Financial Report for the Year 2004

Transcription

1 Financial Report for the Year 2004 CYDSA, S.A. de C.V. (BMV: CYDSASA) Ave. Ricardo Margain Zozaya # 565 Parque Corporativo Santa Engracia, Edificio B, Garza Garcia, Nuevo Leon Mexico Website: Contacts: Oscar Casas Kirchner Financing Manager Alberto Balderas Calderon Administrative Information Manager Direct Phone: (52) (81) Direct Phone:(52) (81) Fax: (52) (81) Fax: (52) (81) ocasas@cydsa.com abalderas@cydsa.com Comments on operations for the year 2004 Unaudited Figures (Figures in constant pesos as of December 31, 2004 unless otherwise indicated) Domestic and International Economic Environment Domestic Economic Environment During the fourth quarter of 2004, Mexico s Gross Domestic Product (GDP) grew 4.9% compared to the same period of 2003, continuing with the positive trend observed from the beginning of the year, based mainly on the economic growth of the USA. With this result, the major obtained in the last 17 quarters, Mexico s 2004 economic growth averaged 4.4%. Caused by the ascending prices of agricultural products, as well as the prices of products and services administrated by Mexico s Federal Government, a rebound in inflation occurred. With the growth rate in the Consumer Price Index registered as of December of 2004, the annual accumulated inflation reached 5.2%, compared to an annual inflation rate of 4.0% reported as of December of On the other hand, the exchange rate of the Mexican peso against the US dollar averaged $11.29 pesos during 2004, representing a depreciation of 4.5% when compared to the average of $10.80 pesos per dollar observed during the same period of the previous year. 1 February 23, 2005

2 International Economic Environment Although at a slower pace, during the last quarter of 2004, the dynamism of the US economy continued, with an annualized GDP growth rate of 4.4%, coincidentally the same as the Mexican GDP growth. Insofar as energy costs are concerned, international oil prices have accelerated the upward trend observed since As a reference, at the end of 2004 the West Texas Intermediate (WTI) crude oil price registered a price of US$41.51 per barrel, 33.6% higher than the US$31.08 reported in 2003 (Source: US Energy Department). Likewise, natural gas prices in the USA continued in higher levels, compared to other world markets. Due to the fact that these rates are used as reference to establish the price of this energy source in Mexico, prices of natural gas during 2004 averaged US$5.83 per million BTU s. This level is 13.4% higher than the US$5.14 per million BTU s reported in However, it represents an amount 92% higher than the average US$3.03 observed during 2002 (Source: PEMEX). Due to the facts described in the preceding paragraphs, international prices of petrochemical products have maintained relatively high levels. This situation combined with high natural gas prices added to its effect on electric power rates, have decreased margins on sales in several important CYDSA businesses like Acrylic Fiber, Salt, PVC Resins, Chlorine and Caustic Soda. Impact on CYDSA of the Domestic and International Economic Environment In 2004, the accumulated weighted average of CYDSA s sales volume increased by 4.1%, when compared against Products reporting volume increases in 2004 compared to 2003 follows: salt, PVC resins, PVC pipes and fittings and acrylic fiber. On the other hand, businesses reporting volume reductions include Chlorine, Caustic Soda, Refrigerant Gases, Polypropylene Films and Yarns. Prices of the majority of CYDSA products have increased during 2004, compared against the previous year. 2 February 23, 2005

