Ripley Corp SA

SGO:RIPLEY

Earnings Call Transcript 2018-Q3

[Operator]

Welcome to the result statement conference Ripley Corp. third quarter 2018. My name is Anna, and I will be the operator for today's call. [Operator Instructions] Please keep in mind this conference being recorded, and from this moment I want to give the microphone to Ms. Patricia Alvaro, head manager of relationship with investors. Please Ms. Patricia, you can start.

[Patricia Aspillaga, executive]

Thank you, Anna. Good morning, everyone, and thank you for joining the conference where we will be presenting a statement of results for the third quarter 2018. In our website of investors, you may find a copy of the presentation of this telephone conference together with our report of the quarter and the financial -- consolidated financial statement. During the call the senior management may make statements about the future in order to help you to understand the performance expectations. These statements are subject to changes, risks and future uncertainties, so all are of the activity of the company. Now real results may change materially from those pointed out here. For further information about these risks, you can go to the financial statements and recent announcement of the company by September 2018. In the conference are joining us Mr. Rafael Ferrada, Corporate CFO; and Ms. Loreto Morena, [indiscernible] relationship with investors. I would like to give the microphone to Mr. Rafael Ferrada.

[Rafael Ferrada Moreira, executive]

Thank you, Patricia. Good morning, and thank you, everyone, for joining this teleconference where we will be explaining results of Ripley Corp. for the third quarter. In today's presentation, and as usual, we will start with a brief summary of the accumulated results of -- in this case by September 30, 2018. Then we will make comments of the measurable facts that happened in the recent months, and we will continue with a summary of the results of the third quarter. But then to continue with a further detailed outlook of results of this quarter.

Please let's move on to Slide #3. In this slide we can see Ripley Corp reach a net profit of CLP 34.318 billion during the first 9 months of 2018, which represents a 10.5% increase compared to the profits of obtained in the same period in the previous year. On the other hand, our operational results also showed an important growth of 21.7% reaching CLP 45.126 billion by September of this year.

The positive performance of the company is mainly explained by a significant improvement in the operation of the business retail of Peru and banking Chile -- same as in Chile. Nevertheless, the good results of the improvement were partially impacted by the depreciation of the reversal of approximately 3.8%. But also was attributed to good results of the company the higher efficiencies in administrative expenses and aggregate sales on the expense of our real estate business, which continue increasing in sales and profitability both in Chile as well as Peru.

If we move on to Slide #4 please, we could see the recent milestones, which have been relevant for the company. First, I want to mention and remind that

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this [indiscernible]. The last aspect I want to highlight is the migration of our online commerce in Retail Peru from on premise-based platform to a cloud-based platform. This was performed during the third quarter this year, and that will allow us to support this better growth of this channels in the future years. This way amortized the structure we already had in Chile, this way both countries have the same infrastructure.

Besides, during November, the official launch was made in Peru of Mercadoripley.com that will allow us to have an innovative platforms with entrepreneurs and third-party roles to offer their products through our online channels in Ripley.

If we please move on to Slide #5, we will detail the results of the third quarter of Ripley. During the third quarter, Ripley reached a CLP 5.134 billion profits, which represents a 2.9% drop compared to the profits obtained in the same period of last year. Outlining to the aforementioned, our operational results also showed an 11.6% drop, reaching CLP 9.334 billion in the third quarter. This is mainly explained by the high level of liquidity that the retail industry face in Chile, and that here the good results of the auto segments of the operation of the company. Well we can highlight the CLP 3.552 billion improvement in Peru in Retail Peru, and the CLP 760 million increase of the operational results of Chile bank as well as the strength of our real estate that keeps on growing in the both country.

Now I would like to return the microphone to Patricia Alvaro for her to explain with further details the results of this quarter.

[Patricia Aspillaga, executive]

Thank you, Rafael. If you are following the presentation, please move on to Slide #6. Revenues of the retail business in Chile dropped 1.9% compared to the comparable quarter of the previous year, which was translated in lower sales at same period of less point -- minus 4.9% comp. As was said early, this was due to the lower level of sales performed during the quarter compared to third quarter 2017. That wasn't associated, among other, to the weather effects of the autumn, winter season that was short and milder than previous years and a contraction of the consumption demand with lower purchase by foreign people. Aforementioned, low bonus growth, earnings and gross margins dropped compared to the same quarter of the previous year.

