Income Report. Our main views regarding the quarterly results reported by the companies under our coverage are voiced in the following comments:

Transcription

1 2Q13 Income Report Upon delivery of the second quarter results for 2013, the IPSA aggregated results (measured in CLP/Chilean Pesos) showed gains of 21.4% in the EBITDA and 11.0% in profits. These numbers not only include the operational progress of each company, but inorganic growth and non-recurrent effects as well. We would also like to highlight that the reported numbers in the level of income and EBITDA of the sample companies under coverage had not only been in line with our estimates, but had also surpassed our predictions for the bottom line. We present some of our conclusions below: The reported numbers in the sample (measured in pesos) confirmed our expectations in regards to the gains in EBITDA, keeping up with the tendency seen in 1Q13. In fact, the gross operational balance of the companies under coverage (which have a weight of 75% in the IPSA) displayed an annual 26.0% rise this quarter, 4.1% over the expected outcome. The reported operational margins were in line with estimates. Given the 8.5% rise in earnings (+3.6% over expected), the EBITDA margin reached 15.3%, in line with our expectations of 15.2% and 14.8% for 1Q13. This is positive, and demonstrates how the companies have reached higher efficiency levels in their operations. The yearly growth of 26.0% of quarterly EBITDA was lead by electricity and public utilities (60%), forestry (17%), and retail (7%). The best results came from Enersis, Copec, and Falabella, these sectors showed gains of 41%, 30%, and 10%, accordingly, even though we must underline that the forestry sector went well beyond what we had expected. In regards to our projections, Antarchile, Copec, Colbún, Falabella, and Enersis had the most outstanding growth. On the other hand, Cencosud and Cruz Blanca were much weaker than anticipated. In terms of profits, we must highlight that the increase of 25.3% YoY far surpassed our estimates by 26.0%. What boosted performance were the numbers reported by electricity and public utilities and forestry, principally due to the results seen in Enersis, Copec, Antarchile and Colbun. On the other hand, the banking and retail sector stood out for its lassitude, due to profit decline in Santander, BCI and Cencosud. We hope that the levels of expenses registered so far are maintained for what remains of the year, despite a slower expansion on the national economy, which would mainly benefit income in retail, soft drink and wine sectors. Furthermore, China s growth and its effect on global prices in commodities would be the leading driver that would influence the performance of companies that focus on this market. Another point to consider will be the impact of higher electrical energy costs on margins. CorpResearch 2013 Sep - 09 Our main views regarding the quarterly results reported by the companies under our coverage are voiced in the following comments:

