Quarterly Earnings Report July 28, 2014
2Q12
Distribution Sales to Institutional Clients Declined while Chile and Mexico Demonstrated Improved Performance
Financial Highlights:
(All figures are expressed in millions of Mexican pesos. Comparisons are made with the same period of 2011, unless otherwise stated. Figures may vary slightly due to rounding).
- The Groups net sales for the fourth quarter reached $7,330.3 million pesos
- Gross income for the period was $1,464.7 million; the gross margin for the quarter was 19.98%
- Operating expenses reached $1,542.8 million pesos and represented 21.05% of the Companys total sales.
- o Quarterly operating income was of $-78.0 million, resulting in an operating margin of -1.07% for the period.
- Second quarter EBITDA was $-5.4 million, or -0.07% of total sales
- As of June 30, 2014, GCSs net debt totaled $7,082.8 million
- o GCS closed the quarter with 22 Distribution Centers and 1,282 pharmacies in operation across Latin America
Mexico City, Mexico, July 28, 2014. Grupo Casa Saba (SAB) (“Saba”, “GCS”, “the Company” or “the Group”), one of the leading Mexican distributors of pharmaceutical products as well as health, beauty aids and consumer goods and publication, and one of the most important pharmacy chains in Latin America, announces its consolidated financial and operating results for the second quarter of 2014.
QUARTERLY EARNINGS
In the second quarter of 2014, Saba faced close competition in the distribution and marketing of pharmaceutical products, health and beauty aids, and consumer goods in Mexico as well as in the other Latin America countries in which we operate. Our operating strategy maintained emphasis on improving efficiency levels and controlling logistic costs and expenses, generating positive results in practically all our divisions. At the sales level, we focused on improving the availability of the most in demand products for our clients in wholesale and in our pharma network, as well as improving the care and service of our stock sales. In regards to growth, opening new pharmacies in Latin America and in Mexico allowed us to strengthen our presence in the markets in which we already operate, as well as to improve the knowledge of the brands with which we operate.
At Grupo Casa Saba, we will continue to focus on making ongoing improvements to our logistic and commercial operations in order to offer all of our clients a wide range of products at competitive prices. In our pharmacy network, we will also strive to offer the best integrated health, beauty and consumer goods solutions.
NET SALES
Net sales for the quarter reached $7,330.3 million, an decrease of 32.4% compared to 10,843.3 million in 2Q2013. This increase resulted from the higher performance in our distribution division.
SALES BY DIVISON
DISTRIBUTION DIVISION
PHARMA, HEALTH, BEAUTY AND CONSUMER GOODS
Sales from our Pharma, Health, Beauty and Consumer Goods division increased 3.46% versus the 2Q2011, totaling $1,704.6 million. Compared to the same quarter last year a 67.6%, decrease was resulted mainly due the disincorporation of Citem publication. In terms of total sales, this division’s percentage went from 48.6% in 2Q2013 to 23.3% in the 2Q2014.
GOVERNMENTPHARMA
Quarterly sales in our Government Pharma division totalized $66.3 millon. This division registered a 24.9% increase in sales compared to the second quarter of 2013 product of a deferral on the date of tenders. In terms of total sales, this division passed from 0.5% in 2Q2013 to 0.9% in the 2Q2014.
RETAIL PHARMACY
During the second quarter of the year, sales from our Retail Pharmacy division reached $5,559.3 million. Compared to the same quarter last year, the increase was of 0.7%. The increase was mainly due to the correct implementation of our growth strategy implemented in the markets in which we operate. This divisions percentage of the Groups overall sales rose to 75.8% vs 50.9% in the 2Q2013.
As a result, the sales mix for the second quarter of 2014 was as follows:
Division
%
of Sales
Retail Pharmacy 75.8%
Total Distribution 24.2%
Pharma, Health & Beauty 23.3%
Government Pharma
0.9%
TOTAL 100.0%
GROSS INCOME
During the second quarter of 2014, gross income reached $1,464.7 million pesos, amount 20.06% lower than the gross income reached in the second quarter of 2013. This was mainly due a decrease in sales in our distribution and government areas.
OPERATING EXPENSES
Operating expenses in the second quarter of 2014 rose by $1,542.8 million pesos, or -7.96%, compared to the same period of the previous year. The decrease was primarily due to the costs of opening about 84 new pharmacies during this quarter.
As a percentage of total sales, operating expenses represented 21.05% during the second quarter of 2014 compared to 15.46% during the same period of 2013.
OPERATING INCOME
Quarterly operating income for 2Q2014 was $-78.0 million, an amount 150% lower than the $156.1 million reported in 2Q2013. This decrease in operating income was the result of the decline in sales due the disincorporation of companies. Operating income margin for the 2Q2014 was 1.07%, versus 1.4% in 2Q2013.
OPERATING INCOME PLUS DEPRECIATION AND AMORTIZATION (EBITDA)
EBITDA for 2Q2014 was $5.4 million, a lower amount compared to the $242.3 million reported during the second quarter of 2013.
