Supermercados Peruanos S.A.

and Subsidiaries, InRetail Pharma

S.A. and Subsidiaries and InRetail Foods S.A.C.

Combined financial statements as of December 31, 2020, 2019

and 2018, together with the Independent Auditors’ Report
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and
Subsidiaries and InRetail Foods S.A.C.

Combined financial statements as of December 31, 2020, 2019 and

2018, together with the independent Auditors’ Report

Contents

Independent auditors’ report

Combined financial statements

Combined statements of financial position

Combined income statements
Combined statements of comprehensive income
Combined statements of changes in equity
Combined statements of cash flows
Notes to the combined financial statements
 Paredes, Burga & Asociados
Sociedad Civil de Responsabilidad Limitada

Independent Auditors’ Report

To the shareholders of Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and
Subsidiaries and InRetail Foods S.A.C.

We have audited the accompanying combined financial statements of Supermercados Peruanos S.A.
and Subsidiaries, InRetail Pharma S.A. and Subsidiaries and InRetail Food S.A.C. (together the
“Companies”), which comprise the combined statements of financial position as of December 31,
2020, 2019 and 2018, and the related combined income statements, other comprehensive income,
changes in equity and cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information (notes 1 to 32).

Management’s responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial
statements in accordance with International Financial Reporting Standards issued by the
International Accounting Standards Board, and for such internal control that Management
determines is necessary to enable the preparation of combined financial statements that are free
from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. Our audits were conducted in accordance with International Standards on Auditing as
adopted for use in Peru by the Board of Peruvian Associations of Certified Public Accountants.
Those standards require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditors’ judgment, including the assessment of the risks of material misstatement of the combined
financial statements, whether due to fraud or error. In making this risk assessment, the auditor
considers the internal control that is relevant to the Companies in the preparation and fair
presentation of the combined financial statements in order to design audit procedures that are
appropriate for the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companies’ internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made
by Management, as well as evaluating the overall presentation of the consolidated financial
statements.

Inscrita en la partida 11396556 del Registro de Personas Jurídicas de Lima y Callao

Miembro de Ernst & Young Global
Independent Auditors’ Report (continued)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.

Opinion

In our opinion, the accompanying combined financial statements present fairly, in all material
respects, the combined financial position of Supermercados Peruanos S.A. and Subsidiaries, InRetail
Pharma S.A. and Subsidiaries and InRetail Foods S.A.C. as of December 31, 2020, 2019 and 2018,
and their combined results of operations and their cash flows for the years then ended, in
accordance with International Financial Reporting Standards issued by the International Accounting
Standards Board.

Lima, Peru,
February 25, 2021

Countersigned by:

Sandra Luna Victoria

C.P.C.C. Registration No. 50093

Firma miembro de Ernst & Young Global Limited

Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and Subsidiaries and InRetail Foods S.A.C.

Combined statements of financial position

As of December 31, 2020, 2019 and 2018

Note 2020 2019 2018 Note 2020 2019 2018

S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Assets Liabilities and equity

Current liabilities
Current assets
Trade accounts payables 3.2(c) and 16 3,248,861 2,899,966 2,914,430
Cash and short-term deposits 3.2(i) and 5 907,048 701,730 614,572
Other accounts payables 3.2(c) and 17 612,755 389,352 409,285
Financial instruments at fair value through
Interest-bearing loans and borrowings 3.2(c) and 18 1,672,617 354,009 411,718
profit or loss 3.2(c) and 6 93,061 13,903 8,065
Accounts payable to related parties 3.2(c) and 26(b) 29,439 45,858 14,654
Financial instruments at amortized cost 3.2(c(i)) 24,624 - -
Current income tax, net 3.2(v) and 20(e) 73,682 21,301 10,665
Trade accounts receivables, net 3.2(c) and 7 589,256 543,359 549,419 Deferred revenue 27 13,678 2,129 22,047
Other accounts receivables, net 3.2(c) and 8 235,039 148,783 199,573 3.2(m) and
Accounts receivables to related parties 3.2(c) and 26(b) 46,848 27,023 37,415 Lease liabilities 13(b.2) 229,726 269,657 -
___________ __________ __________
Inventories, net 3.2(j) and 9 2,158,521 1,835,047 1,736,290
Total current liabilities 5,880,758 3,982,272 3,782,799
Financial instruments at fair value through ___________ __________ __________

other comprehensive income 3.2(c) and 10 - - 8,377 Trade accounts payables 3.2(c) and 16 - - 10,733
Prepayments 3.2(k) and 11 12,916 14,361 33,392 Other accounts payables 3.2(c) and 17 23,448 21,289 21,854
___________ ___________ ___________
Interest-bearing loans and borrowings 3.2(c) and 18 1,327,057 1,286,434 1,148,091
Total current assets 4,067,313 3,284,206 3,187,103
___________ ___________ ___________ Accounts payable to related parties 3.2(c) and 26(b) 90,548 88,824 87,097
Senior notes issued 3.2(c) and 19 1,820,913 1,694,413 1,714,289
3.2(m) and
Non-current assets
Lease liabilities 13(b.2) 1,417,144 1,262,835 -
Other accounts receivables, net 3.2(c) and 8 66,194 47,604 29,524 Deferred revenue 27 25,141 34,327 25,909
Financial instruments at fair value through Deferred income tax liabilities, net 3.2(v) and 20(a) 451,279 431,782 454,359
___________ __________ __________
other comprehensive income 3.2(c) and 10 54,061 45,435 36,338
Total non-current liabilities 5,155,530 4,819,904 3,462,332
Prepayments 3.2(k) and 11 - - 52,756 ___________ __________ __________
Derivative financial instrument – “Call Total liabilities 11,036,288 8,802,176 7,245,131
___________ __________ __________
Spread” 3.2(d) and 12 112,273 63,508 86,694 Equity 21
Property, installations, furniture and Capital stock 369,551 369,551 369,551
equipment, net 3.2(l) and 13(a) 3,841,856 3,169,717 3,013,006 Capital premium 181,507 181,507 181,507
Investment properties, net 3.2(n) and 14 282,245 289,990 202,597 Treasury shares (9) (9) (9)
3.2(m) and Additional paid - in capital 706,427 706,427 706,427
Right-of-use assets, net 13(b.1) 1,545,805 1,558,981 - Other equity reserves 866,686 870,357 848,868
Intangible assets, net 3.2(o) and 15 3,912,701 3,145,748 3,178,186 Retained earnings 712,014 629,438 424,167
___________ ___________ __________
Other non–financial assets 7,949 7,208 7,219 2,836,176 2,757,271 2,530,511
Deferred income tax assets, net 3.2(v) and 20(a) 88,003 48,029 60,155 Non-controlling interest 105,936 100,979 77,936
___________ ____________ ___________ ___________ ___________ __________
Total non-current assets 9,911,087 8,376,220 6,666,475 Total equity 2,942,112 2,858,250 2,608,447
___________ ____________ ___________ ___________ ___________ __________
Total assets 13,978,400 11,660,426 9,853,578 Total liabilities and equity 13,978,400 11,660,426 9,853,578
___________ ___________ ___________ ___________ ___________ __________

The accompanying notes are an integral part of these combined financial statements.
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and
Subsidiaries and InRetail Foods S.A.C.

Combined income statements

For the years ended December 31, 2020, 2019 and 2018

Note 2020 2019 2018

S/(000) S/(000) S/(000)

Net sales of goods 3.2(t) and 1(b) 13,727,509 12,260,910 11,509,345

Rental income 3.2(t) and 1(b) 135,463 135,916 120,779
Rendering of services 3.2(t) and 1(b) 201,381 173,008 163,034
____________ ___________ ___________
Revenue 14,064,353 12,569,834 11,793,158

3.2(t(iv)) and
Cost of sales and services 23(a) (10,086,246) (8,943,130) (8,511,642)
____________ ___________ ___________
Gross profit 3,978,107 3,626,704 3,281,516

Changes in fair value of investment property

3.2 (n), 14(b)
in fair value of investment properties and 14(f) (15,458) 7,117 2,706
Fair value effect of investment properties
3.2 (n) and
distributed to associates 26(c) 1,722 (2,626) 956
3.2(t(iv)) and
Selling expenses 23(a) (2,463,595) (2,377,141) (2,270,890)
3.2(t(iv)) and
Administrative expenses 23(a) (449,485) (380,510) (385,685)
Other income 24 44,425 57,676 59,609
Other expenses 24 (48,582) (30,161) (52,137)
____________ ___________ ___________
Operating profit 1,047,134 901,059 636,075

Finance income 3.2(t) and 25 8,550 18,665 27,880

Finance costs 3.2(u) and 25 (335,300) (339,303) (337,621)
Exchange difference, net 4 (120,564) 21,525 (35,609)
____________ ___________ ___________
Profit before income tax 599,820 601,946 290,725

Income tax expense 3.2(v) and 20(c) (203,831) (204,200) (144,907)

____________ ___________ ___________

Net profit 395,989 397,746 145,818

____________ ___________ ___________

Attributable to:
Supermercados Peruanos S.A. and InRetail
Pharma S.A. shareholders 359,288 359,481 129,263
Non-controlling interests 36,701 38,265 16,555
___________ ___________ ___________
395,989 397,746 145,818
___________ ___________ ___________

The accompanying notes are an integral part of these combined financial statements.
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and
Subsidiaries and InRetail Foods S.A.C.

Combined statements of other comprehensive income

For the years ended December 31, 2020, 2019 and 2018

Note 2020 2019 2018

S/(000) S/(000) S/(000)

Net profit 395,989 397,746 145,818

Other comprehensive income
To be reclassified to the combined income
statements in subsequent periods:
Unrealized results on derivative financial 3.2(d) and
instruments 12(b) (61,412) 12,742 (17,526)
Exchange differences on translation of
foreign operations 1,674 (245) 7
Unrealized lost on actuarial valuation 588 297 -
3.2(v) and
Deferred income tax 20(b) 18,117 (3,759) 5,169
Transfer to income of the unrealized gain on
financial assets at fair value through other
comprehensive income 3.2(c) - - (518)
__________ __________ __________
(41,033) 9,035 (12,868)
__________ __________ __________

That will not be reclassified to the

combined
income statements in subsequent periods:
Update on the fair value through other 3.2(c) and
comprehensive income 10(d) 8,627 8,939 2,830
Deferred income tax related to other 3.2(v) and
comprehensive income 20(b) (2,545) (2,637) (936)
__________ __________ __________
6,082 6,302 1,894
__________ __________ __________
Other comprehensive income for the year,
net of income tax effects (34,951) 15,337 (10,974)
__________ __________ __________

Total comprehensive income for the year 361,038 413,083 134,844

__________ __________ __________
Attributable to:
Supermercados Peruanos S.A. and InRetail
Pharma S.A. shareholders 328,875 372,807 119,602
Non-controlling interests 32,163 40,276 15,242
__________ ___________ ___________

361,038 413,083 134,844

__________ ___________ ___________

The accompanying notes are an integral part of these combined financial statements.
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and Subsidiaries and InRetail Foods S.A.C.

Combined statements of changes in equity

For the years ended December 31, 2020, 2019 and 2018

Attributable to owners of Supermercados Peruanos S.A. and Subsidiaries and InRetail Pharma S.A. and Subsidiaries
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Capital stock Other equity reserves
______________________________ _____________________________________________________________________________________________________________
Unrealized
income on
financial
Unrealized instruments at
results on fair value through Unrealized Unrealized
derivative other results on gain for Non-
Pending Additional Capital Treasury Legal Other financial comprehensive foreign currency actuarial Retained controlling Total
Issued to issue paid -in capital premium shares reserve reserves instruments income translation update earnings Total interest equity
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Balances as of January 1,
2018 350,077 19,474 706,427 181,507 (9) 27,476 - 518 497 - - 325,076 1,611,043 217 1,611,260
_________ _________ _________ __________ _________ _________ _________ _________ _________ _________ _________ __________ __________ _________ __________
Net income - - - - - - - - - - - 129,263 129,263 16,555 145,818
Other comprehensive income - - - - - - - (11,270) 1,604 5 157 (157) (9,661) (1,313) (10,974)
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Total comprehensive income - - - - - - - (11,270) 1,604 5 157 129,106 119,602 15,242 134,844
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Effect of change in Subsidiary
in shareholding, note 2 - - - - - - 418,997 - - - - - 418,997 62,503 481,500
Contribution - - - - - - 402,501 - - - - - 402,501 - 402,501
Dividends paid, note 21(c) - - - - - - - - - - - (21,632) (21,632) (26) (21,658)
Transfers to legal reserve,
note 21(d) - - - - - 8,383 - - - - - (8,383) - - -
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Balances as of December 31,
2018 350,077 19,474 706,427 181,507 (9) 35,859 821,498 (10,752) 2,101 5 157 424,167 2,530,511 77,936 2,608,447

Adoption of IFRS 16, note 3.3 - - - - - - - - - - - 4,728 4,728 699 5,427

_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Balances as of January 1,
2019 350,077 19,474 706,427 181,507 (9) 35,859 821,498 (10,752) 2,101 5 157 428,895 2,535,239 78,635 2,613,874
Net income - - - - - - - - - - - 359,481 359,481 38,265 397,746
Other comprehensive income - - - - - - - 7,817 5,464 (213) 258 - 13,326 2,011 15,337
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Total comprehensive income - - - - - - - 7,817 5,464 (213) 258 359,481 372,807 40,276 413,083
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Share issued, note 21(a) 10,657 (10,657) - - - - - - - - - - - - -
Dividends paid, note 21(c) - - - - - - - - - - - (150,775) (150,775) (17,932) (168,707)
Transfers to legal reserve,
note 21(d) - - - - - 8,163 - - - - - (8,163) - - -
_________ _________ _________ __________ _________ _________ _________ _________ _________ _________ _________ __________ __________ _________ __________
Balances as of January 1,
2020 360,734 8,817 706,427 181,507 (9) 44,022 821,498 (2,935) 7,565 (208) 415 629,438 2,757,271 100,979 2,858,250
Net income - - - - - - - - - - - 359,288 359,288 36,701 395,989
Other comprehensive income - - - - - - - (37,675) 5,293 1,457 512 - (30,413) (4,538) (34,951)
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Total comprehensive income - - - - - - - (37,675) 5,293 1,457 512 359,288 328,875 32,163 361,038
_________ _________ _________ __________ _________ __________ __________ _________ _________ _________ _________ __________ __________ _________ __________
Dividends paid, note 21(c) - - - - - - - - - - - (249,970) (249,970) (27,206) (277,176)
Transfers to legal reserve,
note 21(d) - - - - - 26,166 - - - - - (26,166) - - -
Other - - - - - (15) - - - 591 - (576) - - -
_________ _________ _________ __________ _________ _________ _________ _________ _________ _________ _________ __________ __________ _________ __________
Balances as of December 31,
2020 360,734 8,817 706,427 181,507 (9) 70,173 821,498 (40,610) 12,858 1,840 927 712,014 2,836,176 105,936 2,942,112
_________ _________ _________ __________ _________ _________ _________ _________ _________ _________ _________ __________ __________ _________ __________

The accompanying notes are an integral part of these combined financial statements.
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and
Subsidiaries and InRetail Foods S.A.C.

Combined statements of cash flows

For the years ended December 31, 2020, 2019 and 2018

Note 2020 2019 2018

S/(000) S/(000) S/(000)

Operating activities
Revenue 13,934,885 12,578,963 11,922,503
Payments to suppliers of goods and services (11,027,360) (10,042,881) (9,647,538)
Payments to employees for salaries and social
benefits (1,233,732) (1,136,245) (1,088,483)
Taxes paid (323,107) (218,579) (207,217)
Other collections, net (11,973) 20,536 42,873
___________ ___________ ___________
Net cash flows from operating activities 1,338,713 1,201,794 1,022,138
___________ ___________ ___________

Investing activities
Acquisition of Subsidiary, net of cash acquired 2(b) (1,212,599) - (1,864,344)
Sale of Subsidiary, net of cash 2(c) 5,834 - -
Sale of property, installations, furniture and
equipment 24 3,631 1,091 16,681
Sale of financial instruments at fair value with change
in profit or loss 342,181 26,104 210,697
Sale of financial instruments at fair value through
other comprehensive income - 37,812 46,812
Purchase of property, installations, furniture and
equipment, net of acquisition through leasing
contracts 13(a) (203,633) (412,889) (462,258)
Purchase and development of intangibles assets 15(a) (39,312) (20,445) (44,902)
Purchase of financial instruments at fair value with
change in profit or loss (443,903) (31,920) (124,917)
Purchase of financial instruments at fair value
through other comprehensive income 10(d) - (29,724) (33,165)
Purchase of investment properties, net of acquisition
through leasing 14(b) (7,760) (37,193) (3,040)
Collection of loan to related parties 500 122,005 -
Loan granted to related parties (1,860) (117,250) (3,314)
___________ ___________ ___________
Net cash flows used in investing activities (1,556,921) (462,409) (2,261,750)
___________ ___________ ___________
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and
Subsidiaries and InRetail Foods S.A.C.

Combined statements of cash flows (continued)

Note 2020 2019 2018

S/(000) S/(000) S/(000)

Financing activities
Proceeds from interest-bearing loans and borrowings,
net of structuring cost 2,913,957 862,731 4,556,112
Proceeds from bond issuances - - 1,660,478
Payment of financial obligations and bonds issued (1,637,757) (788,580) (5,227,147)
Contribution - - 884,001
Interest paid for financial obligations and notes senior
issued (183,182) (187,547) (168,896)
Payment of leases and interest 13(b.2) (392,316) (370,124) -
Payment of premium for repurchase of bonds issued 19(e) - - (52,806)
Dividends paid 21(c) (277,176) (168,707) (21,658)
___________ ___________ ___________
Net cash flows used in financing activities 423,526 (652,227) 1,630,084
___________ ___________ ___________

Net increase of cash and short-term deposits 205,318 87,158 390,472

Cash and short – term deposits at the beginning of
the year 701,730 614,572 224,100
___________ ___________ ___________

Cash and short – term deposits at the end of the

year 5(a) 907,048 701,730 614,572
___________ ___________ ___________

Non-cash transactions
Fixed assets acquired through leasing 13(a) 12,614 8,805 33,315
Initial recognition of right-of-use assets 13(b.1) - 1,651,441 -
Addition of right-of-use assets 13(b.1) 298,978 239,079 -

The accompanying notes are an integral part of these combined financial statements.
Supermercados Peruanos S.A. and Subsidiaries, InRetail Pharma and
Subsidiaries and InRetail Foods S.A.C.

Notes to the combined financial statements

As of December 31, 2020, 2019 and 2018

1. Identification and business activities

(a) Identification -
Patrimonio en Fideicomiso D.S. N ° 093-2002-EF-InRetailConsumer (a Special Purpose Entity –
SPE, hereinafter “InRetail Consumer”), was incorporated in August 2014 by InRetail Perú Corp.
only for the purpose of issuing debt in the local market or abroad, when it will be necessary. As of
December 31, 2020, 2019 and 2018, the representative shares of capital stock of Supermercados
Peruanos S.A. and Subsidiaries, InRetail Pharma S.A. and Subsidiaries and InRetail Foods S.A.C.
were transferred in trust to this entity (as of December 2019 and 2018, the representative shares
of capital stock of Supermercados Peruanos S.A. and Subsidiaries and InRetail Pharma S.A. and
Subsidiaries were transferred).

Supermercados Peruanos S.A., InRetail Pharma S.A. and InRetail Foods S.A.C. (hereinafter “the
Companies”) were incorporated in June 1979, August 1996 and December 2020, respectively, in
Lima, Peru. As of December 31, 2020, 2019 and 2018, those companies are subsidiaries of
InRetail Perú Corp., which is a subsidiary of Intercorp Retail Inc., a subsidiary of Intercorp Perú
Ltd. (holding company incorporated in The Bahamas, hereinafter “Intercorp Perú”), which is the
ultimate parent and holds 100 percent of Intercorp Retail Inc.’s capital stock. As of those dates,
InRetail Perú Corp. owns directly and indirectly the following percentages of ownership in these
Companies:

2020 2019 2018

% % %

Company
Supermercados Peruanos S.A. 99.98 99.98 99.98
InRetail Pharma S.A. 87.02 87.02 87.02
InRetail Foods S.A.C. 99.99 - -

(b) Business activities -

- Supermercados Peruanos S.A. is a food retailer. As of December 31, 2020, 2019 and 2018,
it has a chain of stores operating under the “Plaza Vea”, “Plaza Vea Super”, “Vivanda”,
“Mass” and “Economax” brands, which are located in Lima and provinces, such as Trujillo,
Chimbote, Piura, Cusco, Arequipa, Huancayo, among others. Supermercados Peruanos S.A.
holds 100 percent of: (i) Desarrolladora de Strip Center S.A.C. (before Peruana de Tiquetes
S.A.C.), (ii) Plaza Vea Sur S.A.C. and (iii) Plaza Vea Oriente S.A.C.

Likewise, at the General Shareholders' Meeting held on February 11, 2020, the merger of the
subsidiaries Supermercados Peruanos S.A. and Plaza Vea Sur S.A.C. was approved, with the
latter being absorbed; and, in December 2020, Supermercados Peruanos S.A., acquired
62.58 percent of Makro Supermayorista S.A., see note 2(b).
Notes to the combined financial statements (continued)

- InRetail Pharma S.A. is dedicated to the commercialization of pharmaceutical products,

cosmetic products, food for medical use and other elements aimed for health protection and
recovery through its “Inkafarma” and “Mifarma” pharmacy chains. It is also dedicated to the
manufacturing, distribution and marketing of pharmaceutical products. As of December 31,
2020, 2019 and 2018, it mainly operates in Peru, Colombia, Ecuador and Bolivia. InRetail
Pharma S.A. holds 100 percent of: (i) Eckerd Amazonía S.A.C., (ii) Boticas del Oriente S.A.C.,
(iii) Droguería InRetail Pharma S.A.C., (iv) Farmacias Peruanas S.A.C. and (v) Quicorp S.A.

- InRetail Foods S.A.C. wad created only for the purpose of acquiring 37.42 percent of Makro
Supermayorista S.A. (see note 2(b)). The merger of InRetail Foods S.A.C. and Supermercados
Peruanos S.A. was approved by the Board of Directors on February 15, 2021.

The following is the summary of the main data of the Companies’ financial statements used in the
preparation of the combined financial statements as of December 31, 2020, 2019 and 2018, and
for the years then ended:

Supermercados Peruanos S.A. and

Subsidiaries
__________________________________________
2020 2019 2018
S/(000) S/(000) S/(000)
Total assets 6,718,941 4,998,535 3,699,404
Total liabilities 5,428,755 3,912,219 2,684,521
Equity 1,290,186 1,086,316 1,014,883
Operating profit 403,302 286,690 212,019
Net profit 119,563 100,666 78,951

InRetail Pharma S.A. and Subsidiaries

__________________________________________
2020 2019 2018
S/(000) S/(000) S/(000)
Total assets 5,803,532 5,611,798 5,056,369
Total liabilities 4,988,781 4,835,298 4,457,303
Equity 814,751 776,500 599,066
Operating profit 649,366 617,101 426,467
Net profit 282,561 294,645 154,592

InRetail
Foods S.A.C.
____________
2020
S/(000)
Total assets 519,430
Total liabilities 521,693
Equity (2,263)
Operating profit (1,075)
Net profit (2,264)

The combined financial statements as of December 31, 2020, 2019 and 2018 were approved by
Management of InRetail Perú Corp. on February 23, 2021.

2
Notes to the combined financial statements (continued)

(c) Global pandemic Covid-19 -

The variant of coronavirus, SARS-CoV-2 virus, which causes the disease known as “COVID-19,”
was first identified in Wuhan, China in December 2019 and on March 11, 2020, the World Health
Organization recognized COVID-19 as a pandemic. In an effort to prevent the virus from spreading,
governments around the world have implemented strategies that restrict social gathering and
promote social distancing, such as quarantines, travel restrictions, closing of schools, workplaces,
and shopping centers, among others. The rapid outbreak and the measures taken by governments
to contain its spread have significantly impacted the world economy.

In this regard, the Peruvian Government declared, since March 2020, a National State of
Emergency throughout the territory of Peru, being in force until the date of this report. Among the
first actions taken within this National State of Emergency, were ordered the closing of the
borders, compulsory social confinement, the lockdown of businesses deemed non-essential
(exceptions were production, distribution and commercialization of food and pharmaceuticals,
financial services and healthcare), among others; but which negative effects on the Peruvian
economy were significant.

Subsequently, in May 2020, through Supreme Decree No. 080-2020, the Peruvian Government
approved the gradual reopening of economic activities in order to mitigate the economic effects of
the pandemic. The proposed reactivation would be in four phases based on the impact of each
sector on the economy and the beginning of each of these phases was in constant evaluation
following the recommendations of the Sanitary Authority.

- Phase 1 - beginning at the end of May 2020, concentrated activities in the Mining, Industrial,
Construction (projects), Services and tourism sectors (restaurants with home delivery,
services related to telecommunications, agriculture, notaries, recycling, maintenance and
storage), and Trade (of agricultural products and electronic goods for the home).

- Phase 2 - beginning of June 2020, concentrated activities of Agriculture, Manufacturing,

Commerce (sales, maintenance and repair of automobiles), Services (professionals, lodging,
vehicle and machinery rental, telecommunications, interprovincial transport).

- Phase 3 - beginning by the end of June 2020, concentrated activities of Commerce (shops
in general with a capacity of 50 percent, wholesale and retail), Tourism and Services
(restaurants with a capacity of 40 percent, national air transport, lodging services,
accounting, auditing, consulting, among others).

- Phase 4 - beginning by the end of September 2020, concentrated activities of Commerce

(stores in general with a capacity of 60 percent, wholesale and retail), Tourism and Services
(restaurants with a capacity of 50 percent, national and international air transport,
entertainment with a capacity of 50 and 60 percent).

3
Notes to the combined financial statements (continued)

Although the actions implemented by the Peruvian Government reached to contain and partially
mitigate the exponential spread of this disease, through quarantines, social distancing, promotion
for the use of face masks and the early detection of positive cases to achieve its isolation; by not
having effective drugs and vaccines against the virus, the danger of a new chain of infections is
always present.

