BVL: INRETC1
EARNINGS REPORT
THIRD QUARTER 2014
November, 2014
Earnings Report Third Quarter 2014
2
Index
I. Highlights for the Third Quarter 2014 ..................................................................................... 3
II. Consolidated Financial Statements ......................................................................................... 6
III. Results Analysis ....................................................................................................................... 8
IV. Main Events ........................................................................................................................... 20
V. Key Indicators ........................................................................................................................ 24
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I. Highlights for the Third Quarter 2014
InRetail Peru Consolidated
Consolidated revenues of S/. 1,544 million, a 15.3% growth over Q3 2013
Adjusted EBITDA of S/. 154 million, a 39.7% growth over Q3 2013
Adjusted EBITDA margin of 10.0%, expanding from 8.2% in Q3 2013
Consolidated Net Income resulted in a gain of S/. 2 million compared to a gain of S/. 37
million in Q3 2013
InRetail Consumer
Consolidated revenues of S/. 1,460 million, a 12.9% growth over Q3 2013
Adjusted EBITDA of S/. 99 million, a 18.0% growth over Q3 2013
Adjusted EBITDA margin of 6.8%, expanding from 6.5% in Q3 2013
Supermarkets
Revenues of S/. 913 million, a 12.2% growth over Q3 2013
Same store sales increased 2.6% in Q3 2014, 4.2% YTD as of September 2014
Adjusted EBITDA of S/. 48 million, a 15.0% growth over Q3 2013
Adjusted EBITDA margin of 5.3%, expanding from 5.1% in Q3 2013
2 stores opened (7,711 sqm); 10 new stores since Q3 2013 (33,064 sqm), reaching a
total of 100 stores (261,102 sqm)
Pharmacies
Revenues of S/. 549 million, a 13.9% growth over Q3 2013
Same store sales growth of 8.2% in Q3 2014, 9.4% YTD as of September 2014
Adjusted EBITDA of S/. 52 million, a 20.3% growth over Q3 2013
Adjusted EBITDA margin of 9.4%, expanding from 8.9% in Q3 2013
33 additional stores in Q3 2014; 112 since Q3 2013, total of 787 stores
InRetail Shopping Malls
Revenues of S/. 95 million, a 73.0% growth over Q3 2013
Adjusted EBITDA of S/. 55 million, a 109.6% growth over Q3 2013
Adjusted EBITDA margin of 58.4%, expanding from 48.2% in Q3 2013
Acquisition of Real Plaza Centro Civico, adding 42k sqm of GLA to contribute since
September. Centro Civico generated LTM Q3’14 revenues of S/. 45 million and LTM Q3’14
Adjusted EBITDA of S/. 27 million.
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Four new shopping malls, including Real Plaza Centro Civico, and shopping mall expansions
since Q3 2013 (206,468 sqm of additional GLA), reaching a total GLA of 542,311 sqm1
Issuance of two Senior Unsecured Notes for a combined total of approximately S/. 1,153
million.
Recent Events
In October 2014, InRetail Consumer issued two Senior Unsecured Notes for a combined
total of approximately S/. 1,118 million to refinance existing debt
Cash savings from interest expenses of S/. 36 million per year achieved from refinancing
debt at InRetail Consumer and InRetail Shopping Malls
1 Total GLA of 589,688 sqm including 3 managed properties.
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Q3’14 Consolidated Results Million Soles (S/. mm)
InRetail Peru at a Glance
1 Revenues net of intercompany eliminations. 2 Adjusted EBITDA defined as Operating profit, plus depreciation and amortization, less the impact of marking to market the values of our investment properties; InRetail Adjusted EBITDA includes holding costs and intercompany eliminations. 3 Includes 17 owned (542,311 sqm of GLA) and 3 managed properties.
