2009 ANNUAL REPORT STRONGER 2009 ANNUAL REPORT

Transcription

1 2009 ANNUAL REPORT STRONGER 2009 ANNUAL REPORT

2 Contents OUR COMPANY MESSAGE FROM THE CHAIRMAN OF THE BOARD AND THE CHIEF EXECUTIVE OFFICER FINANCIAL HIGHLIGHTS BUSINESS MODEL CREDIT AVAILABILITY FOR OUR CUSTOMERS ADAPTATION TO OUR CUSTOMERS NEEDS OPERATIONAL OPTIMIZATION FAMSA MEXICO BANCO AHORRO FAMSA FAMSA USA CORPORATE GOVERNANCE MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS 27 CONSOLIDATED FINANCIAL STATEMENTS

3 Our Company Founded in 1970, in Monterrey, Nuevo León, Grupo Famsa has consolidated its position as a leading public company in the retail sector. Its activities focus on satisfying the different consumption, financing and saving needs of its customers and their families. Our business plan is based on developing a unique portfolio of complementary businesses based on consumer credit and savings. Famsa México, Banco Ahorro Famsa and Famsa USA, our three business units, provide a comprehensive value offer aimed at enhancing the quality of life of a large market segment that demands personalized services and credit options that are not offered by the traditional banking sector. A committed work team and broad network of 410 stores covering 24 Mexican states and 5 of the states with the greatest Hispanic population in the United States are dedicated to exceeding the expectations of our more than 9 million customers. Our multiple-service commercial bank, Banco Ahorro Famsa, S.A., started operations in Today, its 276 branches make up one of the 10 largest banking networks in Mexico. The successful consolidation of Banco Ahorro Famsa is accelerating Mexican families use of the banking system, underpinning Famsa México s value offer and transforming Grupo Famsa s financial profile. MEXICO 72.6% USA 27.4% AR

4 Message from the Chairman of the Board and the Chief Executive Officer 04 AR.2009 Dear fellow Shareholders: During 2009, despite facing the effects of one of the deepest financial crises of recent times, Grupo Famsa underwent the most significal transformation of its history. The downturn in the financial markets and rapid decline in economic activity created unprecedented pressure on consumer spending, especially on the purchase of durable goods. At the same time, financing in conventional debt markets virtually disappeared and the AH1N1 influenza outbreak generated an environment of fear. Nevertheless, our timely formulation of a comprehensive plan and our entire team s focus on its implementation allowed us to overcome the challenges of the market deterioration and strengthen the bases of our business model as we guaranteed the availability of credit for our customers, adapted our value offer to the change in their purchasing needs and priorities, and enhanced our operating processes. Our customers demand the benefits provided by the option of buying Famsa products on credit. As a result, one of our top priorities was to accelerate the development of a stable source of funds to mitigate our exposure to financial market volatility and guarantee the availability of credit to our customers. Although this initiative was part of a greater project that began in January 2007 with the opening of the first branch of Banco Ahorro Famsa, during 2009 we effectively optimized our financial structure. Today, bank deposits represent more than 75% of Grupo Famsa s consolidated net financing, compared to less than 35% just one year ago. We would like to take this opportunity to thank you for your trust in subcribing 100% of the P$1,200 millon capital increase concluded in August Despite the adverse market

5 conditions, 93% of the share offering was subscribed by stockholders exercising their preemptive rights, and the company received notifications of interest that exceeded by more than 28 times the unsubscribed shares available. Without doubt, this capital increase was a determining factor in the success of our financial transformation. During the year, the purchasing priorities and habits of our customers changed along with the economic environment; as their purchasing capacity decreased, they focused on satisfying the most basic needs and spent more time at home. In response, we reinforced our offer of personal loans in Mexico and adopted an even more proactive role of coming closer to the market through a broad range of communication channels. Personal loans, that amounted to approximately 13% of our consolidated net sales, proved to be a valuable complement to our traditional portfolio of products and services. Cash loans provide our customers access to an almost infinite variety of products and services that are not currently offered in our stores. This has increased our participation in a diverse set of customer needs that tend to be less sensitive to economic cycles. We also strengthened direct communication channels that bring us closer to our customers within and, more particularly, outside our stores. This year we collected more than half a million credit requests directly in the homes of potential customers. Additionally, more than 5 million customers received a personalized letter or phone call from our telemarketing team. Additionally, we implemented a strict program of operating rationalization to underpin our profitability under such challenging market conditions, achieving approximately P$200 million in operating savings through different initiatives. During the year, we also optimized our retail network, selectively closing 15 stores, all of which were among the oldest and smallest and located close to new, complete-format outlets. Just like in other periods of great challenges for our company over the past 39 years, the accomplishments of 2009 strengthen Grupo Famsa s competitiveness. The enhanced felxibility of our new financial structure will boost our retail business by enabling us to offer more attractive credit conditions to our customers and sustaining our expansion plans as soon as the economic environment improves. Furthermore, we are convinced of Banco Ahorro Famsa s enormous potential; its progress over the past two years is just the basis for what will be the next growth phase of our banking operations. We reiterate our commitment to you, our stockholders, to align all our resources in order to capitalize on the great potential of our unique business portfolio and continue our long track record of disciplined and profitable growth. Simlarly, we would like to thank our customers, creditors, suppliers and the community in general for placing their trust in us on a daily basis. Humberto Garza González Chairman of the Board of Directors Humberto Garza Valdéz Chief Executive Officer AR

