Vitro, S.A.B. de C.V., a leading glass producer in North America, has announced its results for the second quarter of 2018.
Vitro announced mixed results for the second quarter of 2018 primarily reflecting a good performance of its legacy businesses, offset by a weaker performance from its foreign subsidiaries.
Consolidated Net Sales increased 1.1% year-over-year during the second quarter of 2018 to USD 567 million. This was mainly driven by the 0.9% YoY increase in the Flat Glass division which reported revenue of USD 509 million benefitting from an increase in the Mexican market. Revenues for the Glass Container unit, rose 4.2% to USD 58 million, attributable to an increase in volume and improved mix in Cosmetics, Fragrances and Pharmaceutical business.
EBITDA decreased 4.3% YoY to USD 101 million, mainly affected by the Flat Glass Business which posted a 9.2% decline. The aforementioned decrease was primarily due to the loss of value added product sales in the US attributable to the Carlisle’s float temporary shutdown and some operational issues in two of the US Automotive Glass plants which the Company is on its way to solve. By contrast, Glass Containers Business EBITDA growth of 8.1% benefited from the CFT Business.
EBITDA in the quarter reflects a USD 8.3 million insurance recovery payment related to the Carlisle float furnace temporary shutdown. Overall profitability, however, was still impacted by the lost sales.
Commenting on Vitro’s performance and outlook, Adrián Sada Cueva, Chief Executive Officer, said “Our legacy businesses of Architectural and Automotive Glass delivered a good performance in the quarter with double-digit growth in sales. We also saw a solid contribution in margin of our Glass Containers Business with an 8% increase in EBITDA. By contrast our foreign subsidiaries did not perform as well and mainly due to some lost sales and incremental costs in the U.S. Architectural Business due to restrained capacity situation related to having one float tank being rebuilt since the Carlisle incident. However, for the first half of the year we delivered solid growth of 13% in total revenues on a comparable basis and 2% growth in EBITDA. For the second half of the year we expect to grow our architectural sales in North America since we have started the ramp up of production of the new furnace during July, this is bringing us back to full capacity. Also, during this second half we are starting a new Jumbo Coater in the US which will enable us to offer more capacity and sophisticated products to the market. Regarding our Automotive business we are focused at improving our productivity and cost position on which significant progress is expected on the second half of the year. We remain focused and committed to deliver growth and value to our stakeholders and believe the implemented initiatives will deliver results in the months to follow.”
Commenting on the financial results, Claudio Del Valle, Chief Administrative and Financial Officer, “During the quarter we experienced higher costs related to the Carlisle’s plant float temporary shutdown that narrowed our margins in the Architectural Glass Business. Although EBITDA benefited from an insurance recovery payment, this was not enough to overcome the impact on profitability from lost sales following the float’s temporary shutdown”.
Additionally Del Valle, commented: “As part of our commitment to maintain and improve our financial performance, on 29 June Vitro signed a syndicated loan agreement of USD 700 million with a five-year term to refinance its existing debt. The unsecured loan has an initial margin of 2.0% over LIBOR that will reduce our interest expense by approximately USD 12 million per year and also enhance our maturity profile. We remain committed with our stakeholders in maintaining a healthy financial position and an optimal leverage ratio”.
The Company’s results for the second quarter 2018 include the financial statements for the Vitro Automotive Glass business in the United States and Europe acquired in March 2017.
This business is consolidated within Vitro’s Flat Glass division. As a result, the Flat Glass division is segmented as follows: Automotive Original Equipment Manufacturers (OEM), Automotive Replacement Glass (ARG), Architectural Glass and Chemical business.
The Glass Containers Business Unit is comprise of Cosmetics, Fragrances and Pharmaceutical (“CFT”), a Joint Venture with COMEGUA in Central America, accounted under the equity method, and the Molds, Machinery and Equipment (“FAMA”) Businesses.
Consolidated revenues rose 1.1% YoY to USD 567 million, from USD 561 million in 2Q’17, benefitting primarily from the export markets of the Architectural, Chemical and ARG Businesses in Mexico; as well as organic growth in the Containers Division in the domestic market which increased17.8%.
Flat Glass sales marginally increased 0.9% YoY to USD 509 million in 2Q'18, from USD 504 million during the same period of 2017, primarily as a result of a solid growth in both Architectural and Automotive Businesses in Mexico.
In the Architectural Business, Mexican subsidiary sales increased at a double-digit pace, driven by exports for the automotive segment which increased 19% YoY benefitting from both improved volume and price levels. Volume and a better product mix, led to 10% growth in the construction segment compared to 2Q’17, while the industrial segment reported a marginal increase in sales attributed to higher volume demand. In the Foreign Subsidiaries, Architectural Business sales were down 8.5% compared to 2Q’17 due to unfavourable pricing from buying back business in order to remain competitive in the market, together with lower volume primarily in clear, coated and tinted products in the Commercial and Residential segments. The Carlisle float furnace and the Jumbo Coater are now online and will be running at full capacity by the end of the third quarter.