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II. Consolidated Financial Statements Consolidated Income Statement Third Quarter of 2014, compared to Third Quarter of 2013 Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013
InRetail Peru Corp Consolidated Income Statement
2014 2013 Change 2014 2013 Change
In Millions % %
Revenues:
InRetail Consumer: 1,460 1,293 12.9% 4,200 3,704 13.4%
Supermarkets 913 814 12.2% 2,662 2,376 12.1%
Pharmacies 549 482 13.9% 1,545 1,336 15.6%
Intersegment transactions -2 -3 -33.2% -8 -8 -4.4%
InRetail Shopping Malls: 95 55 73.0% 240 151 58.5%
Intercompany transactions -11 -9 21.1% -31 -25 21.8%
Total revenues 1,544 1,339 15.3% 4,408 3,830 15.1%
Cost of sales:
InRetail Consumer -1,056 -946 11.7% -3,040 -2,713 12.1%
Supermarkets -680 -611 11.2% -1,982 -1,781 11.3%
Pharmacies -376 -335 12.5% -1,058 -932 13.6%
InRetail Shopping Malls -32 -19 63.2% -85 -54 56.1%
Intercompany transactions 2 2 -14.8% 5 7 -32.3%
Total cost of sales -1,086 -963 12.8% -3,120 -2,760 13.1%
Gross profit:
InRetail Consumer: 404 347 16.3% 1,159 991 16.9%
Supermarkets 233 203 15.0% 680 594 14.5%
Pharmacies 173 148 17.0% 486 405 20.2%
Intersegment transactions -2 -3 -33.2% -8 -8 -4.4%
InRetail Shopping Malls: 63 35 78.4% 155 97 59.8%
Intercompany transactions -9 -7 31.9% -26 -18 42.5%
Total gross profit 457 375 21.8% 1,288 1,070 20.4%
Selling and administrative -338 -293 15.7% -982 -862 13.9%
Other operating income 12 12 -1.1% 44 45 -3.3%
Operating profit 131 95 37.9% 350 253 38.4%
Financial income (expenses), net -111 -34 221.7% -189 -225 -16.0%
Income tax expense -18 -24 -24.1% -69 -31 124.0%
Net Income 2 37 -95.0% 92 -3 -
InRetail Peru Corp Adjusted EBITDA
2014 2013 Change 2014 2013 ChangeIn Millions % %
InRetail Consumer: 99 84 18.0% 281 241 16.6%
Supermarkets 48 42 15.0% 146 129 13.4%
Pharmacies 52 43 20.3% 136 113 20.1%
Holding expenses and
intersegments transactions-0 -1 -46.5% -1 -1 7.3%
InRetail Shopping Malls: 55 26 109.6% 134 77 74.4%
Total 155 111 39.9% 415 318 30.5%
Holding expenses and intercompany
transactions-1 -1 63.5% -14 -3 386.2%
Adjusted EBITDA 154 110 39.7% 402 315 27.4%
Third Quarter For the nine months ended September 30,
For the nine months ended September 30, Third Quarter
(Nuevos Soles )(Nuevos Soles )
(Nuevos Soles )(Nuevos Soles )
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Consolidated Statement of Financial Position As of September 30, 2014 and December 31, 2013
Consolidated Statement of Cash flows As of September 30, 2014 and September 30, 2013
The financial statements of InRetail Consumer and InRetail Shopping Malls are available in InRetail
Peru’s website (www.inretail.pe).
InRetail Peru Corp
Consolidated Statement of Financial Position As of Sep 30,As of
December 31,
2014 2013
In Millions
Cash and short-term deposits 217 284
Investments at fair value through profit or loss 2 0
Inventories, net 813 779
Available-for-sale investment 19 17
Other current assets 328 271
Property, furniture and equipment 2,226 2,091
Investment properties 2,179 1,697
Intangible assets 1,174 1,171
Other non current assets 134 137
Total assets 7,091 6,447
Short- term debt 192 166
Other short-term liabilities 1,489 1,541
Long-term debt 2,075 1,553
Other long-term liabilities 299 243
Total liabilities 4,054 3,503
Non-controlling interest 5 5
Net equity attributable to controlling shareholders 3,032 2,940
Total net equity and liabilities 7,091 6,447
(nuevos soles)
InRetail Peru Corp Consolidated Statement of Cash Flows
2014 2013
In Millions
Net cash flows from operating activities 96 (29) 0 0
Net cash flows used in investing activities (680) (206) 0 0
Net cash flows used in from financing activities 517 (154) 0 0
Net (decrease) increase of cash and short-term deposits (67) (389) 0 0
Cash and short–term deposits at the beginning of the period 284 542
Cash and short–term deposits at the end of the period 217 153
As of September 30,
(nuevos soles)
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III. Results Analysis The following analysis compares InRetail Peru’s results for the third quarter of 2014 with
the same period in 2013, and the results for the nine months ended September 30, 2014 with the nine months ended September 30, 2013. Revenues InRetail Peru’s revenues grew S/. 205 million, or 15.3% in the third quarter of 2014, compared to the same period in 2013, primarily due to same store sales growth, new store openings and new GLA. For the nine months ended September 30, 2014, InRetail Peru’s revenues were S/. 4,408 million, 15.1% over the same period in 2013. InRetail Peru’s revenues analysis by segment InRetail Consumer
InRetail Consumer’s revenues grew S/. 167 million, or 12.9% in the third quarter of 2014, compared to the same period in 2013. For the nine months ended September 30, 2014, InRetail Consumer’s revenues were S/. 4,200 million, 13.4% over the same period in 2013. InRetail Consumer’s revenues analysis by segment
Supermarkets revenues grew S/. 99 million, or 12.2% in the third quarter of 2014, compared to the same period in 2013. This growth is explained by a same store sales growth of 2.6% and the opening of 10 stores since the third quarter of 2013 (33,064 sqm, an increase of 14.5%). Supermarkets revenues were S/. 2,662 million for the nine months ended September 30, 2014, 12.1% over the same period in 2013, with a same store sales increase of 4.2%.
