Grupo Simec(SIM) - 2023 Q3 - Quarterly Report

Executive Summary Grupo Simec reported its operational results for the nine-month period ending September 30, 2023 - Grupo Simec announced its results of operations for the nine-month period ended September 30, 2023[1] Results of Operations for the First Nine Months of 2023 (vs. 2022) This section analyzes Grupo Simec's financial performance for the first nine months of 2023 compared to the same period in 2022, highlighting key operational and financial metrics Net Sales Net sales for the first nine months of 2023 decreased by 26% to MXN 32,401 million, driven by a 23% drop in average selling price and a 5% reduction in shipment volumes Net Sales Performance (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Net Sales | 32,401 | 44,012 | (26%) | | Shipments (Thousands of Tons) | 1,640 | 1,720 | (5%) | | Sales Outside Mexico | 13,571 | 20,812 | (35%) | | Mexican Sales | 18,830 | 23,200 | (19%) | | Average Selling Price | - | - | (23%) | Cost of Sales Cost of sales decreased by 25% to MXN 24,305 million, primarily due to lower input prices, though it increased to 75% as a percentage of net sales Cost of Sales Performance (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Cost of Sales | 24,305 | 32,243 | (25%) | | Cost of Sales (% of Net Sales) | 75% | 73% | 2 pp | | Cost per Steel Ton | - | - | (21%) | Gross Profit Gross profit declined by 31% to MXN 8,096 million, with the margin decreasing to 25% of net sales, reflecting lower prices and volumes Gross Profit Performance (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Gross Profit | 8,096 | 11,769 | (31%) | | Gross Profit (% of Net Sales) | 25% | 27% | (2 pp) | General, Selling and Administrative Expenses Selling, general, and administrative expenses decreased by 8% to MXN 1,587 million, increasing to 5% as a percentage of net sales SG&A Expenses Performance (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | SG&A Expenses | 1,587 | 1,725 | (8%) | | SG&A Expenses (% of Net Sales) | 5% | 4% | 1 pp | Other Income (Expenses), net Other income, net, significantly increased to MXN 167 million for the first nine months of 2023 Other Income (Expenses), net (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Other Income (Expenses), net | 167 | 7 | 2286% | Operating Income Operating income decreased by 34% to MXN 6,676 million, with the margin declining to 21% of net sales due to lower prices and volumes Operating Income Performance (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Operating Income | 6,676 | 10,051 | (34%) | | Operating Income (% of Net Sales) | 21% | 23% | (2 pp) | EBITDA EBITDA decreased by 31% to MXN 7,499 million, primarily due to lower net income and a significant increase in comprehensive financial cost EBITDA Reconciliation (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | EBITDA | 7,499 | 10,885 | (31%) | | Net Income (for EBITDA calc) | 3,821 | 8,037 | (52%) | | Income Taxes (for EBITDA calc) | 1,541 | 1,950 | (21%) | | Comprehensive Financial Cost (for EBITDA calc) | 1,318 | 64 | 1959% | | Depreciation (for EBITDA calc) | 823 | 834 | (1%) | Comprehensive Financial Cost Comprehensive financial cost significantly increased to an expense of MXN 1,318 million, driven by a substantial rise in exchange loss Comprehensive Financial Cost (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Comprehensive Financial Cost | 1,318 (expense) | 64 (expense) | 1959% | | Net Interest Income | 392 | 103 | 281% | | Exchange Loss | 1,754 | 198 | 786% | Income Taxes Income tax expense decreased to MXN 1,541 million, including a lower deferred income tax of MXN 8 million Income Taxes (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Income Tax Expense | 1,541 | 1,950 | (21%) | | Deferred Income Tax | 8 | 47 | (83%) | Net Income Net income significantly decreased by 52% to MXN 3,821 million, reflecting overall declines in sales and operating performance Net Income (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (MXN Million) | 9M 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Net Income | 3,821 | 8,037 | (52%) | Liquidity and Capital Resources As of September 30, 2023, total consolidated debt remained minimal at MXN 5.3 million, primarily from 8 7/8% medium-term notes Consolidated Debt (MTN's) (Sep 30, 2023 vs. Sep 30, 2022) | Metric | Sep 30, 2023 (MXN Million) | Sep 30, 2022 (MXN Million) | Change (%) | | :----- | :------------------------- | :------------------------- | :--------- | | Total Consolidated Debt (MTN's) | 5.3 | 6.1 | (13%) | | Accrued Interest (MTN's) | 14.2 | 14.0 | 1% | Results of Operations for the Third Quarter of 2023 (vs. Second Quarter of 2023) This section analyzes Grupo Simec's financial performance for the third quarter of 2023 compared to the second quarter of 2023, highlighting sequential trends Net Sales Net sales decreased by 7% to MXN 9,454 million in 3Q 2023, primarily due to an 11% decrease in average selling price despite a 5% increase in shipment volumes Net Sales Performance (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Net Sales | 9,454 | 10,122 | (7%) | | Shipments (Thousands of Tons) | 531 | 505 | 5% | | Sales Outside Mexico | 3,932 | 4,458 | (12%) | | Mexican Sales | 5,522 | 5,664 | (3%) | | Average Selling Price | - | - | (11%) | Cost of Sales Cost of sales decreased by 4% to MXN 7,177 million, mainly due to lower supply prices, but increased to 76% as a percentage of net sales Cost of Sales Performance (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Cost of Sales | 7,177 | 7,510 | (4%) | | Cost of Sales (% of Net Sales) | 76% | 74% | 2 pp | Gross Profit Gross profit decreased by 13% to MXN 2,277 million, with the margin declining to 24% of net sales due to lower average selling prices Gross Profit Performance (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Gross Profit | 2,277 | 2,612 | (13%) | | Gross Profit (% of Net Sales) | 24% | 26% | (2 pp) | General, Selling and Administrative Expenses Selling, general, and administrative expenses decreased by 6% to MXN 485 million, maintaining 5% of net sales SG&A Expenses Performance (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | SG&A Expenses | 485 | 515 | (6%) | | SG&A Expenses (% of Net Sales) | 5% | 5% | 0 pp | Other (Expenses) Income, net Other income, net, significantly decreased by 72% to MXN 24 million in 3Q 2023 Other Income (Expenses), net (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Other Income (Expenses), net | 24 | 85 | (72%) | Operating Income Operating income decreased by 17% to MXN 1,816 million, with the operating margin declining to 19% of net sales Operating Income Performance (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Operating Income | 1,816 | 2,182 | (17%) | | Operating Income (% of Net Sales) | 19% | 22% | (3 pp) | EBITDA EBITDA decreased by 15% to MXN 2,079 million, influenced by higher net income, lower income tax, and a shift in comprehensive financial cost to an income EBITDA Reconciliation (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | EBITDA | 2,079 | 2,460 | (15%) | | Net Income (for EBITDA calc) | 1,802 | 987 | 83% | | Income Taxes (for EBITDA calc) | 298 | 712 | (58%) | | Comprehensive Financial Cost (for EBITDA calc) | (283) (income) | 484 (expense) | N/A | | Depreciation (for EBITDA calc) | 264 | 279 | (5%) | Comprehensive Financial Cost Comprehensive financial cost shifted from an MXN 484 million expense to an MXN 283 million income, driven by a positive net exchange income Comprehensive Financial Cost (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change | | :----- | :-------------------- | :-------------------- | :------- | | Comprehensive Financial Cost | 283 (income) | 484 (expense) | Shift to income | | Net Interest Income | 28 | 175 | (84%) | | Net Exchange Income (Loss) | 255 (income) | (703) (loss) | Shift to income | Income Taxes Income tax expense substantially decreased to MXN 298 million in 3Q 2023, including a higher deferred income tax of MXN 8 million Income Taxes (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Income Tax Expense | 298 | 712 | (58%) | | Deferred Income Tax | 8 | 1 | 700% | Net Income Net income significantly increased by 83% to MXN 1,802 million, driven by favorable comprehensive financial cost and lower income taxes Net Income (3Q 2023 vs. 2Q 2023) | Metric | 3Q 2023 (MXN Million) | 2Q 2023 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Net Income | 1,802 | 987 | 83% | Results of Operations for the Third Quarter of 2023 (vs. Third Quarter of 2022) This section analyzes Grupo Simec's financial performance for the third quarter of 2023 compared to the same period in 2022, highlighting year-over-year quarterly trends Net Sales Net sales decreased by 30% to MXN 9,454 million in 3Q 2023, primarily due to a 28% drop in average sales price and a 2% decrease in sales volume Net Sales Performance (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Net Sales | 9,454 | 13,433 | (30%) | | Shipments (Thousands of Tons) | 531 | 541 | (2%) | | Sales Outside Mexico | 3,932 | 6,559 | (40%) | | Mexican Sales | 5,522 | 6,874 | (20%) | | Average Sales Price | - | - | (28%) | Cost of Sales Cost of sales decreased by 30% to MXN 7,177 million, mainly due to a 29% decrease in average raw material prices, maintaining 76% of net sales Cost of Sales Performance (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Cost of Sales | 7,177 | 10,271 | (30%) | | Cost of Sales (% of Net Sales) | 76% | 76% | 0 pp | | Average Cost of Raw Materials | - | - | (29%) | Gross (Loss) Profit Gross profit decreased by 28% to MXN 2,277 million, maintaining a stable 24% gross profit margin despite lower sales prices and input costs Gross Profit Performance (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Gross Profit | 2,277 | 3,162 | (28%) | | Gross Profit (% of Net Sales) | 24% | 24% | 0 pp | General, Selling and Administrative Expenses Selling, general, and administrative expenses decreased by 18% to MXN 485 million, increasing to 5% as a percentage of net sales SG&A Expenses Performance (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | SG&A Expenses | 485 | 595 | (18%) | | SG&A Expenses (% of Net Sales) | 5% | 4% | 1 pp | Other Income (Expenses), net Other income, net, significantly increased to MXN 24 million in 3Q 2023 Other Income (Expenses), net (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Other Income (Expenses), net | 24 | 5 | 380% | Operating (Loss) Income Operating income decreased by 29% to MXN 1,816 million, maintaining a stable 19% operating margin despite lower sales prices and input costs Operating Income Performance (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Operating Income | 1,816 | 2,572 | (29%) | | Operating Income (% of Net Sales) | 19% | 19% | 0 pp | EBITDA EBITDA decreased by 27% to MXN 2,079 million, influenced by lower net income, a significant decrease in income taxes, and a shift in comprehensive financial cost EBITDA Reconciliation (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | EBITDA | 2,079 | 2,857 | (27%) | | Net Income (for EBITDA calc) | 1,802 | 1,940 | (7%) | | Income Taxes (for EBITDA calc) | 298 | 798 | (63%) | | Comprehensive Financial Cost (for EBITDA calc) | (283) (income) | (165) (income) | 72% | | Depreciation (for EBITDA calc) | 264 | 285 | (7%) | Comprehensive Financial Cost Comprehensive financial cost increased to a net income of MXN 283 million, primarily driven by a higher exchange income, despite a decrease in net interest income Comprehensive Financial Cost (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Comprehensive Financial Cost | 283 (income) | 165 (income) | 72% | | Net Interest Income | 28 | 104 | (73%) | | Exchange Income | 255 | 30 | 750% | Income Taxes Income tax expense significantly decreased to MXN 298 million in 3Q 2023, including a lower deferred income tax of MXN 8 million Income Taxes (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Income Tax Expense | 298 | 798 | (63%) | | Deferred Income Tax | 8 | 60 | (87%) | Net Income (Loss) Net income decreased by 7% to MXN 1,802 million, influenced by favorable comprehensive financial cost and lower income taxes Net Income (3Q 2023 vs. 3Q 2022) | Metric | 3Q 2023 (MXN Million) | 3Q 2022 (MXN Million) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Net Income | 1,802 | 1,940 | (7%) | Consolidated Financial Highlights This section provides a summary of Grupo Simec's key consolidated financial performance metrics across various periods Comparative Financial Summary The consolidated financial summary shows significant year-over-year declines in key metrics for 9M 2023, with mixed quarterly trends including an increase in net income QoQ Consolidated Financial Summary (Millions of Pesos) | Metric | Jan - Sep '23 | Jan - Sep '22 | 23 vs '22 (%) | 3Q'23 | 2Q '23 | 3Q '22 | 3Q´23 vs 2Q´23 (%) | 3Q´23 vs 3Q '22 (%) | | :-------------------------------- | :------------ | :------------ | :------------ | :---- | :---- | :---- | :------------------ | :------------------ | | Sales | 32,401 | 44,012 | (26%) | 9,454 | 10,122 | 13,433 | (7%) | (30%) | | Cost of Sales | 24,305 | 32,243 | (25%) | 7,177 | 7,510 | 10,271 | (4%) | (30%) | | Gross Profit | 8,096 | 11,769 | (31%) | 2,277 | 2,612 | 3,162 | (13%) | (28%) | | Selling, General and Administrative Expense | 1,587 | 1,725 | (8%) | 485 | 515 | 595 | (6%) | (18%) | | Other Income (Expenses), net | 167 | 7 | 2286% | 24 | 85 | 5 | (72%) | 380% | | Operating Profit | 6,676 | 10,051 | (34%) | 1,816 | 2,182 | 2,572 | (17%) | (29%) | | EBITDA | 7,499 | 10,885 | (31%) | 2,079 | 2,460 | 2,857 | (15%) | (27%) | | Net income | 3,821 | 8,037 | (52%) | 1,802 | 987 | 1,940 | 83% | (7%) | | Sales Outside Mexico | 13,571 | 20,812 | (35%) | 3,932 | 4,458 | 6,559 | (12%) | (40%) | | Sales in Mexico | 18,830 | 23,200 | (19%) | 5,522 | 5,664 | 6,874 | (3%) | (20%) | | Total Sales (Thousands of Tons) | 1,640 | 1,720 | (5%) | 531 | 505 | 541 | 5% | (2%) | | Cost by ton | 14,820 | 18,746 | (21%) | 13,516 | 14,871 | 18,985 | (9%) | (29%) | Product Sales Volume and Price Analysis For 9M 2023, total sales volume decreased by 5% with a 23% drop in average price per ton, showing varied performance across product categories and quarters Product Sales Volume and Price Analysis (Jan-Sep) | Product | Thousands of Tons (2023) | Millions of Pesos (2023) | Price per Ton (2023) | Thousands of Tons (2022) | Millions of Pesos (2022) | Price per Ton (2022) | | :---------------- | :----------------------- | :----------------------- | :------------------- | :----------------------- | :----------------------- | :------------------- | | Special Profiles | 479 | 10,795 | 22,537 | 573 | 16,502 | 28,799 | | Commercial Profiles | 1,161 | 21,606 | 18,610 | 1,147 | 27,510 | 23,984 | | Total | 1,640 | 32,401 | 19,757 | 1,720 | 44,012 | 25,588 | Product Sales Volume and Price Analysis (Quarterly) | Product | Thousands of Tons (3Q 2023) | Millions of Pesos (3Q 2023) | Price per Ton (3Q 2023) | Thousands of Tons (2Q 2023) | Millions of Pesos (2Q 2023) | Price per Ton (2Q 2023) | Thousands of Tons (3Q 2022) | Millions of Pesos (3Q 2022) | Price