Proteak Uno Earnings Release 1Q17

MEXICO CITY, May 15, 2017 /PRNewswire/ -- Proteak Uno, S.A.B. de C.V.  ("Proteak" or the "Company") (BMV: TEAK) announced its financial results for the first quarter of 2017. All figures presented throughout this document are expressed in nominal Mexican pesos (MxP.). All financial information has been prepared in accordance with the guidelines of the National Banking and Securities Commission ("CNBV") and the Mexican Stock Exchange ("BMV").

Highlights

In January 13, 2017 Proteak Uno S.A.B. de C.V. informed that the International Finance Corporation (IFC) and the Promotion and Participation Agency for Economic Cooperation (PROPARCO, for its acronym in French) granted a credit line for USD 65MM.

In January 2017 414 Capital Inc., increased the target Price for Proteak's CPOs¹ placing it in a range between MxP 30.50 and 33.50. The report is now available in: 
http://proteak.com/files/analistas/Valuaci%C3%B3n414Ene17.pdf

In February 2017, Arrowhead, Business and Investment Decisions published its valuation of Proteak's CPO placing its price between MxP 32.56 AND 36.86. The report is now available in: http://proteak.com/files/valuations/ArrowheadValuationReportFeb2017.pdf

Through General Ordinary and Extraordinary Shareholder Meeting of Proteak Uno, S.A.B. de C.V., dated January 17^th, 2017, a capital increase of 48 million shares was declared, represented by 16 million CPO at a price of MxP 21.70 per CPO. The resources obtained through the subscription will be used to support the growth plan for new plantations and to navigate the uncertain environment expected in 2017, while the company consolidates the MDF boards' operation.

Valuation of Proteak

414 Capital Inc. published its updated valuation, which places the value of Proteak's CPOs between the MxP 30.50 and 33.50 as of January 2017. The valuation considers both, Teak Plantations with their inherent horizon as a long-term investment, as well as the incremental value of the MDF boards business.

The valuation report is currently published on Proteak's website: http://proteak.com/index.php/en/investors/financial-information/analyst-coverage

The updated valuation from Arrowhead was published, placing the value of the Company's CPO between MxP 32.56 and 36.86 as of February 2017. The valuation was developed using discounted cash flows, and considers both of Proteak's' businesses: the Teak business and the MDF board plant in Huimanguillo, Tabasco. The valuation report is currently published on Proteak's website: 
http://proteak.com/index.php/en/investors/financial-information/analyst-coverage

Relevant Issues

On January 13^th, 2017 Proteak Uno S.A.B. de C.V announced that the IFC and Proparco extended it a USD 65MM credit line.

40% of the resources from the credit line will be used to refinance current liabilities, consisting of four credit lines with FND and one with the IFC. Three of the credits that will be refinanced were used to establish and maintain Teak plantations. This new credit line will better match the terms of the loan with the cycle of the plantations. With this new loan, the debt repayment profile will be improved and will improve financing cash flow by up to USD 11MM over the next 8 years. The remaining 60% of the resources will be used to support the company's rapid growth through the sustainable plantation of up to 10,000 new hectares of Eucalyptus in the next 48 months.

MDF Business Unit

Production

The MDF business produced 50,685m³ in Q1 2017, a growth of 23% over 4Q 2016. The plant's production ramp-up continues according to schedule and it has reached already 93% of the plant's nominal capacity. After almost one year of production, the production level is running according to plan.

During the quarter, the turbine for electrical energy cogeneration started operating steadily, with the objective of being 100% integrated to the manufacturing process during Q2 2017. Similarly, the resine plant started production and it is in process of increasing its production volume.

The production cost was adversely impacted by the following: Tests related to the start-up of the Turbine and Glue Plant had an impact on the raw materials' use. However, once these equipments are operating steadily, they will help reduce and stabilize the production cost. In addition, there were significant increases in prices of inputs, including the change in gas and electric energy tariffs, as well as the increase in resines due to the adverse exchange rate effect.

The manufacture strategy for value added products continues progressing successfully and during Q1, the MDF BU produced excellent quality melamine boards that represented 6% of the total production.

Proteak obtained the CARB 2 certification, which is an important step for the development of our exports business to the US market. This will allow us to sell MDF boards without any restriction regarding regulations.

Commercialization

The quarter reflected excellent growth in sales, closing at MxP 242MM, 38% above 4Q16, driven by a 21% growth in volume and a 15% increase in average selling price as a result of net pricing and a better product mix.

During the quarter, the market share in the MDF boards' market continued growing, reaching an estimated 23% share. With this, Tecnotabla continues to be the second player in the market, only a few points behind the industry leader.

Tecnotabla also continues building presence in the Mexican market, with sales in 23 states of Mexico and with a customers' repurchase rate above 83%.

The commercialization of value-added products started, including the sales of Melamine boards in Tecnotabla's portfolio. Exports to the US continued, with sales in 9 states already.

