Grupo Carso (GCARSO) Marcela Martínez Suárez [email protected] (52-55) 5169-9384

Grupo Carso (GCARSO) Marcela Martínez Suárez Marcela.Martinez.Suarez@Cbbanorte.Com.Mx (52-55) 5169-9384

Fourth Quarter 2003 Grupo Carso (GCARSO) Marcela Martínez Suárez [email protected] (52-55) 5169-9384

February 26, 2004

GCARSO A1 / GPOVY Recovery in the Industrial Divisions Boosts Price: Mx / ADR Ps 47.41 US$ 8.58 Results

Price Target • Rebound in GCarso's margins. Quarterly results were in Risk Level Medium line with our estimates, with sales, operating profit, and EBITDA rising 8.9%, 18.2%, and 11.4%, respectively. The 52 Week Range: Ps 19.30 to Ps 24.38 early application of Bulletin C-15 provisions led to a Ps 577 Shares Outstanding: 837.0 million million reduction in the value of GCarso's fixed assets, which Market Capitalization: US$ 3.67 billion net of taxes affected FY03 results by approximately Ps 366 Enterprise Value: US$ 5.67 billion million. Industrial divisions showed strong performance, Avg. Daily Trading Value US$ 884.6 thousand particularly Condumex (stronger activity and better prices).

Ps/share US$/ADR The stock has shown a sustained upward trend, and in fact, 4Q EPS 0.69 0.13 current share price is already nearing our 12-month price T12 EPS 2.35 0.43 target of PS 48.70. Therefore, we are currently reviewing our estimates in order to give a well-founded recommendation T12 EBITDA 11.29 2.09 and a clearer outlook for 2004. T12 Net Cash Earnings 4.71 0.87 Book Value 28.26 5.22 • Condumex (24% of revenues): This division turned in positive results and the telecom, construction, and energy T12 2004e divisions posted higher volumes and cable prices, mainly P/E 20.15x derived from an increase in copper prices. In 4Q03, sales, P/BV 1.68x operating profit, and EBITDA rose 23.9%, 27.9%, and 22%, P/NCE 10.07x respectively. At the telecom segment (which accounts for EV/EBITDA 6.49x 34.9% of revenues and 59.2% of operating profit), volumes T12 4Q03 were up due to network installation services. Autoparts: ROE 8.5% 9.7% Autopart and electronic volumes were up 16.2%, while ROA 11.0% 13.8% harness volumes were down 6.2%. Construction and energy Interest Coverage Ratio 4.18x 5.63x saw an increase in sales volumes, as several bids were Total Debt to EBITDA 1.87x 1.57x awarded to the company during the year. The outlook for 2004 seems positive, given the reactivation in the economy T12 = Trailing 12 months as of December 31, 2003 and likely increases in copper cable prices. ENTERPRISE VALUE (EV) = Mkt cap.+ Net Debt+ Min.Int. • Nacobre (8% of revenues): This division has also benefited NCE = Net income+ Monetary Loss+ Fx Loss+ Depreciation from increases in copper prices. Sales, operating profit, and ROA=T12m Op.Profit to Avg. Assets EBITDA were up 18%, 11.5%, and 8.1%, respectively. ROE=T12m Net Profit to Avg. Equity During the quarter, the copper division registered moderate growth in sales volumes, which was offset by a 31.6% GCARSO A1 IBMV 47.50 increase in raw material prices and pricing pressures on several products lines. The aluminum division saw a decline 43.15 10, 445 as a result of low primary aluminum production, in turn due to the shutdown of Aluder. Despite declining volumes, 38.80 9, 392 divisional profitability improved with this strategy. The PVC division contracted due to the lower number of bids that took 34.45 8, 339 place during the period. • 30.10 7, 286 Frisco (6% of revenues): Ferrosur, which accounts for 94% of Frisco’s revenues, has reactivated. Revenues were 25.75 6, 233 up 12.4%, driven by higher transported volumes in the intermodal, automotive, industrial and agricultural segments. 21.40 5, 180 Operating profit rose 34.7% to Ps 121.2 million, with the margin expanding by 630 bp vs. 4Q02 to 23%. We hope that F-03 M-03 M-03 J-03 J-03 S-03 O-03 D-03 J-04 Ferrosur will partner up with another industry player in the near future to achieve better results. Química Flúor continues

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 Fourth Quarter 2003 Grupo Carso (GCARSO) Marcela Martínez Suárez [email protected] (52-55) 5169-9384

