9M 2013 result presentation Conference call and Q&A 7th November 2013 Event: 9M 2013 result presentation Date: 7th November 2013 Speakers: Mr. Claudio Albertini, CEO Mr. Roberto Zoia, Asset management and development Director Mr. Daniele Cabuli, COO O PERATOR : G OOD MORNING . T HIS IS THE C HORUS C ALL SPEAKER . A FTER THE INITIAL PRESENTATION , YOU WILL HAVE THE OPPORTUNITY TO ASK QUESTIONS . N OW , I WOULD LIKE TO LEAVE THE FLOOR TO D R . C LAUDIO A LBERTINI , CEO OF IGD. T HE FLOOR TO YOU , M R . A LBERTINI . C LAUDIO A LBERTINI : G OOD AFTERNOON , LADIES AND GENTLEMEN . A S YOU COULD SEE FROM THE PRESS RELEASE WHICH WAS RELEASED A WHILE AGO THIS MORNING , THE IGD B OARD APPROVED THE QUARTERLY RESULTS WHICH I AM ABOUT TO PRESENT THROUGH THE DOCUMENT WHICH WAS CIRCULATED VIA THE INTERNET . S TARTING FROM P AGE 3; WE HAVE THE FIRST FINANCIAL AND ECONOMIC HIGHLIGHTS . R EVENUES STOOD AT LITTLE MORE THAN 90 MILLION , 90.4 MILLION MINUS 1.9% COMPARED TO THE 30 OF S EPTEMBER 2012. W HILE EBITDA FROM CORE BUSINESS WHICH IS ALMOST THE TOTAL OF OUR EBITDA ACCOUNTS FOR 62.3 MILLION , MINUS 3.6% COMPARED TO S EPTEMBER 2012, EBITDA MARGIN DECREASED BY 1.2 PERCENTAGE POINTS TO 68.9%. T HE G ROUP NET PROFIT AS AT 30 OF S EPTEMBER ACCOUNTS FOR €11.1 MILLION MINUS 31.1% WHEREAS FUNDS FROM OPERATIONS ACCOUNTS FOR €26 MILLION DECREASING BY 4.1% COMPARED TO S EPTEMBER LAST YEAR . G EARING RATIO STANDS AT 1.37 SLIGHTLY DECREASING , BUT OTHERWISE SUBSTANTIALLY UNVARIED COMPARED TO THE 30 OF J UNE 2013. F INANCIAL OCCUPANCY AS AT S EPTEMBER THE 30, 2013 ACCOUNTS FOR 96.6% IN I TALY . H ERE THE WEIGHTED AVERAGE BETWEEN THE S HOPPING AND H YPERMARKET ASSET CLASSES IS REPORTED , WHEREAS THE OCCUPANCY RATE IS 85% IN R OMANIA , 85.6% SLIGHTLY DECREASING COMPARED TO THE 30 OF J UNE WHEN IT WAS AROUND 89%, BUT AS WE WILL SEE LATER THIS VACANCY IS MAINLY INSTRUMENTAL DUE TO THE PENDING ENTRY OF NEW TENANTS . O N P AGES 5 AND 6, WE DECIDED TO OUTLINE THE MACROECONOMIC CONTEXT IN I TALY WHICH YOU ARE ALL FAMILIAR WITH , BUT AS FAR AS SOME INDICATORS ARE CONCERNED DIRECTLY IMPACTS IGD’ S OPERATION AND WE DID THE SAME FOR R OMANIA . S TARTING WITH I TALY , THE GENERAL CONSENSUS ESTIMATES GDP DECREASE BETWEEN MINUS 1.7 AND 1.9% WITH INFLATION RATE AT 1.5% WHEREAS LAST YEAR IT WAS 3%. T HE INCREASE IN THE VAT RATE WHICH WAS ENFORCED ON O CTOBER 1 HAD A VERY MARGINAL IMPACT ON THE INCREASE IN INFLATION 0.5 PERCENTAGE POINTS AND IT IS VERY LIKELY THAT THIS INCREASE WILL BE ABSORBED AT SALES LEVEL , SO ITS EFFECTS WON ’ T BE DRAMATIC . U NEMPLOYMENT IS A SORE