6 Financial Highlights vs 2008 Operating Figures Total Stores Famsa Mexico Famsa USA Banco Ahorro FAMSA % -3.3% 1.9% -0.4% Active Credit Accounts 1,670,184 1,687,834 1,444,073 1,251, % Employees 16,192 18,364 18,207 16, % Financial Results (a) Net Sales Famsa Mexico (b) Famsa USA Other Inter-segment (c) $14,947 $10,832 $4,096 $763 -$745 $14,762 $11,133 $3,594 $849 -$813 $14,181 $11,326 $2,808 $969 -$922 $12,859 $10,910 $1,827 $1,101 -$ % -2.7% 14.0% -10.1% -8.4% Gross Profit EBITDA Operating Income Net Income $7,592 $1,554 $1,123 $97 $7,229 $1,456 $1,037 $561 $6,489 $1,654 $1,329 $518 $5,592 $1,571 $1,279 $ % 6.8% 8.3% -82.6% Gross Margin EBITDA Margin Net Margin 50.8% 10.4% 0.7% 49.0% 9.9% 3.8% 45.8% 11.7% 3.7% 43.5% 12.2% 4.2% Balance Sheet Accounts (a) Assets Liabilities Stockholders Equity $22,604 $14,237 $8,367 $21,008 $13,713 $7,295 $16,317 $9,838 $6,479 $14,105 $8,114 $5, % 3.8% 14.7% (a) Millions of constant Mexican pesos as of December 31, 2007 prior to 2008 (b) Including Banco Ahorro Famsa (c) Intercompany sales SALES CAGR: 5.1% EBITDA CAGR: -0.3% STORES CAGR: 5.8% RETAIL AREA CAGR: 9.5% 12,859 14,181 14,762 14,947 1,571 1,654 1,456 1, , , , , AR Millions of Mexican pesos CAGR: Compound Annual Growth Rate Millions of Mexican pesos Square meters (1m2 = 10.76ft2)

7 Business Model FAMSA Mexico Sales: P$10,832 million 357 stores 417 thousand m2 Presence in 24 states Grupo Famsa is focused on satisfying the consumption, financing and savings needs of the middle and lower-middle segments of the population through a portfolio of complementary businesses based on consumer credit. The synergies we capitalize between our three business units drive our competitive position to grow ever stronger. BANCO Ahorro Famsa Loan Portfolio: P$9,904 million Bank deposits: P$7,377 million 276 branches Presence in 24 states FAMSA USA Sales: P$4,096 million 53 stores 128 thousand m2 Presence in 5 states AR

8 Credit Availability for our Customers

9 The availability of credit is a key element in Grupo Famsa s value offer. More than 80% of our consolidated net sales come from transactions involving the different financing options we offer to our customers. Historically, we used different external funding sources to provide credit. Therefore, an essential component of our growth strategy in recent years has been the development of a proprietary, more stable source of funds. One of the most important results of Banco Ahorro Famsa s successful startup has been the fundamental transformation of our financial profile aligned to guarantee the availability of credit to our customers. Banco Ahorro Famsa has built a solid base of deposits of more than P$7,377 million that has low exposure to financial market volatility and allowed it to gain control of more than 90% of Famsa Mexico s existing credit portfolio. By year-end 2009, the relative weight of bank deposits to consolidated net funding had been completely inverted within Grupo Famsa s consolidated financial structure. Credit Sales 81% of total sales AR

10 Adaptation to our Customers Needs

11 In 2009, our customers purchasing priorities and habits changed abruptly with the onset of the grave worldwide economic crisis. Never before had consumers shown such low levels of confidence. As a result, their expenses were limited to fulfilling the most basic needs. Our participation in these higher priority needs increased significantly through an attractive personal loan offer. This product s growth was such that by year-end 2009 their share of our consolidated net sales almost doubled compared to The benefits of our credit plans, adapted to personal loans, open up opportunities for our Mexican customers to satisfy a much wider range of needs, including house remodeling, medical services and education, that complement our traditional offer of products and services. Personal Loans 13% of total sales Furthermore, we adopted an even more proactive role in approaching existing as well as potential customers through direct communication channels: Collecting more than 567 thousand credit applications received directly in customers homes. Seding more than 3.9 million personalized letters by mail. Making more than 1.1 million effective phone calls. 11 AR

12 Operational Optimization

13 P$200 million in operating savings during 2009 The accelerated contraction of economic activity and its repercussions on consumption radically changed market conditions in We responded quickly, designing and implementing a series of initiatives to align our operating capacity to the new environment. during the lowest part of the economic cycle and has also positioned us to capitalize on the benefits of the future recovery. We enhanced the efficiency of key processes, particularly in areas related to inventory and credit management. One of the most significant advances of the year was the consolidation of our credit operations on a national level. We also optimized our commercial network by selectively closing 15 small stores, whose operations were integrated into newer, complete-format units. During the year, we reduced operating expenses by approximately P$200 million as a result of a very strict rationalization plan. The increase in operating efficiency underpinned our profitability AR

