Industrias Unidas, S.A. de C.V. Consolidated Results of Operations for Q3 2022

Industrias Unidas, S.A. de C.V. ("IUSA" or the "Company") has announced its unaudited results for the first nine months ended September 30, 2022. 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 September 30, 2022, 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. 20.1271 per U.S. dollar, the exchange rate published by Banco de Mexico, the country's central bank, on September 30, 2022.

Nine months ended September 30, 2022, compared to nine months ended September 30, 2021.

The following table summarizes our results of operations for the first nine months ended September 30, 2022, and 2021:

(Figures in Millions of Pesos)
For the first nine months ended September 30,

2021

 

2022

 

Revenues

20,811.6

 

23,307.4

 

Cost of Sales

17,091.3

 

18,241.4

 

Gross Profit

3,720.3

 

5,066.0

 

Selling and Administrative Expenses

1,375.3

 

1,738.7

 

Operating Income (Loss)

2,345.1

 

3,327.3

 

Other Expenses - Net

(33.8

)

(52.1

)

Comprehensive Financing Result

(540.7

)

(167.2

)

Taxes and Statutory Employee Profit Sharing

536.3

 

749.1

 

Equity in Income (Loss) of Associated Companies

(13.2

)

(6.5

)

Consolidated Net Income (Loss)

1,221.1

 

2,352.4

 

D&A

212.3

 

215.2

 

EBITDA 1/

2,557.4

 

3,542.4

 

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 income for the first nine months ended September 30, 2022, was Ps.2,352.4 million (U.S.$116.9 million), compared to a net income of Ps.1,221.1 million in the same period of 2021. This change is primarily due to higher sales and margins in the United States market, combined with a lower Comprehensive Financing Result.

Revenues

Our net revenues for the first nine months of 2022 increased 12.0% to Ps.23,307.4 million (U.S.$1,158.0 million) from Ps. 20,811.6 million in the same period of 2021. As said, this was due to higher sales in the American market.

Normally, our costs and revenues follow copper prices very closely since the market practice is to pass on to the buyer changes in raw material price.

Our sales are primarily to customers engaged in 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 52.2% of our revenues in the first nine months ended September 30, 2022, came from products manufactured in México and the remaining 47.8% from products manufactured in the U.S.

In terms of sales by region during the first nine months ended September 30, 2022, we derived approximately 56.3% of our revenues from sales to customers in the United States, 40.5% from customers in Mexico and 3.2% from the rest of the world ("ROW").

In terms of volume, consolidated sales of copper products during the first nine months ended September 30, 2022, slightly decreased by 0.1% as compared to the same period in 2021:

(Metric tons)
For the first nine months ended September 30,
Copper Products Volume Sales 2/

2021

2022

USA

26,580

26,205

México

44,256

43,604

ROW

1,965

2,953

Total

72,802

72,761

2/ Includes aluminum wire and cable

Cost of sales

Our cost of sales in the first nine months ended September 30, 2022, increased by 6.7% to Ps.18,241.4 million (U.S.$906.3 million) from Ps. 17,091.3 million in the same period of 2021. As percentage of revenues, cost of sales was 78.3% and 82.1% respectively.

We continue to reduce our cost base through several initiatives, including plant scheduling, raw material handling, and overall manufacturing overhead costs. According to our accounting policies, we make an inventory valuation at average purchase price. In the case of copper cathodes, an aftermath adjustment is required due to the quotation period agreed with the suppliers (M+1). This initiative allows us to hedge purchases for 30 days at no additional cost. The adjustment is recorded to the cost of sales in the month in which it occurs.

Gross Profit

Our gross profit in the first nine months ended September 30, 2022, increased 36.2% to Ps.5,066.0 million (U.S.$251.7 million) from Ps.3,720.3 million in the same period of 2021. As percentage of sales, gross profit in 2022 was 21.7% vs 17.9% in 2021.