9M 2013 result presentation Conference call and Q&A 7th November 2013 POINT AND IT ACCOUNTS FOR 12.5%, WHEREAS CONSUMPTION RATES , WHICH IS VERY RELEVANT FIGURE FOR US IS ESTIMATED AT MINUS 2.4%, BUT WE WILL SEE LATER THAT THIS ESTIMATE IS VERY CLOSE TO THE DECREASE WE HAVE RECORDED SO FAR AS AT THE 30 OF S EPTEMBER IN SALES WITH OUR S HOPPING MALLS WHICH IS MORE OR LESS IDENTICAL . A S FAR AS RETAIL INVESTMENTS ARE CONCERNED , THERE WAS A DRAMATIC RECOVERY ESPECIALLY IN THE LATEST QUARTER AS YOU CAN SEE FROM THE CHART ON THE RIGHT . M OREOVER , THIS MORNING , I LEARNED ABOUT THE PENDING CLOSING OF AN IMPORTANT DEAL WITH [ INDISCERNIBLE ] AND IF THIS DEAL IS CLOSED BY THE END OF THE YEAR , IT WILL HAVE A STRONG IMPACT ON THIS INDICATOR . A S FAR AS R OMANIA IS CONCERNED , AS IN PREVIOUS QUARTERS THE SITUATION IS BETTER THAN IN I TALY BOTH IN TERMS OF GDP AND IN TERMS OF CONSUMER TRENDS . GDP IS ESTIMATED AT ABOUT 2 PERCENTAGE POINTS WHEREAS CONSUMPTION INCREASED COMPARED TO 2012 BY 0.9%. L ET US NOW LOOK AT OUR CONSOLIDATED INCOME STATEMENT ON P AGE 8, WHICH PROVIDES KEY HIGHLIGHTS . A S USUAL IN THE FIRST TWO COLUMNS WE SHOWED GOOD CONSOLIDATED DATA AND DOWN TO EBITDA MARGIN THERE IS ALSO A BREAKDOWN INTO CORE BUSINESS AND P ORTA A M ARE PROJECT IN L IVORNO . A S I SAID OPERATING REVENUES DECREASED BY 1.8%, THE DECREASE IN CORE BUSINESS IS MORE OR LESS SIMILAR . T HIS YEAR WE POSTED THE REVENUES ON THE 30 OF J UNE FROM RENTAL OF SOME OFFICE PORTIONS IN P ORTA A M ARE PROJECT WHEREAS THE BIGGEST EFFECT ON SALES WILL BE IN THE FOURTH QUARTER THAT IS NEXT QUARTER . W E ARE ORGANIZING THE SALE OF ABOUT 21 UNITS WHICH HAVE BEEN SOLD AND WHOSE SALE WILL BE FINALIZED BY THE END OF THE YEAR . S O WE WILL HAVE A SIGNIFICANT CHANGE FOR P ORTA A M ARE DURING NEXT QUARTER . I N TERMS OF DIRECT COST THERE WAS AN INCREASE BY ABOUT 2 PERCENTAGE POINTS , WE WILL SEE THE CAUSES LATER , BUT THE CAUSES FOR THIS QUARTER ARE DUE TO THE INCREASE IN THE PROPERTY TAX AND THE INCREASE IN SERVICE CHARGES WHICH ARE HIGHER THAN EXPECTED . A S FOR G&A, THERE WAS A SLIGHT DECREASE AT A CONSOLIDATED LEVEL OF 1.8% AND HQ PERSONNEL COSTS ON THE OTHER HAND MODESTLY INCREASED IN LINE WITH THE INFLATION RATE . P LEASE CONSIDER THAT THIS YEAR THERE WAS A STEPPING UP IN THE CONTRACTS , IN THE LABOR CONTRACTS SO THIS WAS TO BE EXPECTED . I N THE LOWER PART OF THE INCOME STATEMENT UNDERNEATH EBITDA FIGURES , IN THIS QUARTER NO FAIR VALUE ADJUSTMENTS WERE DONE BECAUSE THEY ARE DONE ON THE 31 OF D ECEMBER AND THEREFORE THESE FIGURES ARE JUST RELATED TO C AP E X WHICH ARE PUT TOGETHER WITH AND EVALUATIONS AS AT THE END OF J UNE THIS MEANS THAT EBIT IS 43,444 MILLION MINUS 15.2% COMPARED TO THE 31 OF S EPTEMBER 2012. T HIS GOOD NEWS IN TERMS OF NET FINANCIAL INCOME WHICH WE HOPE WILL BE CONFIRMED ALSO IN THE NEXT FEW MONTHS . W E JUST LEARNED ABOUT THE DECREASE IN THE ECV RATE 5.25 AND THE LONG - TERM LOAN RATES HAS ALREADY HAD A SIGNIFICANT DECREASE , SO ALL NEW VALUES HAVE BEEN ABSORBED IN THE PAST FEW WEEKS SO NET FINANCIAL INCOME STANDS AT 34,731 MILLION . P RE - TAX INCOME IS 8.2 MILLION AND TAXES CAUSE NET PROFIT TO BE 10.7 MILLION
