Focus Leadership Strength

Transcription

Focus
Leadership
Strength
2004
ANNUAL
REPORT
|| CONTENTS
ALFA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ALFA’s Groups . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . 4
Letter to Shareholders . . . . . . . . . . . . . . . . . . . 5
The Evolution of ALFA. . . . . . . . . . . . . . . . . . . 10
Focus, Leadership, Strength
Operating Review
Alpek . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Versax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Onexa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Hylsamex . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Environmental Report . . . . . . . . . . . . . . . . . . 20
Board of Directors . . . . . . . . . . . . . . . . . . . . . 22
Corporate Governance . . . . . . . . . . . . . . . . . . 24
Executive Committee . . . . . . . . . . . . . . . . . . . 25
Financial Statements . . . . . . . . . . . . . . . . . . . 26
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
THE COMPANY
ALFA is a Mexican company comprised of five businesses groups:
Alpek (petrochemical products), Sigma (refrigerated foods), Versax
(aluminum auto parts and other businesses), Hylsamex(1) (steel) and
Onexa (telecommunications). || In 2004, the company generated revenues of Ps. 58,809 million (US$ 5,069 million), including foreign
sales of US$ 2,213 million. At year end, assets totaled Ps. 90,412 million (US$ 8,026 million). || ALFA has production facilities in Mexico,
the United States, Canada, Germany, Slovakia, Costa Rica, the Dominican Republic, El Salvador and the Czech Republic. In addition,
the company exports its products to more than 45 countries. || ALFA
has developed associations and strategic alliances with 19 companies of Argentina, Brazil, England, France, Germany, Japan, Mexico,
the United States and Venezuela, each leaders in their respective
industries. || ALFA shares are quoted on the Mexican Stock Exchange
(BMV) and on the Latibex market of the Madrid Stock Exchange.
(1)
Hylsamex is being spun off. As a result, it is being treated as Discontinued Operations, and its
financial results are not fully consolidated into ALFA’s.
Note: In this annual report, monetary figures are expressed in Mexican pesos (Ps.) as of December
2004 and/or U.S. dollars (US$), unless otherwise specified. Conversions were made using the average
exchange rate of the month in which the revenues or disbursements were transacted. Comparisons in
pesos are in real terms, that is, discounting inflation.
Alfa
Strong financial results in 2004 validate
|| The business portfolio has been trans-
ALFA has a more international profile now,
the strategy ALFA has executed in the
formed: it is now stronger, more bal-
with operations in nine countries from
past few years, of focusing on business-
anced and less subject to volatility from
America and Europe.
es with the greatest potential for growth
industry cycles.
and profitability.
The steps the company has taken in recent
|| The key businesses have attained a
ALFA will continue developing investment
solid competitive position in their rel-
projects for growth and value creation,
evant markets.
based on the three characteristics that
years have created a new ALFA, a company
|| They have increased their contribution
ready to capitalize on opportunities that
to consolidated results: in 2004, 67%
each of its key businesses has identified.
of EBITDA was generated by the PTA/
distinguish each of the company’s businesses: focus, leadership and strength.
PET, foods and auto parts businesses,
compared to 58% in 2000.
|| The company’s financial condition has
been strengthened: in 2004, interest
coverage was 7.5 times, and debt, net
of cash to EBITDA, was 1.7 times.
|| Financial results in 2004 were the best
in the company’s history.
1
Alfa’s
Groups
ALPEK
COMPANIES
PRODUCTS
Petrotemex
•Petrocel
•TEMEX
PTA/DMT
DMT
PTA
DAK Americas
•Dak Monomers
•Dak Resins
•Dak Fibers
Indelpro
Polioles
Teijin–Akra*
PTA
PET
Polyester staple
Polypropylene
Expandable polystyrene
Glycol, solvents & uretanes
Textile nylon
Textile nylon
Polyester staple
Lycra®
Nylon 6,6
Caprolactam &
ammonium sulphate
Polyester filament
Sigma Alimentos
Processed meats
Nylon de México
Nyltek
Polykrón
Fielmex
Dupek
Univex
SIGMA
Yogurt, desserts and creams
Cheese
Prepared meals, beverages
VERSAX
Nemak
Terza
Colombin Bel
Aluminum engine
heads & blocks
Carpets & rugs
Polyurethane foam,
bonding
ONEXA
Alestra*
Voice & data transmission
Internet
HYLSAMEX
Galvak
Galvanized & painted steel sheet
Insulated panels
Construction systems
Pipe & angles
Hot & cold rolled steel
Rebar & wire rod, pipe
Steel technology
Steel service center
Iron ore
Hylsa
Acerex
Las Encinas
Cons. Minero B. Juárez
Peña Colorada
Sidor*
Iron ore
Steel
* Associated company
PRODUCTION FACILITIES
< Canada
< United States
Mexico >
< Dominican Republic
El Salvador >
Costa Rica >
2
MARKETS
MAIN BRANDS
JV’s & ALLIANCES
Polyester, containers
BP (9%)
Polyester
Containers
Textiles, carpets
Packaging, fibers
Construction, packaging,
insulating
Textiles & garments
Textiles & garments
Textiles & carpets
Textiles
Textiles
Raw material for nylon
Fertilizers
Textiles & garments
Laser+®
Dacron®, Hydrotec®
Profax®, Valtec®
Basell (49%)
BASF (49%)
DuPont (49%)
DuPont (49%)
DuPont (49%)
DuPont (49%)
Dacron®
Lycra®
DuPont (49%)
Teijin (75%)
Refrigerated food
Fud®, San Rafael®, Tangamanga®, Iberomex®
San Antonio®, Chimex®, Viva®, Galicia®, Zar®
Checo®, Vitta®, Sosúa®, Oscar Mayer®
Yoplait®, Chen®, La Lupita®, Norteñita®, Chalet®
La Villita®, Del Prado®, Bugambilia®
Nor-Mex®, Colonos®, Norteño®, Camelia®
El Cazo Mexicano®, Sugerencias del Chef®,
Café Olé®, Quick & Fresh®, Chepina Peralta®
Solé®, Menú del Sol®, Kid Cuisine®, Banquet®
Oscar Mayer
Sodima Internacional
Chen
ConAgra (49%)
Automotive
Nemak®
Ford (15%)
Floor coverings
Automotive, furnishing,
shoes
Terza®, Luxor® y Mohawk®
Shaw Industries (49%)
Telecommunications
AT&T®
BBVA-Bancomer
AT&T
Construction
Industrial
Automotive
Galvakolor®
Galvaneal®
Galvateja®
Galvamet®
Industrial
AK Steel
HYL®
Ferrostaal
Worthington (49%)
Construction
Steel
Steel
Construction, Industrial
Usiminas, Sivensa,
Siderar, Tenaris
GROUP’S CONTRIBUTION 2004
< Germany
< Czech Republic
|| REVENUES
|| ASSETS
|| EBITDA
Versax
22%
Versax
24%
Versax
22%
<
Slovakia
Alpek
54%
Sigma
24%
Alpek
49%
Alpek
55%
Sigma
21%
Sigma
29%
3
Financial
Highlights
MILLIONS OF PS.
2004
US$ MILLIONS(4)
2003 % Change
2004
2003 % Change
58,809
49,217
19
5,069
4,242
19
Operating Income
5,267
4,917
7
453
424
7
Result of Discontinued Operations(1)
6,235
-860
825
540
-72
851
Net Majority Income
4,350
1,030
322
375
90
317
7.49
1.77
326
0.65
0.16
317
7,441
6,994
6
641
603
6
Total Assets of Continued Operations
56,313
53,379
5
4,999
4,516
11
Total Assets of Discontinued Operations
34,099
31,422
9
3,027
2,659
14
Total Liabilities of Continued Operations
34,753
33,502
4
3,085
2,835
9
Total Liabilities of Discontinued Operations
15,545
20,374
-24
1,380
1,724
-20
Stockholders’ Equity
40,114
30,925
30
3,561
2,616
36
Majority Interest
24,534
24,963
-2
2,178
2,112
3
42.26
43.00
-2
3.75
3.64
3
|| Income Statement
Net Sales
Net Majority Income per Share(2) (Pesos and US Dollars)
EBITDA
|| Balance Sheet
Book Value per Share(3) (Pesos and US Dollars)
4
(1)
(2)
(3)
(4)
Hylsamex results are presented in this line.
Based on the weighted average number of outstanding shares: 581 million in both years.
Based on the number of outstanding shares: 581 million in both years.
Due to the dollarization of its revenue, which is estimated to be higher than 75%, and due to the holding of shares by foreign investors, ALFA provides equivalent US
dollar amounts for some of its financial data.
Letter to
Shareholders
Dear Shareholders:
ALFA’s financial results confirm the strategy it has been following is the right one:
to focus investments in those of its businesses with the greatest potential for
growth and profitability, reinforce the
competitive position of each one of them,
and improve the financial condition.
In 2004, the first step was taken to
spin off Hylsamex, a process that will
create value by reconfiguring ALFA’s
business portfolio to be less dependent on industrial cycles. In addition,
Alpek developed investment projects which lay the foundation for its
future growth, Sigma completed a
transaction to achieve a solid position in the Mexican cheese market,
and expanded its presence in the
Caribbean with an acquisition in
the Dominican Republic. In January
2005, Nemak concluded the acquisition of a German aluminum auto
parts maker, reinforcing its presence
in the European market.
In recent years, tough decisions were
made to tackle important problems
created mainly by the difficult business environment. This is especially
true for the steel subsidiary, which
faced the worst crisis in more than
fifty years. These problems have been
overcome, which allow management
to direct actions now to the most relevant goal of creating more value for
the shareholders.
MACROECONOMIC ENVIRONMENT:
The macroeconomic environment was
more favorable for ALFA in 2004 than
it had been in 2003. Economic performance improved globally, as well as in
Mexico and the United States, where
ALFA has the majority of its operations.
Mexico’s GDP grew 4.4%, an increase
over last year’s 1.3%. Manufacturing
activity increased 3.8%, strongly pushing demand for ALFA’s products.
The year 2004 has been the best in
ALFA’s history, as EBITDA and financial condition reached record levels.
Furthermore, the business portfolio
changed and the subsidiary companies enjoyed an excellent competitive position.
Dionisio Garza Medina
Chairman of the Board of Directors
and Chief Executive Officer
5
|| LETTER TO SHAREHOLDERS
Inflation in Mexico increased to 5.2%,
compared to the 4% rate in the previous year. This increase was the result
of a combination of factors, such as
lower production of certain agricultural goods, as well as the high price
of energy supplied by state-owned
companies in Mexico. In conjunction
with higher inflation, interest rates
rose, averaging 7.1% in 2004, compared to 6.8% of the previous year.
High energy prices continued to limit
the competitiveness of Mexican companies. Natural gas and electricity
prices in Mexico are significantly higher than in other countries, even those
without sufficient natural resources to
produce them domestically.
OPERATIONS:
The aforementioned increase in manufacturing activity led to a 7% rise in
ALFA’s sales volume, comprised of petrochemicals, foods and auto parts.
Average sales prices for ALFA’s products increased 13% in 2004. In most
cases, however, increases reflected
higher raw material costs and as
such, had no real impact on operating margins.
Some raw material costs increased
significantly. In petrochemicals, for
example, volatility in oil prices increased the cost of certain derivatives
such as paraxylene and benzene. Raw
materials costs for Sigma’s products
also increased markedly, particularly
chicken and turkey. In addition, the
price for aluminum, a raw material
for Nemak, rose substantially, but in
this particular case, the company had
6
the ability to pass on the increase directly to the customer.
To respond to these cost pressures,
the ALFA companies implemented diverse strategies. Product pricing was
revised to the extent that the market
and client contracts would allow. Productivity and efficiency were also increased by lowering consumption of
some raw materials and secondary
materials. Additionally, the company
invested in new equipment that consumes less energy or allows for the
use of lower cost fuel alternatives.
ALFA continued to promote its businesses outside Mexico. As a result,
2004 foreign sales totaled US$ 2,213
million, 19% more than 2003.
Important progress was made in centralizing administrative processes in
an effort to increase efficiency and
reduce administrative expenses. This
project was implemented throughout
the year, reducing expenses for IT,
billing and collections, which are now
handled on a centralized basis for all
participating ALFA companies.
FINANCES:
Overall, ALFA’s results were very satisfactory. Revenues rose to Ps. 58,809
million (US$ 5,069 million), 19% over
2003. This increase is the result of
higher sales volume and price increases that were implemented to
offset higher raw material costs. Operating income was Ps. 5,267 million
(US$ 453 million), 7% over 2003, due
to the aforementioned increase in
raw material and energy costs, which
partially absorbed the benefit of
higher revenues.
The business portfolio
has changed and the
companies now enjoy
a solid competitive
position and healthy
finances.
EBITDA rose to Ps. 7,441 million
(US$ 641 million), 6% higher than the
previous year. This is largest amount
recorded in ALFA’s history, on a comparable basis.
|| EBITDA/
MAIN BUSINESSES*
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US$ Millions
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*PTA/PET, Food, Autoparts
|| Consolidated Net Debt
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US$ Millions
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The integral cost of financing (ICF)
was a negative Ps. 318 million, which
compares favorably with 2003,
when exchange losses were higher.
Net financial expenses were slightly
lower.
ALFA’s net majority income rose to
Ps. 4,350 million, or Ps. 7.49 pesos
per share, far above the Ps. 1,030 million and Ps. 1.77 per share achieved in
2003. In addition to positive financial
results for ongoing operations, the
Hylsamex subsidiary, currently in the
process of being spun off, reported
strong profits that were registered on
the “Discontinued Operations” line.
As well, ALFA reported an important
net profit for its participation in nonconsolidated affiliated companies
Alestra, Teijin-Akra and Sidor.
On the other hand, the application of
accounting principle C-15 “Impairment
of Long-lived Assets and their Disposal”
began in 2004. This principle is similar to Bulletin IAS 36 issued by the
International Accounting Standards
Board. Its application resulted in an
accounting charge of Ps. 1,274 million,
although it was a non-cash entry with
no impact on EBITDA.
Capital expenditures in the year
totaled US$ 221 million. These resources were invested in expansion
projects in expandable polystyrene,
processed foods, aluminum auto
parts and others. ALFA also invested
in acquisitions and other strategic
operations at Sigma, as well as upgrading its distribution network.
EBITDA less capital expenditures and
other disbursements resulted in excess cash of US$ 148 million, which
was used to reduce ALFA’s net consolidated debt. At year-end 2004,
ALFA’s net debt totaled US$ 1,101 million, 12% less than in 2003.
ALFA’s financial condition remained
very solid. The frequently-used financial ratios of interest coverage
and debt, net of cash to EBITDA registered levels of 7.5 and 1.7 times, respectively, better than the 6.9 and 2.1
times reported in 2003.
STRATEGY:
To better understand ALFA’s strategy during 2004, some background
is required.
In mid-2000, ALFA decided to focus
on its businesses with the best prospects for growth and profitability.
Simultaneously, it would reduce its
exposure to other businesses, particularly those most affected by industrial cycles.
The period from mid-2000 to 2002
was especially difficult. Because of
prevailing conditions in the industry, it
was necessary to recapitalize and restructure the debt of Hylsamex, ALFA’s
steel subsidiary. ALFA supported this,
helping the company to solve its problems and recover financial viability.
At the same time, ALFA carefully developed its main businesses, taking
advantage of investment and acquisi7
|| LETTER TO SHAREHOLDERS
tion opportunities that allowed these
businesses to reach or consolidate
market leadership positions. Such
is the case of the PTA/PET business,
where Alpek became the second most
important player in the NAFTA region.
Likewise, Sigma consolidated its position in Mexico, not just in processed
meats but also in cheese. Sigma also
expanded into Central America and
the Caribbean, and even more importantly, in the U.S. Hispanic market.
Furthermore, Nemak became a global
player in the auto parts industry, with
plants in the Americas and Europe.
In 2004, the company made important progress in its business strategy. For example, Alpek launched
two investment projects to facilitate
future growth. The first, in expandable polystyrene production, was the
expansion of the Altamira, Tamaulipas plant from 60,000 to 150,000
tons per year, which will begin operations in the second quarter of 2005.
The other project is the construction
of a second polypropylene plant, also
in Altamira, which will increase installed capacity from 220,000 tons
per year to 570,000 tons. The new
plant is scheduled to start up operations near year-end 2006.
Sigma associated with Grupo Chen
to achieve a strong position in Mexico’s cheese market. It also acquired
a processed meat and dairy company
in the Dominican Republic, and now
has five companies operating in Central America and the Caribbean, advancing its objective of replicating its
successful Mexican business model.
Lastly, Sigma reached an agreement
with the New Zealand-based compa8
ny Fonterra, to acquire its cheese operations in Mexico. This transaction is
subject to approval from the Federal
Trade Commission, and is still under
review as of the date of this report.
Sigma continued expanding its presence in the U.S. Hispanic market, an
effort with significant importance because of its enormous potential. The
process of introducing Sigma’s Mexican products to this market has had
very favorable results. In little less
than two years, over 1,300 stores in
selected U.S. cities now carry Sigma’s
products.
Nemak continued to increase its production capacity in both Mexico and
Canada in response to contract commitments signed in recent years. It
continued to grow, albeit at a slower
pace, leveraging its technological and
cost advantages over the competition.
In addition, in early 2005, Nemak
completed the acquisition of Rautenbach, a German company that is well
known for its advanced technology for
the production of aluminum cylinder
heads and other high-tech aluminum
components. This transaction allows
Nemak to expand its presence in the
European market, since Rautenbach is
an important supplier to automakers
such as Audi, BMW and Porsche. Also,
the acquisition permits Nemak to
strengthen its technology leadership.
ALFA is now in a much more favorable position to take advantage of
business opportunities. As such, in
the coming years the company will
continue investing in its most important businesses, developing projects
ALFA has a strong
international
presence, with
operations in nine
countries and exports
to more than 45.
that will allow it to continue to grow
and generate value.
The strong
competitive
and financial
conditions of the
ALFA companies
allow them to keep
on growing and
generating value.
Each of ALFA’s main companies has
interesting projects in the planning.
At Alpek, a decision could be made in
2005 regarding the construction of a
new PTA plant in Altamira, as well as
the conversion of polyester production facilities to PET in the U.S. Sigma expects continued growth in the
Mexican market in both its traditional businesses and through the launch
of new value-added food products.
The company will press forward with
greater determination to introduce
its products to the U.S. Hispanic market. Lastly, Nemak will continue investing in its plants based on capacity
requirements, and will consolidate its
recent acquisition in Germany.
