Financial Report for the First Quarter of 2018 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 Piso 6 Colonia Valle del Campestre San Pedro Garza Garcia, Nuevo Leon, México C.P. 66265 www.cydsa.com Contacts in Investor Relations: Name E-mail Telephone Oscar Casas Kirchner oscar.casas@cydsa.com (52) 81 8152 4604 Laura de Haro Delgado laura.deharo@cydsa.com (52) 81 8152 4609 Alberto Balderas Calderon alberto.balderas@cydsa.com (52) 81 8152 4608 1 April 26 2018
New Business of Processing and Underground Storage of Hydrocarbons This Business began in November of 2014 when CYDSA signed an agreement with Petroleos Mexicanos (Pemex) aimed at developing the first facility in Mexico and Latin America dedicated to the storage of Liquefied Petroleum Gas (LPG) in a saline cavern. The first stage of this Business consisted in the creation of a saline cavern, concluded in September of 2015. The second and last stage, included the construction of the surface installations needed for the processing, guarding, injection, extraction and transportation of LPG, completed in October of 2017. The commercial operations of processing and underground storage of LPG for Pemex started on November 16, 2017. Signing of Bank Loans Long Term Loans 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 US$450 million, 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 Investors of the issuance of Debt Instruments on October 4, 2017, by means of 10 year Senior Notes in international markets for US$330 million dollars, maturing on October 4, 2027. The proceeds of this transaction, achieved mainly the following objectives: - Payment of the Short-Term Loan for US$80 million dollars granted by Goldman Sachs Bank USA in April of 2017, to fund the construction of the surface installations of LPG Processing and Underground Storage facility. - Prepayment of the balance of a Syndicated Loan signed in May of 2017 by Valores Quimicos S.A. de C.V. a CYDSA s Sub-Holding Company, and equivalent to US$232 million dollars. Syndicated Revolving Credit. Additionally, on December 19, 2017, Cydsa S.A.B. de C.V. negotiated a Loan in the amount of 1,900 million pesos. The Company drew down 950 million at a three year term, without real guaranties, nor mandatory amortizations of the principal amount. With these proceeds, CYDSA paid all then existing peso denominated loans. In summary, at the close of the first quarter of 2018, the Group s Debt consist of: 1) Senior Notes maturing in ten years for US$330 million; and 2) Syndicated Revolving Loan at three year term, in the amount of 950 million pesos. As of March 31 of 2018, CYDSA s private and public debt added to an equivalent of US$382 million. 2 April 26 2018
Derivative Financial Instruments During June and September of 2017, the Company entered into a first exchange coverage contract in order to protect US$279.8 million against significant depreciations of the exchange rate. The amount paid for such instruments amounted to 211.6 million pesos, maturing on September 4 and 12 of 2018. This instrument covers the risk of an exchange rate above 20.50 pesos per dollar, without margin call requirements or additional disbursements to the amount already paid. In addition, on October 10 of 2017, CYDSA acquired an exchange coverage to protect an additional amount of US$50.0 million dollars, maturing on September 12, 2018. The sum paid amounted to 28.1 million pesos and covers the foreign exchange risk above 21.50 pesos per dollar. As in the case described in the foregoing paragraph, this transaction does not require margin calls or additional disbursements to the amount already paid. With the exchange coverages mentioned in the two preceding paragraphs, CYDSA has covered US$329.8 million dollars. Therefore an important portion of the Company s worth becomes protected against a significant depreciation of the exchange rate. 3 April 26 2018
