Falabella S.A. (FALABELLA.SN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the real estate transaction in Peru, Falabella's call. I'm GG, your coordinator for today's session. [Operator Instructions]. Present with us are Alejandro Gonzalez, CEO of Falabella; Juan Pablo Harrison, Interim CFO of Falabella; Benoit de Grave, CTO of Falabella; Raimundo Monge, Head of IR; Joaquin Urrutia, Head of M&A. First, the company will provide a summary of the recent transaction with Plaza S.A. [Operator Instructions]. Now we'll start with the conference.

Good morning, everyone. My name is Benoit de Grave. I'm the Chief Transformation Officer for Falabella. I want to thank everyone for participating in our conference call to discuss the transaction that we've announced yesterday. After months of negotiations, we signed an agreement with Mallplaza for the acquisition by Mallplaza of up to 100% of Falabella Peru SAA which include 100% of Open Plaza Peru and 66.6% of Mallplaza Peru. This strategy seeks to reflect Falabella's core strategy. Through simplification of our operations, we will be able to deliver the best value proposition for our clients. But before discussing details of the transaction, I think it is important to point out that in November of last year, we announced a plan that had 3 elements to strengthen Falabella's financial position. Regarding these levers, first of all, in January 2024, we announced a selective and focused CapEx plan, 25% lower than that of 2023, that seeks to deepen the omnichannel interaction with our customers. Second, we expect to deepen the savings plan achieved in 2023 and continue to strengthen our margins. With our passion for the customer, our omnichannel value proposition and our capacity to transform our operations; all of that will be key elements to succeed in this endeavor. Today, our world faces growing levels of complexity and our ecosystem is no exception to this situation. The greater the complexity, our response must necessarily be through greater simplicity to continue being effective as an organization. Therefore, in line with that, we announced a plan to monetize noncore assets. Today, we are going to discuss one important step in that process with you. Next page, please. The transaction will consolidate Mallplaza as the largest operator in South America, improving the geographic diversification of our revenues with plans to enhance the value proposition for our clients. The transaction increases the 2023 pro forma EBITDA of Plaza S.A. by more than 20% and increases its GLA by 36%. The assets were valued at $848 million and consist of the assets of Open Plaza Peru and Mallplaza Peru. As stated in the agreement, Plaza will finance the operation under a combination of cash, debt and equity. Plaza S.A. intends to carry out a capital increase of up to $300 million in the next month. At the moment, Falabella has no intention of participating in the capital increase, unless there are significant changes in market conditions. Highlights. We want to highlight there that we will continue to consolidate the operation of Plaza. We expect that this transaction should be closed during the second semester of 2024. As a final remark, I would like to highlight 3 key messages: first of all, this agreement is structured to benefit both Falabella and Mallplaza, reflecting market values and validated by external firms' opinions of Itau in the case of Falabella and JPMorgan in the case of Plaza; second, the operation seeks to simplify and enhance Falabella's real estate business in Peru as well as the growth prospects for Mallplaza; and finally, the transaction is aligned with Falabella's long-term strategy and contributes to the plan of strengthening the financial position of the company. Thank you very much. Now we can open to questions.

[Operator Instructions]. Your first question comes from the line of Bob Ford from Bank of America.

Good day, everybody, and Alejandro, congratulations on the promotion. I couldn't think of someone more qualified to steward Falabella through the current challenges. With respect to the transaction, how are you thinking about EPS solution or your debt service metrics as a result? And given where you see asset prices today, how should we think about additional divestitures and again, the subsequent implications for dilution or accretion and deleveraging?

If you're thinking about EPS, just keep in mind that from a -- just in terms of the transaction, there's going to be a capital increase that was approved by the Board of Plaza that -- it's approved that it's going to be proposed to a shareholders' meeting of them. So in that sense, the equity base of Falabella has not changed at all. And I would guess you're asking about Falabella.

And it was about EPS, not about dilution to equity.

Okay. So what we're going to be having on an aggregate basis, assuming that the transaction goes through as we expect it to be and market conditions stay, I would say, similar to those that we are seeing today, there should be an increased base of minority shareholders, as you can call it, a $300 million that would end up in a reduction on financial expenses. Because at the end of the day, what we are going to be doing with the proceeds of this is basically going to be using that to [indiscernible], I would say, mid- to short-term debt that we have and that's fully prepayable with no major costs of refinancing.

And then just implications to EPS. I mean, we were estimating some modest dilution. Does that -- is that accurate or...

It should be a modest dilution. I don't have that number here, Bob. I can come out with a number, if you want, but I'll give you a range of that, but it shouldn't be something that material given that even though $300 million is a relevant amount of money. For the scale of the company, it shouldn't be that relevant if you want to put it in simple ways.

One moment for our next question. Our next question comes from the line of Felipe Ballevona from Santander.

Hi, everyone. And again congratulations, Alejandro. I have two questions. The first one is what's the time line for your transaction and what are the deadlines? And my second question is, if you have any idea how does your leverage as measured by the agencies for the pro forma? Do you know if by the agency standards, you would keep consolidating the [indiscernible] real estate EBITDA or only 59% of it or will maybe 54% if you don't subscribe to a capital increase. That's it.

Thank you, Felipe. Yes, I'll let Benoit take the first part of the question.

Yes. And maybe then we can ask Juan Pablo to take the second part. So in terms of the next step. Thank you very much, Felipe, for your question. First of all, for the capital increase in Plaza, Plaza will hold an extraordinary shareholders meeting on April 26, sorry, in the next 10 days, to approve the capital increase. Second of all, we will exclude from the transaction, [indiscernible], which is one of the operations [indiscernible] there because this is not aligned with Plaza strategy. And then during the second semester, with all that done, Plaza will carry out to take over 100% of the shares of Falabella Peru SAA. Am I answering here the question, Felipe?

Yes. So yes, I just wanted to have an idea when -- like what's the time frame they have to raise -- the debt, they need to reach. And also the capital raise, so it would be second half of the year.

Yes. Absolutely.