2017 Strategy 1 ESTRICTAMENTE CONFIDENCIAL Y PRIVADO March 30, 2017

Transcription

1 2017 Strategy ESTRICTAMENTE CONFIDENCIAL Y PRIVADO March 30,

2 Disclaimer This Presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments, nor should it be construed as legal, tax, accounting or investment advice or a recommendation. We expressly disclaim any and all liability for any loss or damage (whether foreseeable or not) suffered or incurred by any person or entity as a result of any unauthorized use, reference, publication, or distribution of anything contained or omitted on this Presentation. Anyone receiving this Presentation, at the moment of receiving it, acknowledges that the material contained herein is solely for informational purposes and does not comprise or pretend to comprise all aspects required to make an informed decision, that such person will not rely on it for his or her decision to buy or sell any securities or related financial instruments, nor will he or her construe it as legal, tax, accounting or investment advice or a recommendation. Corporación GEO S.A.B. de C.V. and/or its subsidiaries ( GEO or the Company ) expressly disclaims any and all liability for any loss or damage (whether foreseeable or not) suffered or incurred by any person or entity as a result of any unauthorized use, reference, publication, or distribution of anything contained or omitted on this presentation. Neither CNBV nor any other authority has approved or disapproved the contents of the information covered in this Presentation, or the adequacy or veracity of said information. All statements other than statements of historical facts included in any and all sections of this Presentation, including, without limitation, those regarding GEO s financial position, business strategy, plans and objectives, are forward-looking statements or projections based on knowledge and information available to GEO at the date of preparation of this Presentation and that are significant assumptions and subjective judgments concerning anticipated results, which are inherently subject to risks, variability and contingencies, many of which are beyond Company s control. Actual results may differ materially from such projections and neither GEO nor any of its representatives should be held liable for failure to achieve any such projections. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. These assumptions and judgments may or may not prove to be correct and there can be no assurance that any projected results are attainable or will be realized. The Company disclaims any and all liability for any loss or damage (whether foreseeable or not) suffered or incurred by any person or entity as a result of anything contained or omitted from this Presentation and such liability is expressly disclaimed. Many factors could cause the actual results, performance or achievements of GEO to be materially different from those expressed or implied in the Presentation, including, among others, those listed in slide 3 Risk Factors. The Company does not assume any responsibility to update or revise any information contained in this Presentation or to inform the recipient of any matters of which any of them becomes aware of which may affect any matter referred to in this Presentation (including, but not limited to, circumstances, developments or events occurring after the date hereof or any error or omission herein which may become apparent after this Presentation has been prepared.) These statements speak as of the date indicated and are not guarantees of future performance. Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements, and the Company undertakes no obligation to update any such statements whether as a result of new information, future events or otherwise. The projections, while presented with numerical specificity, are necessarily based on a variety of estimates and assumptions which, though considered reasonable by the Company, may not be realized and are inherently subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies, many of which are and will be beyond the Company s control. The Company cautions that no representations can be made or are made as to the accuracy of the historical financial information or the projections or to the Company s ability to achieve the projected results. Some assumptions may prove to be inaccurate. Statements, projections and estimates about the future, including financial projections and any other information contained in the Information, should not be considered, in whole or in part, by the recipients of such information as a substitute for the exercise of personal judgment and assessment. The projections included herein were not prepared in compliance with guidelines issued by the SEC or the International Federation of Accountants regarding projections or forecasts and are based on numerous assumptions concerning factors that are beyond GEO s control and which may or may not materialize. The financial information reflected in the Presentation does not purport to present GEO s financial condition in accordance with accounting principles generally accepted in the United States, Mexico or any other country. GEO s independent accountants have not audited or performed any review procedures on the Presentation (except insofar as certain historical financial information may have been derived in part from GEO s historical annual financial statements). The Presentation does not constitute a profit forecast or an offer or invitation to purchase or subscribe for any shares or other securities of the Company and neither any part of this document nor any information or statement contained therein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. By receiving the Presentation, you agree to be bound by the foregoing limitations. 2

