Follow-on Offering Investor Presentation September 2012
Book Runner
Characteristics of the Offering
Characteristics of the Offering Follow-on Offering Current number of shares outstanding
248,617,522
Number of shares being offered
750,000,000
Number of shares after the transaction
Up to 998,617,522
Number of share subscription rights per share
~ 3.01668
Condition of success
Capital Increase will be declared successful after raising the amount required
Amount required by the judicial settlement
CLP 120,000,000,000
Amount required by the EGM
CLP 90,000,000,000 (Prior to approval with lenders)
Subscription
Additional Information
Through any Chilean stockbroker, but the funds will be retained temporarily in an escrow account at Banco Santander Chile until the publication of the result of the capital increase: • Condition of success met: funds will be transferred to La Polar • Condition of success not met: funds will be returned to those who subscribed shares More information about the company is available in a data room after signing a confidentiality agreement
Financial Advisor and Book Runner
3
Characteristics of the Offering Follow-on Offering Subscription Price
Weighted average of transactions in the Santiago Stock Exchange (“SSE”) during the 3 trading days prior to the subscription less a discount of 5%
Minimum of CLP 160 per share
Use of Proceeds CLP 50 billion
CHILE Remodeling of Stores Financing of customer loans
CLP 50 billion
COLOMBIA New stores Financing of customer loans
CLP 20 billion
SERNAC1 and others
(1): Chile’s National Consumer Service
4
Characteristics of the Offering Follow-on Offering Key Transaction Dates
Opening of Data Room
PRP 1 begins
Road Show
PRP 1 ends(*)
AUGUST
27 SEPTEMBER
3 AUGUST SEPTEMBER
27 - 28
OCTOBER
2
AUGUST
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SEPTEMBER
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31
(*) Once the Preemptive Rights Period 1 ("PRP 1") of 30 days ends, the BOD shall have the power to offer any remaining unsubscribed shares in a second offering period of 7 calendar days to shareholders who subscribed shares and third parties who acquired share subscription rights and subscribed shares. If there are still unsubscribed shares remaining after this second period, the BOD shall have the power to offer them in a third offering period of 2 calendar days to shareholders who subscribed shares in the first and second offerings and third parties who acquired share subscription rights during the first period and subscribed shares in both the first and second period. Share subscription rights can only be traded through the SSE during the first period. The BOD also has the power to hold an auction of remaining unsubscribed shares or a “Subasta de un Libro de Órdenes” instead of holding a third offering period.
5
July 2011
La Polar in July 2011 What we found‌ 1
8
No Corporate Governance
Colombia
2
No Executives / Unmotivated Staff
7
3
High Administration Expenses
No Focus on Retail
6
4
Restricted Financial Business
5
Distrustful Suppliers
Affected Customers
7
1 Corporate Governance
Engaged Board of Directors Georges de Bourguignon A.
Juan Pablo Vega W.
Vice-chairman
Director
Alberto Marraccini V.
Jorge Id S. Director
Director
Controller Control and Transparency Reports directly to the Board Internal Audit
Aldo Motta C.
César Barros M.
Director
Chairman
Committee César Barros M. Georges de Bourguinon A. Alberto Marraccini V. Jorge Id S. Juan Pablo Vega W. Fernando Tisné M. Aldo Motta C.
Directors (1)
Fernando Tisné M.
Gino Manríquez Controller
Director Directors (2)
Risk
Credit Card
(1) Committee from Jul/11 to May/12, (2) Committee since May/12
8
2 Motivated Staff
Talented Organization | New Executive Staff First-class team with strong experience in the industry CEO
Strategic Support
Business Areas
Patricio Lecaros
Andrés Molina
Rodrigo Karmy
Rodrigo Nazer
CEO
Soft Lines Mngr.
Hard Lines Mngr.
Marketing Mngr.
IT Mngr.
CFO
H.R. Mngr.
Legal Mngr.
