CONTENTS. Challenges Transformed in Opportunities Annual Report. Corporate Profile. Financial Highlights

Transcription

1 Challenges Transformed in Opportunities 2012 Annual Report CONTENTS Corporate Profile Financial Highlights Letter from the Chairman of the Board and the CEO Business Model Famsa Mexico Banco Ahorro Famsa Famsa USA Social Responsibility Corporate Governance Management s Discussion and Analysis of the Operating Results and Financial Position of Grupo Famsa Consolidated Financial Statements

2 Corporate Profile Since its founding in 1970, Grupo Famsa has consolidated its position as a leading specialty retailer, focusing its efforts on meeting families diverse consumption, financing and saving needs. Over more than four decades, Grupo Famsa has developed a solid portfolio of complementary businesses based on consumer credit and savings. Famsa Mexico, Banco Ahorro Famsa and Famsa USA, our three business units, provide a comprehensive value offer aimed at enhancing the quality of life of a market segment that demands personalized service and credit options that are not provided by the traditional banking sector. Cash Sales 19% Both through their individual operations and through the synergies generated between them, these three operating units serve to strengthen the company s performance. Banco Ahorro Famsa s growing financial service portfolio enhances the services provided at Famsa Mexico s stores. Likewise, Famsa USA serves the Hispanic segment of the United States, successfully replicating Famsa Mexico s business model in the states of Texas and Illinois. Grupo Famsa currently operates an extensive network of 355 stores with 304 bank branches in 26 Mexican states, as well as 25 stores in two of the states with the highest Hispanic population in the United States. The collective potential of Grupo Famsa s business platform positions the company to extend its growth and generate value for the stockholder. Grupo Famsa is continuously evolving to satisfy the needs of our customers and the changing market trends with an innovative product and service offering Credit Sales 81% Through the synergies generated between them, Grupo Famsa s three operating units drive the Company s performance 2

3 Financial Highlights Operating Figures Total Stores Mexico United States Banco Ahorro Famsa Variation Stores CAGR: -3.7% % 0.9% -49.0% 5.6% Credit Accounts (Millions) Employees Financial Results (a) , , % 2.9% Retail Area CAGR: -5.1% Net Sales Mexico (b) United States Other Inter-segment (c) $14,123 $12,353 $1,715 $949 -$894 $13,866 $12,031 $1,731 $1,030 -$ % 2.7% -0.9% -7.9% -3.5% Gross Profit Adjusted EBITDA (d) Operating Income Net Income Gross Margin Adjusted EBITDA Margin Net Margin $6,587 $2,379 $1,475 $ % 16.8% 2.3% $6,295 $1,955 $1,078 $ % 14.1% 1.6% 4.7% 21.7% 36.8% 42.0% Thousands of square meters 1.76 Credit Accounts CAGR: 3.5% Balance Sheet Accounts (a) Assets Liabilities Stockholders Equity $29,070 $20,780 $8,290 $27,386 $19,372 $8, % 7.3% 3.4% Millions (a) (b) (c) (d) Millions of Mexican pesos, except percentages Includes Banco Ahorro Famsa Intercompany sales See Note 25.2 to the Consolidated Financial Statements Total Assets CAGR: 8.4% 24,734 27,386 29,070 Our operations in the United States comprise 12% of the Company s consolidated revenue Millions of Mexican pesos 3

4 Letter from the Chairman of the Board and the CEO To our Stockholders: During 2012, we significantly enhanced the profitability of our operations in Mexico and concluded the refocus process of Famsa USA, allowing us to enrich our value offer and resume the growth strategy that characterizes Grupo Famsa. Driven by a committed professional team, we reinforced the rollout of commercial initiatives aimed at stimulating demand of diverse core categories, we capitalized the strength of personal loans and we diversified Banco Ahorro Famsa s credit options. These actions, together with a strict control of expenses across all of our operations, allowed us to post a historic Ps$2,379 million Adjusted EBITDA as of yearend 2012, 21.7% higher than in Meanwhile, Adjusted EBITDA margin grew from 14.1% in 2011 to 16.8% in Results for 2012 support our strategic business plan, which was executed during the year in a precise and orderly manner across each of the Company s business units. Famsa Mexico s operations reflected a consistent capacity for value creation, strengthened by the constant innovation of our product portfolio, the perfection of our customers shopping experience and the continuous improvement of our administrative efficiency. In this context, Famsa Mexico s Net Sales increased 2.7% to Ps$12,353 million in Additionally, the effectiveness of our permanent focus on reactivating sales was reflected in the furniture and motorcycle categories. During 2012, furniture sales rose 10.2%, while motorcycle sales increased 41%. The actions implemented for consolidating operations in Mexico also translated into an important improvement of 10.9% in Operating Profit, which reached Ps$1,362 million as of yearend Banco Ahorro Famsa continued to post outstanding results and stability, sustained by a growing deposit base, a record minimum average cost of funding of 5.17% and a solid Capitalization Index (ICAP) of 13.1%. Bank Deposits, which have grown steadily year-over-year since 2007, reached 1.1 million accounts with an aggregate balance of Ps$11,999 million during It is important to note that derived from Banco Ahorro Famsa s efforts to extend the timeframe of its deposit base, as of the close of 2012, 89.4% of the bank s deposits corresponded to time deposits. In addition, as a result of a credit option diversification strategy targeting the dynamic micro, small and mediumsized enterprise (MSME) segment, we have become an attractive alternative for productive credits. As a result, we achieved a 28.3% growth rate in our Commercial Portfolio, as compared to

