Apasco S.A. de C.V.

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Apasco S.A. de C.V.

Campos Eliseos 345
Mexico City, D.F. 11560
Mexico
Telephone: (525) 724-0000
Fax: (525) 724-0280
Web site: http://www.apasco.com.mx

Public Company
Incorporated: 1928 as Compania Mexicana de Cemento Portland Apasco S.A.
Employees: 2,900
Sales: 9.12 billion pesos ($995.09 million) (2001)
Stock Exchanges: Mexico City Over The Counter
Ticker Symbols: APASCO; ASSAY; ASSBY
NAIC: 212321 Construction Sand and Gravel Mining; 32731 Hydraulic Cement Manufacturing; 327320 Ready-Mix Concrete Manufacturing; 327410 Lime Manufacturing; 551112 Offices of Other Holding Companies, Not Elsewhere Classified

Apasco S.A. de C.V. is a Mexican holding company for a number of subsidiaries engaged in the production and sale of cement, ready-mix concrete, lime, gravel, and mortar. This low-tech industrial sector is dominated in Mexico by Cemex, S.A. de C.V., a giant Mexican-based multinational firm, but Apasco is its chief competitor. Apasco is majority owned by Holcim, Ltd., a Swiss-based multinational firm, but its stock is publicly traded in Mexico City. In addition to its facilities in Mexico, Apasco holds a minority share in a company that operates plants in all six Hispanic Central American nations: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. It also offers support services through mobile ready-mix concrete laboratories.

The First 60 Years: 1928-87

The company was founded in 1928 as Compania Mexicana de Cementos Portland Apasco S.A. and was acquired in 1964 by Holderbank Financiere Glaris Ltd., a Swiss company that became the largest producer of building construction supplies in the world. At this time Apasco ranked in the middle of 25 Mexican cement producers. Its annual installed production capacity of 225,000 metric tons in 1966 was 4 percent of the national total. The company’s only plant at the time was located in Apaxco in the state of Mexico. In 1970 it acquired Cementos Veracruz, S.A., a firm located in Orizaba, Veracruz. By then Mexican investors held a majority of Apasco’s shares, in accordance with government requirements intended to reduce foreign ownership of Mexico’s resources. Apasco had sales of 276.1 million pesos ($23 million) in 1975, when it ranked fourth among cement producers. Its net profit came to 21.5 million pesos ($1.72 million). Holderbank held 47 percent of Apasco at this time, while Banco Nacional de Mexico (Banamex) held 21 percent.

In 1979 Apasco began work on a new plant in Macuspana, Tabasco. This tropical, underdeveloped state in southeastern Mexico was undergoing a boom owing to growing output from the petroleum and petrochemical industries in the area. Apasco’s new site offered road, rail, and river links and had the advantage of being the first cement plant in the area. Erecting the facility was neither easy nor cheap, however; it involved clearing the site of snakes and ticks and construction on gummy soil exposed to winter torrential rains. Completed in 1981, the plant, which had an initial capacity of 900,000 metric tons a year, required an investment of 2.8 billion pesos (about $122 million).

Apasco also reserved about 750 acres in the area for a project to develop agriculture, animal husbandry, and forestry to aid inhabitants who would otherwise not benefit from the plant. Cattle raising was by far the chief of these activities, but another result was a notable rise in milk production. In 1986 the company created a new agricultural and forestry training center. This center was providing communities with the initial investments, professional advice, and counseling for establishing a self-sufficient enterprise and included training for beekeeping, silkworm raising, and reforestation. There were six such company-sponsored centers in operation by 2000. Apasco also was actively engaged in promoting programs of youth activity, adult literacy, and alcohol and drug treatment.

By 1981 Apasco had tripled its production capacity in a decade and held 18 percent of the Mexican market for cement. That year it began selling shares on the Mexican stock ex change. Interviewed for the business magazine Expansion, director general Bernard Galley said, “One of the points that distinguish us is that we are the only cement company that has a direct system of distribution, for whose functioning we count with numerous means of transport (pipelines, cars, trucks, and two ships, plus terminals in the Federal District [Mexico City]).” But the collapse of the peso in 1982 stopped the company’s growth in its tracks as construction ground to a halt. Apasco’s dollar debt, swelled by high interest rates, posed an immediate threat to the firm and required renegotiation plus an infusion of investment funds. By 1987 the company’s total liabilities had been reduced by 60 percent, but its foreign debt still exceeded $100 million.