+ 23 years of exp. Ripley, C&I, Quintec
+ 17 years of exp. Ripley, Hites
+ 16 years of exp. Epson Chile
+ 9 years of exp. La Polar
+ 27 years of exp. Salcobrand
+ 11 years of exp. SQM
+ 21 years of exp. Servipag y Corpgroup
+ 11 years of exp. Viña Undurraga
Financial Team
Colombia CEO
Francisco Martínez CEO Colombia + 18 years of exp. Falabella
Ricardo Rubio
Olivia Brito
Andrés Escabini
Sales, Planning and Logistics
Sergio López
Claudio Sierpe
Fernado Silva
Enrique Vitar
Risk Mngr.
Customers and Payments Mngr.
Insurance Brokerage Mngr.
+ 27 years of exp. Din, Conosur, Ripley
+ 34 years of exp. Banco Estado, otros
+ 30 years of exp. Hites, Scotiabank
Álvaro Araya
Eduardo Lobos
Marcelo Acosta
Carlos Arredondo
Collection Mngr.
Planning Mngr. + 22 years of exp. La Polar, BCI
Sales and Distrib. Mngr.
Logistics Mngr.
+ 28 years of exp. Banefe, B. Falab., Johnson
+ 21 years of exp. Ripley, Johnson
+ 20 years of exp. Ripley
9
Building the new People Product Culture
3 Strong Reduction in Expenses
Talented Organization Staffing
20% 8.070 6.719
2010 Managers
2011
Variation
51
23
-55%
Professionals, Administrators, etc.
1,795
1,297
-28%
Sellers, Assistants, etc.
6,497
5,399
-17%
38% of employees are new talents
DIC 2010 DEC 2010
DIC DEC2011 2011
11
3 Strong Reduction in Expenses
Selling, General and Administrative Expenses 73.528 74.450
20% expenses reduction
61.991
Review and tender of existing contracts
- 20% 49.722
CLP 5 billion decrease in salaries CLP 5 billion decrease in advertising CLP 2.2 billion decrease in general expenses
ENE-JUL JAN – JUL(7M) (7M)
AGO-DIC (5M) AUG – DEC (5M)
PPTO 2011
REAL
SG&A expenses over 40% of Retail Revenue
Aconcagua Plan
SG&A expenses below 30% of Retail Revenue
12
4 Improved Supplier Relations
Suppliers
Trust recovered Obligations fulfilled New payment system for foreign suppliers
13
5 Customers: Base of the Business
La Polar, a strong Brand Founded in 1920, the brand has been PRESENT in the market for
¿Would you buy in La Polar again? Date: jul-11
Date: jan-12
No
nearly a century
15%
No
Yes
32%
49%
Brand PERCEPTION has
27%
dramatically improved
58%
Yes
Maybe
compared to July 2011
19%
68%
Maybe
85%
Source: Guiñez Consultores Market Study | Sample: Population who buy regularly or occasionally in La Polar
Despite what happened in 2011, sales are showing a
Revenues Evolution 13.2
significant recovery
UF/M2
reaffirming BRAND VALUE 6,3 5,5
Dec/23/11 was the best-selling day in LA POLAR HISTORY
5,5
5,2
5,5
5,7
5,5
6,5
6,7
5,9
4,7
Source: La Polar | UF: Unidades de Fomento (currency indexed to Chilean CPI)
14
5
Customers … … one of the most valuable assets of the company
Customers: Base of the Business
456,861 customers with an ACTIVE LA POLAR CREDIT CARD (TLP) AND A POSITIVE BALANCE ¿Would you buy again with your TLP? Date: jul-11
Date: jan-12
No
No Yes
15%
Maybe
Maybe
6%
Yes
15%
10%
75%
79%
85%
94%
Source: Guiñez Consultores Market Study | Sample: Persons with a TLP
15
6 Renewed Financial Business
Reducing the financial risk Decrease in the Risk Rate 33% 34% 35%
34%
