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Strong Foundations:Leadership & GrowthANNUAL AND SUSTAINABILITY REPORT 2014
Arcos Bosques Marco II
Paseo de Tamarindos 90, Tower 1
25th, Bosques de las Lomas
C.P. 05120, Mexico City, Mexico
consorcioara.com.mxara.com.mx AN
NU
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ND
SUST
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REPO
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ARAstrengths
GEOGRAPHICAND PRODUCTDIVERSIFICATION
STRATEGICLAND BANK
MANAGEMENTTEAM WITH GREATEXPERIENCE
CORPORATEGOVERNANCE
VERTICALINTEGRATION
FINANCIALSTRENGTH
FLEXIBLECONSTRUCTIONPROCESS
InvestorRelationsAlicia Enriquez Pimentel [email protected](52.55) 5596 8803(52.55) 5246 3100 x. 4096
IndependentAuditorGalaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche Tohmatsu Limited
FOUNDING MEMBER OF
VIVIENDA Y ENTORNO
SUSTENTABLE, A.C.
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38.49461739%
383098
years ofexperience
million m2 of land bank, in 19 states
shopping malls:155,500 m2 of grossleasable area
segments:Progresiva, affordableentry level, middleincome and residential
consecutive years with the best credit ratings in the sector
of the titled housesin 2014 were vertical
of 11 Board Membersare independent
plants to produce our own ready-mixed concrete
thousand houses sold inour history, inhabited by 1.24 million Mexicans
] 2 [ANNUAL AND SUSTAINABILITY REPORT 2014
| 3 | Corporate profile| 5 | Financial highlights| 6 | Strong foundations| 8 | Land bank| 10 | Message to our investors | 14 | Housing sector in Mexico| 18 | Housing products| 21 | Shopping Malls| 24 | Financial strength| 28 | Integration and value chain| 30 | Sustainability| 38 | ARA Foundation| 46 | Corporate Governance| 50 | Board of Directors| 51 | Management Team
Contents
LAS MISIONESState of Mexicosegment: Middle income
] 3 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
We are a Company that engages in the construction and marketing of progresiva, affordable entry level, middle income and residential housing. Beyond this, Consorcio ARA creates communities by carrying out the infrastructure, urbanization and equip-ping of our housing projects, as well as building and operating six shopping centers as the ideal complement to our developments.
In our more than 38 years of experience, we have built 309 thousand homes where 1.24 million Mexicans live. Since we began, we have become known for our diverse product range, long-term vision, healthy financial structure and moderate debt level.
For nine consecutive years we have maintained the highest credit ratings in the Mexican housing sector: “mxA” by Standard & Poor’s and “A2.mx” by Moody’s.
Since 1996, we have been listed on the Mexican Stock Exchange under the symbol ARA*. We currently have presence in 16 states with 44 housing developments.
MissionTo develop homes and communities for Mexican lifestyles, where people can be proud to live.
VisionTo be the most reliable, profitable and innova-tive real estate developer in Latin America.
Values• Honesty • Commitment• Responsibility • Quality
CorporateProfile
PASEO DE LOS SAUCESPueblasegment: Affordable entry level
] 4 [ANNUAL AND SUSTAINABILITY REPORT 2014
PARAISO COUNTRY CLUBMorelossegment: Residential
] 5 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
FinancialhighlightsMillions of pesos
2014 2013
RESULTS
Revenues 6,206.1 5,735.7
Units Sold 10,765 10,862
Average Price (thousands of pesos) 563.9 515.1
Gross profit 1,644.8 1,550.3
Income from operations 608.1 528.4
Financial (Income) Expense - Net -11.7 8.1
Net Income 490.0 464.3
EBITDA 903.1 897.3
Free Cash Flow for the Firm 862.6 -50.8
Gross Margin 26.5% 27.0%
Operating Margin 9.8% 9.2%
Net Margin 7.9% 8.1%
EBITDA Margin 14.6% 15.6%
FINANCIAL POSITION
Cash and Cash Equivalents 1,075.6 643.0
Total Current Assets 14,284.8 13,602.9
Total Assets 16,300.6 15,716.5
Total Current Liabilities 1,958.4 1,564.7
Total Liabilities 5,568.1 5,489.3
Retained Earnings 9,643.0 9,154.6
Stockholders’ Equity 10,732.5 10,227.1
Net Working Capital 13,078.8 13,123.1
Capital Expenditures 17.0 22.5
Cost Bearing Debt 2,147.0 2,430.6
Net Debt 1,071.4 1,787.6
LEVERAGE RATIOS (times)
/ Stockholders’ Equity 0.20 0.24
Cost Bearing Debt / Total Assets 0.13 0.15
/ EBITDA (12m) 2.38 2.71
Net Debt / EBITDA (12m) 1.19 1.99
Net Debt / Stockholders’ Equity 0.10 0.17
Interest Coverage 5.91 4.37
Total Current Assets Less Inventories / Total Current Liabilities
1.36 1.38
Total Liabilities / Stockholders’ Equity 0.52 0.54
6,2
06
.1
Revenues+8.2%
5,73
5.7
‘14 ‘13
1,0
75
.6
Cash and Cash Equivalents
+67.3%64
3.0
60
8.1
Incomefrom Operations
+15.1%
528.
41,
787.
6
1,0
71
.4
NetDebt
-40.1%
‘14 ‘13
‘14 ‘13
‘14 ‘13
G4-9
] 6 [ANNUAL AND SUSTAINABILITY REPORT 2014
Strongfoundations
FUENTES DE TIZAYUCAHidalgosegment: Affordable entry level
LeadershipIn 2014, Consorcio ARA consolidated its leadership in the Mexican housing sector.
Elements such as our vertical integration, product innovation and solid sustainability practices, all based on an excellent human team and strong corporate governance, make the future look promising for our Company.
GrowthIn 2014, Consorcio ARA got back on the growth track with a solid 8.2% expansion in revenues. With this performance, the Company far exceeded the behavior of the Mexican economy.
With a strategic land bank, diversified range of housing products, the added value of its shopping centers and characteristic financial soundness, Consorcio ARA is ready to leverage the momentum of today’s housing market in the medium and long term.
] 7 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Progresiva Affordable entry level Middle income Residential Other projects
Infonavit Fovissste SHF, banks and without credit
7.8
26.0
66.2
9.624.4
66.0
15.3
34.8
2.5
20.3
27.1
15.2
43.5
2.2
18.3
20.8
2013
2013
Revenue mixby housing type
Titled homesby type of financing
2014 2013
INSTITUTION NUMBER OF TITLED
HOMES%
NUMBER OF TITLED HOMES
%
Infonavit 6,158 57.2 5,937 54.7
Infonavit total and Cofinavit 967 9.0 1,230 11.3
Subtotal 7,125 66.2 7,167 66.0
Fovissste 2,799 26.0 2,648 24.4
SHF, banks and without credit 841 7.8 1,047 9.6
Total titled homes 10,765 100 10,862 100
2014 2013
UNITS AVERAGEPRICE [1] REVENUES [2] % UNITS AVERAGE
PRICE [1] REVENUE [2] %
Progresiva 3,138 301.4 945.9 15.2 3,110 282.0 877.0 15.3
Affordable entry level 3,477 370.1 1,286.9 20.8 4,297 361.4 1,552.7 27.1
Middle income 3,521 766.9 2,700.3 43.5 2,779 719.5 1,999.4 34.8
Residential 629 1,809.0 1,137.9 18.3 676 1,724.1 1,165.5 20.3
Total housing 10,765 563.9 6,070.9 97.8 10,862 515.1 5,594.5 97.5
Other real estate projects 135.3 2.2 141.2 2.5
Total 10,765 6,206.1 100 10,862 5,735.7 100
[1] Figures in thousands of pesos [2] Figures in millions of pesos
2014
2014
% of revenues
% of homes
] 8 [ANNUAL AND SUSTAINABILITY REPORT 2014
One of our priority strategies is to have a strong land bank both in surface area and location. As of December 31, 2014, Consorcio ARA’s land bank amounted to 38.4 million m2 in nineteen states, enough area to build 155,576 master plan homes. Of this area, 2.8 million m2 are classified for real estate projects like commercial deve-lopments, tourism centers and industrial zones.
The book value of our land bank at the close of last year was $4,747.8 million. It should be noted that this figure relates to the cost of acquisition, as required by the International Financial Reporting Standards (IFRS).
As well as being located in states and zones of economic and demographic growth, our land bank is suitable for housing development in accordance with the current housing policy, a competitive advantage that set us apart during the crisis facing the public housing sector in 2013.
The core of our long-term vision is selectivity in our land purchases; today we are looking for more compact projects with more efficient densification. In 2015, we will continue our strategy of buying in places which require the continuity of our opera-tions, given the current and potential demand, and in favorable locations in light of the housing policy.
LandBank G4-5, G4-6, G4-8
] 9 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Land bankby housing type% by revenues [1]
[1] Percentage obtained from multiplying units per 2014 average price.
Operating in:
16states
18cities
34municipalities
44developments
STATE UNITS [2] %
State of Mexico 51,314 33.0
Quintana Roo 37,232 23.9
Nuevo León 9,717 6.2
Baja California 8,727 5.6
Veracruz 7,738 5.0
Hidalgo 6,807 4.4
Guerrero 6,675 4.3
Puebla 6,469 4.2
Jalisco 4,740 3.0
Tamaulipas 4,433 2.8
Querétaro 3,761 2.4
Sonora 2,382 1.5
Guanajuato 2,241 1.4
Morelos 1,872 1.2
Nayarit 724 0.5
Mexico City 528 0.3
Chihuahua 115 0.1
Sinaloa 71 0.05
Tabasco 30 0.02
Total 155,576 100
[2] Master plan subject to market modifications and approvals.
States in which we operate
States withland bank
24.7
23.8
40.0
11.5 19.816.8
56.5
6.9
% by units
Progresiva Affordable entry level Middle income Residential
] 10 [ANNUAL AND SUSTAINABILITY REPORT 2014
In 2014, Consorcio ARA’s strategy to build strong foundations with a long-term vision proved to be the right one, allowing us to return to a path of healthy growth and thus consolidate our leadership in the Mexican housing sector.
Economic Environment and Housing Sector
During 2014, the Mexican economy grew by 2.1%, which was lower than expected. How-ever, legislative progress was made in the approval of the secondary laws of the structural reforms. This suggests a better outlook for the coming years.
Although the increase in national economic activity was less than expected, the housing sector was able to reverse the negative trend it presented since the end of 2012. The con-struction industry expanded, driven by a rebound in the building subsector1 of 10.1%, which reaffirmed it as a vital factor for economic growth, social development and job generation.
It is important to highlight Consorcio ARA’s performance in this environment; growth of 8.2% in revenues far exceeded the behavior of the economy, as well as meeting the goal we announced at the beginning of the year.
Message to ourShareholders
(1) The Building subsector comprises residential building (housing), and non-residential building such as industrial warehouses and commercial, institutional and service properties.
8.2%growth in revenues
G4-1, G4-2
] 11 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
The housing policy is focused on a sustainable ur-
ban development model and has contributed to
the upturn in our field. Consorcio ARA has had
the institutional strength and flexibility, both op-
erationally and financially, to adapt to the policy
to the benefit of ever more Mexican people.
This year was a remarkable example of how gov-
ernment authorities, through entities like the
Ministry of Agricultural, Territorial and Urban
Development (SEDATU), the National Housing
Commission (CONAVI), INFONAVIT, FOVISSSTE
and Federal Mortgage Society (SHF) can join
forces with the private sector to give housing a
decisive boost.
The 2014 subsidy program made a significant
contribution to the recovery. The program was re-
sponsible for the allocation of $11,495 million, a
47.1% growth over 2013, of which $7,931 million,
69%, went to the acquisition of new housing.
Clear rules, increased assignment of resources
and a higher number of workers eligible to re-
ceive a subsidy were factors that enabled us to
leverage the program so that 18% of our revenue
was related to subsidized housing, compared to
7% in the previous year. For 2015, a budget of
$8,435 million has been allocated to the subsidy
program.
Strategy and Achievements 2014
In 2014, we maintained our strategy of offering
a diverse mix of products (progresiva, affordable
entry level, middle income and residential hous-
ing) aimed at different market segments and
through different mortgage sources, allowing us
to meet the needs of an ever growing number of
families. It is worth mentioning that middle in-
come housing revenues represented 43.5% of our
total revenues (their biggest contribution in the
last five years) and grew 35%, confirmation that
our diversification strategy has been on track.
Consorcio ARA has always been distinguished by
quality, location, environment, sustainability and
the architectural and urban design of our devel-
opments. We maximize the value proposal for our
35%growth in middle income housing revenues
] 12 [ANNUAL AND SUSTAINABILITY REPORT 2014
customers through sports installations, green ar-
eas, swimming pools, schools and even lagoons
and golf courses. We also equip our homes with
green technologies that in addition to their envi-
ronmental benefits, support the family budget by
reducing water and energy consumption. In 2014,
Consorcio ARA applied a total of 7,125 green
mortgages.
In line with international standards and to meet
the new market requirements, at the end of 2014
we began the implementation of the BIM (Build-
ing Information Modeling) system. This technol-
ogy tool will increase our productivity, quality and
efficiency by facilitating communication between
the different areas of the construction process,
since it enables us to view the different stages in
3D and simulate the performance of materials in
real processes.
We have diversified our business portfolio with
six strategically placed shopping centers on the
outskirts of our housing developments, with a
gross leasable area (GLA) of 157,000m2. In 2015,
we began the second phase of the Paseo Ven-
tura construction, our seventh shopping cen-
ter, which will add 24,000m2 to our total GLA.
It should be noted that in 2014, our Shopping
Malls Division reported a growth of 6%, in line
with the Group’s results.
We are working to make sustainability an inte-
gral part of the way we operate because of our
conviction that this is the best way to achieve
our long-term permanence. In addition, sustain-
ability is a fundamental element of the current
housing policy.
For the third consecutive occasion, we are report-
ing our sustainability behavior under the standards
of the Global Reporting Initiative (GRI), with the
aim of measuring progress, defining strengths
and recognizing areas of opportunity. It should
be mentioned that for the ninth consecutive time,
6%growth
in shopping mall revenues
DREAM LAGOONVeracruzsegment: Residential
] 13 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Ing. Germán Ahumada Russek Ing. Luis Felipe Ahumada Russek CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER Housing Division Shopping Malls Division
Consorcio ARA was distinguished as a Socially Re-
sponsible Company by the Mexican Philanthropy
Center, in recognition of our achievements in 2014.
Also in the social aspect, we must highlight the
work of the ARA Foundation and its strategic
partners, whose more than 521 thousand actions
in 2014 benefitted a total of 1.6 million Mexicans.
Financially, we made significant achievements. We
increased our revenues by 8.2% and generated a
record $863 million in free cash flow for the firm,
doubling the $400 million originally predicted; we
reduced our net debt by 40%, and improved our
leverage ratios compared to the last three years,
particularly net debt to EBITDA, which reached 1.19
times against 1.99 times in 2013. It should be em-
phasized that the free cash flow came in a year in
which 39% of the units we sold were vertical.
The above, in addition to the prudent manage-
ment of our finances, helped us to maintain the
industry’s highest credit rating for the ninth con-
secutive year: “mxA” by Standard & Poor’s and
“A2.mx” by Moody´s.
The financially and operationally good year we re-
ported was reflected in the annual yield of the ARA
share* in 2014, which reached 27%, well above the
1% of the IPC in the same period. The cumula-
tive yield of the ARA share* since 2013, when the
housing companies listed in the Mexican Stock Ex-
change suffered a liquidity crisis, is 57%, against
-1.3% of the IPC during the same period.
Our achievements in 2014 left us satisfied, but
not content. The challenges remain to build an
ever broader customer base, to serve the non-
salaried workers market, and consolidate new
credit schemes. The market changes, the industry
evolves and we must continue to show the flex-
ibility to adapt, with the unwavering commitment
to always offer housing that is a pride to live in.
The results of Consorcio ARA would not be pos-
sible without the participation of our employ-
ees, whose professionalism and commitment
have been central to overcoming difficult times
and leveraging the opportunities of this new
environment. With this letter, we express our
deepest gratitude.
We are also grateful for the confidence of our
shareholders, customers and suppliers, which has
been crucial throughout the Company’s life.
We will continue to build strong foundations so
that our leadership and growth remain.
27%profit of the ARA* share
] 14 [ANNUAL AND SUSTAINABILITY REPORT 2014
BOSQUE SANCTORUM,Pueblasegment: Middle income
Housing Sectorin Mexico
] 15 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
During 2014, Mexico saw an economic growth of 2.1%, above the 1.1% of the previous year but still below original expectations.
According to data from INEGI, the construction industry grew by 6.8%, while the building subsector expanded by 10.1%, driven mainly by housing construction, whose development made it the branch with the second highest growth, behind the automotive industry.
Total investment in the housing sector in 2014, including construction financing, was $350 billion. The subsidy program was central to the sector’s rebound in 2014, allocating a total of $11,495 million (47.1% more than in 2013), of which 69% was for new housing. It should be noted that in 2014, 18% of our revenues came from subsidized housing, against 7% the previous year.
The current housing policy promotes the ordered and sustainable devel-opment of our sector; the leadership of SEDATU and the work of CONA-VI, INFONAVIT, FOVISSSTE and SHF have been key to its recovery. Among
PASEO DE LOS SAUCESPueblasegment: Progresiva
] 16 [ANNUAL AND SUSTAINABILITY REPORT 2014
the most significant actions that were pushed were
the following adjustments and/or enhancements to
loan schemes to boost demand:
- Subsidies: i) Broadening the base of people eligi-
ble for subsidy by increasing the wage range from
2.6 to 5 times the minimum wage for a worker
to gain access. ii) Promotion of housing subsi-
dies through eighteen state conferences entitled
“México, la Casa de Todos.”
- Raising the maximum amount of INFONAVIT
credit, from $483 thousand to $850 thousand, an
increase of 76%.
