The record growth in GCC’s results in 2006 reflected the successful integration of acquisitions and solid organic growth derived from higher volumes in most of the regions where GCC operates, as well as a better pricing environment.
Net sales in the fourth quarter of 2006 increased 37.4% from the year ago period and totaled $1,902.3 million pesos, as a result of a combination of the following factors: 62.9% growth in international sales, primarily reflecting the integration of acquired concrete companies in the U.S.; organic growth in the domestic and U.S. markets; and better prices in most of our products and markets.
In the United States sales grew 86.7% in the quarter as result of the integration of Consolidated Ready Mix, Inc. (CRM) and Mid-Continent Concrete Company (MidCo), as well as higher volumes and better prices in cement, reflecting the strong performance of the commercial and public infrastructure sectors, as well as a less dynamic residential housing segment.
* Results stated herein include the 47.02% proportional consolidation of Sociedad Boliviana de Cemento, S.A. (SOBOCE); pro forma results excluding SOBOCE are provided in the attached financial tables.
In Mexico, the 7.6% increase in net sales was a result of increased volumes in all the Company’s product lines, as well as higher prices in cement and concrete.
In the fourth quarter of 2006, GCC’s proportional share of sales in Bolivia represented 8.2% of total sales. This 12.7% decline was the result of lower volumes due to the completion of an important highway project at the end of the third quarter of 2006, as well as a greater percentage of bulk sales. In the year as a whole, SOBOCE’s sales increased 19.4% compared to 2005, reflecting the solid performance of the construction industry in that country.
For the full year 2006, GCC’s net sales rose 46.6% over 2005. This increase resulted from the integration of acquisitions, organic growth in each of GCC’s markets and higher average product prices. Sales growth in the Company’s international operations was 78.2% for the year, while in Mexico it was 13.3%.
Cost of sales in the quarter was 67.4% as a percentage of sales, 7.0 percentage points greater than in the fourth quarter of 2005 due to the greater proportion of the concrete business in the sales mix as well as an increase in depreciation from the recent acquisitions in the U.S. The cost of sales for the year as a whole was 65.5%, 3.3% percentage points greater than in 2005.
Sales and administrative expenses declined 1.6 percentage points as a percentage of sales, to 10.6%. The increase in absolute terms, compared to the fourth quarter of 2005, was due primarily to the integration of expenses from the concrete operations acquired in the year. For 2006, sales and administrative expenses declined by 0.6 percentage points as a percentage of sales, to 9.5%.
Operating income rose 10.3% in the fourth quarter to $418.1 million pesos. This represented 22.0% of net sales, 5.4 percentage points lower than the operating margin in the year ago period, reflecting the increase in the cost of sales due to the greater participation of the concrete business in the sales mix. For the full year, operating income rose 32.4% to $1,796.6 million pesos. The operating margin was 25.1%, 2.7 percentage points less than in 2005.
Operating cash flow (EBITDA) increased 25.6% in the quarter to $604.7 million pesos as a result of operating income growth and the effect of greater depreciation from the integration of acquisitions. For the full year, EBITDA rose 35.2% to $2,388.4 million pesos. EBITDA margin in the fourth quarter and full year was 31.8% and 33.3%, respectively.
The Company generated free cash flow of $743.1 million pesos in the quarter, 43.9% greater than the $516.3 million pesos in the year ago period. This figure reflects higher EBITDA and lower antidumping duties, which were partially offset by greater net financial expenses and an increase in working capital. For the full year, free cash flow totaled $1,783.5 million pesos, an increase of 64.0% compared to 2005, due to extraordinary income from the reimbursement of antidumping duties and the same aforementioned factors.