Gruma: reports first quarter 2018 results

San Pedro Garza García / MX. (gr) Gruma S.A.B. de C.V. reported first quarter 2018 financial results. Highlights:

• Gruma’s performance showed continued improvements in net sales in all regions other than Central America, and expanding margins, notably in the U.S.
• Consolidated sales volume was flat and net sales were 1 percent lower in connection with the Peso appreciation effect on figures for Gruma USA and Gruma Europe, and the adoption of International Financial Reporting Standard 15 (IFRS 15), effective January 2018, by which some selling expenses have to be reclassified as a deduction to net sales.
• Consolidated Ebitda was flat, as increases from Gruma USA were offset by the Peso appreciation effect and expenses from information technology projects. Ebitda margin improved 10 basis points.
• Sales and Ebitda from non-Mexican operations represented 73 percent and 74 percent, respectively, of consolidated figures. The company reported USD 1.1 billion of debt at quarter-end, USD 106 million more than at the end of 4Q17. Net Debt/Ebitda ratio was 1.5x.

Consolidated results of operations

Q4/2017 versus Q4/2016
Sales volume was flat at 971 thousand metric tons. Volume growth achieved at all subsidiaries was offset by strong reductions at Gruma Europe, which resulted from volatility in the corn milling business.

Net sales declined 1 percent to MXN 17,532 million. Net sales were higher at all subsidiaries other than Gruma Centroamérica. However, the Peso appreciation effect on Gruma USA and Gruma Europe figures and the adoption of IFRS 15 led to a decline in consolidated net sales. The consolidated impact from the adoption of IFRS 15 for 1Q18 was MXN 128 million.

Cost of sales as a percentage of net sales rose to 62.9 percent from 62.4 percent. Excluding the effect from the adoption of IFRS 15, net sales as a percentage of net sales would have been flat. In absolute terms, cost of sales was flat at MXN 11,021 million, mostly in connection with the Peso appreciation on Gruma USA and Gruma Europe figures when measured in Peso terms.

Selling, general and administrative expenses (SG+A) as a percentage of net sales rose slightly to 25.1 percent from 25.0 percent, primarily driven by lower absorption. In absolute terms, SG+A decreased 1 percent to MXN 4,393 million in line with the Peso appreciation impact on Gruma USA figures, and with the aforementioned adoption of IFRS 15.

Other income, net, was MXN 28 million compared to an expense of MXN 48 million. The improvement resulted primarily from gains on natural gas hedging.

Operating income declined 2 percent to MXN 2,146 million. Operating margin decreased to 12.2 percent from 12.3 percent.

Ebitda was flat at MXN 2,692 million. Ebitda margin improved to 15.4 percent from 15.3 percent.

Net comprehensive financing cost was MXN 262 million, MXN 190 million less, primarily in connection with lower losses on foreign exchange rate hedging related to corn procurement at Gimsa.

On the income taxes line, at Gruma USA there was an effective tax rate reduction from 36 percent in 1Q17 to 25 percent; however, consolidated taxes increased due to deferred taxes as compared to 1Q17, when Gruma had a benefit on deferred taxes from the use of tax-loss-carryforwards. Furthermore, in the first quarter of 2018 taxes were higher as the Peso appreciation creates a negative impact on Dollar denominated intercompany loans. This effect would be reversed if the Peso depreciates again. The effective tax rate was also affected by losses at the Technology and Corporate Services divisions, in connection with lower construction activities and information technology projects, which could not be deducted during the period, creating tax-loss-carry forwards.

Majority net income was flat at MXN 1,282 million as lower comprehensive financing cost was offset by higher deferred taxes.