GIS Reports Second Quarter 2018 Results with Double-Digit Growth in Revenues and EBITDA

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1 Media Contact Tel: +52 (844) Investor Relations Contact Tel: +52 (844) GIS Reports Second Quarter 2018 Results with Double-Digit Growth in Revenues and EBITDA Saltillo, Mexico, July 20, Grupo Industrial Saltillo, S.A.B. de C.V. (BMV: GISSA) ( GIS, or the Company ), a global Mexican manufacturing company serving the automotive, construction and housewares industries, today announced its unaudited results for the second quarter (2Q18). All figures are expressed in Mexican pesos ($) unless otherwise noted. Consolidated Financial Highlights 1 In millions of pesos, unless otherwise stated Second Quarter Six Months Change Change Revenues 5,195 4,695 11% 10,438 9,919 5% EBIT (8%) (17%) Margin 7% 8% 8% 10% EBITDA % 1,465 1,466 0% Margin 13% 13% 14% 15% Net Income (44%) 612 1,044 (41%) Margin 3% 5% 6% 11% EPS 2 (pesos) (59%) CAPEX % % Net Debt 3 6,898 6,769 Net Debt to EBITDA 4 2.3x 2.5x 1. Calorex, the water heater business was reincorporated into consolidated results for both periods 2. Earnings per Share is based on results for the last 12 months (LTM) 3. Net Debt = Short & Long-term Financial Liabilities Cash (before deducting capitalized fees and expenses) 4. Only this indicator is calculated in dollars Effects on Comps EBIT and Net Income for 2Q18 include charges derived from PPA described on page 3. CFR in 2Q18 represented a charge of $ 138 million, while in 2017 it was a benefit of $ 14 million. This is mainly due to FX effects. 1

2 Pro Forma Consolidated Financial Highlights including JVs 1 In millions of pesos, unless otherwise stated Second Quarter Six Months Change Change Revenues 5,517 4,924 12% 11,107 10,321 8% EBIT (1%) 940 1,048 (10%) Margin 7% 8% 8% 10% EBITDA % 1,672 1,573 6% Margin 14% 14% 15% 15% Net Debt ² 7,806 7,699 Net Debt to EBITDA 3 2.3x 2.9x 1. Water Heating Business was reincorporated into Consolidated results for both periods 2. Net Debt = Short & Long-term Financial Liabilities Cash (before deducting capitalized fees and expenses) 3. Only this indicator is calculated in dollars For comparative purposes only, below please find pro forma results that include GIS combined with its JVs at 100% ownership. Consolidated pro forma results include the following JVs: Evercast (JV with ZF - GIS has a 70% stake, Irapuato, Mexico) GISEderlan (JV with Fagor Ederlan - 50% stake for each, SLP, Mexico) InfunEderlan (JV with Fagor Ederlan - 50% stake for each partner, Wuhu, China) Comments from the CEO José Manuel Arana This quarter, GIS reported a significant double-digit growth in revenues and EBITDA, confirming the results of our Globalization Strategy, achieving regional, customer, currencies and product diversification. Consumption Sector, and specifically Draxton, boosted our results in a challenging environment. Working with a clear vision we will achieve our goals. Recently, we contracted a syndicated loan for US$ 300 million, this financing agreement is a substitution of our successful financial strategy to acquire ACE and Infun during 2016 and This step consolidates and strengthens GIS s financial position, bringing liquidity and flexibility to our operations, as well as improving current leverage. During 2Q18 we have integrated Calorex back into the Consolidated Figures. Calorex is a strong and leading business within the industry, a recognized brand among our customers and appreciated with a high attractiveness level. Vitromex Business has encountered important challenges, during 2Q18, we introduced relevant changes, assuming restructuring costs, fostering changes to increase productivity and efficiencies triggering an overall turnaround. The results of this commitment will be reflected in the following quarters. 2

3 Financial Results GIS s globalization strategy confirms the differentiation and competitive advantages of its operations within a volatile and uncertain scenario. In 2Q18, the Company reported greater dynamism than the industries in which it operates in. Consolidated revenues for 2Q18, denominated in pesos, posted a significant increase of 11% to $ 5,195 million. During the second quarter, all businesses, except for Vitromex, reported revenue growth compared to the same period last year. Draxton registered an increase in revenue in U.S. dollars of 12% vs 2Q17. It is important to highlight that, both, North America and Europe/Asia reported growth versus the same period of last year; notably, Draxton Brakes Europe posted a 14% increase in sales versus the previous year. In 2Q18, Vitromex sales declined by 10%. This was mainly attributable to a revenue contraction in the U.S. driven by lower sales volume resulting from the portfolio restructuring process, as well as to a lower sales price used to promote the reduction of inventory. On the other hand, Calorex, whose figures were re-incorporated into the consolidated results as of this quarter, reported a significant increase of 11% in revenues in 2Q18 versus 2Q17. This effect was mainly due to higher volumes sold to the construction channel. The Housewares segment had one of its best quarters, reporting growth of 12% in 2Q18. This result was mostly driven by the vitrified steel category. It is important to highlight that as of 4Q17, EBIT for every quarter is affected by charges related to the reclassification, and if applicable, amortization of various items of the Balance Sheet and to the price paid for the acquisitions of Infun. This process, known as Purchase Price Allocation, or PPA, implied a higher depreciation and amortization expense affecting 2Q18 EBIT comparisons versus Consolidated EBITDA for 2Q18 increased by 10% versus 2Q17; mainly driven by Draxton which reported double-digit growth in North America as well as in Europe/Asia. The Housewares segment also contributed with a significant 64% growth in profitability versus the previous year. During 2Q18, the Company announced the termination of its sales agreement with Rheem Industries Co. regarding its Water Heater Business after COFECE decided not to approve the transaction for anti-trust reasons; therefore, GIS re-incorporated Calorex operations within its financial results as of this quarter. The business will seek to strengthen the leadership of its brands and products leveraging the strength of the business, the recognition of its customers, the capabilities of its team and the quality of its products. 3

