SUBMARINO ANNOUNCES 1Q05 RESULTS São Paulo, Brazil, April 19, 2005 – Submarino S.A. (Bovespa: SUBA3), the leading pure-play online retailer in Brazil, announces its 1Q05 results. Submarino has built a strong brand and a premium customer base by offering a superior breadth and depth of product selection combined with best-in-class customer service. Through its website at www.submarino.com.br , it offers more than 700,000 items across 22 product categories that we source directly from more than 950 suppliers. Submarino’s financial statements are prepared in accordance with the Brazilian Corporation Law, the rules and regulations of the Brazilian Securities and Exchange Commission (“CVM”) and the accounting standards issued by the Brazilian Institute of Accountants. QUARTER HIGHLIGHTS Gross revenue was R$ 99.0 million (US$ 37.1 million), corresponding to a 65.2% increase when compared to 1Q04. Gross profit reached R$ 21.1 million (US$ 7.9 million), equivalent to 29.1% of net sales, representing a 66.4% growth when compared to 1Q04. EBITDA 1 , excluding extraordinary expenses, increased by 113.1%, reaching R$ 8.1 million (US$ 3.0 million), representing a 11.2% margin over net revenues, compared to 7.9% margin reported in the same period last year. Such positive performance reflects the operating leverage of the Company’s business model. On March 30, 2005, the Brazilian Securities and Exchange Commission (“CVM”) registered the Company’s primary and secondary public offerings, and on the same date, the Company’s common shares started being traded on the São Paulo Stock Exchange, under the ticker “SUBA 3”, as part of the “Novo Mercado”. The offering was constituted of 21,875,000 book-entry registered common shares offered at the price of R$ 21.62 each. On April 4, 2005, both the Primary Public Offering and the Secondary Public Offering were concluded, whereby the primary offering involved 6,250,000 common shares at the issuing unit price of R$ 21.62, resulting in a capital paid-in of R$ 135.1 million. As a result of this issuance, the Company’s capital stock increased to R$ 180.3 million, representative of 45,937,705 book-entry registered common shares. During the 1Q05, Submarino launched a category in its website for the sale of musical instruments. In this category, Submarino offers products from key brands like Epiphone, Peavey, ZOOM, Ernie ball, Audio Technica (supplied by Royal Music), Musical Izzo, Tagima, Contemporanea, Kashima, Warm Music, Sennheiser, Habro Music, Casio, Weri amd Ciclotron, among others. In a partnership with MTV Brasil, Submarino inaugurated “MTV World”, a dedicated section in its website for the sale of MTV products and other musical releases. Similarly, MTV launched the “MTV Store” in its website, which is operated by Submarino. 1 The EBTIDA (earnings before tax, interests, depreciation and amortization, excluding extraordinary expenses) is presented as additional information, since we believe that it is an important indicator of our operating performance, besides being useful for comparing our performance to other companies of the retailing industry. However, no figure should be individually taken into consideration as a substitute for the net income calculated according to either the US GAAP or the Brazilian Corporate Law, or even as profitability measure for the Company. Additionally, our calculations may not be comparable to other similar measures used by other companies. 1Q05 Results Conference Calls: April 19, 2005 9:00 a.m. US EST Portuguese 11:00 a.m. US EST English Investor Relations Meeting April 26, 2005 06:00 p.m. Intercontinental Hotel São Paulo Investor Relations: Martín E. Escobari Investor Relations Officer [email protected]
Transcript
SUBMARINO ANNOUNCES 1Q05 RESULTS
São Paulo, Brazil, April 19, 2005 – Submarino S.A. (Bovespa: SUBA3), the leading pure-play online retailer in Brazil, announces its 1Q05 results. Submarino has built a strong brand and a premium customer base by offering a superior breadth and depth of product selection combined with best-in-class customer service. Through its website at www.submarino.com.br, it offers more than 700,000 items across 22 product categories that we source directly from more than 950 suppliers. Submarino’s financial statements are prepared in accordance with the Brazilian Corporation Law, the rules and regulations of the Brazilian Securities and Exchange Commission (“CVM”) and the accounting standards issued by the Brazilian Institute of Accountants.
