july 17th, 2020. burkenroad reports grupo industrial ......acquired tisamatic, a business dedicated...

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Price: $15.50 MXN. IPC SmallCap: 342.35 IPC: 36,590.26 MSCI MX SmallCap: 412.59

July 17th, 2020.

GRUPO INDUSTRIAL SALTILLO, S.A.B. DE C.V.

GISSAA / BMV

Initial coverage: Solid financials despite challenging outlook.

Investment recommendation: MARKER OUTPERFORM

EGADE Business School

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Company profile.

Location: The headquarters are located in Blvd. Isidro Lopez Zertuche 149, Zona Centro Saltillo, Mexico C.P. 25000.

Sector: Auto parts, Construction, Housewares

Subsector: Engine parts, Floor and wall coverings and kitchenware

Economic activity: GIS is a Mexican company with over 90 years of experience. GIS holds interests in the auto

parts, construction and homewares industries. Company’s products include engine parts, floor and wall tiles, and

kitchenware.

Webpage: www.gis.com.mx

Analysts: Advisor

Imelda Miranda Aquino María Concepción del Alto Hernández, PhD

Sofia Garza Cienfuegos Luis Alberto Lira Treviño, CFA

Ricardo Duncan Ruiz

Burkenroad Reports are produced by a select group of students at EGADE Business School, Monterrey. This report is

based on information available to the public and does not purport to be a complete statement of all data relevant to the

securities mentioned and its accuracy cannot be guaranteed. Furthermore, this report is not an offer to buy or sell the

securities mentioned.

Burkenroad Reports

▪ We are initiating the coverage of Grupo Industrial Saltillo with an outperform rating and a target

price of $21.79 MXN, which represents a 40.6% potential upside from the current stock price. It is

expecting a low performance in revenue for current year, but the main industry will be recovering

in the next years.

▪ Grupo Industrial Saltillo (GIS) is a Mexican conglomerate with three business units: auto parts, construction

and housewares. As of 2019, the main revenue generator for GIS is the auto parts segment with 72% of the

conglomerate’s total revenue, followed by the construction business (20%) and housewares segment (8%).

▪ The company has presence in seven countries: Mexico, United States, Spain, Czech Republic, Poland, Italy

and China. GIS’s revenues are diversified in their different regions. Reported sales of MXN $17,129 million

in 2019, 64% were from America, 32% Europe and 4% Asia.

▪ GIS was founded in 1928 in Saltillo, Mexico and has been a public company for 44 years, since 1976. The

company initiated with the housewares business (Cinsa). GIS entered in the auto industry in 1964, now

called Draxton, and three years later started the construction business (Vitromex).

▪ In 2019, GIS signed the agreement for the sale of Calorex, their water heater business in order to simplify

the portfolio following its long-term business strategy.

▪ Grupo Industrial Saltillo has 23 facilities: 14 in the auto part division, four for ceramic tiles and five in the

houseware’s division located in different cities within six countries: Mexico, Spain, Czech Republic,

Poland, Italy and China. In addition, GIS has four world-class Research and Development centers, and two

specialized centers: BCC for brakes systems and MTU for machining.

▪ GIS has invested at least MXN$ 3,960 million in Capital Expenditure (CAPEX) in the last five years and it

is expecting will continue to expand its operations. CAPEX as a percentage of sales has ranged between

4% and 8% of total revenue from 2015 to 2019.

Valuation 2018 2019 2020e 2021e

P/EPS 20.23 67.41 59.26 26.20

P/Tang B 1.55 1.20 1.07 1.02

EV/EBITDA 5.99 5.68 7.07 5.84

EV/REVENUE 0.89 0.80 0.80 0.73

Stock information

52 weeks range (MXN) $14.40 - $25 Outstanding shares (millions) 346.5

12 months return -21.45% Market capitalization (MMXN) $5,368

Average Dividend Yield (5y) 4.03% Enterprise Value (MMXN) $11,078

Average daily volume (1000) 116.5 Beta1 1.61

Source: Bloomberg and Capital IQ 1 Estimated blended Beta

http://www.gis.com.mx/

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BUSINESS DESCRIPTION

Grupo Industrial Saltillo (GIS) is a Mexican

conglomerate founded in 1928. The company started

trading in the Mexican Stock Exchange (BMV) in 1976

(figure 1). The conglomerate is comprised of three

business units: Auto parts, Construction, and

Housewares. In 2019, GIS reported MXN$ 17,129

million in revenue and MXN$ 2,471 million in

EBITDA1. The company has presence in three continents

with 23 facilities, throughout seven countries (Mexico,

United States, Spain, Czech Republic, Poland, Italy and

China) and operates with 6,539 employees.

The auto parts business, through Draxton and its three

Joint Ventures, is dedicated to the casting, and machining

of gray, ductile and aluminum parts for brake, engine,

transmission and suspension systems. The business

participates along the value chain in: research and

development, co-design, casting and machining.

Draxton’s portfolio can be divided in three segments:

Brakes (46%), Powertrain (44%), and Chassis (10%).

The Brakes segment includes products such as brakes

disks, calipers and brackets. The Powertrain segment:

sells crankshaft, dampers, clutch plates, and differential

cases. The Chassis segment: knuckles, control arms, and

supports. Draxton has 14 manufacturing plants, five in

Mexico, seven in Europe and two in China, and three

R&D centers. Draxton has three joint ventures: Evercast,

a partnership with ZF, produces brake components in

Mexico, GISEderlan and InfunEderlan, both in co-

investment with Fagor Ederlan, are dedicated to the

machining of components, the first located in Mexico and

the second in China.

The construction business, through Vitromex,

manufactures ceramic and porcelain floor and wall tiles.

All four manufacturing plants are located in Mexico.

They produce for national consumption and through a

distribution center in Texas, export to the United States

of America, especially to the “Sun Belt” region.

GIS sells their products under three brands: Vitromex,

Arko, and Construpiso. The company estimates a 20% of

market share in Mexico, operating 54 thousand square

meters of installed capacity.

The housewares business, through Cinsa, manufactures

kitchen and tableware. They design, manufacture, and

sell their own products which are made of enamel steel,

ceramic and aluminum. Cinsa’s production is

commercialized under three brands: Cinsa, Santa Anita,

and Cook Now. They have two manufacturing plants in

Mexico. Their revenue are concentrated in Mexico,

although they have a small participation in Central

America and the United States. In the latter, the company

is planning on expanding its trademark.

