GCC’s net income drops as new acquisitions, expansions come online

Grupo Cementos de Chihuahua (GCC) closed last year with a decline in sales both in Mexico and the United States, which affected its results throughout the year. The results were also affected by various transactions aimed at increasing the company’s competitiveness in the US market.

GCC’s fourth quarter net income fell 26.4% to US$21.3 million from US$28.9 million in the same period of 2017. Net sales dropped 3.9% to US$205.9 million, from US$214.2 million in the fourth quarter of the previous year.

On a full-year basis, its earnings before interest, taxation, depreciation and amortization (EBITDA) grew by 6.7% to US$256 million from US$240 million. However, its net income fell by 24.2% to US$63.5 million from US$83.7 million.

Net sales rose by 7.2% year-on-year to US$883 million in 2018 from US$824 million in 2017. U.S. sales grew by 7.1% to US$883 million and Mexican sales increased by 7.2% to US$237 million.

The company has experienced several changes over the last 12 months aimed to increase capacity in the U.S. market.

“We completed a purchase-sale transaction exchanging GCC’s ready-mix plants in Oklahoma and Northwest Arkansas, which were not integrated into our cement distribution network, for a cement plant in Montana representing a strategic addition to our system that will also improve our profitability. This plant, along with the completion of capacity expansion at our South Dakota cement plant in Rapid City, will enable us to continue to benefit from the robust pace of growth in the US economy,” said in a statement GCC’s CEO Enrique Escalante.

“GCC’s Rapid City plant will provide considerable benefits, addressing our prior capacity deficit with reduced logistics and production costs while enabling us to identify and service new customers without our prior limitations,” the official added.

As result of GCC’s long term strategy, Fitch Ratings raised the company’s local and foreign currency Issuer Default Ratings (IDRs) to ‘BB+’ from ‘BB’. Fitch also upgraded GCC’s USD$260 million senior notes due 2024 to ‘BB+’ from ‘BB’, both with a stable outlook.

“The upgrade reflects our continued commitment to improve our business profile, complemented with financial strength as we remain focused on enhancing our position within key markets,” commented Luis Carlos Arias, Chief Financial Officer.

Fitch’s report cites five major drivers in rating upgrade for GCC including: rising oil well cement demand, expected downtrend in GCC’s future leverage, solid operating performance with continued projected demand, the company’s ability to generate positive free cash flow through the most recent industry downturn with relatively high profitability and GCC’s leading market share in the state of Chihuahua with strong positions in Colorado, North Dakota, South Dakota, Wyoming, New Mexico and western Texas.

Last year, Standard & Poor’s Global Ratings (S&P) also raised GCC’s long-term corporate rating to BB+ from BB, with a stable outlook. S&P also raised the rating on GCC’s senior unsecured notes due 2024 to BB+.

MexicoNow

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