GUADALAJARA, Mexico, July 21 /PRNewswire-FirstCall/ -- Grupo Simec, S.A.B. de C.V. ("Simec") announced today its results of operations for the six-month period ended June 30, 2008.
Acquisition of Corporacion Aceros DM, S.A. de C.V.
On February 21, 2008, we entered into an agreement to acquire 100% of the shares of Corporacion Aceros DM, S.A. de C.V. and certain of its affiliates ("Grupo San"), and on May 30, 2008 such acquisition was consummated. Grupo San is a long products steel mini-mill and the second-largest corrugated rebar producer in Mexico. Grupo San's operations are based in San Luis Potosi, Mexico. Its plants and 1,450 employees produce 600 thousand tons of finished products annually.
With this acquisition, Simec and Industrias CH, S.A.B. de C.V. ("ICH") position themselves as the second-largest producer of rebar and the largest steel producer in Mexico, with a production capacity of approximately 4.5 million tons of liquid steel and 3.8 million tons of finished products.
With this strategic acquisition, Simec and ICH will achieve a more diversified product mix, with 40% of sales in Mexico and 60% outside Mexico, both of which will allow it to better address the natural cycles of the steel industry on the domestic and global levels. Additionally, Simec has already identified significant synergies and economies of scale that will increase the company's operating margins. Grupo San's central location in San Luis Potosi, where Simec is not currently present, also represents a strong competitive advantage since it provides several strategic benefits mainly related to distribution, given its proximity to Mexico's main cities, sea ports, and borders.
In addition, Grupo San has aggressive expansion plans in its rebar business, which ICH and Simec will support and promote to satisfy the growing demand for this product, resulting from the Mexican Government's aggressive infrastructure plan.
The financial statements of Simec include the operations of Grupo San since June 1, 2008.
Pursuant to Mexican Financial Reporting Standards "Bulletin B-7 Acquisitions of Business", Simec is in the process of calculating the goodwill and other intangible assets in the acquisition of Grupo San.
Six-Month Period Ended June 30, 2008 compared to Six-Month Period Ended June 30, 2007
Net Sales
Net sales increased 36% to Ps. 17,035 million in the six-month period ended June 30, 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 513 million) compared to Ps. 12,557 million in the same period of 2007. Shipments of finished steel products increased 13% to 1 million 562 thousand tons in the six-month period ended June 30, 2008 (including the net sales generated by the newly acquired plants of Grupo San of 44 thousand tons) compared to 1 million 383 thousand tons in the same period of 2007. Total sales outside of Mexico in the six-month period ended June 30, 2008 increased 39% to Ps. 12,172 million (including the net sales generated by the newly acquired plants of Grupo San of Ps. 37 million) compared with Ps. 8,737 million in the same period of 2007, while total Mexican sales increased 27% from Ps. 3,820 million in the six-month period ended June 30, 2007 to Ps. 4,863 million in the same period of 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 476 million). The increase in sales can be explained due to higher shipments during the six-month period ended June 30, 2008, compared with the same period in 2007 (179,000 tons increase) and 20% increase in the average price of steel products.
Direct Cost of Sales
Direct cost of sales increased 36% from Ps. 10,136 million in the six-month period ended June 30, 2007 to Ps. 13,744 million in the same period 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 308 million). Direct cost of sales as a percentage of net sales represented at 81% in the six-month period ended June 30, 2008 compared to 81% in the same period of 2007. The increase in the Direct Cost of Sales is attributable mainly to an increase of 20% in the average cost of raw materials used to produce steel products in the six-month period ended June 30, 2008 versus the same period of 2007, primarily as a result of increases in the price of scrap and certain other raw materials, as well as a 13% increase in shipments.
Gross Profit
Gross profit in the six-month period ended June 30, 2008 was Ps. 3,291 million (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 205 million) compared to Ps. 2,421 million in the same period of 2007. Gross profit as a percentage of net sales in the six- month period ended June 30, 2008 was 19% compared to 19% in the same period of 2007. This was principally due to an increase of 13% in sales volume.
