Industrias Unidas, S.A. De C.V. Consolidated Results of Operations for FY 2016

MEXICO CITY--()--Industrias Unidas, S.A. de C.V. (“IUSA” or the “Company”) has announced its audited results for the twelve months ended December 31 of 2016. Figures are audited 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 December 31, 2016 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. 20.64 per U.S. dollar, the exchange rate published by Banco de Mexico, the country’s central bank, on December 30, 2016.

Twelve months ended December 31, 2016 compared to twelve months ended December 31, 2015.

The following table summarizes our results of operations for the twelve months ended December 31, 2016 and 2015:

  (Figures in Millions of Pesos)
For the twelve months ended December 31,

2015

 

2016

Revenues 13,888.6 16,528.1
Cost of Sales 11,867.3 13,936.6
Other income (costs) - Net 115.7 0.0
Gross Profit 2,137.0 2,591.5
Selling and Administrative Expenses 1,533.9 1,497.0
Operating Income (Loss) 603.1 1,094.5
Other Expenses - Net (23.8) (9.1)
Comprehensive Financing Result (1,668.2) (1,590.3)
Taxes and Statutory Employee Profit Sharing (160.6) (58.9)
Equity in Income (Loss) of Associated Companies 37.0 57.8
Consolidated Net Income (Loss) (891.3) (388.2)
D&A 501.7 571.4
EBITDA 1/ 1,104.8 1,665.9
 

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 twelve months ended December 31, 2016 was Ps.388.2 million (US$18.8 million), compared to a net loss of Ps.891.3 million in the same period of 2015. This change is primarily due to an increase in our operating income, driven by better margins in the sale of products and a decrease in our operating expenses.

Revenues

Our net revenues for the twelve months of 2016 increased 19.0% to Ps.16,528.1 million (US$800.8 million) from Ps.13,888.6 million in the same period of 2015. This increase was due to a 4.2% growth in volume sales of our copper products and better sales margin, driven by market conditions.

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

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 65.4% of our revenues in the twelve months ended December 31, 2016 came from products manufactured in México and the remaining 34.6% from products manufactured in the U.S.

In terms of sales by region during the twelve months ended December 31, 2016 we derived approximately 59.6% of our revenues from sales to customers in México, 38.0% from customers in the United States and 2.4% from the rest of the world (“ROW”).

In terms of volume, consolidated sales of copper products during the twelve months ended December 31, 2016 increased by 4.2% as compared to the same period in 2015:

  (Metric tons)
For the twelve months ended December 31,
Copper Products Volume Sales 2/

2015

 

2016

USA 48,266 49,209
México 31,206 33,187
ROW 1,403 1,866
Total 80,875 84,262
2/ Includes aluminum wire and cable
 

Cost of sales

Our cost of sales in the twelve months ended December 31, 2016 increased by 17.4% to Ps.13,936.6 million (US$675.2 million) from Ps.11,867.3 million in the same period of 2015. As percentage of revenues, cost of sales decreased to 84.3% in 2016 from 85.4% in 2015.

We continued the reduction of our cost base through several initiatives, including plant scheduling, raw material handling and overall manufacturing overhead costs. According to our accounting policies, we make an inventory valuation at average purchase price. In the case of copper cathodes, an end of month adjustment is required due to the quotation period agreed with the suppliers (M+1). This quotation price initiative allows us to hedge purchases for 30 days at no additional cost. The adjustment in price is recorded to the cost of sales in the month of its occurrence.

Gross Profit

Our gross profit in the twelve months ended December 31, 2016 increased 21.3% to Ps.2,591.5 million (US$125.6 million), from Ps.2,137.0 million in the same period of 2015. As percentage of sales, gross profit increased to 15.7% from 15.4% in the corresponding periods.

Selling and Administrative Expenses

Our selling and administrative expenses in the twelve months ended December 31, 2016 decreased 2.4% to Ps.1,497.0 million (US$72.5 million), from Ps.1,533.9 in the same period of 2015.

Operating Income

Our operating income in the twelve months ended December 31, 2016 increased 81.5% to Ps.1,094.5 million (U.S.$53.0 million) from Ps.603.1 in the same period of 2015, mainly due to an increase in revenues.

EBITDA

In the twelve months ended December 31, 2016 EBITDA was Ps.1,665.9 million(or US$80.7 million), compared to an EBITDA of Ps. 1,104.8 million in the same period of 2015. The corresponding depreciation and amortization figures are Ps.571.4 million for January to December 2016 and Ps.501.7 million for the same period of 2015.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the twelve months ended December 31, 2015 and 2016:

  (Figures in Millions of Pesos)
For the twelve months ended December 31,

2015

 

2016

Interest Expense (758.1) (859.6)
Interest Income 44.8 45.2
Exchange Gain (Loss) - Net (957.0) (777.9)
Other Financing Costs 2.1 2.0
Comprehensive Financing Result (1,668.2) (1,590.3)
 

Our comprehensive financing result decreased 4.7% in the twelve months ended December 31, 2016 to Ps.1,590.3 million from Ps.1,668.2 million in the same period of 2015. This was explained mainly by the fact that our interest expenses were denominated in US dollars and the Mexican peso depreciated against the US dollar in the same period.

Taxes and Statutory Employee Profit Sharing

The provision for current and deferred income taxes and statutory employee profit sharing in the twelve months ended December 31, 2016 was a benefit of Ps.58.9 million compared to a benefit of Ps.160.6 million in the same period of 2015.

Consolidated Net Loss

Our consolidated net loss for the twelve months ended December 31, 2016 was Ps.388.2 million (US$18.8 million), compared to a net loss of Ps.891.3 million in the same period of 2015.

Liquidity and Capital Resources

Liquidity

As of December 31, 2016, we had cash and cash equivalents for Ps.576.5 million (U.S. $27.9 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 12.4% in the twelve months ended December 31, 2016 to $2.20 US dollar per pound from $2.51 US dollar per pound in the same period of 2015.

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 December 31, 2016, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.404.4 million (U.S. $19.6 million), all of which was dollar-denominated.

On the same date, our outstanding consolidated long-term debt, excluding current portion thereof, totaled Ps.7,462.4 million (U.S.$361.6 million), all of which was dollar-denominated.

Accounts receivable from third parties as of December 31, 2016 were Ps.3,222.6 million (U.S.$156.1 million). Days outstanding in the domestic market were 31 days as of December 31, 2016.

Debt Obligations

The following table summarizes our debt as of December 31, 2016:

Consolidated debt       December 31, 2016
(In Millions of Pesos)
U.S. subsidiaries debt 1,158.0
Mexican debt 6,708.8
Total 7,866.8

This total includes the restructured debt of the Company.

Capital Expenditures

For the twelve months ended December 31, 2016, we invested Ps.200.6 million (U.S. $9.7 million) in capital expenditure projects, mainly related to expansion of production and maintenance.

In the twelve months ended December 31, 2016 our capital expenditures were allocated by segments as follows: 37.3% to copper tubing, 1.7% to wire and cable, 10.2% to valves and controls, 4.8% to copper alloys and the remaining 46.0% to other divisions. By geographic region 65.2% of total capital expenditures were invested in our Mexican facilities and the remaining 34.8% in the U.S.

You should read this document in conjunction with the audited consolidated financial statements as of December 31, 2016, including the notes to those statements.

Contacts

Industrias Unidas, S.A. de C.V.
Francisco Rodríguez, Tel (5255) 5118-1502
frodriguez@iusa.com.mx

Contacts

Industrias Unidas, S.A. de C.V.
Francisco Rodríguez, Tel (5255) 5118-1502
frodriguez@iusa.com.mx