1Q06 Earnings Release
Financial Highlights:
QUARTERLY RESULTS TOTAL SALES During the first quarter of 2006, Grupo Casa Saba established multiple strategies focused on increasing its presence in the different markets in which it operates, as well as its level of client service. We consider that the results obtained were positive, as we achieved during the quarter an increase in total sales of 7.65%, even more if we take into account the strong close of 2005, which allowed us to record a 14.76% growth in sales for the fourth quarter of this year. The increase in sales for the quarter results both from the commercial and service strategies implemented by the Group, as well as from the strong performance that the Mexican private pharma market has showed. It is worth noting that, with respect to 2005, the levels of competition registered in basically all markets in which we operate have generated an increase in the discounts that GCS offers to its different types of clients. Particularly in our Publications and General Merchandise divisions, we have registered higher increases in the discounts offered to our clients for some products. All this has resulted in a reduction of our gross margin, which did not allow the sales growth to be entirely reflected in the Group’s operating income. However, in terms of operating expenses, we have continued with operating efficiency programs which have allowed us to reduce the Group’s expense margin and to partially offset the impact of the decrease in the gross margin. In GCS we will continue focusing our efforts on increasing the Group’s operating and administrative efficiency, as well as on improving our presence in the numerous markets in which we operate.
As a result of the strong performance of this division, its contribution to total sales increased slightly with respect to the 1Q05, rising from 82.21% to 82.92% in the 1Q06.
Our division focused on the distribution of health and beauty products, as well as consumer goods, general merchandise and other, registered a decrease in sales versus the 1Q05 of 2.27%. This reduction is mainly the result of lower sales of health and beauty products and consumer goods, since some clients have decided not to acquire this type of products through GCS. On the other hand, other segments of this division continue showing a solid performance, such as food products, in which, with respect to the 1Q05 there was a 29.63% growth. With respect to total sales, this division recorded a decrease in its contribution, moving from 10.58% in the 1Q05 to 9.61% in the 1Q06.
Citem, our publications division, continued displaying a positive sales performance, registering an increase with respect to the 1Q05 of 4.57%. As in previous quarters, this growth results from the solid editorial base with which Citem operates, as well as from the inclusion of new titles and the distribution of products in new points of sale. Even though Citem sales increased, its growth was lower than that of other divisions. Consequently, its contribution to the Group’s total sales moved from 4.07% in the 1Q05 to 3.95% in the 1Q06. Division
%
of Sales GROSS INCOME The Group’s gross margin registered a decrease of 44 basis points with respect to the 1Q05, reaching 9.71%. This reduction resulted in a 2.97% growth in gross income for the quarter, versus the 7.65% increase recorded in sales. The lower gross margin reflects higher levels of discounts extended to the multiple types of clients the Group services in the different divisions in which we have operations. OPERATING EXPENSES In the operating expenses item, during the first quarter of 2006, we maintained the operating efficiency programs, both at the warehouse and operating level as well as at the management level. This, jointly with the sales growth, allowed the expenses to sales ratio to decrease from 6.19% in the 1Q05 to 5.89% in the 1Q06. As a result, while sales registered a 7.65% growth for the quarter, operating expenses increased only by 2.43%, amounting to $321.82 million. OPERATING INCOME Since the reduction in the expenses to sales ratio did not offset the decrease in gross margin, the operating income registered a 3.80% increase. Consequently, the operating margin decreased from 3.96% in the 1Q05 to 3.82% in the 1Q06. Operating Income plus Depreciation and Amortization During the 1Q06, the Group’s operating income plus depreciation and amortization reached $236.75 million, amount 3.46% higher than the one recorded for the 1Q05. As a percentage of sales, the item diminished from 4.50% during the 1Q05 to 4.33% during the 1Q06, displaying the 0.93% quarterly increase in the depreciation and amortization.
As in the previous quarters, GCS’s balance sheet was free of cost-bearing liabilities during this first quarter. Cash and cash equivalents reached $531.15 million pesos at the end of the first quarter, amount 42.39% higher than that of the first quarter of 2005. When compared to the $720.68 million figure of the fourth quarter of 2005, cash and cash equivalents register a 26.30% decrease, revealing the significant decrease of 30.64% recorded in accounts payable. COMPREHENSIVE COST OF FINANCING GCS’s Comprehensive
Cost of Financing for the first quarter of the year resulted in a $5.03
million gain, differing from the $4.79 million loss registered in the
1Q05. This is mainly the result of higher interest income, which recorded
a 88.31% increase, as well as lower interest paid, which decreased during
the quarter by 26.64%. The latter are primarily comprised of fees for
banking services.
Other expenses/income, which records expenses and income from operations different from our business lines, registered a 7.78% decrease with respect to the 1Q05, amounting to an income of $14.34 million. TAX PROVISIONS Tax provisions for the quarter registered an increase of 15.62%, compared to the 1Q05, amounting to $53.75 million pesos. This increase mainly results from the provision for deferred income taxes and employees’ profit sharing. NET INCOME The Group’s net income for the 1Q06 was of $174.68 million, presenting a 5.44% growth with respect to the 1Q05 as a result of a higher operating income and the integral cost of financing result. WORKING CAPITAL In this first quarter of 2006, accounts receivable days recorded, with respect to the 1Q05, a slight increase of 0.70 days. Inventory days, as a result of our commercial strategies focused on improving our market presence, recorded in the 1Q06 an increase of 5.20 days with respect to the 1Q05. With respect to accounts payable, the quarter reflected a 7.20 days reduction versus the 1Q05. This reduction resulted from commercial negotiations which were aimed at improving conditions other than payment terms.
The 265.4 million shares issued by Grupo Casa Saba are listed on the Mexican Stock Exchange and, in the form of ADRs, on the New York Stock Exchange, both under the ticker symbol “SAB.” One ADR is equivalent to 10 common 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 more than 110 years of experience, the
Company distributes to the majority of pharmacies, chains, self-service
and convenience stores, as well as other specialized national chains. Contacts: Alejandro Sadurni,
CFO
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