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Edited Transcript of INRETC1.LM earnings conference call or presentation 15-Nov-19 4:00pm GMT

Q3 2019 InRetail Peru Corp Earnings Call

Lima Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of InRetail Peru Corp earnings conference call or presentation Friday, November 15, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gonzalo Rosell

InRetail Perú Corp. - CFO

* Juan Carlos Vallejo Blanco

InRetail Perú Corp. - CEO

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Conference Call Participants

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* Alonso Acuna Aramburú

Banco BTG Pactual S.A., Research Division - Strategist

* Luis Adolfo Pardo Figueroa

Compass Group Peru - Co-Portfolio Manager & Head of Research

* Nicolas Larrain

JP Morgan Chase & Co, Research Division - Research Analyst

* Rafael Borja

i-advize Corporate Communications Inc. - SVP

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Presentation

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Operator [1]

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Good morning, and welcome to InRetail Perú's conference call. (Operator Instructions) It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, you may begin.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [2]

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Thank you, and good morning, everyone, and welcome to InRetail Perú's Third Quarter 2019 Earnings Conference Call.

Before we begin, I would like to remind you that today's call for investors and analysts only, therefore, question from the media will not be taken. Joining us today from InRetail Perú are Mr. Juan Carlos Vallejo, Chief Executive Officer; and Mr. Gonzalo Rosell, Chief Financial 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 accompanying the discussion during this call. If you need any assistance, please contact the Investor Relations team of InRetail Perú.

Please be advised that 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. Mr. Vallejo, please go ahead, sir.

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Juan Carlos Vallejo Blanco, InRetail Perú Corp. - CEO [3]

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Thank you, Rafael. Good morning, everyone. I'm Juan Carlos Vallejo. Thank you for joining InRetail third quarter earnings call. Today, we will discuss the main highlights of InRetail's third quarter results. I will begin with a brief introduction on current market conditions and then Gonzalo will walk you through our earnings presentation.

During the third quarter of this year, we continue experiencing a deceleration in consumption as already anticipated in our previous quarterly earnings call. At that time, we commented that the first 2 weeks of August have been particularly weak after the President's announcement of his intention to bring presidential and parliamentary election forward by 1 year and the development around the Tía María mining project, and we share that we expect a consumption normalization and recovering only later in the year. Since then, however, political confrontation scale up and being in the solution of Congress on September 30 and a call for congressional elections that will take place in January 2020. The local political context, weaker domestic activity and growing concern about the regional and global outlook remain affecting the business and consumer confidence throughout the third quarter and are still waiting on a clearer consumption recovery, which we will still expect to experience for the Christmas campaign. Despite the challenging market condition, InRetail reported a mid single-digit top line growth, above the growth in EBITDA and net income with healthy gross margin, EBITDA margin and net income margin expansions.

Our Food Retail segment managed to maintain a double-digit top line growth and had strong EBITDA growth despite the challenging comparison basis on Q3 of last year when we experienced a double-digit same-store sales growth and despite the higher relevance of the hard discount and cash and carry format in the sale mix that remained in a development stage.

On Pharma segment, on the other hand, posted a 3.3% reduction in revenues due to a low single-digit growth in pharmacy unit and the contraction in revenues in the MDM unit as part of the ongoing reorganization to focus on more profitable pharma lines. With that, our Pharma segment EBITDA experienced a solid 9.7% growth and reaching an EBITDA margin of 10.7%, the highest quarterly EBITDA margin period for our Pharma segment.

Finally, our Shopping Malls segment reported another good quarter, with a 4% same-store sales growth for tenants and a 4.4% EBITDA growth, maintaining a high occupancy rate of 96%, while we continue putting a lot of hard work and effort in finalizing the contraction of our flagship mall, Puruchuco.

With that, we feel very proud to announce that 2 days ago on November 13, after 10 years of having personally pushed this point forward, we inaugurated our Real Plaza Puruchuco Mall, the largest shopping mall constructed in Peru in a single phase, with the best local and international tenants, allowing us to continue bringing more InRetail to Peruvian families on the east of Lima.

