MEXICO CITY, Oct. 27 /PRNewswire-FirstCall/ -- Corporacion GEO S.A.B de C.V. (BMV: GEOB; CORPGEO MX, ADR Level I CUSIP: 21986V204; Latibex: XGEO) GEO, one of Mexico's leading low-income housing developers, today announced 3Q08 results. Year-on-year revenues, EBITDA and Net Profit increased 10.4%, 13.3% and 2.7% respectively.
Luis Orvananos Lascurain, Chairman and CEO of Corporacion GEO, commented: "This was another excellent quarter for GEO. Growth in unit sales, revenue and EBITDA are all directly related to our success in reducing seasonality and our strategy of focusing on the fast-growing economic and affordable housing segment. GEO sold more than 13,000 homes this quarter, 63% of which was driven by the strong demand and attractive growth opportunities in affordable housing. In fact, demand from this important lower-income population segment remains unchanged, largely due to continued support from the Government's social policy; GEO has the largest market share of INFONAVIT and FOVISSTE mortgages of our homebuilding peers. GEO's strong business model permits sustainable, profitable growth while ensuring we remain on track to achieve our 2008 targets despite the challenging worldwide environment."
"In light of the economic challenges we see ahead, our approach to financial management will continue to be prudent and conservative. However, our Company has a healthy balance sheet, leverage of 1.3x, committed available lines of credit of almost Ps.8,000 million, limited US dollar exposure and enough liquidity to support our operations. Furthermore, we believe GEO's strategy, scale and resources uniquely position us to be optimistic for 2009 in spite of the current market turmoil; where others will experience difficulty, GEO will have opportunities," added Mr. Orvananos Lascurain.
Financial Highlights Income Third Quarter Nine-Month Period Statement ------------- ----------------- Data 2008 2007 YoY var. 2008 2007 YoY var. ---------- ---- ---- -------- ---- ---- -------- Sales (units) 13,349 11,023 21.10% 37,649 30,541 23.27% Revenues $4,231.7 $3,833.8 10.38% $12,346.2 $10,342.7 19.37% Gross Profit $1,125.5 $1,036.1 8.62% $3,281.3 $2,789.7 17.62% Gross Margin 26.60% 27.03% -0.43 pp 26.58% 26.97% -0.40pp Operating Profit $713.0 $643.4 10.83% $2,074.6 $1,724.2 20.32% Operating Margin 16.85% 16.78% 0.07 pp 16.80% 16.67% 0.13 pp EBITDA $1,018.9 $898.9 13.35% $2,932.2 $2,437.6 20.29% EBITDA Margin 24.08% 23.45% 0.63 pp 23.75% 23.57% 0.18 pp Net Profit $388.2 $378.0 2.69% $1,141.5 $1,057.4 7.95% Net Margin 9.17% 9.86% -0.69 pp 9.25% 10.22% -0.98 pp Free Cash Flow -$89.3 -$887.1 $797.86 -$1,859.8 -$2,661.4 $801.5 Third Quarter Quarter - Quarter Balance Sheet ------------- ----------------- Data 2008 2007 YoY var. 2Q08 QoQ var. ------------- ---- ---- -------- ---- -------- Cash and Cash Equivalents $2,229.3 $1,835.0 21.49% $1,709.1 30.44% Acc. Receivable to Revenues 45.91% 47.83% -1.92 pp 47.22% -1.31 pp Net Debt $4,906.8 $3,723.9 31.77% $4,760.7 3.07% Interest Coverage 2.66x 3.26x -0.60x 2.83x -0.17x Debt to EBITDA (LTM) 1.76x 1.61x 0.15x 1.65x 0.12x ROE (LTM) 19.87% 27.68% -7.80pp 20.25% -0.38 pp
Unless otherwise stated, all financial figures discussed in this announcement, are unaudited, prepared in accordance to Mexican Financial Reporting Standards (NIF's) and represent comparisons between the three-month periods ended September 30, 2008, and the equivalent three-month periods ended September 30, 2007 and June 30, 2007. Results for 3Q07 are expressed in constant Mexican Pesos, as of December 31, 2007, while 2Q08 and 3Q08 results are in nominal pesos. Tables state figures in millions of pesos, unless otherwise noted.
RESULTS FOR THE THIRD QUARTER OF 2008 Revenues
Revenues for the quarter rose 10.4% year-on-year to Ps.4,231.7 million. Revenue growth was driven primarily by a 21.1% increase in the number of homes sold, a total of 13,349 units, compared with 11,023 units sold in 3Q07, as GEO continued to implement our strategy that focuses on the high-growth, low-income segment of the population. 62.9% of total sales for the quarter were concentrated in the lower income segment, compared with 53% in 2007. This is in line with our 2008 objective to reach 60% of total units sold in the low-income segment. Including the affordable plus segment, over 95% of units sold were at the affordable entry level. This strategy had a marginal impact on our average selling price, which increased 3.0% year-on-year to Ps.334,187.
This quarter, GEO began disclosing revenue generated by retail property sold in 2008 (lots and stores), given the potential future importance of this business for GEO. Based on government policies, and as part of our strategy to build sustainable communities, GEO will benefit from an increase in revenue related to the sale of these types of properties. Revenue generated by the sale of 66 commercial properties totaled Ps. 22.2 million in the third quarter. As of 2008 GEO has sold 167 properties totaling Ps. 75.2 million.
