Results Conference Call

Transcription

1 Q Results 1

2 Results Conference Call Tuesday October 31st, :00 a.m. Mexico Time Tel: (55) Dial in Code: Relevant Issues... 3 Independent valuation... 3 MDF business unit... 3 Teak business unit... 5 Results analysis... 6 Environmental and social development Stock development Investor relations Financial statements

3 Relevant Issues Proteak obtained a perfect score for the 2016 exercise. On July 21st, 2017 the CNBV revealed the compliance report of all listed companies, the report is available in: soras_anual_2016_ pdf Arrowhead, Business and Investments Decisions published its valuation of Proteak s CPO in September. With IFC PROPARCO loan all forestry liabilities were refinanced, extending its maturity, releasing cash flow and matching the terms of the loan with the cycle of the plantations. We disbursed the first disposition of the loan in July, the amount disbursed was MXP 199.7MM and USD 20.7MM. The resources were used to pay our debt to FND (Financiera Nacional de Desarrollo Agropecuario, Rural, Forestal, y Pesquero) and IFC (International Finance Corporation). The remaining resources of the loan will be used to support the company s growth and establish up to 10,000 new hectares sustainable plantations. Independent valuation The updated valuation from Arrowhead was published, placing the value of the Company s CPO between MxP and MxP as of September The valuation was developed using discounted cash flows (DCF), and considers both Proteak s businesses: Teak business and MDF business. The valuation report is currently published on Proteak s website: MDF business unit Commercialization Tecnotabla boards continue with a good market acceptance. Volume trend continues to be favorable, during the Q the sales volume showed a 40% growth vs the same quarter last year and was 4% higher than Q2. MDF market growth in Mexico during 2017 has been fast and, according to internal analysis, national consumption has been growing at unprecedented rates. As of quarter end, Tecnotabla continues to be the second player in the national industry with an estimated market share of over 20%. 3

4 Market Share Tecnotabla Source: Proteak Analysis, ANAFATA, SIAVI On the other side, we have observed that the market is experiencing pressure on pricing, mainly due to the national production capacity entering into what was a market primarily served by imports. The combination of volume growth and pricing drive the Q3 sales to a 44% GROWTH VS q AND A 1-5 decline vs prior Q. We have focused our efforts in commercialization strategies on value added products to create a better mix. To develop value added MDF products market, we continue to participate actively in events such as fairs and personalized events with clients to promote the use of Melamine MDF. Production As of September we produced over 152,000 m 3, 2.6x more than the same period in After 17 months of operations, the production ramp-up is in line with the plan. Production trends are favorable, during Q3 the plant reached maximum nominal capacity and we observed an increase of daily production of 15% and 26% compared to Q and Q respectiveley. Likewise, we achieved a reduction of 1pp in waste production compared to Q2. We continue strenghtening the production of value added products (melamine and veeneers). Its worth mentioning that given the industry s seasonality during the Q we were able to increase the level of inventory to a level that will allow us to better serve the market. With this, Tecnotabla s production and supply dynamic reached a balance that will allow us to continue commercializing our products. As part of the plant maintenance program, in August we made a 15-day schedulled maintenace stop. The resin plant is now integrated into the board production process. During the quarter it operated three shifts, near the maximum installed capacity. Gradually, as the production ramp up increased, the resin consumption and cost per m 3 decreased compared to Q and Q The rest of the auxiliary production equipment focused on production cost reduction, including the energy cogeneration turbine and the EvoJet resin application system, will start operations during Q and Q

5 respectively. These equipments will support our strategy to reduce the cost per unit produced; the quarter cash cost improved 2% and 9% vs Q and Q respectively. We estimate that the process optimization will continue through Q Forestry During Q we continued with the 2017/2018 plantation campaign, which considers 2,000 ha of Eucalyptus. With this, we will reach our goal for planted hectares of certified Eucalyptus to supply the MDF plant. Additionally, we integrated 450 ha for Eucalyptus plantations to the small producer program in the campaign 2017/2018 and acquire 100 ha of land for growth in Tabasco. Teak business unit Due to the end of commercialization of mature Teak from Colombia and Costa Rica at the beginning of 2017, in the short and medium term, no significant activities from our mature Teak plantations are expected. Nevertheless, to maintain commercial presence in the Asian markets, Proteak started a market test of commercialization of mature Teak from third-parties. As of Q we have successfully commercialized over 40 containers. 5

