Therefore, we continue to recommend turning to other investment alternatives

			1999 Fourth Quarter Results AHMSA
	Sumant Vasal (52) 5325-2898				March 14, 2000

During 4Q99, Ahmsa’s total sales fell 15% due to lower real steel prices as a result of the inflation/revaluation effect. This was partially offset by an increase of 5% in total volume. However, gross profit and operating income improved 11% and 26% respectively, as a result of margin expansion derived mainly from the company’s cost control programs. Operating results in 4Q99 continued to improve compared to the previous quarters due to a better pricing environment and cost savings- EBITDA margins continue on the rise. However, there are certain items at the operating level which seem quite low for both quarters, specifically operating expenses. We believe this is probably due to some kind of reclassification. Due to the difficult financial situation, in late May the company declared itself in suspension of payments, a form of legal protection under Mexican law. Consequently, trading of the company’s stock was halted in Mexico and the US. In mid October, IMSA and GAN (the majority stakeholder of Ahmsa) agreed to form a strategic alliance between their subsidiaries IMSA Acero and Ahmsa. However, in late February negotiations terminated between both parties as Ahmsa announced that it is quite close to reaching an agreement with Aceralia- a Spanish steel maker. Ahmsa expects this strategic alliance to be complete by the end of March. From a financial standpoint, we believe this is a better deal for Ahmsa’s stakeholders, although we are not totally convinced that Aceralia is a better alternative than Imsa from a strategic point of view.

Operating Results

Our quarterly report is not as detailed as in the past as the company does not take our calls, and the press release was very short. Net sales fell 15% compared to 4Q98 due to a reduction in real steel prices which resulted from the inflation/revaluation effect. This was partially offset by a 5% increase in total volumes, amounting to 693K tons during the quarter. Total steel volumes continued on the rise compared to 3Q99.

On the other hand, gross and operating income rose 11% and 26% respectively. We believe this was due to cost savings (originating from the new business plan for the period 1999-2003)), and lower costs (vertically integrated). As a result, gross and operating margins increased considerably. However, it is important to note that 4Q98 was an unusually poor quarter. Also, we were a bit puzzled with operating expenses in 4Q98 and 4Q99, which were considerably lower compared to previous quarters. In our view, this is probably the result of some kind of reclassification. Overall, EBITDA increased 33%. In addition, EBITDA margin continued to improve compared to previous quarters.

Financing Activities

Ahmsa reported a net financial gain of Ps 266 million during the quarter, compared to Ps 815 million last year. This was due mainly to much lower non-cash FX gains and monetary gains. In addition, the company reported negative interest income (probably due to some kind of a reclassification so the whole year would amount to zero). This was partially offset by a reduction in interest expense as the company declared itself in suspension of payments in late May.

As we mentioned in earlier reports, Ahmsa’s balance sheet is the worst in our steel sector sample. Leverage (total liabilities/equity) amounted to 213% at the end of the quarter, and on an adjusted basis (net debt/equity), it reached 163%. In addition, interest coverage amounted to only 1.3x, although we believe this is fictitious as not all interests are being considered due to the suspension of payments.

Outlook

During the past years, the company implemented several unsuccessful strategies to overcome its difficult financial position. This, coupled with a competitive steel market, led the company to default on certain debt and interest payments during April 1999, and consequently declare itself in suspension of payments. In mid October, IMSA and GAN (the majority stakeholder of Ahmsa) agreed to form a strategic alliance between their subsidiaries IMSA Acero and Ahmsa. This association was conditional upon the restructuring of Ahmsa’s debt, as well as putting an end to the suspension of payments. However, negotiations fell thru as Ahmsa announced in late February 2000 that it had a better offer from Aceralia- a Spanish steel maker. Aceralia would take on US$ 1 billion of Ahmsa’s debt out of the US$ 1.9 billion at the end of 4Q99, and it would capitalize the Mexican company with US$ 400 million. If the strategic alliance is approved, Aceralia would hold a controlling stake in the alliance (51%).

We believe 2000 should be a good year for the company due to the positive perspectives in the global steel market. Steel prices continue to rebound, which combined with the good economic growth expected in Mexico during 2000 should allow for improvement in operating results. The company estimates EBITDA of US$ 320 million for 2000, a 38% increase compared to 1999.

Sumant Vasal: [e-mail]

The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.