Apasco demonstrated in 1986 that it was close to recovery. At the end of the year circulating assets covered 94 percent of short-term liabilities. Sales for the year reached 75.59 billion pesos ($123.5 million), and the operating profit was 19.81 billion pesos ($32.37 million). The Apasco group now consisted often companies serving almost the entire country. Exportation of its output, which began in 1983, reached 760,000 metric tons of clinker, one-fifth of the national total. Among the companies now under the Apasco group’s banner was Concretos Apasco, S.A., established in 1977 from the merger of two firms with combined sales the previous year of 235 million pesos (about $12 million). Eight of its 11 plants were in the Federal District; the others were in the states of Puebla and Mexico, bordering the district. Total capacity was more than 2,000 cubic meters of concrete per day.

Second Largest Mexican Cement Firm: 1988-99

Apasco still ranked fourth among Mexican cement producers at the start of 1988, but after Cemex acquired Empresas Tolteca that year, the company moved up to second place. Taken as a whole, the group of 11 subsidiaries (including one for paper and cardboard) had sales of 376.85 billion pesos ($165.78 million) and 2,909 employees in 1988. The company opened a new plant in 1991, in Ramos Arizpe, Coahuila. This added a million tons of cement capacity a year and enhanced Apasco’s presence in northern Mexico. The company combined this enhanced capacity with the construction of premixed-concrete plants in the region. That year Apasco also purchased Decar del Valle, S.A. de C.V., a producer of premixed concrete based in Mexico City, bringing its number of plants for this purpose to 44. In 1992 Apasco acquired one of the few remaining independent Mexican cement producers: Cementos de Aca pulco, S.A., with annual cement production capacity of 400,000 metric tons a year, at a cost of about $40 million. It also constructed 11 new premixed-concrete plants.

Apasco also began work on a new plant in the western part of Mexico, at Tecoman, Colima, with installed annual capacity of 1.3 million tons of cement. Built at a cost of $130 million and oriented toward the Guadalajara and central Pacific Coast markets, this facility was opened in late 1993.

To help finance existing and future infrastructure, Apasco began selling American Depositary Receipts (the equivalent of shares of common stock) over the counter in the United States. The company in late 1991 had raised $100 million by selling bonds to overseas investors and—in part because of its ties to Holderbank—enjoyed the highest credit rating for such securities available to a company operating in Mexico.

These years constituted a period of headlong expansion and growing sales and profits for Apasco. By the end of 1994 its annual productive capacity had reached 7.8 million metric tons of cement, and its share of the Mexican market for both cement and ready-mix concrete had reached 22 percent. There were now 84 ready-mix concrete plants with an annual production capacity of 7.6 million metric tons, strategically located in 40 cities. The company’s workforce swelled to more than 4,000. Net sales reached 1.98 billion new pesos (about $650 million) in 1993. Sales increased another 15 percent, to 2.36 billion pesos (about $800 million) in 1994.

Fundamental to Apasco’s growth in this period was its strategy of regional diversification, focusing on its principal markets with the goal of profiting from all types of synergy in order to overcome Cemex’s dominance. This strategy involved the construction—at Ramos Arizpe and Tecoman—of state-of-the-art cement plants at a reasonable cost of $100 per ton of installed capacity. Apasco’s director general told Javier Martinez Staines of the Mexican business magazine Expansion in 1992 that the Ramos Arizpe plant “was the first to reconcile high technology with an investment much lower than any other plant constructed before. Not only in Mexico, but in the world.” Other projects completed in the early 1990s included the expansion of the Apaxco and Orizaba cement facilities and the construction of distribution centers in Guadalajara and Puebla.

