Financial Report for the First Half of 2014

Transcription

1 CYDSA, S.A.B. de C.V. (MSE: CYDSASA) Ave. Ricardo Margain Zozaya # 565 Parque Corporativo Santaa Engracia, Edificio B, Garza Garcia, Nuevo Leon Mexico Financial Report for the First Half of 2014 Contacts in Investor Relations: Name Jose Rosas Villarreal Alberto Balderas Calderon Oscar Casas Kirchner jrosas@cydsa.com abalderas@cydsa.com ocasas@cydsa.com Telephone (52) (52) (52) Comments on operations for the First Half of 2014 (Millions of pesos unless otherwise indicated) Impact of the Economic Environment on CYDSA International Economic Environment The most recent indicators related to the behavior of the US economy, report important movements in productive activities headed for recovery from April of 2014 on; derived from a faster pace in personal consumption and private investment. For this reason, the great majority of estimations for the Gross Domestic Product (GDP) for the second quarter of 2014 circle around an annualized growth of 3.6%; a change in trend when compared to the 2.9% decline reported for the immediately preceding quarter and outdoing the 1.9% average for The recovery of the US economy and the sociopolitical risks in several oil producing countries, have resulted in the upholding of relatively high prices in the international oil market. Consequently, taking the West Texas Intermediate (WTI) as reference, crude oil registered an average of US$ per barrel in the second quarter of 2014, a price 9.8% higher than the US$94.15 for the same period of (Source: US Energy Department). 1 July 24, 2014

2 On the other hand, rates for natural gas in the US, used as reference to establish the prices of this energy source in Mexico, continued the trend of relatively high prices observed since 2012, in spite of the equilibrium among energy demand and supply, as well as the extraction technology developments, allowing the increase in supply of shale gas. In addition, starting in April of 2013, prices in Mexico include an extra cost related to the import of liquefied natural gas, necessary to cover the domestic demand of this energy source. Therefore, prices for natural gas in Mexico during the second quarter of 2014 averaged US$5.06 per million BTUs, a figure 13.2% higher than the US$4.47 per million BTUs observed during the same quarter of the previous year. (Source: Pemex). Domestic Economic Environment According to available information, during the second quarter of 2014 the Mexican economy maintained the relatively slow development pace observed during 2013, influenced by the moderate behavior of industrial production in the US, as well as by the restrictive effects of the fiscal policy on consumption and private sector investment. Therefore, based on analyses published by Mexico s Central Bank, the country s GDP s growth estimations approximate an annual rate of 2.1% during the second quarter of 2014, while for the immediately preceding quarter resulted in 1.8%, and 1.1% for the whole year The inflationary process decelerated slightly during the second quarter of 2014, registering as of the month of June an annual increase of 3.7%, lower than the 4.0% inflation reported as of December of The exchange market reported an appreciation of the Mexican peso with respect to the levels reached during the final months of the prior year, averaging pesos per dollar during the second quarter of 2014, a figure 1.8% lower than the pesos registered the previous quarter, although it implied a depreciation of 4.0% when compared to the pesos per dollar of the second quarter in The price increases in energy sources have resulted in higher prices for electric power. Jointly, they have brought about escalations in operating costs. Additionally, the demand deceleration has caused a drop in units sold for several of Cydsa s product lines. Consequently some of the Group s Businesses have reported decreases in their profit margins. 2 July 24, 2014

3 Signing of Bilateral Loan On September 18 of 2012, Valores Quimicos, S.A. de C.V. signed a five year term Bilateral Loan in the amount of US$50 million with Coöperatieve Centrale Raiffeisen- Boerenleenbank B.A. "Rabobank Nederland", New York Branch. The drawdowns of this Credit took place on the following dates and ensuing amounts: US$30 million on November 15, 2012; and US$20 million on May 16, The purpose of the total amount of this loan can be described as the financing of the first Electricity and Steam Cogeneration Plant, in Coatzacoalcos, Veracruz. This project started operations at the end of March, Increase in Capital Stock In the Extraordinary Shareholders Meeting of CYDSA held on April 24, 2013 the approval of an increase in Capital Stock resulted. This raise in the amount of 30 million shares, has as main objective to support the Group s Capital Expenditure Investments. On May 28, 2013, CYDSA informed through a Relevant Event report the full underwriting of the 30 million shares of Capital Stock at a subscription price, approved by the Extraordinary Shareholder s Meeting, of $46 pesos per share. Stock Split CYDSA informed through a Relevant Event report, published on October 17, 2013 that starting on October 30, 2013 a Stock Split would take place. Such split approved by the Extraordinary Shareholders' Meeting held on April 24, 2013, meant that for every share of stock then outstanding, new shares resulted. Therefore, the number of shares of Capital Stock increased from 212,047,700 to 600,000,000 (six hundred million). In addition, as a consequence of the aforementioned Stock Split, the Mexican Stock Exchange adjusted the price of CYDSA s shares from $47.01 on October 24, 2013 to $16.61 pesos per share on October 25, July 24, 2014