The increase in revenue in 3Q08 reflects the change in seasonality of GEO's business; as was anticipated, we grew at a slower pace than in the first two quarters of 2008. While the first half of the year has traditionally represented 40% of annual sales, the objective was to increase that percentage to approximately 45%, thereby reducing revenue seasonality. This is reflected in a higher growth during the first half and a slower pace in the second, in order to obtain 55% of the revenue in the latter half of the year, compared with 60% in previous years.
Table 1: Revenue, Units & Average Selling Price 3Q08 3Q07 Change % Change -------------------------- ---- ---- ------ -------- Total Revenue (million Ps.) 4,231.7 3,833.8 398.0 10.4% --------------------------- ------- ------- ----- ---- Units Sold 13,349 11,023 2,326 21.1% ---------- ------ ------ ----- ---- Avg. Selling Price (Ps.) 334,187 324,402 9,785 3.0% ------------------------ ------- ------- ----- --- Housing Revenue 4,209.5 3,834 376 9.8% --------------- ------- ----- --- --- ---------------------------- -- --- -- ----- Retail Property Sales (Units) 66 n/a 66 100.0% ----------------------------- -- --- -- ----- Retail Property Revenue 22.2 n/a 22.2 100.0% ----------------------- ---- --- ---- ----- YTD '08 YTD '07 Change % Change -------------------------- ------- ------- ------ -------- Total Revenue (million Ps.) 12,346.2 10,342.7 2,003.5 19.4% --------------------------- -------- -------- ------- ---- Units Sold 37,649 30,541 7,108 23.3% ---------- ------ ------ ----- ---- Avg. Selling Price (Ps.) 334,187 323,880 10,307 3.2% ------------------------ ------- ------- ------ --- Housing Revenue 12,271.0 10,342.7 1,928 18.6% --------------- -------- -------- ----- ---- ---------------------------- --- --- --- ----- Retail Property Sales (Units) 167 n/a 167 100.0% ----------------------------- --- --- --- ----- Retail Property Revenue 75.2 n/a 75.2 100.0% ----------------------- ---- --- ---- ----- Table 2: Sales Mix* ------------------- Sales Mix 3Q08 YTD '08 ---- ------- Revenue Units Revenue Units ------- ----- ------- ----- - % of - % of total - total - -------- -------- Lower-End Economic (up to $187,158) 1.4% 2.5% 3.3% 5.9% Lower Affordable (up to $255,811) 34.8% 49.5% 29.8% 42.6% Affordable (up to $319,764) 9.4% 10.9% 12.8% 14.9% --------------------------- --- ---- ---- ---- Total Lower-End 45.5% 62.9% 45.9% 63.3% Higher End Affordable Plus (up to $599,558) 43.1% 32.5% 40.2% 30.4% Middle Income (up to $1,090,396) 7.9% 3.8% 10.6% 5.1% Residential (above $1,090,396) 3.0% 0.8% 2.7% 0.7% ------------------- --- --- --- --- Total Higher End 53.9% 37.1% 53.5% 36.2% ---------------- ---- ---- ---- ---- TOTAL HOUSING 99.5% 100% 99.4% 100% ------------- ---- --- ---- --- Retail Property 0.5% 0.6% --------------- --- --- --- --- TOTAL 100% 100% 100% 100% ----- --- --- --- --- *Sales mix breakdown follows methodology implemented by INFONAVIT.
Homes sold through INFONAVIT mortgages represented 69% of total units, up from 55% in the third quarter of 2007. Homes sold through FOVISSSTE represented over 18% of total units. Both institutions accounted for 87% of GEO's total sales. This increase is evidence of INFONAVIT and FOVISSSTE's support of GEO's product and is further validation of GEO's strategy to increase its focus on the low-income segment, served by these institutions. Sales distribution by mortgage type for the first quarter was as follows:
Table 3: Sales Mix by Mortgage Type ----------------------------------- 3Q08 3Q07 ---- ---- units % of total units % of total % Change ----- ---------- ----- ---------- -------- Infonavit 9,192 69% 6,063 55% 14 pp FVSSSTE,Banks,Sofoles 4,157 31% 4,960 45% -14 pp --------------------- ----- -- ----- -- ------ TOTAL 13,349 100% 11,023 100% 0.00% ----- ------ --- ------ --- ---- YTD '08 YTD '07 ------- ------- units % of total units % of total % Change ----- ---------- ----- ---------- -------- Infonavit 23,657 63% 16,719 55% 8 pp FVSSSTE,Banks,Sofoles 13,992 31% 13,822 45% -14 pp --------------------- ------ -- ------ -- ------ TOTAL 37,649 100% 30,541 100% 0.00% ----- ------ --- ------ --- ---- Table 4: 3Q08 Average Table 5: Quarterly Average Selling Price Selling Price ----------------------------- ----------------- Lower-End 1Q07 323,078 Economic 186,181 2Q07 324,031 Lower Affordable 235,085 3Q07 324,402 Affordable 288,417 4Q07 328,983 ---------- ------- Higher End 1Q08 323,716 Affordable Plus 442,532 2Q08 332,852 Middle Income 693,229 3Q08 334,187 ---- ------- Residential 1,244,211 ----------- --------- Average Selling Price 334,187 --------------- ------- Operating Profit
Operating profit for the quarter increased 10.8% year-on-year to Ps 713.0 million with operating margin increasing 7 bps to 16.8% during the period. This reflects the combined effect of a 43 bps decrease in gross margin following the change in sales mix as the Company increases its focus on the fast growing lower income segments, entirely offset by a 50 bps SG&A improvement. Improvement in SG&A as a percentage of sales was due to tighter administrative cost control and a streamlining of administrative functions.
