3Q16 RESULTS 1
Content Relevant Issues... 3 MDF Business Unit... 3 Teak Business Unit... 5 Income Statement Analysis... 6 Environmental and Social Development... 10 Stock Development... 11 Proteak Informs... 12 Financial Statements... 13 2
Relevant Issues On August 8th the CNBV revealed the compliance report of all listed companies and Proteak obtained a perfect score for the 2015 exercise. The report is available in: (http://www.cnbv.gob.mx/prensa/prensa%20%20otros/comunicado_prensa_indica dor_emisoras_anual%202015.pdf). For the August 15 th 2016 edition, the magazine Expansion published an article focused on disruptive entrepreneurs, featuring Hector Bonilla, founder and chairman of Proteak s Board, on its cover. The article described Proteak as a company that breaks with the regular business scheme. On September 23 rd, the President of the United Mexican States, Enrique Peña Nieto, inaugurated Proteak s MDF plant Tecnotabla in Huimanguillo, Tabasco. For the first time, a daily average of 100,000 OPC s were operated during 30 days since Proteak was listed on the Mexican Stock Exchange in 2010. MDF Business Unit MDF Plant On September 23rd, the President of the United Mexican States, Enrique Peña Nieto, inaugurated the MDF (Medium density fiber) plant Tecnotabla, the most modern plant in Latin America, located in Huimanguillo, Tabasco. He was accompanied by the Secretary of SEMARNAT Rafael Pacchiano Alamán, the Governor of Tabasco, Arturo Nuñez Jiménez and the Director of CONAFOR, Jorge Rescala Perez. With an investment of USD 200MM the company has developed the most important forestry industrial project in Mexican history, and the main non-oil investment of private equity in the southeast of the country. Through this investment, that generates more than 1,500 direct jobs, Proteak aims to develop the local furniture industry with a value of more than USD 1,000MM per year through import substitution. Hector Bonilla, founder and chairman of Proteak s Board, talked about the importance of the MDF plant Tecnotabla: We are happy to complete the construction of the first MDF plant financed by Mexican equity with a 100% sustainable approach. With this investment, we proved how a group of Mexican entrepreneurs, with great effort and commitment to Mexico, have achieved extraordinary results. The MDF plant Tecnotabla has a production capacity of 280,000 m 3 and is 100% sustainable thanks to the supply of wood from its 10,000 hectares of eucalyptus plantations. The plant is equipped with the latest German technology which integrates energy efficient cogeneration and manufacture of resin, ensuring the highest quality standards. 3
Production The production ramp up continues to advance according to plan, product portfolio.it is important to mention that during the effective production days, the plant reached 100% of the nominal capacity, ensuring the growth curve planned for the following years. During the quarter, the manufacturing cost was reduced as a natural consequence of a higher production volume, process improvements and acquired experience by the production team. The challenge to start the operation of the Resin Plant and the power generation turbine continues and is estimated to kickoff during 4Q16. The operation of these equipments will achieve effective production costs by 2017. Commercialization During the 3Q16 sales of MDF boards under the brand Tecnotabla totaled MxP 135MM, 80% higher than the last quarter. Tecnotabla maintains a positive market reception and has expanded to 7 new states in Mexico reaching a total of 21 states with a purchase recurrence of more than 80%. During the period, a global MDF (Thick and thin MDF boards) market share of 17% was maintained. The company continues with the strategy to develop value added products to meet specific needs of each participant in the distribution channel. It is important to highlight that Tecnotabla, MDF de Buena Madera, is the only MDF manufactured in Mexico using 100% sustainable certified wood from its commercial forest plantations. Forestry During the 3Q16 the 2016/2017 plantation campaign started. This cycle contemplates 1,500 hectares 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 eucalyptus 2015/2016 plantations has concluded and they continue to maintain adequate quality and productivity conditions. during the quarter 40,000m 3 were produced, resulting in a cumulative year total of 63,000m 3. During the quarter MDF boards with different thicknesses (3mm to 28mm) were manufactured with the objective of expanding the 4
