GCC reports record results

GCC reports record results
Published: 27 October 2005

Grupo Cementos de Chihuahua (GCC) now a leading cement producer in its markets in Mexico, United States and Bolivia, today announced its consolidated results for the quarterly period ended September 30, 2005. Increases of 12.9 per cent in sales, 21.4 per cent in EBITDA and 33.9 per cent in net income in the third quarter reflected growing demand for cement in the United States and the solid dynamics of the construction industry in Mexico. 

In September 2005, GCC took an important step forward in its growth and expansion plans by acquiring a 46.57% stake of Sociedad Boliviana de Cemento, S.A. ("SOBOCE"), the leading cement company in Bolivia. This transaction will enable the Company to diversify its earnings sources, and to create a platform to penetrate the South American market. 

In the Mexican market, public infrastructure work and investment in the industrial, commercial and housing sectors was reflected in volume and sales growth.  In the US market, a favorable pricing environment and strong demand for cement resulted in higher sales. Due to the scarcity in cement supply, GCC’s third party cement purchases decreased, which led to a slight decline in sales volume. In an environment such as this, the Pueblo, Colorado plant will allow GCC to efficiently cover US market needs, as well as anticipated future demand. 
 
Net sales in the third quarter of 2005 increased 12.9% to $1,302.1 million pesos. Sales in Mexico increased 15.6 per cent, driven primarily by growth in public infrastructure (highways, street paving, schools and bridges) as well as by renewed construction in the industrial, commercial and housing sectors, reaching $615.2 million pesos. In the United States, sales grew 10.5 per cent to $686.9 million pesos. This reflects higher prices, as well as the integration of sales from the Durango, Colorado coal mine into GCC’s financial statements, following its acquisition in the first quarter of 2005. 

In the first nine months of the year, GCC’s net sales increased by 9.5 per cent compared to the year ago period. In the United States, sales rose 20.1 per cent as a result of higher volumes and better pricing. Sales in Mexico, excluding real estate operations, increased 3.9 per cent. Taking into account the decline in land sales, sales in the Mexican market increased 0.2 per cent. 

GCC recently purchased a 46.57 per cent stake in SOBOCE, the largest cement company in Bolivia with an approximate 70 per cent share of its domestic market. 

With annual cement production capacity of 870,000t, SOBOCE operates two cement producing plants and two cement milling facilities, four ready mix concrete plants and a limestone aggregates plant in Bolivia. SOBOCE’s cement sales volumes have grown a compounded 9.39 per cent in the past four years. Net sales in fiscal 2004 totaled US$54m. SOBOCE holds management control and a 33.34 per cent stake in Fabrica Nacional de Cemento (FANCESA), the second largest cement producer in Bolivia, with 444 thousand tons of cement production capacity, one ready mix concrete plant, one limestone aggregates plant and three pre-cast concrete products plant; the combined Bolivian market share of SOBOCE and Fancesa is approximately 70 per cent, with total annual sales of US$83m.

GCC acquired its stake in SOBOCE for US$58.2m in a cash transaction. The remainder of SOBOCE’s equity capital will be held by its current shareholders. SOBOCE will be an affiliated company of GCC, whose financial results will be consolidated in GCC’s reporting on a proportional basis of the 46.57 per cent ownership.

GCC expects that strong demand for cement and insufficient supply in the US will continue for the remainder 2005. In addition, the Company anticipates steady demand for its products based on the solid performance of the construction industry in Mexico.  In the short term the Company expects GCC’s 2005 sales, excluding the consolidation of SOBOCE, to increase 7% and EBITDA to grow 20% over 2004 figures.