per Ton (3Q 2022) | | :---------------- | :-------------------------- | :-------------------------- | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Special Profiles | 155 | 3,468 | 22,374 | 151 | 3,549 | 23,503 | 170 | 4,706 | 27,682 | | Commercial Profiles | 376 | 5,986 | 15,920 | 354 | 6,573 | 18,568 | 371 | 8,727 | 23,523 | | Total | 531 | 9,454 | 17,804 | 505 | 10,122 | 20,044 | 541 | 13,433 | 24,830 | Consolidated Financial Statements This section presents Grupo Simec's consolidated financial statements, including the balance sheet, comprehensive income, cash flows, and changes in equity Statements of Financial Position (Balance Sheet) Total assets slightly increased to MXN 68,678,320 thousand, while total liabilities decreased and total equity increased, reflecting a stronger financial position Consolidated Statements of Financial Position (Thousands of Pesos) | Account | Ending Current Quarter (2023) | Ending Previous Year (2022) | | :-------------------------------- | :---------------------------- | :---------------------------- | | TOTAL ASSETS | 68,678,320 | 67,632,903 | | TOTAL CURRENT ASSETS | 46,381,586 | 45,277,331 | | CASH AND CASH EQUIVALENTS | 23,509,444 | 21,546,386 | | TRADE RECEIVABLES, NET | 6,883,071 | 6,633,415 | | INVENTORIES | 11,946,989 | 12,791,311 | | TOTAL NON-CURRENT ASSETS | 22,296,734 | 22,355,572 | | PROPERTY, PLANT AND EQUIPMENT, NET | 17,247,513 | 16,782,893 | | TOTAL LIABILITIES | 18,222,151 | 19,638,527 | | TOTAL CURRENT LIABILITIES | 13,791,668 | 15,153,641 | | TRADE PAYABLES | 8,011,236 | 9,410,419 | | TOTAL NON-CURRENT LIABILITIES | 4,430,483 | 4,484,886 | | TOTAL EQUITY | 50,456,169 | 47,994,376 | | EQUITY ATTRIBUTABLE TO OWNERS OF PARENT | 50,426,095 | 47,956,729 | | RETAINED EARNINGS | 38,101,948 | 28,398,482 | | NET INCOME FOR THE PERIOD | 3,820,898 | 7,703,466 | Statements of Comprehensive Income The consolidated statements show a significant decrease in 9M 2023 net profit due to lower revenue and higher finance costs, but 3Q 2023 net profit increased year-over-year Consolidated Statements of Comprehensive Income (Thousands of Pesos) | Account | ACCUMULATED (2023) | QUARTER (3Q 2023) | ACCUMULATED (2022) | QUARTER (3Q 2022) | | :-------------------------------- | :----------------- | :---------------- | :----------------- | :---------------- | | REVENUE | 32,401,468 | 9,454,493 | 44,011,873 | 13,432,955 | | COST OF SALES | 24,305,603 | 7,177,660 | 32,242,899 | 10,270,821 | | GROSS PROFIT | 8,095,865 | 2,276,833 | 11,768,974 | 3,162,134 | | GENERAL EXPENSES | 1,587,022 | 485,179 | 1,724,844 | 594,701 | | OPERATING PROFIT (LOSS) | 6,675,729 | 1,815,357 | 10,051,100 | 2,572,289 | | FINANCE INCOME (COSTS), NET | (1,317,838) | 282,535 | (63,610) | 164,458 | | PROFIT (LOSS) BEFORE INCOME TAX | 5,357,891 | 2,097,892 | 9,987,490 | 2,736,747 | | INCOME TAX EXPENSE | 1,541,475 | 297,967 | 1,950,394 | 798,246 | | NET PROFIT (LOSS) | 3,816,416 | 1,799,925 | 8,037,096 | 1,938,501 | | PROFIT (LOSS) ATTRIBUTABLE TO OWNERS OF PARENT | 3,820,898 | 1,801,650 | 8,037,100 | 1,939,515 | | BASIC EARNINGS (LOSS) PER SHARE | 7.68 | 3.62 | 16.15 | 3.90 | | TOTAL COMPREHENSIVE INCOME | 2,531,284 | 1,637,201 | 5,904,408 | (74,516) | Statements of Cash Flows Net cash flows from operating activities decreased for 9M 2023, with higher investing outflows and reduced financing outflows, leading to a lower net increase in cash Consolidated Statements of Cash Flows (Thousands of Pesos) | CONCEPTS | CURRENT YEAR (2023) | PREVIOUS YEAR (2022) | | :------------------------------------------ | :-------------------- | :-------------------- | | PROFIT (LOSS) BEFORE INCOME TAX | 5,357,891 | 9,987,490 | | NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES | 3,197,053 | 8,751,998 | | NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | (558,909) | (407,835) | | NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES | (207,361) | (1,731,833) | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,430,783 | 6,612,330 | | CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 21,546,386 | 15,130,192 | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | 23,509,444 | 21,620,790 | Statements of Changes in Equity Total equity increased to MXN 50,456,169 thousand by 3Q 2023, primarily driven by retained earnings and net income, despite share repurchases Consolidated Statements of Changes in Equity (Thousands of Pesos) | CONCEPTS | BALANCE AT 1 JANUARY 2023 | REPURCHASE OF SHARES | COMPREHENSIVE INCOME | BALANCE AT 31 DECEMBER 2021 (sic, likely 30 Sep 2023) | | :------------------------------------------ | :------------------------ | :------------------- | :------------------- | :---------------------------------------------------- | | CAPITAL STOCK | 2,832,268 | | | 2,832,268 | | SHARES REPURCHASED | 4,266,278 | 69,491 | | 4,335,769 | | PREMIUM ON ISSUANCE OF SHARES | 4,575,233 | | | 4,575,233 | | RETAINED EARNINGS (ACCUMULATED LOSSES) | 38,101,948 | | 3,820,898 | 41,922,846 | | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | 30,825 | | (1,540,776) | (1,540,776) | | EQUITY ATTRIBUTABLE TO OWNERS OF PARENT | 47,956,729 | (69,491) | 2,538,857 | 48,816,595 | | NON-CONTROLLING INTERESTS | 37,647 | | (7,573) | 31,048 | | TOTAL EQUITY | 47,994,376 | (69,491) | 2,531,284 | 50,456,169 | Notes to the Consolidated Financial Statements This section provides detailed explanations of Grupo Simec's accounting policies, business nature, and other relevant financial information Nature of Business and Relevant Events Grupo Simec manufactures and sells SBQ commercial and structural steel products for automotive and construction industries in Mexico, the US, and Canada, as a subsidiary of Industrias CH - Principal activities: Manufacture and sale of SBQ commercial and structural steel products for the automotive and construction industries[60] - Geographic markets: Mexico, United States, and Canada[60] - Parent company: Industrias CH, S.A.B. de C.V.[60] Basis of Preparation The interim, unaudited consolidated financial statements are prepared under IAS 34 and IFRS 1, based on historical cost with fair value for certain instruments, and include controlled entities The Consolidated Financial Statements This section details the preparation of interim consolidated financial statements, including adherence to IAS 34 and IFRS 1, consistent accounting policies, and elimination of intercompany transactions - Interim financial statements are unaudited and prepared under IAS 34 (Interim Financial Reporting) and IFRS 1 (First-time Adoption of IFRS)[61] - Accounting policies are consistent with those applied at December 31, 2023[62] - All intercompany transactions, balances, income, and expenses are eliminated on consolidation[64] Historic Cost Financial statements are prepared on a historical cost basis, with certain financial instruments valued at fair value - Financial statements are prepared on the historical cost basis[65] - Certain financial instruments are valued at fair value[65] Consolidated Base This section outlines the consolidation principles, including the definition of control, the purchase method for acquisitions, and the recognition of goodwill and non-controlling interests - Consolidation includes Grupo Simec and entities it controls, defined by the power to govern financial and operating policies to obtain benefits[65] - Business acquisitions are recorded using the purchase method, with identifiable assets and liabilities recognized at fair value at the acquisition date[69][70] - Goodwill is recognized as an asset, and non-controlling interests are initially appraised at fair value or proportional net value[71][72] Consolidated Subsidiaries (as of Sep 30, 2023) | Subsidiaries established in Mexico: | Percentage of equity owned (2023) | | :------------------------------------------ | :-------------------------------- | | Compañía Siderúrgica de Guadalajara, S.A. de C.V. | 99.99% | | Arrendadora Simec, S.A. de C.V. | 100.00% | | Simec International, S.A. de C.V. | 100.00% | | ... (truncated for brevity) ... | | | Republic Steel (USA/Canada) | 50.22% | | Pacific Steel, Inc. (USA) | 100.00% | | Undershaft Investments, NV. (Curacao) | 100.00% | | GV do Brasil Industria e Comercio de Aco LTDA (Brazil) | 100.00% | Summary of Significant Accounting Policies This section details Grupo Simec's key accounting policies, covering foreign currency conversion, asset valuation, leasing, borrowing costs, intangible assets, impairment, provisions, retirement benefits, income taxes, financial instruments, and revenue recognition Conversion of Financial Statements of Foreign Subsidiaries Foreign subsidiary financial statements are translated to Mexican pesos using IAS 21, with assets and liabilities at period-end rates and equity/income/expenses at historical rates - Foreign subsidiary financial statements are translated to Mexican pesos in accordance with International Accounting Standard (IAS) 21[82] - The functional currency for U.S. subsidiaries is the U.S. dollar, and for the Brazilian subsidiary, it is the Brazilian real[83] - Assets and liabilities are translated at the balance sheet date exchange rate; equity accounts, revenues, costs, and expenses use historical exchange rates[85] Relevant Exchange Rates (Mexican pesos per one U.S. dollar) | Date | Exchange Rate | | :------------------------ | :------------ | | March 31, 2023 | 18.0932 | | June 30, 2023 | 17.1187 | | September 30, 2023 | 17.61957 | | December 31, 2022 | 19.3615 | Cash and Cash Equivalents Cash comprises non-interest-bearing bank deposits, while cash equivalents are short-term fixed income investments recorded at cost plus accrued yields - Cash consists of deposits in non-interest-bearing bank accounts[86] - Cash equivalents are short-term fixed income investments (original maturity less than three months) recorded at cost plus accrued yields, approximating fair value[86] Allowances for Doubtful Accounts The allowance for doubtful accounts is calculated based on customer balances older than one year, those under litigation, or potential non-fulfillment losses - Allowance