(All figures in Mexican Pesos)

Transcription

1 Mexico City (April 26 th, 1999) Consorcio ARA S.A. de C.V. (BMV: ARA*) today announced results for the first quarter 1999 and trailing twelve months ended March 31, (All figures in Mexican Pesos) PERFORMANCE HIGHLIGHTS First Quarter 1999 compared to the First Quarter % increase in unit sales. 19.8% increase in revenues. 17.9% gross profit increase resulting in a gross margin of 29.2%. 15.5% increase in operating profit with a margin of 21.6%. EBITDA growth of 19.3% with a margin of 23.4 % of revenues. Net profit grew 30.0% with a net margin of 13.3%. Trailing Twelve Months ended March 1999 vs. March 1998 Increase in unit sales of 44.5%. Increase in revenues of 33.6%. 32.2% increase in gross profit with a gross margin of 29.0%. Increase in operating profit of 30.0% with an operating margin of 22.0%. EBITDA growth of 31.2% with a margin of 23.2% of revenues. Net profit grew 19.2% with a 16.1% margin. Earnings Per Share grew 19.8% from $2.16 to $2.58. March 31,1999 Balance Sheet Highlights. Cash remained higher than interest bearing liabilities. Leverage was maintained at a healthy level of 11.7% total liabilities to total assets. Consorcio ARA s fully owned Land Bank was enough to build and sell 58,742 units, equivalent to 82,229 affordable entry level units. Backlog of 15,034 units, which guarantees more than 1.4 years of future sales.

2 2 DIRECTOR S REPORT FIRST QUARTER 1999 UNIT SALES: During the first quarter of 1999, Consorcio ARA s total unit sales increased 20.3%. Total sales grew from 1,460 units during the first quarter of 1998 to 1,756 units during the first quarter of The breakdown is as follows: 1 st Quarter st Quarter 1998 Variation Units Pesos Units Pesos Units % Pesos % Prosavi Infonavit Fovi-Fovissste Affordable Entry Level 1, , Middle Income Residential Total as Developer 1, , Contractor Infonavit Fovi-Fovissste Affordable Entry Level Middle Income Total Joint Ventures TOTAL 1, , st Quarter st Quarter 1998 Variation Units Mix Units Mix Units % Total Prosavi % Total Infonavit % % Total Fovi-Fovissste % % Total Affordable Entry 1, % 1, % Total Middle Income % % Total Residential % % TOTAL 1, % 1, % Consorcio ARA s Prosavi operations generated revenues of $16.0 million derived from the construction and sale of 159 units during the quarter. This business line derives from 2,800 units of backlog obtained in June Since then the company has not bid for an additional Prosavi backlog. The company expects that this operation will be complete by the year Pág. 2

3 3 INFONAVIT financed sales accounted for the strongest increase both in unit and revenue terms. Sales grew from 268 homes in the first quarter of 1998 to 581 homes in the first quarter of 1999, representing a 116.8% increase in unit sales and a 114.5% increase in revenues. The volume of FOVI-FOVISSSTE sales grew 15.8% when compared to the same quarter a year ago by posting 870 units. This generated a 21.6% increase in revenues. The company s affordable entry level housing operations during the first quarter were very positive. Sales derived from this market segment grew 42.4% from 1,019 units during the first quarter of 1998 to 1,451 during the first quarter of 1999 with a corresponding increase in revenues of 45.6%. Middle Income sales contracted in terms of overall sales volume by 31.7%. This is the expected consequence of banks which have curtailed lending to this segment of the market. It is worth mentioning that during the quarter revenue was recognized from sales and construction of 93 B3 units financed by FOVI. Going forward, the company expects this type of unit will become the preeminent middle income home. Nevertheless it is very important to note that the banks are returning to the mortgage market. Banco Bital has decided to use Consorcio ARA s products to reappear as a mortgage bank. The Residential housing segment posted volume growth of 27.8% with an increase in revenue of 36.5%. This segment represents 1.3% of total sales. Currently, residential sales are realized either as a cash sale or financed by Consorcio ARA. As previously mentioned, Bital s mortgages will be used as an alternative by ARA s clientele. Operations in this segment had good performance during 1999 and are expected to perform even better during the year as the new developments start contributing to volume, revenues and earnings. AVERAGE PRICES Average selling prices in the first quarter experienced a mixed performance. The average selling price for FOVI-FOVISSSTE homes increased 4.9%. The end result is that the average affordable entry level unit selling price increased 2.2%. The average price for middle income units decreased 32.7% due to the fact that it now includes the new B3 190 m.m.w mortgages (75% of the mix). A breakdown of prices follows: First Quarter First Quarter Average Selling Price Variation % (Thousands $) (Thousands $) Prosavi Infonavit Fovi-Fovissste Affordable Entry Level Middle Income Residential 1, , Pág. 3