5 The synergies shared by Famsa Mexico and Banco Ahorro Famsa enabled us to maintain our focus on consolidating stable operations without compromising our flexibility to create new business opportunities. Consequently, in 2012 we resumed our expansion plan by opening 17 branches, including 12 independent bank branches in territories in which we were not present, allowing us to establish a customer base for future store expansions. After performing a deep analysis, a comprehensive refocus process was implemented to assure the profitability of Famsa USA. Although this decision represented a challenge for the Company, it was necessary to reinforce the Group s overall position. While strengthening our operations in Texas and Illinois, we carried out an orderly exit from Arizona, California and Nevada. In the latter three states, the economy showed a downward trend regarding unemployment and consumption, especially in our key population segment, the Hispanic market. The actions implemented in Arizona, California and Nevada were focused on maximizing the collection of accounts receivable and minimizing the cost of closing the store network in the region. As of December 31, 2012, we achieved a 65.5% reduction in the balance of accounts receivable, compared to Furthermore, we concluded the process of closing 24 stores and two distribution centers and two warehouses which supplied these states. Parallel to this divestment process, we strengthened our operations in Texas and Illinois by expanding our product portfolio, improving our personalized service, and re-launching attractive advertising campaigns. These strategies resulted in an increased demand for core categories, such as furniture and household appliances, which contributed to a great extent in the 8.3% growth in Same Store Sales posted during the fourth quarter of 2012, the first positive growth rate since the first quarter of We also reinforced our value offer in the Texas region with the origination of personal loans and maintained a leaner operating expense structure. As a result, Famsa USA achieved an outstanding increase in its Operating Profit, which reached Ps$119 million in 2012, compared to a Ps$57 million loss in The achievements across Famsa Mexico, Banco Ahorro Famsa and Famsa USA reflect an accurate business model and an efficient profitability platform that, combined with our experience and philosophy of continuous improvement, constitute a solid base for driving Grupo Famsa s growth. During 2013, we will seek to consolidate the positive progress accomplished by implementing new and ambitious growth plans at Famsa Mexico, Famsa USA and Banco Ahorro Famsa, which we expect will translate into concrete benefits for Grupo Famsa s stakeholders. We appreciate the effort and commitment of our employees, who day after day embrace the Company s objectives as their own and allow us to develop solutions and initiatives that benefit our operations. We are equally grateful for the preference and reliance of our customers, suppliers and creditors. Finally, we reiterate our commitment to our stockholders to enhance the product offer and business platform, which will enable us to create value on your investment, compensate your trust and drive the profitable growth that we pursue. Humberto Garza González Chairman of the Board Humberto Garza Valdéz Chief Executive Officer 5

6 Business Model Our business model has its origins and focus on value creation through our customers total satisfaction We are dedicated to providing a comprehensive value offer in consumption, financing and savings needs through the close interaction and synergies between Famsa Mexico, Famsa USA and Banco Ahorro Famsa 6

7 Famsa USA Famsa Mexico -Famsa-to-Famsa sales volume Famsa USA Banco Ahorro Famsa -Remittance dispatch Banco Ahorro Famsa Famsa Mexico -Credit availability -Banking service offering for customers Banco Ahorro Famsa Famsa USA -Banking service offering for people who receive remittances Famsa Mexico Famsa USA -Brand recognition -Successful business model -Infrastructure for Famsa-to-Famsa Famsa Mexico Banco Ahorro Famsa -Broad store network and store traffic -Active credit customer base -Brand recognition 7

