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Scope Metals: Operating profit surges 94% to NIS 43.2 million

From: Globes – 28 August 2006

Scope Metals: Operating profit surges 94% to NIS 43.2 million

The increase in revenue and profit was thanks to overseas expansion. Ishay Davidi: The growth potential is not exhausted.

Irit Avissar

“I believe in the company’s potential, and I don’t usually say this at an early stage of an investment. We believe that the company will create substantial value for its shareholders in the coming years,” says Ishay Davidi, an owner and the CEO of First Israel Mezzanine Investors Ltd. (FIMI), which invested NIS 156 million in Scope Metals Trading and Technical Services Limited. (TASE: SCOP).

Scope Metals posted an excellent quarter, mainly thanks to developments in international markets. The company’s revenue rose 81.3% in the second quarter of 2006, compared with the corresponding quarter of 2005, to NIS 269 million. The company’s operating profit was NIS 43.2 million, 94% more than for the corresponding quarter, and it posted a net profit of NIS 9.5 million, 129% more than for the corresponding quarter. The company posted a profit of NIS 21.8 million in the first half of the year, compared with NIS 12.1 million in the first half of 2005.

“The growth in revenue and profits was especially significant, since they were made even while the company expanded in international markets, which caused heavy expenses, the results of which we’ll see in the coming quarters. Therefore, the company’s growth potential is not exhausted,” says Davidi. 

Scope Metals, controlled by general manager Shmuel Shiloh, imports and markets raw materials and finished products for the metals industry. The company’s strategy is to become a “one-stop shop” in the industry, providing metal cutting, marketing and supply services. The company’s products are used in a wide range of industries, including food, pharmaceuticals, electronics and defense.

Scope Metal’s share has been a source of interest this year. In March, Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) became a party at interest in the company, with a 6.2% stake. Also in March, FIMI invested in the company, and now owns about 28% of its shares.

As mentioned, the surge in Scope Metal’s revenue and profits came from overseas expansion. The company exports to numerous countries, including Greece, Ukraine, Russia and India. The company also does business in the United States, Romania and China. In the United States, the company launched its metal business, mainly aluminum, last February, when it acquired three distribution centers for the marketing of metals on the West Coast for $11 million. The acquisition is intended to give Scope Metals a foothold in the American market and expand the company’s customer base. The company’s sales in the United States totaled NIS 53.7 million in the second quarter, approximately 21% of total sales, and it predicts that activity in this market will constitute an important segment of its revenue in the coming years.

Scope Metals has also set up warehouses in Romania and China, which are due to begin operating in about six months. At the same time, the company is expanding its business in the Czech Republic, and its exports to neighboring countries. The company’s foreign sales totaled NIS 156.3 million in the first half of the year, a third of total sales, and the company’s goal is for foreign sales to account for half of its revenue.

Scope Metal’s cash flow in the second quarter was better than in the corresponding quarter, but was still negative, at NIS 5.5 million, compared with NIS 15.5 million in the corresponding quarter. The main reason for the decline in cash flow was the significant increase in the company’s inventory. Since the company’s policy mandates rapid delivery of goods within 24 hours, it must maintain large inventory. The company’s shareholders’ equity is NIS 503 million, amounting to 39% of its balance sheet total.