Grupo Simec(SIM) - 2022 Q3 - Quarterly Report

Financial Performance - Net sales increased by 3% to Ps. 44,012 million in the first nine months of 2022 compared to Ps. 42,736 million in the same period of 2021, driven by a 17% increase in average selling price despite a 12% decrease in shipments[2] - Cost of sales rose by 5% to Ps. 32,243 million in the first nine months of 2022, with cost of sales as a percentage of net sales increasing from 72% in 2021 to 73% in 2022[3] - Gross profit decreased by 1% to Ps. 11,769 million in the first nine months of 2022, with gross margin declining from 28% in 2021 to 27% in 2022 due to lower shipment volumes[4] - Operating income fell by 3% to Ps. 10,051 million in the first nine months of 2022, representing 23% of net sales compared to 24% in the same period of 2021[7] - EBITDA decreased by 3% to Ps. 10,885 million in the first nine months of 2022, reflecting a decline in net income from Ps. 8,290 million in 2021 to Ps. 8,037 million in 2022[8] - In the third quarter of 2022, net sales decreased by 7% to Ps. 13,433 million compared to Ps. 14,122 million in the third quarter of 2021, with shipments of finished steel products down to 541 thousand tons[28] - Cost of sales in the third quarter of 2022 increased by 4% to Ps. 10,271 million, with cost of sales as a percentage of net sales rising from 70% in Q3 2021 to 76% in Q3 2022[29] - Gross profit for the third quarter of 2022 decreased by 25% to Ps. 3,162 million, with gross margin declining from 30% in Q3 2021 to 24% in Q3 2022[30] - Net income for the third quarter of 2022 was Ps. 1,940 million, a significant decrease from Ps. 3,604 million in the second quarter of 2022[26] - Selling, general and administrative expenses increased by 17% to Ps. 595 million in the third quarter of 2022 compared to Ps. 508 million in the same quarter of 2021[31] - Operating income decreased by 30% from Ps. 3,681 million in Q3 2021 to Ps. 2,572 million in Q3 2022, with operating income as a percentage of net sales dropping from 26% to 19%[33] - EBITDA fell by 28% from Ps. 3,974 million in Q3 2021 to Ps. 2,857 million in Q3 2022[35] - Net income decreased from Ps. 3,313 million in Q3 2021 to Ps. 1,940 million in Q3 2022, representing a decline of 41%[39] Assets and Liabilities - Total assets increased from Ps. 57,342,572 thousand in the previous year to Ps. 66,436,773 thousand in the current quarter[43] - Cash and cash equivalents grew from Ps. 15,130,192 thousand in the previous year to Ps. 21,620,790 thousand in the current quarter[43] - Total liabilities rose from Ps. 15,380,044 thousand in the previous year to Ps. 18,638,185 thousand in the current quarter[43] - Total equity increased to 47,798,588 thousand pesos from 41,962,528 thousand pesos, representing a growth of about 14%[44] - The company has current assets to current liabilities ratio of 3.22 times, exceeding the requirement of 1.0 times[144] - Total liabilities to total assets ratio stands at 0.28, well below the maximum limit of 0.60[144] - Monetary assets total 28,615,311 thousand pesos, while liabilities amount to 11,341,180 thousand pesos[141] - The company has secured a total of 863,109 thousand pesos in current and non-current liabilities[141] Cash Flow and Investments - Cash flows from operating activities improved to a net inflow of 8,751,998 thousand pesos, compared to a net outflow of 5,668,884 thousand pesos in the previous year[51] - Net cash flows used in investing activities decreased to 407,835 thousand pesos from 856,916 thousand pesos year-over-year, indicating a reduction in capital expenditures[51] - Net cash flows used in financing activities increased significantly to 1,731,833 thousand pesos from 113,728 thousand pesos, primarily due to share repurchases and interest expenses[51] - Cash and cash equivalents at the end of the period rose to 21,620,790 thousand pesos, up from 12,598,074 thousand pesos, reflecting strong liquidity[51] Shareholder Information - Net profit attributable to owners of the parent for the current year was 9,161,135 thousand pesos, compared to 9,007,130 thousand pesos in the previous year, reflecting an increase of about 1.7%[48] - The company repurchased 35,459,348 shares, up from 35,128,483 shares in the previous year, indicating an increase of about 0.9%[45] - The company has a total of 497,709,214 shares representing its capital stock[149] - The number of shares in series B 0 is 90,850,050, with a fixed portion of 406,859,164[149] Operational Overview - Grupo Simec focuses on manufacturing and selling special bar quality (SBQ) steel products for the automotive and construction industries in Mexico, the USA, and Canada[56] - The company reported a 50.22% equity ownership in Republic Steel, which decreased from 52.00% in the previous year[75] - The company has significant investments in associates and joint ventures, with ownership stakes ranging from 50.22% to 100% in various entities[139] Financial Management and Accounting Policies - The company follows the average cost method for inventory valuation, ensuring that the cost does not exceed the market value[83] - Borrowing costs directly attributable to qualifying assets are capitalized until the assets are ready for use or sale[90] - The company recognizes goodwill as an asset at the acquisition date, less accumulated impairment losses, and conducts annual impairment reviews for cash generating units[95] - Current income tax is based on fiscal profits and cash flows, with liabilities computed using tax rates enacted at the end of the reporting period[101] - Deferred tax assets are recognized for deductible temporary differences, provided it is probable that future taxable profits will be available[102] Market and Sales Performance - Total revenue for the current year reached 56,896,386 thousand pesos, an increase from 52,954,189 thousand pesos in the previous year, representing a growth of approximately 3.7%[48] - Domestic sales amounted to 23,200,432 thousand pesos, with commercial profiles contributing 15,854,911 thousand pesos[147] - Foreign sales totaled 15,495,398 thousand pesos, with commercial profiles accounting for 11,655,238 thousand pesos[147] - The total volume of sales across all categories was 1,720 units[147] - The company has not reported any market share percentage for its products[147] Risk Management - The Company uses derivative financial instruments to manage exposure to natural gas price fluctuations, which are recognized at fair value[129] - The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognized in other comprehensive income, with gains and losses on ineffective portions recognized immediately in income[132] - The Company assesses changes in cash flows from derivative financial instruments to ensure swaps effectively reduce exposure to natural gas price fluctuations[132]