Grupo Simec Announces Preliminary (Unaudited) Results of Operations for the Year Ended December 31, 2008

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, 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 said 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 them 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; as of December 31, 2008, Simec registered the adjustment of the intangible assets and we are in the process of determining the adjustment of the fixed assets.

Year Ended December 31, 2008 compared to Year Ended December 31, 2007

Net Sales

Net sales increased 46% to Ps. 35,187 million in 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 2,666 million) compared to Ps. 24,106 million in 2007. Shipments of finished steel products increased 9% to 2 million 924 thousand tons in 2008 (including the net sales generated by the newly acquired plants of Grupo San of 261 thousand tons) compared to 2 million 693 thousand tons in 2007. Total sales outside of Mexico in 2008 increased 44% to Ps. 24,472 million (including the net sales generated by the newly acquired plants of Grupo San of Ps. 98 million) compared with Ps. 17,031 million in 2007, while total Mexican sales increased 51% from Ps. 7,075 million in 2007 to Ps. 10,715 million in 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 2,496 million). The increase in sales can be explained due to higher shipments during 2008, compared with 2007 (231,000 tons increase) and 34% increase in the average price of steel products.

Direct Cost of Sales

Direct cost of sales increased 44% from Ps. 20,499 million in 2007 to Ps. 29,585 million in 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 1,340 million). Direct cost of sales as a percentage of net sales represented 84% in 2008 compared to 85% in 2007. The increase in the direct cost of sales is attributable mainly to an increase of 33% in the average cost of raw materials used to produce steel products in 2008 versus 2007, primarily as a result of increases in the price of scrap and certain other raw materials, as well as a 9% increase in shipments.

Gross Profit

Gross profit in 2008 was Ps. 5,602 million (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 1,326 million) compared to Ps. 3,607 million in 2007. Gross profit as a percentage of net sales in 2008 was 16% compared to 15% in 2007. This increase in gross profit was principally due to an increase of 9% in sales volume.

Operating Expenses

Operating expenses increased 69% to Ps. 2,407 million in 2008 (including the operating expenses from the newly acquired plants of Grupo San of Ps. 605 million and the amortization of the intangible assets of Ps. 241 million registered by the acquisition of Grupo San) compared to Ps. 1,423 million in 2007 and represented 7% of net sales in 2008 and 6% of net sales in 2007.

Operating Profit

Operating profit increased 46% to Ps. 3,195 million in 2008 (including the operating profit from the newly acquired plants of Grupo San of Ps. 721 million) compared to Ps. 2,184 million in 2007. Operating profit as a percentage of net sales was 9% in 2008 compared to 9% in 2007. The increase in the operating profit was due principally to an increase of 9% in sales volume and an increase of 34% in the average price of steel products.

Comprehensive Financial Cost

Comprehensive financial cost in 2008 represented an expense of Ps. 126 million compared with a gain of Ps. 41 million in 2007. Net interest income was Ps. 77 million in 2008 compared with net interest income of Ps. 274 million in 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. 203 million in 2008 compared with an exchange loss of Ps. 38 million in 2007, reflecting a 25% increase in the value of the dollar versus the peso as of December 31, 2008 compared to December 31, 2007.

Other Expenses (Income) net

The company recorded other income net of Ps. 38 million in 2008 compared to other income net of Ps. 21 million in 2007.

Income Taxes

Income Taxes recorded Ps. 978 million in 2008 (including Ps. 28 million of deferred income taxes) compared to Ps. 621 million in 2007 (including Ps. 509 million of deferred income taxes).

Net Profit

As a result of the foregoing, net profit increased by 31% to Ps. 2,219 million in 2008 from Ps. 1,625 million in 2007.

Liquidity and Capital Resources

As of December 31, 2008, Simec's total consolidated debt consisted of U.S. $952,000; U.S. $650,000 is a credit bank and U.S. $302,000 is from 8 7/8% medium-term notes ("MTN's") due 1998 (accrued interest on December 31, 2008 was U.S. $387,882). As of December 31, 2007, Simec's total consolidated debt consisted of U.S. $302,000 from 8 7/8% medium-term notes ("MTN's") due 1998 (accrued interest on December 31, 2007 was U.S. $363,703).

Net resources provided by operations were Ps. 1,487 million in 2008 versus Ps. 2,384 million of net resources provided by operations in 2007. Net resources provided by financing activities were Ps. 1,173 million in 2008 (which amount includes the capital increase of Ps. 1,169 million in July 2008) versus Ps. 2,292 million of net resources provided by financing activities in 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. 8,512 million in 2008 (which amount includes Ps. 8,440 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. 484 million in 2007.

Comparative Fourth Quarter 2008 vs. Third Quarter 2008

Net Sales

Net sales decreased 28% from Ps. 10,533 million for the third quarter 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 1,073 million) to Ps. 7,620 million for the fourth quarter 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 1,080 million). Sales in tons of finished steel decreased 29% to 567 thousand tons in the fourth quarter 2008 compared with 795 thousand tons in the third quarter 2008. The total sales outside of Mexico for the fourth quarter 2008 decreased 32% to Ps. 4,983 million compared with Ps. 7,317 million for the third quarter 2008. Total Mexican sales decreased 18% to Ps. 2,637 million in the fourth quarter 2008 from Ps. 3,216 million in the third quarter 2008. Prices of finished products sold in the fourth quarter 2008 increased approximately 1% compared to the third quarter 2008.

