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FIMI and Migdal's investment has ignited Scope's international growth

From: Haaretz -  29 August 2006

Scope Metals – FIMI and Migdal’s investment has ignited the company’s international growth

“Scope Metals will see a qualitative jump in its activity,” said company CFO Gil Haber after Scope Metals Trading and Technical Services Limited. (TASE: SCOP) published its financial report for the second quarter of 2006, which indicates sharp growth in sales and profit. The capital market agrees with Haber’s assessment, and the company’s share rose 6.3% on a trading volume of NIS 7.2 million, ten times its average daily volume, in response to the results.

Scope Metals imports and markets products and raw materials for the metals industry. The company’s net profit rose 129% in the second quarter, compared with the corresponding quarter of 2005, to NIS 22 million.

Scope Metals raised NIS 185 million from Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) (which owns 7% of Scope Metals, fully diluted) and from First Israel Mezzanine Investors Ltd. (FIMI) (which owns 25% fully diluted). The company has sped up its expansion in overseas markets through the acquisition of two companies in the United States and is establishing companies in the Czech Republic, Romania and China.

The entry into new markets and the sharp rise in prices for raw materials led to an 81% jump in Scope Metal’s sales for the second quarter, compared with the corresponding quarter of 2005, to NIS 269 million.

Scope Metals benefited from a 28% rise in sales in Israel in the second quarter of 2006, compared with the corresponding quarter in 2005, to NIS 204 million, as well as from NIS 65 million in sales by its subsidiaries in the United States (NIS 54 million) and the Czech Republic (NIS 11 million).

The increase in sales was supported by sharp rises in the price for stainless steel (25%), aluminum (15%), steel (25%), and copper (60%). Haber adds that the company also achieved organic growth from quantitative growth in all its markets.

Scope Metals has signed cylinder futures contracts to hedge the potential profits of its metals inventory. However, in February, its closed a deal at a loss of NIS 1 million, based on an assessment that prices would continue to rise. The company’s prediction was borne out.

Scope Metal’s gross profit rose 80% for the second quarter of 2006, compared with the corresponding quarter of 2005, to NIS 79 million, 29.5% of turnover, compared with 28.7% if turnover for the corresponding quarter. This fact might indicate that the subsidiary companies in the United States have lower profit margins.

Haber said that the company has identified great potential in the two companies it acquired in the United States: Material Technology Solutions LLC (MTS), which markets aluminum products to 50 traders; and Hadco Metal Trading Co. LLC, which supplies aluminum raw material to 4,000 customers. He says that Scope Metals will expand the product range of both MTS and Hadco.

Scope Metal’s international activity accounted for a third of its turnover in the second quarter of 2006, and the company emphasizes that its target is to boost international sales to half of turnover in the coming years. Commenting on a NIS 200,000 loss in the American market, Haber says Hadco suffered from administrative problems and low investment in its working capital, which limited its development. He believes, however, that the company will become profitable again within a quarter or two. The supply of metal products to 1,500 customers in the Czech Republic generated a profit of NIS 400,000 on a turnover of NIS 11 million for the second quarter of 2006.