Source: Capital IQ

Source: Capital IQ

Source: Company Reports. As of 2019

2019

72%

20%

8%

Figure 3: Revenue Mix by Business Unit (MXN$ 17,129 million)

Auto parts Construction Housewares

1 Since 2020, GIS started to report in USD as official currency.

0

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60

70

80

90

100

110

120

jul-19 aug-19 sep-19 nov-19 dec-19 feb-20 mar-20 may-20 jun-20

Figure 2: GIS vs IPC Small Cap

(100= July 1, 2019)

GIS IPC SmallCap GIS Volume

0

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2.0mm

3.0mm

4.0mm

5.0mm

6.0mm

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15

20

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jul-19 aug-19 sep-19 nov-19 dec-19 feb-20 mar-20 may-20 jun-20

Figure 1: Stock Price

Volume GIS (Stock Price)

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History of the Company

In 1928, Don Isidro López Zertuche, started kitchenware

production in Saltillo, Coahuila with three employees

under the name “Isidro López y Hermanos, S.N.C.” After

a few years, the manufacture company became Compañía

Industrial del Norte, S.A. (CINSA) and added a foundry.

In 1940 the company also began to make iron pipe

fittings for the conduction of fluids (water, gas and

electrical conductors) and began to export their products

to United States, Guatemala and El Salvador.

In 1955 the Company transformed into Cifunsa and

began making water heaters by 1957. The company

entered the auto industry in 1964 and three years later

Vitromex was born. By 1998, operations outside Saltillo

began and in the year 2000 the company acquired

Calorex, which became the core brand in the business. In

2004, started operations in their first Foundry auto parts

facility in Irapuato, Guanajuato and seven years later GIS

acquired Tisamatic, a business dedicated to the auto part

foundry in San Luis Potosí. In 2015, GIS consolidated the

first step towards globalization with the acquisition of

ACE, an European leader in iron and aluminum castings

and machining for brake systems. A year later, GIS

acquired Infun Group, strengthening the presence of the

auto parts sector in Europe and entering the Asian

Market. In 2018, Cinsa, Calorex, Draxton and Vitromex

companies were certified as Great Place to Work in

Mexico and in the same year, Draxton is presented, as the

new identity of the GIS Autoparts sector in a global level,

merging the companies: Cinfunsa, ACE and Infun. In

January 2019, GIS announced the signing of the

agreement for the sale of its water heaters business

(Calorex) for MXN$ 2,740 million in order to simplify

the portfolio following its long-term business strategy.

International Exposure and Strategy

Given the international presence of GIS, they have

exposure to different currencies, but the company tries to

match its debt mix in line with their revenue streams,

especially for hard currencies such as the US Dollar and

Euro. As shown in figures 6 and 7, GIS has more than

85% of its debt in that currencies, with 35% of its revenue

are in US Dollars and 32% in Euros. Their cash flow from

that currencies, EBITDA, is around 59% denominated in

US Dollars and 35% in Euros (Figure 8). Through this

management GIS creates a natural hedge, reducing its

exposure to currency risk. This measure provides

certainty and commitment to stakeholders that the

company values long term success by minimizing outside

factors that can affect its operations and profitability.

International presence in an increasingly globalized and


2019



64%

32%

4%

Figure 4: Revenue Mix by Geography(MXN$ 17,129 million)

America Europe Asia

97%

3%

Figure 5: EBITDA Mix by Business Unit(MXN$ 2,471 million)

Auto parts Construction Housewares

41%

45%

14%

Figure 6: Debt Mix by Currency including Swaps(MXN$ 5,396 million)

USD EUR MXN

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specialized world, and the participation of GIS in

industries that are closely related to the economic cycle

create an incentive for GIS to stay ahead in the curve. In

response to international competitors and standards, the

company has developed a set of strategies to increase

revenues, profitability, protect and add market

participation and planning for the future.

Their main strategies going forward are summarized in:

• Application of the Inclusive Continuous

Improvement Program to develop their business

lines under a “lean” business model based on the

development of self-directed human resources and

focused on sustained improving operations,

processes, and products and services design.

Draxton

• Consolidate sustainable growth and expansion plans

in the auto parts segment.

• Grow profitably in the iron foundry business

focusing on the service of auto parts, heavy trucks,

domestic appliances, and railroads industries in

North America.

Vitromex

• Enhance sales and operations planning process with

a focus on service.

• Strategic refocusing in the USA market.

• Optimize inventory levels.

Cinsa

• Maintain enamel steel leadership in Mexico and

accelerate its expansion in the USA.

• Innovate in ceramic and aluminum across the

product portfolio.

These strategies over time have created long standing

relationships with partners such as ZF and Fogar

Ederland, and with key customers to supply them with

high quality products that meet their requirements and

specifications. As can be seen in Table 1 GIS has many

international customers for the auto parts segments while

their construction and houseware segments have a high

concentration of Mexican customers.

Draxton’s key customers include most of the well-known

international automobile companies such as: BMW, Fiat

Chrysler, GM, Nissan, Ford, Mercedes-Benz, Renault,

Volkswagen and Volvo.

Vitromex is supplier to leading companies in Mexico and

the United States.



Table 1: GIS’s key customers by Business Unit

35%

32%

29%

4%

Figure 7: Revenue Mix by Currency (MXN$ 17,129 million MXN)

USD EUR MXN RMB

59%

35%

3%

3%

Figure 8: EBITDA Mix by Currency

(MXN$ 2,471 million)

USD EUR MXN RMB

5

Cinsa has a wide distribution footprint in the industry, its

customers are located primarily in the Mexican market.

Cinsa has developed business relations with the major

retailers in Mexico which creates an important

distribution advantage to reach the most households.

Major retailers include Walmart, Soriana, Chedraui,

HEB, and Liverpool.

CAPEX and Dividends

Grupo Industrial Saltillo’s operations are from industrial

sector. This characteristic requires that the company

needs to be investing in infrastructure and maintaining.

These investments ensure the quality, continuing

operation and expansion of new lines and products. Since

2015, GIS has invested at least MXN$ 3,960 million in

Capital Expenditure (CAPEX). As a percentage of sales

has ranged between 4% and 8% of total revenue.

Estimated CAPEX for 2020 is US$45 million. In 2019,

the sale of Calorex generated a surplus in cash from

investing activities, but not considering it the proceeds

received, GIS invested MXN$ 900 million and is

planning to invest around MXN$ 1,002 million in 2020

(converting with estimated end of year exchange rate).

GIS has been paid dividends to its shareholders since

2012. Figure 10 shows the payments made each year

from until 2019. The dividend payments have been at

least MXN$ 0.75 per share in the last years. Using a stock

price of June 30 (MXN$16.70), the dividend yield has

been around 4.5% up to 7% range for the last few years.

The payout ratio has averaged 45% for the past five years.

