Quarterly Earnings Report October 28, 2008
3Q08
Sales and Operating Income Increased 13.06% and 7.38%, Respectively
Financial Highlights:
(All September 2007 figures are expressed in millions of Mexican pesos as of December 31, 2007 while the figures for September 2008 are expressed in millions of current Mexican pesos. Comparisons are made with the same period of 2007, unless otherwise stated. Figures may vary due to rounding practices. “bp” stands for basis points)
o Sales for the quarter totaled $6,682.02 million
o Gross income increased 35.78%
o Gross margin for the quarter was 11.13%
o Quarterly operating expenses as a percentage of sales were 7.75%
o The operating margin for the quarter was 3.38%
o Net profit for the quarter reached $111.76 million
o Cash and cash equivalents at the end of the quarter was $292.96 million
Mexico City, Mexico, October 28, 2008. Grupo Casa Saba (“Saba”, “GCS”, “the Company” or “the Group”), one of the leading Mexican distributors of pharmaceutical products, beauty aids, personal care and consumer goods, general merchandise, publications and other products announces its consolidated financial and operating results for the third quarter of 2008.
QUARTERLY EARNINGS
NET SALESDuring the third quarter, GCS’s sales were $6,682.02 million, an increase of 13.06%.
Sales for our Private Pharma division rose 13.89% during the third quarter of 2008, as a result of the consolidation of investments made within the sector over the past several months, including the most recent acquisition of Drogasmil Medicamento e Perfumeria, S.A.(1), a Brazilian pharmacy chain.
Sales in our Health, Beauty, Consumer Goods, General Merchandise and Other division increased 11.41% compared to the third quarter of 2007. This growth was due to an increase in sales of health and beauty products.
Sales in our Government Pharma division rose 25.13% due to an increase in sales to the Instituto Mexicano del Seguro Social (“IMSS”), or the Mexican Social Security Institute, as well as the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (“ISSSTE”), or the Mexican Social Security and Service Institute for Government Employees.
Publication sales decreased 11.23%, primarily as a result of lower unit sales. This decrease was due to the fact that Citem stopped distributing some publications that did not meet our minimal profitability requirements.
The sales mix did not change significantly this quarter. Private Pharma sales represented 83.88% of total sales (compared to 83.27% during the third quarter of 2007), while Government Pharma accounted for 3.83% (versus 3.46% during the third quarter of 2007). Health, Beauty, Consumer Goods, General Merchandise and Other represented 9.20% (compared to 9.33% in the third quarter of 2007) and Publications made up the remaining 3.09% (versus 3.94% during the third quarter of 2007).
(1) The aquisition took place on May 15, 2008.
SALES BY DIVISION
PRIVATE PHARMASales in our Private Pharma division rose 13.89% during the third quarter of 2008, as a result of the consolidation of investments that were made within the sector during the past several months. This includes the most recent acquisition of Drogasmil Medicamento e Perfumeria, S.A.(1), a Brazilian pharmacy chain.
Sales reached $5,604.89 million and represented 83.88% of the Group’s total sales.
(1) The aquisition took place on May 15, 2008.
GOVERNMENT PHARMA
Sales in our Government Pharma division grew 25.13% due to an increase in sales to the Instituto Mexicano del Seguro Social (“IMSS”) as well as the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (“ISSSTE”).
Government Pharma sales reached $256.13 million during 3Q08 and accounted for 3.83% of our total sales.
HEALTH, BEAUTY, CONSUMER GOODS, GENERAL MERCHANDISE AND OTHER
Sales in our Health, Beauty, Consumer Goods, General Merchandise and Other division increased 11.41% versus the third quarter of 2007, primarily as a result of an increase in sales of health and beauty products.
As a percentage of total sales, this division went from representing 9.33% in 3Q07 to 9.20% during the third quarter of 2008.PUBLICATIONS
Publication sales decreased 11.23%, primarily as a result of lower unit sales. This decrease was due to the fact that Citem stopped distributing some publications that no longer met our minimal profitability requirements.
This division’s participation as a percentage of total sales went from 3.94% in 3Q07 to 3.09% in the third quarter of 2008.
Division % of sales
Private Pharma 83.88%
Government Pharma 3.83%
Health, Beauty, Consumer Goods,
General Merchandise and Other 9.20%
Publications 3.09%
TOTAL 100.00%
GROSS INCOMEDuring the third quarter of the year, Grupo Casa Saba’s gross income increased 35.78% to reach $743.96 million. The company’s gross margin improved as a result of the recent investments, to reach 11.13%.
OPERATING EXPENSESOperating expenses reached $517.88 million, an increase of 53.49% compared to the third quarter of 2007. This was due to the investments that were made over the past months. Operating expenses represented 7.75% of our total sales.
OPERATING INCOMEOperating income continued to grow. This quarter, it rose 7.38%, to reach $226.07 million. The operating margin was 3.38%, 18 b.p. lower than the 3.56% margin registered in the third quarter of 2007. This was due to an increase in expenses related to the investments made over the past several months.