Teak Business Unit Commercialization During the 3Q16 Proteak commercialized 2,055m 3, 4% below than 2Q16. This reduction corresponds to the final phase of harvest and commercialization of mature plantations in Colombia while we continue to strengthen the position of Mexican teak in Asian markets. Average export prices are 4% higher than the target. Nowadays Proteak is recognized as one of the main suppliers of high quality certified teak thanks to its strict standards during plantation, maintenance, harvest and logistics. Forestry The maintenance of Teak plantations during 2015-2016 has been concluded and they present adequate conditions of quality and productivity. 5
Income Statement Analysis SUMMARY OF RESULTS In '000 MXP 3Q'16 3Q'15 Q vs Q YTD 2016 YTD 2015 YoY Teak Sales 23,112 37,872 (39%) 70,188 86,750 (19%) MDF Sales 137,823 29,715 364% 259,114 48,325 436% Income from Revaluations 37,394 45,556 (18%) 119,241 136,640 (13%) Other Income / Expenses, Net (1) 4,893 6,091 (20%) 33,285 9,937 235% Teak Sales Cost 23,917 29,161 (18%) 66,918 69,957 (4%) MDF Sales Cost 144,402 29,755 385% 293,260 46,125 536% Gross Margin 34,635 60,286 (43%) 121,732 162,656 (25%) Teak Gross Margin Without Revaluation (805) 8,711 (109%) 3,270 16,793 (81%) MDF Gross Margin Without Revaluation (6,579) (40) 16401% (34,146) 2,201 (1652%) Operating Income (20,467) 29,034 (170%) 3,680 84,084 (96%) Debt 1,682,675 1,072,072 57% 1,682,675 1,072,072 57% Total Liabilities / Total Assets 0.4 0.3 27% 0.4 0.3 27% Debt / Equity 0.5 0.4 39% 0.5 0.4 39% Debt / Total Assets 0.3 0.2 31% 0.3 0.2 31% Debt / Current Assets 2.1 1.2 74% 2.1 1.2 74% N/C Not Comparable (1) Other Net Income considers subsidies, asset sales and other expenses. Sales I. Income Statement Analysis The quarter sales reached a total of MxP 161MM, 2.3x higher than those registered during the 3Q15. The increase is a result in growth of MDF Tecnotabla boards that reached MxP 135MM, 1.8x higher than the last quarter. Teak sales decreased 39% compared to 3Q15, as a result of the transition from Colombian wood to Mexican wood. Nevertheless, during the quarter the exports of Mexican teak were strengthen and commercialization of teak from Costa Rica started with sales resulting 19% higher than the ones of 2Q16. 6
The board sales of the quarter totaled MxP 138MM, which include the sales of imported third party MDF boards for MxP 3MM and the sales of Tecnotabla for MxP 135MM. This represents a 5x increase compared to 3Q15. Income from the reasonable value of the Biological Assets (revaluation) totaled MXP 37MM, staying in line with the provision and the growths registered in 2015. Throughout the year, the company makes income provisions from the Biological Asset Revaluation. Nevertheless, it is during the last 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 income totalized MxP 203MM, 70% more than the same quarter last year. Sales Costs, General Expenses and Net Income During the quarter the manufacturing cost for MDF boards continued to decrease as the production volume increased and productive processes were optimized. The Gross Margin of boards excluding other income improved 20pp against the last quarter. Considering teak operations and boards (income from sales and revaluations) and excluding other incomes such as subsidies and net income from sale of land (non-recurrent income), the gross profit margin was 15%, 5pp higher than 2Q16. General Expenses of the quarter totaled MxP 55MM reflecting sales expenses, including MxP 18MM of MDF boards distribution expenses, which will continue to increase as commercialization of boards grows. Administrative recurrent expenses are in line with the operation level of the company. The Operating Loss of the quarter is MxP 20MM, including non-recurrent events. Actually, by excluding those events, the operating margin was break-even, due to a stable teak operating margin and a board margin with significant improvements. As of 2Q16 the Company stopped capitalizing the financial cost related to the construction and start-up of the MDF plant, with an impact in the income statement of MxP 30MM during the 3Q16, corresponding to the interests of AKA/Commerzbank credit. During the 3Q16 the Company reported an exchange rate loss for MxP 24MM mainly due to loans in USD. It is worth mentioning that the net exchange impact in the company is positive as teak forestry assets gain value. Nevertheless, this favorable effect does not pass through the income statement but is directly reflected in the balance sheet in the value of forest assets (its functional currency is USD). The combination of these effects result in a net loss for the period before income taxes of MxP 77MM. 7
