Durante El 1T98 Ahmsa Reportó Decrementos En Las Ventas Y En La Utilidad Operativa De 6

1999 First Quarter Results ALFA LONG TERM BUY Sumant Vasal (525) 325 2898 April 30, 1999

Alfa’s 1Q99 sales dropped 7.9%, due mainly to real price decreases in peso terms in all divisions except Versax, which were partially offset by consolidated volume growth of 5.5%. Alfa’s steel, petrochemical and food divisions experienced difficulties at the operating level due to pricing pressures as a result of the Asian crisis. However, this was partially offset by a better product mix, higher total volumes, and lower raw material and energy costs. As a result, gross margin fell 0.6 pp due mainly to Alpek. Overall, operating income and cash flow decreased 18.8% and 12.1% in the quarter. The company reported a net financial gain of Ps 1.2 billion due mainly to non-cash FX and monetary gains. On the non-consolidated subsidiary line, Alfa reported a loss of Ps 430 million, which corresponded to a loss of Ps 445 million in Sidor, and net income of Ps 15 million in Onexa. Operations at Onexa continue to improve through volume growth, and should continue a positive tendency as LD prices recently increased. On the other hand, Sidor’s results have been affected by the economic slowdown in Venezuela, and falling international steel prices. Alfa’s long-term perspectives remain positive, supported by its participation in growth-oriented markets, focus on higher value added products and cost efficiencies, and experienced management. We are bullish with Hylsamex as steel prices seem to be rebounding all around the world. However,

April 30, 1999 Price A: Ps 36.70 Price/Book: 1.1x 52 Week Range: Ps 47.10 To 18.80 P/E on Mar T12 9.7x Market Capitalization: US$ 2.3 Billion P/NCE T12 6.5x Enterprise Value: US$ 5.9 Billion P/EBITDA T12 2.7x Shares Outstanding: 591.9 Million EV/EBITDA T12 6.8x INCOME STATEMENT (thousands of constant pesos as of Mar 31, 1999) 1Q98 Margin 1Q99 Margin Change 1Q98 Margin 1Q99 Margin Change Net Sales 9,362,909 100.0% 8,621,545 100.0% -7.9% ######### 100.0% ######### 100.0% -6.7% Cost of Goods Sold 6,836,328 73.0% 6,346,116 73.6% -7.2% ######### 74.4% ######### 72.3% -9.4% Gross Profit 2,526,581 27.0% 2,275,429 26.4% -9.9% (7,987,214) 25.6% (8,087,431) 27.7% 1.3% Operating Expenses 1,022,911 10.9% 1,054,172 12.2% 3.1% (2,945,508) 9.4% 0.0% -100.0% Operating Profit 1,503,670 16.1% 1,221,257 14.2% -18.8% (5,041,706) 16.1% FALSE 0.0% #N/A Integral Cost of Financing 842,248 9.0% (1,193,991) -13.8% #N/A 794,454 -2.5% (4,556,411) 15.6% #N/A Interest Expense 710,268 7.6% 713,455 8.3% 0.4% (1,721,025) 5.5% (2,286,311) 7.8% 32.8% Interest Income 124,134 1.3% 102,303 1.2% -17.6% (460,339) 1.5% (378,874) 1.3% -17.7% Foreign Exchange Loss 1,312,590 14.0% (656,128) -7.6% #N/A 751,637 -2.4% (5,269,848) 18.1% #N/A Monetary Loss (1,056,476) -11.3% (1,149,015) -13.3% 8.8% 1,303,503 -4.2% 2,620,873 -9.0% 101.1% Other Financial Expenses 4,967 0.1% 34,017 0.4% 584.9% 88 0.0% 43,807 -0.2% #N/A Pretax Income 656,455 7.0% 2,381,231 27.6% 262.7% (5,836,248) 18.7% 4,512,605 -15.5% #N/A Taxes 139,845 1.5% 265,111 3.1% 89.6% (593,377) 1.9% (127,672) 0.4% -78.5% Non-Cons. Subsidiaries (152,121) -1.6% (430,223) -5.0% 182.8% 191,572 -0.6% 250,730 -0.9% 30.9% Minority Interest 125,241 1.3% 284,200 3.3% 126.9% (1,074,337) 3.4% (193,493) 0.7% -82.0% Net Income 239,248 2.6% 1,401,697 16.3% 485.9% (3,976,962) 12.7% FALSE 0.0% #N/A Earnings Per Share 0.404 2.368 (6.719) 0.000 EBITDA 2,083,461 22.3% 1,830,856 21.2% -12.1% (6,563,343) 21.0% (1,687,614) 5.8% -74.3% EBITDA Per Share 3.520 3.093 (11.089) (2.851)

BALANCE SHEET (thousands of constant pesos as of Mar 31, 1999) FINANCIAL ANALYSIS Mar-98 Mar-99 Mar-98 % of T.A. Mar-99 % of T.A. Current Ratio 1.4x 1.3x Total Assets 62,616,691 100.0% 63,358,151 100.0% Short Term Debt to Total Debt 24.1% 22.1% Cash & Equivalents 3,406,966 5.4% 3,591,226 5.7% Foreign Liab. to Total Liab. 87.3% 82.7% Other Current Assets 12,354,708 19.7% 12,225,527 19.3% Net Debt to Total Equity 94.0% 101.5% Long Term 3,458,953 5.5% 2,613,769 4.1% Total Liab. to Total Equity 125.1% 137.7% Fixed (Net) 40,430,268 64.6% 42,404,746 66.9% 1Q98 1Q99 Deferred 1,765,865 2.8% 2,036,102 3.2% A/R Turnover (days) 48 51 Other 1,199,931 1.9% 486,781 0.8% Inventory Turnover (days) 73 80 Total Liabilities 34,802,290 55.6% 36,704,747 57.9% A/P Turnover (days) 37 41 Short Term Debt 7,131,189 11.4% 6,781,778 10.7% EBITDA to Interest Expense 2.9x 2.6x Other Current Liabilities 4,204,045 6.7% 5,168,164 8.2% Interest Coverage Ratio 3.1x 2.7x Long Term Debt 22,433,646 35.8% 23,858,328 37.7% Annualized EBITDA to ST Debt 1.2x 1.1x Other Liabilities 1,033,410 1.7% 896,477 1.4% Shareholders Equity 27,814,401 44.4% 26,653,404 42.1% ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int. Minority Interest 6,123,302 9.8% 6,090,899 9.6% NCE = Net income + Monetary Loss + Fx Loss + Depreciation

