Apasco S 1Q00 Results Came in Better Than Expected, with Revenues and EBITDA Growing 16

2000 First Quarter Results APASCO

Carlos Peña (525) 325-2869 BUY April 27, 2000

Apasco’s 1Q00 results came in better than expected, with revenues and EBITDA growing 16.7% and 18.0% respectively. Revenue improvement was a result of higher volumes for both cement and ready-mix, evidencing cement demand remains strong. Cement prices were practically flat, but ready-mix prices were higher. Operating margin remained at a high 35.0% level, despite the increase in the cost of energy, due to the higher volumes and stable prices. Despite lower FX and monetary gains that led to a reduction in financial benefits, net income increased 19.7%. However, interest income totally offset interest expense, leading to a 20.3x interest coverage ratio. Leverage increased to 79.1% due to the adoption of bulletin D-4, which resulted in a reduction of Ps 3.1 billion in stockholder’s equity. The accounting change did not have any implications in cash flow. With the strength of demand seen in 1Q00, we are increasing our cement volume growth expectations from 4.5% to improve 6% in 2000. Following a 10% nominal price hike late in 1Q00, we expect prices to remain stable in real terms. We expect sales and EBITDA to increase 6.0% and 7.2% respectively in 2000, and the EV/EBITDA multiple to fall to 3.9x by year-end. Management announced a one million ton expansion in its Ramos Arizpe plant to be completed by 1Q02. We think this is a timely decision considering growth prospects and current capacity utilization of 78%. We believe Apasco's multiples will gradually appreciate, supported by its healthy financial structure, skillful management and growth prospects for 2000 and beyond. Assuming a conservative multiple of 5.5x (Apasco's five year average is 9.2x), the stock should reach a price of Ps 86 by February 2001. We are confirming our BUY recommendation.

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 AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents. 1 2000 First Quarter Results APASCO BUY

April 27, 2000 Price: Ps 61.10 Price/Book: 1.9x P/E on Mar T12 8.8x 52 Week Range: Ps 67.20 To 46.80 ROE 18.3% P/NCE T12 6.6x Shares Outstanding: 255.3 Million ROA 19.5% P/EBITDA T12 4.3x Market Capitalization: US$ 1.7 Billion Enterprise Value: US$ 1.6 Billion EV/EBITDA T12 4.2x INCOME STATEMENT (thousands of constant pesos as of March 31, 2000) 1Q99 Margin 1Q00 Margin Change 4Q98 Margin 4Q99 Margin Change Net Sales 1,773,428 100.0% 2,069,017 100.0% 16.7% (5,453,993) 100.0% (5,844,288) 100.0% 7.2% Cost of Goods Sold 1,068,591 60.3% 1,194,131 57.7% 11.7% (3,516,149) 64.5% (3,425,262) 58.6% -2.6% Gross Profit 704,837 39.7% 874,886 42.3% 24.1% (1,937,845) 35.5% (2,419,026) 41.4% 24.8% Operating Expenses 133,148 7.5% 150,785 7.3% 13.2% (445,240) 0.0%8.2% (431,142) 7.4% -3.2% Operating Profit 571,689 32.2% 724,101 35.0% 26.7% (1,492,604) 27.4% (1,987,884) 34.0% 33.2% Integral Cost of Financing (126,262) -7.1% (70,231) -3.4% -44.4% (433,602) 8.0% 79,990 -1.4% #N/A Interest Expense 52,084 2.9% 46,473 2.2% -10.8% (194,808) 3.6% (155,808) 2.7% -20.0% Interest Income 28,810 1.6% 47,045 2.3% 63.3% (65,925) 1.2% (85,439) 1.5% 29.6% Foreign Exchange Loss (68,018) -3.8% (12,400) -0.6% -81.8% (481,306) 8.8% 66,694 -1.1% #N/A Monetary Loss (81,518) -4.6% (57,259) -2.8% -29.8% 176,588 -3.2% 83,665 -1.4% -52.6% Other Financial Expenses (14,019) -0.8% (5,754) -0.3% -59.0% 9,664 -0.2% 9,520 -0.2% -1.5% Pretax Income 711,970 40.1% 800,086 38.7% 12.4% (1,068,667) 19.6% (2,077,394) 35.5% 94.4% Taxes 287,627 16.2% 292,454 14.1% 1.7% (365,242) 6.7% (839,680) 14.4% 129.9% Non-Cons. Subsidiaries 0 0.0% 0 0.0% #N/A 0 0.0% 0 0.0% #N/A Extraordinary Items (gains) 1,533 0.1% 1,565 0.1% 2.1% (778) 0.0% (50,852) 0.9% #N/A Minority Interest 0 0.0% 0 0.0% #N/A 0 0.0% 0 0.0% #N/A Net Income 422,810 23.8% 506,067 24.5% 19.7% (702,647) 12.9% (1,186,862) 20.3% 68.9% Earnings Per Share 1.656 1.982 (2.752) (4.648) EBITDA 760,506 42.9% 897,769 43.4% 18.0% (2,057,367) 37.7% (2,555,320) 43.7% 24.2% EBITDA Per Share 2.978 3.516 (8.057) (10.007)