14 Famsa Mexico

15 Famsa Mexico operates a network of 357 stores in 24 Mexican states and is the Grupo Famsa business unit that generates most revenues. Since 1970, it has focused on the middle and lower-middle market segments in Mexico, offering accessible financing options for the acquisition of products and services in its stores. It is currently one of the nation s leading retailers for a wide range of durable goods such as furniture, electronics and appliances. Through the successful integration of Banco Ahorro Famsa, Famsa Mexico s customers now have access to a wide variety of banking services inside 276 of our stores, and more than 467 thousand of them can make easy use of their credit line through the Famsa private label credit card issued by Banco Ahorro Famsa. Moreover, the transfer of credit processes to our bank s personnel has freed up valuable time for our sales force, allowing them to focus even more on the personalized quality service that distinguishes us. Grupo Famsa business unit with greatest revenues P$10,832 millon Despite the great challenges, Famsa Mexico was able to offset the effects of the severe economic crisis on its operations. After experiencing a sharp decline of 15.8% during the first quarter 2009, same-store sales rose 4.3% in the fourth quarter of the year. Famsa Mexico / Banco Ahorro Famsa s joint offer of personal loans had a significant impact on this recovery, with revenues from cash loans accounting for more than 17% of Famsa Mexico s total revenues. Famsa Mexico, contributed more than P$165 million in savings from the optimization of its operating processes and infrastructure in From January to December, 13 small stores, located close to complete-format ones, were selectively closed in order to increase operating leverage of the company s retail network. 10,910 SALES CAGR: -0.2% 11,326 11,133 10, STORES CAGR: 3.5% The successful integration of Banco Ahorro Famsa, the complementary offer of personal loans and the optimization of operations not only drove Famsa Mexico s recovery but positioned the business unit to return to its expansion plan with an even stronger platform when market conditions improve Millions of constant Mexican pesos as of December 31, 2007 prior to 2008 CAGR: Compound Annual Growth Rate AR

16 Banco Ahorro Famsa

17 Banco Ahorro Famsa has focused on adapting banking services to the needs of the traditional Famsa market segment, offering the personalized customer service that distinguishes the rest of Grupo Famsa s business units. After just three years of operations, Banco Ahorro Famsa commands a strong market position. During this time, it has been able to take advantage of its unique synergies with Famsa Mexico: Capitalizing on Famsa Mexico s stores, Banco Ahorro Famsa OPERATES one of Mexico s 10 largest banking branch networks, with 276 branches nationwide. Capitalizing on Famsa Mexico s existing customer base, Banco Ahorro Famsa HOLDS a loan portfolio of more than P$9,903 million; at least four times that of other comparable banks. DEPOSITS CAGR: 496.7% LOANS CAGR: 313.9% Capitalizing on the market s recognition of the Famsa brand and offering an attractive range of deposit products, Banco Ahorro Famsa DEVELOPED a solid base of deposits of more than P$7,377 million; at least 40% greater than other comparable banks ,317 7,377 5,787 3,590 9, Millions of Mexican pesos CAGR: Compound Annual Growth Rate AR

18 Famsa USA

19 Famsa USA replicates Famsa Mexico s business model in its 53 stores, focusing on the Hispanic market in the United States. The five states where it currently operates hold almost 60% of the entire Hispanic population. Famsa USA has established a unique market position within its niche, making it one of the top 100 retailers in terms of sales volume for furniture, electronics and appliances. Top 100 Retailer in sales of Furniture, Electronics and Appliances According to estimates of the U.S. Census Bureau, Hispanics represent the largest, fastestgrowing minority in the United States. This fact, combined with the high concentration of Hispanics in identifiable geographic areas, gives Famsa USA a very attractive growth potential. At year-end 2009, its revenues represented approximately 27% of Grupo Famsa s consolidated sales. The financial crisis in the United States caused historically high unemployment rates and an unprecedented reduction in consumer confidence which, according to the U.S. Census Bureau s Monthly Retail Trade Report, resulted in a 9.4% annual decline in sales of furniture, electronics and appliances on an industry-wide level. Famsa USA s sales increased 14.0% during However, one of the main drivers for this was the devaluation of the Mexican peso vis-à-vis the U.S. dollar. Excluding the effect from exchange rate volatility, same-storesales decreased 9.3% year-over-year. To make Grupo Famsa s U.S. retail network more efficient and therefore more profitable, two small stores, close to larger, completeformat ones, were selectively closed, while a third Chicago store was inaugurated, improving operating leverage. Famsa USA also achieved savings of more than US$2.7 million during the year as part of Grupo Famsa s strategy to enhance operating efficiency. 1,827 SALES CAGR: 30.9% 2,808 3,594 4, Millions of constant Mexican pesos as of December 31, 2007 prior to 2008 CAGR: Compound Annual Growth Rate 24 TIENDAS TACC: 30.2% AR

20 CORPORATE Governance Management Team Grupo Famsa, S.A.B. de C.V. 1.- Humberto Garza Valdéz Chief Executive Officer 2.- Oziel Mario Garza Valdéz Vice President of Clothing and Real Estate 3.- Luis Gerardo Villarreal Rosales Chief Operating Officer 4.- Abelardo García Lozano Chief Financial Officer 5.- Héctor Padilla Ramos Vice President of Purchasing 6.- Héctor Hugo Hernández Lee Vice President of Human Resources 7.- Gabriel Eduardo Contel Arechavala Vice President of Famsa Mexico 8.- Ignacio Ortiz Lambretón Vice President of Famsa USA 9.- Adrián Jorge Lozano Lozano Vice President of Banco Ahorro Famsa 20 AR.2009

