GRUPO INDUSTRIAL SALTILLO 2Q18 Conference Call July 23, 2018 1
Forward Looking Statement This presentation and discussion may contain forecasts or projections in accordance with the vision and expectations of the Administration with respect to the performance of the Company, the businesses and future events. These forecasts and projections are subject to risks, uncertainties and assumptions that are uncertain. Several factors can cause actual results to differ materially from those forecasts, projections and plans of the Administration, including, without limitation, business development and marketing of new products, the demand for and acceptance of the Company s products, economic conditions in the product markets and the different regions, the cost of raw materials and energy and the fluctuation of the exchange rate. FINANCIAL EXPECTATIONS The financial expectations, forecasts and projections in this presentation reflect the current beliefs of the Company and its Administration. The Company is not required and does not acquire duty to update this presentation or any forecast, projection or expectation as a result of new information, events or circumstances subsequent to this date. 2
JOSÉ MANUEL ARANA - CEO MAIN HIGHLIGHTS & STRATEGIC OVERVIEW 3
Double-Digit Growth in 2Q18 In Millions of Pesos REVENUES 2Q EBITDA 2Q 11% 10% 4,695 5,195 621 686 2017 2018 2017 2018 Globalization Strategy backs up growth in Draxton Positive Sales growth trend Draxton and Housewares Businesses report significant EBITDA growth Positive results in a volatile market 4
YTD Positive Trend In Millions of Pesos REVENUES 6M EBITDA 6M 5% 9,919 10,438 0% 1,466 1,465 2017 2018 2017 2018 Draxton: main growth driver Double-digit revenue growth in Draxton Europe & Asia Positive EBITDA in Draxton, Calorex and Cinsa offset challenges in Vitromex 5
Diversified Sales and Ebitda LTM Jun-18 Revenues by Region EBITDA by Region Revenue by Currency EBITDA by Currency Asia Asia CNY CNY Europa 32% 4% Europa 43% 5% EUR 32% 4% 30% USD EUR 40% 6% 42% USD 64% 52% América Reducing NAFTA exposure Improving currencies hedging 62% of revenues are in USD or EUR 82% of EBITDA is in USD or EUR América 34% MXN 12% MXN
NAFTA Renegotiation Process Investments in Mexico's construction industry continue steady, despite uncertainty over the country's relationship with the U.S. Senior U.S. and Mexico officials have agreed to step up negotiations to overhaul the North American Free Trade Agreement with the aim of reaching a preliminary deal by late August. It s feasible from a technical perspective, but politically, you need flexibility from all parties, Ildefonso Guajardo, who serves as Mexico s chief trade negotiator, said in a radio interview. Mr. Guajardo plans to meet with U.S. Trade Representative Robert Lighthizer in Washington on July 26 to address Nafta sticking points such as content rules for the automotive sector and mechanisms to solve commercial disputes. Canada will also join in negotiations, Mr. Guajardo said, but he didn t provide specific dates for a new round of talks among the three countries. Source: Bloomberg Intelligence and The Wall Street Journal 7
Draxton Strategy is accelerating team integration and customer demand generation globally. Expanding our presence in global platform programs. We are developing a strong order book for the future and feel very strong on volume growth for the next five years. Our focus for 2 nd half of 2018: Maintain leadership in Mexican market Strengthen position in Europe Accelerate growth in China 8
Vitromex Focused on recovering profitability in Mexico by adapting production and inventories to products with higher turnover and investing capex in productivity improvements; while in the U.S., we relaunched an innovation process that will be deployed in the next 2 quarters. In the process of a turnaround. Progress will be slow, but steady. Vitromex s strategy to enhance profitability: Streghthen revenue management Sales & operations: improve S&OP planning. Optimize working capital to focus on cash generation Continue to improve cost productivity 9
Vitromex We are aware that many of the setbacks in the past were completely related to internal factors. Therefore, to drive the success of the strategy, we have created a Committee to oversee the execution of the following three key goals: A cultural change An operating change to ceramic engineering and key performance managing systems Resource optimization related to manufacturing design, project management improvement, and a cost efficiency program to improve competitiveness We expect to start seeing an EBITDA trend turnaround starting in 1Q19 10
Calorex The Federal Anti-Trust Commission (COFECE) decided not to authorize the sale of the Company s Water Heater business to Rheem Industries Co. due to antitrust concerns. GISSA announced on June 18, this step fully concludes the sale process following the decision by the COFECE to not approve the transaction due to anti-trust concerns. 11