for doubtful accounts is computed considering customer balances older than one year, those under litigation, or possible loss for non-fulfillment[86] Inventories and Cost of Sales Inventories are recorded at the lower of average cost and net realizable value, with a reserve for slow-moving items - Inventories are recorded at the lower of acquisition/production cost and net realizable value, using the average cost method[87] - A reserve is created for slow-moving inventory with turnover greater than one year[88] Property, Plant and Equipment Property, plant, and equipment are recorded at cost less impairment, depreciated straight-line over estimated useful lives, with land not depreciated - Property, plant, and equipment are recorded at cost less any recognized impairment loss[89] - Depreciation is recognized using the straight-line method over estimated useful lives, which are reviewed at the end of each year[89] - Land is not depreciated[89] Estimated Useful Lives of Main Assets | Asset Category | Years | | :-------------------------------- | :------ | | Buildings | 10 to 65 | | Machinery and equipment | 5 to 40 | | Transportation equipment | 4 | | Furniture, mixtures and computer equipment | 3 to 10 | Leasing Financial leases transfer ownership risks and benefits, recognized at fair value or present value of minimum payments, while operating lease payments are expensed straight-line - Leases are classified as financial leases when they transfer substantially all risks and benefits of ownership; assets are recognized at fair value or present value of minimum lease payments[91] - Operating lease payments are charged to expense using the straight-line method[93] Borrowing Cost Borrowing costs directly attributable to qualifying assets are capitalized, with other borrowing costs recognized in income as incurred - Borrowing costs directly attributable to qualifying assets (requiring substantial time for use/sale) are capitalized[94] - Income from temporary investment of specific borrowings for qualifying assets is deducted from eligible capitalization costs[94] - All other borrowing costs are recognized in income during the period they are incurred[95] Intangible Assets Intangible assets with finite lives are amortized straight-line, while internally generated assets from development are recognized under specific criteria - Intangible assets with finite useful lives are recorded at cost less accumulated amortization and impairment losses, amortized straight-line[95] - Internally generated intangible assets from development activities are recognized only if technical feasibility, intent to use/sell, ability to use/sell, probable future economic benefits, availability of resources, and reliable expenditure valuation are demonstrated[96][97][102] Goodwill Goodwill from business combinations is recognized as an asset, allocated to cash-generating units, and subject to annual impairment reviews with no reversals - Goodwill arising from a business combination is recognized as an asset at the acquisition date less accumulated impairment losses[103] - Goodwill is allocated to cash-generating units and subject to annual impairment reviews; impairment losses cannot be reversed[103] Impairment of Tangible and Intangible Assets Excluding Goodwill Tangible and intangible assets are reviewed annually for impairment, with losses recognized immediately and reversals limited to the carrying amount without prior impairment - The Company reviews tangible and intangible assets (excluding goodwill) annually for impairment indications[103] - Recoverable amount is the higher of fair value less cost to sell and value in use; impairment losses are recognized immediately in profit or loss (unless revalued asset)[103] - Reversals of impairment losses are recognized, limited to the carrying amount that would have existed without prior impairment[103] Provisions Provisions are recognized for present legal or assumed obligations from past events, with probable resource outflows and reliable estimates, and expected recoveries recognized as assets - Provisions are recognized when there is a present legal or assumed obligation from past events, a probable outflow of resources, and a reliable estimate of the amount[104] - The amount recognized is the best estimate of the expenditure required, discounted if using estimated cash flows[104] - Expected recoveries from third parties are recognized as assets if virtually certain[105] Cost of Retirement Benefits Defined contribution plan costs are expensed as services are rendered, while defined benefit plan costs are determined using actuarial valuations and the projected unit credit method - Contributions to defined contribution plans are recognized as expenses when employees render services[105] - For defined benefit plans, costs are determined using the projected unit credit method with actuarial valuations[105] - The retirement benefit obligation is the present value of the defined benefit obligation, adjusted for unrecognized items, less the fair value