Attracting new customers
26%
New card
22%
20% 19% 18% 18% 17% 17%
12%
New credit policy Aconcagua Plan
New collection policy
Source: La Polar
Decrease in Portfolio Delinquencies Not delinquent (0 -30 days)
16% 14%
69%
Delinquency (31-90 days)
Delinquency (>91 days)
9% 8%
84%
Source: La Polar
16
6 Renewed Financial Business
Financial Revenues New benefits program New product development New financial regulation in Chile
Financial Revenues over Retail Sales (%) 101% 88%
75% 58%
58% 44% 35%
2005
2006
2007
2008
2009
2010
2011
26%
22%
2011 (L5M)
1S12
30%
…
2014
Aconcagua Plan
Source: La Polar
17
7 Focus on Retail
New Business Model… … Focus on Retail
Monthly Retail Revenues in Chile (UF/m2) 11,2 10,0
9,9 8,7 7,4
7,0 6,1
Aconcagua Plan – 10 UF/m2 6,8
6,4
Product and brand new proposal New store concept Attracting new customers
2005
2006
2007
2008
2009
2010
2011 Jun-12 (LTM)
…
2014
Aconcagua Plan
Source: La Polar | UF: Unidades de Fomento (currency indexed to Chilean CPI)
18
7 Focus on Retail
New Business Model… … Focus on Retail
Retail Direct Margin in Chile 30% 26%
26%
24%
24%
26%
25%
23%
Aconcagua Plan – 30%
22%
Development of private labels Improvement in logistics
Strategic alliances with suppliers 2005
2006
2007
2008
2009
2010
2011 Jun-12 (LTM)
…
2014
Aconcagua Plan
Source: La Polar
19
7
Products
Focus on Retail
Full renovation in clothing department New mix of our own brands Improvement of the purchasing process Creation of a new department dedicated to design New mix of National/Imported products
20
7
New Store Proposal
Focus on Retail
Change of image / layout Remodeling of 100,000 m2
21
8
La Polar Colombia… …growth opportunity Where we are
Colombia
Expansion Plan
Future INVESTMENT of USD 100 million Barranquilla Carabobo Opening: August 2011
Centro Mayor Opening: October 2010
Cartagena de Indias
Bucaramanga Bogotá
Medellín Pereira
Villavicencio
Cali
Los Molinos Opening: October 2011
Floresta Opening: November 2011 Bucaramanga Store Cacique Mall Opening: November 30, 2012 Area of 6.103 m2
18 CONCRETE PROJECTS in development stages and study 22
CHALLENGES
Aconcagua Plan
La Polar has set specific goals for the short and medium term to be achieved by 2014
RETAIL REVENUES
RETAIL MARGIN SG&A EXPENSES / RETAIL REVENUES
10 UF/M2
30%
< 30%
FINANCIAL REVENUES / RETAIL REVENUES
30%
PROVISIONS
12%
RETAIL EBITDA MARGIN
> 10%
Source: La Polar | UF: Unidades de Fomento (currency indexed to Chilean CPI)
24
Background
4th Player in Department Stores… … with 10% Market Share in Sales
Market Share by Revenues (2011)
Relevant Market Share at NATIONAL LEVEL
10%
LA POLAR has the largest
5%
number of stores
37% 22%
La Polar is POSITIONED in a segment that presents
significant barriers to entry
25%
Monthly Revenues by Surface (2011)
Source: Company Reports
Number of Department Stores UF/m2
16,3
N° 42
11,1
36
35
38
9,9 7,1
6,8 14
Falabella
Cencosud
Ripley
Hites
La Polar
Source: Company Reports | Note: The selling area of Paris at the end of 2011 was updated from
Falabella 272,388 m2
to
Cencosud
239,531 m2.
