Results for the second quarter in Kimberly Clark de México (KCM) were very strong, posting real and increasing growth rates year over year in sales, operating profit and net income. For the sixteenth consecutive quarter, we are reporting net sales growth in real terms, as well as in operating profit for the ninth consecutive quarter. The growth in units sold was greater than 8%, driven mainly by the superior performance of the consumer products which grew close to 11% year over year. Industrial products domestic volume for the quarter was slightly below that of one year ago, but grew significantly in export sales. Price and mix improved overall in both consumer and industrial products. Export sales volume was strong with prices slightly below those of one year ago.
We continue to be affected by strong cost increases in our inputs, particularly in those related to natural gas and oil, as well as in energy and pulp. Despite the foregoing, and as a result of the incremental operating volumes, the continuous cost saving programs implemented (and in place throughout the company), and the improved price and mix in Consumer Products sales, operating profit growth exceeded that of sales growth year over year. The operating profit margin was 26 percent, a 100 basis point improvement over one year ago.
During the second quarter we no longer felt the impact of the appreciation of the exchange rate on a long foreign exchange derivatives’ position, thereby significantly reducing the integral cost of financing and which drove net income improvement to be above the operating profit improvement year over year, once having booked an extraordinary charge of $109 million associated with the shut down of unproductive assets in the printing and writing paper division.
During the quarter, the Consumer Products business (PROCON), accounting for 73 percent of sales and 81 percent of EBITDA, had a very good quarter. Market unit volume grew close to 11 percent in virtually all products, but primarily in its two leading products: disposable diapers and bathroom tissue. Product prices and mix were 1 percent higher than one year ago, thereby permitting for the improvement of PROCON´s operating margin to almost 29 percent.
The writing and printing papers business continues to turn around the negative trend shown in the third, and particularly, the fourth quarter of 2005, and improved on the progress realized during the first quarter of 2006. Over 6 million tons of productive capacities in both the U.S. and Canada have been shut down over the last two years, improving the supply demand equation and permitting certain price recovery. Simultaneously, the U.S. Government has imposed countervailing duties to notebooks imported from Asia. As a result of all the above, KCM exported during the quarter over one million one hundred thousand boxes of notebooks to the U.S. Still, comparisons against the very strong first half of last year in this business remain difficult.
The quality of earnings continues to be high, as is reflected in the financial position. As of June 30th, 2006 we ended with cash of $1,878 million pesos after having invested $1,104 million ($845 million in CAPEX and $259 million in stock repurchases); as well as having paid out cash dividends for $2,626 million during the last twelve months. Working capital management continues to improve as days receivables outstanding were reduced from 73 to 70 days year over year.
Under generally accepted accounting principles in the U.S. (USGAAP), results for the quarter were as follows: Net Sales of $558 million, 10% higher than the prior year; Operating Profit of $145 million, 6 percent more than the previous year; and, Net Income of $87 million, 34 percent above last year.
The breakdown of Net Sales and EBITDA by Business Group for the second quarter of 2006 are as follows:
Consolidated Income Statements (1) Six months ended June 30th, 2006 and 2005
2006
%
2005
%
Net Sales
11,929
10,994
Cost of Sales
7,326
6,853
Gross Profit
4,603
39
4,141
38
Operating Expenses
1,654
1,507
Operating Profit
2,949
25
2,634
24
Integral Financing Cost
384
479
Extraordinary charges
109
0
Income before Provisions
2,456
2,155
Income Tax & Employee Profit Sharing
846
836
Net Income
1,610
13
1,319
12
Earnings per Share (pesos)
1.39
1.13
EBITDA
3,598
3,300
Share Buyback Program
2006
2005
Repurchased Shares during the quarter
2,973,700
8,496,200
Consolidated Financial Statement (1)
as of June 30th, 2006 and 2005
2006
2005
Assets
Cash
1,878
1,490
Accounts and Documents Receivable
5,550
5,308
Inventories
2,104
1,917
Property, Plant and Equipment
16,125
17,390
Total Assets
25,657
26,105
Liabilities and Consolidated Stockholders´
Equity
Bank loans
102
100
Derivative instruments
283
322
Suppliers
2,445
2,125
Accumulated liabilities
1,890
1,629
Dividends payable
2,025
1,955
Taxes and profit sharing payable
569
594
Derivative Instruments l.t.
175
Long term loans
5,171
5,262
Deferred taxes
2,428
2,859
Consolidated stockholder’s equity
10,744
11,084
Total
25,657
26,105
Consolidated Statements of Changes in Financial Position
from January 1st to June 30th, 2006 and 2005 (1)
2006
2005
Net income
1,610
1,319
Depreciation
649
666
Extraordinary charges
65
Deferred taxes
(113)
(237)
Changes in working capital
(608)
(661)
Sources generated by operating activities
1,603
1,087
Dividend payments
(683)
(678)
CAPEX
(216)
(371)
Share repurchases
(107)
(320)
Financing activities
124
(798)
Derivative instruments
(658)
352
Sources generated (utilized)
63
(728)
Cash at the beginning of the period
1,815
2,218
Cash at the end of the period
1,878
1,490
(1) Prepared in accordance with Generally Accepted
Accounting Principles in Mexico (Mex GAAP) and expressed
in millions of pesos as of of June 30th, 2006 purchasing
power.
Kimberly-Clark de México manufactures, markets
and distributes consumer, personal care and paper based
products.