OUTLOOK:
Analysts have a favorable outlook
for the Mexican and U.S. economies.
Indications are that both countries
will register solid economic growth in
2005, which will increase consumer
spending and benefit companies like
ALFA that market their products in
both countries.
sions at Sigma and Nemak, and energy
conservation projects. ALFA’s financial
position allows it to develop these investments with confidence.
As such, ALFA foresees a bright future in the coming years, based on
three fundamental characteristics:
a focus on businesses with great potential, market leadership and financial strength.
On behalf of the Board of Directors,
I appreciate the confidence placed in
us by shareholders, clients, suppliers, financial institutions, and governmental authorities. I especially wish
to recognize the employees of all our
companies, whose dedication, creativity and professionalism significantly
contributed to our year results.
San Pedro Garza Garcia, N.L., Mexico,
February 1st, 2005
The ALFA companies are developing important initiatives to be more
competitive. Whether in the area of
energy consumption or use of raw
materials, the companies are improving every aspect of their respective
operations and consolidating their
strong market position.
ALFA’s consolidated capital expenditure
budget for 2005 totals US$ 285 million,
with resources targeted for important
petrochemical projects at Alpek, expan-
Dionisio Garza Medina
Chairman of the Board of Directors
and Chief Executive Officer
9
The Evolution of Alfa
In the beginning of the 1990s, ALFA was
concentrated in basic steel and synthetic
fibers, which generated 50% of revenue
and 45% of EBITDA (Graph #1). Mexico
began the process of liberalizing trade,
leading to the landmark event of 1994,
the signing of the North American Free
Trade Agreement (NAFTA) with the United States and Canada. For many Mexican companies, greater competition in
the market presented a serious threat.
To compete in this new environment,
ALFA invested more than US$ 1 billion to
modernize its basic steel business, and
gradually refocus it on products with
greater added value. The company also
reinforced its competitive position in
the petrochemical, foods and auto parts
industries, which propelled growth.
This strategy delivered results: the steel
business, which was the most exposed
to trade liberalization, performed solidly until 1997, when the crisis in Asia,
Russia and Brazil began to impacted all
basic industries. ALFA’s non steel businesses, on the other hand, performed
well, and eventually the company’s revenues and EBITDA depended less on the
steel business and more on the others
(Graph #2).
ALFA maintained its investment strategy towards the end of the 1990s,
seeking to improve the competitive position of its companies in each of their
key markets, as well to promote their
growth and add value to their products.
In addition, the company reinforced its
efficiency and productivity programs.
Accordingly, Alpek expanded its PTA
production capacity in Mexico, Sigma
consolidated its leadership in the processed meats market in Mexico, and
positioned itself in the dairy industry,
and Nemak expanded its presence in
the global automotive market for aluminum cylinder heads.
In 2000, ALFA was well positioned in
the markets where it had presence.
However, the modernization of Hylsamex required a significant increase in
this subsidiary’s debt. After a promising first semester, steel prices began
to collapse, and in 2002 reached their
lowest level in more than 50 years. At
the same time, the price of natural gas,
a key imput, grew disproportionately.
This affected the finances of Hylsamex
(Graph #3).
Graph 1
Graph 2
Graph 3
At beginnings of the 90s, EBITDA
came primarily from basic steel and
synthetic fibers.
EBIDTA generation changed gradually.
Steel prices declined which caused a
drop in EBITDA.
|| Consolidated EBITDA 1993
|| EBITDA
US$ 271 Million
US$ Million
Steel and fibers performed well until 1997, then
declined due to industry cycles, although steel
reversed course in 2004. The rest of ALFA: solid growth.
In addition to lower prices, demand declined
due to the recession, natural gas prices increased, and the peso strengthened.
|| Hylsamex | EBITDA
Basic steel and Fibers
Rest of ALFA
Growth due to modernization
Industry crisis
Natural Gas Price
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55%
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Fibers
18%
��
10
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27%
Rest of
ALFA
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Basic
Steel
|| ALFA has modified its business strategy to adapt itself to changing market
conditions. It has created a more stable portfolio concentrated on businesses
with high potential for growth and profitability. The path has not been easy, but
the end results are very satisfactory. ALFA today is a more focused company
with modern facilities, cutting-edge technology, and presence in nine countries.
It is a more competitive company with a strong financial condition that will continue to grow and create value.
ALFA reoriented its strategy to focus on
those of its businesses with the greatest potential for growth and profitability: PTA, foods and auto parts. In
addition, the company decided to reduce its exposure to the steel industry
and its level of debt.
In accordance with this strategy, in the
period of 2001 to 2002, ALFA divested
some of its smaller businesses and recapitalized Hylsamex in order to facilitate its financial recovery. At the same
time, the company expanded its main
businesses via acquisitions and investments. In contrast with the steel business, ALFA’s other businesses, with the
exception of synthetic fibers, maintained
their solid performance (Graph #4).
Thanks to this strategy, permanent improvements in efficiency and productivity, and the strengthening of each
of its markets, in 2004 ALFA attained
the best financial results of its history,
as the PTA/PET, foods and auto parts
businesses kept on growing and making profits.
In addition, the company took the first
step to spin off Hylsamex from its portfolio, a process that should culminate
in 2005. This subsidiary also had its
best year ever, as a result of the recovery in the global steel industry and the
company’s efforts to reduce costs and
increase productivity and efficiency.
With a healthier financial condition,
Hylsamex now has total flexibility to
make decisions that will maximize
shareholder value (Graph #5 ).
Today, ALFA is a more focused company, enjoys a leadership position in its
key markets, and has a solid financial
condition. It has become a more global
company, expanding into international
markets (Graph #6). Furthermore, the
company has attractive investment
projects and the financial capacity to
carry them out, ensuring the continued
generation of value in coming years.
Graph 4
Graph 5
Graph 6
ALFA’s non-steel businesses have performed solidly.
EBITDA reached its highest level in
Hylsamex history.
In 1993, ALFA was concentrated in
Mexico. Now it has international presence in nine countries from America
and Europe.
Recovery is due not only to pricing, as operating improvements, a better sales mix and
higher volume contributed as well. Gas prices
are still high. Galvak has obtained a 15% CAGR
from 1990 to 2004.
|| NON-STEEL BUSINESSES | EBITDA
|| Hylsamex | EBITDA
|| ALFA* | SALES
US$ Million
US$ Million
Galvak
Basic steel
Natural Gas Price
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14%
GR
CA
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1993
US$ 1,570
27%
2004
US$ 5,069
44%
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Foreign sales
11
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* Excludes Hylsamex
Focus
Since 2000, ALFA has executed a highly focused
strategy, devoting maximum attention to its PTA/
PET, foods and auto parts businesses, which have
great potential for long-term profitable growth.
The company has dedicated important resources
to strengthen these businesses by investing in
Mexico as well as internationally, as their markets extend beyond national borders. As a result,
these businesses have increased their market
share, expanded their size, and developed new
technologies. In a word, they are stronger.
> Increased PTA production with the acquisition of a plant in the United States,
capturing a good part of the market
growth from 2000 to date
> Successfully entered the PET business,
where the company had no presence in
2000
Production
capacity
��
Thousand tons/year
��
PTA
PET
��
PTA/PET> Alpek
��
��
��
Food> Sigma
��
��
��
��
��
> Increased production capacity in processed meats
> Reached a strong position in Mexico’s
cheese market by associating with a
key competitor
> Entered the Central American and
Caribbean markets, as well as the
Hispanic market in the U.S.
40%
��
Auto Components> Nemak
��
��
��
Thousand tons/year
��
Total production volume
��
��
��
> Expanded production capacity in Mexico,
where it now has five plants
> Acquired two plants in Canada and constructed a plant in the Czech Republic
> In 2005, acquired a German company
with plants in Germany and Slovakia
From 2000 to 2004 Nemak expanded
92
%
its production capacity
Leadership
ALFA’s main businesses hold a solid position in
their markets, with the leadership position in most
cases, or a strong second place.
> The largest petrochemicals group in
Mexico
> The second largest producer of PTA in
North America; the only producer in
Mexico
> The only manufacturer of polypropylene in Mexico
> Market leader in Mexico for expandable polystyrene
Mexican petrochemical
companies
Revenue
Others
22%
Alpek
19%
Alpek
Idesa 3%
Celanese 4%
Basf 7%
Pemex Petrochemicals 12%
Bayer 7%
Cydsa 8%
DuPont Mex. 10%
Girsa 8%
> Market leader in Mexico for processed
meats, with 49% market share
> Strong market position in Mexico for
cheese, with 21%
> Strong second position in the Mexican
market for yogurt, with 24%
49
%
Market share in processed meats Mexico
Sigma
> World leader in the production of
aluminum cylinder heads for the
automotive industry
> Quality leader: the lowest scrap rate
in the industry, well below standards
Nemak has obtained
75
%
of all aluminum engine heads and blocks
contracts awarded by the three main
OEM's in the USA over the past 7 years
Nemak
Strength
The ALFA companies have developed significant
strengths in terms of efficiency, low costs, healthy
financials, quality and customer service, creating
the basis for continued growth and profitability.
>
>
>
>
Highly competitive production costs
State-of-the-art technology
Differentiated products
Solid financial condition to support
future growth
Standout
Technology
Alpek
> The most-recognized brand names in its
business in Mexico
> The most efficient distribution network
of its kind in Mexico
> Product innovation
> Cutting edge production technology
> Solid financial condition
290,000
Sigma
clients visited at least once per week
> State-of-the-art technology in products
and processes
> The highest standards of quality
> Rapid response to customers insofar as
the launch of new products
> Competitive cost of production
> Global presence to meet client demand
in North America and Europe
Nemak
Nemak
Industry average
��
Months
��
Average time
to develop
a product
prototype
Alpek
Alpek achieved good results in 2004
despite uncertainty in some of its
businesses resulting from high raw
material costs. Successful cost reduction efforts, higher productivity and
efficiency, and the contribution of
business lines such as polypropylene,
explained the results.
From a strategic point of view, Alpek
significantly increased its capacity
in expandable polystyrene and initiated an expansion in polypropylene.
These projects, as well as others under analysis, constitute the basis of
future growth for the company.
FINISHED PRODUCTS WAREHOUSE,
EPS PLANT
Altamira, Tamaulipas, Mexico
OPERATIONS:
Demand for the company’s products
was strong in 2004, allowing plants
to operate at high capacity utilization rates. As a result, sales volumes
grew 6%. Virtually all product lines
registered growth, with plastics and
chemicals in particular.
pass on significant increases in raw
material costs — such as paraxylene
and benzene — as well as higher energy costs arising from oil price volatility. In addition, a tighter supply and
demand balance in certain lines of
business helped increase prices.
Each of Alpek’s businesses performed
differently during the year as a result
of the particular dynamics of their individual markets.
The PTA business, the most important
for Alpek, registered a 33% increase
in domestic sales. This resulted from
high raw materials costs passed on
to clients, as well as higher sales volume coming from a contract signed
with a client during 2003. PET business sales rose 50% in the year on
account of expanded capacity at the
Cooper River plant in North Carolina,
USA, which started up in 2003.
The plastic and chemicals business
capitalized on important opportunities in the polypropylene export market, with sales increasing by 30%. As
for the nylon fibers and Lycra® businesses, demand was affected by high
raw material costs. Nevertheless it
grew by 8%.
FINANCES:
The company’s financial results in
2004 improved over 2003. Revenue
increased by 24% due to the aforementioned volume increase, a better
sales mix, and price increases implemented during the year.
At the same time, the average dollar
price for Alpek’s products grew 17%
in comparison with 2003. This was
the result of the company’s efforts to
12
In spite of higher raw material costs
in some businesses, operating income
grew 19% as a result of cost and expense savings and greater productivity.
|| FINANCIAL HIGHLIGHTS
|| REVENUE BREAKDOWN
Millions of Ps.
2004
Net Sales
US$ Millions
2003 %Change 2004
2003 %Change
31,770
25,634
24
2,738 2,209
Operating Income
2,426
2,042
19
209
176
19
EBITDA
3,615
3,268
11
311
282
10
Debt, Net of cash to EBITDA (times)
2.2
2.8
2.2
2.7
Interest Coverage (times)
6.9
5.4
6.9
5.4
Notes:
EBITDA = operating income + depreciation and amortization.
Debt, Net of Cash to EBITDA = total debt – cash reserves / EBITDA.
Interest Coverage = EBITDA/financial expenses net of interest products on cash reserves.
Alpek invested US$ 62 million during
the year, in fixed assets at different
plants. Investments were primarily targeted towards increasing production
capacity and reduce energy consumption. Despite these expenditures, net
debt was reduced by 10%, or US$ 75
million, during the year, reflecting the
company’s ability to generate free cash
flow. As a result, Alpek’s financial condition strengthened.
In conjunction with two private companies, one Mexican and the other
Canadian, Alpek’s subsidiary, Indelpro announced its participation in the
PEMEX-sponsored Phoenix Project.
The goal is to build a petrochemical
complex in Mexico that, among other
things, will produce propylene, a raw
material used by Indelpro in its polypropylene business. If realized, this
project will lead to the construction
of a third polypropylene plant, with
500,000 tons of capacity. A decision
on the Phoenix Project will be made
in 2005.
STRATEGY:
Alpek continued to execute its strategy of reinforcing its competitive position, focusing on markets with the
greatest potential for growth and
profitability, and increasing product
differentiation.
Alpek is also analyzing projects to
expand PTA production capacity in
Mexico, through a new plant in Tamaulipas, as well as a new conversion
of polyester assets to PET in the U.S.
Decisions on both projects could be
made in 2005.
In 2004, significant progress was
made in the construction of a second
expandable polystyrene line at the Altamira, Tamaulipas plant. Operations
will start up in the second quarter of
2005, adding 90,000 tons per year of
capacity. This will make the plant the
largest of its kind in North America
and the fifth largest in the world. Production will meet growing demand for
this product in Mexico and the U.S.
OUTLOOK:
Alpek’s outlook is favorable, as the
economies of Mexico and the U.S. are
expected to continue growing, which
will be reflected in greater demand
for the company’s main products and
a likely improvement in margins.
EBITDA reflected higher operating income, rising to US$ 311 million, a 10%
increase over 2003.
In addition, the company began development of the second polypropylene line, which will increase capacity
to 570,000 tons per year. This plant
will reduce conversion costs by 40%
through better utilization of existing facilities. Once operations begin,
scheduled for year-end 2006, Alpek
will become the lowest cost polypropylene producer in North America.
Nylon & raw
materials
24
13%
Plastics &
Chemicals
24%
Raw
materials
for polyester
& polyester
products
63%
REACTOR, POLYPROPYLENE PLANT
In addition, the company has undertaken multiple efforts in recent years
to increase its market presence, enhance productivity and efficiency, and
strengthen its finances. As such, Alpek is prepared to fully capitalize on
business opportunities already under
analysis, which will lay the foundation
for the company’s future growth.
13
Sigma
In 2004 Sigma extended its trend of
improving results each year, achieving gains in revenue and EBITDA
despite higher raw material costs.
Strategically, the company carried
out important actions that enabled it
to secure a solid position in the Mexican cheese market and to consolidate its presence in the Caribbean.
In addition, Sigma increased its efforts in the attractive U.S. Hispanic
market.
The dairy business grew 24% in 2004
as a result of the launch of new products and presentations, the company’s efforts to strengthen its brands,
and the organic market growth.
As in the previous year, the yogurt
segment was very dynamic. The
company kept on developing an innovative strategy of launching new
value-added product lines, such a
pro-digestive yogurt under the Yoplus® brand, custards and desserts to
expand this product category.
The cheese business showed significant growth as a result of a more aggressive promotion and advertising
campaign, greater distribution coverage, and the integration of Chen. The
acquisition of Sosúa in the Dominican
Republic also contributed to growth
in this segment.
SIGMA CONTINUED TO INNOVATE
PRODUCTS AND PRESENTATIONS
OPERATIONS
Sigma’s sales volume in 2004
reached 488,000 tons, 15% higher
than in the previous year. Growth was
seen across all the company’s product lines, supported by a larger client
base and new product launches. Also,
companies acquired during the year
contributed to this increase.
In the company’s core business — processed meats — sales volume grew
11%. Sigma reaffirmed its market
leadership in Mexico reaching a 49%
share. Volume growth was the result
of better marketing and distribution, and the strength of its brands,
primarily Fud®, San Rafael® and Tangamanga®, which allowed Sigma to
capitalize on a dynamic market. The
acquisition of Sosúa also contributed
to the increase in sales volume.
14
FINANCES
The company’s financial results reflected the correct execution of its
growth strategy and solid operating
performance at each of Sigma’s businesses during 2004.
Revenues totaled US$ 1,220 million, a
16% increase over the previous year.
Growth resulted from higher sales
volume, as well as price increases
that reflected higher costs.
It is important to highlight that some
of Sigma’s raw materials suffered significant price increases. In some cases,
limited availability at the beginning of
the year forced the company to use alternative raw materials at higher cost.
Sigma addressed this situation by increasing production efficiencies and
reducing costs and expenses.
EBITDA amounted to US$ 184 million.
Out of that amount, US$ 114 million
Millions of Ps.
2004
Net Sales
US$ Millions
2003 %Change 2004
2003 %Change
14,146
12,190
16
1,220
1,051
16
Operating Income
1,661
1,696
-2
143
146
-2
EBITDA
2,133
2,092
2
184
181
2
Debt, Net of cash to EBITDA (times)
0.9
0.6
0.9
0.6
10.4
19.0
10.4
19.1
Notes:
Debt, Net of Cash to EBITDA = total debt – cash reserves/EBITDA.
were invested in the year, with resources used to expand production
and distribution capacity, improve
information systems, and carry out
the operations with Chen and Sosúa.
Sigma’s financial condition continued
to be very strong.
STRATEGY
The company made important advances towards its goal of becoming the
market leader in refrigerated foods in
Mexico, Central America, the Caribbean and the US Hispanic market.
In accordance with the above, in 2004
Sigma continued to invest in strengthening its brands, particularly cheeses,
with La Villita® attaining the most recognized cheese brand in Mexico. Furthermore, the association with Chen
enabled Sigma to gain a solid presence in the Mexican cheese market.
New product development was also a
major focus, including the launch of
new lines of yogurt, desserts, soy-based
drinks and prepared foods. Of particular note is the launch of the “Chepina
Peralta®” line of products, leveraging
on the recognition Mrs. Peralta has in
the market place in Mexico.
