fourth quarter 2008 bmv: gfamsa - investor...

Investor Relations: 1 of 12 [email protected] +52(81) 8389-9078 www.grupofamsa.com

Fourth Quarter 2008

BMV: GFAMSA

Monterrey, Mexico February 19, 2009. – Grupo Famsa S.A.B. de C.V. (BMV: GFAMSA) Mr. Humberto Garza Valdéz, Chief Executive Officer, Grupo Famsa S.A.B. de C.V., reports on the company’s fourth quarter 2008 results. Summary of Consolidated Financial Results (millions of Mexican pesos)

(1) Millions of constant Mexican pesos of December 31, 2007 (2) Variance calculated from financial statements Letter from the CEO Mr. Humberto Garza Valdéz, Grupo Famsa’s Chief Executive Officer, stated: This fourth quarter has been among the most difficult ones in recent years. The steep fall in consumer confidence and increasing unemployment caused by the global economic downturn, have pressured consumption in our markets. Nevertheless, Grupo Famsa achieved goals that reinforce the foundations of our business model and strengthen our position to face today’s adverse market conditions. Banco Ahorro Famsa advances firmly in the process of becoming Grupo Famsa’s financial arm. Our bank currently operates one of the ten largest banking branch networks in Mexico. Additionally, more than 830 thousand savings and credit customers have been attracted by a comprehensive value offer that adapts traditional banking services to the specific needs of our segment. Furthermore, through the effective integration of our retail and banking platform, Banco Ahorro Famsa now controls 38% of the total Mexican receivable account balance. The bank’s progress is also transforming Grupo Famsa’s financing profile. Banco Ahorro Famsa’s funding, that reached P$3,550 million, has an optimal cost and mitigates refinancing risk associated with credit market cycles. In addition, we expanded our coverage with 31 new stores. Despite last year’s challenges, Famsa Mexico’s retail infrastructure grew with 18 openings that also included a Banco Ahorro Famsa branch each. On the other hand, Famsa USA opened 13 stores; including the incursion into the Austin and Chicago markets as well as the successful integration of the 8 Edelstein’s Better Furniture stores in Texas.

There is limited visibility with respect to the evolution of economic conditions in the short term. Consequently, we maintain a conservative perspective regarding expansion, and will continue focusing our efforts in the consolidation of Banco Ahorro Famsa and the implementation of specific initiatives that reinforce Grupo Famsa’s fundamentals.

Fourth Quarter January – December 2008 2007(1) % Var(2) 2008 2007(1) % Var(2)

Net sales 4,209 4,272 -1.5 14,762 14,181 4.1 Cost of Sales -2,179 -2,306 -5.5 -7,571 -7,692 -1.6 Gross Income 2,030 1,966 3.3 7,191 6,489 10.8 Operating Expenses -1,859 -1,523 22.1 -6,161 -5,160 19.4 Operating Income 171 443 -61.4 1,031 1,329 -22.4 EBITDA 269 544 -50.7 1,416 1,654 -14.4 Net Income 329 159 107.2 590 518 13.9 Gross Margin 48.2% 46.0% 48.7% 45.8% EBITDA Margin 6.4% 12.7% 9.6% 11.7% Net Margin 7.8% 3.7% 4.0% 3.7%


I. Operating Results by Business Unit Store and Banking Branch Openings

1. Stores

2. Retail Area (square meters)

Famsa Mexico

Famsa Mexico increased its store network with 6 openings during the fourth quarter, reaching 18 new stores during 2008. Besides reinforcing Grupo Famsa´s presence in Mexico, each new store also expands Banco Ahorro Famsa’s coverage. Since 2007, Mexican consumers have adopted a more pessimistic view of their economic situation that is reflected in the sustained decrease in consumer confidence levels. Recently, inflationary pressures and unemployment have accelerated this indicator’s deterioration. Under such circumstances, Famsa Mexico continues focusing its efforts in the implementation of initiatives targeted at compensating the effects of the widespread slowdown in consumption. Currently, work is being done towards reactivating demand, reaching greater operating efficiency, and protecting the quality of our loan portfolio. The efforts carried out by our Gran Crédito team in the streets along with the release of cross-business / cross-product promotions, are directed at generating traffic into our stores. On the other hand, present durable good demand sensitivity is being compensated through initiatives that involve our personal loan offering and finding new product lines with good fit. The reactivation of approximately 80 thousand liquidated accounts has been one of the most important results from our personal loan program.