6 Results analysis MxP MM Q Q VAR B/(W) YTD17 YTD16 VAR B/(W) BOARD SALES Volume m3 43,333 31,001 12, ,665 49,608 84,057 Sales Other Income (0.3) (17.3) Revaluations of Biological Inventory TOTAL INCOME Cost of sales (201.0) (144.4) (56.6) (621.5) (293.3) (328.3) GROSS PROFIT Gross Profit Margin 3% 1% 2% 8% 5% 3% VENTAS DE TECA Sales (8.3) (26.3) Other Income (1.2) 0.0 (1.2) 1.0 (5.6) 6.6 Revaluations of Biological Inventory (10.4) (41.6) TOTAL INCOME (20.0) (61.4) Cost of sales (9.9) (23.9) 14.1 (43.6) (66.9) 23.3 GROSS PROFIT (5.9) (38.1) Gross Profit Margin 73% 58% 15% 61% 61% (0)% TOTAL Sales Other Income (1.5) (10.7) Revaluations of Biological Inventory (10.4) (41.6) TOTAL INCOME Cost of sales (210.8) (168.3) (42.5) (665.2) (360.2) (305.0) GROSS PROFIT (1.8) (0.3) Gross Profit Margin 13% 17% (4)% 15% 25% (10)% Gastos de Operación Logistics and Sales Expenses (26.2) (22.8) (3.4) (65.2) (22.8) (42.3) Administration Expenses (53.3) (32.3) (21.1) (152.1) (95.2) (56.9) OPERATING INCOME (LOSS) (46.7) (20.5) (26.3) (95.9) 3.7 (99.6) Operating Margin (19)% (10)% (9)% (12)% 1% (13)% Financial expenses, net (58.4) (55.7) (2.6) 81.4 (74.0) PROFIT (LOSS) BEFORE INCOME TAXES (105.1) (76.2) (28.9) (14.5) (70.3) 55.8 Income taxes 31.5 (11.2) (9.5) NET CONSOLIDATED PROFIT (LOSS) (73.6) (65.0) (8.6) (10.2) (56.5) 46.3 Sales I. Income statement analysis Sales of good as of September 2017 totaled MxP 686MM, 2.1x over the sales registered as of September This are the highest sales registered in Proteak s history. After one and a half years of MDF operations the income statement continuous to reflect the transition from a company that spent 15 years building a solid balance sheet to an operating company. 6

7 Quarter MDF sales reached a total of MxP 199MM, 44% over those registered during Q Sales decreased 1% compared to Q due to a net effect of price pressure and volume growth. During the quarter Tecnotabla MDF board continued to have an excellent market acceptance and buying recurrence. We continue to develop our US exports business, and during the quarter sales increased 14% compared to Q Teak sales decreased 36% compared to the Q3 2016, this result shows only sales from the products business unit (TeakHaus) and third-party teak commercialization. In the third quarter of 2017, income from the reasonable value of the Biological Assets (revaluation) accrual totaled MxP 27MM, staying in line with 2017 provision. Throughout the year, the company makes income provisions from the Biological Asset Revaluation according to expected growths. Nevertheless, it is during the fourth quarter of the year when a physical inventory takes place and the final value of the year s revaluation is registered along with the corresponding adjustments. Net quarter revenue totalized MxP 244MM, 20% growth over the same quarter last year. Cost of goods sold, General expenses and Net income During the quarter, Proteak delivered a 3% gross margin and a marginal contribution of 15% in the MDF BU, the impact in the gross margin vs Q is due to a net effect between pricing, a better product growth mix and volume and an increase in fixed costs as a result of a production decrease due to the scheduled maintenance stop in August. During 2017 we have had a progressive reduction of sales costs, 9% under the one reported as of September We continue to fine-tune the processes to accelerate margin improvement 7