Operating Expenses
Operating expenses increased 11% to Ps. 794 million in the six-month period ended June 30, 2008 (including the operating expenses by the newly acquired plants of Grupo San of Ps. 53 million) compared to Ps. 718 million in the same period of 2007 and represented 5% of net sales in the six-month period ended June 30, 2008 and 6% of net sales in the same period of 2007.
Operating Profit
Operating profit increased 47% to Ps. 2,497 million in the six-month period ended June 30, 2008 (including the operating profit by the newly acquired plants of Grupo San of Ps. 152 million) compared to Ps. 1,703 million in the same period of 2007. Operating profit as a percentage of net sales was 15% in the six-month period ended June 30, 2008 compared to 14% in the same period of 2007. The increase in the operating profit was due principally to an increaset of 13% in sales volume.
Comprehensive Financial Cost
Comprehensive financial cost in the six-month period ended June 30, 2008 represented an expense of Ps. 258 million compared with a gain of Ps. 117 million in the same period of 2007. Net interest income was Ps. 93 million in the six-month period ended June 30, 2008 compared with Ps. 124 million in the same period of 2007, reflecting the use of cash and debt for the acquisition of Grupo San. At the same time, we registered an exchange loss of Ps. 351 million in the six-month period ended June 30, 2008 compared with an exchange loss of Ps. 31 million in the same period of 2007, reflecting a 5.7% increase in the value of the peso versus the dollar at June 30, 2008 compared to December 31, 2007.
Other Expenses (Income) net
The company recorded other income Net of Ps. 4 million in the six-month period ended June 30, 2008 compared to other income net for Ps. 18 million in the same period of 2007.
Income Taxes
Income Taxes recorded Ps. 726 million in the six-month period ended June 30, 2008 compared to Ps. 542 million in the same period of 2007.
Net Profit
As a result of the foregoing, net profit increased by 17% to Ps. 1,517 million in the six-month period ended June 30, 2008 from Ps. 1,296 million in the same period of 2007.
Liquidity and Capital Resources
At June 30, 2008, Simec's total consolidated debt consisted of U.S. $90.3 million; U.S. $90 million is a credit bank and U.S. $302,000 of 8 7/8% medium-term notes ("MTN's") due 1998 (accrued interest at June 30, 2008 was U.S. $377,257 dollars). At December 31, 2007, Simec's total consolidated debt consisted of U.S. $302,000 of 8 7/8% medium-term notes ("MTN's") due 1998 (accrued interest at December 31, 2007 was U.S. $363,703 dollars).
Net resources provided by operations were Ps. 1,065 million in the six-month period ended June 30, 2008 versus Ps. 1,159 million of net resources provided by operations in the same period of 2007. Net resources provided by financing activities were Ps. 2,117 million in the six-month period ended June 30, 2008 versus Ps. 2,410 million of net resources used by financing activities in the same period 2007 (which amount includes the capital increase of Ps. 2,420 million in February 2007). Net resources used in investing activities (to acquire property, plant and equipment, other non-current assets and liabilities) were Ps. 8,895 million in the six-month period ended June 30, 2008 (which amount includes Ps. 8,437 million used in the acquisition of Grupo San) versus net resources used in investing activities (to acquire property, plant and equipment and other non-current assets and liabilities) of Ps. 350 million in 2007.
Comparative second quarter 2008 vs. first quarter 2008 Net Sales
Net sales increased 34% from Ps. 7,288 million for the first quarter 2008 to Ps. 9,746 million for the second quarter 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 513 million). Sales in tons of finished steel increased 10% to 817 thousand tons in the second quarter 2008 compared with 745 thousand tons in the first quarter 2008. The total sales outside of Mexico for the second quarter 2008 increased 24% to Ps. 6,749 million compared with Ps. 5,423 million for the first quarter 2008. Total Mexican sales increased 61% to Ps. 2,997 million in the second quarter 2008 from Ps. 1,865 million in the first quarter 2008. Prices of finished products sold in the second quarter 2008 increased approximately 22% compared to the first quarter 2008.