3 Discontinued Items As part of CYDSA s portfolio restructuring process, oriented towards the consolidation of its operations in products with higher value added, during 2003 and 2004 the following divestitures and shut-downs were carried out: 1) Industrias Cydsa-Bayer. On February 27, 2003, CYDSA reached an agreement with Bayer, A.G. to terminate the joint venture they had in Industrias Cydsa-Bayer. This firm located in Coatzacoalcos, in the state of Veracruz, produced toluene di-isocyanate, TDI, a raw material used in the manufacture of polyurethane foams. 2) Home Textiles. On May 3, 2004, CYDSA started the shut-down process of San Marcos Textil S. A. de C.V., a plant located in Aguascalientes, Ags. dedicated to the manufacture of blankets. This company constituted CYDSA s Home Textiles Business Unit. In spite of capital expenditures in new process technologies and new products, this shut-down derives from lack of competitiveness and absence of positive cash flows in recent years, as well as what could be foreseen for the medium and long-term horizons. 3) Printed and Laminated Film. On May 26, 2004, Masterpak S.A. de C.V., a CYDSA subsidiary, concluded the sale of assets and operations of its Printed and Laminated Film business (Tultitlan Plant), to Bemis Flexible Packaging de Mexico, S.A. de C.V., a subsidiary of Bemis Company, Inc., a company located in Minneapolis, Minnesota in the USA. In accordance with generally accepted accounting principles in Mexico, for comparability purposes, when a Business Segment is discontinued it must be excluded from the consolidated Operating Income. Therefore, Operating Income, as well as Sales, Cost of Sales and Operating Expenses for the years 2003 and 2004, do not include the results of Discontinued Operations. 3 February 23, 2005

4 Restructuring of Bank Debt and Euro-Medium-Term-Notes (EMTN s) As informed in the First Quarter, 2004 Report, on March 16, 2004, CYDSA signed a Restructuring Agreement with Banco Nacional de Mexico; BBVA Bancomer; California Commerce Bank; Citibank and Comerica Bank, comprising US$192.6 million of CYDSA s operating subsidiaries Bank Debt. This restructuring involved CYDSA s Chemicals and Plastics, Flexible Packaging as well as Fibers and Home Textiles as of that date. Additionally, on January 19 of 2005, a Meeting of Holders of US$158,997, % Notes issued by CYDSA and due in June 2009 was held. The Meeting approved an Extraordinary Resolution to exchange the outstanding principal amount of the Existing Notes, plus accrued and unpaid interest thereon, for an aggregate of: a) 27,366,750 shares of CYDSA s voting Series A Common Stock. b) 136,833,749 shares of CYDSA s newly authorized non-voting Series C Stock and convertible into Series A Shares with voting rights within a period of time not exceeding May 1, c) US$25.5 million principal amount of CYDSA s Convertible Debentures with maturity on May 1, 2008 (unless advanced to May 1, 2007, if certain conditions are not met), accruing interest at a fixed annual rate of 5%, capitalized every six months. The Convertible Debentures will convert into Series A Treasury Shares, if not paid in full. The Comisión Nacional Bancaria y de Valores CNBV (National Banking and Securities Commission of Mexico) has approved the issue of the aforementioned shares and the Comision Federal de Competencia Economica (Federal Economic Competition Commission of Mexico) has approved the transaction. Additionally, the Creditor Banks* of Cydsa, S. A. de C. V. and subsidiaries, formalized the following: Debt capitalization of the textile companies amounting to US$76.0 million in exchange for 16.45% of the shares of the Sub-holding company Valores Quimicos, S. A. de C. V., which is the owner of the shares of the Chemical companies of CYDSA; CYDSA being under obligation to buy such shares by no later than January 11, * Creditor Banks include Banamex-Citibank, BBVA-Bancomer and Comerica Bank, which have capitalized US$69.4 million in Debt for 15% of the shares of Valores Quimicos, S. A. de C. V. Also included is Bancomext, which has capitalized US$6.6 million in Debt for 1.45% of the shares of Valores Quimicos, S. A. de C. V. In accordance with Mexican Accounting Principles, the impact of the agreement with Creditor Banks and Noteholders on January 19, 2005 should be reflected in CYDSA S Balance Sheet as of December 31, 2004, producing a Total Banking and Notes debt reduction of US$227 million in 2004, from US$390 at December 31 of 2003 to US$163 million at the close of February 23, 2005