EBITDA margin for the second quarter of 2014 was 0.07%.
COMPREHENSIVE COST OF FINANCING (CCF)
The Group’s CCF reached $158.8 million, 9.15% lower than the CCF reported during 2Q2013.
This decrease was primarily due to lower bank debt.
NET DEBT
The Company’s net debt at the end of 2Q2014 was $7,082.8 million pesos.
OTHER EXPENSES (INCOME)
During the second quarter of the year, other income totaled $238.3 million.
This was mainly due to extraordinary expenses incurred in a restructuring of the group’s subsidiaries.
It is important to mention that the results listed in this line item are derived from activities outside of the company’s normal business operations and, as a result, they are not necessarily recurrent.
It is important to mention that the results listed in this line item are derived from activities outside of the company’s normal business operations and, as a result, they are not necessarily recurrent.
TAX PROVISIONS
Tax provisions for the second quarter of 2014 were $34.5 million pesos. While 2Q2013 reported 7.9 millon.
NET INCOME (LOSS)
In the second quarter, 2014 GCS recorded a net loss of $509.8 million with a variation of 452 million compared to the net income in the same period last year. This change was mainly due the decrease in sales previously mentioned and the cost of opening new pharmacies.
Analysis Coverage: Through the Bolsa Mexicana de Valores program, Independent Analyst, Grupo Casa Saba counts with the coverage of Morningstar.
The 265.4 million shares issued by Grupo Casa Saba are listed on the Mexican Stock Exchange under the symbol “SAB”.
Grupo Casa Saba was founded in 1892 and is one of the leading distributors of pharmaceutical products, beauty, personal care and consumer goods, general merchandise, publications and other goods in Mexico. With more than 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. With the acquisition of FASA in October of 2010 the company now has retail pharmacy outlets located in Mexico, Chile and Brazil.
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 those countries in which Grupo Casa Saba operates, directly or indirectly, including the United States of America, Brazil and Chile, as well as variations in the value of the Mexican peso as compared with the currencies of the previously mentioned countries.
Contacts:
GRUPO CASA SABA IR Communications:
Raymundo Barreiro Arpón Jesús Martínez Rojas
GRUPO CASA SABA, S.A.B. DE C.V.
Figures are expressed in thousands of Mexican pesos as of July 2014
Jan-June
Jan-June
Variation
Apr-June
Apr-June
Variation
Income Statement
2013
% of sales
2014
% of sales
$
%
2013
% of sales
2014
% of sales
$
%
NET SALES
21,860,103
100.00%
15,945,303
100.00%
5,914,800
(27.06%)
10,843,357
100.00%
7,330,375
100.00%
3,512,982
(32.40%)
COST OF SALES
18,139,284
82.98%
12,792,667
80.23%
5,346,617
(29.48%)
9,011,019
83.10%
5,865,653
80.02%
3,145,366
(32.91%)
Gross Profit
3,720,819
17.02%
3,152,636
19.77%
568,183
(15.27%)
1,832,338
16.90%
1,464,722
19.98%
367,616
(20.06%)
OPERATING EXPENSES
Sales Expenses
377,169
1.733%
282,220
1.77%
94,949
(25.17%)
199,773
1.84%
120,755
1.65%
79,017
(39.55%)
Administrative Expenses
2,919,951
13.36%
2,955,486
18.54%
35,535
1.22%
1,476,407
13.62%
1,422,047
19.40%
54,359
(3.68%)
Operating Expenses
3,297,120
15.08%
3,237,705
20.31%
59,414
(1.80%)
1,676,179
15.46%
1,542,803
21.05%
133,377
(7.96%)
Operating Income
423,699
1.94%
(85,069)
(0.53%)
508,769
(120.8%)
156,159
1.44%
(78,081)
(1.06%)
234,239
(150.00%)
COMPREHENSIVE COST OF FINANCING
Interest Paid
469,556
2.15%
346,295
2.17%
-123,261
(26.25%)
229,211
2.11%
177,412
2.42%
-51,799
(22.60%)
Interest (Earned)
63,941
(0.29%)
28,086
(0.18%)
35,855
56.07%
39,366
(0.36%)
5,858
(0.08%)
45,224
(114.88%)
Exchange Loss (Gain)
46,185