Table 6: Operating Profit & Margin ---------------------------------- 3Q08 3Q07 ---- ---- million % of million % of of Ps. revenues of Ps. revenues % Change ------- ------- --------- ------- --------- -------- Revenue 4,231.7 100.0% 3,833.8 100% 10.4% ------- ------- ----- ------- --- ---- Gross Profit 1,125.5 26.6% 1,036.1 27.0% 8.6% ------------ ------- ---- ------- ---- --- SG&A 412.4 9.7% 392.8 10.2% 5.0% ---- ----- --- ----- ---- --- Operating Profit 713.0 16.8% 643.4 16.8% 10.8% --------- ----- ---- ----- ---- ---- YTD '08 YTD '07 ------- ------- million % of million % of of Ps. revenues of Ps. revenues % Change ------- ------- --------- ------- --------- -------- Revenue 12,346.2 100.0% 10,342.7 100% 19.4% ------- -------- ----- -------- --- ---- Gross Profit 3,281.3 26.6% 2,789.7 27.0% 17.6% ------------ ------- ---- ------- ---- ---- SG&A 1,206.7 9.8% 1,065.5 10.3% 13.2% ---- ------- --- ------- ---- ---- Operating Profit 2,074.6 16.8% 1,724.2 16.7% 20.3% --------- ------- ---- ------- ---- ---- EBITDA
EBITDA increased 13.3% year-on-year to Ps.1,018.9 million, with EBITDA Margin up 63 bps to 24.1% from 23.4% in 3Q07. This increase was mainly due to operational efficiencies.
Table 7: EBITDA --------------- 3Q08 3Q07 Abs. Change % Change ---------------- ---- ---- ----------- -------- Operating Profit 713.0 643.4 69.7 10.8% ---------------- ----- ----- ---- ---- Operating Margin 16.8% 16.8% 7 bps ---------------- ---- ---- ----- ---- Capitalized Interest Expenses 255.9 220.2 35.7 16.2% Capitalized Repomo 1.1 -28.5 29.7 -104.0% Amortization & Depreciation 48.9 63.9 -15.0 -23.5% -------------- ---- ---- ----- ----- EBITDA 1,018.9 898.9 120.0 13.3% ------ ------- ----- ----- ---- EBITDA Margin 24.1% 23.4% 63 bps ------------- ---- ---- ------ ---- EBITDA in US$ millions 92.8 82.2 10.6 12.8% ---------------------- ---- ---- ---- ---- EBITDA per Share (LTM) 7.5 6.4 1.1 16.5% ---------------------- --- --- --- ---- YTD '08 YTD '07 Abs. Change % Change ---------------- ------- ------- ----------- -------- Operating Profit 2,074.6 1,724.2 350.4 20.3% ---------------- ------- ------- ----- ---- Operating Margin 16.8% 16.7% 13 bps ---------------- ---- ---- ------ ---- Capitalized Interest Expenses 682.4 569.5 112.9 19.8% Capitalized Repomo -9.3 -46.7 37.3 -80.0% Amortization & Depreciation 184.5 190.6 -6.1 -3.2% -------------- ----- ----- ---- ---- EBITDA 2,932.2 2,437.6 494.5 20.3% ------ ------- ------- ----- ---- EBITDA Margin 23.7% 23.6% 18 bps ------------- ---- ---- ------ ---- EBITDA in US$ millions 267.0 223.0 44.0 19.7% ---------------------- ----- ----- ---- ---- EBITDA per Share (LTM) 7.5 6.4 1.1 16.5% ---------------------- --- --- --- ---- Comprehensive Result of Financing
Comprehensive Result of Financing for the quarter rose 64.5% year-on-year to Ps.142.8 million. This largely reflected the Ps.54.3 million increase in net financial expenses resulting from the increase in bridge loans, financial leasing and land credits used to finance the Company's growth and to reduce the seasonality of its business.
GEO's monetary position decreased by Ps.8.2 million year-on-year as this effect was eliminated at the beginning of 2008, a result of the application of the new Mexican accounting principles. GEO had an exchange rate loss of Ps. 13.7 million, a Ps. 9.9 million year-on-year increase.