4 Investments for competitiveness and growth CYDSA s Board of Directors approved the new development with growth strategy, directed to improve Competitiveness and Growth, in the Groups' Businesses participating in Industries related to Salt and Chlorine-Caustic Soda products, including investments in the amount of US$388.0 million. Some of these projects follow: Project Redesign and renovation of the evaporated salt manufacturing process in order to increase nominal production capacity from 400,000 to 570,000 tons per year Development of a new zone for brine drilling and extraction; and drilling of three wells with potential use as caverns for hydrocarbons storage Building of Cogeneration Plant I with capacity to simultaneously generate electricity and steam based on natural gas, in Coatzacoalcos, Veracruz, with a potential annual generation capacity of 60 megawatts of electricity and 550,000 tons of steam Building of Cogeneration Plant II with capacity to simultaneously generate electricity and steam based on natural gas, in Coatzacoalcos, Veracruz, with a potential annual generation capacity of 60 megawatts of electricity and 550,000 tons of steam Installation of a production plant with state of the art technology to produce 60,000 ECUs of chlorine, caustic soda and chemical specialties, located in Garcia, Nuevo Leon Investment Amount (Millions of dollars) Progress (%) June 30, 2014 Estimated start-up date US$ % Completed in March of 2014 US$ % Well 1:Completed Well 2: Completed Well 3: First Quarter of 2015 US$ % Completed in March of 2014 US$55.0 In Progress Third Quarter of 2015 US$ % Third Quarter of July 24, 2014

5 Results Total Sales CYDSA s Net Consolidated Sales for the first half of 2014 reached 2,694 million pesos, an increase of 3.1% from the same period of the prior year. In dollar terms, accumulated Sales as of June, 2014 totaled an equivalent of US$206 million, down 1.2% from the US$208 million accumulated during the same period of The different behavior of Sales in pesos against the same figure expressed in dollars derives from the 4.2% depreciation of the Mexican peso when comparing the average exchange rate during the first six months of 2014, against that of the same period of the previous year. The following sections related to Domestic and Export Sales contain an explanation of the factors contributing to the variation in Sales. Domestic Sales Sales to the domestic market during the first half of 2014 reached the sum of 2,501 million pesos, an increase of 2.5% compared to those of the same period in In the January-June period of 2014, sales of edible salt to the domestic market reported a weighted average growth of 6% in units against the same period of the prior year. On the other hand, the Chlorine, Caustic Soda and Chemical Specialties Business received a negative impact due to the fact that international prices of caustic soda dropped during the first six months of the year, when compared to those of the same period of During the first half of 2014, refrigerant gases attained higher sales due to an increase in the demand for these products. Therefore, unit sales achieved an increase of 23% when compared to those of the same period of the prior year. Export Sales Export Sales during the first six months of 2014 reached an amount of US$14.8 million, an increase of 9.6% versus the same period of July 24, 2014

6 Sales by Business Segment The following chart depicts Sales by Business Segment, accrued as of June 30, 2013 and 2014: Total Sales by Business Segment * 2013 and 2014 (Millions of pesos) 3.8% 3.1% 2,510 2,606 2,612 2, % Chemical Products Acrylic CYDSA and Yarns Consolidated Specialties Millions of dollars Change 2014 vs % 17.2% 1.2% * Consolidated figures of Chemical Products and Specialties eliminate inter-company Sales. Accumulated Sales of the Chemical Products and Specialties Segment as of June 30, 2014, reached the sum of 2,606 million, an increase of 3.8% when compared to those of the same period of the prior year. The increase in demand for edible salt and refrigerant gases boosted the sales increase in this Segment. Total Sales of Acrylic Yarns added up to 88 million pesos during the first half of 2014, a decrease of 13.7% when compared with those of the first six months of The Acrylic Yarns business remains negatively affected by lower volume in both domestic and international markets. The Mexican Textile Industry continues facing a mounting competition from textiles and apparel, mostly of Asian-Pacific origin, frequently using unfair or illegal trade practices. 6 July 24, 2014