In this sense, to continue containing and mitigating the spread of COVID-19, during the end of the
year, the Peruvian Government issued a series of Supreme Decrees, extending the Nacional State
of Sanitary Emergency with a series of restrictions that vary depending on the level of each region
until February 28, 2021. The defining alert levels are moderate, high, very high and extreme; that
are granted to each of the regions of Peru, based on an evaluation carried out by the Ministries of
Health, and that recede in the cases very high and extreme the phases of economic reactivation
mentioned above.

Pursuant to the National State of Emergency, all of the operations of Supermercados Peruanos
S.A. and InRetail Pharma S.A. were considered essential and as a result, during the COVID-19
pandemic, their stores and pharmacies have remained open to the public and their operations have
not been materially affected.

In Management’s opinion, while Supermercados Peruanos S.A. and InRetail Pharma S.A. have not
been immune to the negative effects of the COVID-19 pandemic, the impact of such effects to their
business has not been as substantial as in other sectors and business.

The companies included in the combined financial statements as of December 31, 2020, 2019 and
2018 continue evaluating the potential short-term and long-term implications of COVID-19 on its
operations. The ultimate severity of the COVID-19 outbreak is uncertain at this time and therefore
InRetail Consumer cannot predict the possible impact on the world, the Peruvian economy, the
international financial markets, or ultimately on its financial condition.

2. Acquisitions and disposals subsidiaries

(a) Acquisition Quicorp Group -
In January 2018, InRetail Pharma S.A. (formerly Eckerd Perú S.A.) and NG Infra II S.A.C. (a non-
related entity) created IR Pharma S.A.C. (formerly Chakana Salud S.A.C.), through cash
contributions that resulted in a shareholding of 73.21 percent and 26.79 percent, respectively.
The purpose of constituting IR Pharma S.A.C. was to acquire, through it, 100 percent of Quicorp
S.A. and its following Subsidiaries (hereinafter and collectively, “Quicorp Group”): Química Suiza
Comercial S.A.C., Química Suiza S.A.C., Cifarma S.A.C., Mifarma S.A.C., Empresa
Comercializadora Mifarma S.A. (Bolivia), Botica Torres de Limatambo S.A.C., Vanttive S.A.C.,
Farmacias Peruanas S.A., Droguería La Victoria S.A.C., Vanttive Cía. Ltda. (Ecuador), Quifatex
S.A. (Ecuador), Quimiza Ltda. (Bolivia), Química Suiza Colombia S.A.A. (Colombia), Albis S.A.C.,
Jorsa de la Selva S.A.C. and Superfarma Mayorista S.A.C. These entities operate in
manufacturing, distribution and retail segments within the pharmaceutical sector in Peru,
Ecuador, Bolivia and Colombia.

4
Notes to the combined financial statements (continued)

The acquisition was held on January 26, 2018, US$591 million were paid to obtain 100 percent
of Quicorp Group’s shares, financed through a bridge loan of US$1,000 million granted to
InRetail Pharma S.A. by Citibank N.A. and J.P. Morgan Chase Bank N.A.; the difference was
mainly allocated to the restructuring of different acquired debts. It is worth mentioning that this
loan was completely settled in June 2018, mainly with the proceeds from issuances of “Senior
Unsecured Notes” by InRetail Pharma S.A. (see note 19) and the collection of loans granted to
related companies. On April 23, 2018, InRetail Pharma S.A. absorbed IR Pharma S.A.C., which
was dissolved without being liquidated, thereby reducing the participation percentage of its
majority shareholder (InRetail Perú Corp.) to 87.02 percent (before said merger, InRetail Perú
Corp. held 100 percent of the capital stock of InRetail Pharma S.A.) and adding NG Infra II S.A.C.
as a shareholder with 12.98 percent of the capital stock. As a result, as of December 31, 2018,
InRetail Pharma S.A. is the only owner of the Quicorp Group. It is worth to mention that the
contribution amounting to S/481,500,000 from NG Infra II S.A.C. for the acquisition of the
Quicorp Group, made directly to IR Pharma S.A.C. and indirectly to InRetail Pharma S.A.
considering the aforementioned merger, is presented in combined statements of changes in
equity and is the result of the highest amount contributed over the nominal value of the shares
received by NG Infra II S.A.C. from InRetail Pharma S.A.

Furthermore, between March and July 2018, various fusion processes between the acquired
entities were performed, through which Mifarma S.A.C. absorbed Farmacias Peruanas S.A.,
Droguería La Victoria S.A.C. and Boticas Torres de Limatambo S.A.C., while Quicorp S.A.
absorbed Química Suiza Comercial S.A.C.

The acquisition of the Quicorp Group was recorded in accordance with IFRS 3 "Business
Combinations", applying the "Purchase" accounting method. Under this method, assets and
liabilities were recorded at their estimated fair values at the date of purchase, including identified
intangible assets not recorded in the financial statements position of each entity acquired.

The cost related to the acquisition, amounting to S/16,304,000, was recorded as an expense and
is presented in the caption “Operating expenses” of the combined income statements, see note
23(b).

5
Notes to the combined financial statements (continued)

The following is the fair values of the identifiable assets and liabilities of the Quicorp Group at the
date of acquisition:

Fair value of the

acquired entities
S/(000)

Assets -
Cash and short-term deposits 33,911
Trade accounts receivables 488,215
Other accounts receivables 160,762
Inventories 677,880
Property, installations, furniture and equipment, note 13(a) 429,289
Intangibles, note 15(a) 721,526
Deferred income tax assets, net, note 20(b) 64,562
Other assets 45,995

Liabilities -
Trade accounts payables (935,264)
Other accounts payables (255,504)
Other accounts payables – contingencies (35,556)
Interest-bearing loans and borrowings (500,687)
Deferred income tax liabilities, note 20(b) (269,508)
__________
Total net assets identified at fair value 625,621

Goodwill generated in the acquisition, note 15(a) and 15(c) 1,272,634

__________
Purchase price transferred 1,898,255
___________

The net cash flow used in the acquisition is presented below:

S/(000)

Total paid price 1,897,347

Agreed price adjustment at closing 908
Available funds of the acquired companies (33,911)
__________

1,864,344
__________

Since the date of its acquisition to December 31, 2018, Quicorp Group contributed with
approximately S/4,143,235,000 of the combined revenue and S/182,812,000 of the combined
profit before income tax of the InRetail Pharma Group.

The recorded goodwill amounting to S/1,272,634,000 represents the future synergies that are
expected to arise from the combination of operations, distribution channels, workforce and other
efficiencies not included in the intangible assets of the present value of in-force business.

6
Notes to the combined financial statements (continued)

(b) Acquisition Makro Supermayorista S.A. -

In December 2020, InRetail Perú Corp., through its subsidiaries Supermercados Peruanos S.A.
and InRetail Foods, acquired 100 percent of Makro Supermayorista S.A. (hereinafter “Makro”).
Makro is a cash-and-carry wholesaler that sells food and non-food products to professional as
well as individual customers. The acquisition operation included 16 stores in Lima and Provinces
and the “Makro” and other minor private label brands.

The price of the transaction was US$359,619,000 (equivalent to approximately

S/1,300,743,000), which was paid in full with the proceeds from the Bridge Facility. The Bridge
Facility was for an amount up to US$375,000,000 (equivalent to approximately
S/1,344,679,000), was arranged by JPMorgan Chase Bank, N.A. and contains covenants,
including restrictions on incurrence of debt and maintenance of certain financial ratios, among
others (see note 18(a)).

The acquisition of Makro was recorded in accordance with IFRS 3 "Business Combinations",
applying the "Purchase" accounting method. Under this method, assets and liabilities were
recorded at their estimated fair values at the date of purchase, including identified intangible
assets not recorded in the financial statements position of each entity acquired.

The following is the preliminary fair values of the identifiable assets and liabilities of Makro at the
date of acquisition:
Fair value of the
acquired entities
S/(000)

Assets -
Cash and short-term deposits 88,144
Trade accounts receivables 1,807
Other accounts receivables 48,541
Inventories 121,409
Property, installations, furniture and equipment, note 13(a) 692,592
Right-of-use assets, net, note 13(b.1) 23,884
Intangibles, note 15(a) 62,027
Other assets 1,719

Liabilities -
Trade accounts payables (252,077)
Other accounts payables (54,292)
Lease liabilities (26,404)
Interest-bearing loans and borrowings (59,755)
Deferred income tax liabilities, note 20(b) (86,820)
__________
Total net assets identified at fair value 560,775

Goodwill generated in the acquisition, note 15(a) and 15(c) 739,968

__________
Purchase price transferred 1,300,743
___________

7
Notes to the combined financial statements (continued)

The recorded goodwill amounting to S/739,968,000 represents the future synergies that are
expected to arise from the combination of operations, distribution channels, workforce and other
efficiencies not included in the intangible assets of the present value of in-force business.

As mentioned before and considering that the acquisition date was December 23, 2020, the fair
values of the identifiable assets and liabilities of Makro detailed above correspond to preliminary
amounts. In Management’s opinion, they will have the final balances and finish the measurement
period during 2021, which is in accordance to IFRS 3.

(c) Disposal Mifarma S.A. (Bolivia) -

On October 5, 2020, InRetail Pharma S.A. sold the shareholder interest in their Bolivian
subsidiary Mifarma S.A. for approximately US$2,000,000 (equivalent to S/7,233,000), to a non-
related entity, recording a profit of S/5,805,000, see note 24. The following is the assets and
liabilities, at the date of disposals:

05.10.2020
S/(000)

Assets -
Cash and short-term deposits 1,399
Inventories 8,522
Property, furniture and equipment, note 13(a) 809
Right-of-use assets, net, note 13(b.1) 891
Other 610
__________
12,231
__________
Liabilities -
Trade accounts payables 7,586
Lease liabilities, note 13(b.2) 890
Other 2,327
__________
10,803
__________
Net value 1,428
___________

3. Summary of significant accounting policies

The significant accounting policies used in the preparation and presentation of the Companies’
combined financial statements are described below:

3.1 Basis of preparation and presentation

The combined financial statements have been prepared and presented solely for purposes of its
incorporation in an offering memorandum of InRetail Consumer (a SPE; see Note 1(a)). Likewise,
the combined financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB),
effective as of December 31, 2020, 2019 and 2018, respectively.

8
Notes to the combined financial statements (continued)

Furthermore, as of January 1, 2019, the companies applied IFRS 16 for the first time. The
nature and the effect of the changes resulting from the adoption of these accounting
pronouncements are described in note 3.3. Other standards and modifications were applied on
that date; however, they did not have any impact on the combined financial statements as of
December 31, 2019 and, therefore, they have not been disclosed. The information contained in
these combined financial statements is the responsibility of the Companies' Corporate
Management, who explicitly manifest that principles and criteria included on IFRS, as issued by
the IASB are fully applied as of the date of combined financial statements.

The combined financial statements have been prepared on a historical cost basis, except for
financial instruments at fair value through profit or loss, financial instruments at fair value
through other comprehensive income, investment properties and derivative financial instruments
(“Call Spread”) that have been measured at fair value. The combined financial statements are
presented in Soles and all values are rounded to the nearest thousand (S/(000)), except when
otherwise indicated.

3.2 Summary of significant accounting policies

(a) Basis of combination -
The combined financial statements comprise the respective consolidated financial
statements of the Companies and their Subsidiaries, which have been prepared under
IFRS, see note 1. For purposes of these combined financial statements, subsidiaries are
fully consolidated from the date of their acquisition, being the date on which
Supermercados Peruanos S.A. or InRetail Pharma S.A. obtained control and continue to
be consolidated until the date when such control ceases.

The financial statements of the subsidiaries are prepared for the same period as the
parent company, using consistent accounting policies. All intra-group balances,
transactions, unrealized gains and losses resulting from intra-group transactions and
dividends are eliminated in full.

The combined financial statements result from the addition of the balances of all the
accounts of the Companies’ consolidated financial statements; however, there is not any
relationship as a parent and subsidiaries. The significant transactions among the
Companies’ balances and profit and losses have been eliminated. The combined financial
statements are prepared using uniform accounting policies for similar transactions and
events, which are described in the following notes to the combined financial statements.

The non-controlling interests have been determined in proportion to the participation of

minority shareholders in the equity and the results of the Companies in which they hold
participation, and they are presented separately in the combined statements of financial
position, the combined income statements and the combined statements of other
comprehensive income.

9
Notes to the combined financial statements (continued)

Losses in a subsidiary are attributed to the non-controlling interests even if that results in
a deficit balance. A change in the ownership interest of a subsidiary, without a loss of
control, is accounted for as an equity transaction.

Considering that InRetail Consumer is a Special Purpose Entity – SPE that was
incorporated only for the purpose of issuing debt in the local market or abroad; the
combined financial statements include some assets, liabilities and results as a
consequence of transactions made by InRetail Perú Corp., that are directly related to the
business or the Companies included in the combination, and which will guarantee the debt
to be issued.

The explanation of combined adjustments and intercompany eliminations is presented in

the following charts.

10
Notes to the combined financial statements (continued)

(a.1) The determination of the combined statements of financial position as of December 31, 2020 is presented below:
Balances of
Supermercados Balances of InRetail Intercompany
Peruanos S.A. and Pharma S.A. and eliminations and Combined Combined as of
Note Subsidiaries Subsidiaries Aggregated reclassifications adjustments (*) 12.31.2020
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)
Assets
Current assets
Cash and short-term deposits (i) 339,971 550,113 890,084 - 16,964 907,048
Financial instruments at fair value through profit or loss (i) - - - - 93,061 93,061
Financial instruments at amortized cost - - - - 24,624 24,624
Trade accounts receivables, net 66,165 523,091 589,256 - - 589,256
Other accounts receivables, net 76,304 158,433 234,737 - 302 235,039
Accounts receivable to related parties (i) and (ii) 44,922 7,935 52,857 (9,032) 3,023 46,848
Inventories, net 972,690 1,186,698 2,159,388 (867) - 2,158,521
Prepayments 8,321 4,595 12,916 - - 12,916
__________ __________ __________ __________ __________ ____________
Total current assets 1,508,373 2,430,865 3,939,238 (9,899) 137,974 4,067,313
Other accounts receivables, net 32,810 29,671 62,481 - 3,713 66,194
Financial instruments at fair value through other comprehensive income - 54,061 54,061 - - 54,061
Derivative financial instrument – “Call Spread” - 112,273 112,273 - - 112,273
Property, installations, furniture and equipment, net 3,270,071 570,506 3,840,577 1,279 - 3,841,856
Investment properties, net 282,245 - 282,245 - - 282,245
Right-of-use assets, net (ii) 1,022,623 572,850 1,595,473 (49,668) - 1,545,805
Intangible assets, net (iii) 612,745 1,940,470 2,553,215 - 1,359,486 3,912,701
Other non–financial assets - 7,949 7,949 - - 7,949
Deferred income tax assets 3,279 84,887 88,166 (163) - 88,003
__________ __________ ___________ __________ __________ ____________
Total assets 6,732,146 5,803,532 12,535,678 (58,451) 1,501,173 13,978,400
__________ __________ ___________ __________ __________ ____________
Liabilities and equity
Current liabilities
Trade accounts payables 1,654,949 1,593,595 3,248,544 - 317 3,248,861
Other accounts payables 335,346 245,625 580,971 2 31,782 612,755
Interest-bearing loans and borrowings (ix) 138,067 189,871 327,938 - 1,344,679 1,672,617
Accounts payable to related parties (ii) 849,270 4,081 853,351 (8,815) (815,097) 29,439
Current income tax, net 829 72,855 73,684 (2) - 73,682
Deferred revenue 2,516 11,162 13,678 - - 13,678
Lease liabilities (ii) 73,206 159,650 232,856 (3,130) - 229,726
__________ __________ ___________ __________ __________ ____________
Total current liabilities 3,054,183 2,276,839 5,331,022 (11,945) 561,681 5,880,758
Other accounts payables 664 22,784 23,448 - - 23,448
Interest-bearing loans and borrowings 1,113,976 213,081 1,327,057 - - 1,327,057
Accounts payable to related parties 90,548 - 90,548 - - 90,548
Senior notes issued - 1,820,913 1,820,913 - - 1,820,913
Lease liabilities (ii) 1,013,413 448,648 1,462,061 (44,917) - 1,417,144
Deferred revenue (ii) 29,952 - 29,952 (4,811) - 25,141
Deferred income tax liabilities, net (iii) 132,990 206,516 339,506 (143) 111,916 451,279
__________ __________ ___________ __________ __________ ____________
Total liabilities 5,435,726 4,988,781 10,424,507 (61,816) 673,597 11,036,288
__________ __________ ___________ __________ __________ ____________
Equity
Capital stock (iv) 389,445 15,840 405,285 - (35,734) 369,551
Capital premium (iv) 327,429 482,835 810,264 - (628,757) 181,507
Treasury shares - - - - (9) (9)
Additional paid - in capital (iii) - - - - 706,427 706,427
Other equity reserves (v) and (vi) 51,574 (7,691) 43,883 1,304 821,499 866,686
Retained earnings (vi) 318,130 323,767 641,897 2,061 68,056 712,014
__________ __________ ___________ __________ __________ ____________
1,086,578 814,751 1,901,329 3,365 931,482 2,836,176
Non-controlling interest 209,842
__________ __________- 209,842
___________ __________- (103,906)
__________ 105,936
____________
Total equity 1,296,420 814,751 2,111,171 3,365 827,576 2,942,112
__________ __________ ___________ __________ __________ ____________
Total liabilities and equity 6,732,146
__________ 5,803,532
__________ 12,535,678
___________ (58,451)
__________ 1,501,173
__________ 13,978,400
____________

(*) Include InRetail Consumer’s and InRetail Foods S.A.C. balances.

11
Notes to the combined financial statements (continued)

(a.2) The determination of the combined statements of financial position as of December 31, 2019 is presented below:
Balances of
Supermercados Balances of InRetail Intercompany
Peruanos S.A. and Pharma S.A. and eliminations and Combined Combined as of
Note Subsidiaries Subsidiaries Aggregated reclassifications adjustments (**) 12.31.2019
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)
Assets
Current assets
Cash and short-term deposits (i) 108,436 589,253 697,689 - 4,041 701,730
Financial instruments at fair value through profit or loss (i) - - - - 13,903 13,903
Trade accounts receivables, net 54,484 488,875 543,359 - - 543,359
Other accounts receivables, net 60,001 88,730 148,731 48 4 148,783
Accounts receivable to related parties (i) and (ii) 25,260 8,977 34,237 (8,797) 1,583 27,023
Inventories, net 816,558 1,019,273 1,835,831 (784) - 1,835,047
Prepayments 8,685 5,676 14,361 - - 14,361
__________ __________ __________ __________ __________ ____________
Total current assets 1,073,424 2,200,784 3,274,208 (9,533) 19,531 3,284,206
Other accounts receivables, net 20,192 24,745 44,937 - 2,667 47,604
Financial instruments at fair value through other comprehensive income - 45,435 45,435 - - 45,435
Derivative financial instrument – “Call Spread” - 63,508 63,508 - - 63,508
Property, installations, furniture and equipment, net 2,607,673 560,693 3,168,366 1,351 - 3,169,717
Investment properties, net 289,990 - 289,990 - - 289,990
Right-of-use assets, net (ii) 924,594 685,120 1,609,714 (50,733) - 1,558,981
Intangible assets, net (iii) 85,146 1,978,012 2,063,158 - 1,082,590 3,145,748
Other non–financial assets - 7,208 7,208 - - 7,208
Deferred income tax assets 2,137 46,293 48,430 (375) (26) 48,029
__________ __________ __________ __________ __________ ____________
Total assets 5,003,156 5,611,798 10,614,954 (59,290) 1,104,762 11,660,426
__________ __________ __________ __________ __________ ____________
Liabilities and equity
Current liabilities
Trade accounts payables 1,369,043 1,531,833 2,900,876 (910) - 2,899,966
Other accounts payables 156,069 233,281 389,350 - 2 389,352
Interest-bearing loans and borrowings 213,169 140,840 354,009 - - 354,009
Accounts payable to related parties (ii) 49,732 3,975 53,707 (7,887) 38 45,858
Current income tax, net - 21,907 21,907 (606) - 21,301
Deferred revenue 2,129 - 2,129 - - 2,129
Lease liabilities (ii) 59,152 218,620 277,772 (8,115) - 269,657
__________ __________ __________ __________ __________ ____________
Total current liabilities 1,849,294 2,150,456 3,999,750 (17,518) 40 3,982,272
Other accounts payables - 21,289 21,289 - - 21,289
Interest-bearing loans and borrowings 1,018,774 267,660 1,286,434 - - 1,286,434
Accounts payable to related parties 88,824 - 88,824 - - 88,824
Senior notes issued - 1,694,413 1,694,413 - - 1,694,413
Lease liabilities (ii) 854,094 452,569 1,306,663 (43,828) - 1,262,835
Deferred revenue (ii) 27,171 8,149 35,320 (993) - 34,327
Deferred income tax liabilities, net (iii) 78,683 240,762 319,445 421 111,916 431,782
__________ __________ __________ __________ __________ ____________
Total liabilities 3,916,840 4,835,298 8,752,138 (61,918) 111,956 8,802,176
__________ __________ __________ __________ __________ ____________
Equity
Capital stock (iv) 389,445 15,840 405,285 - (35,734) 369,551
Capital premium (iv) 327,429 482,835 810,264 - (628,757) 181,507
Treasury shares - - - - (9) (9)
Additional paid - in capital (iii) - - - - 706,427 706,427
Other equity reserves (v) and (vi) 41,582 8,006 49,588 - 820,769 870,357
Retained earnings (vi) 327,860 269,819 597,679 2,628 29,131 629,438
__________ __________ ___________ __________ __________ ____________
1,086,316 776,500 1,862,816 2,628 891,827 2,757,271
Non-controlling interest - - - - 100,979 100,979
__________ __________ ___________ __________ __________ ____________
Total equity 1,086,316 776,500 1,862,816 2,628 992,806 2,858,250
__________ __________ ___________ __________ __________ ____________
Total liabilities and equity 5,003,156 5,611,798 10,614,954 (59,290) 1,104,762 11,660,426
__________ __________ ___________ __________ __________ ____________

(**) Include InRetail Consumer’s balances.

12
Notes to the combined financial statements (continued)

(a.3) The determination of the combined statements of financial position as of December 31, 2018 is presented below:

Balances of
Supermercados Balances of InRetail Intercompany
Peruanos S.A. and Pharma S.A. and eliminations and Combined Combined as of
Note Subsidiaries Subsidiaries Aggregated reclassifications adjustments (**) 12.31.2018
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)
Assets
Current assets
Cash and short-term deposits (i) 137,139 475,547 612,686 - 1,886 614,572
Financial instruments at fair value through profit or loss (i) - 1,000 1,000 - 7,065 8,065
Trade accounts receivables, net 51,510 497,909 549,419 - - 549,419
Other accounts receivables, net 47,068 149,508 196,576 - 2,997 199,573
Accounts receivable to related parties (i) and (ii) 31,793 6,633 38,426 (4,427) 3,416 37,415
Inventories, net 680,256 1,056,996 1,737,252 (962) - 1,736,290
Financial instruments at fair value through other comprehensive income - - - - 8,377 8,377
Prepayments 12,752 20,640 33,392 - - 33,392
__________ __________ __________ __________ __________ __________
Total current assets 960,518 2,208,233 3,168,751 (5,389) 23,741 3,187,103
Other accounts receivables, net 4,207 25,317 29,524 - - 29,524
Financial instruments at fair value through other comprehensive income - 36,338 36,338 - - 36,338
Prepayments 23,042 30,196 53,238 (482) - 52,756
Derivative financial instrument – “Call Spread” - 86,694 86,694 - - 86,694
Property, installations, furniture and equipment, net (ii) 2,422,662 588,897 3,011,559 1,447 - 3,013,006
Investment properties, net 202,597 - 202,597 - - 202,597
Intangible assets, net (iii) 84,137 2,011,459 2,095,596 - 1,082,590 3,178,186
Other non–financial assets - 7,219 7,219 - - 7,219
Deferred income tax assets 453 59,702 60,155 - - 60,155
__________ __________ __________ __________ __________ __________
Total assets 3,697,616 5,054,055 8,751,671 (4,424) 1,106,331 9,853,578
__________ __________ __________ __________ __________ __________
Liabilities and equity
Current liabilities
Trade accounts payables 1,259,500 1,654,930 2,914,430 - - 2,914,430
Other accounts payables 173,233 236,031 409,264 (3) 23 409,284
Interest-bearing loans and borrowings 201,538 210,181 411,719 - - 411,719
Accounts payable to related parties (ii) 15,717 3,342 19,059 (4,427) 22 14,654
Current income tax, net - 10,665 10,665 - - 10,665
Deferred revenue 2,931
__________ 19,116
__________ 22,047
__________ __________- __________- 22,047
__________
Total current liabilities 1,652,919 2,134,265 3,787,184 (4,430) 45 3,782,799
Trade accounts payables - 10,733 10,733 - - 10,733
Other accounts payables - 21,854 21,854 - - 21,854
Interest-bearing loans and borrowings 837,951 310,140 1,148,091 - - 1,148,091
Accounts payable to related parties 87,097 - 87,097 - - 87,097
Senior notes issued - 1,714,289 1,714,289 - - 1,714,289
Deferred revenue 26,032 - 26,032 (123) - 25,909
Deferred income tax liabilities, net (iii) 78,734 263,709 342,443 - 111,916 454,359
__________ __________ __________ __________ __________ __________
Total liabilities 2,682,733 4,454,990 7,137,723 (4,553) 111,961 7,245,131
__________ __________ __________ __________ __________ __________
Equity
Capital stock (iv) 389,445 15,840 405,285 - (35,734) 369,551
Capital premium (iv) 327,429 482,835 810,264 - (628,757) 181,507
Treasury shares - - - - (9) (9)
Additional paid - in capital (iii) - - - - 706,427 706,427
Other equity reserves (v) and (vi) 33,417 (7,484) 25,933 - 822,935 848,868
Retained earnings (vi) 264,592 107,874 372,466 129 51,572 424,167
__________ __________ __________ __________ __________ __________
1,014,883 599,065 1,613,948 129 916,434 2,530,511
Non-controlling interest - - - - 77,936 77,936
__________ __________ __________ __________ __________ __________
Total equity 1,014,883 599,065 1,613,948 129 994,370 2,608,447
__________ __________ __________ __________ __________ __________
Total liabilities and equity 3,697,616 5,054,055 8,751,671 (4,424) 1,106,331 9,853,578
__________ __________ __________ __________ __________ __________

(**) Include InRetail Consumer’s balances.