Lastly, administrative expenses of sales of the quarter increased 7.1%, mainly explained by the [indiscernible] new Ripley stores and their operation compared to the second quarter of 2017. [indiscernible] Los Dominicos and Coquimbo inaugurated September 2017 and Arica, which opened on April this year. All the aforementioned may be a [indiscernible] quarter [indiscernible] a record a CLP 6.772 million loss.

Please continue with Slide #7. Revenues of the retail in Peru have a 2% drop in local currency and with variation of same-store sales of minus 1.3% compared to the same quarter 2017. This dilution mainly response to the bigger comparison baselines of the previous year in the sales of the electronic products due to the transfer effect to the World Cup had in the second quarter this year. Nevertheless, it is most -- it is [indiscernible] evolution of the gross earnings of this quarter compared to the year 2017, which show a 6.6% increase in local currency with margins -- with gross margins increased 210 base points because of the lower liquidity leverage shown in the third quarter net income compared to the comparable quarter of the previous year.

On the other hand, the segments continue with the trend with a cut in the administration expenses, which has shown a 8% increase in local currency and a 6.3% decrease or drop mentioned in Chilean peso. As a consequence of the aforementioned, the EBITDA of the retail business in Peru improved in PEN 19.7 million or CLP 3.861 billion.

Please move on to Slide #8. Regarding the banking business in Chile, replacement portfolio grew 8.6% at the close of the quarter compared to the one of the third quarter of 2017. Whereas total revenue increased 8.5%, in line with the growth of the placement portfolio. In turn, cards with balance increased 1.1% between comparable periods.

On the other hand, operational costs of the segments increased 14.3%, which is explained by an increase of the funding cost of 7.2% as well as a net risk cost that grows 19%, due to the seasonal effects of the increase of the net penalties relating to the placement portfolio in the last quarter of this year -- of each year. In this case, of year 2017.

In turn, administration expenses on sales increased 4.7%, improving the efficiency and the expenses as a percentage of revenues. In that line, this increase is mainly associated to the opening of new bank branches along with new Ripley stores under operations compared to the comparable quarter.

This way, profit net -- net profit reached PEN 9.538 million during the third quarter 2018, 8% higher to the obtained in the same period in 2017.

Please move on to Slide #9. In terms of key indicators of the financial business, as we can appreciate in the graph of this slide, the early delinquency rate lower than 90 days is kept at similar levels within the last 2 years, whereas the later equity rate or the one higher than 90 days shows an improvement compared to the previous year. In turn, net penalties on the average portfolio are kept same for several quarters.

Lastly, the cost -- monthly net risk cost is stable at a similar level to the one shown in 2017, improving 9.5% in the last first 12 months or 20 base points less than the one shows within the last 12 months by September 2017.

Please let's move on to Slide #10. On the other hand, with the banking business in Peru, we can observe the gross loan portfolio Ripley Peru was flat measured in local currency by the closure of the third quarter. This is explained in part by a conservative strategy in the longer-term loan offered during 2017.

Nevertheless, dilution of these loans has been normalized within the last few months. And I would mention, the revenues of the segment dropped 4.2% measured in local currency, whereas cost with balance also relatively stable, showing a slight decrease.

Operational costs in turn decreased 15.8% in local currency. This allocates it to a lower cost per risk and a lower funding cost. This cost per net risk dropped 17% because of a good portfolio administration that also has shown an improvement of payment behavior. On the other hand, the funding cost drop 14.2% because of our lower debt stock in the lower interest rates.

On the other hand, administration expenses on sales increased 2.7% measured in local currency. All the aforementioned was translated in an increase of the net profits reaching PEN 20.2 million, which is equivalent to a 7.5% drop compared to third quarter 2017.

Please, let's move on to Slide #8. In terms of risk indicators of the financial business in Peru, the early delinquency rate show lower level than ones observed in the previous years, whereas the labeling [indiscernible] is slightly increasing compared to the ones shown in the previous years, but still in currency levels. In addition, the evolution of maintenance fees on the net portfolio is stable. The aforementioned because of the credit rating policies implemented in the Ripley bank Peru. This way the monthly net risk cost indicators shows a slight improvement to the observed in 2017, showing 9.7% increase during the last quarter of 70 base points less than what showed in 2017.