Table 8: Comprehensive Result of Financing ----------------------------- 3Q08 3Q07 Change % Change --------------- ---- ---- ------ -------- Interest Income -40.8 -22.9 -17.8 77.8% Interest Expense 169.9 97.7 72.1 73.8% Exchange Rate Loss 13.7 3.8 9.9 261.2% Monetary Loss 0.0 8.2 -8.2 -99.9% ------------- --- --- ---- ----- Integral Cost of Financing 142.8 86.8 56.0 64.5% ---------------- ----- ---- ---- ---- YTD '08 YTD '07 Change % Change --------------- ------- ------- ------ -------- Interest Income -69.0 -80.9 11.9 -14.7% Interest Expense 420.4 278.2 142.2 51.1% Exchange Rate Loss -4.6 4.2 -8.8 -209.7% Monetary Loss 0.0 21.5 -21.5 -100.0% ------------- --- ---- ----- ------ Integral Cost of Financing 346.8 223.0 123.8 55.5% ---------------- ----- ----- ----- ---- Net Profit, Margin & ROE
Net Profit for the quarter increased 2.7% to Ps. 388.2 million, equivalent to an EPS of Ps.0.72, from a net profit of Ps.378.0 million, or an EPS of Ps.0.71, in 3Q07. Net Profit margin declined 69 bps to 9.2% during the period, mainly due to increases in the Comprehensive Result of Financing, taxes and Minority Interest. The effective income tax rate (provision) for 3Q08 rose to 29.0% compared with 28.5% in 3Q07. Additionally, the Ps.3.0 million increase in minority interest was the result of land acquisitions through joint ventures with Prudential Real Estate Investors and Solida Banorte, announced in 2004 and 2007 respectively.
Earnings per share for the last twelve-months decreased 9.2% to Ps.2.85 from Ps.3.14 in 3Q07. Return on Majority Equity in 3Q08 declined to 19.9% year over year from 27.7% in 3Q07, and quarter-on-quarter by 38 bps from 20.3%.
Table 9: Net Profit ------------------- 3Q08 3Q07 Change % Change --------------------- ---- ---- ------ -------- Earnings before Taxes 563.6 541.1 22.5 4.2% Income Tax 163.5 154.2 9.3 6.0% Minority Interest 11.9 8.9 3.0 34.2% ----------------- ---- --- --- ---- Net Profit 388.2 378.0 10.2 2.7% ---------- ----- ----- ---- --- Net Profit Margin 9.2% 9.9% -69 bps ----------------- --- --- ------- --- Earnings per Share 0.72 0.71 0.02 2.4% Earnings per Share (LTM) 2.85 3.14 -0.29 -9.2% ------------------ ---- ---- ----- ---- YTD '08 YTD '07 Change % Change --------------------- ------- ------- ------ -------- Earnings before Taxes 1,717.1 1,497.6 219.5 14.7% Income Tax 523.2 426.8 96.3 22.6% Minority Interest 52.5 13.4 39.1 292.2% ----------------- ---- ---- ---- ----- Net Profit 1,141.5 1057.4 84.0 7.9% ---------- ------- ------ ---- --- Net Profit Margin 9.2% 10.2% -98 bps ----------------- --- ---- ------- --- Earnings per Share 2.12 1.97 0.15 7.6% Earnings per Share (LTM) 2.85 3.14 -0.29 -9.2% ------------------ ---- ---- ----- ---- FINANCIAL STRUCTURE Cash & Cash Equivalents
Cash balance as of September 30, 2008 was Ps.2,229.3 million, up 21.5% versus Ps.1,835.0 million as of September 30, 2007, and up by Ps. 520.2 million on a sequential basis.
Accounts Receivable and Collections
Accounts Receivable as of September 30, 2008 increased 12.8% against 3Q07 or Ps.883.3 million, closing at Ps.7,795.3 million. The Accounts Receivable to Revenues ratio was 45.9%, 192 basis points below the 3Q07 level. This decrease was due mainly to the change in seasonality of the business, reflected in a better collection in the second half of the year.
Table 10: Accounts Receivable to Revenues Ratio ----------------------------------------------- 3Q08 2Q08 1Q08 4Q07 3Q07 ------------- ---- ---- ---- ---- ---- Revenues (LTM) 16,979.2 16,580.8 15,596.3 14,975.6 14,451.8 Accounts Receivables 7,795.3 7,829.4 6,963.3 6,159.4 6,912.0 -------------------- ------- ------- ------- ------- ------- Ratio 45.9% 47.2% 44.6% 41.1% 47.8% ----- ---- ---- ---- ---- ---- Inventories and Land Bank
Inventories as of September 30, 2008 rose 15.2% to Ps 9,652.9 million against 3Q07, as follows:
Table 11: Inventories --------------------- 3Q08 3Q07 Change % Change ------------------------ ---- ---- ------ -------- Construction in Progress 4,434.0 3,776.4 657.6 17.4% Construction Materials 739.9 558.7 181.2 32.4% Short Term Land Inventory 1,749.5 1,446.2 303.3 21.0% Long Term Land Inventory 2,729.5 2,601.4 128.1 4.9% ------------------------ ------- ------- ----- --- Inventories 9,652.9 8,382.7 1,270.2 15.2% ----------- ------- ------- ------- ----
Construction in Progress and Materials at the end of September 2008 grew year-on-year by Ps. 838.8 million, a 19.3% increase which was in line with GEO's operating growth.
