1 GIS Reports 2Q 2020 Results Saltillo Coahuila, Mexico, July 28, 2020 -- Grupo Industrial Saltillo, S.A.B. de C.V. (BMV: GISSA) (“GIS” or the “Company”), a Mexican global industrial conglomerate serving the automotive, construction and housewares industries, today announced its results for the second quarter of 2020 ("2Q20"). Financial Highlights Millions of USD Second Quarter Six Months 2020 2019 Var % 2020 2019 Var % Sales 98 232 (58) 306 470 (35) Draxton 57 171 (67) 205 345 (41) Vitromex 29 47 (39) 71 92 (23) Cinsa 11 17 (32) 29 36 (21) EBITDA (11) 28 NA 20 62 (67) Draxton (6) 34 NA 26 69 (62) Vitromex (2) (6) 72 (1) (10) 87 Cinsa (1) (0) (392) (0) 2 NA Net Income (27) 21 NA (29) 24 NA Margin (28%) 9% (9%) 5% EPS (USD) (0.03) 0.08 NA CAPEX 7 9 (19) 19 22 (11) Draxton 6 7 (25) 16 16 5 Vitromex 2 2 6 3 5 (48) Cinsa 0 0 14 0 1 (78) Net Debt 221 239 Net Debt / UAFIRDA 2.9x 1.9x 2019 EBITDA includes effects from the restructuring program at Vitromex for $5.8. 2Q20 EBITDA includes rightsizing expenses and provisions of $3.5. Media Contact Guillermo Hernández Tel: +52 (844) 411-1095 [email protected]www.gis.com.mx Investor Relations Contact David Sandoval Tel: +52 (55) 5640-0620 ir@gis.com.mx http://ri.gis.investorcloud.net/
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GIS Reports 2Q 2020 Results
Saltillo Coahuila, Mexico, July 28, 2020 -- Grupo Industrial Saltillo, S.A.B. de C.V. (BMV: GISSA) (“GIS” or the “Company”), a Mexican global industrial conglomerate serving the automotive, construction and housewares industries, today announced its results for the second quarter of 2020 ("2Q20"). Financial Highlights Millions of USD
Second Quarter Six Months 2020 2019 Var % 2020 2019 Var % Sales 98 232 (58) 306 470 (35) Draxton 57 171 (67) 205 345 (41) Vitromex 29 47 (39) 71 92 (23) Cinsa 11 17 (32) 29 36 (21) EBITDA (11) 28 NA 20 62 (67) Draxton (6) 34 NA 26 69 (62) Vitromex (2) (6) 72 (1) (10) 87 Cinsa (1) (0) (392) (0) 2 NA Net Income (27) 21 NA (29) 24 NA Margin (28%) 9% (9%) 5% EPS (USD) (0.03) 0.08 NA CAPEX 7 9 (19) 19 22 (11) Draxton 6 7 (25) 16 16 5 Vitromex 2 2 6 3 5 (48) Cinsa 0 0 14 0 1 (78) Net Debt 221 239 Net Debt / UAFIRDA 2.9x 1.9x
2019 EBITDA includes effects from the restructuring program at Vitromex for $5.8. 2Q20 EBITDA includes rightsizing expenses and provisions of $3.5.