21 Board of Directors Grupo Famsa, S.A.B. de C.V. Company management is the responsibility of our Board of Directors, which is made up of 8 Directors; four of whom are Independent Directors. The members of our Board of Directors are elected at Ordinary Shareholders Meetings and exercise their functions for a one-year period with the possibility for reelection. The members of Grupo Famsa s Board of Directors are: Humberto Garza González Humberto Garza Valdéz Hernán Javier Garza Valdéz Oziel Mario Garza Valdéz Salvador Kalifa Assad Horacio Marchand Flores Jorge Luis Ramos Santos Alejandro Sepúlveda Gutiérrez Director Director Director Director Independent Director Independent Director Independent Director Independent Director The officials of Grupo Famsa s Board of Directors are: Humberto Garza González Chairman (*) Luis Gerardo Villarreal Rosales Secretary (*) Ricardo Maldonado Yañez Prosecretary (*) Officials who do not form part of the Board of Directors. Audit Committee The Audit Committee was created at the Ordinary and Extraordinary Shareholders Meeting held on April 28, Since its creation, in accordance with Mexican securities legislation (Ley del Mercado de Valores), all members of the Committee are Independent Directors, and two of them qualify as financial experts. The members of the Audit Committee are: Alejandro Sepulveda Gutiérrez Salvador Llarena Arriola Horacio Marchand Flores Chairman Among the responsibilities of the Audit Committee are: Evaluate the company s internal control and internal auditing systems; Submitt an annual report of its activities to the Board of Directors and the Shareholders Meeting; Discuss and review the company s balance sheets, and recommend their approval, if appropriate, to the Board of Directors; Oversee compliance of the resolutions from the Ordinary Shareholders Meeting and the Board of Directors. AR

22 Corporate Practices Committee The Corporate Practices Committee was created at the Ordinary Shareholders Meeting held on December 14, Since its creation, in accordance with Mexican securities legislation (Ley del Mercado de Valores), all of its members are Independent Directors. The members of the Corporate Practices Committee are: Alejandro Sepulveda Gutiérrez Salvador Llarena Arriola Horacio Marchand Flores Chairman The Corporate Practices Committee is responsible for, among others: Evaluating the performance of top Executives; Submitting its views to the Board of Directors concerning operations with related parties; Convening Shareholders Meetings and submitting an Agenda of matters deemed worthy of consideration; Supporting the Board of Directors in drawing up the reports required by law. Corporate Governance Practices Grupo Famsa s positive performance rests on sound Corporate Governance practices, and the company seeks, in all of its operations, to act in complete compliance with the Code of Better Corporate Practices recommended by the Mexican Stock Exchange and the National Banking and Securities Commission. This has resulted in the optimal functioning of the Board of Directors, whose obligation is, in coordination with the Audit Committee and the Committee of Company Practices, to plan, approve, and overlook all of the Company s operations. 22 AR.2009

23 Board of Directors Banco Ahorro Famsa, S.A., Institución de Banca Múltiple In accordance with Mexican legislation (Article 21 of the Ley de Instituciones de Crédito) and the general stipulations issued by the Federal Government, through the Ministry of Finance (Secretaría de Hacienda y Crédito Público), the administration of Banco Ahorro Famsa is entrusted to a Board of Directors made up of 8 Directors; four of whom act as Independent Directors. The members of Banco Ahorro Famsa s Board of Directors are: Luis Gerardo Villarreal Rosales Oziel Mario Garza Valdéz Hernán Javier Garza Valdéz Adrián Jorge Lozano Lozano Héctor Medina Aguiar Ernesto Ortiz Lambretón Salvador Kalifa Assad Bernardo Guerra Treviño Director Director Director Director Independent Director Independent Director Independent Director Independent Director The officials of Banco Ahorro Famsa s Board of Directors are: Luis Gerardo Villarreal Rosales Chairman (*) Ricardo Maldonado Yañez Secretary (*) Humberto Loza López Prosecretary (*) Officials who do not form part of the Board of Directors. AR

24 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS FOR THE YEAR ENDING DECEMBER 31, 2009 Net Sales As of December 31, 2009, Grupo Famsa s consolidated net sales totaled P$14,947 million, 1.3% above the previous year. Famsa Mexico posted sales of P$10,832 million, a decline of 2.7% year-over-year, while Famsa USA posted sales of P$4,096 million, 14.0% above 2008, largely as a result of the devaluation of the Mexican peso vis-à-vis the U.S. dollar. The consolidated net sales of stores that have been operating for more than 12 months (same-store sales) fell 5.4%, without considering the change in parity. Famsa Mexico s annual same-store sales declined 4.3%, while those of Famsa USA fell 9.3% in U.S. dollar terms. Famsa Mexico focused its efforts on the implementation of initiatives to stimulate demand, underpinning customers purchasing experience with the integration of Banco Ahorro Famsa and complementing its product portfolio with the joint offer of personal loans, which represented more than 17% of Famsa Mexico s 2009 revenues. In the United States, economic pressures on the Hispanic population affected the operation of Famsa USA more than expected. The deep financial crisis there resulted in high unemployment rates and a historic decline in consumer confidence, causing one of the worst downturns in sales of furniture, electronic goods and appliances on an industry-wide level. Cost of Sales and Gross Profit The 2009 cost of sales was P$7,355 million, 2.4% below that of the previous year. The granting of personal loans during the year contributed significantly to an expansion of the gross margin of approximately 180 basis points to 50.8%. As a result, gross profit for 2009 grew 5.0% to P$7,592 million. 24 AR.2009