Total land bank inventories increased Ps.431.4 million or 10.7% against 3Q07. As of September 30, 2008, GEO's land bank was equivalent to 304,075 units, through a combination of its own land, land outsourcing, optioned land and joint ventures with Prudential Real Estate Investors and Banorte's Solida. Through these, GEO controls a land bank representing 4.5 to 5 years of continued annual unit production growth, with low financial cost and limited ownership risk.
Table 12: Land Bank ------------------- 3Q08 % of Total 3Q07 % of Total ----- ---- ---------- ---- ---------- Owned 141,608 46.6% 137,592 46.3% GEO JV's 98,181 32.3% 105,720 35.5% Optioned 55,452 18.2% 45,149 15.2% Land Outsourcing 8,834 2.9% 9,010 3.0% ---------------- ----- --- ----- --- Total Land Bank 304,075 100.0% 297,471 100.0% --------------- ------- ----- ------- ----- Operating Free Cash Flow
During 3Q08 GEO generated a negative Free Cash Flow of Ps.89.3 million compared with negative Ps.887.1 million in 3Q07, an improvement of Ps.797.9 million. This trend change is a result of the strategy to reduce seasonality, along with a general improvement of the working capital cycle. The following table shows the breakdown of Operating Free Cash Flow for the third quarter and first nine months of 2008 versus 2007:
Table 13: Free Cash Flow ------------------------ 3Q08 3Q07 Change % Change ------ ---- ---- ------ -------- EBITDA 1,018.9 898.9 120.0 13.3% Interest Income 40.8 22.9 17.8 77.8% --------------- ---- ---- ---- ---- Sources of Cash 1,059.7 921.9 137.8 15.0% --------------- ------- ----- ----- ---- Interest Expenses -425.8 -317.9 -107.8 33.9% Working Capital -270.8 -794.8 524.0 -65.9% Real Estate Inventories -192.3 -340.7 148.4 -43.6% CAPEX -218.3 -286.7 68.5 -23.9% Other -27.0 -85.3 58.3 -68.4% FX -13.7 -3.8 -9.9 261.2% Inflation Adj. -1.1 20.3 -21.4 -105.6% -------------- ---- ---- ----- ------ Uses of Cash -1,149.0 -1,809.0 660.0 -36.5% ------------ -------- -------- ----- ----- Free Cash Flow -89.3 -887.1 797.9 -89.9% -------------- ----- ------ ----- ----- YTD '08 YTD '07 Change % Change ------ ------- ------- ------ -------- EBITDA 2,932.2 2,437.6 494.5 20.3% Interest Income 69.0 80.9 -11.9 -14.7% --------------- ---- ---- ----- ----- Sources of Cash 3,001.2 2,518.5 482.7 19.2% --------------- ------- ------- ----- ---- Interest Expenses -1,102.8 -847.7 -255.1 30.1% Working Capital -1,821.6 -1,633.9 -187.6 11.5% Real Estate Inventories -1,353.1 -2,144.8 791.7 -36.9% CAPEX -302.4 -465.3 163.0 -35.0% Other -295.1 -109.0 -186.1 170.7% FX 4.6 -4.2 8.8 -209.7% Inflation Adj. 9.3 25.2 -15.8 -62.9% -------------- --- ---- ----- ----- Uses of Cash -4,861.0 -5,179.9 318.9 -6.2% ------------ -------- -------- ----- ---- Free Cash Flow -1,859.8 -2,661.4 801.6 -30.1% -------------- -------- -------- ----- ----- * The effect of Minority Interest is not considered in the calculation of the Operating Free Cash Flow. Debt and Structure of Financial Liabilities
Total Debt for 3Q08 increased year-on-year by Ps.1,577.2 million, or 28.4%. The leverage ratio as of September 2008 has remained stable at 1.3 times versus last year and sequentially. During this period, GEO's debt profile improved with short-term debt falling to 49.2% of total debt, at September 30, 2008 from 64.3% of total debt at September 30, 2007.
Bridge Loans represented 31.2% of total debt and are used to finance the construction of approximately 35,000 homes at GEO's 107 business units. Bridge loan structures are based on project cycles, with their maturity always exceeding the period required for each project's completion and payment collection. Bridge loan payment is also linked to housing sales, not to a specific date, and GEO obtains a new bridge loan for each project with the physical project acting as collateral.
GEO has unused available lines of credit in excess of Ps. 7,875 million pesos of which Ps. 3,442 correspond to bridge loans, Ps.4,433 to credits for land purchase, direct credits, commercial paper, euro-commercial paper, the Certificados Bursatiles program (medium term notes program) and leasing. This access to capital provides the Company with financial resources necessary to guarantee the long-term continuity of its operations.
The Company's US Dollar denominated debt at the end of the quarter is Ps. 334.9 million pesos and corresponds to a US $30 million eurocommercial paper, with maturity in 2009, and which represents 4.7% of GEO's total debt. In addition, GEO has only one derivative instrument approved by the board since 2006, which consists of an interest rate CAP for TIIE (Leader Rate) at 9% covering 2,000 million pesos, to protect from interest rate volatility. Mark to Market of this position was USD $2.08 million as of September 30, 2008. GEO does not have exchange rate derivative positions, and holds no speculative activities on derivatives or hedging instruments.
