Industrias Unidas, S.A. de C.V. Consolidated Results of Operations for Q2 2014

MEXICO CITY--()--Industrias Unidas, S.A. de C.V. (“IUSA” or the “Company”) has announced its unaudited results for the first six months ended June 30 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 June 30, 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. 12.9865 per U.S. dollar, the exchange rate published by Banco de Mexico, the country’s central bank, on June 30, 2014.

First six months ended June 30, 2014 compared to first six months ended June 30, 2013.

The following table summarizes our results of operations for the first six months ended June 30, 2014 and 2013:

       
(Figures in Millions of Pesos)
For the first six months ended June 30,

2013

2014

Revenues 5,508.1 5,717.8
Cost of Sales 4,786.6 4,945.7
Selling and Administrative Expenses 752.9       943.2  
Operating Income (Loss) (31.4 ) (171.1 )
Other Expenses - Net (38.3 ) (22.8 )
Comprehensive Financing Result (248.2 ) (273.0 )
Taxes and Statutory Employee Profit Sharing 15.8 (25.0 )
Equity in Income (Loss) of Associated Companies 0.0       (6.1 )
Consolidated Net Income (Loss) (333.7 )     (448.0 )
D&A 207.6 223.3
EBITDA 1/ 176.2 52.2
 

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 six months ended June 30, 2014 was Ps.448.0 million (U.S.$34.5 million), compared to a net loss of Ps.333.7 million in the same period of 2013. This increase is primarily due to an increase in SG&A expenses and comprehensive financing results.

Revenues

Our net revenues for the first six months ended June 30, 2014 increased 3.8% to Ps.5,717.8 million from Ps.5,508.1 million in the same period of 2013. This increase was due to higher selling prices driven by market conditions.

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 57.5% of our revenues in the first six months ended June 30, 2014 came from products manufactured in Mexico and the remaining 42.5% from products manufactured in the U.S.

In terms of sales by region during the first six months ended June 30, 2014 we derived approximately 49.4% of our revenues from sales to customers in the United States, 48.0% from customers in Mexico and 2.6% from the rest of the world (“ROW”).

In terms of volume, consolidated sales of copper products during the first six months ended June 30, 2014 increased by 4.7% as compared to the same period in 2013:

       
(Metric tons)
For the first six months ended June 30,

Copper Products Volume Sales 2/

2013

2014

USA 21,509 23,956
México 15,049 14,117
ROW 814     1,040
Total 37,372 39,113
2/ Includes aluminum wire and cable
 

Cost of sales

Our cost of sales in the first six months ended June 30, 2014 increased 3.3%, to Ps.4,945.7 million from Ps.4,786.6 million in the same period of 2013. As a percentage of revenues, cost of sales in 2014 was 86.5% and 86.9% in the first six months of 2013.

Copper raw material purchases accounted for approximately 82.5 % of our cost of goods sold in the first six months ended June 30, 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 six months ended June 30, 2014 increased 7.0% to Ps.772.1 million from Ps.721.5 million in the same period of 2013. As a percentage of sales, Gross profit was 13.5% in the first six months ended June 30, 2014, versus 13.1% in the same period of 2013.

Selling and Administrative Expenses

Our selling and administrative expenses in the first six months ended June 30, 2014 increased 25.3% to Ps.943.2 million from Ps.752.9 in the same period of 2013.

Operating Income (Loss)

We had an operating loss in the first six months ended June 30, 2014 of Ps. 171.1 million, compared to an operating loss of Ps.31.4 million in same period of 2013.

EBITDA

In the first six months ended June 30, 2014, EBITDA was Ps.52.2 million (U.S.$4.0 million), compared to an EBITDA of Ps.176.2 million in the same period of 2013. The corresponding depreciation and amortization figures are Ps.223.3 million for the first six months ended June 30, 2014 and Ps.207.6 million for the same period of 2013.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the first six months ended June 30, 2013 and 2014:

   
(Figures in Millions of Pesos)
For the first six months ended June 30,

2013

   

2014

Interest Expense (269.8 ) (301.0 )
Interest Income 20.3 18.2
Exchange Gain (Loss) - Net 9.4 11.9
Other Financing Costs (8.1 )     (2.1 )
Comprehensive Financing Result (248.2 )     (273.0 )
 

Our comprehensive financing result was a cost of Ps. 273.0 million in the first six months ended June 30, 2014 compared to a cost of Ps.248.2 million in the same period of 2013.

Taxes and Statutory Employee Profit Sharing

The provision for income taxes and statutory employee profit sharing in the first six months ended June 30, 2014 was a benefit of Ps.25.0 million compared to a cost of Ps.15.8 million in the same period of 2013.

Consolidated Net Income (Loss)

Our consolidated net loss in the first six months ended June 30, 2014 was Ps.448.0 million (U.S.$18.6 million), compared to a net loss of Ps.333.7 million in the same period of 2013, mainly the result of lower operating income and comprehensive financial result.

Liquidity and Capital Resources

Liquidity

As of June 30, 2014, we had cash and cash equivalents for Ps.91.1 million (U.S. $7.0 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 7.5% in the first six months ended June 30, 2014 to $3.1687 per pound from $3.4260 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 June 30, 2014, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.1,082.1 million (U.S. $83.3 million), of which approximately 97.6% was dollar-denominated. On the same date, our outstanding consolidated long-term debt, excluding current portion thereof, totaled Ps.4,367.3 million (U.S.$336.3 million), approximately all of which was dollar-denominated.

Accounts receivable from third parties were Ps.2,124.8 million (U.S.$163.6 million) as of June 30, 2014. Days outstanding in the domestic private customers channel were 35 days as of June 30, 2014.

Debt Obligations

The following table summarizes our debt as of June 30, 2014:

         
Consolidated debt June 30, 2014
(In Millions of Pesos)
U.S. subsidiaries debt 735.1
Mexican debt 4,714.3
Total 5,449.4
 

This total includes the restructured debt of the Company.

Capital Expenditures

For the first six months ended June 30, 2014, we invested Ps.61.8 million (U.S. $4.7 million) in capital expenditure projects, mainly related to expansion production and maintenance.

In the first six months ended June 30, 2014 our capital expenditures were allocated by segments as follows: 57.7% to copper tubing, 11.5% to electrical products, 10.5% to copper and alloys, 8.1% to wire and cable, 6.9% to valves and controls and the remaining 5.3% to other divisions. By geographic region, 44.0% of total capital expenditures were invested in our Mexican facilities and the remaining 56.0% in the U.S.

You should read this document in conjunction with the internal consolidated financial statements as of June 30, 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