8 through the stabilization of the resin plant and the integration of the turbine and the EvoJet system for resin application. Teak costs reflect fixed operating costs; however, we are optimizing the business structure to maintain its size in line with the operation level. General expenses in the quarter totaled MxP 80MM, including MxP 26MM of MDF boards distribution expenses, which will continue to increase as MDF boards volume grows. Recurrent SG&A expenses closed MxP 7MM over the Q2 2017, mainly driven by the increase of expenses related to refinancing and closing of IFC and FND credits and the import MDF inventory clearance that was used for market tests, both of which are nonrecurrent and non-cash expenses. The Operating Loss of the quarter is MxP 46MM, MxP 26MM more than the one reported in Q An EBITDA of MxP 1MM was registered during the quarter. As of September 2017 the Company reported an exchange rate profit of MxP 170MM, which offsets the reported loss in the 2016 year-end results. As mentioned, the company s FX exposure is balanced between the USD denominated credits and the Teak Biological Assets, whose functional currency is USD. The combination of these effects result in a net quarter after tax loss of MxP 74MM. II. Balance sheet analysis Assets As of September 2017, the total assets for the Company amounted to MxP 6,172MM, 1% over the 2016 yearend figures, mainly driven by the capital increase in Q Inventory closed at MxP 251MM reflecting an increase of 97MM compared to December 2016, mainly due to an increase of MDF product inventory in anticipation to Q and the wood harvested ahead of the rainy season. Long Term Assets kept for sale includes mainly non-strategic land that will be sold in the medium term. These assets are in Costa Rica and their value as of this quarter is MXP 6MM; the decrease of MxP 77MM compared to year-end 2016 figures stems mainly to the sale of these assets that occurred in March. 98% of these assets have been sold so far. Real Estate, Plant and Equipment totals MxP 3,191MM, showing a 102MM decrease compared to 2016 yearend figures, including the MDF Plant depreciation for the period. Biological Assets (Current and Non-Current) decreased 5% compared to December 2016, reflecting the Biological Assets revaluation during the period, which includes a mix of different effects, including new acquisitions, growth of existing plantations and exchange rate impact. Teak Biological Assets are denominated in USD which means that any variation of FX has a direct impact on its value in MxP. During 2017 the MxP has depreciated resulting in a decrease in Biological Assets of MxP 101MM. The value of Proteak s plantations is mainly driven by four factors: (i) capitalized forestry expenses, (ii) exchange rate, (iii) revaluations representing the growth of biological assets, and (iv) wood outflows to cost of sales. 8

9 Throughout 2017 we have registered the following impacts: (i) MxP 130MM in capitalized forestry expenses for maintenance of existing plantations and preparation of new ones, with the purpose of improving their expected return by maintaining above average growth rates; (ii) MxP 207MM due to USD depreciation; (iii) MxP 78MM in revaluation from the previously discussed growth; and (iv) MxP 95MM, from wood outflows to cost of sales. During 2017, the volume of wood harvested is 237,839m 3, including harvests and thinnings. Liabilities and Equity Current Liabilities increased 11% compared to December 2016, mainly driven by suppliers and creditors which reflect the natural increase in working capital due to the production level. Other interest-bearing liabilities decreased MxP 157MM vs December 2016, mainly because of the impact of the USD depreciation of the period, and refinancing of FND and IFC credits, as of today over 84% of the interestbearing liabilities are denominated in US dollars. Total Equity of the Company at the end of the quarter totals MXP 3,171MM, MxP 95MM higher than the 2016 year-end figure, reflecting the conversion effect as a result of the USD depreciation, the results of the exercise and the 16MM CPO s capital increase. As of today, the capital increase has been fully subscribed and paid. Proteak continues with strong liquidity and with a solid Equity to Liabilities ratio of 1.1 to 1. III. Cash flow analysis The cash flow of the period is in line with the operation of the plant. Cash Flow position totaled MxP 316MM, and during the quarter it recorded a net decrease of MxP 98MM. The plant operation is break even at cash level even when the cash position was affected for the following actions: i) increase in inventory of MDF boards to supply market; ii) interest and debt service payments related to the credit signed with AKA-Commerzbank for MxP 18MM; iii) additional investment in land, including the acquisition of a land in Tabasco for MxP 6MM to increase the Eucalyptus planted hectares. Additionally, investment activities took place as well as forestry operations such as maintenance and establishment of new plantations. 9