Now let me pass the word to Gonzalo, and as always, we look forward to answering your questions by the end of this call.

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Gonzalo Rosell, InRetail Perú Corp. - CFO [4]

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Thank you, Juan Carlos. Good morning, everyone. Thanks for joining us on this call.

Before starting, I would like to remind you that since the beginning of the year, our financial statements fully reflect the adoption of IFRS 16. However, the numbers we will be discussing in this earnings presentation and in our management discussion and analysis report have been adjusted to exclude IFRS 16 effects in order for them to be comparable to our results of the third quarter of last year. The bridge and reconciliation of the accounting numbers with a pre-IFRS 16 figures are shown in the last section of this presentation, and there is also information in the notes accompanying our financial statement.

Please turn to Page 4 in our earnings presentation to start with our consolidated financial highlights of the third quarter of this year. As Juan Carlos mentioned a couple of minutes ago, despite the weaker market conditions, InRetail still reported a mid single-digit top line growth and double-digit growth in EBITDA net income, with healthy gross margin, EBITDA margin and net income margin expansions. The mid single-digit growth in revenues in the third quarter is mainly explained by a contraction in the MDM unit of our Pharma segment, despite the solid revenue growth in our Food Retail and Shopping Malls segments.

Revenues reached PEN 3.2 billion with a gross margin of 30.4% compared to 30.2% in the third quarter of last year. In terms of adjusted EBITDA, we grew 10.8% in comparison to the same period of last year, reaching PEN 352 million, with an adjusted EBITDA margin of 10.9% compared to 10.3% reported in the third quarter of last year. Adjusted EBITDA growth is explained by a solid growth in our 3 business segments. Finally, we reported a 41.6% increase in net income, mainly due to our good operating performance but also to a higher mark-to-market and FX gains this quarter, expanding net income margin from 3.3% in Q3 2018 to 4.4% in the third quarter of this year.

Please turn to Page 5 to review our financial and operational snapshot of our consolidated figures. In terms of contribution considering figures from the last 12 months, our Food Retail segment accounted for 43% of InRetail's consolidated revenues and 28% of consolidated adjusted EBITDA, with an adjusted EBITDA margin of 6.8%. Our Pharma segment accounted for 53% of consolidated revenues and 49% of consolidated adjusted EBITDA, with an adjusted EBITDA margin of 9.8%. Finally, our Shopping Malls segment accounted for 4% of consolidated revenues and 23% of consolidated adjusted EBITDA, with a net rental income margin of 78.5%.

We will now continue with the results by segment. Please turn to Page 7 to start with our Food Retail segment. Our Food Retail segment registered another quarter of double-digit growth in revenues, growing 13.2% in the third quarter in comparison to last year. This growth is explained by the net opening of 37,000 square meters of sales area since Q3 2018 and a same-store sales growth of 2%. The slower same-store sales growth in our Food Retail segment relates to a lower -- the slower consumption environment we have been observing since August of this year, which continued throughout the third quarter, and the challenging comparison basis of Q3 of last year, when we experienced a double-digit same-store sales growth. Our gross margin decreased 44 basis points in the third quarter, reaching 26.2%, mainly due to the higher penetration of new formats in the sales mix and the absence of rebates from store openings in comparison to the same period of the previous year. In terms of adjusted EBITDA,

Food Retail's adjusted EBITDA grew a strong 20.4% in the quarter, reaching 6.5% EBITDA margin, mainly due to higher employee productivity and fixed cost dilution despite the higher penetration of the formats still in the development stage. Overall, we continue strengthening our multi-format strategy in the Food Retail segment, with our flagship format Plaza Vea, representing 83% of sales; our high-end supermarket format, Vivanda, representing 4% of sales; our hard-discount format, Mass, representing already 8% of sales; and our recently launched cash and carry format, Economax, representing 5% of sales. Despite the continued macroeconomic slowdown, which is negatively impacting consumption, we remain in line with our 2019 guidance for Food Retail of about 12% revenue growth and 15% adjusted EBITDA growth for full year 2019, which I shared with the market in our fourth quarter earnings call at the beginning of this year.