OPERATING INCOME PLUS DEPRECIATION AND AMORTIZATIONOperating income plus depreciation and amortization for 3Q08 was $249.68 million, an increase of 4.34% compared to the third quarter of 2007. Depreciation and amortization for the period was $23.60 million, 17.89% lower than in the third quarter of 2007.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the end of the third quarter of 2008 was $292.96 million.
COMPREHENSIVE COST OF FINANCINGDuring the third quarter of 2008, GCS’s comprehensive cost of financing (CCF) was $61.29 million due to an increase in the amount of interest income paid as well as the effect of the elimination of Bulletin B-10.
The interest payments were related to the long-term credit that was obtained as a result of our most recent acquisition in Brazil as well as the interest that was generated from the utlitization of short-term credits for our operations in Mexico and Brazil.
OTHER EXPENSES (INCOME)
During the third quarter of 2008, the Company registered an income of $14.45 million in other expenses (income). The expenses (income) from this line item were derived from activities that are distinct from the company’s everyday business operations.
TAX PROVISIONS
During the third quarter, tax provisions were $63.67 million. These provisions included $99.34 million for income tax and -$35.66 million for deferred income tax.
NET INCOMEGCS’s net income for the third quarter was $111.76 million, a decrease of 40.23% compared to the third quarter of 2007. This decrease was due to a higher comprehensive cost of financing (CCF) as well as lower income from activities outside of the company’s normal business operations.
The net margin for the period was 1.67%, lower than the 3.16% net margin obtained during the third quarter of 2007.WORKING CAPITAL
During the third quarter of 2008, our accounts receivable days were virtually unchanged at 62.0 days (they were 62.1 days during the third quarter of 2007). In addition, our accounts payable days increased 2.9 days compared to 3Q07, to reach 50.2 days. Finally, our inventory days were 61.1 days, 3.7 more days than in 3Q07.
The 265.4 million shares issued by Grupo Casa Saba are listed in the Mexican Stock Exchange and its ADRs in the New York Stock Exchange, both under the symbol “SAB”. One ADR equals 10 ordinary shares.
Grupo Casa Saba is one of the leading distributors of pharmaceutical products, beauty, personal care and consumer goods, general merchandise, publications and other goods in Mexico. With 115 years of experience, the Company distributes to the majority of pharmacies, chains, self-service and convenience stores, as well as other specialized national chains.As a precautionary note to investors, except for the historic information contained herein, certain topics discussed in this document constitute forward-looking statements. Such topics imply risks and uncertainties, including the economic conditions in Mexico and other countries in which Casa Saba operates, as well as variations in the value of the Mexican peso as compared with the US dollar.
Contacts:
GRUPO CASA SABA IR Communications:
Rodrigo Echagaray, IRO Jesús Martínez Rojas
+52 (55) 5284-6672 +52 (55) 5644-1247
rechagar@casasaba.com jesus@irandpr.comAlejandro Sadurni, CFO
asadurni@casasaba.comGRUPO CASA SABA S.A.B. DE C.V. and SUBSIDIARIES CONSOLIDATED BALANCE SHEET September 2007 figures are expressed in thousands of Mexican pesos of purchasing power as of December 31, 2007. September 2008 figures are expressed in thousands of current Mexican pesos. ITEM
