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Industrias Unidas, S.A. de C.V. Consolidated Results of Operations for Q2 2012

MEXICO CITY--(BUSINESS WIRE)-- Industrias Unidas, S.A. de C.V. (“IUSA” or the “Company”) has announced its unaudited results for the first semester of 2012. Figures are unaudited and have been prepared in accordance with Mexican Financial Reporting Standards (“MFRS”), which are different in certain respects from Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The results from any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Unless stated otherwise, reference herein to “Pesos”, “pesos”, or “Ps.” are to pesos, the legal currency of Mexico and references to “U.S. dollars”, “dollars”, “U.S. $” or “$” are to United States dollars, the legal currency of the United States of America. Except as otherwise indicated, all peso amounts are presented herein in pesos with purchasing power as of June 30, 2012 and in pesos with their historical value for other dates cited. The dollar translations provided in this document are calculated solely for the convenience of the reader using an exchange rate of Ps. 13.3396 per U.S. dollar, the exchange rate published by Banco de Mexico, the country’s central bank, on June 29, 2012.

Six Months ended June 30, 2011 compared to Six Months ended June 30, 2012.

The following table summarizes our results of operations for the six months ended June 30, 2011 and 2012:

(Figures in Millions of Pesos)
For the Six months ended June 30,
2011 2012
Revenues 8,484.7 6,051.5
Cost of Sales 7,639.4 5,490.5
Selling and Administrative Expenses 752.3 686.5
Operating Income (Loss) 93.0 (125.5 )
Other Expenses - Net (26.0 ) (15.8 )
Comprehensive Financing Result (284.3 ) (273.3 )
Taxes and Statutory Employee Profit Sharing 10.3 (42.8 )
Equity in Income (Loss) of Associated Companies 0.0 0.3
Consolidated Net Income (Loss) (227.6 ) (371.5 )
D&A 292.5 258.2
EBITDA 1/ 385.5 132.7

1/ EBITDA for any period is defined as consolidated net income (loss) excluding i) depreciation and amortization, ii) total net comprehensive financing result (which is comprised of net interest expense, exchange gain or loss, monetary position gain or loss and other Financing costs), iii) other expenses net, iv) income tax and statutory employee profit sharing and v) equity in income (loss) of associated companies. EBITDA should not be considered as an alternate measure of net income or operating income, as determined on a consolidated basis using amounts derived from statements of operations prepared in accordance with MFRS, or as an indicator of operating performance or to cash flows from operating activity as a measure of liquidity. EBITDA is not a recognized term under MFRS or U.S. GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activity as a measure of liquidity.

Our consolidated net loss for the six months ended June 30, 2012 was Ps.371.5 million (U.S.$27.8 million), compared to a net loss of Ps.227.6 million in the same period of 2011. This increase is primarily due to a decline in sales, reflected in Operating Income and despite the reductions in Comprehensive Financing Result and Other expenses.

Revenues

Our net revenues for the six months ended June 30, 2012 decreased 28.7% to Ps.6,051.5 million from Ps.8,484.7 million in the same period of 2011. This decrease was due to lower volume of sales and copper prices, and the sale of the assets of United Copper Industries.

Our costs and revenues closely follow copper prices since the market practice is to pass on to the buyer any changes in the price of raw materials.

Our sales are primarily to customers engaged in the commercial, industrial and residential construction, and their related maintenance and renovation activities. We also sell to customers engaged in electrical power generation, transmission and distribution and to the sector of gas, water and air conduction in the Heating, Ventilation, Air conditioning and Refrigeration (HVACR).

Our revenues consist mainly of sales of copper-based products (tubing, wire, cable and alloys) and electrical products.

By country of production, approximately 58.5% of our revenues in the first six months ended June 30, 2012 came from products manufactured in the Mexico and the remaining 41.5% from products manufactured in the U.S.

In terms of sales by region during the six months ended June 30, 2012 we derived approximately 48.6% of our revenues from sales to customers in the United States, 49.5% from customers in Mexico and 1.9% from the rest of the world (“ROW”).

In terms of volume, consolidated sales of copper products during the six months ended June 30, 2012 decreased by 29.7% as compared to the same period in 2011:

For the Six months ended June 30,
Copper Products Volume Sales 2/
(Metric tons) 2011 2012
USA 40,774 21,865
México 13,245 15,678
ROW 388 731
Total 54,407 38,274
2/ Includes aluminum wire and cable

Cost of sales

Our cost of sales in the six months ended June 30, 2012 decreased by 28.1%, to Ps.5,490.5 million from Ps.7,639.4 million in the same period of 2011. As a percentage of revenues, cost of sales remained unchanged in the six months ended June 30, 2012 compared to the same period of 2011.

Copper raw material purchases accounted for approximately 79.4% of our cost of goods sold in the six months ended June 30, 2012.