Please turn to Page 8 to review our Pharma segment. Our Pharmacies unit registered a top line growth of 2.7% in the third quarter, with a same-store sales growth of 2.4% in Q3 2019. As we anticipated in our last quarter earnings call, same-store sales in the Pharmacies unit still remains slow but registered a slight pick up in comparison to the second quarter of this year, mainly due to higher sales of personal care products associated to the improvement in the layers and display of these categories in our stores, which I will explain in more detail in a couple of minutes. Gross margin reached 35.7%, 44 basis points above Q3 2018, mainly due to a slight change in the sales mix towards personal care products as well as seasonality in the quarter. Adjusted EBITDA margin for the Pharmacies unit reached 12.5%, positively impacted by increased employee productivity at store level, which forms part of a second-generation synergies, which I also commented in a previous earnings call.

In our MDM unit, we reported an 18.4% decrease in revenues, reaching PEN 574 million due to a reorganization of the distribution business to focus on more profitable Pharma lines, which we started implementing last year, post-acquisition, and which I commented on our last quarterly earnings call. Revenues in the MDM unit were lower than anticipated, mainly due to slower consumer demand in the retail channel and lower demand from the public channels as well that are behind their yearly procurement plans for 2019. We expect revenues from the MDM unit to remain around these levels for the rest of the year and EBITDA to have bottomed already, and expect both revenues and EBITDA to start growing again in 2020. Gross margin was 14.2% in the third quarter, which considers the reclassification of logistic expenses related to the distribution of products in the MDM unit from other operating expenses because of goods sold implemented in the fourth quarter of 2018 as per IFRS 16.

Finally, in our MDM unit, adjusted EBITDA margin was 3.4% in the quarter, below Q3 2018, mainly due to the absence of recovery and reversal of provisions that positively impacted margins in Q3 2018 and the slower-than-expected top line and EBITDA growth. Given the continued slowdown in the macroeconomic environment and the softer revenue growth in the MDM unit, we're slightly reducing our 2019 adjusted EBITDA guidance for InRetail Pharma from the PEN 715 million we initially guided for the year to around PEN 700 million full year 2019.

In terms of EBITDA margin guidance for the full year, we still expect to achieve an adjusted EBITDA margin of around 12% for Pharmacies. However, we're adjusting our adjusted EBITDA margin guidance for the MDM unit to around 3.6% due to slower revenue growth tied to current macroeconomic environment, which has led to a lower fixed cost dilution. With this, InRetail Pharma should still close the year with a full year EBITDA margin of about 10%.

Now please turn to Page 9 to review the highlights of our Shopping Malls segment. Our Shopping Malls revenues for the third quarter grew 6.6% versus last year, with a solid tenant same-store sales growth of 4%. This quarter, we remain -- we maintained our high occupancy rates of 96%. Our net rental income margin slightly decreased to 77.6%, mainly due to higher property taxes and increased insurance and security expenses. We registered an adjustment of a fair value of our investment properties of PEN 12.2 million compared to PEN 3 million in the same period of 2018 as a result of a higher FX rate used to mark investment properties valued in U.S. dollars.

Finally, we are proud to announce that our new flagship mall, Real Plaza Puruchuco, was inaugurated this Wednesday. Please turn to Page 10 for further comments on Real Plaza Puruchuco.

Real Plaza Puruchuco was one of our most relevant projects and represents an important milestone in the development of modern retail in Peru, positively impacting the quality of life of the surrounding neighborhoods with a diverse offering in fashion, entertainment and restaurants and generating around 6,500 jobs. Real Plaza Puruchuco is the largest shopping mall to be constructed in Peru in a single phase. With 125,000 square meters of GLA, it is the first mall in Peru to obtain the green certification, EDGE, for its sustainable designing with efficient water, energy and embodied material usage.

Please turn to Page 11 for a summary of metrics for Real Plaza Puruchuco. Real Plaza Puruchuco was inaugurated with a secure occupancy rate of 84%, with more than 250 stores from the best Peruvian and international tenants in fashion, entertainment and restaurants. We expect more than 2 million visitors per month due to its strategic location in a highly dense area amongst Ate, Santa Anita and La Molina districts.