2 Company Comments AES Gener Aguas Andinas Andina Antarchile Banco de Chile Banco Santander BCI Besalco CCU The sharp rise of 53.6% YoY in the EBITDA can be explained almost entirely by the operations in the SIC (driven by higher energy prices in the spot market and the commissioning of Campiche). In turn, the slight progress of the SING and SADI operations was neutralized by the Colombian subsidiary Chivor s contraction. While the controller s profits turned the losses seen in 2Q12 around, boosted by the operational numbers already mentioned and greater acknowledgement in related companies results, although there had been higher tax expenses. The EBITDA had a slight dip of 2.2% YoY, due to a moderate rise in operational costs. In turn, Income went up 5.2% YoY, alongside stable growth in marketed volume. In the end, the controller was set-back 13.3% YoY. This can be explained by the lower operational numbers already mentioned above. In a pro forma base that includes Coca-Cola Polar in 2Q12, earnings went up 4.6% YoY and the EBITDA progressed 13% YoY, with an EBITDA margin of 14.2%. These numbers can be explained by the growth in soft drink volumes in Chile and Argentina, which was offset by a decline in volume in Brazil s operations by 4.5% YoY, the devaluation of the Brazilian Real and of the Argentinean Peso (which in both cases has a negative impact on the exchange rate to Chilean Pesos), rises in costs due to a higher price for the concentrate and labor force in Argentina and Brazil, and high inflation in Argentina. In regards to the merger of Coca-Cola Polar, it was reported that USD 4.7 million were made because of synergy in Chile and Argentina. Antarchile s results are given by its subsidiary Empresas Copec. The Forestry division reached a very good performance due to decrease in production costs and higher sales prices of cellulose. The Fuel division continues to show good growth in volumes, especially in Colombia, which in 2Q13 showed an annual growth of 16.8%. The AntarChile s discount now stands 40.1%, but we estimate that the equilibrium level is around 37.5%. Banco de Chile continues to show good results, with an increase in profit of 13.9% YoY. Although placement growth decreased at a rate of 6.1% YoY, all other indicators were positive. The stock of provisions remains at 2.23%, achieving a coverage ratio of 4.3%, the highest in the Chilean system. Non-performing/impaired loans continue stable at 0.5% and has not had any changes in comparison to last year. The efficiency ratio displayed positive changes as well, decreasing from 49.3% to 45.7%. We hope the bank continues its good performance while maintaining a solid financing structure and its placement risk levels remain under control. A significant annual drop in its quarterly revenue was seen in Banco Santander. This can be mainly explained by smaller operational margins and higher expense on provisions, which we hope does not happen again. Because of this additional expense on provisions, their stock stayed stable at 2.9%. Non-performing/impaired loans increased considerably compared to 2012, but has not shown a significant rise in the last two quarters. The efficiency ratio has worsened by 19 basis points, showing greater SAG expenses. The profit in 2Q13 displayed a very slight drop, 1.9% YoY. BCI has shown a very large growth of placement, (12.6%), which we believe influenced its risk indicators and efficiency ratio. Its provision of stock stayed stable at 2.5%, but its non-performing/impaired loans went up from 1.6% to 1.9%, which caused the coverage ratio to decrease from 1.6 to 1.3. Lastly, the efficiency ratio worsened, rising from 48.4% to 51.1%, a total of 27 basis points. Income dropped by 15% YoY but grew 3.7% in contrast to 1Q13. This is a result of fewer sales and greater expense on construction contracts shorter than 2 years, due to the rise in labor costs. The latter is directly tied to the 24.9% reduction in profits compared to the same period the previous year. This rise, in regards to the previous quarter, is worth mentioning, since it is a consequence of the fact that BS Maquinarias has improved its productivity in its new contracts. Earnings grew 11.7% YoY because of an increase seen in the business segments of Chile, Río de la Plata, (CCU Argentina and Uruguay) and Wines. In turn, the EBITDA grew 14.7% YoY. This variation can be explained by the development of the Chilean business segment, where there was a rise in price in order to compensate its greater sales costs, (8.6% YoY), as well as higher costs in distribution, marketing and administration, (15.1%).

3 Company Comments Cencosud The company s results were beneath what the market had anticipated. The EBITDA suffered a contraction of 2.5% YoY, mainly due to a 15.4% YoY increase in SAG EXPENSES, associated to the start of department store operations in Peru, and a rise on personnel costs in the supermarkets division in Argentina, Nevertheless, the gross margin had a slight annual growth from 20 basis points to 28.6% showing proof of the Colombian operation s consolidation. This was offset by a 14.1% YoY increase in earnings, boosted by the opening of 175 new locations and 4 shopping centers. CMPC Colbun Concha y Toro Copec Cruz Blanca Embonor Endesa The Cellulose company continued its steady rise during the quarter. Long fiber cellulose reached an average price of USD 850 per ton (+8.0% YoY) and short fiber cellulose achieved USD 813 per ton (+6.0% YoY). Despite this, the operational margins of the cellulose business remained stable (EBITDA margin of 25.1% in 2Q13 v/s 25.6% in 2Q12). In turn, the tissue business margins suffered an annual contraction from 120 BPS to 11.3%, which was below our estimates, due to the increase in the US dollar exchange rate compared to local currencies in the markets where the division operates. The EBITDA progressed 416% YoY, which can be explained by a weak comparison base in 2Q12 and the accounting of a payment for USD 64 million for loss of profit due to the accident that affected Nehuenco I facilities, rewarded through a lawsuit against its insurance companies. Income registered considerable gains of 56.3% YoY, boosted by its new supplies to Codelco. In turn, the controller profit turned the 2Q12 losses around and registered positive performance, although lessened by payments for the corresponding taxes. The EBITDA reported a drop of 45.7% YoY, mainly caused by a workers strike, (well through most of 2Q13, which meant that nearly 1.1 million cases could not be exported. This led to a deteriorated unit margin) and an increase of the Chilean Peso s exchange rate against most currencies of its destination markets. While, earnings slightly slid to 0.8% YoY, mostly due to a smaller amount of marketed volume in Chile and abroad, and partially compensated by higher sale prices. In the end, profit registered a set-back of 60.7% YoY, affected by the smaller operational numbers already mentioned. The cellulose company s prices kept its upward tendency this quarter. Long fiber cellulose achieved an average of USD 850 per ton (+8.0% YoY) and short fiber cellulose reached USD 813 per ton (+6.0% YoY). The forestry division attained very good results this quarter as a consequence of lower costs and better sales prices of the cellulose. The fuel division continues to display good levels in growth of volume, especially in Colombia. Sales volumes in Colombia went up by 16.8%. The market had expected higher numbers for this company s results. Its EBITDA was strongly affected by the results in its insurance business and was inferior to what we, and market consensus, had hoped for. Accidents marked 93.7%, far surpassing our estimates of 88.0% for the quarter. The results in their hospital and outpatient ventures were well within the lines of what we had anticipated. Therefore we trust that these undertakings will carry on with their good prospects looking towards to the capacity enlargement the company has planned for 2014 and Earnings displayed an increase of 5.5% YoY, driven by the rise in volume of operations in Bolivia (+9.6% YoY) and Chile (+4.2% YoY). The high growth rate in its many segments in Bolivia is due to the low penetration of its products and low consumption per capita of TCCC products. While in Chile, growth continues to be driven by the soft drink segment, although at a slower rate, given the national market s maturity. However, the 2Q13 EDITDA margin reached 15.6% (+2.2% YoY) due to greater cost efficiency. The EBITDA achieved an increase of 11.9% YoY. This result can be explained by the progress seen in the Colombian and Chilean operations, which in the case of the latter are tied to the operation of its new coal-run plant Bocamina 2, allowing improvement in its margin. Earnings continue to show a contraction in respect to 2012 and fell 10.1% YoY affected by lower sales in Chile and Argentina, but partially compensated by Colombia s greater dynamics. In turn, the controller s profits registered a 4.5% YoY rise, driven by the better operational results mentioned, despite the greater acknowledged non-controlling interest and financial expenses.

