Management’s analysis and discussion of the operating results and financial position
For the year ended December 31, 2014
Accumulated consolidated Net Sales as of December 31, 2014 declined 1.3% year-overyear to Ps$14,856 million. During the second half of the year, credit sales began to recover slowly, issuance of Personal Loans grew and Furniture sales volume increased compared to the first six months of 2014. FAMSA Mexico posted a 2.2% year-over-year contraction in accumulated Net Sales compared to yearend 2013, while the 2014 accumulated Net Sales denominated in pesos of FAMSA USA increased 6.4% compared to the previous year. Same Store Sales (SSS) of FAMSA Mexico fell 2.5% for the period of January to December 2014, reflecting a challenging consumer environment which was more pronounced during the first half of the year. Excluding the foreign exchange effect, FAMSA USA’s SSS rose 2.4% for the year 2014, contributing to the consolidated result. As a consequence of the above, consolidated SSS declined 2.1% for the period of January to December 2014.
Cost of Sales and Gross Profit
The accumulated consolidated Cost of Sales was Ps$8,065 million as of yearend 2014, 1.0% below that of 2013. The accumulated consolidated Gross Income as of December 31, 2014 fell 1.6% year-over-year to Ps$6,791 million, reflecting the reduced sales volume registered during the first half of the year. The accumulated consolidated Gross Margin for the period of January to December 2014 was 45.7%, 20 basis points below that of the previous year.
Consolidated Operating Expenses grew 5.9% during the year 2014, from Ps$5,493 to Ps$5,817 million. Of the annual increase recorded of Ps$323 million, 40.2% was derived from a financial cost associated with Banco FAMSA’s operation, recorded as Financial Expenses and has now been reclassified as Operating Expenses. This reclassification comes as a result of Grupo FAMSA’s consolidation process of its financial information. Of the remaining amount, a vast majority corresponds to general expenses, depreciation and amortization originated by Banco FAMSA with respect to the operation of the 173 branches acquired during 2013.
As of December 31, 2014, consolidated Operating Profit was Ps$1,023 million, 27.9% below that of the previous year. The consolidated Operating Margin contracted from 9.4% in 2013 to 6.9% in 2014 due to a decrease of consolidated Gross Profit generated during 2014, and an increase in Operating Expenses, mainly associated to the operation of Banco FAMSA’s branch network.
Financial Expenses, Net
Accumulated consolidated Financing Expenses, net as of December 31, 2014 declined 8.1% compared to 2013, to Ps$906 million, derived by improved credit conditions for existing financing programs. In addition, a foreign exchange loss of Ps$215 million for 2014 was registered, compared to a foreign exchange loss of Ps$55 million in 2013.
Accumulated consolidated Net Income as of December 31, 2014 was Ps$370 million, 43.7% below that of 2013. This result is largely due to the foreign exchange loss registered in 2014 and a lesser sales volume during the first semester of the same year. In addition, a year-over-year increase of 12.4%, from Ps$226 to Ps$254 million in taxes, was registered in 2014. Such increase was due to a higher deferred tax recognized during the year 2014 compared to the previous year. The increase in deferred taxes is attributable to a change in the Income Tax Law. Until fiscal year 2013, among the temporary items pending deduction, the surplus of preventive reserves was considered. As of 2014, 100% of the global preventive reserve generated from this year will be considered among the temporary items pending deduction, since the full amount will be deductible for tax purposes in the subsequent years.
As of December 31, 2014, the balance of consolidated Accounts Receivable, net of estimates for doubtful accounts, was Ps$23,402 million, 5.6% above that as of December 31, 2013. This growth was driven by an expansion in Consumer Accounts Receivable in Mexico of 4.1% to Ps$18,386 million as of yearend 2014. Additionally, Commercial Accounts Receivable in Mexico grew 9.6% to Ps$2,912 million, while Consumer Accounts Receivable in the USA increased 14.4% to Ps$2,105 million as of the close of 2014, in part due to a change in the foreign exchange rate during the last quarter of the year.
The Non-performing Loans Ratio (NPL) was 14.2% in 4Q14, 340 basis points lower than the NPL posted as of June 30, 2014. It is noteworthy the calculation of NPL includes the heading of “Collection Rights” in the total portfolio of the bank in order to make the figure comparable to that of 2013. These rights correspond to loans that are discounted via payroll. Due to an accounting reclassification that came into effect in July 2013, they are excluded from the credit portfolio used for the calculation of the NPL indicator for the Mexican National Banking and Securities Commission (CNBV).
The balance of Inventory of Ps$2,121 million as of December 31, 2014 was 2.4% below that of 4Q13.
Bank Deposits and Net Debt
Bank Deposits as of December 31, 2014 totaled Ps$14,752 million, 5.9% above those as of the close of 2013, due to the increase in immediately-available and time deposits.
The balance of Net Debt as of December 31, 2014 was Ps$5,938 million, 1.6% below that as of the close of the previous year. In the fourth quarter of 2014, Grupo FAMSA successfully issued shares amounting to Ps$1,500 million, of which Ps$700 million was used to pay Debt, with maturity as of December 31, 2014.
Stockholders’ Equity grew 14.9% year-over-year, to Ps$10,280 million as of December 31, 2014, largely due to a capital stock increase occurred in December 2014. The main objective of the transaction was to provide resources for the company to leverage growth and profitability opportunities through geographic expansion and the capitalization of Banco FAMSA.
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