25 Operating Expenses Operating expenses for 2009 totaled P$6,469 million, an increase of 4.5% year-overyear. The Company s operational optimization efforts that began to be implemented at the end of 2008 offset part of the incremental allowance for doubtful accounts resulting from higher unemployment and the effect of the Mexican peso depreciation. Accumulated savings in operating expenses (excluding non-operating elements) as of the close of the year totaled more than P$200 million. Operating Income The 2009 consolidated operating income grew 8.3% year-over-year to P$1,123 million, resulting in an operating margin of 7.5%, approximately 50 basis points greater than the previous year. Comprehensive Financing Expense The 2009 comprehensive financing expense increased 192.8% year-over-year to P$1,236 million, largely because of a 29.2% upswing in interest expense driven by the systemic rise in interest rates, and a foreign exchange loss (non-cash) of P$126 million reflecting Grupo Famsa s net long position in U.S. dollars through the operations of Famsa USA. Grupo Famsa does not have any exposure to derivative instruments and the Company s treasury follows a disciplined policy of investing exclusively in fixedincome securities. Net Income The 2009 consolidated net income was P$97 million, 82.6% below that of At year-end 2009, the Company posted a foreign exchange loss (non-cash) of P$126 million, resulting from Grupo Famsa s net long position in U.S. dollars through the operations of Famsa USA. On the contrary, 2008 net income benefitted from the recognition of a foreign exchange gain (non-cash) of P$436 million. AR

26 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS BALANCE SHEET Accounts Receivable The Trade Accounts Receivable balance reached P$14,131 million as of December 31, 2009, an increase of 9.2% year-over-year. The granting of personal loans and the growth in Banco Ahorro Famsa s receivables have an effect on this account s balance without having the same impact on sales. Additionally, uncollectible accounts represented 7.1% of credit sales, largely because of the increased participation of Famsa USA in the Company s total sales and pressures resulting from the unemployment rates in the United States and Mexico. Inventory As of December 31, 2009, the balance of inventories decreased 13.0% compared to 2008, totaling P$2,118 million. Throughout 2009, Grupo Famsa implemented initiatives to optimize inventory levels without affecting our service standards. Net Debt Net Debt decreased 59.9% when compared to 2008, reaching a balance of P$2,194 million. The Company issued US$71 million in Euro-Commercial Paper in order to improve the balance of its net long U.S. dollar position resulting from Famsa USA s operation. To further balance its net long U.S. dollar position, the Company seeks to remain active in the international debt markets during Bank Deposits Resulting from Banco Ahorro Famsa s implementation progress, bank deposits increased 135.6% from P$3,132 million at year-end 2008 to P$7,377 million at the close of Bank deposits offer an optimal cost of funding and mitigate the Company s exposure to conventional credit market volatility. Stockholders Equity The balance of Stockholders Equity grew 14.7% year-over-year to P$8,367 million at year-end AR.2009

27 CONSOLIDATED FINANCIAL Statements GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES

28 CONTENTS 29 Report of independent auditors 30 Consolidated balance sheets 31 Consolidated statements of income 32 Consolidated statements of changes in stockholders equity 34 Consolidated statements of cash flows 35 Notes to the consolidated financial statements 28 AR.2009

29 REPORT OF INDEPENDENT AUDITORS PricewaterhouseCoopers, S. C. Avenida Rufino Tamayo No. 100 Col. Valle Oriente Garza García, N.L. Teléfono: (81) Fax: (81) To the Stockholders of Grupo Famsa, S. A. B. de C. V. Monterrey, N. L., April 13, 2010 We have audited the consolidated balance sheets of Grupo Famsa, S. A. B. de C. V. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, of changes in stockholders equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they were prepared in accordance with Mexican Financial Reporting Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the financial reporting standards used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of Grupo Famsa, S. A. B. de C. V. and subsidiaries at December 31, 2009 and 2008, and the consolidated results of their operations, the changes in their stockholders equity and their cash flows for the years then, in conformity with Mexican Financial Reporting Standards. PricewaterhouseCoopers, S. C. Hector Puente Segura Audit Partner AR

30 CONSOLIDATED BALANCE SHEETS GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2009 AND Thousands of Mexican Pesos ASSETS CURRENT ASSETS: Cash and cash equivalents (Note 3.d) Ps 1,514,218 Ps 1,011,628 Restricted cash (Note 3.d) 191, ,907 Trade accounts receivable (Note 4) 14,131,100 12,936,952 Taxes recoverable 573, ,068 Other accounts receivable 538, ,497 Inventories (Notes 3.g and 5) 2,118,045 2,434,034 Total current assets 19,067,723 17,516,086 PROPERTY, LEASEHOLD IMPROVEMENTS AND FURNITURE AND EQUIPMENT (Note 6) 2,731,880 2,868,954 GOODWILL (Note 3.j) 241, ,096 DEFERRED CHARGES (Note 3.l) 102, ,611 OTHER ASSETS (Note 3.m) 97,551 88,052 DEFERRED INCOME TAX (Note 12) 327,517 DEFERRED EMPLOYEES PROFIT SHARING (Notes 3.s and 12) 36,117 18,775 Total assets Ps 22,604,443 Ps 21,007,574 LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES WITH FINANCIAL COST: Interest-bearing demand deposits and time-deposits (Note 3.o) Ps 7,376,769 Ps 3,131,671 Short-term debt (Note 8) 2,889,947 6,922,706 10,266,716 10,054,377 CURRENT LIABILITIES WITHOUT FINANCIAL COST: Suppliers 1,729,420 1,941,659 Accounts payable and accrued expenses 897, ,294 Deferred value added tax 417,859 Income tax payable 182, ,837 2,810,244 3,224,649 Total current liabilities 13,076,960 13,279,026 LONG-TERM LIABILITIES: Long-term debt (Note 8) 1,009,640 Deferred income tax (Note 12) 282,755 Estimated liability for labor benefits (Notes 3.p and 9) 150, ,824 Total long-term liabilities 1,160, ,579 Total liabilities 14,237,077 13,712,605 STOCKHOLDERS EQUITY (Note 10): Capital stock 2,472,600 2,252,187 Additional paid-in capital 3,068,488 2,078,758 Retained earnings 2,589,682 2,633,104 Cumulative translation adjustment 219, ,675 Total majority interest 8,350,207 7,280,724 Minority interest 17,159 14,245 Total stockholders equity 8,367,366 7,294,969 COMMITMENTS (Note 13) Total liabilities and stockholders equity Ps 22,604,443 Ps 21,007,574 The accompanying notes are an integral part of these financial statements. 30 AR.2009