5 Restructuring of Bank Debt and Euro-Medium-Term-Notes (EMTN s) continues CYDSA s Management considers that with this new Debt structure, the Group and its Subsidiaries have sufficient assets and financial capacity to service the debt with Banks, while honoring commitments to suppliers and other creditors. On the other side, as a subsequent event, on February 7, 2005, according to agreements signed between Cydsa, S.A. de C.V and its subsidiaries with Creditor Banks and Convertible Debentures Holders, CYDSA made the next anticipated payments: 1. US$7,553,356.00, including principal (US$7,201,223.05) and interest (US$352,132.95) of Bank Debt. 2. US$14,553,356.00, including principal (US$14,003,884.28) and interest (US$549,471.66) of Convertible Debentures. Adding the aforementioned Bank advance principal payment to 2004 Bank debt payments, Cydsa, S.A. de C.V. and subsidiaries have paid US$ million of the US$125.0 million Bank Debt existing on March 16, 2004, the signing date of the Bank Debt Restructure. Taking into account the February 7, 2005 payment, the remaining Valores Quimicos debt amounts US$130.2 millions, corresponding US$102.9 million to Banks, US$26.3 to GE Capital and US$1.0 to Bancomext. In respect to the Convertible Debentures debt, as of February 7, 2005, Cydsa, S.A. de C.V. liquidated US$14.0 million of the US$25.5 million Convertible Debentures issued by the Company on January 19 of 2005, as part of the exchange offer. With this US$14.0 million payment, CYDSA settled 53.2% of this indebtedness, additionally canceling the corresponding Series A Treasury Shares. With this Total Restructure of Debt and the anticipated payment previously described, CYDSA is financially consolidated, and its emphasis will now be directed to the strengthening of its current business portfolio, in order to assure medium and long-term profitable growth. 5 February 23, 2005

6 Results Total Sales CYDSA s 2004 Sales of 7,122 million pesos, increased 16.5% when compared to the prior year. In dollar terms, 2004 Sales reached US$615 million, an improvement of 16.0% compared to Most CYDSA business operations experienced increases in both pricing and volume. Unit sales increased 4.1% from Domestic Sales In 2004, unit sales to the Domestic Market grew an average of 0.7%, compared to the previous year. Measured in constant pesos, Sales to the Domestic Market during 2004 reached 4,925 million, an increase of 6.8% against those of Export Sales Units sold to export markets during 2004, grew 13.1% when compared to Exports accumulated as of 2004 amounted to US$190 million, an improvement of 39.7% over the US$136 million reported the previous year. 6 February 23, 2005

7 Sales by Business Segment The following chart depicts Sales by Business Segment: Total Sales by Business Segment 2003 and 2004 (Millions of constant pesos) (note 1) 16.5% 6,114 7,122 3, % 4, % 1,833 2, % Chemicals and Plastics Fibers and Textiles Flexible Packaging Millions of Dollars : Change 2003 vs. 2002: 17.7% 16.4% 3.1% 16.0% (Note 1) Consolidated figures for each Segment with inter-company sales eliminated. Consolidated Sales for Chemicals and Plastics totaled 4,626 million pesos during 2004, an increase of 18.3% from Unit increases in Salt, PVC resins and PVC pipes and fittings, and higher prices for most products, produced the gain Sales for Fibers and Textile Products reached 2,140 million pesos, up 16.7% from The sales increases in this Segment resulted from gains in both units and prices of acrylic fiber, offset by volume losses in Yarns. Decreases in domestic unit shipments emanating from unfair competitive practices on Asian imports and the elimination of non-profitable products, caused this decline. Finally, Sales of Flexible Packaging amounted to 356 million pesos in 2004, down 4.3% from the prior year. 7 February 23, 2005