4 4 EARNINGS STATEMENT, 1 st Quarter 1999 VS 1 st Quarter st Quarter st Quarter 1998 Variation Millions of Pesos % Millions of Pesos % Revenues Cost of Goods Sold Gross Profit G&A Costs Operating Profit ICF Other Income Joint Ventures PreTax Profit Taxes Net Profit Depreciation EBITDA REVENUES Revenues increased 19.8% in real terms from $270.0 million in the first quarter of 1998 to $323.5 million in the first quarter of 1999 which exceeds the company s 15% real increase target for full year COST OF GOODS SOLD Cost of goods sold grew 20.6% from $189.8 million during the first quarter of 1998 to $229.0 million during the first quarter of This growth is slightly higher than that of revenues due to the different sales mix and strong performance in new markets. GROSS PROFIT Gross profit for the first quarter of 1999 was greater than the same period in 1998 by 17.9% at $94.5 million. This increase generated a pooled gross margin of 29.2% of revenues. Gross margin in each segment are as follows: Gross Margin Gross Margin Increase 1 st Quarter st Quarter 1998 % Prosavi 22.6% 22.5% 0.1 Affordable 29.1% 29.8% -0.8 Middle Income 30.8% 31.6% -0.8 Residential 32.2% 33.5% -1.2 Contractor 29.6% 28.7% 0.9 TOTAL 29.2% 29.7% -0.5 Consorcio ARA sells a higher priced affordable entry level home compared to its competitors, and as a result the company s margins are the highest in the industry. GENERAL AND ADMINISTRATIVE COSTS Pág. 4

5 5 G&A as a percentage of revenues was flat at 7.6% or $24.7 million, which is in line with the company s long term objective of 7% of revenues. It is worth mentioning that the first quarter of the year has the lowest revenue of all. There is a high fixed component for the G&A costs, therefore the first quarter, percentage wise, is higher than the target. It is worth mentioning that 0.2% of revenues have been spent in implementing measures to minimize the impact, if any, of year OPERATING PROFIT Operating profit totaled $70.0 million, a 15.5% increase in real terms compared to the first quarter of The corresponding 21.6% margin is in line with the company s 1999 full year target of 22%. EBITDA During the first quarter of 1999, Consorcio ARA reported EBITDA of $75.8 million of which $6.1 million came from depreciation. The resulting margin was 23.4% during the first quarter of INTEGRAL COST OF FINANCING Integral cost of financing contracted 16.8% from $29.4 million during the first quarter of 1998 to $24.4 million during the first quarter of The breakdown is as follows: 1 st Quarter st Quarter 1998 Variation Million Pesos Million Pesos Interest Paid Interest Earned Foreign Exchange Variations Monetary Position Gains/Losses INTEGRAL COST OF FINANCING The 159.7% increase in interest paid is primarily due to interest on bridge loans incurred in The increase in cash from the first quarter of 1998 to 1999 resulted in an increase of 159.8% on interest earned. A portion of the land acquired in Tijuana was purchased in dollars and financed by the seller short term. Homes sold in this development will be dollar denominated. Exchange rate volatility resulted in a foreign exchange impact of $0.9 million. The combined effect is a total financing cost of $24.4 million. It is worth noting that EBITDA is 3.1 times larger than this amount and can cover interest paid almost 5 times. EQUITY IN JOINT VENTURES Joint venture volume decreased 52.7%. This is due to the contraction in middle income sales. Equity in joint ventures went from $2.4 million to $0.1 million pesos due to this and the fact that joint ventures in Mexico have begun to pay taxes on their own. TAXES As part of the incentives from the Mexican government for companies involved in housing development, Consorcio ARA can immediately deduct from its taxable income the full amount of any land parcel it buys, provided it is used for housing. As a result, the company has important tax loss carryforwards that have a significant effect on the Company s effective tax rate. During the first quarter of 1999, the company paid $3.3 million pesos in various taxes, representing 1.0% of revenues. NET PROFIT Net profit for the first quarter was $43.0 million, a 30.0% increase in real terms compared to the first quarter of Net margin was 13.3% of sales. Pág. 5