Debt Profile

Seeking to improve the debt and maturity profile, GIS

reduced its debt in the last three years by approximately

40%. In September 2019, GIS got a long-term syndicated

loan up to $195 million USD with maturity of six years,

plus a revolving line of $50 million USD with a maturity

of three years. GIS has been doing good liability

management by refinancing its short-term debt and

improving its cash flow profile and liquidity. As the

economy slows down in 2020, this financial discipline

allows management to focus their attention on the

business operations.

Long-term loans are interest-bearing liabilities for GIS.

Their outstanding balances as of December 31, 2019 are

presented in Table 2. The sum of all their loans with these

financial institutions is equal to MXN$ 5,396 million

(converting with end of year exchange rates) with 75%

of this debt has bearing to variable interest rates (Figure

13). GIS has 63% of its long-term debt with HSBC bank,

4.5%

8.0%

5.0%4.2%

5.3%

6.3%

-

200

400

600

800

1,000

1,200

2015 2016 2017 2018 2019 2020

Figure 9: Capital Expenditure (MXN$ million)

CAPEX CAPEX/Sales (%)

6.0% 6.0%

4.5%

6.0% 6.0%6.3%

6.7%7.0%

4%

5%

6%

7%

8%

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2012 2013 2014 2015 2016 2017 2018 2019

Figure 10: Dividend Payout and Yield by year

Dividend Payout ($MXN) Dividend Yield (%)

0.04

3.18

2.582.82

1.85

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2015 2016 2017 2018 2019

Figure 11: Net Debt to EBITDA

Net Debt ($MXN million) Net Debt/EBITDA

2 10 24

43

212

-

50

100

150

200

250

2020 2021 2022 2023 Beyond

Figure 12: Maturity Debt Profile (USD$ Million)

Source: Company Reports.

6

25% in corporate bonds in the Mexican Stock Exchange

(BMV), 11% with Comerica Bank and the remaining

balance with “Centro para el Desarrollo Tecnológico

Industrial” (CDTI), a Spanish public business entity in

charge of funding R&D projects. GIS recognizes other

non-interest-bearing liabilities for MXN$ 94 million.

Table 3 shows the balance as of 2019.

Derivative Contracts

GIS’s international presence exposes the company to

currency and interest rates risks. GIS engages in

derivative contracts to hedge against these risks. The

company has three types of derivatives contracts: Cross

Currency Swaps, Interest Rate Swaps, and FX Forwards.

The detail of each type of contract can be seen in Table

4.

Cross Currency Swaps are being used to hedge exchange

rate variations paying Euros to receive US Dollars and

Mexican Pesos. Simultaneously, GIS used an Interest

Rate Swap to have a variable rate with a syndicated loan

in US Dollars. With Draxton’s operations in Poland and

Czech Republic, GIS has exchange rate forwards to cover

cash flows in those local currencies (Polish Zloty and

Czech Crown).

Corporate Governance

In order of corporate governance is managed through the

Board of Directors and Committees that comprises:

Audit, Corporate Practices, Finance & Planning. The

election of the Board of Directors takes place at the

Annual Shareholders’ Meeting, where each shareholder

or group holding 10% of the shares has the right to

appoint a Director. All of shares has voting rights,

without distinction and participate in the election of

Directors, and no Director has a casting vote, because all

the votes of the Directors have the same value. The

company complies with the mandates of the BMV

Internal Bylaws regarding adherence to the Best

Corporate Practices, which defines the operational

grounds of all of Mexico’s publicly traded companies.

The Board of Directors of GIS is composed by thirteen

directors: five are patrimonial and eight independents,

which are selected for their ability, experience and

professional prestige, who can perform their duties

without of interest conflicts and following good

corporate governance standards. Is important to mention

than in this order the company had incorporated two

women looking diversity in the profile of the board.

There is a trust that individually is the main shareholder

of GIS which has approximately 41% of the voting

shares. The Trustees are members of five branches of the

López family, descendants of Don Isidro López

Table 2: Long-term debt (interest-bearing)

Financial

Institution Interest Rate Currency Maturity

Outstanding

Balance

(MM MXN)

HSBC LIBOR 3M + 1.55-2.15% USD 2025 3,392

Corp. Bonds 9.65% (fixed) MXP 2027 1,375

Comerica LIBOR 3M + 2.50% USD 2023 622

CDTI Preferential EUR 2026 6.6


Table 2: Long Term Debt (With Interest)

74.4%

25.5%

0.1%

Figure 13: Debt Mix by Interest Rate (MXN$ 5,396 million)

Variable Fixed Preferential


Table 3: Non-interest-bearing Liabilities

Financial


Outstanding

Balance

(MM MXN)

HSBC LIBOR 3M + 1.55-2.15% USD 2025 3,392






Table 4: Derivative Contracts

Financial


Outstanding

Balance

(MM MXN)

HSBC LIBOR 3M + 1.55-2.15% USD 2025 3,392






7

Zertuche, to see more about the company’s shareholder

structure please refer to Table 5.

SWOT Analysis

GIS strengths are focused in the auto parts industry which

include highly specialized management, large R&D

investments to improve their products and preparing for

the increase in electric vehicles buying tendency.

Draxton is recognized in the industry as one of the best

suppliers, reflected in their ability to win contracts, the

most recent one of US$ 150 million, and the extension

with ZF in their joint venture. The company has adopted

a strategy to implement efforts to streamline costs and

business operations for Vitromex and Cinsa to increase

market share, rightsizing their headcount and operations,

and expand geographically. GIS primary weakness as a

conglomerate is its exposure to cyclical industries,

making the company more exposed to economic

slowdowns. Other weaknesses fall in Vitromex’s and

Cinsa’s high operating costs, outdated portfolios,

rightsizing their operations and realigning commercial

efforts.

The company has interesting opportunities to explore in

the future. There is always the opportunity to increase

geographic and market share position with strategic

alliances. In addition, the American market represents an

opportunity for immediate expansion for Vitromex and

Cinsa. The USMCA involves opportunities for Draxton

to exploit in North America with their new clauses for the

automotive industry. Cinsa can continue reducing their

dependence with intermediaries, especially in the

American market. Notwithstanding these opportunities,

GIS faces severe threats from outside factors. These

include supply chain disruptions and low demand due to

the COVID-19, economic slowdown in its geographies

and increasing of raw material prices.

Sustainable Development

The reconfiguration process that GIS has experienced in

recent years due to the acquisition and disincorporation

of businesses has influenced in the consistency of

environmental results. However, GIS maintains its

objective of a culture oriented in the efficient use of

resources. During 2019, Draxton’s operations in Europe

used more than 156 million kWh of electrical energy

from 100% renewable sources; in Mexico, more than

228,000 cubic meters of treated water were used, thus

reducing dependency from natural sources of supply and

the GIS plants operating in Mexico reported for the third

time as a conglomerate in the Carbon Disclosure Project.

