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1999 Third Quarter Results
ACERLA
Marissa Garza (525) 325-2800 ext. 2707
November 3, 1999
Seemingly, Acerla’s results have started to reflect the strong efforts made by the company, as Acerla finally posted
operating income, after posting operating losses for the last 7 quarters. Revenues grew 10.0% (37.6% in terms of
dollars), thanks to Acerla’s strategy of selling through alternate channels, which also led to an 62% increase in sales
volumes, but a 15.0% decline in average prices in dollar terms. The latter caused a 70 bp contraction in gross
margin to 13.3%. Higher sales and the 33.5% drop in operating expenses, which resulted from Acerla’s strong and
continued efforts and strict controls implemented by the company to achieve higher operating efficiencies,
translated into operating profit of Ps 2.9 million, comparing favorably to 3Q98 losses. The company posted
financial income of Ps 1.9 million, as a reflection of 42.2% lower net interest expense and higher monetary gains,
which offset increased FX losses. Finally, the company registered net losses of Ps 4.7 million, down 91.3% vs.
3Q98 levels. We believe that the company has already started to reap the benefits of its marketing strategy and
operating restructuring. However, Acerla will have to continue making strong efforts to obtain new clients and at
the same, improve its operations, as despite the success achieved with alternate distribution channels, a price war is
still underway in the market. For the time being, we prefer to wait until we see a clear trend towards recovery
during the next few quarters.
November 3, 1999 Price *:
52 Week Range:
Market Capitalization:
Shares Outstanding:
Ps 2.69
Ps 5.46 To 2.50
US$ 26.6 million
95.5 Million
Price/Book:
P/E on Sep T12
ROE
ROA
0.64x
-0.78x
-54.9%
-13.0%
INCOME STATEMENT (thousands of constant pesos as of September 30, 1999)
9m98
Margin
9m99
Margin
Change
Net Sales
100.0% 1,744,148
100.0%
-22.6%
2,254,267
Cost of Goods Sold
90.3% 1,499,178
86.0%
-26.4%
2,036,488
Gross Profit
9.7%
14.0%
12.5%
217,779
244,970
3Q98
703,953
605,343
98,610
Operating Expenses
Operating Profit
Enterprise Value:
P/NCE T12
P/EBITDA T12
EV/EBITDA T12
US$ 49.7 million
-0.86x
-1.21x
-2.25x
Margin
100.0%
86.0%
14.0%
3Q99
774,287
671,130
103,158
Margin
100.0%
86.7%
13.3%
Change
10.0%
10.9%
4.6%
367,269
(149,490)
16.3%
-6.6%
302,188
(57,218)
17.3%
-3.3%
-17.7%
-61.7%
150,815
(52,205)
21.4%
-7.4%
100,246
2,912
12.9%
0.4%
-33.5%
#N/A
Integral Cost of Financing
Interest Expense
Interest Income
Foreign Exchange Loss
Monetary Loss
14,304
51,936
13,591
(2,571)
(21,470)
0.6%
2.3%
0.6%
-0.1%
-1.0%
26,986
32,293
7,379
11,823
(9,751)
1.5%
1.9%
0.4%
0.7%
-0.6%
88.7%
-37.8%
-45.7%
#N/A
-54.6%
885
18,835
5,028
1,137
(14,058)
0.1%
2.7%
0.7%
0.2%
-2.0%
(1,881)
9,737
1,760
8,897
(18,755)
-0.2%
1.3%
0.2%
1.1%
-2.4%
#N/A
-48.3%
-65.0%
682.5%
33.4%
Other Financial Expenses
Pretax Income
Taxes
(4,605)
(159,189)
7,938
-0.2%
-7.1%
0.4%
5,309
(89,513)
21,088
0.3%
-5.1%
1.2%
#N/A
-43.8%
165.7%
1,828
(54,918)
(523)
0.3%
-7.8%
-0.1%
1,720
3,073
7,357
0.2%
0.4%
1.0%
-5.9%
#N/A
#N/A
Non-Cons. Subsidiaries
Extraordinary Items (gains)
Minority Interest
Net Income
Earnings Per Share
0
11,635
(5,411)
(173,351)
(1.815)
0.0%
0.5%
-0.2%
-7.7%
0
5,988
899
(117,488)
(1.230)
0.0%
0.3%
0.1%
-6.7%
#N/A
-48.5%
#N/A
-32.2%
0
(145)
(374)
(53,876)
(0.564)
0.0%
0.0%
-0.1%
-7.7%
0
(104)
502
(4,682)
(0.049)
0.0%
0.0%
0.1%
-0.6%
#N/A
-28.1%
#N/A
-91.3%
EBITDA
EBITDA Per Share
(134,514)
(1.409)
-6.0%
(41,892)
(0.439)
-2.4%
-68.9%
(47,194)
(0.494)
-6.7%
8,504
0.089
1.1%
#N/A
Sep-98
1.5x
85.1%
96.8%
54.5%
142.7%
9m98
84
73
75
-2.6x
-2.3x
-0.4x
Sep-99
1.1x
75.0%
91.2%
51.9%
307.3%
9m99
103
79
159
-1.3x
-1.1x
-0.3x
BALANCE SHEET (thousands of constant pesos as of September 30, 1999)
Sep-98
% of T.A.
