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WIKI ANALYSIS
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Company Overview
Grupo Casa Saba is a limited liability stock corporation with variable capital.[2] The company is structured as a holding company and thus its ability to pay dividends, repay its debt and finance operations is wholly dependent on the cash flows provided by its subsidiary companies. The company has no assets but the stock of its subsidiaries. The subsidiaries may control the ability of SAB to pay dividends or repay the debt. Contractual legal obligations subsidiaries may have may limit their ability to provide for the holding company. Growth strategy has involved expanding through the pharmacy business – specifically the growth of the subsidiary Farmacias ABC from 40 to 150 pharmacies in the 2007-2008 period and the acquisition of Drogasmil which has 104 pharmacies in operation. The company is also expanding into new lines of business like Controladora de Clínicas Ambulatorias y de Rehabilitación, S.A. de C.V. – a company specializing two full-service clinics for short-term patients. [3]
Business and Financial Metrics
- In 3Q09 Net Income increased 39.03% due to a growth in sales of 4.90% (translating to 7,009.53MM MXN). This was due to a greater gross margin of 10.87%.
- COGS in 3Q09 increased to 551.63MM MXN – an increase of 6.52% - continuing an increase in COGS due to the company’s Brazilian operations.
- Consolidated sales in 2008 reached 28.40BB MXN, 96% of which were in Mexico. Assets in Mexico included 22 distribution centers. Brazilian operations accounted for 3.56% of sales.[5]
- Capital Expenditures reached 130.8MM MXN in 2008. The company’s focus with capital expenditures is on new vehicles for the distribution fleet, information technology and computer equipment. Information technology is primarily used in the distribution centers to ensure the quality with which client transactions are processed. With this in mind the company has signed agreement with IBM and SAB to upgrade their technology.[6]
- Sales in 2008 reached 28.4BB MXN, an increase of 12.43% compared to 2007. This was primarily due to the successful acquisition and performance of Drogasmil, the expansion of the pharmacy business and a small increase of 3.80% of distribution sales.
- Sales in Net Healthy, Beauty, … increased 10.53% due to increased demand for personal care and merchandise products and commercial agreements that allowed the company to increase the number of promotions. In Pharma sales were boosted by the acquisition of Drogasmil and the expansion of the Farmacias ABC in Mexico. The Publications business decreased 19.23% to 749.2MM MXN due to the elimination of a number of publications.[7]
Business Segments
- Private Pharma (84.91% of sales): sales grew 6.19% reaching 5,951.63MM MXN driven by the Mexican pharmaceutical business. The pharmaceutical departments sell over 5,100 different products.
- Government Pharma (3.84% of sales): Growth in this segment was 5.19% - 269.42MM MXN due to an increase in participation in our participation in the bidding process of the Instituto Mexicano del Seguro Social (IMSS), the Instituto de Segurida Social del Estado de Mexico y Municipios, and the Centro Nacional de Equidad de Genero y Salud Reproductiva (National Center for Gender Equity and Reproductive Health) – all public health providers.
- Health, Beauty Aids, Consumer Goods, General Merchandise and Other Products (8.49% of sales): sales decline to 595.08MM MXN due to a decrease in promotions and discounts in an effort to improve this business segments margins. The company distributes 5,000 health and beauty products.
- Publications (2.76% of sales): Sales decreased 6.39% due to lower unit sales due to Citern stopping the distribution of publications to international clients as some publications stopped meeting internally determined profitability levels.[8] The company distributes 4,000 publications.[9]
Subsidiary Companies[10]
- Casa Saba, S.A. de C.V.(3)
- Distribuidora Casa Saba, S.A. de C.V.
- Publicaciones Citem, S.A. de C.V.
- Transportes Marproa, S.A. de C.V.
- Farmacias ABC de México, S.A. de C.V.
- Centennial, S.A. de C.V.
- Daltem Provee Norte, S.A. de C.V.
- Drogueros, S.A. de C.V.
- Farmacias Solis Hospitalarias y Oncologicas, S.A. de C.V.
- Grupo Mexatar, S.A. de C.V.
- Inmuebles Visosil, S.A. de C.V.
- Servicios Corporativos Saba, S.A. de C.V.
- Drogasmil Medicamentos e Perfumaria S.A.