Selling and Administrative Expenses

Our selling and administrative expenses in the first nine months ended September 30, 2022, increased 26.4% to Ps.1,738.7 million from Ps.1,375.3 in the same period of 2021.

Operating Income (Loss)

Our operating income in the first nine months ended September 30, 2022, increased 41.9% to Ps.3,327.3 million (U.S.$165.3 million) from Ps.2,345.1 in the same period of 2021.

EBITDA

In the first nine months ended September 30, 2022, our EBITDA increased 38.5% to Ps.3,542.4 million (or U.S.$176.0 million), from Ps.2,557.4 million in the same period of 2021. The corresponding depreciation and amortization figures are Ps.215.2 million for January to September 2022 and Ps.212.3 million for the same period of 2021.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the first nine months ended September 30, 2021, and 2022:

(Figures in Millions of Pesos)
For the first nine months ended September 30,

2021

 

2022

 

Interest Expense

(335.2

)

(244.8

)

Interest Income

10.6

 

14.6

 

Exchange Gain (Loss) - Net

(203.8

)

75.2

 

Other Financing Costs

(12.3

)

(12.3

)

Comprehensive Financing Result

(540.7

)

(167.2

)

Our comprehensive financing result in the first nine months ended September 30, 2022, was a cost of Ps.167.2 million compared to a cost of Ps.540.7 million in the same period of 2021. This accounting effect of an exchange gain was explained mainly by the appreciation of the Mexican peso against the US dollar. The exchange rate at the end of 2021 was $20.64 pesos per USD and at the end of September of 2022 was $20.13.

Taxes and Statutory Employee Profit Sharing

The provision for current and deferred income taxes and statutory employee profit sharing in the first nine months ended September 30, 2022, was an expense of Ps.749.1 million compared to an expense of Ps.536.3 million in the same period of 2021.

Consolidated Net Income (Loss)

Our consolidated net Income for the first nine months ended September 30, 2022, was Ps.2,352.4 million (U.S.$116.9 million), compared to a net income of Ps.1,221.1 million in the same period of 2021. This was explained by a higher Gross Profit and lower Comprehensive Financial Result.

Liquidity and Capital Resources

Liquidity

As of September 30, 2022, we had cash and cash equivalents for Ps.1,938.5 million (U.S.$96.3 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 1.7% in the first nine months ended September 30, 2022, to $4.12 US dollar per pound from $4.19 US dollar per pound in the same period of 2021.

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 September 30, 2022, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.244.3 million (U.S.$12.1 million), all of which was dollar denominated.

On the same date, our outstanding consolidated long-term debt, excluding current portion thereof, totaled Ps.4,779.1 million (U.S.$237.5 million), all of which was dollar denominated.

Accounts receivable from third parties as of September 30, 2022, were Ps.4,592.9 million (U.S.$228.2 million). Days outstanding in the domestic market were 31 days as of September 30, 2022.

Debt Obligations

The following table summarizes our debt as of September 30, 2022:

 

Consolidated debt

September 30, 2022

 

 

(In Millions of Pesos)

 

U.S. subsidiaries debt

149.6

 

 

Mexican debt

4,873.8

 

 

Total

5,023.4

This total includes the restructured debt of the Company.

Capital Expenditures

For the first nine months ended September 30, 2022, we invested Ps.204.0 million (U.S. $10.1 million) in capital expenditure projects, mainly related to expansion of production and maintenance.

In the first nine months ended September 30, 2022, our capital expenditures were allocated by segments as follows: 44.7% to copper tubing, 11.4% to wire and cable, 13.7% to valves and controls, 1.4% to electrical products and the remaining, 28.8% to other divisions. By geographic region 60.6% of total capital expenditures were invested in our Mexican facilities and the remaining 39.4% in the U.S.

You should read this document in conjunction with the unaudited consolidated financial statements as of September 30, 2022, including the notes to those statements.

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