Industrias Unidas, S.A. de C.V. Consolidated Results of Operations for Q1 2014

MEXICO CITY--()--Industrias Unidas, S.A. de C.V. (“IUSA” or the “Company”) has announced its unaudited results for the first three months ended March 31 of 2014. Figures are unaudited and have been prepared in accordance with Mexican Financial Reporting Standards (“MFRS”), which are different in certain respects from Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The results from any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Unless stated otherwise, reference herein to “Pesos”, “pesos”, or “Ps.” are to pesos, the legal currency of Mexico and references to “U.S. dollars”, “dollars”, “U.S. $” or “$” are to United States dollars, the legal currency of the United States of America. Except as otherwise indicated, all peso amounts are presented herein in pesos with purchasing power as of March 31, 2014 and in pesos with their historical value for other dates cited. The dollar translations provided in this document are calculated solely for the convenience of the reader using an exchange rate of Ps. 13.0640 per U.S. dollar, the exchange rate published by Banco de Mexico, the country’s central bank, on March 31, 2014.

First three Months ended March 31, 2014 compared to First three Months ended March 31, 2013.

The following table summarizes our results of operations for the first three months ended March 31, 2014 and 2013:

  (Figures in Millions of Pesos)
For the first three months ended March 31,
2013   2014
Revenues 2,681.9 2,722.8
Cost of Sales 2,385.3 2,363.5
Selling and Administrative Expenses 372.3 481.6
Operating Income (Loss) (75.7) (122.3)
Other Expenses - Net (11.1) (11.5)
Comprehensive Financing Result (52.8) (123.8)
Taxes and Statutory Employee Profit Sharing 15.3 (16.6)
Equity in Income (Loss) of Associated Companies 0.0 (1.9)
Consolidated Net Income (Loss) (154.9) (242.9)
D&A 117.5 115.3
EBITDA 1/ 41.8 (7.0)

1/ EBITDA for any period is defined as consolidated net income (loss) excluding i) depreciation and amortization, ii) total net comprehensive financing result (which is comprised of net interest expense, exchange gain or loss, monetary position gain or loss and other Financing costs), iii) other expenses net, iv) income tax and statutory employee profit sharing and v) equity in income (loss) of associated companies. EBITDA should not be considered as an alternate measure of net income or operating income, as determined on a consolidated basis using amounts derived from statements of operations prepared in accordance with MFRS, or as an indicator of operating performance or to cash flows from operating activity as a measure of liquidity. EBITDA is not a recognized term under MFRS or U.S. GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activity as a measure of liquidity.

Our consolidated net loss for the first three months ended March 31, 2014 was Ps.242.9 million (U.S.$18.6 million), compared to a net loss of Ps.154.9 million in the same period of 2013. This increase was primarily due to an increase in comprehensive financing results and SG&A expenses, driven by exchange rate variations.

Revenues

Our net revenues for the first three months ended March 31, 2014 increased 1.5% to Ps.2,722.8 million (U.S. $208.4 million) from Ps.2,681.9 million in the same period of 2013. This increase was due to higher selling prices and a slight increase in volume sales.

Our costs and revenues closely follow copper prices since the market practice is to pass on to the buyer any changes in the price of raw materials.

Our sales are primarily to customers engaged in the commercial, industrial and residential construction, and their related maintenance and renovation activities. We also sell to customers engaged in electrical power generation, transmission and distribution and to the sector of gas, water and air conduction in the Heating, Ventilation, Air conditioning and Refrigeration (HVACR).

Our revenues consist mainly of sales of copper-based products (tubing, wire, cable and alloys) and electrical products.

By country of production, approximately 59.1% of our revenues in the first three months ended March 31, 2014 came from products manufactured in Mexico and the remaining 40.9% from products manufactured in the U.S.

In terms of sales by region during the first three months ended March 31, 2014 we derived approximately 48.3% of our revenues from sales to customers in the United States, 49.2% from customers in Mexico and 2.5% from the rest of the world (“ROW”).

In terms of volume, consolidated sales of copper products during the first three months ended March 31, 2014 increased by 1.6% as compared to the same period in 2013:

  (Metric tons)
For the first three months ended March 31,
Copper Products Volume Sales 2/ 2013   2014
USA 10,498 10,924
México 7,218 7,088
ROW 458 458
Total 18,174 18,470
2/ Includes aluminum wire and cable

Cost of sales

Our cost of sales in the first three months ended March 31, 2014 decreased by 0.9%, to Ps.2,363.5 million from Ps.2,385.3 million in the same period of 2013. As a percentage of revenues, cost of sales in 2014 was 86.8% and 88.9% in the first three months of 2013.

Copper raw material purchases accounted for approximately 80.5 % of our cost of goods sold in the first three months of 2014.