Shareholders Number of

shares1

% of total

shares

Control Trust 139,676,886 41%

Board Members 13,627,013 4%

Float 187,371,432 55%

Total 340,675,331 100%

1 All of GIS’s shares are common stock

Strengths Weaknesses

➢ Highly specialized management

in auto parts industry.

➢ Strong cash flow and financial

position to take advantage of

inorganic opportunities.

➢ Large investments in R&D to

improve and innovate products.

➢ Appropriate debt maturity

profile.

➢ Strong positioning in autoparts

industry, especially in brakes.

➢ Extension of JV with ZF.

➢ Draxton’s portfolio fully

compatible with hybrids and

65% with EV.

➢ Intensive efforts to streamline

costs and business operations.

➢ Highly dependent to cyclical

businesses.

➢ Vitromex’s rightsizing and

operative issues caused by an

outdated portfolio.

➢ High operating costs in Cinsa

with little value added to the

company.

➢ Loss of profitability in Vitromex

and Cinsa.

Opportunities Threats

➢ Strategic alliances to increase

geographic

➢ Growth potential in China and

Europe (commercial vehicles).

➢ Increasing investments for

Electric Vehicles (EV)

developments

➢ USMCA automotive industry

➢ Supply chain disruption for

autoparts and low demand in all

segments due to COVID-19

effects.

➢ Increasing of raw material

prices.

Table 6. SWOT Analysis

Source: Company Reports.

Table 5: Shareholder Structure

Financial


Outstanding

Balance

(MM MXN)

HSBC LIBOR 3M + 1.55-2.15% USD 2025 3,392






8

INDUSTRY ANALYSIS

Auto parts sector

Draxton, the Autoparts Segment, is positioned in the

automotive industry markets in Europe and Asia, in

addition to the automotive market in North America.

Draxton and its JV´s have 14 plants: five in Mexico,

seven in Europe and two in China.

Main market participants in this industry include Nemak,

Martinrea International, Linamar, CIE Automotive, TI

Fluid, SL Corporation and Hanon.

The Auto parts industry in Mexico and China has been

growing gradually in sales volume in the past years,

while in Spain it has been a little more volatile (Figure 14

y 15). Sales in these three markets were deeply affected

in the crisis of 2008 and 2009 and such crisis affected the

whole industry, which we expect the coronavirus

pandemic will show a similar behavior this year.

As the rest of the countries in the world, the outlook does

not look positive in the countries where GIS operates.

According to the IMF, Spain, Italy, Czech Republic and

Poland are expected to decline 8%, 9.1%, 6.5% and

4.5%, respectively, during 2020.

Global GDP is expected to fall 3% this year and increase

5.8% in 2021 according to the International Monetary

Fund (IMF). S&P Global Ratings expects global auto

sales to fall again this year, expecting a particularly

severe decline in the second quarter of 2020 and

projecting global light vehicle sales declining by almost

15% in 2020 to less than 80 million units, such decline

will depend on how long it takes to contain the

coronavirus globally (Table 6). This year will mark the

third consecutive decline in global auto sales.

GDP in the United States is expected to decrease by 5.9%

in 2020 and an increase of 4.7% in 2021. According to

S&P light vehicle sales are expected to decline between

15% and 20% in this year, in the same order of magnitude

of Europe, and with a slow recovery with low-double

digit increase in 2021.

In the case of Mexico, the GDP is estimated to fall 10.3%

in 2020 and increase 2% in 2021, according to the

consensus. The INEGI (Mexican Official Governmental

Statistics Entity) shows that the manufacture of parts for

motor vehicles segment accounts for about 1.3% of the

total GDP in Mexico and has remained this way in the

last three years. Light vehicle manufacturing represents

around 1.5% of total GDP in Mexico. According to

INEGI data, the manufacture of parts for motor vehicles

has had a 9.9% CAGR from 2009 to 2019, b rut recently

it has slowed down to 4.1% from 2016 to 2019. In 2019,

Mexico vehicles sales were over 1.3 million (automobiles

2019 sales in

units (million)

Change vs 2018

(%)

Previous Projections New Projections

2020f 2021f 2020f 2021f

U.S 16.9 (1.4) (3.0) (1.8) (15)-(20) 10-12

China 25.5 (8.0) (5.0) 2-3 (8)-(10) 2-4

Europe 20.4 0.1 (3.0) 0.0 (15)-(20) 9-11

Rest of the world 27.4 (5.6) (3.0) 0.0 (15) 6-8

Total 90.3 (4.3)

Table 7. Global Light Vehicle sales growth estimated

Source: S&P Global Ratings.

Figure 14. Industry Turnover in Mexico

Source: Passport by Euromonitor

Figure 15. Industry Turnover in Spain


9

and light trucks), production was over 3.7 million

vehicles and exported 3.3 million vehicles. Automobiles

represented 59% of sales, 36% of production and 34% of

exports in 2019 according to INEGI. From 2016 to 2019,

total vehicles sales were declining a 6.4% CAGR,

production has a 2.7% CAGR, and exports has 6.4%

CAGR. The automobile segment has had an important

decrease over the last few years in the Mexican economy.

Uncertainty regarding the new USMCA treaty (NAFTA

2.0), trade wars and overall economic slowdown have

had a negative impact in the automobile sector. Fitch

Solutions considers that even if there will be a disruption

to vehicle production due to the pandemic, it will be short

lived and have a limited impact on total production in

Mexico, as imports of auto components by value from

China accounted for only 8.3% share of total imports in

2018.

The automobile industry and its related industries such as

the auto parts segment have a cyclical performance that

goes along the economic performance. The last few years

and expectations for 2020 and 2021 show a performance

below average for the industry caused by the global

economic slowdown further aggravated by the

coronavirus pandemic.

In addition to low expectations in the short-term in the

automotive market, the industry is affected by external

factors which probably will affect it. Coronavirus

pandemic will continue to spread throughout the world

and will challenge the economies affecting household

incomes, consumer confidence, movement restrictions

and interest rates and all of these will impact directly the

demand of vehicles. Other factors include the availability

of raw materials, utilities/services, stoppage of operations

because of COVID-19 and labor shortages.

On top of all the factors mentioned before, the industry

has high barriers of entry. The automobiles companies

require high specialization suppliers for their

components. Another important factor is the high

requirements of capital to manufacture these types of

products. In Mexico, the comparable auto parts

companies have a CAPEX that represents around 6% to

10% of revenue or about 30% to 70% of their EBITDA

which restrains cash flow in the business (Table 7). This

requires low levels of labor costs to compensate and/or a

high degree of automation. Suppliers have also the

constraint to deliver high quality products on time

because their automobile customers have tight

production schedules from their JIT and lean

manufacturing methodologies. This shows a higher

bargaining power for clients in the auto part industry and

tight competition within auto part manufacturers.