Results of the First Quarter Total Sales CYDSA s Net Consolidated Sales for the first quarter 2018 reached 2,415 million pesos, an increase of 12.2% from the same quarter of the prior year. In dollar terms, Sales accumulated as of March of 2018 totaled an equivalent of US$129 million, up 21.7% from the US$106 million accumulated during the same period of 2017. The difference between the increase in sales in dollar and peso terms derives from a 7.82% appreciation of the Mexican peso, when comparing the average exchange rate during the first quarter of 2018 against the same period of 2017. Domestic Sales Sales to the domestic market during the January-March period of 2018 reached the sum of 2,211 million pesos, an increase of 11.8% compared to those of the same period of 2017. In the first quarter of 2018, CYDSA s sales include income stemming the new business of LPG Processing and Underground Storage, an operation that began its commercial activities in November of 2017. In addition, they include international price increases in chemical commodities, compared to the first quarter of 2017. Export Sales Export Sales for the first quarter of 2018, reached US$10.9 million, a decrease of 21.0% when compared with the same period of the prior year. 4 April 26 2018
Sales by Business Group The following chart depicts Total Sales by Business Group for the first quarter of the years 2017 and 2018: 12.2% 12.7% 11.1% Millions of dollars 70 85 36 44 106 129 Change 2018 vs. 2017 21.4% 22.2% 21.7% * Consolidated figures for each Group, eliminate inter-company Sales to business units within the same Group. Sales for the first quarter of 2018 of the Group including Salt, Chlorine, Caustic Soda and Chemical Specialties reached 1,596 million pesos, an increase of 12.7% over the same period of 2017. Higher international prices of chemical commodities, represented the main booster for the sales growth in this Group of Businesses. Refrigerant Gases, LPG Processing and Underground Storage and other Businesses, registered Sales for 819 million pesos, up 11.1% against those of last year s first quarter. The new Business of LPG Processing and Underground Storage, made a significant contribution to the increased sales of this Group of Businesses. 5 April 26 2018
Operating Income Gross Profit 1 for the first quarter of 2018 reached 1,113 million, representing an increase of 361 million or 48.0% when compared to 752 million reported for the first three months of 2017. Operating Expense as of March of 2018, reached 456 million pesos, a figure that compares with 383 million reported for the same quarter of 2017. Other Income, net, reached 20 million pesos during the first three months of 2018. This figure compares with an income of 8 million, reported for the same quarter of the previous year. Therefore, CYDSA registered in the first quarter of 2018 an Operating Income (EBIT) of 637 million (26.4% on Sales), a figure that compares with an Operating Income of 377 million (17.5% on Sales) reported for the same period of 2017, representing an increase of 69.2%. The main factors contributing to the improvement of the Gross Profit and the Operating Income follow: The start-up of commercial operations of the new Business of LPG Processing and Underground Storage in November of 2017; and The increase of international prices of chemical commodities. Operating Cash Flow (EBITDA) Operating Cash Flow (EBITDA) 2 for the first three months of 2018, reached 809 million pesos (33.5% on Sales), an improvement of 56.2% compared to the 518 million (24.1% on Sales) attained in the same period of 2017. In dollar terms, EBITDA for the first quarter of 2018 totaled US$43.2 million, an increase of 67.4% over the US$25.8 million of the same period of 2017. 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. 6 April 26 2018