3 Risk Factors GEO s viability as an ongoing concern could be impacted by numerous factors, including but not limited to: The firm is highly concentrated (80-85%) on Infonavit-financed housing. The number of mortgages granted by Infonavit has been declining for the last 5 years, which could hinder GEO's growth. Nearly half of the new houses financed by Infonavit during the last 3 years required CONAVI subsidies, whose budget was slashed by 30% for 2017; the rules applying to 2017 subsidies are yet to be defined. GEO's land bank characteristics and location does not allow for aspirations of upscaling to a higher price bracket and is highly reliant on subsidies. In the past, around 58% of GEO's sales had a subsidy. Mexican housing developers focused on subsidized social housing have a production cycle which calls for houses to be built in advance in order for them to be put on queue for a subsidy to be assigned to them; this requires an important amount of working capital. During the past 3 years, the top 10 Infonavit developers grew at a 9-10% CAGR and were awarded almost 40% of budgeted subsidies. GEO's projects which don t target the social housing bracket are located in touristic destinations, and over 50% of their sales are to non-local customers, in the current economic environment these sales could be challenging. Rising construction supplies prices could cause a housing market contraction for Insufficient operational capabilities to start projects on time and perform according to plan. Further delays in the availability of funds from Infonavit s credit facility, preventing infrastructure aspects from being addressed within the estimated timeframe. Rise in interest rates and volatility of the peso/u.s. dollar exchange rates. Changes to NAFTA could result slower growth of the Mexican economy and a contraction in formal employment, reducing Infonavit s resources and lowering housing demand. Changes to public policy for the sector could be affected by the Federal elections in Higher than expected capital needs for projects with construction advances. Potential additional lawsuits and liabilities that have not been identified. Lower sales growth rate than expected. Inability to execute relevant agreements. 3

4 INDEX I II III Market information Performance vs 2016 Business Plan 2017 Operational Plan IV Preliminary long term Business Plan 20 4

5 ANEXOS Social housing information I. 5

6 Contraction in new housing to 300k units New home sales of low-income housing have declined as a consequence of a growing market for used homes and home improvement loans from Infonavit and Fovissste. Infonavit estimates no additional growth over the next five years Historical data for affordable housing mortgages (1) Vivienda New units nueva Vivienda Used homes usada Mejoramiento Improvement Projection of new home mortgages from Infonavit, FOVISSTE, and others Vivienda Infonavit nueva INFONAVIT Vivienda FOVISSTE nueva and FOVISSTE others y otros (1) Source: CONAVI (thousands of mortgages) (2) Source: "Plan financiero Infonavit " and own estimate on FOVISSSTE and others (thousands of mortgages) 6

7 Housing unit construction adjusted to demand Over the last eight years, units in construction at year-end have been in line with demand estimates and Infonavit forecasts, except for Vivienda New units nueva titled escriturada Viviendas New units iniciadas construction RUV (al final (year-end) de cada año) Since 2010 Infonavit has consistently reduced the number of loans granted for new home sales as a result of an increase in used home sales and home improvement loans, stabilizing at 250k new home mortgages per year. Infonavit finances 85% of low income housing. Even though housing inventory has fluctuated on a yearly basis, units actually deeded have been constantly declining over the past 7 years. Out of the last 8 years, 2014 and 2015 were the ones that ended with the most inventory in relation to mortgages granted (on a percentage basis) and received the most subsidies (amount and volume), yet this situation did not result in higher sales of new units. Overall, 3 million units have been titled (i.e., deeded) over the past 8 years, construction starts totaled 2.9 million over the same period. Source: CONAVI, Infonavit and RUV 7

8 Other competitors have increased their market share Over the last 4 years the 10 biggest home builders have grown annually 3% in sales, but doubled subsidy usage INFONAVIT loans Var % CARG CARG CONAVI subsidies GEO 36,347 1,237 1,877 52% -52% GEO 20, % % subsidized loans 56% 83% 46% Market share / total 21% 1% JAVER 16,526 17,858 17, % 2% JAVER 5,594 6,677 5% SADASI 6,934 10,666 9,103-15% 7% SADASI 1,473 4,528 32% RUBA 7,760 10,452 8,713-17% 3% RUBA 3,648 5,125 9% CADU 6,214 8,981 8,385-7% 8% CADU 2,642 6,292 24% ARA 9,027 8,261 7,698-7% -4% ARA 1,067 4,044 40% HOGARES UNION 5,985 7,458 5,950-20% 0% HOGARES UNION 1,869 3,000 13% GARZA PONCE 6,181 6,617 4,831-27% -6% GARZA PONCE 292 1,231 43% VGI 1,854 6,859 4,823-30% 27% VGI 1,078 4,412 42% VIDUSA 3,764 4,158 3,545-15% -1% VIDUSA 47 1, % QUMA 2,255 4,271 3,397-20% 11% QUMA 1,122 2,844 26% Credits, top 10 66,500 85,581 74,438-13% 3% Subsidies, top 10 18,832 39,560 20% % subsidized loans 28% 57% 53% Market share/ total 19% 36% Developers 11 to 15 8,833 16,286 11,933-27% 8% Developers 11 al 15 4,810 8,307 15% % subsidized loans 54% 67% 70% Market share / total 5% 7% Total (national) loans 278, , ,861-10% -4% Total (national) subsidies 96, ,898 4% % subsidized loans 35% 52% 48% Subsidies are required by 50% of homes financed through Infonavit. Top 15 developers capitalized on the void created when GEO, Homex, and Urbi entered Concurso Mercantil (1) and captured market share, although they were also affected in In 2016, GEO was ranked as the 19 th developer and the 22 nd for the month of December. (1) Mexico s equivalent of Chapter 11 reorganization Source: Infonavit and CONAVI 8