QQUUAARRTTEERR HHIIGGHHLLIIGGHHTTSS
Gross revenue was R$ 99.0 million (US$ 37.1 million), corresponding to a 65.2% increase when compared to 1Q04. Gross profit reached R$ 21.1 million (US$ 7.9 million), equivalent to 29.1% of net sales, representing a 66.4% growth when compared to 1Q04.
EBITDA1, excluding extraordinary expenses, increased by 113.1%, reaching R$ 8.1 million
(US$ 3.0 million), representing a 11.2% margin over net revenues, compared to 7.9% margin reported in the same period last year. Such positive performance reflects the operating leverage of the Company’s business model.
On March 30, 2005, the Brazilian Securities and Exchange Commission (“CVM”) registered
the Company’s primary and secondary public offerings, and on the same date, the Company’s common shares started being traded on the São Paulo Stock Exchange, under the ticker “SUBA 3”, as part of the “Novo Mercado”. The offering was constituted of 21,875,000 book-entry registered common shares offered at the price of R$ 21.62 each.
On April 4, 2005, both the Primary Public Offering and the Secondary Public Offering were
concluded, whereby the primary offering involved 6,250,000 common shares at the issuing unit price of R$ 21.62, resulting in a capital paid-in of R$ 135.1 million. As a result of this issuance, the Company’s capital stock increased to R$ 180.3 million, representative of 45,937,705 book-entry registered common shares.
During the 1Q05, Submarino launched a category in its website for the sale of musical
instruments. In this category, Submarino offers products from key brands like Epiphone, Peavey, ZOOM, Ernie ball, Audio Technica (supplied by Royal Music), Musical Izzo, Tagima, Contemporanea, Kashima, Warm Music, Sennheiser, Habro Music, Casio, Weri amd Ciclotron, among others. In a partnership with MTV Brasil, Submarino inaugurated “MTV World”, a dedicated section in its website for the sale of MTV products and other musical releases. Similarly, MTV launched the “MTV Store” in its website, which is operated by Submarino.
1 The EBTIDA (earnings before tax, interests, depreciation and amortization, excluding extraordinary expenses) is presented as additional information, since we believe that it is an important indicator of our operating performance, besides being useful for comparing our performance to other companies of the retailing industry. However, no figure should be individually taken into consideration as a substitute for the net income calculated according to either the US GAAP or the Brazilian Corporate Law, or even as profitability measure for the Company. Additionally, our calculations may not be comparable to other similar measures used by other companies.
Page 2 of 8 CCOOMMMMEENNTTSS FFRROOMM TTHHEE MMAANNAAGGEEMMEENNTT AABBOOUUTT 11QQ0055 PPEERRFFOORRMMAANNCCEE Submarino had an excellent 1Q05 in terms of growth and profitability. Gross sales increased by 65.2% when compared to 1Q04. The Company’s growth benefited from the increase in the number of people shopping online in Brazil. During the period, Submarino’s active client base increased to 1.0 million clients, representing a 56.8% increase compared to 1Q04. The Company’s EBTIDA grew by 113.1% compared with 1Q04, demonstrating the operating leverage of its business model. This quarter, Submarino launched two major initiatives in the music segment: the MTV Store and the inclusion of the musical instrument category in its website. Both initiatives aim to increase the Company’s music offerings and to position the Submarino as a major destination for music enthusiasts. The distribution of music is undergoing a major transformation, and Submarino wants to be well positioned to benefit from the changes in the industry. With the initial public offering, the Company strengthened its balance sheet, paying down all outstanding debt and thus reduced the Company’s vulnerability towards eventual increases in interest rates. Looking forward, Submarino is confident of its ability to keep growing profitably, fueled by the growth of online retail in Brazil and the Company’s focus on maintaining low operating costs. RREEVVEENNUUEESS AANNDD GGRROOSSSS PPRROOFFIITT Gross revenues and gross profit were R$ 99 million and R$ 21.1 million, respectively, representing growth of 65% and 66% respectively, when compared to 1Q04. Such growth resulted from an increase of 56.0% in the number of orders and an increase of 4.7% in the average ticket. The growth in the number