GUADALAJARA, Mexico, Feb. 27 /PRNewswire-FirstCall/ -- Grupo Simec, S.A.B. de C.V. (AMEX:SIM) ("Simec") announced today its preliminary (unaudited) results of operations for the year ended December 31, 2007.
Acquisition of Corporacion Aceros DM, S.A. de C.V.
On February 21, 2008, Simec executed an agreement to acquire 100% of the shares of Corporacion Aceros DM, S.A. de C.V. and certain of its affiliates ("Grupo San").
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 its 1,457 employees rely on cutting edge technology to produce 700 thousand tons of finished products annually.
With this acquisition, Simec and Industrias CH, S.A. de C.V. ("ICH") position themselves as the second largest producers of rebar and the largest steel producers 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 and sales mix, with 50% of sales in Mexico and 50% outside Mexico, both of which will allow them to better address the natural cycles of the steel industry at the domestic and global levels. Additionally, Simec and ICH have already identified significant synergies and economies of scale that will increase Simec's operating margins. Grupo San's central location in Mexico, where Simec and ICH are 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 corrugated 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.
Simec, the main subsidiary of ICH, will acquire 100% of the shares of Grupo San. The transaction is valued at 850 million U.S. dollars, 85% of which will be paid with cash generated by the company's operations and by the company's stock public offering, which took place in February 2007.
This acquisition confirms the growth strategy that has characterized ICH, reaffirming its position as a consolidator in the steel sector.
This acquisition is subject to the approval of Mexico's federal competition commission, Comision Federal de Competencia, as well as Simec's shareholders' meeting.
Grupo San's shareholders were advised by Lehman Brothers, Inc. and by the law office of Galicia y Robles, S.C. Simec was represented by the law office of Mijares, Angoitia, Cortes y Fuentes, S.C.
Year Ended December 31, 2007 compared to Year Ended December 31, 2006 Net Sales
Net sales increased 3% to Ps. 24,106 million in 2007 compared to Ps. 23,515 million in 2006. Shipments of finished steel products increased 0.5% to 2,693 thousand tons in 2007 compared to 2,673 thousand tons in 2006. Total sales outside of Mexico in 2007 increased 7% to Ps. 17,031 million compared with Ps. 15,939 million in 2006, while total Mexican sales decreased 7% from 7,576 million in 2006 to Ps. 7,075 million in 2007. The increase in sales can be explained by higher shipments during 2007, compared with 2006 (14,000 tons increase). The increase in tons shipped originated mainly in the plant of Apizaco and compensated for the two unexpected stoppages in the rolling lines of the plants in Guadalajara and Apizaco due during the periods July 5-8, July 10-13, and September 10-15, as a result of the shortage of natural gas due to the explosions on the property of Petroleos Mexicanos.
Direct Cost of Sales Direct cost of sales increased 7% from Ps. 19,132 million in 2006 to Ps. 20,398 million in 2007. Direct cost of sales as a percentage of net sales represented 85% in 2007 compared to 81% in 2006. The increase in the Direct Cost of Sales is attributable mainly to an increase of 6% in real terms in the average cost of raw materials used to produce steel products in 2007 versus 2006, primarily as a result of increases in the price of scrap and certain other raw materials and an increase in the labor costs per ton sold, due to the three unexpected stoppages in the rolling lines of the plants in Guadalajara and Apizaco due during the periods July 5-8, July 10-13, and September 10-15, as a result from the shortage in natural gas due to the explosions on the property of Petroleos Mexicanos.
Gross Profit Gross profit in 2007 decreased 15% to Ps. 3,708 million compared to Ps. 4,383 million in 2006. Gross profit as a percentage of net sales in 2007 was 15% compared to 19% in 2006. The decline in gross profit is due to the increase in cost of goods sold due to the reasons previously mentioned.
Operating Expenses Operating expenses increased 3% to Ps. 1,395 million in 2007 compared to Ps. 1,351 million in 2006 (depreciation and amortization increased Ps. 56 million in 2007 compared to 2006) but remained stable at 6% of net sales.