13
Notes to the combined financial statements (continued)

(a.4) The determination of the combined income statements for the year ended December 31, 2020 is presented below:

Balances of Balances of
Supermercados InRetail Pharma
Peruanos S.A. and S.A. and Intercompany Combined Combined as of
Note Subsidiaries Subsidiaries Aggregated eliminations adjustments (*) 12.31.2020
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Net sales of goods (ii) 6,850,901 6,908,176 13,759,077 (31,568) - 13,727,509

Rental income (ii) 52,708 92,876 145,584 (10,121) - 135,463
Rendering of services (ii) 13,174 190,431 203,605 (2,224) - 201,381
__________ __________ __________ __________ __________ __________
Revenue 6,916,783 7,191,483 14,108,266 (43,913) - 14,064,353
Cost of sales and services (ii) (5,118,789) (4,992,245) (10,111,034) 24,788 - (10,086,246)
__________ __________ __________ __________ __________ __________
Gross profit 1,797,994 2,199,238 3,997,232 (19,125) - 3,978,107

Changes in fair value of investment property in fair value of

investment properties (15,458) - (15,458) - - (15,458)
Fair value effect of investment properties distributed to
associates 1,722 - 1,722 - - 1,722
Selling expenses (ii) (1,206,935) (1,271,772) (2,478,707) 15,112 - (2,463,595)
Administrative expenses (ii) (160,652) (287,583) (448,235) 544 (1,794) (449,485)
Other income 25,911 19,349 45,260 (835) - 44,425
Other expense (39,280) (9,866) (49,146) 564 - (48,582)
__________ __________ __________ __________ __________ __________
Operating profit 403,302 649,366 1,052,668 (3,740) (1,794) 1,047,134

Finance income 2,816 9,631 12,447 (6,155) 2,258 8,550

Finance costs (ii) (148,442) (190,469) (338,911) 10,720 (7,109) (335,300)
Exchange difference, net (75,695) (44,509) (120,204) 7 (367) (120,564)
__________ __________ __________ __________ __________ __________
Profit before income tax 181,981 424,019 606,000 832 (7,012) 599,820

Income tax expense (62,418) (141,458) (203,876) 45 - (203,831)

__________ __________ __________ __________ __________ __________

Net profit 119,563 282,561 402,124 877 (7,012) 395,989

__________ __________ __________ __________ __________ __________

Attributable to:
Supermercados Peruanos S.A. and InRetail Pharma S.A.
shareholders 119,563 282,561 402,124 877 (43,713) 359,288
Non-controlling interests - - - - 36,701 36,701
__________ __________ __________ __________ __________ __________

Net profit 119,563 282,561 402,124 877 (7,012) 395,989

__________ __________ __________ __________ __________ __________

(*) Include InRetail Consumer’s and InRetail Foods S.A.C. balances.

14
Notes to the combined financial statements (continued)

(a.5) The determination of the combined income statements for the year ended December 31, 2019 is presented below:

Balances of Balances of
Supermercados InRetail Pharma
Peruanos S.A. and S.A. and Intercompany Combined Combined as of
Note Subsidiaries Subsidiaries Aggregated eliminations adjustments (**) 12.31.2019
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Net sales of goods (ii) 5,682,917 6,611,147 12,294,064 (33,154) - 12,260,910

Rental income (ii) 74,903 70,576 145,479 (9,563) - 135,916
Rendering of services (ii) 4,601 169,931 174,532 (1,524) - 173,008
__________ __________ __________ __________ __________ __________
Revenue 5,762,421 6,851,654 12,614,075 (44,241) - 12,569,834
Cost of sales and services (ii) (4,246,827) (4,722,550) (8,969,377) 26,247 - (8,943,130)
__________ __________ __________ __________ __________ __________
Gross profit 1,515,594 2,129,104 3,644,698 (17,994) - 3,626,704

Changes in fair value of investment property in fair value of

investment properties 7,117 - 7,117 - - 7,117
Fair value effect of investment properties distributed to
associates (2,626) - (2,626) - - (2,626)
Selling expenses (ii) (1,113,595) (1,279,397) (2,392,992) 15,851 - (2,377,141)
Administrative expenses (ii) (141,867) (238,044) (379,911) 53 (652) (380,510)
Other income 36,936 20,730 57,666 - 10 57,676
Other expense (14,869) (15,292) (30,161) - - (30,161)
__________ __________ __________ __________ __________ __________
Operating profit 286,690 617,101 903,791 (2,090) (642) 901,059

Finance income 2,487 15,260 17,747 - 918 18,665

Finance costs (ii) (142,121) (201,864) (343,985) 4,741 (59) (339,303)
Exchange difference, net 13,243 8,547 21,790 (7) (258) 21,525
__________ __________ __________ __________ __________ __________
Profit before income tax 160,299 439,044 599,343 2,644 (41) 601,946

Income tax expense (59,633) (144,399) (204,032) (168) - (204,200)

__________ __________ __________ __________ __________ __________

Net profit 100,666 294,645 395,311 2,476 (41) 397,746

__________ __________ __________ __________ __________ __________

Attributable to:
Supermercados Peruanos S.A. and InRetail Pharma S.A.
shareholders 100,666 294,645 395,311 2,476 (38,306) 359,481
Non-controlling interests - - - - 38,265 38,265
__________ __________ __________ __________ __________ __________

Net profit 100,666 294,645 395,311 2,476 (41) 397,746

__________ __________ __________ __________ __________ __________

(**) Include InRetail Consumer’s balances.

15
Notes to the combined financial statements (continued)

(a.6) The determination of the combined income statements for the year ended December 31, 2018 is presented below:

Balances of Balances of
Supermercados InRetail Pharma
Peruanos S.A. and S.A. and Intercompany Combined Combined as of
Note Subsidiaries Subsidiaries Aggregated eliminations adjustments (**) 12.31.2018
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Net sales of goods (ii) 5,070,319 6,482,682 11,553,001 (43,656) - 11,509,345

Rental income (ii) 67,231 63,067 130,298 (9,519) - 120,779
Rendering of services (ii) 7,089 158,132 165,221 (2,187) - 163,034
__________ __________ __________ __________ __________ __________
Revenue 5,144,639 6,703,881 11,848,520 (55,362) - 11,793,158
Cost of sales and services (ii) (3,793,624) (4,769,117) (8,562,741) 51,099 - (8,511,642)
__________ __________ __________ __________ __________ __________
Gross profit 1,351,015 1,934,764 3,285,779 (4,263) - 3,281,516

Changes in fair value of investment property in fair value of

investment properties 2,706 - 2,706 - - 2,706
Fair value effect of investment properties distributed to
associates 956 - 956 - - 956
Selling expenses (ii) (1,017,239) (1,256,075) (2,273,314) 2,424 - (2,270,890)
Administrative expenses (ii) (136,045) (247,621) (383,666) 821 (2,840) (385,685)
Other income 46,015 14,968 60,983 (1,374) - 59,609
Other expense (35,389) (19,569) (54,958) 2,821 - (52,137)
__________ __________ __________ __________ __________ __________
Operating profit 212,019 426,467 638,486 429 (2,840) 636,075

Finance income (vii) 3,704 33,834 37,538 662 (10,320) 27,880

Finance costs (viii) (77,750) (182,664) (260,414) - (77,207) (337,621)
Exchange difference, net (viii) (4,301) (32,976) (37,277) - 1,668 (35,609)
__________ __________ __________ __________ __________ __________
Profit before income tax 133,672 244,661 378,333 1,091 (88,699) 290,725

Income tax expense (54,721) (90,069) (144,790) - (117) (144,907)

__________ __________ __________ __________ __________ __________

Net profit 78,951 154,592 233,543 1,091 (88,816) 145,818

__________ __________ __________ __________ __________ __________

Attributable to:
Supermercados Peruanos S.A. and InRetail Pharma S.A.
shareholders 78,951 154,592 233,543 1,091 (105,371) 129,263
Non-controlling interests - - - - 16,555 16,555
__________ __________ __________ __________ __________ __________

Net profit 78,951 154,592 233,543 1,091 (88,816) 145,818

__________ __________ __________ __________ __________ __________

(**) Include InRetail Consumer’s balances.

16
Notes to the combined financial statements (continued)

(a.7) Notes to the determination of combined financial statements are presented below:

(i) As of December 31, 2020, 2019 and 2018, correspond to current bank accounts
and time deposits owned by InRetail Consumer for S/16,964,000, S/4,041,000
and S/2,118,000, respectively, financial instruments at fair value through profit or
loss for S/93,061,000, S/13,903,000 and S/7,065,000, respectively, and trade
receivables to related parties for S/3,023,000, S/1,853,000 and S/225,000,
respectively. Additionally, as of December 31,2020, it includes financial
instruments at amortized cost for S/24,624,000.

(ii) Intercompany eliminations of balances and transactions, which mainly correspond

to commercial transactions between the Companies (rental and/or rights of use of
property, sale of merchandise vouchers, key money, etc.).

(iii) Corresponds mainly to the “Inkafarma” commercial brand and goodwill recorded in
the consolidated financial statements of InRetail Perú Corp. and Subsidiaries, as a
consequence of the acquisition of InRetail Pharma S.A. and Subsidiaries for
approximately S/373,054,000 and S/709,472,000 as of December 31, 2020,
2019 and 2018, respectively. Likewise, as of December 31, 2020, 2019 and
2018, the deferred tax liability related to this commercial brand amounts to
approximately S/111,916,000. The “Inkafarma” commercial brand is considered
as an intangible with indefinite useful live. The inclusion of this assets and its
deferred tax liability were recorded against the caption “ Additional paid - in capital” in
the combined statement of financial position. Additionally, as of December
31,2020, the column “Combines Adjustments” includes the goodwill kept by
InRetail Foods S.A., as a consequence of the acquisition of Makro Supermayorista
S.A. for approximately S/276,896,000.

(iv) Corresponds mainly to the cash contributions made by InRetail Consumer to

Supermercados Peruanos S.A. for a total amount of approximately
S/182,837,000; likewise, the non-controlling interest have been determined of the
Companies of S/64,872,000, which has been eliminated for purposes of these
combined financial statements.

(v) Corresponds to a contribution of S/402,461,000 received by InRetail Consumer

from InRetail Perú Corp., such contribution was used in 2018 for the pre-payment
of the Senior Notes issued, see notes 1(c) and 19(e).

(vi) Adjustments related to the constitution of non-controlling interest as of December

31, 2020, 2019 and 2018.

(vii) Elimination of operations between InRetail Consumer and the Companies.

17
Notes to the combined financial statements (continued)

(viii) As of December 31, 2018, mainly corresponds to the premium paid for the
anticipated cancelation of the senior notes, 12(c) and 19(e).

(ix) During December 2020, InRetail Consumer acquired a Bridge Facility with JP
Morgan Chase Bank N.A. for approximately US$375,000 (equivalent to
S/1,344,679,000 as of December 31,2020), see note 2(b) and 18(a).

(b) Business combinations and goodwill -

Acquisitions are recorded using the purchase method of accounting, as defined in IFRS 3
"Business Combinations", applicable to the date of each transaction. Assets and liabilities
are recorded at their estimated market values at the date of purchase, including identified
intangible assets not recognized in the statements of financial position of each entity
acquired. Acquisition costs incurred are registered as expenses and are included in the
caption “Administrative expenses” of the combined financial statements.

When the Companies acquire a business, they assess the financial assets and liabilities
assumed for appropriate classification and designation in accordance with the contractual
terms, economic circumstances and pertinent conditions as at the acquisition date.

Goodwill generated as a consequence of the acquisition of InRetail Pharma S.A. and

Subsidiaries (see paragraph (a.5.iii) above), Quicorp S.A. and Subsidiaries (see note 2(a)
above) and Makro Supermayorista S.A. (see note 2(b) above), is initially measured at cost,
being the excess of the aggregate of the consideration transferred and the amount
recognized for non-controlling interests over the net identifiable assets acquired and
liabilities assumed. If this consideration is lower than the fair value of the net assets of the
subsidiary acquired, the difference is recognized in combined income statements as profit
or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment
losses. For the purpose of impairment testing, goodwill acquired in a business combination
is, from the acquisition date, allocated to each of the Companies cash-generating units
that are expected to benefit from the combination.

(c) Financial instruments - Initial recognition and subsequent measurement -

As of the date of the combined financial statements, the Companies classify their financial
instruments in the following categories defined on IFRS 9 (2018 version): (i) financial
assets at amortized cost, (ii) financial assets at fair value through other comprehensive
income, (iii) financial assets at fair value through profit or loss, (iv) financial liabilities at
amortized cost or (v) financial liabilities at fair value through profit or loss.

18
Notes to the combined financial statements (continued)

The main criteria of IFRS 9 are described below:

(i) Financial assets –
Initial recognition and measurement –
The Companies determine the classification of financial assets at initial recognition.
All financial assets are initially recognized at their fair value plus the incremental
costs related to the transaction that are directly attributable to the purchase, with
the exception of financial assets at fair value through profit or loss.

The Companies’ financial assets include cash and short-term deposits, financial
instruments at fair value through profit or loss, trade receivables, other
receivables, accounts receivable from related parties and financial instruments at
fair value through other comprehensive income.

Subsequent measurement -
For purposes of subsequent measurement, financial assets are classified in four
categories:

- Financial assets at amortized cost (debt instruments).

- Financial assets at fair value through OCI with recycling of cumulative gains
and losses (debt instruments).
- Financial assets designated at fair value through OCI with no recycling of
cumulative gains and losses upon derecognition (equity instruments).
- Financial assets at fair value through profit or loss.

The classification depends on the Companies’ business model and the financial
asset’s contractual cash flow characteristics.

Financial assets are not reclassified after initial recognition, except if the Companies
change their business model.

As of December 31, 2020, 2019 and 2018, the Companies only maintain financial
assets classified in the following categories:

Financial assets at amortized cost -Debt instruments -

The Companies measure financial assets at amortized cost if both of the following
conditions are met:

- The financial asset is held within a business model with the objective to hold
financial assets in order to collect contractual cash flows; and
- The contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding.

19
Notes to the combined financial statements (continued)

Financial assets at amortized cost are subsequently measured using the effective
interest method (EIR) and are subject to impairment. These assets generate income
from interest accrued prior to maturity of disposal. Gains and losses are recognized
in profit or loss when the asset is derecognized, modified or impaired.

Such category includes cash and cash equivalents, trade accounts receivable, other
accounts receivable and accounts receivable from related parties.

Likewise, in September 2020, InRetail Consumer acquired a Structured Note for

US$6,821,000 (equivalent to S/24,624,000 as of December 31,2020), the
underlying asset for this note were bonds issued by Colegios Peruanos S.A, whose
yield to maturity was 6.25 percent. This instrument was deemed on January 2021.

Financial assets at fair value through OCI - Equity instruments (shares) -

Equity instruments (shares) held for trading are recorded at fair value through profit
or loss. For other equity instruments, the Companies should classify irrevocably
each equity investment (shares) at fair value through OCI or at fair value through
profit or loss. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never transferred to profit or loss.
Dividends are recognized as other income in the combined income statement when
the right of payment has been established, except when the Companies benefit from
such proceeds as a recovery of part of the cost of the financial asset, in which case,
such gains are recorded in OCI. Equity instruments designated at fair value through
OCI are not subject to impairment assessment.

As of December 31, 2020, 2019 and 2018, this category included InRetail Perú
Corp. shares held by the Companies.

Financial assets at fair value through profit or loss -

Financial assets at fair value through profit or loss include financial assets held for
trading, financial assets designated upon initial recognition at fair value through
profit or loss, or financial assets mandatorily required to be measured at fair value.

Financial assets are classified as held for trading if they are acquired for the purpose
of selling or repurchasing in the near term. Derivatives are also classified as held for
trading unless they are designated as effective hedging instruments and financial
assets with cash flows that are not solely payments of principal and interest with
independence of the business model.

Financial assets through profit or loss are carried in the combined statement of
financial position at fair value, and net changes in such fair value are presented as
financial expenses (net negative changes in fair value) or financial income (net
positive changes in fair value) in the combined statement of income.

20
Notes to the combined financial statements (continued)

As of December 31, 2020, 2019 and 2018, this category only includes mutual
funds, which are presented in the caption “Financial instruments at fair value
through profit or loss” in the combined statement of financial position. The changes
in fair value are recorded in the combined income statement in the caption
“Financial income”.

Derecognition -
A financial asset (or, where applicable, a part of a financial asset or part of a group
of similar financial assets) is primarily derecognized when:

- The rights to receive cash flows from the asset have expired; or
- The Companies have transferred its rights to receive cash flows generated
by the asset or has assumed an obligation to pay the received cash flows in
full without material delay to a third party under a ‘pass-through’
arrangement; and either (a) substantially all the risks and benefits of the
asset have been substantially transferred; or (b) substantially all the risks
and benefits of the asset have not been transferred or retained, but control
over it has been transferred.

The Companies will continue to recognize the asset when they have transferred
their rights to receive cash flows from an asset or entered into an intermediation
arrangement, but have not transferred or retained substantially all the risks and
benefits of the asset and have held the asset control over it. In this case, the
Companies will recognize the asset transferred based on its continuous
involvement and will also recognized the related liability. The transferred asset and
the related liability will be measured on a basis that reflects the rights and
obligations by the Companies.

Impairment of financial assets -

The Companies recognize an allowance for expected credit losses (ECLs) for all
debt instruments not held at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows due in accordance with the
contract and all the cash flows that the Companies expect to receive, discounted at
an approximation of the original effective interest rate. The expected cash flows
will include cash flows from the sale of collateral held or other credit
enhancements.

21
Notes to the combined financial statements (continued)

For trade receivables and contract assets, the Companies apply a simplified
approach in calculating ECLs. Therefore, the Companies do not track changes in
credit risk, but instead recognize a loss allowance based on lifetime ECLs at each
reporting date. The Companies have established a provision matrix that is based on
its historical credit loss experience, adjusted for forward-looking factors specific to
the debtors and the economic environment.

(ii) Financial liabilities -

Initial recognition and measurement -
Financial liabilities are classified, at initial recognition, as financial liabilities at fair
value through profit or loss, loans and borrowings, payables, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of loans
and payables, net of directly attributable transaction costs.

The Companies’ financial liabilities include trade payables, other payables, accounts
payable to related parties, interest-bearing loans and borrowings, lease liabilities
and senior notes issued.

Subsequent measurement -
The measurement of financial liabilities depends on their classification, as described
below:

Loans and borrowings -

After initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortized cost using the EIR method. Gains and losses are recognized
in the combined income statement when the liabilities are derecognized as well as
through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium upon
acquisition and fees or costs that are an integral part of the EIR. The EIR
amortization is included as financial costs in the combined income statement.

This category includes trade payables, other payables, accounts payable to related
parties, interest-bearing debts and loans, lease liabilities and senior notes issued.

Financial liabilities at fair value through profit or loss -

Financial liabilities at fair value through profit or loss include financial liabilities held
for trading and financial liabilities designated upon initial recognition as fair value
through profit or loss.

22
Notes to the combined financial statements (continued)

Financial liabilities are classified as held for trading if they are incurred for the
purpose of repurchasing in the near future; gains or losses related to these
liabilities are recognized in results. This category also includes derivative
financial instruments entered by the Companies that are not designated as
hedging instruments in hedge relationships as defined by IFRS 9.

As of December 31, 2020, 2019 and 2018, the Companies have not designated any
financial liability at fair value through profit or loss.

Derecognition -
A financial liability is derecognized when the obligation under the liability is
discharged, cancelled or expires. When an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is
treated as the derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognized in the
combined income statement.

(iii) Offsetting of financial instruments -

Financial assets and financial liabilities are offset and the net amount is reported in
the combined statement of financial position if there is a currently enforceable legal
right to offset the recognized amounts and there is an intention to settle on a net
basis, to realize the assets and settle the liabilities simultaneously.

(d) Derivative financial instruments and hedging accounting -

Negotiation –
Derivatives financial instruments for negotiation are initially recognized in the combined
statements of financial position at cost and subsequently are recognized at fair value. The
fair value is obtained based on the prices, exchange rates, and market interest rates. All
the derivatives are considered as assets when the fair value is positive and as liabilities
when the fair value is negative. The gains and losses arisen by the changes in the fair
value are recognized in the combined income statements.

As of December 31, 2020, 2019 and 2018, the Companies do not maintain derivatives
financial instruments classified as negotiation.

Hedging–
Derivatives are initially recognized at the fair value prevailing on the date a derivative
contract is entered into and are subsequently remeasured at their fair value. All derivatives
are recognized as assets when the fair value is positive and as liabilities when the fair value
is negative.

23
Notes to the combined financial statements (continued)

Derivatives can be designated as hedging instruments under hedge accounting if they

qualify as such. Depending upon the nature of the hedged item, the method for recognizing
gains or losses from changes in fair value will be different. These derivatives, which are
used to hedge exposures to risk or modify the characteristics of financial assets and
liabilities and which meet IFRS 9 criteria are recognized as hedging accounting.

In accordance with IFRS 9, to qualify for hedge accounting, all of the following conditions
must be met:

(i) The hedging relationship consists of only hedging instruments and eligible hedged
items

(ii) At the inception of the hedge, there is formal designation and documentation of the
hedging relationship and the entity’s risk management objective and strategy for
undertaking the hedge. This documentation will include the identification of the
hedging instrument, the hedged item, the nature of the risk being hedged and the
way the entity will assess if the hedging relationship meets the hedge effectiveness
requirements.

(iii) The hedging relationship meets all the following hedge effectiveness requirements:

- there is an economic relationship between the hedged item and the hedging
instrument;
- the effect of credit risk does not dominate the value changes that result
from that economic relationship; and
- the hedge ratio of the hedging relationship is the same as that resulting
from the quantity of the hedged item that the Companies actually hedge and
the quantity of the hedging instrument that the Companies actually use to
hedge that quantity of hedged item.

IFRS 9 has three categories for hedge accounting: fair value hedge, cash flow hedge and
net investment hedge for foreign operations. The Companies only uses derivatives as cash
flow hedging instruments.

For designated derivatives that qualify as a cash flow hedge, the effective portion of the
gains or losses on the derivative is recognized in other comprehensive income for cash
flow hedges and is reclassified to profit or loss in the same period or periods in which the
hedge transaction affects the profit or loss. The part of gain or loss on derivatives that
represents the ineffective portion, or the components of the hedge excluded from the
effectiveness evaluation is recognized immediately in the period’s profit or loss. The
amounts originally recorded in other comprehensive income and subsequently reclassified
to profit or loss are recorded in the corresponding expense or income lines in which the
hedged item is reported.

24
Notes to the combined financial statements (continued)

When a hedging instrument expires or is sold, when a hedge no longer meets the criteria
for hedge accounting and also when the Companies re-designate a hedge, any cumulative
loss or gain existing in other comprehensive income is retained and recognized as income
or expense when the hedged item is ultimately recognized in the combined income
statement. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss recognized in other comprehensive income is immediately transferred to the
combined income statement.

(e) Fair value of financial instruments -

Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The fair
value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:

- In the principal market for the asset or liability, or

- In the absence of a principal market, in the most advantageous market for the
asset or liability.

The principal or the most advantageous market must be accessible by Companies. The fair
value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic benefits by using the asset in
its highest and best use or by selling it to another market participant that would use the
asset in its highest and best use.

The Companies use valuation techniques that are appropriate in the circumstances and for
which sufficient data are available to measure fair value, maximizing the use of relevant
observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described as follows, based on
the lowest level input that is significant to the fair value measurement as a whole:

- Level 1 — Quoted (unadjusted) market prices in active markets for identical assets
or liabilities.
- Level 2 — Valuation techniques for which the lowest level input that is significant to
the fair value measurement is directly or indirectly observable.
- Level 3 — Valuation techniques for which the lowest level input that is significant to
the fair value measurement is unobservable.

For assets and liabilities that are recognized in the financial statements at fair value on a
recurring basis, the Companies determine whether transfers have occurred between levels
in the hierarchy by re-assessing categorization at the end of each reporting period.

25
Notes to the combined financial statements (continued)

Management determines the policies and procedures for both recurring and non-recurring
fair value measurement. At each reporting date, the Management analyses the
movements in the values of assets and liabilities that must be valued in accordance with
the accounting policies of the Companies.

For the purpose of fair value disclosures, the Companies have determined classes of
assets and liabilities on the basis of the nature, characteristics and risks of the asset or
liability and the level of the fair value hierarchy, as explained above. The fair value of
financial instruments measured at amortized cost it presented in note 30.

(f) Foreign currency transactions –

(i) Functional and presentation currency -
The functional currency of the Companies is the Sol, because it reflects the
economic substance of the underlying events and circumstances relevant to the
Companies, insofar as their main operations and/o transactions, sales, cost of
sales, obtained financing and an important percentage of purchases are established
and paid in Soles. For each subsidiary, Management evaluated and determined the
functional currency, concluding that in all cases correspond to the currencies of the
countries where its Subsidiaries operate.

Because some Subsidiaries have a functional currency different from the Sol, its
balances were translated for consolidation purposes using the methodology
established by IAS 21 "Effects of changes in rates change in foreign currency ", as
follows:

- Assets and liabilities at the closing exchange rate at the date of each
combined statements of financial position.
- Income and expense at the average exchange rate of each month.

As a result of the conversion, as of December 31, 2020, 2019 and 2018, the
Companies have recorded the difference in the item “Unrealized losses on foreign
currency translation” of the combined statement of comprehensive income.

