Financial Report for the Third Quarter of 2017 and Accumulated January-September of 2017

Transcription

1 Financial Report for the Third Quarter of 2017 and Accumulated January-September of 2017 Comments on operations (Millions of pesos unless otherwise indicated) CYDSA, S.A.B. de C.V. (MSE: CYDSASA) EQUUS 335 Parque Corporativo Avenida Ricardo Margain Zozaya No. 335 Torre 2 Colonia Valle del Campestre San Pedro Garza Garcia, Nuevo Leon, Mexico C.P Contacts in Investor Relations: Name Telephone Jose Rosas Villarreal jose.rosas@cydsa.com (52) Oscar Casas Kirchner oscar.casas@cydsa.com (52) Alberto Balderas Calderon alberto.balderas@cydsa.com (52) October 26,2017

2 Investments for Copetitivness and Growth CYDSA virtually concluded the first stage of the Company s strategy aimed at increasing the Competitiveness and Growth of its Manufacturing Businesses, as well as entering into new Ventures with capital expenditures for US$600 million, duly approved by the Board of Directors in recent years. Some of these investments follow: I. Completed Projects: Capacity Increase in Production of Evaporated Salt: This plant, producer of evaporated salt and located in Coatzacoalcos, Veracruz, incorporated redesigns and new equipment to the manufacturing process in several stages, with the purpose of increasing nominal production capacity from 400,000 to 670,000 tons per year. The last phase ended in January, Two Plants for Cogeneration of Electricity and Steam: CYDSA started in the city of Coatzacoalcos, Veracruz the operation of two Plants for Cogeneration of Electricity and Steam, the first one in March of 2014, and the second in March of The main objective of these plants consists in the supply of electricity and steam for the manufacture of salt, chlorine and caustic soda. The remaining electricity generated permits a future participation in the domestic market of electricity, in accordance with the regulations of the new Energy Reform. The potential generation capacity of both Plants is 114 megawatts-hour of electric power and 1 million annual tons of steam. New Chlorine, Caustic Soda and Chemical Specialties Plant: In March of 2016 operations started in a plant with state-of-the-art technology in order to manufacture chlorine, caustic soda and chemical specialties, located in Garcia, Nuevo Leon. This facility counts with a nominal annual production capacity of 60,000 tons of chlorine and 68,000 tons of caustic soda utilizing the most efficient process in the utilization of energy sources. Brine Extraction Wells and Caverns for Underground Storage of Hydrocarbons: In the new cavern zone for brine extraction used to process evaporated salt, located in the State of Veracruz, four caverns have been drilled, incorporating technical characteristics for their utilization in the storage of hydrocarbons. The fourth cavern drilling concluded in February of II. Project in its last stage of development: Underground Storage of Propane Liquid Gas (LP Gas): In November of 2014, CYDSA announced the signing of an agreement with Petroleos Mexicanos (Pemex) in order to develop this project, constituting the first one in Mexico and Latin America devoted to storing LP Gas in a saline cavern. The first phase concluded in September of 2015, consisted in the formation of one of the four caverns previously mentioned. The second stage, consisting in the construction of the necessary surface installations for the safeguarding, injection, extraction and transportation of LP Gas will be terminated in October of The estimated starting date for commercial operations with Pemex, supplying underground storage services of LP Gas, is over the last two weeks of November October 26,2017

3 Signing of Bank Loans I. Mortgage Loans In the fourth quarter of 2016, Cydsa S.A.B. de C.V. and one of its subsidiaries, signed mortgage loans for 760 million pesos with the purpose of supporting the Group s Investment Projects. II. Short-Term Loan On April 6, 2017, Cydsa, S,A.B. de C.V. signed a loan in the amount of US$80 million with Goldman Sachs Bank USA with a 364 days maturity. This new Loan supplies funds for finishing the surface installations of the Project for Underground Storage of Propane Liquid Gas (LP Gas). III. Syndicated Loan In CYDSA s General Shareholders meeting of April 27, 2017, the Company s management got the authorization for signing loans up to US$450 million dollars. On May 5 th of 2017 CYDSA, through its subsidiary Valores Quimicos, signed a Syndicated Loan granted by 11 Domestic and International Credit Institutions, with Citigroup Global Markets Inc. as Lead Bank, for an amount up to US$270 million. On May 12 of 2017, the first drawdown for US$230 million took place. The main portion of the loan liquidated the total balance of the Syndicated Loan of Valores Quimicos, signed on November 28 of Event subsequent to the close of the Third Quarter of 2017: Issuance of 10 year Senior Notes. On September 19, 2017, CYDSA s General Shareholder s Meeting approved for the Group s Holding Company, Cydsa S.A.B. de C.V. the signing of Long Term Loans up to an amount of 450 million dollars, through the issuance of one or several debt instruments known as Senior Notes to be sold either in Mexico or abroad, with the purpose of repaying the existent debt of the Company and/or its subsidiaries. Through a document addressed to the Mexican Stock Exchange, Cydsa informed the Investors that on October 4, 2017 the transaction successfully concluded with the issuance of Debt Instruments in the form of Senior Notes in international markets for US$330 million, maturing on October 4, 2027 and with an annual coupon rate of 6.25%. The proceeds of the Notes went to the prepayment of the Syndicated Loan of Valores Quimicos for US$232 million signed last May of 2017; as well as the Short-Term Loan signed with Goldman Sachs Bank USA in April of 2017, amounting US$80 million. 3 October 26,2017