Pharmacies revenues grew S/. 67 million, or 13.9% in the third quarter of 2014, compared to the same period in 2013, due to a strong same store sales growth of 8.2% and 112 additional stores in operation since the third quarter of 2013, 33 of them opened in the third quarter of 2014. Pharmacies revenues were also positively impacted by the introduction of new private label products and an enhancement of the salesforce incentives program. Pharmacies revenues were S/. 1,545 million for the nine months ended September 30, 2014, 15.6% over the same period in 2013, with a same store sales increase of 9.4%.
InRetail Shopping Malls
InRetail Shopping Malls revenues grew S/. 40 million, or 73.0% in the third quarter of 2014, compared to the same period in 2013, due to the increase in revenues from four additional malls; Real Plaza Centro Civico acquired at the end of August 2014, which contributed S/. 5 million in revenues during the third quarter of 2014, the opening of Real Plaza Cusco and Real Plaza Cajamarca in December 2013 and Real Plaza Salaverry in May 2014; and an increase in revenues from existing shopping malls and shopping malls expansions since Q3 2013 (a total of 206,468 sqm of additional GLA, or 61.5% increase).
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InRetail Shopping Malls revenues were S/. 240 million for the nine months ended September 30, 2014, 58.5% over the same period in 2013.
Net rental income is defined as total income minus reimbursable operating costs related to the maintenance and management of our shopping malls. These operating costs are billed directly to tenants and are also reported as Income from rendering of services. InRetail Shopping malls net rental income increased from S/. 39 million in the third quarter of 2013 to S/. 68 million in the same period in 2014 (+76.3%). For the nine months ended September 30, net rental income increased from S/. 106 million in 2013 to S/. 170 million in 2014 (+60.6%).
Cost of sales
InRetail Peru’s cost of sales grew S/. 123 million, or 12.8% in the third quarter of 2014, compared to the same period in 2013. For the nine months ended September 30, 2014, InRetail Peru’s cost of sales were S/. 3,120 million, 13.1% over the same period in 2013.
InRetail Peru’s cost of sales analysis by segment: InRetail Consumer
InRetail Consumer’s cost of sales grew S/. 111 million, or 11.7% in the third quarter of 2014, compared to the same period in 2013. For the nine months ended September 30, 2014, InRetail Consumer’s cost of sales were S/. 3,040 million, 12.1% over the same period in 2013.
InRetail Consumer’s cost of sales analysis by segment Supermarkets cost of sales grew S/. 69 million, or 11.2% in the third quarter of 2014,
compared to the same period in 2013. However, this growth was below sales growth, mainly due to higher store opening and logistic contributions from suppliers.
Pharmacies cost of sales grew S/. 42 million, or 12.5% in the third quarter of 2014, compared to the same period in 2013. This growth was below sales growth due to bargaining power and an increase in the penetration of high margin products which have lower costs, despite a decrease in rebates from suppliers related to the inventory reduction.
InRetail Shopping Malls
InRetail Shopping Malls cost of sales increased S/. 12 million, or 63.2% in the third quarter of 2014, compared to the same period in 2013. However, this growth was lower than revenues growth due to fixed costs dilution. Gross profit
InRetail Peru’s gross profit grew S/. 82 million, or 21.8% in the third quarter of 2014, compared to the same period in 2013. For the nine months ended September 30, 2014, InRetail Peru’s gross profit was S/. 1,288 million, 20.4% over the same period in 2013.
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We define gross margin as gross profit as a percentage of revenues. As a result of the above mentioned factors, InRetail Peru’s gross margin was 29.6% in the third quarter of 2014, compared to 28.0% registered in the third quarter of 2013. InRetail Peru’s gross margin improved from 27.9% for the nine months ended September 30, 2013, to 29.2% for the same period in 2014. InRetail Peru’s gross profit analysis by segment InRetail Consumer
InRetail Consumer’s gross profit grew S/. 56 million, or 16.3% in the third quarter of 2014,
compared to the same period in 2013. For the nine months ended September 30, 2014, InRetail Consumer’s gross profit was S/. 1,159 million, 16.9% over the same period in 2013. InRetail Consumer’s gross margin was 27.7% in the third quarter of 2014, compared to 26.9% registered in the third quarter of 2013. InRetail Consumer’s gross margin improved from 26.8% for the nine months ended September 30, 2013, to 27.6% for the same period in 2014
InRetail Consumer’s gross profit analysis by segment Supermarkets gross profit increased S/. 30 million, or 15.0% in the third quarter of 2014,
compared to the same period in 2013. Supermarkets gross margin improved from 24.9% to 25.5% due to higher opening and logistic contributions from suppliers. Supermarkets gross profit and gross margin were S/. 680 million and 25.6% respectively, for the nine months ended September 30, 2014, compared to S/. 594 million and 25.0% for the same period in 2013.