10 Environmental and social development During the quarter we continue to actively participate to promote social and environmental development in both, Tabasco and Mexico. Proteak along with SEMARNAT, MexicoCO2, CONAFOR and AMEPLANFOR effectuated the following actions: 200 pieces of eucalyptus Wood donation to the 35 Batallón de Infantería in Cardenas, Tabasco. Participation at the webinar of the Carbon Bonds Market Exercise which goal was to inform about the basic elements of the exercise. This was organized by SEMARNAT and MexiCO2. Participation in the virtual workshop Opportunities of the Carbon Markets in PFC, challenges and Perspectives organized by AMEPLAFOR and CONAFOR. Regarding FSC certificate we effectuated an auditing visit to Lam Viet installations in Ho Chi Minh (one of the main clients of Proteak) with the goal of ensure the application of the Chain of Custody standards and verify product quality and employee safety. The result was positive and non-major corrective actions where identified. Additionally, we received the recognition award for Company committed to the education of its workers by the Instituto de Educación para Adultos de Tabasco (IETAT). Nowadays, 11 of our employees are preparing and will present its final evaluation to finish their primary school and high school. 10

11 Stock development During the third quarter 2017, Teak CPO price remained stable between MXP and Investor relations Independent analyst As part of the independent analyst program, follow-up of Proteak s CPO is performed by: Ernesto Gustavo O Farrill Santoscoy eofarrills@bursametrica.com Tel: (55) Bahía de todos los santos #26 Col. Verónica Anzures Delegación Miguel Hidalgo C.P , México, D.F. Teak CPO Coverage Investor Relations agency Armando Rodriguez armando.rodriguez@signumresearch.comg Tel: (55) / 0862 Alejandro Ramírez Arcia alejandro.ramirez@irconsulting.mx Tel: +52 (55)

12 Financial statements The following table presents the consolidated Balance Sheet as of the third quarter 2017 in MXP MM, and its comparison with the second quarter 2017 and 2016 year-end figures. Balance Sheet Sept'17 June'17 Dec'16 ( 1 ) Δ Sept'17 vs Jun'17 % Δ Sept'17 vs Dec'16 Cash & Equivalents (98.0) (24)% % Accounts Receivable (Clients) % % Other Accounts Receivable (1.6) (1)% % Inventory % % Biological Inventory (0.2) (0)% 8.6 4% Assets Available for Sale % (77.0) (93)% Other Assets % % CURRENT ASSETS 1, , (42.2) (4)% % Plant and Equipment 3, , ,292.6 (59.4) (2)% (102.0) (3)% Biological Assets, mature and inmature 1, , , % (100.7) (6)% Deferred Income Tax (6.9) (52)% (7.9) (56)% Other (7.9) (6)% (5.1) (4)% Prepaid Expenses % % NON-CURRENT ASSETS 5, , ,251.9 (47.6) (1)% (185.3) (4)% ASSETS 6, , ,121.6 (89.8) (1)% % Accounts Payable (9.3) (6)% % Payable Taxes (0.0) (0)% (10.2) (87)% Other Current Liabilities % % Current Debt (88.1) (64)% (53.2) (52)% CURRENT LIABILITIES (82.9) (12)% % Long Term Debt 1, , , % (103.9) (5)% Deferred Taxes (31.6) (5)% (4.4) (1)% Other % % LONG TERM LIABILITIES 2, , , % (106.4) (4)% LIABILITIES 3, , , % (44.5) (1)% Capital Stock 2, , , % % Accumulated Earnings (Losses) (299.1) (233.6) (264.7) (65.5) 28% (34.4) 13% Conversion Effect (42.8) (10)% (262.1) (40)% Revaluation Surplus % (0.0) (0)% Other Comprehensive Income (8.1) (5)% (9.0) (6)% TOTAL EQUITY 3, , ,075.9 (110.8) (3)% % TOTAL LIABILITIES + EQUITY 6, , ,121.6 (89.8) (1)% % (1) 2016 Audited Financial Statements % October 27,2017, Mexico City. Today, Proteak Uno S.A.B. de C.V. (BMV:TEAK) published its Q results. This information is presented according to Financial Reporting Standards (NIF) in nominal terms. 12