Operating Profit Operating profit decreased 24% from Ps. 3,032 million in 2006 to Ps. 2,313 million in 2007. Operating profit as a percentage of net sales was 10% in 2007 compared to 13% in 2006. The decline in operating profit is due to the increase in cost of goods sold due to the reasons previously mentioned.
Comprehensive Financial Cost Comprehensive financial cost in 2007 represented a gain of Ps. 63 million compared with a expense of Ps. 63 million in 2006. Net interest income was Ps. 273 million in 2007, compared with Ps. 47 million in 2006 due to larger cash balances during this year partly reflecting our recent capital increase in February 2007. At the same time we registered an exchange loss of Ps. 38 million in 2007 compared with an exchange loss of Ps. 37 million in 2006, reflecting a 0.1% decrease in the value of the peso versus the dollar in 2007 compared to 2006. Simec recorded a loss from monetary position of Ps. 172 million in 2007 compared to a loss from monetary position of Ps. 73 million in 2006, reflecting the domestic inflation rate of 3.6% in 2007 as compared to a 4% inflation rate in 2006.
Other Expenses (Income) net The company recorded other income net of Ps. 49 million in 2007 compared to other income net for Ps. 39 million in 2006.
Income Tax Income Tax recorded Ps. 601 million in 2007 compared to Ps. 609 million in 2006. In 2006, we amortized Ps. 364 million of our deferred credit which is non-taxable income. This does not affect the cash flow.
Net Profit As a result of the foregoing, net profit decreased by 24% to Ps. 1,824 million in 2007 from Ps. 2,399 million in 2006.
Liquidity and Capital Resources 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). At December 31, 2006, 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, 2006 was U.S. $336,525 dollars).
Net resources provided by operations were Ps. 2,434 million in 2007 versus Ps. 2,434 million of net resources provided by operations in 2006. Net resources provided by financing activities were Ps. 2,384 million in 2007 (which amount includes the capital increase of Ps. 2,421 million in February 2007) versus Ps. 467 million of net resources used by financing activities in 2006. Net resources used in investing activities (to acquire property, plant and equipment, other non-current assets and liabilities) were Ps. 627 million in 2007 versus net resources provided by investing activities (to acquire property, plant and equipment, other non-current assets and liabilities and proceeds for insurance claim) of Ps. 13 million in 2006.
Comparative fourth quarter 2007 vs third quarter 2007 Net Sales
Net sales increased 2% from Ps. 5,737 million for the third quarter 2007 to Ps. 5,824 million for the third quarter 2007. Sales in tons of finished steel products increased 7% to 675 thousand tons in the fourth quarter 2007 compared with 635 thousand tons in the third quarter 2007. The total sales outside of Mexico for the fourth quarter 2007 increased 6% to Ps. 4,264 million compared with Ps. 4,038 million for the third quarter 2007. Total Mexican sales decreased from Ps. 1,699 million in the third quarter 2007 to Ps.1,560 millions in the fourth quarter 2007. Prices of finished products sold in the fourth quarter 2007 decreased approximately 4% in real terms compared to the third quarter 2007.
Direct Cost of Sales Direct cost of sales increased 8% from Ps. 4,937 million in the third quarter 2007 to Ps. 5,335 million for the fourth quarter 2007. In the fourth quarter 2007, the direct cost of sales represented 92% of net sales compared to 86% for the third quarter 2007. The average cost of raw materials used to produce steel products increased 2% in real terms in the fourth quarter 2007 versus the third quarter 2007, primarily as a result of increases in the price of scrap and certain other raw materials.
Gross Profit Gross profit for the fourth quarter 2007 decreased 39% to Ps. 489 million compared to Ps. 800 million in the third quarter 2007. Gross profit as a percentage of net sales for the fourth quarter 2007 was 8% compared with 14% for the third quarter 2007. The decline in gross profit is due to the increase in the average cost of raw materials to produce steel products due to the reasons previously mentioned.
Operating Expenses Operating expenses were Ps. 324 million in the fourth quarter 2007 compared to Ps. 354 million for the third quarter 2007. As a percentage of sales, operating expense represented 6% during the fourth quarter of 2007 compared to 6% in the third quarter of 2007.