Draxton • Automotive market impacted by the COVID-19 pandemic • Reopening of economies begins in May, showing gradual recovery starting in
June • New orders obtained for VW, Renault, MAN, Mazda, Hyundai and Honda, as well
as the first order in calipers and brackets for Tesla in Europe, to start in 2021
Vitromex • Operations in the industry’s main channels were low in April and May, recovering in June
• Excluding effects associated with the inventory-decrease strategy, 2Q20 EBITDA would have been positive $9 million pesos. The EBITDA margin in June was close to 10%, the highest in the last five quarters
• Accumulated decrease to June of 7% in cost per unit, despite lower volume • Inventory reduction, contributing to positive operating cash flow generation
Cinsa • A process of rightsizing took place at all plants, using a flexible operating plan
• Prices and product portfolio were adapted in each market segment • Increase in exports to the US in the Graniteware line • Significant eCommerce growth
GIS • Rightsizing measures generated savings of approximately 20% in fixed expenses
vs. 1Q20 • EBITDA without including the direct effects of restructuring would have been
US$ -7.2 million • GIS maintains its solid financial position, with a healthy level of cash at US$ 78
million at the close of the quarter, Net Debt to EBITDA of 2.9x, and committed credit facilities of US$ 50 million
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Message from the Chief Executive Officer I sincerely hope that you and your families are in good health in the midst of this unprecedented pandemic. Our priority at GIS has been to protect all of our employees by implementing protocols to prevent infections. These measures have been designed based on best practices in the automotive industry, and they have been reinforced with communication and training for our personnel. Because we are concerned about the communities where we operate, GIS and its subsidiaries have donated PCR testing equipment, ventilators, and personal protective equipment. We have also helped by providing financing for consulting services for state governments in order to develop strategies to contain the pandemic. Draxton, our automotive business, has been most heavily impacted by the pandemic due to stoppages of OEMs for nearly two months in all regions. China is already in full recovery mode, and our business there is operating at pre-pandemic levels. Economic reactivation programs in Europe, and now the more recent recovery plans for the European Union, have allowed us to predict a gradual recovery in our volumes in the upcoming months. The United States is the country that has allocated the most resources to economic recovery, and within the prevailing uncertainties, we anticipate a faster recovery of the industry. Vitromex, our ceramic floor and wall coverings business, is moving forward with its profitability recovery plan, reporting favorable results in June. Similarly, Cinsa, our kitchenware business, already has a cost structure that will allow it to obtain better results in the second half of the year. From the outset, in all of our businesses GIS has faced the economic impacts of the pandemic by accelerating the rightsizing program begun last year. All businesses have adapted their structure, working capital, and investments to the current situation, without placing our future growth capacity at risk. I would like to extend my sincerest thanks and recognition to all of our employees, suppliers and creditors for their contributions. The results of the second quarter reflect the impact of the pandemic in terms of volumes. However, the numbers for the month of June, which reflect a relevant part of our rightsizing activities and gradual recovery of volumes, have spurred us to plan for GIS being able to recover the EBITDA-to-Sales margin by the end of the year, even though income will be lower.
We put significant measures in place sufficiently in advance to protect our financial resources. Similarly, the refinancing process we undertook last year released us from having to make significant payments, both this year and next. In addition, some financial leveraging conditions were renegotiated due to the distorted results in April and May, which gives us very good financial flexibility. At the close of the quarter, the Net Debt-to-EBITDA margin was 2.9x. We are optimistic about the future. In our most important business, Draxton, we have achieved a better cost structure and we continue to work on efficiency programs. We have also obtained new orders that include machining for China; we are growing our electric vehicle business with a new brake components program for Tesla in addition to other important customers in Europe; and in Mexico, our market is expected to continue growing due to the relocation of capacity of brake producers. Despite a difficult environment, Vitromex continues working to recover its profitability. In June, this business unit reported its best EBITDA margin / sales of the last five quarters.
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We will continue to do whatever is necessary to come out of this crisis stronger, and to continue implementing our profitable growth strategy. We have no doubt that the measures we have taken in all of our businesses will result in us improving our competitive position, even in this challenging environment.