(ii) Transactions and balances in foreign currency -

Foreign currency transactions are those performed in a currency other than the
functional currency. Transactions in foreign currencies are initially recorded by the
entities at the functional currency using the exchange rates prevailing at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the functional currency using the spot rate of
exchange rate prevailing at the reporting date of combined statement of financial
position.

26
Notes to the combined financial statements (continued)

Exchange rate gains or losses resulting from restating the monetary assets and
liabilities into foreign currency at the exchange rates prevailing at the combined
statements of financial position date or at their settlement date are recorded in the
caption “Exchange difference, net” of the combined income statements.

Non-monetary assets and liabilities denominated in foreign currencies are

translated into the functional currency at the exchange rate prevailing at the
transaction date.

(i) Cash and short-term deposits -

Cash and short-term deposits in the combined statements of financial position comprise
cash in banks and on hand and short-term deposits with an original maturity of three
months or less.

For the purpose of the combined statements of cash flows, cash consists of cash and
short-term deposits as defined above.

(j) Inventories -
Inventories are valued at the lower of cost and net realizable value. Commercial discounts,
price reductions and other similar items decrease the acquisition cost. Cost is determined
by applying the average cost method, except in the case of inventory in transit, which is
presented at its specific acquisition cost.

Net realizable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and estimated costs necessary to make the sale.

The reduction of inventories’ carrying amounts to their net realizable value are conducted
based on the specific analyses and are recorded as provision for inventory impairment in
the item “Costs of sales and services” of the combined income statement for the period
such reductions are made.

The provision for reductions is calculated based on the average historical losses incurred
during the year, including the last physical inventory made before the year ended. This
provision is recorded as inventory impairment in the combined income statement.

Discounts, price reduction and other discounts obtained according to the volume of
purchases are deducted from goods on the date the discounts are granted by suppliers,
and from the sale cost when related goods are sold.

As there are different types of discount, the Companies need to estimate the distribution
of discounts among the goods sold and the inventory held to the date of the combined
statement of financial position. Management carries out said estimations based on the
daily discounts effectively granted by suppliers and the turnover ratio per type of product.

27
Notes to the combined financial statements (continued)

(k) Prepayments -
The criteria adopted to record these items are the following:

- Operating lease payments made in advance are recorded as an asset and

recognized as an expense over the rental period.
- Payments in advance for advertising are recorded as an asset and are recognized
as expenses when the service is accrued.

In addition, until December 31, 2018, the Companies also applied the following criteria:

- Lease payments made in advance are recorded as an asset and recognized as an

expense when the lease term is accrued.
- The key money corresponding to the amounts paid by the Companies for the rights
of use of certain commercial stores are amortized over the term of the respective
contracts.

(l) Property, installations, furniture and equipment -

Property, furniture and equipment are stated at cost, net of the accumulated depreciation
and/or accumulated impairment losses, if any. The historical acquisition cost includes
expenses that are directly attributable to the acquisition of assets. Such cost includes the
cost of replacing component parts of the property, furniture and equipment and
borrowing costs for long-term construction projects if the recognition criteria are met, as
indicated in paragraph (u) below.

When significant parts of property, furniture and equipment are required to be replaced at
intervals, the Companies derecognize the replaced part, and recognize the new part with
its own associated useful life and depreciation. Likewise, when a major inspection is
performed, its cost is recognized in the carrying amount of the equipment as a
replacement if the recognition criteria are satisfied. All other repair and maintenance
costs are recognized in the combined income statements as incurred. The present value of
the expected cost for the decommissioning of the asset after its use is included in the cost
of the respective asset if the recognition criteria for a provision are met.

Lands are not depreciated. Depreciation is calculated on a straight-line basis over the
estimated useful lives described in note 13.

An item of property, furniture and equipment and any significant part initially recognized
is derecognized when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in the
combined income statements when the asset is derecognized.

The asset’s residual values, useful lives and methods of depreciation are reviewed at each
financial year end and adjusted prospectively, if appropriate.

28
Notes to the combined financial statements (continued)

Work in progress represents buildings in construction and is recorded at cost. This

includes the construction cost and other direct costs. Work in progress does not
depreciate until relevant assets are concluded and operative.

As indicated in the following paragraph (n), for the transfers made from investment
properties to property, installations, furniture and equipment, the attributed cost
considered for the subsequent recognition is the asset’s fair value at the date the use
changes.

(m) Leases -
The determination of whether an arrangement is, or contains, a lease is based on the
substance of the arrangement at the inception date, whether fulfillment of the
arrangement is dependent on the use of a specific asset or assets or the arrangement
conveys a right to use the asset, even if that right is not explicitly specified in an
arrangement.

The Companies as lessees -

As detailed in note 4.2, from January 1, 2019, and after the adoption of IFRS 16, the
InRetail Group as a lessee applies a single recognition and measurement approach for all
lease contracts, with the exception of short-term and low-value contracts.

(m.1) Right-of-use assets –

The Companies recognize right-of-use assets at the commencement date of the
lease (i.e., the date the underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognized, initial direct costs
incurred, and lease payments made at or before the commencement date less any
lease incentives received. The Companies maintain as right-of-use assets: land,
buildings and facilities, and vehicles. Land is not depreciated; other right-of-use
assets are depreciated on a straight-line basis over the shorter of the lease term
and the estimated useful lives of the assets, between 2 and 60 years, and are
presented in note 13(b).

If ownership of the leased asset is transferred to the lessee at the end of the lease
term or if the cost reflects the exercise of a purchase option, depreciation is
calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment. Refer to the accounting
policies in section (p) Impairment of non-financial assets.

29
Notes to the combined financial statements (continued)

(m.2) Lease liabilities -

At the commencement date of the lease, the Companies recognize lease liabilities
measured at the present value of lease payments to be made over the lease term.
Lease payments include fixed payments (including in-substance fixed payments)
less any lease incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual value guarantees.
Lease payments also include the price to exercise a purchase option that the
Companies are reasonably certain to exercise and the penalties for terminating the
lease, if the lease term does not reflect that the Companies will exercise a
termination option. Variable lease payments that do not depend on an index or a
rate are recognized as expenses in the period in which the event or condition that
triggers the payment occurs.

When calculating the present value of lease payments, the Companies apply the
incremental borrowing rate at the lease commencement date, as the interest rate
implicit in the lease is not readily determinable. After the commencement date, the
amount of lease liabilities’ carrying amounts are increased to reflect the
accumulation of interests and reduced to reflect the lease payments made. In
addition, lease liabilities’ carrying amounts are remeasured if there is a
modification due to changes in the lease term, the assessment of a purchase
option, the amounts expected to be payable under a residual value guarantee, and
future lease payments resulting from a change in an index or a rate.

(m.3) Short-term leases and leases of low-value assets -

The Companies apply the short-term lease recognition exemption to its short-term
leases (i.e., those leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of office equipment that
are considered to be low value. Lease payments on short-term leases and leases of
low-value assets are recognized as expense on a straight-line basis over the lease
term.

Until December 31, 2018, leases in which a significant portion of assets’ risks and benefits
were retained by the lessor were classified as operating leases. As detailed in note 3.3, in
the adoption of IFRS 16, the Companies used the exemption for short-term and low-value
assets proposed by that standard; therefore, short-term and low-value leases are still
classified as operating leases and the expenses incurred for these leases are recorded in
the item “Administrative expenses” of the combined income statement.

The Companies as lessors -

As detailed in note 3.3, there were no substantial changes for lessor accounting in the
adoption of IFRS 16. The InRetail Group continues to classify leases as operating or
financial using similar principles to those of IAS 17.

30
Notes to the combined financial statements (continued)

Leases in which the Companies do not transfer substantially all the risks and rewards
incidental to ownership of an asset are classified as operating leases. Rental income
obtained from investment properties is accounted for on a straight-line basis over the
lease terms and is recorded as income in the combined income statement due to its
operating nature, except for the contingent rental income, which is recognized when it
arises. Initial direct costs incurred in negotiating and arranging an operating lease are
added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as rental income.

(n) Investment properties -

Investment properties comprise completed property and property under construction or
redevelopment held to earn rentals or for capital appreciation or both.

Investment properties are measured initially at cost, including transaction costs.

Transaction costs include transfer taxes, professional fees for legal services and initial
leasing commissions to bring the property to the condition necessary for it to be capable
of operating.

Subsequent to initial recognition, investment properties are stated at fair value, which
reflects market conditions at the reporting date. Gains or losses arising from changes in
the fair values of investment properties are included in the combined income statements
in the period in which they arise. The fair value is evaluated annually by the Management.

Investment properties are derecognized when either they have been disposed of or when
the investment property is permanently withdrawn from use and no future economic
benefit is expected from its disposal. The difference between the net disposal proceeds
and the carrying amount of the asset is recognized in the income statements in the period
of derecognition. Transfers are made to or from investment property only when there is a
change in use. For a transfer from investment property to component of property,
installations, furniture and equipment, the deemed cost for subsequent accounting is the
fair value at the date of change. If a component of property, furniture and equipment
becomes an investment property, the Companies accounts such property in accordance
with the policy stated under property, furniture and equipment up to the date of change in
use.

(o) Intangible assets -

The intangible assets acquired separately are measured on initial recognition at cost. The
cost of intangible assets acquired in a business combination is their fair value at the date
of acquisition. Following initial recognition, intangible assets are carried at cost minus
accumulated amortization and accumulated impairment losses, if any. Internally
generated intangible assets, excluding development capitalized costs, are not capitalized
and expenditure is reflected in the income statements in the year in which the expenditure
is incurred.

31
Notes to the combined financial statements (continued)

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible
assets with finite lives are amortized on a straight-line basis over their useful economic
lives (see note 15), and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortization period and the amortization method
for an intangible asset with a finite useful life is reviewed at least at the end of each
reporting period. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset is accounted for by
changing the amortization period or method, as appropriate, and are treated as changes
in accounting estimates. The amortization expense for intangible assets with finite lives is
recognized in the combined income statements in the expense category consistent with
the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortized, but are tested for
impairment annually, either individually or at the cash-generating unit level. The
assessment of indefinite life is reviewed annually to determine whether the indefinite life
continues to be supportable. If not, the change in useful life from indefinite to finite is
made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the
difference between the net disposal proceeds and the carrying amount of the asset and
are recognized in the combined income statements when the asset is derecognized.

(p) Impairment of non-financial assets -

The Companies assess at each end of year, whether there is an indication that an asset
may be impaired. If any indication exists, or when annual impairment testing for an asset
is required (goodwill and intangible assets with indefinite useful lives), the Companies
estimate the asset’s recoverable amount. An asset’s recoverable amount is the higher of
an asset’s or cash generating unit’s (CGU) fair value less costs of disposal and its value in
use and is determined for an individual asset, unless the asset does not generate any cash
inflows that are largely independent of those from other assets or group of assets.

When the carrying amount of an asset or CGU exceeds its recoverable value, the asset is
considered impaired and is written down to its recoverable amount. In calculating the
value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset. Cash flows come from the budget for the asset’s
remaining economic life and do not include restructuring activities to which the Companies
have not yet committed or significant future investments that would increase the
performance of the good or the CGU being tested. In determining fair value less costs of
disposal, recent market transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation model is used.

32
Notes to the combined financial statements (continued)

The Companies base their impairment calculation, if needed, on detailed budgets and
forecast calculations which are prepared separately for each of the Companies’ cash
generating units to which the individual assets are allocated. These budgets and forecast
calculations are generally covering a period of five years. For longer periods, a long term
growth rate is calculated and applied to project future cash flows after the fifth year.

The recoverable amount is highly sensitive to the discount rate used for the discounted
cash flow model and the expected future cash flows. Impairment losses are recognized in
the combined income statement.

(q) Employee benefits -

Short term -
The Companies have short-term obligations corresponding to benefits to its employees
that include: wages, social contributions, bonuses, performance bonuses and employees’
profit sharing. These obligations are recorded on a monthly basis with charge to the
combined statement of comprehensive income as they accrue.

Long term -
According to the current legislation in Ecuador, an employer’s retirement and resignation
plan is maintained. The present value of the defined benefit obligations is determined
annually based on actuarial studies performed by an independent expert, using the
projected credit unit method, and it is presented under the “Other payables” caption in the
combined statement of financial position, see note 17(c). Fluctuations in the present value
of the defined benefit obligations are recorded in the period’s other comprehensive
income; however, the amount of this fluctuations has not been significant during years
2020, 2019 and 2018.

(r) Provisions -
Provisions are recognized when the Companies have a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Companies expect some
or all of a provision to be reimbursed, for example under an insurance contract, the
reimbursement is recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented in the combined
income statements net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a
current pre-tax rate that reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is
recognized as a finance cost in the combined income statements.

33
Notes to the combined financial statements (continued)

(s) Contingencies -
A contingent liability is disclosed when the existence of an obligation shall only be
confirmed by future events or when the amount of the obligation cannot be measured with
sufficient reliability. Contingent assets are not recognized but are nonetheless disclosed
when it is probable that generates an income of economic benefits to the Companies.

Given their nature, contingencies shall only be settled when one or more future events
occur or not. The determination of contingencies involves inherently the exercise of
judgment and the calculation of estimates on the results of future events.

(t) Revenue from contracts with customers -

IFRS 15 establishes a five-step model to account for revenue arising from contracts with
customers. In this regard, that revenue will be recognized at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods
or services to a customer.

The Companies revenue mainly correspond to sale of goods. These sales occur at a point
in time when control of the asset is transferred to the customer, generally on delivery of
the goods. The Companies concluded that they act as the principal in their sales contracts,
because they control the goods or services before they are transferred to their customers.

(i) Sale of goods -

For such revenue, the sale of goods is the only performance obligation. The
revenue recognition occurs at a point in time when control of the asset is
transferred to the customer, generally on delivery of the goods. Cost of sales,
which is the cost of the products that the Companies sell, is recognized when goods
are delivered, simultaneously with the recognition of revenue for the
corresponding sale.

Otherwise, it has been identified that their only significant variable consideration
corresponds to some contracts with customers that provide a right of return. When
a contract with a customer provides a right of return in a specific period, the
Companies recognize such right over a historical estimate of returns basis.
Consequently, income related to the expected returns is adjusted with expense
provisions in the combined statements of income, when they directly affect the
revenue from contracts with customers.

(ii) Rental income -

Rental income obtained from investment properties is accounted for on a straight-
line basis over the lease term and is recorded as income in the combined income
statement due to its operating nature, except for the contingent rental income,
which is recognized when it arises.

34
Notes to the combined financial statements (continued)

The lease term is the non-cancellable period, together with any other additional
period for which the lessee has the option to extend the lease, if Management is
reasonably certain, at the date of the commencement date, that the lessee will
exercise that option.

The amounts received from lessees to resolve rents or offset impairment of leased
facilities are recorded as income in the combined income statement when the right
to receive them arises.

Service charges, management charges and others recoverable expenses paid by

lessees, and the income from expenses charged to lessees are recognized in the
period in which the compensation becomes receivable. Service and management
charges and other invoices are included in the gross rental income of related costs,
as Management considers that the Companies acts as principal.

(iii) Key money -

The incentives granted by the lessees to enter into lease (key money) are
distributed, agreements are recognized into income evenly over the lease term,
even if the payments are not made on such a basis. The deferral term for incentives
will correspond to the non-accrual period of the lease contract, as well as any other
term for which the tenant has the option to extend the leasing contract and of
which the Management of the Companies is certain the tenant will make use. These
values are presented in “Deferred income” in the combined statement of financial
position.

Amounts received from lessees to terminate leases or to compensate for wear and
tear are recognized in the combined income statements when they arise.

The income related to service charges, management expenses and other expenses
recoverable from tenants are recognized in the period in which such
compensations are demandable. Management services charges and other income
are included in the gross leasing income net of the related costs.

(iv) Other income, costs and expenses -

Other income, costs and expenses are recognized as they accrue, regardless of
when they are paid, and recorded in the periods to which they relate.

Furthermore, the Companies have concluded that the only significant variable
considerations correspond to some contracts with customers that involve return
rights for sales. When a contract with a customer provides the latter with the right
to return a good within a specific period, the Companies record that right using a
historical return estimate. In this sense, the value of the income related to
expected returns is adjusted through the recognition of provisions in the combined
income statement, when they directly affect the revenue from contracts with
customers.

35
Notes to the combined financial statements (continued)

(u) Borrowing costs –

Loan costs that are directly attributable to acquisition, construction or production of an
asset which takes a long time to get ready for its intended use or sale are capitalized as
part of the asset’s cost. These costs are capitalized as part of the cost of the asset,
provided that they are likely to lead to future economic benefits for the entity and can be
reliably measured. All other borrowing costs are expensed when they accrue and include
interest charges and other costs incurred by the Companies in the execution of the
respective loan agreements. Non-accrued borrowing costs reduce the liability that gave
rise to them.

(v) Taxes -
The income tax of the Companies is determined based on the non-consolidated financial
statements of each entity and the taxable income determined for taxing purposes.

Current income tax and employee’s profit sharing -

Current income tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authority, based in the financial statements for
entity. The tax rates and tax laws used to compute the amount of current income tax due
for the fiscal year are those that are enacted or substantively enacted, at the statement
financial position date. In accordance with Peruvian law, employee’s profit sharing is
calculated over the same basis for calculating current income tax and in the case of
Ecuador over the basis of the financial profit.

Current income tax relating to items recognized directly in combined equity is recognized
in combined equity and not in the combined income statements. Management periodically
evaluates positions taken in the tax returns with respect to situations in which applicable
tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax –

Deferred income tax is provided using the liability method on temporary differences at the
reporting date between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

- Where the deferred tax liability arises from the initial recognition of goodwill or an
asset or liability in a transaction that is not a business combination and, at the time
of the transaction, does not affects neither the accounting profit nor taxable profit
or loss;

- In respect of taxable temporary differences associated with investments in

Subsidiaries, associates and interests in joint ventures, when the timing of the
reversal can be controlled and it is probable that the temporary differences will not
be reversed in the foreseeable future.

36
Notes to the combined financial statements (continued)

Deferred tax assets are recognized for all deductible temporary differences, carry forward
of unused tax credits and unused tax losses. Deferred tax assets are recognized to the
extent that it is probable taxable profit will be available against which the deductible
temporary differences and the carry forward of unused tax credits and unused tax losses
can be utilized, except:

- When the deferred tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss;

- In respect of deductible temporary differences associated with investments in

subsidiaries, associates and interests in joint ventures, deferred tax assets are
recognized only to the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available against which
the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred
tax assets are reassessed at each reporting date and are recognized to the extent that it
has become probable that future taxable profits will allow the deferred tax asset to be
recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the year when the asset is realized or the liability is settled, based on tax rates and tax
laws that have been enacted or substantively enacted at the reporting date, or whose
approval procedure is close to being completed by that date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit
or loss. Deferred tax items are recognized in correlation to the underlying transaction
either in other comprehensive income or directly in combined equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right
exists to set off current tax assets against current income tax liabilities and the deferred
taxes relate to the same taxable entity and the same taxation authority.

Value added tax -

Income from ordinary activities, expenses and assets are recognized excluding the value
added tax, except:

- When value added tax (VAT) incurred in an acquisition of assets or services is not
recoverable from the tax authority, in which case the VAT is recognized as part of
the acquisition cost of the asset or as part of the expense item, as appropriate;

37
Notes to the combined financial statements (continued)

- Accounts receivable and payable that are already expressed with the amount of the
VAT included.

The net amount of the VAT that can be recovered from or payable to the tax authority is
included as part of the other accounts receivable or payable in the combined statement of
financial position.

(w) Customer loyalty programs –

Revenues related to the loyalty program "Inkaclub" and “Monedero del Ahorro” are
recognized according to the market value of the benefits delivered to the customers
(considering historical information related to utilization and maturity). Deferred income
related to this program is included into the caption "Deferred revenue” of the combined
statement of financial position.

(x) Segment reporting –

The Companies report financial and descriptive information about their reportable
segments. Reportable segments are operating segments or aggregations of operating
segments that meet specified criteria. Operating segments are a component of an entity
for which separate financial information is available that is evaluated regularly by the
entity’s Chief Operating Decision Maker (“CODM”) in making decisions about how to
allocate resources and in assessing performance. Generally, financial information is
reported on the same basis as it is used internally for evaluating operating segment
performance and deciding how to allocate resources to segments, note 29.

(y) Capital premium -

Corresponds to the difference between the nominal value and the issuance price in the
market of each share. The share premium is presented net of the expenses incurred in the
shares’ issuance.

(z) Subsequent events -

Subsequent events that provide additional information about the combined financial
situation of the Companies as of the date of the combined statement of financial position
(adjustment events) are included in the combined financial statements. Relevant
subsequent events that are not adjustment events are disclosed in notes to the combined
financial statements.

3.3 Changes in accounting policies and disclosures

From January 1, 2019, the Companies have been applying for the first time IFRS 16 “Leases”
and IFRIC 23 “Uncertainty over Income Tax Treatments”, the main impacts in the combined
financial statements are explained below on this note.

Other standards, interpretations and amendments were also applied for the first time in 2019,
but had no significant impact on the combined financial statements of the Companies as detailed
below in this note.

38
Notes to the combined financial statements (continued)

On the other hand, from January 1, 2018, the Companies have been applying IFRS 15 “Revenue
from Contracts with Customers”, which had no significant impact or differences in comparison
with IAS 18 with regard to the moment when the Companies recognizes revenue or when
revenue should be recognized as gross if the Companies is the principal or net if it is an agent,
due to the type of operations the Companies carries out.

The Companies have not adopted any standard, interpretation or amendment that was issued but
is not effective.

- First adoption of IFRS 16 “Leases”

IFRS 16 replaced IAS 17 “Leases”, IFRIC 4 “Determining Whether an Arrangement
Contains a Lease”, SIC-15 “Operating Leases – Incentives”, and SIC- 27 “Evaluating the
Substance of Transactions Involving the Legal Form of a Lease”. This standard establishes
the principles for recognition, measurement, presentation and disclosure of leases and
requires lessees to recognize the majority of lease contracts in the statement of financial
position.

This new standard did not substantially change the accounting for lessors previously
established by IAS 17. Lessors will continue classifying leases as operational or financial
based on principles that are similar to those of IAS 17. Therefore, IFRS 16 had no impact
on leases where the Companies acts as a lessor.

The Companies adopted IFRS 16 using the modified retrospective approach through an
adjustment resulting from the cumulative effect as of January 1, 2019, not restating the
amounts of comparative periods. The Companies chose to apply this standard to all the
contracts entered into before January 1, 2019, that were identified as leases according to
IAS 17.

The Companies also used the exemption proposed by this standard for lease contracts for
which lease terms end within 12 months of the date of the initial application, and lease
contracts for which the underlying asset is of low value. The Companies had leases for
some office equipment (such as, computers, printers and photocopies) that were
considered of low value.

- Leases previously classified as finance leases -

The Companies did not modify the initial carrying amount of assets and liabilities
through finance leases recognized at the date of the first adoption (for example,
the right-of-use asset and the lease liability are equivalent to the lease asset and
the lease liability recognized under IAS 17). The requirements of IFRS 16 were
applied in these lease contracts from January 1, 2019.

39
Notes to the combined financial statements (continued)

- Leases previously classified as operating leases -

The Companies recognized the right-of-use of the asset and the lease liability for
lease contracts previously classified as operating leases, with the exception of
lease contracts for short-term and low-value assets. The asset’s right-of-use for the
majority of leases was recognized according to the amount recognized in the lease
liability, adjusted by any prepayment or previously recognized payments accrued
from leases. The lease liability was recognized based on the present value of
outstanding payments, which were discounted using an incremental borrowing rate
at the initial application date of IFRS 16.

The Companies also applied the available practical expedients wherein it:

- Used a single discount rate for a lease contract portfolio with reasonably similar
characteristics.
- Relied on its assessment of whether leases are onerous immediately before the
date of initial application.
- Applied the short-term leases exemption to leases with lease term that ends within
12 months of the date of initial application and the low-value leases exemption.
- Used hindsight in determining the lease term where the contract contained options
to extend or terminate the lease.

In the adoption of IFRS 16, the Companies recognized liabilities related to the leases that
were previously classified as operating leases under IAS 17. These liabilities were
measured based on the present value of the remaining future payments, discounted using
an interest rate of incremental interest as of January 1, 2019 (between 6.10 and 10.25
percent average interest rate in soles and between 6.06 and 8.13 percent average
interest rate in US Dollars). As a result of the effect of the transition of IFRS 16, as of
January 1, 2019, approximately S/1,651 million were recognized as right-of-use assets
and lease liabilities, respectively; likewise, straight-line rent liabilities previously
recognized according to IAS 17 for approximately S/5,427,000 (net of its corresponding
deferred tax for approximately S/2,271,000; note 20(b)), were derecognized against
retained earnings. As of December 31, 2019 the effects of IFRS 16 are presented in note
13(b.1) and 13(b.2). As is indicated above, as part of the initial application of IFRS 16, the
Companies used the modified retrospective method; therefore, the figures for previous
years were not modified. Otherwise, approximately S/45 million corresponding to key
money recognized in prior years, were reclassified from the caption “Prepayments” to the
initial balance of Right-of-use assets.

- Interpretation of IFRIC 23 – Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments
involve uncertainty that affects the application of IAS 12. The interpretation does not
apply to taxes or levies outside the scope of IAS 12, nor does it specifically include
requirements relating to interest and penalties associated with uncertain tax treatments.

40
Notes to the combined financial statements (continued)

The interpretation specifically addresses the following:

- Whether an entity considers uncertain tax treatments separately.

- The assumptions an entity makes about the examination of tax treatments by
taxation authorities.
- How an entity determines taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates.
- How an entity considers changes in facts and circumstances.

The Companies have to determine whether to consider as uncertain each tax treatment
separately or together with one or more uncertain tax treatments. The approach that
better predicts the solution of the uncertainty should be followed.

The Companies apply a significant judgement when identifying uncertainties over income
tax treatments.

The Companies determined that, based on its tax compliance and the transfer pricing
study, it is probable that tax treatments (including those of Subsidiaries) are accepted by
taxation authorities. Therefore, this interpretation had no impact on the combined
financial statements.