4 Derivative Financial Instruments As of the close of September of 2017, CYDSA has two Derivative Financial Instruments: Interest Rate Swap In order to cover interest rate volatility on the Syndicated Loan signed in May of 2017, CYDSA entered into an Interest Rate Swap. With these agreement, instead of the variable three month Libor, a fixed annual rate of 1.24%, beginning in May of 2017 and ending on November 5, This derivative covers the interest of the applicable rate to US$120 million whose drawdown took place on May 12, Due to the prepayment of the Syndicated Loan on October 4, 2017, Management is currently analyzing the application of the sum stemming out of the cancelation of this contract. Exchange Coverage In the months of June and September of 2017, the Company bought Exchange Coverages for US$279.8 million against significant depreciations of the exchange rate. The prime payed for these instruments amounted to million pesos (equivalent to US$11.7 million dollars) with maturities on September 4 and 12 of This instrument covers a risk of an exchange rate above pesos per dollar without margin call requirements or additional disbursements besides the prime already payed. On October 10, 2017 the Company added an exchange rate coverage for US$ 50.0 million with maturity date on September 12, The prime payed of 28.1 million pesos (equivalent to US$1.5 million) covers the risk of an exchange rate above 21.5 pesos per dollar. Similarly, this transaction does not require margin calls or additional disbursements. With the purchasing of the exchange coverages mentioned above, the debt of Cydsa S.A.B. de C.V., as well as that of its subsidiaries, becomes protected against significant depreciations of the exchange rate up to September of October 26,2017

5 Results for the Third Quarter of 2017 Total Sales CYDSA s Net Consolidated Sales reached 2,243 million pesos during the third quarter of 2017, an increase of 21.0% from the 1,854 million of the same quarter of the prior year. In dollar terms, Sales for the third quarter of 2017 totaled an equivalent of US$126 million, up 27.3% from the US$99 million accumulated during the same period of The difference in dollar and peso terms derives from an average 4.9% appreciation of the Mexican peso, when comparing the average exchange rate during the third quarter of 2017 against the same quarter of Operating Income (EBIT) and Operating Cash Flow (EBITDA) 1 Operating Income (EBIT) for the third quarter of 2017 reached 389 million pesos, equivalent to 17.3% of Sales, an increase of 42.5% with respect to the 273 million or 14.7% on Sales reported for the same period of the prior year. This improvement derives mainly from larger commercialization of Salt; the start-up of the Iquisa Noreste Plant; as well as the savings in energy costs derived from the beginning of operations of the second Steam and Electricity Cogeneration Plant. Operating Cash Flow or EBITDA for the third quarter of 2017 added-up to 544 million pesos (24.3% on sales) representing an increase of 36.3% when compared with the 399 million (21.5% on sales) reported for the same period in In dollar terms, EBITDA for the third quarter of 2017 reached an equivalent of US$30.5 million, increasing 43.9% with respect to the US$21.2 million of the same period of the previous year. Net Income In the third quarter of 2017, Net Income reached the sum of 279 million pesos, an equivalent to 12.4% on Sales; an improvement of 101 million when compared with the Net Income of 178 obtained in the third quarter of 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. 5 October 26,2017

