Homex Development Corp. 6-K 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Report on Form 6-K dated For the month of October 2009
Homex Development Corp.
(Translation of Registrant's Name Into English)
Boulevard Alfonso Zaragoza Maytorena 2204.
Bonanza 80020. Culiacán, Sinaloa, México.
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F ___X___ Form 40-F _______
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
Yes _______ No_______
(If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b); 82- )
Culiacan Mexico, October 27, 2009Desarrolladora Homex, S.A.B. de C.V. (Homex or the Company) [NYSE: HXM, BMV: HOMEX] today announced financial results for the third quarter ended September 30, 2009.
Commenting on third quarter performance, Gerardo de Nicolás, Chief Executive Officer of Homex, said: During the third quarter of 2009 we were able to maintain operational momentum witnessed during the first-half of 2009 by delivering solid quarterly revenue growth of 8.2 percent, driven by our strength and superior performance in the affordable entry-level segment of our business, and, as a result of Homex enhanced brand recognition among our clients and prospective clients. At the same time we did see some reduction in demand in our middle-income home segment, reflecting the nagging complexities of Mexicos economic environment, which has taken a toll on middle-income families, affirming the appropriateness of our last year decision to reduce our exposure to the higher, middle income market segment. On balance, we have been able to find our way through this complex environment, maintaining our profitability with a conservative strategy to preserve cash and to minimize our land investments and capital expenditures as well as continuing to emphasize our on-going expense reduction programs. For the remainder of the year and for 2010 we will continue to be appropriately prudent as we pursue our business plan in the coming term.
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Homex operated in 34 cities and 21 states across Mexico as of September 30, 2009.
Sales volume. During the third quarter of 2009, sales volume totaled 16,251 homes, an increase of 8.4 percent, a result of the Companys product mix, which focuses on the affordable -entry and low-middle income level, where demand and mortgage financing availability through INFONAVIT and FOVISSSTE continues to be stable. During the third quarter of 2009, affordable entry-level volume accounted for 14,980 homes or 92.2 percent of total sales volume compared to 91.5 percent for the same period in the previous year. Middle-income volume in the third quarter of 2009 decreased 0.5 percent to 1,271 homes from 1,278 homes during the third quarter of 2008, reflecting commercial bankings strict adherence to tight lending standards. Sofoles lending is still affected by funding restrictions, evidenced by a 33.0 percent year-over-year decline as of August 2009. Middle-income volume represented 7.8 percent of total sales volume during the third quarter of 2009, a decrease of 71 basis points when compared to the 8.5 percent that middle-income volume represented during the third quarter of 2008.
The average pricefor all homes sold during the third quarter of 2009 was Ps.313 thousand, a decrease of 0.2 percent, when compared to the third quarter of 2008.
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Mortgage financing. For the third quarter of 2009, 82.3. percent of the Companys customers obtained mortgages through INFONAVIT. As a result of our increased participation in FOVISSSTEs mortgage program, financing from FOVISSSTE increased 300 bps to 11.2 percent from 8.2 percent during the third quarter of 2008. The remainder of Homex customers were mainly financed by the five largest commercial banks.
Geographic expansion. During the third quarter of 2009, Homex maintained its strategy of consolidating its presence in the regions where the Company has operations. As such, Homex did not open operations in any new cities.
For the remainder of the year, the Company intends to continue to follow its strategy of maintaining a geographically diverse base of projects in medium -sized cities to minimize execution risk, while striving to strengthen and grow its ongoing projects in existing areas, thus in turn reduce operating expenses.