4 Company Comments Enersis Entel Falabella Hites IAM Parauco Ripley SK This company s EBITDA soared to 46.6% YoY, as a result of a non-recurrent effect in the Argentinean distribution subsidiary, while the rest of the line of this undertaking had quite a flat performance. While the generating business had a moderate climb as a consequence of the acknowledged better results of its Colombian and Chilean subsidiaries, which offset the lower results observed in Brazil, affected by a drought. In the end, profits grew 284.4% YoY, driven by the already mentioned effects of the subsidiary, Edesur. The EBITDA displayed a decline of 14% YoY during the quarter. The accounting change in its post-pay phones explains this drop. As a consequence, the reported quarter did not show any surprises in regards to the markets expectations. The Net profit, which decreased by 10% compared to the same quarter in 2012, as well as the EBITDA, was affected by the new accounting of mobile phones, but was also affected by higher expenses due to an increase in debt during this period. At the EBITDA level, the outcome was in line with what the market had expected and grew 17.4% YoY. This is due to a 10.1% rise in income that can be explained mainly by an ascent in SSS and the expansion of the sales surface by 208,000 m2 this year. We must also mention that income through its banking service went up by 9.8% YoY boosted by a larger portfolio in the Chilean and Peruvian banking service. This was accompanied by greater participation in sales of its own brands and less promotional sales. This meant an improvement in gross margin by 190 BPS. The SAG expenses rose by 120 BPS YoY, driven by higher pre-operational costs associated to the opening of new stores, along with an increase in logistics expenses and pay raises. Hites results were in line with what the market had anticipated. The EBITDA went up by 20% as a consequence of the 6.3% increase in earnings and gross margin improvement of 150 BPS. This adheres to the company s strategy, focused of strengthening own brands and a more conservative purchase plan, leading to less promotional sales. As for its finance business, a drop of 12.2% in provisions was observed-which drove the business margin- along with a 7.1% YoY increase in administration and sales expenses, caused by greater pre-opening costs and higher expenses on personnel. A drop of 2.2% YoY in the company s EBITDA was seen and can be explained by the consolidation of its subsidiary Aguas Andinas results. The controllers profit registered a fall of 13.4% YoY affected by lower operational numbers. This company s EBITDA went up by 11% YoY. This positive performance was tied to a 12% YoY climb in earnings, which was influenced by a 15% increase in GLA in traditional formats (Shopping centers and Power centers) alongside a 222% increase in GLA in non-traditional formats (Outlet and Strip centers). This led to greater operational costs, which rose by 31.5% and is in line with the consolidation process of operations, the enlargement of malls and the opening of new locations. Despite this, the fact that the company has been able to maintain its EBITDA margin around 70% is worth mentioning. This is also in line with estimates. Ripley s results were above estimates. Their EBITDA increased by 23.2% YoY as a consequence of the growth of 190 bps in gross margin, mainly due to a better managing of inventory levels alongside a company strategy of promoting and empowering their brands. We should also add that income increased by 6.1% YoY, highlighting the 1.9% rise of income through their banking service, due to an earnings increase through interests and greater earnings through commissions, especially in Chile (10.9%) The SAG expenses went up by 9.1% YoY, driven by greater pre-operational costs associated to the opening of new stores, especially three new stores in Colombia. Their EBITDA showed an increase of 4.7% YoY as a result of a better margin in the subsidiaries Magotteaux and Puerto Ventanas, compensated, in part, by smaller margins in the group s other companies. As for earnings, these registered gains of 11.8% YoY, driven by more activity in their undertakings in general, especially in ICSK, ENAEX, Magotteaux and SKC. In turn, profits registered a slight 1.5% YoY decrease due to greater financing costs tied to the rise in SKC s machinery rentals and as a result of unfavorable exchange rates this quarter.

