On behalf of the Board of Directors and KUO's Management Team, we would like to share with you the results achieved during 2022 derived from ongoing projects, which reflect the Group's financial, operational, and sustainable performance, as well as our strategy going forward.
Last year was characterized by global events that had a major impact on most industries. First of all, the conflict between Russia and Ukraine had strong repercussions in different sectors, including, among other factors, the substantial increase in the prices of numerous raw materials worldwide.
Since the beginning of the conflict, oil prices rose abruptly to record highs, generating a sharp increase in the costs of commodities that are correlated with it, setting unprecedented values for some agricultural supplies, such as corn, cereals, and fertilizers.
This, combined with the escalation of supply chain disruptions, which affected distribution and transportation times and costs, as well as the availability of some commodities, caused inflationary pressures in all the markets in which KUO operates.
This brought mixed results in the business portfolio.Pro forma consolidated revenue achieved double-digit growth, explained by increased product demand in all of KUO's businesses, which partially offset the sharp rise in raw material costs, such as corn, soybean, avocado, steel, aluminum, and cardboard, leading to a contraction in EBITDA.
Despite the high degree of uncertainty experienced during this period, we were able to adapt to the circumstances and react to the requirements of the markets and customers we serve.
Our business model's focus on diversification in industries, geographies, currencies, and customers, as well as our growth strategy in export markets, has continued to be key to overcoming the many challenges we faced during 2022.
Serving markets in the Americas, Europe, and Asia, as well as concentrating and strengthening production chains in each
of these continents, has generated competitive advantages through the regionalization of operations. With strategic resource planning and management, we have been able to regionalize a large part of our activities in order to reduce our dependence on suppliers and customers in remote areas, thus avoiding the difficulties of global supply chains.
During the year, Chemicals businesses showed high dynamism, the growth in the volume of applications, underpinned by the increase in prices, as well as the focus on value-added and sustainable solutions, was reflected in positive results for the sector.
In Pork Meat business, it is worth mentioning the set-up of the new processing plant in Sahé, which, together with the Umán and Irapuato plants, will boost exports of speciality meat products, while continuing to strengthen the development of the remaining distribution channels.
In Herdez Del Fuerte business, the increased demand of tomato puree, mole, and salsas categories in Mexico stands out, as well as the innovation in presentations and products in the export market. It is worth mentioning the recent acquisition of Interdeli and Deli, Dips & Snacks, a Mexican company pioneer in Lebanese origin products, adding new brands in hummus, dry lebnah, pita bread, and goat cheese categories, which will widen product offering, focusing on new consumer trends with high growth potential.
Automotive business experienced higher demand for transmissions and components, as well as brake, engine, and powertrain parts. This was reinforced by the focus on the development of new proposals that meet the needs of customers, adapting to industry trends. The increase in Revenue was obtained despite supply chain disruptions and the availability of inputs such as semiconductors.
The results achieved during the year are the result of the talent and commitment of more than 24,000 employees who make up our work teams. Our human capital has been the basis for maintaining operational continuity, overcoming challenges, and consolidating future growth. We would like to thank them for their professionalism and focus on the Group's long-term strategy.
SUSTAINABILITY AGENDA
At KUO, the sustainability model is based on an articulated medium and long-term strategy for risk management. The integration of the model aims to ensure the operational continuity and growth of each of the businesses in the portfolio, intensifying the scope of the positive impacts that our operations have on stakeholders.
During the year, we defined initiatives at the business and Group levels to develop a structure of key indicators or "scorecard" that allow us to monitor progress in the ESG (Environmental, Social and Governance) area.
Sustainability at KUO is focused on: decision making that allows for sustainability over time; a work culture that fosters the development of employees in a safe work environment; customer satisfaction through product quality and innovation; the implementation of sustainable products and processes by strengthening the circularity of resources; and operational efficiency through energy, emissions, and water management.
Each of the businesses has implemented a number of initiatives in the ESG dimensions to ensure KUO's value creation over time. We will continue to periodically review and communicate the targets set to strengthen the strategy.
OPERATIONAL AND FINANCIAL HIGHLIGHTS
During 2022, pro forma consolidated revenue grew 12% to MXN$63.964 billion, as a result of higher demand across all of KUO's businesses. EBITDA contracted by 14% to MXN$6.044 billion, largely explained by the sharp increase in prices of main raw materials, in addition to higher distribution and transportation costs.
Exports continued to register a positive trend, representing 58% of pro forma consolidated revenue, driven mainly by Chemical and Transmissions businesses.
The Consumer sector accounted for 44% of the Group's total revenue, followed by Chemical sector with 31% and Automotive with 25%.
The two businesses in Chemical sector showed high dynamism, with growth in volume and prices, highlighting higher demand in construction; and consumer segments in Polymers, and asphalt modifiers in Synthetic Rubber. It is worth mentioning this sector's focus on higher value-added applications, circular economies, sustainable solutions, and improved logistics integration.
In Consumer sector, Pork Meat business showed a good performance in terms of revenue, with growth in volume in the domestic and export markets, however, this was not enough to offset the high level of prices in corn and soy paste, during the year, causing a contraction in EBITDA. It is worth mentioning that during 2022 the business achieved significant efficiencies in energy and water, in addition to obtaining animal welfare certification throughout the production chain.
Herdez Del Fuerte experienced an increase in demand in the categories of tomato puree, salsas, and mole in domestic market, along with avocado products and salsas in the United States. This, together with greater consolidation in the distribution of new brands in the portfolio, as well as new product presentations, translated into positive results for the business. This offset the sharp increase in avocado costs.
The Automotive sector achieved growth in revenue and EBITDA, due to higher sales of transmissions and components in the Transmissions business, as well as brakes, engine, and powertrain parts in Aftermarket. This offset the increase in the price of steel, aluminum, and cardboard, in addition to the shortage of semiconductors in the industry.
The emphasis on operational continuity, favoring the growth of export revenues, with a prudent approach to leverage levels, has been fundamental to maintaining a solid financial structure. As part of our strategy to strengthen our balance sheet, during the year we refinanced two bank facilities that allowed us to extend our maturity profile and improve our
financial cost. With this, we are protecting our ongoing projects and laying the foundations for future growth.
GOING FORWARD
This year has a special meaning for us as we celebrate the Group's 50th anniversary.
It has been five decades in which we have actively participated in the economic and social development of Mexico, fifty years of learning, consolidation, innovation, and leadership in the industries in which we are present.
We have learned to anticipate and adapt to new realities. We know that new challenges will come, but we are confident in the competitive advantages of our business model and the teams that make up our backbone.
We will continue to take advantage of Mexico's exceptional geographic position within the North American bloc, one of the regions with the greatest growth potential in the world. We are convinced that the portfolio businesses are an ideal vehicle to boost "Nearshoring" opportunities.
We will continue to invest in the safety and development of our employees and communities, in the growth of our operations, in sustainable processes and products, favoring innovation and technology. We will maintain our emphasis on increasing flexibility in our supply chains, while implementing strategies to achieve greater energy and water efficiency.
The successes that have materialized over the years have been possible thanks to the commitment, talent, and professionalism of our people, those of us who are here today and those who have gone before us. Beyond different geographies, languages, and projects, we are united by our focus on Value Creation, responding appropriately to each of our stakeholders.
We are proud of our past and the present we have forged. We are deeply grateful to our partners and shareholders for the trust they have placed in KUO over the years, and we will continue to lay the foundations for a promising future full of opportunities.
Sincerely,
Fernando Senderos Mestre
Executive President and Chairman of the Board
Alejandro de la Barreda Gómez
CEO