7 Gross Profit and General Expenses Accumulated Gross Profit 1 as of June of 2014 amounted to 939 million pesos, a 48 million or 5.1% decrease from 987 million generated during the same period of the previous year. During the final days of March, 2014 the first plant for Cogeneration of Electricity and Steam started operations. This allowed CYDSA to attain significant savings in the consumption and costs of these two energy sources. On the other hand, during the second quarter of 2014 international prices of caustic soda continued decreasing, a fact that brought about a reduction in the Group s Gross Profit, when comparing it to the one reported for the same period of the prior year. General Expenses for January-June, 2014 reached 554 million pesos, up 15.9% when compared with 478 million reported for the same period of the prior year. The start-up of this first Cogeneration plant, together with larger volumes, due to capacity expansion in salt, caused part of the increase in General Expenses. Other Income (Expenses), net Other Income, net, reached 17 million pesos during the first half of 2014, derived primarily from the sale of unused assets. This figure compares to 1 million of Other Income, net reported for the first six months of Operating Income Therefore, CYDSA registered an Operating Income (EBIT) of 402 million pesos (14.9% of sales) in the first half of 2014, a figure that compares with the Operating Income of 510 million obtained during the same period of the prior year, representing a decrease of 21.2%. Operating Cash Flow Operating Cash Flow (EBITDA) 2 for the first half of 2014 reached 535 million pesos (19.9% on sales), a decrease of 9.5% compared to the 591 million attained during the same period of the previous year (figures presented on page 14 of this Report). In dollar terms, EBITDA as of the close of the first six months of 2014 amounted to an equivalent of US$40.9 million, a drop of 13.0% versus the US$47.0 million reported for the same period in The causes for the reduction in Gross Profit, also apply to the decrease in Operating Income (EBIT) and EBITDA. 1 Gross Profit is defined as Sales less Cost of Sales. 2 Operating Cash Flow or EBITDA equals Income before: Net Financial Income (Expenses), Income Tax, Depreciation and Amortization. EBITDA amounts to Operating Income plus non-cash items. 7 July 24, 2014

8 Financial Income (Expenses), net In the first half of 2014, Financial Income, net (after interest income and foreign exchange result) accrued 58 million pesos, compared to Net Financial Expenses of 70 million pesos registered for the same period of the previous year. A table comparing the first six months of 2014 Financial Income, Net with those of the first half of 2013 follows: Change Financial Expenses (92) (90) (2) Capitalized Financial Expenses Interest Income Foreign Exchange Result, Net 19 (25) 44 Financial Income (Expenses), net 58 (70) 128 The International Financial Reporting Standards (IFRS) determine the capitalization in Fixed Assets of all financial expenses related to the financing of Investment in Projects, reducing therefore interests registered in the Income Statement. The foregoing table shows Capitalized Financial Expenses for the first half of 2014 in the amount of 38 million pesos against 6 million for the same period of the prior year. On the other hand, the peso appreciation of 0.9%, when the exchange rate went from pesos per dollar in December of 2013 to pesos at the close of June, 2014, generated an exchange gain in the amount of 19 million pesos. During the January-June period of 2013, an exchange depreciation of 1.6% resulted when the Mexican peso went from pesos per dollar in December of 2012 to pesos as of June 30, 2013, generating a loss for 25 million pesos. Income before Income Tax Income before Income Tax amounted to 460 million pesos in the first half of 2014, a figure that compares with the Income of 440 million reported for the same period in Income Tax Income Tax for the first six months of 2014 amounted to 150 million pesos, compared to taxes for 146 million reported for the same period of the prior year. Net Consolidated Income During the first half of 2014, CYDSA registered a Net Consolidated Income in the amount of 310 million (11.5% on Sales), increasing by 16 million or 5.4% when compared to the Net Income of 294 million (11.3% on Sales) for the same six months in July 24, 2014

