E Global Earnings Update

Latin Report

*Cemex reported a nifty rise in Q1 profits thanks to lower financial costs. CX net came in at $336 mn, nearly 10x prior year level of $35 mn! Sales were up 1% to $3.1 bn but up 6% in constant currency. Cement sales were flat but aggregates, a much larger business and ready-mix both saw sales up 4%, boosted by higher prices in Mexico, Latin America, and Europe.

EBITDA cash flow (earnings before interest, taxes, depreciation, and amortization) fell 2% in pesos to $559 bn but were up 2% in constant currencies. Debt was sharply cut to $12.6 bn from $14.5 bn at the end of 2016 and CX expects to meet its target of cutting debt $3.5-4 bn over last year and this. It achieves this by selling assets and is within $100 mn of its target of such sales of $2.5 bn last year and this. Mexico is having a building boom and cement sales there rose 10% y/y. However US cement volumes were down, mainly because of sale of Chihuahua and other assets.

*Mexican under-the-radar multinational corporation Mexichem reported on Q1 after the market closed yesterday. MXCHF reported good numbers despite a tragic fire at its vinyl chloride monomer plant operated with Pemex. It also should gain from the Trump Administration back-down from tearing up the Nafta treaty, which now only will be renegotiated. However there has been no US trading today. The market maker has boosted the bid to $5.43 and the ask to $5.78 from prior close at $5.37.

Consolidated revenues in pesos rose 11% to the equivalent of $1.4 bn and in constant currencies by 13%. Its cash flow (EBITDA) rose 3% to $207 mn, and in constant currencies by 5%; but for vinyl resins, compounds, and derivatives the rise was in double digits. Fluor revenues declined slightly because of price cuts.

By region, sales are overwhelmingly to the US, by 16% our of total sales to North America (including Mexico itself and Canada) or 38%. South America buys 22%; and Europe, which MXCHF has been investing, 37%.

First quarter net majority income was $52 mn, down 10% y/y producing a 12-mo adjusted return on equity of 7.9% and return on invested capital of 6.3%, numbers which MXCHF considers more useful than those for a single quarter, boosted by higher prices in Latin America finally passing through as inventories were drawn down by its customers. Capex was down by a quarter, as predicted last year, which helped.

This is still a Mexican company and its financial costs rose sequentially by 4% to $45 mn. Higher working capital needs were offset by lower taxes but they nearly doubled from the Dec. quarter. Debt remains a risk, at 4.x adjusted EBITDA (which mostly excludes insurance payout from the Q4 PMV plant disaster, still being negotiated.) Total liabilities rose 2% sequentially to $4.812 bn, 40% above majority shareholder equity.

MXCHF predicted that 2017 will be “a very positive year” with EBITDA up 10-20% from 2016 levels.

*Cosan SA of Brazil produced its consolidated SEC 20-F form today under International Financial Reporting Standards in Brazilian reais. It is 270 pages long in English, and even longer in Portuguese.

CZZ's report on details of how it consolidates various subs remains complicated. Last Sept., CZZ sold to a sub of TIAA-CREF and other shareholders all but 3% of its two Radar Propriedades Agricolas subs which no longer have to be consolidated in CZZ results. A month later it merged its former America Latina Logistica sub into Rumo, which it wholly owns. It also negotiated with Shell to remove fixed-date call options over the two Raizen Energia (which refines sugarcane and ethanol) and Combustiveis (which markets them under the Shell brand). They resulted from Cosan acquisitions which had been exercisable in 2021 and 2026. The subs are no longer proportionally consolidated in CZZ statements.

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