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Revenues increased 8.2 percent in the third quarter of 2009 to Ps.5,111 million from Ps.4,723 million in the same period of 2008. Total housing revenues in the third quarter of 2009 increased 8.2 percent, mainly driven by solid affordable -entry level sales volume. Affordable -entry level revenues increased 10.6 percent during the third quarter of 2009, while revenues from the middle-income segment decreased by 0.3 percent. The Companys growth in the AEL segment reflects a strong demand which outpaces home supply, evidenced by the large base of INFONAVIT and FOVISSSTE eligible subscribers who have not exercised their mortgage commitments, surpassing by 29 and 22 times, respectively, the remaining mortgages to be granted during the year. As a percentage of total revenues, affordable entry-level home sales increased to 79.1 percent in the third quarter of 2009 from 77.5 percent in the third quarter of 2008. Other revenues, which are mainly attributable to the sale of pre-fabricated construction materials, such as block and concrete, increased 23.5 percent, and represented 0.4 percent of total revenues during the third quarter of 2009.
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Gross profit decreased to 28.4 percent in the third quarter of 2009 from 29.7 percent in the same quarter of last year, due to the effects of MFRS D-6. Pursuant to the application of MFRS D-6 initiated in 2007, the Company is required to capitalize its Comprehensive Financing Cost (CFC), which includes interest expense, exchange loss or gain and monetary position (until December 31, 2007). During the third quarter of 2009, the Company registered a foreign exchange loss of Ps.70 million, a 64 percent increase compared to the same period last year. Likewise, capitalized interest expense increased 28 percent to Ps.167 million during the third quarter of 2009 compared to Ps.131 million in the third quarter of 2008. The increase in capitalization during the third quarter of 2009 ultimately caused the Companys capitalized CFC to increase 37 percent to Ps.237 million compared to Ps.174 million during the same period last year.
On a pro-forma basis (without considering the application of MFRS D-6 in 2008 and 2009) Homex gross margin for the quarter was relatively stable at 33.1 percent when compared to 33.4 percent during the same period of the previous year. The lower margin reflects the Companys stronger focus in the affordable entry-level segment as well as higher costs of materials, such as cement. At the same time, the Companys cost control strategies and the incremental use of Homex aluminum mould technology has helped to offset the above mentioned factors.
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Selling general and administrative expenses (SG&A). As a percentage of total revenues, SG&A for the third quarter of 2009 increased to 12.3 percent from 11.8 percent for the third quarter of 2008. The increase was principally attributable to increased sales and enhanced marketing efforts designed to grow the Companys market share as well as initial payroll expenses related to the start of Homex operations in Brazil. Nonetheless, SG&A, when compared to 12.2 percent during 2Q09, was stable, as a result of ongoing expense reduction programs, including the lower expenses from tailored marketing campaigns and lower maintenance expenses from corporate offices and branches.
Operating income. During the third quarter of 2009, operating income decreased 2.4 percent to Ps.825 million from Ps.845 million in the same period of 2008. Lower operating profit during the third quarter of 2009 was partly driven by an increase of 36.6 percent in relation to the Companys capitalization of Comprehensive Financing Cost (CFC) pursuant to the application of MFRS D-6. Operating income as a percentage of revenues was 16.1 percent in the third quarter of 2009 compared to 17.9 percent during the year ago period. On a pro-forma basis (without considering the application of MFRS D-6 in 2008 and 2009) Homex operating margin for the third quarter of 2009 was 20.8 percent compared to 21.6 percent during the same period of last year and an improvement of 45 bps when compared to 20.3 percent during the second quarter of 2009.
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Net comprehensive financing cost (CFC) during the third quarter of 2009 was Ps.158 million compared to Ps.361 million during the third quarter of 2008. The higher cost of financing during the third quarter of 2008 reflects a higher foreign exchange loss in the period.
As a percentage of revenues, net comprehensive financing cost was 3.1 percent in the third quarter of 2009 versus 7.6 percent in the third quarter of 2008. The main drivers of this were:
Foreign exchange exposure and currency derivatives. As of September 30, 2009, Homex U.S. Dollar denominated debt was mainly limited to a US$250 million bond issued in 2005, with a single principal payment due at maturity in 2015. The Company has an interest -only swap that effectively minimizes the exchange risk in the interest payments for the 2010-2012 period. This interest -only swap currently has a positive mark-to-market value of approximately Ps.31 million. All of the Companys U.S. Dollar denominated financial commitments for 2009 have been effectively hedged.