31 CONSOLIDATED STATEMENTS OF INCOME GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2009 AND Thousands of Mexican Pesos Net sales Ps 14,946,922 Ps 14,762,221 Cost of sales (7,355,212) (7,533,555) Gross margin 7,591,710 7,228,666 Operating expenses (6,468,548) (6,192,026) Operating income 1,123,162 1,036,640 Comprehensive financing expense, net (Note 11) (1,235,556) (421,926) (112,394) 614,714 Other income (expenses), net (Note 12) 1,926 (66,427) (Loss) income before income tax (110,468) 548,287 Income tax (Note 12) 210,128 15,136 Consolidated net income 99, ,423 Net income corresponding to minority interest 2,305 2,558 Net income corresponding to majority interest Ps 97,355 Ps 560,865 Earnings per share corresponding to majority interest, in pesos Ps 0.22 Ps 1.70 The accompanying notes are an integral part of these financial statements. AR

32 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY Capital stock Additonial paid-in capital Retained earnings Balances at December 31, 2007 Ps 2,254,937 Ps 2,111,763 Ps 4,001,181 Changes in 2008: Net income 560,865 Adjustments in stockholders equity in subsidiaries for adoption of new accounting standards 6,748 Cumulative translation adjustment Comprehensive income 567,613 Repurchase of own shares (2,750) (33,005) 11,102 Reclassification of accumulated loss from holding nonmonetary assets (1,946,792) (2,750) (33,005) (1,935,690) Balances at December 31, ,252,187 2,078,758 2,633,104 Changes in 2009: Net income 97,355 Write-off of preoperating expenses (Note 3.l) (134,167) Cumulative translation adjustment Comprehensive loss (36,812) Increase in capital stock and paid-in capital 218, ,958 Resale of own shares 2,231 26,772 (6,610) 220, ,730 (6,610) Balances at December 31, 2009 (Note 10) Ps 2,472,600 Ps 3,068,488 Ps 2,589,682 The accompanying notes are an integral part of these financial statements. 32 AR.2009

33 GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES FOR THE YEARS 2009 AND Thousands of Mexican Pesos Deficit on restatement of capital Cumulative translation adjustment Total majority interest Minority interest Total stockholders equity (Ps 1,946,792) Ps 46,556 Ps 6,467,645 Ps 11,790 Ps 6,479, ,865 2, ,423 6,748 (103) 6, , , , , ,732 2, ,187 (24,653) (24,653) 1,946,792 1,946,792 (24,653) (24,653) - 316,675 7,280,724 14,245 7,294,969 97,355 2,305 99,660 (134,167) 609 (133,558) (97,238) (97,238) (97,238) (97,238) (134,050) 2,914 (131,136) 1,181,140 1,181,140 22,393 22,393 1,203,533 1,203,533 Ps - Ps 219,437 Ps 8,350,207 Ps 17,159 Ps 8,367,366 AR

34 CONSOLIDATED STATEMENTS OF CASH FLOWS GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES FOR THE YEARS 2009 AND Thousands of Mexican Pesos Operations Net (loss) income before income tax (Ps 110,468) Ps 548,287 Items relating to investing activities: Depreciation and amortization 431, ,389 Allowance for doubtful accounts 1,225, ,450 Gain on sale of property, plant and equipment (1,735) (70) Estimated liability for labor benefits 30,848 79,768 Deferred employees profit sharing (17,342) (3,171) Interest gain (15,935) (13,094) Items relating to financing activities: Interest expense 1,125, ,166 Exchange loss (gain) 8,911 (42,363) Other, net 245 Accounts receivable (2,419,965) (3,753,544) Inventories 43,445 (41,833) Other accounts receivable, deferred charges and other assets (448,584) (60,915) Suppliers (203,829) 57,084 Other accounts payable and accrued expenses (235,509) (60,388) Income tax paid (405,736) (212,522) Net cash flow used in operating activities (993,369) (1,601,511) Investment Acquisition of property, leasehold improvements, furniture and equipment (280,742) (700,682) Sale of property, leasehold improvements, furniture and equipment 11,234 12,485 Interest collected 15,935 13,094 Net cash flow used in investing activities (253,573) (675,103) Resources to be provided by financing activities (1,246,942) (2,276,614) Financing Interest paid (1,132,510) (855,946) New short-term debt and bank loans 2,991,136 4,051,233 Payments of short-term debt and bank loans (5,999,529) (2,922,630) Bank customers deposits 4,245,098 2,874,096 Increase in capital stock and paid-in capital 1,181,140 Resale (reacquisition) of own shares 22,393 (24,653) Other capital adjustments 8,856 Net cash flow from financing activities 1,307,728 3,130,956 Increase in net cash and cash equivalent 60, ,342 Adjustments to cash flow as a result of changes in exchange rates 196, ,119 Cash and cash equivalent at beginning of year 1,448, ,074 Cash and cash equivalent at end of year Ps 1,706,086 Ps 1,448,535 Cash and cash equivalent Ps 1,514,218 Ps 1,011,628 Restricted cash 191, ,907 Ps 1,706,086 Ps 1,448,535 The accompanying notes are an integral part of these financial statements. 34 AR.2009