9 Impact of Mexican Fiscal Consolidation Tax Reform in 2010 and 2014 In 2010, a new Income Tax Law raised the Corporate Income Tax rate from 28% to 30% and also modified, retroactively, the process related to Fiscal Consolidation of Business Groups. In addition, starting in 2014 a new law replaces the current system for Tax Consolidation of Business Groups. Under the new Reform, the total of taxable income and taxable loses for individual business units, provide a consolidated profit factor applicable to all income generating units. The resulting deferred taxes become due in year three. As a result of these reforms, as of June 30, 2014 CYDSA registered a Tax Liability of 1,198 million pesos in Other Liabilities. The annual amortization program ends in 2023, and includes 161 million of a short-term nature. Financial Condition A summary of the relevant Balance Sheets items as of June 30 of each year follows: June 2014 June 2013 Change Current Assets 4,633 6,177 (1,544) Non-Current Assets 7,969 6,238 1,731 Total Assets 12,602 12, Current Liabilities 1,555 1, Non-Current Liabilities 3,542 3,830 (288) Total Liabilities 5,097 5, Shareholders Equity 7,505 7, Explanations of the major changes in the Balance Sheet accounts as of June 30, 2014 compared to those of June 30, 2013 appear below. Current Assets The table above shows that Current Assets decreased by 1,544 million pesos, moving from 6,177 million as of June 30, 2013 to 4,633 million at the close of June, The main cause for said decrease in Current Assets derives from the use of Cash for the Group s Competitiveness and Growth Investments. Cash and Cash Equivalents comprise the most substantial part of Current Assets, amounting to 3,033 million as of the close of June, Non-Current Assets Non-Current Assets of 7,969 million as of June 30, 2014, grew by 1,731 million pesos, from 6,238 million reported at the close of June 2013, due largely to Investments in Fixed Assets for Competitiveness and Growth of the last twelve months, net of depreciation. 9 July 24, 2014

10 Total Liabilities CYDSA s Total Liabilities as of June 30, 2014 in the amount of 5,097 million, increased by 63 million with respect to the 5,034 million reported as of the close of June, The variations related to the changes in Total Liabilities at the close June of 2014 and 2013 follow. June 30, 2014 vs 2013 New Debt 130 Payment of Bank Debt (182) Impact of Peso depreciation on dollar denominated Bank Debt (9) Increase in Trade Payables 27 Other Liabilities 97 Increase in Total Liabilities 63 CYDSA closed the month of June of 2014 with a Bank Debt equivalent to 2,350 million pesos (US$181.2 million), a decrease of 61 million pesos (US$3.9 million) with respect to the Debt of 2,411 million pesos (US$185.1 million) as of June 30, CYDSA s Bank Debt to EBITDA ratio resulted in a value of 2.42 times at the close of June, 2014, a figure that compares with 2.37 times as of June 30, 2013 (figures shown in page 14 of this Report). Shareholders Equity Shareholders Equity reached the sum of 7,505 million as of the close of June of 2014, an increase of 124 million pesos when compared with the 7,381 million reported on June 30, The main causes for this increase in Shareholders Equity follow: June vs 2013 Net Income of the last 12 months 516 Repurchase of Own Shares (159) Dividend Payment to Shareholders of Cydsa, S.A.B. de C.V. 3 (230) Foreign Exchange Conversion Effect in the Chlorine-Caustic Soda and Refrigerant Gases Businesses 4 (3) Increase in Shareholders' Equity On December 9, 2013 a General Shareholders Meeting decreed dividends in the amount of 150 million, paid during that same month of December. In addition, in May of 2014 the Company paid dividends in the amount of 80 million, decreed by the General Shareholder s Meeting of April 30, In accordance to IFRS standards, the US dollar represents the functional currency for these Businesses, due to the fact that such currency constitutes the reference for their main income items and/or operating costs. 10 July 24, 2014

