GUADALAJARA, Mexico, April 28 /PRNewswire-FirstCall/ -- Grupo Simec, S.A.B. de C.V. (AMEX-SIM) ("Simec") announced today its results of operations for the three-month period ended March 31, 2008.
Acquisition of Corporacion Aceros DM, S.A. de C.V.
On February 21, 2008, Simec has 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.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 and sales mix, with 50% of sales in Mexico and 50% 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 and ICH have already identified significant synergies and economies of scale that will increase the company'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 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. On March 25, 2008 this operation was approved by the Simec 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.
Comparative first quarter 2008 vs first quarter 2007
Net Sales
Net sales increased 17% to Ps. 7,288 million in the first quarter 2008 compared to Ps. 6,237 million in the same period 2007. Shipments of finished steel products increased 6% to 745 thousand tons in the first quarter 2008 compared to 704 thousand tons in the same period 2007. Total sales outside of Mexico in the first quarter 2008 increased 24% to Ps. 5,423 million compared with Ps. 4,360 million in the same period 2007, while total Mexican sales decreased 1% from Ps. 1,877 million in the first quarter 2007 to Ps. 1,865 millions in the same period 2008. The increase in sales can be explained due to higher shipments during the first quarter 2008, comparing with the same period in 2007 (41,000 tons increase) and the 10% increase in the average price of steel products.
Direct Cost of Sales Direct cost of sales increased 21% from Ps. 4,995 million in the fist quarter 2007 to Ps. 6,050 million in the same period 2008. Direct cost of sales as a percentage of net sales represented at 83% in the first quarter 2008 compared to 80% in the same period 2007. The increase in the Direct Cost of Sales is attributable mainly to an increase of 14% in real terms in the average cost of raw materials used to produce steel products in the first quarter 2008 versus the same period 2007, primarily as a result of increases in the price of scrap and certain other raw materials.
Gross Profit Gross profit in the first quarter 2008 was Ps. 1,238 million compared to Ps. 1,242 million in the same period 2007. Gross profit as a percentage of net sales in the first quarter 2008 was 17% compared to 20% in the same period 2007. The decline in gross profit is due to the the increase in cost of goods sold due to the reasons previously mentioned.
Operating Expenses Operating expenses decreased 1% to Ps. 360 million in the first quarter 2008 compared to Ps. 364 million in the same period 2007 and represented 5% of net sales in the first quarter 2008 and 6% of net sales in the same period 2007.
Operating Profit Operating profit was the same, Ps. 878 million for the first quarter 2008 and the first quarter 2007. Operating profit as a percentage of net sales was 12% in the first quarter 2008 compared to 14% in the same period 2007. 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 the first quarter 2008 represented an expense of Ps. 62 million compared with a gain of Ps. 77 million in the same period 2007. Net interest income was Ps. 55 million in the first quarter 2008 compared with Ps. 42 million in the same period 2007 due to larger cash balances this year, partly reflecting our capital increase in February 2007. At the same time we registered an exchange loss of Ps. 117 million in the first quarter 2008 compared with an exchange gain of Ps. 63 million in the same period 2007, reflecting a 1.6% decrease in the value of the peso versus the dollar in the first quarter 2008 compared to same period 2007.
Other Expenses (Income) Net The company recorded other income net of Ps. 6 million in the first quarter 2008 compared to other income net for Ps. 27 million in the same period of 2007.
Income Tax Income Tax recorded Ps. 230 million in the first quarter 2008 compared to Ps. 237 million in the same period 2007.
Net Profit As a result of the foregoing, net profit decreased by 21% to Ps. 592 million in the first quarter 2008 from Ps. 745 million in the same period 2007.
Liquidity and Capital Resources At March 31, 2008 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 March 31, 2008 was U.S. $370,827 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. 467 million in the first quarter 2008 versus Ps. 654 million of net resources provided by operations in the same period 2007. Net resources provided by financing activities were Ps. 25 million in the first quarter 2008 versus Ps. 2,421 million of net resources used by financing activities in the same period 2007 (which amount includes the capital increase of Ps. 2,421 million in February 2007). Net resources used in investing activities (to acquire property, plant and equipment, other non-current assets and liabilities) were Ps. 136 million in the first quarter 2008 versus net resources used in investing activities (to acquire property, plant and equipment and other non-current assets and liabilities) of Ps. 56 million in 2006.