Net income for the third quarter of 2009 was Ps.447 million a 28.4 percent increase when compared with Ps.348 million reported in the same period of 2008.
Earnings per share for the third quarter of 2009 increased to Ps.1.34, as compared to Ps.1.04 reported in the third quarter of 2008.
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Adjusted EBITDA margin was 23.0 percent in the third quarter of 2009 from 23.9 percent in the same period last year. The lower margin mainly derives from the increase in Cost of Good Sold (COGS) and SG&A, discussed above.
The following table sets forth a reconciliation of net income to Adjusted EBITDA for the third quarter 2009 and 2008.
Land reserve. As of September 30, 2009, Homex land reserve was 80.1 million square meters, which includes both titled land and land in the process of being titled (without considering optioned land). This is equivalent to 394,588 homes, of which 361,427 are reserved for the affordable entry-level and 33,161 represent the middle-income and higher-end segment and land reserve for our Brazil operations. Homex land inventory value as of September 30, 2009, was Ps.12.4 billion. (US$ 918 million) .
During 2009, Homex has continued to follow a conservative replacement strategy for land bank acquisitions, thus minimizing investments. As of September 30, 2009 the Company has invested Ps.709 million, in line with the Company s 2009 land purchases budget.
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Liquidity. During the third quarter of 2009, the Company increased its total debt by Ps.268 million, of which Ps.93 million reflects the deppreciation of the Mexican peso relative to the U.S. dollar exchange rate registered in the translation of Homex foreign currency -denominated debt. For the remainder of 2009, Homex intends to continue following a conservative working capital strategy to reduce capital expenditures, while the Company does not anticipate additional land purchases. Furthermore, the Company intends to continue to identify opportunities for additional cost savings while continuing existing cost savings initiatives, including the reduction of corporate expenses, increasing the use of its aluminum mould technology and selective consolidation of branch operations.
As of September 30, 2009, Homex weighted average debt maturity was 4.5 years, with 62 percent of the Companys debt maturing between 2013 and 2015. The Company had net debt of Ps.6,855 million as of September 30, 2009 including the effects of the depreciation of the Mexican peso relative to the U.S. dollar. Homex interest coverage was 7.9 times. Without considering adjustments pursuant to MFRS D-6 and only considering net interest expense, excluding foreign exchange losses generated during the period, the adjusted EBITDA -to-Net Interest Expense ratio would have been 3.9x in the third quarter of 2009. As of September 30, 2009, the Company had the following liquidity ratios:
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Working Capital Cycle
Homex reported total receivables of 64.7 percent of revenues as of September 30, 2009, representing an increase when compared to the 59.8 percent reported as of September 30, 2008.
The period-end days in accounts receivable, calculated as of September 30, 2009, was 233 days, compared to 224 days as of June 30, 2009. Quarter -over-quarter, accounts receivable increased Ps.747 million, driven by a longer titling process within FOVISSSTE as a result of the implementation of new administrative processes to improve transparency and efficiency in the longer term, as well as the institutes internal liquidity constraints, resulting from state government employers contributions payment delays. In addition, the collection cycle was also impacted by delays in relation to the Federal Government Subsidy program as a result of the implementation of weekly payment quotas per state, which provide for an orderly but extended payment process. Moreover, as stated during the Companys second quarter conference call, Homex started using bridge loans, as a result of the scarcity of long-term credit lines in local markets. The use of this type of loan increases the administrative complexity in the Companys collection process.
As a result of the Companys conservative strategy to reduce land investments as of September 30, 2009, total inventory decreased 11 days to 365 days compared to 376 days as of June 30, 2009.