The automotive industry has several regulations and they

vary country by country, within the new USMCA

agreement, 75% of components must be manufactured in

Figure 16. Industry Turnover in China


Table 8. Capex Investment by Company in 1Q2020 (USD$ million)

Source: Company Reports

Table 9. Economic Data as of May 2020

Source: Trading Economics

10

the region compared to a previous 62.5% in NAFTA, the

new agreement also requires that 40% to 45% of auto

content must be produced by employees earning an

average salary of at least $16 per hour and 75% iron

purchases must be from the region.

In Europe, regulations also exist mainly through a test

called WLTP (Worldwide harmonized Light vehicles

Test Procedures) for new vehicles (diesel or gasoline)

which evaluates and measures parameters such as fuel

power consumption of alternate propellants using high

requirements for the companies.

According to the economic data in Table 8, Draxton’s

international presence can be explained by developing

countries with stable inflation and low wages. The only

exception are Spain and Italy with high wage costs. This

geographic presence reflects the low labor costs required

for the automobile industry and/or high automation

processes.

New environmental regulations around the world are

driving the trend towards electrification, reduction in the

size of components and lightening of materials in new

generation cars, without compromising the safety of the

vehicle. In this context, there will be an increase in

electrified vehicles such as lightweight hybrids, plug-in

and electric hybrids. According to industry analysts like

IHS Markit, the hybrid segment will grow faster in the

next years, therefore, it is expected that by 2031, more

than 85% of the vehicles will continue to use an internal

combustion engine. It is expected this trend will impact

in a positive way to both Mexico and Draxton; Draxton’s

efforts in engineering and R&D will be innovating in

order to develop new products suitable for their client’s

needs. Mexico has been growing in this industry and is

expected to be growing after next year, it is considered a

well-positioned country to attract more investment, also

tension in China could bring new opportunities to

Mexico. Carmakers from other countries are moving

their operations to Mexico, some of the companies that

invested in plants are Audi in San José Chiapa with an

investment of USD$1.3 billion, BMW with a USD$1

billion investment in a plant in San Luis Potosi, and KIA

with an investment of USD$1.5 in their plant in

Monterrey, among others.

Home Improvement

The Home Improvement industry shows sustained

average growth of 5% over the past 14 years, with an

estimated value of almost MXN$33.6 billion (~USD$1.4

billion).

The Home Improvement industry is highly fragmented

with plenty of brands. In Mexico the main market

participants in this industry include Comex, Lamosa,

Daltile, Interceramic, Berel, Truper, Brosh, among others

(Figure 19). Some of these companies in this industry

Figure 17. Home Improvement Sales


Figure 18. Brand Shares of Home Improvement


Figure 19. Category Sales of Home Improvement


11

include other products, it is considered Interceramic and

Lamosa as Vitromex’s main competitors. Vitromex

brand has an estimated market share of 2.1%, while Arko

and Construpiso do not appear in the top 20. In nine

years, the companies that do not appear in the top, on

average performed ~ 50 basis points (0.5 p.p.) below the

industry.

Floor coverings is the largest category in the Home

Improvement industry representing 23.5% and floor tiles

is the largest subcategory with a participation of 38%.

Wall coverings represent 4.5% of the industry and the

wall tiles subcategory represents 61% of wall coverings.

Wall and floor coverings represent 28% of the total

industry and these categories have had a CAGR in the

last 5 years of 5%. (Figure 20).

According to INEGI, clay and other refractory mineral

products (the most related economic activity performed

by Vitromex) has had a 1% CAGR over the last 10 years.

This activity represents only 0.08% of Mexican GDP.

The business activity serves the construction segment as

raw materials for decoration inside the buildings. The

construction activity accounts for 4.8% of Mexican GDP.

It showed a 1.1% CAGR from 2014 to 2019 according to

INEGI.

As mentioned before in Draxton’s industry, the home

improvement industry is also affected by external factors

which can and probably will affect such industry;

coronavirus pandemic will continue to spread throughout

the world and will challenge the economies affecting

household incomes, and consumer confidence. Other

factors include the availability of raw materials,

utilities/services, stoppage of operations because of

COVID-19 and labor shortages. On top of all the factors

mentioned before, the industry has lower CAPEX

requirements in comparison to the automobile industry.

The comparable companies show investments expenses

or about 1% to 3% of revenue or about 8% to 15% of

EBITDA. The low barriers of entry have pulverized the

industry due to the relative low cost of raw materials and

capital investments. There’s tight competition with low

bargaining power for manufactures of tiles. (Table 9).

VALUATION PROCESS

Revenue estimation

The estimation of the key financial indicators gives the

input to the valuation of the company. Historical

performance is relevant to understand the past behavior

and currently performance. Another input to the forecast

was industry growth, expectations, country GDP forecast

among other indicators to gauge the assumptions that will

drive the forecast from 2020 to 2024. The business model

and the industry overview set the initial trend to elaborate

Table 10: Capex Investment by Company in 1Q2020 (USD$ million)

Source: Quarterly Reports

654 583

862 895 908

729 704 734 755 773

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 20: Actual and Forecast Revenue (USD$ Million)

8.6%

11.9%

9.2%

6.1%

4.6%

1.3%2.6%

4.6%5.4% 5.7%

-

10

20

30

40

50

60

70

80

90

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 21: Actual and Forecasted EBIT (USD$ million) and Margin

Forecasted EBIT (USD$ million) Margin

12.6%

17.4%

15.6%

13.1% 13.2%

11.3%

12.5%

14.4%15.2%

15.6%

50

70

90

110

130

150

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 22: Actual and Forecasted EBITDA (USD$ million) and

Margin

Forecasted EBITDA (USD$ million) Margin

12

the forecast. The statements will be modeled in Mexican

pesos and afterwards translate to American dollars. The

assumptions were made based on a conservative scenario

in order to have more stable forecast.

The primary assumptions used for the income statement

were the annual growth rates for volume and price on the

auto part industry, revenues on the home improvement

and homeware industry, variable and fixed costs. As a

result of slowdown and COVID-19 pandemic, 2020 was

set for a major loss in revenues with a slow recovery

lasting until 2024. Extraordinary expenses were not

modeled within the statements. Interest payments were

calculated with a variable spread above the LIBOR rate

spread in the financial notes and debt maturity profile

reported by the company. The exchange rate was derived

from the forward rate, with inflation rates differential

being the main driver to estimate exchange rates.

Working capital was calculated with average turnover

(2015-2019) and the income statement estimations.