Operating Profit Operating profit decreased 63% from Ps. 446 million in the third quarter 2007 to Ps. 165 million for the fourth quarter 2007. Operating profit as a percentage of net sales decreased to 3% in the fourth quarter 2007 from 8% in the third quarter 2007. This was due to an increase of 2% in the average cost of raw materials.
Comprehensive Financial Cost Comprehensive financial cost for the fourth quarter 2007 represented an expense of Ps. 145 million compared with an income of Ps. 91 million for the third quarter 2007. Net interest income was Ps. 55 million in the fourth quarter 2007 compared with Ps. 93 million in the third quarter 2007, due to larger cash balances during this year partly reflecting our recent capital increase in February 2007. At the same time, we registered an exchange loss of Ps. 35 million in the fourth quarter 2007 compared with an exchange gain of Ps. 29 million in the third quarter 2007. Simec recorded a loss from monetary position of Ps. 165 million in the fourth quarter 2007 compared to a loss from monetary position of Ps. 31 million in the third quarter 2007.
Other Expenses (Income) net The company recorded other income net of Ps. 4 million for the fourth quarter 2007 compared with other income net of Ps. 27 million for the third quarter 2007.
Income Tax Income Tax for the fourth quarter 2007 decreased Ps. 139 million compared to a provision of Ps. 199 million for the third quarter 2007.
Net Profit As a result of the foregoing, net profit decreased by 55% to Ps. 163 million in the fourth quarter 2007 from Ps. 365 million in the third quarter 2007.
Comparative fourth quarter 2007 vs. fourth quarter 2006 Net Sales
Net sales increased 19% from Ps. 4,898 million for the fourth quarter 2006 compared with Ps. 5,824 million for the same period 2007. Sales in tons of finished steel increased 9% to 675 thousand tons in the fourth quarter 2007 compared with 622 thousand tons in the same period 2006. The total sales outside of Mexico for the fourth quarter 2007 increased 52% to Ps. 4,264 million compared with Ps. 2,813 million for the same period 2006. Total Mexican sales decreased 25% to 1,560 million in the fourth quarter 2007 from Ps. 2,085 millions in the same period 2006. Prices of finished products sold in the fourth quarter 2007 increased approximately 10% in real terms compared to the fourth quarter 2006.
Direct Cost of Sales Direct cost of sales increased 30% from Ps. 4,106 million in the fourth quarter 2006 to Ps. 5,335 million for the same period 2007. With respect to sales, in the fourth quarter 2007, the direct cost of sales represents 92% compared to 84% for the same period 2006. The average cost of raw materials used to produce steel products increased 20% in real terms in the fourth quarter 2007 versus the fourth quarter 2006, primarily as a result of increases in the price of scrap and certain other raw materials.
Gross Profit Gross profit for the fourth quarter 2007 decreased 38% to Ps. 489 million compared to Ps. 792 million in the same period 2006. The gross profit as a percentage of net sales for the fourth quarter 2007 was 8% compared with 16% for the same period of 2006. The decline in gross profit is due to the increase in cost of goods sold due to the reasons previously mentioned.
Operating Expenses Operating expenses increased 3% to Ps. 324 million in the fourth quarter 2007 compared to Ps. 315 million for the same period 2006, the depreciation and amortization in the fourth quarter 2007 was Ps. 126 million compared to Ps. 119 million in the same period of 2006. Operating expenses as a percentage of net sales represented 6% during the fourth quarter 2007 compared to 6% of the same period 2006.
Operating Profit Operating profit decreased 65% from Ps. 477 million in the fourth quarter 2006 to Ps. 165 million for the same period 2007. The operating profit as a percentage of net sales in the fourth quarter 2007 was 3% compared to 10% in the same period 2006. The decline in operating profit is due to the increase in cost of goods sold due to the reasons previously mentioned.