- From January 1, 2019, the Companies also applied other pronouncements such as
Amendments to IFRS 9: Prepayment Features with Negative Compensation; Amendments
to IAS 28: Long-term Interests in Associates and Joint Ventures; Amendments to IAS 19:
Plan Amendment, Curtailment or Settlement; and Improvements to IFRS Standards
(2015–2017 Cycle). The Companies concluded that those pronouncements had no impact
on its combined financial statements

3.4 Significant accounting judgments, estimates and assumptions

The preparation of the combined financial statements requires Management to make judgments,
estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the combined financial statements, as
well as the reported amounts of revenues and expenses for the years ended December 31, 2020,
2019 and 2018.

In the process of applying the Companies’ accounting policies, management has made the
following judgments, which have the most significant effect on the amounts recognized in the
combined financial statements:

(i) Tax judgments -

The Companies’ are subject to income and capital gains taxes. Significant judgment is
required to determine the total provision for current and deferred taxes.

41
Notes to the combined financial statements (continued)

There are many transactions and calculations for which the ultimate tax determination
and timing of payment is uncertain. In particular, when calculating deferred taxation, the
effective tax rate applicable on the temporary differences, mainly in investment
properties, depends on the method by which the carrying amount of the assets or
liabilities will be realized.

The Companies recognize liabilities for current taxes based on estimates of whether
additional taxes will be due. When the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will impact the income and
deferred tax provisions in the period in which the determination is made. Deferred tax
assets and liabilities are recognized on a net basis to the extent they are relating to the
same fiscal unity and fall due in approximately the same period.

On the other hand, the most significant estimations and assumptions considered by Management
in relation to the combined financial statements are as follows:

(ii) Provision for inventory losses (note 3.2(j)) -

This provision is calculated considering the average historic values of losses incurred
throughout the year and until the last physical inventory conducted before the year end.
This provision is recorded as provision for inventory devaluation with charge to the
combined income statements.

(iii) Discounts, price reductions and others obtained by purchasing volumes of goods (note
3.2(j)) -
Discounts, price reduction and others obtained by purchasing volumes of goods are
deducted from inventory at the date the discount is granted by suppliers and from cost of
sales when the related items are sold.

The different forms of such discounts require that the Companies estimate its distribution
between the inventory that has been sold and the inventory remaining in stock at the date
of the combined statements of financial position. Management performs such estimation
on the basis of the daily discounts actually granted by suppliers and the rotation rates per
item.

(iv) Depreciation method, estimated useful lives and residual value of property, installations,
furniture and equipment (note 4.3(l)) -
The determination of the depreciation method, the estimated useful lives and the residual
value of property, installations, furniture and equipment involves judgments and
assumptions that could be affected if the circumstances change. Management reviews
periodically these assumptions and adjusts them in a prospective manner in case any
changes are identified.

42
Notes to the combined financial statements (continued)

(v) Lease terms in contracts with renewal and termination options (note 3.3(m)) -
The Companies as a lessees define the lease term as the non-cancellable period of a lease,
together with any period covered by an option to extend the lease if it is exercised or any
other period covered by an option to terminate the lease if it is not exercised. The
Companies apply the judgement to evaluate the possibility of exercising the options to
renew or terminate leases. To that end, it considers all the factors that generate an
economic incentive to exercise either the renewal or the termination. After the
commencement date, the Companies reassess the lease term if a significant event or
change of circumstances that is within its control affects its capacity to exercise or not the
renewal or termination options (for example, the making of significant improvement for
leases or the significant customization of a leased asset).

(vi) Incremental borrowing rate (note 3.3(m)) -

To determine the interest rate implicit in the lease, the Companies use their incremental
borrowing rate (IBR) to measure lease liabilities. IBR is the interest rate the Companies
would have to pay to borrow, over a similar term and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of-use asset in a similar
economic environment. Therefore, IBR reflects how much the Companies “would have to
pay”, which requires an estimate when there are not observable prices or when they have
to be adjusted to reflect the terms and conditions of a lease (for instance, when leases are
not in the subsidiary’s functional currency). The Companies estimate the IBR using
observable inputs (such as market interest rates) when available and is obliged to make
certain specific adjustments in the company (such as the subsidiary’s independent credit
evaluation, or in order to reflect the terms and conditions of the lease).

(vii) Fair value of investment properties (note 3.2(n)) -

The fair value of completed investment property is determined by Management of the
Companies using the Discounted Cash Flow Method.

Investment property under construction and investment property held to operate in the
future is also valued at fair value as determined through appraisals performed by an
accredited external independent value, except if such values cannot be reliably
determined. In the exceptional cases when a fair value cannot be reliably determined, such
properties are recorded at cost.

The determination of the fair value of investment property requires the use of estimates
such as future cash flows from assets (such as leases, tenants sales, fixed rents to be
charged to different types of tenants, variable rent as a percentage of sales, operating
costs, building costs (CAPEX), maintenance CAPEX and discount rates applicable to those
assets). In addition, development risks (such as construction and letting risks) are also
taken into consideration when determining the fair value of investment properties under
construction.

43
Notes to the combined financial statements (continued)

Volatility in the financial system is reflected in commercial real estate markets. Therefore,
in arriving at their estimates of market values as of the statements of financial position,
the Management and appraisers used their market knowledge and professional judgment
and did not rely solely on historical transactional comparable. In these circumstances,
there was a greater degree of uncertainty than which exists in a more active market in
estimating the market values of investment property.

The significant methods and assumptions used in estimating the fair value of investment
property are set out in note 14(f).

Techniques used for valuing investment property -

The Discounted Cash Flow Method involves the projection of a series of periodic cash flows
either from an operating property or a development property. To this projected cash flow
series, an appropriate, market-derived discount rate is applied to establish an indication of
the present value of the income stream associated with the property. The calculated
periodic cash flow is typically estimated as net rental income less operating
expenses/outgoings. A series of periodic net operating incomes, along with an estimate of
the terminal value (which uses the traditional valuation approach) anticipated at the end
of the projection period, are discounted to present value. The aggregate of the net
present values equals the market value of the property.

(viii) Impairment of non-financial assets (note 3.2(p)) -

The Companies assess, on each reporting date, if there is sign that an asset may be
impaired. If there is sign of it or whenever the annual impairment test of an asset is
required (indefinite-life intangible assets), the Companies estimate the recoverable
amount of the asset.

For non-financial assets with the exception of goodwill, an assessment is performed on

each date of presentation of combined financial statements to know if there is sign that
the permanent impairment loss previously recognized no longer exists or has decreased. If
such sign exists, the Companies estimate the recoverable amount. An impairment loss
previously recognized for an asset is only reversed if there was a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss was
recognized.

The reversal is limited in such a way that the asset’s carrying amount may not exceed its
recoverable amount or the carrying amount that it would have been determined had no
impairment loss been recognized in prior periods. Said reversal is recorded in the
combined income statement.

(ix) Recovery of deferred tax assets (note 3.2(v)) -

Deferred tax assets require Management to evaluate the probability that the Companies
generate taxable income for future periods in order to use the deferred tax assets. The
estimates of future taxable income are based on the projections of cash flows from
operations and the application of the tax legislation in force. As the future cash flows and

44
Notes to the combined financial statements (continued)

the taxable income differ significantly from the estimates, it might have an impact on the
capability of the Companies to realize the net deferred tax assets recorded at the
reporting date of combined financial statements.

Additionally, future changes in tax legislation might limit the capability of the Companies
to obtain tax deductions in future periods. Any difference between the estimations and the
later actual payments is recorded in the year in which it occurs.

(x) Fair value measurement of derivative financial instruments (note 12) -

When the fair values of financial assets and financial liabilities recorded in the combined
statements of financial position cannot be measured based on quoted prices in active
markets, their fair value is measured using valuation techniques including the discounted
cash flow model. The inputs to these models are taken from observable markets where
possible, but where this is not feasible, a degree of judgment is required in establishing
fair values.

Judgments include considerations of inputs such as liquidity risk, credit risk and volatility.
Changes in assumptions about these factors could affect the reported fair value of
financial instruments, see note 30.

(xi) Obligations from long-term employee benefits (note 17) -

The present value of the obligations from pension plans is determined through actuarial
valuations. Actuarial valuations involve several assumptions that may be different from
the events that actually occur in the future. These assumptions include the setting of the
discount rate, the future increase in salaries, mortality rates and future increase of
pensions.

(xii) Taxes estimation (note 20 and 22) -

Uncertainty exists with regard to the interpretation of complex tax regulations, the
changes in the tax norms and the amount and opportunity in which future taxable income
is generated. The Companies calculate provisions, on the basis of reasonable estimations
for the possible consequences derived from the inspections performed by the Tax
Authority. The amount of these provisions is based on several factors such as the
experience in previous tax examinations, and on the different interpretations about the
tax regulations made by the Companies and their advisers.

These differences in interpretation can arise in a great variety of questions, depending on

the circumstances and existing conditions in the place of domicile of the Companies.

In Management’s opinion, these judgments, estimations and assumptions were performed on the
basis of its best knowledge of the relevant facts and circumstances at the date of preparation of
the combined financial statements; nevertheless, the final results could differ from the
estimations included in the combined financial statements. Management of the Companies does
not expect that the changes, provided they occur, will have significant effect on the combined
financial statements.

45
Notes to the combined financial statements (continued)

3.5 New accounting standards

The standards that have been issued but are not yet effective at the date of presentation of the
combined financial statements are detailed below. This list of issued standards and
interpretations include those that the Companies plan to apply in the future. The Companies aim
to adopt such standards once they are effective and will not adopt them early:

- Amendments to IFRS 3 “Business Combinations”: Reference to the Conceptual Framework

In May 2020, the IASB issued Amendments to IFRS 3, intended to replace a reference to
the Framework for the Preparation and Presentation of Financial Statements, issued in
1989, with a reference to the Conceptual Framework for Financial Reporting issued in
March 2018 without significantly changing its requirements. The Board also added an
exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’
gains or losses arising for liabilities and contingent liabilities that would be within the
scope of IAS 37 or IFRIC 21 “Levies”, if incurred separately.

At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent
assets that would not be affected by replacing the reference to the Framework for the
Preparation and Presentation of Financial Statements. The amendments are effective for
annual reporting periods beginning on or after 1 January 2022 and apply prospectively.

Since the amendments apply prospectively to transactions or other events that occur on
or after the date of the first application, the Companies will not be affected by these
amendments on transition.

- Amendments to IAS 1 – Classification of Liabilities as Current or Non-current

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify
the requirements for classifying liabilities as current or non-current. The amendments
clarify: (i) what is meant by a right to defer settlement; (ii) that a right to defer must exist
at the end of the reporting period; (iii) that classification is unaffected by the likelihood
that an entity will exercise its deferral right; and, (iv) that only if an embedded derivative
in a convertible liability is itself an equity instrument would the terms of a liability not
impact its classification. The amendments are effective for annual reporting periods
beginning on or after 1 January 2023 and must be applied retrospectively.

The Companies are currently assessing the impact the amendments will have on current
practice and whether existing loan agreements may require renegotiation

46
Notes to the combined financial statements (continued)

- Amendments to IAS 16 “Property, Plant and Equipment”: Proceeds before Intended Use
In May 2020, the IASB issued amendments to IAS 16, which prohibits entities deducting
from the cost of an item of property, plant and equipment, any proceeds from selling
items produced while bringing that asset to the location and condition necessary for it to
be capable of operating in the manner intended by management. Instead, an entity
recognizes the proceeds from selling such items, and the costs of producing those items,
in profit or loss. The amendment is effective for annual reporting periods beginning on or
after 1 January 2022 and must be applied retrospectively to items of property, plant and
equipment made available for use on or after the beginning of the earliest period
presented when the entity first applies the amendment.

The amendments are not expected to have a material impact on the Companies.

- Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”:

Onerous Contracts – Costs of Fulfilling a Contract
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity
needs to include when assessing whether a contract is onerous or loss-making. The
amendments apply a “directly related cost approach”. The costs that relate directly to a
contract to provide goods or services include both incremental costs and an allocation of
costs directly related to contract activities. General and administrative costs do not relate
directly to a contract and are excluded unless they are explicitly chargeable to the
counterparty under the contract. The amendments are effective for annual reporting
periods beginning on or after 1 January 2022.

The Companies will apply these amendments to contracts for which it has not yet fulfilled
all its obligations at the beginning of the annual reporting period in which it first applies
the amendments.

- Annual improvements (2018-2020 cycle)

As part of its 2018-2020 annual improvements to IFRS standards process, the IASB
issued the following amendments:

(i) IFRS 1 “First-time Adoption of International Financial Reporting Standards”:

Subsidiary as a first-time adopter
The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS
1 to measure cumulative translation differences using the amounts reported by the
parent, based on the parent’s date of transition to IFRS. This amendment is also
applied to an associate or joint venture that elects to apply paragraph D16(a) of
IFRS 1. The amendment is effective for annual reporting periods beginning on or
after 1 January 2022 with earlier adoption permitted.

47
Notes to the combined financial statements (continued)

(ii) IFRS 9 “Financial Instruments”: Fees in the ’10 percent’ test for derecognition of
financial liabilities
The amendment clarifies the fees that an entity includes when assessing whether
the terms of a new or modified financial liability are substantially different from the
terms of the original financial liability. These fees include only those paid or
received between the borrower and the lender, including fees paid or received by
either the borrower or lender on the other’s behalf. An entity applies the
amendment to financial liabilities that are modified or exchanged on or after the
beginning of the annual reporting period in which the entity first applies the
amendment. The amendment is effective for annual reporting periods beginning on
or after 1 January 2022 with earlier adoption permitted.

(iii) IAS 41 “Agriculture”: Taxation in fair value measurements

The amendment removes the requirement in paragraph 22 of IAS 41 that entities
exclude cash flows for taxation when measuring the fair value of assets within the
scope of IAS 41. An entity applies the amendment prospectively to fair value
measurements on or after the beginning of the first annual reporting period
beginning on or after 1 January 2022 with earlier adoption permitted.

These amendments are not expected to have a material impact on the Companies.

In Management's opinion, these standards, will not have a significant impact on the combined
financial statements of the Companies.

4. Transactions in foreign currency

Transactions in foreign currency are carried out using exchange rates prevailing in the market as
published by the Superintendence of Banks, Insurance and Pension Funds Administration. As of
December 31, 2020, 2019 and 2018, the main operations in foreign currency of the Companies were
denominated in U.S. Dollars (US$), Bolivianos (Bs) and Pesos Colombianos ($). Current exchange rate
for transactions in foreign currency at those dates was:

Exchange rate per Sol 2020 2019 2018

US Dollars (US$) 0.276 0.302 0.296

Boliviano (B$) 1.921 2.029 2.060
Peso Colombiano ($) 947.158 990.246 961.749

48
Notes to the combined financial statements (continued)

As of December 31, 2020, 2019 and 2018, the Companies held the assets and liabilities in thousands of US Dollars, Bolivianos and Pesos Colombianos:

2020 2019 2018

_____________________________________________________________ _____________________________________________________________ _____________________________________________________________
US$(000) B$(000) $(000) US$(000) B$(000) $(000) US$(000) B$(000) $(000)

Assets -
Cash and short-term deposits 30,905 18,278 621,811 12,819 6,669 679,864 14,100 10,186 2,279,790
Financial instruments at fair value through profit or
loss 7,503 - - 2,827 - - 620 - -
Trade accounts receivables, net 57,381 47,684 9,054,828 51,835 45,088 9,833,962 55,139 37,453 9,941,230
Other accounts receivables, net 4,661 4,732 - 5,375 4,632 - 7,275 5,968 286,353
Accounts receivables to related parties 838 - - 675 - - 2,853 - -
Financial instruments at fair value through other
comprehensive income 21,737 - - 13,722 - - 12,475 - -
__________ __________ __________ _________ _________ ___________ _________ _______ ___________
123,025 70,694 9,676,639 87,253 56,389 10,513,826 92,462 53,607 12,507,373
__________ __________ __________ _________ _________ ___________ _________ _______ ___________

Liabilities -
Trade accounts payables (115,566) (16,909) (4,310,221) (89,627) (28,498) (5,484,008) (90,818) (24,929) (6,024,207)
Accounts payables to related parties (1,211) - - (2,978) - - (4,326) - -
Other accounts payables (10,760) (8,111) - (12,568) (13,089) - (16,897) (12,097) (1,881,564)
Lease liabilities (272,762) (1,983) - (239,502) (540) - - - -
Interest -bearing loans and borrowing (393,893) - (2,989,968) (29,600) - (3,600,000) (46,634) - (2,900,000)
Senior notes issued (394,534) - - (395,148) - - (393,868) - -
___________ __________ ___________ _________ _________ ____________ _________ _________ ____________
(1,188,726) (27,003) (7,300,189) (769,423) (42,127) (9,084,008) (552,543) (37,026) (10,805,771)
___________ __________ ___________ _________ _________ ____________ _________ _________ ____________
Derivative financial instrument – “Call Spread”,
note 12 400,000 - - 400,000 - - 400,000 - -
___________ __________ ___________ _________ _________ ____________ _________ _________ ____________
Net (liabilities) asset position (665,701) 43,691 2,376,450 (282,170) 14,262 1,429,818 (60,081) 16,581 1,701,602
___________ __________ ___________ _________ _________ ____________ _________ _________ ____________

Management monitors this risk through the analysis of macro-economic variables of the country.

During 2020, the Companies have recognized a net loss from exchange difference for approximately S/120,564,000, which is presented into the caption "Exchange difference, net" in the combined income statements (during 2019
and 2018, the net profit (loss) from exchange difference was for approximately S/21,525,000 and S/35,609,000, respectively).

49
Notes to the combined financial statements (continued)

5. Cash and short-term deposits

(a) The table below presents the components of this account:

2020 2019 2018

S/(000) S/(000) S/(000)

Cash 7,154 7,651 7,293

Current accounts (b) 602,432 581,745 467,615
Remittances in transit (c) 130,360 97,256 62,577
Time deposits (d) 167,102 15,078 77,087
– _________ _________ _________

907,048 701,730 614,572

_________ _________ _________

(b) The Companies maintain current accounts in local banks mainly in Soles and US Dollars that do
not accrue interests and are freely available.

(c) They represent cash from the sales made in the different premises of the Companies during the
last days of the year, which is collected by a securities transport company and deposited in the
current bank accounts on the first useful day of the following month.

(d) Time deposits are freely available and are kept in Soles and U.S. Dollars in local banks. As of
December 31, 2020, they bear annual interest rates between 0.1 and 0.12 percent in Soles and
between 0.05 and 0.10 percent in U.S. Dollars (as of December 31, 2019 and 2018, time
deposits bear annual interest rates between 2.10 and 2.70 percent and 0.50 and 5.75 percent in
Soles and 1.30 and 1.20 percent in U.S. Dollars, respectively). Time deposits had original
maturities of less than 90 days.

(e) As of December 31, 2020, 2019 and 2018, the current accounts and time deposits are freely
available and freely encumbrance.

50
Notes to the combined financial statements (continue)

6. Financial instruments at fair value through profit or loss

Below is the composition of the item as of December 31, 2020, 2019 and 2018:

2020 2019 2018

__________________________________________________ __________________________________________________ __________________________________________________
Number Quote value Number Quote value Number Quote value
Entity of quotes (in soles) S/(000) of quotes (in soles) S/(000) of quotes (in soles) S/(000)

Mutual funds managed by Fondos Sura SAF S.A.C. SAF

In Soles -
Sura Ultra Cash Soles FMIV 153,888 162 25,004 33,603 135 4,526 38,640 130 5,034

In U.S. Dollars -
Sura Corto Plazo Dólares FMIV 61,168 444 27,188 23,455 400 9,377 - - -

Mutual funds managed by Interfondos S.A. SAF, related party

In Soles -
IF Libre Disponibilidad Soles FMIV 70,859 117 8,301 - - - - - -
IF Libre Disponibilidad Soles FMIV - - - - - - 17,997 113 2,031
IF Libre Disponibilidad Soles FMIV - - - - - - 8,863 113 1,000

In U.S. Dollars -
IF Libre Disponibilidad Dólares FMIV 84,239 387 32,568 - - - - - -
_________ _________ _________

93,061 13,903 8,065

_________ _________ _________

In Management's opinion, the investment funds are highly liquid and have a low level of risk.

As of December 31, 2020, 2019 and 2018, the value of the financial instruments at fair value through profit or loss includes the effects of the change in the quote price and the level of the exchange rate at the end of the year, these
originated a recognition of a gain of approximately S/924,000, S/473,000 and S/149,000 during the years ended 2020, 2019 and 2018, respectively, presented in the caption "Finance income" in the combined income statements,
note 25.

51
Notes to the combined financial statements (continued)

7. Trade accounts receivables, net

(a) The table below presents the components of this caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Manufacturing and distribution (b) 558,690 528,286 535,140

Credit card operators (c) 65,392 39,921 40,093
Shopping vouchers (d) 17,080 19,652 29,093
Rents receivable (e) 3,758 5,019 663
Other 2,209 - 447
_________ _________ _________
647,129 592,878 605,436
Provision for doubtful accounts (g) (57,873) (49,519) (56,017)
_________ _________ _________

589,256 543,359 549,419

_________ _________ _________

Trade receivables are denominated in Soles and US Dollars, have current maturities and do not
bear interest.

(b) Corresponds to the receivables generated mainly from the manufacture and distribution of
different pharmaceutical and mass-market products to entities across Peru and abroad. As of
December 31, 2020, 2019 and 2018, due to the nature of the InRetail Pharma Group's
operations, the client portfolio is highly disperse, and includes laboratories and wholesalers well-
known at national and international level, pharmacy chains, independent pharmacies, public and
private institutions, supermarkets, among others. It is worth mentioning that the InRetail Pharma
Group has contracts for the exclusive manufacture and distribution of its products with its major
customers.

(c) Correspond mainly to pending deposits in favor of Supermercados Peruanos S.A. and Subsidiaries
and InRetail Pharma S.A. for the last day of the month, which are held by credit card operators
and originated from the sales of goods with credit cards in the different stores of Supermercados
Peruanos S.A. and Subsidiaries and InRetail Pharma S.A.

(d) Correspond mainly to the balance receivable from the sale of shopping vouchers to various
companies and public institutions. At the date of this report, these balances were mostly
collected.

(e) Correspond to accounts receivable for the lease of commercial premises to concession holders
inside the stores of Supermercados Peruanos S.A.

52
Notes to the combined financial statements (continue)

(f) As of December 31, 2020, 2019 and 2018, the aging of trade accounts receivable is presented
below:

December 31, 2020

__________________________________________________
Not impaired Impaired Total
S/(000) S/(000) S/(000)

Not past due - 497,230 480 497,710

Past due -
1 to 30 days 41,424 300 41,724
31 to 60 days 11,273 57 11,330
61 to 120 days 11,622 304 11,926
121 to 360 days 16,270 6,181 22,451
More than 360 days 11,437 50,551 61,988
________ ________ ________

589,256 57,873 647,129

________ ________ ________

December 31, 2019

__________________________________________________
Not impaired Impaired Total
S/(000) S/(000) S/(000)

Not past due - 466,879 443 467,322

Past due -
1 to 30 days 42,086 161 42,247
31 to 60 days 9,444 70 9,514
61 to 120 days 9,335 164 9,499
121 to 360 days 8,683 2,766 11,449
More than 360 days 6,932 45,915 52,847
________ ________ ________

543,359 49,519 592,878

________ ________ ________

December 31, 2018

__________________________________________________
Not impaired Impaired Total
S/(000) S/(000) S/(000)

Not past due - 450,275 1,851 452,126

Past due -
1 to 30 days 59,256 284 59,540
31 to 60 days 8,960 199 9,159
61 to 120 days 15,485 239 15,724
121 to 360 days 9,451 1,021 10,472
More than 360 days 5,992 52,423 58,415
________ ________ ________

549,419 56,017 605,436

________ ________ ________

53
Notes to the combined financial statements (continue)

(g) The movements in the provision for doubtful accounts receivable for the years ended on
December 31, 2020, 2019 and 2018, were as follows:

2020 2019 2018

S/(000) S/(000) S/(000)

Balance at the beginning of the year 49,519 56,017 9,640

Acquisition of subsidiary, note 2(a) and (b) 843 - 48,358
Provision for the period, note 23(b) 12,368 7,506 7,832
Recoveries, note 23(b) (1,514) (1,817) (4,082)
Write –off (5,082) (12,116) (6,364)
Exchange difference - 14 713
Others 1,739 (85) (80)
_________ _________ _________
Balance at the end of the year 57,873 49,519 56,017
_________ _________ _________

(h) In Companies Management’s opinion, the provision for doubtful accounts receivable as of
December 31, 2020, 2019 and 2018, appropriately covers the credit risk of this item at those
dates.

8. Other accounts receivables, net

(a) The composition of this item is presented below:

2020 2019 2018

S/(000) S/(000) S/(000)

By nature -
Income Tax credit, note 20(e) 85,193 44,493 102,079
Taxes pending to be recovered 54,698 39,133 -
Deposits in guarantee (b) 33,500 28,870 29,166
Employee loans and third parties 31,583 7,540 21,089
Claims and unsettled advances 23,867 14,096 10,043
Funds held in Banco de la Nación (c) 18,627 24,695 17,370
Selective consumption tax 15,005 12,414 5,014
Discounts and/or refunds receivable
To suppliers 14,547 9,399 9,752
To representatives - 1,632 8,301
VAT credit 15,425 4,432 17,145
Advances to suppliers 2,480 1,204 1,531
Sales of land - - 1,725
Other receivables 13,790 13,903 12,385
_________ _________ _________
308,715 202,261 235,600
Minus -
Provision for doubtful collection accounts (d) (7,482) (5,874) (6,503)
_________ _________ _________

301,233 196,387 229,097

_________ _________ _________

54
Notes to the combined financial statements (continue)

2020 2019 2018

S/(000) S/(000) S/(000)

By time -
Current portion 235,039 148,783 199,573
Non-current portion 66,194 47,604 29,524
_________ _________ _________

301,233 196,387 229,097

_________ _________ _________

(b) Includes deposits in guarantee related to the rental of the administrative office, warehouse and
drugstores “Inkafarma” and “Mifarma” nationwide, with maturities over twelve months, which is
why Management has classified them in the long term. As of December 31, 2020, the balance of
deposits in guarantee held by the Company and its Subsidiaries is recorded at discounted value,
using a discount rate of 6.0390 percent for guarantees receivable in soles and 4.09 percent for
guarantees receivable in US dollars. As of December 31,2019, using a discount rate of 9.02
percent for guarantees receivable in soles and 6.11 percent for guarantees receivable in US
dollars. As of December 31,2018, using a discount rate of 4.700 percent for guarantees
receivable in soles and 5.375 percent for guarantees receivable in US dollars.

