Distribuidora Internacional de Alimentación S A : DIA – H1 2021 Financial Results

DIA - H1 2021 Financial Results

DIA completes its global capitalization and refinancing process

Thanks to the successful capital increase and debt refinancing in August and September, respectively, net debt is reduced in €1,028 million establishing a sustainable long-term capital structure

Adjusted EBITDA margin stands at 1.5% and losses are cut by a 44% in the six-month period

thanks to operational improvements and cost containment

Year-on-year comparison of sales affected by Covid-19 stockpiling in the second quarter of

2020

2021 priorities continue to focus on revamping the commercial offering, rolling-out the updated franchise model, store refurbishments, expanding online service and operational improvements

CLOSING OF COMPREHENSIVE CAPITALIZATION AND REFINANCING TRANSACTION

On 4 August 2021, the Company announced a complete subscription of the €1,028 million capital increase that received a demand of 1.67 times the number of shares offered in the cash tranche of €259 million. The remaining €769 million consisted in the capitalisation into capital of all credits held by the reference shareholder Letterone. The new shares were admitted to trading on 13 August 2021 and resulted in a free float of 22.3%.

On 2 September 2021, all of the conditions precedent necessary for the effectiveness and closing of the comprehensive capitalization and refinancing announced by the Company on March were successfully met, which translates into a reduction in net financial indebtedness of c.75% and the extension of debt maturities up to years 2025 and 2026.

This transaction represents the main financial milestone achieved by the Company in the last two years, sets a solid long term capital structure and provides the Company with additional liquidity to continue with its deep transformation process.

	H1 2021 - KEY FINANCIALS1 (all figures in € million
			H1 2021	H1 2020		Change (%)
	Like-for-like sales growth (%)	-5.0%	8.7%		n/a
	Net sales	3,193.7	3,515.2	-9.1%
	Gross profit	719.0	761.1	-5.5%
	Adjusted EBITDA	47.7	59.7	-20.0%
	EBIT	(55.7)	(52.0)	-7.1%
	Net attributable result	(104.8)	(187.7)	44.2%
			H1 2021	2020		Change (m)
	Working capital (negative)				(26.4) outflow
	582.8	609.2
	Total net financial debt	1,370.4	1,276.3	94.1
	Proforma total net financial debt post capital increase2	342.6	1,276.3	(933.7)

Definition, utilization and conciliation of the alternative performance measures (APMs) listed in this note are detailed in the Half Year Management Report.

Calculated as Total net financial debt as of 30/06/2021 less €1.027,8 million capital increase

Stephan DuCharme, Executive Chairman comments:

"The completion of DIA Group's global agreement on capital structure and re-financing represents a strategic milestone for the Group and the culmination of an intense process to further improve the group's capital structure in support of an acceleration of the Group's business transformation and growth program.

I would personally like to take this opportunity to thank all our shareholders and creditors for their support in this successful operation. We look forward to continuing to work hand-in-hand with all of the Group's financial partners towards our strategic objective of making DIA Group the preferred proximity shopping experience and a leading food retail operator in the geographies in which we operate.

Based on the foundation of world class leadership, long-term relationships with all stakeholders based on trust and a performance-based culture, DIA Group is systematically implementing its strategic roadmap of May 2020 through a wide-ranging series of commercial, operational, franchise and technology initiatives across our 4 geographies. The strategic roadmap is aimed at placing the customer at the heart of everything we do and delivering sustainable long-term results for all stakeholders."

-END-

MEDIA

Lara Vadillo

Telephone: [phone]

Email: [e-mail]

INVESTOR RELATIONS

Miren Sotomayor / Natalia Amo

Telephone: [phone], Ext: 33699/33426

Email: [e-mail]

Q2 2021 - SALES PERFORMANCE OVER THE QUARTER

								Net Sales				Like-for-Like Sales Q2
						Q2 2021		Q2 2020		Change (%)			2021 vs 2020		2020 vs 2019
		Spain				1,045.3		1.204,3		-13.2%			-12.3%		20.0%
		Portugal				146.3		160,3		-8.7%			-8.1%		9.2%
		Brazil				201.9		232,1		-13.0%			1.3%		14.7%
		Argentina				228.6		222,5		2.7%			-5.3%		4.0%
		Total Group		1,622.1		1,819.2		-10.8%			-9.2%		14.9%
		Total Stores3 (#)		5,993		6,400		-6.4%

