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Gruma Reports Third Quarter 2020 Results

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Gruma Reports Third Quarter 2020 Results Investor Relations [email protected] Tel: 52 (81) 8399-3349 www.gruma.com San Pedro Garza García, N.L., Mexico; October 28, 2020 GRUMA REPORTS THIRD QUARTER 2020 RESULTS GRUMA’s performance during the third quarter of 2020 continued to improve benefited mainly by increased tortilla consumption at home, especially in the U.S. The COVID-19 pandemic has helped to speed up consumer familiarity with the use of tortillas, thereby increasing per capita consumption, especially among non-Hispanics. Also, healthier trends and versatility of tortillas for different type of recipes have supported increased consumption. We believe these factors will continue to expand the tortilla industry at a faster pace. HIGHLIGHTS Sales volume in the U.S. tortilla business rose importantly, especially in the retail channel, while the corn flour business was limited by stockpiling in the U.S. and Mexico, resulting in flat consolidated sales volume. Net sales increased 17% due mostly to higher average prices, especially in Gruma USA, coupled with the weakness of the Mexican peso (“MXN” or “peso”) which benefited GRUMA’s foreign operations when measured in peso terms. Sales from non-Mexican operations represented 77% of consolidated figures. EBITDA rose 20%, and EBITDA margin improved 30 basis points to 16.8% driven by better performance at all subsidiaries, reaching its highest level in history. EBITDA from non-Mexican operations represented 82% of consolidated figures. GRUMA’s historic high EBITDA was achieved despite extraordinary costs and expenses related to COVID-19, which were approximately Ps.196 million during 3Q20, of which Ps.144 million were at Gruma USA. GRUMA showed a significant reduction in COVID-19 related costs and expenses as compared to 2Q20. Majority net income rose 26% to Ps.1,645 million because of better operational performance, the benefit from peso weakness, and lower interest expense. GRUMA’s net debt, measured in dollar terms, decreased US$45 million during the quarter to US$1.1 billion, representing a net debt/EBITDA ratio of 1.7 times. Page 1 of 12 3Q20 Results Consolidated Financial Highlights (Ps. millions) 3Q20 3Q19 Var Sales volume (thousand metric tons) 1,053 1,056 0% Net sales 23,473 20,053 17% Operating income 2,998 2,474 21% Operating margin 12.8% 12.3% 50 bp EBITDA 3,954 3,299 20% EBITDA margin 16.8% 16.5% 30 bp Majority net income 1,645 1,304 26% CONSOLIDATED RESULTS OF OPERATIONS 3Q20 versus 3Q19 Sales volume was flat at 1,053 thousand metric tons. Net sales rose 17% to Ps.23,473 million driven primarily by (1) higher prices at all subsidiaries, in particular at Gruma USA from a better sales mix; and (2) the benefit from the weakness of the Mexican peso versus the U.S. dollar (“USD” or “dollar”) on figures for foreign operations when measured in peso terms. Cost of sales as a percentage of net sales improved to 61% from 62.9% driven mostly by the better sales mix at Gruma USA. In absolute terms, cost of sales increased 14% to Ps.14,321 million, mostly in connection with (1) the impact from peso weakness on foreign subsidiaries; and, to a lesser extent, (2) cost increases, most notably at Gruma USA and GIMSA; and (3) extraordinary costs related to COVID-19. Selling, general and administrative expenses (“SG&A”) as a percentage of net sales increased to 27% from 24.7%, primarily due to (1) Other Subsidiaries driven largely by severance payments in connection with lay-offs GRUMA made during the quarter, insurance expenses, and donations; and (2) Gruma USA, as a result of a sales mix change between channels at the tortilla business, as sales commissions and other sales expenses are higher for retail than foodservice, and extraordinary intercompany shipments and hiring of temporary staff amid the COVID-19 pandemic. In absolute terms, SG&A rose 28% to Ps.6,338 million primarily related to the aforementioned expenses, and the impact from peso weakness on foreign subsidiaries. Page 2 of 12 3Q20 Results Other income, net, was Ps.183 million compared to a Ps.22 million expense last year. The Ps.205 million improvement resulted mostly from insurance claim recoveries at Gruma Europe. Operating income surged 21% to Ps.2,998 million. Operating margin improved to 12.8% from 12.3%. EBITDA rose 20% to Ps.3,954 million, and EBITDA margin improved to 16.8% from 16.5%. Net comprehensive financing cost was Ps.376 million, Ps.114 million less, primarily in connection with lower interest expense due to lower market rates and lower proportion of peso denominated debt. Income taxes were Ps.972 million, 43% more than last year due mainly to higher pre-tax income. The effective tax rate rose to 37.1% from 32.2% due