Regarding the Central American and
Caribbean strategy, the acquisition of
Sosúa, allowed Sigma to expand its
presence in the Dominican Republic
and become one of the most important processed meat and dairy companies in the market.
Sigma continued its determined efforts to penetrate the U.S. Hispanic
market. Sales in this market grew
by more than 100% in the year, and
by year-end Sigma’s products were
distributed through over 1,300 U.S.
stores. Sigma’s strategy is to concentrate its efforts in cities where the
Yogurt
9%
Others
2%
Cheese
22%
Processed
meats
67%
Hispanic presence is the greatest,
marketing its products Mexican-style.
Sigma continued to expand and
modernize its distribution network
in order to support product marketing efforts in Mexico and to continue
offering superior client service. In
2004, Sigma increased its fleet of refrigerated units to more than 2,900
enabling the company to service
more than 290,000 points of sale at
least once per week.
OUTLOOK
The Mexican refrigerated foods industry has performed solidly in recent
years and is expected to continue to
do so in the future, based on an improved economic situation. As such,
Sigma’s outlook is very positive.
The company’s business strategy is
designed to reinforce the competitive
position of its businesses and to capitalize on growth opportunities that
may arise in each of its markets. The
company will continue growing in the
Mexican market, through its traditional businesses as well as launching new
value-added products. As well, it will
expand outside of Mexico into markets with similar tastes and consumption habits.
THE ASSOCIATION WITH CHEN
ALLOWED SIGMA TO EXPAND ITS SHARE
IN THE MEXICAN CHEESE MARKET
Sigma will continue to rely on its solid competitive advantages — market
leadership, brand equity, extensive
distribution network, and high-tech
development of products and processes — in order to continue its trend
of profitable and sustained growth.
15
Versax
In 2004 Nemak consolidated its global leadership position in the production of high-tech aluminum cylinder
heads and engine blocks. In addition,
in early 2005 it incorporated a wellknown German company into its operations, reinforcing its presence in
the European market and diversifing
its client base. Meanwhile Terza, the
carpeting business, improved its operating and financial results.
NEMAK
OPERATIONS:
Nemak delivered good results in
2004 despite low growth in its main
market, the North American automotive industry.
NEMAK CYLINDER HEADS ASSEMBLED
AT THE DAIMLER-CHRYSLER ENGINE
PLANT
Saltillo, Coahuila, Mexico
The company continued to benefit
from the penetration of aluminum
components as a replacement for
cast iron. Although light vehicle production in North America remained
steady at 15.8 million units, similar
to 2003 production levels, aluminum
penetration reached 89% in cylinder
heads and 45% in engine blocks, as
compared to 86% and 38% respectively in 2003.
Nemak sold a total of 13.1 million
equivalent cylinder heads in 2004, 2%
more than in 2003. Contributing to the
year’s success was the launch of 10
new programs, five for cylinder heads
and five for engine blocks. Some of
these replaced existing ones; others
represent totally new product launches. In 2004, Nemak supplied 23 automotive plants in eight countries from
its five plants in Mexico, two in Canada
and one in the Czech Republic.
FINANCES:
Nemak’s revenue totaled US$ 970
million in 2004, 15% higher than in
2003. This resulted from both higher
16
sales volume and higher average unit
prices, which was as much a reflection of a better sales mix as it was
the higher cost of aluminum that was
passed on to customers.
EBITDA for the year reached US$ 132 million, 9% above that of 2003. Capital expenditures in 2004 totaled US$ 47 million, with resources devoted to increasing
production capacity to meet demand
from new contracts, as well as to improve
operating efficiency at the plants.
The company’s improved financial position is illustrated by financial ratios
such as interest coverage and debt,
net of cash to EBITDA, which rose to
6.2 and 2.1 times respectively, compared to 5.7 and 2.5 times respectively in 2003.
STRATEGY:
Nemak continued to consolidate its
leadership position as the preferred
supplier to the three main US auto
makers. The company obtained seven new cylinder head contracts in the
year, representing a total of US$ 180
million in revenue per year. Four of
these contracts are for existing programs, while three are new.
The acquisition of the German company Rautenbach reinforces Nemak’s
presence in the European market as
it broadens and diversifies its client
base and product lines, including cylinder heads for diesel engines.
Rautenbach produces aluminum cylinder heads as well as suspension and
chassis parts. Its production plants in
Germany and Slovakia currently supply important European auto makers,
such as Audi, Volkswagen, Porsche,
BMW, Daimler Chrysler, PeugeotCitroen and Ssang Yong from Korea.
Onexa
Sales in 2004 were approximately
US$ 175 million.
By merging the newly acquired plants
with the existing plant in the Czech Republic, Nemak will be better positioned
to actively participate in expected industry growth, which will be driven by
Eastern Europe, without neglecting its
North American operations.
OUTLOOK:
Short-term expectations for the
North American automotive industry
continue to be moderate. Analysts
forecast production of approximately
15.9 million vehicles in 2005, slightly
above 2004 levels.
Additionally, the increasing use of
aluminum components is expected to
continue, especially in engine blocks.
This will allow Nemak to grow at a
faster rate than the industry. Nemak
plans to launch seven new programs
in 2005, four for cylinder heads and
three for engine blocks.
Nemak’s strategy is to improve its cost
structure, product quality and technological edge. In addition, the company
will broaden its presence in the European market, and continue to diversify
its technologies and processes.
TERZA
The company capitalized on the benefits of restructuring operations in
previous years. In 2004, Terza’s export sales increased by 21%, rug sales
for the domestic market by 47%, and
laminated flooring by 161%.
Alestra, Onexa’s subsidiary in the
telecommunications service industry, aggressively promoted its data,
Internet and local telephony services
in 2004, focusing primarily on the
business segment. However, results
for the year were impacted by falling
prices for international traffic, due to
the gradual deregulation of the market and the elimination of the proportional return rule.
OPERATIONS:
Total long distance traffic on Alestra’s
network reached 3,539 million minutes,
1% lower than in 2003. Data, local and
Internet service traffic increased more
than 40%, reaching 1.6 million equivalent lines in data transmission.
The company continued to broaden
its service offering with products such
as virtual private networks, global
data networks for multinational companies and VOIP for businesses. The
promotion of these services was reflected in their increase as a percentage of total revenue, rising from 24%
in 2003 to 33% in 2004.
FINANCES:
Alestra’s revenue totaled US$ 420 million in 2004, a 16% decrease from the
previous year. Long distance revenue
fell 27% due to declining prices for
international long distance service.
Revenue from data, Internet and local
services grew 18%, to US$ 140 million.
Administrative and sales expenses
were cut by 8%. However, this was
not sufficient to prevent a decline in
EBITDA to US$ 95 million, 12% less
than in the previous year.
DATA, LOCAL AND INTERNET SERVICE
TRAFFIC THROUGH ALESTRA’S
NETWORK INCREASED MORE THAN 40%
Alestra registered a net loss of US$ 15
million in 2004. Through the equity
method, ALFA recognized a loss of
US$ 4 million for its share in Alestra.
As a result of last year’s financial restructuring the company’s risk profile
was reduced to a reasonable level.
The ratio of debt, net of cash, to EBITDA in 2004 was 3.6 times and interest coverage was 2.5 times.
STRATEGY AND OUTLOOK
In 2004 Alestra moved forward on the
integration process with AT&T’s global
data network, allowing the company
to service multinationals with operations in Mexico. As well, Alestra will
intensify its efforts to become a more
fully integrated telecommunications
service provider and less dependent
on traditional long distance services.
The company invested US$ 38 million,
primarily to provide connectivity to
clients and to support the growth of
data, local and Internet services.
17
Hylsamex
The year 2004 was an extraordinary
one for the steel industry in general,
and for Hylsamex in particular. The
company’s operating and financial
performance reached record levels,
allowing it to substantially reduce
its net debt and thus fulfill a priority
objective. The company now enjoys
a solid financial condition with the
flexibility necessary to strengthen its
competitive position and generate
value for its shareholders.
As announced, ALFA completed the
first phase in the process of divesting
Hylsamex from its business portfolio.
HYLSA’S FLAT STEEL PLANT
Monterrey, Nuevo Leon, Mexico
OPERATIONS:
In 2004, the global steel market experienced growing demand and price
levels that were unprecedented for
the last 30 years. This was the result of favorable performance by
the world’s main economies, China’s
sustained consumption of steel, and
a relative scarcity of raw materials.
These factors allowed the industry to
recover financially.
The Mexican market reflected international conditions, reinforced
by growth in the Mexican economy.
Steel demand grew by 6% in the year;
production of basic steel grew by 10%
and finished products by 6%.
Hylsamex’s key performance indicators reached their highest levels in its
history. Sales volume was 3.2 million
tons, 10% higher than in 2003. Prices in dollars increased 42% and high
value-added products represented
62% of revenue.
Domestic sales grew 9%, totaling 2.5
million tons. High international prices
stimulated export sales of 716 thousand tons, a 13% increase over the
18
previous year. Total exports rose to
US$ 527 million, an increase of 59%
and representing 23% of total sales.
Hylsamex’s ongoing cost reduction
strategy and integrated production
capability enabled the company to
manage the scarcity and high cost of
raw materials. While natural gas prices increased 61%, scrap metal 57%,
and iron ore 19%, the company’s variable costs increased only 12%.
FINANCE:
The combination of higher sales volume
and better prices allowed Hylsamex to
generate record revenues of US$ 2,305
million in 2004, a 59% increase. Operating income totaled US$ 636 million,
ten times that of 2003.
EBITDA was US$ 759 million, 306%
higher than last year’s level. This reflects the company’s ability to effectively capitalize on conditions in the
steel market, and combined with efficiency efforts made over the years,
helped position Hylsamex as one of
the best in the industry.
Investments in fixed assets totaled
US$ 47 million in 2004, 40% of which
was used to expand installed capacity
in order to make the best use of iron
ore reserves. Investments to replace
equipment in the production facilities,
at Hylsa in particular, equaled 32% of
the total.
These strong financial results allowed
for a significant US$ 468 million reduction of the company’s net debt,
leaving a total of US$ 546 million at
year end 2004. The key financial ratios reflect that change: interest coverage rose from 2.0 to 9.2 times, and
debt, net of cash, to EBITDA improved
from 5.4 to 0.7 times.
Millions of Ps.
2004
Net Sales
26,760
US$ Millions
2003 %Change 2004
16,806
59
2003 %Change
2,305 1,449
59
Operating Income
7,395
731 912
636
63 910
EBITDA
8,821
2,168 307
759
187 306
Debt, Net of Cash to EBITDA (times)
0.7
5.5
0.7
5.4
9.3
2.0
9.2
2.0
Notes:
Debt, Net of Cash to EBITDA = total debt – cash reserves/EBITDA.
STRATEGY:
2004 was a watershed year in the
history of Hylsamex as the company’s
position substantially changed relative to the steel industry and as an
ALFA subsidiary.
Once this process is done, Hylsamex
will be an independent company,
which will facilitate more accurate
valuation by financial institutions
and provide it with better access to
capital markets.
From a financially constrained position, the company obtained flexibility.
ALFA reduced its equity participation
in Hylsamex from 90% to 42.5%.
OUTLOOK:
Steel analysts forecast that the industry will remain in the upper part of
the curve during 2005, which should
allow steel companies to consolidate
their operating and financial gains
from 2004.
The high priority objective of reducing
debt during the year was accomplished,
granting the company decision-making flexibility for its own benefit and
that of its shareholders. Apart from
the substantial cash flow generation of
the year, the debt reduction was made
possible by accessing the capital markets in Mexico, the United States and
Europe via the placement of “L” Series
restricted shares, netting proceeds of
US$ 137 million.
Research into developing new technology that reduces natural gas consumption in the production of sponge
iron advanced satisfactorily. Tests at
the pilot plant were very positive. In
2005, the economic viability of this
process will be evaluated, so that
investment in large scale facilities
could be addressed.
Others
Coated steel
3%
Flat
steel
28%
34%
Pipe
7%
Non-flat
steel
28%
Demand and pricing will continue to
be favorable as key global economies,
including Mexico, sustain good growth
rates. As well, China will continue to
play a significant role in the consumption of steel and raw materials.
Hylsamex’s new financial condition
will allow it to reinforce its competitive
position based on its strategy of modernization, cost reduction, high valueadded products and customer service.
GALVAK’S INSULATED PANEL PLANT
As discussed, ALFA completed the
first phase in divesting Hylsamex
from its portfolio of businesses, distributing 39% of Hylsamex shares
to shareholders. A decision regarding the second phase of that process
would be taken during 2005.
19
Environmental
Report
The sustainable development model
that ALFA has employed throughout
its history has focused on promoting respect towards the environment,
particularly in those places where the
company’s plants are located. Also,
the rational use of natural resources,
particularly non-renewable ones, is
sought after.
In accordance with that model, in
2004 the ALFA companies focused
special attention on areas such as energy savings and materials recycling.
WATER TREATMENT PLANT
AT HYLSAMEX
20
ENERGY SAVINGS
Alpek continued to carry out the “Energy Efficiency” program aimed at
optimizing the consumption of primary energy sources such as electricity,
fuel oil and natural gas and decreasing
greenhouse gas emissions. In 2004,
the company implemented more than
20 initiatives that once operational,
will reduce fuel oil consumption by
26,000 cubic meters per year and
equivalent carbon dioxide (CO2) emissions by 47,000 tons per year.
Construction of the Power Integration project continued at Tereftalatos
Mexicanos (Temex) in Cosoleacaque,
Veracruz, with a total investment of
US$ 30 million, for the installation of
more efficient equipment that will allow the use of steam currents generated during the production process.
When the project starts up operations in mid-2005, it is expected to
reduce demand for electricity, and
decrease consumption of primary fuels. This project will reduce more than
270,000 equivalent tons of direct and
indirect carbon dioxide emissions
per year. Given the impact on reducing CO2 emissions, Temex registered
this project under the Mechanism for
Clean Development with the United
Nations Framework Convention on
Climate Change.
Alpek will start registering other
projects such as Univex, located in
Salamanca, Guanajuato, which developed a technology to capture carbon
dioxide and integrate it into the ammonium carbonate production process. This reduced CO2 emissions by
25,000 tons per year.
Having obtained permits from
SEMARNAT (Mexican Ministry of the
Environment and Natural Resources),
the Alpek companies worked to maximize the use of alternate fuels using
proprietary and third-party technology, in order to substitute demand
for fuel oil and natural gas. In 2004,
10,708 cubic meters of alternate fuels were recycled, which reduced
emissions of nitrogen oxide, sulphur
and fully suspended fuel particles.
Furthermore, containing and co-processing alternate fuels helped reduce
the possibility of affecting thousands
of cubic meters of fresh water.
Hylsamex also made use of 875,000
liters of its own oil that had been
used in internal processes as alternative fuel to generate energy.
RECYCLING
With an investment of US$1.1 million,
Sigma opened a new water treatment
plant in Atitalaquia, Hidalgo. Also,
Galvak was able to more than double
the capacity of its water treatment
plant in Monterrey, N.L. with an investment of US$ 400,000. The ALFA
companies in Mexico currently have
24 water treatment plants that allow
them to reuse more than 90% of the
water used for production processes.
Additionally, the ALFA companies
continued to work on reducing water
consumption in their production processes. For example, the Hylsa flat
steel plant in Monterrey reduced its
water consumption from 2.52 cubic
meters per ton of steel produced in
2003, to only 1.21 meters per ton in
2004. At Petrotemex’s DMT and PTA
plants in Altamira, the company has
been able to reduce by almost 50%
the consumption of water per ton
produced from 1998 to 2004. Also, in
July 2005 Temex will start up operations of a project that will enable the
company to recover 28 cubic meters
of water per hour in its processes.
The Hylsamex companies recycled
916,000 tons of scrap steel during
the year, a 24% increase from 2003,
helping to promote a cleaner environment and to reduce energy consumption in the furnaces.
Also, the company continued to recover and market slag steel, a byproduct of its production process
that is used as an asphalt aggregate.
In 2004, the company sold 415,000
tons of this material to government
agencies and private companies, a
19% increase from 2003.
Finally, Nemak acquired 52,381 tons of
aluminum cans, as well as 90,297 tons
of other types of aluminum scrap, reaffirming its position as the leading aluminum recycling company in Mexico.
FAUNA PROTECTION
As they have done in recent years,
the ALFA companies continued to
support programs for the protection
of endangered species. For example,
Las Encinas, in conjunction with other private companies in the state of
Colima, created a civic association in
1998 named Wildlife Heritage whose
goal is to protect the sea turtles that
land each year on the state’s coasts.
From its founding to date, the association has protected more than
7,800 nests and released more than
550,000 hatchlings. Las Encinas also
supports the encampment that shelters the turtles during their reproductive process, from ovulation until
the hatchlings go out to sea.
PTA PLANT
Similarly, Petrotemex and Indelpro
encouraged their employees and
families to participate in a program
that releases Lora turtles on the Tamaulipas coasts, which takes place every year in coordination with the Port
Authority of Altamira.
AWARDS
In September 2004, the President
of Mexico awarded Galvak with the
Recognition of Environmental Excellence. This is the premier environmental award in the country granted by
SEMARNAT through PROFEPA (Mexican Federal Environmental Protection
Agency), the result of a national competition that recognizes companies
that employ environmental management systems that exceed government
regulations, and have community development programs.
Additionally, eight plants, four at Alpek and four at Sigma, which were
due in 2004 to renew their “Clean
Industry” status succeeded in obtaining such certification.
21
Board of
Directors
1 Dionisio Garza Medina
4 Claudio X. González Laporte
7 Armando Garza Sada
Chairman of the Board and Chief Executive
Officer - ALFA, S.A. de C.V.
Officer - Kimberly Clark de México,
S.A. de C.V.
President of Versax, S.A. de C.V. and
Onexa, S.A. de C.V.
Member of the Board since April 1990 and
Chairman since 1994. Sits on the Finance, Human Resources and Audit Committees. Mr. Garza is a related proprietary member.
Named a member of ALFA’s Board in April
1991. Mr. Garza Sada is a related proprietary
member and sits on the Finance Committee.
Member of the ALFA Board since December
1987. Mr. González is an independent member
and sits on the Human Resources Committee.
8 Valentín Diez Morodo
5 Mauricio Fernández Garza
2 José Calderón Ayala
Officer - Franca Industrias, S.A. de C.V.
Member of ALFA’s Board since June 1974. He currently sits on the Audit Committee. Mr. Calderón
is an independent proprietary member.
3 Lorenzo H. Zambrano Treviño
Officer - Cemex, S.A. de C.V.