Cinsa Positive trend with strong EBITDA growth. Strong EBITDA growth came from a double-digit top line growth. We are planning to expand our US presence, taking advantage of the positive trends for enamel-on-steel products. 12
JOSÉ MANUEL ARANA - CEO MAIN HIGHLIGHTS & STRATEGIC OVERVIEW 13
FINANCIAL PERFORMANCE JORGE MERCADO - CFO 14
EBIT 2017 Deprec. EBITDA 2017 Draxton Mx Draxton Brakes Draxton P&C Vitromex Calorex Cinsa Corp s EBITDA 2018 Deprec EBIT 2018 2017 Draxton México Draxton Brakes Draxton PC Vitromex Calorex Cinsa Corp 2018 Consolidated Perfomance 2Q18 vs 2Q17 In Millions of Pesos Sales 122 187 179 94 53 44 10 Strong Double Digit Revenue Growth 4,695 11% 5,195 Better Product Mix in Consumption Segment Higher Volume in Draxton Europe & Asia EBITDA Double-digit growth EBIT-EBITDA 59 62 2 125 4 12 96 Margin Expansion in Draxton & Houseware Lower SG&A in Vitromex 391 186 576 10% 684 326 358 Margins in Consolidated level remain unchanged vs 2Q17. Globalization Strategy contribute to move forward on a better currency mix 15
Consolidated Perfomance 2Q18 vs 2Q17 In Millions of Pesos Net Income for 2Q18 include main items that influence comparability to 2Q17: Higher depreciation and amortization expense affecting 2Q18 EBIT comparisons versus 2017, related to the price paid for the acquisitions of Infun, now Draxton Powertrain Europe. This process, known as Purchase Price Allocation, or PPA, which we will lap most of the year, and In the Comprehensive Financial Result line in 2017 there was a benefit of $ 14 million related to exchange rate fluctuation, while in 2Q18 this represented a charge of $ 138 million. 16
Strong Currency Operations LTM Jun-18 Revenue by Currency EBITDA by Currency CNY CNY EUR 32% 4% 30% USD EUR 40% 6% 42% USD 34% 12% MXN MXN 62% of revenues and 82% of EBITDA in USD or EUR In the path of a better align of cash flow to debt Globalization Strategy aim to reduce volatility of local operations
Proforma GIS including JVs In Millions of Pesos Second Quarter Six Months 2018 2017 Change 2018 2017 Change Revenues 5,517 4,924 12% 11,107 10,321 8% EBIT 404 409 (1%) 940 1,048 (10%) Margin 7% 8% 8% 10% EBITDA 778 669 14% 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 2Q18 double-digit growth in revenues and EBITDA due to: A significant increase in iron foundry volumes, as well as to a higher number of machined parts operating growth, which lead to improved fixed-cost absorption. 18
2Q17 Revenue COGS SG&A & Other 2Q18 Draxton EBITDA 2Q18 vs 2Q17 In Millions of Pesos 6 1 2 12% sales growth 28 34 North America supported by surcharge and better price mix Europe/Asia driven by volume increase 19% EBITDA growth Higher & Profitable Volume FX contribution Better product mix and pricing 19
2Q17 Revenue COGS SG&A & Other 2Q18 Vitromex EBITDA 2Q18 vs 2Q17 In Millions of Pesos 84 84 106 33 14-41 10% sales decrease Drop in US volumes Lower average sale prices US Customer recovery campaign Negative EBITDA Lower income base SG&A relevant savings plan 20
2Q17 Revenue COGS SG&A & Other 2Q18 Calorex EBITDA 2Q18 vs 2Q17 In Millions of Pesos 7 11% sales growth 18 4 16 13 Instant water heaters category growth Double digit export growth Higher average price 26% EBITDA decrease Higher marketing expenses $9 million pesos in FX impact 21
2Q17 Revenue COGS SG&A & Other 2Q18 Cinsa EBITDA 2Q18 vs 2Q17 In Millions of Pesos 27 11 3 Revenues increased 12% Food processing product line 19 31 EBITDA growth of 64% Favorable price effect Operating efficiencies 22
Ebit 2017 Deprec. Ebitda 2017 Draxton Mx Draxton Brakes Draxton P&C Vitromex Calorex Cinsa Corp s Ebitda 2018 Deprec. FC Ebit 2018 2017 Draxton México Draxton Brakes Draxton PC Vitromex Calorex Cinsa Corp/Elim 2018 Consolidated Performance 6M18 vs 6M17 In Millions of Pesos Sales 258 246 96 295 55 47 14 9,919 5% 10,438 5% Revenue Growth Outstanding Draxton Performance Calorex & Cinsa Continuous Growth Trend EBIT-EBITDA 998 467 1,466 26 59 22 190 0% 13 21 86 1,464 639 826 Flat EBITDA trend vs 2017 Draxton, Calorex and Cinsa performance compensate Vitromex challenges 23
Debt Profile Debt - March 2018 430 MUSD Debt - June 2018 415 MUSD Maturity 3.5 years Syndicated Loan 276.5 MUSD: LIBOR + 3.50% Infun Seller Note: EURIBOR + 3.00% Covenant: 2018 Debt/EBITDA 3.25x Maturity 4.6 years Current Syndicated Loan: LIBOR + 2.20% Covenant: 2018 Debt/EBITDA 3.50x 24
Outlook Draxton + JVs Vitromex Short Term Positive Top Line Trend in all regions No NAFTA Renegotiation impact Turnaround execution Limited recovery Mid-Long Term Awarded programs for 34,500 tons/yr. Order Book to push incremental capacity EBITDA trend turnaround US volume recovery Calorex Optimistic Top Line Trend US market share expansion Cinsa Stable Top Line Profitable Growth vs 2017 Higher margins US market penetration 2018 Consolidated CAPEX estimated around $1.3 billion pesos 25
Q&A 26
GRUPO INDUSTRIAL SALTILLO 2Q18 Conference Call July 23, 2018 27