mostly to inflationary gains on GRUMA´s debt as inflation rate was higher. Majority net income rose 26% to Ps.1,645 million driven by better operational performance, the benefit from peso weakness, and the interest expense reduction. FINANCIAL POSITION September 2020 versus June 2020 Balance Sheet Highlights Total assets were relatively flat at Ps.79,983 million, resulting principally from the combination of (1) higher cash balances; and (2) lower deferred taxes mostly from inflationary and FX matters; and (3) lower inventories. Total liabilities decreased 4% to Ps.50,397 million mostly from (1) the impact of peso strength during the quarter coupled with (2) reductions in other accounts payable related to dividend payments and income taxes. Majority shareholders’ equity rose 6% to 29,586 million. Page 3 of 12 3Q20 Results Debt Profile GRUMA’s debt was US$1.5 billion, essentially flat versus June 2020. Approximately 75% of GRUMA’s debt was USD denominated. In peso terms, GRUMA’s debt declined 2% to Ps.32.7 billion in connection with peso strength versus June 2020. Debt (USD millions) Var vs Sep’19 Var vs Jun’20 Sep’20 Sep’19 ($) (%) Jun’20 ($) (%) 1,460 1,380 81 6 1,464 (4) 0 Debt Maturity Profile (1) (USD millions) Rate 2020 2021 2022 2023 2024 2025 2026 TOTAL Senior Notes 2024 (USD) Fixed 4.875% 400.0 400.0 Scotiabank Term Loan (USD $250) Fixed 2.79% 250.0 250.0 Rabobank Syndicated Term Loan (USD $150) LIBOR + 1% 11.3 26.3 82.5 120.0 Scotiabank Revolving Facility (USD $120) LIBOR + 0.75% 80.0 80.0 Cebures 2023 (MXN $3,000) Fixed 8.52% 133.6 133.6 Club Loan (MXN $2,000) TIIE + 0.55% 89.1 89.1 Other: EUR 1.04% 0.1 2.4 12.6 12.5 12.5 10.5 10.5 61.1 TOTAL 4.00% (avg.) 11.3 117.7 175.1 146.1 412.5 260.5 10.5 1,133.8 (1) The US$327 million related to leases are not included on the above debt figures. Page 4 of 12 3Q20 Results CAPITAL EXPENDITURE PROGRAM GRUMA’s capital expenditures totaled US$50 million in 3Q20. During the quarter, investments were mostly allocated to the following projects: (1) capacity expansions at the tortilla plant in Dallas to add new production lines for corn and wheat tortillas, as well as flatbreads; and, to a lesser extent, (2) water treatment system at the corn flour plant in Evansville; (3) expansion of the tortilla plant in Spain; (4) additional snack and wheat tortilla production capacity at the tortilla plant in Monterrey, Mexico; and (5) maintenance and general technology upgrades across the company. SUBSIDIARY RESULTS OF OPERATIONS 3Q20 versus 3Q19 Gruma USA Sales volume remained nearly flat at 372 thousand metric tons. Tortilla sales volume increased 5% mostly driven by consumer demand at supermarkets, club and grocery stores as strong trends of food at home persists, and as consumers continue to stock pantries amid the COVID-19 pandemic, while increasing their familiarity with the use of tortillas in different type of recipes and benefit from their versatility. In the tortilla business, sales at the retail channel more than offset declines at the food service channel, which nonetheless showed sequential improvements, in particular on sales to restaurant chains. Volume growth in the retail tortilla business was driven importantly by super soft wheat flour and carb-balance tortillas, the latter benefitting from consumers favoring healthier alternatives, the launch of new flavors and introduction to some club format customers. Corn flour sales volume declined 5% as some wholesalers that usually supply small grocery stores and independent restaurants stockpiled inventories in the previous quarter amid the COVID-19 pandemic, a situation that had stabilized by the end of 3Q20. Net sales increased 10% to Ps.13,961 million driven by (1) sales volume growth at the tortilla business; (2) better sales mix at the tortilla retail channel favoring higher-priced SKUs, especially carb-balance, gluten-free, flour street-taco, protein and super soft wheat flour tortillas; and, to a lesser extent, (3) sales mix between channels in the tortilla business favoring retail over foodservice; (4) reduced allowances; and (5) sales mix favoring the tortilla business over the corn flour business. Page 5 of 12 3Q20 Results Cost of sales as a percentage of net sales improved to 56.2% from 57.8% resulting mostly from (1) the better sales mix at the retail tortilla business favoring higher margin SKUs; and, to a lesser extent, (2) better absorption at the retail tortilla business; (3) better sales mix at the tortilla business favoring retail over food service; and (4) better sales mix favoring the tortilla business over the corn flour business. All this more than offset negative impacts coming from (1) higher raw material costs; (2) temporary staff to cover workers with COVID-19; and (3) supplies and sanitization activities for COVID-19.
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