President of Grupo Nevadi Internacional,
S.A. de C.V.
Member of ALFA’s Board since April 1990.
Mr. Fernández is an independent proprietary
member and sits on the Audit Committee.
Member of the Board member since April 2002.
Currently sits on the Human Resources Committee. Mr. Diez is an independent board member.
6 Ricardo Guajardo Touché
9 Antonio Madero Bracho
Named a member of the ALFA Board in March
2000. Mr. Guajardo is an independent member,
presides the Audit Committee, and sits on the
Finance Committee.
Executive Chairman of the Board - SANLUIS
Corporación, S.A. de C.V.
Member of ALFA’s Board since December 1987.
Mr. Madero is an independent board member
and heads the Finance Committee.
Mr. Zambrano is a Board member since April 1994.
He currently sits on the Human Resources Committee and is an independent board member.
1
22
2
3
4
5
6
7
8
9
|| STATUTORY AUDITORS
AND SECRETARIES
10 Bernardo Garza de la Fuente
12 Fernando Senderos Mestre
14 Enrique Osorno Heinze
Director of Planning and Development - Sigma
Alimentos, S.A. de C.V.
Officer - Desc, S.A. de C.V.
Partner, PricewaterhouseCoopers
Statutory Auditor
Member of ALFA’s Board since April 1994. Currently sits on the Audit Committee. Mr. Garza is
a related proprietary member.
A member of the ALFA’s Board since April 1995.
Mr. Senderos sits on the Finance Committee
and is an independent board member.
Mr. Enrique Osorno was designated Statutory
Auditor in March 2000.
11 Adrián Sada González
13 Rogelio M. Rebolledo Rojas
Chairman of the Board - Vitro, S.A. de C.V.
Officer - Frito-Lay Internacional
Named a member of the Board in April 1994.
Mr. Sada heads the Human Resources Committee and is an independent board member.
Board member since March 2004. Member of the
Finance Committee. Independent board member.
15 Carlos Arreola Enríquez
Partner, PricewaterhouseCoopers
Alternate Statutory Auditor
Alternate Statutory Auditor since March 2001.
16 Leopoldo Marroquín Morales
Secretary
Mr. Leopoldo Marroquín has served as Secretary of ALFA’s Board since May 1986.
17 Carlos Jiménez Barrera
Alternate Secretary
Mr. Carlos Jiménez has been Alternate Secretary of the Board since April 1994.
10
11
12
13
14
15
16
17
23
Corporate
Oficina
de la
Presidencia
Governance
ALFA adheres to the stipulations of Mexico’s current Code of Best Corporate Practices.
This code, a framework for corporate governance established to increase investor confidence in Mexican companies, was created
in 2000 following an initiative of the Securities Commision and with the participation of market and legal specialists, investors,
and Mexican business leaders.
Mexican companies whose stocks trade on the Stock Exchange are not required to adhere to this Code of Best Corporate Practices. They are however, required to declare the extent to which they do so. This is confirmed annually via a standard questionnaire
sent to all companies and provided to investors on the Stock Exchange’s web site.
Following is a summary of ALFA’s corporate governance as declared in the June 2004 questionnaire, with any pertinent information updated.
a) The Board of Directors is comprised of 13 proprietary members who have no alternates. Of this number, 10 are independent.
This annual report provides information on all of the Board’s members, identifying who are independent. It also provides a
brief description of the professional background of each one and the committees in which they participate.
b) Three committees assist the Board of Directors to carry out their duties: Finance, Audit and Human Resources. Independent
Board members participate in at least one committee each. All three commites are headed by an independent board member.
c) The Board of Directors meets every two months. Meetings of the Board can be called by agreement of at least 25% of its
members. At least one of these meetings is dedicated to defining the company’s medium and long-term strategy. Procedures
exist to ensure that members have all the necessary information to evaluate strategic issues at least five days prior to any
Board meeting.
d) Members must inform the President of any conflicts of interest that may arise, and decline participation in the corresponding
deliberations. Average attendance at Board meetings was 78% during 2004.
e) The Audit Committee is responsible for studying and issuing recommendations to the Board on matters such as the selection
and determination of fees to the external auditor, coordinating with the internal audit area of the company, and studying accounting policies, among others.
f) The company has internal control systems with general guidelines. These are submitted to the Audit Committee for their opinion;
in addition, the external auditor validates the effectiveness of the internal control system and issues corresponding reports.
g) The Finance Committee is responsible for evaluating all matters relating to its particular area and issuing recommendations
to the Board on matters such as feasibility of investments, strategic positioning of the company, alignment of investment and
financing policies, and review of investment projects.
h) The Human Resources Committee is responsible for issuing recommendations to the Board in such matters as employment
terms and severance pay for senior executives, and compensation policies, among others.
i) There is a department dedicated to maintaining an open line of communication between the company and its shareholders
and investors. This ensures that investors have the financial and general information they require in order to evaluate the
company’s development and progress.
24
Executive
Committee
1
2
1 Mario H. Páez
4 Alejandro M. Elizondo
President, Sigma
President, Hylsamex
2 José de Jesús Valdez
5 Armando Garza Sada
President, Alpek
President, Versax and Onexa
3 Dionisio Garza Medina
6 Alfonso González
Chairman of the Board and CEO, ALFA
Chief Financial Officer
3
4
5
6
|| STAFF OF THE
EXECUTIVE
COMMITTEE
7 Ángel Casán
Vice President, Human Resources
and Institutional Relations
8 Carlos Jiménez
Vice President, Legal Counsel
9 Felipe C. Canales
Vice President, Planning and
Economics Studies
7
8
9
25
Financial
Statements
26
ALFA, S.A. DE C.V. AND SUBSIDIARIES
|| CONTENTS
Management's Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Report of independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated financial statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Statement of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Statement of changes in financial position . . . . . . . . . . . . . . . . . 43
Statement of changes in stockholders' equity . . . . . . . . . . . . . . .44
Supplementary information
Financial summary 2004 to 2000. . . . . . . . . . . . . . . . . . . . . . . . . 58
Significant quarterly information 2004 and 2003. . . . . . . . . . . .60
27
Management’s
Analysis
2004
The following report should be read in conjunction with the Letter to the Shareholders (pages 5-9), the Audited Financial Statements (pages 39-57), and the Supplementary Information (pages 58-61). Unless otherwise indicated: a) figures are stated in millions of pesos (Ps) of December 2004 purchasing power and percentage changes are in real terms, that is, discounting the effects
of inflation; and b) interest rates are stated in real terms. In addition, some figures are stated in millions of dollars (US$).
The financial information contained in this analysis has been expanded in some sections to include three years, thus complying
with the regulations applicable to issuers and other participants in the securities market issued by the National Banking and
Securities Commission on March 19, 2003.
San Pedro Garza García, N. L, January 24, 2005.
ECONOMIC ENVIRONMENT
The business climate in Mexico in 2004 was better than in 2003, and this benefited the results of ALFA’s businesses.
The real Gross Domestic Product (GDP) grew 4.4% (a), compared to growth of 1.3% (b) in 2003 and an increase of 0.7% (b) in
2002. This situation is explained in part by the behavior of the economy in the United States (c), Mexico’s most important business partner. The recovery of the U.S. industrial sector had a positive impact on the Mexican economy.
Consumer price inflation in Mexico was 5.2% (d) in 2004, higher than the 4.0% (d) figure recorded in 2003. The Mexican peso
had depreciated 0.3% (e) in nominal terms by the end of 2004, on top of the 9.0% (e) depreciation suffered in 2003. In real terms
the annual average appreciation of the peso vis-à-vis the dollar fell to 13.5% (f) in 2004, from 16.6% (f) in 2003.
The average nominal 3-month dollar LIBOR rate for the year was 1.6% (g) in 2004, up from 1.2% (g) in 2003. Adjusting for the
nominal depreciation of the peso vis-à-vis the dollar, real LIBOR fell from 6.1% (a) in 2003 to -3.1% (a) in 2004.
In Mexico, the TIIE was 7.1% (d) in 2004 in nominal terms, up from 6.8% (d) in 2003. In real terms it fell slightly, from an average
of 3.0% (a) in 2003 to 2.1% (a) in 2004.
ALFA – RECONFIGURATION OF THE BUSINESS PORTFOLIO
During 2004 ALFA continued executing a strategy of concentrating on its principal businesses, making significant investments
in these. The results of the year confirm the correctness of this strategy. In addition, it achieved considerable reductions in
its debt and improved its maturity profile.
In February 2004 the first stage in the separation of Hylsamex was carried out. The purpose of this operation is to create
shareholder value by configuring a business portfolio less dependent on industrial cycles. This first stage was carried out by
reducing ALFA’s capital stock through a payment in kind with Hylsamex shares.
(a)
(b)
(c)
(d)
(e)
(f)
28
Source: Consultores Económicos Especializados. S. A. de C. V. (CEE)
Source: Instituto Nacional de Estadística, Geografía e Informática (INEGI)
Source: Bureau of Economic Analysis (BEA)
Source: Banco de México (Banxico)
Source: Banxico. Exchange rate for liquidating liabilities denominated in foreign currency and payable in Mexico.
Source: CEE. Base 1990. Bilateral with the U. S., adjusting for consumer prices. In a floating exchange rate system, such as that currently in place in Mexico, it is
more appropriate to speak of appreciation or depreciation, with reference to a base year, than of overvaluation or undervaluation of the currency.
(g) Source: British Bankers Association
During the third quarter of 2004 Hylsamex’s capital was increased through an issue of shares with limited voting rights in
which ALFA did not participate. As a result, ALFA’s investment in Hylsamex’s total capital was reduced to 42.5%. However,
it retained 51% of the common shares and therefore continued to control Hylsamex. The limited vote shares will be converted
to common shares one year after the date of issuance.
In order to present comparable financial information, as a result of the decision to spin off Hylsamex generally accepted accounting principles require Hylsamex’s assets, liabilities and net income to be shown separately in ALFA’s consolidated financial statements as “Discontinued operations”. All the other financial statement captions refer to the companies comprising
the rest of ALFA’s business portfolio, frequently subtotaled under the caption “Continuing operations”.
RESULTS OF OPERATIONS
SALES
The following table shows ALFA’s sales for the years 2004, 2003 and 2002, showing the effects of volume and price changes
(the indexes are calculated on a base of 1999=100):
Consolidated Sales
Volume index
Price index Pesos
Price index dollars
2004
2003
2002
Change 2004/2003
Change2003/2002
58,809
147.5
117.6
132.6
49,217
138.0
104.3
117.5
41,854
135.4
89.8
108.1
9,592
7%
13%
13%
7,363
2%
16%
9%
The consolidated sales broken down by ALFA’s principal business groups were as follows:
2003
2002
Change 2004/2003
Change 2003/2002
31,770
14,146
12,599
58,809
25,634
12,190
11,025
49,217
20,635
10,941
9,857
41,854
6,136
1,956
1,574
9,592
4,999
1,249
1,168
7,363
��
��
��
��
��
��
��
��
��
��
��
��
��
��
��
��
��
��
��
��
(1999=100)
��
|| Sales indexes
��
2004
��
Alpek
Sigma
Versax
Consolidated total
��
��
��
The behavior of sales is explained as follows:
2004-2003
Consolidated sales reflect the individual efforts of each of ALFA’s companies, which together achieved a 7% increase in volume
and a 13% increase in average prices. Following is a discussion of the performance of each of the principal business groups:
Alpek had a significant increase in sales in 2004, resulting from both volume and price increases. In general terms, all its
business segments reported increased sales volumes due to a strong demand for their products, especially PTA, PET, polypropylene and expansible polystyrene. In most cases, sales price increases were implemented in response to increases in raw
material prices.
29
Sigma recorded a significant increase in sales in 2004. This was a result both of organic growth and of acquisitions of companies, and also of increases in prices in some product lines. As far as sales volumes are concerned, the processed meat line grew
11%, as a result both of a greater marketing and distribution effort and of the consolidation of the processed meat operations
of Sosua, in the Dominican Republic, which was acquired in September. The cheese line grew 24%, partly due to the consolidation from September onwards of the Chen company, with which Sigma entered into a strategic association, and also that of
Sosua, which also produces and markets cheeses. Other actions contributing to volume growth included the launching of new
yoghurt products and presentations and new prepared food lines.
Sigma effected price adjustments throughout the year in response to price increases in some of its raw materials, such as
chicken and turkey meat. On the average Sigma’s prices increased 1% in 2004.
In Versax, Nemak increased the volume of engine head equivalents sold by 2% over 2003, despite a 0.6% decrease in light
vehicle production in North America. This increase is explained by the growing penetration of aluminum in place of cast iron
in high technology components, such as the engine heads and monoblocks which Nemak produces. Nemak’s sales prices also
increased 9.5%, as it passed on significant increases in the cost of its principal raw material, aluminum, as previously agreed
with its customers.
2003-2002
The growth of ALFA’s consolidated sales reflected significant increases in the principal subsidiaries, which are explained as follows:
In Alpek a considerable increase in sales was achieved, as a result mainly of price increases due to increased costs of raw
materials, such as paraxylene, benzene and ethylene glycol, although in some segments of the business, such as PET and synthetic fibers, it was not possible to fully pass the higher costs on to the customer, due, among other things, to new production
capacity which could not be placed on the market, or to the effect on demand of competition from Asian products or from
contraband garment imports. Alpek’s sales volume remained unchanged in 2003.
Sigma had a very satisfactory year, as shown by its growth in sales in spite of facing significant challenges. The processed
meat line grew 6.6% in volume, increasing its market share to 47%. The dairy product line grew 16%, thanks to a very favorable performance of the yoghurt market, which enabled this product to grow and also gain market share. In addition, recent
acquisitions in El Salvador and the Dominican Republic, which strengthened Sigma’s presence in the region, contributed to the
sales increase. Also Sigma continued its successful development of new products and new presentations, which contributed
to its growing market presence.
The prices of some of the principal raw materials increased during the year. In addition, the depreciation of the peso vis-à-vis
the dollar increased the price of imported materials such as turkey. However, most of these increases could be passed on
as sales price increases. At the same time, competition has intensified as a result of the further reduction of international
trade barriers.
In Versax, Nemak increased its sales due to a 1% volume increase. This was achieved despite a 3% fall in light vehicle production in North America. This increase was possible due to the launching of new programs and the increased substitution of
aluminum for cast iron in the manufacture of engine heads and monoblocks.
Sigma
Versax
��
��
Alpek
��
North America
��
Cen. & South America
��
Far East
��
��
��
��
��
��
��
Europe
��
��
��
��
��
��
��
��
US $ MM
��
��
OVERSEAS SALES
Overseas sales comprise ALFA’s exports from Mexico and also sales made by its overseas subsidiaries. These have evolved over
the last three years as follows:
��
��
��
��
��
��
30
��
��
��
��
��
Each year’s growth is due to the following factors: in Alpek, to increases in the volume sold and in the sales prices of Alpek’s
U.S. subsidiaries’ products; in Sigma, to the acquisition of subsidiaries in Central America; in Versax, to increases in sales volume achieved by Nemak in its Canadian subsidiaries and, more recently, in the Czech Republic. Geographically, North America
is the preponderant region for ALFA’s overseas businesses; Central and South America the second in importance.
OPERATING PROFIT
ALFA’s operating profit in 2004, 2003 and 2002 is explained as follows:
2004-2003
Operating Profit
Sales
Operating profit
Operating margin
Consolidated (%)
Alpek (%)
Sigma (%)
Versax (%)
2004
2003
Chge.
Alpek
58,809
5,267
49,217
4,917
9,592
350
6,136
384
9.0
7.6
11.7
9.4
10.0
8.0
13.9
10.0
Change by Group
Sigma
Versax
1,956
(35)
1,574
79
Other
(74)
(78)
The amount of operating profit showed improvements in Alpek and Versax and a slight decrease in Sigma. In percentage
terms, there were reductions in all ALFA’s groups due to the fact that the increases in sales prices were not in proportion to
the increases in costs. Thus, the consolidated figure was also lower in 2004 than in 2003.
Alpek’s operating profit increased principally due to the increase in its income. In addition, it continued with its efforts to
reduce costs and improve the sales mix, which contributed to the increase in operating profit. Alpek was able to reduce the
negative impact of high energy prices, thanks to various programs for saving and making more efficient use of energy in
practically all its plants.
Sigma faced a significant challenge in 2004, since some of its principal raw materials, such as chicken and turkey meat and
dairy products, suffered from price increases and supply shortages. Thus, the company had to have recourse to alternative
sources of raw materials, although in some cases that meant higher costs. To deal with this, Sigma increased sales prices as far
as the market would permit. It also found ways to increase production efficiency, and also to save on expenses. This enabled
it to reduce the negative impact on costs and achieve an adequate level of operating profit, although slightly lower than in the
previous year.
Nemak was able to increase its operating profit in 2004, basically due to the increase in sales volume and to cost- and expensereduction campaigns in its manufacturing operations.
In addition to the continuous improvements in the manufacturing, marketing and distribution processes, ALFA has also sought
to create synergies in the administrative areas which enable it to reduce expenses. Thus, the shared services project was
reinforced during 2004. It also continued to improve the implementation of its common electronic purchasing system, with
significant benefits in the year.
At the same time, ALFA companies have carried out outstanding work in the field of technological research and development,
which has won them tax benefits and financial grants from the Mexican federal government. The amounts received by ALFA for
these concepts amounted to Ps60 in 2003 and Ps51 in 2004. This year’s amount was lower due to an increase in the number
of companies participating in the benefit programs, as well as to a different approach in the allocation of funds.
31
2003-2002
The consolidated operating profit in 2003 was very similar to that in 2002. Although Sigma and Versax achieved significant increases, Alpek reported a decrease. Following is a table summarizing these results, together with the relevant explanations:
Operating profit
2003
2002
Sales
Operating profit
Operating margin
Consolidated (%)
Alpek (%)
Sigma (%)
Versax (%)
49,217
4,917
41,854
4,927
10.0
8.0
13.9
10.0
11.8
11.3
14.1
9.8
Chge.
7,363
(10)
Alpek
4,999
(290)
Change by Group
Sigma
Versax
1,249
148
Other
1,168
137
(53)
(5)
Alpek’s operating profit decreased due mainly to the high cost of energy in North America, both electricity and natural gas.
The company reduced the negative impact of these cost factors by the use of price hedges and by an intense and sustained
effort to increase efficiency in its consumption of energy.