Comprehensive Financial Cost Comprehensive financial cost for the fourth quarter 2007 represented an expense of Ps. 145 million compared with an expense of Ps. 54 million for the fourth quarter 2006. Net interest income was Ps. 55 million in the fourth quarter 2007 compared with Ps. 17 million in the fourth quarter 2006, due to larger cash balances during 2007 partly reflecting our recent capital increase in February 2007. At the same time we registered an exchange loss of Ps. 35 million in the fourth quarter 2007 compared with an exchange loss of Ps. 20 million in the fourth quarter 2006 Simec recorded a loss from monetary position of Ps. 165 million in the fourth quarter 2007 compared to a loss from monetary position of Ps. 51 million in the fourth quarter 2006.
Other Expenses (Income) net The company recorded other income net of Ps. 4 million for the fourth quarter 2007 compared with other income net of Ps. 11 million for the same period 2006.
Taxes and Profit Sharing Taxes and profit sharing for the fourth quarter 2007 decreased to Ps. 139 million compared to Ps. 247 million for the same period 2006..
Net Profit As a result of the foregoing, net profit decreased by 13% to Ps. 163 million in the fourth quarter 2007 from Ps. 187 million in the fourth quarter 2006.
Year ended Year ended 2007
December 31, December 31, vs
(Millions of pesos) 2007 2006 2006
Sales 24,106 23,515 3%
Cost of Sales 20,398 19,132 7%
Gross Profit 3,708 4,383 -15%
Operating Expenses 1,395 1,351 3%
Operating Profit 2,313 3,032 -24%
EBITDA 2,819 3,481 -19%
Net Profit 1,824 2,399 -24%
Sales outside Mexico 17,031 15,939 7%
Sales in Mexico 7,075 7,576 -7%
Total sales (tons) 2,693 2,673 1%
4Q'07 vs 4Q'07 vs
(Millions of pesos) 4Q'07 3Q'07 4Q'06 3Q'07 4Q'06
Sales 5,824 5,737 4,898 2% 19%
Cost of Sales 5,335 4,937 4,106 8% 30%
Gross Profit 489 800 792 -39% -38%
Operating Expenses 324 354 315 -8% 3%
Operating Profit 165 446 477 -63% -65%
EBITDA 292 571 596 -49% -51%
Net Profit 163 365 187 -55% -13%
Sales outside Mexico 4,264 4,038 2,813 6% 52%
Sales in Mexico 1,560 1,699 2,085 -8% -25%
Total sales (tons) 675 635 622 6% 9%
Average Average
Thousands Millions price Thousands Millions price
of tons of pesos per ton of tons of pesos per ton
year ended year ended year ended year ended year ended year ended
December December December December December December
Product 31, 2007 31, 2007 31, 2007 31, 2006 31, 2006 31, 2006
SBQ 1,946 18,419 9,465 1,941 18,050 9,300
Light
Structural 276 2,162 7,834 266 1,894 7,122
Structural 216 1,752 8,112 204 1,632 7,998
Rebar 250 1,703 6,810 260 1,909 7,343
Others 5 70 - 2 30 -
Total 2,693 24,106 8,951 2,673 23,515 8,797
Thousands Millions Average price
of tons of pesos per ton
Product 4Q'07 4Q'07 4Q'07
SBQ 497 4,524 9,102
Light Structural 59 457 7,754
Structural 45 357 7,930
Rebar 70 456 6,510
Others 4 31 0
Total 675 5,824 8,629
Thousands Millions Average price
of tons of pesos per ton
Product 3Q'07 3Q'07 3Q'07
SBQ 467 4,438 9,504
Light Structural 60 489 8,143
Structural 50 401 8,011
Rebar 58 388 6,694
Others 0 21 0
Total 635 5,737 9,035
Thousands Millions Average price
of tons of pesos per ton
Product 4Q'06 4Q'06 4Q'06
SBQ 459 3,685 8,029
Light Structural 51 371 7,270
Structural 52 434 8,339
Rebar 60 395 6,577
Others 0 13 0
Total 622 4,898 7,874 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. DATASOURCE: Grupo Simec, S.A.B. de C.V.
CONTACT: Sergio Vigil Gonzalez or Jose Flores Flores, both of Grupo Simec, +011-5255-1165-1025, or +011-5233-3770-6734 Web site:
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