InRetail Perú Corp. (INRETC1) Earnings Call Transcript & Summary

Good morning, and welcome to InRetail Perú's Fourth Quarter 2022 Conference Call. [Operator Instructions] Please note that this call is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Rafael Borja of the InspIR Group. Sir, please begin.

Thank you, and hello, everyone, and welcome to InRetail Perú's Fourth Quarter 2022 Earnings Conference Call. Before we begin, I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Joining us today from InRetail Perú are Mr. Juan Carlos Vallejo, Chief Executive Officer; Mr. Marcelo Ramos, Chief Financial Officer; and Ms. Vanessa Dañino, investor relations officer. They will be discussing the quarterly report distributed by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.inretail.pe on the Investors section, where there is also a webcast presentation to accompany the discussion during this call. If you need any assistance, please contact the Investor Relations team of InRetail Perú. Please be advised our forward-looking statements may be made during this conference call, and they do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report, which was issued yesterday. At this point, I would like to turn the call over to Mr. Juan Carlos Vallejo, Chief Executive Officer of InRetail Perú, for his opening remarks. Juan Carlos, please go ahead.

Thank you, Rafael. Good morning, everyone. I'm Juan Carlos Vallejo. Thank you for joining InRetail Perú Fourth Quarter Earnings Call. Today, we will discuss the main highlights of InRetail fourth quarter results for 2022. Joining me today are Marcelo Ramos, our Chief Financial Officer; and Vanessa Dañino, our investor relations officer. I will start with a brief executive summary, and then Marcelo and Vanessa will walk you through our earnings presentation. 2022 was a challenging year for globally, with increasingly high interest rates and lower rate growth. Peru submerged not only in a political crisis, but also a social crisis, which affected economic growth, especially in the second half of the year. We continue to experience these tensions during the first month of 2023. However, focused primarily in specific regions in the stores in the country. Despite this challenging landscape, Peru's macro fundamentals still remain among the strongest in the region. As you will see during this earnings presentation, in this context, InRetail continued to show strength and resiliency in its 3 business segments. InRetail experienced a strong fourth quarter, which contributed to reach double-digit growth in revenues and EBITDA for the full year 2022, slightly surpassing the initial guidance provided at the beginning of the year. Our Food Retail segment, on the one hand, had an impressive year, growing close to 12% in revenues and 15% EBITDA for the full year 2022. With a strong growth in our cash and carry and hard discount format complemented with a low single-digit growth in our supermarket format, impacted by the market-wide slowdown in electronic categories. We closed the year with the opening of 5 big boxes, which will allow us to continue strengthening our leadership position going forward. Our Pharma segment, on the other hand, managed to consolidate this recovery through the second semester, showing a consistent improvement in performance, reaching a 7.5% growth in revenues and a mid-single-digit growth in EBITDA for the full year 2022, driven by the successful execution of our format reconversion and diversification strategy. Finally, our Shopping Malls segment had an extraordinary full year 2022, with revenues and EBITDA growth of 27.7% and 37%, respectively, fully recovering to pre-pandemic levels. In terms of our omnichannel strategy, our digital platform performed strongly in the 2022, despite the challenging comparison basis in 2021. We continue to execute a disciplined approach of cost optimization to improve profitability in our digital channels without compromising growth. I would also like to highlight the opportunistic acquisition of JOKR, a grocery and delivery platform that provide instant delivery services. This is a very small transaction. However, the platform complements well with our existing digital offerings, services and talent pool. Looking forward into 2023, we expect our business segments to continue performing positively given their resilient and diversified nature, allowing us to achieve high single-digit growth in consolidated revenues and EBITDA. In addition to our financial results, I'm also glad to announce that InRetail was selected for a second year in a row as a member of the Dow Jones Sustainability Index and as an industry mover in the Sustainability yearbook 2023, demonstrating our long-standing commitment with our sustainability efforts, which are embedded within our core operations. With that, let me pass the word to Marcelo, and as always, we look forward to answering your questions by the end of this call.

