Vitro Reports 1Q'10 Increase of 1.2% in Sales and 5% Decrease in EBITDA

SAN PEDRO GARZA GARCIA, NUEVO LEON, Mexico, April 30 /PRNewswire-FirstCall/ -- Vitro S.A.B. de C.V. (BMV: VITROA) one of the world's largest producers and distributors of glass products, today announced 1Q'10 unaudited results. Year-over-year consolidated net sales increased 1.2 percent benefited by a 13 percent peso appreciation during last twelve months. Consolidated EBITDA declined 5 percent YoY while the consolidated EBITDA margin decreased to 11.9 percent from 12.7 percent in the same period last year.

Commenting on the quarter's results, Mr. Hugo Lara, Chief Executive Officer, said, "The peso appreciation resulted in stronger sales in the first quarter. However, as expected, excess capacity and increased competition caused price and margin erosion as we took the necessary steps to maintain market share in major markets.  And while our cost reduction program concluded in 3Q'09 contributed to EBITDA, nevertheless overall price weakness and declining volumes principally in Glass Containers reduced margins. A 21 percent increase in natural gas prices also negatively impacted EBITDA by approximately US$3.5 million. During the quarter, we achieved positive free cash flow, closed two financing transactions to further strengthen Vitro's liquidity, and continued working towards reaching a beneficial agreement with bondholders."  

Mr. Claudio Del Valle, Chief Restructuring Officer, noted, "Glass Containers performance continues to reflect the loss in 2009 of our main domestic beer client, which resulted in a 90 percent decline in domestic beer volumes and a 5 percent drop in total domestic volumes. Even though excess capacity in local markets increased competition and weakened prices, domestic volumes increased in all segments except in beer. Export volumes fell one percent, declining in all segments except for CFT (Cosmetics, Fragrances & Toiletries) and Soft Drinks. These factors in addition to higher energy costs more than offset the benefits from the cost cutting program and resulted in a 12.6 percent, or US$6 million, decrease in EBITDA."

"At Flat Glass, sales were negatively affected by a 27 percent decline in our foreign subsidiaries reflecting weak construction markets in Spain and the US, two of the world's poorest performing construction markets. However, domestic and export float glass and auto glass volumes increased. Domestic float glass volumes increased as a result of higher demand in retail and distribution, although prices, measured in pesos, were lower than those of last year. Float glass export sales rose 70 percent year-on-year reflecting extraordinary demand from South American markets and a better price mix.  Sales to the auto glass OEM market increased 99 percent this quarter driven by an important pick-up in industry demand coupled with a better sales mix.  AGR sales also showed a slight increase in both domestic and export markets. As a result, EBITDA increased by US$4 million, principally driven by higher volumes and a healthier price mix in the OEM and Domestic Float Glass markets, although penalized somewhat by negative EBITDA at our US and Spanish subsidiaries."

"Looking ahead, we reiterate our 2010 consolidated EBITDA guidance range of between US$205-215 million. We expect many of the factors that influenced the first quarter to continue to impact results for the rest of the year, particularly low demand for flat glass in the US and Spain and weak domestic sales to the beer segment. Guidance is also influenced by excess production capacity in some of our markets leading to pricing softness. Higher natural gas prices are also expected to continue to have a direct impact on EBITDA. We maintain our natural gas hedges with PEMEX, 32 percent at US$6.8/mmbtu for 2010 and 19 percent at US$7.3/mmbtu for 2011, with no margin call requirements."

Commenting on the restructuring process, Mr. Del Valle noted, "Regarding negotiations with bondholders, on March 2, 2010 Vitro presented a debt restructuring counterproposal that included updated financial projections, which was made public on March 29, 2010. We continue open discussions aimed at reaching a consensual agreement. On April 12, 2010, the Company received a document on letterhead of the U.S. Bank National Association, the trustee of the Senior Notes due 2013 Notes, entitled "Notice of Default and Acceleration" referenced to the 2013 Notes. This action, similar to the one taken by the holders of the 2012 and 2017 Senior Notes, is commonly issued when an issuer is in payment default and does not represent a new litigation for Vitro. This action was anticipated by the Company and does not impact Vitro's ability to operate as usual. In terms of the derivative counterparties, on April 12, 2010 the judge granted Vitro's counterparties motions as to liability only and denied the amounts sought by them. A Special Referee will be appointed to help the Court determine damages. After a final ruling is issued, the Company will maintain the right, as may be appropriate, to appeal such judgment. As the majority of Vitro defendants are Mexican legal entities with the vast majority of assets in Mexico, any decision by US courts should first be validated by a Mexican court, a process which could take several months. Since the amount of damages is yet to be determined, in order to protect the Company's rights, Vitro decided to postpone the issuance of its audited financial statements for fiscal year 2009. Once the Company's interests are properly safeguarded, an ordinary shareholders' meeting will be called to present and obtain proper approval on results for fiscal year 2009."

"We also remain focused on maximizing liquidity through strict control of our cash position", Mr. Lara noted. "This is evidenced by the US$28 million cash flow from operations and US$6 million net free cash flow generated this quarter. But most importantly, this was achieved despite the US$23 million investment in working capital made during the period. Remember that the first quarter is usually working capital intensive as we build inventory for the summer season.. The successful refinancing of two important transactions over the last two months also contributed to strengthen liquidity and were a clear reflection of the markets' confidence in the future of our Company. On March 2010, we refinanced a US$18 million asset-backed (inventory) loan at Flat Glass for another 12 months, while this month we extended a Ps.550 million accounts receivable securitization program at Glass Containers for an additional 24 months. The positive cash flow from operations and the US$188 of unrestricted cash balance together with the refinancing of these two important transactions will allow us to increase our CAPEX expenditure above the US$48 million spent in 2009. The objective is to undertake the investments postponed last year and make additional investments to renew our asset base and maintain our leadership position," continued Mr. Lara.

"The past year has been one of many challenges for Vitro and the entire business community.  However, our goals have not changed.  We will continue to serve our many valued clients as we move ahead with negotiations with bondholders to achieve a mutually satisfactory resolution.  This environment has also given us an opportunity to focus on improving production and operating efficiency that will benefit us as we move into a better economy over the next years, " concluded Mr. Lara.

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SOURCE Vitro S.A.B. de C.V.