(c) In accordance to Resolution of Superintendence N°183-2004/SUNAT, funds held in Banco de la

Nación must be used exclusively for the payment of tax debts or requested cash reimbursement.
In the case of the Companies, these funds have been used entirely for tax payments during the
months of January and February 2021, 2020 and 2019, respectively.

(d) The movements in the provision for doubtful accounts receivable for the years ended on
December 31, 2020, 2019 and 2018, were as follows:

2020 2019 2018

S/(000) S/(000) S/(000)

Balance at the beginning of the year 5,874 6,503 2,061

Acquisition of Subsidiary, note 2(a) and 2(b) 199 - 2,681
Provision for the period, note 23(b) 1,697 380 2,084
Write –off (392) (1,009) (323)
Exchange difference 104 - -
_________ _________ _________

Balance at the end of the year 7,482 5,874 6,503

_________ _________ _________

(e) In Management’s opinion, of the Companies, the provision for doubtful accounts receivable as of
December 31, 2020, 2019 and 2018, appropriately covers the credit risk of this item at those
dates.

55
Notes to the combined financial statements (continue)

9. Inventories, net
(a) The composition of this item is presented below:

2020 2019 2018

S/(000) S/(000) S/(000)

Inventories, note 23(b) 2,012,314 1,773,215 1,697,238

Raw materials, note 23(b) 19,552 15,204 11,796
Finished goods, note 23(b) 455 189 672
Production supplies, note 23(b) 550 1,008 1,075
Various supplies 3,914 5,045 4,750
Inventories in transit (c) 143,621 55,732 33,362
__________ __________ __________
2,180,406 1,850,393 1,748,893
Less -
Provision for impairment of inventories (d) (21,885) (15,346) (12,603)
__________ __________ __________

2,158,521 1,835,047 1,736,290

__________ __________ __________

(b) As of December 31, 2020, 2019 and 2018, the balance of goods is presented net of the
provision for discounts from suppliers (rebates) related to goods not sold at those dates for
approximately S/44,960,000, S/50,417,000 and S/58,445,000, respectively.

(c) As of December 31, 2020, 2019 and 2018, the caption includes, mainly, goods in transit
acquired by the Companies in order to meet the demand of its customers in the nationwide level
chain. At the date of this report, the balance of inventories in transit as of December 31, 2020,
2019 and 2018 has been mostly received.

(d) The movements in the provision for inventory impairment were as follows:

2020 2019 2018

S/(000) S/(000) S/(000)

Balance at the beginning of the year 15,346 12,603 8,101

Acquisition of Subsidiary, note 2(a) and 2(b) 557 - 10,095
Additions, note 23(b) 12,862 8,192 6,717
Recoveries, note 23(b) - (122) (1,930)
Write-off (7,218) (5,288) (10,541)
Translation effect 338 (39) 161
_________ _________ _________

Balance at the end of the year 21,885 15,346 12,603

_________ _________ _________

56
Notes to the combined financial statements (continue)

(e) The provision for inventory impairment is determined based on stock turnover, discounts granted
for the liquidation of the merchandise and other characteristics based on periodic evaluations
performed by the Companies’ Management. In Management’s opinion, of the Companies, as of
December 31, 2020, 2019 and 2018, the allowance for inventory impairment covers the risk of
inventory’s obsolescence in those years.

57
Notes to the combined financial statements (continued)

10. Financial investments at fair value through other comprehensive income

(a) The composition of this caption is presented below:

Fair value
___________________________________________________
2020 2019 2018
S/(000) S/(000) S/(000)

Senior Notes (b) – Current Portion - - 8,377

Shares (c) – Non-current Portion 54,061 45,435 36,338
__________ __________ __________

54,061 45,435 44,715

__________ __________ __________

(b) As of December 31, 2018, it corresponded to debt instruments (senior notes – bonds) issued by Intercorp Perú Ltd. (ultimate holding of the Intercorp Group) for InRetail Consumer. The acquisition value of
these instruments amounted to US$2,434,000 (around S/8,377,000), their maturity date was February 2025 and they accrued interests at a nominal annual rate of 5.875 percent in U.S. Dollars.
In June 2019, InRetail Pharma S.A. made an acquisition of such instruments for US$8,724,000 (equivalent to S/29,724,000) at a nominal rate of 5.875 percent.

In July and August 2019, both Companies accepted the offer submitted by Intercorp Perú Ltd. to redeem in advance such bonds at the market value prevailing on the redemption date; therefore, both
Companies sold all the aforementioned bonds for US$11,433,000 (equivalent to approximately S/37,744,000) and, as a result of that transaction, the Company recorded a profit of US$125,000
(approximately S/413,000) in the combined statement of comprehensive income, see note 25.

(c) During 2018, InRetail Pharma S.A. acquired 381,180 shares issued by InRetail Perú Corp. (holding of this company, see note 1(a)), which represent approximately 0.37 percent of participation in that entity.
The fair value of these shares has been determined on the basis of quoted prices of an active market at each reporting date. As of December 31, 2020, 2019 and 2018, the fair value of each share, according
to the information published by the Bolsa de Valores de Lima, is US$39.20 (approximately S/142), US$36.00 (approximately S/119) and US$28.30 (approximately S/95), respectively.

(d) The movements of financial assets at fair value through other comprehensive income are presented below:

Shares
___________________________________________________ Senior Notes
___________________________________________________ Total
___________________________________________________
2020 2019 2018 2020 2019 2018 2020 2019 2018
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Balance at the beginning of the year 45,435 36,338 - - 8,377 8,377 45,435 44,715 8,377
Purchases - - 33,165 - 29,724 - - 29,724 33,165
Sale of financial assets at fair value through other
comprehensive income (b) - - - - (37,744) - - (37,744) -
Update of fair value of financial assets through other
comprehensive income (i) 8,627 9,156 2,830 - (217) - 8,627 8,939 2,830
Exchange difference effect (ii) (1) (59) 343 - (140) - (1) (199) 343
__________ __________ __________ __________ __________ __________ __________ __________ __________

Balance at the end of the year 54,061 45,435 36,338 - - 8,377 54,061 45,435 44,715
__________ __________ __________ __________ __________ __________ __________ __________ __________

(i) The update of financial instruments at fair value through other comprehensive income is recorded in the caption “Unrealized income on financial instruments at fair value through other comprehensive income”, in the
combined statement of changes in equity.
(ii) According to IFRS, loss from exchange difference in shares is recorded in the caption “Unrealized income on financial instruments at fair value through other comprehensive income”, in the combined statement of changes in
equity, while the corresponding to senior notes is recorded in the caption “Exchange difference, net”, in the combined statement of other comprehensive income.

58
Notes to the combined financial statements (continued)

11. Prepayments
As of December 31, 2020 and 2019, it mainly corresponds to advertisement and insurance expenses
paid in advance, among others. As of December 31, 2018, the balance mainly included key money and
rents paid in advance that amounted to S/44,626,000, which as of December 2019 were mostly
recorded in the item “Lease liabilities” of the combined statement of financial position, as a result of the
adoption of IFRS 16.

12. Derivative financial instrument – “Call Spread”

(a) As of December 31, 2020, 2019 and 2018, the derivative financial instrument has been qualified
as an effective hedge instrument and is as follows:

Book value of
Notional Maturity / the covered
Entity amount Settlement item Fair value
__________________________________________
2020 2019 2018
US$(000) S/(000) S/(000) S/(000) S/(000)

“Call Spread”
Contract -
Citibank N.A. (b) 400,000 May 2023 1,449,600 112,273 63,508 86,694
__________ ____________ _________ _________ _________

(b) In May 2018, InRetail Pharma S.A. signed a “Call Spread" contract for a total reference value of
US$400,000,000 in order to reduce its foreign currency risk related to its senior notes issued in
May 2018 in foreign currency (see note 19). The price paid for such derivative financial
instrument (premium) was financed by Citibank N.A. in installments that correspond to those of
the issuances, thus generating a liability, which balance as of December 31, 2020 amounts to
US$9,874,000, equivalent to approximately S/35,785,000 (US$13,413,000, equivalent to
approximately S/44,491,000 as of December 31, 2019 and US$16,730,000, equivalent to
approximately S/56,532,000 as of December 31, 2018), see note 18(a). According to IFRS 9,
this premium was recorded in the non-current asset and is recognized in profit and loss on
straight-line basis over the hedging term. Consequently, the amount accrued during 2020, 2019
and 2018 was S/12,623,000, S/11,128,000 and S/6,634,000, respectively, and was recorded
in the caption “Call Spread’ Straight-line accrued premium”, see note 25. During 2020,
approximately S/61,412,000 (S/12,742,000 and S/17,526,000 during 2019 and 2018,
respectively) were recognized into the caption "Unrealized results on derivative financial
instruments" in the combined statements of changes in equity, representing the derivative
financial instrument hedging effect during such year.

As of December 31, 2020, 2019 and 2018, this instrument hedges 100 percent of the risk
exposure resulting from the issuance of the principal in foreign currency and protects the
changes in exchange rates ranging from S/3.26 to S/3.75 per US$1.00.

59
Notes to the combined financial statements (continued)

(c) In April 2018, InRetail Consumer made an early settlement of two call spread contracts for
US$30,000,000 and US$100,000,000 signed with the Bank of Tokyo and the Deutsche Bank
A.G. in 2016 and 2015, which maturity was in October 2021. Said financial instruments were
held to hedge 43 percent of the exposure to foreign exchange risk caused by the international
debt issuance in October 2014 and hedged the changes in foreign exchange rates ranging from
S/3.22 to S/3.75 per US$1.00. The early settlement of the derivative included the settlement of
the liability created by the financing received from J.P. Morgan for the acquisition of the
derivative; as of December 31, 2017.

As a result of this transaction, (i) a total net expense of S/3,433,000 was generated, which is
presented in “Expenses from the early settlement of call spread” in the combined income
statement (note 25), and ii) an accrued value amounting to S/923,000 as of April 2018, which is
recorded in the caption “Call Spread’ Straight-line accrued premium”, see note 25.

60
Notes to the combined financial statements (continued)

13. Property, installations, furniture and equipment, net and right-of-use assets
(a) Property, installations, furniture and equipment, net -
Below is the composition of the item as of December 31, 2020, 2019 and 2018:

Works in
Buildings and Miscellaneous Furniture and progress and
Land facilities equipment Vehicles fixture assets in transit Total
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)
Useful lives (years) - 10-15 4-10 5 10 -
Cost -
Balance as of January 1, 2018 484,985 1,497,364 949,414 2,205 121,314 238,221 3,293,503
Acquisition of Subsidiary, note 2(a) 254,940 183,766 206,601 10,036 80,164 6,237 741,744
Additions (a.1) 85,884 127,006 147,644 267 18,144 116,628 495,573
Disposals and/or sales (a.4) (12,480) (35,369) (65,577) (98) (20,903) (3,080) (137,507)
Transfers - 203,441 34,268 (8,864) 2,633 (231,478) -
Translation effect __________- 54
__________ 1,659
__________ (5)
__________ 405
__________ 21
__________ 2,134
__________
Balance as of December 31, 2018 813,329 1,976,262 1,274,009 3,541 201,757 126,549 4,395,447
__________ __________ __________ __________ __________ __________ __________
Additions (a.1) 109,737 78,187 108,242 151 21,155 104,222 421,694
Disposals and/or sales (a.4) - (6,860) (98,943) (697) (5,217) (1,222) (112,939)
Transfers - 5,226 2,205 - 662 (8,093) -
Transfers to investment properties, note 14(b) - 54,651 (3,519) - (280) (93,935) (43,083)
Transfers to intangible assets, note 15(a) - - - - - (654) (654)
Translation effect - (71) (764) (2) (168) (4) (1,009)
__________ __________ __________ __________ __________ __________ __________
Balance as of December 31, 2019 923,066 2,107,395 1,281,230 2,993 217,909 126,863 4,659,456
__________ __________ __________ __________ __________ __________ __________
Acquisition of Subsidiary, note 2(b) 409,671 326,471 51,804 1,353 22,768 4,520 816,587
Additions (a.1) 804 82,303 90,249 203 15,301 27,387 216,247
Disposals and/or sales (a.4) (12) (27,890) (55,809) (429) (6,468) (676) (91,284)
Transfers - 94,643 - - - (94,643) -
Transfers of investment properties, note 14(b) - 47 - - - - 47
Transfers to intangible assets, note 15(a) - - - - - (271) (271)
Translation effect - 377 4,001 4 929 4 5,315
Disposal to Subsidiary, note 2(c) - (1,203) (1,821) - (1,121) - (4,145)
__________ __________ __________ __________ __________ __________ __________
Balance as of December 31, 2020 1,333,529 2,582,143 1,369,654 4,124 249,318 63,184 5,601,952
__________ __________ __________ __________ __________ __________ __________
Accumulated depreciation -
Balance as of January 1, 2018 - 348,246 568,162 1,199 52,415 - 970,022
Acquisition of Subsidiary, note 2(a) - 96,573 150,985 5,625 59,272 - 312,455
Additions, note 23(b) - 62,941 109,424 616 17,014 - 189,995
Disposals and/or sales (a.4) - (17,296) (58,855) (97) (15,387) - (91,635)
Transfers - (557) 3,819 (4,958) 1,696 - -
Translation effect - 36 1,237 (6) 337 - 1,604
__________ __________ __________ __________ __________ __________ __________
Balance as of December 31, 2018 - 489,943 774,772 2,379 115,347 - 1,382,441
__________ __________ __________ __________ __________ __________ __________
Additions, note 23(b) - 80,592 113,839 397 18,684 - 213,512
Disposals and/or sales (a.4) - (4,127) (96,705) (562) (3,901) - (105,295)
Transfers - - 294 - (294) - -
Translation effect - (158) (606) (3) (152) - (919)
__________ __________ __________ __________ __________ __________ __________
Balance as of December 31, 2019 - 566,250 791,594 2,211 129,684 - 1,489,739
__________ __________ __________ __________ __________ __________ __________
Acquisition of Subsidiary, note 2(b) - 72,459 36,671 834 14,031 - 123,995
Additions, note 23(b) - 81,060 114,814 361 20,426 - 216,661
Disposals and/or sales (a.4) - (14,404) (50,250) (429) (5,888) - (70,971)
Translation effect - 283 2,953 4 768 - 4,008
Disposals to Subsidiary, note 2(c) - (801) (1,668) - (867) - (3,336)
__________ __________ __________ __________ __________ __________ __________
Balance as of December 31, 2020 - 704,847 894,114 2,981 158,154 - 1,760,096
__________ __________ __________ __________ __________ __________ __________
Net book value as of December 31, 2020 1,333,529 1,877,296 475,540 1,143 91,164 63,184 3,841,856
__________ __________ __________ __________ __________ __________ __________
Net book value as of December 31, 2019 923,066 1,541,145 489,636 782 88,225 126,863 3,169,717
__________ __________ __________ __________ __________ __________ __________
Net book value as of December 31, 2018 813,329 1,486,319 499,237 1,162 86,410 126,549 3,013,006
__________ __________ __________ __________ __________ __________ __________

61
Notes to the combined financial statements (continued)

(a.1) During 2020, 2019 and 2018, the Companies constructed and equipped the new stores (mainly from the pharmacy and food retail sectors). As of December 31, 2020, 2019 and 2018, the
Companies maintain mortgages on certain lands, buildings and facilities for a net book value of approximately S/879,610,000, S/702,010,000 and S/775,520,000, respectively, in guarantee of
financial obligations, see note 18(a).

(a.2) The Companies maintain insurance on its main assets in accordance with the policies established by Management. In the opinion of Companies’ Management, their its insurance policies are consistent
with international practices in the industry.

(a.3) As of December 31, 2020, 2019 and 2018, the cost and corresponding accumulated depreciation of assets acquired through finance leases are the following:

2020
________________________________________________ 2019
________________________________________________ 2018
________________________________________________
Accumulated Net Accumulated Net Accumulated Net
Cost depreciation cost Cost depreciation cost Cost depreciation cost
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Buildings and facilities 438,278 (68,262) 370,016 317,127 (43,812) 273,315 319,823 (37,415) 282,408
Miscellaneous equipment 319,238 (223,165) 96,073 352,062 (231,017) 121,045 393,525 (236,931) 156,594
Furniture and fixture 68 (14) 54 - - - - - -
__________ __________ __________ __________ __________ __________ __________ __________ __________

Total 757,584 (291,441) 466,143 669,189 (274,829) 394,360 713,348 (274,346) 439,002
__________ __________ __________ __________ __________ __________ __________ __________ __________

(a.4) The net cost of retired and/or sold fixed assets during the years 2020, 2019 and 2018 is detailed as follows:

2020 2019 2018

S/(000) S/(000) S/(000)

Assets sold (1) 2,116 717 16,606

Assets retired (2) 18,197 6,927 29,266
__________ __________ __________

20,313 7,644 45,872

__________ __________ __________

(1) During 2020, corresponds mainly to sale of installations to Interproperties Perú, a related company, for S/1,982,000. During 2019, corresponds mainly to the sale of equipment and installations thereby a profit of
S/1,091,000. During 2018, it mainly corresponds to the sale of a property in Arequipa, to Homecenters Peruanos S. A., a related company, for S/14,257,000 paid in cash, thereby generating a profit of
approximately S/1,777,000.

(2) Corresponds to the write-off of unused assets as a result of the remodeling process of some stores designated by Management. These retirements are included into the caption “Other operating income, net" in the
combined income statements.

(a.5) Management periodically reviews the residual values, useful life and the depreciation method to ensure that they are consistent with the economic benefits and life expectancy of the property,
furniture and equipment. As of December 31, 2020, 2019 and 2018, the InRetail Group’s Management performed an evaluation of its property, installations, furniture and equipment, and has not
found any indication of impairment.

62
Notes to the combined financial statements (continued)

(b) Right-of-use assets -

The Companies maintain leasing contracts for land, buildings, facilities and vehicles used for its
operations. Leases of land, buildings and facilities generally have terms of 1 to 60 years, and leases of
vehicles have terms of 2 to 4 years. The Companies obligations under its leases are guaranteed by the
lessor's title of the leased assets.

There are several leases that include extension and termination options and variable payments.

The Companies have also entered into certain leases of premises with terms of 12 months or less and
leases of low-value office equipment. The Companies apply the short-term and low-value lease
exemptions for this kind of leases.

(b.1) The carrying amounts of right-of-use assets and movements recognized during the period are
detailed below:

Buildings and
Land facilities Vehicles Total
S/(000) S/(000) S/(000) S/(000)
Cost -
Balance as of January 1, 2019, note 3.3 3,511 1,646,251 1,679 1,651,441

Additions - 238,790 289 239,079

Disposals, note 24 - (14,707) - (14,707)
Translation effect - (415) (21) (436)
__________ __________ __________ __________
Balance as of January 1, 2020 3,511 1,869,919 1,947 1,875,377
__________ __________ __________ __________
Acquisition of Subsidiary, note 2(b) - 27,873 - 27,873
Additions - 297,585 1,393 298,978
Disposals, note 24 - (28,699) (365) (29,064)
Disposals Subsidiary, note 2(c) - (3,271) - (3,271)
Translation effect - 2,224 117 2,341
__________ __________ __________ __________
Balance as of December 31, 2020 3,511 2,165,631 3,092 2,172,234
__________ __________ __________ __________
Accumulated depreciation -
Balance as of January 1, 2019 - - - -
Additions, note 23(b) 62 317,379 550 317,991
Disposals note 24 - (1,570) - (1,570)
Translation effect - (27) 2 (25)
__________ __________ __________ __________
Balance as of January 1, 2020 62 315,782 552 316,396
__________ __________ __________ __________
Acquisition of Subsidiary, note 2(b) - 3,989 - 3,989
Additions, note 23(b) 58 317,551 326 317,935
Disposals note 24 - (10,508) (194) (10,702)
Disposals Subsidiary, note 2(c) - (2,380) - (2,380)
Translation effect - 1,142 49 1,191
__________ __________ __________ __________
Balance as of December 31, 2020 120 625,576 733 626,429
__________ __________ __________ __________

Net book value of December 31, 2020 3,391 1,540,055 2,359 1,545,805
__________ __________ __________ __________

Net book value of December 31, 2019 3,449 1,554,137 1,395 1,558,981
__________ __________ __________ __________

63
Notes to the combined financial statements (continued)

(b.2) The carrying amounts of lease liabilities and movements during the period are detailed below:

2020 2019
S/(000) S/(000)

Balance at the beginning of the year 1,532,492 1,651,441

Acquisition of Subsidiary, note 2(b) 26,404 -
Additions 298,978 239,081
Increase for accrued interest, note 25 112,764 109,996
Payments -
Leases with fixed rent (392,316) (370,124)
Rent in advance (5,569) (65,363)
Disposal Subsidiary, note 2(c) (890) -
Cancellation of contracts, note 24 (18,877) (13,061)
Exchange rate variation 92,580 (19,093)
Translation effect 1,304 (385)
___________ ___________
Balance at the end of the year 1,646,870 1,532,492
___________ ___________

By time -
Current portion 229,726 269,657
Non-current portion 1,417,144 1,262,835
___________ ___________
1,646,870 1,532,492
___________ ___________

(b.3) As of December 31, 2020 and 2019, the payment schedule of these obligations is as follows:

2020 2019
S/(000) S/(000)

2020 - 269,657
2021 229,726 229,308
2022 228,685 204,932
2023 to 2024 305,387 137,622
2025 onwards 883,072 690,973
___________ ___________
Total 1,646,870 1,532,492
___________ ___________

64
Notes to the combined financial statements (continued)

(b.4) The following table presents the amounts recognized in the combined income statement:

2020 2019
S/(000) S/(000)

Depreciation expense on right-of-use assets, note 23(b) 317,935 318,330

Interest expense on lease liabilities, note 25 112,764 109,996
Expenses related to variable, short-term and low-value
leases (included as “Selling expenses” and
“Administrative expenses”, note 23(b) 64,171 29,898
___________ ___________
Total amount recognized in profit and loss 494,870 458,224
___________ ___________

(b.5) The Companies lease commercial premises and these leases contain variable payments based on
sales. Management's objective is to align lease expenses with income.

Information on the variable lease payments made by the Companies, including a comparison with
fixed payments, is presented below:

2020 2019
______________________________________ ______________________________________
Fixed Variable Fixed Variable
payments payments Total payments payments Total
S/(000) S/(000) S/(000)

Fixed lease 392,316 - 392,316 370,124 - 370,124

Variable lease - 15,650 15,650 - 3,900 3,900
_________ _________ _________ ________ ________ ________
392,316 15,650 407,966 370,124 3,900 374,024
_________ _________ _________ ________ ________ ________

14. Investment properties, net

(a) As of December 31, 2020, 2019 and 2018 corresponds to strip center projects located in the
following cities:

2020 2019 2018

S/(000) S/(000) S/(000)

Lima y Callao 156,253 157,189 152,533

Ilo 38,702 38,288 -
Moquegua 28,210 29,741 27,331
Tumbes 16,349 19,987 -
Tarapoto 18,168 19,432 -
Tacna 18,039 18,870 18,017
Puno 6,524 6,483 4,716
__________ __________ __________

282,245 289,990 202,597

__________ __________ __________

65
Notes to the combined financial statements (continued)

During 2020, the Companies recognized renting income and expenses from their strip center for
approximately S/22,448,000 and S/19,858,000, respectively. During 2019, the Companies
recognized renting income and expenses from their strip center for approximately S/30,904,000
and S/4,304,000, respectively, and, S/20,647,000 and 6,676,000, respectively during 2018;
which are included in the “Rental income” and “Cost of sales and services”, respectively in the
combined income statement.

(b) The movement of this caption is presented below:

2020 2019 2018

S/(000) S/(000) S/(000)

Balance at the beginning of the year 289,990 202,597 196,851

Transfers of property, installations, furniture
and equipment, (c) and note 13(a) - 43,083 -
Works for expansions and remodeling (e) 7,760 37,193 3,040
Transfers to property, installations, furniture
and equipment, note 13(a) (47) - -
Fair value adjustment (f) (15,458) 7,117 2,706
________ ________ ________

Balance at the end of the year 282,245 289,990 202,597

________ ________ ________

(c) During 2019, the transfers of property, furniture and equipment correspond to the properties
located in the following cities:

2019
S/(000)

Ilo 29,937
Tarapoto 11,870
Tumbes 1,276
________

43,083
________

(d) During 2019, mainly corresponds to the construction cost incurred in the “VES Placita” strip
center opened in the second semester of such year. Likewise, during 2019, the Company signed
two contracts with related parties for real estate projects which will be used for leasing to third
parties; these projects are named: “Lurin” and “La Curva” Strip centers. At the end of 2019 for
the construction of these projects a total of S/26,552 and S/77,322,000 was disbursed,
respectively, of which S/18,257,000 and S/40,022,000 were financed by related entities to the
Company, see note 26(c).

(e) During 2019, it mainly corresponds to the incurred costs to conclude the construction of the
“Tarapoto” and “Tumbes” Strip center. Similarly, there are associated costs to the “Ilo” facility,
which concluded the construction in 2020.

66
Notes to the combined financial statements (continued)

(f) Fair value changes -

As of December 31, 2020, 2019 and 2018, the Companies do not have properties classified
within Levels 1 or 2 of the fair value hierarchy. As of said dates, the fair value of investment
properties is classified within Level 3 and was determined using the discounted cash flow (DCF)
method for the operational strip centers and properties.