Forestry

During Q1, over 200 hectares (ha) from the 2016/2017 campaign were planted. This campaign considers 1,500 ha of Eucalyptus, including 320 ha from the small producers' program. With this, Proteak will reach over 10,000 planted hectares of certified eucalyptus to supply the MDF Plant.

Maintenance of the Eucalyptus plantations for the 2017/2018 annual cycle are underway, to ensure the preservation and productivity of the plantations.

Teak Business Unit

Proteak shipped 1,528m³ of teak round logs during Q1, 17% below Q4 2016. This reduction was driven by the completion of the harvesting and commercialization phases of mature plantations.

It is worth mentioning that in the short and medium term, the company is not expecting significant activities related to its own mature plantations in the teak business unit.

Maintenance of the Teak plantations for the 2017/2018 annual cycle are underway, to ensure the preservation and productivity of the plantations.

Income Statement Analysis

Sales

Sales of goods totaled MxP 257MM, 364% over Q1 2016. It was a quarter with record sales, which continues to reflect the transition from a company that spent 15 years building a solid balance sheet to an operating company.

MDF sales reached a total of MxP 242MM, 9% higher than those registered during the Q1 2016. The results reflect the rapid growth of sales, a record market share, and sales of value added products such as melamine and US exports that improve the price mix.

Teak sales decreased 44% compared to 1Q16 due to the end of commercialization of mature Teak plantations from Colombia and young Teak plantations from Costa Rica, which were established in non-strategic assets that were sold during the quarter.

Total Sales YTD17 vs YTD16      

Historic Sales per Quarter

In the first quarter of 2017, the Income from the reasonable value of the Biological Assets (revaluation) accrual totaled MxP 26MM, staying in line with historical growth rates. Throughout the year, the company makes income provisions from the Biological Asset Revaluation according to expected growth. Nevertheless, it is during the fourth quarter of the year when a physical inventory takes place and the final value of the year's revaluation is registered along with the corresponding adjustments.

Net quarter revenue totaled MxP 289MM, a 181% growth over the same quarter last year.

Cost of Goods Sold, General Expenses and Net Income

During the quarter, production cost of MDF boards continued to improve. However, it still does not fully reflect the efficiencies expected from the integration of the cogeneration turbine and the resin plant into the process. On the contrary, the period's cost includes the extraordinary start-up costs of the aforementioned equipment. Despite the incremental costs, during Q1 the MDF board business ran with positive marginal contribution

The lower harvested and commercialized Teak volume adversely affected the business unit results. During the quarter, the business was impacted by fixed costs deleverage. Over the next quarters, the operating structure of the Teak business will be optimized to be in line with the current operation's level.

General Expenses in the quarter totaled MxP 70MM, including MxP 20MM of MDF boards distribution expenses, which will continue to increase as MDF boards volume grows. Recurrent SG&A expenses are in line with the normal operation level of the company and reflect the employee stock plan, which are non-monetary items.

The Operating Loss for the quarter is MxP 33MM. These results still reflect the start-up and stabilization of the MDF plant and the closure of non-strategic operations in Costa Rica and mature Teak plantations.

During the quarter the EBITDA totaled MxP 9MM, 165% over the EBITDA of the 4Q16.

As of Q2 2016, the Company stopped capitalizing the financial cost related to the construction and start-up of the MDF plant. Therefore, there was an impact in the income statement of MxP 26MM during Q1 2017, primarily from AKA/Commerzbank credit interests.

During 1Q17 the Company reported an exchange rate profit for MxP 191MM mainly due to USD denominated loans. This gain offsets the reported loss reported in the Q4 2016 results. As mentioned, the company's FX exposure is balanced between the USD denominated loans and the Teak Biological Assets, whose functional currency is USD.

The combination of these effects result in a net profit after tax for the period of MxP 88MM.

Balance Sheet Analysis

Assets

As of March 2017, the total assets of the Company amounted to MxP 6,299MM, 3% growth vs the 2016 close, mainly driven by the capital increase that took place in Q1 2017.

In Current Assets, Customer Receivables stand out with a total of MxP 191MM, showing an increase of MxP 62MM compared to December 2016 mainly due to a higher level of sales of Tecnotabla MDF boards.

Inventory closed at MxP 160MM, in line with 2016 year-end levels, reflecting the efficiency in raw materials inventories, as well as a high sales turnover.

Long Term Assets kept for sale includes mainly non-strategic land that will be sold in the medium term. These assets are in Costa Rica and their value as of this quarter is MxP 6MM; the decrease of MxP 77MM compared to year-end 2016 figures stems mainly to the sale of these assets that occurred in the quarter. 98% of these assets have been sold so far.

Real Estate, Plant and Equipment totals MxP 3,306MM, including approximately 98% of the total investment expected for the MDF Plant.