Comparative first quarter 2008 vs fourth quarter 2007
Net Sales
Net sales increased 25% from Ps. 5,824 million for the fourth quarter 2007 to Ps. 7,288 million for the first quarter 2008. Sales in tons of finished steel increased 10% to 745 thousand tons in the first quarter 2008 compared with 675 thousand tons in the fourth quarter 2007. The total sales outside of Mexico for the first quarter 2008 increased 27% to Ps. 5,423 million compared with Ps. 4,264 million for the fourth quarter 2007. Total Mexican sales increased 20% to 1,865 million in the first quarter 2008 from Ps. 1,560 millions in the fourth quarter 2007. Prices of finished products sold in the first quarter 2008 increased approximately 13% compared to the fourth quarter 2007.
Direct Cost of Sales Direct cost of sales increased 11% from Ps. 5,436 million in the fourth quarter 2007 to Ps. 6,050 million for the first quarter 2008. With respect to sales, in the first quarter 2008, the direct cost of sales represents 83% compared to 93% for the fourth quarter 2007. The average cost of raw materials used to produce steel products increased 1% in the first quarter 2008 versus the fourth quarter 2007, primarily as a result of increases in the price of scrap and certain other raw materials Gross Profit Gross profit for the first quarter 2008 increased 219% to Ps. 1,238 million compared to Ps. 388 million in the fourth quarter 2007. The gross profit as a percentage of net sales for the first quarter 2008 was 17% compared with 7% for the fourth quarter of 2007. The increase in gross profit is due to the increase in the prices of finished products sold due to the reasons previously mentioned.
Operating Expenses Operating expenses increased 2% to Ps. 360 million in the first quarter 2008 compared to Ps. 352 million for the fourth quarter 2007. Operating expenses as a percentage of net sales represented 5% during the first quarter 2008 compared to 6% in the fourth quarter 2007.
Operating Profit Operating profit increased 2,339% from Ps. 36 million in the fourth quarter 2007 to Ps. 878 million for the first quarter 2008. The operating profit as a percentage of net sales in the first quarter 2008 was 12% compared to 1% in the fourth quarter 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 first quarter 2008 represented an expense of Ps. 62 million compared with an expense of Ps. 167 million for the fourth quarter 2007. Net interest income was Ps. 55 million in the first quarter 2008 compared with Ps. 55 million of net interest income in the fourth quarter 2007. At the same time we registered an exchange loss of Ps. 117 million in the first quarter 2008 compared with an exchange gain of Ps. 35 million in the fourth quarter 2007.
Other Expenses (Income) net The company recorded other income net for Ps. 6 million in the first quarter 2008 compared with other expense net for Ps. 24 million for the fourth quarter 2007.
Income Tax Taxes and profit sharing for the first quarter 2008 was an expense of Ps. 230 million compared to Ps. 119 million of income for the fourth quarter 2007.
Net Profit As a result of the foregoing, net profit was Ps. 592 million in the first quarter 2008 compared to Ps. 35 million of loss profit in the fourth quarter 2007.
Q'08 vs 1Q'08 vs
(Millions of pesos) 1Q '08 1Q '07 4Q '07 1Q'07 4Q'07
Sales 7,288 6,237 5,824 17% 25%
Cost of Sales 6,050 4,995 5,436 21% 11%
Gross Profit 1,238 1,242 388 0% 219%
Operating Expenses 360 364 352 -1% 2%
Operating Profit 878 878 36 0% 2,339%
EBITDA 1,008 1,003 206 0% 389%
Net Profit 592 745 (35) -21% 1,791%
Sales outside Mexico 5,423 4,360 4,264 24% 27%
Sales in Mexico 1,865 1,877 1,560 -1% 20%
Total sales (tons)* 745 704 675 6% 10%
* In the Thousands
Thousands Millions Average
of tons of pesos price per
Product 1Q'08 1Q'08 ton 1Q'08
SBQ 565 5,749 10,175
Light Structural 54 453 8,389
Structural 55 504 9,164
Rebar 70 550 7,857
Others 1 32 -
Total 745 7,288 9,783
Thousands Millions Average
of tons of pesos price per
Product 1Q'07 1Q'07 ton 1Q'07
SBQ 516 4,833 9,366
Light Structural 62 454 7,323
Structural 61 494 8,098
Rebar 64 451 7,047
Others 1 5 -
Total 704 6,237 8,859
Thousands Millions Average
of tons of pesos price per
Product 4Q'07 4Q'07 ton 1Q'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 -
Total 675 5,824 8,629
Any forward-looking information contained herein is inheritably 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: Jose Flores Flores, Grupo Simec, +011-52-33-3770-6734, or cell., +011-55-33-1270-9559, Web site:
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