8 Famsa Mexico

9 Strong Performance, Solid Profitability Net Sales During 2012, Famsa Mexico achieved a year of accurate results with improvements in its profitability, displaying the effort and commitment of its entire team. 12,031 12, % The series of initiatives implemented to satisfy consumers needs and to stimulate demand for durable goods, as well as the strength of personal loan origination, consolidated these achievements and are the foundations for the future growth of this business unit Millions of Mexican pesos Operating Profit Consequently, Famsa Mexico s 2012 Net Sales reached Ps$12,353 million, 2.7% above the previous year. This performance, combined with a rigorous control of operating expenses, boosted Famsa Mexico s Operating Profit, posting a 10.9% yearover-year increase, which totaled Ps$1,362 million as of year-end Furthermore, this business unit registered an expansion in its Operating Margin of 80 basis points, from 10.2% in 2011 to 11.0% in ,362 1, % Operating Profit grew 10.9% year-over-year 2011 Millions of Mexican pesos

10 10.2% growth in Furniture in 2012 Among the multiple initiatives implemented during the year to achieve these results, we reinforced the assortment of models and brands of our product portfolio, the mounting of more attractive displays, the excellence of the shopping experience, and the rollout of targeted advertising campaigns to drive credit sales. Sales by Product Category (%) Others 19% Personal Loans 25% Furniture 14% Motorcycles 5% Electronics 12% Computers 6% Mobile Phones 8% Household Appliances 11% 10

11 Our store network in Mexico resumed its growth Among our durable goods categories, Mobile Phones and Household Appliances posted some of the strongest results, which, after a period of contraction, were able to modify their trend and drive sales growth rates up to 12.4% and 7.6%, respectively, during the last quarter of the year. Additionally, the continuous dynamism reflected by the Motorcycles, Furniture and Personal Loans categories raised the quarterly growth in Famsa Mexico s Same Store Sales, reaching an increase of 3.5% during the fourth quarter of Backed by the effectiveness of the initiatives implemented, in 2012 we resumed our expansion plan in Mexico. During the year, we opened five full format stores in diverse cities, reinforcing our commitment to continue expanding our store network which was postponed due to the financial crisis. This boost to our expansion strategy, coupled with the solid operating performance of 2012, is an excellent foundation to strengthen our value creation path towards the profitable growth that has distinguished Grupo Famsa across its history. Same Store Sales Growth (%) 10% 5% Same Store Sales grew 3.5% in 4Q12 0% -5% 4Q11 1Q12 2Q12 3Q12 4Q12 11

12 Banco Ahorro Famsa

13 Strength, Diversification and Growth Since its founding in 2007, Banco Ahorro Famsa s operations have grown steadily. As of the close of 2012, Banco Ahorro Famsa is one of Mexico s 10 largest multiple banking institutions in terms of the balance of its Consumer Portfolio (CNBV, Dec. 2012). Most notable among Banco Ahorro Famsa s indicators is its Capitalization Index, which through 2012 remained at an average level of 13.3%, reflecting the strength and stability of our operations. In addition, its deposit base, distributed across more than 1.1 million accounts, grew 15.0% year-overyear to Ps$11,999 million. Banco Ahorro Famsa has been able to enhance time deposits in order to extend the duration of its deposit base while continuously reducing its average cost of funding. As of December 31, 2012, 89.4% of Banco Ahorro Famsa s bank deposits correspond to savings instruments with an average term of 152 days and a historic minimum cost of funding of 5.17%. In Number of Banking Branches: Rank Mexico In Balance of Consumer Loan Portfolio In Balance of Deposits Source: CNBV (December 2012) Bank Deposits The solid performance of these indicators reflect the strength of Banco Ahorro Famsa s market position, underpinning its service and value offer to earn the preference of a growing number of customers in all the segments it serves. 10, % 11,999 4Q11 1Q12 2Q12 3Q12 4Q12 Millions of Mexican pesos 13