The fair value of investment properties has been determined according to market value and
under International valuation techniques, which are prepared over an aggregated and
deleveraged basis. According to note 3.2(n), to estimate the fair values of the investment
properties, the Management of the Companies have used their market expertise and professional
judgement.

During 2020, 2019 and 2018, the fluctuation of the investment properties’ fair value was
approximately S/15,458,000, S/7,117,000, S/2,706,000, respectively; which is shown in the
“Changes in fair value of investment property in fair value of investment properties” of the
combined income statement.

Main assumptions
A brief description of the assumptions considered in the determination of cash flows as of
December 31, 2020, 2019 and 2018, is presented below:

- Long-term inflation -
It is the increase of the general level of prices expected in Peru for the long term.

- Long-term average occupancy rate -

It is the expected occupancy level of lessees in the leased properties.

- Average growth rate of rental income -

It is the rate that expresses the rental income growth and includes growth factors of the
industry, inflation rates, stable exchange rate, per capita income and increasing expenses.

- Average EBITDA margin -

It is projected from the rental income from leasable areas by property and marketing income,
minus costs related to administration fees, other administrative expenses, insurance, taxes
and other expenses.

- Discount rate -
It reflects the current market risk and the uncertainty associated to obtaining cash flows.

67
Notes to the combined financial statements (continued)

The main assumptions used in the valuation and estimation of the market value of investment
properties are detailed below:

2020 2019 2018

% % %

Long–term inflation 2.00 2.00 2.75

Long-term average occupancy rate (*) 7.38 9.91 9.10
Average growth rate of rental income (*) 7.36 3.00 16.69
Average EBITDA margin (*) 71.18 67.00 50.70
Discount rate 8.70 8.70 9.00

(*) Average of total Strip Center; value can change depending on the Strip Center.

The table below presents the sensitivity of the fair values to changes in the most significant
assumptions underlying the valuation of investment properties, maintaining the other variables
constant:

Rate
change 2020 2019 2018
S/(000) S/(000) S/(000)

Average growth rate of income (basis) -

Increase +5% 182,040 8,085 1,176
Decrease -5% (75,221) (7,608) (1,176)

Discount rate (basis) -

Increase +0.5% (20,136) (10,286) (958)
Decrease -0.5% 779 11,545 301

(g) The future amounts of the fixed minimum rents by currency corresponding to leases are as
follows:

2020 2019 2018

S/(000) S/(000) S/(000)

Within 1 year 17,241 21,681 132,459

After 1 year but not more than 5 years 160,535 198,356 563,828
Over 5 years 1,220,909 1,424,853 1,651,455
__________ __________ __________

Total 1,398,685 1,644,890 2,347,742

__________ __________ __________

As of December 31, 2020, the minimum rents are calculated on the basis of a time horizon
between 1 and 57 years (between 1 and 50 years as of December 2019 and 2018).

(h) The Companies maintain insurance on its investment properties in accordance with the policies
established by Management.

68
Notes to the combined financial statements (continued)

15. Intangible assets, net

(a) The table below presents the movements and composition of this caption:

Brands
________________________________
Software and Definite useful Indefinite useful Relationships Contracts with Work in
licenses life life (b) Goodwill (c) with clients (d) represented (d) progress Total
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)
Useful lives (years) - 10 2 - 20 - - 12 - 31 1 – 26 -
Cost -
Balance as of January 1, 2018 177,468 116 373,054 709,472 - - 20,268 1,280,378
Acquisition of Subsidiary, note 2(a) 67,584 24,172 432,081 1,272,634 46,300 204,800 1,538 2,049,109
Additions (e) 12,458 17,040 - - - - 15,404 44,902
Write-downs (14,630) - - - - - (4) (14,634)
Transfers 3,111 - - - - - (3,111) -
Translation effect 190 - - - - - - 190
_________ _________ _________ __________ _________ _________ _________ __________
Balance as of December 31,2018 246,181 41,328 805,135 1,982,106 46,300 204,800 34,095 3,359,945
_________ _________ _________ __________ _________ _________ _________ __________
Additions (e) 3,119 - - - - - 17,326 20,445
Write-downs (2,236) - - - - - (813) (3,049)
Transfers 7,414 - - - - - (7,414) -
Transfers of property, installations, furniture and
equipment, note 13(a) - - - - - - 654 654
Translation effect (86)
_________ _________- _________- __________- _________- _________- (7)
_________ (93)
__________
Balance as of December 31, 2019 254,392 41,328 805,135 1,982,106 46,300 204,800 43,841 3,377,902
_________ _________ _________ __________ _________ _________ _________ __________
Acquisition of Subsidiary, note 2(b) 58,946 - 57,293 739,968 - - - 856,207
Additions (e) 29,262 - - - - - 10,050 39,312
Write-downs (698) - - - - - (2,393) (3,091)
Transfers 28,693 - - - - - (28,693) -
Transfers of property, installations, furniture and
equipment, note 13(a) 105 - - - - - 166 271
Translation effect 355 - - - - - - 355
Disposal to subsidiary (525) - - - - - - (525)
_________ _________ _________ __________ _________ _________ _________ __________
Balance as of December 31, 2020 370,530 41,328 862,428 2,722,074 46,300 204,800 22,971 4,270,431
_________ _________ _________ __________ _________ _________ _________ __________
Accumulated amortization -
Balance as of January 1, 2018 90,519 116 - - - - - 90,635
Acquisition of Subsidiary, note 2(a) 46,136 6,787 - - - - 2,026 54,949
Additions, note 23(b) 24,952 775 - - 1,720 22,534 92 50,073
Write-downs (14,043) - - - - - (4) (14,047)
Translation effect 149
_________ _________- _________- _________- _________- _________- _________- 149
_________
Balance as of December 31, 2018 147,713 7,678 - - 1,720 22,534 2,114 181,759
_________ _________ _________ _________ _________ _________ _________ _________
Additions, note 23(b) 24,943 847 - - 1,877 24,582 189 52,438
Write-downs (1,506) - - - - - (472) (1,978)
Translation effect (58)
_________ _________- _________- _________- _________- _________- (7)
_________ (65)
_________
Balance as of December 31, 2019 171,092 8,525 - - 3,597 47,116 1,824 232,154
_________ _________ _________ _________ _________ _________ _________ _________
Acquisition of Subsidiary, note 2(b) 54,212 - - - - - - 54,212
Additions, note 23(b) 26,517 2,298 - - 1,877 41,182 404 72,278
Write-downs (698) - - - - - - (698)
Translation effect 309 - - - - - - 309
Disposal to subsidiary (525) - - - - - - (525)
_________ _________ _________ __________ _________ _________ _________ __________
Balance as of December 31, 2020 250,907 10,823 - - 5,474 88,298 2,228 357,730
_________ _________ _________ __________ _________ _________ _________ __________
Net book value as of December 31, 2020 119,623 30,505 862,428 2,722,074 40,826 116,502 20,743 3,912,701
_________ _________ _________ __________ ________ _________ _________ __________
Net book value as of December 31, 2019 83,300 32,803 805,135 1,982,106 42,703 157,684 42,017 3,145,748
_________ _________ _________ __________ ________ _________ _________ __________
Net book value as of December 31, 2018 98,468 33,650 805,135 1,982,106 44,580 182,266 31,981 3,178,186
_________ _________ _________ __________ ________ _________ _________ __________

69
Notes to the combined financial statements (continued)

(b) The Companies estimated the fair value of their intangible assets using the “Relief from royalty”
method, which constitutes a usual method of discounted cash flows used for the valuation of
commercial brands. The main assumption of this method is that the Company owner of the brand
saves the royalty payment to other hypothetical owner, therefore the value of this brand would
be represented by the amount that is avoided to pay for these royalties. The detail of the brands
with indefinite useful life is presented below:

Amount
S/(000)

Brands with indefinite life -

Inkafarma, acquired in 2011 373,054
Mifarma, note 2(a) 395,355
Química Suiza, note 2(a) 17,791
Ninet, note 2(a) 15,911
Makro, note 2(b) 57,293
Other, note 2(a) 3,024
_________
862,428
_________

The factors considered to determine that the brand has an indefinite life are the following:

- History and expected use of the asset by the Companies: this is the most important factor
to consider in the definition of the useful life of the brands “Inkafarma”, “Mifarma”,
“Química Suiza”, “Ninet”, “CiFarma”, “CIPA” and “Makro” considering that those are the
most recognized brands in the pharmacy industry and food retail in Peru and the Company
expects to further strengthen it in the market in the long term.

- Legal, regulatory or contractual limits to the useful life of the intangible asset: there are
no legal, regulatory or contractual limits linked to the brands. The brands are duly
protected and the pertinent registrations remain valid.

- Effect of obsolescence, demand, competition and other economic factors: “Inkafarma”,

“Mifarma”, “Química Suiza”, “Ninet”, “CiFarma”, “CIPA” and “Makro”, are the most
recognized brands in the pharmacy and food retail industry in Peru. This implies a low risk
of obsolescence.

- Maintenance of the necessary investment levels to produce the projected future cash
flows for the brands are based on investments in marketing, technology and the growth
and revamping of the pharmacy chain infrastructure. Furthermore, efficiencies are
expected as a result of synergies and the growth in scale of the operations, which are
compatible and reasonable for the industry. However, an increase in general
administration expenses is also contemplated to sustain the projected increase in sales.

- Relationship of the useful life of an asset or group of assets with the useful life of an
intangible asset: The brands do not depend on the useful life of any asset or group of
assets as they exist independently, and are not related to sectors subject to technological
obsolescence or other causes.

70
Notes to the combined financial statements (continued)

(c) Goodwill is initially measured at cost, which corresponds to the excess of the aggregate of the
consideration transferred and the amount recognized for non-controlling interests, if existing,
over the net identifiable assets acquired and liabilities assumed. The details of goodwill are
presented below:

Amount
S/(000)

Goodwill -
Inkafarma, acquired in 2011 709,472
Quicorp acquired in 2018, note 2(a) 1,272,634
Makro, acquired in 2020, note 2(b) 739,968
__________
2,722,074
__________

Management carries out an annual recoverability test to its indefinite-life assets, composed of
goodwill and brands. To do so, the goodwill and the brands acquired in business mergers were
allocated to the cash generating unit (CGU) “Pharmacies” and “Food Retail” from the acquisition
date.

When the CGU’s recoverable amount is less than its carrying amount, an impairment loss is
recognized. The impairment losses related to goodwill cannot be reversed in future periods.

The recoverable amounts of the “Pharmacies” and “Food Retail” cash-generating unit has been
determined based on fair value less cost of sales calculated using cash flow projections from
financial budgets approved by senior management covering a ten-year period.

The cash flows that continue beyond the period indicated in the projections were extrapolated
using a specific growth rate similar to the average long-term growth rate for the country in which
each entity operates.

Following are the key assumptions used in the impairment assessment for each CGU as of
December 31, 2020, 2019 and 2018:

- Sales growth rate – A sales growth rate was considered for each CGU between 3 and 11
percent. This growth rate is based on expected operational plans for each CGU and brand.

- EBITDA margins – A margin from 13.0 to 14.4 percent was considered for sales. EBITDA
margins are based on historical values recorded in years prior to the beginning of the
budgeted period and increases during the budgeted period with the normal expected
efficiency improvements.

- Royalty rate - A royalty rate from 0.9 to 1.9 percent was considered. Royalty rates are
based on values considered in the purchase price allocation of Quicorp. In addition, these
rates were corroborated with information of similar transactions in purchase price
allocation processes.

71
Notes to the combined financial statements (continued)

- Discount rates – Discount rates used for each CGU is 8.06 percent as of December 2020;
between 8.7 and 9.7 percent as of December 2019 and between 9.1 and 13.4 percent as
of December 2018. Discount rates represent the current market assessment of the risks
specific to each CGU and brand, taking into consideration the time value of money and
individual risks of the underlying assets that have not been incorporated in the cash flow
estimates. The discount rate calculation is based on the specific circumstances of the CGU
and brands and represents its weighted average cost of capital (WACC). The beta factors
are evaluated annually based on publicly available market data. The factors that have an
impact on the discount rate calculation, as country risk, free discount rate, beta, market
premium and cost of debt are evaluated annually based on publicly available market data.

In the opinion of the Companies’ Management, the aforementioned assumptions are, in general
terms, aligned to information of the sector in which each CGU and brand operates.

As of December 31, 2020, 2019 and 2018, the book value of goodwill related to each CGU has
been compared with the recoverable value and Management has determined that it is not
necessary to record any impairment.

The key assumptions described above may change if market conditions and the economy change.
The Companies estimate that changes in these assumptions, which would be reasonable to
expect, would not cause the recoverable amount of "Pharmacies" and “Food Retail” CGU to
decrease below their book value.

(d) For the valuation of customer relationships and contracts with represented companies, the “Multi
Period Excess Earning Method” was applied. It reflects the present value of the surplus cash flows
generated by the intangible asset during their lifespan after deducting tax charges for the
tangible or intangible operating assets used.

Customer relationships result from the provision of a service for the manufacturer of one or
more specific products. To determine the lifespan, the historical loss of customers in each
business operation and its consistency with the characteristics of the business and the market in
which it operates were analyzed.

On the other hand, contracts with represented companies mainly define the exclusivity for the
distribution of a product, as well as the inventory levels required to maintain the operation. To
determine the lifespan, the remaining lifespan of contracts in force at the transaction date and
the history of renewals were considered.

(e) Additions for the years 2020, 2019 and 2018 mainly correspond to disbursements made by the
Companies for the acquisition of software, licenses and brands. Such disbursements include the
costs of acquisition of the software and licenses, development costs and other directly
attributable costs. In Management’s opinion, work in progress as of December 31, 2020, will be
substantially completed during 2021.

72
Notes to the combined financial statements (continued)

(f) As of December 31, 2020, 2019 and 2018, the Companies do not maintain guarantees on their
intangible assets.

(g) In the case of intangible assets with a definite useful life, in the opinion of Management, there is
no indicator of impairment as of December 31, 2020, 2019 and 2018. Likewise, as of December
31, 2020, 2019 and 2018, Management carried out an impairment test for the brands with
indefinite useful life (detailed in (b), above), and, as a result of that test, it has determined that it
is not necessary to recognize any provision for impairment.

16. Trade accounts payables

(a) The table below presents the composition of this caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Bills payable for purchase of goods (b) 2,903,428 2,549,796 2,432,652

Bills payable for commercial services 247,873 271,710 462,357
Provision for services and maintenance 97,560 78,460 30,154
___________ ___________ ___________

3,248,861 2,899,966 2,925,163

___________ ___________ ___________

Current portion 3,248,861 2,899,966 2,914,430

Non-current portion - - 10,733

___________ ___________ ___________

3,248,861 2,899,966 2,925,163

___________ ___________ ___________

(b) This caption mainly includes the obligations to non-related local and foreign suppliers,
denominated in local currency and US Dollars, with current maturities and that do not bear any
interest, there have been no liens granted on these obligations.

The Companies offer to their suppliers access to an accounts payable services arrangement
provided by third party financial institutions. This service allows the suppliers to sell their
receivables to the financial institutions in an arrangement separately negotiated by the supplier
and the financial institution, enabling suppliers to better manage their cash flow and reduce
payment processing costs. The Companies have no direct financial interest in these transactions.
All the Companies’ obligations, including amounts due, remain due to their suppliers as stated in
the supplier agreements.

73
Notes to the combined financial statements (continued)

17. Other accounts payables

(a) The table below presents the composition of this caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Provision for contingencies, note 28(b) 110,876 80,918 71,604

Employees profit sharing (b) 103,271 81,744 54,545
Non domiciled tax 83,274 - -
VAT payable 54,371 45,331 35,558
Salaries and social benefits 53,062 32,590 37,243
Vacations accrual 47,905 45,448 46,618
Taxes payable 31,565 19,976 20,024
Interest payable of financial obligations and
senior notes, note 19(f) 25,873 23,824 23,542
Fines to pay 23,000 - -
Provision for retirement and eviction pensions
(c) 21,131 19,865 20,429
Rent payable 13,325 - 4,548
VAT withholdings in purchases 11,898 7,195 17,117
Deposits from third parties 6,856 4,287 5,755
Shopping vouchers pending to be used - 15,223 29,526
Provisions for unbilled construction and
maintenance services - 7,156 8,897
Severance indemnity - 6,240 5,657
Other 49,796 20,844 50,076
_________ _________ _________

636,203 410,641 431,139

_________ _________ _________

Current portion 612,755 389,352 409,285

Non-current portion 23,448 21,289 21,854
_________ _________ _________
636,203 410,641 431,139
_________ ________ ________

The above items have mostly current maturities, do not bear interests and have no guarantees
granted on them.

(b) In accordance with the employee profit sharing regime in force regulated by the Legislative
Decree 677, the employees in Peru have the right to receive a participation of 8 percent of
taxable income, 50 percent of that amount is distributed pro rata amongst all the employees on
the basis of the days worked and the remaining balance in proportion with the basic
remunerations perceived in the period.

74
Notes to the combined financial statements (continued)

(c) In accordance with the labour law in Ecuador, the workers who meet certain conditions during
their labour period, will have the right to be retired by their employers or to receive a pension in
case the labour relationship has been produced by eviction. The provision for retirement and
eviction pensions is determined by an external qualified actuarial, using market factors and
estimation in accordance with the actuarial methodology and considering the labour law in
Ecuador. The provision for retirement and eviction pensions as of December 31, 2020, 2019 and
2018, covers appropriately the amount that was estimated in the actuarial valuation.

75
Notes to the combined financial statements (continued)

18. Interest–bearing loans and borrowings

(a) The table below presents the composition of interest – bearing loans and borrowings:

Original Interest
Type of obligation currency rate Maturity Original amount
_____________________________________________________________
2020 2019 2018
% US$(000) $(000) S/(000) S/(000) S/(000) S/(000)

Leasing (b) -
Related entity, note 26(b)
Banco International del Perú S.A.A.- Interbank S/ Between 4.98 and 7.85 2019 - 2024 - - 101,963 101,275 100,955 125,537

Non – related entities

Banco de Crédito del Perú S/ Between 5.050 and 7.560 2020 – 2025 - - 40,741 32,508 3,992 19,021
Hewlett Packard S.R.L. (c) US$ Between 1.45 and 5.564 2021 - 2025 20,148 - - 26,822 18,865 25,099
Banco Interamericano de Finanzas S/ Between 5.240 and 7.500 2021-2022 - - 36,111 15,557 - -
BBVA Banco Continental S.A. S/ 4.950 2019 – 2024 - - 18,279 12,026 63 392
Banco Santander del Perú S.A. S/ Between 6.920 and 8.550 2020 - 2022 - - 2,747 644 1,043 848
Scotiabank Perú S.A.A. S/ Between 6.75 and 7.55 2019 – 2020 - - 24,831 - 3,064 10,988
IBM Perú S.A.C. (c) US$ 2.17 2019 335 - - - - 37
__________ __________ __________
188,832 127,982 181,922
__________ __________ __________

Notes and loans (d) -

Related entity, note 26(b)
Banco Internacional del Perú S.A.A.– Interbank S/ Between 0.4 and 4.98 2021 - 2025 - - 394,987 335,286 322,965 243,399

Non – related entities

J.P. Morgan Chase Bank N.A., note 2(b) US$ 1.438 2021 375,000 - - 1,344,679 - -
Banco Scotiabank Perú S.A.A. S/ Between 1.180 and 5.65 2019 - 2026 - - 1,154,050 888,544 941,983 799,845
BBVA Banco Continental S.A. S/ Between 3.99 and 6.100 2019 – 2025 - - 135,000 119,103 15,000 20,000
Banco de Crédito del Perú S/ Between 3.99 and 5.65 2019 - 2021 - - 203,000 53,000 124,250 179,206
Citibank S.A. (Ecuador) US$ 5.00 2022 10,000 - - 30,203 33,170 -
Banco de Bogotá (Colombia) COP 6.7 2020 - 2,900,000 - 3,061 2,935 3,015
Banco Pichincha S.A. (Ecuador) US$ 8.95 2020 – 2021 500 - - 1,087 1,659 27,033
BBVA Colombia (Colombia) COP 6.100 2021 - 89,968 - 94 - -
Citibank S.A. S/ 2.79 2020 - - 33,000 - 26,000 -
Banco Bolivariano C.A. (Ecuador) US$ Between 7.30 and 8.90 2020 6,000 - - - - 16,050
Banco Internacional S.A. (Ecuador) US$ Between 8.50 and 9.12 2019 3,500 - - - - 11,827
Banco de la Producción S.A. Produbanco (Ecuador) US$ 7.95 2019 5,000 - - - - 11,440
Others US$ Between 7.93 and 8.26 2019 - 2020 8,892 - - - 8 9,540
__________ __________ __________
2,775,057 1,467,970 1,321,355
__________ __________ __________
Financed premium “Call Spread”, note 12(b)
Citibank N.A. US$ 6.473 2023 18,297 - - 35,785 44,491 56,532
__________ __________ __________
35,785 44,491 56,532
__________ __________ __________

2,999,674 1,640,443 1,559,809

__________ __________ __________

Current portion 1,672,617 354,009 411,718

Non–current portion 1,327,057 1,286,434 1,148,091
__________ __________ __________
2,999,674 1,640,443 1,559,809
__________ __________ __________

76
Notes to the combined financial statements (continued)

(b) As of December 31, 2020, 2019 and 2018, leasing contracts are in local and foreign currency,
intended mainly for the equipment of commercial stores and warehouses of the Companies. In
accordance with the provisions of the leasings contracts, the guarantees that the Companies
maintain with the financial entities are the same assets related to those contracts, see note
13(a.1).

(c) Corresponds to the debt acquired by the purchase and financial leasing of computer equipment.
These obligations do not have specific guarantees.

(d) Promissory notes and bank loans are used to finance working capital and do not have any specific
guarantee.

The main financial requirements (“covenants”) maintained for loans acquired with Banco
Internacional del Perú S.A.A., Banco de Crédito del Perú and Scotiabank Perú S.A.A., during their
duration, are measured as follows using the financial statements of InRetail Pharma S.A. and
Supermercados Peruanos S.A., as applicable:

- The net debt ratio resulting from dividing (i) the net financial debt by (ii) the LTM (last
twelve months) EBITDA must not be greater than 3.50 in the case of Banco Internacional
del Perú S.A.A., Banco de Crédito del Perú and Scotiabank Peru S.A.A.

- The ratio of number of years to pay off the structural debt resulting from dividing (i) the
structural debt by (ii) the theoretical cash generation (last twelve months) must not be
greater than 8.00 in the case of Banco de Crédito del Perú.

Likewise, the Bridge Facility acquired with the JPMorgan Chase Bank, N.A. contains covenants,
including restrictions on incurrence of debt and maintenance of certain financial ratios, among
others.

As of December 31, 2020, 2019 and 2018, the Companies have complied with the financial
requirements (“covenants”) indicated above.

(e) The accrued interest during the year 2020, 2019 and 2018 for loans and borrowings was
approximately S/81,662,000, S/73,961,000 and S/110,252,000, respectively, and are
presented in the “Financial costs” caption of the combined income statements, see note 25.

77
Notes to the combined financial statements (continued)

(f) Future minimum payments for the leasing described in subsection (a) of this Note, net of future financial charges, are as follows:

2020 2019 2018

________________________________________ ________________________________________ ________________________________________
Present value of Present value of Present value of
Minimum the leasing Minimum the leasing Minimum the leasing
payments installments payments installments payments installments
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Up to 1 year 40,741 32,445 27,271 17,348 74,423 50,500

Between 1 and 5 years 175,671 156,387 127,766 110,634 128,499 131,422
_________ _________ _________ _________ _________ _________
Total minimum payments 216,412 188,832 155,037 127,982 202,922 181,922
Minus- amounts representing finance charges (27,580) - (27,055) - (21,000) -
_________ _________ _________ _________ _________ _________

Present value of future minimum payments 188,832 188,832 127,982 127,982 181,922 181,922
_________ _________ _________ _________ _________ _________

(g) Debts and interest – bearing loans are payable as follow:

2020 2019 2018

S/(000) S/(000) S/(000)

2019 - - 411,718
2020 - 354,009 332,541
2021 1,672,617 189,023 216,588
2022 381,469 182,856 225,843
2023 forward 945,588 914,555 373,118
__________ __________ __________

Total 2,999,674 1,640,443 1,559,808

__________ __________ __________

78
Notes to the combined financial statements (continued)

19. Senior notes issued

(a) The table below presents the composition of this caption:

Type of Original Interest

obligation currency rate Maturity (*) Original amount 2020 2019 2018
___________________________________________
% US$(000) S/(000) S/(000) S/(000) S/(000)

Senior Notes Unsecured (b) US$ 5.375 May, 2023 400,000 - 1,436,872 1,310,706 1,330,899
Senior Notes Unsecured (c) S/ 6.4375 May, 2025 - 385,800 384,041 383,707 383,390
_________ __________ __________ __________ __________

Total 400,000 385,800 1,820,913 1,694,413 1,714,289

_________ _________ __________ __________ __________

(*) The payment of the principal is at maturity; consequently, balances as of December 31, 2020, 2020, 2019 and 2018 are considered long-term.

(b) In May 2018, InRetail Pharma S.A. issued “Senior Notes Unsecured” in the international market for US$400,000,000 equivalent to S/1,449,600,000 as of December 31, 2020 (equivalent
S/1,326,800,000 as of December 31, 2019 and equivalent to S/1,351,600,000 as of December 31, 2018), with a nominal interest rate of 5.375 percent and maturity in 2023. These borrowings were
recorded in the combined financial statements at their amortized cost at a 5.778 percent effective interest rate, after considering the respective up-front fees for approximately US$3,512,000 equivalent
to a total amount of approximately S/12,728,000 as of December 31,2020 (approximately US$4,852,000 equivalent S/16,094,000 as of December 31, 2019 and approximately US$6,144,200 equivalent
S/20,701,000 as of December 31,2018).