February 26, 2004

INCOME STATEMENT to post declines in sales (down 14.9%), driven by 29% (millions of constant pesos as of December 31, 2003) lower volumes and a 2.4% increase in prices. At the 12M03 12M02 Change 4Q03 4Q02 Change mining division, milled volumes rose 38%. Minera Net Sales 56,686 53,950 5.1% 16,080 14,760 8.9% Tayahua performed well and Minera María continued Gross Profit 15,679 15,442 1.5% 4,513 4,178 8.0% to accumulate tons of copper. On a consolidated basis, EBITDA 9,452 9,426 0.3% 2,821 2,532 11.4% sales, operating profit, and EBITDA rose 35.2%, Operating Profit 7,213 7,274 -0.8% 2,268 1,919 18.2% 112.6%, and 53.7%, respectively. Given the non- ICF 1,508 2,302 -34.5% 278 914 -69.5% strategic nature of this division, we would not be Interest Expense 2,414 3,168 -23.8% 531 1,283 -58.6% surprised if GCarso decided to sell it in the medium Interest Income 638 231 176.4% 171 65 162.9% term. Foreign Exchange Loss 466 659 -29.3% 184 118 56.5% • Monetary Loss -734 -1,295 -43.3% -266 -421 -36.9% Porcelanite (6% of revenues): This division continued Other Financial Expenses 926 578 60.3% -146 108 #N/A to win a bigger share of the market and selling strong Pretax Income 4,779 4,395 8.7% 2,136 896 138.4% volumes. As such, sales, operating profit, and EBITDA Taxes 2,223 2,140 3.9% 894 607 47.2% grew 4.5%, 30.3%, and 10.2%, respectively. The Non-Cons. Subsidiaries 884 874 1.1% 248 513 -51.6% outlook is positive for 2004, due to stronger dynamics Extraord. Items (gains) 631 0 #N/A 631 0 #N/A in the construction sector and the reactivation in the Minority Interest 840 1,008 -16.7% 286 338 -15.3% economy. Net Income 1,969 2,121 -7.2% 574 464 23.6% • Cigatam (19% of revenues): This division operates in Gross Margin 27.7% 28.6% 28.1% 28.3% a mature industry, and the company was affected this Ebitda Margin 16.7% 17.5% 17.5% 17.2% quarter by disloyal competition. Nonetheless, sales Operating Margin 12.7% 13.5% 14.1% 13.0% were up by 3.3%, even despite a 0.2% decline in Net Margin 3.5% 3.9% 3.6% 3.1% volumes. Market share remained unchanged at 59.4%. For their part, operating profit and EBITDA were up A/R Turnover (days) 67 60 by 22.2% and 9.9%, respectively. Inventory Turnover (days) 96 95 • A/P Turnover (days) 39 42 GSanbor (35% of revenues): Sales increased by 1.7%, WC net of debt to Sales 25.7% 23.2% while operating profit and EBITDA fell by 0.9% and 1.7%, respectively. (For more information, please refer BALANCE SHEET to our quarterly on GSanbor.) (millions of constant pesos as of December 31, 2003) Dic-03 Sep-03 Dic-02 • One of GCarso’s goals has been to improve its Total Assets 65,947 64,487 65,373 financial condition, and this quarter, net debt declined Cash & Equivalents 2,154 1,483 2,521 2.6% vs. 4Q02. Furthermore, the company has Other Current Assets 21,293 20,997 19,023 refinanced part of its debt via stock market certificate Long Term 2,583 2,184 2,521 issues—something that should lead to lower financial Fixed (Net) 35,700 35,574 36,916 costs. Deferred 4,170 4,202 3,876 • Company management’s strategy is to consolidate Other 47 49 516 its position in the Mexican market, and concentrate Total Liabilities 36,127 35,750 36,790 its efforts on strategic assets, both of which should lead Short Term Debt 7,073 9,343 7,985 to stronger results under the expected economic Other Current Liab. 9,082 8,648 9,196 reactivation. Long Term Debt 10,598 8,759 10,156 Other Liabilities 9,375 8,999 9,452 Shareholders Equity 29,820 28,737 28,583 Minority Interest 6,169 5,877 5,818

FINANCIAL ANALYSIS Current Ratio 1.5x 1.2x 1.3x ST Debt to Totl Debt 40.0% 51.6% 44.0% Foreign Liab/Totl Liab 35.0% 28.1% 32.4% Net Debt/Total Equity 52.0% 57.8% 54.6% Totl Liab./Totl Equity 121.2%124.4% 128.7%

Upgrading Target Price BUY Reiterated from Ps 18.00 to Ps 25.00. $25.00 Initial Opinion: Long-Term BUY SELL 0% $20.00

$15.00 HOLD 36% $10.00

Dow ngr ade d $5.00 Dow ngr ade d to BUY to HOLD Upgrading Target Price BUY 64% Upgr ade d t o to Ps 25.20. STRONG BUY $- 0% 20% 40% 60% 80% Oct-01 Feb-01 Apr-01 Jun-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-01 Aug-02 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, 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 >11.0% >13.0% >16.0% HOLD 7.0% to 11.0% 9.0% to 13.0% 11.0% to 16.0% SELL <7.0% <9.0% <11.0% Risk takes into account the predictability of earnings and dividends, the company’s leverage, industry sensitivity to the economic cycle, the likelihood of changes in the industry’s regulatory environment that might affect its overall performance, and the stock’s Beta and marketability, among other things. 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.

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