14 89.4% of Banco Ahorro Famsa s deposit base correspond to time savings instruments Besides complementing our traditional consumer financing business, Banco Ahorro Famsa advances in the development of its Commercial Loan Portfolio. As of the close of 2012, its balance of credits reached Ps$2,393 million, a growth of 28.3% above the previous year. 6.5% Cost of Funding Key to this growth has been our product and service diversification strategy, which is best exemplified with the credits we offer to support Micro, Small and Medium-sized Enterprises (MSMEs). Banco Ahorro Famsa s commitment to seek new ways of value creation has now positioned us as an attractive alternative for financing productive loans. 5.5% 4.5% 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Our success in the incursion of financing this type of credits reflects a series of initiatives we implemented during the year, including the opening of 10 MSME locations in the Mexican cities of Monterrey, San Luis Potosi, Torreon and Saltillo. At these places, our specialized personnel address customers from a wide range of industries, including the construction, financial services and commercial sectors, among others. Commercial Loan Portfolio 1, % 2,393 4Q11 1Q12 2Q12 3Q12 4Q12 Millions of Mexican pesos 14

15 Banco Ahorro Famsa is an attractive alternative for productive loans, granting more than 1,670 credits to support small and medium entrepreneurs The solid performance of our banking business unit encouraged the opening of five new branches within our stores in 2012, as well as 12 independent branches, most of which were located in territories where we were not present. As of the close of 2012, Grupo Famsa has a total of 304 banking branches. The implementation of Banco Ahorro Famsa s new independent bank branch format enables us to focus on consolidating stable and strong operations, with the flexibility to pursue new diversification and growth strategies that will benefit our customers. 15

16 Famsa USA

17 Refocus that Drives Profitability The series of initiatives implemented, accelerated the recovery trend and drove Famsa USA s profitability Consolidated Sales Mexico 88% USA 12% Precipitated by the economic downturn in the West region of the United States, during 2012 we carried out successfully a comprehensive refocus process to ensure Famsa USA s profitability and strengthen the Group s overall position. The strategy we implemented involved an orderly and efficient exit from the West region, comprised by the states of Arizona, California and Nevada, and the consolidation of our operations in the Texas region, which includes the states of Texas and Illinois. This decision represented a great challenge, but has proven to be the best alternative to face the adverse economic environment and to advance with the recovery of our US operations profitability. The divestment process in the West region of the United States involved the closing of 24 stores and two distribution centers and two warehouses that supplied the region. We also implemented a series of actions to maximize the collection of accounts receivable. These included the installation of kiosks close to our former stores to serve as payment centers, as well as the acceptance of credit- and debit-card payments by telephone and Internet. As a result of these efforts, the balance of accounts receivable in the West declined 65.5% year-overyear, from US$95 million in December 2011 to US$33 million in December It is important to note that collection activities will continue during the first half of 2013 in order to recover the remaining balance. 17

18 A more profitable sales mix and the reduction of operating expenses enhanced the profitability of our operations in Texas At the same time, sales volume in the Texas region rose progressively during the second half of the year, reaching a Same Store Sales increase of 8.3% in the fourth quarter of 2012, the first positive growth since the first quarter of A series of diverse initiatives implemented, such as enhancing the selection of our product assortment, launching attractive advertising campaigns and promotions, and improving our exhibition spaces, reactivated the demand for certain core categories of durable goods. As a result, Household Appliances and Furniture posted a growth in sales during the fourth quarter of 2012, increasing 34.6% and 23.1%, respectively. Sales 1,731 1, Millions of Mexican pesos Accounts Receivable % Operating Profit Q11 1Q12 2Q12 3Q12 4Q12 57 Millions of USD Millions of Mexican pesos 18

19 Additionally, we underpinned our product offer by promoting the origination of personal loans and implemented a rigorous program for optimizing operating expenses. Consequently, the rate of recovery accelerated and the profitability of our business in the region of Texas and Illinois was boosted. Our efforts resulted in a substantial growth in Operating Profit, which at yearend 2012 was Ps$119 million, compared to a loss of Ps$57 million in The initiatives implemented and the positive results yielded imply a more solid performance for this business unit, which will encourage Grupo Famsa to continue consolidating the presence of Famsa USA in the Hispanic market of the US. Same Store Sales Growth (%) 10% 0% -10% -20% -30% 4Q11 1Q12 2Q12 3Q12 4Q12 19