- Reduction from five to two years of consecutive
contributions and from one year to six months’
wait to apply for a second INFONAVIT loan.
PASEOS DEL BOSQUEPueblasegment: Residential
COLINAS DE LA PIEDADQuerétarosegment: Affordable entry level
69.0
10.0
10.3
7.63.0
New homesUsed homesImprovementSelf constructionOther
Subsidiesby type, 2014(amount %)
- Release of the housing sub-account as collateral
for improvement and expansion loans.
Furthermore, other measures were announced in 2014
and are expected to be consolidated during 2015:
- INFONAVIT loan denominated in pesos, at a fixed
rate and up to 30 years, and the elimination of
titling costs for borrowers with an income of less
than 2.6 minimum wages.
- New FOVISSSTE in pesos, allowing the worker to
obtain a higher loan by adding guaranteed com-
pensations to the basic wage, for up to 25 years at
a fixed rate, in co-financing with SHF or banking
institutions.
- Mortgage financing for the armed forces and state
] 17 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
CITARAState of Mexicosegment: Affordable entry level
and municipal government employees, whose po-
tential demand is estimated at 2.5 million loans.
In 2014, INFONAVIT allocated 389,627 mortgage
loans (66.2% of which were for new housing) with
a total investment of $110 billion. FOVISSSTE, mean-
while, granted 63,693 loans (66.4% for new housing)
with a total investment of $38.5 billion.
The estimated investment for the sector in 2015 is
$370 billion for the construction of 500 thousand
houses. The goal for INFONAVIT is 350 thousand mort-
gage loans with an investment of $116 billion, while
FOVISSSTE hopes to place 70 thousand loans with an
investment of $38.2 billion.
The outlook for the housing sector for 2015 is bright.
Although the economic environment is challenging,
we believe housing will continue to be a key driver of
economic activity due to the sector’s solid founda-
tions, the country’s still attractive demographic bonus
and the availability of mortgage loans.
Satellite Housing Account in Mexico
The INEGI recently announced the Satellite Housing Ac-
count 2008-2012. Among the main results is the eco-
nomic importance of housing, which involves 78 class-
es of economic activity (8 main classes and 70 related).
Thus, the results of the account indicate that hous-
ing contributed 5.9% of GDP in 2012 and, if the at-
tributed rental value of homes inhabited by their
owners is included, the figures rise to 14.1%.
78classes of economic activity participate in the housing sector
] 18 [ANNUAL AND SUSTAINABILITY REPORT 2014
Consorcio ARA maintains a mix of housing products to satisfy the needs of the coun-try’s different socio-economic segments, a feature that distinguishes us from the rest of the sector. Our institutional flexibility allows us to offer innovative products and participate with different mortgage providers, including INFONAVIT, FOVISSSTE, SHF and commercial banks.
As of December 31, 2014 we had 44 progresiva, affordable entry level, middle in-come and residential housing developments in 16 Mexican states.
HousingProducts
ProgresivaProduct:
Price range:
$250,000 to $320,000
Mortgage financing: INFONAVIT,
FOVISSSTE**, SHF, SOFOLES
Monthly income: $4,200 to $8,500
TMMS***: 2 to 4
Socioeconomic level: D
Affordable entry levelProduct:
Price range:
$320,001 to $550,000
Mortgage financing: INFONAVIT*,
FOVISSSTE**, SHF, Banks, SOFOLES
Monthly income: $8,501 to $21,300
TMMS***: 4 to 10
Socioeconomic level: D+ / C-
G4-4
] 19 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
The middle income and residential segments are an important part of our product portfolio since they serve a demographic group with good growth expectations. Rev-enues from middle-income housing, in particular, grew 35% and represented 43.5% or our total revenues in 2014, the highest percentage in the last ten years.
Middle income ResidentialProduct:
Price range:
$550,001 to $1,100,000
Mortgage financing: INFONAVIT*,
FOVISSSTE**, SHF, Banks, SOFOLES
Monthly income: $21,301 to $42,600
TMMS***: 10 to 20
Socioeconomic level: C
Product:
Price range:
From $1,100,001
Mortgage financing: INFONAVIT*,
FOVISSSTE**, SHF, Banks, SOFOLES
Monthly income: More than $42,601
TMMS***: More than 20
Socioeconomic level: C+
* Includes every financing scheme: Infonavit Total, Cofinavit, Apoyo Infonavit and Infonavit Second Mortgage.** Includes every financing scheme: Alia2 Plus, Respalda2, Conjugal, Pensiona2 and New Fovissste in Pesos.***Times the Minimum Monthly Salary, equal to $2,131.03 in 2015.
] 20 [ANNUAL AND SUSTAINABILITY REPORT 2014
Revenue mix
Units
100%
80%
60%
40%
20%
0%
100%
80%
60%
40%
20%
0%2011 20112012 20122010 20102013 20132014 2014
33.921.5
34.1
30.2
18.2
25.0
3.313.7
10.5 9.6
33.819.5
34.6
28.1
3.7
13.7
26.9
34.8
27.2
37.6
25.6 32.7
34.8 43.5
6.2 5.8
20.3 18.3
4.5
15.8
1.9 2.5 2.21.03.9
32.518.5
35.8
26.2
28.6 29.215.3
39.6
32.3
27.1
15.2
20.8
Amount
Progresiva, affordable entry level and middle income housing
Productdiversification
Middle income and residential housing
Residential areas
Urban concentration and sustainability projects
Projects with lagoon
Shopping mall construction and operation
Progresiva Affordable entry level Middle income Residential Other projects
SHOPPING MALLS
] 21 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
In addition to complementing our housing develop-ments, shopping malls diversify ARA’s value range.
The Shopping Malls Division currently operates six
malls located in high demographic growth regions,
and which received more than 36 million visitors in
2014. This confirms that our shopping centers are lei-
sure stops and meet the needs of the population and
markets they serve.
In 2014, this business unit reported a 6.0% increase in
total revenues compared to the previous year, which,
like the Real Estate Division, surpassed the growth of
the Mexican economy. We also achieved a Net Oper-
ating Income (NOI) of $280.6 million, 6.2% more than
in 2013. We maintain a 50% share in four of the six
shopping malls, which are therefore not consolidated
into the Group’s financial statements.
At the close of 2014, our shopping centers included a
gross leasable area (GLA) of 155,532m2, in addition to
7,428m2 in unicenters and minicenters, bringing the
total GLA to 162,960m2. These malls reached a 94.2%
occupancy rate in the year.
One of the Shopping Malls Division’s strategies is to
create projects that follow new industry trends: de-
sign detail, visitor comfort and an attractive, diverse
commercial mix.
This segment maintains good growth prospects be-
cause of the strategic location of the centers. Two of
them have the potential to expand their GLA in the
medium term. The Las Americas Shopping Center, for
example, which is inside the area of influence of the
Mexico City New International Airport project.
In 2015, we will begin the second phase of construc-
tion of our seventh shopping center, Paseo Ventura,
located in the attractive commercial zone of Ecate-
pec, State of Mexico. Paseo Ventura will comple-
ment the Las Americas Shopping Mall and add
24,000m2 to the total gross leasable area, bringing
it to 180,000m2. The new shopping center will of-
fer entertainment, recreation and food areas, among
other lines.
ShoppingMalls
LAS AMERICASShopping MallState of Mexico
] 22 [ANNUAL AND SUSTAINABILITY REPORT 2014
Centro San Miguel Centro Las Américas Centro San Buenaventura Plaza Oasis Plaza Carey Plaza Centella Operadora
de Unicentros
Municipality or City Cuautitlán Izcalli Ecatepec Ixtapaluca Tijuana Veracruz Cuautitlán Cuautitlán, Acolman and Coacalco
State State of Mexico State of Mexico State of Mexico Baja California Veracruz State of Mexico State of Mexico
TypeCommunity Center
Regional CenterCommunity Center Community Center Community Center Community Center Strip Center
Fashion Mall Power Mall
Anchors Mega Comercial Mexicana Liverpool, Sears Walmart, SAM´S Bodega Aurrera Mega Comercial Mexicana Mega Comercial Mexicana Mega Comercial Mexicana Coppel, Bodega Aurrera Express
Sub-anchors C&A, Coppel
Sanborn's, Suburbia, C&A
Office Max, Martí, Sport City, FAMSA N/A FAMSA, Solo un Precio,
Peter Piper Pizza N/A Martí, Parisina, McDonald’s, D’Europe N/A
Cinema (# of Screens) Cinépolis (10) Cinépolis (14) N/A N/A Cinemex (9) N/A Cinepolis (10) N/A
Gross Leasable Area (GLA)All the complex (m2) 25,453 75,929 43,765 10,271 26,182 17,533 25,996 7,428
Gross Leasable Area (GLA)Propiedad ARA/Partner (m2) 25,453 47,524 14,089 10,271 26,182 17,533 14,479 7,428
Year of construction 2001 2005 2006 2007 2008 2011 2000-2010
% ARA 50% * 50% * 50% * 50% * 100% 100% 100%
* ONAPP = O’Connor North America Property Partners owns remaining 50%
LAS AMERICASShopping MallState of Mexico
] 23 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Centro San Miguel Centro Las Américas Centro San Buenaventura Plaza Oasis Plaza Carey Plaza Centella Operadora
de Unicentros
Municipality or City Cuautitlán Izcalli Ecatepec Ixtapaluca Tijuana Veracruz Cuautitlán Cuautitlán, Acolman and Coacalco
State State of Mexico State of Mexico State of Mexico Baja California Veracruz State of Mexico State of Mexico
TypeCommunity Center
Regional CenterCommunity Center Community Center Community Center Community Center Strip Center
Fashion Mall Power Mall
Anchors Mega Comercial Mexicana Liverpool, Sears Walmart, SAM´S Bodega Aurrera Mega Comercial Mexicana Mega Comercial Mexicana Mega Comercial Mexicana Coppel, Bodega Aurrera Express
Sub-anchors C&A, Coppel
Sanborn's, Suburbia, C&A
Office Max, Martí, Sport City, FAMSA N/A FAMSA, Solo un Precio,
Peter Piper Pizza N/A Martí, Parisina, McDonald’s, D’Europe N/A
Cinema (# of Screens) Cinépolis (10) Cinépolis (14) N/A N/A Cinemex (9) N/A Cinepolis (10) N/A
Gross Leasable Area (GLA)All the complex (m2) 25,453 75,929 43,765 10,271 26,182 17,533 25,996 7,428
Gross Leasable Area (GLA)Propiedad ARA/Partner (m2) 25,453 47,524 14,089 10,271 26,182 17,533 14,479 7,428
Year of construction 2001 2005 2006 2007 2008 2011 2000-2010
% ARA 50% * 50% * 50% * 50% * 100% 100% 100%
] 24 [ANNUAL AND SUSTAINABILITY REPORT 2014
PARAÍSO COUNTRY CLUB,Morelossegment: Residential
FinancialStrength
] 25 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
A fundamental trait of ARA is its financial prudence, which has seen us through difficult times and set us apart during the liquidity crisis facing the public housing sector in 2013. Year after year, our strategy of being a company of high value and responsible finance has proved to be on track.
As an example of this, debt levels remain moderate and with an optimum maturity profile. Our net debt at December 31, 2014 was $1,071 million, 40% lower than that reported at the close of 2013, while cost-bearing debt was $2,147 million, 11.7% less than the previous year. Regarding the maturity profile of cost-bearing debt, 19.2% is short term and 80.8% long term, and denominated in pesos, en-abling us to avoid exchange rate losses as a result of the dollar appreciation.
Bridging loans have been a source of quick and effective financing, particularly the $1,000 million credit line with the Federal Mortgage Society (SHF), and another for $500 million with a banking institution. To date, projects have been signed for $558 million. The balance of bridging loans at the close of 2014 was $311.7 million, against only $11 million in 2013.
COLINAS DE ALTAR,Morelossegment: Middle income
] 26 [ANNUAL AND SUSTAINABILITY REPORT 2014
IPC
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
PRINCIPAL COMPETITORS IN THE MEXICAN STOCK EXCHANGECONSORCIO ARA
Similarly, our leverage ratios continue at healthy lev-
els, even below those reported in the last three years.
The net debt to EBITDA ratio stood at 1.19 times,
against 1.99 times in 2013. The cost-bearing debt to
EBITDA was 2.38 times, an annual decrease of 0.33
times, while interest coverage went from 4.37 times
in 2013 to 5.91 times in 2014.
Thus, for the ninth consecutive year the Company has
maintained the highest credit ratings for the Mexican
housing sector, “mxA” by Standard & Poor’s and “A2.
mx” by Moody´s.
Our revenues in the year were $6,206.1 million, an
increase of 8.2% compared to 2013. We reported the
generation of a record $863 million in free cash flow
for the firm, more than twice the original goal of
$400 million. It should be said that this cash flow
was achieved in a year in which 39% of our hous-
ing revenues were vertical. Cash position and cash
equivalents, meanwhile, amounted to $1,076 mil-
lion, 67.3% more than the previous year.
All of the above contributed to the 27% annual yield
per ARA* share in 2014, a particularly strong figure
when compared to the 1% of the IPC in the same
period. Cumulative yield per ARA* share since 2013,
when the housing sector’s liquidity crisis occurred,
is 57%, while the IPC in the same period has been
-1.3%.
We generated free cash flow for the firm in the amount of $863 million, a record figure
for Consorcio ARA.
Yields2013-2014
] 27 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
FORESTAState of Mexicosegment: Residential
] 28 [ANNUAL AND SUSTAINABILITY REPORT 2014
Integration, technologyand value chain
PARQUE LA GLORIAQuerétarosegment: Residential
Being a vertically integrated company affords advantages both in operating ef-ficiency and scale economy, benefitting ARA and its customers. COMACI (Con-crete, Machinery and Formwork) operates 17 ready-mixed concrete plants just outside or even inside ongoing developments, to supply ready-mixed concrete in a timely manner.
COMACI also increases quality, improves delivery times and helps sustainability, since it reduces CO2 emissions by optimizing transport.
Furthermore, in Consorcio ARA we have begun the implementation of the BIM (Building Information Modeling) System, technology that will increase our pro-ductivity, efficiency and quality. BIM enhances inter-area communication, en-ables 3D visualization of the different construction phases and simulates the performance of inputs, all with the aim of adhering to international standards and meeting the newest market requirements.
G4-12
] 29 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Titling processing
Delivery
Construction
Post-saleservice
Sales
END
Procurement COMACI
BEGINNING
PurchasesProcess
management
ValueChain
Business and market
analysis
Housing and development
design
Land bank planning and purchasing
] 30 [ANNUAL AND SUSTAINABILITY REPORT 2014
SustainabilitySustainability
PARAISO COUNTRY CLUBMorelos
] 31 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Stakeholder Groups
G4-24, G4-25 Consorcio ARA maintains produc-
tive, long-term relationships with our stakeholder
groups: employees, customers, suppliers, sharehold-
ers, community and authorities in the different lev-
els of government. These relationships are based on
respect, transparency and the behavior established in
our Code of Conduct and Ethics at Work.
G4-26 We use a number of mechanisms to inter-
act with our stakeholders, such as the contact line
(01800 0220581) and the customer services line
LineARA (01800 5463272), quarterly telephone con-
ferences with our shareholders and internal e-mail,
among others. We also have profiles on Facebook and
Youtube.
Economic Dimension
G4-EC1 Housing is a key driver of development in
the Mexican economy, as its contribution of 5.9% to
GDP in 20121 shows. Consorcio ARA is one of the sec-
tor’s leading players and the economic value it gener-
ated and distributed in 2014 can be seen in the Con-
solidated Financial Statements.
1 Source: Satellite housing account in Mexico, INEGI
G4-EC4 G4-SO6, G4-SO7, G4-SO8 Consorcio
ARA made no contributions to political parties or re-
ceived any financial help from the government. The
Company did not receive any complaints of monopo-
listic or anti-competitive practices, or incur any pen-
alties for breach of regulations.
G4-EC6, G4-EC7, G4-EC9 Most of our suppliers
are domestic and we make our purchases centrally. In
the plants. In the same way, all our senior executives
are Mexican and as far as possible have experience in
the locations where they work.
Environmental Dimension
For Consorcio ARA, protection of the environment
is a priority. We work to ensure that our production
processes are eco-friendly and comply with the ap-
plicable environmental legislation.
Energy and Sustainable Housing
G4-EC2, G4-EN7, G4-EN19, G4-EN27 The IN-
FONAVIT Green Mortgage program seeks to promote
sustainability in housing developments. The scheme
grants eligible borrowers an additional amount to pur-
Sustainability in Consorcio ARA consists of aligning environmental performance, community quality of life and employee wellbeing to the financial and operating performance of the Company.
] 32 [ANNUAL AND SUSTAINABILITY REPORT 2014
chase housing with eco-techniques, which optimize
water and energy consumption and reduce CO2 emis-
sions. ARA applied a total of 7,125 green mortgages
during 2014, which yielded savings of 5,486 ton of CO2.
Description 2014 2013Solar heaters 805 1,627
Water heaters 8,872 9,225
Energy-saving bulbs 77,537 79,072
Mixer/single lever faucets 25,567 27,886
Water purifiers 6,557 6,887
Econ. and residential ecological toilets 16,275 16,199
Water-saving showers 14,677 4,301
In addition to their environmental advantages, eco-
techniques contribute to the household economy and
generate savings of between $100 and $400[2] by re-
ducing water and energy consumption.
To further enhance the quality of life of our home-
owners, we afford our housing developments the in-
frastructure and utilities that increase the value of
their homes, including:
Infrastructure 2014 Units / Extension (m2)
School classrooms 29
Community gardens 9,026m2
Sports area 16,821m2
Urbanization 610,366m2
Materials, Water, Biodiversity and Waste
G4-EN1, G4-EN2 In 2014, we consumed around
445,000m3 of concrete, 12,429 tons of steel, and 3
million m2 of electrowelded wire mesh, which are
the materials most used in housing construction.
We do not use recycled materials in our building
processes.