Pharmacies gross profit grew S/. 25 million, or 17.0% in the third quarter of 2014 compared to
the same period in 2013, mainly due to higher sales and an increase in the penetration of high margin products, despite lower rebates from suppliers, improving its gross margin from 30.7% to 31.5%. Pharmacies gross profit and gross margin were S/. 486 million and 31.5% respectively for the nine months ended September 30, 2014, compared to S/. 405 million and 30.3% for the same period in 2013.
InRetail Shopping Malls
InRetail Shopping Malls gross profit grew S/. 28 million, or 78.4% in the third quarter of 2014 compared to the same period in 2013, improving its gross margin from 64.3% to 66.4%, due to fixed costs dilution.
InRetail Shopping Malls gross profit and gross margin were S/.155 million and 64.7% respectively for the nine months ended September 30, 2014, compared to S/. 97 million and 64.2% for the same period in 2013.
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Selling and administrative expenses
The following table sets forth InRetail Peru’s selling and administrative expenses for the third quarter of 2014 and 2013, and the nine months ended September 30, 2014 and 2013.
InRetail Peru’s selling and administrative expenses grew S/. 46 million, or 15.7% in the
third quarter of 2014 compared to the same period in 2013. As a percentage of revenues, selling and administrative expenses were 21.9% in the third quarter of 2014, in line with the same period in 2013.
For the nine months ended September 30, 2014, InRetail Peru’s selling and administrative expenses were S/. 982 million, 13.9% higher than in the same period in 2013. As a percentage of revenues, selling and administrative expenses were 22.3% in the nine months ended September 30, 2014, compared to 22.5% in the same period in 2013. InRetail Peru’s selling and adminsitrative expenses analysis by segment InRetail Consumer
InRetail Consumer’s selling and administrative expenses grew S/. 48 million, or 16.7% in the third quarter of 2014 compared to the same period in 2013. As a percentage of revenues, selling and administrative expenses were 23.1% in the third quarter of 2014, compared to 22.3% in the third quarter of 2013.
For the nine months ended September 30, 2014, InRetail Consumer’s selling and administrative expenses were S/. 979 million, 14.8% higher than in the same period in 2013. As a percentage of revenues, selling and administrative expenses were 23.3% in the nine months ended September 30, 2014, compared to 23.0% in the same period in 2013.
InRetail Consumer’s selling and ddminsitrative expenses analysis by segment
Supermarkets selling and administrative expenses increased S/. 30 million, or 16.4% in the third quarter of 2014 compared to the same period in 2013. The main factors that impacted our selling and administrative expenses were higher operational and logistic expenses due to the new stores opened, an increase in expenses related to IT projects and higher pre-
InRetail Peru Corp Selling and Administrative expenses
2014 2013 Change 2014 2013 Change
% %In Millions
InRetail Consumer: 337 289 16.7% 979 853 14.8%
Supermarkets 211 181 16.4% 617 555 11.3%
Pharmacies 128 111 15.7% 370 306 20.7%
Intersegment transactions -2 -3 -33.3% -8 -8 -4.4%
InRetail Shopping Malls: 8 9 -15.2% 22 22 -0.2%
Holding expenses and consolidation adj. 3 2 78.3% 7 6 20.4%
Intercompany transactions -9 -7 32.6% -26 -18 42.8%Total selling and administrative expenses 338 293 15.7% 982 862 13.9%
(Nuevos Soles )(Nuevos Soles )
For the nine months ended Third Quarter
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operational expenses. As a percentage of supermarket revenues, selling and administratives expenses increased from 22.3% to 23.1%, due to stores in early stage of operation, despite higher employee productivity and logistic efficiencies. As these continue their ramp up period, operation and logistic expenses get diluted. Supermarkets selling and administrative expenses were S/. 617 million for the nine months ended September 30, 2014, 11.3% over the same period in 2013, decreasing from 23.3% to 23.2% as a percentage of supermarket revenues.
Pharmacies selling and administrative expenses grew S/. 17 million, or 15.7% in the third quarter of 2014 compared to the same period in 2013, mainly due to higher operational expenses from 112 additional stores in operation since the third quarter of 2013, and an increase in comissions to our salesforce related to the higher penetration of our private label products, despite a decrease in marketing expenses and logistic expenses as a result of recent iniciatives and the fully operation of the new distribution center. As a percentage of pharmacies revenues, selling and administratives expenses increased from 23.0% in the third quarter of 2013 to 23.3% in the same period of 2014, due to 56 new stores with less than 6 months of operation. As these stores continue their ramp up period, logistic and operation expenses get diluted. Pharmacies selling and administrative expenses were S/. 370 million for the nine months ended September 30, 2014, 20.7% over the same period in 2013, increasing from 22.9% to 23.9% as a percentage of pharmacies revenues.