Now please turn to Page 12. This slide sums up our Food Retail sales area growth, Pharmacies openings and Shopping Malls GLA expansions as well as our same-store sales by quarter. In our Food Retail segment, we are mainly in line towards completing the expected new store openings. In February, we opened the fifth Economax cash-and-carry store in Arequipa, the second largest city in Peru. We recently inaugurated Plaza Vea -- a Plaza Vea store in Real Plaza Puruchuco, and we'll be opening one more Plaza Vea store in the north of Peru in Tumbes by the end of the year. Additionally, we have opened 101 new Mass stores and expect to open an additional 30 stores by the end of the year, totaling 130 new stores.

In our Pharmacies unit, we experienced a slowdown of new store opening this year. Year-to-date, we have opened only 14 stores and expect to open an additional 29 stores by the end of the year, totaling 43 new stores in the year. We will close the year with approximately 40 stores, which are in the final stages of the approval process that should have been opened this year but got delayed and will be opened only at the beginning of next year. The slowdown in pharmacies opening is mainly response to having prioritized the modification and layouts and displays of a relevant number of stores, which is performed by the same team involved in store openings and increasing the average time that it's taking to obtain permits from authorities for new stores and the higher hurdle rate we established for approving potential new stores to our whole cannibalization of existing ones.

To give you a sense of the time and effort pulling the store adequacies, 825 in the pharma stores have been modified year-to-date to better display personal care and consumer products, with clear signaling of categories and better product assortment. Additionally, approximately 19 pharma stores in the higher-end neighborhoods in Lima and provinces will have been intervened this year to incorporate small lines with personal care products, leaving us with a total of approximately 330 stores under a drugstore format, almost all under the Mifarma brand.

Going forward, and continuing with the effort of increasing sales and profitability per store, we have recently announced a new store format, Mifarma Beauty. We have recently converted to that format one Mifarma store in San Isidro and one in Lima and intend to reconvert a second one, Miraflores, also in Lima, by the end of the year. For 2020, we -- the intention is to reconvert other 30 to 70 pharma stores to a Mifarma Beauty format and subject to a performance of those get to approximately 250 reconversions in about 3 years. We believe this new format with new layout display and a beauty assortment will help us increase average tickets, taking advantage of the strong traffic in our stores and increase the relevance of non-pharma categories in our sales mix, allowing us to accelerate marginal sales per store and increase profitability. Finally, in terms of new GLA in Shopping Malls, we completed the construction of Real Plaza Puruchuco, which is adding 125,000 square meters of GLA in the fourth quarter of this year.

Please turn to Page 14 to review our consolidated net income results. InRetail registered a gain of PEN 143 million in the third quarter of 2019 compared to a gain of PEN 101 million in the same period of 2018, mainly explained by a strong increase in EBITDA, higher mark-to-market from the valuation of investment properties and a net positive foreign exchange effect in comparison to the third quarter of 2018. Excluding onetime financial expenses effects in mark-to-market from the valuation of investment properties, net income for the third quarter would have reached PEN 136 million, growing 18.7% versus the adjusted comparable quarter of last year.

Now please turn to Page 15 to discuss our CapEx and cash flow generation. During the third quarter of 2019, we invested PEN 249 million in CapEx, mainly devoted to Food Retail for store openings and the expansion of our distribution center and to the development of our flagship project in the Shopping Malls segment, the Real Plaza Puruchuco Mall. In terms of cash balance, we ended the quarter with PEN 593 million of cash.

Please turn to Page 16 to discuss our consolidated financial debt. As of September 2019, InRetail had a consolidated net debt of PEN 4,713 million, with a net debt-to-adjusted EBITDA ratio of 3.4x, in line with the 3.4x as of June 2019. We expect to close the year with a net debt-to-adjusted EBITDA ratio of around 3.1x. We maintained a 2% exposure to U.S. dollar-denominated debt, in line with the low exposure we achieved last quarter, having hedged through call spreads the total nominal amount of our $2 denominated bond issuances of last year until maturity.