G4-EN9 G4-EN10 Aware of the importance and
vulnerability of water, we have launched specific ac-
tions to protect it, such as the eco-techniques and
treatment plants we provide in our developments,
which are located so as not to affect any primary
water source.
In 2014 we built 32 hydraulic infrastructure works,
such as treatment plants, water purification plants,
pumping sumps and elevated tanks, among others.
G4-EN11 Our developments, shopping centers and
entire land bank are located outside protected or high
biodiversity areas.
G4-EN22, G4-EN23, G4-EN24, G4-EN25, G4-
26, G4-EN29 In 2014, no waste was transported or
managed nor were there any sewage spills. We did
not incur any significant environmental fines or pen-
alties.
G4-EN30 We have four personnel transport routes
used by 164 employees and which covered more than
50,000 km in 2014. Similarly, the COMACI plants are
located close to our developments to further reduce
environmental impact from transportation.
G4-EN31 In 2014, Consorcio ARA allocated a total
investment of $54 million into environmental tech-
nologies (like eco-techniques).
G4-EN32, G4-LA14, G4-HR4, G4-HR10, G4-
SO9 Although Consorcio ARA has not investigated
the environmental, labor, social or human rights
practices of its suppliers, we strive to incorporate our
vision of sustainability throughout our value chain.
Social Dimension
For Consorcio ARA, our social responsibility consists
of providing excellent working conditions for our em-
ployees on the inside, and contributing to the well-
being of the communities we come into contact with
on the outside.
[2] [3] Source: INFONAVIT
7,125 green
mortgages applied in
2014
] 33 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
LAS MISIONES,State of Mexico
PASEO DE LOS SAUCES,Puebla
CITARA,State of Mexico
COLINAS DE ALTAR,Morelos
] 34 [ANNUAL AND SUSTAINABILITY REPORT 2014
Human Capital
In Consorcio ARA we are convinced that the commit-
ment of our employees translates into the quality of
our products and services, and so we encourage their
personal and professional growth in a respectful and
safe environment that allows them to develop their
potential to the full.
Employment
G4-9, G4-10, G4-11, G4-LA1, G4-HR4 Al-
though we recognize and respect the right of every
worker to belong to the union of his or her choice,
none of our workforce is unionized or attached to
collective bargaining agreements. We ended 2014
with 802 employees in the Housing Division, distrib-
uted as follows:
G4-LA2, G4-EC3, G4-EC5 Consorcio ARA pays
its workers at least four times the current minimum
wage and provides allowances and benefits above the
requirements of the law:
- Thirty days’ annual bonus
- Vacation bonus
- Savings fund
- Punctuality and attendance bonus
- Arrangements with restaurants
- Personnel transport
- Arrangements with businesses for worker dis-
counts
G4-LA4 Due to the nature of its activities, Consorcio
ARA is unable to provide its employees a minimum
period of notice prior to organizational changes.
G4-LA3 During the year, fifteen of our 306 employ-
ees enjoyed a total of 983 days’ maternity leave, and
all were given the opportunity to return to work at
the end of their leave. In addition, one employee exer-
cised his right to paternity leave, at the end of which
he returned to his activities.
As part of our efforts to provide a collaborative,
pleasant working environment, we launched the
Quiniel-ARA competitions and the bowling tourna-
ment, activities that helped to create harmony in the
work centers and which drew the participation of 142
employees.
G4-LA16 Twelve work-related complaints were re-
ceived in 2014, of which nine were admissible.
By Age
By Gender
By service time
Under 18 0From 18.1 to 25 years 24From 26 to 30 years 125From 31 to 40 years 342From 41 to 50 years 229From 51 to 60 years 66Over 61 years 16
Total 802
Under 1 188 From 1 to 3 163 From 3.1 to 5 122 From 5.1 to 10 175 From 10.1 to 20 134 More than 20.1 20
Total 802
3%
16%
43%
62%38%
20%
15%
22%
17%
2%
29%
8%
2%
Female 306Male 496
Total 802
23%
] 35 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Training
We encourage the ongoing training and development
of our employees to ensure they have the skills they
need to properly perform their activities. For this rea-
son we implement training programs across all levels
of the Company.
G4-LA9, G4-LA10 In this way, as part of the broad
range of professional training we offer, both in-per-
son and distance, our employees received a total of
14,629 man-hours of training on topics including:
- Induction: new intakes and sales consultants.
- Housing loans.
- Development plans for management personnel.
- Situational Leadership Fundamentals
- Technical topics for staff.
It should be noted that 124 sales consultants met the
performance criteria in housing loans and were certi-
fied under the ECO458 standard.
G4-52, G4-LA11 We are certain that measuring
the performance of our personnel helps to ensure the
ongoing improvement of their duties. Thus, in 2014,
we performed a total of 3,120 quarterly evaluations
on our employees across all areas.
Diversity and Equal Opportunities
G4-LA12, LA13 Consorcio ARA recognizes and
enforces gender equality across-the-board, including
wages, hiring, training, development and promotions.
Female personnel occupy 23% of all managerial and
executive positions.
Furthermore, 34 employees were promoted during
the year and 33 others received salary adjustments.
Health and Safety
Our occupational safety strategy is based on shared re-
sponsibility between the Company and employees, and
so we promote a safety culture focused on prevention.
G4-LA5 A vital piece of this approach is the ARA
Brigade, which is made up of 45 brigade members
whose aim is to disseminate self-protection mea-
sures, encourage personnel to participate in accident
prevention and occupational risk management, and
respond in a timely manner to any event that threat-
ens the continuity of the business. The ARA Brigade
organized a building evacuation course in which 28
employees participated.
124employees certified under the ECO458 standard
] 36 [ANNUAL AND SUSTAINABILITY REPORT 2014
Briefings were held which were attended by 235
employees, a desk drill with 205 participants and
a mock evacuation with 213 employees.
G4-LA5, We have disease prevention and
healthcare programs for our employees. Our en-
tire workforce is registered with the Mexican So-
cial Security Institute (IMSS).
G4-LA6 A total of thirteen accidents were re-
ported during the year, six of which were on the
way to work. However, we achieved another year
without fatalities in our operations.
Human Rights
G4-HR3, G4-HR5, G4-HR6, G4-HR8,
G4-HR12 The Company does not employ people
who are under-age and none of our employees
works with us against their will. There were no re-
ports of incidents or grievances related to discrim-
ination or violation of human rights or indigenous
rights during the year.
Product Responsibility
G4-PR2, G4-PR7 Our developments meet all
current regulations in terms of urban develop-
ment and housing both in design and construc-
tion. During 2014, there were no incidents of
non-compliance with advertising or marketing
regulations.
G4-PR8, G4-PR9 Consorcio ARA protects the
personal data of its customers in accordance with
the Federal Law on the Protection of Personal
Data Held by Private Parties, and no significant
complaints were received in this regard.
Customer Service
In Consorcio ARA we seek to build long-term
relationships with our customers and so their
satisfaction is our priority. Our Customer Service
team provides information and attention to en-
sure that new residents get to know the ameni-
ties and services and become familiar with the
development where they will live, so they can
enjoy it to the full.
In 2014, we created “LineARA” (01 800 5463272),
a telephone service through which homeowners
can inquire about the delivery of their home,
Customer Service
PASEO DE LOS SAUCES,Puebla
] 37 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
make a report to validate its warranty, ask about
neighborhood events and in general, use it for
suggestions, questions or complaints. Also, to
maintain proximity to current and potential
customers, we directed significant efforts to our
Facebook page: www.facebook.com/ARAContigo,
which at the end of 2014 had 45,000 followers.
In addition to housing quality, one of the most
important factors for homeowners is the proper
functioning of the development and its contribu-
tion to the urban image. “ARA Community” is an
area whose aim is to promote good neighborhood
organization to enhance the value and quality of
life of every home in our developments.
To this end, thirty of our fifty-eight Customer
Service executives have been trained and certi-
fied as “Neighborhood Promoters” by the Com-
petency Standardization and Certification Coun-
cil (CONOCER), under the competency standard
“Consulting for Neighborhood Organization in
Housing Areas.”
G4-SO1 During the year, we held 43 integration
events that generated 65,980 positive impacts for
families within our housing developments:
Actions Description Positive Impacts(people benefitted)
Cultural and Integration
23 integration events nationwide, such as the Day of Kings, Children’s Day, Mother’s Day, Mexican nights, Day of the Dead and Christmas posadas, among others.
4,600
Sports Karate and Zumba classes and a Mini Marathon. 600
Security Proximity Policing Program, with workshops on theft prevention and security. 200
Health Five conferences on health and vaccination. 1,000
Environment and Rescue of Spaces
- Four clean-up days. - Painting and Maintenance events. - Two Fumigations. - “Water Care” workshop
50,888
Reforestations - Reforestation of 1,000 White Cedar trees. - Planting of 150 trees: 40 Acacia, 40 Pirul and 40 Palm, 20 Olneya and 10 Mesquite.
8,692
65,980
Neighborhood Meetings
In 2014, 237 neighborhood meetings - assemblies
were held and we delivered 140 condominiums.
We these actions we generate communities that
learn to self-manage and to manage the tools
that help them to improve their environment and
quality of life.
] 38 [ANNUAL AND SUSTAINABILITY REPORT 2014
ARAFoundation
] 39 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
The balance between good operational and economic performance and equally solid environmental and social practices is one of Consorticio ARA’s great strengths.
G4-15 So, for the ninth consecutive year, the Mexican Philanthropy Center (CEMEFI) awarded Consorcio ARA the distinction of Socially Responsible Company, under more rigorous standards and with the delivery of more detailed information, while for the second year in a row PRONA-TURA México A.C. recognized our efforts towards nature conservation.
G4-16 The ARA Foundation (the Foundation) helps the country’s most vulnerable sectors and contributes to the care of the environment through projects to mitigate or offset its environmen-tal footprint.
G4-SO1 In 2014, the Foundation and its allies carried out more than 521,852 actions to benefit more than 1.6 million people. Through strategic partnerships we strengthened ties with compa-nies, foundations, associations, governments and society to raise the quality of life of Mexicans with construction, urban improvement, educational, health, environmental and volunteer projects.
Mission: To provide development opportunities to raise the quality of life of Mexicans.
Vision: For Consorcio ARA, through its Foundation, to be recognized as the construction company doing the most social work.
Values: • Respect• Service• Transparency• Integrity • Loyalty
] 40 [ANNUAL AND SUSTAINABILITY REPORT 2014
In addition, we work to achieve our objectives to:
i) be a Foundation of partnerships, with our em-
ployees and our society; ii) be a Foundation with
clear and transparent financial operations; iii),
deliver quality homes, contributing to the con-
servation of the environment and the life of the
community; iv) support communities through
programs that provide vision aids, training and
development, scholarships and improvements to
urban, housing and educational infrastructure,
and v) support families affected by natural di-
sasters.
1. HabitARA For a decent home
Every family in Mexico has the right to a decent
home. The Foundation and its partners have cre-
ated quality projects to generate lasting proper-
ties to benefit ever more Mexican families.
a. Partnerships That Build
As an important part of the PROVIVAH Fund,
3,824 homes were built in 2014 to benefit
more than 19,100 people, with an invest-
ment of $865 million. In particular, during
the year homes were delivered to victims of
Hurricane Manuel in Guerrero in collabora-
tion with the DIF Nacional, the Anahuac Uni-
versity and the United for Them (Unidos por
Ellos) partnership.
These actions bring the total number of homes
to 23,477 benefitting 117,380 people over the
course of nine years.
b. Urban Heart
The Urban Heart (Corazón Urbano) partner-
ship trained more than 3,600 people in trades
such as painter, weather proofer and plas-
terers. With a total investment of $360 mil-
lion, we painted 72,004 façades altogether in
twenty-one states and Mexico City.
With PEMEX’s involvement in Urban Heart
since 2014, we have been able to extend the
benefit to the country’s oil states and zones.
2. EducARA For a Better Future
The high rate of children who abandon school
because of lack of resources leads to delinquen-
cy and hinders the country’s progress. To fight
3,824homes built,PROVIVAH
Trust
for the benefitof over
19 thousandpeople
] 41 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
this phenomenon we created partnerships that
support education, and have joined the National
Program for the Social Prevention of Violence
and Crime to further the development of Mexi-
can children.
a. Just raise your hand
For the fourth consecutive year our partner-
ship with HSBC México and Fundación Lazos
achieved its goal to reach 34 schools and 26
states. In these four years some 5,593 chil-
dren have benefitted, with the contribution of
11,334 voluntary man-hours and an invest-
ment of $64.9 million.
b. See Well to Learn Better
With this program we have been able to
change the future of twenty-five children ev-
ery half hour, by delivering 438,329 pairs of
eyeglasses in partnership with the See Well to
Learn Better Trust Fund.
Between 2013 and 2014, the Ministries of the
Interior, Education and Health and the Inte-
grated Family Development (DIF) system in
the framework of the PreVer program (part of
the National Program for the Social Preven-
tion of Violence and Crime) have joined the
effort to provide free eyewear to all elemen-
tary school children who need them.
With the participation of 131 municipalities
and 5 delegations in 31 states and Mexico City,
during the 2013-2014 school season a team
of optometrists tested more than 1.2 million
children with an investment of $657.4 million.
c. Ethical and Sustainable Leaders to
Antarctica
The Directorate General of Innovation and
Academic Strengthening (DGIFA) of the Fed-
eral Administration of Educational Services
in Mexico City (AFSEDF) and the Karla Whee-
lock Foundation launched the Fourth Invita-
tion to public high school students in Mexico
City to participate in the contest “Ethical and
Sustainable Leaders to Antarctica,” consist-
ing of the development and operation of
sustainable projects.
The prize awarded to these young people was
an experience in the Antarctic led by moun-
438,329glasses given
to 1.2 million children evaluated under the See Well to Learn Better program
34schools in 26 states
5,593 children sponsored
] 42 [ANNUAL AND SUSTAINABILITY REPORT 2014
taineer Karla Wheelock. The support from
the ARA Foundation consisted of a $163,000
grant for one of the winners.
d. Virtual Vaccine
Together with the Vizcarra Foundation,
$240,000 was contributed to the develop-
ment of the “Virtual Vaccine” project, a digi-
tal application aimed at children from six to
twelve years that will be a friendly, didactic
tool to help prevent addictions.
3. ARA Community We want a great fu-
ture for all.
a. I Volunteer
For Children’s Day and with the participation
of Consorcio ARA personnel, more than 1,740
toys were collected for children in twelve pe-
diatric hospitals in Mexico City.
A partnership with the Government of the
Interior and VIRAL as part of the National
Program for the Prevention of Violence and
Crime seeks to integrate communities and
rescue public spaces in the Tepito neighbor-
hood to improve the family life and quality of
life of its residents.
b. Summer Telethon and Campaign 2014
The Foundation participated in the Summer
Telethon through events attended by 400
children and more than 210 volunteers, in
addition to in-kind donations from compa-
nies partnered with our Foundation. Con-
sorcio ARA personnel made their donation
to the annual national Telethon collection
through the “ARA Foundation Digital Piggy-
bank.”
c. Health Rally
The Board of Communication organized the
family day race and CONFE held the “Run for
You and Walk with Me” race, with the partici-
pation of people with different abilities.
d. Area Rehabilitation Project
This project aims to rehabilitate public and
private areas through paint donations. In
2014, the following institutions were helped:
- Instituto José David A.C. in Chihuahua.
- The Tres Piedritas shelter, together with
the Checo Pérez Foundation in Zapopan,
Jalisco.
- Asociación Nuestro Hogar for three shel-
ters for abandoned children in Mexico City.
- DIF Huehuetoca for the rehabilitation of
the Women’s Clinic.
- Restoration of various areas in Casa de la
Amistad para Niños con Cáncer.
e. Sale of Products with a Cause
The ARA Boutique sold more than 1,700 Prod-
ucts with a Cause among our employees, in col-
laboration with the Friendship Home for Chil-
dren with Cancer, CONFE, KADIMA, Chunches
and the Checo Pérez Foundation. The resources
obtained are used to provide employment to
young people with different abilities, treatment
for children with cancer and care for aban-
doned children in shelters in Jalisco.
4. SustentARA for our world.
The partnership between the ARA Foundation and
PRONATURA is vital to our objective of achieving
optimal environmental development in our op-
erations. Our key lines of action are:
- Improved process efficiency.
- Saving and optimization of materials and
natural resources.
400children
and over
210volunteers
participated in the Telethon Summer
activities
] 43 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
- Prevention, control and mitigation of emis-
sions and waste.
- Compliance with environmental regulations.
G4-EN13 Regarding environmental investment,
we have supported three important projects: the
rehabilitation of mangroves with the non-profit
organization Flora, Fauna y Cultura de México; the
natural resources conservation project of the Izta
Popo national park; and the recycling program of
Consorcio ARA’s corporate offices. These efforts
have the following objectives:
• CLIMATE CHANGE
To promote greater environmental responsi-
bility that allows us to reduce greenhouse gas
emissions.
• WATER
To raise awareness among our employees on
the use of water through technology.
• BIODIVERSITY
To offset the negative impact of our opera-
tions; recycle and utilize waste; promote pro-
grams to conserve our natural and cultural
heritage; and conserve our ecosystem.
a. Corporate Sustainability Standard
The Diagnosis of Environmental Performance
was performed in conjunction with PRONA-
TURA to identify improvement opportunities
to offset negative impacts on nature and
reduce energy and water consumption and
waste generation.
In 2014, we reached our goal of having a
“Green Purchasing Manual” with which we
are able to quantify the technologies, savings
and benefits of the inputs we use.
G4-15 From the results of this diagnosis,
PRONATURA granted Consorcio ARA the Cor-
porate Sustainability Standard of “Satisfac-
tory” for the second consecutive year.
