Es

Financial
performance

Financial
performance

GRI 201:103-1, 103-2, 103-3

102-7, 201-1

MANAGEMENT ANALYSIS RESULTS

2018 REPORT OF THE Chief
Executive Officer

In 2018, we achieved goods results in Mexico and Brazil compared to those of the previous year and which confirm we remain on the growth path.

Brazil

SALES, gross PROFIT AND MARGINs

SALES, gross PROFIT AND MARGINs

Consolidated sales increased 2.1% compared to 2017 During the third quarter, Kansas City Southern, the rail company with which Pochteca works, experienced major delays in deliveries of freight and tanker cars, which caused us to lose sales of dependent on products moved by rail that failed to arrive during that period. During the fourth quarter of 2018, sales were affected by the political and economic environment and higher uncertainty in the business environment in Mexico.

Gross profit increased 4.9% rising from Ps 1.15 billion in 2017 to Ps 1.21 billion in 2018.

On a consolidated basis, our gross margin grew 50bp from 18.2% to 18.7% in 2018. In 2018, the gross margin in both Mexico and Brazil expanded 50bp as percentage of sales. During the year, the Brazilian real depreciated 10.7% against the Mexican peso as it firmed from a 2017 average of 5.92 to 5.29 reals per peso on average basis during 2018.

GROSS MARGIN

18.2%

2017

18.7%

2018

OPERATING profit AND EBITDA

OPERATING profit AND EBITDA

Operating income rose 14.2% during 2018, climbing from Ps 234 million in 2017 to Ps 267 million. Operating margin expanded 40bp from the previous year.

Consolidated EBITDA grew 6.6%, rising from Ps 361 million in 2017 to Ps 385 million. In 2018, our 6.0% EBITDA margin marked a 30bp higher than 2017.

Operating expenses (excluding depreciation) increased 4.2% compared to 2017. As a percentage of sales, they grew from 12.5% in 2017 to 12.7% in 2018 (20bp).

Expenses /Sales

12.5%

2017

12.7%

2018

Mexico - Monterrey

Guatemala

Financial expenses And net profit

Financial expenses and net profit

Net interest expense increased 3.2% year on year in 2018. The Company’s bank debt ended 2018 at Ps 781 million, a 19.2% reduction year on year. During 2018, net financial expense was 3.2% higher than in 2017. The rise in interest expense primarily came in response to continuing increases in interest rates in Mexico over the course of 2018, as well as the expense of acquiring foreign exchange and interest rate hedges. Excluding the cost of those hedges, interest expense grew 0.8%. Net Debt / EBITDA ratio ended 2018 below 2.0x and we expect it will continue to declining.

Net profit totaled Ps 64 million in 2018 compared to a Ps 54 million loss in 2017, an improvement achieved on the strength of greater operating income and the decrease in foreign exchange losses and taxes.

NET DEBT AND financial LEVERAGE METRICS

NET DEBT AND financialLEVERAGE METRICS

Net consolidated debt ended 2018 at Ps 643 million, which was Ps 69 million or -9.7% less than in 2017. The reduction in net debt at the end of 2018 was achieved due to bank debt amortization.

Net Debt / EBITDA decreased from 1.97 times in 2017 to 1.67 times in 2018. This level is below our target of no more than 2.0 times, and was a result of our strong performance in EBITDA and bank debt amortization in 2018. We expect sales growth and operating expense control, as well as expected economic growth for 2019 in Mexico and Brazil, will allow for a further strengthening of EBITDA and reduce the Net Debt / EBITDA.

3En 2015 2016 2017 2018 1.67 1.97 2.93 NET DEBT / EBITA 2014 2.02 1.62

In 2018, interest coverage (EBITDA / interest) was 2.78 times, which is above the 2.69 times level of 2017 due primarily to our good EBITDA performance during 2018.

4En 2015 2016 2017 2014 2018 2.78 2.69 2.68 3.00 3.05 EBITDA/INTEREST

Cash flow generation and EBITDA conversion to cash. During 2018, the Company generated a cash flow after taxes and CAPEX; and before interest, amortization, acquisitions, and the stock repurchase fund of Ps 310 million, which represents a 1.0 to 0.81 conversion of EBITDA to cash. The cash balance decreased by Ps 116 million due to bank debt amortization, interest payments, and resourses used for the stock repurchase fund.

2018 2017
Gross debt (Ps millions) 781 967
Net Debt (Ps millions) 643 712
Net Debt / 12 M EBITDA1.67x 1.97x
Interest Coverage2.78x 2.69x
Outstanding Shares 130,522,049 130,522,049