5 Company Comments SM-SAAM A 9.7% YoY increase was observed in earnings and can be greatly explained by the Tugboat segment (42% of the total, showing gains of 17% YoY, as a result of operations in Brazil, Mexico and Chile, along with the start of new operations in Honduras and Colombia) and port terminals (24% of total income, which rose 15% YoY, due to higher earnings in ITI (Iquique), as well as TMAZ (Mazatlan, Mexico) starting its operation). In turn, the EBITDA displayed growth of 8.9% YoY as a result of greater devaluation associated to more assets in Tugboat and SAG expenses efficiency. In the end, the greater profits were due to greater acknowledgement in the results of related companies.

6 2Q13 Report COMPANIES Revenues EBITDA Net Income (Controllers) CLP mn 2Q13 2Q12 % YoY 2Q13E % E 2Q13 2Q12 % YoY 2Q13E % E 2Q13 2Q12 % YoY 2Q13E % E BCI 0 0 NA 0 NA 0 0 NA 0 NA ,9% ,7% BSANTANDER 0 0 NA 0 NA 0 0 NA 0 NA ,5% ,2% CHILE 0 0 NA 0 NA 0 0 NA 0 NA ,7% ,7% Banking 0 0 NA 0 NA 0 0 NA 0 NA ,4% ,0% ANDINA ,3% ,5% ,7% ,5% ,2% ,3% CCU ,7% ,5% ,5% ,3% ,4% ,9% CONCHA Y TORO ,8% ,3% ,7% ,0% ,7% ,9% EMBONOR ,5% ,2% ,4% ,3% NA NA Wines & Beverages ,8% ,7% ,9% ,2% ,5% ,7% AGUAS ANDINAS ,2% ,7% ,2% ,0% ,3% ,8% COLBUN ,7% ,0% ,0% ,2% NA ,4% ENDESA ,1% ,3% ,9% ,3% ,5% ,0% ENERSIS ,6% ,5% ,6% ,2% ,4% ,2% AES GENER ,5% ,6% ,7% ,2% NA ,9% Utilities ,8% ,5% ,5% ,2% ,4% ,9% CMPC ,7% ,6% ,5% ,2% ,9% ,0% COPEC ,9% ,8% ,6% ,4% ,2% ,3% Forestry ,2% ,8% ,6% ,0% ,0% ,4% CENCOSUD ,1% ,0% ,5% ,5% ,9% ,9% FALABELLA ,1% ,2% ,4% ,0% ,6% ,4% HITES ,3% ,1% ,0% ,0% ,3% ,1% PARAUCO ,7% ,4% ,3% ,6% ,1% ,9% RIPLEY ,1% ,6% ,2% ,4% ,8% ,9% Retail ,9% ,4% ,0% ,3% ,7% ,0% BESALCO ,8% ,0% ,7% ,1% ,1% ,9% CRUZ BLANCA ,5% ,1% ,4% ,4% NA NA ENTEL ,0% ,4% ,3% ,2% ,5% ,4% ANTARCHILE ,9% ,8% ,3% ,5% ,5% ,0% IAM ,2% ,6% ,2% ,1% ,4% ,7% SM-SAAM ,2% ,5% ,4% ,1% ,2% ,7% SK ,2% ,2% ,3% ,8% ,8% ,6% Others ,1% ,6% ,5% ,2% ,8% ,8% TOTAL SAMPLE (in CLP) ,5% ,6% ,0% ,1% ,3% ,0% Note: The figures stated by the companies in USD have been translated into Chilean pesos for comparative purposes. The exchange rate used is: 2Q12=CLP and 2Q13=CLP , corresponding to the average exchange rate for each quarter. Source: Banco Central, SVS, Company Reports, CorpResearch. COMPANIES Revenues EBITDA Net Income (Controllers) USD mn 2Q13 2Q12 % YoY 2Q13E % E 2Q13 2Q12 % YoY 2Q13E % E 2Q13 2Q12 % YoY 2Q13E % E AES GENER 610,8 544,9 12,1% 626,9-2,6% 163,6 106,8 53,2% 161,6 1,2% 44,8-2,7 NA 59,7-24,9% ANTARCHILE 6.197, ,9 9,4% 5.859,6 5,8% 543,2 346,2 56,9% 466,2 16,5% 144,6 47,6 203,5% 118,6 22,0% CMPC 1.290, ,7 11,2% 1.222,4 5,6% 239,1 239,7-0,3% 238,6 0,2% 30,6 36,5-16,0% 53,7-43,0% COLBUN 518,4 331,6 56,3% 443,0 17,0% 130,4 25,3 415,8% 93,7 39,2% 41,7-19,8 NA 31,0 34,4% COPEC 6.196, ,6 9,4% 5.857,4 5,8% 542,8 349,9 55,2% 466,2 16,4% 246,3 86,5 184,7% 195,0 26,3% SK 750,9 672,0 11,8% 681,2 10,2% 111,7 106,7 4,7% 114,9-2,8% 37,3 37,9-1,5% 49,5-24,5% SM-SAAM 120,6 109,9 9,7% 120,0 0,5% 24,9 22,9 8,9% 25,2-1,1% 16,3 14,7 10,8% 16,0 1,7% REPORTS (in USD mn) , ,6 10,9% ,4 5,9% 1.755, ,4 46,6% 1.566,3 12,1% 561,6 200,8 179,7% 523,5 7,3%