CITARA,State of Mexico
1,700products with a cause sold
over 6 civil organizations beneffited
] 44 [ANNUAL AND SUSTAINABILITY REPORT 2014
b. Mangrove rehabilitation
G4-EN12 During 2013 and 2014 the resourc-
es given by the Foundation and its allies to the
Mangrove Rehabilitation Program of the Flora,
Fauna y Cultura de México civil association,
resulted in the rehabilitation of 64.48 hectares
of mangrove with 360,000 red and botoncillo
mangroves in Quintana Roo, the elimination of
the invading species casuarina equisetifolia in
2,403 trees, and the training and employment
of over 30 people, among other actions.
c. Conservation of natural resources in
the Izta Popo National Park
In partnership with PRONATURA, the Founda-
tion aims to preserve 10 damaged hectares,
monitor the development of the plantings
made, estimate the potential capture of CO2
from those hectares and estimate the volume
of surface water they provide. This will help to
preserve the biodiversity of native and en-
demic species of the volcano region.
d. Recycling campaign
G4-EN6 A recycling and waste management
campaign was implemented in the corporate
offices of Consorcio ARA, in conjunction with
Recupera recycling centers. We advocate recy-
cling to reduce the use of natural resources and
generate alternative energies to mitigate eco-
logical harm. In 2014 we managed to collect:
- 2,653 kilos of different types of paper
- 141 kilos of PET
- 37 kilos of aluminum cans
- 362 kilos of cardboard
Action Total Comment / Conversion
44 Trees from being felled to make new paper.
65,754 Liters of water that would be used to make new paper; the equivalent of leaving a shower running for almost 56 hours.
7 Kilos of aluminum, enough to keep a 60 watt bulb lit for 2.3 months.
349 Kilos of plastic PET bottles, enough to manufacture 3,629 extra-large textile fiber shirts.
2,529Kilos of paper and cardboard that contributed to not using 10,368.9 kw to manufacture virgin fiber paper, enough to supply electricity to an average home for 2.42 years.
We would like to thank our partners:
Companies 3e de México, Alltournative, ANTAD, CANADEVI, Cementos Moctezuma, CEMEX, Cinépolis, COMEX, Costco de México, FTP, Galia Moss, HSBC México, Office Depot, Universidad Anáhuac,
Vitromex de Norte América Construcción, Volaris, Walmart de México, Kenworth Metropolitanos, Grupo Industrial de Poliestireno, Protección Anticorrosiva de Cuautitlán, Shunko Technology,
Cocinas Ferreti, Industrias Ridolfi.
NGOsBécalos, Casa de la Amistad para niños con Cáncer, Centro Mexicano para la Filantropía, CENACED, Chunches, Comité de Ayuda en casos de Emergencias Nacionales, Consejo de la
Comunicación, Corazón Urbano, Cruz Roja de México, Fideicomiso PROVIVAH, Fideicomiso Ver Bien para Aprender Mejor, Flora, Fauna y Cultura de México, Fundación Audios, Fundación
Chedraui, Fundación Chrysler, Fundación COMEX, Fundación Gonzalo Río Arronte, Fundacion Karla Wheelock, Fundación Lazos, Fundación Telefónica, Fundación TELETÓN, Fundación Te-
levisa, Fundación Vizcarra, Inclúyeme, KADIMA, Nacional Monte de Piedad, PRONATURA, Recupera Centros de Reciclaje, UNICEF, UNIRED, CONFE, Instituto José David, Fundación Checo
Pérez, Asociación Nuestro Hogar ANAR.
GovernmentCONAVI, Iztacalco delegation, DIF of the State of Mexico, FONHAPO, the State Governments of Baja California Norte, Baja California Sur, Chiapas, Chihuahua, Coahuila, Colima, Distrito
Federal, State of Mexico, Guanajuato, Guerrero, Hidalgo, Jalisco, Michoacán, Morelos, Puebla, Quintana Roo, Sonora, Tabasco, Tamaulipas, Yucatán, the municipalities of Cozumel, Ecatepec,
El Marqués, Huehuetoca, Naucalpan, Pachuca, Tlajomulco de Zúñiga, Zapopan, Office of the First Lady of Mexico, Ministry of Public Education and its State Delegations, Ministry of Health of
the Federal Government, Ministry of Health of the Government of Mexico City, National System for Integrated Family Development (DIF Nacional), Ministry of the Interior, Under-Ministry of
Prevention and Citizen Engagement of SEGOB, PEMEX.
64restored
hectares in Quintana Roo
with 360,000 red and botoncillo
mangrove plants
Visit our 2014 Annual Report at: www.fundacionara.org.mx
] 45 [strong foundations: leadership & growth
EX-HACIENDA SANTA INÉS,State of Mexico
PASEO DE LOS SAUCES, Puebla
] 46 [ANNUAL AND SUSTAINABILITY REPORT 2014
CorporateGovernanceCorporateCorporateGovernanceCorporateGovernanceCorporate
COLINAS DE ALTARMorelossegment: Middle income
] 47 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Solid Corporate Governance practices are a pillar of Consorcio ARA’s leadership.
G4-34 The Board of Directors of Consorcio ARA meets four times a year, in accordance with the provi-
sions of the Securities Market Law (LMV for its Spanish acronym) and the Company’s bylaws. In 2014,
the attendance at those meetings was 95%.
G4-39 The Chairman of the Board is also the CEO of the Housing Division.
G4-38 The Board has eleven members, all men (one woman acts as an alternate). Eight of the mem-
bers are independent, well above that established by the LMV. The length of service of Board members
is given below:
Length of Service in YearsAs of Dec 31, 2014
Germán Ahumada Russek 26 Chairman
Luis Felipe Ahumada Russek 26 Vice Chairman
Germán Ahumada Alduncin 11 Vice Chairman
Pedro Alonso Angulo 11 Board Member
Luis Ramón Carazo Preciado 11 Board Member
Roberto Danel Díaz 11 Board Member
Félix Gavito Marco 19 Board Member
Francisco Javier Lomelín Anaya 7 Board Member
Andrés Massieu Berlanga 16 Board Member
Ricardo Paullada Nevarez 1 Board Member
Raúl Robledo Tovi 8 months Board Member
] 48 [ANNUAL AND SUSTAINABILITY REPORT 2014
G4-40, G4-41, G4-51 To select its independent mem-
bers, the Board of Directors considers experience, capa-
bility, professional prestige and absence of conflicts of
interest in the performance of their duties. The appoint-
ment and endorsement of the members is subject to the
approval of the Meeting of Shareholders, and their remu-
neration is described in the Company’s Financial State-
ments. All the Board Members have a proven track record
and expertise in strategic topics for Consorcio ARA, such
as housing, finance and corporate governance.
G4-34, G4-42 The Board has an Audit Committee and
a Corporate Practices Committee, presided over by Félix
Gavito Marco and Roberto Danel Díaz, both of whom are
independent Board Members.
The responsibilities of the Audit Committee are: to dis-
cuss the Company’s financial statements; monitor the
internal control system; evaluate the performance of
external auditors; report on internal audit functions;
inform the Board of any irregularities of which it be-
comes aware; receive and analyze the comments and
observations made by the shareholders, Board members
and executive officers; and other powers under the Se-
curities Market Law.
G4-51, G4-52 Among the activities of the Corporate
Practices Committee are to deliver an opinion on the
policies and guidelines for the use of Company assets by
related parties, and the evaluation and compensation of
the CEO and senior officers.
G4-46 It should be mentioned that from 2014, the ac-
tivities of the Planning and Finance Committee were ab-
sorbed by the Corporate Practices Committee, which to-
day also oversees the policies and practices of Consorcio
ARA in matters of finance, provides a strategic overview
to ensure its stability and permanence and is responsible
for risk management.
G4-45 The Board of Directors advises about risks,
manages impacts and evaluates the economic oppor-
tunities for the Company through the Annual Report
that is presented in accordance with the general pro-
visions applicable to Securities Issuers and other Se-
curities Market participants, for the fiscal year ending
December 31, 2014.
G4-35, G4-36, G4-47 The Consorcio ARA manage-
ment team interacts with the committees at least once a
quarter to review issues relevant to the Company.
] 49 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
G4-15 Since 2003, Consorcio ARA has adhered to the
Code of Best Corporate Practices issued by the Business
Coordinating Council, and reports its compliance annu-
ally to the Mexican Stock Exchange through the Best Cor-
porate Practices Questionnaire.
G4-SO8 In 2014, Consorcio ARA did not incur any pen-
alties or significant fines resulting from non-compliance
with laws and regulations.
Code of Conduct and Ethics
G4-56, G4-SO4 The Code of Conduct and Ethics fol-
lows our values of Honesty, Commitment, Responsibility
and Quality, and regulates the ethical behavior that en-
sures integrity and transparency in all our actions. It can
be seen at: www.consorcioara.com.mx
In 2014, a nationwide awareness campaign of the Code
was launched to enable our employees to know, under-
stand and apply these criteria in their personal, family
and corporate life.
G4-34, G4-37, G4-57, G4-58, G4-LA16 The ARA
Advisory and Reporting System includes the ARA Con-
fidential Hotline which is available to our stakeholder
groups to report any violation of the Code of Ethics:
- Metropolitan area: 5251 7489
- Interior of the Republic: 01800 823 07 22
- E-mail [email protected]
From 2012 to date, the number of grievances received
and dealt with were as follows:
Year Num. of Grievances2014 25
2013 37
2012 34
G4-49, G4-50, The most frequent topics were re-
ported to the Board of Directors. Of the 25 grievances
received in 2014, 20 were investigated, and their resolu-
tion ranged from reprimands to final dismissal (in the
case of corruption).
G4-EN34, G4-LA16, G4-HR3, G4-HR12, G4-SO5,
G4-SO11 During the year, no complaints were received
on environmental issues, discrimination, human rights
violations or claims about social impacts.
] 50 [ANNUAL AND SUSTAINABILITY REPORT 2014
Board ofDirectorsThe members of the Board of Directors and the presidents of the auxiliar
committees for 2015, will be appointed or ratified at the Ordinary
Shareholders’ Meeting on April 27, 2015
• Independent Board member Related Board member Owner Board member
COMMITTEE NAME POSITION ALTERNATE
Germán Ahumada Russek chairman Miguel Lozano Guillermo Pardinas
Luis Felipe Ahumada Russek vice chairman Guillermo Alberto Riveroll López
Germán Ahumada Alduncin vice chairman J. Sacramento Soto Solís
P Pedro Alonso Angulo• board member María Cristina Hernández Trejo•
P Luis Ramón Carazo Preciado• board member Eugenio Riveroll Picazo•
A y P Roberto Danel Díaz• board member Manuel Gutiérrez García•
A y P Ricardo Paullada Nevárez• board member Alfredo Sánchez Torrado•
A Félix Gavito Marco• board member Lorenzo Lucas Sánchez•
Francisco Javier Lomelín Anaya• board member Carlos Hernández Magallanes•
A Y P Andrés Massieu Berlanga• board member Alejandro C. Álvarez Certucha•
P Raúl Robledo Tovi• board member José Alberto Flores Athié•
Ricardo Maldonado Yáñez secretary
Lorenza K. Langarica O’hea pro-secretary
A: AuditP: Corporate Practices
] 51 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
CorporateDirectors
Germán Ahumada Russek | CHIEF EXECUTIVE OFFICER, HOUSING DIVISION
Luis Felipe Ahumada Russek | CHIEF EXECUTIVE OFFICER, SHOPPING MALLS DIVISION
Housing Division
Gabriel Altamirano Hernández | GOVERNMENT RELATIONS DIRECTOR AND ARA FOUNDATION
Alicia Enriquez Pimentel | INVESTOR RELATIONS DIRECTOR
Martín Guevara Hernández | BUSINESS DEVELOPMENT DIRECTOR
Carlos López Pérez | INTERNAL AUDIT DIRECTOR
Miguel Lozano Pardinas | OPERATIONS DIRECTOR
Edgar Martínez Chavolla | PROJECT DIRECTOR
J. Sacramento Soto Solís | FINANCIAL AND HUMAN RESOURCES DIRECTOR
Rodolfo Trujillo Mondragón | LEGAL DIRECTOR
Regional Commercial Directors |Housing Division
Carlos Ávila Viveros | STATE OF MEXICO | BAJÍO
State of Mexico, Guanajuato, Hidalgo, Querétaro
Fernando Calderón Nava | MEXICO CITY
Carlos Falcón Pimienta | EAST Puebla, Veracruz
Ricardo Martínez Hernández | CENTER | SOUTH Guerrero, Morelos, Quintana Roo
Eduardo Ordaz de la Fuente | RIALTA | NORTH | WEST Baja California, Chihuahua, State of Mexico, Jalisco, Morelos, Nayarit, Nuevo León,
Sinaloa, Sonora, Tamaulipas
] 52 [annual and sustainability report 2014
CLUB HOUSE, PARAÍSO COUNTRY CLUBMorelos
] 53 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
About thisReport
G4-28, G4-29, G4-30, G4-32 This is our third annual sustainability report; it was prepared in accordance with the G4 guidelines of the Global Reporting Initia-tive (GRI), in its essential core and covers the 2014 fiscal year. For more information about our Company, its operative and financial performance, and previous annual reports in electronic formats, please refer to: www.consorcioara.com.mx
G4-17, G4-20 This report covers all the operations of Consorcio ARA and those subsidiaries under our control or over which we exercise significant influence, and communicates in an open, objective and transparent manner the major develop-ments, challenges and areas of opportunity in sustainability issues which we con-sider priorities.
G4-18, G4-19 The material issues for Consorcio ARA were defined through an analysis of the key sustainability issues facing the sector in which we participate, as detailed in the preceding chapters.
G4-48 The Investor Relations Department is the area responsible for reviewing and approving this financial and sustainability report.
G4-22, G4-23 The information presented on sustainability has not been reformu-lated, nor has its coverage and scope changed compared to previous reports.
G4-31, G4-33 This sustainability report has not been audited by an independent third party. Any comment related to this report should be directed to [email protected].
The Company does not have information available regarding the G4 indicators that are not answered in this Report.
] 54 [ANNUAL AND SUSTAINABILITY REPORT 2014
GRI Index
GENERAL BASIC CONTENTS
Indicator Page
Strategy and Analysis
G4-1 10
G4-2 10
Organizational Profile
G4-3 55
G4-4 18
G4-5 8
G4-6 8
G4-7 55
G4-8 8
G4-9 5, 34
G4-10 34
G4-11 34
G4-12 28
G4-15 39, 43, 49
G4-16 39
Material Aspects and Boundaries
G4-17 52
G4-18 52
G4-19 52
G4-20 52
G4-22 52
G4-23 52
Stakeholder Engagement
G4-24 31
G4-25 31
G4-26 31
Report Profile
G4-28 52
G4-29 52
G4-30 52
G4-31 52
G4-32 52, 53
G4-33 52
G4-32
Indicator Page
Governance
G4-34 47, 48, 49
G4-35 48
G4-36 48
G4-37 49
G4-38 47
G4-39 47
G4-40 48
G4-41 48
G4-42 48
G4-45 48
G4-46 48
G4-47 48
G4-48 52
G4-49 49
G4-50 49
G4-51 48
G4-52 35, 48
Ethics and Integrity
G4-56 49
G4-57 49
G4-58 49
Economic Performance
G4-EC1 31
G4-EC2 31
G4-EC3 34
G4-EC4 31
G4-EC5 34
G4-EC6 31
G4-EC7 31
G4-EC9 31
Environment
G4-EN1 32
G4-EN2 32
] 55 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Indicator Page
G4-EN6 31
G4-EN7 31
G4-EN9 32
G4-EN10 32
G4-EN11 32
G4-EN13 43, 44
G4-EN19 31
G4-EN22 32
G4-EN23 32
G4-EN24 32
G4-EN25 32
G4-EN26 32
G4-EN27 31
G4-EN29 32
G4-EN30 32
G4-EN31 32
G4-EN32 32
G4-EN34 49
Labor Practices and Decent Work
G4-LA1 34
G4-LA2 34
G4-LA3 34
G4-LA4 34
G4-LA5 35, 36
G4-LA6 36
G4-LA9 35
G4-LA10 35
G4-LA11 35
Indicator Page
G4-LA12 35
G4-LA13 35
G4-LA14 32
G4-LA16 34, 49
Human Rights
G4-HR3 36, 49
G4-HR4 32, 34
G4-HR5 36
G4-HR6 36
G4-HR8 36
G4-HR9 36
G4-HR10 32
G4-HR12 36, 49
Society
G4-SO1 37, 39
G4-SO4 49
G4-SO5 49
G4-SO6 31
G4-SO7 31
G4-SO8 31, 49
G4-SO9 32
G4-SO11 49
Product Responsibility
G4-PR2 36
G4-PR7 36
G4-PR8 36
G4-PR9 36
] 56 [ANNUAL AND SUSTAINABILITY REPORT 2014
PARAÍSO COUNTRY CLUB,Morelos
] 57 [strong foundations: leadership & growth
| 58 | Informe de los auditores independientes| 60 | Estados consolidados de posición fi nanciera| 61 | Estados consolidados de resultados y otros resultados integrales| 62 | Estados consolidados de cambios en el capital contable| 64 | Estados consolidados de fl ujos de efectivo| 66 | Notas a los estados fi nancieros consolidados
Contents
Consorcio ARA, S. A. B. de C. V. and Subsidiaries
Consolidated FinancialStatementsfor the Years Ended December 31, 2014 and 2013, and Independent Auditors’ Report
Dated March 27, 2015
] 58 [ANNUAL AND SUSTAINABILITY REPORT 2014
To the Board of Directors and Stockholders
of Consorcio ARA, S. A. B. de C. V.
We have audited the accompanying consolidated fi nancial statements of Consorcio ARA, S. A. B. de C.
