Gruma: Reports Second Quarter 2016 Results

San Pedro Garza García / MX. (gr) Gruma S.A.B. de C.V. continued to deliver double-digit growth across its financial results in the second quarter of 2016, supported mainly by Gruma USA. While net sales increased 14 percent, operating profit and Ebitda rose 19 percent and 18 percent, respectively, and majority net income, 31 percent. Sales and Ebitda from non-Mexican operations represented 74 percent and 71 percent, respectively, of consolidated figures. The company reported 704 million USD of debt at quarter-end, representing a Gross Debt/Ebitda ratio of 1.3 times.

Consolidated Financial Highlights

MXN in millions	Q2/2016	Q2/2016	Change
Sales volume (thousand metric tons)	981	960	2%
Net sales	16’348	14’280	14%
Operating income	2’191	1’840	19%
Operating margin	13.4%	12.9%	50 bp
Ebitda	2’642	2’242	18%
Ebitda margin	16.2%	15.7%	50 bp
Majority net income	1’417	1’081	31%

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Consolidated results of operations

Sales volume increased 2 percent to 981 thousand metric tons, driven primarily by Gimsa.

Net sales rose 14 percent to 16’348 million MXN, due principally to (1) the weakness of the peso, which benefitted especially sales from Gruma USA when stated in peso terms; (2) the aforementioned sales volume growth at Gimsa; and (3) price increases, implemented to reflect higher raw material costs, especially at Gimsa.

Cost of sales as a percentage of net sales improved to 61.8 percent from 62.0 percent, driven mostly by better performance at Gruma USA and Gruma Centroamérica. These improvements were partially offset by Gimsa. Most of the higher cost of corn at Gimsa was absorbed through gains on corn and exchange rate hedging. In absolute terms, cost of sales increased 14 percent to 10’097 million MXN due mainly to peso weakness, and the aforementioned sales volume growth.

Selling, general and administrative expenses (SG+A) as a percentage of net sales increased to 25.4 percent from 25.1 percent due mainly to Gruma Centroamérica, as well as a higher proportion of Gruma USA in the consolidated figures. In absolute terms, SG+A rose 16 percent to 4’155 million MXN mainly in relation to the effect of the weaker peso, and, to a lesser extent, to higher expenses particularly at Gimsa and Gruma Centroamérica.

Other income, net, was 94 million MXN compared to an expense of 2 million MXN as Gimsa reported gains on corn and natural gas hedging. Recently Gimsa has started to implement this kind of instruments for its corn procurement needs.

Operating income grew 19 percent to 2’191 million MXN, driven primarily by the positive effect of the peso depreciation, better performance at Gruma USA, and, to a lesser extent, improvements at Gruma Asia-Oceania, and Gruma Centroamérica. Operating margin rose to 13.4 percent from 12.9 percent, led mostly by Gruma USA and, to a lesser extent, Gruma Centroamérica, and Gruma Asia-Oceania.

Ebitda increased 18 percent to 2’642 million MXN. Ebitda margin expanded to 16.2 percent from 15.7 percent.

Net comprehensive financing cost was 33 million MXN, 25 million MXN less as the company reported larger gains on foreign exchange hedging related to corn purchasing at Gimsa. These gains more than offset foreign exchange losses arising during the quarter from the US$60 million account payable to Archer-Daniels-Midland related to the repurchase of Gruma shares, which Gruma paid in June, 2016.

Income taxes were 656 million MXN, 18 percent more resulting from higher pre-tax income. The effective tax rate was 30.4 percent.

Majority net income was 1’417 million MXN, 31 percent more, driven mostly by the weakness of the peso, better operational performance, especially at the U.S. operations, and because the company no longer reports losses from discontinued operations, as was still the case last year.