Fabricato 2Q 2019 Net Loss Worsens; Joins Coltejer in Textile Market ‘Diagnosis’

Medellin-based textile giant Fabricato announced August 1 that its second quarter (2Q) 2019 net loss hit COP$12.7 billion (US$3.8 million), 70% worse than the COP$7.4 billion (US$2.2 million) net loss in 2Q 2018.

On a parallel front, Fabricato and its manufacturing neighbor – Medellin-based textile giant Coltejer — simultaneously announced that they’re cooperating on a new joint study on the textile market.

“Considering the different circumstances that impact the textile sector at present, Fabricato has agreed to contract jointly with Coltejer S.A. a study of the textile market,” according to filings with Colombia’s Superfinanciera corporate oversight agency.

“The objective of the study is to make a general diagnosis of the textile market, identify the variables of different nature that affect it and the opportunities and threats of the participants in that market, including Fabricato S.A. and to Coltejer S.A.,’ according to the filings.

According to Fabricato’s latest 2Q 2019 report, the national textile business hasn’t shared in Colombia’s economic rebound this year – at least, not so far.

“Unlike what one might expect, the Colombian manufacturing sector does not perceive this positive effect in the same proportion,” according to Fabricato.

“This is explained by a strong credit restriction, in addition to the factors already known as the increase in legal importation [of textiles and clothing], importation under unfair practices and contraband” of textiles and finished clothing.

In addition, “the second quarter of the year for the textile manufacturing sector presents a particularity: it is the quarter in which the need for production grows, demanding greater cash effort, but at the same time it is a quarter of low revenues, since accounts receivable were generated by first quarter sales, which is traditionally a low-sales quarter.

“This cash deficit is compensated in the fourth quarter, when production volumes already fall and the collections of the period are generated by third-quarter sales, historically the best sales period.

“Understanding this particularity of the business for this period, and in turn relating it to the almost non-existence of credit for the sector, the alternative is to continue financing with our own resources, if possible, or resort to the most expensive financing options.

“At Fabricato, we reduced the volume of inventory of finished products in the period, one of the sources to finance the operation, and reduced the volume of production in relation to the same period of the previous year.

“Both decisions negatively impacted the contribution margin, which we believe will be recovered in the following period by the decision to anticipate [cash] flows of one of our real estate projects, which will allow us to leverage the largest production volume needed for the third quarter; change the purchasing strategy of several raw materials, with a consequent reduction in the cost of the operation; reduce financial costs, and; increase sales, as there will be the opportunity to expand the offer of our ‘Essentials’ line, high demand classic products whose availability of some inventory invariably translates into business.

“The decision to anticipate future flows to allocate them to working capital reinforces the confidence of the management and the board of directors in the textile operation of Fabricato, based on its process of complete business conversion, with refocusing on the added value of our offer of both of products and services.

“The results of this reconversion process are perceived by the increase in our participation in specific market segments, such as recognized brands in Colombia, manufacturing companies exporting from Colombia and large foreign manufacturing companies,” according to the company.

In its real-estate division, “Fabricato decided to anticipate future cash flows derived from the economic rights it has on the sales of the first stage of the real estate project Plaza Fabricato Shopping Center and the Oceana and Mediterranean housing developments for the remainder of the year 2019, 2020 and until December 2021,” the company added.