ANNUAL REPORT 2018 WorldReginfo - 3ceb885d-0b8b-4e8e-a9ec-375109099b26 Index Welcome 2 Who are we? 6 Letter from the Chairman of the Board Falabella Letter from the CEO Our values Our Formats Regional Footprint Financial Indicators How do we do it? 28 History Exceed customer expectations Differentiate the value proposition Scale up logistics capability Payment solutions Corporate Governance 84 Data analysis and business intelligence Development of a flexible Board of Directors technological platform Director's Committee Develop Our Employess Integrally Management Generate Social Impact Ownership and Control Governance Manage Our Supply Chain Manage Our Environmenta Impact Investment Plan Summarized Consolidated 160 Financial Statements Corporate 108 Reasoned Analysis Information Statements of Financial Position Company Information Statements of Comprehensive Income by Function Insurance Statements of Comprehensive Income Brands and Patents Statement of Changes in Equity Regulatory Framework Statement of Cash Flows (Direct Method) Risks Awards and Acknowledgements Summary of Significant Events for Sustainability Guidelines the Year 170 Shareholders' Comments and Proposals Definition of Materiality Stock Information GRI Index Stores by Format and Country Non-financial Audit Letter Summarized Corporate Structure Information about Subsidiaries Subsidiaries with Participation Falabella Consolidated Financial 182 investors.falabella.com 180 Statements Rut: 90.749.000-9 Declaration of Responsibility Address: Manuel Rodriguez Norte 730, Santiago, Chile. Phone: +56 (2) 2380-2000 E-mail: [email protected] Note: All figures in US dollars are calculated based on the observed exchange rate as of January 2, 2019: 694.77 $/US$. WorldReginfo - 3ceb885d-0b8b-4e8e-a9ec-375109099b26 3 Letter from the Chairman of the Board Dear Shareholders 2018 was a year in which we continued to Chile. This automated center, the most are currently not present, and the remod- I can’t finish this letter without thanking all 1. Welcome | respond to our passion, simplify the lives modern in the region, seeks to satisfy a eling of our stores and shopping centers our employees, who with hard work and of our clients transforming their shopping consumer that requires quick and precise to make the most of our valuable assets. In dedication allow us to satisfy our clients. experiences. Our goal is to serve them in all answers in all formats, in the physical as addition we will focus on the establishment I also want to thank the Board of Direc- the ways in which they wish to purchase, well as in the digital. In the short term, of Ikea in Chile, Peru and Colombia and the tors of Falabella and its subsidiaries as operating with responsibility, cooperating we will continue improving our logistics opening of new Sodimac stores in Mexico well as the management team for their with the communities in which we are pres- capabilities in all the countries in which together with the expansion of the Fala- support and commitment. Finally, thank Annual Report ent and watching over all the people that we operate, in order to be the company bella Soriana credit card in that country. the shareholders who trust us and want interact with our company, employees as that best supplies its stores and customers. to be part of this trip that will allow us to well as shareholders and suppliers. This All these investments are sustained in an increase our leadership in the Latin Amer- is the north of our actions. Moreover, we are developing the capability organization that reacts with agility and ican commerce. to scale up our company sustainably. This transparency to all these challenges. An or- 2018 was especially important for Fala- year electronic transactions increased over ganization that we have simplified and will Thank you, bella. We made relevant progress aimed 70%, and we were able to accompany this continue simplifying to streamline decision at consolidating the necessary capabilities growth with a better customer service. We making even more. Within this simplifica- to automate, digitalize and scale-up our had over 874 million visits to our web pag- tion process, CMR integrated into Banco company to generate a digital ecosystem, es and more than 155 million visits to our Falabellla. We will continue reviewing our Carlo Solari Donaggio and in this way maintain our commercial financial services web sites, reflecting the processes and systems, to become efficient Chairman of the Board leadership in the region. To develop and ac- satisfaction of our clients with our digital for the benefit of our clients which are the celerate this plan we undertook a US$ 581 products. All these indicators show that, focus of all our decisions. million capital increase that strengthens although we still have many challenges, we our balance sheet, giving us flexibility and are moving in the right direction. As well, in 2018 we maintained the empha- setting us in a privileged position within sis on the permanent improvement of our the current Latin American commerce. In We seek to respond to clients in all chan- corporate governance and having a sus- addition, we incorporated new investors nels, both through physical presence in tainable operation, with special concern in to our shareholder base, which gives us stores, shopping centers and financial cybersecurity challenges and transparent diversification and sustainability in the branches, as well as through the virtual behavior. Another of our constant chal- long-term. presence. We will continue privileging the lenges was the attraction and development development of applications for mobile of local talent, respecting diversity and The digitalization of the company in all of phones and developing with more strength promoting gender equality together with its formats, the investments that we are our Digital Factories. Our efforts aim to internal meritocracy. undertaking in logistics, the acquisition of serve clients in the most efficient and fast- Linio, our network of stores and shopping est way. We are working hard to adapt our centers, added to our knowledge about our organization to the new behavior of this customers from their visits and transac- omnichannel world. tions with us, differentiate us and deliver the strength to lead in the markets in which Our investment program considers ad- 2018 was especially important for Falabella. We made relevant progress we are present. We believe that these ad- vancing in information technology includ- aimed at consolidating the necessary capabilities to automate, digitalize and vantages will invigorate our competitive ing artificial intelligence and cybersecu- position in the physical world, and will allow rity, strengthen logistics, consolidate the scale-up our company, and in this way maintain our commercial leadership us to lead the digital market. Linio marketplace, and expand the Click in the region. & Collect mode in all our formats. In our Our progresses in logistics materialized, omnichannel proposal we consider an or- among other investments, with the be- ganic expansion in the markets in which we ginning of operations of the omnichannel operate, covering mainly areas in which we distribution center located in Santiago de WorldReginfo - 3ceb885d-0b8b-4e8e-a9ec-375109099b26 5 Letter from the CEO showcase for the products of these compa- business in the retail segment and boost With the goal of advancing faster in the nies, which will also continue strengthening our value proposition in Chile, in Decem- strategic development and maintain our their own digital sales channels. ber 2018 we integrated CMR to Banco financial flexibility, we decided to make To simplify the lives of our clients in Latin opened 20 stores this year, including the Falabella Chile. a capital increase. Through this process 1. Welcome | America is the mission that guides every first three in Mexico, and two new shop- With the goal of scaling-up our logistics we decided, in addition, to increase the action and decision at Falabella. In order to ping centers, one in Chile and the other capability, in November we inaugurated the As well, we continued investing in the nec- free float of the Company and diversify do that, during 2018 we focused on build- one in Colombia. As well, we remodeled new Falabella Retail Distribution Center essary capabilities to integrate our data our shareholder base, to which important ing an ecosystem of integrated services, and expanded our services, standing out in Santiago de Chile, which represents a lakes and started the opening process of international funds joined subscribing a which enables us to boost the transversal the conversion of 16 Dicico to Sodimac milestone due to its installed capacity and our loyalty program which was traditionally 59% of the total issue. In a context of high capabilities of our business units and thus Dicico in Brazil and the opening of the first technological sophistication. With its start- linked our CMR accounts. Tottus customers volatility in the financial markets, the result Annual Report serve our clients whenever and wherever Tottus Vecino in Peru. Also, we increased up, we optimized our capability and speed can now earn and redeem points using any reveals the trust in the plan of the Company they want. the space available for lease in Mall Pla- to process orders, reducing response times. means of payment. to position itself as an online and offline za Vespucio through the expansion of the leading platform in Latin America. In a scenario of consumption