Gruma: reports loss on derivatives in Q4/2008

Monterrey / MX. (gru) Gruma S.A.B. de C.V., one of the world´s leading tortilla and corn flour producers, posted a net loss in the fourth quarter 2008 because of wrong-way bets on currency derivatives. The loss was 11,1 billion MXN (760,7 million USD), or 19,74 MXN per share, compared with profit of 742 million MXN or 1,54 MXN in the year-earlier period, the Monterrey, Mexico-based company said in a statement (nine pages | 294 KB). Summary:

• Sales volume increased two percent due to higher sales volume in Gimsa and Molinera de Mexico.
• Net sales increased 31 percent, driven by price increases implemented in most subsidiaries to offset higher raw-material costs; the effect of the devaluation of the Mexican Peso (MXN) in foreign subsidiaries and the effect of inflation upon the Gruma Venezuela and Gruma Centroamerica operations also contributed to the consolidated increase in net sales.
• EBITDA increased 72 percent, and EBITDA margin improved to 13,6 percent from 10,3 percent. Better margins in Gruma Corporation, Gimsa, Gruma Venezuela, and Molinera de Mexico drove the consolidated increase in EBITDA.
• Debt rose to 1’023 million USD versus 772 million USD in September 2008, resulting from the payment of the currency derivative obligations during Q4/2008.

Consolidated financial highlights (in million MXN)

	Q4/2008	Q4/2007	VAR (%)
Sales volume (thousand metric tons)	1’100	1’074	02
Net sales	12’785	9’775	31
Operating income	1’314	740	77
Operating margin	10,3%	7,6%	270 bp
EBITDA	1’735	1’008	72
EBITDA margin	13,6%	10,3%	330 bp
Majority net income	(11’124)	742	(1’600)
ROE (LTM)	(68,0)%	13,2%	N/A

Debt (in million USD)

Dic’08	Dic’07	Var	Sep’08	Var
1’023	719	42%	772	33%

Results of operations – Q4/2008 versus Q4/2007

Sales volume increased two percent, to 1’100 thousand metric tons, due to higher sales volume in Gimsa and Molinera de Mexico.

Net sales increased 31 percent, to 12’785 million MXN, due to higher prices in most subsidiaries, which offset higher raw-material costs. The effect of the devaluation of the Mexican Peso in foreign subsidiaries and the effect of inflation upon the Gruma Venezuela and Gruma Centroamerica operations also contributed to the consolidated increase in net sales. Sales from non-Mexican operations constituted 74 percent of consolidated net sales during the quarter.

Cost of sales as a percentage of net sales was flat, at 66,0 percent. In absolute terms, cost of sales rose 31 percent to 8’441 million MXN, due to higher raw-material costs, the effect of the devaluation of the Mexican Peso in foreign subsidiaries and the effect of inflation upon the Gruma Venezuela and Gruma Centroamerica operations.

Selling, general, and administrative expenses (SG+A), as a percentage of net sales, improved to 23,7 percent from 26,3 percent, driven mainly by better absorption and optimization in selling and administrative expenses. In absolute terms, SG+A rose 18 percent, to 3’030 million MXN, resulting primarily from the effect of the devaluation of the Mexican Peso in foreign subsidiaries and the effect of inflation upon the Gruma Venezuela and Gruma Centroamerica operations.

Operating income increased 77 percent, to 1’314 million MXN, and the operating margin improved to 10,3 percent from 7,6 percent; both results were driven by Gruma Venezuela, Gruma Corporation, and Gimsa.

Other expense, net, was 124 million MXN, 38 million MXN lower than in the same period of 2007. This reduction was due mainly to donations of 100 million MXN in Q4/2007 related to the floods in the Mexican states of Tabasco and Chiapas.

Comprehensive financing cost, net, was 11’817 million MXN versus income of 253 million MXN in 4Q07. The cost resulted mainly from losses on currency derivative instruments of 11’536 million MXN. Out of this amount, 3’593 million MXN was paid, and the balance remains as a noncash loss. As of December 31, 2008, Gruma had a 11’230 million MXN noncash loss that relates to the mark-to-market valuation of positions that are still open and that mature in 2009, 2010, and 2011. As of this date, the company is in full compliance with the terms of its agreements. The company continues to engage in negotiations with its counterparties and expects to announce a resolution in the near future.

Gruma´s share of net income in unconsolidated associated companies (primarily Banorte) totaled 118 million MXN, 45 percent lower than in 4Q07.

Taxes amounted to 536 million MXN, 367 million MXN more, due mainly to higher pre-tax income in Gruma Corporation and Gruma Venezuela.

Gruma´s total net loss was 11,045 million MXN versus net income of 876 million MXN in 4Q07; the change came mostly from the losses on currency derivative instruments. Gruma´s majority net loss was 11’124 million MXN, compared to a majority net income of 742 million MXN in the same period of 2007.

Info: The complete press release «Fourth-quarter 2008 results» is available on Gruma´s web server (PDF | nine pages | 294 KB).