• The second-quarter performance is skewed when compared with the prior period due to the exceptional stockpiling during the period of tightest restrictions in 2020 in all regions, as well as the devaluation of the Argentine peso (-34%) and, to a lesser extent, the Brazilian real (- 7%) versus Q2 2020.
• The easing of restrictions leading to an increase in footfall at stores drove up the number of sales receipts by 16.1%, reversing the trend of the last fourth quarters of growth in the average shopping basket which was 21.8% smaller in the second quarter.
• Gross Profit (as a percentage of net sales) rose from 22.1% to 23.1% compared to the same quarter last year before.
• Adjusted EBITDA stood at 2.5% of net sales in the second quarter (Q2 2020: 3.3%).

H1 2021 GROUP OPERATIONAL UPDATE

Key priorities during H1 2021 continued to centre on:

• The on-going development of DIA's commercial value proposition, improved product selection with a focus on fresh produce and the development of a new private label combining quality, value-for-money and more attractive packaging.
• The comprehensive roll-out of the updated franchise model that began in Spain and Portugal in the second half of 2020 and was extremely well received by our franchisees. Some 80% of the franchise network in Spain (excluding Clarel) and 90% in Portugal is now operating under the new model. At 30 June 2021, 269 franchises in Spain continued operating under the traditional franchise model; there are individual action plans for these stores to gradually transition them to the new franchise model. In Portugal, the plan is for the entire franchise network to be operating under the new franchise model by the end of 2021. Work to update the franchise model continues in Argentina and Brazil, which will be completed at the start of the second half of 2021.
• Store refurbishments with around 300 and 59 stores in Spain and Portugal, respectively, and 42 stores in Argentina during the first six months of the year, with a positive acceptance from customers.
• Continued expansion of online and express delivery services in all four countries to meet new customer purchasing trends accelerated during pandemic restrictions.
• Continued focus on cost efficiencies and streamlining operations. This is primarily being achieved through on-going improvements to the Group's operating model across the entire supply chain, as well as more efficient logistics processes.
• Investment in talent and hire individuals who will help develop the digital and technological side of the business.

At the end of the period.

STORE NETWORK

SUMMARY OF GROUP STORES	Owned	Franchised	Total
Total stores at 31 December 2020	3,487	2,682	6,169
New openings	22	7	29
Owned to franchised net transfers	51	-51	0
Closures	-160	-45	-205
Total stores at 30 June 2021	3,400	2,593	5,993
Spain	2,321	1,516	3,837
Portugal	221	278	499
Brazil	576	177	753
Argentina	282	622	904

• In Spain, 67 stores (net) changed from owned to franchised over the six-month period, with new entrepreneurs attracted by the new franchise model as part of the Comprehensive enhancement of the DIA concept. 11 stores were opened (9 owned and 2 franchised) and 92 closed during the period (62 owned and 30 franchised).
• In Portugal, 77 stores closed during the half-year, including 71 owned Clarel stores due to closing of operations announced in early 2021, 1 owned DIA store and 5 franchised DIA stores. 11 stores were opened (10 owned and 1 franchised) and net transfers from owned to franchised stores amounted to 15.
• Brazil is dealing with legacy problems with franchisees and is in the process of optimising its store network. This has resulted in the conversion of 131 stores from franchised to owned stores already completed in the first months of the year. 29 stores were closed (20 owned and nine franchised) and 3 owned stores were opened.
• 4 franchised stores were opened and 7 closed (6 owned and 1 franchised) during the period in Argentina. 2 franchised stores were brought into ownership.