In the Automotive Business, the highly competitive environment and the slowdown in the industry’s growth kept pressure on prices and margins. However, on a consolidated basis, revenues grew 4.4% led by the OEM segment in Mexico, and a slight contribution from the U.S. Higher OEM demand reaffirmed the Company’s position in the SUV market, which benefitted mainly from higher Daimler’s M-Class and S-Class volumes and service, and Ford’s Explorer and Expedition/Navigator. Additionally, ARG export sales continued to grow supported by higher capacity in Mexico for tempered and laminated products.
Vitro’s Chemical Business showed an increase in the sales exports mainly driven by an improvement in the petrochemicals global market price and Oil-well productivity in the US. Also, engaging with sales markets in Central America and South America, especially in Brazil, Chile and Argentina.
Glass Containers business revenue increased 4.2% from USD 56 million during 2Q’17 to USD 58 million during 2Q’18, mainly driven by a good performance of the CFT Business in the perfumes segment for both domestic and US export markets, while pharmaceutical segment was flat.
The solid performance at the Fragrances and Pharmaceutical Business was partially offset by a decrease in sales in FAMA Machinery and Equipment Business, due to demand contraction for its moulds and spare products. FAMA is working together with its main container producers to be certified and is also prospecting for new clients in Argentina, Chile, Guatemala and Costa Rica. Additionally, there is increased demand for engineering and automation services for new projects and machinery. Some of these services are used in the different businesses within Vitro leading to significant savings in CAPEX.
Consolidated EBITDA decreased 4.3% to USD 101 million in 2Q’18 primarily due to the weaker performance in Architectural and Automotive business in the US, partially offset by Architectural Glass, OEM and ARG in Mexico, partially offset by a solid performance of CFT business in the Glass Container division. Automotive US and Chemical Businesses were flat.
Flat Glass EBIT was 21% lower YoY to USD 54 million, while EBITDA was down 9% to USD 87 million in 2Q’18. This was mainly due to a weaker performance in Architectural Glass in the US, due to the Carlisle furnace shutdown, partially offset by an USD 8.3 million insurance recovery payment in connection with this incident. The Carlisle plant is still in a recovery phase with respect to volume demand. This is expected to improve beginning in the third quarter of 2018 with the reinstallment of the Carlisle tank. There should be further improvements from the start-up of the Jumbo MSVD Coater plant in August, when the Company is expected to increase its position for value added products, also some operational inefficiencies were suffered, which are already identified and action plans are implemented to solve them in the next two months Automotive, along with the Architectural Business in Mexico, had a solid performance increasing at a double-digit pace, which partially offset the weaker performance in the Architectural Business in the US.
Glass Containers EBIT improved 6% on a comparable basis to USD 11 million in the 2Q’18, while EBITDA increased 8% YoY to USD 15 million from USD 14 million during the 2Q’17, mainly boosted by a double-digit increase in CFT export sales, as well as a favourable product mix in the perfumes segment. This was partially offset by FAMA’s weaker results due to excess capacity.
During 2Q’18 Vitro reported Net Financial Cost of USD 15 million, compared to USD 4 million during the second quarter of 2017. This was mainly due to the Foreign exchange loss resulting from a weaker Mexican peso in the Company’s operations with this currency. Net Interest Expenses decreased from USD 9 million in 2Q’17 to USD 8 million in 2Q’18 as a result of the advanced payment of USD 60 million made in December 2017, an increase in the LIBOR reference rate and a decrease in the applicable rate of one of the Company’s loan agreements, reflecting the recent debt restructuring agreement. Other financial income increased to USD 2 million for the 2Q’18.
The Company reported Consolidated Net Income of USD 9 million in the second quarter of 2018, which was composed of the following: EBIT of USD 64 million, Net Financial Cost of USD 15 million, and USD 39 million tax expense. The tax effective rate was 81.3 % due to the change of the functional currency from peso to US dollar.
As of 30 June 2018, the Company had a cash balance of USD 128 million, compared to USD 160 million at the end of 1Q’18. Total debt was USD 688 million of long-term debt denominated in US Dollars and is related to the recent acquisitions. The Debt to EBITDA ratio at the end of the second quarter was 1.7x LTM, with Net Debt to EBITDA of 1.4x.
On 2 July 2018, Vitro announced the refinancing of the existing debt of USD 689 million with a syndicated loan. This refinancing will reduce the interest expense and improve its maturity profile. The new USD 700 million loan has a term of five years, which will have an initial margin of 2.0% over LIBOR, and subsequently an applicable margin based on the Net Debt / EBITDA ratio. The loan will be disposed on October, date in which is expected to prepay both credits.
In 2Q’18 the Company reported a negative Net Free Cash Flow of USD 15 million, compared to negative USD 17 million in 2Q’17. Despite the lower EBITDA contribution in 2018 versus 2017, net free cash flow included a USD 3 million recovery in working capital in 2Q’18, compared to a USD 10 million investment in 2Q’17; higher capital expenditures of USD 23 million; and a decrease in net interest payments of USD 1 million. No dividends were paid during the period.
Capex totalled USD 64 million during the second quarter of the year. Funds were expended as follows: USD 49 million for the Architectural Business, mainly for the Carlisle plant and the "Jumbo Coater" production line in the US; USD 12 million for the Automotive business, mainly for new platform services in Mexico and the United States; USD 2 million for the Fragrance and Pharmaceutical Business in Mexico; and USD 1 million for the increase in capacity of Machinery and Equipment of FAMA Business.