9M 2013 result presentation Conference call and Q&A 7th November 2013 AND BY ADDING THIRD - PARTIES STAKES THE TOTAL IS 11.076. I N THE BOX ON THE RIGHT YOU CAN SEE TOTAL REVENUES FROM RENTAL ACTIVITIES FROM S HOPPING M ALLS IN I TALY AND R OMANIA AND FROM H YPERMARKET C ITY C ENTER P ROJECT AND O THER . O N P AGE 9, AS USUAL WE REPORTED MARGINS FOR ACTIVITIES BROKEN DOWN BY LEASEHOLD AND FREEHOLD . I N THE BOTTOM BOX FREEHOLD MARGIN STANDS AT 84.2% SLIGHTLY DECREASING COMPARED TO S EPTEMBER 2012 WHEREAS MARGIN FROM LEASEHOLD PROPERTY STANDS AT 15.8% COMPARED TO 18.1% THE 30 OF S EPTEMBER , 2012. L ET US LOOK AT THINGS MORE IN DETAIL ON P AGE 10 YOU WILL FIND SOME BREAKDOWNS OF CORE BUSINESS REVENUES WHICH AS I SAID ARE DOWN 1.9%. F ROM 87,721 MILLION TO 88,253 MILLION WHEREAS REVENUES DECREASED BY 1.9%. T HE BREAKDOWN OF TOTAL REVENUES BY ASSET CLASS SHOWS THAT THE S HOPPING M ALL COMPONENTS ACCOUNT FOR 60.3% OF REVENUES , H YPERMARKETS 29.3% AND 8.7% FROM R OMANIA . A S FAR AS RENTAL INCOME GROWTH DRIVERS , THERE IS A CHART AT THE BOTTOM OF P AGE 10 WE HAD A DECREASE IN LIKE - FOR - LIKE REVENUES BY 1.3%. H OWEVER THIS DATA SHOULD BE INTERPRETED . T HERE WAS A DECREASE BY 3.5% IN THE S HOPPING M ALL ASSET CLASS COMPONENT WHEREAS THE COMPONENT OF THE HYPER COMPONENT IS POSITIVE AND INCREASED BY 2.5%. T OGETHER THESE LEAD TO A NEGATIVE FIGURE OF 1.3%. A NOTHER SIGNIFICANT CHANGE TOOK PLACE IN R OMANIA . I N R OMANIA , THERE WAS A DECREASE BY 6.2% WHICH IS DUE TO A HIGHER VACANCY BOTH DUE TO BUILDING WORK IN PROGRESS AND ALSO DURING THE INCREASE IN TURNOVER TIME . I N ADDITION TO THIS , THERE WAS A DETERIORATION IN MARKET CONDITIONS ESPECIALLY AT SOME SITES WHERE THERE IS A HIGHER COMPETITIVENESS COMPETITION . P AGE 11 SHOWS DIRECT COST AND G&A EXPENSES FROM CORE BUSINESS . H ERE THERE WAS AN INCREASE BY 3% FROM 20,755 MILLION TO 21,385 MILLION . T HIS INCREASE IS JUSTIFIED BY THE CHANGES LISTED IN THE BOX TO THE RIGHT . T HAT WAS AN INCREASE BY ABOUT €300,000 PLUS 5.7% DUE TO THE IMU TAX AND THE INCREASE IN CALCULATION CO - EFFICIENCY SORRY COEFFICIENT FOR THE D8 CADASTRAL CATEGORY . W E BELIEVE THAT WE WON ’ T GET ANYMORE EXPENSES FROM IMU THIS YEAR . I T IS EXPECTED THAT IMU WON ’ T RISE ANY FURTHER , BUT WE ARE ALL AWAITING MORE NEWS ABOUT HOW THIS TAX IS GOING TO BE TREATED BY THE GOVERNMENT . O THER COSTS ARE PLUS 1.7% DUE TO AN INCREASE IN SERVICE CHARGES DUE TO A HIGHER AVERAGE VACANCY WHICH IS STILL HIGH ABOUT 95% IN S HOPPING M ALLS AND THE AVERAGE COMPARED INCLUDING S UPERMARKETS AND H YPERMARKETS IS ABOUT 96%. P ROVISIONS , WELL THIS ITEM IS AFFECTING US , BUT THE INCREASE WAS MARGINAL AROUND €100,000 PLUS 5.8% AND THIS IS ALSO DUE TO THE FACT THAT OUR PROVISION POLICY HAS BEEN VERY PRUDENT SO FAR . I N TERMS OF LITIGATIONS WE STAND AT ABOUT 80% PROVISIONS AND IN TERMS OF LEGAL CONSULTING BY 30% AND THESE PERCENTAGES ARE IN LINE WITH THOSE OF THE BEST AND MOST WERE JUST BANKS . I N TERMS OF G&A FROM CORE BUSINESS AS I SAID PREVIOUSLY , THERE WAS A DECREASE BY 1.5% AND THIS ATTRACTED OUR ATTENTION ON
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