InRetail Shopping Malls
InRetail Shopping Malls selling and administrative expenses decreased S/. 1 million, or 15.2% in the third quarter of 2014 compared to the same period in 2013, as a percentage of shopping malls revenues, selling and administrative expenses decreased from 16.6% in the third quarter of 2013 to 8.2% in the same period of 2014. During the third quarter of 2013, we registered a non-recurring expense of S/. 2.6 million, related to the operation of a shopping mall. This expense reduction compared to last year’s third quarter was offset by increased expenses this quarter due to the four additional malls under operation (Real Plaza Cusco, Real Plaza Cajamarca, Real Plaza Salaverry and Real Plaza Centro Civico) and shopping malls expansions since Q3 2013 (a total of 206,468 sqm of additional GLA). InRetail Shopping Malls selling and administrative expenses were S/. 22 million for the nine months ended September 30, 2014, 0.2% below the same period in 2013, decreasing from 14.5% to 9.2% as a percentage of shopping malls revenues.
Intercompany transactions are eliminated upon consolidation of our financial statements.
Consolidation adjustments caption represents the necessary amounts that are included in the consolidation process for the subsidiaries’ financial statements in order to show them as a single entity instead of separate business units.
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Other operating income (expenses), net
InRetail Peru’s other operating income (expenses), net, resulted in an income of S/. 12 million in the third quarter of 2014, in line with the same period in 2013. For the nine months ended September 30, 2014, InRetail Peru’s other operating income (expenses), net, resulted in an income of S/. 44 million, compared to an income of S/. 45 million in the same period in 2013.
Other operating income is generated primarily in InRetail Shopping Malls by increases in
the fair value of investment properties determined in accordance with IFRS. In the third quarter of 2014, other operating income from marking the investment properties to market was S/. 10 million compared to S/. 12 million in the same period in 2013. For the nine months ended September 30, 2014, other operating income from marking the investment properties to market was S/. 42 million compared to S/. 15 million for the same period in 2013.
Operating profit The following table sets forth InRetail Peru’s operating profit for the third quarter of 2014
and 2013, and the nine months ended September 30, 2014 and 2013.
InRetail Peru’s operating profit grew S/. 36 million, or 37.9%, in the third quarter of 2014
compared to the same period in 2013. Operating margin (defined as operating profit as a percentage of revenues) was 8.5% in the third quarter of 2014 compared to 7.1% in the same period in 2013. For the nine months ended September 30, 2014, InRetail Peru’s operating profit reached S/. 350 million, 38.4% over the same period in 2013. InRetail Peru’s operating margin was 7.9% for the nine months ended September 30, 2014, compared to 6.6% for the same period in 2013. InRetail Peru’s operating profit analysis by segment InRetail Consumer
InRetail Consumer’s operating profit grew S/. 11 million, or 18.5%, in the third quarter of 2014 compared to the same period in 2013. Operating margin (defined as operating profit as a percentage of revenues) was 4.7% in the third quarter of 2014 compared to 4.5% in the same period in 2013. For the nine months ended September 30, 2014, InRetail Consumer’s operating profit reached S/. 193 million, 15.2% over the same period in 2013. InRetail Consumer’s operating
Operating Profit
2014 2013 Change 2014 2013 Change
% %
In Millions
InRetail Consumer: 69 58 18.5% 193 168 15.2%
Supermarkets 24 21 15.1% 76 69 10.0%
Pharmacies 45 37 20.5% 117 99 18.8%
InRetail Shopping Malls: 65 39 68.4% 168 91 83.9%
Holding expenses and consolidation adj. -4 -2 66.7% -11 -6 80.9%
Total Operating Profit 131 95 37.9% 350 253 38.4%
For the nine months ended Set 30, Third Quarter
(Nuevos Soles )(Nuevos Soles )
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margin was 4.6% for the nine months ended September 30, 2014, compared to 4.5% for the same period in 2013. InRetail Consumer’s operating profit analysis by segment Supermarkets operating profit increased S/. 3 million, or 15.1% in the third quarter of 2014
compared to the same period in 2013, due to higher gross margin, operational and logistic efficiencies, despite higher selling and administrative expenses. Supermarkets operating margin was 2.6% in the third quarter of 2014, in line with the the third quarter of 2013. Supermarkets operating profit and operating margin were S/. 76 million and 2.9% respectively for the nine months ended September 30, 2014, compared to S/. 69 million and 2.9% for the same period in 2013.