Direct Cost of Sales
Direct cost of sales increased 27% from Ps. 6,050 million in the first quarter 2008 to Ps. 7,693 million for the second quarter 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 308 million). With respect to sales, in the second quarter 2008, the direct cost of sales represents 79% compared to 83% for the first quarter 2008. The average cost of raw materials used to produce steel products increased 14% in the second quarter 2008 versus the first quarter 2008, primarily as a result of increases in the price of scrap and certain other raw materials
Gross Profit
Gross profit for the second quarter 2008 increased 66% to Ps. 2,053 million (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 205 million) compared to Ps. 1,238 million in the first quarter 2008. The gross profit as a percentage of net sales for the second quarter 2008 was 21% compared with 17% for the first quarter 2008. The increase in gross profit was principally due to the increase in sales volume.
Operating Expenses
Operating expenses increased 21% to Ps. 434 million in the second quarter 2008 (including the operating expenses by the newly acquired plants of Grupo San of Ps. 53 million) compared to Ps. 360 million for the first quarter 2008. Operating expenses as a percentage of net sales represented 4% during the second quarter 2008 compared to 5% in the first quarter 2008.
Operating Profit
Operating profit increased 84% from Ps. 878 million in the first quarter 2008 to Ps. 1,619 million for the second quarter 2008 (including the operating profit by the newly acquired plants of Grupo San of Ps. 152 million). The operating profit as a percentage of net sales in the second quarter 2008 was 17% compared to 12% in the first quarter 2008. The increase in operating profit is due to the increase in tons shipped.
Comprehensive Financial Cost
Comprehensive financial cost for the second quarter 2008 represented an expense of Ps. 197 million compared with an expense of Ps. 62 million for the first quarter 2008. Net interest income was Ps. 37 million in the second quarter 2008 compared with Ps. 55 million of net interest income in the first quarter 2008. At the same time, we registered an exchange loss of Ps. 234 million in the second quarter 2008 compared with an exchange loss of Ps. 117 million in the first quarter 2007.
Other Expenses (Income) net
The company recorded other expenses net for Ps. 2 million in the second quarter 2008 compared with other income net for Ps. 5 million for the first quarter 2008.
Income Taxes
Income Taxes for the second quarter 2008 was an expense of Ps. 495 million compared to Ps. 230 million of expense for the first quarter 2008.
Net Profit
As a result of the foregoing, net profit was Ps. 925 million in the second quarter 2008 compared to Ps. 592 million of net profit in the first quarter 2008.
Comparative second quarter 2008 vs. second quarter 2007 Net Sales
Net sales increased 55% from Ps. 6,287 million for the second quarter 2007 compared with Ps. 9,746 million for the same period 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 513 million). Sales in tons of finished steel increased 20% to 817 thousand tons in the second quarter 2008 compared with 679 thousand tons in the same period 2007. The total sales outside of Mexico for the second quarter 2008 increased 55% to Ps. 6,749 million compared with Ps. 4,353 million for the same period 2007. Total Mexican sales increased 55% to Ps. 2,997 million in the second quarter 2008 from Ps. 1,934 millions in the same period 2007. Prices of finished products sold in the second quarter 2008 increased approximately 29% compared to the second quarter 2007.
Direct Cost of Sales
Direct cost of sales increased 50% from Ps. 5,114 million in the second quarter 2007 to Ps. 7,693 million for the same period 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 308 million). With respect to sales, in the second quarter 2008, the direct cost of sales represents 79% compared to 81% for the same period 2007. The average cost of raw materials used to produce steel products increased 25% in the second quarter 2008 versus the second quarter 2007, primarily as a result of increases in the price of scrap and certain other raw materials
Gross Profit
Gross profit for the second quarter 2008 increased 75% to Ps. 2,053 million (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 205 million) compared to Ps. 1,173 million in the same period 2007. The gross profit as a percentage of net sales for the second quarter 2008 was 21% compared with 19% for the same period 2007. The increase in gross profit is due to the increase in tons shipped.
Operating Expenses
Operating expenses increased 23% to Ps. 434 million in the second quarter 2008 (including the operating expenses by the newly acquired plants of Grupo San of Ps. 53 million) compared to Ps. 352 million for the same period 2007. Operating expenses as a percentage of net sales represented 4% during the second quarter 2008 compared to 6% of the same period 2007.