In the case of Sigma, the increase in its operating profit was due mainly to the increase in sales. Although the prices of some
of its principal raw materials increased during the year, and the depreciation of the peso vis-à-vis the dollar increased the
prices of imported materials, such as turkey, the company was able to pass on to the consumer a significant portion of these
increases, and also to increase as much as possible the efficiency and productivity of its plants.
In Versax, the increase in operating profit was due mainly to the fact that Nemak was able to achieve a small increase in sales
volume, while at the same time holding down its production costs and operating expenses.
COMPOSITION OF SALES AND OPERATING PROFIT
The percentage structure of ALFA’s sales and operating profit remained almost unchanged between 2004 and 2003, as the
following table shows:
% of Total
04
Alpek
Sigma
Versax
Consolidated
54
24
22
100
Sales
03
02
04
52
25
23
100
49
26
25
100
46
32
22
100
Operating Profit
03
02
42
35
23
100
48
32
20
100
COMPREHENSIVE FINANCING INCOME (EXPENSE) (CFI/E)
The macroeconomic environment, which was discussed briefly in the Economic Environment section at the beginning of this
Analysis, has been the principal factor affecting ALFA’s CIF/E during the last three years, as indicated below:
32
CFI/E Determinants
2004
2003
2002
General inflation (Dec.- Dec.)
% Change in nominal closing exchange rate
Nominal closing exchange rate
Real peso/dollar appreciation (depreciation)
over previous year:
Year end
Average for year
Average interest rate:
Nominal LIBOR
Implicit nominal rate on ALFA’s net debt
LIBOR in real terms
Implícit real rate on ALFA’s net debt
ALFA’s average monthly debt, net of cash, in US$
5.2
(0.3)
11.26
4.0
(9.0)
11.24
5.7
(12.8)
10.31
1.6
(2.7)
(6.8)
(9.4)
(9.3)
(0.1)
1.62
7.12
(3.1)
2.3
1,207
1.22
6.68
6.1
12.0
1,305
1.79
6.65
8.6
14.0
1,335
Expressed in dollars, the net financial expense per year for 2004, 2003 and 2002 were US$86, US$87 and US$89, respectively.
The causes of the changes between years were, in general, the following:
Changes in net financial expense in US$
04/03
From higher interest rate
From lower debt, net cash
Net change
03/02
(6)
7
1
2
2
Measured in pesos, the CFI/E was composed as follows:
Change
CFI/E
2004
2003
2002
Financial expense
Financial income
Net financial expense
Exanche gain (loss)
Gain on monetary position
Total CFI/E
CFI/E capitalized
Net CFI/E
(1,169)
172
(997)
75
603
(319)
1
(318)
(1,155)
144
(1,011)
(1,145)
413
(1,743)
109
(1,634)
(1,178)
215
(963)
(1,529)
542
(1,950)
127
(1,823)
04/03
03/02
(14)
28
14
1,220
190
1,424
(108)
1,316
23
(71)
(49)
384
(129)
207
(18)
189
The changes in total CFI/E between years were due to the following factors:
Change in total CFI/E
04/03
From lower interest rate
From lower (higher) debt, net of cash
Net change
1,399
25
1,424
03/02
282
(75)
207
EQUITY IN INCOME (LOSS) OF ASSOCIATED COMPANIES
The 2004 profit was Ps92, compared with a profit of Ps 219 in 2003. In 2004 ALFA’s indirect equity in Sidor, the Venezuelan
steel company, produced a profit of Ps175. Sidor achieved good operating results as a result of the improvement in the global
steel industry. However, ALFA had to recognize losses in Onexa and Teijin-Akra of (Ps19) and (Ps64), respectively.
INCOME TAX, ASSET TAX AND EMPLOYEES’ PROFIT SHARING
Following is an analysis of the principal determinants of the income tax, asset tax and employees’ profit sharing, starting from
the concept of income before income tax, defined as Operating profit less CFI/E and less Other expenses, net.
Change
04/03 03/02
Income tax, asset tax and employees’ profit sharing
2004
2003
2002
Income before income tax, asset tax and employees’ profit sharing (a)
Statutory tax rate
Income tax at statutory rate
3,943
33%
(1,301)
2,815
34%
(957)
3,532
35%
(1,236)
1,128
(717)
(344)
279
40
(27)
(28)
67
+/(-) Tax effect of permanent tax/accounting differences:
Tax vs. accounting basis of CFI/E
Effects of allowances for non-recoverable tax loss
carryforwards and asset tax credits
Other
Total tax effect of permanent differences
Total income tax provision charged to income before
effect of change in tax rate (b)
(673)
378
(255)
254
(152)
75
99
(65)
6
(927)
530
(330)
155
(87)
69
(1,556)
(882)
(1,230)
(674)
348
Effective tax rate (b/a)
39.4%
31.3%
Income tax, asset tax and employees’ profit sharing:
Currently payable
Deferred
Effect of reduction in tax rate
Total tax provision charged to income
Employees’ profit sharing
Total
(1,630)
74
681
(875)
(109)
(984)
(1,072)
190
(558)
(116)
681
7
(4)
3
(536)
883
(493)
(146)
(7)
(153)
(882)
(105)
(987)
1
34.8%
(536)
(693)
493
(736)
(98)
(834)
33
The tax charge to income decreased from Ps882 in 2003 to Ps875 in 2004. Before analyzing the principal reasons for this
change, the following situations should be taken into account: a) the statutory income tax rate was 34% in 2003 and 33% in
2004; b) up to 2004 the deferred tax was calculated at a 32% rate; c) in 2004 the rate for the purposes of calculating deferred
tax changed from 32% to 28%. Thus, the decrease of Ps7 mentioned above is the net effect of having a higher income before
income tax, asset tax and employees’ profit sharing in 2004 and the favorable effect recognized in 2004 of Ps681 from the
change in the tax rate used for calculating deferred taxes.
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX, ASSET TAX AND EMPLOYEES’ PROFIT SHARING
This item includes only the consolidated net income of Hylsamex, in accordance with the accounting treatment described in
the section Reconfiguration of the Business Portfolio.
Hylsamex obtained net income of Ps6,235 in 2004, compared to a net loss of Ps860 in 2003, due to a combination of various factors.
The global steel industry had an extraordinary year in 2004. The greater worldwide economic growth caused a strong demand
for steel. At the same time, the scarcity of steel and the resulting increase in international prices were accentuated by the
limited response of steel producers, due to the following factors: the consolidation of the industry, the definitive closings of
productive capacity, the scarcity of raw material, which affected principally producers using basic oxygen furnace, and insufficient new investment in recent years because of low profitability.
Hylsamex’s operating profit increased from Ps731 in 2003 to Ps7,395 in 2004. It experienced an unprecedented year, obtaining
a record operating cash flow of Ps8,821. Sales increased 59% as a result of an increase in the demand for steel in most of the
world, especially in China. As a result, Hylsamex increased its volume by 10% and its revenue per ton by 45%, both in pesos
and in dollars. Hylsamex’s shipments in 2004 set a new annual record, surpassing the volume reached in 2003: 3.2 million tons
vs. 2.9 in 2003. A more positive economic environment in Mexico had a favorable impact on domestic demand for both hotrolled and cold-rolled sheet – important flat products for Hylsamex which grew 15%. Exports represented 23% of total sales
volume, the highest percentage since 1996. Sales prices trended upwards, as mentioned above.
The increase in demand for steel also caused increases in the prices of some important raw materials for Hylsamex, such as
scrap iron, which reached record levels in the United States. In addition, Hylsamex’s effective prices for natural gas and electric power increased by 16% and 21%, respectively, during the year. In the case of natural gas, Hylsamex adopted an effective
hedging strategy which reduced the volatility in the cost of this input. On the other hand, the higher sales volume allowed a
better absorption of fixed production costs, with operating expenses remaining practically constant.
Hylsamex’s CFI/E decreased by Ps988, principally as a result of a large reduction in debt with respect to 2003. On the other
hand, income tax, asset tax, employees’ profit sharing and other items increased by a total of Ps557, due to the better results
in 2004. Other items include Hylsamex’s equity in the net income of Amazonia, an associated company and the parent of Sidor,
which amounted to Ps781. Like Hylsamex, Sidor had a very successful year.
NET INCOME
ALFA’s consolidated and majority net income for the years 2004, 2003 and 2002 are shown in the following table and are the
results of the circumstances already explained with respect to operating profit, CFI/E, equity in the net income of associated companies, taxes, net income from discontinued operations and other accounting charges related to the adoption of Statement C-15:
Income Statement
Operating profit
CFI/E (1)
Other expenses, net
Equity in net income of associated companies
Taxes (2)
Net income from continuing operations
Net income from discontinued operations
Initial effect of a change in accounting principle
Consolidated net income
Majority net income
(1) Comprehensive financial income (expense)
(2) Income tax (currently payable and deferred), asset tax and employees’ profit sharing.
34
2004
2003
2002
5,267
(318)
(1,006)
92
(984)
3,051
6,235
(1,274)
8,012
4,350
4,917
(1,634)
(468)
219
(987)
2,047
(860)
4,927
(1,823)
428
(624)
(834)
2,074
(982)
1,187
1,030
1,092
1,528
Change
04/03
03/02
350
1,316
(538)
(127)
3
1,004
7,095
(1,274)
6,825
3,320
(10)
189
(896)
843
(153)
(27)
122
95
(498)
COMPREHENSIVE INCOME
Comprehensive income (loss) is shown in the statement of changes in stockholders’ equity, and its purpose is to show the
total effect of all transactions and events which affected earned surplus, irrespective of whether they were recognized in the
statement of income or directly in stockholders’ equity. It excludes operations between the company and its shareholders,
principally dividends. Comprehensive income for 2004 and 2003 was as follows:
Consolidated
Comprehensive income
2004
Net income
(Loss) gain from holding non-monetary assets
Cumulative translation adjustment
Gain on options on own shares
Effect of dilution in subsidiaries, net
8,012
(296)
67
7,783
2003
1,187
1,195
380
1
2,763
Majority
2002
1,092
1,546
126
15
2,779
2004
4,350
(666)
56
(51)
3,689
2003
1,030
724
322
1
2002
1,528
1,336
114
15
2,077
2,993
The net income in 2004 and 2003 is explained in a previous section of this Analysis. The (loss) gain from holding non-monetary assets results principally from the difference between: a) the restatement of fixed assets of foreign origin by applying
the general inflation index of their country of origin and then converting to pesos at the year-end exchange rate, and b) their
restatement using the Mexican National Consumer Price Index. The loss incurred in 2004 was due to the appreciation of 1.6%
in real terms of the Mexican peso vis-à-vis the U. S. dollar, since the nominal depreciation of the peso was less than general
inflation in Mexico. This was the opposite of what occurred in 2003, when the peso depreciated 6.8%. The impact of this was
considerable, since a significant proportion of ALFA’s fixed assets are of foreign origin.
DIVIDENDS DECLARED AND GROWTH IN STOCKHOLDERS’ EQUITY
In 2004 ALFA’s Stockholders’ Meeting declared a dividend of Ps505, equivalent to 0.87 pesos per share, 23% more than in
2003. The dividend declared in 2003 was Ps412, or 0.71 pesos per share, 59% more than in 2002.
Consolidated stockholders’ equity increased by 30% in 2004, while majority stockholders’ equity decreased by 2%. In 2003
they increased by 7% and 6%, respectively. The foregoing is a result of the comprehensive income, the dividends declared and
the other operations affecting capital during 2004. Of the latter, the most significant were: the effect of the first stage of the
spin-off of Hylsamex, (Ps 3,613), the increase in the minority interest of Ps435 due to the issuance of limited voting stock by
Hylsamex (in which ALFA did not participate) and by Sigma, plus the payment of dividends to the minority interest and other
concepts, in the amount of Ps102.
CHANGES IN FINANCIAL POSITION
RESOURCES PROVIDED BY OPERATIONS
The resources provided by operations in 2004 were Ps5,167, considerably more than in 2003, when they amounted to Ps3,632.
Resources provided by operations
Operating cash flow (1)
Total net financial expense (2)
Changes in NWC (3), excluding debt financing
Other
Net cash profit after changes in NWC
Exchange gain (loss) and monetary gain
CFI/E capitalized
2004
2003
2002
7,441
(997)
(1,739)
335
(552)
4,488
678
1
5,167
6,994
(1,011)
(1,177)
(252)
(299)
4,255
(732)
109
3,632
6,736
(964)
(634)
709
(336)
5,511
(987)
128
4,652
(1) Defined as operating profit plus depreciation and amortization.
(2) Befote deducting portion capitalized in fixed assets.
(3) Net working capital.
35
The principal causes of this increase are the increases of Ps1,220, Ps587, and Ps448 in the exchange gain, NWC and operating
cash flow. The increase of Ps562 in the current income tax, asset tax and employees’ profit sharing in 2004 compared to 2003
is explained by ALFA’s companies’ obtaining a greater taxable income.
Days NWC
Alpek
Sigma
Versax
Consolidated
2004
2003
2002
38
23
41
34
43
21
53
39
50
22
48
42
In 2004 the NWC decreased by Ps335, while in 2003 it increased by Ps252. This decrease, together with the increase in sales
in 2004, enabled ALFA to reduce the number of days in NWC from 39 in 2003 to 34 in 2004.
INVESTMENTS, FINANCING AND OTHER
Starting from the resources provided by operations, the following table shows the principal transactions in the respective years:
Investments, financing and other
Property, plant and equipment
Divestment of (investment in) shares
Reduction in capital stock
Dividends declared by ALFA
Other assets
Other capital movements
Effect on ALFA of restructuring of subsidiaries’ debt
Net debt of companies divested
Change in interest payable
Decrease in net debt
Debt net of cash at end of year
2004
2003
2002
5,167
(2,569)
3,180
(3,613)
(505)
471
244
2,375
3,632
(2,097)
(554)
4,652
(2,011)
(2,987)
(412)
(282)
(404)
(117)
(22)
10
2,363
12,401
(31)
14
(134)
14,764
(261)
(214)
(220)
(1,041)
716
(23)
109
(239)
14,630
INVESTMENTS
The total new investments by Group were as follows:
2004
Alpek
Sigma
Versax
Others
Total
716
1,326
583
(56)
2,569
% Change
2003
04/03
490
867
754
(14)
2,097
46
53
(23)
(300)
23
Last 5 years
Investment
5,567
3,403
4,340
(319)
12,990
%
43
26
33
(2)
100
Some of the principal projects were: in Alpek, increases in efficiency in the use of electrical power in Tereftalatos Mexicanos,
and expansion of the second finishing line in expansible polystyrene in Polioles; in Sigma, the acquisition of subsidiaries,
purchase of trademarks, and expansion of warehousing centers in the distribution network, and transportation equipment; in
Nemak, expansion of aluminum engine head and monoblock production capacity, in both Mexico and Canada.
SHARES
The total decrease in the year amounted to Ps3,180, the most important item being the first stage of the spin-off of Hylsamex,
referred to above. Some investments in shares were also made by Sigma.
36
CHANGES IN DEBT NET OF CASH
Given that the preponderant currency of ALFA’s debt is the U. S. dollar, the changes in its debt net of cash are best explained
in that currency. When measured in pesos, the results are significantly affected by the by the valuation effects resulting from
the appreciation in real terms of the peso vis-à-vis the dollar, such as fluctuations in exchange rates and the monetary gain
arising from the reduction of the debt in real terms as a result of general inflation. The principal changes in the net debt of
ALFA and its Groups were the following:
Consolidated
Ps
US$
Changes in debt net of cash
Balance december 31, 2003
Net effect of appreciation/inflation
Long term financing,
Net of repayments:
Financing
Repayments
14,764
(951)
Short term financing, net of repayments
Total net financing
Effect of currency conversion
Change in debt, per statement
of changes in financial position
Debt of acquired companies
Total change in debt
(Increase) decrease in cash and restricted cash
Change in interest payable
(Decrease) increase in debt net of cash
Balance december 31, 2004
Alpek
Sigma
Versax
US$
Others
769
113
309
58
1,249
8,709
(8,735)
(26)
341
315
752
(750)
2
23
25
2
491
(559)
(68)
7
(61)
203
(51)
152
16
168
49
(63)
(14)
(14)
9
(77)
(68)
(68)
2
(636)
58
(578)
(1,775)
(10)
(2,363)
12,401
27
5
32
(179)
(1)
(148)
1,101
(61)
168
5
173
(118)
1
56
169
(14)
(66)
(14)
(13)
1
(26)
283
(66)
(35)
(2)
(103)
(45)
(61)
(13)
(1)
(75)
694
Alpek, Versax and ALFA (parent company) reduced their debt net of cash. Sigma increased it to finance part of its new investments.
ALFA’s groups extended the average maturity of their debt, except for Versax, whose maturities remained unchanged. The
schedule of debt maturities of ALFA and its groups changed during the year as follows:
Short and long term debt by group
Total debt (US$)
Percentage of total debt
Short term debt
Long term 1 year
2
3
4
5 years or more
Total
Average term of long term debt (years)
Average term of total debt (years)
Consolidate short and long term debt:
Short term debt
Long term 1 year
2
3
4
5 years or more
Total
Average term of long term debt (years)
Average term of total debt (years)
Alpek
2004
2003
Sigma
2004
2003
Versax
2004
2003
Others
2004
2003
842
903
378
204
444
458
59
126
16
17
11
7
16
33
100
2.9
2.7
11
15
20
31
13
10
100
2.5
2.3
10
2
2
6
42
38
100
3.7
3.4
8
4
24
4
10
50
100
3.3
3.1
3
5
9
18
47
18
100
3.1
3.1
2
7
16
17
19
39
100
3.1
3.1
1
1
1
86
11
100
3.9
3.9
32
40
20
1
7
100
2.2
2.2
US$
2004
2003 Change
185
172
141
162
558
505
1,723
3.2
2.9
122
219
355
396
229
370
1,691
2.7
2.6
63
(47)
(214)
(234)
329
135
32
% of total
2004
2003
11
10
8
9
32
30
100
7
13
21
23
14
22
100
37
FINANCIAL RATIOS
LIQUIDITY
The ratio of debt net of cash to cash flow decreased between 2003 and 2004, both consolidated and in the Groups, except
for Sigma, which increased its debt net of cash proportionately more than its EBITDA due to the use of resources for its new
investments, as the following table shows:
Debt net of cash/Cash flow (in pesos)
2004
2003
2002
Groups
Alpek
Sigma
Versax
Consolidated
2.16
0.89
1.92
1.67
2.78
0.64
2.41
2.11
2.73
0.68
2.55
2.17
The interest coverage improved both at the consolidated level and in the groups, except for Sigma.