35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GRUPO FAMSA, S. A. B. DE C. V. AND SUBSIDIARIES AS OF DECEMBER 31, 2009 AND Thousands of Mexican Pesos (see Note 3) (except where otherwise indicated) NOTE 1 - ACTIVITIES OF THE COMPANIES The main activities of Grupo Famsa, S. A. B. de C. V. and its subsidiaries ( Grupo Famsa or the Company ) consist of the purchase and sale of household appliances, furniture, clothing, cellular telephones and other durable consumer products ( retail operations ), as well as the manufacture of furniture. The Company is also engaged in the consumer finance sector by providing banking and credit services to its retail customers, in conformity with the Mexican Law of Credit Institutions ( LIC ). The Company s sales are made on credit and in cash to both wholesale and retail customers. Grupo Famsa carries out its activities through retail stores and wholesale warehouses. The Company s principal subsidiaries and its ownership percentage are: Ownership % at December 31, Retail sales: Fabricantes Muebleros, S. A. de C. V Famsa del Centro, S. A. de C. V Famsa del Pacífico, S. A. de C. V Famsa Metropolitano, S. A. de C. V Impulsora Promobien, S. A. de C. V Famsa, Inc., a subsidiary organized under the laws of California and headquartered in California, ( Famsa USA ) Services, manufacturing and other: Corporación de Servicios Ejecutivos Famsa, S. A. de C. V Corporación de Servicios Ejecutivos, S. A. de C. V Promotora Sultana, S. A. de C. V Suministro Especial de Personal, S. A. de C. V Auto Gran Crédito Famsa, S. A. de C. V Expormuebles, S. A. de C. V Mayoramsa, S. A. de C. V Verochi, S. A. de C. V Geografía Patrimonial, S. A. de C. V. (1) Financial entities supporting retail sales: Banco Ahorro Famsa, S. A., Institución de Banca Múltiple (2) (1) Geografía Patrimonial, S. A. de C. V., located in Monterrey, N. L., was incorporated in November 2009 and began operations in that month. Its main activity consists of leasing real estate to related parties. (2) In January 2007, the Company obtained authorization from the Ministry of Finance and Public Credit ( SHCP ) to operate Banco Ahorro Famsa, S. A., Institución de Banca Multiple ( BAF or the Bank ). BAF is subject to inspection and supervision by the National Banking and Securities Commission ( CNBV ) and Banco de México ( Banxico ). AR

36 NOTE 2 - SIGNIFICANT EVENT Since 2007, Grupo Famsa has sought to enhance its Mexican consumer finance operations by obtaining access to a more stable and less expensive source of short-term funding through the development of BAF. During 2009, bank deposit growth and the development of BAF allowed Grupo Famsa to transfer to the Bank most of the credit accounts granted to customers in Mexico. As a result of the integration of BAF into Grupo Famsa s operations and the related separation of business and credit functions, customers benefit from more efficient credit processing services. More than 467,000 customers credit lines are already managed through the Famsa private label card issued by BAF. In addition, Grupo Famsa has transferred its existing consumer finance operations to BAF, which will eventually absorb all Grupo Famsa s Mexican store customer accounts. At the end of 2009, BAF operated 276 full-format banking branches that meet the requirements of functionality and security established by the CNBV, which were fully integrated into Famsa s Mexican stores. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of the most significant accounting policies followed by Grupo Famsa and its subsidiaries: a) Basis of presentation and disclosures The accompanying consolidated financial statements were approved for issuance on April 13, 2010 by Humberto Garza Valdez (Chief Executive Officer) and Abelardo García Lozano (Chief Financial Officer), have been prepared in accordance with Mexican Financial Reporting Standards ( MFRS ), present fairly the Company s financial position, and assume that the Company will continue as a going concern. In accordance with MFRS B-3 Income statement, the Company s management adopted the policy of presenting the statement of income based on function, since grouping costs and expenses on this basis allows the various levels of income to be presented. In addition, for convenience of the reader, operating income is presented separately since it is a relevant analytical component of the financial information of the Company and has been disclosed by the Company on a regular basis in accordance with industry practice. The financial statements of Famsa USA, which are prepared in accordance with the United States Generally Accepted Accounting Principles, and the financial statements of BAF, which are prepared in accordance with accounting rules and practices established by the CNBV, are both conformed to MFRS for consolidation purposes. Commencing January 1, 2008, the Company adopted the provisions established in the new MFRS B-15 Foreign Currency Translation, under which the Mexican peso is defined as the Company s functional currency as well as its reporting currency. Based on this standard, the financial statements of Famsa USA, which operates in a non-hyperinflationary environment, were translated to Mexican pesos as follows: a) as of December 31, 2009 and 2008, assets and liabilities were translated using the year-end exchange rate, b) stockholders equity was translated using historical exchange rates, c) revenues, costs and expenses for the years 2009 and 2008 were translated using the historical exchange rate (or average in the event of no significant change); the effects of translation are recognized as a component of stockholders equity titled Cumulative translation adjustment. Commencing January 1, 2008, the provisions of MFRS B-10 Effects of inflation became effective. This standard establishes the guidelines for recognizing the effects of inflation based on the inflationary environment of the country. According to the provisions of MFRS B-10, as long as the accumulated inflation the last three years does not exceed 26%, the effects of inflation in the financial information will not be recognized. Since the accumulated inflation for the years ended December 31, 2009, 2008 and 2007 did not exceed 26%, the financial statements as of December 31, 2009 and 2008 have been prepared based on the modified historical cost model (that is, the effects of transactions recognized as of December 31, 2007 are expressed in Mexican pesos of constant purchasing power at that date, and the effects of transactions that occurred after that date are expressed in nominal Mexican pesos). Financial statements for the year ended December 31, 2007, which are presented for comparative purposes, are expressed in constant Mexican pesos of December 31, 2007 purchasing power, based on factors derived from the National Consumer Price Index ( INPC ), published by Banxico for domestic companies, and by the General Consumer Price Index of the countries in which the foreign subsidiaries operate. The Mexican inflation rates for the years ended December 31 are shown below: For the year 3.57% 6.53% 3.76 For the three most recent years 14.48% 15.01% 11.56% 36 AR.2009

