Mexico’s Grupo Kuo profits plunge 95% on currency, expenses

21 July 2010 21:42  [Source: ICIS news]

MEXICO CITY (ICIS news)--Grupo Kuo's second-quarter profits fell 95% to Pesos 19m ($1.5m, €1.2m) from the same period last year on foreign exchange currency losses and extraordinary expenses, the Mexican industrial conglomerate said on Wednesday.

Kuo chief financial officer Juan Marco Gutierrez said during an earnings conference call that the lower net profit on the quarter was related to peso devaluation and one-time expenses related to profit sharing and unexpected severance payments.

The plunge in profits came despite a 19% increase in sales to $5.7bn during the same period, Grupo Kuo said.

Some 48% of those sales came from of Kuo's chemical division, which saw a 53% increase to $222m in the second quarter over the same quarter in 2009.

Gutierrez said that while sales volumes increased, prices of raw materials also rose. He pointed out a 177% rise in butadiene costs, a 60% hike in styrene and 77% rise in the conversion oil used to make carbon black.

During the second quarter, prices rose 39%, and sales volume increased 10%, the company said. Higher elastomers sales volumes were caused by an upturn in the tyre and rubber industry.

In a related matter, Gutierrez noted the May completion of the company’s Dynasol facility in Santander, Spain. That facility included a bulk synthetic rubber homogenization, storage, loading and packaging system.

“That investment has been concluded, and we are going to see improvements in the expenses related to the logistics and to warehousing in the Santander facility.” said Gutierrez.

He also noted an investment in the company's polystyrene business at its Tlaxcala facility.

“We are going to be able to share those investments with you in the third quarter, but I believe they are going to enable us to make that business unit a more efficient unit and a more profitable unit,” said the executive.

Regarding the elastomer business in general, “We have invested more in terms of building our capacity and being able to produce more specialty products that have higher margins for us than have commodity products that have lower margins.”

The executive estimated that the conglomerate would invest $70m-80m in 2010 across all of the company's divisions, including its consumer goods and foods division and it automotive unit.

($1 = P12.8, $1 = €0.78)

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By: James Young
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