11 Shareholders Equity (continued...) After considering the capital increase and the adjustments in the number of shares outstanding derived from the stock split mentioned in page 3, as well as other movements in Shareholder Equity described in page 10, the Book Value per Share as of June 30, 2014 reached pesos per share, a figure that compares favorably with the pesos per share reported at the close of June, Treasury Policies One of CYDSA s policies is to manage from a central treasury all Temporary Investments of Excess Cash both in Mexican pesos and in US Dollars. These Investments are carried on account of each one of the Companies integrating the Group, using modules for cash centralization, debt centralization and cash forecasts. Temporary Investments are made both in Mexican Pesos as well as in Dollars of the United States of America. Internal Control CYDSA has an Internal Audit department, whose objective is to inform Management on the Compliance with Corporate Policies and Practices, Financial Information Quality and Asset Care, both of the Holding Company as well as its Subsidiaries. This function is carried out through an Annual Internal Audit Program. In the course of this process, the team responsible for this practice reviews and evaluates the companies, corporate Divisions and Investment Projects compliance. In addition, opportunity areas for improvement of effectiveness of control systems as well as the application and follow-up of action plans, are determined. Furthermore, the Company s Board of Directors has a Corporate Governance Practices and Audit Committee. The Chairman of this Committee and its members are Independent. The Corporate Governance Practices and Audit Committee meets periodically in order to review the status of the Internal Audit Program. It also meets to examine the Independent Auditors Report on the Financial Statements, as well as to evaluate Corporate Governance Practices. Social Responsibility The Social Responsibility Report is available to any interested party in the Company s webpage: Security Analysis Coverage Cydsa, S.A.B. de C.V. (MSE: CYDSASA) is registered in the Independent Analyst Program of the Mexican Stock Exchange. The company Servicios de Analisis en Linea S.C., BURSAMETRICA ; is responsible for the coverage of the economic, managerial and financial information of the Group. Financial Information Follows 11 July 24, 2014

12 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of June 30, 2014 and 2013 (Millions of pesos) ASSETS Cash and cash equivalents $ 3,033 $ 4,511 Trade receivables, net Other receivables, net Inventories Current assets 4,633 6,177 Investments Property, plant and equipment, net 7,449 5,800 Deferred income tax Other non-current assets Non-current assets 7,969 6,238 Total assets $ 12,602 $ 12,415 LIABILITIES Bank debt $ 442 $ 183 Trade payables Other current liabilities Tax payable Current liabilities 1,555 1,204 Bank debt 1,890 2,201 Other non-current liabilities 1,165 1,142 Employee benefits Non-current liabilities 3,542 3,830 Total liabilities 5,097 5,034 SHAREHOLDERS EQUITY Capital stock 2,825 2,825 Additional paid-in capital 1,129 1,129 Repurchased shares (258) (99) Stock in trust 0 0 Retained earnings 3,466 3,190 Accumulated other comprehensive income, net of tax Shareholders equity of controlling interest 7,241 7,127 Non-controlling interest Shareholders equity 7,505 7,381 Liabilities and shareholders' equity $ 12,602 $ 12, July 24, 2014

13 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS From January the 1st. to June 30, 2014 and 2013 (Millions of pesos) Net sales $ 2,694 $ 2,612 Cost of sales (1,755) (1,625) Gross profit General expenses (554) (478) Other income (expenses), net 17 1 Operating income Financial income (expenses), net: Financial expenses (54) (84) Interest income Foreign exchange result, net 19 (25) Financial income (expenses), net 58 (70) Share in results of associates and joint venture 0 0 Income before income tax Income tax (150) (146) Net income Controlling interest $ 296 $ 292 Non-controlling interest July 24, 2014

14 Income statement data (Millions of pesos) CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS AND RATIOS accrued as of June 30, 2014 and Net sales 2,694 2,612 Net sales (Equivalent in millions of US dollars) Export sales (Millions of US dollars) Operating income Net Income Cash flow data (Millions of pesos) Operating cash flow (Income after general expenses plus depreciation and other non-cash items), EBITDA Operating cash flow (Equivalent in millions of US dollars) Operating ratios (Percentage) Operating income (EBIT) / Sales 14.9% 19.5% Operating cash flow (EBITDA) / Sales 19.9% 22.6% Financial indicators (Times) Bank debt / EBITDA Bank debt / Shareholders equity Current assets / Current liabilities Book value per share (pesos) (1) (1) Based on 600'000,000 shares outstanding. 14 July 24, 2014