6 Accumulated Results from January to September of 2017 Total Sales CYDSA s Net Consolidated Sales accumulated as of September of 2017 reached 6,759 million peso, an increase of 32.4% from the same period of the prior year. In dollar terms, Sales for the first nine months of 2017 totaled an equivalent of US$360 million, up 29.5% from the US$278 million accumulated during the same period of The difference in dollar and peso terms derives from an average 3.3% depreciation of the Mexican peso, when comparing the average exchange rate during the first nine months of 2017 against the same period of Domestic Sales Sales to the domestic market during the first nine months of 2017 reached the sum of 6,041 million pesos, an increase of 28.4% compared to those of the same period in The Salt Business registered increased sales to the domestic market. Likewise, sales of chlorine, caustic soda and chemical specialties grew supported mainly by the start-up of the new Chlorine, Caustic Soda and Chemical Specialties Plant located in Garcia, Nuevo Leon (Iquisa Noreste). In addition, the manufacture and commercialization of refrigerant gases attained higher sales, mainly of last-generation refrigerant gases. Export Sales Export Sales from January to September of 2017, reached US$37.8 million, an increase of 75.0% when compared with those of the same period of the prior year, due mainly to larger shipments of chlorine and refrigerant gases. 6 October 26,2017

7 Sales by Business Segment The following chart depicts Total Sales by Business Segment accumulated as of September, 2016 and 2017: 32.5% 30.6% 36.5% Millions of dollars Change 2017 vs % 33.3 % 32.4% * Consolidated figures of the Salt, Chlorine-Caustic Soda and Chemical Specialties Segment, eliminate inter-company Sales. Sales of Salt, Chlorine-Caustic Soda and Chemical Specialties Segment during the January-September period of 2017, reached the sum of 4,584 million, an increase of 30.6% when compared to those of the same nine months of the prior year. Major activity in the domestic market of the Salt Business, as well as sales of the new plant Iquisa Noreste, explain the sales increase in this Segment. Total Sales of Refrigerant Gases and Other Businesses, added to 2,175 million during the first nine months of 2017, reporting a growth of 36.5%, against those of the same period of the previous year. New generation gases, explain the improvement in sales. 7 October 26,2017

8 Operating Income (EBIT) Accumulated Gross Profit 2 as of September of 2017 reached 2,507 million, representing an increase of 673 million or 36.7% when compared to 1,834 million reported for the same period in The main factors contributing to the improvement in Gross Profit follow: Larger sales in the Salt Business; The start-up of the Iquisa Noreste plant. This permitted the improvement of commercialization margins in chlorine, caustic soda and chemical specialties; Beginning of operations of the second Cogeneration of Electricity and Steam Plant; and Greater activity in the Refrigerant Gases Business. General Operating Expenses during the first nine months of 2017, reached 1,284 million pesos, an increase of 26.9%% when compared with 1,012 million observed during the same period of the prior year. This increase derives mainly from the start-up of the new plants Iquisa Noreste and Cogeneration of Electricity and Steam II, both in March of Other Income, net, reached 17 million pesos during January-September period of This figure compares with 8 million of Other Expenses, net, reported for the same months of the previous year. Therefore, CYDSA registered in the first nine months of 2017 an Operating Income (EBIT) of 1,240 million (18.4% on Sales), a figure that compares with an Operating Income of 814 million (16.0% on Sales) reported for the same period of 2016, representing an increase of 52.4%. Operating Cash Flow (EBITDA) Operating Cash Flow (EBITDA) for the first three quarters of 2017 reached 1,679 million pesos (24.8% on Sales), an increase of 46.0% compared to the 1,150 million (22.5% on Sales) attained in the same nine months of the previous year. In dollar terms, EBITDA for January-September of 2017 amounted to an equivalent of US$89.6 million, representing an increase of 42.7% versus the US$62.8 million reported for the same period in Gross Profit is defined as Sales less Cost of Sales. 8 October 26,2017

9 Net Financial Expense Net Financial Expenses, including financial expenses, financial income and foreign exchange loss, accumulated as of September of 2017, reached 721 million, a figure that compares with 188 million registered for the same period of the prior year. A table presenting the integration of Net Financial Expense follows: Change Financial Expense (249) (160) (89) Loss derived from Derivative Financial Instruments (49) (49) Interest Income Foreign Exchange Loss (474) (71) (403) Net Financial Expenses (721) (188) (533) The table shows that Financial Expenses grew by 89 million, due to a larger debt used mainly in the financing of Underground Storage of LP Gas. In addition a loss stemming from Derivative Financial Instruments resulted, originated from the recognition of the market value of the financial instruments described in page 4 of this Report. Addressing now the foreign exchange effect, accumulated as of September of 2017 a foreign exchange loss resulted, in the amount of 474 million pesos as a consequence of the valuation of monetary items of businesses with the US dollar as functional currency, derived from an appreciation of the exchange rate from peso per dollar as of the close of December of 2016, to pesos per dollar as of the close of September of This effect translates into an increase of 403 million pesos against the prior year. Income Tax Income Tax for the first nine months of 2017 amounted to a positive amount of 166 million pesos, against the 219 million reported for the same period of the previous year. Loss from Discontinued Operations, net Loss from Discontinued Operations, net, shows a negative result in the amount of 14 million pesos, derived from the Acrylic Yarns Business, an operation that shut-down in April of Net Consolidated Income In the first nine months of 2017, CYDSA registered a Net Consolidated Income in the amount of 671 million (9.9% on Sales), increasing by 258 million or 62.4% from 413 million (8.1% on Sales) for the same period of October 26,2017

