Fitch has also downgraded Vitro's national scale ratings to 'A-'(mex) from 'A+'(mex). The ratings remain on Rating Watch Negative.
The rating action reflects continued pressures on Vitro's operating fundamentals and the deterioration of credit protection measures to levels not commensurate with the prior rating category as a consequence of a difficult economic and competitive environment. The Rating Watch Negative on the ratings reflects Fitch's belief that these challenges and the pressure on credit ratios will continue over the next several months.
For the first half of 2003, revenues declined by 2.7% and the EBITDA margin deteriorated, reflecting lower cost absorption and higher energy costs. In flat glass, weak demand from the U.S. non-residential construction sector and pricing pressures from original equipment manufacturers (OEMs) have been off-set by higher sales to the domestic construction market, to Mexico's auto replacement market and at Vitro's Spanish operations. The glass containers division, a strong performer in 2002, has also suffered in 2003 due to the negative effect on sales of beer and soft drinks of adverse weather in the U.S. The glassware division remains affected by poor capacity utilization, driven by weak demand from Mexico's industrial segment, lower exports to the U.S. and increased competition from imports.
Lower revenue, profitability and cash flows continue to hinder Vitro's debt repayment goals. For the 12-month period ended June 30, 2003, total debt-to-EBITDA reached 4.3 times (x) compared to 3.8x during 2002 and the ratio of EBITDA-to-Interest Expense deteriorated to 2.6x from 3.2x in 2002. The company has targeted proceeds from sale of non-strategic assets for debt reduction but these have been limited in 2003. Vitro recently announced the sale of one of its plastic containers businesses for approximately US$18 million.
Total debt at June 30, 2003 remains high at US$1,486 billion. Out of US$456 million of short-term debt, current maturities of long-term debt totaled US$199 million. Approximately 53% of the debt is at the holding company level and is structurally subordinate to operating company debt, primarily composed of bank debt. Liquidity has deteriorated, with cash and marketable securities holdings declining to US$167 million at June 30, 2003 from US$214 million at Dec. 31, 2002.
Financial flexibility remains adequate, due to Vitro's access and use of a wide range of funding sources across the domestic and international bank markets as well as capital markets. Yesterday, Vitro announced the pricing of a US$225 million 144A bond due 2013 at the holding company level, which is structurally subordinated to operating company debt. Proceeds will extend the maturity of the debt, relieve short-term debt commitments and allow for pre-payment of a portion of Vitro's outstanding US$218 million Yankee bond due 2007.
Vitro is the leading producer of flat glass, glass containers and glassware in Mexico, servicing the construction, automotive, beverage, retail and service industries. Approximately half of revenues derive from exports and sales from foreign subsidiaries located in the United States, Spain, Portugal, Central America and Bolivia. In 2002, the company had sales of US$2.3 billion, EBITDA of US$403 million, exports of US$586 million and foreign sales by subsidiaries of US$628 million. Vitro is headquartered in Monterrey, Mexico.