4 GIS continues to invest in its operations seeking production efficiencies. In terms of CAPEX, the Company invested over $ 220 million in equipment maintenance mainly to improve processes and productivity. In June 2018, the Company contracted a syndicated loan for up to US$ 250 million and a revolving credit line of up to US$ 50 million. As of the date of this report, the Company has US$ 235 million available in early settlement from: (i) the syndicated loan used for the acquisition of ACE and Infun Group, whose outstanding balance was US$ million, and (ii) a direct debt with Infun seller for 100 million plus the corresponding interest in both cases; as well as expenses related to the syndicated loan. As of June 30, 2018, cost-bearing liabilities (57% USD, 22% EUR and 21% MXP) reached US$ 415 million, broken down as follows: Currency In millions of USD Concept USD $235 Syndicated Loan EUR $50.2 Syndicated Loan and other ACE debt EUR $39.2 Infun Bank Debt MXP $90.3 Local Notes (Certificados Bursátiles) Note: Euro/Dollar exchange rate: Maturity Profile (millions of USD) 4

5 Draxton Segment millions of USD Second Quarter Six Months Change Change Volume (tons) 1 101,465 99,383 2% 205, ,884 1% North America 46,337 46,647 (1%) 94,231 94,854 (1%) Europe / Asia 55,128 52,736 5% 111, ,030 2% JVs 2 10,315 7,138 45% 20,527 13,727 50% Revenues % % North America % % Europe / Asia % % JVs % % EBIT % % Margin 14% 13% 14% 14% North America % % Margin 15% 12% 16% 15% Europe / Asia % % Margin 12% 14% 12% 43% JVs (33%) 3 3 2% Margin JVs 5% 12% 7% 5% EBITDA % % Margin 20% 18% 20% 20% North America % % Margin 21% 18% 22% 21% Europe / Asia % % Margin 18% 19% 18% 20% JVs % % Margin JVs 20% 22% 22% 23% 1. Volume for iron foundry, excluding JVs 2. Not included in Draxton, therefore it is not added Revenues in both regions reported growth trends, 6% and 17% in North America and Europe/Asia, respectively. These increases were mainly driven by a 2% increase in iron foundry volume, as well as to a favorable price effect derived from a better product mix. The quarter had a significant improvement in profitability, where EBITDA margin in North America was up by 3 points versus the previous year, and by 2 points for Europe/Asia. On a nominal basis, EBITDA in both regions reported double-digit growth versus the same period 5

6 of the previous year. The main contributing factors were: higher volume, lower material costs and a positive Euro-Dollar parity effect. In April, we increased machining installed capacity at Draxton Powertrain and Chassis in Spain, increasing the unit s machining capacity by 700 thousand units. This new equipment will be ready to operate in 4Q18. Joint Ventures: In 2Q18, JVs increased revenues by 47% compared to the same period last year. This was mainly due to a significant increase in iron foundry volumes, as well as to a higher number of machined parts. EBITDA was up 7% in 2Q18 versus 2Q17, and 16% for 6M18. This result was driven by operating growth, which lead to improved fixed-cost absorption. It is important to highlight that achieving break-even levels at both facilities is an ongoing process driven mainly by the launching of new projects that bring higher operating costs. 6

7 Construction Segment millions of pesos Second Quarter Six Months Change Change Revenues 1,398 1,439 (3%) 2,926 3,117 (6%) Ceramic Tiling (10%) 1,760 2,005 (12%) Water Heaters % 1,166 1,112 5% EBIT (93) 52 N/A (72) 136 N/A Margin (7%) 4% (2%) 4% Ceramic Tiling (96) 43 N/A (132) 88 N/A Margin (11%) 4% (7%) 4% Water Heaters 3 9 (62%) % Margin 1% 2% 5% 4% EBITDA (28) 105 N/A (72%) Margin (2%) 7% 2% 7% Ceramic Tiling (41) 87 N/A (23) 167 N/A Margin (5%) 9% (1%) 8% Water Heaters (26%) % Margin 3% 4% 7% 6% In 2Q18, Vitromex s revenues decreased 10%. This result was mainly due to lower volumes in the U.S. derived from the portfolio renewal process. Another major factor was the decrease in the average sales price as a result of the discount program related to the inventory reduction project. During the quarter, Vitromex reported an operating loss explained by a lower revenue base and an unfavorable effect on price and mix. As stated in 4Q17, the Company has implemented key initiatives to improve overall operating efficiency, and developed a commercial plan that will lay the foundations for market recovery in the medium-term. The Water Heater business, which underwent a divestment process and was re-incorporated to GIS s consolidated financial figures, reported an increase of 11% driven by growth in the construction channel, in which instantaneous water heaters and tank heaters grew as a result of the vertical and social housing strategy. However, it had a 26% drop in EBITDA, mainly explained by higher advertising expenses. Management expects that Vitromex will show an EBITDA trend turnaround starting in 1Q19, to contribute on shareholder value creation. 7