Pharmacies operating profit grew S/. 8 million, or 20.5% in the third quarter of 2014 compared to the same period in 2013, increasing its operating margin from 7.7% to 8.2% mainly due to a higher gross profit and logistic efficiencies, despite higher selling and administrative expenses. Pharmacies operating profit and operating margin were S/. 117 million and 7.6% respectively for the nine months ended September 30, 2014, compared to S/. 99 million and 7.4% for the same period in 2013.
InRetail Shopping Malls InRetail Shopping Malls operating profit grew S/. 27 million, or 68.4% in the third quarter of 2014 compared to the same period in 2013, due to higher revenues, gross profit, and lower selling and administrative expenses, despite a decrease in other operating income from marking the investment properties to market. For the nine months ended September 30, 2014 operating profit and operating margin were S/. 168 million and 70.0%, compared to S/. 91 million and 60.3% for the same period in 2013.
Consolidation adjustments caption represents the necessary amounts that are included in the consolidation process for the subsidiaries’ financial statements in order to show them as a single entity instead of separate business units. Financial income (expenses), net
InRetail Peru’s financial income (expenses), net, resulted in a loss of S/. 111 million in the third quarter of 2014, compared to a loss of S/. 34 million in the same period of 2013. For the nine months ended September 30, 2014 we registered a loss of S/. 189 million, compared to a loss of S/. 225 million in the same period of 2013.
InRetail Peru’s financial expenses were S/. 55 million in the third quarter of 2014, 29.4%
over the same period of 2013. For the nine months ended September 30, 2014, InRetail Peru’s financial expenses were S/. 143 million, 11.6% over the same period in 2013.
Due to the effect of the depreciation of the nuevo sol relative to the U.S. dollar on our
financial liabilities denominated in U.S. dollars, we registered a net exchange loss of S/. 58 million in the third quarter of 2014, compared to a net exchange gain of S/. 1 million in the same
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period of 2013. For the nine months ended September 30, 2014 we registered a net exchange loss of S/. 57 million, compared to a net exchange loss of S/. 116 million in the same period of 2013. InRetail Peru’s financial income(expense)s, net analysis by segment InRetail Consumer
InRetail Consumer’s financial income (expenses), net, resulted in a loss of S/. 55 million in the third quarter of 2014, compared to a loss of S/. 28 million in the same period of 2013, as a result of foreign exchange losses and financial expenses. For the nine months ended September 30, 2014 we registered a loss of S/. 107 million, compared to a loss of S/. 142 million in the same period of 2013.
Due to the effect of the depreciation of the nuevo sol relative to the U.S. dollar on our financial liabilities denominated in U.S. dollars, we registered a net exchange loss of S/. 27 million in the third quarter of 2014. For the nine months ended September 30, 2014 we registered a net exchange loss of S/. 26 million, compared to a net exchange loss of S/. 69 million in the same period of 2013.
InRetail Shopping Malls
InRetail Shopping Malls’ financial income (expenses), net, resulted in a loss of S/. 55 million in the third quarter of 2014, compared to a loss of S/. 7 million in the same period of 2013. For the nine months ended September 30, 2014 we registered a loss of S/. 81 million, compared to a loss of S/. 83 million in the same period of 2013.
InRetail Shopping Malls’ financial expenses were S/. 26 million in the third quarter of 2014,
107.3% over the same period of 2013, due to an increase in our borrowings related to our recent issuances and one-time expenses from the local debt refinancing. For the nine months ended September 30, 2014, InRetail Shopping Malls’ financial expenses were S/. 59 million, 21.4% over the same period in 2013.
Due to the effect of the depreciation of the nuevo sol relative to the U.S. dollar on our
financial liabilities denominated in U.S. dollars, we registered a net exchange loss of S/. 30 million in the third quarter of 2014, compared to a net exchange gain of S/. 1 million in the same period of 2013. For the nine months ended September 30, 2014 we registered a net exchange loss of S/. 29 million, compared to a net exchange loss of S/. 47 million in the same period of 2013.
Income tax expense
Income tax is paid based on the profit from sales and rental revenues in our segments as well as capital gains tax from realized gains or losses in the value of investment properties. InRetail Peru registered an income tax expense of S/. 18 million in the third quarter of 2014, compared to an income tax expense of S/. 24 million in the same period in 2013.
InRetail Peru’s income tax expense increased S/. 38 million, or 124.0%, in the nine months
ended September 30, 2014 compared to the same period in 2013.
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Net income
InRetail Peru registered a net income of S/. 2 million in the third quarter of 2014 compared to a net income of S/.37 million in the same period in 2013. Net margin (net income as a percentage of revenues) was 0.1% in the third quarter of 2014 compared to 2.7% in the same period in 2013.