Balance Sheet Analysis Assets As of September 2016, total assets of the Company amounted MxP 5,712MM, 9% higher than the 2015 year-end, mainly driven by the investment in the MDF plant, the revaluation of Biological Assets and the exchange rate effect on teak Assets. Among Current Assets, Clients stand out with a total of MXP 127MM, showing an increase of MXP 10MM compared to December 2015 mainly due to a higher level of sales of MDF boards. Inventory increased MXP 22MM compared to year-end 2015, as a consequence of MDF board production (last days of production of the month) and the increase in eucalyptus harvest to supply the MDF plant. Real Estate, Plant and Equipment registered an increase of 10% compared to year-end 2015, reflecting the completion of the equipment work of the MDF plant. Biological Assets (Current and Non-Current) increased 19% compared to December 2015, reflecting the Biological Assets revaluation of the period, which is composed by a mix of different effects that can be broadly classified as: (i) new acquisitions, (ii) growth, and (iii) exchange rate. The value of Proteak s plantations is mainly modified by four factors: (i) capitalized forestry expenses, (ii) exchange rate, (iii) revaluations representing the growth of biological assets, and (iv) outflows from the wood s cost of sales. So far this year, the following has been registered: (i) MXP 92MM in capitalized forestry expenses, destined for both, maintenance of existing plantations and planting of new ones, with the purpose of improving their expected return by maintaining growths that overcome those originally expected; (ii) MXP 177MM from revaluation of the USD; (iii) MXP 119MM in revaluation derived from the previously discussed growth; and (iv) MXP 65MM, which represent the wood s cost of sales. During the quarter, harvested wood amounted to 148 thousand m 3 (thinnings and harvest). Long Term Assets kept for Sale are mainly non-strategic plots that will be sold in the medium term. These assets are located in Costa Rica and their value as of this quarter is MXP 76MM; the decrease of 26% compared to year-end 2015 figures stems mainly from the sale of a part of the assets. 8
Liabilities and Equity Current Liabilities increased 21% compared to 2015, staying in line with the normal development of the business. Deferred Tax Liabilities show the provisions that were generated by the annual calculation of 2016 taxes. Other Liabilities with Cost reflect mainly the disbursements of the credit with AKA- Commerzbank for the acquisition of machinery for the MDF plant. They also include the third disbursement for MXP 40MM of the credit line signed with FND in April 2015. During the quarter, a payment for MxP 12MM corresponding to the third amortization of principal and interests of the loan signed with the IFC in 2012 was made. Furthermore the first amortization of the third credit line signed with FND in 2012 took place. Total Equity of the Company as of the semester totals MXP 3,291, MXP 156MM higher than the 2015 year-end figure, reflecting the conversion effect as a result of the US Dollar appreciation and the results of the Cash Flow Analysis During the third quarter of 2016, the cash flow position recorded a net decrease of MXP 47MM. Investment activities and new plantations were funded. During the quarter, the first amortization of the third credit line signed with FND in 2012 was made for MxP 12MM and the third amortization of principal and interests of the loan signed with the IFC in 2012 for MxP 12MM. The period s cash flow is in line with the Company s investment plan. As of quarter end the cash flow position totalized MXP 93MM. 9
Environmental and Social Development As for environmental development, during the quarter the annual FSC audit for Forest Management of teak plantations in Mexico was succesfully concluded. Furthermore, the re-evalutaion of the FSC Forest Management certificate of eucalyptus plantations was positively renewed for five more years. Regarding social development, the construction of the classroom and restrooms for the Lic. Antonio Zamora preschool was concluded. The inauguration took place on September 28 th with the participation of local authorities and the student s parents. Proteak joined the Mexican Alliance for Biodiversity and Business as a founding member. The Alliance was created in the wake of the Conference of the Parties of the Convention on Biological Diversity (COP 13) which will be held in Cancun in December 2016. It aims to promote biodiversity conservation projects and restoration of key ecosystems. 10