10 Financial Condition A summary of the relevant Balance Sheets as of September 30, 2017 and December 31, 2016 follow: September 2017 December 2016 Change Current Assets 3,870 2,826 1,044 Non-Current Assets 16,650 17,416 (766) Total Assets 20,520 20, Current Liabilities 3,598 2,461 1,137 Non-Current Liabilities 6,759 7,382 (623) Total Liabilities 10,357 9, Shareholders Equity 10,163 10,399 (236) Explanations of the major changes in the Balance Sheet accounts as of September 30, 2017 compared to those of December 31, 2016 appear below. Current Assets The table above shows that Current Assets increased by 1,044 million pesos, moving from 2,826 million as of December 31, 2016 to 3,870 million at the close of September, The main causes for said increase in Current Assets derive from the increase in Trade Receivables due to major sales; as well as from a larger cash balance, a line-item that includes the resources stemming from a loan used to finance the Underground LP Gas Storage project. Non-Current Assets Non-Current Assets of 16,650 million as of September 30, 2017, dropped by 766 million pesos, from the close of 2016, due largely to the fact that Fixed Assets valued in foreign currency decreased, due to the appreciation in the exchange rate of 11.9%, since the exchange rate went from $20.62 pesos per dollar at the close of December, 2016 to $18.16 as of September 30, Total Liabilities CYDSA s Total Liabilities as of September 30, 2017, increased by 514 million with respect to the figure reported as of the close of December, The following items detail the most relevant changes: New Debt 5,834 Payment of Bank Debt (4,433) Impact of Peso appreciation on dollar denominated Bank Debt (312) Decrease in deferred Income Tax Liabilities, derived from the reduction in the assessment of Fixed Assets valued in dollars (551) Trade Receivables and other items (24) Increase in Total Liabilities October 26,2017

11 CYDSA closed September of 2017 with a Bank Debt, net of cash and cash equivalents in the amount of 5,368 million pesos, an increase of 464 million with respect to the Net Bank Debt of 4,904 million pesos as of December 31, In equivalent dollar terms, as of September 30, 2017, Net Bank Debt reached US$295.6 million, an increase of US$57.8 million with respect to the Net Debt of US$237.8 million at the close of CYDSA s Bank Debt to EBITDA ratio resulted in a value of 2.76 times at the close of September, 2017, a figure that compares with 2.94 times as of December 31, Shareholders Equity Shareholders Equity reached the sum of 10,163 million as of the close of September of 2017, a decrease of 236 million pesos when compared with the amount reported for December 31, The main causes for this reduction in Shareholders Equity follow: Net Income of the first nine months of Dividend to Shareholders of CYDSA S.A.B. de C.V. (120) Foreign Exchange Conversion Effect in the Chlorine-Caustic Soda; Cogeneration of Electricity and Steam; Refrigerant Gases and Underground Storage of Hydrocarbons 3 (787) Decrease in Shareholders Equity (236) The Book Value per share indicator, as of September 30, 2017 resulted in pesos per share, compared with a value reported as of December 31, 2016 amounting to pesos per share. Security Analysis Coverage Cydsa, S.A.B. de C.V. (MSE:CYDSASA) receives coverage from the following Brokerage Firms: GBM Grupo Bursatil Mexicano, INTERACCIONES and BURSAMETRICA. Financial Information follows 3 In accordance with IFRS rules, the US dollar constitutes the functional currency for these Businesses, due to the fact that such currency constitutes the reference for their main assets, income and/or operating costs. The peso appreciation of 11.9% with respect to the dollar, from $20.62 pesos per dollar as of the close of December, 2016, to $18.16 as of June 30, 2017, derived in a reduction of dollar denominated Fixed Assets due to the Conversion Effect. 11 October 26,2017