Please turn to Page 17 to review our debt by segments. Supermercados Peruanos, our Food Retail segment, closed the third quarter of this year with a net debt of PEN 1,195 million and with a net debt-to-EBITDA ratio of 3.1x, slightly above the 3x ratio as of June 2019. Given the seasonality in the fourth quarter of the year, we expect to close this year with a net debt-to-adjusted EBITDA ratio of around 2.7x. On the other hand, InRetail Pharma ended the third quarter of this year with a net debt of PEN 1,678 million and with a net debt-to-EBITDA ratio of 2.4x, below the 2.6x as of June 2019. And InRetail Pharma, we expect to continue deleveraging towards 2.1x net debt-to-EBITDA ratio at the end of this year. Finally, InRetail Shopping Malls ended the quarter with a net debt of PEN 1,653 million and a net debt-to-EBITDA ratio of 5.1x, in line with 5.1x as of June 2019 due to construction of Puruchuco. We continue expecting to close the year with a net debt-to-EBITDA ratio of below 5.3x, in line with the guidance provided earlier this year, and slightly above Q3 as we continue deploying the remaining CapEx of our Puruchuco Mall, which was recently inaugurated.

This covers our presentation, and now we will be glad to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Luis Pardo with Compass Group.

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Luis Adolfo Pardo Figueroa, Compass Group Peru - Co-Portfolio Manager & Head of Research [2]

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Congratulations for the quarter, first of all. Two questions. The first one is, if you could give more color on the MDM -- I don't want to say issue, but in the MDM performance going forward, is that 3.6% margin what we should expect going forward? Or are you eventually going to get to 4%? I'll let you answer the first one before I go to the second one.

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Gonzalo Rosell, InRetail Perú Corp. - CFO [3]

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Okay. Thanks for your question, Luis. The MDM unit, as we have reported earlier, had been going through a process of reorganization to prioritize more profitable pharma life -- lines in particular. And in that process, we've been fine-tuning the organizational structure, optimizing more internal teams, readjusting the sales force and so on. And then through our process, we've been losing sales in some consumer categories, more about -- represented a relevant contribution. Another thing that we have been doing is some lines in the past were bought by the MDM unit and sold to our related-party retail have started to being bought directly by our retail chains. Now that has definitely impacted the sales from the MDM unit as well. So what we are trying to do now is finalizing the reorganization process, stabilizing sales, and from then starting to grow again. In that process, we have strengthened already the management team of the MDM unit. We have started building a stronger backlog in order to support revenue growth as we naturally lose some represented lines as part of day-to-day business. And in that line, what we feel is that we have gotten pretty close to the bottom in terms of revenues, although we still believe that the fourth quarter in terms of revenue generation, could be slightly in line or even slightly lower than Q3. But in terms of EBITDA, we feel that we have already bottomed in Q3 and we should start reporting growth versus Q3 and Q4 and going forward.

Now evidently, we are finalizing our strategic planning for next year and for the next 5 years for the segment. We're almost closing our budgets for next year, a little budget, and the assumption behind the strategic planning and our budget for the MDM unit is that we are going to resume growth next year in 2020. And we have for that very detailed initiatives and that should strengthen our sales force, build a stronger backlog. And from then on, start more in growing again.

In terms of margin, given what I said, we are adjusting the EBITDA margin expectation for the year, given that we have experienced a slower revenues growth that has not allowed us to dilute fixed costs as expected. And what we expect for 2020 still preliminary numbers is to again, start improving EBITDA margins to get in the midterm towards the 4% expectation we previously shared. But for full year 2019, we're not going to get to 4%, which is what we expected initially. We're going to be closer to 3.6% for full year 2019, and only in 2020 start growing again in terms of top line EBITDA and progressively improving EBITDA margin as well.

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Luis Adolfo Pardo Figueroa, Compass Group Peru - Co-Portfolio Manager & Head of Research [4]

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Okay. That was the first question. It was great that you gave a lot of detail. For the second question is, I know, as Juan Carlos said in his opening statement that the political uncertainty in Peru has hurt consumer confidence. But how are you looking -- what's your view on consumer confidence and consumer behavior into 2020? Should we see a pickup in same-store sales? Should we see an improvement from what we saw this quarter in terms of revenue growth?