Table 14: Debt Indicators ------------------------- 3Q08 3Q07 Change % Change ---------- ---- ---- ------ -------- Total Debt 7,136.1 5,558.9 1,577.2 28.4% Net Debt 4,906.8 3,723.9 1,182.9 31.8% Total Debt/EBITDA 1.76x 1.61x 0.15x Net Debt/EBITDA 1.21x 1.08x 0.13x Short Term Debt / Total Debt 49.2% 64.3% -15.1% Long Term Debt / Total Debt 50.8% 35.7% 15.1% Liquidity (CA/CL) 2.39x 2.10x 0.30x ----------------- ----- ----- -----
Year-on-year, the average cost of debt rose 46 bps to 9.73% in 3Q08 from 9.27% in 3Q07, mainly reflecting the leader rate (TIIE) increase. The following table provides a breakdown of the Company's average cost of debt at the end of 3Q08.
Table 15: Financial Liabilities as of September 30, 2008 ------------------------------------- Average Average Amount % of Total Cost Rate --------------------- ------ ---------- ------- ------- Mortgage Bridge Loans 2,228 31.23% TIIE + 1.6 10.29% Loans for Land Purchase 964 13.50% TIIE + 1.5 10.20% Direct Loans 302 4.23% TIIE + 1.5 10.25% Leasing 308 4.31% TIIE + 1.7 10.43% Certificado Bursatil (notes) - Short Term 280 3.92% TIIE + 0.6 9.48% Certificado Bursatil (notes) - Long Term 2,719 38.11% TIIE + 1.6 8.67% Eurocommercial Paper 335 4.69% 6.64% 6.64% -------------------- --- ---- ---- ---- Average Cost of Debt 7,136 100% n/a 9.73% -------------------- ----- --- --- ---- * Excludes banking fees, issuance expenses and expenses. LABOR & HEADCOUNT
As of September 30, 2008, the Company had 14,049 "eventual" workers (labor), up 3.0% from 3Q07. In addition, management and fixed personnel consisted of 7,218 employees, an increase of 3.6% when compared to September 2007. The increase in administrative, technical and commercial personnel will assure continuity of GEO's talent program.
SHARE REPURCHASE PROGRAM
During the third quarter of the year, GEO purchased 46,300 shares throughout the buyback program and no shares were sold. Therefore, the number of shares in the Buyback Fund at the end of the quarter was 2,230,500. In addition, total shares outstanding as of September 30, 2008 were 537,802,359.
KEY EVENTS FOR THE QUARTER
Geo announced the sale of its stake in Hipotecaria Su Casita: GEO, a founding member of Hipotecaria Su Casita and one of Mexico's leading low-income housing developers, announced the sale of its 6.94% stake in the company following the public offer made by Caja Madrid. The total amount to be received by GEO from this transaction should amount to approximately $400 million pesos. The funds obtained through this transaction should be received between October and November 2008, and will be used to reduce debt and improve GEO's Financial Structure.
Corporacion GEO's 35th anniversary: With the slogan "35 Years Changing Lives", Corporacion GEO celebrated its 35th anniversary with suppliers, clients, more than 7,000 employees and with Mexico, through a marketing campaign "Celebration of the Best Place". More than 1.6 million people live in one of the 400,000 GEO-built homes.
Launching of the Marketing Campaign: "My GEO Summer": GEO launched an innovative national marketing campaign called "My GEO Summer" as a part of GEO's 360° Marketing Strategy. This was directed at children from the 33 cities where GEO has a presence and consisted of providing free sports, cultural or entertainment activities in GEO's housing developments. It was open to children already living at the developments as well as the children of potential customers, and helped increase traffic at GEO's projects.
GEO University receives the Strategic Human Resources Best Practices Award: GEO University received the Strategic Human Resources Best Practices Award in the International Human Resources 2008 Congress.
Joint Venture with GMI (Grupo Metal Intra) to develop self-storage facilities: Corporacion GEO announced a Joint Venture with "Mi Bodega Segura de Mexico" a subsidiary of GMI (Grupo Metal Intra) and a leader in the Mexican self-storage business, to begin establishing self-storage facilities within GEO's Housing Developments. The storage areas will begin in 2009 with 8 projects in the state of Mexico, Tijuana, Ensenada, Reynosa and Veracruz. GEO will provide the land and GMI will build and operate the storage space.
EXPECTATIONS FOR FY2008
Management maintains its financial expectations as revised within our 1Q08 earnings announcement. Management confirms revenue and EBITDA growth expectations of 12% to 14% in real terms, equivalent to 17% to 19% in nominal terms - assuming inflation levels of 5%. In addition, management continues to expect the accounts receivable to sales ratio to end the year between 42% to 44%. Net debt at year-end is expected to decline to the range of $3.9 to $4.2 billion pesos. As a result, the total debt to EBITDA ratio is anticipated to range between 1.4 to 1.6 times. Furthermore, for 2008 we expect a negative free cash flow between $1.0 to $1.2 billion pesos.