BALANCE SHEET (thousands of constant pesos as of March 31, 2000) FINANCIAL ANALYSIS Mar-99 Mar-00 Mar-99 % of T.A. Mar-00 % of T.A. Current Ratio 2.0x 2.3x Total Assets 14,818,750 100.0% 14,558,179 100.0% Short Term Debt to Total Debt 12.7% 14.4% Cash & Equivalents 1,248,899 8.4% 2,353,314 16.2% Foreign Liab. to Total Liab. 71.9% 30.6% Other Current Assets 1,262,341 8.5% 1,331,750 9.1% Net Debt to Total Equity 11.5% -4.7% Long Term 888,269 6.0% 777,614 5.3% Total Liab. to Total Equity 31.4% 79.1% Fixed (Net) 10,506,931 70.9% 9,836,273 67.6% 1Q99 1Q00 Deferred 912,310 6.2% 259,228 1.8% A/R Turnover (days) 42 33 Other 0 0.0% 0 0.0% Inventory Turnover (days) 31 35 Total Liabilities 3,540,748 23.9% 6,427,450 44.2% A/P Turnover (days) 16 20 Short Term Debt 322,709 2.2% 283,471 1.9% WC net of debt to Sales 22% 28% Other Current Liabilities 932,357 6.3% 1,343,585 9.2% Interest Coverage Ratio 15.2x 20.3x Long Term Debt 2,223,478 15.0% 1,685,528 11.6% Total Debt to annualized EBITDA 0.8x 0.5x Other Liabilities 62,204 0.4% 3,114,866 21.4% ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int. Shareholders Equity 11,278,002 76.1% 8,130,729 55.8% NCE = Net income + Monetary Loss + Fx Loss + Depreciation Minority Interest 0 0.0% 0 0.0% ROA=T12m Op Profit to Avg. Assets; ROE=T12m Net Profit to Avg. Equity

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 AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents. 2 2000 First Quarter Results APASCO BUY

1Q00 Increase in real terms vs. Increase in real terms vs. Operating Results 1Q99 4Q99 Revenues (millions of Ps) 2,069 16.7% (3.8%) Domestic Cement Volume (000s of metric tons) 1,701 15.0% (2.2%) Prices (Ps / metric ton) 965 0.0% (0.7%) Ready-mix Volume (000s of cubic meters) 619 13.0% (7.7%) Prices (Ps / cubic meter) 811 9.0% 7.2% Cement exports Volume (000s of metric tons) 46 0% (20.7%) Operating margin 36.3% 2.8 pp (1.3 pp) Depreciation charges (millions of Ps) 173.7 (8.0%) (4.2%)