Direct Cost of Sales

Direct cost of sales decreased 18% from Ps. 8,726 million in the third quarter 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 663 million) to Ps. 7,116 million for the fourth quarter 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 369 million). With respect to sales, in the fourth quarter 2008, the direct cost of sales represents 93% compared to 83% for the third quarter 2008. The average cost of raw materials used to produce steel products increased 14% in the fourth quarter 2008 versus the third quarter 2008, primarily as a result of increases in the price of scrap and certain other raw materials.

Gross Profit

Gross profit for the fourth quarter 2008 decreased 72% to Ps. 504 million (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 710 million) compared to Ps. 1,807 million in the third quarter 2008 (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 410 million). The gross profit as a percentage of net sales for the fourth quarter 2008 was 7% compared with 17% for the third quarter 2008. The decrease in gross profit was principally due to the increases in the price of scrap and certain other raw materials and the decrease in tons shipped.

Operating Expenses

Operating expenses increased 86% to Ps. 1,050 million in the fourth quarter 2008 (including the operating expenses from the newly acquired plants of Grupo San of Ps. 403 million and the amortization of Ps. 241 of the intangible assets determined in the acquisition of Grupo San) compared to Ps. 564 million for the third quarter 2008 (including the operating expenses from the newly acquired plants of Grupo San of Ps. 149 million). Operating expenses as a percentage of net sales represented 14% during the fourth quarter 2008 compared to 5% in the third quarter 2008.

Operating Profit

Operating profit was Ps. 1,243 million in the third quarter 2008 (including the operating profit from the newly acquired plants of Grupo San of Ps. 261 million) compared to an operating loss of Ps. 546 million for the fourth quarter 2008 (including the operating profit from the newly acquired plants of Grupo San of Ps. 307 million). The operating loss as a percentage of net sales in the fourth quarter 2008 was 7% compared to 12% of operating profit in the third quarter 2008. The operating loss was principally due to the decrease in tons shipped and the increases in the price of scrap and certain other raw materials.

Comprehensive Financial Cost

Comprehensive financial cost for the fourth quarter 2008 represented an income of Ps. 108 million compared with Ps. 25 million of income for the third quarter 2008. Net interest expense was Ps. 4 million in the fourth quarter 2008 compared with Ps. 11 million of net interest income in the third quarter 2008. At the same time, we registered an exchange gain of Ps. 112 million in the fourth quarter 2008 compared with an exchange gain of Ps. 36 million in the third quarter 2008.

Other Expenses (Income) net

The company recorded other expenses net of Ps. 98 million in the fourth quarter 2008 compared with other income net of Ps. 49 million for the third quarter 2008.

Income Taxes

Income taxes for the fourth quarter 2008 was an income of Ps. 314 million compared to Ps. 483 million of expense for the third quarter 2008.

Net Profit

As a result of the foregoing, net profit was Ps. 834 million in the third quarter 2008 compared to Ps. 222 million of net loss in the fourth quarter 2008.

Comparative Fourth Quarter 2008 vs. Fourth Quarter 2007

Net Sales

Net sales increased 31% from Ps. 5,824 million for the fourth quarter 2007 compared with Ps. 7,620 million for the same period in 2008 (including the net sales generated by the newly acquired plants of Grupo San of Ps. 1,080 million). Sales in tons of finished steel decreased 16% to 567 thousand tons in the fourth quarter 2008 compared with 675 thousand tons in the same period 2007. The total sales outside of Mexico for the fourth quarter 2008 increased 17% to Ps. 4,983 million compared with Ps. 4,264 million for the same period 2007. Total Mexican sales increased 69% to Ps. 2,637 million in the fourth quarter 2008 from Ps. 1,560 millions in the same period 2007. Prices of finished products sold in the fourth quarter 2008 increased approximately by 56% compared to the fourth quarter 2007.

Direct Cost of Sales

Direct cost of sales increased 31% from Ps. 5,436 million in the fourth quarter 2007 to Ps. 7,116 million for the same period 2008 (including the cost of sales generated by the newly acquired plants of Grupo San of Ps. 369 million). With respect to sales, in the fourth quarter 2008, the direct cost of sales represents 93% compared to 93% for the same period 2007. The average cost of raw materials used to produce steel products increased 56% in the fourth 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 fourth quarter 2008 increased 30% to Ps. 504 million (including the gross profit generated by the newly acquired plants of Grupo San of Ps. 710 million) compared to Ps. 388 million in the same period 2007. The gross profit as a percentage of net sales for the fourth quarter 2008 was 7% compared with 7% for the same period 2007. The increase in gross profit was principally due to the increase in tons shipped.