Thank you, Juan Carlos. Good morning, everyone. Thank you for joining us on this call. Today, we will review the main highlights of InRetail's fourth quarter and full year results for 2022, comment on our guidance for the year, and finally, provide a brief update on ESG and digital. Now please turn to Page 4 in our earnings presentation to start reviewing our consolidated financial results of the fourth quarter for InRetail Perú. In the fourth quarter of the year, InRetail reported a double-digit growth of 12.1% in revenues due to a solid topline growth performance in all of our segments. Our Pharma segment, in particular, consolidated a strong recovery in the pharmacies unit combined with an improvement in the distribution unit. In terms of adjusted EBITDA, we also recorded a double-digit growth of 15.9% in comparison to the same period of the last year, driven by the strong topline growth, increased fixed cost dilution and operational efficiencies, mainly in our Pharma segment. The consolidated adjusted EBITDA considers PLN 18 million of net expenses related to our digital services and solutions developed transversely across segments. Note that the comparison basis of Q4 '21 also includes PLN 14 million of similar net expenses as these solutions were incorporating during that quarter. In terms of net income, we've registered a slight reduction during the quarter, mainly due to mark-to-market lows in our Shopping Malls segment compared to mark-to-market gain registering the comparable quarter of last year. Overall, as we have seen in our consolidated financial numbers, 2022 was another strong year for InRetail, in spite of the more challenging context and the high comparison basis from the previous year. Our businesses continue to show their strength, resiliency and defensive nature. We exceeded our initial guidance for the year, which was to grow high single digit in both revenues and in adjusted EBITDA. Looking forward to 2023, as mentioned by Juan Carlos, in terms of the guidance for InRetail, at a consolidated level, we expect to achieve high single-digit growth in consolidated revenues and in adjusted EBITDA. Now please turn to Page 5 to review our financial and operational snapshot of our consolidated figures. Overall, contributions have remained very much in line throughout the year. Our Shopping Malls segment showed a solid recovery over the last quarters, reaching levels of contribution in InRetail similar to pre-pandemic levels in 2022. Now Vanessa will provide a short update on ESG and on digital. Please turn to Page 7.

Thank you, Marcelo, and good morning, everyone. At InRetail, we are extremely proud of the recognitions received reflecting the hard efforts that we have put over the years in the 3 dimensions: environmental, social and governance. This year, InRetail was included for the second consecutive year as a member of the Dow Jones Sustainability Index, MILA Pacific Alliance and was recognized once again as part of the Dow Jones Sustainability Yearbook in the industry mover category, ranking in the top 3%. Additionally, InRetail was included for a second time as a member of the Bloomberg Gender Equality Index and continues to be the first and only Peruvian company to form part of the index. On the environmental front, Supermercados Peruanos from our Food Retail segment was the first company in the Peruvian retail sector to receive a sustainability-linked loan. This loan has committed us to increase the metrics of 2 sustainability goals, the percentage of waste recycled and the number of beneficiaries from food and nonfood donations. We also concluded a new energy efficiency project, such as the implementation of a solar panel in Moquegua and continue to switch to lead lighting in our pharmacies network, which combined has contributed to reducing 90 tonnes of carbon dioxide. In 2019, we established a 5-year goal of reducing our carbon footprint by 15%, and we have achieved the goal beforehand. This year, we have a great effort on measuring Scope 3 of our carbon footprint for all of our companies, and we are currently in the process of setting our goals for the following 5 years with this additional information. Now please turn to Page 8. We continue to be highly committed with our ESG initiatives and long-term projects. During the year, we continued to grow our Bueno por Dentro program, our successful strategic partnership with the Food Bank, which we have been leading over the last 8 years. In 2022, we donated 18 million food rations, benefiting 78,000 people, which received both dry and fresh food on a daily basis. We also continued to push our supply chain management program, which seeks to assess and gain our suppliers in the main topics related to ESG. In 2022, we assessed 1,700 companies and provided 4,800 hours of ESG training related to responsible packaging, sourcing between other topics. During the year, we also continued to support SMEs through our Peru [indiscernible] projects. Both these projects give SME the chance to sell their products in our stores, malls and online channels and at the same time, receive special training and development programs. Finally, our businesses received important distinctions this year as we have in previous years. Plaza Vea achieved first place in Great Place to Work. Real Plaza, second place in its category. And Farmacias Peruanas ranked 20. We feel very proud of the work environment we have created for our employees. You will be able to find more detailed information in our annual sustainability report, which will be published in the following months. Now please turn to Page 10 to comment on our digital update. As we have commented in previous earnings presentations, during the fourth quarter of 2021, we incorporated new digital services and solutions within InRetail, which complements our omnichannel strategy. These include a series of shared services for our digital channels, allowing to dilute expenses and execute joint initiatives between our segments, which includes an order management system to platform to process, fulfill and track orders in an integrated manner, a platform to speed payments and an integrated platform to serve and manage customer needs post sales. Additionally, we incorporated a series of digital solutions under the agora brand, including a last-mile delivery service and personal shopper, agora SHOP; a digital wallet that offers payments and transfers in a convenient and frictionless manner, agora PAY; and an integrated loyalty program, agora CLUB. To complement these digital solutions, we have recently incorporated JOKR, an instant delivery solution that complements very well with our omnichannel strategy. During 2022, our marketplace grew 5x in comparison to 2019, registering a relevant 70% growth in sales from third-party sellers in 2022. As part of our joint efforts to increase the assortment of products in our platforms. Specifically, our digital sales in Food Retail declined 4% in 2022 versus 2021, due to a slowdown in the electronics category. However, if we only consider food categories where we registered a positive high single-digit growth during the year. More so when we compare digital sales versus 2019, we've seen a 5x total growth and online penetration remained at levels of 6% of total sales in our formats, even post COVID. Additionally, agora SHOP now represents 26% of total digital food sales. Overall, we remain as the leading supermarket e-commerce platform in Peru with EBITDA positive economics. Moving on to pharmacies. Our digital sales recorded a significant growth of 40% in 2022 versus 2021, thanks to the continued growth in both pharma and nonpharma categories. When we compare versus 2019, nonphysical sales are 6x higher than the comparable period in 2019, and the penetration of our Inkafarma brand stands at approximately 6% of total sales in the month. During the year, we also continued to strengthen our Click & Collect network, which includes more than 2,000 pharmacies nationwide. As of Q4 '22, Click & Collect represented 38% of our digital sales, contributing as well with incremental traffic in our stores. We are also the leading digital pharmacy in Peru with EBITDA positive economics. With respect to our digital services and solutions, despite their early stage of development, we are seeing promising results. Our payment gateway platform has already been implemented in all of our e-commerce platforms, registering more than 3x growth in number of transactions in comparison to the previous year. In addition, our customer care service has also been launched across our platform. Finally, in terms of our digital products, in 2022, we finished the consolidation of the different products under one agora super app. This consolidation brought a strong growth of 92% in active agora users. Finally, it is important to mention that we are very rigorous with expense control and CapEx investments. As I commented, the e-commerce platform in our Food and Pharma brands are EBITDA positive, and the investments required for the shared services and digital solutions are already incorporated in our consolidated P&L for InRetail since last year without having any material effect on our results. Now please turn to Page 11 to briefly comment on our acquisition of JOKR. On February 6, InRetail announced the acquisition of JOKR Peru. The transaction includes 100% ownership of JOKR Peru operations, the JOKR brand in Peru and an option to purchase JOKR's technology. As part of the agreement, we have a technology service agreement for up to 6 months. Due to confidentiality compromises, we cannot disclose the consideration paid. However, I can confirm that this was a very small transaction for retail. The amount paid was not material. As publicly disclosed, JOKR recently completed a new funding round and decided to put its strategic focus on Brazil, exiting operations in the U.S., Colombia, Chile, Mexico and Peru. The acquisition of JOKR represents an opportunistic purchase for InRetail to further develop its omnichannel strategy, strengthening the instant and convenience delivery channel. We have already identified important value creation opportunities within our existing platforms, including centralized procurement, logistics and IT integration, operational and administrative efficiencies, among others, with a clear and short path to profitability. Now let me pass the word back to Marcelo, who will continue with the main highlights and results per segment.

