DIA Distribuidora Internacional de Alimentacion : 9M 2019 Results

5 November 2019

Unaudited

9M/2019

9M 2019 Corporate and business context

During the six months of the year, the Company has been operating in a highly disrupted and volatile business, financial and corporate context which, despite having a positive final resolution, has taken a substantial toll which is reflected in the negative operating performance for the period.

The sequence of the most relevant events is as follows:

• The release on 8 February 2019 of the Company's 2018 Annual Accounts (showing negative shareholder's equity and triggering a short-term dissolution threat), together with other factors such as: very near-term debt maturities and high refinancing risk, uncertainty around the outcome of the then-forthcoming Annual Shareholders' Meeting held on 20 March, rating agencies' negative comments and overall headline noise, led to a negative public perception around the Company that, amplified with sharp risk-cutting decisions made by trade insurance companies at that time, resulted in a level of supplier tightening that impacted negatively the supply chain, resulting in a substantial increase in the out-of- stock levels in our warehouses and stores, which ultimately translated into lower sales.
• The top-line deterioration and sales decline resulting from the above became visible firstly in March, and accelerated since then in the following months, as the uncertainty about the binary outcome of the voluntary tender offer kept growing, and stakeholders feared the potential consequences of a scenario where a failed VTO would trigger an insolvency proceeding.
• Finally on 21 May 2019, right after the public tender offer was successfully completed and an agreement in principle with the syndicate lenders was announced, LetterOne became the controlling shareholder reaching 69.76% of the share capital of DIA, new members of the Board of Directors and a new CEO were appointed. But still then, the negotiations with the syndicate lenders to reach a binding agreement were on-going, and their successful completion was a prerequisite for LetterOne to inject cash into the Company ahead of the committed capital increase.
• The new financing agreement with the syndicated facility lenders was finally reached on 25 June 2019, and it became effective on 18 July 2019, once all conditions precedent were completed or waived, providing the Company at last with a long-term and sustainable capital structure, enabling the removal of the dissolution obligation, and providing an integral solution to the urgent liquidity needs that the Company had been facing in the last months.
• The Company entered into participating loans from LetterOne totalling EUR 490m, which were fully funded by 19 July 2019 and were used by the Company to fully repay at maturity on 22 July 2019 the EUR 306m Medium Term Notes. These participating loans will be converted into shareholders´ equity in the capital increase approved by the Shareholders´ Extraordinary Meeting held on 22 October 2019 for an amount of EUR 606m.

/ 1

The complex situation and the high uncertainty described above, which has extended over most of the H1 2019, resulted in a very negative impact on the Company's top-line and ultimately resulted in a strongly negative performance specially in H1 2019.

The performance of the Company is also negatively impacted by a series of decisions taken and actions implemented, which have all the common goal of creating upfront a realistic, robust and healthy business base on which to start building the new future of the Company. Those include principally: (i) a Collective Dismissal in Spain and other headcount reduction measures in Brazil to improve productivity, (ii) the closure of 757 unprofitable stores (94 in Q3 2019) with permanent negative contribution, (iii) a strong de-franchising initiative (COFO to COCO) affecting 309 (87 in Q3 2019) stores to improve and strengthen the franchisee network, (iv) an assortment optimization initiative to achieve a meaningful SKUs reduction to reduce complexity and improve operations, (v) the discontinuation of non-core activities (i.e.: e-shopping, Bahia masterfranchise or Mini Preço) to reduce complexity and improve efficiency and focus, and (vi) the recognition of accruals, losses or write-offs in connection with certain receivables, risks and liabilities that had previously not been provisioned appropriately.

Once the new liquidity -primarily in the form of participating loans- was made available to the Company (by late June - early July), the immediate priority has been to normalize the relationship with credit insurers and all the supplier base, to catch-up and eliminate the out-of-stocks, and to have the warehouses and stores fully supplied, in order to be ready to fully serve our customers and be back to business as usual as soon as possible. The positive effect of this normalization is already visible in 3Q 2019, with Like-for-Like Sales showing a gradual recovery from June all-time low levels (-15.5%).

Going forward, the Company intends to further support and promote this sales recovery with several initiatives across different areas (i.e.: commercial, operations, logistics, etc.) whose common goal will be to drive incremental traffic and sales in our stores and improve productivity.

At year-end, with additional information and under a more normalized business environment, as part of its normal closing procedures the Company will prepare an updated long-term Business Plan for the Company, which will be the basis to assess the long-term recoverability of its assets.

/ 2

Group Performance¹

Financial summary (€m)	9M 2018 (*)	9M 2019		Change	Change
				(%)	(% ex-FX)
Net sales	5,490.6		5,082.9		-7.4%	-3.5%
Adjusted EBITDA (ex one-offs)	291.2		48.3
Operating income (EBIT)	(22.6)		(356.6)
Net attributable profit	(45.8)		(504.3)