Sep-99
% of T.A.
Total Assets
100.0% 1,675,666
100.0%
1,929,665
Cash & Equivalents
3.1%
3.0%
59,524
49,701
Other Current Assets
77.4% 1,274,765
76.1%
1,494,477
Long Term
0.0%
0.0%
0
0
Fixed (Net)
12.1%
13.9%
233,660
233,439
Deferred
7.4%
7.0%
142,004
117,761
Other
0.0%
0.0%
0
0
Total Liabilities
58.8% 1,264,249
75.4%
1,134,572
Short Term Debt
21.7%
11.8%
419,356
197,488
Other Current Liabilities
33.2% 1,001,101
59.7%
641,569
Long Term Debt
3.8%
3.9%
73,647
65,660
Other Liabilities
0.0%
0.0%
0
0
Shareholders Equity
41.2%
24.6%
795,093
411,417
Minority Interest
1.3%
0.5%
24,697
8,739
FINANCIAL ANALYSIS
Current Ratio
Short Term Debt to Total Debt
Foreign Liab. to Total Liab.
Net Debt to Total Equity
Total Liab. to Total Equity
A/R Turnover (days)
Inventory Turnover (days)
A/P Turnover (days)
EBITDA to Interest Expense
Interest Coverage Ratio
Annualized EBITDA to ST Debt
ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int.
NCE = Net income + Monetary Loss + Fx Loss + Depreciation
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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1999 Third Quarter Results
ACERLA
Operating Results
The following table shows contribution to Acerla’s sales by country:
Sales Distribution by
Country
3Q98
3Q99
ACERLA
7.2%
15.2%
4.6%
4.6%
34.2%
3.2%
1.3%
29.7%
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
Rest of Latin America
3.8%
8.7%
3.1%
4.4%
65.7%
3.0%
0.7%
10.6%
Strong performance in group revenues resulted from Acerla’s strategy of selling through alternate channels, mainly the distribution
agreement signed with Telmex. However, excluding these revenues, sales would have dropped by around 26%. Therefore, we feel that
it is extremely important for Acerla to continue making efforts to obtain new clients and selling higher volumes. It is important to note
that although the agreement with Telmex has huge growth potential, the existence of other new brands that satisfy the demands of this
project affects Acerla’s participation. Furthermore, even though Acerla has stated that it has the necessary infrastructure to satisfy
Telmex’ entire demand, the company has had a few problems in meeting lead times, something that could affect the group’s sales.
Specifically by country, the Mexican subsidiary’s significant contribution to total sales resulted from the contribution of sales to
Telmex. Even though no specific information regarding Acerla’s market share has been disclosed, the company stated that it has
improved over the past few months. At the Brazilian subsidiary, despite the return to relatively stable conditions in Brazil, high credits
risks and interest rates continued to affect sales. However, sales in Brazil are expected to recover gradually, supported by lower
operating expenses and direct sales, which allow for better pricing. The subsidiaries that continue to be of concern are the ones in
Argentina, Venezuela and Ecuador, due to low commercial demand, and the prevailing political and/or economic instability.
Operating expenses fell 33.5%, thanks to the operative restructuring carried out over the past few quarters and strict controls
implemented by the company. This decline, however, was also partly due to the peso appreciation. Acerla will not stop making efforts
to cut its expenses, maintaining a regional infrastructure to allow the company to satisfy its needs and achieving higher efficiencies in
its operating processes. In addition, aiming to improve its operations at the logistics level, Acerla now has the support of executives
from Grupo Acer Taiwan, whose participation will both facilitate communication between Acerla and Grupo Acer and allow for better
planning as regards the entry and exit of platforms, in accordance with technological progress. This last issue is crucial, as it will allow
for better equipment turnover, avoiding obsolescence while still in the distribution channel and increasing the company’s
competitiveness.
Financing Activities
The company posted financial income of Ps 1.9 million, comparing favorably to 3Q98 financial costs of Ps 885,000. This was due
mainly to 42.2% lower net interest expense, lower cost-bearing debt levels and 33.4% higher monetary gains, which more than offset
higher FX losses derived mainly from the devaluation of the Colombian and Brazilian currencies.
Leverage rose by 69.2 pp vs. 2Q99 to 307.3%, due to a decline in shareholder’s equity, in turn attributable to strong losses posted over
the last twelve months, but also as a result of a 37.5% increase in suppliers. Working capital improved by 25 days as compared to 2Q99,
due mainly to the increase in suppliers and lower inventory levels. The increase posted with respect to 3Q98 was due to sales through
alternate distribution channels. Finally, the company posted net losses of Ps 4.7 million, down 91.3% vs. 3Q98 levels.
Outlook
Seemingly, Acerla has started to reap the benefits of its marketing strategy and operating restructuring. However, the company will
have to continue making strong efforts to obtain new clients, as despite the success achieved with alternate distribution channels, such
as the agreements signed with Telmex and a few financial institutions, a price war is still underway in the market. As such, the company
will have to sell higher volumes to offset lower average prices. Currently, Acerla is analyzing the possibility of entering into agreements
similar to Telmex’ in other South American countries. We prefer to wait until we see a clear trend towards recovery in the group’s
results during the next few quarters.
Marissa Garza: [email protected]
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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