6 6 Trailing twelve months ended March 1999 UNIT SALES: In the twelve months ended March 1999, Consorcio ARA s total unit sales posted an increase of 44.5%. Total units sales grew from 6,511 units during the 1998 period to 9,411 units during The breakdown is as follows: LTM March 1999 LTM March 1998 Variation Units Millions of Units Millions of Units % Millions Pesos Pesos of Pesos % Prosavi 1, Infonavit 3, , Fovi-Fovissste 3, , Affordable Entry 7,556 1, , , Level Middle Income Residential Total as Developer 9,220 1, ,546 1, , Contractor Infonavit Fovi-Fovissste Affordable Entry Level Middle Income Total in Joint Ventures TOTAL 9,411 1, ,511 1, , LTM March 1999 LTM March 1998 Variation Units Mix Units Mix Units % Total Prosavi 1, % % Total Infonavit 3, % 1, % 2, Total Fovi-Fovissste 3, % 3, % Total Affordable Entry 7, % 4, % 2, Total Middle Income % % Total Residential % % Contractor % TOTAL 9, % 6, % 2, Consorcio ARA s Prosavi operations generated revenues of $122.4 million in 1999, 343.6% more than last year, derived from the equivalent of 1,232 units built and sold during the period. The largest increase in unit and revenue terms was derived from INFONAVIT financed sales, which grew on a comparable basis from 1,059 to 3,568 homes representing a 236.9% increase Pág. 6

7 7 in units. INFONAVIT revenues increased 244.5% in real terms to $597.1 million. Sales derived from FOVI-FOVISSSTE mortgages grew 11.0% in units and 15.7% in revenues in the same period. Total affordable entry level housing sales in 1999 increased 62.4% from 4,656 units to 7,560 units compared to The trend towards units financed by public entities continues. Middle Income housing revenues contracted 54.3% while volume decreased by 50.2% for the period. As previously mentioned, these results are the expected consequence of banks exiting this market. It is worth mentioning that revenues were recognized from the sale and construction of 186 B3 units. Going forward, this type of unit will become the preeminent middle income home. Nevertheless it is important to note the return of Banco Bital to the mortgage market through ARA s product. The Residential housing segment posted volume growth of 43.2% with a revenue increase of 37.8%. Operations in this segment were satisfactory during the last twelve months and are expected to perform even better as new developments in Guerrero, Mexico City, Baja California and Quintana Roo begin to contribute to volume, revenue and earnings. AVERAGE PRICES For the trailing twelve months, average selling prices had a mixed performance. These decreased in middle income and residential housing and increased in affordable entry-level housing and prosavi. A breakdown of prices is as follows: Average Selling Price LTM March 1999 LTM March1998 Variation (Thousands of Pesos) (Thousands of Pesos) Prosavi % Infonavit % Fovi-Fovissste % Affordable Entry Level % Middle Income % Residential 1, , % EARNINGS STATEMENT, trailing twelve months March 1999 LTM March 1999 LTM March 1998 Variation Millions of % Millions of % Pesos Pesos Revenues 1, , Cost of Goods Sold 1, Gross Profit G&A Costs Operating Profit ICF Other Income Joint Ventures PreTax Profit Taxes Net Profit Depreciation EBITDA REVENUES Pág. 7