Capex investments were driven by GIS guidance for

2020 as maintenance Capex. The investments were

increased with inflation rates. Debt was calculated with

the debt maturity profile with the assumption that last

year will have a similar principal repayment as the prior

year. Other extraordinary assets and liabilities were

modeled as a 0% increase from 2019 except for pensions,

which increased at a pace slightly higher than expected

inflation rate. For minority interest and accumulated

earnings, it is assumed a low dividend payout ratio for

2020 and increasing to historical levels by 2024.

The cash flow statement was estimated using the

movements in the income statement and the balance

sheet, in order to incorporate all the income and expenses

made to estimate the change in cash.

The next steps to validate the forecast was to calculate

the DuPont analysis with its five steps and financial

ratios. This analysis the financial ratios showed a

decrease in financial performance in the short term and a

return to previous standards or slightly higher

performance by 2024, according to recovery in the

industries where GIS operates.

Valuation process was performed using two methods:

discounted cash flows (DCF) and trading multiples. For

the DCF model valuation, the cost of capital (WACC)

was calculated using CAPM model (Table 10).

DCF Model

In the CAPM method, sector betas were used to estimate

the unlevered betas for a typical company in those

sectors. A “blended” beta was created using GIS business

units share of revenues. Then. to “blended” unlevered

beta was added GIS capital structure to get another

“blended” levered beta.

Table 11. Discount Factor Calculation

5.7%

9.8%

6.6%

3.9%4.7%

0.8%1.8%

3.2%3.7% 3.9%

-

10

20

30

40

50

60

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure 23: Actual and Forecasted Net Income (USD$ million) and

Margin

Forecasted Net Income (USD$ million) Margin

Table 12. Discounted Cash flows estimated (millions USD)

Levered Beta 2020 2021 2022 2023 2024

Average Beta Unlevered 0.91 0.91 0.91 0.91 0.91

Corp. Tax Rate 32% 32% 32% 32% 32%

D/E 115% 114% 110% 101% 84%

Levered Beta 1.61 1.61 1.58 1.53 1.42

CAPM 2020 2021 2022 2023 2024

Risk Free Rate 10 Y US 0.71% 0.71% 0.71% 1.21% 1.71%

Country Risk MX 2.20% 2.20% 2.20% 2.20% 2.20%

Risk Free Rates in USD for MX 2.91% 2.91% 2.91% 3.41% 3.91%

Market Premium US 6.01% 6.01% 6.01% 6.01% 6.01%

Levered Beta 1.61 1.61 1.58 1.53 1.42

Cost of Equity (USD) 12.60% 12.57% 12.43% 12.58% 12.45%

Discount Factor 2020 2021 2022 2023 2024

D/E 115% 114% 110% 101% 84%

Cost of Debt (USD) 2.50% 2.50% 2.50% 3.00% 3.50%

Debt Weight 53.46% 53.29% 52.41% 50.16% 45.56%

Tax Rate 32.00% 32.00% 32.00% 32.00% 32.00%

Cost of Equity (USD) 12.60% 12.57% 12.43% 12.58% 12.45%

Equity Weight 46.54% 46.71% 47.59% 49.84% 54.44%

WACC (USD) 6.80% 6.80% 6.80% 7.30% 7.90%

13

The cost of equity was calculated using the American 10-

year bond rate as a risk-free rate, beta was previously

calculated, American market risk premium of 6.01% and

a Mexican country risk of 2.20%. These variables led to

a cost of equity of 12.6% for 2020.

The cost of debt was known with the previous

assumptions made during the forecasting period of the

financial statements. These inputs generated a WACC

of 6.8% up to 7.9% in USD during the forecasting

period. The free cash flows were estimated using the

net operating profit after taxes then adding up

depreciation and amortization expenses and deducting

capital expenditures and increases in working capital.

Terminal value was modeled using a perpetuity growth

rate between 1.5 % and 3.5% from the last cash flows.

Modeling scenarios based on different perpetuity

growths led to a range price of $19.64 MXN per share

(1.5% growth) up to $31.26 MXN per share (3.5%

growth). A 10% discount was established for the low

level of liquidity for the share decreasing the share value

to a range of $17.68 MXN to $28.14 MXN.

Relative Valuation Model

For this methodology using trading multiples, nine

comparable companies were used, from which five were

auto part companies, three of building materials sector

and one kitchen homeware company. The multiples used

were weighted to calculate a blended value. These

multiples were: P/E, Price / Tangible Book Value,

EV/EBITDA and EV / Revenue. The companies were

grouped to calculate their first, second, and third quartile

for each of the ratios stated above. With financial

information the price target was calculated for each

multiple. The share price for GIS from quartile 1 to

quartile 3 were $14.40 MXN to $30.63 MXN. Using a

10% liquidity discount, prices fell to $12.96 on quartile 1

up to $27.57 MXN on quartile 3 (Table 13).

Investment Summary

The DCF and Relative Valuation provided a wide range

of share prices. A blended value was calculated using

60% DCF price and 40% Trading Multiples in order to

get a target price. The global economic outlook, growth

opportunities, and operational challenges for Vitromex

and Cinsa in the short term, narrows the calculated range

to the medium to lower end of the range for a target price

range of $19.61 MXN to $21.79 MXN. The target price

was defined with the target price range upper limit of

$21.79 based on solid financial position and good

operational performance. The recommendation for

investors with current price of $15.50 is MARKET

OUTPERFOM, expecting a potential upside of 40.6%

$12.96

$17.68

$27.57

$28.14

Trading Multiples

DCF Valuation

Figure 26. Share Price Valuation Ranges (MXN)

Table 13. Trading Multiples Quartile Distribution for Comparables

$19.64

$24.36

$31.26

$17.68

$21.92

$28.14

1.5% 2.5% 3.5%

Figure 24: Share Price for different Perpetuity Growth

Rates (MXN$)

Price (MXN) Price (MXN) with Discount

$14.40

$23.98

$30.63

$12.96

$21.59

$27.57

Q1 Q2 Q3

Figure 25: Share Price Quartile Range with Blended

Trading Multiple

Price (MXN) Price (MXN) with Discount

14

respecting to the current stock price and it is 21% cheaper

than the lower limit target price range obtained.

Advantages that support the purchase of GIS’s stock

today include a minimum capital gains yield of ~15%

(price as of today is $15.50), the management of the

company has wide experience in the automotive sector,

through its management. GIS has a sustainable financial

position with no material debt in the short-term, the

company is diversified in its geography which reduces

risks of the economies not growing at the same level,

their functional currencies are USD and Euro and they

have continuous improvement and operational focus.