THIRD QUARTER 2008 EARNINGS CONFERENCE CALL / WEBCAST Date: Tuesday, October 28, 2008 Time: 10:00 a.m. US (ET) - 08:00 a.m. Mexico City (CT) To ensure timely entry of the call, please dial-in at least 20 minutes before start time, or pre-register on line (instructions below) Presenters: Arq. Luis Orvananos, Chairman and CEO; Saul Escarpulli, CFO; and Hans Schroeder, Investor Relations Officer Dial-in Numbers: US Dial-in number +1 888.713.4214 Int. Dial-in number +1 617.213.4866 Access code: 48408814 Webcast: A live web cast of the conference call and replay will be available at http://www.corporaciongeo.com/ 3Q08 Earnings: Press release on Monday, October 27, 2008 (After Market Close) Replay of this call: Starting Tuesday, October 28, 2008 at 11:00 AM US ET, ending at midnight US ET on Tuesday, November 4, 2008. Dial-in number: +1 888-286-8010 (US & Canada); +1 617-801-6888 (International & Mexico). Access Code: 51296274. Pre-registration: If you would like to pre-register for the conference call use the following link: https://www.theconferencingservice.com/prereg/key.process?key=PH6NR99XC
We recommend you pre-register -- it will provide you immediate and timely entry into the call. You will receive a code that allows you to enter the call directly. Pre-registration only takes a few moments and you may do so at any time, including up to and after call start time. To pre-register, please click the link above. Alternatively, if you would rather be placed into the call by an operator, please call at least 20 minutes prior to call start time.
About Corporacion GEO S.A.B. de C.V.
Corporacion GEO is one of the leading housing developers in Mexico and one of the most important in Latin America. The company is engaged in all aspects of design, development, construction, marketing, sales and delivery of low-income, middle-class and residential housing developments in Mexico. With operations in 33 cities across 16 states, GEO is one of the most geographically diversified homebuilders in Mexico. Since its inception GEO has sold more than 400,000 homes which currently provide housing to 1,600,000 people.
Safe Harbor Statement
This release contains forward-looking statements regarding the Company's results and business prospects. The readers should know that the results obtained may differ from that stated on this release. Past performances do not guarantee the behavior of future performances. The Company undertakes no obligation to update any of these statements, either as a result of new information, future actions or other related events.
Corporacion Geo, S.A.B. de C.V. CONSOLIDATED BALANCE SHEET (figures for September 2007, expressed as of December 31, 2007)* Variation Concept Sep 2008 Sep 2007 $ % ------- -------- -------- ------- ---- Cash and Cash Equivalents 2,229,297 1,834,995 394,301 21.5% Restricted Cash Equivalents 0 0 0 0% Accounts Receivable - Net 7,795,347 6,912,045 883,302 12.8% Real Estate Inventories (WIP+Materials) 5,173,878 4,335,066 838,811 19.3% Short-Term Real Estate Inventories 1,749,469 1,446,204 303,265 21.0% Other Current Assets 537,158 328,936 208,222 63.3% ------- ------- ------- ---- Total Current Assets 17,485,147 14,857,246 2,627,901 17.7% ========== ========== ========= ==== Real Estate Inventories (Long Term) 2,729,548 2,601,414 128,134 4.9% Investments in Associated Companies 413,823 332,182 81,641 24.6% Properties, Machinery and Equipment - Net 1,529,684 1,296,086 233,599 18.0% Other Assets - Net 1,084,824 539,425 545,399 101.1% ------------------ --------- ------- ------- ----- Total Assets 23,243,026 19,626,352 3,616,674 18.4% ============== ========== ========== ========= ==== Notes Payable to Financial Institutions 3,510,610 3,574,011 -63,401 -1.8% Suppliers 2,946,577 2,638,034 308,542 11.7% Accrued Expenses, Taxes Payable and other Current Liabilities 847,534 869,730 -22,196 -2.6% ------- ------- ------- ---- Total Current Liabilities 7,304,721 7,081,776 222,945 3.1% ========= ========= ======= === Amounts Payable to Suppliers of Land 8,923 25,722 -16,799 -65.3% Long Term Debt 3,625,445 1,984,852 1,640,593 82.7% Deferred Taxes 2,308,322 1,782,466 525,856 29.5% Other Long Term Liabilities 60,658 50,302 10,356 20.6% ------ ------ ------ ---- Total Liabilities 13,308,070 10,925,118 2,382,951 21.8% ========== ========== ========= ==== Common Stock 120,461 120,421 40 0% Retained Earnings 6,885,305 7,058,627 -173,323 -2.5% Net Income 1,141,482 1,057,437 84,045 7.9% Other Equity Accounts 900,592 -527,329 1,427,922 -270.8% ------- -------- --------- ------ Majority Shareholders' Equity 9,047,840 