Thank you, Vanessa. Please turn to Page 13 to start our Food Retail highlights for 2022. Our Food Retail segment experienced a strong double-digit growth in revenues and in adjusted EBITDA in 2022, reaching more than PLN 10.5 billion in revenues and surpassing PLN 1 billion in adjusted EBITDA, exceeding the high single-digit growth we initially guided for the year. In 2022, we continue to lever on our multi-format and everyday-low price strategies. We are the only Food Retail player in Peru with a sizable multi-format platform with differentiated value positions covering distinct purchase missions. cash and carry and hard discount, our newer formats not only compete with the model retail channel, but also with the traditional trading with a highly competitive pricing strategy. These formats have consolidated their positioning and acceptance in the market, performing significantly well throughout the year. As such, 2022 was a record year in terms of store openings, reaching 830 total stores. All our formats registered a positive same-store sales growth during the year. cash and carry and hard discount had an outstanding performance this year, recording a high double-digit same-store sales growth each. Mass, our hardest on format, achieved breakeven at store level EBITDA, despite a significant number of new stores still in the progress of ramping up and a more aggressive pricing strategy implemented during the first semester. Finally, our Food Retail segment continued with a rigorous productivity and cost control management, maintaining a stable margin year-over-year. Additionally, we were able to improve our cash conversion cycle through inventory organization. Please turn to Page 14 to review our fourth quarter results for our Food Retail segment. Our Food Retail segment had another strong quarter, despite a high comparison basis in Q4 '21 when we registered a 39% growth in revenues due to the incorporation of Makro. Revenues increased 9.8% in Q4 '22, driven by strong growth in food categories, particularly in the Dry Fruit segment, compensating and decrease in nonfood categories from a continued contraction in the Electronics segment. In terms of performance by format, Plaza Vea, a traditional supermarket format, registered a low single-digit same-store sales growth affected by the decline in sales of electronics. On the other hand, Makro and Mass continued to post strong same-store sales growth of high single digit and high double digit, respectively. Additionally, revenues were positively impacted by the contribution of approximately 46,000 square meters of additional sales area opening in the last 12 months. In the last quarter, we opened 5 big boxes composed of 3 Makro stores and 2 Plaza Vea, of which 2 are in Lima and 3 are in provinces, and we opened 81 net Lima stores. Our gross margin was 24.3% this quarter, relatively in line with the comparable part of last year. As I have commented before, our gross margin incorporates the higher participation of our Makro and Mass format, offset by a change in category mix from the decline in relevance of the electronics category, which generally has lower margins. In terms of adjusted EBITDA, Food Retail's adjusted EBITDA grew 9.5% with a margin of 10.6%, in line with the comparable quarter of last year. This is mainly explained by operational efficiencies and by the continued fixed cost dilution, despite an increase in personnel expenses from the new minimum wage and from new personnel required for the new stores and an increased energy and transportation costs. Overall, 2022 was another strong year for our Food Retail segment, despite a strong basis we have for 2021. In terms of guidance for our Food Retail segment, for 2023, we expect to achieve a high single-digit growth in both revenues and EBITDA. This incorporates a positive view for same-store sales in our main formats, the contribution of the 5 big boxes that we opened at the end of the last year and new openings expected for this year. Please turn to Page 15 to start with our pharma highlights for 2022. Our Pharma segment recorded solid financial results in 2022, despite the difficult comparison basis in 2021, the slowdown in demand from COVID-19-related categories and the supply chain challenges experienced during the first half of the year. Pharmacies consolidated to COVID in the second semester, capitalizing on the extended winter campaign. Our distribution unit accelerated growth in the second half of the year, driven by the new exclusive distribution lines in Ecuador and by the recovery in demand in Peru as institutions and pharmacies reactivated purchases after a generalized inventory optimization. At a consolidated pharma level, we remain in line with initial guidance given for 2022 of mid-single-digit growth in revenues and in adjusted EBITDA. During 2022, we also continued expanding our health and wellness spaces with the aim of increasing sales and profitability per store. As of December 2022, we had approximately 460 Inkafarma stores reconverted to the new format, with an increased display and ease of reach of personal care categories and a stock of approximately 200 Inkafarma Beauty stores with increased assortment of beauty and wellness products. As I have mentioned before, these new formats on average tend to perform better than traditional formats in terms of average daily sales per store. For 2023, we expect to increase our Mifarma Beauty stores to approximately 300, including reconversions and new stores opened under that format. Finally, during 2022, we continue to execute different operational efficiencies. For Pharmacies improved its cash conversion cycle, optimizing inventory days, despite the strong reactivation in demand in the second half. Additionally, within Pharma, we identified and captured incremental efficiencies within segments, including additional back-office integrations and restructured the organization and distribution in Peru. Now please turn to Page 16 to review our fourth quarter results for our Pharma segment. Our Pharmacies unit registered a topline growth of 8.5% in the fourth quarter with a same-store sales growth of 6.9%. In the fourth quarter, we continued to experience increased demand in pharma categories, and we also experienced a solid growth in consumer and personal care categories. In the last 12 months, we opened 38 net pharmacies. However, during the fourth quarter, we closed 3 net pharmacies. During the full year, we opened 74 and closed 36 