Operating Expenses

Operating expenses increased 198% to Ps. 1,050 million in the fourth quarter 2008 (including the operating expenses from the newly acquired plants of Grupo San of Ps. 403 million and the amortization of Ps. 241 of the intangible assets determined in the acquisition of Grupo San) compared to Ps. 352 million for the same period 2007. Operating expenses as a percentage of net sales represented 14% during the fourth quarter 2008 compared to 6% of the same period 2007.

Operating Profit

Operating profit was Ps. 36 million in the fourth quarter 2007 compared to Ps. 546 million of loss for the same period 2008 (including the operating profit from the newly acquired plants of Grupo San of Ps. 307 million). The operating loss as a percentage of net sales in the fourth quarter 2008 was 7% compared to 1% of operating profit in the same period 2007.

Comprehensive Financial Cost

Comprehensive financial cost for the fourth quarter 2008 represented a gain of Ps. 108 million compared with an expense of Ps. 168 million for the fourth quarter 2007. Net interest expense was Ps. 4 million in the fourth quarter 2008 compared with Ps. 55 million of net interest income in the fourth quarter 2007. At the same time, we registered an exchange gain of Ps. 112 million in the fourth quarter 2008 compared with an exchange loss of Ps. 36 million in the fourth quarter 2007.

Other Expenses (Income) net

The company recorded other expenses net of Ps. 98 million for the fourth quarter 2008 compared with other expenses net of Ps. 24 million for the same period 2007.

Income Taxes

Income taxes for the fourth quarter 2008 decreased to Ps. 314 million compared to a decrease of Ps. 120 million for the same period 2007.

Net Profit

    As a result of the foregoing, net loss was Ps. 222 million in the fourth
quarter 2008 compared to Ps. 36 million of net loss in the fourth quarter
2007.


    Millions of pesos    Twelve months ended   Twelve months ended   2008 vs.
                         December 31, 2008     December 31, 2007      2007

    Sales                      35,187                24,106            46%
    Cost of Sales              29,585                20,499            44%
    Gross Profit                5,602                 3,607            55%
    Operating Expenses          2,407                 1,423            69%
    Operating Profit            3,195                 2,184            46%
    EBITDA                      4,053                 2,733            48%
    Net Profit                  2,129                 1,625            31%
    Sales Outside Mexico       24,472                17,031            44%
    Sales in Mexico            10,715                 7,075            51%
    Total Sales (tons)          2,924                 2,693             9%



    Millions of pesos      4Q08    3Q08    4Q07    4Q08      4Q08
                                                    vs.       vs.
                                                   3Q08      4Q07

    Sales                 7,620  10,533   5,824    (28%)      31%
    Cost of Sales         7,116   8,726   5,436    (18%)      31%
    Gross Profit            504   1,807     388    (72%)      30%
    Operating Expenses    1,050     564     352     86%      198%
    Operating Profit       (546)  1,243      36   (144%)  (1,617%)
    EBITDA                 (118)  1,407     206   (108%)    (157%)
    Net Profit             (222)    834     (36)  (127%)     517%
    Sales Outside Mexico  4,983   7,317   4,264    (32%)      17%
    Sales in Mexico       2,637   3,216   1,560    (18%)      69%
    Total Sales (tons)      567     795     675    (29%)     (16%)



    Product             Thousands of    Millions of     Average price
                        tons twelve     pesos twelve       per ton
                        months ended    months ended    twelve months
                        December 31,    December 31,   ended December 31,
                           2008            2008              2008

    SBQ                    2,034           26,165           12,864
    Light Structural         172            1,787           10,391
    Structural               183            1,979           10,815
    Rebar                    467            4,408            9,439
    Others                    68              847                0
    Total                  2,924           35,187           12,034


    Product             Thousands of    Millions of     Average price
                        tons twelve     pesos twelve      per ton
                        months ended    months ended    twelve months
                        December 31,    December 31,   ended December 31,
                            2007           2007              2007

    SBQ                   1,946           18,419            9,465
    Light Structural        276            2,162            7,834
    Structural              216            1,752            8,112
    Rebar                   250            1,703       6,810
    Others                    5               70                0
    Total                 2,693           24,106            8,951



    Product             Thousands   Millions of   Average price
                         of tons      pesos         per ton
                          4Q08        4Q08           4Q08

    SBQ                    335        5,435         16,224
    Light Structural        30          339         11,302
    Structural              33          371         11,243
    Rebar                  146        1,210          8,287
    Others                  23          265              0
    Total                  567        7,620         13,439


    Product             Thousands   Millions of   Average price
                         of tons      pesos         per ton
                           3Q08       3Q08            3Q08

    SBQ                    555        7,858          14,159
    Light Structural        41          482          11,756
    Structural              40          488          12,200
    Rebar                  127        1,324          10,425
    Others                  32          381               0
    Total                  795       10,533          13,249


    Product             Thousands   Millions of    Average price
                         of tons      pesos          per ton
                           4Q07       4Q07             4Q07

    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

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.

SOURCE Grupo Simec, S.A.B. de C.V.

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