DIA Distribuidora Internacional de Alimentacion : Q3 2018 Results

30 October 2018

Unaudited

9M/2018

Financial summary

•  Gross sales under banner, excluding IAS29, fell by 9.0% in the first nine months of 2018 to EUR6.56bn. This decline in euros was due to the 2.5% fall in sales in Iberia and the strong currency depreciation in Argentina and Brazil during the period. Excluding the currency effect, gross sales under banner grew by 11.3% in Emerging Markets and 2.6% for the group up to September 2018.

•  The group's comparable sales (excluding IAS29) rose by 2.7% up to September 2018. Iberia fell by 0.3% while Emerging Markets climbed by 7.3%.

•  Adjusted EBITDA fell by 24.1% in 9M 2018 to EUR281.1m, a decline of 23.2% excluding the currency effect. In Iberia, adjusted EBITDA dropped by 12.2% to EUR254.4m, while in Emerging Markets it fell by 60.6% to EUR35.7m fundamentally due to the effect of the application of the IAS 29 regulation in Argentina, which negatively impacted adjusted EBITDA by EUR27m.

•  DIA invested EUR269.1m in the first 9M 2018, 23.0% more than in 9M 2017, and 42.3% excluding the currency effect.

•  Net debt reached EUR1.42bn at the end of September 2018, equivalent to 3.1x the adjusted EBITDA of the last 12 months.

Information in this document

•  The Company is finishing its business plan for the coming years. As a consequence of this new plan, prior to the end of 2018 period, the Company plans to conduct a stress test of its assets to evaluate whether there could be a need to provision part of them.

•  Accordingly, the information related to the results is only broken down up to the EBITDA level and not up to net profit after tax, and the balance sheet information is not complete but is focused on magnitudes such as working capital and net debt.

•  As soon as the company knows the results of the stress test on its assets or any other material aspect that affects the information contained in this document, it will carry out the corresponding communication.

•  Moreover, this document does break down information related to the stand-alone third quarter 2018 due to the application for the first time of IAS 29 (see the Information Comparison section) as this would require the restatement of the prior quarters of 2018.

•  Financial information in this document is not audited.

Operating and strategic highlights

•  In Q3 2018 DIA remodelled 94 stores in Iberia, accumulating a total of 997 stores upgraded in the first nine months.

•  Online sales in Spain grew by 42.8% up to EUR57.4m in 9M 2018.

•  At the end of September 2018 DIA operated 7,429 stores, 39 more than a year ago. Out of this total number, 3,745 were franchised stores, 75 more than in September 2017.

  Business performance (EURm)	9M 2017 (1)	9M 2018	Change
  Gross sales under banner	7,640.2	6,949.3	-9.0%
  LFL Iberia (2)	0.1%	-0.3%	-
  LFL Emerging Markets (2)	8.8%	7.3%	-
  Adjusted EBITDA (3)	370.2(1)	281.1	-24.1%
  Net debt	1,141.1	1,422.1	24.6%
  IFRS measures (EURm)	9M 2017 (1)	9M 2018	Change
  Net sales	6,379.1	5,490.5	-13.9%
  Gross operating income (EBITDA)	318.0	212.7	-33.1%

  • (1) Re-expressed in accordance with what was communicated in the Relevant Fact of 22 October 2018

  • (2) Excluding the calendar effect. (3) Adjusted by other items excluded from the calculation of adjusted EBITDA

Information comparison

The Management of DIA Group have prepared this quarterly interim declaration corresponding to the nine-months period ending on 30 September 2018 including, for comparison purposes, the figures corresponding to the nine-months period ended on 30 September 2017.

Re-expression of year 2017 accounts

Dated 15 and 22 October 2018, the Company communicated as separate Relevant Facts filings that it considers certain adjustments should be incorporated to the year 2017 consolidated financial statements corresponding to the fiscal 2017, whose negative equity effect amounted to EUR56m, of which EUR21m (EUR26m before taxes) would reduce year 2017 results and are mainly attributable to Iberian business.

For a better understanding of these results, the Company has calculated the impact of the adjustments made to the adjusted EBITDA to every year 2017 quarters, as detailed below:

Adjusted EBITDA (EURm)	Q1 2017	H1 20147	9M 2017	2017
Reported (1)	124.2	279.1	432.4	570.3
Re-expressed	97.3	226.3	370.2	543.8
Difference	26.9	52.8	62.2	26.5

(1) EUR1.8m after Cash & Carry business classified as a discontinued activity

The restatements disclosed in the aforementioned Relevant Facts are not proportional across the quarters, they were individually calculated for each stand-alone quarter.

The previously indicated corrections had as main purpose to allocate to each period the corresponding revenues and costs, but did not mean in any case cash-flow movements.