7 Glossary Term Definition / Translation Calculation EBITDA EBITDAR Earnings Before Interests, Taxes, Depreciation and Amortization Earnings Before Interests, Taxes, Depreciation, Amortization and Rents Operational Income plus Depreciation and Amortization Operational Income plus Depreciation and Amortization plus rent of fixed assets. It is used the at transport industries to reverse the rent of airplanes or ships. EV Enterprise Value Market capitalization plus Net Financial Debt plus Minority Interest EV/EBITDA EVA Valuation multiple. While greater it is, more expensive it is the stock Economic Value Added EV divided by Ebitda FCF Free Cash Flow Operational Income plus Depreciation and Amortization minus tax minus capital expenditures plus (minus) working capital variation. Free-float Margin Operational Ebitda Net Percentage of stocks that can be freely traded in the market Percentage of sales Percentage of stock that does not belong to controller s shareholders. Operational Income / Revenue Ebitda / Revenue Net Income / Revenue P/E Price / Earnings Market Price divided by EPS P/B Price to Book value ratio Market price divided by the accounting value of the stock. Dividend Yield The return in terms of dividends of investing in equities Dividends distributed in a year divided by the market price. FCF yield Free Cash Flow Return. FCF / Market Price ROA Return on Assets Net Income / Total Assets ROE Return on Equity Net Income / Accounting capitalization EPS Earnings Per Share Net Income / Shares outstanding YTD Year to Date Percentage variation year to date Stocks recommendations are established according to the stock yield relative to the IPSA Index. We recommend Hold when we expect the share to have a yield in line with the IPSA; Buy, when the yield expected for the share is above to that expected for the IPSA; and Sell, when the yield expected for the share is below to that expected for the IPSA. We define a yield to be In line with the IPSA when it is within a range whose scope is equivalent to a third of the variation expected for the index, with a 5% minimum.

8 CorpResearch Álvaro Donoso Director CorpResearch Economic Research Sebastian Cerda Executive Director CorpResearch & Economic Studies Nicolas Birkner Chief of Economic and Financial Analysis Karla Flores Economist Equity Research Cristobal Lyon Director of Strategies Vicente Meschi Equity Chief. Sectors: Forestry, Banking Sergio Zapata Senior Analyst. Sector: Energy and Utilities M Josefina Güell Analyst. Sector: Retail Patricio Acuña Analyst. Sector Food & Beverage Martin Antunez Analyst. Sectors: Construction & Real State Rosario Norte 660 Piso 17, Las Condes, Santiago. Phone (562)

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