V. and subsidiaries (the Entity), which comprise the consolidated statements of fi nancial position as of
December 31, 2014 and 2013, and the consolidated statements of profi t or loss and other comprehen-
sive income, consolidated statement of changes in stockholders’ equity and consolidated statements
of cash fl ows for the years then ended, and a summary of signifi cant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated fi nancial
statements in accordance with International Financial Reporting Standards, as issued by the Internatio-
nal Accounting Standards Board, and for such internal control as management determines is necessary
to enable the preparation of consolidated fi nancial statements that are free from material misstate-
ment, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated fi nancial statements based on our au-
dits. We conducted our audits in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated fi nancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated fi nancial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated fi nancial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Entity’s preparation and fair presentation of the consolidated fi nancial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose
Independent Auditors’Report
] 59 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
of expressing an opinion on the effectiveness of the Entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting esti-
mates made by management, as well as evaluating the overall presentation of the consolidated fi nancial
statements.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the fi nan-
cial position of Consorcio ARA, S. A. B. de C. V. and subsidiaries as of December 31, 2014 and 2013 and
their fi nancial performance and their cash fl ows for the years then ended, in accordance with Inter-
national Financial Reporting Standards, as issued by the International Accounting Standards Board.
The accompanying consolidated fi nancial statements have been translated into English for the con-
venience of readers.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
Paseo de la Reforma 489, piso 6
Colonia Cuauhtémoc, C.P. 06500
México, D.F.
C. P. C. Rafael García Gómez
March 27, 2015
C. P. C. Rafael García Gómez
March 27, 2015
] 60 [ANNUAL AND SUSTAINABILITY REPORT 2014
Consorcio ARA, S. A. B. de C. V. and Subsidiaries
Consolidated Statementof Financial PositionAs of December 31, 2014 and 2013
(In thousands of Mexican pesos)
NOTES 2014 2013
ASSETS
Current assets:Cash and cash equivalents 6 $ 1,032,228 $ 599,598Trade accounts receivable - Net 7 843,741 740,283Due from equity method investees 10,561 8,608Inventories 8 11,664,675 11,494,249Golf club memberships available for sale 203,480 205,064Other current assets 10 530,095 555,077
Total current assets 14,284,780 13,602,879
Investment property 9 453,446 451,796Restricted cash 6 43,369 43,369Long-term land held for development 8 1,247,305 1,247,305Investments in equity method investees 11 27,992 57,716Employee benefi ts 18 1,554 2,142Property, machinery and equipment - Net 12 242,158 311,269
Total long-term assets 2,015,824 2,113,597Total assets $ 16,300,604 $ 15,716,476
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Current portion of long-term debt 14 $ 409,568 $ 377,668Current portion of capital lease obligations 17 3,676 6,128Trade accounts payable 676,906 358,781Other liabilities and taxes, other than income taxes 15 748,476 698,630Advances from customers 119,767 123,448
Total current liabilities 1,958,393 1,564,655
Long-term debt 14 1,728,808 2,045,555Capital lease obligations 17 4,935 1,261Other long-term liabilities 52,377 57,683Deferred income tax 16 1,823,541 1,820,182
Total long-term liabilities 3,609,661 3,924,681Total liabilities 5,568,054 5,489,336
Stockholders’ equity:Common stock 21 $ 646,580 $ 645,746Additional paid-in capital 348,856 347,146Reserve for acquisition of own stock 57,111 44,822Retained earnings 21 9,642,972 9,154,626
Controlling interest 10,695,519 10,192,340Noncontrolling interest 37,031 34,800
Total stockholders’ equity 10,732,550 10,227,140Total stockholders’ equity and liabilities $ 16,300,604 $ 15,716,476
See accompanying notes to consolidated fi nancial statements.
] 61 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Consorcio ARA, S. A. B. de C. V. and Subsidiaries
Consolidated Statements of Profi t or Loss and other Comprehensive IncomeFor the years ended December 31, 2014 and 2013
(In thousands of Mexican pesos, except common share and earnings per share amounts)
NOTES 2014 2013Revenues 23 $ 6,206,146 $ 5,735,727
Costs 23 4,561,329 4,185,396
Gross profi t 1,644,817 1,550,331
General and administrative expenses 1,040,236 1,033,572Other income - Net (3,542) (11,636)
Income from operations 608,123 528,395
Financial (income) expense:Interest expense 28,259 25,123Interest income (32,787) (39,403)Loss on derivative fi nancial instruments 20 - 21,350Exchange (gain) loss - Net (7,165) 1,078
(11,693) 8,148Equity in earnings of equity method investees 11 76,012 124,240
Income before income taxes 695,828 644,487
Income taxes 16 205,783 180,183
Consolidated income for the year $ 490,045 $ 464,304
Other comprehensive incomeRemeasurement of employee benefi ts obligations - 3,219
Total comprehensive income for the year $ 490,045 $ 467,523
Controlling interest $ 488,346 $ 462,908Noncontrolling interest 1,699 1,396
Consolidated income for the year $ 490,045 $ 464,304
Basic earnings per common share $ 0.37 $ 0.35
Weighted average number of shares outstanding 1,312,185,111 1,304,482,889
See accompanying notes to consolidated fi nancial statements.
] 62 [ANNUAL AND SUSTAINABILITY REPORT 2014
Consorcio ARA, S. A. B. de C. V. and Subsidiaries
Consolidated Statementsof Changes in Stockholders’ EquityFor the years ended December 31, 2014 and 2013
(In thousands of Mexican pesos)
Commonstock
Additionalpaid-incapital
Reservefor acquisition
of ownstock
Retainedearnings
Non-controlling
interest
Total stockholders’
equity
Balance as of January 1, 2013 $ 641,854 $ 328,854 $ 2,528 $ 8,687,103 $ 53,087 $ 9,713,426
Repurchase of own stock 3,892 18,292 42,294 - - 64,478
Comprehensive income for the year - - - 467,523 (18,287) 449,236
Balances as of December 31, 2013 $ 645,746 $ 347,146 $ 44,822 $ 9,154,626 $ 34,800 $ 10,227,140
Repurchase of own stock 834 1,710 12,289 - - 14,833
Comprehensive income for the year - - - 488,346 2,231 490,577
Balances as of December 31, 2014 $ 646,580 $ 348,856 $ 57,111 $ 9,642,972 $ 37,031 $ 10,732,550
See accompanying notes to consolidated fi nancial statements.
] 63 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Commonstock
Additionalpaid-incapital
Reservefor acquisition
of ownstock
Retainedearnings
Non-controlling
interest
Total stockholders’
equity
Balance as of January 1, 2013 $ 641,854 $ 328,854 $ 2,528 $ 8,687,103 $ 53,087 $ 9,713,426
Repurchase of own stock 3,892 18,292 42,294 - - 64,478
Comprehensive income for the year - - - 467,523 (18,287) 449,236
Balances as of December 31, 2013 $ 645,746 $ 347,146 $ 44,822 $ 9,154,626 $ 34,800 $ 10,227,140
Repurchase of own stock 834 1,710 12,289 - - 14,833
Comprehensive income for the year - - - 488,346 2,231 490,577
Balances as of December 31, 2014 $ 646,580 $ 348,856 $ 57,111 $ 9,642,972 $ 37,031 $ 10,732,550
See accompanying notes to consolidated financial statements.
] 64 [ANNUAL AND SUSTAINABILITY REPORT 2014
Consorcio ARA, S. A. B. de C. V. and Subsidiaries
Consolidated statementsof cash fl owsFor the years ended December 31, 2014 and 2013
(In thousands of Mexican pesos)
2014 2013
OPERATING ACTIVITIES:
Income before income taxes $ 695,828 $ 644,487
Items related to investing activities:Depreciation and amortization 85,437 88,241Interest income (32,787) (39,403)Derivative fi nancial instrument (Equity swap) - 782Equity in earnings of equity method investees (76,012) (124,240)
Items related to fi nancing activities:Interest expense 163,717 260,939
836,183 830,806Movements in working capital:(Increase) decrease in:
Trade accounts receivable – Net (103,459) (36,466)Due from equity method investees (1,953) 53,847Shopping mall available for sale (8,826) (35,802)Inventories and long-term land held for development (170,426) (343,207)Other current assets 25,365 (86,140)Golf club memberships available for sale 1,584 1,980
Increase (decrease) in:Trade accounts payable 318,126 32,173Accrued expenses and taxes, other than income taxes (5,673) (497,262)Advances from customers (3,681) 57,006Income taxes paid (141,419) (203,334)Employee benefi ts 588 2,016Other long-term liabilities (11) 43,531
Net cash fl ows from operating activities 746,398 (180,852)
INVESTING ACTIVITIES:
Purchase of machinery and equipment (16,972) (22,506)Collection of interest 32,787 39,403Investments in equity method investees 18,430 (27,021)Dividends received from equity method investees 82,000 140,132
Net cash fl ows from investing activities 116,245 130,008
Cash to be applied (to be obtain from) fi nancing activities 862,643 (50,844)
(Continued)
] 65 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
2014 2013
FINANCING ACTIVITIES:
Proceeds from long-term debt and lines of credit 804,078 2,538,921Payments of long-term debt (73,764) (84,647)Payments of long-term debt and lines of credit (1,015,161) (3,185,558)Interest paid (169,203) (254,897)Premium for acquisition of own stock 1,710 18,292Sale of own stock 120,299 212,892Purchase of own stock (108,010) (170,598)Relocation by purchase of own shares 834 3,892Other financing arrangements 9,204 (927)
Net cash from financing activities (430,013) (922,630)
Net increase (decrease) in cash and cash equivalents 432,630 (973,474)
Cash and cash equivalents at beginning of year 642,967 1,616,441
Cash and cash equivalents at end of year (including restricted cash of $43,369) $ 1,075,597 $ 642,967
(Concluded)
See accompanying notes to consolidated financial statements.
] 66 [ANNUAL AND SUSTAINABILITY REPORT 2014
1. Nature of business
Consorcio ARA, S. A. B. de C. V. and subsidiaries (collectively, the “Entity”) buys and sells land; designs, develops,
constructs and markets affordable entry-level and middle-income residential housing developments; and markets
commercial and industrial developments. In addition, the Entity rents mini-supermarkets under operating leases in
México.
The Entity hires the services of subcontractors in order to construct its housing developments. The terms of such ar-
rangements include the subcontractors’ obligations to fulfi ll, using their own resources or with the assistance of third
parties, the construction commitments in accordance with technical requirements set by the Entity.
The Entity has a duration of 99 years and the principal place of business is Arcos Bosques Marco II, Paseo de Tama-
rindos No. 90, Tower I, 25th Floor, Bosques de las Lomas, CP 05120, Mexico, D.F.
2. Basis of presentation
Explanations for translation into English - The accompanying consolidated fi nancial statements have been translated
from Spanish into English for use outside of Mexico.
a. New and revised IFRSs affecting amounts reported and/or disclosures in the fi nancial statements
In the current year, the Entity has applied a number of new and revised IFRSs issued by the International Ac-
counting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after
January 1, 2014.
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
The Group has applied the amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities for the fi rst time in the
current year. The amendments to IFRS 10 defi ne an investment entity and require a reporting entity that meets
the defi nitions of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries
at fair value through profi t or loss in its consolidated and separate fi nancial statements.
To qualify as an investment entity, a reporting entity is required to:
• Obtain funds from one or more investors for the purpose of providing them with investment management
services.
• Commit to its investor(s) that its business purpose is to invest funds solely for returns from capital apprecia-
tion, investment income, or both; and
Consorcio ARA, S. A. B. de C. V. and Subsidiaries
Notes to Consolidated Financial StatementsFor the years ended December 31, 2014 and 2013
(In thousands of Mexican pesos, except share amounts)
] 67 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
• Measure and evaluate performance of substantially all of its investments on a fair value basis.
Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for
investment entities
As the Entity is not an investment entity (assessed based on the criteria set out in IFRS 10 as of January 1, 2014),
the application of the amendments has had no impact on the disclosure or the amounts recognized in the Entity
consolidated financial statements.
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities for the first
time in the current year. The amendments to IAS 32 clarify the requirements relating to the offset of financial
assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforce-
able right of set-off’ and ‘simultaneous realization and settlement’.
As the Entity does not have any financial assets and financial liabilities that qualify for offset, the application
of the amendments did not have a significant impact on these disclosures or on the amounts recognized in the
Group’s consolidated financial statements.
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
The amendments to IAS 19 clarify how an entity should account for contributions made by employees or third
parties to defined benefit plans, based on whether those contributions are dependent on the number of years of
service provided by the employee.
For contributions that are independent of the number of years of service, the entity may either recognize the
contributions as a reduction in the service cost in the period in which the related service is rendered, or to
attribute them to the employees’ periods of service using the projected unit credit method; whereas for con-
tributions that are dependent on the number of years of service, the entity is required to attribute them to the
employees’ periods of service.
The Entity’s management does not anticipate that the application of these amendments to IAS 19 will have a
significant impact on the Group’s consolidated financial statements.
Annual Improvements to IFRSs 2010-2012 Cycle
The Annual Improvements to IFRSs 2010-2012 Cycle include a number of amendments to various IFRSs, which are
summarized below.
The amendments to IAS 16 and IAS 38 remove perceived inconsistencies in the accounting for accumulated
depreciation/amortization when an item of property, plant and equipment or an intangible asset is revalued. The
amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation
of the carrying amount of the asset and that accumulated depreciation/amortization is the difference between
the gross carrying amount and the carrying amount after taking into account accumulated impairment losses.
] 68 [ANNUAL AND SUSTAINABILITY REPORT 2014
The amendments to IAS 24 clarify that a management entity providing key management personnel services to
a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as
related party transactions the amounts incurred for the service paid or payable to the management entity for the
provision of key management personnel services. However, disclosure of the components of such compensation
is not required.
The application of these amendments did not have a significant impact on the Group’s consolidated financial
statements.
Annual Improvements to IFRSs 2011-2013 Cycle
The Annual Improvements to IFRSs 2011-2013 Cycle include a number of amendments to various IFRSs, which are
summarized below.
The amendments to IFRS 13 clarify that the scope of the portfolio exception for measuring the fair value of a
group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of,
and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of
financial assets or financial liabilities within IAS 32.
The amendments to IAS 40 clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both
standards may be required. Consequently, an entity acquiring investment property must determine whether:
a) The property meets the definition of investment property in terms of IAS 40; and
b) The transaction meets the definition of a business combination under IFRS 3.
The application of these amendments did not have a significant impact on the Group’s consolidated financial
statements.
b. New and revised IFRSs in issue but not yet effective
The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:
IFRS 9 Financial Instruments3
IFRS 15 Revenue from Contracts with Customers2
Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation1
2 Effective for annual periods beginning on or after January 1, 2016, with earlier application permitted.
3 Effective for annual periods beginning on or after January 1, 2017, with earlier application permitted.
4 Effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.
IFRS 9 Financial Instruments
IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of finan-
cial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and
measurement of financial liabilities and for derecognition and in November 2013 to include the new requirements
for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a)
] 69 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
impairment requirements for financial assets and b) limited amendments to the classification and measurement
requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category
for certain simple debt instruments.
Key requirements of IFRS 9:
• All recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and
Measurement are required to be subsequently measured at amortized cost or fair value. Specifically, debt
investments that are held within a business model whose objective is to collect the contractual cash flows,
and that have contractual cash flows that are solely payments of principal and interest on the principal out-
standing are generally measured at amortized cost at the end of subsequent accounting periods. Debt instru-
ments that are held within a business model whose objective is achieved both by collecting contractual cash
flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount outstanding, are measured
at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of
subsequent accounting periods:
• With regard to the measurement of financial liabilities designated as of fair value through profit or loss, IFRS
9 requires that the amount of change in the fair value of the financial liability that is attributable to changes
in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the
effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an ac-
counting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are
not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value
of the financial liability designated as fair value through profit or loss is presented in profit or loss.
• In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to
an incurred credit loss model under IAS 39.
The Entity’s management has not concluded its analysis of the impact in the Group’s consolidated financial state-
ments.
IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guid-
ance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes
effective.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to
revenue recognition:
• Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract
] 70 [ANNUAL AND SUSTAINABILITY REPORT 2014
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations in the contract
• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’
of the goods or services underlying the particular performance obligation is transferred to the customer. Far more
prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclo-
sures are required by IFRS 15.
The Entity’s management has not concluded its analysis of the impact in the Group’s consolidated financial state-
ments.
Amendments to IAS 16 IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization
The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of prop-
erty, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an
appropriate basis for amortization of an intangible asset. This presumption can only be rebutted in the following
two limited circumstances:
a) when the intangible asset is expressed as a measure of revenue; or
b) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset
are highly correlated.
The amendments apply prospectively for annual periods beginning on or after January 1, 2016. Currently, the
Group uses the straight-line method for depreciation and amortization for its property, plant and equipment, and
intangible assets respectively. The Entity’s management believes that the straight-line method is the most appro-
priate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly,
does not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact
on the Group’s consolidated financial statements.
3. Significant accounting polices
a. Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards released by IASB.
b. Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for certain financial
instruments that are measured at revalued amounts or fair values at the end of each reporting period, as ex-
plained in the accounting policies below:
i. Historical cost
] 71 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Historical cost is generally based on the fair value of the consideration given in exchange for goods and
services.
ii. Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transac-
tion between market participants at the measurement date.
c. Presentation of the income statement and other comprehensive income
The Entity presents its costs and expenses according to their function, allowing know its gross profit. Additionally,
in order to provide a better understanting of the Entity’s economic and financial performance, the Entity presents
income from operations which is the result of subtracting cost and general and administrative expenses from
revenues.
d. Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Consorcio ARA, S. A. B. de C. V.
(ARA) and its subsidiaries controlled by it. Control is achieved when the Consorcio ARA, S. A. B de C. V:
• Has power over the investee;
• Is exposed, or has rights, to variable returns from its involvement with the investee; and
• Has the ability to use its power to affect its returns.
The Entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
When the Consorcio ARA, S. A. B. de C. V. has less than a majority of the voting rights of an investee, it has power
over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activi-
ties of the investee unilaterally. Consorcio ARA, S. A. B de C. V. considers all relevant facts and circumstances in
assessing whether or not the Entity’s voting rights in an investee are sufficient to give it power, including:
• The size of the Consorcio ARA, S. A. B. de C. V holding of voting rights relative to the size and dispersion of
holdings of the other vote holders;
• Potential voting rights held by the Entity, other vote holders or other parties;
• Rights arising from other contractual arrangements; and
• Any additional facts and circumstances that indicate that the Entity has, or does not have, the current ability
to direct the relevant activities at the time that decisions need to be made, including voting patterns at previ-
ous shareholders’ meetings.