InRetail Peru’s net income amounted S/. 92 million for the nine months ended September
30, 2014, compared to a net loss of S/. 3 million in the same period in 2013. Net margin was 2.1% in the nine months ended September 30, 2014, compared to -0.1% in the same period in 2013. Adjusted EBITDA2
The following table sets forth InRetail Peru’s adjusted EBITDA for the third quarter of 2014 and 2013, and the nine months ended September 30, 2014 and 2013.
3
InRetail Peru’s adjusted EBITDA increased S/. 44 million, or 39.7% in the third quarter of 2014 compared to the same period in 2013. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenues) increased from 8.2% in the third quarter of 2013 to 10.0% in the same period in 2014.
InRetail Peru’s adjusted EBITDA amounted S/. 402 million for the nine months ended September 30, 2014, 27.4% over the same period in 2013. Adjusted EBITDA margin improved from 8.2% in the nine months ended September 30, 2013 to 9.1% in the same period in 2014.
2 We define Adjusted EBITDA as operating profit, plus depreciation and amortization, less the impact of marking to market the values of
our investment properties.
InRetail Peru Corp Adjusted EBITDA
2014 2013 Change 2014 2013 ChangeIn Millions % %
InRetail Consumer: 99 84 18.0% 281 241 16.6%
Supermarkets 48 42 15.0% 146 129 13.4%
Pharmacies 52 43 20.3% 136 113 20.1%
Holding expenses and
intersegments transactions-0 -1 -46.5% -1 -1 7.3%
InRetail Shopping Malls: 55 26 109.6% 134 77 74.4%
Total 155 111 39.9% 415 318 30.5%
Holding expenses and intercompany
transactions-1 -1 63.5% -14 -3 386.2%
Adjusted EBITDA 154 110 39.7% 402 315 27.4%
For the nine months ended September 30, Third Quarter
(Nuevos Soles )(Nuevos Soles )
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InRetail Peru’s adjusted EBITDA analysis by segment
InRetail Consumer
InRetail Consumer’s adjusted EBITDA increased S/. 15 million, or 18.0% in the third quarter of 2014 compared to the same period in 2013. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenues) increased from 6.5% in the third quarter of 2013 to 6.8% in the same period in 2014. For the nine months ended September 30, 2014, InRetail Consumer’s adjusted EBITDA amounted S/. 281 million 16.6% over the same period in 2013. Adjusted EBITDA margin improved from 6.5% in the nine months ended September 30, 2013 to 6.7% in the same period in 2014.
InRetail Consumer’s adjusted EBITDA analysis by segment
Supermarkets adjusted EBITDA increased S/. 6 million, or 15.0% in the third quarter of 2014 compared to the same period in 2013. Adjusted EBITDA margin increased from 5.1% in the third quarter of 2013 to 5.3% in the same period 2014, mainly due to higher gross profit operational and logistic efficiencies, despite higher selling and administrative expenses. For the nine months ended September 30, 2014, Supermarkets adjusted EBITDA amounted S/.146 million, 13.4% over the same period in 2013. Adjusted EBITDA margin was 5.5% in the third quarter of 2014, compared to 5.4% in the same period in 2013.
Pharmacies adjusted EBITDA grew S/. 9 million, or 20.3% in the third quarter of 2014 compared to the same period in 2013. Adjusted EBITDA margin improved from 8.9% in the third quarter of 2013 to 9.4% in the same period in 2014, mainly due to higher gross profit and logistic efficiencies, despite higher selling and administrative expenses. For the nine months ended September 30, 2014, pharmacies adjusted EBITDA amounted S/. 136 million, 20.1% compared to the same period in 2013. Pharmacies adjusted EBITDA margin improved from 8.5% in the nine months ended September 30, 2013, to 8.8% in the same period in 2014.
InRetail Shopping Malls
InRetail Shopping Malls adjusted EBITDA grew S/. 29 million, or 109.6% in the third quarter of 2014 compared to the same period in 2013. Adjusted EBITDA margin improved from 48.2% in the third quarter of 2013 to 58.4% in the same period in 2014, mainly due to revenue growth and higher gross margin and lower selling and administrative expenses. For the nine months ended September 30, 2014, InRetail Shopping Malls adjusted EBITDA was S/. 134 million, 74.4% over the same period in 2013. InRetail Shopping Malls adjusted EBITDA margin improved from 50.8% in the nine months ended September 30, 2013, to 55.9% in the same period in 2014. InRetail Shopping Malls adjusted EBITDA divided by net rental income was 81.2% in the third quarter of 2014, compared to 68.3% in the same period of 2013. For the nine months ended September 30, 2014, InRetail Shopping Malls adjusted EBITDA divided by net rental income was 79.1%, compared to 72.8% in the same period of 2013.