8 Operating Income CYDSA s 2004 Gross Margin 1 reached 1,380 million, up 11.3% from the 1,240 million reported for the prior year. CYDSA s continuing austerity program reduced Operating Expenses to 1,258 million in 2004, a drop of 4.0% in real terms from 1,310 million in In summary, during 2004 CYDSA registered an Operating Income (EBIT) of 122 million pesos, favorably compared to the 70 million Loss of Operating Cash Flow Operating Cash Flow (EBITDA) 2 totaled 539 millions of current pesos in 2004, an improvement of 68.5% from the 320 million obtained in In dollar terms, EBITDA reached US$47.6 million, a 59.4% increase from the US$29.8 million the previous year. Total Financing Cost Total Financing Cost for 2004 of 230 million pesos, compared to 603 million during A breakdown follows: Change (millions of pesos) Net Financial Expense (377) (374) (3) Financing Allowances to Clients (47) (55) 8 Net Foreign Exchange Effect 5 (363) 368 Net Monetary Effect Total Financing Cost (230) (603) 373 As noted in the table, the Foreign Exchange Effect represented the only significant change in the past year. During 2004 the exchange gain of 5 million resulted from a peso appreciation of 0.8%. A peso depreciation of 7.6% in 2003 produced a 363 million exchange loss. 1 Gross Margin is defined as Sales less Cost of Sales. 2 Operating Cash Flow or EBITDA equals Earnings before Total Financing Cost, Taxes & Profit Sharing, Depreciation and Amortization. EBITDA is equivalent to Operating Profit plus Non Cash items. 8 February 23, 2005

9 Other Expenses, Net Other Expenses, net during 2004 totaled 369 million pesos. A breakdown of these items follows: Millions of pesos Write-down of unused fixed assets in the Textiles and Packaging Businesses (308) Cancellation of Goodwill associated with the acquisition of the San Marcos Yarn Business (96) Write-off of Obsolete Textile Inventories (19) Severance payments, applicable to operational and financial restructuring (24) Legal Expenses related to Income Tax Litigation (69) Extraordinary Income from the Montreal Protocol, related to the Company Quimobasicos 123 Other 24 Total Other Expenses, Net (369) Loss from Continuing Operations before Taxes and Employee Statutory Profit Sharing The Loss from Continuing Operations before Taxes and Employee Statutory Profit Sharing of 477 million pesos, results after subtracting from the Operating Income (122 million), the Total Financing Cost (230 million) and Other Expenses, Net (369 million). Taxes and Employee Statutory Profit Sharing In accordance with Bulletin D-4 of the Mexican Institute of Public Accountants, the Loss from Continuing Operations before Taxes and Employee Statutory Profit Sharing of 477 million in 2004, generates a 120 million Deferred Tax benefit. Loss derived from Discontinued Operations (Net of Income Tax) In 2004, CYDSA s Loss from Discontinued Operations totaled 429 million, resulting from the sale of Printed and Laminated Business assets (167 million) and the closing of the Home Textiles Business (262 million). 9 February 23, 2005

10 Effect at the Beginning of the Period Related to Changes in Accounting Principles (New Valuation Method for Foreign Purchased Fixed Assets) In accordance with Generally Accepted Mexican Accounting Principles, CYDSA changed the Method of Valuation for Foreign Purchased Fixed Assets, from a Specific Index for each Country to the National Consumer Price Index in Mexico starting December 31, This change, covering the years 1997 through 2003, increased depreciation expense, net of taxes, by 298 million. This charge did not affect Shareholders Equity due to a corresponding credit, of a similar amount, in an Equity Account entitled Insufficiency in Restatement of Shareholders Equity. Net Loss As previously noted, the Loss from Continuing Operations before Taxes and Employee Statutory Profit Sharing totals 477 million. After consideration of the Deferred Tax benefit (120 million), the Loss from Discontinued Operations (429 million) and the Effect at the Beginning of the Period Related to Changes in Accounting Principles (298 million), a 2004 Net Loss of 1,084 million results. This figure compares with a Net Loss of 807 million in the prior year. 10 February 23, 2005