Consolidation of a subsidiary begins when the Consorcio ARA, S. A. B de C. V. obtains control over the subsidiary
and ceases when the Entity loses control of the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated statement of profit and other compre-
hensive income from the date of acquisition or until the date of disposal, as appropiate.
] 72 [ANNUAL AND SUSTAINABILITY REPORT 2014
Net income and each component of other comprehensive income are attributed to the owners of the Entity and
to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the
Entity and to the non-controlling interests even if this results in the non-controlling interests having a deficit.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting poli-
cies into line with the Consorcio ARA, S. A. B. de C. V. accounting policies.
All balances and transactions between entities of the entity have been eliminated in consolidation.
e. Golf club memberships available for sale
Are initially recorded at the lower of acquisition cost or realizable value.
f. Investments in associates
An associate is an entity over which the Entity has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but is not control or joint control over
those policies.
The results and assets and liabilities of associates are incorporated in these consolidated financial statements
using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for
sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in an
associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter
to recognize the Entity’s share of the profit or loss and other comprehensive income of the associate. When the
Entity’s share of losses of an associate exceeds the Entity’s interest in that associate (which includes any long-
term interests that, in substance, form part of the Entity’s net investment in the associate), the Entity discontinues
recognizing its share of further losses. Additional losses are recognized only to the extent that the Entity has
incurred legal or constructive obligations or made payments on behalf of the associate.
An investment in an associate is accounted for using the equity method from the date on which the investee
becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment
over the Entity’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized
as goodwill, which is included within the carrying amount of the investment. Any excess of the Entity’s share of
the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is
recognized immediately in profit or loss in the period in which the investment is acquired.
The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss
with respect to the Entity’s investment in an associate. When necessary, the entire carrying amount of the invest-
ment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single
asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying
amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of
that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the
investment subsequently increases.
The Entity discontinues the use of the equity method from the date when the investment ceases to be an associ-
ate, or when the investment is classified as held for sale. When the Entity retains an interest in the former as-
] 73 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
sociate and the retained interest is a financial asset, the Entity measures the retained interest at fair value at that
date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference
between the carrying amount of the associate at the date the equity method was discontinued, and the fair value
of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture is
included in the determination of the gain or loss on disposal of the associate or joint venture.
In addition, the Entity accounts for all amounts previously recognized in other comprehensive income in re-
lation to that associate on the same basis as would be required if that associate had directly disposed of the
related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income
by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the
Entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the
equity method is discontinued.
The Entity continues to use the equity method when an investment in an associate becomes an investment in a
joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasure-
ment to fair value upon such changes in ownership interests.
When the Entity reduces its ownership interest in an associate but the Entity continues to use the equity method,
theEntity reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in
other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclas-
sified to profit or loss on the disposal of the related assets or liabilities.
When an Entity carries out transactions with an associate, profits and losses resulting from the transactions with
the associate are recognized in the Entity’s consolidated financial statements only to the extent of interests in the
associate that are not related to the Entity.
g. Investment property
Investment properties are properties held to earn rentals and/or for capital appreciation (including property under
construction for such purposes). Investment properties are measured initially at cost, including transaction costs.
Subsequent to initial recognition, investment properties are measured at cost model. After recognition as an asset
an item of investment property is carried at cost less any accumulated depreciation and any accumulated impair-
ment losses.
An investment property is derecognized upon disposal or when the investment property is permanently with-
drawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on
derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in profit or loss in the period in which the property is derecognized.
h. Recognition of revenue and customer advances
Revenues are recognized when the Entity transfers to its customers the significant risks and rewards derived
from the ownership of the real estate property, which normally occurs at the time the transactions are legalized
(transfer of title) Furthermore, current liabilities for advances from customers represent cash received from the
customers for the down payment and expenses and payments received during the presale stage before the trans-
actions are legalized.
] 74 [ANNUAL AND SUSTAINABILITY REPORT 2014
i. Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
The Entity as lessor - Revenues and costs for leasing and mini shopping Unicentros are recognized as earned.
The Entity as lessee - The assets held under finance leases are initially recognized as assets of the Entity at
their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the consolidated statement of financial position as a
finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized
immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are
capitalized in accordance with the Entity’s general policy on borrowing costs (see Note 3j). Contingent rentals
are recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an ex-
pense in the period in which they are incurred.
j. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to
the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
k. Employee benefits from termination, retirement and statutory employee profit sharing (PTU)
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have
rendered service entitling them to the contributions.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit
credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasure-
ment, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the
return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a
charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement
recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassi-
] 75 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
fied to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net inter-
est is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or
asset. Defined benefit costs are categorized as follows:
• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and
settlements).
• Net interest expense or income.
• Remeasurement.
The Entity presents the first two components of defined benefit costs in profit or loss in the line item. Gains and
losses for reduction of service are accounted for as past service costs
The retirement benefit obligation recognized in the consolidated statement of financial position represents the
actual deficit or surplus in the Entity’s defined benefit plans. Any surplus resulting from this calculation is limited
to the present value of any economic benefits available in the form of refunds from the plans or reductions in
future contributions to the plans.
A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer
of the termination benefit and when the entity recognizes any related restructuring costs.
PTU is recorded in the results of the year it is incurred and presented under other income and expenses in the
income statement.
PTU is determined based on the taxable income under Section I of Article 10 of the LISR.
l. Income taxes
Income tax expense represents the sum of the tax currently payable and deferred tax.
1. Current tax
Current income tax (ISR) is recognized in the results of the year in which is incurred. Until December 31, 2013,
current income tax was calculated as the higher of the ISR and the Business Flat Tax (“IETU”).
2. Deferred income tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities
in the consolidated financial statements and the corresponding tax bases used in the computation of tax-
able profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax
assets are generally recognized for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilized.
Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial
recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the account-
ing profit.
] 76 [ANNUAL AND SUSTAINABILITY REPORT 2014
As a consequence of the 2014 Tax Reform, as of December 31, 2014 deferred IETU is no longer recognized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in sub-
sidiaries and associates, and interests in joint ventures, except where the Entity is able to control the reversal
of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future. Deferred tax assets arising from deductible temporary differences associated with such investments
and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits
against which to utilize the benefits of the temporary differences and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from
the manner in which the Entity expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that
are measured using the fair value model, the carrying amounts of such properties are presumed to be recov-
ered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the invest-
ment property is depreciable and is held within a business model whose objective is to consume substantially
all of the economic benefits embodied in the investment property over time, rather than through sale. The
Entity’s management reviewed the Entity’s investment property portfolios and concluded that none of the
Entity’s investment properties are held under a business model whose objective is to consume substantially
all of the economic benefits embodied in the investment properties over time, rather than through sale.
Therefore, the Entity’s management has determined that the ‘sale’ presumption set out in the amendments to
IAS 12 is not rebutted. As a result, the Entity has not recognized any deferred taxes on changes in fair value
of the investment properties as the Entity is not subject to any income taxes on the fair value changes of the
investment properties on disposal.
3. Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized
in other comprehensive income or directly in equity, in which case, the current and deferred tax are also rec-
ognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax
arises from the initial accounting for a business combination, the tax effect is included in the accounting for
the business combination.
] 77 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
4. Tax on assets
The tax on assets (IMPAC) expected to be recovered is recorded as a tax receivable is recorded as a tax credit
and is presented in the balance sheet in the deferred taxes line item.
m. Property, machinery and equipment
Property, machinery and equipment held for use in the operation of the Entity or for administrative purposes,
are presented in the statement of financial position at acquisition cost. Balances arising from acquisitions made
through December 31, 2007 were restated using National Consumer Price Index (NCPI) factors to date, in ac-
cordance with deemed cost exemptions allowed in the transition to IFRS. Depreciation is calculated under the
straight-line method based on the remaining useful life of the asset components as follows:
AVERAGE YEARS
Buildings 35Leasehold improvements 1Machinery and equipment 3Vehicles 2Office furniture and fixtures 2
The estimated useful lives, the possible residual value and depreciation method of assets in this category are
reviewed at the end of each year, and the effect of any changes in the estimate recorded is recognized on a
prospective basis.
An item of property, machinery and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal
or retirement of an item of property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in profit or loss.
n. Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset,
the Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest Entity of cash-generating units for
which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the esti-
mates of future cash flows have not been adjusted.
] 78 [ANNUAL AND SUSTAINABILITY REPORT 2014
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,
the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment
loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which
case the impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognized for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is
recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as a revaluation increase. During 2014 and prior periods
the Entity had no made reversals.
o. Inventories, long-term land held for development
Inventories are maintained at the lower of cost or net realizable value for which the entity reviews the book value
of inventories and land held for long-term development in order to verify that the value of such inventories, the
cost does not exceed or market value.
i. The construction materials are valued at acquisition cost, which includes all costs inherent to real estate
inventories. Work in process is valued equally to acquisition cost plus financial cost. The balances of work
in process and developments in progress represent the real cost incurred, and represent the cost incurred
on housing projects for which the Entity has not transferred ownership to customers.
ii. Land held for future development and real estate developments in progress are valued at acquisition cost
plus financial cost.
p. Provisions
Provisions are recognized when the Entity has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Entity will be required to settle the obligation, and a reliable estimate can be made of
the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated to settle the present obligation,
its carrying amount is the present value of those cash flows (when the effect of the time value of money is
material).
q. Financial instruments
Financial assets and financial liabilities are recognized when a Entity becomes a party to the contractual provi-
sions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transac-
tion costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted
] 79 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transac-
tion costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognized immediately in profit.
r. Financial assets
Financial assets are initially recognizad at fair value, plus their transaction costs; except for those financial
assets classified as financial assets at fair value through profit or loss, which are recognized at fair value. Sub-
sequent to initial recognition, the valuation depends on the classification of the financial asset.
1. Financial assets at FVTPL
Financial assets are classified into the following specified categories: financial assets ‘at fair value through
profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans
and receivables’. The classification depends on the nature and purpose of the financial assets and is deter-
mined at the time of initial recognition.
2. Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and
fixed maturity dates that the Entity has the positive intent and ability to hold to maturity. Subsequent to
initial recognition, held-to maturity investments are measured at amortized cost using the effective inter-
est method less any impairment.
3. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Loans and receivables including trade and other receivables, bank bal-
ances and cash, and others are measured at amortized cost using the effective interest method, less any
impairment.
Interest income is recognized by applying the effective interest rate, except for short-term receivables when
the effect of discounting is immaterial.
4. Financial asset eliminations
The Entity only eliminates a financial asset when its contractual rights to the respective cash flows expire
and when it substantially transfers the risks and rewards inherent to the ownership of the financial asset.
If the Entity does not transfer or substantially retain all the risks and rewards inherent to the ownership of
the financial asset and continues to control the transferred asset, it only recognizes its equity in the asset
and the obligation associated with the amounts it will have to pay. If the Entity substantially retains all the
risks and rewards inherent to the ownership of a transferred financial asset, it continues to recognize it,
together with a collateral loan for the received resources.
] 80 [ANNUAL AND SUSTAINABILITY REPORT 2014
5. Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and of al-
locating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or discounts) through the expected life of the
debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
6. Offsetting of financial assets and liabilities
A financial asset is only presented based on its net amount in the statement of changes in financial position
when the Entity has: i) a legal right to offset the recognized amounts, and ii) the intention to settle these
amounts on a net basis or simultaneously realize the asset and cancel the liability.
s. Financial liabilities
1. Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangements and the definitions of a financial liability and an equity
instrument.
2. Financial liabilities at FVTPL
Financial liabilities clasified at fair value through profit and loss are comprised of financial liabilities clas-
sified as held for trading.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid
on the financial liability and is included in the statement of profit or loss and other comprehensive income/
income statement.
3. Other financial liabilities
Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at
amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments (including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying
amount on initial recognition.
] 81 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
4. Derecognition of financial liabilities
The Entity derecognizes financial liabilities when, and only when, the Entity’s obligations are discharged, can-
celled or they expire.
t. Earnings per share
Basic earnings per common share are calculated by dividing majority net income by the weighted average number
of shares outstanding during the year.
u. Transactions in foreign currency
The individual financial statements of each of the Entity’s subsidiaries are prepared by using the currency of
the primary economic environment in which the Entity operates (its functional currency). For the purposes
of these consolidated financial statements, the results and financial position of each entity are expressed in
Mexican pesos, which is the Entity’s functional currency, as well as the presentation currency of the consoli-
dated financial statements.
Transactions performed in foreign currency are recorded at the exchange rate in effect at the date on which
each transaction is performed. Monetary assets and liabilities denominated in foreign currency are valued in
Mexican pesos based on the exchange rate in effect at the date of the financial statements. Exchange rate
fluctuations that are unrelated to the financing obtained to acquire land are recorded in results.
4. Critical accounting judgments and key sources of estimation uncertainty.
In the application of the Group’s accounting policies, which are described in Note 3, the Entity’s management is re-
quired to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.
The critical accounting lawsuits and key sources of uncertainty considered when applying the estimates prepared at
the date of the consolidated financial statements, and which imply a significant risk involving the adjustment of the
book values of assets and liabilities during the following financial period, are as follows:
a. Accounts receivable estimates– The Entity determines its accounts receivable reserve according to the estab-
lished policy. When estimating the allowance for bad debts, the Entity primarily considers the risk derived from
the customer’s financial position, unsecured accounts and considerable collection delays as regards estab-
lished credit conditions (see Note 7 for further details).
b. Investment properties – The Entity values its investment properties with the assistance of independent apprais-
ers. The valuation technique is based on observable data obtained by performing a market study to determine
] 82 [ANNUAL AND SUSTAINABILITY REPORT 2014
the fair value of investment properties. However, the Entity has opted to utilize the cost model, which requires
measuring the investment property after the initial measurement at its depreciated cost (less any accumulated
impairment loss).
c. Asset Life. -Management reviews the estimated useful lives of property, machinery and equipment at the end
of each annual period.
d. Fair value measurements and valuation methodology.-In estimating the fair value of an asset or a liability, the
Company uses observable market data to the extent that they are available. When the input data of level 1are
not avalible, the Entity carries out the valuation with the assistance of independent apparisers.
e. Costs. - Management determines an estimate of the costs incurred for each housing development plan. A por-
tion of the total estimated costs to be incurred is then allocated to each unit to determine the cost of sales.
The estimate is based on a technical analysis.
f. Employee Benefits. - The valuation of other postretirement benefits to employees is based on actuarial cal-
culations using assumptions for discount rates, salary increases, among others. The assumptions are updated
annually. Changes in these assumptions could have a significant effect on the amount of the liabilities and
results of the Entity.
g. Contingencies – As the Entity is involved in certain legal proceedings, it evaluates the probability of receiving
a payment obligation, for which purpose, it analyzes its legal situation at the estimate date and requests the
opinion of its financial advisors. These evaluations are periodically reconsidered.
5. Non-cash transactions
During the current year, the Entity entered into the following non-cash investing and financing activities which are
not reflected in the consolidated statement of cash flows:
- Acquisition of machinery, furniture and equipment under capital leases for $7,971 in 2014 and $821in 2013.
6. Cash and cash equivalents
For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and
in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown
in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of
financial position as follows:
2014 2013Cash and cash equivalents $ 83,186 $ 77,640Readily available investments 949,042 521,958
$ 1,032,228 $ 599,598Restricted cash (1) $ 43,369 $ 43,369
(1) The Entity entered into a trust contract with Nacional Financiera, S. N. C., for the purpose of promoting the development of micro, small and medium-size
companies through a system that grants financial support to the Entity’s suppliers. For these purposes, a reserve for payment was created, which may only
be used to fund obligations payable by the fund.
] 83 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
7. Trade accounts receivable
2014 2013As developer:
Billed revenues $ 861,218 $ 745,171Construction costumers 10,751 12,576Receivables from lessees 7,215 4,038
879,184 761,785Allowance for doubtful accounts (35,443) (21,502)
$ 843,741 $ 740,283
Customers by titling according to mortgage credit granting institution are as follows:
2014 2013
INFONAVIT (Including cofinancing) $ 224,358 $ 225,577
SHF, FOVISSSTE and commercial banks 391,985 281,344
Financing ARA 244,875 238,250
$ 861,218 $ 74 5,171
a. Accounts receivable
Accounts receivable are stated at amortized cost. The average credit period on sales of goods is 46 days. There is
no interest charge on the receivables to such institutions.
The Entity uses rigorous processes to integrate the information be sent to institutions. Additionally, this process
is complemented by entities that grant mortgage loans used to accept clients. Strict adherence to the processes
of each institution is the only medium existingt that permit to the entity to sell, notarize and collect products
through them.
The Entity determines a customer reserve by considering overdue down payment and expense balances (the dif-
ference between the housing value and the credit granted by financial institutions), together with ARA financing.