pharmacies as part of a generalized store optimization strategy, with the objective of closing underperforming locations with recurrent negative EBITDA. Our gross margin was 37.4% this quarter, above Q4 '21 and similar to the level seen in the third quarter of last year. The increase in margin comes mainly from a change in sales mix towards higher-margin products, particularly in pharma and nutrition categories; and lower promotional activities due to the stronger demand. In terms of adjusted EBITDA, we recorded an adjusted EBITDA margin of 18.8%, above the comparable quarter of last year and, once again, similar to the level seen in the third quarter of 2022. The increase in margin is mainly explained by the improvement in gross margin [ I flagged before ] and by the increased fixed cost dilution from a better top line growth, compensating the increase in store personnel expenses related to the minimum wage increase. Additionally, in Q4 '22, we registered a positive onetime adjustment related to rent expense from renegotiated contracts under IFRS. These contracts have been expensed in prior quarters since the negotiations were not fully closed and were delayed due to COVID. However, they have now been recorded as operating leases under IFRS 16. Excluding that onetime adjusted (sic) [ adjustment ], adjusted EBITDA would have grown 14% to -- compared to Q4 '21. Now moving on into our distribution unit. This quarter, revenues from our distribution unit had a strong recovery, increasing 27.1% given higher sales in Ecuador, from the new exclusive distribution lines and stronger demand from pharmacies and institutions in Peru. Gross margin was 10.5%, affected by the higher representation in the sales mix of these exclusive distribution lines in Ecuador, which have lower margins and from a net FX translation effect in our cost of sales, once we consolidate the operation in Ecuador and Peru. Adjusted EBITDA increased 22%, mainly due to higher fixed cost dilution and organizational efficiencies in Peru, despite the lower gross margin effect. Finally, on a consolidated level, our revenues registered an increase of 15.4% in comparison to the fourth quarter of last year. And our adjusted EBITDA increased by 22.3% with a consolidated adjusted EBITDA margin of 14.7%. In terms of guidance for our Pharma segment for 2023, we expect to achieve a mid-single-digit growth in revenues and a high single-digit growth in adjusted EBITDA. This is driven primarily by a positive same-store sales growth in pharmacies and the continued expansion of health and wellness business in our stores. Please turn to Page 17 to start with our Shopping Malls highlights for 2022. Our Shopping Malls segment fully recovered in 2022, growing revenues by more than 25% versus 2019 levels. This growth, together with our disciplined financial management, has allowed us to significantly reduce net leverage from 5.7 to 3.9 by the end of 2022. Throughout the year, our tenants also registered a strong recovery with a same-store sales of 21.6% versus 2019 levels, showing improvement across most categories. Our high occupancy rate of 95% and the improvement in past due receivables evidence the healthy state of our tenants. In 2022, we resume our expansion projects to continue growing and improve experience within malls. In July, we acquired Molina Plaza Power Center, which we believe complements our existing footprint, providing incremental lead on our Shopping Malls segment. In October, we inaugurated a new MAC or mejor atención al ciudadano [indiscernible] Real Plaza Cusco, our 5th MAC center [ to it ]. We believe this center should bring consistent traffic to our malls. Finally, we also inaugurated our new foot court concept in [indiscernible], which combines restaurants and entertainment. Please turn to Page 18 to review our fourth quarter results for our Shopping Malls segment. In the first quarter of this year, our Shopping Malls segment registered a strong topline growth of 18.1% versus the comparable quarter of last year. This growth was mainly explained by the increase in GLA in total versus the same period of last year, with approximately 95% of GLA opened versus approximately 90% opened in the prior year. Additionally, this quarter included the contribution of 16,000 square meters of GLA from Molina Plaza Power Center. Despite the strong growth, total tenant sales showed a more moderate performance with a same-store sales growth of 3.4%. This is explained by a slowdown in sales from anchor tenants, particularly home improvement and department stores, given the high comparison basis from last year. Excluding anchor tenants, same-store sales growth would have been around 13%. In terms of adjusted EBITDA, we reached PLN 104 million, registering a 13.7% growth and a net rental margin of 72.1%. This growth is mainly explained by consistent fixed cost dilution and by the normalization of tenant discounts. Our adjusted EBITDA is affected by one-time expenses related to a write-off of nonproductive assets in Tarapoto, and a onetime provision related to legal disputes and redundancy payments. Excluding these one-time effects, adjusted EBITDA would have increased 28.6% and net rental margin would have been 81.6% in Q4 '22. In terms of mark-to-market, we registered a loss of PLN 3.3 million this fourth quarter in comparison to a gain of PLN 123.3 million last year. As a reminder, in Q4 '21, we registered a relevant mark-to-market gain due to the higher projected cash flows from the activation post-COVID. Whereas in Q4 '22, mark-to-market was mainly affected by a higher discount rate due to the context of increased rates. As of December 31, our Shopping Malls segment had a solid liquidity position with PLN 221 million in cash and equivalents and an investment of PLN 172 million InRetail shares as additional source of liquidity. In terms of guidance for our Shopping Malls segment, for 2023, we expect revenues and adjusted EBITDA to grow high single digit. During the first 2 weeks of December, we experienced partial closings of our malls in [indiscernible], Arequipa and Cusco due to the social crisis in the south of Peru. In the case of our Food Retail and Pharma segments, we also experienced intermittent closings in similar critical zones, prioritizing always employee safety and security. However, disclosures did not materially affect our operations as we can observe from our fourth quarter results. During 2023, social tensions in the South escalated. We