8 Housewares Segment millions of pesos Second Quarter Six Months Change Change Revenues % % EBIT % % Margin 5% 2% 5% 3% EBITDA % % Margin 8% 5% 8% 6% In 2Q18, Cinsa reported a 12% increase in revenues derived from the food processing product line (a product line which was transferred to the Housewares segment from the Auto Parts segment) not included in Pewter also contributed to the segment s revenue growth. In terms of EBITDA, this line item grew an outstanding 64% when compared to 2Q17, mainly attributable to: A favorable price effect mainly in the Pewter and Ceramic categories The new food processing product line Savings in fixed costs 8

9 Analyst Coverage Given that GIS has securities listed under Section I, of the Mexican Stock Exchange Regulations (stocks, and most recently, local notes certificados bursátiles ) and given the importance of maintaining an active participation in the securities market, in compliance with item of the aforementioned Regulations, the financial institutions that provide Analyst Coverage of GIS are: Institution GBM Actinver Signum Research Interacciones Analyst Lilian Ochoa Guerra Alejandro Chavelas Manzo Armando Rodríguez Díaz Montserrat Araujo Nagore Reporting Basis In order to better evaluate the results by segment and to avoid distortions in comparability, the Company uses a specific methodology based on the services that it actually provides and the collection for usage rights of the brand to the business units, to apply a specific percentage to the distribution of corporate services to each segment for its standardization. Notes to the Financial Statements We recommend reviewing the notes to the financial statements that are part of the quarterly report presented to the Mexican Stock Exchange. Disclaimer This release may contain certain statements and forward looking information about Grupo Industrial Saltillo S.A.B. de C.V. and its subsidiaries (collectively, the "Company"), which are subject to risks and uncertainties that may cause the results of the Company to differ materially from the current management s expectations. These risks and uncertainties include, without limitation: the successful development of new products and their commercialization, demand and acceptance of the Company s products, products and prices of the competitors, economic conditions in the markets and geographic regions of the Company s products, as well as foreign currency fluctuations, among others. 9

10 Annex - Statement of Comprehensive Income millions of pesos Grupo Industrial Saltillo, S.A.B. de C.V. Consolidated Information 2Q YTD % Change % Change Revenue 5,195 4,695 11% 10,438 9,919 5% Auto parts 3,349 2,862 17% 6,655 6,006 11% Construction 1,398 1,439 (3%) 2,926 3,117 (6%) Housewares % % Cost of Sales 4,054 3,490 16% 8,042 7,287 10% General Expenses (3%) 1,565 1,634 (4%) Other Expenses (Income), Net 2 5 (72%) 4 (0) N/A EBIT (8%) (17%) Auto parts % % Construction (93) 52 N/A (72) 136 N/A Housewares % % EBITDA % 1,465 1,466 (0%) Auto parts % 1,289 1,219 6% Construction (28) 105 N/A (76%) Housewares % % CFR 138 (14) 5 (344) Income Tax (43%) (28%) Consolidated Profit (48%) (43%) Profit from non-controlling interest (19%) (23%) Profit from controlling interest (44%) 612 1,044 (41%) 10

11 Annex - Balance Sheet millions of pesos Grupo Industrial Saltillo, S.A.B. de C.V. Consolidated Information june-18 dec-17 ASSETS Current Assets Cash and cash equivalents 1,253 1,775 Accounts receivable 4,332 4,373 Inventories 3,041 2,888 Assets classified as held for sale Property, plant & equipment, net 9,084 9,200 Investments in associates and JVs 1,131 1,064 Goodwill 4,023 4,035 Other assets 3,134 3,129 TOTAL ASSETS 26,027 26,677 LIABILITIES Current Liabilities Current liabilities at cost 346 2,985 Trade payables 3,204 3,016 Other current liabilities 1,572 1,787 Liabilities included in assets classified as held for sale 0 0 Non-current Liabilities Non-current liabilities at cost 7,584 5,656 Deferred taxes Other non-current liabilities TOTAL LIABILITIES 13,667 14,431 TOTAL SHAREHOLDERS EQUITY 12,360 12,246 TOTAL LIABILITIES AND EQUITY 26,027 26,677 The recorded change in Goodwill from foreign subsidiaries is attributed to the volatility of the peso versus the Euro. Long-Term Liabilities in 2017 include a 100 million debt with Grupo Infun s seller. 11

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