The period-end days in accounts payable, calculated as of September 30, 2009, was 123 days, compared to 143 days as of June 30, 2009. Lower accounts payable days are mainly driven by a decrease of 20 days with respect to land suppliers, reflecting the Companys applied strategy to limit land purchases. Positively, Homex was able to improve by two days its days of credit with material suppliers from 69 days as of June 30, 2009 to 71 days as of September 30, 2009.
Quarterly free cash flow generation resulted in a positive balance of Ps. 277 million, as a result of increased sales, lower capital expenditures and land purchases as well as the stability of accounts payable days. Nonetheless, on an accumulated basis the Company has an accumulated negative amount of Ps. 312 million, driven by the increase in Homex accounts receivable level.
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Homex intends to continue to work diligently to improve its collection cycle leveraging on the increased use and implementation of INFONAVITS electronic remote file capture program where the Company, using INFONAVITS webpage directly from Homex sales offices, is able to directly upload customers mortgage files to create a more expedited mortgage authorization process for clients and a faster collection process from INFONAVIT.
Further, the recently implemented FOVISSSTE factoring program with Mexicos National Development Bank (NAFIN) is expected to add liquidity to the institute.
*Includes land inventory, construction- in- process and construction materials
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Recent Business Developments
International Expansion: Brazil, San Jose dos Campos Affordable Entry- Level Project
During the first quarter of 2009, the Company initiated operations in Brazil with a 1,300-unit affordable entry-level development at San Jose dos Campos, northeast of Sao Paulo. Initial results have been gratifying and as of September 30, 2009 the Company has successfully replicated its business model in Brazil. Approximately 65 percent of the projects first stage (comprised of 700 units) has already been sold, while construction of infrastructure and homes in the first stage has begun. At the same time, at the end of this month we will collect the first payments through the Caixa Economica Federal, according to the percentage of completion collection method of the entity which confirms the Companys execution capabilities. This will be an important step for Homex, as it completes the first full cycle of construction at San Jose dos Campos.
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Homex has continued to conservatively execute its Tourism division business plan, concentrating its efforts on Los Cabos project. During the quarter, marketing efforts in Californias San Francisco East Bay, Orange County, Los Angeles Counties and Arizona have resulted in the sale of the first eight units in Los Cabos, and in the generation of more than 300 prospects. Overall, the Company expects a positive outlook for this division in 2010, as Mexico is the country with more Americans living abroad.
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2009 Guidance: The Company reaffirmed its guidance for 2009 published in December 2008:
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Desarrolladora Homex, S.A.B. de C.V. [NYSE: HXM, BMV: HOMEX] is a leading, vertically integrated home-development company focused on affordable entry-level and middle-income housing in Mexico. It is one of the most geographically diverse homebuilders in the country. Homex has a leading position in the top four markets in Mexico and is the largest homebuilder in Mexico, based on the number of homes sold, revenues and net income.
For additional corporate information, please visit the Companys web site at: www.homex. com.mx
Desarrolladora Homex, S.A.B. de C.V. quarterly reports and all other written materials may from time to time contain statements about expected future events and financial results that are forward -looking and subject to risks and uncertainties. Forward -looking statements involve inherent risks and uncertainties. We caution you that a number of important factors can cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward -looking statements. These factors include economic and political conditions and government policies in Mexico or elsewhere, including changes in housing and mortgage policies, inflation rates, exchange rates, regulatory developments, customer demand and competition. For those statements, the Company claims the protection of the safe harbor for forward -looking statements contained in the Private Securities Litigation Reform Act of 1995. Discussion of factors that may affect future results is contained in our filings with the Securities and Exchange Commission.
Attached is the unaudited Consolidated Financial Information Data of Desarrolladora Homex, S.A.B. de C.V. for the nine-month period ended September 30, 2009 and 2008, which includes the Consolidated Balance Sheets as of September 30, 2009 and 2008, and the Consolidated Statements of Income and Consolidated Statement of Changes in Financial Position for the nine-month period ended September 30, 2009 and 2008.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.