketability, 3) the company’s financial strength. With these factors we construct a "Risk Index", which is used to group securities to three levels of risk: Low, Medium and High. Although this document offers a general investment criterion, we urge readers to seek the counsel of their own Financial Consultants or Advisors, should any given security mentioned herein fit the reader’s investment goals, risk profiles, and financial positions.

Determining Price Targets In calculating price targets, Casa de Bolsa Banorte uses a combination of methodologies that are generally accepted among financial analysts, including, but not limited to, analysis of multiples, discounted cash flows, sum-of-parts, or any other method that might be applied on a case-by-case basis. There can be no assurance that price targets calculated by Casa de Bolsa Banorte will be attained, as this depends on numerous endogenous and exogenous factors affecting both the company’s performance and trends in the stock market on which it is listed.

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. NEITHER CASA DE BOLSA BANORTE, S.A. DE C.V. NOR BANORTE SECURITIES INTERNATIONAL ACCEPTS ANY LIABILITY FOR ANY LOSS ARISING FROM ANY USE OF THIS REPORT OR ITS CONTENTS.