Interest coverage *
Alpek
Sigma
Versax
Consolidated
Due to
Due to
Change
Cash
Financial
Change
Cash
Financial
2004
2003
2002
04/03
Flow
Expenses
03/02
Flow
Expenses
6.92
10.40
6.62
7.46
5.43
19.00
6.12
6.92
5.39
21.52
6.07
6.99
1.49
(8.60)
0.50
0.55
0.04
(2.52)
0.05
(0.08)
(0.23)
2.38
0.93
0.27
0.58
0.38
0.57
0.45
0.91
(8.98)
(0.07)
0.10
0.27
(4.90)
(0.88)
(0.35)
* Defined as operating profit plus depreciation and amortization, divided by net financial expense.
FINANCIAL STRUCTURE
ALFA’s financial structure indicators experienced significant changes, the most important being the ratio of Total liabilities/
Stockholders’ equity, which fell from 1.74 in 2003 to 1.25 in 2004. This was due to a decrease in liabilities in the majority of
ALFA’s groups, as well as to a 30% increase in consolidated capital due to the favorable results for the year and to the various
issues of capital stock.
Financial indicators
Total liabilities/Stockholders’ equity
Long term debt/Total debt(%)-continuing operations
Total foreign currency debt/Total debt(%)-continuing operations
38
2004
2003
2002
1.25
79
82
1.74
79
91
1.74
78
96
Report of
independent auditors
To the Stockholders of Alfa, S. A. de C. V.
Monterrey, N. L., January 24, 2005
1. We have audited the consolidated balance sheets of Alfa, S. A. de C. V. and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income, of changes in stockholders’ equity and of changes in financial position for the years
then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial statements include those of Sigma Alimentos, S. A. de C.
V. and subsidiaries; in 2004 its assets and revenues, which represent 12.7% and 24.1% of the total consolidated amounts, respectively, were examined by other independent accountants. Our opinion, as expressed in paragraph 5, insofar as it relates to the
amounts included for such entity, is based solely on the report of the other independent accountants.
2. We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they were prepared in accordance with generally accepted accounting principles. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
3. On January 1, 2004 the Company adopted the standards contained in Statement C-15 “impairment of long-lived assets and their
disposal” issued by the Mexican Institute of Public Accountants. As a result of the studies carried out to assess the recoverability
of the Company’s long-lived assets, the Company determined an initial impairment of Ps1,274 million at January 1, 2004, net of
income tax; such amount was charged to the statement of income for the year ended December 31, 2004 as an initial effect of a
change in accounting principles.
4. As described in Note 1 to the financial statements, on February 4, 2004 the Company’s stockholders approved a proposal by the
Board of Directors to carry out a significant corporate restructuring consisting of a two-stage divestiture of Hylsamex, S. A. de
C. V. from the Company’s portfolio of businesses. Consequently, the assets, liabilities and operations of the steel and steel-making
technology business segment are shown in the 2004 and 2003 financial statements under the caption “Discontinued operations”.
5. In our opinion, based on our audits and on the report of the other independent accountants referred to in paragraph 1 above, the
aforementioned financial statements present fairly, in all material respects, the financial position of Alfa, S. A. de C. V. and subsidiaries at December 31, 2004 and 2003, and the results of their operations, the changes in their stockholders’ equity and the changes in their financial position for the years then ended, in conformity with accounting principles generally accepted in Mexico.
6. Our audits were performed for the purpose of issuing an opinion on the basic financial statements mentioned in the preceding
paragraphs. The supplementary information shown on pages 58 and 59, which comprises the financial summary for 2004 to 2000,
was subjected to the auditing procedures applied in the audit of the corresponding basic financial statements and, in our opinion,
is fairly stated in all material respects in relation to the basic financial statements taken as a whole. This information is presented
for purposes of additional analysis and is not a part of such financial statements.
PricewaterhouseCoopers
Carlos Arreola Enríquez
39
Consolidated
balance sheet
AT DECEMBER 31, 2004 WITH COMPARATIVE FIGURES FOR 2003 || MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER
2004
2003
ASSETS
CURRENT ASSETS:
Cash and temporary investments
Ps
Ps
5,016
Trade accounts receivable
7,420
6,214
Other accounts and notes receivable
Inventories (Note 3)
Other assets
1,754
6,533
260
1,351
5,331
436
Total current assets from continuing operations
23,051
18,348
Current assets from discontinued operations (Note 14)
10,158
6,945
Total current assets
33,209
25,293
1,206
1,339
29,980
31,292
1,687
1,591
389
809
Total non-current assets from continuing operations
33,262
35,031
Non-current assets from discontinued operations (Note 14)
23,941
24,477
Total non-current assets
57,203
59,508
INVESTMENT IN SHARES OF ASSOCIATED COMPANIES (Notes 1 and 4)
PROPERTY, PLANT AND EQUIPMENT (Note 5)
DEFERRED CHARGES (Note 2.g)
OTHER ASSETS (Note 2.h)
Total assets
The accompanying sixteen notes are an integral part of these financial statements.
40
7,084
Ps
90,412
Ps
84,801
2004
2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
SHORT-TERM LIABILITIES:
Current portion of long-term debt (Note 7)
Bank loans and notes payable (Note 7)
Suppliers
Other accounts payable and accrued expenses
Ps
1,939
2,085
7,296
2,340
Ps
2,593
1,444
5,283
2,412
13,660
11,732
4,537
3,786
Total current liabilities
18,197
15,518
LONG-TERM LIABILITIES:
Long-term debt (Note 7)
Other liabilities (Note 2.k)
Deferred income tax (Note 13)
Estimated liabilities for seniority premiums and pension plans (Notes 2.j and 8)
15,384
36
4,875
798
15,950
Long-term liabilities from continuing operations
21,093
21,770
Long-term liabilities from discontinued operations (Note 14)
11,008
16,588
Total long-term debt
32,101
38,358
Total liabilities
50,298
53,876
STOCKHOLDERS’ EQUITY (Note 9):
Majority interest:
Nominal capital stock
Restatement of capital stock
Contributed capital
Earned surplus
Total majority interest
264
54
318
24,216
24,534
290
3,274
3,564
21,399
24,963
Minority interest
15,580
5,962
Total stockholders’ equity
40,114
30,925
Current liabilities from continuing operations
Current liabilities from discontinued operations (Note 14)
Ps
Total liabilities and stockholders’ equity
Ing. Dionisio Garza Medina
CHIEF EXECUTIVE OFFICER
Ing. Alfonso González Migoya
CHIEF FINANCIAL OFFICER
90,412
5,026
794
Ps
84,801
41
Consolidated statements
of income
FOR THE YEAR 2004 WITH COMPARATIVE FIGURES FOR 2003|| MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER
2004
Net sales
Ps
Ps
49,217
Cost of sales
(46,606)
(37,882)
Gross margin
12,203
11,335
Operating expenses
(6,936)
(6,418)
Operating income
5,267
4,917
Comprehensive financing expense, net (Note 10)
(318)
4,949
(526)
(480)
92
(1,634)
3,283
4,035
3,034
(875)
(109)
3,051
(882)
(105)
2,047
6,235
(1,274)
(860)
Special item (Note 11)
Other expense, net (Note 12)
Income from continuing operations, before the following provisions
Provisions for (Note 13):
Income tax and asset tax
Employees’ profit sharing
Income from continuing operations
Income (loss) from discontinued operations, net of income tax, asset tax
and employees’ profit sharing (Note 14)
Initial effect of a change in accounting principles (Note 5)
Ps
Minority interest in:
Continuing operations
Discontinued operations
Initial effect of a change in accounting principles
Net income corresponding to minority interest
Majority interest in:
Net income corresponding to majority interest
Earnings (loss) per share applicable to majority interest, in pesos (Note 2.p):
Earnings per share applicable to majority interest
42
58,809
2003
Ps
8,012
632
3,243
(213)
(468)
219
Ps
1,187
Ps
223
(66)
Ps
3,662
Ps
157
Ps
2,419
2,992
(1,061)
Ps
1,824
(794)
Ps
4,350
Ps
1,030
Ps
4.17
5.15
(1.83)
Ps
3.13
(1.36)
Ps
7.49
Ps
1.77
Consolidated statement of
changes in financial position
FOR THE YEAR 2004 WITH COMPARATIVE FIGURES FOR 2003 || MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER
2004
Operations
Net (income) loss from discontinued operations
Ps
Items not affecting resources:
Depreciation and amortization
Deferred income tax
Other, net
8,012
(6,235)
1,274
3,051
2003
Ps
1,187
860
2,047
2,174
(92)
(755)
454
4,832
2,077
(219)
(190)
169
3,884
Changes in working capital, other than financing:
Accounts receivable
Inventories
Suppliers
Other
(1,030)
(899)
1,930
334
5,167
(937)
(141)
346
480
3,632
Investment
Investment in shares
Other assets
Resources provided by (used in) investment activities
3,180
(2,569)
471
1,082
(554)
(2,097)
(282)
(2,933)
Resources provided before financing activities
6,249
699
4,129
8,709
12,838
2,589
6,422
9,011
(13,474)
(636)
(3,613)
293
435
(505)
(191)
(8,630)
381
Financing
Short-term loans
Long-term loans
Repayment of loans
(Decrease) increase in bank financing
Reduction in capital stock
Changes in restricted cash
Increase (decrease) in minority interest
Dividends declared by ALFA
Dividends of subsidiaries to minority interest
Purchase of own shares
Loss from options on own shares
Resources used in financing activities
Increase in cash and temporary investments
Cash and temporary investments of acquired companies
Cash and temporary investments at beginning of year
Cash and temporary investments at end of year from continuing operations
245
(38)
(412)
(85)
(149)
(132)
(190)
509
16
4,491
(4,217)
2,032
36
5,016
Ps
7,084
Ps
5,016
43
Consolidated statements of
changes in stockholders’ equity
FOR THE YEAR 2004 WITH COMPARATIVE FIGURES FOR 2003|| MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER
Contributed
capital
Capital
stock
Balances at December 31, 2002
Ps
3,612
Retained
earnings
Ps
Changes in 2003:
Gain from options on own shares
Net income
Gain from holding nonmonetary assets
1
1,030
1,031
Dividends declared by ALFA (0.71 peso cents per share)
Reclassification of accounts of subsidiaries
Shares held in treasury, net
Changes in minority interest
(412)
Balances at December 31, 2003
(48)
(656)
(95)
(48)
(1,163)
3,564
25,160
Changes in 2004:
Net income
Loss from holding nonmonetary assets
Effect of dilution in subsidiaries, net
4,350
(51)
4,299
Reduction in capital stock (Note 9)
Dividends declared by ALFA (0.87 peso cents per share)
Reclassification of accounts of subsidiaries
Changes in minority interest
(3,246)
(505)
(4,300)
(3,246)
Balances at December 31, 2004 (Note 9)
44
25,292
Ps
318
(4,805)
Ps
24,654
Earned surplus
Deficit on
restatement
of capital
Ps
(4,952)
Cumulative
translation
adjustment
Ps
(511)
322
724
724
322
Total
Ps
19,829
Total
majority
interest
Ps
23,441
Total
Minority stockholders’
interest
equity
Ps
5,373
Ps
28,814
1
1,030
322
724
1
1,030
322
724
157
58
471
1
1,187
380
1,195
2,077
2,077
686
2,763
(412)
(412)
(85)
(412)
(85)
(12)
(97)
(143)
(12)
(652)
656
(95)
656
(507)
(3,572)
(189)
56
(666)
(666)
56
(367)
21,399
(143)
(555)
24,963
5,962
30,925
4,350
56
(666)
(51)
4,350
56
(666)
(51)
3,662
11
370
51
8,012
67
(296)
3,689
3,689
4,094
7,783
(367)
(505)
(3,613)
(505)
(128)
(3,613)
(505)
(128)
4,300
3,933
Ps
(305)
(872)
Ps
(133)
Ps 24,216
(4,118)
Ps 24,534
5,652
5,524
5,652
1,406
Ps 15,580
Ps 40,114
45
Notes to the consolidated
financial statements
AT DECEMBER 31, 2004 WITH COMPARATIVE FIGURES FOR 2003 || MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER
(EXCEPT WHERE OTHERWISE INDICATED)
1. ACTIVITIES OF ALFA COMPANIES
Alfa, S. A. de C. V. (ALFA) is a holding company whose activities are carried out through subsidiary companies, of which it owns or controls, directly or indirectly, the majority of the common stock or which it controls through other means. Its activities are also carried
out through associated companies, in whose management it has a significant participation but which it does not control.
On November 25, 2003, the Board of Directors resolved to carry out a significant corporate restructuring involving the divestiture
of Hylsamex, S. A. de C. V. (Hylsamex). This resolution was confirmed at the extraordinary stockholders’ meeting held on February
4, 2004 (see Notes 9 and 14). Consequently, the assets, liabilities and operations of the steel and steel-making technology business
segment are included in the 2004 and 2003 financial statements under the caption “Discontinued Operations”.
Generally accepted accounting principles establish that in the event of the disposal of a significant operation, such as is the case of
Hylsamex, the financial information relating to that operation be included in the consolidated financial statements under the caption
“Discontinued Operations”. The financial statements and notes thereto basically describe continuing operations. The items included
in the consolidated financial statements as “Discontinued Operations” for the years presented refer to the financial information of
the steel and steel-making technology business segment. All the other items included in the consolidated financial statements, as
well as the information disclosed in the notes, except Note 14, exclusively refer to “Continuing Operations”, which are those that will
remain as ongoing operations of ALFA.
At December 31 the principal subsidiaries and associated companies were:
% ownership
at December 31, (a)
2004
2003
Petrochemicals and synthetic fibers
Alpek, S. A. de C. V. (Holding company)
Filamentos Elastoméricos de México, S. A. de C. V.
Grupo Centek, S. A. de C. V.
Nylon de México, S. A. de C. V.
Unimor, S. A. de C.V.
Grupo Petrotemex, S. A. de C. V.
Dak Americas, L.L.C. (b)
Petrocel, S. A.
Tereftalatos Mexicanos, S. A. de C. V.
Indelpro, S. A. de C. V.
Polioles, S. A. de C. V.
Polykrón, S. A. de C. V.
Teijin Akra, S. A. de C. V. (formerly Fibras Químicas, S. A. de C. V.) (c)
Refrigerated and frozen food
Sigma Alimentos, S. A. de C. V. (Holding company)
Alimentos Finos de Occidente, S. A. de C. V.
Sigma Alimentos Centro, S. A. de C. V.
Sigma Alimentos Lácteos, S. A. de C. V.
Sigma Alimentos Noreste, S. A. de C. V.
Grupo Chen, S. de R. L. de C. V.
Auto components and other businesses
Versax, S. A. de C. V. (Holding company)
Colombin Bel, S. A. de C. V.
Tenedora Nemak, S. A. de C. V. (Note 9)
Nemak, S. A.
Nemak Canadá, S. A. de C. V. (d)
Nemak Ontario, S. A. de C. V. (d)
Terza, S. A. de C. V.
46
100
51
51
100
51
51
100
25
100
100
100
100
100
100
85
51
100
100
100
91
51
51
100
25
100
100
100
100
100
65
100
100
100
100
51
51
100
100
100
100
91
100
100
100
100
100
80
51
100
100
100
% ownership
at December 31, (a)
2004
2003
Telecommunications
Onexa, S. A. de C. V. (Holding company) (c)
Alestra, S. de R. L. de C. V. (c)
Other companies
Alfa Corporativo, S. A. de C. V.
Dinámica, S. A. de C. V.
Discontinued operations (Note 14)
Steel and steel-making technology
Hylsamex, S. A. de C. V. (Holding company) (Note 9)
Galvak, S. A. de C. V.
Acerex, S. A. de C. V.
Hylsa, S. A. de C. V
Consorcio Minero Benito Juárez,
Peña Colorada, S. A. de C. V.
Hylsa Norte, S. A. de C. V.
Hylsa Puebla, S. A. de C. V.
Hylsa Latin, L.L.C.
Consorcio Siderurgia Amazonia, Ltd.
Siderúrgica del Orinoco, C. A. (Sidor)
51
51
51
100
100
43
51
100
100
100
100
100
12
90
51
51
100
100
60
100
100
100
37
51
51
100
100
60
(a) % ownership ALFA has in the holding companies of each business group and % ownership these holding companies have in their
subsidiaries.
(b) Subsidiary companies headquartered in North Carolina, U. S. A.
(c) Mexican associated companies (see Note 4).
(d) Companies jointly owning a 100% interest in Nemak of Canada Corporation, a subsidiary company located in Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements comprise those of ALFA and all its subsidiaries.
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in Mexico,
including the standard requiring comprehensive recognition of the effects of inflation on the financial information. Consequently, all
financial statements, including those of prior periods presented for comparative purposes, are stated in constant pesos of December
31, 2004 purchasing power.
The financial statements of the foreign subsidiaries and associated companies are conformed to accounting principles generally accepted in Mexico. The related cumulative translation adjustment is recorded directly in stockholders’ equity.
The preparation of the financial information in accordance with accounting principles generally accepted in Mexico requires management to make estimates and assumptions that affect the reported amounts at the date of the financial statements. Actual results
could differ from those estimates.
The most important indexes (National Consumer Price Index - NCPI) used to reflect the effects of inflation on the financial statements
were: 112.550, 106.996 and 102.904 at December 31, 2004, 2003 and 2002, respectively (second half of June 2002 = 100).
Following is a summary of the most significant accounting policies:
(a) Temporary investments
These investments are stated at market value. The differences in value between the investment date and the balance sheet date
are recorded in the statement of income under the caption comprehensive financing income (expense).
(b) Inventories and cost of sales (Note 3)
Inventories are stated at estimated replacement cost, basically at the latest purchase prices and production costs of the year. The
amounts shown for inventories do not exceed market value.
The cost of sales is shown based on the estimated replacement costs prevailing on the dates when the sales were effected.
(c) Investment in shares of associated companies (Note 4)
The investment in associated companies is accounted for by the equity method. In accordance with this method, changes in the
carrying amount of the shares derive from the changes occurring after the acquisition date in the stockholders’ equity accounts
of the investees.
(d) Absorption (dilution) of control in subsidiary and associated companies (Note 9)
The effect of absorption (dilution) of control in subsidiary and associated companies comprises an increase in the percentage of
control and is recorded in the stockholders’ equity, directly in the retained earnings account, in the period in which the transactions that cause such effects occur. The effect of absorption (dilution) of control is determined by comparing the book value of the
investment based on the equity before the absorption (dilution) of control against the book value, after the relevant event.
