Accumulated consolidated Net Sales as of December 31, 2016 rose 9.5% year-over-year, totaled $17,544 million pesos. The growth trend in sales is due from the boost of successful advertising campaigns and continuous discount programs implemented for durable goods through FAMSA Mexico, business segment that reflected an annual increase of 9.2% during 2016. As for FAMSA USA, in 2016 the increase in pesos of Net Sales was 11.8% YoY, as a result of the effect of a higher exchange rate, which in turn offset the effects of a lower demand, mainly during the third and fourth quarter, owing to the prevailing economic and political uncertainty in the United States.
Consolidated Same Stores Sales (SSS) grew by 6.2% for full-year 2016. The expansion in SSS of FAMSA Mexico, which grew 8.2% during the 2016 fiscal year, provided the support to achieve this result. Same Store Sales (SSS) of FAMSA USA, excluding the effect by exchange rate, decreased by 7.5% YoY in 2016./8
It should be noted audited figures for Consolidated Net Sales for 2016 consider the incorporation of the sale of memberships called "Wellness Club" in its product portfolio. The “Wellness Club” includes certain services such as assistance, life insurance and theft insurance.
Consequently, in order to present more adequately the revenue generated by the sales commission of this type of memberships, Grupo FAMSA´s Management has decided to record the net income from these transactions. As a result, for fiscal year 2016, Grupo FAMSA reclassified $495 million pesos of Cost of Sales (cost of goods sold) to Net Sales. Likewise, and for comparison purposes, as of December 31, 2015, an amount of $355 million pesos of Cost of Sales (cost of goods sold) was reclassified to Net Sales in order to record the net income from these transactions.
For fiscal year 2016, the Consolidated Cost of Sales was $9,724 million pesos, which represents an annual growth of 8.4% compared to its result of $8,967 million pesos in 2015. The variation against the previous year is due to the increase of 23.2% YoY in the Interest Expense on Bank Deposits derived from a larger deposit base as of year-end, as well as the annual increase in cost of goods sold of 9.0%, in line with the sales volume expansion generated during 2016.
Similarly, the allowance for doubtful accounts was adjusted during 2016 to reach $1,692 million pesos as the end of the year, due to the fact that Grupo FAMSA´S Management carried out the evaluation of its consolidated loan portfolio and its corresponding allowance for doubtful accounts. As a result, considering the economic context of uncertainty and volatility prevailing today, the Company's Management made certain adjustments to its reserve estimation methodology, pursuing to be more conservative in its recovery criteria. As a result, the allowance for doubtful accounts represents 9.6% of the sales volume recorded by the Company for the year 2016.
Finally, for fiscal year 2016, Grupo FAMSA reclassified $495 million pesos from Cost of Sales (cost of goods sold) to Net Sales in order to record the net income corresponding to the sale of memberships of “Wellness Club”. In addition, for comparison purposes, at December 31, 2015, an amount of $365 million pesos of Cost of Sales (cost of goods sold) was reclassified to Net Sales to post net income from these transactions.
Consolidated Gross Profit for 2016 totaled $7,819 million pesos, an increase of 10.8% compared to fiscal year 2015, where the result was $7,055 million pesos. The variation against the previous period is a reflection of the increase in sales volume, particularly in Mexico.
The consolidated Gross Margin for 2016 was 44.6% , an expanding of 60 basis points compared to 2015.
* For more detail, see Notes 1 and 5 of the consolidated financial statements for the year 2016.
During fiscal year 2015 a reimbursement was received for improvements to premises leased totaling $570 million pesos from related parties. In order to best present such income of reimbursements from affiliates, Grupo FAMSA reclassified this amount from Operating Expenses (Selling Expenses) to Other Income (net) as of December 31, 2015.
As a result, Operating Expenses for the year 2015 closed at $6,562 million pesos, which are comparable to the Operating Expenses incurred during 2016, which closed at $7,051 million pesos, representing an annual increase of 7.4%. The annual variation reflects, in part, the non-recurring severance expenses disbursed in 2016 due to the reduction of positions in our labor force, which declined by 7.6% YoY.
Likewise, operating expenses, including other Income (expenses) net, for the year 2015 totaled $5,930 million pesos, which are comparable to Operating Expenses incurred during 2016, which amounted $6,825 million pesos, representing an annual variation to the rise of 15.1%.
In 2016, Consolidated EBITDA was $1,411 million pesos, posting an annual decrease of 15.5% compared to $1,670 million pesos in 2015 due to certain adjustments and actions carried out by the company.
Firstly, Company's Management carried out certain adjustments to its reserve estimation methodology, seeking a more conservative approach in its recovery criteria, and determined for fiscal year 2016 an allowance for doubtful accounts of $1,692 million pesos. Thus, in order to consider the economic context of uncertainty and volatility that prevails today.
In addition, during 2016, the deferral recognition between expenses and income related to payroll credit origination had a negative impact on Consolidated EBITDA.
Similarly, the annual operating flow was impacted by non-recurring expenses generated by severance payments during the second and third quarter of 2016.