The implementation of a strict cost reduction and working capital optimization program has been reinforced in order to achieve greater operational efficiency. In addition, efforts are being carried out to adjust our capacity to current market conditions and identify areas of opportunity in existing operating processes. At the same time, we are working on the transition process so that Banco Ahorro Famsa continues taking control of the credits issued to the retail customers; currently at 38% of total Mexican receivables. For instance, bank personnel at the stores are now in charge of the customers’ credit application process, freeing up valuable time form Famsa Mexico’s sales team. Furthermore, there are now 190 thousand customers that make use of their authorized line of credit at our stores through the private label credit card issued by Banco Ahorro Famsa. Lastly, we have also used the transition phase to revisit our credit origination and collection processes to identify potential areas of opportunity and protect the quality of our receivables. In line with a more conservative perspective regarding expansion, we estimate increasing Famsa Mexico’s store network with 5 new stores in 2009.

Fourth Quarter Jan – Dec

2008 Total

Stores 6 31 421

Famsa Mexico 6 18 369

Famsa USA 0 13 52

Banking branches 6 101 277

Fourth Quarter Jan – Dec

2008 Total

Stores 10,184 53,090 547,415

Famsa Mexico 10,184 29,237 424,578

Famsa USA 0 23,853 122,837


Banco Ahorro Famsa Three fundamental objectives were established since the beginning of Banco Ahorro Famsa’s implementation: 1) Install one of the largest banking branch networks in Mexico, 2) Obtain funds through deposit products tailored to satisfy our customers’ needs, and 3) Build a solid loan portfolio by adapting traditional credit products to our segment. The progress in each of these three fronts has been extraordinary. Banco Ahorro Famsa’s network increased with 101 new banking branches installed during 2008, totaling 277 locations in the last 24 months. The banking branch roll-out in existing Famsa Mexico stores concluded this year. However, our bank will continue expanding its coverage with each new store Grupo Famsa opens in Mexico.

Banco Ahorro Famsa’s funding reached Ps$3,550 million by the end of 2008; a 12X increase when compared to 2007. Moreover, the number of deposit customers increased from 85K to 332K. These solid results are due to the great acceptance of the Bank’s current deposit product offering: Saving, Checking, Children’s Saving , Promissory Notes and CDs.

In addition, through solid growth in its funding and the successful implementation of processes that integrate Famsa Mexico’s retail platform, Banco Ahorro Famsa achieved 541% growth in Grupo Famsa’s consolidated trade accounts receivable; from Ps$552 million in 2007 to Ps$3,539 million in 2008. The number of credit customers at the bank reached 506 thousand compared to 31 thousand at year-end 2007. Sustained growth has not only been achieved by the strong synergy with Famsa Mexico, but also by attracting new customers with a comprehensive credit product offering that includes: FAMSA Credit Card, Personal Loans, and Commercial Loans. Moreover, non-performing loan indicators have remained among the lowest within the comparable group of banks in Mexico.

Besides accelerating the bankarization process of Mexican families, Banco Ahorro Famsa’s implementation plan is also transforming Grupo Famsa’s financing profile and reinforcing its value offer. For this reason, we will continue focusing our efforts to conclude the bank’s consolidation process successfully.

Famsa USA Famsa USA increased its network with 13 new stores during 2008. Among others, store

expansion accomplishments include the organic incursion into the Chicago and Austin markets, and the successful integration of the 8 Edelstein’s Better Furniture stores in the Texas’ Rio Grande Valley.

The financial crisis unleashed in the USA has caused historically low consumer confidence levels and high unemployment. Under such circumstances, pressure over consumption in this market has been even greater than in Mexico. Nevertheless, Famsa USA has successfully limited the effects of one of the greatest economic downturns in recent times over its operation.

The implementation of efforts targeted at reinforcing Famsa USA’s differentiation versus its competitors has continued strongly. Customer service both during the actual purchase as well as throughout the credit process has been fundamental. Also, we have successfully launched cross-product promotions that leverage strong digital television demand in order to benefit more sensitive product lines such as Furniture and Appliances. The digital TV signal migration date has been recently extended to June 12, 2009; therefore we expect TV demand to remain strong at least throughout this year.

Texas obtained the highest same store sales figure among the other states where we currently operate. On the other hand, our operation in California has been the most sensitive to present market conditions. Lastly, the results of our recently opened stores in Chicago are indicative of a market with similar characteristics to those in Texas.