Investment Risks

The risks associated with our investment thesis are

extraordinary expenses derived from a disruption in the

production chain or additional expenses to adapt

operations due to the pandemic, subpar industry

performance, significant profitability loss in Vitromex

and Cinsa business units, and excessive leveraged growth

through M&A activity.

15

Appendix A. Income Statement

Income Statement

In Million USD

For the Fiscal Period Ending

Dec-31-2018

Dec-31-2019

Dec-31-2020

Dec-31-2021

Dec-31-2022

Dec-31-2023

Dec-31-2024

Revenue 894.9 908.0 728.9 704.1 733.6 755.0 773.0

Auto Parts - America 257.5 324.4 247.6 238.3 247.9 254.1 259.2

Auto Parts Europe / Asia 370.6 328.8 265.5 260.4 276.3 287.4 296.1

Building Materials 176.7 182.6 153.9 146.5 149.4 152.3 155.2

Kitchen Homeware 79.6 73.4 61.9 58.9 60.1 61.2 62.4

Corporate and Eliminations 10.5 (1.2) 0 0 0 0 0

Cost Of Goods Sold 717.3 744.7 597.7 569.2 580.2 591.5 603.0

Gross Profit 177.6 163.3 131.2 134.9 153.3 163.5 170.0

Selling General & Admin Exp. 68.8 56.1 49.0 46.7 47.6 48.5 49.4

R & D Exp. - - 0 0 0 0 0

Depreciation & Amort. 62.7 78.5 72.7 70.0 72.1 74.2 76.4

Other Operating Expense/(Income) (8.2) (12.7) 0 0 0 0 0

Other Operating Exp., Total 123.3 121.9 121.7 116.6 119.7 122.7 125.8

Operating Income 54.3 41.4 9.5 18.3 33.7 40.8 44.1

Net Interest Exp. (23.8) (24.8) (6.6) (5.5) (5.0) (5.3) (5.0)

Interest Expense 0 0 (7.9) (7.3) (7.0) (7.7) (7.5)

Interest Income 0 0 1.2 1.8 2.1 2.4 2.5

Income/(Loss) from Affiliates 6.7 14.4 11.2 10.6 10.6 10.6 10.4

Currency Exchange Gains (Loss) 13.5 1.6 0 0 0 0 0

Other Non-Operating Inc. (Exp.) 8.6 0.3 0 0 0 0 0

EBT Excl. Unusual Items 59.3 32.9 14.1 23.4 39.3 46.0 49.6

EBT Incl. Unusual Items 58.7 22.0 14.1 23.4 39.3 46.0 49.6

Income Tax Expense 27.1 5.4 4.5 7.5 12.6 14.7 15.9

Earnings from Cont. Ops. 31.7 16.6 9.6 15.9 26.8 31.3 33.7

Earnings of Discontinued Ops. 3.7 30.7 0 0 0 0 0

Net Income to Company 35.4 47.3 9.6 15.9 26.8 31.3 33.7

Minority Int. in Earnings (0.1) (4.5) (3.5) (3.3) (3.3) (3.3) (3.2)

Net Income 35.2 42.8 6.1 12.6 23.5 28.0 30.5

16

Appendix B. Balance Sheet

Balance Sheet

In Million USD

Dec-31-2018

Dec-31-2019

Dec-31-2020

Dec-31-2021

Dec-31-2022

Dec-31-2023

Dec-31-2024

ASSETS

Cash And Equivalents 55.0 88.7 119.6 140.5 160.4 168.9 161.1

Short Term Investments 0 0 0 0 0 0 0

Total Cash & ST Investments 55.0 88.7 119.6 140.5 160.4 168.9 161.1

Accounts Receivable 161.9 142.9 140.9 145.7 151.8 156.2 159.9

Other Receivables 19.9 22.5 19.1 18.7 18.4 18.0 17.6

Total Receivables 181.8 165.5 160.0 164.4 170.1 174.2 177.5

Inventory 105.4 96.3 92.4 94.2 96.0 97.8 99.7

Other Current Assets 132.9 2.3 2.0 1.9 1.9 1.8 1.8

Total Current Assets 475.1 352.9 373.9 400.9 428.4 442.8 440.2

Gross Property, Plant & Equipment 897.1 1,031.2 918.9 946.6 974.6 1,003.1 1,031.9

Accumulated Depreciation (460.9) (508.4) (498.0) (557.4) (617.8) (679.0) (741.2)

Net Property, Plant & Equipment 436.2 522.9 420.8 389.1 356.9 324.1 290.7

Long-term Investments 57.4 6.5 14.6 23.5 32.2 40.7 49.0

Goodwill 187.4 203.1 172.1 168.7 165.3 162.1 158.9

Other Intangibles 98.6 101.6 86.1 84.4 82.7 81.1 79.5

Accounts Receivable Long-Term 0 2.0 1.7 1.7 1.6 1.6 1.6

Deferred Tax Assets, LT 35.2 43.0 36.4 35.7 35.0 34.3 33.6

Deferred Charges, LT 8.4 14.2 12.0 11.8 11.6 11.3 11.1

Other Long-Term Assets 18.4 17.5 14.9 14.6 14.3 14.0 13.7

Total Assets 1,316.8 1,263.6 1,132.5 1,130.3 1,127.9 1,111.9 1,078.3

LIABILITIES

Accounts Payable 144.7 136.2 121.8 122.6 125.0 127.4 129.9

Accrued Exp. 5.6 4.6 3.9 3.8 3.7 3.6 3.6

Short-term Borrowings 0 0 0 0 0 0 0

Curr. Port. of LT Debt 12.4 1.3 2.0 10.0 24.0 43.0 43.0

Curr. Port. of Leases 0.6 4.2 3.6 3.5 3.4 3.3 3.3

Curr. Income Taxes Payable 0.2 9.3 7.9 7.8 7.6 7.5 7.3

Unearned Revenue, Current 1.4 1.9 1.6 1.6 1.5 1.5 1.5

Def. Tax Liability, Curr. 9.5 9.5 8.1 7.9 7.8 7.6 7.5

Other Current Liabilities 81.3 70.1 59.4 58.2 57.1 55.9 54.8

Total Current Liabilities 255.6 237.1 208.2 215.3 230.1 249.9 250.8

Long-Term Debt 370.9 286.9 289.0 279.0 255.0 212.0 169.0

Long-Term Leases 1.1 9.6 8.1 8.0 7.8 7.7 7.5

Pension & Other Post-Retire. Benefits 10.3 12.4 10.5 10.3 10.1 9.9 9.7

Def. Tax Liability, Non-Curr. 62.1 51.1 43.3 42.4 41.6 40.7 39.9

Other Non-Current Liabilities 0 1.9 1.6 1.6 1.5 1.5 1.5

Total Liabilities 700.0 599.0 560.8 556.6 546.1 521.7 478.5

Common Stock 170.2 177.3 150.2 147.2 144.3 141.5 138.7

Additional Paid In Capital 12.0 12.5 10.6 10.4 10.2 10.0 9.8

Retained Earnings 340.4 368.8 317.9 321.6 331.5 341.6 352.9

Treasury Stock 0 0 0 0 0 0 0

Comprehensive Inc. and Other 92.1 71.7 60.7 59.5 58.4 57.2 56.1

Total Common Equity 614.7 630.3 539.4 538.8 544.4 550.2 557.4

Minority Interest 2.1 34.3 32.3 34.9 37.5 40.0 42.4

Total Equity 616.8 664.6 571.7 573.7 581.8 590.2 599.8

Total Liabilities And Equity 1,316.8 1,263.6 1,132.5 1,130.3 1,127.9 1,111.9 1,078.3