9 Contraction of CONAVI subsidy funds in 2017 The budget for federal subsidies for new Infonavit housing units was reduced by 30% vs 2016 and by 50% vs 2015 Amount and number of subsidies for Infonavit mortgages on new housing units $8,379 $8,227 $4,071 $3,834 $5,386 $5,971 $6,937 $4, E Total Infonavit de subsidios new house vivienda subsidies nueva (thousands INFONAVIT of units) Total Infonavit vivienda new nueva house INFONAVIT subsidies (million (pesos pesos 2016) 2016) The subsidy budget for Infonavit houses will have an important decline derived from a diminished federal budget. Over the last 4 years more than half of Infonavit mortgages have required subsidies. Infonavit finances 85% of affordable housing. The average amount of subsidy per home buyer will be reduced significantly in 2017, thus the number of subsidies is expected to remain very similar to The reduction in the amount of subsidy will be offset by an increase in the average Infonavit loan starting in May Source: CONAVI; 2016 year end & 2017 estimate based on CONAVI information 9

10 $50 $46 $38 $56 $63 $63 $61 $63 Decrease in average amount of CONAVI subsidies in 2017 CONAVI has announced it will give out the same number of subsidies as 2016 with the new 2017 budget, this would mean a 40% decrease in the average subsidy amount ($25 thousand pesos) Average amount of CONAVI subsidies for Infonavit new home mortgages E Monto Average promedio subsidy amount, de subsidio thousands (pesos 2016) of 2016 pesos CONAVI s strategy to counter the budget cuts is to grant workers with an income lower than 2.6 UMAs (1) a subsidy in an amount similar to the one granted in 2016 (approximately 52k subsidies) and for workers with an income between 2.6 and 4.0 UMA an average amount of $15k pesos (approximately 56k subsidies). The CONAVI rules for 2017 subsidies funnel available subsidies exclusively for workers earning 4.0 UMAs or less, and to housing units priced at $362k pesos (158 UMAs). Infonavit will increase the amount it lends to homebuyers starting in May 2017, this will offset the impact of lower subsidies. This change will slightly increase the monthly payments of homebuyers and will increase the number of instalments. While we believe this is a step in the right direction, the challenge lies on the homebuyers response to these measures. (1) Unidad de Medida y Actualización ($27.5k pesos/year) Source: CONAVI; CONAVI; 2016 year end & 2017 estimate based on CONAVI information 10

11 Increase in the price of housing units 2015 and 2016 showed the highest price increases according to the SHF housing price index SHF Housing price index National 3.9% 4.2% 4.8% 3.8% 4.4% 6.6% 7.6% New houses 2.9% 4.9% 5.5% 3.5% 3.2% 6.8% 8.1% Pre-owned houses 5.7% 3.0% 3.6% 4.5% 6.5% 6.3% 6.6% Horizontal 4.7% 4.7% 5.1% 3.8% 4.4% 6.7% 7.4% Vertical 2.9% 3.6% 4.4% 3.9% 4.4% 6.5% 7.7% Economy & Social 3.9% 4.7% 4.5% 2.7% 4.1% 6.1% 6.6% Middle & Residential 4.2% 4.0% 5.1% 4.9% 4.7% 6.8% 8.4% The biggest increase in housing prices in the last 10 years is expected to happen in 2017, a hike between 10% and 15% according to CMIC, CANADEVI and other sector associations. There are several factors compounding for this expected increase in prices. Increases that range between 10% and 20% in construction supplies. Reference interest rate increases (TIIE). Peso / U.S. dollar exchange rates. Investment and economic deceleration derived from U.S. foreign policy. Source: SHF, December

12 ANEXOS Performance vs 2016 Business Plan II. 12

13 Business plan benchmark GEO HOMEX URBI The affordable housing market is 40% smaller than it was in a decade ago; nonetheless, aggressive business plans were established by the three companies emerging from Concurso Mercantil Business plan GEO HOMEX URBI vs market share Social housing forecast , , , , , ,000 Source: Infonavit y CONAVI for social housing forecast, and the Business Plan of each company (1) Housing units and individual housing lots Housing units deeded 2016 GEO 7,451 15,724 20,039 22,697 25,013 25,055 2,342 (1) % market share 3% 5% 7% 7% 8% 8% 31% HOMEX 18,711 24,396 30,359 35,554 36,850 38,159 1,504 % market share 6% 8% 10% 12% 12% 13% 8% URBI 4,521 9,331 11,858 13,526 14, % market share 2% 3% 4% 4% 5% 20% The following factors hindered GEO's ability to meet its business plan performance expectations and generated a complex liquidity situation: Delay in securing construction loans with various financial institutions. Disproportion between operational expenses and operating volumes. Restart of operations proved to be significantly more difficult than expected. Operational, legal and labor contingencies. On August 16, 2016, a Judge granted an amparo which rendered the Convenio Concursal ruling temporarily void (for three months), this further delayed obtaining construction loans and the ramp-up of operations. 13