experienced more challenges in our operations, particularly as it relates to supply chain in our Food Retail and Pharma segments. However, we executed preventive actions, including the reinforcement of our security measures, increasing inventory levels and setting regional hubs with basic categories in critical areas in the South. As it relates to our Shopping Malls segment, Real Plaza Juliaca was the only mall closed for an extended period. However, the mall already resumed operations with the opening of supermarkets and other services. We estimate the mall to be fully opened in the next few days. The extended closing represents around PLN 900,000 of uncollected rent income per month. However, it is not material for our operation. We are aware of the challenging context of the country. However, social unrest in the South has begun to dissipate during the past few weeks. In spite of the more difficult environment, our businesses continue to evidence the resiliency shown not only by our strong fourth quarter results, but also by the performance we are seeing in the first couple of months in 2023 in our segments. Now please turn to Page 19. This slide sums up our Food Retail sales area, number of pharmacies and shopping malls as well as our same-store sales by quarter. Given that I have already touched upon almost all the indicators in the slide, I will not go into detail. Please turn to Page 21 to review our consolidated net income results. InRetail registered a gain of PLN 254 million in the fourth quarter of 2022 compared to again of PLN 269 million in the same period of 2021. Net income in the quarter was affected by a lower mark-to-market of $102 million compared to the comparable quarter of last year, despite an increase in EBITDA contribution of PLN 99 million, a higher net FX gain of PLN 12 million and lower net financial expenses of PLN 2 million. Excluding exchange rate impacts and mark-to-market from the valuation of investment properties, net income for the fourth quarter would have reached PLN 203 million, growing 31.3% versus the comparable quarter of last year. Now please turn to Page 22 to discuss our CapEx and cash flow generation. During the fourth quarter of 2022, we invested PLN 333 million in CapEx for our 3 business segments. This CapEx was invested mainly in the expansion plan for our Food Retail segment, including the construction and implementation of the 5 big boxes we opened as well as the opening of our Mass stores and the scheduled maintenance in our system stores. Additionally, CapEx was also invested in our Pharma segment in format reconversions and scheduled maintenance. For the full year 2022, we invested approximately PLN 1 billion in CapEx, above the initial expectation we had for the year of around PLN 800 million. Since this year, we executed the extraordinary purchase of Molina Plaza Power Center for approximately PLN 110 million, and the purchase of land bank for our pharma logistics operation. In terms of cash balance, we ended the year with PLN 952 million in cash, above the end of last year's cash balance of PLN 917 million. Our operating cash flows during the year allowed us to finance the pickup in our CapEx, distribute our $75 million dividend in May and financed the purchase of the noncontrolling interest InRetail Pharma, which included a $35 million cash payment. During the year, we also registered significant improvements in working capital across segments, which translated into cash flow generation. Our Pharma and Food Retail segment, in particular, executed important optimizations and inventory levels without compromising the increased demand. Please turn to Page 24 to review our consolidated debt and debt by segment. As of December 22, InRetail consolidated net debt of PLN 6.842 billion with a net debt to adjusted EBITDA ratio of 2.7x, registering an important reduction versus the previous quarter and versus the end of last year. Supermercados Peruanos, our Food Retail segment, ended the fourth quarter with a net debt of PLN 2.816 billion. Net debt to adjusted EBITDA stood at 2.8x, below the previous quarter and in line with the end of 2021. During the third quarter, Supermercados increased leverage to finance working capital for the December campaign, and CapEx for the 5 big boxes opened. Given the strong growth in revenues and the working capital optimization mentioned before, Supermercados Peruanos was able to reduce leverage back to 2021 levels. InRetail pharma, on the other hand, ended the fourth quarter with a net debt of PLN 2.201 billion and a net debt to adjusted EBITDA ratio of 1.9x, below the previous quarter and slightly below the end of 2021. As anticipated before, our Pharma segment delivered strong operating cash flow generation from a solid performance as well as from an improvement in inventory levels, allowing the company to significantly reduce its short-term debt originally drawn to finance working fetal needs during the second quarter. Finally, InRetail Shopping Malls ended the fourth quarter with a net debt of PLN 1.722 billion, resulting in a net debt to adjusted EBITDA ratio of 3.9x, another important reduction versus the last quarter. Now please turn to Page 26 for our 3-year CapEx guidance for the period of 2023 to 2025. In total, we plan to invest around PLN 2.5 billion in our 3 business segments over the next 3 years. Our Food Retail segment will include approximately half of our total CapEx. During 2023, in terms of big boxes, we expect to open 1 new Plaza Vea and 1 new Makro store. Last year, we accelerated the opening of our third store. Medium term, we expect to open on average 3 big boxes per year. Additionally, we expect to open about 150 to 200 new hard discount Mass stores higher than previous years. We have decided to accelerate the expansion of our hard discount format outside of Lima. Our Pharma segment will represent approximately 30% of our total CapEx with the opening of 50 new stores per year and incremental investments in our logistics operation. Finally, the Shopping Malls segment will incur an approximately 20% of our CapEx, opening approximately 5,000 to 10,000 square meters of expansion GLA per year and considering a potential to start a new shopping mall development in the medium term. As demonstrated in prior years, our budget is discretional, and we can diligently postpone CapEx investments, if deemed necessary. This covers our presentation, and now we will be glad to answer any questions you may have.