The Entity utilizes several payment negotiation and/or restructuring schemes, while allowing the recovery of this
portfolio through internal and external procedures performed by an out-of-court collection office. The Entity’s
policy is to create a reserve based on the proportion represented by the overdue portfolio as regards the total
development portfolio. Accordingly, the reserve amount is equal to the total development portfolio multiplied by
the percentage located within the ranges detailed below:
Maturity range Reserve %
0.0% 10.0% 7.5%10.1% 20.0% 15.0%20.1% 30.0% 22.5%30.1% 40.0% 30.0%40.1% 50.0% 37.5%50.1% 60.0% 45.0%60.1% 70.0% 52.5%70.1% 80.0% 60.0%80.1% 90.0% 67.5%90.1% 100.0% 75.0%
] 84 [ANNUAL AND SUSTAINABILITY REPORT 2014
In the case of ARA financing transactions related to residential developments, a reserve is created for the ownership
of this real property. As it has physical collateral, percentages are reduced as follows:
Overdue portfolio range Reserve %
0.0% 10.0% 5.0%10.1% 20.0% 10.0%20.1% 30.0% 15.0%30.1% 40.0% 20.0%40.1% 50.0% 25.0%50.1% 60.0% 30.0%60.1% 70.0% 35.0%70.1% 80.0% 40.0%80.1% 90.0% 45.0%90.1% 100.0% 50.0%
Change in allowance for doubtful accounts
2014 2013Balance at beginning of year $ 21,502 $ 21,502
Increase 24,625 - Cancelation (10,684) -
Balance at end of year $ 35,443 $ 21,502
8. Inventories
2014 2013Work in process (1) $ 7,821,144 $ 7,662,148Land in process of development 1,987,996 2,156,664Land held for development short-term 1,512,448 1,330,003
Construction materials 343,086 267,800
Borrowing cost 1 77,63411,664,675 11,494,249
Land for long-term development 1,247,305 1,247,305$ 12,911,980 $ 12,741,554
(1) As of December 31, 2014 and 2013, the balance of work in process inventory includes 975 and 1,723 completed housing units, respectively:
a. The Entity’s policy is to locate and acquire land each year, classifying land currently being developed or land
planned to be developed within the Entity’s operational cycle as current assets, and as long-term all remaining
land for which the Entity has no current plans to develop.
b. The Entity to September 30, 2013 obtained a syndicated loan with a mortgage guarantee and land reserve is
long term with a book value of $1,809,400. The Entity is not authorized to grant these inventories in guarantee
of other loans or sell them to another entity.
c. Borrowing cost is based on the average annual balance of work in process and land in process that are qualify-
ing assets pending completion. In 2014 and 2013, the annualized average base was $2,315,184 and $2,437,104,
respectively.
] 85 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
Also, at December 31, 2014 and 2013, accumulated borrowing cost included in inventories was $135,459 and
$214,466, respectively, and borrowing cost of $213,093 and $292,348, respectively, was transferred to cost in con-
nection whith the sale of such inventory.
The annualized average capitalization rate in 2014 and 2013 was 5.85% and 6.76%, respectively.
9. Investment property
2014 2013
Buildings held for lease $ 300,713 $ 290,483Commissions paid for leasing contracts 3,411 1,997
304,124 292,480
Accumulated depreciation (45,920) (38,744)258,204 253,736
Land 186,102 196,353Construction in progress 9,140 1,707
$ 453,446 $ 451,796
All of the Group’s investment property is held under freehold interests.
The fair value of the Group’s investment property as of December 31, 2014 and 2013 has been arrived at on the basis
of a valuation carried out on the respective dates by independent appraisers not related to the Group, which are
members of the Institute of Appraisers of Mexico, and they have appropriate qualifications and recent experience in
the valuation of properties in the relevant locations. The fair value was determined based on the market comparable
approach that reflects recent transaction prices for similar properties, which corresponds to a hierarchy 2. The fair
value of the Group’s investment property as of December 31, 2014 is $749,636.
There has been no change to the valuation technique during the year.
In estimating the fair value of the properties, the highest and best use of the properties is their current use.
10. Other current assets
2014 2013
Advances to suppliers $ 186,847 $ 181,743Security deposits 128,425 127,418Recoverable taxes, principally ISR income tax 164,400 201,616Other accounts receivable 38,412 30,606Advance payments 12,011 13,694
$ 530,095 $ 555,077
] 86 [ANNUAL AND SUSTAINABILITY REPORT 2014
11. Investments in associates
a. The Entity’s investments accounted for by the equity method are summarized as follows:
Related party %ownership Equity in net assets Equity in earnings of equity
method investees
2014 2013 2014 2013
Centro San Miguel, S. de R. L. (i) (ii) (CSM) 50.00 $ 8,320 $ 4,598 $ 10,493 $ 9,218Centro Regional las Américas, S. de R. L. (i) (ii)
(CRAS)50.00 - 53,118 39,835 67,199
Centro San Francisco, S. de R. L. (i) (ii) 50.00 13,144 - 15,292 3,898Centro Cuautitlán, S. de R.L. (i) 50.00 6,528 - 520 -
Investments in associates- Asset 27,992 57,716 66,140 80,315
Centro Regional las Américas, S. de R. L. (i) (ii) (CRAS)
50.00 (33,764) - - -
Centro San Francisco, S. de R. L. (i) (ii) 50.00 - (30,140) - -
Exhibidora Cinematográfica San Francisco, S. de R. L. (iii)
50.00 (2,744) (13,108) 10,085 (2,694)
Fideicomiso – 738 (iv) 50.00 (3,947) (2,514) (213) 46,619Investments in associates- Liabilities (40,455) (45,762) 9,872 43,925
$ (12,463) $ 11,954 $ 76,012 $ 124,240
The Entity has significant influence over its associated companies because it is entitled to participate in the de-
termination of the financial policies and operation of each of the associated entities in which it invests. These
amounts are recognized in the consolidated financial statements by using the equity method.
(i) The main purpose of this investment is the construction, rental, and administration of all projects including
shopping malls.
(ii) As of December 31, 2014 and 2013, land sales, capitalized interest and administrative services of $67,028
and $66,475respectively, were eliminated.
(iii) The main purpose of this investment is the purchase, sale and operation of movie theatres.
(iv) On January 29, 2010, Plaza Cañada Huehuetoca, S. de R. L., a subsidiary of PDCC, executed an irrevocable
management trust contract with MRP Huehuetoca, S. de R. L., with a 50% equity interest. The purpose
of this trust is to plan, design, build, and operate a shopping center, which was inaugurated in December,
2010. In December 2013, Cañada Huehuetoca Plaza mall was sold, in which the Entity had a 50% stake.
b. The financial information relating to the most significant associated (CRAS) of the Entity is summarized below:
2014 2013Current assets $ 67,866 $ 77,604
Total Assets $ 739,466 $ 1,044,663
Current liabilities $ 772,571 $ 54,950
Total Liabilities $ 788,337 $ 810,691
Income $ 272,065 $ 257,683
(Loss) income before income taxes $ (29,797) $ 157,802
Net (loss) income $ (51,271) $ 112,169
] 87 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
12. Property, machinery and equipment:
Reconciliation of beginning and ending book balances in 2014 and 2013 is as follows:
Balance as of 1 January
2013Additions Disposals
Balance as of December 31,
2013Additions Disposals
Balance as of December 31,
2014Investment:
Buildings $ 36,977 $ 421 $ 874 $ 36,524 $ - $ - $ 36,524
Leasehold improvements 63,362 - 63,362 - - 63,362
Commercial facilities and mini-supermarkets for rent 30,083 - 27,397 2,686 - - 2,686
Machinery and equipment 998,527 2,216 3,392 997,351 5,868 34,256 968,963
Vehicles 118,893 4,824 8,798 114,919 4,361 6,052 113,228
Office furniture and fixtures 85,461 1,000 2,065 84,396 2,524 92 86,828
Land 36,548 4,895 18,187 23,256 - - 23,256
Improvements and adaptations in progress 9,867 77 - 9,944 189 2,178 7,955
Total investments 1,379,718 13,433 60,713 1,332,438 12,942 42,578 1,302,802
Depreciation:
Buildings (8,789) (690) (2,118) (7,361) (970) - (8,331)
Leasehold improvements (34,590) (8,940) - (43,530) (8,946) - (52,476)
Commercial facilities and mini-supermarkets for rent (13,043) - (13,043) - - - -
Machinery and equipment (799,410) (58,020) (1,494) (855,936) (53,664) (33,694) (875,906)
Vehicles (65,007) (8,516) (7,851) (65,672) (9,299) (6,176) (68,795)
Office furniture and fixtures (44,074) (6,627) (2,031) (48,670) (6,538) (72) (55,136)
Total accumulated depreciation (964,913) (82,793) (26,537) (1,021,169) (79,417) (39,942) (1,060,644)
Net investment $ 414,805 $ (69,360) $ 34,176 $ 311,269 $ (66,475) $ 2,636 $ 242,158
2014 2013
Machinery, equipment and furniture acquired under capital lease- net of accumulated depreciation of $604,809 and $572,791 at December 31, 2014 and 2013, respectively $ 20,521 $ 32,128
13. Investments in Subsidiaries
The consolidated financial statements include the financial statements of Consorcio ARA, S. A. B. de C. V. (ARA) and
those of its subsidiaries over which it maintains control. ARA’s ownership interest in its subsidiaries at December 31,
2014 and 2013, is shown below:
Percentage of equity stake and Voting Power in
Subsidiary or Subsidiary Group 2014 and 2013Consorcio de Ingeniería Integral, S.A. de C.V. (CIISA) 99.6%
Proyectos Urbanos Ecológicos, S.A. de C.V. (PUESA) 99.9%
Constructora y Urbanizadora ARA, S.A. de C.V. (CUARA) 99.9%
Inmobiliaria ACRE, S.A. de C.V. (ACRE) 99.1%
Asesoría Técnica y Administrativa GAVI, S.A. de C.V. (GAVI) 99.9%
Comercialización y Ventas, S.A. (COVENSA) 98.0%
Promotora y Desarrolladora de Centros Comerciales, S.A. de C.V. (PDCC) (i) 99.9%
Desarrollos Inmobiliarios Turísticos ARA, S.A. de C.V. (DITA) 100.0%
Consorcio ARA, LLC (ii) 100.0%
Inmobiliaria el Globo, S.A. de C.V. 99.4%
] 88 [ANNUAL AND SUSTAINABILITY REPORT 2014
(i) As part of the Entity’s overall development plan, the Entity created PDCC, which holds five 99.9% owned subsidiaries, Operadora de Unicentros y Locales
Comerciales, S. A. de C. V., Servicios Administrativos ARADCD, S. A. de C. V., Operadora de Espacios Las Américas, S. de R. L., Plaza Cañada Huehuetoca, S. de
R. L. and Centro Veracruzano Río Medio, S. de R. L. These entities rent commercial facilities and mini-supermarkets.
(ii) The Entity established Consorcio ARA, LLC in the United States, with representative offices in New York and Chicago. The main objective is the marketing of
its housing in Mexico to Mexican citizens residing in the United States. During 2010, the Entity decided to close such representative offices.
Intercompany balances and transactions have been eliminated in these consolidated financial statements.
Investments in associates in which the entity has significant influence, but not control, are valued as described in
Note 3f.
14. Long-term debt
2014 2013
Syndicated loan with BBVA Bancomer acting as administrative agent, collateralized by a mortgage guarantee (Note 8.b) for $2,328,000. Interest is determined based on the leverage ratio of debt to EBITDA. If this ratio is less than 2.75, the rate will be the Interbank Interest Rate Balance (TIIE) plus 250 basis points, and if greater than 2.75, the rate will be TIIE plus 300 basis points (effective interest rate of 6.53% at December 31, 2014). Tranche A is due in September 2018 and tranche B is due in September 2016, the latter was prepaid on September 30, 2014. (Effective annual weighted average rate of 5.82% and 6.53% in 2014 and 2013, respectively). $ 1,720,400 $ 2,250,300
Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $198,329, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on June 24, 2017 (effective interest rate of 6.17% at December 31, 2014). 135,554 -
Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $140,936, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on August 28, 2017 (effective interest rate of 6.17% at December 31, 2014).
88,878 -
Note payable of $80,750 guarantee ownership rights and collection with Scotiabank Inverlat, S. A., which accrues monthly interest at the TIIE rate plus 3.25%, the maturity of the note is on December 16, 2016. The effective annual interest rate as of December 31, 2014 and 2013 is 8.04%.
68,734 74,503
Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $82,926, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on May 23, 2017 (effective interest rate of 6.17% at December 31, 2014).
58,394 -
Note payable of $200,000 to Banco Regional de Monterrey, S. A., which accrues interest monthly at the rate of 7.26%, which was fixed by the swap agreement, the maturity of the note is on September 28, 2015. Payments of principal and interest on this note are made in monthly installments. (Effective annual weighted average rate of 5.57% and 7.26% in 2014 and 2013, respectively). 37,500 87,500
] 89 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
2014 2013
Bridging loan contracted with Sociedad Hipotecaria Federal (SHF) through CIBanco for the amount of $81,472, which accrues monthly interest at the TIIE rate plus 2.85 basis points; principal will be payable at maturity, while interest on outstanding balances is payable monthly, with maturity on December 17, 2017 (effective interest rate of 6.17% at December 31, 2014). 24,442 -
Note payable of $10,920 to BBVA Bancomer, S. A., bearing TIIE interest rate plus 3%; the maturity of the note is on December 8, 2015. The effective annual interest rate as of December 31, 2013 is 6.99%. The principal will be repaid at maturity and interest payments on this note are made in monthly installments. 4,474 10,920
2,138,376 2,423,223
Less - Current portion (409,568) (377,668)
Long-term debt $ 1,728,808 $ 2,045,555
As of December 31, 2014, long-term debt matures as follows:
2016 $ 785,408
2017 510,600
2018 432,800
$ 1,728,808
On September 30, 2013 the Entity entered into a syndicated loan with BBVA Bancomer, S. A. acting as admin-
istrative agent and collateralized by a mortgage guaranteein the amount of $2,328,000. The interest rate is
determined based on the leverage ratio of debt to EBITDA. If this ratio is less than 2.75, the interest rate isTIIE
plus 250 basis points, and if greater than 2.75, the rate shall be TIIE plus 300 basis points. The proceeds of the
loan were used to prepay debt on September 30, 2014. The term of this loan resulted in extends over longer a
period than the debt it replaces. (Note 8.b).
The loan agreements contain restrictive covenants, which require that the Entity maintain certain minimum financial
ratios and fulfill the contractual obligations during the period of the agreement. Management believes the Entity is
in compliance with such covenants as of December 31, 2014 and 2013.
During 2014 and 2013, the Entity drew $804,078 and $2,538,921, from available lines of credit and repaid $1,088,925
and $3,270,205 of these credits, respectively.
Additionally, as of December 31, 2014 the Entity maintains available credit lines with financial institutions of
$2,095,013.
The Entity recognizes long term debt at amortized cost, which are comprised of borrowings that yield interest at fixed
or variable rates based on market indicators. The fair value is similar to its carrying amounts due to the market value
is similar to those recorded.
] 90 [ANNUAL AND SUSTAINABILITY REPORT 2014
15. Other liabilities and taxes, other than income taxes
2014 2013
Taxes, other than IETU and ISR $ 175,732 $ 121,754
Accrued expenses 186,937 160,686
Accrued interest 4,427 9,912
Deposits from suppliers 370,973 396,527
Direct employee benefits 10,407 9,751
$ 748,476 $ 698,630
16. Income taxes
The Entity is subject to ISR and through December 31, 2013, to ISR and IETU. Therefore, the income tax payable was
the higher between ISR and IETU through 2013.
ISR -The rate was 30% in 2014 and 2013 and as a result of the new 2014 ISR law (“2014 Tax Law”), the rate will con-
tinue at 30% thereafter.
IETU - IETU was eliminated as of 2014; therefore, up to December 31, 2014, this tax was incurred both on revenues
and deductions and certain tax credits based on cash flows from each year. The respective rate was 17.5%.
Until 2013 income tax incurred was the higher of ISR and IETU.
Until 2013, based on its financial projections, the Entity determined that it will basically pay ISR. Therefore, it only
recognizes deferred ISR. As of 2014, only deferred ISR is calculated due to the elimination of IETU.
For ISR purposes, effective in 2005, cost of sales is deducted instead of inventory purchases. Taxpayers had the op-
tion, in 2005, to ratably increase taxable income over a period from 11 to 12 years by the tax basis of inventories as
of December 31, 2004, determined in conformity with the respective tax rules, and taking into account inventory
turnover. The net balance of this deferred income for tax purposes as of December 31, 2014 and 2013 was $624,126
and $997,962, respectively. PTU paid is fully deductible.
a. ISR consist of the following:
2014 2013ISR:
Current $ 202,424 $ 220,110
Deferred 3,359 (39,927)
$ 205,783 $ 180,183
] 91 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
The effective ISR rate for fiscal 2014 and 2013 differs from the statutory rate, mainly due to permanent differ-
ences, such as nondeductible expenses and the effects of inflation as follows:
2014 2013% %
Statutory rate 30.0% 30.0%Effect of permanent differences:
Effect of inflation 2.6% 1.8%Nondeductible expenses 1.9% 1.7%Land 3% accumulation 5.6% 6.3%Others (10.5)% (11.8)%Effective tax rate 29.6% 28.0%
b. The main items comprising the liability balance of deferred income tax are as follows:
2014 2013Deferred income tax liabilities:
Inventories and long-term land for development
$ (1,858,350) $ (1,832,431)
Property, machinery and equipment (9,416) (26,965)Others – Net (543) -
Total deferred income tax liabilities (1,868,309) (1,859,396)
Deferred income tax assets:Effect of tax loss carryforwards 90,589 85,890Recoverable tax on assets paid 10,413 12,388Advances from customers 8,725 8,706
Allowance for doubtful accounts 8,919 3,400
Others – Net - 1,465Total deferred income tax assets 118,646 111,849
Valuation allowance for the deferred ISR (1) (73,878) (72,635)
Net long-term deferred ISR liability $ (1,823,541) $ (1,820,182)
(1) Certain deferred income tax assets generated by ARA and PDCC were not recorded because there is not a high probability of recovery.
c. Tax loss carryforwards and recoverable IMPAC for which the deferred ISR asset and prepaid ISR, respectively,
have been partially recognized can be recovered subject to certain conditions. Restated amounts as of Decem-
ber 31, 2014 and expiration dates are:
Year ofExpiration
Tax lossCarryforwards
RecoverableIMPAC
2015 $ - $ 2,8322016 27,697 4,4562017 14,846 3,1252018 17,571 - 2019 46,401 - 2020 24,690 - 2021 36,865 - 2022 61,264 - 2023 61,890 - 2024 10,740 -
$ 301,964 $ 10,413
] 92 [ANNUAL AND SUSTAINABILITY REPORT 2014
17. Capital lease obligations
a. Capital lease obligations for equipment bear annual compound average interest rate of 5.74% at December
31, 2014.
b. At December 31, 2014, fair values do not differ from book values because observed market values are very
similar to those recorded by the Entity.
c. At December 31, 2014 and 2013, minimum rental commitments under capital leases are comprised of the fol-
lowing:
2014 2013
Total minimum lease obligations $ 8,611 $ 7,389Current portion of obligations (3,676) (6,128)
Long-term portion of capital lease obligations $ 4,935 $ 1,261
Capital lease obligations, which have a purchase option at the end of the lease term matures as follows:
Year ending December 31
2016 $ 2,7312017 2,204
$ 4,935
18. Retirement employee benefits
The Entity operates defined contribution retirement benefit plans for all qualifying employees. The assets of the plans
are held separately from those of the Entity in funds under the control of trustees. Where employees leave the plans
prior to full vesting of the contributions, the contributions payable by the Entity are reduced by the amount of for-
feited contributions.
