Grupo Simec Reports Preliminary Results of Operations for 2007
02/28/2008 - Grupo Simec announces preliminary results of operations, including a net profit of Ps. 1,824 million for the year ended December 31, 2007.
Grupo Simec, SAB de CV announced preliminary (unaudited) results of operations, including a net profit of Ps. 1,824 million for the year ended December 31, 2007.
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Grupo Simec to Acquire
Aceros DM, Grupo San Grupo Simec executed an agreement in February to acquire 100% of the shares of Corporacion Aceros DM, SA de CV and certain affiliates, i.e. Grupo San. Grupo San, a long products steel mini-mill and the second-largest corrugated rebar producer in Mexico, has operations based in San Luis Potosi, Mexico.
The acquisition positions Simec and parent company Industrias CH as the second-largest producers of rebar and the largest steel producers in Mexico, with a total production capacity of approximately 4.5 million tons of liquid steel and 3.8 million tons of finished products. It also expands Simec and ICH’s product mix and sales mix, with 50% of sales in Mexico and 50% outside Mexico.
Grupo Simec plans to support Grupo San’s aggressive expansion plans for its corrugated rebar business, which is currently experiencing growing demand thanks to the Mexican Government's aggressive infrastructure plan.
The acquisition 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. The acquisition is subject to the approval of Mexico's federal competition commission, Comision Federal de Competencia, as well as Simec's shareholders' meeting.
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Total sales outside of Mexico reached Ps. 17,031 million, a 7% increase compared with Ps. 15,939 million in 2006. Total Mexican sales decreased 7% from 7,576 million in 2006 to Ps. 7,075 million in 2007. The company attributes the increase in sales to higher shipments during 2007, compared with 2006 (a 14,000-ton increase). The increase in tons shipped
originated mainly in the plant of Apizaco and helped to compensate for two unexpected stoppages in the rolling lines of the plants in Guadalajara and Apizaco that resulted from a shortage of natural gas due to the explosions on the property of Petroleos Mexicanos.
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 company attributes this increase mainly to a 6% increase 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. The company also experienced an increase in labor costs per ton sold, due to the three unexpected stoppages in the rolling lines of the plants in Guadalajara and Apizaco due as a result from the shortage in natural gas due to the explosions on the property of Petroleos Mexicanos.
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 attributes the decline to the increase in cost of goods sold.
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, Ps. 2,313 million, reflects a 24% decrease from Ps. 3,032 million in 2006. Operating profit as a percentage of net sales was 10% in 2007 compared to 13% in 2006. The company attributes the decline to the increase in cost of goods sold. Comprehensive financial cost in 2007 represented a gain of Ps. 63 million compared with an expense of Ps. 63 million in 2006.
Net profit decreased by 24% to Ps. 1,824 million in 2007 from Ps. 2,399 million in 2006.
Fourth Quarter Results—Comparing the fourth quarter of 2007 to the previous quarter (third quarter 2007), net sales of Ps. 5,824 million reflect a 2% increase from Ps. 5,737 million for the third quarter of 2007. Sales in tons of finished steel products increased 7% to 675 thousand tons as compared with 635 thousand tons in the third quarter 2007. Total sales outside of Mexico, Ps. 4,264 million, reflects a 6% increase compared with Ps. 4,038 million for the previous quarter. Total Mexican sales, Ps.1,560 million, reflect a decrease from Ps. 1,699 million in the third quarter of 2007. Prices of finished products sold decreased approximately 4% in real terms compared to the third quarter 2007.
Direct cost of sales, Ps. 5,335 million, reflect an 8% increase from Ps. 4,937 million in the third quarter of 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 versus the third quarter 2007, primarily as a result of increases in the price of scrap and certain other raw materials.
Gross profit decreased 39% to Ps. 489 million compared to Ps. 800 million in the previous quarter. Gross profit
as a percentage of net sales was 8% compared with 14% for the third quarter 2007. The company attributes the decline to the increase in the average cost of raw materials to produce steel products.
Operating expenses were Ps. 324 million as 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 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.
Net profit decreased by 55% to Ps. 163 million in the fourth quarter of 2007 from Ps. 365 million in the third quarter of 2007.