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Gonzalo Rosell, InRetail Perú Corp. - CFO [5]

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We are always optimistic about the future, not only depending on improvements in macro or political or consumer sentiment conditions, but also because we permanently work on fine-tuning and improving our value proposition to adjust to current market conditions. So really what we expect going forward, given that the political noise in Peru and the political transition in this country have been pacific, we expect the consumer sentiment in general terms to start picking up and improving towards the end of this year. We still expect a positive Christmas campaign and a slightly better 2020 versus 2019, given that we're going to go through peaceful congressional elections in January, and then we shouldn't experience such political noise as the one we went through during 2019. So we are more optimistic about 2020 than we were for 2019 and, in that line, we expect positive same-store sales growth in all our segments next year.

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Operator [6]

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(Operator Instructions) Your next question comes from Alonso Aramburú with BTG.

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Alonso Acuna Aramburú, Banco BTG Pactual S.A., Research Division - Strategist [7]

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I have a couple of questions on my side as well. First, just specifically on your effective tax rate, it was a little bit lower this quarter than in previous quarters. Can you just comment on what -- why is that? And whether this tax rate is what we should expect going forward? Also, if you can comment on the generics legislation, has that already been started officially? And then do you think there's going to be any impact in the short term? Or are you seeing any more demand for generics in general from the public? And regarding your Mifarma Beauty format, can you just give us some color as to the differences in layout and product mix that we expect relative to the normal Mifarma pharmacy?

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Gonzalo Rosell, InRetail Perú Corp. - CFO [8]

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Thank you, Alonso. With regard to your first question, the effective tax rate, normally, we report higher effective tax rate than the statutory tax rate of 29.5% given that in our industry, particularly in the Food Retail business, we tend to have low net margins, and any permanent difference between financial earnings before taxes and taxable income tend to have a relevant impact in effective tax rates. In the past, we have been experiencing some one-offs related to reorganization, refinancing and liability management exercises related to acquisition of Quicorp and so on, and that negatively impacted earnings before taxes. And that made the impact of any permanent differences more dramatic to impact effective tax rates, particularly in the Food Retail format. Then on top of that, we've had some recognitions in recoveries from the tax authority, particularly in Food Retail that have allowed us to experience a lower effective tax rate in Food Retail in particular. But the main reason behind now the convergence of effective tax to a statutory tax has to do basically with the fact that we haven't had any one-offs or a particular impact that lower our earnings before taxes. And therefore, any permanent differences are less impactful in our effective tax rates, in particular in this quarter.

With regard to the generics legislation, indeed, a couple of weeks ago, government approved an urgency decree making mandatory the availability of minimum stocks that haven't been defined yet of 40 SKUs in pharmacies throughout Peru. It's not even 40 molecules, it's 40 SKUs. So in terms of molecules, it's less than that. We don't expect any impact from that urgency decree to our pharmacies. As we have discussed in the past, we have a full portfolio of generic products in our 2 chains, more than 240 molecules available with good coverage and already 40% of the units sold of our -- of pharma categories sold in our 2 chains are sold through generic products. So in general terms, we're fully covered. We have more -- by far, more coverage than what the urgency decree mandates and, in the end, we don't expect any negative impact. The decree is still not in full force. The details of a norm half still to be worked on. And we expect that to happen by the end of the year or maybe that will take a little longer. And then there's still 6 months to [allow us to norm]. The norm is not targeted towards any pharma change, in particular. It's targeted towards the whole industry. Remember that there's more than 11,000 pharmacies all over Peru and we have no difficulty in complying with that. And there might be an issue for independent pharmacies in terms of increase in inventory levels and so on, and that might affect the way the norm is finally detailed and regulated.