Manuel Rivera
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Debt Profile As of June 30, 2020, interest-bearing liabilities, including leasing, rose to US$ 301.0 million. Note. Net liabilities including leasing were US$222.6 million. Euro/dollar exchange rate: 1.1213
Evolution of gross debt and leverage 2019-2020
37%
52%
11%
Debt by foreign currency(by cash flow generated in each
currency)
USD EUR MXN
5 13 2342
191
2020 2021 2022 2023 En delante
Payment TableUS$ Millions
328 331 304 278 3010.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0
100
200
300
400
500
2Q19 3Q19 4Q19 1Q20 2Q20
Debt Debt / EBITDA LTMNet Debt / EBITDA LTM Limit
2Q19 3Q19 4Q19 1Q20 2Q20
2020 2021 2022 2023 And
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Auto Parts Sector Industry Data (Thousands of Vehicles)
Second Quarter Six Months 2020 2019 Var % 2020 2019 Var % Vehicle Production 11.7 22.1 (47) 29.5 45.1 (35) North America 1.2 4.2 (71) 5.0 8.5 (41) Europe 2.0 5.6 (64) 6.6 11.3 (42) China 5.8 5.5 5 9.0 11.5 (22) Vehicle Sales 14.5 22.3 (35) 31.5 44.6 (29) North America 3.3 5.3 (38) 7.4 10.1 (27) Europe 2.7 5.5 (51) 6.8 10.8 (37) China 5.5 5.8 (5) 9.0 12.0 (25)
• North America Light vehicle sales in the United States recovered slightly in May and June, compared to data from April. This was due to incentive programs offered by OEM’s, online sales, and the reopening of activities, especially at car dealerships. Retail sales have recovered faster than fleet sales due to low demand for rental and corporate vehicles. The drop in production was much higher than the drop in sales due to closures at OEMs. However, the inventory of trucks and SUVs, which is Draxton’s main market, is low and the expectation is that the OEMs will eliminate their planned summer shutdown so that they can meet demand and recover inventory at dealerships.
• Europe Light vehicle sales began to show the first signs of improvement, with varying upturns in the region. The reopening of the economy, better control of the pandemic, government stimulus programs, and the restart of production and promotions offered by OEMs, only reinforce the positive outlook for the rest of the year.
• China Since the end of April, the majority of OEMs have returned to their pre-COVID production levels. Sales and production of light vehicles remained strong in the second quarter, given the significant investment in infrastructure by the federal government, automotive credit incentives, and subsidies to purchase new vehicles.
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Business Results (Millions of USD)
Second Quarter Six Months 2020 2019 Var % 2020 2019 Var
% Foundry Volume1 36,966 106,350 (65) 131,581 212,430 (38) North America 16,962 55,710 (70) 67,665 107,970 (37) Europe / Asia 20,004 50,640 (60) 63,916 104,460 (39) Machining Volume 806 2,270 (64) 3,122 4,690 (33) North America 344 1,210 (72) 1,550 2,470 (37) Europe / Asia 462 1,060 (56) 1,572 2,220 (29) Sales 57 171 (67) 205 345 (41) North America 24 85 (71) 97 166 (41) Europe / Asia 32 86 (62) 108 179 (40) EBITDA (6) 34 NA 26 69 (62) Margin (11%) 20% 13% 20% North America (3) 18 NA 15 36 (60) Margin (12%) 21% 15% 22% Europe / Asia (3) 16 NA 11 32 (65) Margin (10%) 18% 11% 18%
1. Volume of iron casting, including Evercast. (Tons).
Volume Casting volumes in 2Q20 dropped 65% with respect to the same period in 2019, due mainly to the global COVID-19 crisis, which severely impacted manufacturing sectors and the automotive industry in particular. The volume of our operations in North America, including Draxton México and Evercast, fell 70% in 2Q20 versus the same period of last year. All plants implemented technical shutdowns in April and May due to the total stoppage of operations of the OEMs in the region, which gradually reopened their operations in the middle of May. Volumes at Draxton Europe and Asia fell 60% against the same period of last year, due to the stoppage in vehicle production in Europe starting in March. Our clients in the region, reinitiated operations gradually starting in May, and we predict that good control of the pandemic in Europe, as well as the fiscal and monetary stimuli of European economies, will result in gradual recovery of our sales.
Sales Draxton reported sales of US$ 57 million in 2Q20, which is a 67% reduction against the same period of the prior year. This decrease in sales was in line with the behavior of the industry as a whole. Sales from our Mexico operations were US$ 25 million, 71% lower than in 2Q19, while Draxton Europe and Asia reported sales of US$ 32 million, 63% lower than in the same period of the prior year.