8 8 Consorcio Ara s revenues grew 33.6% in real terms from $1,316.2 million to $1,758.0 million during COST OF GOODS SOLD The cost of goods sold increased 34.1% from $931.0 million pesos in the last twelve months ended March 31, 1998 to 1,248.7 million pesos during in the trailing twelve months ended in March 31, 1999 as a function of the increase in sales. GROSS PROFIT Gross profit for the trailing twelve months was greater than the previous period by 32.2% at $509.2 million. Gross profit from the affordable business line increased to the extent that the company has been able to deliver average margins committed to at the gross, operating and net levels. Gross margins for each segment are as follows: Gross Margin Gross Margin Increase LTM March 1999 LTM March 1998 Prosavi 22.8% 22.5% 0.3 Affordable 29.1% 28.9% 0.2 Middle Income 30.7% 30.5% 0.2 Residential 31.8% 32.4% -0.6 Contractor 28.2% 28.1% 0.1 TOTAL without 29.4% 29.4% 0.0 Prosavi TOTAL with Prosavi 29.0% 29.3% -0.3 It is worth noting that gross margin for the year excluding Prosavi remains at the same level. Since during 1997 the company sold practically no Prosavi units, this would be the valid comparison. Consorcio Ara s affordable entry level product offers the most value at the best price. As a result, margins are consistently the best in the industry. GENERAL AND ADMINISTRATIVE COSTS G&A costs in the trailing twelve months grew 39.4% to $122.6 million pesos, or 7.0% of revenues. This amount is in line with the 7% long term target, demonstrating ARA s capacity to keep costs under control. It is worth noting that expenses have been incurred to minimize the impact, if any, of Y2K. This capacity will be greatly needed in order to grow in a controlled fashion with minimal need for additional resources. OPERATING PROFIT Operating profit during the trailing twelve months was $386.6 million. This figure represents an increase in real terms of 30.0% with respect to the previous comparable period. At the same time it has allowed the company to maintain its position as industry leader. Operating margin was 22.0%. EBITDA In the last twelve months ended in March 1999, Consorcio ARA recorded EBITDA of $407.5 million of which $20.9 million were derived from depreciation. The resulting margin was 23.2% of revenues. INTEGRAL COST OF FINANCING The integral cost of financing grew 48.0% from $61.5 million during the previous period to $91.1 million. A breakdown follows: Pág. 8

9 9 LTM March 1999 Millions of Pesos LTM March 1998 Millions of Pesos Var % Interest Paid Interest Earned Foreign Exchange Variations Monetary Position Gains/Losses INTEGRAL COST OF FINANCING In contrast to the previous period, when the company did not incur any major loans, 1998 includes the new bridge loans and the placement of the short term note. For this reason, interest paid was 106.0% higher compared to the trailing twelve months ended March Lower liquidity and greater exchange rate volatility resulted in a lower increase in interest earned and a decrease in foreign exchange variation line items. The combined result was an Integral Financial Cost of $91.1 million. EQUITY IN JOINT VENTURES Joint venture volumes have decreased 59.5%. This is due to the middle income sector. Equity in joint ventures went from $6.8 million to $3.0 million pesos due contraction in the middle income sector and the fact that joint ventures in Mexico have begun to pay taxes on their own. TAXES As previously discussed, there are significant tax advantages to buying land for housing. In the trailing twelve months, the company paid $16.4 million pesos in various taxes representing 0.9% of revenues. As a percentage of pretax profit, this represents 5.5%. The company expects the tax benefits to continue in the future. NET PROFIT Net profit for the trailing twelve months was $283.0 million, a 19.2% increase in real terms compared to the previous period. Net margin was 16.1% of sales. The increase in both net profit and margin are in line with 1999 expectations. Earnings Per Share grew 16.4% to $2.58 Pesos. LTM March 1999 LTM March 1998 Net Profit (Thousands) $ 282,977 $ 237,474 Shares (Thousands) 108, ,354 EPS (pesos) Pág. 9