Biological Assets (Current and Non-Current) decreased 4% compared to December 2016, reflecting the Biological Assets revaluation during the period, which includes a mix of different effects, including new acquisitions, growth of existing plantations and exchange rate impact.

During Q1, the value of of Proteak's plantations was mainly driven by four factors: (i) capitalized forestry expenses, (ii) exchange rate, (iii) revaluations representing the growth of biological assets, and (iv) wood outflows to cost of sales.

Specifically, the impacts are as follows: (i) MxP +29MM in capitalized forestry expenses for maintenance of existing plantations and preparation of new ones, with the purpose of improving their expected return by maintaining above average growth rates; (ii) MxP (110)MM reduction from strengthening of the MxP vs the USD during the quarter; (iii) MxP +26MM in revaluation from the previously discussed growth; and (iv) MxP (27)MM, from wood outflows to cost of sales. During the quarter, the volume of wood harvested was of 76,400m³, including mature Eucalyptus and Teak, as well as thinnings.

Liabilities and Equity

Current Liabilities increased 19% compared to 2016, staying in line with the normal growth of the business.

Debt / Equity

Historic Total Assets

Deferred Tax Liabilities show an increase of MxP 38MM for the provisions that were generated by the Q1 results.

Other interest-bearing liabilities decreased to MxP 154MM, mainly because of the translation impact of the USD denominated loans from the strengthening of the MxP vs the USD this quarter. Currently, over 70% of the company's interest bearing debts are denominated in USD.

Total Equity of the Company at the end of the quarter totals MxP 3,295MM, MxP 219MM higher than the 2016 year-end figure, reflecting the conversion effect as a result of the USD depreciation, the results of the exercise and the 16MM CPO's capital increase. At the end of the quarter, 13.8MM CPO's or MxP 298MM had been subscribed and paid. As of the date of publishing of this document, all the 16MM CPOs have been completely subscribed and paid. Proteak's continues with strong liquidity and with a solid Equity to Liabilities ratio of 1.1 to 1.

II.       Cash Flow Analysis

During the 1Q17, the cash flow position recorded a net increase of MxP 234MM, mainly driven by the capital increase that took place during the quarter, as well as better operative results. Additionally, investment activities took place as well as forestry operations such as maintenance and establishment of new plantations, approximately for MxP 18 and 32MM respectively.

During the quarter there were amortizations and interests payments related to the 2012 IFC credit, as well as interests of the loan the company holds with AKA/Commerzbank. Combined all the debt related expenses paid totaled MxP 31MM.

The period's cash flow is in line with the Company's investment plan. As of quarter-end, the cash flow position was of MxP 395MM.

Environmental and Social Development

During the first quarter of 2017 Proteak continued demonstrating its commitment with the environmental and social development through different actions. The Company submitted the UN Global Compact annual report to confirm the implementation of the 10 principles in Proteaks' operations. The report is available in the company's web page: http://proteak.com/files/watch/CoP2016_Proteak.pdf. Additionally, the annual report was presented to the International Finance Corporation, where the implementation of environmental and social sustainability standards are monitored. In addition, the first advances of the Environmental & Social Action Plan (ESAP) of the loan signed in December 2016 were submitted.

On the forestry side, the annual FSC Chain of Custody audit of the Teak Haus certificate was positively concluded. During the audit, no nonconformities were generated. In addition, the participation was carried out as a coordinator in the working group of Natural Capital of the Mexican Alliance of Biodiversity and Business, along with the French Agency of Development and the German Corporation for the International Cooperation.

Stock Development

During the first quarter of 2017, the Teak CPO reached a maximum price of MxP 21.20. During the quarter, the market continued recognizing the fundamental value of Proteak; the Price of its CPO remained stable, with an average of MxP 20.66 vs a MxP 19.01 during 1Q16. During the quarter the operated volume increased from 0.40% in 1Q16 to 1.66% in 1Q17.

Source: http://finance.yahoo.com/chart/TEAKCPO.MX?ltr=1

Proteak Informs

Independent Analyst Program by the Mexican Stock Exchange

As part of the independent analyst program, follow-up of Proteak's CPO is performed by:

Ernesto Gustavo O'Farrill Santoscoy
[email protected]
Phone: +(52) 55 5531 0042
Bahía de Todos los Santos #26
Col. Verónica Anzures
Delegación Miguel Hidalgo
C.P. 11590, México, D.F.

Independent Analyst Research

The research and follow-up of Proteak's CPO is performed by:

Armando Rodriguez
[email protected] 
Phone: +(52) 556237 0861 / 6237-0862

Investor Relations Agency

Alejandro Ramírez Arcia
[email protected]
Tel: +52 (55) 5980-9923

Financial Statements

The following table presents the consolidated Balance Sheet as of the first quarter 2017 in MxP '000, and its comparison with 2016 year-end figures.

¹ Ordinary Participation Certificate.

 

SOURCE Proteak Uno, SAB de CV

Related Links

http://proteak.com