And in terms of Mifarma Beauty, the idea with Mifarma Beauty is increasing the assortment and improving the exhibition and display of beauty categories in our stores is basically taking the Mifarma stores that have already aisles in the stores and now improve display, the marketing, the exhibition and (inaudible) the assortment of the beauty categories and personal care categories in order to increase and maximize sales of our stores and therefore, profitability. Now we can take advantage of the strong traffic that we currently attract for our stores to expand the sales easily with that. And that is probably in line with our goal now of bringing health care access to Peruvian families, not only on the inside, but also on the outside. So it's a consistent strategy with our goal of accelerating top line, improving profitability at store level and expanding our coverage, bringing health care to Peruvian families.

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Alonso Acuna Aramburú, Banco BTG Pactual S.A., Research Division - Strategist [9]

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Okay. And just maybe a follow-up on the previous question regarding same-store sales. And you've mentioned deceleration a few times, are you seeing further deceleration in the fourth quarter, in October, November? Or are you seeing same-store sales level similar to what you saw in 3Q?

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Gonzalo Rosell, InRetail Perú Corp. - CFO [10]

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Same-store sales should be in line with what we experienced in Q3. And we're still hoping a pickup at the end of the year in the Christmas campaign.

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Operator [11]

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(Operator Instructions) Your next question comes from Nicolas Larrain with JPMorgan.

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Nicolas Larrain, JP Morgan Chase & Co, Research Division - Research Analyst [12]

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Congrats on the results. I have one question on the drug retail. So given the delays you've been having on opening new stores, what do you think now is -- I mean, does this impact your idea of a sustainable number of openings per year? And -- or how much do you think now that we can expect of pharmacy openings per year going forward? And also just to check out the new guidance from the Pharma side is PEN 700 million for the year, right?

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Gonzalo Rosell, InRetail Perú Corp. - CFO [13]

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Thank you for your questions, Nicolas. The second question is faster to answer. Yes, the updated guidance for InRetail Pharma on a consolidated basis is PEN 700 million for full year 2019. In terms of opening of new stores in the Pharma segment, as I explained, not having achieved the guidance of 70 net stores that we shared at the beginning of the year has more to do with all the things that we have been doing with regard to reconverting stores. Now the longer time that is taking to obtain permits for new stores, but it's not such a dramatic issue. But in the past, it took us 2 weeks to obtain permits for new stores. Now it's taking us maybe a month. But it's not that dramatic either. And the other thing is that in the past, when we opened the record number of 200 stores InkaFarma in 2016, we didn't have to take into consideration cannibalization of the Mifarma stores. Today, we have to be more disciplined in terms to avoid cannibalization of our own pharmacies.

Having said all that, it was more an issue of underestimating that, that it will take us to get the permits and underestimating the -- normally, the effort it would take us to find right potential new locations. As I mentioned also, there's 40 stores that are about to be open, and we'll go -- move past end of year but are almost going to be ready to be open at the end of the year. If we didn't have experienced those delays, we would have gone into the -- not close to 70 net additions we discussed earlier in the year. So there's no lower conviction. The potential market is there. There's still a huge market in the hands of thousands of independent mom & pop's stores. We believe we have a better value proposition. We have better prices in our 2 formats and therefore, there is still space for us to continue growing in terms of points of sales. So at least for now, we don't anticipate slowing down in that sense, probably that -- we still haven't closed our strategic planning and budgeting for 2020, but probably the number of new store openings for next year will be close to 70 net that we previously discussed.

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Operator [14]

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(Operator Instructions) And there are no further questions at this time. I'd like to turn the call back to Juan Carlos Vallejo for any closing remarks.

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Juan Carlos Vallejo Blanco, InRetail Perú Corp. - CEO [15]

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Okay. Thank you. Thank you all for participating in our earnings call. As a final remark, I just wanted to highlight that although we continue expecting a challenging consumption towards the end of the year, we'll remain confident that we are going to be able to fulfill our updated guidance for the year on the back of the strong value proposition in each of our 3 segments. Looking forward and with a peaceful political process to elect a new Congress in January 2020, we expect our progressive improvement in consumer confidence that will positively impact consumption, given support to retail industry in general. If you have any follow-up questions, please do not hesitate to contact any of us. Thank you very much.

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Operator [16]

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And this concludes today's call. Thank you for your participation. You may now disconnect.