11 Financial Condition A summary of the significant items comprising the Balance Sheets on December 31, 2004 and 2003 follows: Change Current Assets 2,876 2, Fixed and Deferred Assets 6,388 7,944 (1,556) Total Assets 9,264 10,656 (1,392) Current Liabilities 1,745 6,426 (4,681) Long-term Liabilities 3,032 1,090 1,942 Total Liabilities 4,777 7,516 (2,739) Shareholders Equity 4,487 3,140 1,347 An explanation of the main changes in these accounts during the past year appears below. Assets Current Assets The table shows Current Assets increasing 164 million pesos from 2,712 million in December 2003 to 2,876 million at the close of This change resulted from an increase of 210 million in Trade Receivables and a decrease of 46 million in other Current Assets. Fixed and Deferred Assets Fixed and Deferred Assets of 6,388 million at December 31, 2004, decreased 1,556 million pesos from the previous year. The causes of this reduction are: Million pesos Fixed Assets Write-off resulting from the sale of Printed and Laminated Films and the Closing of Home Textiles (966) Write-down of unused Fixed Assets in The Packaging and Textiles Businesses (410) 2004 Depreciation Expense (370) Cancellation of Amortized Expenses associated with 2002 Debt Restructuring of Medium Term Notes (117) Cancellation of Goodwill associated with the acquisition of the Yarn Business (96) Net Increase in Fixed Assets Value through changes in the Method of Valuation for Foreign Purchased Fixed Assets 453 Other Items (50) Total Decrease of Fixed and Deferred Assets (1,556) 11 February 23, 2005

12 Liabilities In accordance with Mexican Accounting Principles, the impact of the agreement with Creditor Banks and Noteholders on January 19, 2005 should be reflected in CYDSA S Balance Sheet as of December 31, An analysis of the changes in 2004 Current and Long-term Liabilities follows. Current Liabilities CYDSA s Current Liabilities show a decrease of 4,681 million, from 6,426 million at December 31, 2003 to 1,745 million at December 31, The following table describes this change. Million pesos The Bank Restructuring agreement signed on March 16, 2004, reclassified this debt from current to long-term (1,418) Cancellation of US$158,997,000 Medium Term Notes through the exchange of this debt for CYDSA s shares (1,773) Cancellation of Accrued Interest on Medium Term Notes, in exchange for US$25.5 million in Convertible Debentures (409) Exchange of Textile Companies Creditor Banks and Bancomext Debt for Valores Quimicos shares (847) 2004 Debt payments to Creditor Banks (163) Other Items (71) Total Decrease of Current Liabilities (4,681) Long-term Liabilities Long-term Liabilities increased 1,942 million from 1,090 million at December 31, 2003 to 3,032 million at December 31, The factors related to this increase include: Million pesos The Bank Restructuring agreement signed on March 16, 2004, reclassified this debt from current to Long-term 1, Advanced Payments on Long-term Bank Debt (140) Issue of US$25.5 million in Convertible Debentures, canceling the Accrued Interest on Medium Term Notes 284 Increase in long term liabilities through CYDSA s obligation to repurchase Valores Quimicos shares, owned by Creditor Banks and Bancomext, by January Reduction in Deferred Taxes of Discontinued Operations and other items (467) Total Increase in Long-term Liabilities 1, February 23, 2005

13 Total Liabilities As a result of these transactions, Total Liabilities decreased 2,739 million pesos, from 7,516 at December 31,2003 to 4,777 at December 31, Shareholders Equity Shareholders Equity increased 1,347 million, reaching 4,487 million at December 31, 2004 compared to 3,140 million at December 31, Shareholders Equity increased despite the Net Loss of 1,084 million. The major increase derived from the exchange of 1,773 million pesos of Medium Term Notes Debt for CYDSA s shares. A change in the Method for Valuation of Foreign Purchased Fixed Assets, increased Shareholders Equity by 652 million. This adjustment appears in the Insufficiency in Restatement of Shareholders Equity account. Treasury Policies It is a CYDSA policy to manage from a central treasury all Temporary Investments of Excess Cash both in pesos and in 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 companies compliance is thoroughly reviewed and appraised. In addition, opportunity areas for improvement of effectiveness of control systems as well as the application and follow-up of action plans, are determined. In addition, the Company s Board of Directors has an Audit Committee. The Chairman of this Committee and the majority of its members are Independent Board Members. The Company s Examiners attend the Committee meetings and have voice, but no voting rights. The Audit Committee meets periodically in order to review the status of the Internal Audit Program. It also meets to examine the External Auditors Report on the Financial Statements. Financial Information Follows 13 February 23, 2005