of orders primarily came from the increase in the Company’s active client base, which grew 56.9% compared with Q104. Easter sales (which happened in 2Q04 and in 1Q05) were not a significant driver of the increase in sales. E-commerce services continued to grow faster than the rest of the Company, reaching to 6.9% of gross revenues, up from an average of 6.0% in 2004. The comparison of 1Q05 and 1Q04 net revenues is impacted by the change in the treatment of PIS and COFINS credits (social taxes). During the first half 2004, PIS and COFINS credits were recorded as a credit to taxes in the deductions from sales line, increasing the amount of net revenues. After the decision of IBRACON (Brazilian Institute of Accountants), in the second half of 2004, such credits started being recorded in the cost of sales. Net revenues grew 50,3% in 1Q05 compared to 1Q04, but if we adjusted for the change in PIS and COFINS, the growth would have been approximately 58,6%. 1Q05 gross profit reached R$ 21.1 million, equivalent to 29.1% of net revenues, which represented a 66.4% growth when compared to 1Q04. The gross profit margin in 1Q04 adjusted for the change in PIS and COFINS would have been approximately 27.0%. The improvements in gross profit come from increases in freight revenues (since freight costs are booked in selling expenses) and margin expansion from greater bargaining power with suppliers. OOPPEERRAATTIINNGG EEXXPPEENNSSEESS Selling Expenses
Selling expenses amounted to R$ 11.6 million, representing a 57% growth over 1Q04. Selling expenses were 16.0% of net sales in 1Q05, compared to 15,3% in 1Q04. The increase of selling expenses was driven by an increase in freight expenses which increased from 4.5% of net sales in 1Q04 to 5.5% in 1Q05. Such increase did not have any effect in profitability, since net freight (after freight revenues from clients) costs as a
1Q05 Results
Page 3 of 8 percentage of sales actually declined. The table below shows a comparison of net freight costs in the 1Q04 and 1Q05. Adjusting for freight costs, the Company had a slight productivity gain in selling costs.
General and Administrative Expenses (G&A Expenses) G&A expenses amounted to R$ 7.2 million, and excluding extraordinary expenses (principally IPO costs), they totaled R$ 1.4 million, a 0.5% reduction over 1Q04. In 1Q04, the Company made a provision of R$ 0.37 thousand for a special sale incentive in 2004, which was not repeated in 2005. Disregarding such provision and extraordinary expenses, G&A expenses increased by 35%.
FFIINNAANNCCIIAALL RREESSUULLTT Financial expenses increased by 59% over 1Q04, reaching R$ 5.5 million, which is lower than revenues growth reported by the Company. Such performance resulted from improved financing rates, which offset the increase in the basic interest rate in the period. Financial revenues increased by 608%, reaching R$ 1.3 million, mostly as a result of interests on short-term investments, related to the R$ 32.9 million capitalization which occurred in January 2005. Net financial result declined from 6.9% to 5.9% of net revenues when compared to the previous year. With the stock public offering, the Company fully paid its bank debts and anticipates a significant increase in financial revenues, expecting a positive net financial result in the coming quarters. After the offering and the payment of debts, the Company had R$ 77 million in cash and cash equivalents. EEBBIITTDDAA,, NNEETT IINNCCOOMMEE AANNDD NNEETT FFIINNAANNCCIIAALL RREESSUULLTT PPEERR SSHHAARREE EBITDA excluding extraordinary expenses, mostly the ones related to the stock offering, increased by 113.1%, reaching R$ 8.1 million with a 11.2% margin over net revenues, compared to a 7.9% margin reported in 1Q04. For comparison purposes, during the 4Q04, the quarter which typically presents the best performance in the year, the EBITDA margin was 11.5% of net revenues. Operating profit amounted to R$ 2.7 million, but the Company had no net income. This fact had been expected by the Company, due to extraordinary expenses related to the IPO (explained in details in the Notes to Financial Statements attached to the Quarterly Information). In 2Q05 the Company expects additional IPO expenses of R$ 9.1 million, related to underwriter commissions and associated taxes. Earnings per share, excluding extraordinary expenses related to the IPO, increased from a loss per share of negative R$ 0.03 (in 1Q04) to an EPS of R$ 0.07 in 1Q05.