[Operator Instructions] Our first question is from Nicolas Larrain with JPMorgan.

I had a couple. The first one is on JOKR. I wanted to better understand to the extent possible, what does this mean in terms of the disruptions you have to purchase technology? I wanted to understand like what does this mean? Does it mean that after the 6 months, you have to purchase another 6 months? That's the first thing I wanted to understand. Secondly, in terms of drug stores, I mean you mentioned here 50 new openings into this year. What do you think is the sustainable opening space going forward in terms of openings per year, maybe on a more normalized year, let's say. And lastly, in terms of cost of debt, I wanted to understand if you could share what's the consolidated cost of debt for InRetail after hedges and any type of coverage you might have?

Sure, Nicolas. Thank you for the question. So I'll start. There's 3 questions here, JOKR and the openings of Pharma and then the cost of debt. I'll answer the first couple, and then I'll pass the word to Vanessa to answer the third one. So in terms of JOKR, as Vanessa mentioned during the presentation, the transaction perimeter includes 100% of the operations in Peru, the ownership of the brand in Peru and this technology purchase, correct? And so I think, on our side, what we thought it was more beneficial to basically have an option to purchase that technology, which means basically having the actual codes and all the information related to the terminology once we actually understood it well. So right now, we have 6 months in which we are operating the company, right? We're understanding how the technology, not only from the app, but also everything related to the back end and the back office of the operations in terms of technology works and giving us an option to decide within 6 months or at least in 6 months if we would like that technology as is or if we would like partial sections of the technology. So we thought it was actually more convenient for us to have that option as opposed to buying that technology upfront. To be honest, we're reviewing that as we speak, and there is portions of the operations that we think it's more beneficial to have our own technology and platforms, and there's portions in which we do see value on JOKR technology. So it's basically an option that we gave to us to have 6 months out operating the company understand the technology and decide how and if we want the technology. As it relates to the second question for the pharma business. So yes, the guidance we've given is opening of about 50 stores, and that should be for the next -- in the short and the next couple of years. And the reality is that we're seeing a lot of value created through this format reconversions, correct? 2022 was a year where we were very aggressive in reconverting particularly the Inkafarma stores. So we reached a stock of about 460 stores. Initially, we thought we were going to have roughly 350, 400, and we accelerated the reconversions given the results that we were seeing. And in 2022, we also approved the Mifarma Beauty format, which we grew, but at a slower pace than we have in Inkafarma. And in 2023, we're going to focus on rolling out these Mifarma Beauty, and we expect to close with at least 300 Mifarma Beauty by year-end. So I think the organization is focusing more in increasing sales per store and productivity in existing stores through these reconversions. Having said that, there is still a lot of areas in the country where we don't have the same relevance as we have in certain sectors, in certain urban areas, for example, in which we are seeing a big pickup in demand. And so that's essentially where the openings are going to be focused. Given that the organization is totally on the reconversions, we're being more selective on the new openings, and that's why we expect in the short term in the next couple of years that the opening should be at around 50 per year. And I will pass the word to Vanessa to answer the question on cost of debt.