37 b) Use of estimates The preparation of the financial information in accordance with MFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and reported revenues, costs and expenses for the reporting years. Actual results could differ from those estimates. The main captions subject to these estimates include the following: impairment of long-lived assets, allowances for doubtful accounts, allowance for deferred income tax asset and labor obligations (assets and liabilities). c) Basis for consolidation The consolidated financial statements comprise the accounts of Grupo Famsa and all subsidiaries in which the majority of the common shares are owned directly or indirectly by the Company or over which it otherwise has control (see Note 1). All significant intercompany transactions and balances between Grupo Famsa and its subsidiaries have been eliminated in consolidation. d) Cash and cash equivalents Cash equivalents are highly liquid investments with maturities of less than one year from the date of the balance sheet and are stated at cost, which approximates market value. The interest earned from cash and cash equivalents is recognized in income on an accrual basis. Restricted cash in BAF comprises: a) deposits required by monetary regulation and made with Banxico, which earn a funding rate, b) inter-bank short-term loans, which do not exceed more than three working days, and c) purchased foreign currency, whose agreed settlement date is subsequent to the transaction date. The restricted cash from Famsa USA is cash maintained due to down payments received from customers. At December 31, 2009 and 2008, this caption includes restricted cash from BAF amounting to Ps182,733 and Ps427,005, respectively, and from Famsa USA amounting to Ps9,135 and Ps9,902, respectively. e) Revenue recognition The Company derives revenues from retail operations primarily through the sale of products such as household appliances, furniture, clothing, electronics and cellular telephones, as well as the granting of personal loans and issuance of other financial services products offered through the subsidiary BAF. Revenue from retail sales is recognized upon completion of the revenue recognition process, which occurs when merchandise is shipped or delivered to customers in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred, and collectability is reasonably assured. Most of these conditions are satisfied at the time of delivery to customers and at the issuance of the sales receipt. Allowances for estimated returns and discounts are provided when sales are recorded. Revenue originated from the sale of extended warranties is recognized at the time of sale since the amount is not significant. The Company offers to customers an option to pay in installments (weekly, bi-weekly or monthly) rather than in cash at the time of purchase. Revenues from installment sales and revenues for financing on loans granted are recognized at the date of sale and the credit is granted, respectively, since the average period for the recovery in full of the amount of these sales is less than one year. f) Trade accounts receivable and allowance for doubtful accounts The Company maintains an allowance for doubtful accounts related to customers receivables for estimated losses resulting from customers inability to make timely payments, including interest on finance receivables. The amount of the allowance for doubtful accounts is based on various factors including the length of past due payments, the current business environment, past practices (represented as a percentage of sales), historical experience and the estimated recoverable value of the related sold item, since, in some cases, the sold item is treated as collateral under the sale contract. The Company s management believes that the allowance for doubtful accounts is adequate and sufficient to cover any losses associated with the accounts receivable and loan portfolio. g) Inventories and cost of sales Inventories of household appliances, furniture, clothes and other products for sale to third parties are stated at the lower of historical cost or market value; cost is determined using the average cost method. The cost of sales recognizes the historical cost determined under the valuation method described in the paragraph above. h) Shipment and handling of merchandise Shipping and handling fees paid by customers are included in net sales. Costs associated with handling the Company s products and shipping them to customers is classified in cost of sales when incurred. i) Advance payments for advertising The Company contracts its media advertising, mainly television and press, directly and through its subsidiaries. The related agreements stipulate payments for these services which are charged to income as they are accrued. The services are rendered in the course of one year. At December 31, 2009, prepaid advertising costs amounted to Ps132,441 (Ps109,671 at December 31, 2008); this amount is included in the balance sheet under Other accounts receivable. AR