We do continue to reduce our cost base through several initiatives, including plant scheduling, raw material handling and overall manufacturing overhead costs. According to MFRS and our accounting policies, we make an inventory valuation at month end and if the original purchase price of metal is above current market prices, the difference is accounted for as cost. Therefore in a declining price environment, we record an immediate non cash effect on results, depending on inventories held and copper price variations. On the other hand, if copper prices are rising, there is no mark up or positive inventory effect, since the gain will be recorded only when the goods are sold.

Gross Profit

Our gross profit in the first three months ended March 31, 2014 increased 21.1% to Ps.359.3 million from Ps.296.6 million in the same period of 2013. As a percentage of sales, Gross profit was 13.2% in the first three months ended March 31, 2014, versus 11.1% in the same period of 2013.

Selling and Administrative Expenses

Our selling and administrative expenses in the first three months ended March 31, 2014 increased 29.4% to Ps.481.6 million from Ps.372.3 in the same period of 2013.

Operating Income (Loss)

We had an operating loss in the first three months ended March 31, 2014 of Ps. 122.3 million, compared to an operating loss of Ps.75.7 million in same period of 2013.

EBITDA

In the first three months ended March 31, 2014 EBITDA was negative in Ps.7.0 million (U.S.$0.5 million), compared to Ps.41.8 million in the same period of 2013. The corresponding depreciation and amortization figures were Ps.115.3 million for the first three months ended March 31, 2014 and Ps.117.5 million for the same period of 2013.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the first three months ended March 31, 2013 and 2014:

  (Figures in Millions of Pesos)
For the first three months ended March 31,
2013   2014
Interest Expense (135.7) (150.9)
Interest Income 10.9 9.0
Exchange Gain (Loss) - Net 73.5 18.9
Other Financing Costs (1.5) (0.8)
Comprehensive Financing Result (52.8) (123.8)

Our comprehensive financing result was a cost of Ps. 123.8 million in the first three months ended March 31, 2014 compared to a cost of Ps.52.8 million in the same period of 2013, mainly due to lower exchange gains.

Taxes and Statutory Employee Profit Sharing

The provision for income taxes and statutory employee profit sharing in the first three months ended March 31, 2014 was a benefit of Ps.16.6 million compared to a cost of Ps.15.3 million in the same period of 2013.

Consolidated Net Income (Loss)

Our consolidated net loss in the first three months ended March 31, 2014 was Ps.242.9 million (U.S.$18.6 million), compared to a net loss of Ps.154.9 million in the same period of 2013, mainly for the result of lower operating income and comprehensive financial result.

Liquidity and Capital Resources

Liquidity

As of March 31, 2014, we had cash and cash equivalents for Ps.105.7 million (U.S.$8.1 million). Our policy is to invest available cash in short-term instruments issued by Mexican and U.S. banks as well as in securities issued by the governments of Mexico and the U.S.

Our cash flow from operations and operating margins are significantly influenced by world market prices for raw copper, as quoted by COMEX and the London Metal Exchange (“LME”). Copper prices are subject to significant market fluctuations; average copper prices decreased 10.1% in the first three months ended March 31, 2014 to $3.2377 per pound from $3.6001 in the same period of 2013.

We obtain short-term financing from various sources, including Mexican and international banks. Short-term financing consists in part of lines of credit denominated in pesos and dollars. As of March 31, 2014, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.1,081.8 million (U.S.$82.8 million), of which approximately 93.6% was dollar-denominated. On the same date, our outstanding consolidated long-term debt, excluding current portion thereof, totaled Ps.4,382.9 million (U.S.$335.5 million), approximately all of which was dollar-denominated.

Accounts receivable from third parties were Ps.1,892.1 million (U.S.$144.8 million) as of March 31, 2014. Days outstanding in the domestic private customers channel were 32 days as of March 31, 2014.

Debt Obligations

The following table summarizes our debt as of March 31, 2014:

Consolidated debt   March 31, 2014
(In Millions of Pesos)
U.S. subsidiaries debt 866.2
Mexican debt 4,598.5
Total 5,464.7

This total includes the restructured debt of the Company.

Capital Expenditures

For the first three months ended March 31, 2014, we invested Ps.26.8 million (U.S. $2.0 million) in capital expenditure projects, mainly related to maintenance.

In the first three months ended March 31, 2014 our capital expenditures were allocated by segments as follows: 40.5% to copper tubing, 39.0% to diversified assets, 10.5% to electrical products and the remaining 10.0% to other divisions. By geographic region, 60.6% of total capital expenditures were invested in our Mexican facilities and the remaining 39.4% in the U.S.

You should read this document in conjunction with the interim consolidated financial statements as of March 31, 2014, including the notes to those statements.

Contacts

Industrias Unidas, S.A. de C.V.
Francisco Rodríguez Avendaño, (5255) 5216-4028
frodriguez@iusa.com.mx

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Contacts

Industrias Unidas, S.A. de C.V.
Francisco Rodríguez Avendaño, (5255) 5216-4028
frodriguez@iusa.com.mx