Net Financial Expenses Net Financial Expenses, including financial expenses, financial income and foreign exchange loss, reached 375 million during the January-March period of 2018, a figure that compares with 404 million registered for the same period of the prior year. A table presenting the integration of Net Financial Expense follows: 2018 2017 Change Financial Expenses (137) (92) (45) Result from Derivative Financial Instruments (254) (254) Interest Income 15 18 (3) Net Foreign Exchange Effect 1 (330) 331 Net Financial Expenses (375) (404) 29 The table shows that Financial Expenses grew by 45 million, due to a larger debt. On the other hand, CYDSA registered an expense of 254 million pesos, derived from the decrease in Market Value of the Foreign Exchange Coverage Instruments discussed in the Derivative Financial Instruments section of this Report. The positive variation in the amount of 331 million pesos in the Net Foreign Effect, when comparing the first quarter of 2018 against the same period of the prior year derives mainly from the appreciation of the foreign exchange, from 19.66 pesos per dollar as of the close of 2017, to 18.27 pesos per dollar as of the close of March of 2018. This appreciation had an impact in all monetary line-items of the Balance Sheet. Income Tax Income Tax changed from a positive balance in the amount of 169 million pesos reported for the first quarter of 2017, to an expense of 78 in the same period of 2018. This variation derives mainly from the difference in the foreign exchange effect, explained in previous paragraphs. Net Consolidated Income For the first quarter of 2018, CYDSA registered a Net Consolidated Income in the amount of 180 million (7.4% on Sales), an increase of 48 million or 36.5%, from 132 million (6.1% on Sales) reported for the same period of 2017. 7 April 26 2018
Financial Condition A summary of the relevant Balance Sheets as of March 31, 2018 and December 31, 2017 follow: March 2018 December 2017 Change Current Assets 3,747 3,875 (128) Non-Current Assets 17,430 18,774 (1,344) Total Assets 21,177 22,649 (1,472) Current Liabilities 2,352 2,578 (226) Non-Current Liabilities 9,075 9,784 (709) Total Liabilities 11,427 12,362 (935) Shareholders Equity 9,750 10,287 (537) Explanations of the major changes in the Balance Sheet accounts as of March 31, 2018 compared to those of December 31, 2017 appear below. Current Assets The table above shows that Current Assets decreased by 128 million pesos, moving from 3,875 million as of December 31, 2017 to 3,747 million at the close of March, 2018. The main cause for said decline in Current Assets derive from the reduction in Inventory balances. Non-Current Assets Non-Current Assets of 17,430 million as of March 31, 2018, decreased by 1,344 million pesos from the close of December of 2017, due largely to the impact of the 7.1% peso appreciation of its exchange rate against the dollar, in the valuation of the Assets whose functional currency is precisely the US dollar. Total Liabilities CYDSA s Total Liabilities as of March 31, 2018 amounting to 11,427 million pesos, decreased by 935 million with respect to the figure reported as of the close of December, 2017. The following items detail the most relevant changes: Decrease in pesos of the balance of the Company s dollar debt, derived from the appreciation of the Mexican peso (437) Reduction in the balance of Accounts Payable to Fixed Assets Suppliers and Trade Payables (359) Change in Deferred Taxes, Interest Payable and other line-items (139) Decrese in Total Liabilities (935) CYDSA closed March of 2018 with Net Bank and Notes Debt (Public and Private Debt), net of cash and cash equivalents in the amount of 5,819 million pesos, a decrease of 328 million with respect to the Net Bank and Notes Debt (Public and Private Debt) of 6,147 million pesos as of December 31, 2017. In dollar terms, as of March 31, 2018, Net Debt reached an equivalent of US$318.5 million, an increase of US$5.9 million with respect to the Net Debt of US$312.6 million at the close of 2017. 8 April 26 2018