- Controladora de Clínicas Ambulatorias y de Rehabilitación, S.A. de C.V.
- Resonancia Sports Clinic, S.A. de C.V.
- Servicios Corporativos Sports Clinic, S.A. de C.V.
- Tampico Sports Clinic Ambulatorias, S.A. de C.V.
- Casa Saba Brasil Holdings Ltda.
Key Trends and Forces
Mexican Law
The Ley General de Sociedades Mercantiles in Mexico requires companies to set aside 5% of their net income until a reserve worth 20% of the capital stock is reached. Only until then is a company allowed to pay out dividend or set aside cash for special reserves. Grupo Casa Saba only holds 17.3 of its capital stock as reserves to date and is thus incapable of paying out dividends. [11]
Controlling Shareholder Interest
The company’s majority stake is controlled by a single shareholder. With 85% of the outstanding stocks under one control the majority shareholder has the right to elect the majority of the Board of Directors, determine the outcome of every shareholder vote – including those that determine dividend payout in cash or otherwise.[12]
Mexico’s Economic and Political Climate
Mexico has been plagued, like many other countries in the current economic climate, by political and social instability, changes in the rate of economic growth, exchange rate fluctuations, rising Mexican inflation(6.5% in 2008), changes in Mexican taxations (the most recent change including a flat tax for companies) and changes and amendments to Mexican law.
Value of the Brazilian Reais
The Brazilian Reais has devalued frequently in the last 40 years. The Brazilian government has implemented various economic plans and programs as well as exchange rate policies. Significant fluctuations have been seen including 22.3% depreciation in 2001, and 31.9% in 2008.
Government control on the price of pharmaceuticals
Performance of pharmaceutical companies has been extremely dependent on government imposed controls. Pharmaceutical prices are all subject to government approval and as a result companies involved in their distribution and/or sales are unable to raise prices accordingly with inflation. In 1990 deregulation of these pricing policies has begun but there is no assurance that this trend will continue.[13]
Competition
In their pharmaceutical business the company faces competition from the only other national pharmaceutical distributor –Nacional de Drogas S.A. de C.V.-and several small, regional distributors.
In the Health, Beauty Aids, Consumer Goods, General Merchandise and Other Products business division the company competes with a wide array of manufacturers, wholesalers and distributors.
The retail pharmacy market is extremely fragmented in both Brazil and Mexico. In Mexico competition comes from large pharmacy chains, chief among them Farmacias Guadalajara, Farmacias Benavides, and Farmacias del Ahorro and supercenter chains like Wal-Mart (WMT) In Brazil competition comes from Drogaria Sao Paolo, Pague Menos and Drogasil. Profitability lies in the ability to establish a loyal base of repeat customers.[14]
In publications Grupo Casa Saba majors competitors included Intermex – a Grupo Televisa S.A. (TV) subsidiary, Codyplirsa – a national distributor of popular magazines, and DIMSA – an English publication distributor.[15]
References
- ↑ http://www.nyse.com/about/listed/sab.html
- ↑ Company 20-F, July 15, 2009
- ↑ Company 20F, <ref>Company 20-F, July 15, 2009</li> <li id="_note-3">[[#_ref-3|↑]] Company 6k, October 28, 2009</li> <li id="_note-4">[[#_ref-4|↑]] Company 20F, <ref>Company 20-F, July 15, 2009</li> <li id="_note-5">[[#_ref-5|↑]] Company 20-F, July 15, 2009</li> <li id="_note-6">[[#_ref-6|↑]] Company 20-F, July 15, 2009</li> <li id="_note-7">[[#_ref-7|↑]] Company 6k, October 28, 2009</li> <li id="_note-8">[[#_ref-8|↑]] Company 20-F, July 15, 2009</li> <li id="_note-9">[[#_ref-9|↑]] Company 20-F, July 15, 2009</li> <li id="_note-10">[[#_ref-10|↑]] Company 20-F, July 15, 2009</li> <li id="_note-11">[[#_ref-11|↑]] Company 20-F, July 15, 2009</li> <li id="_note-12">[[#_ref-12|↑]] Company 20-F, July 15, 2009</li> <li id="_note-13">[[#_ref-13|↑]] Company 20-F, July 15, 2009</li> <li id="_note-14">[[#_ref-14|↑]] Company 20-F, July 15, 2009</li></ol></ref>
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