47
e. Property, plant, equipment and depreciation (Note 5)
Property, plant and equipment and the related accumulated depreciation are stated at cost restated by applying factors derived
from the NCPI to the historical cost, except for machinery and equipment of foreign origin, which are stated at cost restated by
applying factors derived from the general inflation index of the country of origin to the corresponding foreign currency amounts
and translating those amounts to pesos at the exchange rate prevailing at the closing date.
Depreciation is calculated by the straight-line method based on the estimated useful lives of the assets as determined by the
companies.
The net comprehensive financing expense (or income) incurred to finance construction in progress is capitalized as part of the
cost of these assets until they become operational on a normal basis.
f.
Impairment of long-lived assets and their disposal (Note 5)
On January 1, 2004 the Company adopted the standards contained in Statement C-15 “Impairment of Long-Lived Assets and Their
Disposal” issued by the Mexican Institute of Public Accountants. This Statement contains general standards covering the identification, determination and, where appropriate, recording of losses due to impairment or reduction in value of long-lived assets,
tangible or intangible, including goodwill.
g. Deferred charges
This caption is stated at cost restated by applying factors derived from the NCPI to the historical cost. It comprises principally the
excess of cost over book value of shares of subsidiaries and associated companies, expenses for placement of debt, costs of development and implementation of integral computer systems and preoperating expenses, all of which are subject to amortization.
h. Other assets
This caption mainly comprises an intangible asset related to the pension plan.
i
Transactions in foreign currency and exchange differences (Note 6)
Monetary assets and liabilities in foreign currencies, mainly U.S. dollars, are stated in Mexican currency at the rates of exchange
in effect at the balance-sheet date. Exchange differences arising from changes in exchange rates between the transaction and
settlement dates or the balance-sheet date are charged or credited to income.
j.
Estimated liabilities for seniority premiums and pension plans (Note 8)
The cost of the employee retirement plans (pension, health-care expenses and seniority premiums), both formal and informal, is
recognized as an expense of the years in which the services are rendered in accordance with actuarial studies made by independent actuaries.
Other compensation based on length of service to which employees may be entitled in the event of dismissal or death, in accordance with the Mexican Labor Law, is charged to income in the year in which it becomes payable.
k. Derivative financial instruments
Assets and liabilities arising from derivative financial instruments are stated at fair value and are included in the balance sheet as
other assets or liabilities. The differences between the fair value and the acquisition cost (including purchase expenses and premiums or discounts), as well as gains and losses incurred, are recorded directly in income, except for those arising from financial
transactions on ALFA’s own shares, which are recorded directly in stockholders’ equity net of income tax.
l.
Shares held in treasury
The maximum limit for the acquisition of ALFA’s own shares is determined based on stockholders’ resolutions. Shares acquired
are held in treasury and their acquisition cost is charged to stockholders’ equity, as follows: a portion is charged to capital stock at
restated theoretical value and the difference to retained earnings. These amounts are stated at cost restated by applying factors
derived from the NCPI to the historical cost.
m. Revenue recognition
The companies recognize revenues when merchandise is delivered and billed to customers. The revenues and the accounts receivable are recorded net of allowances for returns and doubtful accounts, respectively.
n. Comprehensive financing income (expense) (Note 10)
This item is determined by grouping in the statement of income all interest and other financial income and expense, exchange
gains and losses, and the gain or loss on monetary position.
The gain or loss on monetary position represents the effect of inflation, as measured by the NCPI, on the Company’s monthly net
monetary assets or liabilities during the year.
o. Income tax, asset tax and employees’ profit sharing (Note 13)
Income tax and employees’ profit sharing are recorded by the accounting method requiring recognition of deferred tax assets
and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of all
assets and liabilities and their respective tax bases.
ALFA and its subsidiaries file consolidated income tax and asset tax returns in accordance with the applicable regulations.
p. Earnings per share
Earnings per share are computed on the basis of the weighted average number of common shares outstanding during the year.
There are no effects arising from potentially dilutive shares.
q. Comprehensive income
The transactions recorded in the various captions relating to earned surplus for the year, other than those carried out among
stockholders, are included in the statement of changes in stockholders’ equity under the caption comprehensive income (loss).
48
3. INVENTORIES
Consolidated inventories were analyzed as follows:
2004
2003
Finished goods
Raw materials and work in process
Other
Ps
2,579
2,824
1,130
Ps
2,068
2,122
1,141
Estimated replacement cost
Ps
6,533
Ps
5,331
4. INVESTMENT IN SHARES OF ASSOCIATED COMPANIES
This investment comprised the following:
2004
Onexa /Alestra
Teijin Akra
Other
Ps
674
208
532
1,414
(208)
Less - Impairment in value of investment
Ps
1,206
2003
Ps
701
284
354
1,339
Ps
1,339
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following:
2004
Land
Depreciable assets
Construction in progress and other assets
Accumulated depreciation
Less - Impairment in value of assets
Net restated cost
Ps
2,011
49,169
2,301
53,481
(22,095)
31,386
(1,406)
Ps 29,980
2003
Ps
1,959
47,354
2,227
51,540
(20,248)
31,292
Ps
31,292
In accordance with the provisions of Statement C-15, as a result of studies carried out to assess the recoverability of the Company’s
long-lived assets, at January 1, 2004 the Company determined an initial impairment in the net book value of such assets of Ps1,406,
mainly in the petrochemicals and synthetic fibers business segment, and Ps208 in the book value of its investment in associated
companies (see Note 4 above), net of income tax of Ps340 (see Note 13); the net amount of Ps1,274 was charged to the statement of
income for the year ended December 31, 2004 as an initial effect of a change in accounting principles. In making such determination,
the Company evaluated the performance of its various business segments, products and related product lines. The study made by the
Company at December 31, 2004 did not reflect any additional impairment or any recovery of the impairment initially recorded.
Depreciation charged to income represented annual average rates of 4.3% in 2004 and 3.9% in 2003.
6. FOREIGN CURRENCY POSITION
At December 31, 2004 and 2003, the exchange rates were 11.26 and 11.23 nominal pesos to the U.S. dollar, respectively. At January
24, 2005, date of issuance of these audited financial statements, the exchange rate was 11.25 nominal pesos to the dollar.
Amounts shown below are expressed in millions of U.S. dollars (US$), since this is the currency in which most of the companies’ foreign currency transactions are carried out.
49
At December 31, 2004 the companies had the following foreign currency assets and liabilities:
Mexican
subsidiaries
Foreign
subsidiaries
Total
Monetary assets
Current liabilities
Long-term liabilities
US$
741
(657)
(874)
US$
246
(216)
(197)
Foreign currency monetary position
US$
(790)
US$
(167)
US$ (957)
Nonmonetary assets
US$
US$
478
US$ 2,189
1,711
US$
987
(873)
(1,071)
The nonmonetary assets of the Mexican subsidiaries (inventories, machinery and equipment) mentioned above are those manufactured outside Mexico and are stated at their net restated cost.
Following is a consolidated summary of the transactions in foreign currency carried out by the Mexican subsidiaries:
2004
Goods and services:
Exports
Imports
US$
938
(1,359)
(421)
Interest:
Income
Expense
2003
US$
26
(81)
(55)
879
(1,048)
(169)
27
(97)
(70)
Net outflow
US$
(476)
US$
(239)
Imports of machinery and equipment
US$
(47)
US$
(34)
7. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
At December 31 the consolidated bank loans and current notes payable caption comprised the following:
2004
Bank loans
Notes payable
2003
Ps
1,990
95
Ps
1,178
266
Ps
2,085
Ps
1,444
At December 31 the long-term debt of ALFA and its subsidiaries comprised the following:
2004
Loans in U.S. dollars:
Bank loans secured by accounts receivable
and by the assets acquired
Bank loans secured by export sales (a)
Unsecured bank loans (b)
Other
Loans in Mexican currency:
Unsecured bank loans
Unsecured - Debt certificates
Ps
(*) Nominal weighted average rates effective at December 31, 2004.
50
Ps
2,570
1,000
17,323
(1,939)
Current maturities
Long-term debt
4,273
1,000
7,836
644
Ps
15,384
Ps
2003
Interest
rate (*)
2004
2,853
3,323
8,414
2,075
3.24%
10.75%
5.97%
3.76%
826
1,052
18,543
(2,593)
6.02%
7.54%
15,950
At December 31, 2004 long-term debt maturities were as follows:
2006
2007
2008
2009 onwards
Ps
1,584
1,821
6,285
5,694
Ps
15,384
(a) There are deposits made in cash (restricted cash) to guarantee future related interest. At December 31, 2004 and 2003, these
deposits amounted to US$2.5 million and US$27.2 million, respectively, equivalent to Ps28 and Ps306, respectively. They are included in the balance sheet under the caption ”Other assets”.
(b) These loans include cross currency swap agreements entered into by a subsidiary with financial intermediaries for a total amount
of Ps1,000 (notional amount). These agreements stipulate, among other things, the obligation for the subsidiary to make semiannual payments which are determined by applying variables rates to the notional amount.
The current bank loan agreements contain the usual covenants, covering the maintenance of certain financial ratios, payment of dividends, submission of financial information, etc. In the event noncompliance with such ratios is not cured in a time period satisfactory
to the banks, the latter may require immediate payment of the entire indebtedness. At December 31, 2004, the companies were in
compliance with such covenants and restrictions.
At December 31, 2004 accounts receivable of Ps291, property, plant and equipment of Ps702 and shares of subsidiaries with a book
value of Ps611, were pledged to guarantee liabilities totaling Ps4,273.
8. ESTIMATED LIABILITIES FOR SENIORITY PREMIUMS AND PENSION PLANS
The valuation of the liabilities for employee retirement plans both formal (covering approximately 36% of the companies’ employees
in 2004 and 39% in 2003) and informal, covers all employees and is based primarily on their years of service, their present age and
their remuneration at date of retirement.
During 2004 certain subsidiaries of ALFA modified some of their most important retirement programs to convert them into defined
contribution schemes. In accordance with the structure of these new plans, the reduction in labor liabilities associated with this modification will be reflected progressively over the next years.
The principal subsidiaries of ALFA have established irrevocable trust funds for payment of pensions and seniority premiums and
health-care expenses. Contributions amounted to Ps31 in 2004 (Ps21 in 2003).
Following is a summary of the principal consolidated financial data relative to these obligations:
2004
2003
Accumulated benefit obligation
Ps
1,920
Ps
1,757
Unfunded accumulated benefit obligation
Ps
622
Ps
657
Projected benefit obligation
Plan assets at market value
Unamortized prior service costs (transition liability)
Unamortized actuarial gains and losses, net
Unfunded accrued seniority premiums and pension cost
Additional liability
Ps
2,462
(1,584)
(375)
83
586
212
Ps
2,480
(1,257)
(476)
(212)
535
259
Estimated liability for seniority premiums and pension plans
Ps
798
Ps
794
Net cost for the period
Defined contribution component
Ps
(151)
(12)
Ps
(186)
Net cost for the year
Ps
(163)
Ps
(186)
Prior service cost (transition liability), plan amendment costs and actuarial gains and losses are recorded through charges to income
by the straight-line method over the average remaining service life of the employees expected to receive the benefits, as follows:
Amortization period:
Transition liability
Unamortized actuarial gains and losses
Weighted real discount rate
Real estimated return at long-term on plan assets
2004
2003
12 years
19 years
5.0%
7.0%
12 years
19 years
5.0%
6.5%
51
9. STOCKHOLDERS’ EQUITY
At the extraordinary meeting held on February 4, 2004, the stockholders resolved to reduce the Company’s capital stock and stockholders’ equity through a reimbursement in kind, which involved making a pro rata distribution among its stockholders of 197,334,903
Ordinary Participation Certificates (CPOs) issued by Nacional Financiera, S.N.C. (NAFIN). These CPOs represents the same number
of shares of Hylsamex, equivalent to 38.97% of its capital stock (see Note 14). In order to effect this reimbursement, it was resolved
to reduce the nominal capital stock by Ps26, without affecting the number of outstanding shares, the restatement of capital stock by
Ps3,220 and the deficit on restatement of capital by Ps367, so as to reduce ALFA’s stockholders’ equity by an amount equal to 38.97%
of Hylsamex’s stockholders’ equity.
At the above-mentioned meeting, the stockholders also resolved to modify certain Company by-laws relating to the shares representing ALFA’s capital stock by classifying them, as follows: (a) Class “I” shares, representing the entire fixed minimum portion of the
capital stock without right of withdrawal, and (b) Class “II” shares, representing all the shares comprising the variable portion of the
capital stock, with right of withdrawal.
The capital stock will remain variable, with a fixed minimum of Ps274 without right of withdrawal. The subscribed and paid-in capital stock is represented by 600,000,000 Class “I” Series “A” nominative shares without par value. The variable portion with right
of withdrawal will be represented by Class “II” nominative shares without par value of any of the Series “A”, “L” and/or “C”; the two
latter Series may not at any time jointly exceed 25% of the total capital stock.
In July 2004, ALFA recognized its dilution in Hylsamex as a result of the issuance of 101.1 million Hylsamex shares representing common stock with limited voting rights placed by Hylsamex in the domestic and international markets in which subscription ALFA did
not participate. The dilution effect amounted to Ps250, which was charged to the stockholders´ equity. From that date onwards,
ALFA owns 43% of Hylsamex’s capital stock, maintaining control for consolidation purposes in accordance with generally accepted
accounting principles.
Simultaneously, in December 2004 ALFA recognized through its subsidiary Versax an absorption of control in Tenedora Nemak in the
amount of Ps199; the net effect of (Ps51) resulting from the dilution in Hylsamex and the absorption in Tenedora Nemak is shown in
the statement of changes in stockholders’ equity for the year ended December 31, 2004.
At December 31, 2004 the restated amounts of stockholders’ equity were as follows:
Nominal
amount
Contributed capital:
Capital stock
Earned surplus:
Retained earnings
Deficit on restatement of capital
Ps
Total earned surplus
Total majority interest
Minority interest
Consolidated stockholders’ equity
Ps
264
Restatement
Ps
54
Restated
amount
Ps
318
16,049
8,605
(305)
(133)
24,654
(305)
(133)
16,049
16,313
12,333
8,167
8,221
3,247
24,216
24,534
15,580
28,646
Ps 11,468
Ps 40,114
At December 31, 2004 the capital stock was variable, with a fixed minimum of Ps264 without right of withdrawal. The subscribed and
paid-in capital stock was represented by Class “I” Series “A” nominative shares without par value. Ownership of Series “A” shares is
restricted to Mexicans.
At December 31, 2004, ALFA had 19,450,800 shares held in treasury; each such share had a market value of 57.00 pesos.
Dividends paid from retained earnings which have not previously been taxed are subject to an income tax payable by the Company,
which may be credited against the income tax payable by the Company in the year in which the dividends are paid and in the two
following years.
The (deficit) surplus on restatement of capital comprises principally the (loss) gain from holding nonmonetary assets and represents
the difference between restating these assets by the specific cost method and restating them based on inflation measured in terms
of the NCPI.
52
10. COMPREHENSIVE FINANCING EXPENSE, NET
2004
Financial expense
Financial income
Exchange gain (loss), net
Gain on monetary position
Ps
Portion capitalized in property, plant and equipment
(1,169)
172
75
603
(319)
2003
Ps
1
Ps
(318)
(1,155)
144
(1,145)
413
(1,743)
109
Ps
(1,634)
11. SPECIAL ITEM
At December 31, 2004 there existed restricted funds of US$46.4 million, equivalent to Ps526, deposited to cover the financial obligations of associated companies, which were fully reserved at that date; this reserve is included in the statement of income for the year
ended December 31, 2004, under the caption “Special item”.
12. OTHER EXPENSE, NET
At December 31 this caption comprised the following:
2004
Severance compensation
Write-off of assets of operations closed down
Other expenses, net
(
2003
Ps
(79)
(347)
(54)
Ps
(105)
(155)
(208)
Ps
(480)
Ps
(468)
13. INCOME TAX, ASSET TAX AND EMPLOYEES’ PROFIT SHARING
The net charge to consolidated income for income tax was as follows:
2004
2003
Currently payable
Deferred
Ps
(1,630)
755
Ps
(1,072)
190
Total income tax
Ps
(875)
Ps
(882)
The reconciliation between the statutory and effective income tax rates is shown below:
2004
Income before income tax and employees’ profit sharing
Ps
Ps
Income tax at statutory rate (33% and 34%, respectively)
Add (deduct) effect of income tax on:
Permanent differences in comprehensive financing expense
(Recovery) cancellation of allowance for unrecoverable
tax loss carryforwards and asset tax credits
Other permanent differences, net
Total income tax provision charged to income, before
effect of reduction in statutory income tax rate
Effect on deferred income tax of reduction in statutory income tax rate (1)
Ps
Total income tax provision charged to income
Ps
Effective income tax rate
4,035
(92)
3,943
(1,301)
2003
Ps
3,034
(219)
Ps
2,815
Ps
(957)
40
(27)
(673)
378
254
(152)
(1,556)
681
(882)
(875)
39.4%
Ps
(882)
31.3%
53
At December 31 the principal temporary differences requiring recognition of deferred income tax were analyzed as follows:
2004
Inventories
Property, machinery and equipment, net
Asset valuation allowances
Estimated liabilities
Tax loss carryforwards
Ps
Income tax at statutory rate applicable to
temporary differences (1)
Deferred income tax
Recoverable asset tax
Deferred income tax asset
Deferred income tax liability, net
5,026
14,215
(845)
(644)
(116)
17,636
2003
Ps
28%
4,938
(223)
160
Ps
4,875
3,267
15,603
(383)
(235)
494
18,746
32%
5,999
(1,077)
104
Ps
5,026
(1) In accordance with the amendments to the Mexican Income Tax Law published on December 1, 2004, the corporate income tax
rate for the year 2005 will be reduced to 30%; this rate will be reduced by 1% annually until reaching a 28% rate in the year 2007.
This change resulted in a decrease of Ps681 in the amount of deferred income tax payable recorded at December 31, 2004. Such
amount was credited to 2004 income.
The deferred income tax recorded at December 31 was (charged) credited to the following accounts:
2004
Balance from prior year
Income for the year
Deficit on restatement of capital
Ps
Total
Ps
2003
(5,999)
755
340
(34)
Ps
(4,938)
Ps
(5,665)
190
(524)
(5,999)
Employees’ profit sharing is determined separately in each subsidiary at the rate of 10% on the taxable income adjusted as prescribed by the Income Tax Law.