Given the circumstances, Famsa USA is focusing its efforts towards reducing operating expenses, and reinforcing credit origination and collection processes in order to ensure the quality of its loan portfolio. Additionally, consistent with a more conservative perspective regarding expansion, we estimate opening 3 new stores in the US throughout 2009.


II. Financial Results by Business Unit Net Sales (millions of Mexican pesos)

(1) Includes sales of other non-retail businesses (2) Includes Banco Ahorro Famsa (3) Millions of constant Mexican pesos of December 31, 2007 (4) Variance calculated from financial statements Same Store Sales (percentage)

Net Sales Grupor Famsa’s annual consolidated Net Sales grew 4.1%, to Ps$14,762 million. During the fourth quarter, sales reached Ps$4,209 million, which represents a -1.5% decrease. Famsa Mexico’s sales were Ps$11,133 million annually; -1.7% less than 2007. Quarterly sales from our Mexican subsidiary decreased -10.1% when compared to the previous year. On the other hand, Famsa USA achieved 28.0% annual sales growth, reaching Ps$3,594 million. Fourth quarter sales from our US subsidiary totaled Ps$1,110 million; growing 34.1%. Consolidated net sales at our stores with more than twelve months of operation (Same Store Sales) decreased -10.3% during the fourth quarter and -2.7% on an annual basis. 2008 same stores sales decreased -0.6% at Famsa USA, and suffered a -3.1% contraction at Famsa Mexico. Even in the midst of the financial crisis and despite facing an exceptionally high comparable from 2007, Famsa USA was able to maintain its “same store” productivity. Overall, the sustained deterioration of market conditions, and to a lesser degree, a more conservative view adopted towards the issuance of credit, affected sales volume throughout 2008. Cost of Sales The Cost of Sales reached Ps$7,571 million during 2008. However, the cost as a percentage of net sales decreased from 54.2% in 2007 to 51.3%, expanding gross margin by approximately 290 basis points. During the fourth quarter, the percentage of cost-to-sales was 51.8% versus 54.0% last year. The increase in credit sales, including the issuance of personal loans, as well as Famsa USA’s growth, continue contributing significantly to reduce the cost-to-sales relationship.

Fourth Quarter January - December 2008 2007(3) % Var(4) 2008 2007(3) % Var(4)

Grupo Famsa (1) 4,209 4,272 -1.5 14,762 14,181 4.1 Famsa Mexico (2) 3,084 3,430 -10.1 11,133 11,326 -1.7 Famsa USA 1,110 828 34.1 3,594 2,808 28.0 Other 215 256 -16.3 849 969 -12.4 Intercompany -199 -242 -17.8 -813 -923 -11.8

Fourth Quarter January - December 2008 2007 2008 2007

Grupo Famsa -10.3 1.2 -2.7 2.5 Famsa Mexico -13.7 0.2 -3.1 1.1 Famsa USA -1.6 13.3 -0.6 14.0


Operating Income before Depreciation and Amortization (EBITDA) (millions of Mexican Pesos)

EBITDA Margin (percentage)

(1) Includes EBITDA from other non-retail businesses (2) Includes Banco Ahorro Famsa (3) Millions of constant Mexican pesos of December 31, 2007 (4) Variance calculated from financial statements Operating Expenses Operating expenses reached Ps$6,161 million during 2008, which represents a 19.4% increase versus 2007. The increase was mainly due to the roll-out of 101 Banco Ahorro Famsa banking branches in the last twelve months and the 10.7% growth in retail area that included the incursion into Chicago, Austin and the Rio Grande Valley in Texas. In addition, incremental reserves for uncollectible accounts given the prevailing market conditions, and to a lesser degree, exchange rate pressure also contributed to the growth in expenses. Comprehensive Financing Expense

The Comprehensive Financing Expense decreased -36.4% during 2008 driven by a

Ps$426 million exchange-rate profit. The 42.2% increase in paid interests due to greater debt and the global increase in cost of funding, was offset by the exchange-rate profit recorded from the net long US dollar position Grupo Famsa maintains through Famsa USA.

In addition, we did not record any gains or losses related to inflation accounting, as opposed to a Ps$81 million loss recorded during 2007. As mentioned in a recent press release, Grupo Famsa has no exposure to derivatives, and its Treasury maintains a disciplined investment policy that involves exclusively fixed income securities. Net Income

Net Income reached Ps$590 million, increasing 13.9% versus 2007. Despite a lower

than expected sales volume and incremental operating expenses, the exchange-rate profit was one of the main drivers behind net income growth.