GROUP FINANCIAL RESULTS - H1 2021

(€ million)		H1 2021	H1 2020	Change (%)
Gross sales under banner	3,813.0	4,293.2	-11.2%
Like-for-like sales growth (%)	-5.0%	8.7%	-
Net sales	3,193.7	3,515.2	-9.1%
Cost of goods sold & other income	(2,474.7)	(2,754.1)	-10.1%
Gross profit	719.0	761.1	-5.5%
Labour costs	(353.1)	(381.9)	-7.5%
Other operating expenses & leases	(200.6)	(188.3)	6.5%
Restructuring and LTIP costs	(22.6)	(13.9)	62.6%
EBITDA	142.7	176.9	-19.3%
Amortisation & depreciation	(192.5)	(223.5)	-13.9%
Impairment of non-current assets	(1.8)	(1.1)	63.6%
Write-offs	(4.1)	(4.4)	-6.8%
EBIT	(55.7)	(52.0)	-7.1%
Net financial expense	(34.8)	(131.7)	-73.6%
EBT	(90.5)	(183.7)	50.7%
Corporate taxes	(14.2)	(4.0)	255.0%
Consolidated result	(104.8)	(187.7)	44.2%
Discontinued operations	-	-	-
Net attributable result	(104.8)	(187.7)	44.2%

EBITDA to adjusted EBITDA reconciliation		H1 2021	H1 2020	Change
Operating profit (EBIT)	(55.7)	(52.0)	(3.7)
Amortisation and depreciation	192.5	223.5	(31.0)
Impairment of non-current assets	1.8	1.1	0.7
Gains/(losses) on disposal of non-current assets	4.1	4.4	(0.3)
Gross operating profit (EBITDA)	142.7	176.9	(34.2)
Restructuring costs	16.9	8.0	9.0
Long-term incentive programme (LTIP)	5.7	5.9	(0.2)
Lease effect (IFRS 16)	(130.8)	(140.6)	9.8
Hyperinflation effect (IAS 29)	13.2	9.4	3.8
Adjusted EBITDA	47.7	59.7	(12.0)

• Group net sales were affected by 6.4% fewer stores and the devaluation of the Brazilian real and Argentine peso (depreciation of 17% and 35% respectively compared to the average exchange rate for the six-month period compared to the first half of 2020). Revenue from owned stores makes up 65.2% of the Group's net sales compared to 32.2% in the case of franchised stores and 2.5% from the online business.
• The like-for-like sales growth rate of the Group stood at -5.0% affected by the skew caused by the Group's extraordinary stockpiling in the second quarter of 2020 in all markets due to the restrictions on movement related with Covid-19, reaching 8.7% Like-for-Like in the first half of year 2020.
• Gross profit (as a percentage of net sales) increased to 22.5% from 21.7% year-on-year thanks to operational improvements including optimised logistics and a reduction in food waste.
• Labour costs remained at similar levels to the same period a year earlier, standing at 11.1% as a percentage of net sales, as the 2019 streamlining measures have continued to offset Covid-19 related staffing requirements.
• Other operating expenses (as a percentage of net sales) climbed from 5.4% to 6.3% because of higher supply, maintenance and advertising costs.
• EBITDA shrank by 4.5% as a percentage of net sales (5.0% in the first half of 2020) because of higher other operating expenses and restructuring costs due to the streamlining of the organisational structure and store franchising process launched in Q3 2020.
• Adjusted EBITDA moved into positive territory equating to 1.5% as a percentage of net sales. This was a similar level to the same period of 2020 (1.7% in H1 2020). In absolute terms, adjusted EBITDA shrank by €12.0 million, offsetting much of the fall in gross profit of €42.0 million. This reflects the positive results of the operational management improvements being rolled out and cost control. This includes additional energy costs of €13.7 million compared to same period 2020, which represents a 41% increase mainly in Spain despite fewer stores and the measures adopted to reduce the impact.
• Amortisation and depreciation decreased by 13.9% versus the first half of 2020 explained by strategic store and warehouse closures. These charges fell from 6.4% as a percentage of net sales to 6.0% in the first six months of the year compared to the first half of 2020.
• The net result was a loss of €104.8 million - down 44.2% on the same period a year earlier because of lower financial losses driven down through active exchange risk management.