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EBITDA In light of the uncertainty engendered by the pandemic, Draxton accelerated its rightsizing activities, adapting its staff to demand, and seeking efficiency and productivity increases during 2Q20. The 67% drop in sales due to the global COVID-19 crisis resulted in EBITDA of US$ -6 million, compared to US$ 34 million in 2Q19. During the quarter, there were extraordinary charges and provisions for rightsizing of US$ 2.3 million. Without these charges, EBITDA in the quarter would have been US$ -3.9 million.
i. In North America, EBITDA during the quarter was US$ -3 million, compared to US$ 18
million during the same period of the prior year. EBITDA for the quarter includes extraordinary charges of US$ 0.8 million for adapting the organization.
ii. In Europe/Asia, EBITDA was US$ -3 million, compared to US$ 16 million in the previous year. EBITDA includes extraordinary restructuring charges of US$ 1.5 million.
Over the next two quarters, a gradual recovery in the automotive markets is expected, and we project that our volumes could return to 85-90% of pre-COVID levels by the end of the year. We believe that our organizational adjustments and efficiency programs will allow us to return to EBITDA-to-Sales margins similar to pre-COVID levels by the end of the year. Always looking for new challenges, and with the objective of meeting the goals laid out for every plant in Mexico, we continued with the "Draxton to Lean" initiative during the second quarter of the year. This program applies Lean Manufacturing tools, seeking to optimize resources and eliminate waste, which allows us to increase the added value of our principal production and administrative processes. This initiative promotes a culture and vision of transformation, continuous improvement, and alignment of objectives.
Draxton also implemented organizational changes to drive Research and Development (R&D) activities that focus on consolidating our technological leadership, allowing us to provide innovative solutions to current and potential customers in the field of new high-performance materials. The three basic lines on which this new R&D organization will be focused are: innovation in materials with high mechanical properties; 4IR project development (Fourth Industrial Revolution), such as digitalization and advanced management; and collaboration with technologically innovative institutions capable of financially supporting our projects in these areas. During the second quarter of 2020, in the midst of an environment made extremely challenging by the COVID-19 global crisis, Draxton obtained new orders for Volkswagen, Renault, MAN, Mazda, Hyundai and Honda. One of the most important new projects, is the brake components order for Tesla, which includes a ductile iron bracket and an aluminum caliper for brakes. With these new orders, Draxton has obtained contracts for 105,000 tons in the last twelve months. Draxton is currently developing more than 200 new projects for its customers, both casting and machining, in the three regions where it operates. These projects represent a volume of 140,000 tons per year, which confirms the Company’s solid growth expectations achieved with marginal investments.
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In Mexico, demand for brake components continues to grow due to the installation of new facilities from our brakes customers, so even though it may take time for the automotive industry to recover its pre-COVID levels, we estimate demand will exceed our installed capacity by 2022. Joint Ventures GISEderlan, our machining plant that is a joint venture with Fagor Ederlan in Mexico, was also heavily impacted by shutdowns at its customers during the second quarter, due to the coronavirus crisis. The business unit reported revenues of US$ 3 million.
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Millions of pesos
Second Quarter Six Months 2020 2019 Var % 2020 2019 Var % Sales 666 893 (25) 1,505 1,769 (15) EBITDA (45) (124) 64 (37) (194) 81 Margin (7%) (14%) (2%) (11%)
2Q19 EBITDA includes effects from the restructuring program at Vitromex for $112 million pesos. 2Q20 EBITDA includes rightsizing expenses and provisions of $10 million pesos.
Millions of USD Second Quarter Six Months
2020 2019 Var % 2020 2019 Var % Sales 29 47 (39) 71 92 (23) EBITDA (2) (6) 72 (1) (10) 87 Margin (6%) (14%) (2%) (11%) 2Q19 EBITDA includes effects from the restructuring program at Vitromex for $5.8. 2Q20 EBITDA includes rightsizing expenses and provisions of $0.4.