of plan assets[106] Income per Share Earnings per share are calculated by dividing net income attributable to controlling interests by the weighted average of common shares outstanding - Earnings per share are calculated by dividing net income attributable to controlling interests by the weighted average of common shares outstanding[109] Income Taxes Income tax expense includes current and deferred taxes, with deferred tax assets recognized if future taxable profits are probable and offset when statutory rights exist - Income tax expense represents the sum of current income taxes payable and deferred income tax[109] - Current income tax is based on fiscal profits and cash flows, using enacted tax rates[107] - Deferred tax is recognized for temporary differences using the liability method; deferred tax assets are recognized if future taxable profits are probable[108] - Deferred tax assets and liabilities are offset when there is a statutory right and intent to settle on a net basis[113] Foreign Currency Transaction Foreign currency transactions are recorded at prevailing exchange rates, with monetary items converted at period-end rates and exchange differences recognized in the income statement - Transactions in foreign currencies are recorded at prevailing exchange rates; monetary items are converted at period-end rates[116] - Exchange rate differences are recognized in the income statement, with exceptions for certain asset-related loans, hedging, and foreign operation investments[117] Financial Instruments Financial assets and liabilities are initially measured at fair value, with transaction costs adjusted or expensed, and amortized cost computed using the effective interest rate method - Financial assets and liabilities are recognized when the Company is part of contractual provisions, initially measured at fair value[118] - Transaction costs are adjusted to fair value for initial recognition, or expensed immediately for assets/liabilities at fair value through income[118] - The effective interest rate method is used to compute amortized cost and allocate interest income/expense[118] Financial Assets Financial assets are classified, primarily as loans and receivables at amortized cost less impairment, and derecognized upon expiration of contractual rights or transfer of risks - Financial assets are classified into categories such as 'financial assets at fair value through income' and 'loans and charge receivable'[119] - The Company primarily holds loans and receivables, stated at amortized cost less any impairment[119] - Impairment is assessed when objective evidence suggests future cash flows are affected; losses are recognized directly or through an allowance for doubtful accounts[120][125] - Financial assets are derecognized when contractual rights to cash flows expire or substantially all risks and benefits of ownership are transferred[127] Financial Liabilities Financial liabilities are classified, with other financial liabilities initially valued at fair value and subsequently at amortized cost, and derecognized upon fulfillment or expiration of obligations - Financial liabilities are classified as 'financial liabilities at fair value through income' or 'other financial liabilities'[129] - Other financial liabilities (including loans) are initially valued at fair value (net of transaction costs) and subsequently at amortized cost using the effective interest rate method[132] - Financial liabilities are derecognized if and only if the Company's obligations are fulfilled, cancelled, or expire[133] Derivative Financial Instruments The Company uses derivative instruments like natural gas cash flow swaps to manage price fluctuations, recognizing fair value changes in income or other comprehensive income for effective hedges - The Company uses derivative financial instruments (e.g., natural gas cash flow swaps) to manage exposure to natural gas price fluctuations[133][134] - Derivatives are initially recognized and remeasured at fair value; gains/losses are recognized in income unless designated as effective hedging instruments[133] - For cash flow hedges, the effective portion of fair value changes is recognized in other comprehensive income[136] - Hedge accounting is discontinued when the hedging relationship reverses, the instrument expires/sold, or no longer meets criteria[139] Revenue Recognition Revenue is recognized upon transfer of inventory risks and benefits to customers, typically at product delivery, representing goods sold less returns and discounts - Revenue is recognized when the risks and benefits of inventories are transferred to customers, usually coinciding with product delivery[140] - Net sales represent goods sold at list price, less returns and discounts[140] Segments Information Segment information is presented by region and business operation, aligning with management's decision-making framework - Segment information is presented in accordance with the region and business operation, aligning with management's decision-making information[140] Earnings (Loss) Per Share Earnings per share are calculated by dividing net income or loss attributable to controlling interests by the weighted average number of shares outstanding - Earnings per share are calculated by dividing the net income or loss attributable to controlling interests by the weighted average number of shares outstanding[140] Supplementary Financial Information This section provides additional financial details, including investments, credit breakdown, foreign currency position, debt instruments, revenue distribution, and capital stock analysis Investments in Associates and Joint Ventures The Company lists numerous subsidiaries and affiliates, primarily in steel manufacturing and related services, with ownership ranging from 50.22% to 100% Investments in Associates and Joint Ventures | Company Name | Principal Activity | % Ownership (2023) | Acquisition Cost | Current Value | | :------------------------------------------ | :------------------------------------------ | :----------------- | :--------------- | :------------ | | SIMEC INTERNATIONAL | FABRICACION Y VENTA DE PROD. DE ACERO | 99.99 | 0 | 0 | | ARRENDADORA SIMEC | FABRICACION Y VENTA DE PROD DE ACERO | 100.00 | 0 | 0 | | PACIFIC STEEL | COMPRA VENTA DE CHATARRA | 100.00 | 0 | 0 | | CIA SIDERURGICA DEL PACIFICO | ARRENDADORA DE INMUEBLES | 99.89 | 0 | 0 | | REPUBLIC STEEL | FABRICACION Y VENTA DE PROD DE ACERO | 50.22 | 0 | 0 | | GV DO BRASIL | FABRICACION Y VENTA DE PROD DE ACERO | 99.99 | 0 | 0 | | TOTAL INVESTMENT IN ASSOCIATES | | | 0 | 0 | Breakdown of Credits The Company has no bank loans, with its primary credit being MXN 5,321 thousand in medium-term notes and significant trade payables of MXN 7,664,858 thousand due within one year Breakdown of Credits (Thousands of Pesos) | Credit Type / Institution | Current Year | Until 1 Year | Until 2 Year | Until 3 Year | Until 4 Year | 5 Year or More | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | :----------- | :------------- | | TOTAL BANKS | 0 | 0 | 0 | 0 | 0 | 0 | | STOCK MARKET LISTED (Medium Term Notes) | 5,321 | 0 | 0 | 0 | 0 | 0 | | SUPPLIERS (Current) | 346,378 | 7,664,858 | 0 | 0 | 0 | 0 | | SUPPLIERS (Non-Current) | 80,791 | 0 | 0 | 0 | 0 | 0 | | TOTAL OTHER CURRENT AND NON-CURRENT LIABILITIES WITH COST | 0 | 0 | 0 | 0 | 0 | 0 | | GENERAL TOTAL | 346,378 | 7,664,858 | 80,791 | 0 | 0 | 0 | Monetary Foreign Currency Position As of 3Q 2023, Grupo Simec held a net monetary foreign currency balance of MXN 17,135,049 thousand, primarily a positive U.S. dollar position Monetary Foreign Currency Position (Thousands of Pesos) | FOREIGN CURRENCY POSITION | THOUSANDS OF DOLLARS | THOUSAND PESOS | TOTAL (THOUSAND PESOS) | | :------------------------ | :------------------- | :------------- | :--------------------- | | MONETARY ASSETS | 1,711,584 | 30,157,262 | 30,157,262 | | LIABILITIES | 739,079 | 13,022,213 | 13,022,213 | | NET BALANCE | 972,505 | 17,135,049 | 17,135,049 | Debt Instruments and Financial Limitations The Company has outstanding 8 7/8% medium-term notes with a remaining balance of MXN 5.3 million and has successfully met all related financial covenants - Remaining balance of 8 7/8% medium-term notes (MTN's) due 1998: MXN 5.3 million ($302,000 USD) as of September 30, 2023[150] - Financial covenant compliance: Current assets to current liabilities ratio is 3.36 times (vs. 1.0 times or more required)[150] - Financial covenant compliance: Total liabilities to total assets ratio is 0.27 (vs. not more than 0.60 required)[150] - Financial covenant compliance: Operating income plus non-cash items is 54.39 times (vs. 2.0 times or more required)[150] Distribution of Revenue by Product For 9M 2023, domestic sales totaled MXN 18,830,285 thousand and foreign sales MXN 11,198,738 thousand, with Commercial Profiles being the largest contributor in both Distribution of Revenue by Product (Thousands of Pesos, Jan-Sep 2023) | Main Products or Product Line | Volume (Thousands of Tons) | Amount (Thousands of Pesos) | | :---------------------------- | :------------------------- | :-------------------------- | | DOMESTIC SALES | | | | Commercial Profiles | 633 | 13,252,201 | | Special Profiles | 236 | 5,578,084 | | TOTAL DOMESTIC SALES | 869 | 18,830,285 | | FOREIGN SALES | | | | Commercial Profiles | 529 | 8,354,395 | | Special Profiles | 159 | 2,844,343 | | TOTAL FOREIGN SALES | 688 | 11,198,738 | | FOREIGN SUBSIDIARIES | | | | Special Profiles | 83 | 2,372,445 | | TOTAL REVENUE | 1,640 | 32,401,468 | Analysis of Paid Capital Stock As of the reporting date, Grupo Simec's total capital stock comprises 497,709,214 shares, divided into fixed and variable portions with corresponding capital social values Analysis of Paid Capital Stock | Category | Number of Shares | Capital Social (Pesos) | | :------------------------------------------ | :--------------- | :--------------------- | | Fixed Portion Mexican | 90,850,050 | 441,786 | | Variable Portion | 406,859,164 | 1,978,444 | | TOTAL NUMBER OF SHARES REPRESENTING THE CAPITAL STOCK | 497,709,214 | |