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InRetail Consolidated CAPEX The following graph sets forth the evolution of the Capital Expenditures mainly used to finance our new shopping malls and store openings:
Consolidated Financial Debt The following graph sets forth the main financial ratios of InRetail Peru Corp. Consolidated for the years 2012, 2013 and the last quarters:
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Financial Debt by Segment The following diagram sets forth the financial consolidated debt by segment as of September 30, 2014:
Financial Covenants InRetail Consumer
InRetail Shopping Malls
LTM
Q3 2014
Net Debt/ EBITDA 2.6x < 3.5x Prior to the 2nd anniversary
Covenant
LTM
Q3 2014
Total Debt / Total Assets 37.0% <60%
Secured Debt / Total Assets 2.6% <30%
EBITDA / Interest Expense 2.31x >1.75x Prior to the 2nd anniversary
Unencumbered Assets / Unsecured Debt 247% >150%
Covenant
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IV. Main Events
A. During the Period
InRetail Consumer
Supermarkets
Opened two supermarkets Ventanilla in Lima and Pucallpa in Ucayali. The additional sales area of our supermarkets in the third quarter of 2014 was 7,711 sqm.
Pharmacies
Opened 36 pharmacies and closed 3, increasing our network by 33 stores, 10 in Lima and 23 in provinces.
InRetail Shopping Malls
Acquired Real Plaza Centro Civico, a mall with over 42k sqm of GLA. This mall includes one supermarket (Plaza Vea), one department store (Oechsle) and one cinema complex with 6 screens (Cineplanet). This mall will be expanded in 9,000 sqm of GLA with the opening of a Falabella department store which is currently under construction.The shoping mall generated LTM Q3’14 revenues of S/. 45 million and LTM Q3’14 Adjusted EBITDA of S/. 27 million.
Acquired Puruchuco’s landplot for the development of the new shopping mall (expected GLA of 110k sqm).
In July 2014, InRetail Shopping Malls issued two Senior Unsecured Notes for a combined total of approximately S/. 1,153 million. The use of proceeds of these issuances is to i) refinance existing debt, ii) reduce cost of finance, iii) have a lighter amortization schedule, freeing up cash, iv) finance the development of new shopping malls.
Cash savings from interest expenses of S/. 12 million per year achieved from refinancing at InRetail Shopping Malls.
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B. Recent Events
New corporate structure
During the third quarter of 2014, we introduced InRetail Consumer that groups our supermarket and pharmacy segments, allowing us to have a separate and independent capital structure for these segments from our shopping mall segment. InRetail Consumer is a Peruvian trust and is 100% subsidiary of InRetail Peru Corp.
New international bond issuance In October 2014, InRetail Consumer issued two senior unsecured notes for a combined total of approximately S/. 1,118 million, which are being used mainly to refinance current debt. The debt refinancing achieved both at InRetail Consumer and InRetail Shopping Malls have enable us to reduce our cash interest expenditures by S/. 36 million per year. The main terms and conditions of InRetail Consumer issuances are shown in the following table:
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The US$ 300 million Senior Notes were issued in October 7th, 2014 in the international markets, under Rule 144A and Regulation S of the U.S. Securities Act. The Notes have a coupon of 5.250% due in 2021. The transaction was oversubscribed by more than 6 times and exceeded a demand of US$ 2.0 billion.
In October 22, 2014, InRetail Consumer issued S/. 250 million Senior Notes within the international markets under Regulation S of the U.S. Securities Act. The Notes have a coupon of 6.8125% and are due in 2021.
The use of proceeds and impact of these issuances is as follows:
i. Refinance the tendered 8.875% Intercorp Retail Trust Notes due 2018
ii. Refinance S/. 250 million of local financial obligations
iii. Reduce cash interest expenditures by S/. 24 million per year
iv. Reduce cost of finance
v. Have a lighter amortization schedule, freeing up cash
Eliminate all debt from holding company
Our new corporate structure and subsequent debt issuances and refinancing executed at InRetail Shopping Malls (Q3 2014) and InRetail Consumer (Q4 2014) have enable us to eliminate all debt from our holding company.
Independent capital structures
Moving forward, InRetail Shopping Malls and InRetail Consumer will be the vehicles we will use to obtain any additional funding needed, maintaining independent capital structures in line with the risk profiles of their underlying segments.
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Pro Forma Debt
The following diagram sets forth the current cash, debt and financial ratios as of September 30, 2014 for InRetail Peru Corp and it’s subsidiaries:
Fast deleveraging expected
InRetail Peru Corp Consolidated LTM EBITDA figures as of September 30, 2014, do not fully reflect the contribution of our recent openings, as we have opened a great number of stores and malls in the last months. As these stores continue their ram up period, they will contribute to our deleveraging.
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V. Key Indicators
Number of Stores and Sales Area of Retail Segments
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Number of Shopping Malls and GLA of InRetail Shopping Malls
Quarterly Same Store Sales (SSS) Growth by Segment
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This material was prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities.
This presentation may include forward-looking statements or statements about events or circumstances which have not yet occurred. We have based
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