(0.21%)
46,650
(0.29%)
464
1.01%
44,337
(0.41%)
24,445
(0.33%)
19,892
(44.87%)
Monetary Position (gain)
-
0.00%
-
(0.00%)
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Comprehensive Cost of Financing
359,429
1.64%
271,559
1.70%
87,871
(24.45%)
145,508
1.34%
158,825
2.17%
13,317
9.15%
OTHER EXPENSES (INCOME), net
63,786
(0.29%)
172,382
1.08%
108,597
170.25%
60,488
0.56%
238,388
3.25%
177,900
294.11%
NET INCOME BEFORE TAXES
484
0.00%
-529,011
(3.32%)
529,495
(109389.37%)
-49,838
(0.46%)
475,294
(6.48%)
425,456
853.69%
PROVISIONS FOR:
Income Tax
82,753
0.38%
75,970
0.48%
6,783
(8.20%)
28,070
0.26%
30,990
0.42%
2,920
10.40%
Asset Tax
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Deferred Income Tax
-
0.00%
(20,100)
(0.09%)
128
(0.00%)
19,972
(9.36%)
(20,100)
(0.19%)
3,601
0.05%
23,701
(117.92%)
Profit sharing due
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Deferred Profit sharing due
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Total taxes
62,653
0.29%
75,842
0.48%
13,189
21.05%
7,970
0.07%
34,592
0.47%
26,621
334.01%
Net Income Before Extraordinary Items
-62,169
(0.28%)
604,852
(3.79%)
542,683
872.91%
-57,808
(0.53%)
509,885
(6.96%)
452,078
782,03%
Extraordinary Items (Income)
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
-
0.00%
Net Income
-62,169
(0.28%)
604,852
(3.79%)
542,683
872.91%
-57,808
(0.53%)
509,885
(6.96%)
452,078
782.03%
Depreciation and Amortization
166,966
0.76%
182,377
1.14%
15,411
9.23%
86,153
0.79%
83,556
1.14%
2,597
(3.01%)
Operating Income plus Depreciation and Amortization
590,665
2.07%
97,308
0.61%
493,358
(83,53%)
242,312
2.23%
5,476
0.07%
236,836
(97.74%)
Net Income corresponding to Minority Interest
4,672
-
-3,037
0.02%
7,710
(165.01%)
2,840
-
-3,639
0.05%
6,478
(228.15%)
GRUPO CASA SABA, S.A.B. DE C.V.
BALANCE SHEET
Figures are expressed in thousands of Mexican pesos as of July 2014
QUARTER CURRENT YEAR
CLOSE PRIOR YEAR
AMOUNT
AMOUNT
TOTAL ASSETS
25,963,098
28,513,587
CURRENT ASSETS
14,945,805
17,435,810
CASH AND CASH EQUIVALENTS
838,932
1,135,536
CLIENTS (NET)
5,430,585
6,664,165
CLIENTS
7,060,183
8,257,575
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-1,629,598
-1,593,410
OTHER ACCOUNTS RECEIVABLES (NET)
3,445,091
2,404,310
INVENTORIES
5,220,352
7,219,119
OTHER CURRENT ASSETS
10,845
12,680
LONG TERM
36,139
33,052
INVESTMENTS IN SHARES OF SUBSIDIARIES AND
ASSOCIATED COMPANIES
36,139
33,052
PROPERTY MACHINARY AND EQUIPMENT NET
3,101,192
3,115,617
PROPERTY
2,353,430
2,249,221
MACHINERY AND EQUIPMENT
2,499,982
2,644,098
OTHER EQUIPMENT
1,413,524
1,764,214
ACCUMULATED DEPRECIATION
-3,165,744
-3,554,540
CONSTRUCTION IN PROGRESS
0
12,674
INTANGIBLE ASSETS (NET)
6,558,611
6,567,239
GOODWILL
2,421,035
2,462,132
BRANDS
2,737,991
2,677,690
RIGHTS AND LICENSING
1,389,484
1,412,252
OTHER INTANGIBLE ASSETS
10,101
15,165
OTHER NON CURRENT ASSETS
1,321,351
1,361,869
ADVANCE PAYMENTS
116,761
28,623
DEFERRED CHARGES (NET)
OTHERS
1,204,590
1,333,246
TOTAL LIABILITIES
22,022,969
23,928,776
CURRENT LIABILITIES
13,815,552
15,837,330
BANK CREDITS
1,822,161
1,683,123
SUPPLIERS
11,318,236
13,411,416
TAXES PAYABLE
675,155
742,791
OTHER CURRENT LIABILITIES
1,729,080
1,123,201
EMPLOYEE BENEFITS
317,437
280,710
OTHER CURRENT LIABILITIES
1,411,643
842,491
NON CURRENT LIABILITIES
6,942,264
7,373,937
BANK CREDITS
6,942,264
7,373,937
OTHER LIABILITIES
-463,927
-405,692
SHAREHOLDERS' EQUITY
3,940,129
4,548,811
CONTRIBUTED CAPITAL
2,593,872
2,593,972
CAPITAL STOCK PAID (NOMINAL)
767,902
767,902
CAPITAL STOCK PAID UPDATE
956,093
956,093
PREMIUM ON STOCK SOLD
869,877
869,877
CAPITAL INCREASE (DECREASE)
1,346,257
1,990,939
ACCUMULATED PROFIT AND LEGAL RESERVE
888,909
1,415,907
RESERVE FOR STOCK REPURCHASE
1,062,200
1,062,200
PROFIT
-604,852
-487,168