Mexico: GCC results positive, helped by exchange rate

Mexico: GCC results positive, helped by exchange rate
Published: 03 March 2009

The results posted by Mexican cement maker Grupo Cementos de Chihuahua (GCC) in its latest quarterly report were helped by the current weaker exchange rate against the dollar, Mexico City-based financial group IXE analyst Patricio Rivera told BNamericas.

GCC posted a 24% drop in net profits to US$116mn last year compared to US$153mn in 2007.

However, while operating income fell 18.2%, revenues totaled US$812mn in 2008, an increase of 7.6% compared to the US$754mn obtained in 2007.

"The exchange rate helped the results, which were positive, resulting in a growth of revenues. Currently, 60% of the firm’s sales are in dollars," Rivera said.

"The main problem is that 100% of GCC’s debt is in dollars, so the volatility of the exchange rate also resulted in the company ending up temporarily over the covenant with its creditors. The firm’s total debt to Ebitda is currently at 3.6 times, but it should be 3.25 times," he added.

Rivera said the effect of the exchange rate is two-fold, as the company reported more revenues but its debt in pesos increased considerably.

"The year 2008 saw a consolidation of the purchases carried out by the company earlier that year. For 2009, its presence in the central US -which is less volatile than other US markets such as California, Florida and Arizona - should result in a more stable year in comparison to other local groups," he said.

"This year, GCC’s cement and concrete volumes are expected to go down 1% in Mexico. Meanwhile, the US is expected to grow roughly 7% in concrete volumes and show no growth in cement. Bolivia is showing more dynamism, as we are expecting increases of 5% in prices and volumes," he added.