17

Appendix C. Cash Flow Statement

Cash Flow Statement

For the Fiscal Period Ending

Dec-31-2018

Dec-31-2019

Dec-31-2020

Dec-31-2021

Dec-31-2022

Dec-31-2023

Dec-31-2024

In Million USD

Net Income (Mayority) 35.2 42.8 6.1 12.6 23.5 28.0 30.5

Depreciation & Amort., Total 62.7 78.5 72.7 70.0 72.1 74.2 76.4

Other Amortization 6.9 6.9 0 0 0 0 0

Minority Int. in Earnings 0.1 4.5 3.5 3.3 3.3 3.3 3.2

Interest Expense 0 0 7.9 7.3 7.0 7.7 7.5

Interest Income 0 0 -1.2 -1.8 -2.1 -2.4 -2.5

(Gain) Loss from Sale of Assets (0.8) (29.2) 0 0 0 0 0

(Gain) Loss on Sale of Invest. - (15.0) 0 0 0 0 0

Asset Writedown & Restructuring Costs 1.7 - 0 0 0 0 0

(Income) Loss on Equity Invest. (6.7) 0.5 (11.2) (10.6) (10.6) (10.6) (10.4)

Other Operating Activities 9.1 (17.8) 0 0 0 0 0

Change in Acc. Receivable 25.9 69.3 -21.3 -7.7 -9.1 -7.5 -6.9

Change In Inventories (0.9) 21.6 -11.6 -3.7 -3.7 -3.8 -3.9

Change in Acc. Payable (4.1) (12.4) 6.9 3.2 4.9 4.9 5.0

Change in Other Net Operating Assets (9.0) (5.8) 0 0 0 0 0

Cash from Ops. 120.2 143.9 51.6 72.7 85.2 93.9 99.0

Capital Expenditure (37.8) (47.7) (48.7) (46.4) (47.3) (48.2) (49.2)

Sale of Property, Plant, and Equipment 1.4 - 0 0 0 0 0

Cash Acquisitions - 0.0 0 0 0 0 0

Divestitures - 147.2 0 0 0 0 0

Interest Income 0 0 1.2 1.8 2.1 2.4 2.5

Sale (Purchase) of Intangible assets (5.9) (9.0) 0 0 0 0 0

Invest. in Marketable & Equity Securt. - (5.1) 0 0 0 0 0

Net (Inc.) Dec. in Loans Originated/Sold - - 0 0 0 0 0

Other Investing Activities 1.1 2.4 1.5 1.3 1.3 1.3 1.3

Cash from Investing (41.1) 87.8 (46.0) (43.2) (43.9) (44.6) (45.4)

Short Term Debt Issued - - 0 0 0 0 0

Long-Term Debt Issued 237.0 181.9 0 0 0 0 0

Total Debt Issued 237.0 181.9 0 0 0 0 0

Short Term Debt Repaid - - 0 0 0 0 0

Long-Term Debt Repaid (180.3) (322.0) 50.6 3.8 (4.3) (18.7) (38.3)

Total Debt Repaid (180.3) (322.0) 50.6 3.8 (4.3) (18.7) (38.3)

Repurchase of Common Stock (7.1) (8.3) 0 0 0 0 0

Common Dividends Paid (20.0) (21.6) (0.3) (2.5) (7.0) (11.2) (12.2)

Total Dividends Paid (20.0) (21.6) (0.3) (2.5) (7.0) (11.2) (12.2)

Special Dividend Paid - - 0 0 0 0 0

Other Financing Activities (Interest) (148.3) (25.1) (7.9) (7.3) (7.0) (7.7) (7.5)

Other Financing Activities (Dividends Minority) 0 0

-$

0.17 -$ 0.66 -$ 0.99

-$

1.31 -$ 1.30

Cash from Financing (118.8) (195.1) 42.4 (6.0) (18.4) (37.6) (58.0)

Foreign Exchange Rate Adj. 4.3 (5.2) 0 0 0 0 0

Net Change in Cash (35.4) 31.4 48.1 23.4 23.0 11.8 (4.5)

18

The Latin America Burkenroad Reports from ITESM are financial analysis of companies listed in the Mexican

Stock Exchange, and capital budgeting of medium and small companies. They are elaborated by students of both

the Master in Finance program at EGADE Business School, and the Bachelor in Finance; under the supervition

of recognized professors.

The Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), Instituto de Estudios Superiores de

Administración de Venezuela (IESA), and Universidad de los Andes from Colombia, along with Tulane

University, started the Latin America Burkenroad Program with the support of Multilateral Investment Fund of

the Interamerican Development Bank in 2001. Actually it has been expanded to other countries, sucha are the

Universidad Catolica de Perú, EAFIT in Ecuador, ICESI in Colombia, and the Universidad del Norte, as well

as Argentina by the Universidad de Belgrano.

This program enriches human capital by providing training in financial analysis and valuation techniques, and

also intends to facilitate access of companies to financing sources by providing financial information to investors

and financial institutions.

The reports prepared by this program, evaluate financial conditions and investment opportunities in Latin

American companies. Financial reports of listed companies are distributed to national and foreign investors

through websites, publications and media recognited such as Reuters and FactSet, among others where EGADE

Business School is a contributor.

Business plans, evaluation of investment projects or financial diagnoses of private companies are only distributed

to beneficiary companies for future private presentations to financial institutions or potential investors.

For more information about the Burkenroad Latin America Program please visit the following websites:

https://egade.csf.itesm.mx/burkenroad/

www.latinburkenroad.org

María Concepción del Alto Hdez. Ph.D.

[email protected]

Research Director

Burkenroad Reports, Mexico

EGADE Business School

Tecnológico de Monterrey

Tel +52 (81) 86256000 ext. 6050

https://egade.csf.itesm.mx/burkenroad/

http://www.latinburkenroad.org/

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