Quarterly revenues improved vs. 1Q99, due mainly to the strong rise in cement and ready-mix volumes, which came in above our expectations. Volumes increased fueled by recoveries in both the formal sector of construction including housing and the self-construction segment of the market. Cement prices remained at similar levels in nominal terms vs. 4Q99, but ready-mix prices showed a significant rise. Apparently, volumes were not materially affected following the recent 10% hike in cement price put in place late in the quarter by Apasco and other cement producers. Competition among market participants continues to be driven through advertising campaigns. Low-pricing strategies to increase market share seem very unlikely. Export volumes remained flat at very low levels representing less than 1% of revenues. Despite a substantial increase in the costs of energy, cash costs per ton grew less than 2% since the higher volumes helped to better absorb fixed costs. In addition, depreciation charges fell 8%. This coupled with the steady cement prices led to a 2.6 pp improvement in gross margin to 42.3%. Operating expenses rose 13.2% mainly as a result of higher transportation costs. Since this rise was lower than that of revenues, operating profit grew 26.7%. Despite fears of investors of potential deterioration in operating margin, it remains at very strong level of 35.0%, increasing 2.8 pp vs. 1Q99. Operating cash flow grew 18.0%, with EBITDA/share reaching Ps 3.52 for the quarter. Financing Activities The company posted a Ps 70.2 million net financial gain, which was 44.4% lower than the gain achieved in 1Q99. The decrease was a result of lower FX and monetary gains. Interest expense was flat in dollars and fell 10.8% in pesos, but was fully offset by strong interest income resulting from the high cash levels prevailing during the quarter. Net income grew 19.7%. Apasco's financial health remains strong, despite an increase in liabilities resulting from bulletin D-4 criteria, which led to a higher leverage of 79.1%. With cash holdings amounting to Ps 2.4 billion, almost twice as much as in 1Q99, net debt was negative by Ps 384 million. Current ratio leaped to 2.3x, and interest coverage ratio increased to 20.3x. Outlook In light of the good outlook for the Mexican cement market in the next years, management decided to double its Ramos Arizpe plant installed capacity, that is, one million additional tons per year. This plant is located in Northern Mexico, a region which is growing above the average of the country, and which is dominated by rival Cemex. The expansion will be completed in 1Q02, just in time to avoid bottlenecks in current facilities according to our projections of demand growth. The expansion will have a cost of US$ 60 million, which implies a cost per ton of just US$ 60. Currently Apasco trades at an EV/Capacity ratio of US$ 162. Evidently, financing for this project will be made through cash holdings. In 2000, we expect cement demand to grow 7.5%. However, due to the new plants that are coming in line during 1H00 from Cruz Azul and Moctezuma, we believe domestic cement and ready-mix volumes for Apasco will grow 6% and 9%, respectively. Following a 10% nominal rise in cement prices, we do not expect new hikes for the remainder of the year. With our 9% expected inflation rate, prices in real terms will be similar to 1999. We believe Apasco’s 2000 revenues will grow 6.0% and EBITDA 7.2%, with margins improving slightly compared to 1999 due to the expected improvements in volume. We are forecasting an annual operating margin of 35.6% (vs. 34.3% in 1999). The higher oil prices should affect costs only partially, since 50% of Apasco’s heating needs are obtained from alternative fuels (pet coke, gas, etc). The EV/EBITDA multiple will fall from the current 4.1x to 3.9x by the end of 2000, due to the expected increase in EBITDA. Apasco's EV/EBITDA multiple has averaged 9.2x in the past five years, and currently trades at less than half that average. Even assuming a very conservative multiple of 5.5x for our price target projections (vs. a 7.0x for Cemex), the stock price should reach Ps 86 by February 2001, 40% above current prices. We believe Apasco’s multiple will appreciate from the current levels, supported by growth in operating results, by the strength of its balance sheet, by a positive long term growth outlook for the Mexican cement market and its excellent management. We confirm our BUY rating on the stock.

Carlos Peña [email protected]

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 AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents. 3