14 Price (pesos) Volume (million titles) Stock performance and volume The stock price has fallen 78% with respect to the subscription price paid by the new shareholders after Concurso Mercantil GEOMAQ Announcement 2Q16 results published New resolution regarding Concurso Mercantil New CEO Concurso Emergence 4Q16 Results published Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 0 Precio Price Volumen (million (Millones titles) de acciones) Source: Bloomberg, March 27,

15 ANEXOS 2017 Operational Plan III. 15

16 Metrics Progress tracking Mission & vision Mission: to be leaders in quality of life and value proposition for our clients, collaborators and investors Vision: to be the best team in the housing industry GEO's most important asset is its people GEO's heart is in the B.U. Premises Realistic planning & performance with profitability Customer Satisfaction Liquidity Strategic Objectives I II III IV V Asset sales and People Impeccable operation Planning and growth Legacies / Legal liquidity Teamwork Efficient organizational structure and fixed cost reduction Training & development Performance evaluations Code of ethics Tenure: career pathway Achieving final deeds and collection goals Timely financing Efficient production Commercial productivity Weekly cash flow 2017 initiatives Business plan: Market research Operational due diligence Individual project launch plans Planning guide New projects and markets planning Administrative simplification Realistic planning Trustworthy company Labor Financial Fiscal Fees/counsel Operational Asset sales Land partner and bank creditor transactions SHF loan Fiscal losses Internal control and operational guidelines 16

17 Strategic actions Focus on assets with the least risk in availability and financing, under an impeccable operation First phase, 7 projects with active construction loans. Second phase, levering 7 more projects through the existing structure. Assets that require little capital expenditure. Self-sufficiency by 2018 through a leaner company structure With a strategy on focusing in deep markets, without risking operational goals achievement and compliance with legacy commitments, a significant personnel downsizing will be implemented. Infonavit Infrastructure credit facility $350 million peso drawdown to reduce 90% of expenditures in temporary utilities provided to deeded and paid housing units. Preserve the company's liquidity Clear business rules, only projects with construction loan facilities will be developed. Legacies payment, only those essential to maintain operations and sales in strategic projects. Ensure ongoing concern through 2017 using extraordinary liquidity strategies SHF credit, agreements with land partners and bank creditors. Asset sales. Restructuring of unproductive liabilities. 17

18 GEO's 2017 sales goal GEO aims to transfer title of 3,482 units in 2017, a 49% increase compared to 2016, seeking to place the Company in the top 15 developers of the country 1, T 2T 3T 4T 2017 units Financing secured through construction loans. Within reason, additional projects could be launched within existing business units. 18

19 The foundation for 2018 s sales goal lays in 14 projects Market research indicates that title to 4,531 housing units could be achieved in 2018 focusing only on 14 projects that have been launched or will be launched during 2017, a 30% increase vs projected sales; this could put GEO within the top 10 Mexican housing developers + 52% 1, % 1,122 1, T 2T 3T 4T 2018 units 19

20 ANEXOS Preliminary long term Business Plan IV. 20

21 Arguments for the preliminary long term Business Plan Superior product. Experienced team. Brand recognition. Outstanding investors. Excellent rapport with governmental authorities. Bank backing to finance new housing construction through construction loan facilities. 95% of homes in the business plan will be developed on existing land. Land bank is sufficient to eventually support sales of up to 20k housing units per year and EBITDA growth. Restructuring of unproductive liabilities. 21

22 Land bank capacity in terms of housing units 95% of long term business plan is to be developed in land already available to the company CARG: 36% (1) Current land Land to be acquired Figures in thousands of units (1) Housing units and individual housing lots 22

23 Land bank capacity in terms of income The higher income CAGR is a product of the inclusion of higher priced units in deep markets to be developed on land already available to the company $12.3 $10.2 $1.8 CARG: 43% $6.6 $0.1 $7.9 $0.2 $1.0 $6.5 $7.7 $9.2 $10.5 $1.3 $1.6 $2.3 $3.8 (1) Current land Land to be acquired Figures in billions of pesos (1) Income from housing units and individual housing lot sales 23