Once the validation and confirmation process of these amounts finish the society will proceed, when preparing the year 2018 annual accounts, to re-express the year 2017 accounts, that are presented for comparison purposes.

Moreover, the figures within this document include the following facts and circumstances that make a comparison difficult.

Argentinian subsidiary accounts (IAS 29)

The 9M 2018 results include for the first time the application effects of IAS 29 ("Financial reporting in hyperinflationary economies") which affects the Argentinian subsidiary financial statements incorporation.

The application of this regulation requires to be done as if this country had always been subject to hyperinflation, so in the first period of application (9M 2018) the effects of inflation and the exchange rate applied according to IAS 21 are collected ("Effects of changes in foreign exchange rates").

The effects of IAS 29 application on 9M 2018 results are as follows, in comparison with what they would have been without the application of this rule:

Impact from IAS29 (EURm)	9M 2018
Net sales	-237.0
Adjusted EBITDA	-27.0

On the contrary, the first application of IAS29 has a positive effect of EUR13.5m in net profit and EUR57.6m in terms of consolidated equity.

Cash & Carry (Max Descuento)

In June 2018, DIA Group initiated a plan to sell the cash & carry business, whose banner is 'Max Descuento', classifying the assets and liabilities of this banner as held for sale, in accordance with IFRS 5.

Since the publication of H1 2018 results, the company classified these stores as discontinued operations, re-expressing the figures of the previous. The comparability effect for the first nine months of 2018 is EUR1.8m in adjusted EBITDA.

Comments by CEO, Antonio Coto

"We are going to focus our efforts in Spain, by implementing a realistic Strategic Plan that will help us stay at the cutting edge of market trends and win back sales.

Our positions in Argentina and Brazil are very solid and our future is bright but, in light of the current macroeconomic uncertainty affecting these economies, we prefer to maintain more cautious.

It is time to look forward and to ensure DIA is a company where the whole value chain serves our customers, listening and understanding their needs and tastes to make sure that the stores are filled with the right products at the right price. The Company will place special emphasis on efficient cash flow management and contain its capex investment in the short term. We will be more disciplined in the way we invest each Euro just as we follow and monitor our returns"

Like-for-like summary 9M 2018

Q1 2018

Q2 2018

Q3 2018

9M 2018

Like-for-like

TOTAL DIA (1)

-

-

-

2.6% (2)

TOTAL DIA

-0.7%

1.0%

-0.6%

-0.1%

Iberia	-1.0%	0.3%	-0.5%	-0.3%
Emerging markets (1)	-	-	-	7.1% (2)
Calendar effect
Iberia	-1.0%	1.3%	-0.5%	-0.1%
Emerging markets	-0.2%	0.4%	-0.8%	-0.2%
Like-for-like (ex-calendar)
Iberia	0.0%	-1.0%	0.0%	-0.3%
Emerging markets (1)	-	-	-	7.3% (2)
TOTAL DIA (1)	-	-	-	2.7% (2)

• (1) Stand-alone quarterly data not disclosed due to first application of IAS29

• (2) Excluding IAS29

Sales Performance

Group

In 9M 2018, gross sales under banner fell by 9.0% in Euros to EUR6.95bn due to the sales slowdown in Iberia and the impact of the Argentine Peso and Brazilian Real strong depreciation. In local currency, the growth rate was 2.6%, which reflects a currency effect of 11.6% in the first nine months of activity.

Without taking into account the calendar effect, comparable sales grew by 2.7% in the first nine months of 2018. The calendar had a 0.6% negative effect for the group in the third quarter, and -0.1% in the first nine months of 2018.

Iberia

Gross sales under banner fell by 2.5% in accumulated terms until September 2018, reaching EUR4.71bn, which implies a 1.6% drop during the third quarter. Both Spain andPortugal saw quarterly and accumulated slowdown in sales, although the fall remains larger in Portugal. Up to September, sales in Spain fell by 2.4% to EUR4.01bn (-1.3% in Q3 2018), while in Portugal accumulated sales until September slowed by 3.3% to EUR0.62bn (-3.3% in Q3 2018). With a negative calendar effect of 0.1% in nine months and -0.5% in Q3 2018, LFL sales growth was -0.3% in accumulated terms and 0.0% in the third quarter. Comparable sales evolution was also better in Spain than in Portugal during the past quarter while in terms of space, the commercial area in Spain contracted by 2.0% and was practically similar in Portugal at Q3 2018 closing date.

The pace of store remodelling eased significantly in the third quarter, reaching a total of 94 stores during the quarter, of which 60 stores were completely remodelled and 34 stores underwent modular remodelling.