Sep-08Sep-07ChangeTOTAL ASSETS12,360,2699,664,6092,695,661CURRENT ASSETS9,643,2018,141,4831,501,718CASH AND CASH EQUIVALENTS292,969373,926(80,957)ACCOUNTS RECEIVABLE (NET)4,605,3844,080,670524,713INTERCOMPANY-OTHER ACCOUNTS RECEIVABLE (NET)613,954254,209359,745INVENTORIES4,029,5273,418,864610,663OTHER CURRENT ASSETS101,36713,81387,554LONG TERM-ACCOUNTS RECEIVABLE-INVESTMENTS IN EQUITY SHARES AND-UNCONSOLIDATED SUBSIDIARIES---OTHER INVESTMENTS-NET PROPERY, PLANT AND EQUIPMENT1,330,6771,176,088154,589PROPERTY1,354,8521,307,33947,513MACHINERY AND EQUIPMENT462,808412,27150,537OTHER EQUIPMENT630,199532,62497,574ACCUMULATED DEPRECIATION1,117,1821,076,14641,036BUILDINGS IN PROCESS---DEFERRED ASSETS (NET)1,155,137164,631990,506OTHER ASSETS231,255182,40748,848TOTAL LIABILITIES5,811,7193,809,7952,001,923CURRENT LIABILITIES4,411,1343,093,8271,317,307ACCOUNTS PAYABLE3,481,8612,916,587565,274BANK DEBT575,3400575,340DEBT SECURITIES---ACCRUED TAXES86,1737,85378,321OTHER CURRENT LIABILITIES267,759169,38698,373LONG TERM LIABILITIES913,000-913,000BANK DEBT913,000-913,000DEBT SECURITIES-OTHER DEBT-DEFERRED LIABILITIES-OTHER LIABILITIES487,585715,969(228,384)SHAREHOLDER'S EQUITY6,548,5505,854,814693,737MINORITY STOCKHOLDER'S EQUITY---MAJORITY STOCKHOLDER'S EQUITY6,548,5505,854,814693,737PAID-IN CAPITAL1,993,8751,993,876(1)CAPITAL STOCK167,903167,903(0)RESTATEMENT IN CAPITAL STOCK956,094956,095(0)PREMIUM ON STOCK SOLD869,878869,878(0)RESERVE FOR RESTATEMENT ON SHAREHOLDER'S EQUITY---CAPITAL INCREASE (DECREASE)4,554,6753,860,938693,738CUMMULATIVE RESULTS AND EQUITY RESERVE5,582,0954,761,272820,822RESERVE FOR SHARES REPURCHASE1,062,2001,062,200(0)OVERAGE (DEFICIT) ON RESTATEMENT ON STOCKHOLDER'S EQUITY(2,603,096)(2,500,325)(102,771)NET INCOME513,476537,790(24,314)
GRUPO CASA SABA, S.A.B. DE C.V. September 2007 figures are expressed in thousands of Mexican pesos of purchasing power as of December 31, 2007. September 2008 figures are expressed in thousands of current Mexican pesos.Jan-SepJan-SepChange Jul-Sep Jul-Sep Change Income Statement 2007 % of sales 2008 % of sales $ % 2007 % of sales 2008 % of sales $ % NET SALES 18,024,755 100.00% 20,575,472 100.00% 2,550,716 14.15% 5,910,208 100.00% 6,682,023 100.00% 771,814 13.06% COST OF SALES 16,349,414 90.71% 18,436,779 89.61% 2,087,364 12.77% 5,362,269 90.73% 5,938,059 88.87% 575,789 10.74% Gross Profit 1,675,341 9.29% 2,138,693 10.39% 463,352 27.66% 547,939 9.27% 743,964 11.13% 196,025 35.78% Operating Expenses Sales Expenses 410,010 2.27% 519,674 2.53% 109,663 26.75% 131,637 2.23% 180,858 2.71% 49,221 37.39% Administrative Expenses 611,523 3.39% 892,488 4.34% 280,965 45.95% 205,761 3.48% 337,030 5.04% 131,269 63.80% OPERATING EXPENSES 1,021,533 5.67% 1,412,162 6.86% 390,629 38.24% 337,397 5.71% 517,888 7.75% 180,490 53.49% Operating Income 653,808 3.63% 726,532 3.53% 72,724 11.12% 210,541 3.56% 226,077 3.38% 15,535 7.38% COMPREHENSIVE COST OF FINANCING Interest Paid 8,922 0.05% 116,814 0.57% 107,892 1209.25% 10,586 0.18% 63,193 0.95% 52,607 496.94% Interest (Earned) -14,077 (0.08%) -3,823 (0.02%) 10,254 (72.84%) -12,737 (0.22%) -2,380 (0.04%) 10,357 (81.31%) Exchange Loss (Gain) 1,549 0.01% 1,757 0.01% 208 13.44% -358 (0.01%) 478 0.01% 837 (233.53%) Monetary Position (gain) 14,559 0.08% -0 (0.00%) -14,559 (100.00%) 16,046 0.27% -0 (0.00%) -16,046 (100.00%) Comprehensive Cost of Financing 10,954 0.06% 114,749 0.56% 103,795 947.59% 13,537 0.23% 61,292 0.92% 47,755 352.78% OTHER EXPENSES (INCOME), net -97,044 (0.54%) -38,119 (0.19%) 58,925 (60.72%) -73,803 (1.25%) -14,459 (0.22%) 59,343 (80.41%) NET INCOME BEFORE TAXES 739,899 4.10% 649,902 3.16% -89,996 (12.16%) 270,808 4.58% 179,244 2.68% -91,563 (33.81%) PROVISIONS FOR: Income Tax 221,208 1.23% 239,616 1.16% 18,408 8.32% 95,691 1.62% 99,340 1.49% 3,649 3.81% Asset Tax 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% Deferred Income Tax -19,099 (0.11%) -106,990 (0.52%) -87,891 460.18% -11,884 (0.20%) -35,663 (0.53%) -23,778 200.08% Profit sharing due 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0 Deferred Profit sharing due 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% Total taxes 202,109 1.12% 132,626 0.64% -69,483 (34.38%) 83,806 1.42% 63,677 0.95% -20,129 (24.02%) Net Income Before Extraordinary Items 537,790 2.98% 517,276 2.51% -20,513 (3.81%) 187,001 3.16% 115,567 1.73% -71,434 (38.20%) Extraordinary Items (Income) 0 0.00% 3,800 0.02% 3,800 0.00% 0 0.00% 3,800 0.06% 3,800 0.00% Net Income 537,790 2.98% 513,476 2.50% -24,313 -4.52% 187,001 3.16% 111,767 1.67% -75,234 -40.23% Depreciation and Amortization80,2710.45%59,1070.29%(21,163)(26.37%)28,7520.49%23,6090.35%(5,143)(17.89%) Operating income plus Depreciation and Amortization734,0794.07%785,6393.82%51,5607.02%239,2934.05%249,6863.74%10,3934.34%