7,709,156 1,338,684 17.4% Minority Interest in Consolidated Trusts and Subsidiaries 887,117 992,078 -104,962 -10.6% ------- ------- -------- ----- Total Shareholders' Equity 9,934,956 8,701,234 1,233,723 14.2% ------------------- ========= ========= ========= ==== Total Liabilities and Shareholders' Equity 23,243,026 19,626,352 3,616,674 18.4% ----------------------- ---------- ---------- --------- ---- * thousands of Mexican Pesos Corporacion Geo, S.A.B. de C.V. CONSOLIDATED INCOME STATEMENT (figures for September 2007, expressed as of December 31, 2007)* Variation Concept 3Q 2008 3Q 2007 $ % ------- ------- ------- ------- ---- Revenues 4,231,745 3,833,773 397,973 10.4% Cost of Goods Sold 3,106,255 2,797,624 308,631 11.0% ------------------ --------- --------- ------- ---- Gross Profit 1,125,491 1,036,149 89,342 8.6% -------------- --------- --------- ------ --- Gross Margin 26.6% 27.0% -0.4% ------------ ---- ---- ---- SG&A Expenses 412,449 392,761 19,688 5.0% ------ --- SG&A Expenses to Revenues 9.7% 10.2% -0.5% ------------------------- --- ---- ---- Operating Profit 713,041 643,388 69,654 10.8% ------------------ ------- ------- ------ ---- Operating Margin 16.8% 16.8% 0.1% ---------------- ---- ---- --- EBITDA 1,018,929 898,940 119,989 13.3% -------- --------- ------- ------- ---- EBITDA Margin 24.1% 23.4% 0.6% ------------- ---- ---- --- Other Expenses - (Income) 6,549 15,427 (8,878) -57.5% Interest Income (40,756) (22,922) (17,834) 77.8% Interest Expense 169,870 97,732 72,138 73.8% Exchange Loss - (Profit) 13,724 3,800 9,924 261.2% Monetary Loss - (Income) 5 8,222 (8,216) -99.9% Comprehensive Result of Financing 142,844 86,831 56,012 64.5% --------------------- ------- ------- ------ --- Profit before Taxes 563,649 541,130 22,519 4.2% --------------------- ------- ------- ------ --- Profit before Taxes Margin 13.3% 14.1% -0.8% -------------------------- ---- ---- ---- Income Taxes 163,528 154,222 9,306 6.0% ----- --- Tax Rate 29.0% 28.5% 0.5% -------- ---- ---- --- Profit before Minority Interest 400,121 386,908 13,213 3.4% ------------------------ ------- ------- ------ --- Profit before Minority Interest Margin 9.5% 10.1% -0.6% ---------------------- --- ---- ---- Minority Interest 11,938 8,894 3,044 34.2% ----------------- ------ ----- ----- ---- Net Profit 388,183 378,014 10,169 2.7% ------------ ------- ------- ------ --- Net Margin 9.2% 9.9% -0.7% ---------- --- --- ---- * thousands of Mexican Pesos Corporacion Geo, S.A.B. de C.V. CONSOLIDATED INCOME STATEMENT (figures for YTD 07, expressed as of December 31, 2007)* Variation Concept YTD 08 YTD 07 $ % ------- ------ ------ --------- ---- Revenues 12,346,216 10,342,693 2,003,523 19.4% Cost of Goods Sold 9,064,910 7,552,957 1,511,954 20.0% ------------------ --------- --------- --------- ---- Gross Profit 3,281,306 2,789,736 491,569 17.6% -------------- --------- --------- ------- ---- Gross Margin 26.6% 27.0% -0.4% ------------ ---- ---- ---- SG&A Expenses 1,206,711 1,065,540 141,171 13.2% ------- ---- SG&A Expenses to Revenues 9.8% 10.3% -0.5% ------------------------- --- ---- ---- Operating Profit 2,074,595 1,724,197 350,398 20.3% ------------------ --------- --------- ------- ---- Operating Margin 16.8% 16.7% 0.1% ---------------- ---- ---- --- -------- --------- --------- ------- ---- EBITDA 2,932,173 2,437,623 494,550 20.3% -------- --------- --------- ------- ---- EBITDA Margin 23.7% 23.6% 0.2% ------------- ---- ---- --- Other Expenses - (Income) 10,693 3,540 7,153 202.1% Interest Income (69,016) (80,898) 11,881 -14.7% Interest Expense 420,420 278,199 142,221 51.1% Exchange Loss - (Profit) (4,621) 4,211 (8,832) -209.7% Monetary Loss - (Income) 0 21,502 (21,502) -100% Comprehensive Result of Financing 346,783 223,014 123,769 55.5% --------------------- --------- --------- ------- ---- Profit before Taxes 1,717,119 1,497,642 219,477 14.7% --------------------- --------- --------- ------- ---- Profit before Taxes Margin 13.9% 14.5% -0.6% -------------------------- ---- ---- ---- Income Taxes 523,175 426,828 96,347 22.6% ------ ---- Tax Rate 30.5% 28.5% 2.0% -------- ---- ---- --- Profit before Minority Interest 1,193,944 1,070,814 123,129 11.5% ------------------------ --------- --------- ------- ---- Profit before Minority Interest Margin 9.7% 10.4% -0.7% ---------------------- --- ---- ---- Minority Interest 52,462 13,377 39,085 292.2% ----------------- ------ ------ ------ ----- Net Profit 1,141,482 1,057,437 84,045 7.9% ------------ --------- --------- ------ --- Net Margin 9.2% 10.2% -1.0% ---------- --- ---- ---- * thousands of Mexican Pesos