10 10 BALANCE SHEET as of MARCH 31, March 1999 March 1998 Millions of Millions of Variation Pesos Pesos % Total Assets 2, , Short Term Assets 2, , Cash Accounts Receivable Other Accounts Receivable Inventories 1, , Other Short Term Assets Long Term Assets Equity in Joint Ventures Buildings and Equipment Total Liabilities Short Term Liabilities Accounts Payable Bank Loans Taxes Payable Other Short Term Liabilities Long Term Liabilities Bank Loans Other Liabilities Stockholder's Equity 2, , ASSETS Total assets increased 5.1% compared to March 31, Inventories including are the most important assets, these increased 5.9%. INSTALLED CAPACITY In order to continue growing its operation, the company invested $7.4 million in machinery and equipment during the last quarter. ACCOUNTS RECEIVABLE Accounts receivable decreased as a result of increasing collection activity in the recent months. At the end of March 1999, accounts receivable was equivalent to 4.2 months of sales, a 1.7 month decrease compared to the previous March. LIABILITIES Leverage as a percentage of total liabilities to total assets was 11.7%. Interest bearing debt is 53.1% of cash. For operating reasons Consorcio ARA maintains bridge loans with the Sofoles, the same as other liabilities. It is our conviction that a low leverage level is the proper formula for the business and environment in which we operate. Pág. 10

11 11 STOCKHOLDER S EQUITY Stockholder s equity increased 2.2%. The number of shares outstanding on March 31, 1999 was 108,976,958. LAND BANK Consorcio ARA continues to hold the optimal land reserve for its operations from a strategic, operational and financial point of view. This land bank is 8.6 million square meters, which provide the company with the capacity to sell more than 58,742 homes, the equivalent of 82,229 affordable entry level homes. The breakdown is as follows: March 99 Affordable Units Revenue Units Equivalent Equivalent Million Pesos Prosavi 1, $ Affordable Entry 47,843 47,843 $ 8,090.3 Middle Income 7,068 11,708 $ 1,979.7 Residential 2,548 21,915 $ 3,705.8 TOTAL 58,742 82,229 $13,905.0 The land bank breakdown by state is as follows: Units % Mexico City Metro area 37, Baja California 4, State of México 3, Puebla 3, Quintana Roo 3, Sonora 2, Chihuahua 1, Querétaro 1, Veracruz Guerrero Sinaloa Tabasco TOTAL 58, A clear preference for the regions with strong economics and demographics is evident. MORTGAGE COMMITMENT BACKLOG As of March 31, 1999 Consorcio Ara s mortgage commitment backlog was as follows: March 1999 % March 1998 % % Change Units Units Prosavi 1, % 2, % -49.0% Affordable 12, % 8, % 40.0% Infonavit 4, % 3, % 21.9% Fovi-Fovissste 7, % 5, % 52.9% Middle Income 1, % 1, % -19.7% Residential % % -18.9% TOTAL 15, % 13, % 15.0% Pág. 11

12 12 Current backlog levels are sufficient for more than 1.4 years of sales. The company believes that optimal levels are within the 1 to 1.5 year range since it is not a construction backlog but rather a mortgage commitment pool. ARAHORRO Consorcio ARA continues with its ARAHORRO program which assists prospective clients to save for their downpayment. The saved amount is managed by the National Savings Board (PAHNAL), and is tracked by Consorcio ARA. Points of sale have been opened in every PAHNAL office and additional locations have been set for maximum exposure. NEW PROJECTS Throughout the year the sale of new developments in the various markets in which Consorcio ARA participates will be launched. A list follows: DEVELOPMENT Affordable Entry Level Paseos del Valle Paseos del Angel II Cofradia de San Miguel La Mariscala Mexicali Nextlalpan Tipo Medio Manzana 500 & 501 Lomas de Chapultepec Residential Herrerias Lomas de Chapultepec Sta Monica Playa Diamante, Villas Puerto Morelos, Departamentos LOCATION Toluca, State of Mexico Puebla, Puebla Cuautitlan Izcalli, State of Mexico Tultitlan, State of Mexico Mexicalli, Baja California Nextlalpan, State of Mexico Cancun, Quintana Roo Tijuana, Baja California Mexico DF Tijuana, Baja California Tlalnepantla, State of Mexico Acapulco, Guerrero Acapulco, Guerrero On April 15, 1999 Consorcio Ara launched the sale of its new development, Cofradia de San Miguel, in the municipality of Cuautitlan Izcalli in the State of Mexico. This development has 3,339 affordable entry level units. For Additional Information Please Contact Donald Forseck Orive David Carey Director of Finance Senior Account Supervisor Consorcio ARA Edelman Financial (525) (212) dfo@mail.internet.com.mx david_carey@edelman.com Pág. 12