Industrias Unidas, S.A. de C.V. Consolidated Results of Operations for Q2 2024

Industrias Unidas, S.A. de C.V. (“IUSA” or the “Company”) has announced its unaudited results for the first six months ended June 30 of 2024. Figures are unaudited and have been prepared in accordance with Mexican Financial Reporting Standards (“MFRS”), which are different in certain respects from Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The results from any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Unless stated otherwise, reference herein to “Pesos”, “pesos”, or “Ps.” are to pesos, the legal currency of Mexico and references to “U.S. dollars”, “dollars”, “U.S. $” or “$” are to United States dollars, the legal currency of the United States of America. Except as otherwise indicated, all peso amounts are presented herein in pesos with purchasing power as of June 30, 2024, and in pesos with their historical value for other dates cited. The dollar translations provided in this document are calculated solely for the convenience of the reader using an exchange rate of Ps. 18.29 per U.S. dollar, the exchange rate published by Banco de Mexico, the country’s central bank, on June 30, 2024.

Six months ended June 30, 2023, compared to six months ended June 30, 2024.

The following table summarizes our results of operations for the first six months ended June 30, 2024, and 2023:

Our consolidated net income for the first six months ended June 30, 2024, was Ps.1,080.2 million (US$59.1 million), compared to a net income of Ps.1,829.2 million in the same period of 2023. This change is primarily due to a negative Comprehensive Financing Result, derived in turn from an exchange loss resulting from the Mexican peso depreciation.

Revenues

Our net revenues for the first six months of 2024 increased by 5.5% to Ps.14,282.8 million (US$781.1 million) from Ps.13,534.1 million in the same period of 2023. This increase was mainly the result of higher copper prices.

Our costs and revenues follow copper prices very closely since the market practice is to pass on to the buyer changes in raw material price.

Our sales are primarily to customers engaged in the commercial, industrial and residential construction, and their related maintenance and renovation activities. We also sell to customers engaged in electrical power generation, transmission and distribution and to the sector of gas, water and air conduction in the Heating, Ventilation, Air conditioning and Refrigeration (HVACR).

Our revenues consist mainly of sales of copper-based products (tubing, wire, cable and alloys) and electrical products.

By country of production, approximately 58.9% of our revenues in the first six months ended June 30, 2024, came from products manufactured in Mexico and the remaining 41.1% from products manufactured in the U.S.

In terms of sales by region during the first six months ended June 30, 2024, we derived approximately 51.5% of our revenues from sales to customers in the United States, 46.1% from customers in Mexico and 2.4% from the rest of the world (“ROW”).

Cost of sales

Our cost of sales in the first six months ended June 30, 2024, increased by 4.7% to Ps.10,869.0 million (US$594.4 million) from Ps.10,379.4 million in the same period of 2023. As percentage of revenues, cost of sales was 76.1% and 76.7% respectively.

We do continue to reduce our cost base through several initiatives, including plant scheduling, raw material handling, and overall manufacturing overhead costs. According to our accounting policies, we make an inventory valuation at average purchase price. In the case of copper cathodes, an aftermath adjustment is required due to the quotation period agreed with the suppliers (M+1). This initiative allows us to hedge purchases for 30 days at no additional cost. The adjustment is recorded to the cost of sales in the month in which it occurs.

Gross Profit

Our gross profit in the first six months ended June 30, 2024, increased 8.2% to Ps.3,413.8 million (US$186.7 million) from Ps.3,154.7 million in the same period of 2023. As percentage of sales, gross profit in 2024 was 23.9% vs 23.3% in 2023.

Selling and Administrative Expenses

Our selling and administrative expenses in the first six months ended June 30, 2024, increased 10.8% to Ps.1,464.9 million from Ps.1,322.5 in the same period of 2023.

Operating Income

Our operating income in the first six months ended June 30, 2024, increased 6.4% to Ps.1,948.9 million (U.S.$106.6 million) from our operating income Ps.1,832.2 in the same period of 2023.

EBITDA

In the first six months ended June 30, 2024, our EBITDA increased 6.8% to Ps.2,100.6 million (or US$114.9 million), from Ps.1,967.5 million in the same period of 2023. The corresponding depreciation and amortization figures are Ps.151.7 million for January to June 2024 and Ps.135.3 million for the same period of 2023.

Comprehensive Financing Result

The following table shows our comprehensive financing result for the first six months ended June 30, 2023, and 2024:

Our comprehensive financing result in the first six months ended June 30, 2024, was an expense of Ps.343.0 million, compared to a benefit of Ps.455.5 million in the same period of 2023. This change was explained mainly by the exchange loss derived from the Mexican Peso depreciation.

Taxes and Statutory Employee Profit Sharing

The provision for current and deferred income taxes and statutory employee profit sharing in the first six months ended June 30, 2024, was an expense of Ps.465.4 million compared to an expense of Ps.410.5 million in the same period of 2023.

Consolidated Net Income

Our consolidated net income for the first six months ended June 31, 2024, was Ps.1,080.2 million (US$59.1 million), compared to a net income of Ps.1,829.2 million in the same period of 2023.

Liquidity and Capital Resources

Liquidity

As of June 30, 2024, we had cash and cash equivalents for Ps.4,161.8 million (U.S. $227.6 million). Our policy is to invest available cash in short-term instruments issued by Mexican and U.S. banks as well as in securities issued by the governments of Mexico and the U.S.

Our cash flow from operations and operating margins are significantly influenced by world market prices for raw copper, as quoted by COMEX and the London Metal Exchange (“LME”). Copper prices are subject to significant market fluctuations; average copper prices increased 6.1% in the first six months ended June 30, 2024, to $4.21 US dollar per pound from $3.97 US dollar per pound in the same period of 2023.

We obtain short-term financing from various sources, including Mexican and international banks. Short-term financing consists in part of lines of credit denominated in pesos and dollars. As of June 30, 2024, our outstanding short-term debt, including the current portion of long-term debt totaled Ps.399.1 million (U.S.$21.8 million), all of which was dollar denominated.

On the same date, our outstanding consolidated long-term debt, excluding current portion thereof, totaled Ps.3,837.3 million (U.S.$209.8 million), all of which was dollar denominated.

Accounts receivable from third parties as of June 30, 2024, were Ps.5,124.4 million (U.S.$280.2 million). Days outstanding in the domestic market were 30 days as of June 30, 2024.

Debt Obligations

The following table summarizes our debt as of June 30, 2024:

This total includes the restructured debt of the Company.

Capital Expenditures

For the first six months ended June 30, 2024, we invested Ps.144.2 million (U.S. $7.9 million) in capital expenditure projects, mainly related to expansion of production and maintenance.

In the first six months ended June 30, 2024, our capital expenditures were allocated by segments as follows: 42.2% to copper tubing, 20.7% to wire and cable, 14.3% to valves and controls, 4.8% to electrical products and the remaining and 18.0% to other divisions. By geographic region 58.1% of total capital expenditures were invested in our Mexican facilities and the remaining 41.9% in the U.S.

You should read this document in conjunction with the unaudited consolidated financial statements as of June 30, 2024, including the notes to those statements.

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