Ripley
Hites
La Polar
This correction was provided by the administration of Paris
26
Unique Portfolio of Strategic Locations throughout Chile Chile
Present in 20 of the 24 largest cities in the country, covering over 10 MILLION PEOPLE all over Chile
LOCATIONS are a
significant barrier to entry
Santiago
Iquique Antofagasta
Colina
Copiapó Coquimbo La Serena Ovalle Valparaíso Viña del Mar Los Andes El Belloto Santiago San Antonio Curicó Rancagua Talca Los Ángeles Linares Concepción Bío Bío Chillán Osorno Puerto Montt Valdivia
Plaza Norte Panamericana Estación Central Las Rejas Maipú
La Reina
La Florida Gran Avenida El Bosque
San Bernardo
Puente Alto
Mall Plaza Sur
42 STORES Punta Arenas
Puente Ahumada
+ 160.000 m2 of SELLING SPACE
27
Financial Background What changed since July 2011? Loan Portfolio Evolution
Agreement with Chile’s National Consumer Service
Net Portfolio Cartera Neta
CLP Billion
Provisions Provisiones
CLP Million
754 707
Interest Rate Reduction + Elimination of fees and interest
119
Amount
Cash effect
Accounting effect
293,000
0
0
Return to Net Creditors1
17,500
13,800
13,800
Provision in RU2 Portfolio
5,200
0
5,200
15,020
2,220
2,220
25
25
25
330,745
16,045
21,245
572 635
Universal Repair Bonus
1 Mar-11
N° of cards with balance
129 29
Tax Benefit Penalty2
135
99
Total
2 Jul-11
3 Jun-12 (1) (2)
1,206,410
630,980
468,684
Cash effect already considered a payment of $3,700 in previous plans UTM 600 fine subject to ratification of the judge. UTM stands for Unidad Tributaria Mensual and is a currency linked to Chilean CPI used for tax purposes. 1 UTM = CLP 39,570 as of August 2012
CLP 500 million of the provisioned portfolio is recovered monthly
28
Financial Background Indicators show recovery in sales Income Statement Income Statement (CLP billion)
Revenues Retail Financial Gross profit EBITDA Chile Colombia Adjusted EBITDA(1) Chile Colombia Net Earnings
Evolution of Retail Sales in Chile 1Q ’12
2Q ’12
81.1 64.8 16.3 -7.2 -32.4 -29.8 -2.7 -10.6 -7.8 -2.7 -34.9
91.6 76.4 15.2 20.4 -5.5 -2.3 -3.3 -5.7 -2.4 -3.3 -10.2
SERNAC provision Compensation Extraordinary fees Penalty recovery Total
Aconcagua Plan
Plan(2)
Real
462 284 +7% 59 55
+4% 71 68
1T'12
2T'12
2012
…
2014
Adjusted(1) EBITDA Mg. over Retail Sales in Chile
Nonrecurring Expenses Nonrecurring (CLP billion)
CLP billion
1Q ’12
2Q ’12
-21.2 -0.8 -1.4 1.5 -21.9
-1.5 0.3 1.3 0.1
Aconcagua Plan
(2)
Real
Plan
15%
-3%-5%
-3%
-13% -14% 1T'12
2T'12
2012
…
2014
(1) EBITDA adjusted for nonrecurring expenses | (2) Business Plan 2012 publicly published on Oct/27/11 29
Financial Background Debt Restructuring Settlement Description (Nov/2011)
Bond Amortization Profile Senior Amortization
Senior Bond (CLP) Amount $185,013 million(1) Amortization Semiannual starting in 2015
Junior Amortization (e)
Senior Interests
CLP billion 160
442(2)
Interests From 2013 to 2022 with a rate between 4% and 10%
Junior Bond (UF) Amount CLP 235,472 million(1)
140 120
Amortization One coupon in 2032 Interests No interest payments
100
Tranche C Amount CLP 23,820 million(1) Amortization Semiannual starting in July 2018 until July 2024
Interests BCP 10 Rate + 1% starting July 31, 2013
80 60 40 20 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(1): Plus interest accrued between Jul-2011 and the date of fulfillment of the Condition of Success
…
2032
(2): Junior Amortization estimated with an annual inflation of 3%
30
Balance Sheet Pro-forma Balance Sheet of La Polar post-Capital increase Balance Sheet as of June 2012 Balance Sheet (CLP billion)
Top Impacts Post Capital Increase Dec ‘11
Jun ’12 Pro-forma*
Jun ’12
Cash Effect:
Cash and Equivalents
35
16
136
Accounts Receivables
132
99
99
Inventories
44
52
52
Fixed Assets
69
68
68
Other Assets
55
68
68
335
304
424
Financial Debt Effect:
Financial Debt
476
484
228
- CLP 256 billion due to validity of Judicial Settlement
Current
470
479
14
6
5
214
Accounts Payables
68
56
56
Other Liabilities
20
36
36
-228
-272
104
335
304
424
Total Assets
Non-current
Equity Total Liabilities and Equity
+ CLP 120 billion due to Capital Increase
Effect on Short-Term Debt: The validity of the Judicial Settlement enables La Polar to lower its debt obligations in the short term Effect on equity: + CLP 120 billion due to Capital Increase + CLP 256 billion due to validity of Judicial Settlement
(*) Estimation of the effect post-capital increase
31
“The crisis is the greatest blessing that can happen to people and countries, because the crisis brings progress. Creativity is born of anxiety as the day is born of the night. The Crisis is in the birthplace of invention, discovery, and the great tragedies. Whoever overcomes crisis outdoes himself without being “overcome”. ”
Investment Thesis 1. 2. 3. 4. 5. 6. 7.