20 Social Responsability

21 299,000 hours of training in 2012 Since our foundation, and as part of our business philosophy, we maintain a close relationship with the communities we serve and reinforce our commitment to the welfare of society. During 2012, Grupo Famsa increased the resources assigned to support social institutions that benefit segments of the population who live in underprivileged conditions or have special needs, compared to We collaborate in multiple programs which promote the education of people living under harsh conditions, the assistance of disabled children and sick patients, among other community development initiatives. Furthermore, we carry out fund-raising campaigns to support organizations that seek social wellbeing through Banco Ahorro Famsa s branches, ATMs and on-line banking. In 2012, associations such as EN NUESTRAS MANOS, HOGA, BÉCALOS, Hogar de la Misericordia and Club de Niños y Niñas de Nuevo León were benefited from these campaigns. For more than 40 years, our employees have been the foundation of the success and growth of Grupo Famsa. Their capabilities and experience are our most important assets for achieving our goals. Seeking their continuous development, we offer our employees several improvement programs focusing on customer service, one of Grupo Famsa s key differentiators, as well as on human development, technical skills and how to enrich the purchasing experience, all of which enhance their professional mobility. In 2012, Grupo Famsa provided 299,000 man-hours of training. Finally, as a result of the success of the Company s training programs, 1,495 of our employees were promoted internally in In this way, we are driving the talent of this great enterprise s workforce of 16,741 employees as of December 31,

22 Corporate Governance

23 Management Team Grupo Famsa, S.A.B. de C.V. Humberto Garza Valdéz Chief Executive Officer Oziel Mario Garza Valdéz Vice President of Clothing and Verochi Luis Gerardo Villarreal Rosales Chief Operations Officer Abelardo García Lozano Chief Financial Officer Martín Urbina Villarreal Vice President of Famsa Mexico Angel Alfonso de Soto Hernández Vice President of Banco Ahorro Famsa Corporate Governance Practices Grupo Famsa s positive performance rests on sound Corporate Governance practices in compliance with the Code of Best Corporate Practices recommended by the Mexican Stock Exchange and the National Banking and Securities Commission. This has resulted in the optimal functioning of the company s Board of Directors, which, in coordination with the Audit Committee and the Corporate Practices Committee, is responsible for planning, approving and supervising all of the Company s operations. Ignacio Ortiz Lambretón Vice President of Famsa USA Joaquín Aguirre Carrera Vice President of Marketing Héctor Padilla Ramos Vice President of Merchandise Manuel Rodríguez González Chief Information Officer Héctor Hugo Hernández Lee Vice President of Human Resources 23

24 Board of Directors Grupo Famsa, S.A.B. de C.V. Don Humberto Garza González Director Humberto Garza Valdéz Director Hernán Javier Garza Valdéz Director Oziel Mario Garza Valdéz Director Bernardo Guerra Treviño Independent Director Salvador Kalifa Assad Independent Director Horacio Marchand Flores Independent Director Jorge Luis Ramos Santos Independent Director Alejandro Sepúlveda Gutiérrez Independent Director Officers of Grupo Famsa s Board of Directors: Don Humberto Garza González Chairman (*) Luis Gerardo Villarreal Rosales Secretary (*) Ricardo Maldonado Yañez Alternate Secretary (*) Officers who are not members of the Board of Directors. Don Humberto Garza González is the founder and Chairman of the Board of Grupo Famsa. Humberto Garza Valdéz has been with the Company for the past 27 years and is Don Humberto Garza González son. He has been our President for the past 16 years, having previously served as Deputy President. He holds a Bachelor s degree in Business Administration from the University of Monterrey (UDEM) and a Master in Executive Business Administration from the Institute of Executive Business Management (IPADE). Hernán Javier Garza Valdéz has been with the Company for the past 25 years and is Don Humberto Garza González son. He currently serves as Project Director. He holds a Bachelor s degree in Economics from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), an M.B.A. from the University of Notre Dame and a Master in Information Systems from ITESM. Oziel Mario Garza Valdéz has been with the Company for the past 19 years and is Don Humberto Garza González son. He has been our Vice President of Clothing and Verochi for the past 14 years, having previously served as Commercial Director for the Monterrey Region. He holds a Bachelor s degree in Business Administration from UDEM and a Master in Executive Business Administration from IPADE. Bernardo Guerra Treviño has been a member of Grupo Famsa s Board of Directors since He is a founding member and General Director of Morales y Guerra Capital Asesores (MG Capital) and serves as an independent director of Banco Ahorro Famsa and Axtel, where he is also the President of the Corporate Practices and Auditing committees. He is also a member of the administrative committee and President of the Corporate Practices and Auditing committees of Promotora Ambiental. He holds an Industrial Engineering degree from ITESM. Salvador Kalifa Assad has been a member of Grupo Famsa s Board of Directors since He currently runs his own consulting firm, Consultores Económicos Especializados, and provides economic analysis for several Mexican newspapers. He was Director of Economic Studies at Grupo Alfa for seven years and collaborated with Grupo Financiero GBM-Atlántico. He has also been a member of the Boards of Directors of Grupo IMSA, Verzatec and Banorte. He holds a Bachelor s degree in Economics from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), as well as Master s and Doctoral degrees in Economics from Cornell University. 24