Consolidated Financial Expenses, for year-ended in 2016, totaled $1,095 million pesos, a decrease of 9.7% YoY, since there was a recognition of an interest earned for the year derived from the updating of the present value of the Collection Rights with related parties (recorded in December 2015). For the fiscal year 2016, there was a net accumulated loss per exchange rate of $548 million pesos, while in 2015 it was $462 million pesos, an 18.6% higher YoY, due to exchange rate variations, as well as an increase in interest paid of 22.8% YoY in line with the depreciation of the peso and the increase of the reference rate (250 bps) during 2016.
Consolidated Net Income as for year-end 2016 was $346 million pesos, compared to $149 million pesos during 2015. The variation against the previous year reflects an earned income during the year 2016 due to the updating in the present value of the collection rights with related parties (recorded in December 2015) and a higher deferred asset tax compared to year 2015.
* For more detail, see Notes 1 and 5 of the consolidated financial statements for the year 2016.
Regarding Trade Receivables account, an oversight was noted in the procedure for grouping certain portfolios pertaining to 2015 and of prior years that were considered in the valuation and in recording impairment of the aforementioned portfolios in accordance with IFRS
As a result, allowance for impairment of loan portfolios and corresponding deferred taxes increased, decreasing Grupo FAMSA´s Stockholders' Equity by $2,100 million pesos. The Company signed an unconditional payment guarantee agreement with no reservation, for an amount of $5,091 million pesos, which was considered as Collection Rights from related parties, since it is virtually certain that the collection will be performed. The present value of the guarantee as of December 31, 2016 was $4,905 million pesos, of which $800 million pesos are classified as current assets and $4,105 million pesos as non-current assets in the statement of financial position.
As of December 31, 2016 the consolidated balance of Trade Receivables, net of allowances for doubtful receivables, was $25,893 million pesos, 18.3% above that of December 2015. Consumer portfolio in Mexico was the main driver of receivables growth, increasing 25.2% vs. 2015, reaching $19,583 million pesos, derived from progressive consumer loan origination, mostly under payroll credit terms.
Meanwhile, the origination of the consolidated commercial portfolio in Mexico decreased by 7.9% as of December 31, 2016 vs. December 2015, totaled $3,691 million pesos due to our strategy oriented to stimulate payroll credits with higher profitability.
The inventory balance at the end of December 2016 increased 4.1% compared to 2015, resulting in $2,554 million pesos,mainly due to price increases by suppliers and the depreciation of the peso against the american dollar (operations in USA).
For fiscal year 2016, Bank Deposits, dispersed in more than 1.2 million accounts, added a total amount of $21,063 million pesos, which recorded an annual increase of 14.7% compared to the year 2015. The foregoing continues to be the result of the campaigns Which were implemented during the year, focused on increasing the deposit base.
At the end of the year, deposits accounted for 67.8% of the funding of Grupo FAMSA. 89.0% of these deposits are established at term. At the end of 2016 the average funding rate reached a level of 4.5%, increasing in a lower proportion than the growth of the TIIE during 2016.
Net debt at December 31, 2016 amounted to $8,497 million pesos, 23.0% higher than AsA. This increase mainly reflects the effects of the devaluation of the peso against the US dollar and a decrease of 31.5% in cash and cash equivalents from $2,194 million pesos in 2015 to $1, 504 million pesos at the end of 2016. The decrease in cash and cash equivalents derives mainly from greater uses for origination of payroll loans.
Similarly, the balance of the gross debt at December 31, 2016, excluding bank deposits, grew by 9.9% compared to the amount as of December 31st of 2016. The continued devaluation of the peso against the dollar has been the main factor behind this increase.
As of December 31, 2015, the balance in the stockholders' equity account was $8,315 million pesos, increasing 8.9% versus the reformulated amount as of December 31 of the previous year.
It is important to note, during 2016 Grupo FAMSA´s Management carried out the evaluation of its consolidated loan portfolio, and its corresponding allowance for doubtful accounts. In addition, given the economic context of uncertainty and volatility prevailing today, the Company's Management applied certain adjustments to its reserve allowance methodology, pursuing to be more conservative in its recovery criteria. As a result, Grupo FAMSA recorded a credit to the allowance for doubtful accounts as of December 31, 2016 for $728 million pesos against retained earnings of prior years, net of deferred taxes of $218 million pesos. The net effect on retained earnings for the year 2016 was $509 million pesos. If this amount is deducted from the minority interest, the amount totals $508 million pesos. This transaction is recorded under "Other movements, net of income taxes" described in the Consolidated Statement of Changes in Stockholders' Equity as of December 31, 2016. Since it was not practical to determine the effect of impairment on prior years´ portfolios due to the practical impossibility of having different elements to reconstruct the conditions and circumstances at each date, or the specific assumptions inclusion of a record of these portfolios´ trends prevailing in priors years, as a result of which, the Company recognized those effects affecting the initial balance of retained earnings.
* For more detail, see Note 5 of the consolidated financial statements for the year 2016.