Brand Value Corporate Governance First-class Team Market Position Customers Colombia Aconcagua Plan
32
Follow-on Offering Investor Presentation September 2012
Book Runner
33
Appendix I Retail Industry in Chile
Retail Industry in Chile Consumer Trends in Chile: Sustainable Growth of Commerce GDP and Retail Sales
Solid macro scenario and domestic demand
Commerce GDP and Private Consumption
Total GDP CAGR of 4.2% from 2005-2011
Private Consumption CAGR of 6.4% from 2005-2011
170
Commerce GDP CAGR of 6.9% from 2005-2011
160
Total GDP
Commerce GDP
Private Consumption
Commerce GDP has had a major boost in the past two years
149
160
150
Structural economic changes support greater private consumption
57% vs. 65% in Private Consumption/GDP in 2005 and 2011 respectively
140
145
130 120
128
110 100 2005
In the LTM, the two lines of products with the highest growth rates in retail sales are present in the business of La Polar
140
2006
2007
2008
2009
2010
2011 2012e 2013e
Source: Central Bank of Chile (www.bcentral.cl) and Latin Concensus Forecasts as of Jul-12
Retail Sales Index (IVCM)
21% real growth in devices, articles and equipment for
Growth in Retail Sales (MoM)
Average
domestic use
18% real growth in textiles, clothing, footwear and leather goods
20%
15% 10%
Average Growth 10.2%
5% 0%
Source: INE (www.ine.cl) | IVCM: Índice de Ventas de Comercio al por Menor (Retail Sales Index)
35
Retail Industry in Chile Retail Industry in Chile Highly Consolidated Top 10 GRDI (Global Retail Development IndexTM)
Chile ranks 2nd in the GRDI (Global Retail Development IndexTM), index that shows the most attractive developing countries for retail investment
Sophisticated and complete market consolidated in five major operators, both specialized and multi-format
They all have financial services and have expanded to other countries, with the exception of Hites
Brazil Chile China Uruguay India Saudi Arabia Georgia Oman Mongolia Peru
73,8 65,3 63,8 63,1 60,8 60,6 60,6 58,9 58,5 57,4 0
Industry with high barriers to entry
Highest market penetration in LATAM
Store locations
Brand loyalty
20
40
60
80
Source: A.T. Kearney (www.atkearney.com)
Major retail stores format in Chile
Department Stores
Supermarkets
Home Improvement
Shopping Centers
Financial Services
International Presence
36
Appendix II Retail Industry in Colombia
Retail Industry in Colombia Consumer Trends in Colombia: Products present in the Department Store format have had a strong boost in sales
Commerce GDP and Private Consumption
Solid macro scenario and domestic demand
Total GDP CAGR of 4.8% from 2005-2011
Private Consumption CAGR of 4.8% from 2005-2011
150
Commerce GDP CAGR of 5.1% from 2005-2011 and 7.0% YoY in 2011
140
Total GDP
In the LTM as of 1Q12, retail sales grew by 8.8% in real terms
120
La Polar stores
110
Appliances and home furnishings Textiles and clothing Personal care products, cosmetics and perfumery Footwear and leather goods Home computer equipment Articles and household utensils Pharmaceuticals Products for household cleaning Parts and accessories for vehicles Liquors and Cigars Hardware Other goods Total Sales
Growth in sales (LTM) 13.6% 13.3%
0.9%
11.0%
0.8% 0.5% 0.5% 0.2% 0.2% 0.2% 0.2% 0.1% 0.6% 8.8%
28.5% 9.9% 12.0% 5.4% 7.9% 10.1% 9.9% 7.1% 10.2%
7.2%
Source: DANE (www.dane.gov.co) – Boletín GAHM as of mar-12