We continue to reduce our cost base through several initiatives, including plant scheduling, raw material handling and overall manufacturing overhead costs. According to MFRS and our accounting policies, we make an inventory valuation at month end and if the original purchase price of metal is above current market prices, the difference is accounted for as cost. Therefore in a declining price environment, we record an immediate non cash effect on results, depending on inventories held and copper price variations. On the other hand, if copper prices are rising, there is no mark up or positive inventory effect, since the gain will be recorded only when the goods are sold.

Gross Profit

Our gross profit in the six months ended June 30, 2012 decreased 33.6% to Ps.561.0 million from Ps.845.3 million in the same period of 2011, mainly due to lower volume sales. As a percentage of sales gross profit was 9.3% in the six months ended June 30, 2012, versus 10.0% compared to the same period of 2011.

Selling and Administrative Expenses

Our selling and administrative expenses in the six months ended June 30, 2012 decreased 8.7% to Ps.686.5 million from Ps.752.3 in the same period of 2011.

Operating Income (Loss)

We have an operating loss in the six months ended June 30, 2012 of Ps.125.5 million, compared to an operating income of Ps.93.0 million in same period of 2011. This decrease was the result of the lower sales period over period.

EBITDA

In the six months ended June 30, 2012 EBITDA was Ps.132.7 million (U.S.$9.9 million), a 65.6% decrease compared to Ps.385.5 million in the same period of 2011. The corresponding depreciation and amortization figures are Ps.258.2 million for the six months ended June 30, 2012 and Ps.292.5 million for the same semester of 2011.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the six months ended June 30, 2011 and 2012:

(Figures in Millions of Pesos)
For the Six months ended June 30,
2011 2012
Interest Expense (324.0 ) (292.2 )
Interest Income 23.4 19.1
Exchange (Gain) Loss - Net 40.5 6.4
Other Financing Costs (24.2 ) (6.6 )
Comprehensive Financing Result (284.3 ) (273.3 )

Our comprehensive financing result decreased 3.9% in the six months ended June 30, 2012 to Ps.273.3 million from Ps.284.3 million in the same period of 2011. This was explained mainly by lower Interest Expense.

Taxes and Statutory Employee Profit Sharing

The provision for income taxes and statutory employee profit sharing in the six months ended June 30, 2012 was a benefit of Ps.42.8 million compared to a cost of Ps.10.3 in the same period of 2011, mainly due to the effect of past years’ loss carryovers and the difference in income tax rates in the U.S. and Mexico.

Consolidated Net Income (Loss)

Our consolidated net loss in the six months ended June 30, 2012 was Ps.371.5 million (U.S.$27.8 million), compared to a net loss of Ps.227.6 million in the same period of 2011, mainly the result of negative Operating Income.

Liquidity and Capital Resources

Liquidity

As of June 30, 2012, we had cash and cash equivalents for Ps.112.0 million (U.S.$8.4 million). Our policy is to invest available cash in short-term instruments issued by Mexican and U.S. banks as well as in securities issued by the governments of Mexico and the U.S.

Our cash flow from operations and operating margins are significantly influenced by world market prices for raw copper, as quoted by COMEX and the London Metal Exchange (“LME”). Copper prices are subject to significant market fluctuations; average copper prices decreased 14.2% in the six months ended June 30, 2012 to $3.6652 per pound from $4.2708 in the same period of 2011.

We obtain short-term financing from various sources, including Mexican and international banks. Short-term financing consists in part of lines of credit denominated in pesos and dollars. As of June 30, 2012, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.934.8 million (U.S.$70.0 million), of which approximately 77.4% was dollar-denominated. On the same date, our outstanding consolidated long-term debt, excluding current portion thereof, totaled Ps.4,549.1 million (U.S.$341.0 million), approximately all of which was dollar-denominated.

Accounts receivable from third parties were Ps.1,341.9 million (U.S.$100.6 million) as of June 30, 2012. Days outstanding in the domestic private customers channel were 38 days as of June 30, 2012, same number as on December 31, 2011.

Debt Obligations

The following table summarizes our debt as of June 30, 2012:

Consolidated debt June 30, 2012
(In Millions of Pesos)
U.S. subsidiaries debt 197.5
Mexican debt 5,286.3
Total 5,483.8

This total includes the restructured debt of the Company.

Capital Expenditures

For the six months ended June 30, 2012, we invested Ps.72.2 million (U.S.$5.4 million) in capital expenditure projects, mainly related to maintenance.

In the six months ended June 30, 2012 our capital expenditures were allocated by segments as follows: 55.5% to copper tubing, 11.6% to valves and controls and electrical products and the remaining 32.9% to other divisions. By geographic region, 46.3% of total capital expenditures was invested in our Mexican facilities and the remaining 53.7% in the U.S.

You should read this document in conjunction with the unaudited consolidated financial statements as of June 30, 2012, including the notes to those statements.

Industrias Unidas, S.A. de C.V.
Francisco Rodríguez, (5255) 5216 4028
frodriguez@iusa.com.mx

Source: Industrias Unidas, S.A. de C.V.