MRO Magazine

Industrias Unidas, S.A. de C.V. Consolidated Results of Operations for Q1 2016


June 1, 2016
By Business Wire News

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 2016. 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, 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. 17.29 per U.S. dollar, the exchange rate published by Banco de Mexico, the country’s central bank, on March 31, 2016.

First three months ended March 31, 2016 compared to first three months ended March 31, 2015.

The following table summarizes our results of operations for the first three months ended March 31, 2016 and 2015:

 (Figures in Millions of Pesos)
For the first three months ended March 31,

2015

 

2016

Revenues 2,845.8 3,092.5
Cost of Sales 2,435.8 2,747.5
Gross Profit 410.0 345.0
Selling and Administrative Expenses 478.1 498.1
Operating Income (Loss) (68.1) (153.1)
Other Expenses – Net (20.8) (11.3)
Comprehensive Financing Result (360.9) (213.5)
Taxes and Statutory Employee Profit Sharing (13.9) (26.4)
Equity in Income (Loss) of Associated Companies 3.2 6.2
Consolidated Net Income (Loss)(432.7)(345.3)
D&A 113.2 116.3
EBITDA 1/45.1(36.8)

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, 2016 was Ps.345.3 million (U.S.$20.0 million), compared to a net loss of Ps.432.7 million in the same period of 2015. This change is primarily due to an increase in the cost of sales as consequence of the combined effects between copper prices and dollar exchange rate.

Revenues

Our net revenues for the first three months ended March 31, 2016 increased 8.7% to Ps.3,092.5 million (U.S.$178.9 million) from Ps.2,845.8 million in the same period of 2015. This increase was due to increase in volume sales and 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 58.5% of our revenues in the first three months ended March 31, 2016 came from products manufactured in Mexico and the remaining 41.5% from products manufactured in the U.S.

In terms of sales by region during the first three months ended March 31, 2016 we derived approximately 46.6% of our revenues from sales to customers in the United States, 51.4% from customers in Mexico and 2.0% from the rest of the world (“ROW”).

In terms of volume, consolidated sales of copper products during the first three months ended March 31, 2016 increased by 10.9% as compared to the same period in 2015:

 (Metric tons)
For the first three months ended March 31,
Copper Products Volume Sales 2/

2015

 

2016

USA 11,935 12,423
México 6,340 8,041
ROW 464 318
Total 18,739 20,782

  2/ Includes aluminum wire and cable

Cost of sales

Our cost of sales in the first three months ended March 31, 2016 increased 12.8%, to Ps.2,747.5 million (U.S.$158.9 million) from Ps.2,435.8 million in the same period of 2015. As a percentage of revenues, cost of sales in 2016 was 88.8% and 85.6% in 2015.

Copper raw material purchases accounted for approximately 67.5 % of our cost of goods sold in the first three months ended March 31, 2016.

We do continue to reduce 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 adjustment is required due to the price quotation period agreed with our suppliers, month of purchase plus one month (M+1). Given our production and invoicing periods, this resembles a natural hedge for our purchases. The adjustment is recorded to the cost of sales in the month in which it occurs (M+1).

Gross Profit

Our gross profit in the first three months ended March 31, 2016 decreased 15.8% to Ps.345.0 million (U.S.$20.0 million) from Ps.410.0 million in the same period of 2015. As a percentage of sales, Gross profit was 11.2% in the first three months ended March 31, 2016, versus 14.4% in the same period of 2015.

Selling and Administrative Expenses

Our selling and administrative expenses in the first three months ended March 31, 2016 increased 4.2% to Ps498.1 million from Ps.478.1 in the same period of 2015.

Operating Loss

We had an operating loss in the first three months ended March 31, 2016 of Ps.153.1 million (U.S.$8.9 million), in the same period of 2015 we had an operating loss of Ps.68.1 million.

EBITDA

In the first three months of 2016 our EBITDA was a negative of Ps.36.8 million (or U.S. -$2.1 million), compared to a positive EBITDA of Ps. 45.1 million in the same period of 2015. The corresponding depreciation and amortization figures are Ps. 116.3 million for January to March 2016 and Ps. 113.2 million for January to March 2015.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the first three months ended March 31, 2015 and 2016:

   
(Figures in Millions of Pesos)
For the first three months ended March 31,

2015

2016

Interest Expense (181.3) (211.2)
Interest Income 13.5 8.5
Exchange Gain (Loss) – Net (191.1) (8.9)
Other Financing Costs (2.0) (1.9)
Comprehensive Financing Result(360.9)(213.5)

Our comprehensive financing result decreased 40.8% in the first three months of 2016 to Ps. 213.5 million from Ps.360.9 million in the same period of 2015. This was explained mainly by the reduction of the exchange loss as consequence of the Mexican peso devaluation from December 31, 2015 to March 31, 2016.

Taxes and Statutory Employee Profit Sharing

The provision for current and deferred income taxes and statutory employee profit sharing in the first three months of 2016 was a benefit of Ps.26.4 million compared to a benefit of Ps.13.9 in the same period of 2015.

Consolidated Net Income (Loss)

Our consolidated net loss in the first three months of 2016 was Ps. 345.3 (or U.S. $20.0 million), compared to a net loss of Ps. 432.7 million in the same period of 2015, mainly the result of the decrease in the comprehensive financing result.

Liquidity and Capital Resources

Liquidity

As of March 31, 2016, we had cash and cash equivalents for Ps.201.2 million (U.S. $11.6 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 20.9% in the first three months ended March 31, 2016 to $2.11 US dollar per pound from $2.66 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 March 31, 2016, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.6,986.9 million (U.S. $404.1 million), all of which was dollar-denominated.

Accounts receivable from third parties as of March 31, 2016 were Ps.1,513.5 million (U.S.$87.5 million). Days outstanding in the domestic market were 33 days as of March 31, 2016.

Debt Obligations

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

 
Consolidated debtMarch 31, 2016
(In Millions of Pesos)
U.S. subsidiaries debt 842.6
Mexican debt 6,144.4
Total 6,987.0

This total includes the restructured debt of the Company.

Capital Expenditures

For the first three months ended March 31, 2016, we invested Ps.18.6 million (U.S. $1.1 million) in capital expenditure projects, mainly related to expansion of production and maintenance.

In the first three months ended March 31, 2016 our capital expenditures were allocated by segments as follows: 38.9% to copper tubing, 2.4% to wire and cable, 13.8% to valves and controls, 7.5% to copper alloys and the remaining 37.4% to other divisions. By geographic region 67.6% of total capital expenditures was invested in our Mexican facilities and the remaining 32.4% in the U.S.

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

Industrias Unidas, S.A. de C.V.
Francisco Rodríguez, 5255 5261 8828
frodriguez@iusa.com.mx