Private Consumption
135 133 132
130
The first 6 lines with the largest growth are present in Contribution Present in La to total Δ in Polar stores sales 2.4% 2.1%
Commerce GDP
100 2005
2006
2007
2008
2009
2010
2011
Source: Colombia’s Central Bank (www.banrep.gov.co) and Latin Consensus Forecasts as of Jul-12 Retail Sales Index (MMCM(*))
Growth in Retail Sales (MoM) 25% 20% 15% 10% 5% 0% -5%
Average
Average growth 7,1%
(MMCM): Muestra mensual de comercio al por menor (monthly sample of retail sales, excludes gasoline and vehicles) | Source: DANE (www.dane.gov.co)
38
Retail Industry in Colombia Retail Industry in Colombia with Low Penetration Number of Department Stores and Surface
Significant participation of Chilean companies in the industry such as La Polar, Falabella, Cencosud and soon Ripley
Colombian competitors mainly participate with the supermarket format
Important opportunity given the low market penetration
N°
6.3 UF/m2 5.2 UF/m2 11 4
23% of retail sales are in shopping malls vs. 75% in the United States
Falabella
La Polar
46 million inhabitants vs. 17 million in Chile 12 cities with more than 400,000 inhabitants
Source: Company Reports
Format of the major retail stores in Colombia
Department Stores Supermarkets
Home Improvement
Shopping Centers
Financial Services
International Presence
39
Appendix III Financial Industry in Chile
Financial Industry in Chile Direct advantage of retailers to increase their market share due to the knowledge of the customers and their consumption habits Description
Evolution of Total Credit Cards with Transactions
Chile has shown an increase in terms of average consumer loans and balance due from client, reflection of the good macroeconomic performance of the country
Consumer market increasingly more educated and conscious, promoting differentiation in retailer’s products
Retailers have extended their reach and market share of their credit cards through strategic alliances with other retailers that operate in different segments
Recent alliances of retailers with Visa and Mastercard could encourage the use of non-bank cards
Bank Credit Cards
Non-bank Credit Cards (ex. La Polar)
N° MM
12,8 10,4
9,6
10,2
6,0
5,3
5,3
5,3
4,3
4,3
4,9
2007
2008
2009
2010
7,4
11,1
5,4
5,6 2011
Source: SBIF (www.sbif.cl)
Loan Evolution associated with Non-bank Credit Cards
2.662
406
2.256
Non-delinquent portfolio (ex. La Polar)
Delinquent Portfolio (ex. La Polar)
2.252 236
2.318 188
2.016
2.130
2.462 179
Mkt. Share of Non-bank Credit Cards with Transactions (dec-11) Johnson Consorcio ABC DIN 3% 0% Presto 5% 8%
La Polar 9%
2.283
Falabella 34%
6 million cards
Ripley 18%
2008
2009
2010
2011
Source: SBIF (www.sbif.cl) | Note: Real CLP billions as of dec-11
Cencosud 23% Source: SBIF (www.sbif.cl) y La Polar
41
Follow-on Offering Investor Presentation September 2012
Book Runner
42
Disclaimer Investing in our shares involves risks that are described in detail in the Prospectus approved by the Superintendencia de Valores y Seguros, which is available in www.lapolar.cl and www.celfin.com. In the case share subscription rights are acquired, the corresponding shares are subscribed and the capital increase is declared unsuccessful, you may recover the amount subscribed but not the amount paid for the share subscription rights
43