Page 4 of 8 BBAALLAANNCCEE SSHHEEEETT Submarino’s liquidity significantly increased in 1Q05. The balance of cash and receivables less loans and tax installments debts increased by R$ 46.6 million. On March 31, 2005, the Company anticipated the payment of all deferred taxes. Net funds resulting from the primary offering, after deducting taxes and placement and coordination commission fees, amounted to R$ 126.0 million, and were immediately used to pay bank debts totaling R$ 78.7 million. CCAASSHH FFLLOOWW The Cash generated in operating activities was negative in R$ 6.5 million in 1Q05, compared to a positive cash generation of R$ 7.1 million in 1Q04. The difference primarily results from the fact that the discount of receivables in 1Q05 amounted to R$ 1.4 million, which is quite lower than the volume of discounts reported in 1Q04, which totaled R$ 10.4 million. The variation of operating cash was also impacted by the lower volume of purchases from suppliers during 1Q05 when compared to 1Q04, due to the fact that the Company ended 2003 with an inventory level below the ideal target. If Submarino had maintained similar level of purchases in 2005, the cash flow would have improved by another R$ 6.9 million. Finally, the operating cash flow was negatively impacted in R$ 0.8 million by payments referring to IPO expenses. The use of cash with investments increased by R$ 0.8 million mostly due to investments in software and licenses. The cash flow with financing activities amounted to R$ 44.1 million related to the capital increase of R$ 32.9 million made by shareholders in January 2005 and the increase in debt financings related to the decision to reduce the discounting of receivables. As informed to the market, the Company paid down all outstanding debt in April 2005. AADDDDIITTIIOONNAALL IINNFFOORRMMAATTIIOONN
Submarino believes that the e-commerce growth combined with its strategy of increasing the range of products offered, launching new categories and services and the quality of its services will allow the Company to keep growing in revenues and profitability.
Our guidance for 2005 is: gross revenues ranging from R$ 560 and R$ 578 million, which is 55% to 60% higher than 2004 gross revenues, and EBITDA of approximately R$ 46 to R$ 50 million, representing a 74% to 89% growth over 2004.
Cash, Receivables and Net Debt (R$ million) 03/31/2005 03/31/2004
Cash and Cash Equivalents 36.9 0.1 Receivables 92.5 45.2 Loans and Financings (77.9) (35.3) Tax Installments - (5.2)
- - 51.4 4.8
1Q05 Results
Page 5 of 8 11QQ0055 RREESSUULLTTSS EEVVEENNTTSS Portuguese Conference Call: Today, April 19, 2005, at 09:00 a.m. US EST (10h00 Brasília time) Connecting Number: +55 (11) 2101-1490 Code: Submarino English Conference Call: Today, April 19, 2005, at 11:00 a.m. US EST (12h00 Brasília time) Connecting Number: +1 (973) 409-9258 Code: Submarino or 5973277 Investors Meeting April 26, 2005 – Tuesday – 06:00 p.m. Brasília time Intercontinental Hotel – São Paulo Alameda Santos, 1123 – Salão Giorgi RSVP: [email protected], +55 (11) 5509-3777 We make forward-looking statements that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our management, and on information currently available to us. Forward-looking statements include statements regarding our intent, belief or current expectations or that of our directors or executive officers.
Forward-looking statements also include information concerning our possible or assumed future results of operations, as well as statements preceded by, followed by, or that include the words ''believes,'' ''may,'' ''will,'' ''continues,'' ''expects,'' ''anticipates,'' ''intends,'' ''plans,'' ''estimates'' or similar expressions.
Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Our future results and shareholder values may differ materially from those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict.