25 Audit Committee Horacio Marchand Flores has been a member of Grupo Famsa s Board of Directors since He has served as Sales Director at Alestra and as Marketing Vice President at Iusacell. He founded the firm Marchand y Asociados, which specializes in strategy and marketing projects. He has also been a member of the Board of Directors and Treasurer of Monterrey s Chamber of Commerce, a member of the Executive Committee of CONCANACO and a member of CCINLAC. He holds a Bachelor s degree in Business Administration from ITESM, a Master in Business Administration and Marketing from the University of Texas, and a Doctorate in Deep Psychology and Mythology from Pacifica Graduate Institute. Jorge Luis Ramos Santos has been a member of Grupo Famsa s Board of Directors since He currently represents Heineken Americas in its joint ventures and is a strategic advisor to this company. He has served as Deputy President of Heineken Americas, as CEO of Cervecería Cuauhtémoc Moctezuma as Human Resources Vice President and as Chief Commercial Officer of Femsa Cerveza. He currently sits on the boards of several companies in Latin America, as well as of several business organizations and universities in Mexico. He holds Bachelor s degrees in Accounting and Business Administration from Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM) and a Master in Business Administration from the Wharton School of the University of Pennsylvania. Alejandro Sepúlveda Gutiérrez has been a member of Grupo Famsa s Board of Directors since He has served as Vice President of Financial Information at Alfa, and as Corporate Controller and Deputy Vice President at Fundidora Monterrey. He is a member of the Committee on Financial Reporting Practices of the Mexican Institute of Finance Executives Monterrey Division. He holds a degree in Accounting from ITESM, a Master in Business Administration from Texas Christian University and has completed course studies on executive business management at IPADE. Alejandro Sepúlveda Gutiérrez Chairman Salvador Llarena Arriola Jorge Luis Ramos Santos Corporate Practices Committee Alejandro Sepúlveda Gutiérrez Chairman Salvador Llarena Arriola Jorge Luis Ramos Santos Board of Directors Banco Ahorro Famsa, S.A., Multiple Banking Institution Luis Gerardo Villarreal Rosales Director Hernán Javier Garza Valdéz Director Oziel Mario Garza Valdéz Director Angel Alfonso de Soto Hernández Director Bernardo Guerra Treviño Independent Director Salvador Kalifa Assad Independent Director Héctor Medina Aguiar Independent Director Ernesto Ortiz Lambretón Independent Director Officers of Banco Ahorro Famsa s Board of Directors: Luis Gerardo Villarreal Rosales Chairman (*) Ricardo Maldonado Yañez Secretary (*) Humberto Loza López Alternate Secretary (*) Officers who are not members of the Board of Directors. 25

26 Management s Discussion and Analysis of the Operating Results and Financial Position For the year ended December 31, 2012 Income Statement Net Sales During the year ended December 31, 2012, Grupo Famsa s consolidated Net Sales increased by 1.9%, compared to 2011, to Ps$14,123 million. Famsa Mexico reported Net Sales of Ps$12,353 million in 2012, a 2.7% growth from the previous year, mainly as a result of the progressive recovery of core categories and the strength of personal loan origination. Net Sales in the Texas region fell 0.9% to Ps$1,715 million. Consolidated Same Store Sales, which represent the sales of those of our stores that have been in operation longer than 12 months and isolate the effect of the Peso/U.S. Dollar exchange rate, rose 1.6% compared to Same Store Sales at Famsa Mexico and Famsa USA grew 2.6% and fell 4.0%, respectively, in Cost of Sales and Gross Profit Several accounts were reclassified as a result of the MFRS to IFRS transition. Among them, interest expense related to bank deposits was reclassified to Cost of Sales and thus, consolidated Cost of Sales for 2012 was Ps$7,536 million, 0.5% below that of Consolidated Gross Profit reached Ps$6,587 million, a 4.7% increase above that of the previous year. Gross Margin expanded 120 basis points to 46.6% during 2012, largely driven by Famsa Mexico s growth in credit sales, combined with the higher participation of personal loans and furniture in the consolidated sales mix. Gross margin expanded 120 basis points to 46.6% during