Operating Profit
Operating profit increased 97% from Ps. 821 million in the second quarter 2007 to Ps. 1,619 million for the same period 2008 (including the operating profit by the newly acquired plants of Grupo San of Ps. 152 million). The operating profit as a percentage of net sales in the second quarter 2008 was 17% compared to 13% in the same period 2007. The increase in operating profit is due to the increase in the prices of finished products sold due to the reasons previously mentioned.
Comprehensive Financial Cost
Comprehensive financial cost for the second quarter 2008 represented an expense of Ps. 197 million compared with a gain of Ps. 39 million for the second quarter 2007. Net interest income was Ps. 37 million in the second quarter 2008 compared with Ps. 82 million in the second quarter 2007. At the same time, we registered an exchange loss of Ps. 234 million in the second quarter 2008 compared with an exchange loss of Ps. 95 million in the second quarter 2007.
Other Expenses (Income) net
The company recorded other expenses net for Ps. 2 million for the second quarter 2008 compared with other expenses net for Ps. 9 million for the same period 2007.
Taxes and Profit Sharing
Taxes and profit sharing for the second quarter 2008 increased to Ps. 495 million compared to Ps. 304 million for the same period 2007.
Net Profit
As a result of the foregoing, net profit increased by 69% to Ps. 925 million in the second quarter 2008 from Ps. 547 million in the second quarter 2007.
Millions of pesos Six months ended Six months ended 2008 vs. 2007 June 30, 2008 June 30, 2007 Sales 17,035 12,557 36% Cost of Sales 13,744 10,136 36% Gross Profit 3,291 2,421 36% Operating Expenses 794 718 11% Operating Profit 2,497 1,703 47% EBITDA 2,763 1,958 41% Net Profit 1,517 1,296 17% Sales outside Mexico 12,172 8,737 39% Sales in Mexico 4,863 3,820 27% Total sales (tons) 1,562 1,383 13% (Millions of pesos) 2Q08 1Q08 2Q07 2Q08 2Q08 vs. 1Q'08 vs. 2Q'07 Sales 9,746 7,288 6,287 34% 55% Cost of Sales 7,693 6,050 5,114 27% 50% Gross Profit 2,053 1,238 1,173 66% 75% Operating Expenses 434 360 352 21% 23% Operating Profit 1,619 878 821 84% 97% EBITDA 1,755 1,008 949 74% 85% Net Profit 925 592 547 56% 69% Sales outside Mexico 6,749 5,423 4,353 24% 55% Sales in Mexico 2,997 1,865 1,934 61% 55% Total sales (tons) 817 745 679 10% 20% Product Thousands of tons Million of pesos Average price six months ended six months ended per ton six months June 30, 2008 June 30, 2008 ended June 30, 2008 SBQ 1,144 12,873 11,253 Light Structural 101 966 9,564 Structural 110 1,120 10,182 Rebar 194 1,875 9,665 Others 13 201 - Total 1,562 17,035 10,906 Product Thousands of tons Million of pesos Average price per ton six months ended six months ended six months ended June 30, 2007 June 30, 2007 June 30, 2007 SBQ 982 9,466 9,640 Light Structural 157 1,217 7,752 Structural 121 996 8,231 Rebar 122 860 7,049 Others 1 18 - Total 1,383 12,557 9,080 Product Thousands of Million of Average price Thousands of tons 2Q08 pesos 2Q08 per ton 2Q08 tons 1Q08 SBQ 579 7,124 12,304 565 Light Structural 47 512 10,894 54 Structural 55 616 11,200 55 Rebar 124 1,325 10,685 70 Others 12 169 - 1 Total 817 9,746 11,929 745 Product Million Average Thousands Million of Average of pesos price per of tons of pesos price per 1Q08 ton 1Q08 2Q07 2Q07 ton 2Q07 SBQ 5,749 10,175 466 4,607 9,886 Light Structural 453 8,389 95 761 8,011 Structural 504 9,164 60 499 8,317 Rebar 550 7,857 57 407 7,140 Others 32 - 1 13 - Total 7,288 9,783 679 6,287 9,259
Any forward-looking information contained herein is inherently subject to various risks, uncertainties and assumptions, which, if incorrect, may cause actual results to vary materially from those anticipated, expected or estimated. The company assumes no obligation to update any forward-looking information contained herein.