1. Including in the 9M 2018 figures as re-expressed in the 2018 Annual Accounts: (i) the IAS 29 hyperinflation adjustment of Argentina, (ii) the consolidation of CDSI and (iii) Clarel figures as continued operations.
2. • In the first nine months of 2019, Gross Sales Under Banner fell by 18.2% to EUR 6.3bn (8.7% down ex-currency with a strong FX impact of 9.5%). Comparable (Like-for-Like) sales decreased 8.1% for the Group compared to a negative 3.6% in the same period of 2018, showing a negative trend and the sharp deterioration caused by the out-of-stock levels in our warehouses and stores resulting from the business disruption context suffered during H1 2019.
   • Net attributable loss amounted EUR 504.3m, compared to the EUR 45.8 m losses shown in the same period of 2018, as a result of the strongly negative earnings impact related to the sharp sales decline and also to the exceptional one-off effects registered in the period in connection with the different measures implemented to set the right basis for the long term turnaround of the Company, which will translate into visible positive effects on sales and profitability only in the medium to long-term, as explained further in this report. Also, a detailed risk and recoverability analysis has resulted in the recognition of previously not addressed write-offs, losses, and provisions for risks associated to the business.
   • The main items affecting the Group's negative performance in the first nine months of 2019, include:
   • 1. The sharp sales deterioration caused by the extraordinary out-of-stock levels and business disruption context described above.
     2. The closure process of poorly-performingstores which has affected a total of 757 stores in 9M 2019 (mostly in Spain and Brazil), which ultimately translated into: lower sales, the write-off of related assets, an increase in Opex due to the expenses related to the handover of the leases and the recognition of provisions in respect of doubtful accounts receivables from related franchisees. The positive impact of these closings (derived from the elimination of their negative margin contribution), will be seen from H2 2019 onwards.
     3. A strong de-franchisingprocess aimed at improving the quality of our franchisee network, which has affected a total of 309 stores during 9M 2019 (mostly in Spain and Brazil), resulting in higher labor and opex expenses, and the recognition of additional provisions on related accounts receivables.

¹The Company has decided to keep its Clarel business and to strengthen it with the appointment of a new CEO and a dedicated management team who will work on reformulating its customer value proposition. Accordingly, the 9M 2019 financial information and the comparable data for 9M 2018 includes Clarel figures fully consolidated as "continued operations".

/ 3

1. An initial commercial assortment rationalization process carried out, in all regions resulting in a meaningful SKUs reduction, seeking greater simplification, productivity improvement and best value-for-money proposition for customers. This initiative led to the recognition of significant losses (especially in Brazil) related to the corresponding stock liquidation (impacting Cost of Goods Sold).
2. The impact of some logistic improvement initiatives implying the closing of warehouses to seek greater efficiency, which translated in the short term into higher logistic costs, additional write-offs of assets and provisions for committed lease payments to the owners.
3. Refinancing complexity and increasing focus on its core business, which led to decisions/actions (the closing of the operations in Bahia and Mini Preço in Brazil, or the discontinuation of the non-foode-commerce activities in Spain through E- Shopping) which increased restructuring costs and impairment of assets.
4. Other substantial extraordinary and one-off items such as:

1. The Collective Dismissal implemented in Spain together with other headcount reduction decisions taken in other countries (mainly Brazil) to improve productivity in the stores, warehouses and head offices, impacting Restructuring Costs.

1. The complex and multi-phasedsyndicated debt refinancing process and advisory work related to the capital increase presented by the former board in the Annual General Shareholders' Meeting (including financial and corporate advice, auditors, forensic services, legal advice and strategy consultants), impacting Restructuring Costs and Financial Results.

1. The repurchase by DIA of the 50% of Finandia due to change of control which triggered the recognition of losses impacting in Financial Results.

8. The recognition of additional accruals in connection with certain legal and tax risks and liabilities identified that needed to be provisioned, and write offs and others.

The following chart shows the One-offimpacts included in Adjusted EBITDA, totaling EUR (88.0)m, which are mainly concentrated in Brazil (65.6m) and Spain (16.1m). The largest impacts in Adjusted EBITDA relate to stock liquidation efforts and to accounts receivable write- offs.

/ 4

9M 2019 Results

(€m)	9M 2018(1)	%		9M 2019	%	Change	Change
							(%)	(% ex-FX)
Net sales	5,490,6			5,082.9			-7,4%	-3,5%
Cost of goods sold & other income	(4,283.3)	-78.0%		(4,065.5)		-80.0%	-5.1%	-0.8%
Gross profit	1,207.3	22.0%		1,017.3		20.0%	-15.7%	-13.4%
Labour costs	(514.3)	-9.4%		(558.6)		-11.0%	8.6%	11.4%
Other operating expenses	(221.1)	-4.0%		(265.3)		-5.2%	20.0%	26.4%
Leased property expenses	(213.1)	-3.9%		(15.8)		-0.3%	-92.0%	-92.0%
Restructuring costs	(87.9)	-1.6%		(82.4)		-1.6%	-6.3%	-13.6%
Gain/Losses on disposal of assets	15.5	0.3%		(82.385)			-100.0%	100.0%
EBITDA	186.3	3.4%		95.2		1.9%	-48.9%	-50.1%
D&A	(194.7)	-3.5%		(392.0)		-7.7%
Impairment	(3.3)	-0.1%		(11.6)		-0.2%
Write-offs	(10.9)	-0.2%		(48.2)		-0.9%
EBIT	(22.6)	-0.4%		(356.6)		-7.0%
Net financial results	12.0	0.2%		(131.7)		-2.6%
EBT	(10.6)	-0.2%		(488.3)		-9.6%
Income taxes	(32.4)	-0.6%		5.8		0.1%
Consolidated profit	(43.0)	-0.8%		(482.5)		-9.5%
Discontinuing operations	(2.8)	-0.1%		(21.8)		-0.4%
Net attributable profit	(45.8)	-0.8%		(504.3)		-9.9%

1. Including in the 9M2018 figures as re-expressed in the 2018 Annual Accounts: (i) the IAS 29 hyperinflation adjustment of Argentina, (ii) the consolidation of CDSI, and (iii) Clarel figures as continued operations.

/ 5