12 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of September 30, 2017 and December 31, 2016 (Millions of pesos) September 2017 December 2016 Change % ASSETS Cash and Cash Equivalents $ 1,249 $ % Trade Receivables, net 1, % Other Receivables, net % Inventories % Discontinued Current Assets % Current Assets 3,870 2, % Property, Plant and Equipment, net 16,084 16,976-5% Other non-current Assets % Discontinued non-current Assets % Non-Current Assets 16,650 17,416-4% Total Assets $ 20,520 $ 20, % LIABILITIES Bank Debt $ 1,641 $ % Trade Payables 1,107 1,199-8% Other Current Liabilities % Taxes Payable % Discontinued Current Liabilities % Current Liabilities 3,598 2, % Bank Debt 4,848 4, % Other non-current Liabilities 1,425 2,135-33% Employee Benefits % Discontinued non-current Liabilities % Total non-current Liabilities 6,759 7,382-8% Total Liabilities 10,357 9, % SHAREHOLDER EQUITY Capital Stock 2,825 2,825 Additional paid-in Capital 1,129 1,129 Repurchase of Own Shares (294) (294) Retained Earnings 4,704 4, % Accumulated other Comprehensive Income, net of Tax 1,434 2,174-34% Shareholders Equity of Controlling Interest 9,798 10,080-3% Non-controlling Interest % Shareholders Equity 10,163 10,399-2% Liabilities and Shareholders' Equity $ 20,520 $ 20, % 12 October 26,2017

13 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS for the third quarter of 2017 and 2016 (July the 1 st. to September 30) (Millions of pesos) 3Q17 3Q16 Change % Net Sales $ 2,243 $ 1, % Cost of Sales (1,402) (1,195) + 17% Gross Profit % General Expenses (461) (382) + 21% Other Income (Expenses), net 9 (4) Operating Income % Net Financial Expenses: Financial Expenses (118) (13) Loss from Derivative Financial Instruments (27) Interest Income % Foreign Exchange Loss (17) (17) Net Financial Expenses (149) (22) Income Before Income Tax % Income Tax 40 (80) Income of Continuing Operations Result from Discontinued Operations, net (1) 7 Net Income % Controlling Interest Share in Net Income $ 260 $ 163 Non-Controlling Interest Share in Net Income October 26,2017

14 Third Quarter of 2017 and 2016 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS AND RATIOS Income Statement data (Millions of pesos) 3Q17 3Q16 Change % Net Sales 2,243 1, % Net Sales (Equivalent in millions of dollars) % Export Sales (Millions of 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 17.3% 14.7% Operating Cash Flow (EBITDA) / Sales 24.3% 21.5% 14 October 26,2017

15 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS from January the 1st. to September 30, 2017 and 2016 (Millions of pesos) Accum. J-S 17 Accum. J-S 16 Change % Net Sales $ 6,759 $ 5, % Cost of Sales (4,252) (3,268) + 38% Gross Profit 2,507 1, % General Expenses (1,284) (1,012) + 27% Other (Expenses) Income, net 17 (8) Operating Income 1, % Net Financial Expenses: Financial Expense (249) (160) + 56% Loss from Derivative Financial Instruments (49) Interest Income % Foreign Exchange Loss (474) (71) + 568% Net Financial Expenses (721) (188) + 284% Income Before Income Tax % Income Tax 166 (219) Income of Continuing Operations % Result from Discontinued Operations (14) 6 Net Income % Controlling Interest Share in Net Income $ 578 $ 351 Non-Controlling Interest Share in Net Income October 26,2017

16 CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS AND RATIOS Accumulated as of September 2017 and 2016 Income Statement data (Millions of pesos) Accum. Sept.-17 Accum. Sept.-16 Change % Net Sales 6,759 5, % Net Sales (Equivalent in millions of dollars) % Export Sales (Millions of dollars) % Operating Income 1, % Net Income % Cash Flow data (Millions of pesos) Operating Cash Flow (Income after general expenses plus Depreciation and other noncash items), EBITDA 1,679 1, % Operating Cash Flow (Equivalent in millions of dollars) % Operating Ratios (Percentage) Operating income (EBIT) / Sales 18.4% 16.0% Operating Cash Flow (EBITDA) / Sales 24.8% 22.5% As of the close of September, 2017 and December, 2016 September 2017 December 2016 Financial indicators (times) Net bank debt / EBITDA (1) Bank debt / Shareholders equity Current assets / Current liabilities Book value per share (pesos) (2) (1) Last 12 months (2) Based on 600'000,000 outstanding. 16 October 26,2017