Sales Revenues at Vitromex in 2Q20 contracted 25% with respect to 2Q19 due to the impacts of the pandemic. April saw the highest downturn, while June had a one-digit deviation. This leads us to forecast a gradual recovery in volumes in the coming months. In Mexico, the contraction in volume was partially offset by a better average price based on high service levels and an updated portfolio that meets market demands, achieving a higher-contributing product mix. However, the pandemic caused borders and operations in most countries in Central and South America to close, affecting revenues from that region. In the United States, the impacts of the pandemic, affected exports and delayed the implementation of new strategies and focus actions.
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EBITDA Our focus on operational discipline and rightsizing allowed us to align costs down to the lowest level of activity. The strategic initiatives focused on decreasing manufacturing costs continue to yield positive results, allowing Vitromex to attain very good operating indicators in terms of quality, productivity and furnace saturation. These parameters translated into better production costs in June, which is our best result since November 2016. Reported EBITDA compares favorably to the results of last year, excluding the extraordinary and non-recurring effects in both quarters. If we were to measure Vitromex’s performance without these impacts, and if we also excluded impacts from the inventory-reduction program, EBITDA in 2Q20 would have improved by $45 million pesos over 2Q19. In this regard, it is important to note that June’s EBITDA / sales margin was close to 10%. Vitromex managed to generate positive cash flow in the quarter through initiatives focused on its value chain.
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Millions of pesos
Second Quarter Six Months 2020 2019 Var % 2020 2019 Var % Sales 263 321 (18) 599 690 (13) EBITDA (24) (3) (700) (15) 35 NA Margin (9%) (1%) (3%) 5%
2Q20 EBITDA includes rightsizing expenses and provisions of $17 million pesos.
Millions of USD Second Quarter Six Months
2020 2019 Var % 2020 2019 Var % Sales 11 17 (32) 29 36 (21) EBITDA (1) (0) (392) (0) 2 NA Margin (9%) (1%) (1%) 5% 2Q20 EBITDA includes rightsizing expenses and provisions of US$ 0.7M.
Sales Revenues during the quarter dropped 32% with respect to the same period of the previous year, mainly due to temporary closures in the traditional channel. We anticipate volume recovery following the gradual opening of this channel, in addition to increased exports to the United States. EBITDA The Company has implemented very significant improvements year to date, and despite the impacts of the pandemic, we anticipate double-digit EBITDA / sales margins for the second half of the year.
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Quarterly Conference Call Information The conference call to discuss the Company’s results will take place on Thursday, July 30 at 9:00 AM (Mexico City Time). It will be conducted in English, and will include a question and answer session. To participate, please dial: 001-800-514-6145 (Toll-free in Mexico) 1-877-830-2576 (From the US) +1-785-424-1726 (Outside the US) Access code: GIS Webcast link (presentation only, no audio); to connect to the conference call by telephone: https://webcasts.eqs.com/saltillo20200730/no-audio Link to the conference call via webcast only (webcast presentation live, with audio): https://webcasts.eqs.com/saltillo20200730/en
Analyst Coverage As GIS has securities listed under Section I of the List referred to in provision 4.002.00 of the Mexican Stock Exchange Internal Regulations (shares, and more recently securitized notes), and given the importance of continuing to participate actively in the securities market, in compliance with provision 4.033.10 of that Regulation, the financial entities that provide Analyst Coverage of GIS’ securities are the following:
Institution Analyst GBM Alejandro Azar Wabi
Signum Research Alain Jaimes BBVA Montserrat Araujo Nagore
Santander Rubén López Actinver Lilian Ochoa
Reporting Basis
Numbers are stated in US dollars (USD) unless otherwise indicated. Due to conclusion of the sale of Calorex in 2019, the financial information of GIS and the Construction Sector exclude data from that business in that period. In order to better evaluate the results by segment and to avoid distortions in comparability, management uses a specific methodology based on the services that it actually provides, and it collects amounts for brand usage rights from the business units, applying a specific percentage to the distribution of corporate services to each segment for standardization.