Shareholders Equity Shareholders Equity reached the sum of 9,750 million as of the close of Mach of 2018, a decrease of 537 million pesos when compared with the amount reported for December 31, 2017. The main causes for this reduction in Shareholders Equity follow: Net Income for the First Quarter of 2018 180 Dividend to Shareholders of CYDSA S.A.B. de C.V. (200) Foreign Exchange Conversion Effect in the Chlorine-Caustic Soda; Cogeneration of Electricity and Steam; Manufacture and Commercialization of Refrigerant Gases; as well as Processing and Underground Storage of Hydrocarbons 3 (517) Decrease in Shareholders Equity (537) The Book Value per share of 15.68 pesos as of March 31, 2018 compares with 16.62 pesos per share at December 31, 2017. Security Analysis Coverage Cydsa, S.A.B. de C.V. (MSE:CYDSASA) receives analytical coverage from the following Brokerage Firms: GBM Grupo Bursatil Mexicano, INTERACCIONES and BURSAMETRICA. The Company s Debt receives analytical coverage from the following Financial Institution: Bank of America-Merrill Lynch. 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 7.1% with respect to the dollar, from $19.66 pesos per dollar as of the close of December, 2017, to $18.27 as of March 31, 2018, derived in a reduction of dollar denominated Fixed Assets due to the Conversion Effect. 9 April 26 2018
CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of March 31, 2018 an December 31, 2017 (Millions of pesos) March 2018 December 2017 Change % ASSETS Cash and Cash Equivalents $ 1,161 $ 1,291-10% Trade Receivables, net 1,213 1,191 + 2% Other Receivables, net 595 463 + 29% Inventories 764 914-16% Discontinued Current Assets 14 16-12% Current Assets 3,747 3,875-3% Property, Plant and Equipment, net 13,872 14,641-5% Other non-current Assets 3,491 4,066-14% Discontinued non-current Assets 67 67 Non-Current Assets 17,430 18,774-7% Total Assets $ 21,177 $ 22,649-7% LIABILITIES Bank Debt $ 0 $ 0 Trade Payables 930 1,220-24% Other Current Liabilities 1,190 995 + 20% Taxes Payable 231 362-36% Discontinued Current Liabilities 1 1 Current Liabilities 2,352 2,578-9% Bank Debt 6,747 7,184-6% Other non-current Liabilities 1,837 2,133-14% Employee Benefits 474 450 + 5% Discontinued non-current Liabilities 17 17 Total non-current Liabilities 9,075 9,784-7% Total Liabilities 11,427 12,362-8% SHAREHOLDER EQUITY Capital Stock 2,825 2,825 Additional paid-in Capital 1,129 1,129 Repurchase of Own Shares (303) (303) Retained Earnings 4,565 4,613-1% Accumulated other Comprehensive Income, net of Tax 1,194 1,706-30% Shareholders Equity of Controlling Interest 9,410 9,970-6% Non-controlling Interest 340 317 + 7% Shareholders Equity 9,750 10,287-5% Liabilities and Shareholders' Equity $ 21,177 $ 22,649-7% 10 April 26 2018
CYDSA, S.A.B. DE C.V. AND SUBSICIARIES CONSOLIDATED INCOME STATEMENTS for the first quarter of 2018 and 2017 (January the 1 st. to March the 31 st.) (Millions of Pesos) 1Q18 1Q17 Change % Net Sales $ 2,415 $ 2,153 + 12% Cost of Sales (1,302) (1,401) - 7% Gross Profit 1,113 752 + 48% Operating Expenses (456) (383) + 19% Other (Expenses) Income, net (20) 8 n.a. Operating Income 637 377 + 69% Net Financial Expenses Financial Expenses (137) (92) + 49% Result from Derivative Financial Instruments (254) n.a. Interest Income 15 18-15% Foreign Exchange fluctuation, net 1 (330) n.a. Net Financial Expenses (375) (404) - 7% Share in Results of Associates Income Before Income Tax 262 (27) n.a. Income Tax (78) 169 n.a. Income of Continuing Operations 184 142 + 30% Result of Discontinued Operations, net (4) (10) Net Income $ 180 $ 132 + 37% Controlling Interest Share in Net Income $ 152 $ 94 Non-Controlling Interest Share in Net Income 28 38 11 April 26 2018
CYDSA, S.A.B. DE C.V. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS AND RATIOS First Quarter of 2018 and 2017 Income Statement data (Millions of pesos) 1Q18 1Q17 Change % Net Sales 2,415 2,153 + 12% Net Sales (Equivalent in millions of dollars) 129 106 + 22% Export Sales (Millions of dollars) 10.9 13.8-21% Operating Income 637 377 + 69% Net Income 180 132 + 36% Cash Flow data (Millions of pesos) Operating Cash Flow (Income after general expenses plus depreciation and other non-cash items), EBITDA 809 518 + 56% Operating Cash Flow (Equivalent in millions of US dollars) 43.2 25.8 + 67% Operating Ratios (Percentage) Operating income (EBIT) / Sales 26.4% 17.5% Operating Cash Flow (EBITDA) / Sales 33.5% 24.1% As of the close of March, 2018 and December, 2017 Financial indicators (times) March 2018 December 2017 Bank debt / Shareholders equity 0.72 0.72 Current assets / Current liabilities 1.82 1.70 Book value per share (pesos) (1) 15.68 16.62 (1) Based on 600'000,000 shares outstanding. 12 April 26 2018