1Q05 Results
Page 6 of 8 AANNNNEEXX II -- IINNCCOOMMEE SSTTAATTEEMMEENNTT
Submarino S/A Income Statement(in thousands of R$)
1Q04 1Q05 Var. Gross revenues 59,916 98,957 65.2% Deductions of sales (11,740) (26,556) 126.2%
Net revenues 48,176 72,401 50.3% Cost of sales (35,512) (51,331) 44.5%
Gross profit 12,664 21,071 66.4%
Operation expenses (income)Selling 7,366 11,594 57.4% General and administrative 1,509 7,152 374.0% Extraordinary expenses - 5,750 n/a Other general and administrative 1,509 1,402 -7.1% Financial expenses 3,498 5.558 58.9% Financial income (182) (1,288) 608.2% Depreciation and amortization 815 1,061 30.1%
13,006 24,077 85.1%
Net income (loss) for the year (342) (3,006) n/a
Non-operating expenses, net (1) (12) n/a
Income tax and social contribution (152) n/a
Net income (loss) for the quarter (342) (3,170) n/a
Other Data:
EBITDA 3,790 8,074 113.1%
Quantity of invoiced orders (000s) 317,541 495,283 56.0% Average ticket 191 200 4.7% Active customer base 639 1,016 59.0%
1Q05 Results
Page 7 of 8 AANNNNEEXX IIII -- BBAALLAANNCCEE SSHHEEEETT
Submarino S/A Balance Sheet (in thousands of R$)
ASSETS December 04 March 05 Current assets
Cash and banks 2,195 36,892 Account receivables 102,704 92,452 Other receivables 104 556 Inventories 25,922 26,678 Prepaid expenses 1,195 1,400
132,120 157,977 Non-current assets
Related parties 1,524 1,540 Deferred charges 190 207 Other receivables 172 191
1,886 1,938 Permanent assets
Property and equipment 7,966 8,444 Deferred charges 2,475 2,306
10,441 10,750 Total assets 144,447 170,665 LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities
Suppliers 50,977 42,294 Salaries and social charges payable 5,640 3,267 Taxes payable 7,000 780 Loans and financing 51,076 68,721 Taxes and social charges payable in installments 2,630 -
Accounts payable 3,085 3,705 Other accounts payable 3,834 6,757
124,242 125,524 Long-term liabilities
Loans and financing 13,744 9,202 Taxes and social charges payable in installments 153 -
Provision for contingencies 285 145 14,182 9,347
Stockholders’ equity Capital 12,271 45,212 Accumulated deficit (6,247) (9,418)
- - 6,024 35,794
Total liabilities and stockholders’ equity 144,447 170,665
1Q05 Results
Page 8 of 8 AANNNNEEXX IIIIII -- CCAASSHH FFLLOOWW SSTTAATTEEMMEENNTT
Submarino S/A Cash Flow Statements (in thousands of R$) Operating activities 1Q04 1Q05
Net income (loss) for the year (342) (3,170) Adjustments to reconcile net income to cash generated by operating activities:
Depreciation and amortization 815 1,061 Residual value of fixed asset disposals (0) 12 Provision for doubtful accounts 27 161 Provision for loss on inventories 124 (93) Interest from loans and financing 2,969 4,550 Interest on related parties loans (15) (15) Financial income (182) (1,288)
3,396 1,218
Increase (decrease) Trade accounts receivable 13,704 10,091 Inventories (3,878) (663) Prepaid expenses (115) (180) Other receivables (137) (451) Suppliers (963) (8,683) Accounts payable (548) 2,922 Taxes and social charges payable in installments (1,909) (2,783) Salaries and social charges payable (105) (2,372) Taxes payable (2,958) (6,220) Other accounts payable 566 620
Net cash used in operating activities 7,053 (6,501)
Investing activities
Acquisition of machinery and equipment (4) Acquisition of computers and peripherals (346) (288) Acquisition of software (253) (1,043) Other 31 (47)
Net cash used in investing activities (568) (1,382)
Financing activities Loans and financing 4,981 27,503 Payment of loans and financing (9,297) (14,161) Interest paid on loans (1,876) (3,470) Prepaid interest (1,157) (1,344) Increase (decrease) in non-current assets 78 (37) Increase (decrease) in long-term liabilities - (140) Paid-up capital - 32,941 Financial income 182 1,288
Net cash from financing activities (7,089) 42,580
Increase (decrease) in cash (604) 34,697
Cash and cash equivalents at the beginning of the year 686 2,195
Cash and cash equivalents at the end of the quarter 82 36,892
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