14 CYDSA, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2004 and 2003 (Millions of pesos of purchasing power as of December 31,2004) ASSETS Cash and marketable securities $ 275 $ 402 Trade receivables 1,483 1,273 Other receivables Inventories Current assets of discontinued operations Current assets 2,876 2,712 Long-term receivables Investment in shares Property, plant and equipment, net 5,244 5,327 Other deferred assets Non-current assets of discontinued operations 618 1,455 Fixed and deferred assets 6,388 7,944 Total assets $ 9,264 $ 10,656 LIABILITIES Short-term bank debt $ 87 $ 4,163 Trade payables 1,220 1,105 Other payables Current liabilities of discontinued operations Current liabilities 1,745 6,426 Long-term bank debt 1, Seniority benefits, pensions and retirement funds Other payables Non-current liabilities of discontinued operations Long-term liabilities 3,032 1,090 Total liabilities 4,777 7,516 SHAREHOLDERS EQUITY Majority interest: Common stock 1, Restatement of shareholders equity 2,808 2,655 Common stock, restated 4,548 2,775 Insufficiency in restatement of shareholders equity (5,276) (5,922) Retained earnings 5,165 6,261 Stock in trust (52) (52) Total majority interest 4,385 3,062 Total minority interest Total shareholders equity 4,487 3,140 Total liabilities and shareholder s equity $ 9,264 $ 10, February 23, 2005

15 CYDSA, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS From January 1 to December 31, 2004 and 2003 (Millions of pesos of purchasing power as of December 31, 2004) Net sales $ 7,122 $ 6,114 Cost of sales (5,742) (4,874) Gross profit 1,380 1,240 Operating expenses (1,258) (1,310) Operating income (loss) 122 (70) Total financing cost: Net financial expense (377) (374) Financing allowances to clients (47) (55) Net foreign exchange effect 5 (363) Net monetary effect Total financing cost (230) (603) Operating income (loss) minus total Financing cost (108) (673) Other expenses, net (369) (124) Loss from continuing operations before taxes and employee statutory profit sharing (477) (797) Taxes and employee statutory profit sharing Loss from continuing operations (357) (488) Loss from discontinued operations (net of income tax) (429) (319) Effect at the beginning of the period related to changes in accounting principles (298) Net loss $ (1,084) $ (807) Net loss, majority interest $ (1,096) $ (821) Net income, minority interest February 23, 2005

16 Statement of operations data (Millions of constant pesos) (1) CYDSA, S.A. DE C.V. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS As of December 2004 and Net sales 7,122 6,114 Net sales (Equivalent in millions of US dollars) Export sales (Millions of US dollars) Operating income (loss) 122 (70) Net financial expenses (377) (374) Net loss (1,084) (807) Cash flow data (Millions of current pesos) Operating cash flow (operating income plus depreciation and other non-cash items), EBITDA Operating cash flow (Equivalent in millions of US dollars) Operating ratios (Percentage) Operating profit (loss) / sales 1.7% (1.1%) Operating cash flow / sales 7.6% 5.3% Financial indicators (Times) Bank debt / shareholders equity Current assets / current liabilities Majority loss per share (pesos) (2) (4.00) (3.00) (1) Figures in Mexican pesos of purchasing power as of December 31, (2) Based on 273,667,498 shares. 16 February 23, 2005