The economic crisis that gripped Mexico after the devaluation of the peso in December 1994 meant an end to the many industrial and housing projects that had fueled Apasco’s recent expansion. Net sales fell nearly 28 percent in 1995 and did not surpass the 1994 level (discounting inflation) until 1998. The company remained marginally profitable, however, and was able to win a higher credit rating than the Mexican government itself when it marketed $100 million in 12-year notes in July 1995. Although the devaluation of the peso meant that Apasco’s dollar-denominated debt had widened considerably in real terms, the company had reduced this amount by 44 percent by the end of 1996. Apasco added marine terminals in Manzanillo, Colima and Sauzal, Baja California, in 1995 and 1996, respectively. It took a minority stake in a Honduras cement plant in 1996 and an El Salvador plant in 1997.

Company Perspectives:

In the coming years, Apasco Group will continue to focus its efforts on achieving the following goals: To continue strengthening market preference; to generate greater, sustained profitability; to further strengthen its financial position; to continue training and developing its staff and employees; to increase productivity and efficiency; to strengthen its commitment to sustainable development; to consolidate its position in Central America; to continue promoting technological modernization in all its processes and activities.

The remaining years of the century saw continuing gains in net sales and net profit, which increased 42 percent and 148 percent, respectively, between 1997 and 2000. The results for 2000 were 9.19 billion pesos (($956.4 million) and 2.09 billion pesos ($217.48 million), respectively. Net sales fell by 5 percent, to 9.12 billion pesos ($995.09 million) in 2001, despite an 8 percent gain for ready-mix concrete. The net profit remained a substantial 1.79 billion pesos (about $195 million).

Apasco in 2000 and 2001

Apasco’s long-term debt was 1.15 billion pesos ($120 million) at the end of 2000, a reduction of almost 50 percent compared with 1998. In 2001 it received a $143 million loan from an international bank syndicate. Some $60 million of this sum was earmarked to pay down debt and another $50 million to expand the Ramos Arizpe cement plant.

Apasco, in 2001, had six cement plants with combined installed capacity of 8.9 million metric tons of cement. Utilization ranged from 100 percent at Ramos Arizpe to 57 percent at Macuspana. Sales came to 6.8 million tons in 2000, when the company held 23 percent of the Mexican cement market. By 2001 Apasco also had holdings in all six Hispanic Central American countries through its 44 percent stake in Netherlands based Holcemca B.V. Apasco also had more than 100 plants for the production of premixed concrete. Production came to 2.8 million cubic meters of concrete in 2000, when the company held 25 percent of the national market. Apasco had 25 distribution centers and a technological center. The company maintained five facilities for sand and gravel, but one was inactive and only the ones in Apaxco and Texcoco were being significantly utilized during the year. Holcim, Ltd. (formerly Holderbank) held 65 percent of Apasco’s shares.

Apasco’s holdings were valued at 6.83 billion pesos ($745.08 million) at the end of 2001. Of this total, Cementos Apasco accounted for 33 percent, Cementos Veracruz for 17 percent, and Concretos Apasco for 12 percent. The company’s stake in Holcemca accounted for 29 percent of its valuation.

Principal Subsidiaries

Cementos Acapulco, S.A. de C.V.; Cementos Apasco, S.A. de C.V.; Cementos Veracruz, S.A. de C.V.; Comindumex, S.A. de C.V.; Concretos Apasco, S.A. de C.V.; Gravasa, S.A. de C.V.

Principal Competitors

Cemex, S.A. de C.V.; Grupo Cementos de Chihuahua, S.A. de C.V.

Key Dates:

1928:: Compania Mexicana de Cemento Portland Apasco S.A. is founded.
1964:: The company is acquired by Holderbank, a Swiss-based construction firm.
1975:: Apasco reaches fourth place among Mexican cement producers.
1977:: Concretos Apasco, S.A. is established from the merger of two firms.
1981:: The company begins to offer shares on the Mexico City stock exchange.
1988:: Apasco is now Mexico’s second-ranking cement producer.
1993:: Apasco ADRs (the equivalent of shares) begin to trade in the United States.
2000:: The company has 23 percent of the Mexican cement market.
2001:: Apasco has holdings in all six Hispanic Central American countries.