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Grupo KUO acquires Fresherized Foods


Grupo KUO continued to report strong yoy growth in revenues and EBITDA, as a result of higher chemical and consumer sales, higher average sales prices, and efficient cost-management measures. 2Q11 revenues increased 27% yoy in US$ terms to US$577 mn (+18% in local currency terms). Total exports increased 27% yoy, reaching US$287 mn for the quarter (50% of aggregate sales).

Segment details are below:

Chemicals: sales increased 35% yoy in US$ terms, driven by 28% yoy higher average sales prices and a 5% increase in volumes across all sub-segments. Demand was

especially strong in the plastics segment.

Consumer: sales increased 26% yoy (+18% in local currency terms) as a result of an 18% yoy sales increase at the Herdez Del Fuerte joint venture, which showed increased revenues in the U.S. segment, and a 32% yoy (+23% yoy in local currency) increase in pork meat sales, that was due to both higher volumes and prices in the domestic and export markets.

Automotive: sales increased 6% yoy to US$86 mn, decreasing 1% yoy in local currency terms, as a result of a slowdown in TR-6060 transmissions demand (Camaro

and Challenger) and the termination of the deal with AM General at the Power Systems business unit. Solid aftermarket sales compensated for some of this weakness. EBITDA increased 17% yoy (+9% in local currency terms) to US$47 mn, with margins own to 8%, driven by higher volumes and sales prices and lower operating xpenses

as a percentage of sales. This was tempered by higher raw material costs in the chemical and consumer segments and lower volumes sold in automotives.

Chemicals: EBITDA increased 17% yoy in US$ terms (+9% yoy in local currency), on higher volumes and sales prices, coupled with cost-cutting measures.

Consumer: EBITDA was up 25% yoy (+16% yoy in local currency) primarily as a result of an improvement in profits at the Herdez del Fuerte joint venture and an improved sales performance in the pork meat business unit.

Automotive: EBITDA increased 9% yoy (+2% yoy in local currency), as a result of solid aftermarket sales and expense-cutting measures.

Capex investments totaled US$12 mn for 2Q11 (versus US$14 mn in 2Q10) divided between the following projects: (1) an increase in pork production capacity; (2)

investment in the Elastomers segment for specialized synthetic rubber for tires; (3) ongoing investment in distribution center consolidation for the Herdez Del Fuerte JV;

(4) investment in the Dynasol entity to improve energy use; and (5) investment to develop two new transmissions systems. Net debt at 2Q11 was US$297 mn, with LQA

net leverage of 1.6x versus 1.8x in 2Q10.

On June 27, Standard & Poor’s upgraded Kuo’s global corporate ratings to BB from BB-, with local ratings moving from mxBBB+ to mxA. In addition, Standard & Poor’s

upgraded the credit ratings for the 2017 Senior Notes and the Syndicated Loans from BB- to BB and the company’s 2015 Senior Notes from mxBBB+ to mxA.

On July 21, the company announced that its associated company, MegaMex Foods LLC, entered into a definitive agreement to acquire Fresherized Foods, Inc., the

avocado and guacamole world leader. The transaction is expected to close in 3Q11. Fitch Ratings announced that this acquisition will not lead to an impact on Grupo Kuo’s current ratings, as this is consistent with the strategy of growing Megamex’ brand and

product portfolio in the U.S. as well as expanding the company’ product categories.