14. DIVESTITURE OF HYLSAMEX
At a meeting held on February 4, 2004, the Company’s Stockholders approved carrying out a significant corporate restructuring
consisting of a two-stage divestiture of Hylsamex from the Company’s portfolio of businesses, by reducing ALFA’s capital stock and
stockholders’ equity and distributing among the Company’s stockholders all the shares it owns in Hylsamex, with the first reduction
of capital taking effect immediately and further resolving to instruct the Company’s Board of Directors to call the shareholders to an
additional extraordinary meeting during the first quarter of 2005 at which the proposal to implement the second reduction will be
presented for approval. Consequently, the assets, liabilities and operations of the steel and steel-making technology business segment are included in the 2004 and 2003 financial statements under the caption “Discontinued Operations”.
Taking into consideration that on February 2004 the Hylsamex shares owned by ALFA were pledged to guarantee loans payable by
the former in accordance with a “Caución Bursátil” agreement, the first capital reduction took place through the issuance of Ordinary
Participation Certificates (CPOs).
In July 2004, the “Caución Bursátil”over Hylsamex shares was extinguished, and the CPOs were canceled and exchanged for shares
free of lien.
54
A summary of the discontinued operations as of and for the years ended December 31, 2004 and 2003, is as follows:
2004
Balance sheet
Assets
Current assets:
Cash and temporary investments
Trade accounts receivable
Inventories
Other current assets
Total current assets
Investment in shares of associated companies
Deferred charges
Other non-current assets
Total non-current assets
Total assets
Liabilities and stockholders’ equity
Current portion of debt
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total long-term liabilities
Total liabilities
Stockholders’ equity
Statement of income
Net sales
Cost of sales
Operating expenses
Operating income
Comprehensive financing expense, net
Taxes and other
Consolidated net income (loss)
Minority interest
Majority net income (loss)
Statement of changes in financial position
Consolidated net income (loss)
Equity in income of associated companies
Deferred income tax
Others items not affecting resources
Changes in working capital
Investment in property, plant and equipment
Other investments
Financing, net
Changes in cash and temporary investments
Ps
2003
1,413
4,483
4,249
13
10,158
1,220
20,722
1,625
374
23,941
Ps
1,009
3,254
2,607
75
6,945
709
21,571
1,788
409
24,477
Ps 34,099
Ps
31,422
Ps
332
4,205
4,537
7,159
3,849
11,008
15,545
18,554
Ps
770
3,016
3,786
12,219
4,369
16,588
20,374
11,048
Ps 34,009
Ps
31,422
Ps
26,760
(17,942)
(1,423)
7,395
(641)
(519)
6,235
(51)
Ps
16,806
(14,815)
(1,260)
731
(1,629)
38
(860)
(18)
Ps
6,184
Ps
(878)
Ps
6,235
1,427
(781)
1,008
105
(2,735)
5,259
(539)
38
(4,352)
Ps
(860)
1,437
(315)
(73)
178
50
417
(611)
(92)
658
Ps
406
Ps
372
55
15. INFORMATION BY BUSINESS SEGMENT
The Company controls and evaluates its continuing operations through three units: Alpek (petrochemicals and synthetic fibers),
Sigma (refrigerated and frozen food) and Versax (auto components and other businesses). These operating units are managed independently because their products and the markets they serve are different. Their activities are carried out through various subsidiary companies.
The accounting policies followed by the operating units mentioned above are similar to those described in Note 2.
The information by business segment is as follows:
Alpek
2004
Income
Net sales from continuing operations
-Mexico
-United States
-Canada
-Other countries
Operating income
Income tax, asset tax and employee´s sharing
Net income (loss) from discontinued operations
Net income
Financial position
Current assets from continuing operations
Current assets from discontinued operations
Non-current assets from continuing operations
Non-current assets from discontinued operations
Ps
31,770
16,769
10,148
14
4,839
2,426
(139)
(33)
1,710
2003
Ps 25,634
13,327
9,600
(1,201)
509
Ps
11,220
Sigma
Ps
2004
Ps
14,146
12,861
278
2003
Ps
12,190
11,365
90
2,707
2,042
(914)
(466)
227
1,007
1,661
(82)
(463)
1,008
735
1,696
(150)
(566)
908
227
1,008
908
9,441
Ps
5,213
Ps
3,001
18,098
19,409
6,223
Total assets
Ps 29,318
Ps 28,850
Ps 11,436
Ps
8,006
Current liabilities from discontinued operations
Long-term liabilities from continuing operations
Long-term liabilities from discontinued operations
Ps
Ps
Ps
Ps
1,577
9,918
11,952
4,637
Total liabilities
Ps 19,564
Ps 19,290
Ps 6,787
Ps
4,396
Ps
Ps
Ps
Ps
908
Changes in financial position
Net (income) loss from discontinued operations
Equity in income of associated companies
Deferred income tax
Other ítems not affecting resources
Changes in working capital
Other investments
Financing, net
9,646
509
1,201
1,189
65
(549)
(55)
430
2,790
(716)
(429)
(1,577)
Changes in cash and temporary investments
Ps
Other data
Exports and foreign sales of subsidiaries (Millions of US dollars)
Personnel
US$
68
1,293
4,502
7,338
227
1,226
167
66
(3)
(538)
1,145
(490)
13
(808)
Ps
(140)
US$ 1,060
4,615
2,150
1,008
5,005
2,819
473
396
56
3
(311)
1,229
(1,326)
(417)
1,808
4
39
(1)
1,346
(867)
(97)
14
Ps 1,294
Ps
US$
US$
111
19,463
396
71
15,890
16. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2005 the standards contained in Statement B-7 “Business acquisitions”, Statement C-2 “Financial instruments”, Statement C-10 “Derivative financial instruments and hedge transactions” and Statement D-3 “Labor liabilities” issued by the Mexican
Institute of Public Accountants became effective.
At the date of issuance of the these financial statements management was carrying out a study to determine the effect of these new
statements on the financial statements from January 1, 2005, and the corresponding effects, if any, will be recognized in 2005.
56
Versax
2004
Ps
12,599
3,210
5,433
3,544
412
1,179
(26)
(233)
672
Subtotal
2003
Ps 11,025
2,531
6,031
2,208
255
1,100
(396)
(264)
342
672
Ps
5,268
2004
Ps
5,010
58,515
32,840
15,859
3,558
6,258
5,266
(247)
(729)
3,390
2003
Ps 48,849
27,223
15,721
2,208
3,697
4,838
(1,460)
(1,296)
1,477
(1,201)
2,189
342
Ps
Other companies,
discontinued operations
and eliminations
Ps
2004
Ps
Ps 17,452
2003
Ps
1
(71)
(255)
(339)
6,235
(73)
5,823
1,477
21,701
294
294
Ps
1,350
10,158
1,503
23,941
Consolidated
368
368
2003
Ps 58,809
33,134
15,859
3,558
6,258
5,267
(318)
(984)
3,051
6,235
(1,274)
8,012
Ps 49,217
27,591
15,721
2,208
3,697
4,917
(1,634)
(987)
2,047
(860)
Ps
23,051
10,158
33,262
23,941
Ps 18,348
6,945
35,031
24,477
Ps 90,412
Ps 84,801
553
3,786
1,284
16,588
Ps 13,660
4,537
21,093
11,008
Ps 11,732
3,786
21,770
16,588
79
(174)
309
570
(860)
(290)
Ps
2004
896
6,945
3,013
24,477
1,187
7,438
7,604
31,759
32,018
Ps 12,706
Ps 12,614
Ps 53,460
Ps 49,470
Ps 36,952
Ps 35,331
Ps
Ps
Ps
14,020
Ps 11,179
Ps
Ps
5,715
19,899
20,486
Ps 33,919
Ps 31,665
Ps 16,379
Ps 22,211
Ps 50,298
Ps 53,876
Ps
Ps 1,477
Ps
5,823
(6,235)
73
32
(157)
(238)
263
434
(5)
56
4,474
(4,206)
Ps
Ps
Ps
319
Ps
2,224
2,264
5,344
Ps 7,568
Ps
7,979
Ps
Ps
342
672
480
419
(24)
243
(218)
1,153
(583)
23
(242)
18
40
(138)
681
(753)
(50)
809
Ps
351
US$
809
7,629
Ps
US$
687
732
7,419
2,189
1,201
2,142
65
(517)
191
(99)
5,172
(2,625)
(823)
(11)
2,041
167
88
76
(677)
3,172
(2,110)
(134)
15
Ps 1,713
Ps
US$
US$ 1,863
27,924
2,213
31,594
943
Ps
(360)
4,537
1,194
11,008
10,475
(290)
860
36
(386)
(278)
93
425
460
13
(702)
(205)
(434)
9,971
8,012
(6,235)
1,274
2,174
(92)
(755)
454
335
5,167
(2,569)
3,651
(4,217)
1,187
860
2,077
(219)
(190)
169
(252)
3,632
(2,097)
(836)
(190)
Ps 2,032
Ps
US$
US$ 1,863
37,895
2,213
42,069
509
57
Financial
summary
FOR THE YEARS 2004 TO 2000 || MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER|| (EXCEPT PER SHARE DATA)
2004
2003
2002
2001
2000
58,809
Ps 49,217
Ps 41,854
Ps 38,529
Ps 37,879
5,267
4,917
4,927
3,966
4,818
Special item and other (expense) income, net
Equity in income (loss) of associated companies
(318)
(1,006)
92
(984)
3,051
(1,634)
(468)
219
(987)
2,047
(1,823)
428
(624)
(834)
2,074
(80)
(644)
(358)
124
3,008
(690)
(255)
(209)
(1,229)
2,435
Income (loss) from discontinued operations,
net of income tax, asset tax and employees’
profit sharing
6,235
(1,274)
(860)
(982)
(2,935)
INCOME
Net sales
Ps
Operating income
Ps
8,012
Ps
1,187
Ps
1,092
Ps
73
Ps
2,636
Net income (loss) corresponding to minority interest Ps
3,662
Ps
157
Ps
(436)
Ps
(339)
Ps
571
Ps
4,350
Ps
1,030
Ps
1,528
Ps
412
Ps
2,065
Ps
23,051
10,158
33,262
23,941
Ps 18,348
6,945
35,031
24,477
Ps 16,618
6,557
32,304
24,729
Ps
17,670
5,283
30,620
25,211
Ps 17,692
7,002
35,181
28,706
Total assets
Ps 90,412
Ps 84,801
Ps 80,208
Ps 78,784
Ps 88,581
Total liabilities
Ps
13,660
4,537
21,093
11,008
50,298
Ps 11,732
3,786
21,770
16,588
53,876
Ps 10,733
3,035
21,132
16,493
51,393
Ps
10,373
7,659
21,237
13,258
52,527
Ps 10,370
5,740
25,880
16,545
58,535
40,114
30,925
28,815
26,257
30,046
Ps 90,412
Ps 84,801
Ps 80,208
Ps 78,784
Ps 88,581
Majority interest
Ps 24,534
Ps 24,963
Ps 23,442
Ps 20,709
Ps 21,905
of the year
Ps
Ps
Ps
Ps
Ps
FINANCIAL POSITION
Current assets from continuing operations
Consolidated stockholders’ equity
Depreciation and amortization of the year
58
201
2,569
2,174
2,097
2,077
2,011
1,809
3,244
1,667
3,069
1,710
2004
2003
2002
2001
2000
PER SHARE DATA
Mexican Pesos
of December 31, 2004 Purchasing Power
Ps
4.17
Ps
5.15
(1.83)
Net income (loss) from discontinued operations
3.13
Ps
(1.36)
3.79
Ps
(1.19)
4.73
Ps
(4.04)
3.20
0.26
Net income
Ps
7.49
Ps
1.77
Ps
2.60
Ps
0.69
Ps
3.46
Stockholders’ equity
Ps
42.26
Ps 43.00
Ps
39.84
Ps
35.20
Ps
36.56
0.87
0.71
0.44
0.63
1.29
57.00
35.45
18.30
11.82
15.55
Price at year end / net income
7.61
20.06
7.04
17.03
4.49
Price at year end / stockholders’ equity
1.35
0.82
0.46
0.34
0.43
Dividends
Price at year end (a)
Number of outstanding shares (b)
580,549,200
580,549,200
588,379,200
588,379,200
599,219,000
Weighted average number of outstanding shares (c)
580,549,200
583,066,844
588,379,200
592,547,302
596,193,110
OTHER INDICATORS
Current ratio
1.82
1.63
1.65
1.29
1.53
Total liabilities to total assets
0.56
0.64
0.63
0.66
0.66
Total liabilities to stockholders’ equity
1.25
1.74
1.74
1.94
1.92
Consolidated net income to average total assets (%)
9.15
1.44
1.40
0.09
2.98
22.56
3.97
3.97
0.26
7.55
Interest-bearing debt, net of cash to cash flow
from continuing operations (d)
1.67
2.11
2.17
2.62
2.73
Interest coverage from continuing operations (e)
7.46
6.92
6.99
4.16
3.68
Consolidated net income to average
stockholders’ equity (%)
(a)
(b)
(c)
(d)
(e)
Market value on the basis of quotations in the Bolsa Mexicana de Valores, S. A. de C. V.
Equals number of outstanding shares at December 31 of each year.
Weighted average number of outstanding shares during the year.
Cash flow comprises: operating income plus depreciation and amortization.
Cash flow / Financial expense, net.
59
Significant quarterly
information
MILLIONS OF MEXICAN PESOS OF DECEMBER 31, 2004 PURCHASING POWER || (EXCEPT PER SHARE DATA WHICH ARE IN PESOS)
Quarters 2004
2nd.
3rd.
1st.
Net sales
14,165
Ps 14,923
Ps 16,317
1,200
1,337
1,366
1,364
700
450
851
1,050
Income from discontinued operations
728
1,459
1,393
2,655
360
1,909
2,037
3,706
214
1,107
1,123
1,906
Income per share from continuing operations
0.99
0.64
1.22
1.32
Income per share from discontinued operations
0.85
1.27
1.08
1.95
Loss per share from initial effect of a change in
accounting principles
(1.47)
Income per share (1)
0.37
1.91
1.94
3.27
Price per share:
Highest
Lowest
At closing
43.88
32.66
43.88
46.19
35.60
40.17
43.83
36.52
43.83
57.80
41.04
57.00
Book value per share (2)
35.81
37.00
38.90
42.26
Operating income
60
Ps
13,404
Ps
4th.
(0.36)
Quarters 2003
2nd.
3rd.
1st.
Net sales
11,639
Ps 12,388
Ps 12,704
1,274
1,263
1,295
1,085
361
610
412
664
(410)
495
(278)
(667)
Consolidated net (loss) income
(49)
1,106
133
(3)
Net (loss) income corresponding to majority interest
(40)
958
95
17
Operating income
Ps
12,486
(Loss) income from discontinued operations
Ps
4th.
Income per share from continuing operations
0.56
0.86
0.62
1.09
(Loss) income per share from discontinued operations
(0.62)
0.77
(0.45)
(1.06)
(Loss) income per share (1)
(0.06)
1.63
0.17
0.03
Price per share:
Highest
Lowest
At closing
18.67
16.03
16.67
23.98
16.59
22.63
30.04
21.92
28.41
36.72
27.96
35.45
Book value per share (2)
39.52
40.93
42.18
43.00
NOTE
The quarterly information contained in this page was not audited in conformity with generally accepted standards. However, it was
subjected to limited review procedures by the external auditors.
(1) Based on the weighted average number of outstanding shares during each quarter of the year.
(2) Based on the number of outstanding shares at the end of each quarter.
61
Glossary
Bonding: A process that uses heat to adhere polyurethane foam
to cloth. Mainly used to upholster automobile seats.
Caprolactam: Raw material derived from cyclohexane, an oil
byproduct, used to manufacture nylon.
Data transmission: The sending of data to other locations using
digital or analog media that operates on a platform such as Frame
Relay.
DMT (Dimethyl Terephtalate): Raw material used to manufacture polyester.
Nylon: Plastic resin used in the production of textile fiber and
other engineering applications.
PET (Polyethylene Terephtalate): Plastic resin mostly used to
manufacture containers.
Polyester: Plastic resin used to manufacture textile fibers,
films, and containers.
Polypropylene: Propylene byproduct used to make plastics and
fibers, among other products.
Expandable polystyrene: Thermoplastic used for insulation
and packaging.
Propylene: Oil byproduct used to manufacture plastics.
Galvanizing: Corrosion protection applied to steel in the form
of a zinc coating.
PTA: Purified Terephthalic Acid, raw material used to manufacture polyester. In certain applications, DMT and PTA are interchangeable.
Glycol: Petrochemical used to manufacture polyester and in
other industrial applications.
Hot and cold rolled steel: Steel that has been put through a
hot and/or cold rolling process to reduce thickness and improve
surface quality.
Independent Board Member: A board member selected by his
experience, capability and reputation, who is not involved with
the day-to-day management of the company.
Independent Proprietary Board Member: A board member
that owns company shares but is not involved with the day-today management of the company.
62
Lycra®: Brand of elastane fiber patented by DuPont.
Related Proprietary Board Member: A board member that
owns company shares and is involved with the day-to-day management of the company.
Urethane: Chemical compound derived from oil used to manufacture plastic foam.
Virtual Private Network: Remote connection that integrates
customer’s business locations into a single corporate network.
VOIP (Voice Over Internet Protocol): Transmission of voice
over the Internet instead of regular phone lines.
Share information
Outstanding shares (“A” series):
600 million
Mexican Stock Exchange
Symbol: ALFAA
Date listed: August 1978
ALFA, S.A. de C.V.
Ave. Gómez Morín 1111 sur
Col. Carrizalejo
San Pedro, Garza García,
N.L., México
C.P. 66254
www.alfa.com.mx
|| Volume
Independent Auditors:
PricewaterhouseCoopers
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Latibex (Madrid Stock Exchange)
Symbol: ALFA C/I-S/A
Date listed: December 2003
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(in million shares)
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Investor Relations
Enrique Flores Rodríguez
Corporate Communications
Vice President
Tel.: 52 (81) 8748-1207
Fax: 52 (81) 8748-2551
efl[email protected]
Raúl González Casas
Investor Relations Manager
Tel.: 52 (81) 8748-1177
Fax.: 52 (81) 8748-2544
[email protected]
|| Price at the end of the period
DESIGN: SIGNI
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(nominal pesos)
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Apartado Postal 111
Garza García, N.L.
Mexico C.P. 66250
www.alfa.com.mx

Focus Leadership Strength

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