Now I would like to give the microphone to Mr. Rafael Ferrada to comment on the results of real estate business.

[Rafael Ferrada Moreira, executive]

Thank you, Patricia. If we please move on to Slide #12. We can see the real estate business of Ripley still show a slight evolution. Net earnings of this segment reached CLP 5.960 billion, which represent a slight decrease of 1.9%. The businesses Ripley holds 100% interest. This means mall -- shopping mall in Concepcion and Mall Aventura in Peru increased their profit up to CLP 3.182 billion or 23.1%.

In turn, profit of those businesses we have also showed an interest is showed a CPF 2.774 billion, dropping 30% compared to the previous year. This lower result is due to the drop of the profits mainly in the Inmobiliaria Imagina real estate company because of higher expenses in development and [indiscernible] as was stated to the inflation of this quarter compared to the quarter of the previous year.

In turn, the own EBITDA and one proportion to the investment of the associated companies that [indiscernible] reached CLP 11.950 billion during the third quarter of 2018, increasing 17.2% compared to the same quarter in 2017.

It is important to remind that the investment of Ripley in this business recorded in the accounting accounts, investment properties and associated investments is over CLP 510 billion, approximately 18% of total assets of the company. And it is comprised 3 shopping malls owned by Ripley and 10 malls through associated companies with a proportion or less of a surface of 328,000 square meters.

Please let's move on to Slide #13. In order to give an outlook of what -- where we are in the real estate business. Our portfolio keeps on growing. In Chile, we have recent openings of the office towers in our shopping mall in Concepcion, with around 11,000 square meter of leasable area. Through our associated company, Nuevos Desarrollos, as we said earlier in this presentation, the Arica shopping mall was inaugurated with a 34,000 square meter leasable area. On the other hand, our Immobiliaria Mall associated company, which has 2 malls, Marina Arauco and Curico, as we said earlier in this presentation, which has 7,000 additional surface square meters that will lead this mall to have 97,000 square meters that also grew with 8,000 square meters.

Regarding our business in Peru, the Aventura subsidiary inaugurated last quarter, the enhancements of the Aventura Arequipa shopping mall located in the second most important city in Peru, adding a 7,000 square meters surface includes terraces, niche areas and restaurants. On the other hand, more Aventura Santa Anita shopping mall located in Lima will add 30,000 square meters, which is a 50% increase in the leaseable surface with an estimated opening date for the second quarter next year. And it contemplates among other novelties an e-commerce store, a fast fashion store, new financial areas and the enhancements of the cinemas, playgrounds and more restaurants.

Finally, Mall Aventura keeps a product portfolio and the evolution that might be developed within the next few years.

Please let's move on to Slide #14. Just to remind very briefly where we are. Retail performance, we're still focusing on the current strategy, working with higher -- [indiscernible] all our Ripley customers in each of our channels, we've closed this initiative in order to improve purchase experience of physical store and online with own-brand offers that identifies and differentiates us. Besides its characteristics, Ripley has made efforts in order to make campaigns with social impact, specifically the anti-bullying campaign in February and March and the novelty initiative that we did together with Petra Foundation.

In turn, in the banking business strategy has the main focus on customers and the goal of earn their preference to becoming -- increasingly becoming a simple and comprehensive bank for our customers. With that purpose, we've also been working on e-channels on digitalization, the series of service and products, all the aforementioned without putting aside growth and keeping portfolio with controlled risk. Lastly, as we saw in previous slides, in our real estate segment, we keeping on growing through our own resources as well as through our associated investments.

Through marking the [indiscernible] shopping malls operating in Peru as well as the different plans under the government and efforts that we have in order to build new shopping malls. Lastly, just to consider that last week and as this traditional replay was present in the [indiscernible] Chile, which is [indiscernible], with a very important activity for all collaborators in our company.

Now I will like the operator -- to give the operator back to -- back to the operator for questions and answers.

[Operator]

[Operator Instructions] From this moment and on, the question-and-answer session will start [Operator Instructions] At this moment, we don't have further questions.

[Unknown Executive]

Well, thank you very much for your participation. We thank you. We will wait for the next results conference where we will have the pleasure of the current financial statements.

[Operator]

Thank you, everyone. We finished today's conference. If you want to listen this conference once again, please contact the company. Thank you for participating. You can hang up now.