The related liabilities are calculated by an independent actuary on the basis of formulas defined in the plans using the
projected unit credit method.
Net period cost (income) for obligations resulting from the pension plan and seniority premiums was $1,286 and
$(1,687) in 2014 and 2013, respectively. The balances are $1,554 and $2,142 in 2014 and 2013, respectively. Other
disclosures required under accounting provisions are not considered material
19. Risk management
a. Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, valua-
tion basis and the basis for recognition of income and expenses) for each class of financial asset, financial liability
and equity instrument are disclosed in Note 3.
] 93 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
b. Categories of financial instruments and risk management policies
The main categories of financial instruments are:
2014 2013Cash and cash equivalents (i) $ 1,032,228 $ 599,598Restricted cash (i) 43,369 43,369
Accounts ReceivableCustomer – Net (i) 843,741 740,283Due from equity method investees (i) 10,561 8,608Others financial liabilitiesTrade accounts payable (ii) 676,906 358,781Long-term debt (iii) 2,138,376 2,423,223Capital lease obligations (iii) 8,611 7,389
The assets and liabilities of the Entity are exposed to various financial risks including:
(i) Credit risk
(ii) Liquidity risk, and
(iii) Financial market risks (interest rate)
The Entity seeks to minimize potential adverse effects of the above risks on its financial performance through
different strategies, which are described below:
c. Credit Risk Management
Credit risk refers to the risk that counterparties will default on their contractual obligations resulting in a loss for
the Entity. In the case of the Entity, the principal credit risk arises from cash and cash equivalents and accounts
receivable. With respect to cash and cash equivalents, the Entity’s policy to conduct transactions only with repu-
table institutions and high credit. With respect to accounts receivable, the Entity has credit policies that allow you
to adequately manage credit risk. They are described in Note 7.
d . Liquidity Risk Management
Liquidity risk refers to the risk that an entity will encounter difficulty filling its obligations associated with fi-
nancial liabilities that are covered by delivering cash or another financial asset. The Entity manages liquidity risk
through the establishment of appropriate policies for monitoring the working capital, which allows management
to manage the financing requirements. The excess cash is invested primarily in government paper. 100% of such
excess is invested regularly within less than 30 days. The Entity’s policy allows the excess may also be invested in
bank paper as long as they meet certain requirements of risk and return on investment.
The Entity has continued monitoring of projected cash flows and real and has financial factoring options and lines
of credit for working capital.
Additionally, the Entity control the cash flow allocated to the business lines in order to optimize the return on
investment, maintaining a balance between the sale and construction program.
] 94 [ANNUAL AND SUSTAINABILITY REPORT 2014
The maturities of long-term debt are presented in Note 14.
The following table shows the contractual maturities of financial liabilities of the entity based on pay periods are:
At December, 31 2014 Less than 1 year
More than 1 year and less
than 3More than 3
years Total
Trade accounts payable $ 676,906 $ - $ - $ 676,906
Long-term debt include interest 528,525 876,602 1,001,309 2,406,436
Capital lease obligations 4,064 2,941 2,263 9,268
$ 1,209,495 $ 879,543 $ 1,003,572 $ 3,092,610
At December, 31 2013 Less than 1 year
More than 1 year and less
than 3More than 3
years Total
Trade accounts payable $ 358,781 $ - $ - $ 358,781
Long-term debt include interest 537,960 562,155 1,813,196 2,913,311
Capital lease obligations 6,379 1,202 100 7,681
$ 903,120 $ 563,357 $ 1,813,296 $ 3,279,773
e . Financial Market Risk
Entity’s activities expose it primarily to financial risks of changes in interest rates and exchange rate.
Management the risk of interest rate-The entity is exposed to risks in the interest rate, because it has con-
tracted variable rate debt (TIIE). To mitigate this risk likely the Entity has a policy of hiring Swap which protect
the movement of the reference rate TIIE (see Note 20). In 2014, the Entity did not hire interest rate swaps.
Sensitivity analysis determines the Entity is prepared based on the exposure to interest rates do not cover the
debt, held at variable rates. For this purpose, an analysis is prepared assuming the amount of liability outstanding
at the end of the reporting has been the outstanding liability for the year.
If the interest rate TIIE have had an increase / decrease of 170 basis points at each reporting period and all other
variables had remained constant, the interest charge at December 31, 2014 and 2013 would have increased by
$37,495 and $19,272, respectively, which have been capitalized in work in progress.
Management foreign exchange risk - The Entity holds investments in foreign currencies mainly short term as part
of the diversification strategy, as well as supporting the needs of the operation. Although the Entity is exposed to
fluctuations in the exchange rate, these are marginal because the proportion who keep the assets and liabilities
in foreign currency.
] 95 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
At December 31, the foreign currency monetary position is as follows:
2014 2013Thousands of U.S. dollars:
Monetary assets 4,609 4,521Monetary liabilities (359) (433)
Net monetary asset position 4,250 4,088
Equivalent in Mexican pesos $ 62,645 $ 53,470
d. Transactions denominated in U.S. dollars were as follows:
2014 2013Thousands of U.S. dollars:
Equipment acquisitions 299 95
Offices leases 1,469 1,891
e. The exchange rates in effect at the dates of the balance sheets and of issuance of the consolidated financial
statements were as follows:
December 31, 2014 December 31, 2013
U.S. dollar $ 14.74 $ 13.08
a. Fair value of financial instruments
The fair value of financial instruments presented below has been determined by the Entity using available
market information or other valuation techniques that require judgment in developing and interpreting the
estimates of fair values, also uses assumptions that are based on market conditions existing at each of the
dates of the consolidated statements of financial position.
Consequently, the estimated amounts presented are not necessarily indicative of the amounts the Entity
could realize in a current market exchange. The use of different assumptions and / or estimation methods may
have a material effect on the estimated fair value amounts.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped at the
levels below, covering the extent to which the fair value is observed.
Level 1, the fair value measurements are those derived from quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2, the fair value measurements are those derived from indicators other than quoted prices included
within Level 1, but including indicators that are observable for the asset or liability, either directly or indirectly
quoted prices, ie derivatives of these prices, and
Level 3, the fair value measurements are those derived from valuation techniques that include indicators for
the asset or liability that are not based on observable market data (unobservable indicators).
] 96 [ANNUAL AND SUSTAINABILITY REPORT 2014
The amounts of cash and cash equivalents of the Entity, as well as accounts receivable and payable of third
parties and related parties approximate their fair value because they have short-term maturities. The long-
term debt of the Entity is recorded at amortized cost, which is debt bears interest at fixed and variable rates
that are related to market indicators. To obtain and disclose the fair value of long-term debt, the Entity uses
the quoted market prices or quotations for similar instruments .
20. Financial instruments
The Entity entered into interest rate swaps for specific loans in 2010 and 2011with maturity on December, 2015, most
of which were prepaid in 2013. The fair value of derivative financial instruments at December 31, 2014 is $3,881.
21. Stockholders’ equity
a. Capital stock consist of 1,312,847,496 ordinary shares, with no par value, no subscription limitations, fully
subscribed and paid.
b. On October 1, 2009, a resolution was authorized to create and implement a share base payment plan for the
Entity’s executives and employees. As of December 31, 2014, such plan has not been implemented.
c. In 2014 and 2013, the Entity purchased and sold its own stock resulting in an increase in subscription premium
of $1,710 and $18,292, respectively.
At December 31, 2014, the Entity repurchased 334,368 shares. The market value of the Entity’s shares, as re-
ported on the Mexican Stock Exchange, was Ps. $6.49 per share.
d. Retained earnings include the statutory legal reserve. The General Corporate Law requires that at least 5% of
net income of the year be transferred to the legal reserve until the reserve equals 20% of capital stock at par
value. The legal reserve may be capitalized but may not be distributed unless the entity is dissolved. The legal
reserve must be replenished if it is reduced for any reason. At December 31, 2014 and 2013, the legal reserve
was $212,937.
e. Stockholders’ equity, except restated paid-in capital and tax retained earnings will be subject to income tax
payable by the Entity at the rate in effect upon distribution. Any tax paid on such distribution may be credited
against annual and estimated income taxes of the year in which the tax on dividends is paid. The contributed
capital account and consolidated net tax income account as of December are:
2014 2013Contributed capital account $ 1,894,091 $ 1,819,842
Net tax income account 6,450,261 5,882,354
Total $ 8,344,352 $ 7,702,196
] 97 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
22. Related party transactions
a. Transactions with investments in equity method investees and other related parties, carried out in the ordinary
course of business, were as follows:
2014 2013Revenue:Shopping mall management fees $ 6,053 $ 4,779Administrative services income $ 7,584 $ 7,557Commissions $ 72 $ 66Interests $ - $ 2,137
b. The Entity carried out transactions with other related parties as follows:
2014 2013Revenue:Management and directors:
Housing sale to employees $ 1,203 $ 1,270
Costs:Management and directors:
Direct benefits $ 91,601 $ 83,427
Members of the board of directors:Fees $ 2,689 $ 2,478Emoluments $ 1,957 $ 2,090
Offices leasing $ 497 $ 563Publicity $ 626 $ 626
23. Information by business activity
The information for business activities are presented based on the managerial approach and additional provides
information by business line and geographic area:
a. Information by business activities
The Entity operates as a developer and a lessor solely in Mexico, as mentioned in Note 1. Certain information on
revenues and costs relative to these activities is as follows:
2014 2013Revenues:
As developer $ 6,070,893 $ 5,594,498Others 135,253 141,229
$ 6,206,146 $ 5,735,727
Costs:As developer $ 4,465,916 $ 4,084,929Others 95,413 100,467
$ 4,561,329 $ 4,185,396
Gross profit:As developer $ 1,604,977 $ 1,509,569Others 39,840 40,762
$ 1,644,817 $ 1,550,331
(1) The rental revenue is derived from operating leases of commercial facilities and mini-supermarkets, which have one-year terms, and are increased in line
with inflation year, renewable annually.
] 98 [ANNUAL AND SUSTAINABILITY REPORT 2014
Revenues and costs by mortgage lender are as follows:
2014 2013Revenues:
INFONAVIT (Including cofinancing) $ 2,754,472 $ 2,198,067
FOVISSSTE ,SHF and commercial banks 3,316,421 3,396,431
$ 6,070,893 $ 5,594,498
Costs:
INFONAVIT (Including cofinancing) $ 2,058,634 $ 1,629,342
FOVISSSTE ,SHF and commercial banks 2,407,282 2,455,587
$ 4,465,916 $ 4,084,929
Revenues as developer, service provider and lessor, are obtained solely within Mexico.
There are no material intersegment transactions.
b. General information for business line
2014 2013Revenues:
Progressive $ 945,853 $ 876,961Social interest 1,286,888 1,552,723Middle 2,700,272 1,999,353Residential 1,137,880 1,165,461Other real-estate projects 135,253 141,229
$ 6,206,146 $ 5,735,727
c. General information for geographic area
2014 2013Revenues:Metropolitana $ 987,570 $ 1,617,791Oriente 930,008 498,318Residencial RIALTA 691,679 827,868Distrito Federal 658,028 111,466Valle de Toluca 622,108 541,861Centro 537,888 506,928Occidente 413,729 428,724Sur 374,389 281,345Bajío 332,412 296,666Noreste 271,768 240,411Noroeste 251,314 243,121
6,070,893 5,594,499Other real-estate projects 135,253 141,228
Total $ 6,206,146 $ 5,735,727
24. Commitments
a. The Entity leases offices under an operating lease that is renewable annually. The rental expense was $26,704
and $34,924 for the years ended December 31, 2014 and 2013, respectively. During 2014, the Entity signed a
leasing contract in U.S. dollars for 1 years for which the annual rent will be 2,000,000 U.S. dollars.
] 99 [STRONG FOUNDATIONS: LEADERSHIP & GROWTH
b. On August 18, 2004, CIISA executed a trust administration contract with a shopping mall and Banco J.P. Mor-
gan, S. A. Institución de Banca Múltiple, J.P. Morgan Grupo Financiero, Trust Division, transferring part of the
plot of land known as “las Américas” on which the “las Américas shopping mall” was developed.
CIISA obligations or the Americas Regional Center, S. de R. L. its affiliate, are among others, a) the obligation to
carry and charge your account out the construction and improvement of the mall (except department store),
including parking lot of the department store, according to the executive project; b) and operate the mall (ex-
cept for warehouse department store).
c. PDCC enter into a “Framework Agreement” with a third party, which establishes processes and procedures
related to the investment in future construction projects and operation of malls.
d. Guarantee and management trust - In July 2006, the Entity celebrated an agreement with Fomento Metropoli-
tano of Monterrey (“Fomerrey”). Fomerrey maintains documentation of consents evidencing its rights for the
substantiation and settle for the expropriation of the land.
The Entity gave to Fomerrey $5,000 at the signing of this agreement. Fomerrey will receive $25,749 if the fo-
llowing conditions occur:
a) Fomerrey becomes the legitimate owner of the land located in Nuevo León.
b) The Entity develops social interest housing with a minimal density of 50 housings by hectare on the land.
c) Water feasibility, sanitary drainage and electrical energy are obtained.
d) Fomerrey Committee authorizes this agreement.
The Entity will pay to Fomerrey 2% of the total value for the sale of houses that are built on the land.
During 2009, the conditions established in the agreement were fulfilled and the Entity was obligated to liquidate
the amount in accordance with the agreement. However Fomerrey did not honor the agreement. As of the date
of issuance of these financial statements the Entity initiated a lawsuit in order to force Fomerrey to comply with
their commitment under the agreement.
e. The Entity is party to various legal actions in the normal course of its business. According to the Entity’s legal
advisors, it is not involved in or threatened by proceedings for which the Entity believes it is not adequately
insured or indemnified or which, if determined adversely, would have a material adverse effect on its financial
position, results of operations or cash flows.
f. CIISA executed a master agreement on August 10, 2010 with Crystal Lagoons Corporation, LLC, a corporation
legally established in the State of Delaware, United States, for the licensing and use of technology for the de-
velopment and construction of lagoons. Consequently, CIISA has an urgent need for the technological support
of a Entity highly specialized in this field.
Participants - Crystal Lagoons Corporation, LLC. (CL) and Consorcio de Ingeniería Integral, S. A. de C. V. (CIISA)
] 100 [ANNUAL AND SUSTAINABILITY REPORT 2014
Commitment - CL grants CIISA an exclusive right to sign technology license agreements for use in projects within
certain geographical areas determined by CIISA. The objective of this agreement is to determine the terms, condi-
tions, and requirements that CIISA must fulfill to maintain the exclusive rights in those geographical areas, for
purposes of executing license agreements with CL in the future for the use of technology.
Similarly, CL will not be able to license the technology to any third party for the duration of the exclusivity in the
geographical areas, without prior authorization by CIISA.
A license agreement for the use of technology will be executed for each additional project.
Effective duration of contract - The agreement will be in effect for 24 months from its execution date. The ter-
mination of the agreement will not affect the duration of the license agreements executed thereunder or the
exclusivity granted for the period stated in the exclusivity term for each particular geographical area. Once the
exclusivity term concludes, and having executed the respective technology license agreement for the develop-
ment of a project in accordance with the “Business Plan”, CIISA will maintain exclusive rights only in the exclusion
area of the project for a four-year period as of the end of the exclusivity term.
On September 26, 2012, Crystal Lagoons Corporation LLC transfered the rights of master agreement, in addion the
license contracts to Crystal Lagoons B.V.
CIISA executed an explanation and amendment agreement on March 4, 2015 with Crystal Lagoons B. V. a corpo-
ration legally established in Netherlands, for explanations and amendment to the benefits of both sides on the
maintenance terms, decrease of royalties ratio and publicity of CL brand.
25. Authorization to issue the financial statements
On March 27, 2015, the issuance of the consolidated financial statements was authorized by C. P. J. Sacramento Soto
Solís Director of Administration and Finance of the Entity. These consolidated financial statements are subject to the
approval of the Entity’s general ordinary stockholders’ meeting, who may modify the financial statements, based on
provisions set forth by the General Corporate Law.
* * * * * *
ARAstrengths
GEOGRAPHICAND PRODUCTDIVERSIFICATION
STRATEGICLAND BANK
MANAGEMENTTEAM WITH GREATEXPERIENCE
CORPORATEGOVERNANCE
VERTICALINTEGRATION
FINANCIALSTRENGTH
FLEXIBLECONSTRUCTIONPROCESS
InvestorRelationsAlicia Enriquez Pimentel [email protected](52.55) 5596 8803(52.55) 5246 3100 x. 4096
IndependentAuditorGalaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche Tohmatsu Limited
FOUNDING MEMBER OF
VIVIENDA Y ENTORNO
SUSTENTABLE, A.C.
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Strong Foundations:Leadership & GrowthANNUAL AND SUSTAINABILITY REPORT 2014
Arcos Bosques Marco II
Paseo de Tamarindos 90, Tower 1
25th, Bosques de las Lomas
C.P. 05120, Mexico City, Mexico
consorcioara.com.mxara.com.mx AN
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