Fourth Quarter January - December 2008 2007(3) % Var(4) 2008 2007(3) % Var(4)

Grupo Famsa (1) 269 544 -50.7 1,416 1,654 -14.4 Famsa Mexico (2) 145 396 -63.3 1,075 1,266 -15.1 Famsa USA 49 65 -25.7 217 246 -11.7 Other -9 6 -255.4 -3 17 -120.1 Intercompany 83 78 7.1 127 125 1.5

Fourth Quarter January - December 2008 2007 2008 2007

Grupo Famsa (1) 6.4 12.7 9.6 11.7 Famsa Mexico (2) 4.7 11.5 9.7 11.2 Famsa USA 4.4 7.9 6.1 8.8


Main Balance Sheet Accounts (millions of Mexican pesos)

.

(1) Millions of constant Mexican pesos of December 31, 2007 (2) Variance calculated from financial statements Trade Accounts Receivable

The Trade Accounts Receivable balance reached Ps$12,945 million, increasing 32.2%

compared to 2007. The weakening MXN/USD exchange rate had a significant impact of approximately Ps$742 million over Receivables growth. Additionally, other elements such as the Edelstein’s transaction, personal loans, and Banco Ahorro Famsa’s growth have an effect on the balance without having the same impact on sales.

On the other hand, uncollectible accounts represented 5.4% of credit sales, reflecting Famsa USA’s growing share of total sales and increasing pressure on employment in the United States and Mexico. Inventory

Inventory balance increased only 3.6% when compared to 2007 despite our retail area

growing significantly. We have ongoing initiatives focused at optimizing inventory levels without affecting our service standards. Net Debt and Bank Deposits

Net Debt balance by year-end 2008 remained virtually unchanged compared to 2007 at

Ps$ 5,473 million. On the other hand, as a result of the progress being made in the implementation of Banco Ahorro Famsa, Bank Deposits increased from Ps$258 million in 2007 to Ps$3,132 million in 2008. We expect this trend in Bank Deposit growth and Net Debt reduction to continue through 2009 as our bank advances in becoming Grupo Famsa’s financial arm.

It is important to note that, up to date, Grupo Famsa has been successful at financing its capital needs by maintaining a close relationship with multiple sources of funding. Moreover, we have successfully concluded the refinancing process of Ps$1,400 million in commercial paper with maturities between December 2008 and February 2009. Stockholder’s Equity

Stockholder’s Equity increased 12.7%, to Ps$7,300 million.

January - December 2008 2007(1) % Var(2)

Trade Accounts Receivable 12,945 9,794 32.2 Inventories 2,429 2,344 3.6 Net Debt 5,473 5,470 0.0 Bank Deposits 3,132 258 1,115.8 Stockholder’s Equity 7,300 6,479 12.7


Guidance 2009 Volatility in the financial markets significantly limits the visibility regarding economic conditions going forward. Grupo Famsa, along with the entire retail industry, faces a challenging environment that could persist through 2009. Nevertheless, Famsa has a complementary business portfolio that is unique and is focusing on the implementation of specific initiatives that reinforce its fundamentals

The fall in consumer confidence and increasing unemployment caused by the global economic downturn, have pressured consumption in our markets. Under such circumstances, we are adopting a more conservative view towards expansion. In addition, successfully concluding the implementation of Banco Ahorro Famsa, finding ways to reactivate demand and achieving greater operating efficiency, become our top priorities.

The initiatives carried out throughout 2009 will serve not only to overcome the crisis, but also to continue Grupo Famsa’s long history of sustainable growth in the years to come. Store and Banking Branch Openings

(1) Does not include approximately 10 stores that are being evaluated for closure. Financial Results (millions of Mexican Pesos)

2009 Est

Stores (1) 8

Famsa Mexico 5

Famsa USA 3

Banking branches 5

2009 Est

Net Sales (growth) 2% to 5%

Same Store Sales (growth)

Famsa Mexico (9%) to (5%)

Famsa USA (5%) to (3%)

Net Sales $15,000 - $15,500

EBITDA $1,300 - $1,500


III. Consolidated Financial Statements


This report contains, or may be deemed to contain forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The future results of the issuer may vary from the results expressed in, or implied by, the forward-looking statements made to you, possibly to a material degree.

fourth quarter 2008 bmv: gfamsa - investor...

Documents