With respect to the average weighted cost of debt at InRetail, in dollars, it's around 4%, and in solace, at around 5.5%. If we remember, the most relevant part of our debt in dollars are actually the bonds that we issued in 2021 and 2018 at a very good rate for the current rate. And on the solace side, we also refinanced not a relevant part of our sol deb in 2021 in a lower rate environment. So that was really beneficial in having these low average weighted cost of debt for InRetail. And with respect to the cost spreads and the hedges that we have in place, that add approximately 100 basis points additional to that 4% in dollars that I mentioned. Obviously, we also have a short-term debt and the rates right now are higher. Currently, short-term debt is around 8% to 10% in solace in the current context. However, the short-term debt for InRetail is around 8% to 10% more or less of the total debt. So it doesn't really change much the -- our weighted average cost of debt.

[Operator Instructions] At this time, we will take the webcast questions. I will now turn the call over to Rafael Borja for any -- from the InspIR Group.

We have some questions from the webcast. The first one is, how will JOKR and agora work? Given the success of agora, why they need to buy another platform? What is the outcome of the acquisition you're looking for?

Sure. I'll take that question. So look, I think as Vanessa mentioned in the earnings presentation, JOKR complements well kind of the [indiscernible] and digital offerings that we have, right? I think the company has done pretty interesting things over the last couple of years. We had invested heavily in the brand, and right now, the strategy is to actually keep both operations, correct? I think they complement very well. JOKR, it's focus on a different buying mission, it's convenience, instant delivery with a promise of within 20 minutes and it actually targets a different customer segment, 20, 30 years old, which is a segment that we did not necessarily access through the existing platform. It's a segment that doesn't necessarily want to access the low prices in Plaza Vea. They're focused more in convenience. Whereas, I would [have shopped] is a white label, in which the buying mission is basically to have the full basket, I mean the full purchase of the week, which again has the option of immediate delivery. But it's not -- it's within now within to average or program delivery. So it's fulfilling the full basket versus JOKR, which is convenient, instant delivery, less SKUs, high rotation SKUs. So they complement very well in terms of value propositions and the strategy for now is to do them as independent brands and independent channels. And what we're looking honestly in the short term is, we have a very -- and Vanessa touched on a couple of the points in the earnings presentation. There is a lot of value levers that we're executing as we speak that will bring JOKR into profitability in the short term. We expect JOKR to become profitable in the next couple of months. So there's initiatives, which include things like procurement with Food Retail, integration of logistics, IT, there is a few efficiencies in operations and administrative expenses, which will allow us to have positive unit economics in the short term for this operation.