Stock Development During the third quarter of 2016, the OPC (CPO for its name in Spanish) reached a maximum price of MxP 20.80. During the quarter, the market continued recognizing the fundamental value of Proteak; the Price of its OPC remained stable, with an average of MXP 19.95 vs a MXP 18.30 during 3Q15. The operated volume during 3T15 and 3T16 was 0.8% to 1.9% respectively. 100,000 average daily OPC s were operated for 30 days for the first time since Proteak was listed on the Mexican Stock Exchange in 2010. 11
Proteak Informs Independent Analyst As part of the independent analyst program, follow-up of Proteak s OPC is performed by: Ernesto Gustavo O Farrill Santoscoy eofarrills@bursametrica.com Tel: (55) 5531 0042 Bahía de Todos los Santos #26 Col. Verónica Anzures Delegación Miguel Hidalgo C.P. 11590, México, D.F. Investor Relations Agency Alejandro Ramírez Arcia alejandro.ramirez@irconsulting.mx Tel: +52 (55) 5256 5705 12
Financial Statements The following table presents a summarized quarterly Income Statement in MXP 000, and a comparison with the same period of 2015. Regarding Gross Profit, Operating Profit and Net Income, the table shows the percentage of net sales plus revaluation income they represent. Income Statement 3Q16 % Sept'16 % 2Q15 % Sept'15 % Δ 3Q'16 vs 3Q'15 Δ Sept'16 vs Sept'15 Teak Sales 23,112 11% 70,188 15% 37,872 32% 86,750 31% (39% ) (19% ) Eucalyptus / Panel Sales 137,823 68% 259,114 54% 29,715 25% 48,325 17% 364% 436% Revaluations 37,394 18% 119,241 25% 45,556 38% 136,640 49% (18% ) (13% ) Other Income/Expenses, Net 4,624 2% 33,367 7% 6,058 5% 7,021 3% (24% ) 375% Teak Cost of Sales 23,917 12% 66,918 14% 29,161 24% 69,957 25% (18% ) (4% ) Eucalyptus / Panel Cost of Sales 144,402 71% 293,260 61% 29,755 25% 46,125 17% 385% 536% GROSS PROFIT (LOSS) 41,682 17% 121,732 25% 60,286 51% 162,656 58% (43%) (25%) 0.24 17% 0 25% 51% 51% 1 58% (15%) (3%) General Expenses 37,056 18% 93,954 19% 31,285 26% 81,488 29% 18% 15% New Project Expenses 18,315 9% 24,016 5% - 0% 0 0% N/A N/A Other Income/Expenses 269 0% (82) (0% ) 33 0% 2,916 1% N/A (103% ) OPERATING PROFIT (LOSS) 5,137 (10%) 3,680 1% 29,034 24% 84,084 30% (170%) (96%) 0.03 (10%) 0 1% 24% 24% 0 30% (60%) (12%) Financial Products / Expenses (30,641) (15% ) (34,857) (7% ) 6,796 6% 7,456 3% (551% ) (568% ) Other Financial Products / Expenses (815) (0% ) (945) (0% ) 2,843 2% (6,982) (3% ) (129% ) 86% Conversion Effect (24,294) (12% ) (38,171) (8% ) (5,553) (5% ) (7,900) (3% ) (337% ) (383% ) Financing Results (55,749) (27%) (73,972) (15%) (4,086) (3%) 7,426 3% (1264%) (1096%) Profit Before Income Taxes (76,216) 0 (38%) 0% (70,292) (15%) 0% 24,948 21% 0% 91,510 33% 0% (406%) 0% (177%) 0% 0 0% 0 Income Taxes 11,223 6% 13,827 3% 2,097 2% 22,084.00 8% 435% (37% ) 0 Net Income (64,993) (32%) (56,465) (12%) 22,851 19% 69,426 25% (384%) (181%) Conversion Effect - 0 0% 0-0 0% 0-0 0% 0-0 0% 0 N/A0 N/A0 Comprehensive Income (64,993) (32%) (56,465) (12%) 22,851 19% 69,426 25% (384%) (181%) 13
The following table presents the consolidated Balance Sheet as of the third quarter 2016 in MXP 000, and its comparison with 2015 year-end figures. 3Q'16 Dec'15 (1) Δ 3Q'16 vs Dec'15 % Cash & Equivalents 93,205 168,180 (74,975) (45%) Accounts Receivable (Clients) 126,929 116,433 10,496 9% Other Accounts Receivable 190,776 236,719 (45,943) (19%) Inventory 151,553 129,279 22,274 17% Current Biological Assets (Mat 171,918 151,130 20,788 14% Assets Available for Sale 76,509 102,729 (26,220) (26%) Other Assets 8,801 10,763 (1,962) (18%) CURRENT ASSETS 819,691 915,233 (95,542) (10%) Plant and Equipment 2,948,202 2,684,337 263,865 10% Non-Current Biological Assets 1,837,727 1,536,074 301,653 20% Deferred Income Tax 32,686 33,859 (1,173) (3%) Other 52,791 37,312 15,479 41% Prepaid Expenses 21,900 28,388 (6,488) (23%) NO N-CURRENT ASSETS 4,893,306 4,319,970 573,336 13% ASSETS 5,712,997 5,235,203 477,794 9% Accounts Payable 100,263 109,962 (9,699) (9%) Payable Taxes 1,188.00 6,992 (5,804) (83%) Other Current Liabilities 298,636 272,118 26,518 10% Current Debt 161,394 76,367 85,027 111% CURRENT LIABILITIES 561,481 465,439 96,042 21% Long Term Debt 1,521,281 1,281,416 239,865 19% Deferred Taxes 333,980 350,005 (16,025) (5%) Other 5,178.00 3,784.00 1,394 37% LO NG TERM LIABILITIES 1,860,439 1,635,205 225,234 14% LIABILITIES 2,421,920 2,100,644 321,276 15% Capital Stock 2,375,608 2,366,218 9,390 0% Accumulated Earnings (Losses 61,291 107,542 (46,251) (43%) Conversion Effect 597,167 393,572 203,595 52% Revaluation Surplus 119,544 119,544-0% Other Comprehensive Income 137,467 147,683 (10,216) (7%) TO TAL EQ UITY 3,291,077 3,134,559 156,518 5% TO TAL LIABILITIES + EQ UIT 5,712,997 5,235,203 477,794 9% (1) 2015 Audited Financial Statements Balance Sheet October 28th, 2016. Mexico City. Today, Proteak Uno, S.A.B de C.V. (BMV: TEAK) published its 3Q16 results. This information is presented according to Financial Reporting Standards (NIF) in nominal terms. 14