Notes to the Financial Statements
We recommend reviewing the notes to the financial statements, which are a part of the quarterly report presented to the Mexican Stock Exchange. Disclaimer
This release may contain certain statements and forward-looking information about Grupo Industrial Saltillo S.A.B. de C.V. and its subsidiaries (collectively, the “Company”) that are subject to risks and uncertainties that may cause the Company’s results to differ materially from management’s current expectations. These risks and uncertainties include, but are not limited to: development and marketing of new products; demand and acceptance of the Company's products; competitors' products and prices; economic conditions in the markets and geographic regions where the Company sells its products; changes to the rules of foreign trade or treaties to which Mexico is a signatory, as well as foreign currency fluctuations, among others.
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Annex – Outlook
Short Term Medium to Long Term
Draxton + JVs
• Sales and EBITDA were significantly impacted by the COVID-19 pandemic
• Gradual recovery starting in the third quarter of 2020
• Rightsizing strategies, cost reductions, and increased productivity to offset the global situation
• Even with lower vehicle sales, the relocation of brake producers to Mexico will exceed Draxton Mexico’s capacity by the end of 2021
• Margin expansion due to machining growth arising from an outsourcing strategy by OEMs and TIER1s in all geographies
Vitromex
• Gradual recovery, maintaining market share in Mexico
• Resume growth in international markets
• Consolidation of operating strategies and cost flexibility
• Management of working capital
• Drive sustained improvement in production unit costs, to achieve costs leadership
• Resume growth in the Southeastern United States through distribution channels and home centers. Home centers’ focus is on entry level products
Cinsa
• Double-digit UAFIRDA / sales margin in the second semester of 2020
• Focus on sales growth in the US, with the expectation of a relevant increase in the third quarter
• Market penetration in the US • Accelerated development of e-
commerce
― Estimated CAPEX in 2020 (Millions of Dollars) CAPEX
Draxton + JVs • North America 19-22 M
• Europe and Asia 13-15 M
Vitromex 7 M Cinsa 1 M
TOTAL 40-45 M
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Annex – Consolidated Income Statement Millions of USD
Note 1: The Discontinued Operations line for 2019 includes charges for US$ 10.6M, such as Other Restructuring Expenses, which arise from the suspension of operations at the Saltillo plant in the floors and ceramic tile business unit, Vitromex.
Note 2: The Discontinued Operations line for 2019 includes credit for divestiture of water heat business unit, Calorex.
Note 3: Integration of Sales and EBITDA by business includes a corporate line item to reach the consolidated number.
Grupo Industrial Saltillo, S.A.B. de C.V.Consolidated Information
2Q YTD
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Annex – Consolidated Balance Sheet Millions of USD
Grupo Industrial Saltillo, S.A.B. de C.V.
Consolidated Information
jun-20 dec-19
ASSETS Current Assets
Cash and cash equivalents 78 89 Accounts receivable 90 136 Inventories 94 96 Assets classified as held for sale 0 1
Property, plant & equipment, net 467 510
Investments in associates and JVs 4 7
Goodwill 195 199 Other assets 201 222
TOTAL ASSETS 1,129 1,259
LIABILITIES Current Liabilities
Current liabilities at cost 24 0 Trade payables 101 136 Other current liabilities 72 101 Liabilities included in assets classified as held for sale 0 0
Non-current Liabilities
Non-current liabilities at cost 255 283 Deferred taxes 6 8 Other non-current liabilities 82 71
TOTAL LIABILITIES 540 600
TOTAL SHAREHOLDERS EQUITY 590 659
TOTAL LIABILITIES AND EQUITY 1,129 1,259
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Annex – Information on Derivatives and Forwards
Type Referring to Contractor Notional Value Conclusion