The second question is for shopping malls. Why did the gross margin reduced even when the revenues increased by 18%?

Yes, I can take that question. Yes, when we look at the gross margin in the fourth quarter, we see a slight reduction of 40 basis points, so not material. However, this is explained by an increase in common expenses from the Shopping Malls, meaning electricity, water, as you know, given the current context, there have been no relevant increases in those expenses. However, when you see it annually for 2022, you do see there an improvement in gross margin of 112 basis points. But it's basically related to those rising in prices of common services.

The next question is, how exactly the winter campaign contributed to higher same-store sales in the Pharma segment? And are you expecting to launch new similar campaigns for 2023?

So I'll take that question. Look, we launched different campaigns throughout the year. The winter campaign -- basically, what it entails is, as an organization -- and we mentioned it in the second quarter, the company made certain purchases in advance of certain high-rotation pharma categories in anticipation of the winter period in Peru, which was a little bit more prolonged this year than in prior years. And that's what we mean with the winter campaign. We basically ensure that the company has the right to correct and the key categories that tend to be highly demanded in periods of winter heat in Peru. And as I said before, we launched several campaigns throughout the year. For example, we're in the middle of a back-to-school campaign. And so it's part of the commercial strategy that we have with the company, which includes, again, commercial strategy, but also being able to have the right products at the right time in anticipation of this higher demand.

There's another question. What is your view on profitability and strategy on your digital platform?

Sure. So as Vanessa touched in the digital update that we made, we are invested in digital. I think we've made disclosure of how much it represents in terms of the consolidated figures on a quarterly basis. However, I think it's important to mention that we have an omnichannel strategy as opposed to a pure digital strategy, correct? We are aware that the digital channels are more expensive, and then -- and hence, we are growing with the market. We developed transversal services and solutions, allowing us to dilute the costs between the different business segments. We highly lever on the existing traffic that we have in the existing stores or generating the physical stores versus heavily invested in a traffic-traffic from scratch, correct? And being able to lever on the existing physical platform is allowing us not only to make important savings in acquisition costs, but also in marketing expenses and even in hiring within the digital front, correct? And as Vanessa mentioned in the update, we are profitable in our e-commerce platforms, both in food and in pharma, correct? And as I said, the investment required for the shared services and solutions are mostly expense, and they are already included in the consolidated P&L.

The last question is, what proportion of Pharma remained in the old format?

Yes. As Marcelo also mentioned in the pharma highlights, as of December of 2022, we had approximately 416 Inkafarma stores, which had already been reconverted to the new format and also around 200 Mifarma Beauty stores that have been reconverted or opened under that Mifarma Beauty format. So overall, it's around 660 stores that have been reconverted. We also have an additional 200 more or less stores of Mifarma, which are under the auto service model. The rest are the traditional formats of Inkafarma and Mifarma, and they weigh around 60% of the total network, which is around 2,200 stores.

Thank you. At this time, I'm showing no further questions. I would like to turn the call over to the operator.

Our next question is from Marco Contreras with KALLPA Securities.

Could you give us more color and how sustainable do you see the current EBITDA margins in the pharmacy segment, thinking in the coming quarters? Because you just had 2 really outstanding quarters in that segment. Can we expect the margins to remain above 18%? And what risks do you see going forward?

Sure. So I'll take that question. Look, as I mentioned in the presentation, the items we're giving for InRetail Pharma for 2023 entails a mid- to high or mid -- sorry, a mid-single-digit growth in revenues and a high single-digit growth in EBITDA, correct? So in terms of margins, we anticipate pretty much stable margins as it relates to gross margin, correct? We didn't see much appreciation in the gross margin going forward. However, as we mentioned through the last couple of quarters, they have been -- the company has been actually executing many operating efficiencies or initiatives related to operating efficiencies such as the one that I mentioned in the earnings presentation, which should benefit the company in 2023 with a full year effect, correct? So we do think that there should be, in the pharma business in total, a little bit of an operating leverage in terms of EBITDA margins. However, gross margin should be relatively flat and that should happen the same with the pharmacy business. In the pharmacy business is probably going to be pretty stable EBITDA margins.

That concludes the question-and-answer portion of today's conference Call. We would like to thank you again for your participation. You may now disconnect.