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Elektra’s Fourth-Quarter Profit Soars on Banking, Derivative

Grupo Elektra SAB (ELEKTRA*), the retail and banking company controlled by billionaire Ricardo Salinas, reported an almost fivefold increase in fourth-quarter profit on a surge in loans and on derivatives based on its own stock.

Net income climbed to 11 billion pesos ($861 million) from 2.38 billion pesos a year earlier, Mexico City-based Elektra said yesterday. Sales jumped 35 percent to 16.2 billion pesos, led by a 56 percent increase in financial revenue.

Elektra is opening more bank branches to extend loans of an average size of about $400 to Latin American customers who use them to purchase appliances, fund businesses or attend to family emergencies. Elektra added 625 locations last year for a total of 2,878, mostly for banking branches, it said.

Elektra fell 2.4 percent to 1,130.86 pesos at the close in Mexico City.

The banking unit had 12.5 million loan accounts at the end of 2011, 45 percent more than a year earlier.

An increase in the value of an equity swap held by Elektra helped boost investment-related revenue by 14.7 billion pesos compared to a year earlier, Elektra said. The company recorded the non-cash benefit because it must value the derivative instrument at the end of every quarter.

The instrument, which pays Elektra for gains in its share price as if it held the stock itself, has gained value as Elektra’s stock price more than doubled last year. The increase came in part because the other party in such a swap normally buys up shares as a hedge, a process that would have made Elektra shares scarce.

Mexico’s stock-exchange operator, Bolsa Mexicana de Valores SAB, is looking into ways to make more of the shares available for trading, a person familiar with the matter said last month.

An increase in tax reserves took away 5.78 billion pesos from net income compared to last year, Elektra said.

The company agreed to pay $655 million to acquire payday lender Advance America Cash Advance Centers Inc. to enter the U.S. market, extending its reach to the U.S. after operating in eight Latin American countries, it said Feb. 15.

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net

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