Desarrolladora Homex (HXM)

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Desarrolladora Homex, SAB de CV (HXM)

Q4 2012 Earnings Call

February 27, 2013 10:00 am ET

Executives

Vania Fueyo Zarain - Head of Investor Relations and Chairman of Disclosure Committee

Gerardo De Nicolás Gutiérrez - Chief Executive Officer, President, Director, Chairman of Executive Committee, Member of Disclosure Committee, Member of Ethics Committee and Member of Risk Management Committee

Carlos J. Moctezuma Velasco - Chief Financial Officer and Member of Disclosure Committee

Analysts

Denis Parisien - Deutsche Bank AG, Research Division

Vivian Salomon-Karam - Itaú Corretora de Valores S.A., Research Division

Jamie Nicholson-Leener - Crédit Suisse AG, Research Division

Aaron Holsberg - Santander, Equity Research

Carlos Peyrelongue - BofA Merrill Lynch, Research Division

Javier Gayol

Rafael C. Pinho - Morgan Stanley, Research Division

Roy Yackulic - BofA Merrill Lynch, Research Division

Alexander Monroy

Presentation

Operator

Good morning, ladies and gentlemen. My name is Mel, and I will your conference operator today. At this time, I would like to welcome everyone to the Homex Fourth Quarter 2012 Earnings Results Conference Call. [Operator Instructions] I would now like to pass this call over to your host, Ms. Vania Fueyo.

Vania Fueyo Zarain

Thank you. Good morning, and welcome to the Homex Fourth Quarter and Full Year 2012 Earnings Call.

Before we start, I want to remind you that certain statements made during the course of this conference call about future events and financial results constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. A discussion of factors that may affect future results are contained in our filings with the Securities and Exchange Commission. We undertake no obligation to correct or update any forward-looking statement provided as a result of new information, future events or even changes in our expectation.

On the call with me today are Gerardo De Nicolás, Chief Executive Officer; and Carlos Moctezuma, our Chief Financial Officer.

I will now turn the call over to Gerardo, who will share some thoughts about Homex's strategies and results for each of the company divisions. Following Gerardo's discussion, Carlos will briefly carry you through our fourth quarter financial statement. After a summary remarks from Gerardo, we will take your questions.

Gerardo De Nicolás Gutiérrez

Thank you, Vania, and good morning, everyone, and thank you for joining us on today's call. As I have been doing for the previous quarter, I would like to concentrate my comments on the more relevant events and trends at Homex. And as we have also started a new year, essentially with a new administration in Mexico, I imagine many of you have questions on how things are progressing, as well as our expectations for the full year, and I will also concentrate my remarks here. First, I would like to start with our Mexico Division.

The year 2012 was challenging and the last quarter was no exception. Throughout the year, we faced a number of challenges, which are a reflection of the continuing evolution of the housing industry in Mexico, into one, that is much supportive of better-planned communities that provide for a better quality of life for Mexican families. We are happy to be an integral part of this positive transition. Despite its initial negative financial effect, as we are confident that this is the right path for the long-term positive performance of housing in Mexico. As you may recall, during the first half of the year, we were impacted by some administrative delays in regard to the housing registry system, RUV, and to CONAVI's score system, as well as to the uneven allocation of subsidies between vertical and horizontal homes, where the initial commitment from the past administration was to assign up to 70% of dollar resources for vertical homes, while only approximately 14% was allocated for vertical new homes.

In addition, as you may recall, during the last quarter of the year, there was a commitment to advance resources from the 2013 budget to pay vertical homes from 2012. As resources were [indiscernible], that also affected our collection cycle during the last quarter of the year. During the year, as a strategic consequence of this, we're excited to intentionally slow down our production of homes. During the last half of the year, including the fourth quarter, we concentrated our efforts on finishing homes under construction to materialize our investment in construction in progress, which includes investments in the amenities of our better-planned community, housing starts, as well as the actual buildout of homes in our various development.

Despite our diligence in attempting to improve collections, our collection rhythm was slower-than-expected during the last quarter of the year, as a result of continuing administrative delays in the subsidy program, and also due to the program interruptions inherent to the transition effect during the last quarter of the year. During the quarter, Mexico Division revenues were up by 2.8% year-over-year, boost by revenues from real estate and land sales at our housing development, while housing revenues were down by 1.8% with volumes declining 8.0%. Importantly, on a sequential basis, our volume increased 10.5%, reflecting an improvement in sales despite the fact that during the quarter, we continued to face delays in the allocation of resources from the subsidy program. Delays that as of today, still continue to affect our speed of collection and more importantly, reinvestment rhythm in the construction of new homes.

Here, I would like to share with you our current view for 2013 in our Mexico Division and as well, share our thoughts about the recent announcement made about the national housing policy.

As anticipated in our 2013 guidance published in December 2012, during 2013, we are not planning to grow our operations in Mexico, instead concentrating our energies and efforts in the generation of positive cash flow. Nonetheless, I want to clarify that we continue to see a strong market demand and positive fundamentals in the housing industry. And this is a strategic decision that we're taking to improve our profitability. At the same time, we're certain that this will help us to continue to concentrate on improving the quality of our product offering and our competitive advantage that ultimately, will reflect it in enhanced customer preferences and sales.

Furthermore, during the first week of February, President Enrique Peña Nieto announced new guidelines for the national housing policy that will dictate the housing policies for this new administration. The national housing policy will continue to encourage the creation of sustainable and better-planned communities and the work that we have done here will continue to serve us well. In our view, the main points from the national housing policy are the following: number one, during 2013, there will not be changes to the rules of operation of the industry. However, it's anticipated that changes that will apply in 2014 or 2015 will be announced later this year and we will have a transition period of up to 24 months to adapt to any such changes. Importantly, we do expect greater subsidy support for vertical home construction. Point number two, through the Secretaria de Desarrollo Agrario, Territorial y Urbano (Sedatu), which is headed by Mr. Ramirez Marin, we expect greater coordination among government housing institutions, positively impacting administrative procedures that sometimes cause bottlenecks, and there will also be greater alignment between housing policies and land development policy.

We know that the land bank is a subject of great interest and concern, and I want to highlight here important information in regard to the value, quality and alignment of our land bank to policies that promote closeness to urban centers. From our total land bank as of December 31, 2012, which was equivalent approximately to 75.2 million square meters, at 88 -- 87% of it, we already have projects under construction. Therefore, our land already qualifies as land bank that is close to urban centers that has all the required services. Moreover, such projects under construction have been graded as level S1 or S2.

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