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 1999 First Quarter Results ALFA LONG TERM BUY Alpek continues to experience pricing pressures in certain product lines, and could take longer to recover. Also, from a valuation standpoint, we believe Alfa is fairly valued, especially after the strong run in its stock price in recent months. Therefore, we reiterate our LONG TERM BUY recommendation.

2 1999 First Quarter Results ALFA LONG TERM BUY

Sales Operating Income 1Q98 1Q99 Real Inc. 1Q98 Margin 1Q99 Margin Real Inc. Hylsamex 3,253 2,855 -12.2% 492 15.1% 428 15.0% -13.0% Alpek 3,573 2,897 -18.9% 675 18.9% 474 16.4% -29.8% Sigma 1,451 1,491 2.8% 183 12.6% 145 9.7% -20.8% Versax 1,131 1,417 25.3% 123 10.9% 156 11.0% 26.8% Operating Results In Hylsamex, total revenue dropped 12.2% in the quarter due mainly to 3.2% lower volume and real price decreases in peso terms due to worldwide pricing pressures and imports of cheaper steel. This was partially offset by a better product mix. Domestic volume fell 2.2% in the quarter, due to higher intercompany transfers between Hylsa and Galvak. Without considering the growth in internal transfers, domestic volumes would have grown 3.9%, in line with the economic growth in Mexico. Export volume declined 11.8% in the quarter as Brazilian and Japanese steel producers vigorously exported to Hylsamex’ traditional markets before the US imposed countervailing duties in February. However, management believes exports will normalize in 2Q99. The drop in operating income was due mainly to the lower sales prices. This was partially offset by a reduction in energy, DRI and scrap costs (for detailed information on Hylsamex, please check our quarterly). In Alpek, 1Q99 sales and operating income declined by almost 19% and 30% respectively. This resulted from a 24% reduction in real prices in peso terms which was partially offset by volume growth of 7% (mainly in PTA and polypropylene). The synthetic fibers division continues to suffer in terms of volume and pricing as dumping of textiles, fibers, and garments from Asia continued in the quarter. Although the authorities have implemented procedures, the dumping situation continues. On the other hand, PTA prices began to increase in 1Q99 and volumes continue to rise due to strong domestic demand. On a positive note, EBITDA margin remained flat at 25.5% due to improved efficiencies. In Sigma, total volume grew approximately 17% in the quarter (meat, cheese, yogurt, and prepared meals volumes increased 8%, 24%, 60%, and 2% respectively). However, price increases tended to be lower than inflation as sales rose only 2.8%. Even so, gross margin remained flat due mainly to a reduction in raw material prices and to larger volumes. Operating expenses rose 14.5% due to higher promotions, sales force training, and increased volumes. Overall, EBITDA dropped 11.1% (for detailed information on Sigma, please check Scott Kolb’s quarterly). In Versax, overall volume grew by over 10% during the quarter. Nemak increased volumes by 22%, reaching 1.21 million cylinder heads in 1Q99. Terza and Total Home posted good operating results in the quarter, while Selther’s operating results were flat. Construction of Nemak’s fifth plant for the production of aluminum blocks continues advancing, and is expected to begin operations in 3Q00. In addition, the company was awarded a new contract by Daimler-Chrysler to produce 700,000 units of cylinder heads per year beginning in 2002. Financing Activities Alfa reported Ps 1.2 billion in net financial gains compared to a loss last year, due mainly to non-cash FX and monetary gains, which was partially offset by higher net interest expense. The company increased its debt levels to finance various projects, and although we are a bit concerned about its leverage (total liabilities/equity) at 138%, and net debt to equity at 102%, we are comfortable with debt coverage of 2.7x. In addition, Hylsamex is planning to reduce its debt during 1999, which will also benefit Alfa on a consolidated level. It is important to note that an important part of the capital expenditure plan for the 1998-2000 period was completed in 1998. Thus, Alfa’s cash requirements in the coming years will be significantly lower, and it should now be able to reap the benefits of these investments. Outlook The long-term perspectives remain positive for Alfa, as it participates in growth-oriented markets, invests to modernize and expand capacities, concentrates on producing more value-added products, and diversifies geographically. Thus, we expect all these factors to enhance the company’s competitive position, as well as shareholder value. Steel prices seem to be rebounding in the US and other international markets, which should improve Hylsamex operating results in the near future. Hylsamex increased flat product prices 10% in March. However, we believe Alpek’s results could take longer to recover as pricing pressures continue in fibers (due to dumping practices), and in polypropylene (due to capacity increases by US producers). Also, Alfa’s valuation seems to be fairly valued, especially after its share price increased 56% since our last report (February 1). Therefore, we reiterate our LONG TERM BUY recommendation.

3 1999 First Quarter Results ALFA LONG TERM BUY

Sumant Vasal: [email protected]