(c) In May 2018, InRetail Pharma S.A. issued “Senior Notes Unsecured” in the local market for S/385,800,000, with a nominal interest rate of 6.4375 percent and maturity in 2025. These borrowings were
recorded in the combined financial statements at their amortized cost at a 6.559 percent effective interest rate, after considering the respective up-front fees for approximately S/1,759,000 as of
December 31,2020 (S/2,093,000 as of December 31, 2019, and S/2,410,000 as of December 31,2018).

(d) The funding indicated in paragraphs (b) and (c) was mainly used to prepay a bridge loan indicated in note 2(a). As a result of these issuances certain obligations and restrictive clauses must be complied until
their maturity or cancellation. The financial ratio required to the issuer and to the subsidiaries at all times collectively represent at least 85 percent of the InRetail Pharma S.A. and Subsidiaries’
Consolidated Adjusted EBITDA. In Management’s opinion, these clauses do not limit the InRetail Pharma operations and have been complied as of December 31, 2020, 2019 and 2018.

(e) It is worth mentioning that, in October 2014, InRetail Consumer, made a private offering of bonds named “Senior Notes Unsecured” in the local market and abroad for US$300,000,000 and
S/250,000,000, at a nominal interest rate of 5.2500 percent and 6.8125 percent, respectively, with maturity in October 2021. These obligations were recorded at amortized cost at an effective annual
interest rate of 5.5869 percent and 6.8805 percent for the issuance in U.S. Dollars and Soles, respectively, after considering the initial charges. In February 2018, these “Senior Notes Unsecured” were
pre-paid. Consequently, as indicated in note 12(c), the call spread related to these bonds was settled in advance in April 2018.

The premium for early settlement of the senior notes amounted to US$8,243,000 (equivalent to S/26,798,000) and S/26,008,000, see note 25. Likewise, during 2018, the accrued structuring costs for
S/11,071,000 and S/561,000, presented in the “Structuring costs accrued” caption of combined income statements, see note 25.

(f) The accrued interests during the year 2020, 2019 and 2018 for these senior notes amounted to approximately S/103,445,000, S/99,726,000 and S/75,747,000, respectively, and are presented in the
“Financial costs” caption of the combined income statements, see note 25. Likewise, as of December 31, 2020, the outstanding amounts of interest obligations and senior notes to pay approximately amount
to S/25,873,000 (S/23,824,000 and S/23,542,000 as of December 31, 2019 and 2018, respectively) and are presented in the “Other accounts payables” caption of combined statements of financial
position, see note 17(a).

Additionally to the information included in the paragraph (e), during 2020, 2019 and 2018 the Companies accrued structuring costs for S/8,554,000, S/8,270,000 and S/36,399,000, respectively, are
presented in the “Structuring costs accrued”, see note 25.

79
Notes to the combined financial statements (continued)

20. Deferred income tax

(a) The table below present the composition of this caption by Subsidiary:

2020 2019 2018

_______________________________-- ________________________________ ________________________________
Deferred asset, Deferred liability, Deferred asset, Deferred liability, Deferred asset, Deferred liability,
net net net net net net
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Supermercados Peruanos S.A. and Subsidiaries 3,279 (132,990) 2,379 (78,925) 453 (78,734)
InRetail Pharma S.A. and Subsidiaries 84,887
_________ (206,516)
_________ 46,293
_________ (240,762)
_________ 59,702
_________ (263,709)
_________
88,166 (339,506) 48,672 (319,687) 60,155 (342,443)
Combined adjustments (*) (163)
_________ (111,773)
_________ (643)
_________ (112,095)
_________ _________- (111,916)
_________

Deferred, net 88,003 (451,279) 48,029 (431,782) 60,155 (454,359)

__________ __________ __________ __________ __________ __________

(*) As of December 31,2020, 2019 and 2018, corresponds to eliminations and adjustments of combined, mainly related to the “Inkafarma” brand.

80
Notes to the combined financial statements (continued)

(b) The table below presents the detail of the deferred income tax assets and liabilities by nature:

(Debit)/credit
(Debit)/credit to (Debit)/credit to to the
Balance as of Acquisition of the combined Balance as of the combined Adoption of Balance as of Acquisition of Disposal combined Balance as of
January 1, subsidiary, statement of December 31, statement of IFRS 16, note December 31, subsidiary, note Subsidiary, statement of December 31,
2018 note 2(a) income Equity Translation 2018 income 3.3 Equity Translation 2019 2(b) note 2(c) income Equity Translation 2020
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Deferred asset -
Tax loss - 33,153 (6,180) - - 26,973 (10,042) - - - 16,931 - - (4,642) - - 12,289
Differences in depreciation rates 458 8,279 765 - - 9,502 2,169 - - - 11,671 - - 4,604 - - 16,275
Provisions 180 3,496 3,200 - 26 6,902 (1,990) - - (48) 4,864 - (2) 7,868 - 185 12,915
Leases - - - - - - 5,890 - - 3 5,893 - (6) 17,621 - 31 23,539
Provision for holidays 4,640 3,650 (4,165) - 8 4,133 (14) - - (3) 4,116 - (37) 4,469 - 10 8,558
Provision for doubtful accounts 110 3,594 (1,188) - 55 2,571 390 - - (32) 2,929 - - 2,175 - 190 5,294
Provision for impairment of - (27) 889 - 76 3,523
inventories 995 2,072 (548) - 27 2,546 51 - - (12) 2,585
Rebates estimate 3,256 49 (2,954) - (1) 350 - - - - 350 - - 2,811 - 5 3,166
Others 9,617 10,269 (5,918) (936) 9 13,041 (2,984) - (2,637) (23) 7,397 - (8) 9,804 18,117 171 35,481
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
19,256 64,562 (16,988) (936) 124 66,018 (6,530) - (2,637) (115) 56,736 - (80) 45,599 18,117 668 121,040
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Deferred liability -
Higher book value of property,
furniture and equipment (657) - 657 - - - (107) - - - (107) - - (1,100) - - (1,207)
Leases - - - - - - (2,343) - - 1 (2,342) - - 82 - (24) (2,284)
Hedging effect "Call Spread" - - - - - - - - - - - - - (14,042) - - (14,042)
Others (5,620) - (243) - - (5,863) (396) - - 1 (6,258) - - (3,064) (6,182) - (15,504)
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
(6,277) - 414 - - (5,863) (2,846) - - 2 (8,707) - - (18,124) (6,182) (24) (33,037)
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Total deferred income tax asset, net 12,979 64,562 (16,574) (936) 124 60,155 (9,376) - (2,637) (113) 48,029 - (80) 27,475 11,935 644 88,003
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________

Deferred asset -
Leases - - - - - - 45,164 - - - 45,164 744 - 1,038 - - 46,946
Loss due to theft of goods 20,785 - 14,460 - - 35,245 (634) - - - 34,611 2,459 - (3,766) - - 33,304
Rebates estimate 8,459 - 4,762 - - 13,221 - - - - 13,221 - - (2,811) - - 10,410
Provisions 8,874 - 2,570 - - 11,444 917 - - - 12,361 2,682 - (909) - - 14,134
Provision for holidays 3,542 - 6,155 - - 9,697 192 - - - 9,889 847 - (3,713) - - 7,023
Differences in depreciation rates - - 1,890 - - 1,890 3,067 - - - 4,957 809 - (5,347) - - 419
Unrealized gain in sales of inventories - - - - - - 4,788 - - - 4,788 - - 28,389 - - 33,177
Others 483 - 1,230 5,169 - 6,882 4,235 - (3,759) - 7,358 5,597 - (4,862) - - 8,093
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
42,143 - 31,067 5,169 - 78,379 57,729 - (3,759) - 132,349 13,138 - 8,019 - - 153,506
_________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Deferred liability -
Higher value of intangibles generated
in business combination (111,916) (222,750) 11,482 - - (323,184) 7,795 - - - (315,389) (75,107) - 12,787 - - (377,709)
Higher depreciation for lease and
leaseback (96,505) - (7,877) - - (104,382) (6,717) - - - (111,099) (19,851) - (6,965) - - (137,915)
Higher book value of property,
furniture and equipment - (46,758) (616) - - (47,374) 280 - - - (47,094) (5,000) - (438) - - (52,532)
Leases - - - - - - (39,225) - - - (39,225) - - 31,387 - - (7,838)
Gain from valuation of investment
properties (3,324) - (798) - - (4,122) (2,947) - - - (7,069) - - 4,286 - - (2,783)
Depreciation of investment properties (5,789) - (3,753) - - (9,542) (1,240) - - 1 (10,781) - - (3,847) - - (14,628)
Attributed cost for land appraisal (15,531) - - - - (15,531) - - - - (15,531) - - - - (15,531)
Hedging effect "Call Spread" - - (14,042) - - (14,042) - - - - (14,042) - - 14,042 - - -
Others (1,914) - (12,647) - - (14,561) 13,357 (2,701) - 4 (3,901) - - 4,538 3,637 (123) 4,151
_________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________
(234,979) (269,508) (28,251) - - (532,738) (28,697) (2,701) - 5 (564,131) (99,958) - 55,790 3,637 (123) (604,785)
_________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________
Total deferred income tax liability,
net (192,836) (269,508) 2,816 5,169 - (454,359) 29,032 (2,701) (3,759) 5 (431,782) (86,820) - 63,809 3,637 (123) (451,279)
_________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________ _________

81
Notes to the combined financial statements (continued)

(c) The table below presents the income tax expenses reported in the combined statements of
income of 2020, 2019 and 2018:

2020 2019 2018

S/(000) S/(000) S/(000)

Current -
In Peru (288,341) (213,938) (120,718)
Abroad (6,774) (9,918) (10,431)
__________ __________ __________
(295,115) (223,856) (131,149)
__________ __________ __________

Deferred (*) -
In Peru 77,196 12,207 (14,947)
Abroad 14,088 7,449 1,189
__________ __________ __________
91,284 19,656 (13,758)
__________ __________ __________
(203,831) (204,200) (144,907)
__________ __________ __________

(*) The deferred income tax has been calculated on all temporary differences, considering the effective
income tax rate where the Companies and their subsidiaries are located.

(d) The following is the determination of the income tax:

2020
_________________________ 2019
_________________________ 2018
_________________________
S/000 S/000 S/000 % S/000 %

Income before income tax 599,820

__________ 100.00
________ 601,946
__________ 100.00
________ 290,725
_________ 100.00
________
Theoretical expense (176,947) (29.50) (177,574) (29.50) (85,764) (29.50)
Effect of permanent
differences (26,884)
__________ (4.48)
________ (26,626)
__________ (4.40)
________ (59,143)
_________ (20.34)
________

Expense for income tax (203,831) (33.98) (204,200) (33.90) (144,907) (49.84)
_________ _______ _________ _______ ________ _______

(e) The income tax asset corresponds to the subsidiaries that, as of December 31, 2020, maintain a
credit for this tax, which, at those dates, amounts to approximately S/85,193,000
(approximately S/44,493,000 and S/102,079,000 as of December 31, 2019 and 2018); see
note 8(a).

The income tax liability is presented net of the advanced payments of this tax and corresponds to
the subsidiaries that maintain income tax payable. As of December 31, 2020, 2019 and 2018,
the income tax payable amounts to S/73,682,000, S/21,301,000 and S/10,665,000,
respectively.

82
Notes to the combined financial statements (continued)

21. Equity
(a) Capital stock –
It is represented as follow:

N° common shares issued

_____________________________________________________________ Accounting balance of issued shares
_____________________________________________________________
As of December 31, As of December 31, As of December 31, Nominal
Company Country 2020 2019 2018 value 2020 2019 2018
S/(000) S/(000) S/(000)

Supermercados Peruanos S.A. and Subsidiaries Peru 330,428,609 330,428,609 320,278,896 1.05 346,950 346,950 336,293
InRetail Pharma S.A. and Subsidiaries Peru 13,783,379 13,783,379 13,783,379 1.00 13,784 13,784 13,784
_________ _________ _________

360,734 360,734 350,077

_________ _________ _________

As of December 31, 2019, Supermercados Peruanos S.A. received equity contributions by InRetail Perú Corp. which were recorded as an increase of the capital stock pending to issue for approximately S/8,817,000
(S/19,474,000 as of December 31, 2018).

(b) Additional paid-in capital –

As of December 31, 2020, 2019 and 2018, amounts to approximately S/706,427,000 which includes the net effect of combined adjustments as of those dates, which mainly represent the highest value of InRetail Pharma
S.A. and subsidiaries since its acquisition, net of debts that are directly related to the Companies.

(c) Yields prepayments -

During 2020, 2019 and 2018, the yields prepayments amounts to approximately S/277,176,000, S/168,707,000 and S/21,658,000, respectively.

(d) Legal reserve -

As provided in the Corporations Act, it is required that a minimum of 10 percent of distributable income for each year is transferred to a legal reserve until such reserve equals 20 percent of the capital.
The legal reserve can absorb losses or be capitalized, in both cases there must be replenished. The legal reserve is appropriated when the General Shareholders' Meeting approves the same. As of
December 31, 2020, the Companies have transferred approximately S/26,166,000 to legal reserve (approximately S/8,163,000 and S/8,383,000 as of December 31, 2019 and 2018).

83
Notes to the combined financial statements (continued)

22. Tax Situation

(a) The Companies are subject to taxation in the country in which they operate and are taxed on the
basis of their non-combined profits. As of December 31, 2020, 2019 and 2018, the income tax
rates on taxable income in the main countries in which the Companies operate are:

Tax rates
____________________________________________
2020 2019 2018
% % %

Peru 29.50 29.50 29.50

Ecuador 25.00 25.00 25.00

Colombia (*) 32.00 33.00 33.00
Bolivia 25.00 25.00 25.00

(*) According to the legislation in force in Colombia, from 2020 onwards the income tax rate will be as
follows:

Years Tax rate

______________

2020 32.0%

2021 31.0%

2022 onwards 30.0%

According to existing legislation in some countries as of December 31, 2019 and 2018, cash
dividends for non-domiciled shareholders are taxable for income tax according to the following
rates:

Tax rates
____________________________________________
2020 2019 2018
% % %

Peru 5.00 5.00 5.00

Ecuador 25 - 35 10.16 -

Colombia 7.50 7.50 5.00

Bolivia 12.50 12.50 12.50

(b) In Peru, transfer pricing regulations are applicable to determine the market value of transactions
made by domiciled legal entities with related companies from, to or through non-cooperative
countries or territories or those with low or no taxes, or those made with subjects whose income,
profit or gains from said transactions are subject to a preferential tax regime.

The valuation methods applied, as well as the criteria used to determine the market value, shall
be properly documented and supported. Based on the analysis of the operations, Management
and its legal advisors believe that, as a consequence of the application of these standards, no
significant contingencies will arise for the Companies Group as of December 31, 2020, 2019 and
2018.

84
Notes to the combined financial statements (continued)

(c) In Peru, for purposes of determining income tax, transfer pricing transactions with related
companies and companies resident in territories with low or no taxation, must be supported with
documentation and information on the valuation methods used and the criteria considered in its
determination. Based on the analysis of operations, Management and its legal advisors believe
that, as a result of the application of the regulation in force, there will not emerge significant
contingencies for the Companies as of December 31, 2020, 2019 and 2018.

(d) During the years following the year of filing the tax return, the tax authorities have the power to
review and, as applicable, correct the income tax computed by Companies. The Income Tax and
Value Added Tax returns for the following years are open to review by the Tax Authorities:

Income tax Valued added - tax

Supermercados Peruanos S.A. From 2014 to 2020 From 2016 to 2020

Plaza Vea Oriente S.A.C. From 2018 to 2020 From 2018 to 2020
Plaza Vea Sur S.A.C. From 2014 to 2020 From 2016 to 2020
Desarrolladora Strip Center S.A.C. From 2013 to 2020 From 2016 to 2020
Makro Supermayorista S.A. From 2015 to 2020 From 2015 to 2020
InRetail Pharma S.A. From 2015 to 2020 From 2015 to 2020
Eckerd Amazonía S.A.C. From 2015 to 2020 From 2015 to 2020
Boticas del Oriente S.A.C. From 2015 to 2020 From 2015 to 2020
Quicorp S.A. From 2015 to 2020 From 2015 to 2020
Química Suiza S.A.C. From 2016 to 2020 From 2016 to 2020
Cifarma S.A.C. From 2015 to 2020 From 2015 to 2020
Mifarma S.A.C. From 2015 to 2020 From 2015 to 2020
Albis S.A.C. From 2016 to 2020 From 2016 to 2020
Jorsa de la Selva S.A.C. From 2015 to 2020 From 2015 to 2020
Vanttive S.A.C. From 2015 to 2020 From 2015 to 2020
Superfarma Mayorista S.A.C. From 2016 to 2019 From 2016 to 2019
Quimiza Ltda. (Bolivia) From 2013 to 2020 From 2013 to 2020
Química Suiza Colombia S.A.
(Colombia) From 2018 to 2019 From 2018 to 2019
Quifatex S.A. (Ecuador) From 2019 to 2020 From 2019 to 2020
Vanttive Cía. Ltda (Ecuador) From 2016 to 2020 From 2016 to 2020
Farmacias Peruanas S.A. From 2016 to 2018 From 2016 to 2018
Boticas Torres de Limatambo S.A.C. From 2015 to 2018 From 2016 to 2018
Droguería La Victoria S.A.C. From 2015 to 2018 From 2015 to 2018
Química Suiza Comercial S.A.C. From 2015 to 2018 From 2015 to 2018
Droguería InRetail Pharma S.A.C From 2019 to 2020 From 2019 to 2020
Farmacias Peruanas S.A.C. 2020 2020
InRetail Foods S.A.C. 2020 2020

85
Notes to the combined financial statements (continued)

Due to possible interpretations that the tax authority may give to legislation, it is not possible to
determine, to date, whether the reviews will result in liabilities for the Companies. Therefore, any
major tax or surcharge that may result from eventual revisions by the tax authority would be
charged to the combined income statements of the period in which that tax or surcharge is
determined.

In Management’s opinion as well as its legal advisors opinion, any eventual additional tax
settlement would not be significant to the combined financial statements as of December 31,
2020, 2019 and 2018.

According to Peruvian law, InRetail Consumer is not considered as income taxpayers due to its
status as a SPS’s. Such entities attribute their generated results, the net losses and Income Tax
credits on foreign source income, to the holders of their certificates of participation or whoever
holds those rights.

(e) The main Peruvian tax regulations issued during 2019 are the following:

(i) By Legislative Decree No. 1424, the Regulations of the Income Tax Act, effective as of
January 1, 2020, were amended to improve the tax treatment applicable to credits
against income tax.

(ii) By Supreme Decree No. 003-2019-EF, the obligation of legal persons/entities to report
the identification of their ultimate beneficial owners was regulated. In line with this,
Superintendence Resolution No. 185-2019/SUNAT provided that legal entities domiciled
in the country with status of Principal Taxpayer as of November 30, 2019, had to file the
ultimate beneficial owner’s tax return in December, considering the maturities established
for compliance with tax obligations for November.

(iii) By Supreme Decree No. 145-2019-EF, the substantive parameters and form for the
application of the general anti-avoidance regulations contained in Standard XVI of the
Preliminary Title of the Tax Code were approved. With the publication of this standard, the
suspension of the second to fifth paragraphs of Standard XVI which regulate its
application in cases of tax avoidance was lifted.

(iv) By Emergency Decree No. 005-2019, the income tax exemption provided for capital gains
obtained by the alienation of certain marketable securities through centralized negotiation
mechanisms (Lima Stock Exchange) was extended until December 31, 2022. Likewise, the
requirements for access to said exemption (stock market presence) were modified.

(v) Emergency Decree No. 025-2019 implemented the following amendments, which came
into force on December 12, 2019:

86
Notes to the combined financial statements (continued)

- One of the criteria established for the identification of the ultimate beneficial
owners of legal entities was modified. It was established that in the case of trusts
or investment funds, such responsibility falls on the natural person acting as
trustor, fiduciary, trustee or group of beneficial owners, or any other natural
person that having the status of interested party or investor exercises final
effective control on the assets or is entitled to the profit or loss of a trust or
investment fund, as appropriate.

- Distributors of ownership shares of mutual funds investing in securities were

incorporated as withholding agents. Such withholding activity, as well as that
carried out by mutual fund administrators, investment fund administrators, trust
asset securitization companies, trustees of bank trusts and private pension
administrators – concerning contributions without social security purposes –
applied to profits, income or capital gains paid to or generated for the holders of
the securities issued under the name of the funds or assets of trustors in bank
trusts or affiliates in the pension fund.

23. Operating expenses

(a) The table below presents the composition of this caption as of December 31, 2020, 2019 and
2018:

2020 2019 2018

S/(000) S/(000) S/(000)

Cost of sales and services 10,086,246 8,943,130 8,511,642

Selling expenses 2,463,595 2,377,141 2,270,890
Administrative expenses 449,485 380,510 385,685
___________ ___________ ___________
12,999,326 11,700,781 11,168,217
___________ ___________ ___________

87
Notes to the combined financial statements (continued)

(b) The table below presents the components of operating expenses included in cost of sales and services, selling and administrative expenses captions:

2020 2019 2018

_________________________________________________________________ _________________________________________________________________ _________________________________________________________________
Cost of sales Selling Administrative Cost of sales Selling Administrative Cost of sales Selling Administrative
and services expenses expenses Total and services expenses expenses Total and services expenses expenses Total
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Initial balance of goods, note 9(a) 1,773,215 - - 1,773,215 1,697,238 - - 1,697,238 986,830 - - 986,830
Initial balance of raw material, note 9(a) 15,204 - - 15,204 11,796 - - 11,796 - - - -
Initial balance of supplies, note 9(a) 1,008 - - 1,008 1,075 - - 1,075 - - - -
Initial balance of finished products, note 9(a) 189 - - 189 672 - - 672 - - - -
Acquisition of subsidiaries 121,621 - - 121,621 - - - - 677,880 - - 677,880
Purchase of goods 10,128,290 - - 10,128,290 8,920,878 - - 8,920,878 8,464,373 - - 8,464,373
Direct labor (e) 39,363 - - 39,363 35,725 - - 35,725 45,007 - - 45,007
Closing balance of goods, note 9(a) (2,012,314) - - (2,012,314) (1,773,215) - - (1,773,215) (1,697,238) - - (1,697,238)
Closing balance of raw material, note 9(a) (19,552) - - (19,552) (15,204) - - (15,204) (11,796) - - (11,796)
Closing balance of supplies, note 9(a) (550) - - (550) (1,008) - - (1,008) (1,075) - - (1,075)
Closing balance of finished products, note 9(a) (455) - - (455) (189) - - (189) (672) - - (672)
Impairment of inventories, note 9(d) 12,862 - - 12,862 8,192 - - 8,192 6,717 - - 6,717
Recovery of inventory impairment, note 9(d) - - - - (122) - - (122) (1,930) - - (1,930)
Manufacturing overhead 11,569 - - 11,569 27,786 - - 27,786 8,143 - - 8,143
Personnel expenses (e) - 943,169 291,686 1,234,855 - 898,851 236,784 1,135,635 - 863,949 220,525 1,084,474
Depreciation, note 13(a) 6,187 197,654 12,820 216,661 4,330 194,062 15,120 213,512 3,926 169,501 16,568 189,995
Depreciation of asset for right of use, note 13(b.4) 4,801 306,576 6,558 317,935 5,255 304,822 7,914 317,991 - - - -
Amortization, note 15(a) 419 56,902 14,957 72,278 73 41,976 10,389 52,438 124 40,112 9,837 50,073
Amortization of key money - - - - - - - - - 4,463 - 4,463
Services provided by third parties (c) - 418,046 80,089 498,135 2,823 437,081 72,079 511,983 1,315 437,673 77,963 516,951
Advertising - 106,728 6 106,734 - 139,495 - 139,495 - 123,780 227 124,007
Taxes - 36,695 8,647 45,342 1,272 42,678 10,233 54,183 1,142 38,821 11,873 51,836
Packing and packaging - 30,909 1,017 31,926 - 42,302 126 42,428 - 47,916 101 48,017
Leasing, note 13(b.4) 1,151 53,322 9,698 64,171 1,349 24,807 3,742 29,898 6,816 356,138 17,395 380,349
Insurance - 22,018 1,620 23,638 579 19,899 1,531 22,009 197 16,918 1,692 18,807
Provision for doubtful accounts, net of recoveries, notes
7(g) and 8(d) - 11,715 836 12,551 - 6,008 61 6,069 - 5,848 (14) 5,834
Other charges (d) 3,238 279,861 21,551 304,650 13,825 225,160 22,531 261,516 21,883 165,771 29,518 217,172
___________ __________ _________ ___________ __________ __________ _________ ___________ __________ __________ _________ ___________

10,086,246 2,463,595 449,485 12,999,326 8,943,130 2,377,141 380,510 11,700,781 8,511,642 2,270,890 385,685 11,168,217
___________ __________ _________ ___________ __________ __________ _________ ___________ __________ __________ _________ ___________

(c) Correspond mainly to expenses for electricity, water, telephone and premises maintenance services in stores.

(d) Mainly includes general expenses in stores, such as transport and vigilance services as well as legal and financial services.

88
Notes to the combined financial statements (continued)

(e) The table below presents the components of the personnel expenses:

2020 2019 2018

S/(000) S/(000) S/(000)

By nature -
Remunerations 784,888 726,403 692,933
Legal bonuses 143,733 144,240 152,229
Contributions 76,561 73,441 72,703
Employees profit sharing 94,150 71,546 48,465
Severance indemnity 64,228 62,086 61,925
Vacations 55,557 52,868 54,822
Other 55,101 40,776 46,404
__________ __________ ___________
1,274,218 1,171,360 1,129,481
__________ __________ ___________

By components -
Selling expenses 943,169 898,851 863,949
Administrative expenses 291,686 236,784 220,525
Costs of sale 39,363 35,725 45,007
___________ ___________ ___________
1,274,218 1,171,360 1,129,481
___________ ___________ ___________

The average number of directors and employees in the Companies and its Subsidiaries was
44,093 for the year 2020, 39,826 for the years 2019 and 38,107 for the year 2018.

89
Notes to the combined financial statements (continued)

24. Other income and expenses

The table below presents the components of this caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Other income -
Cancellation of contracts, note 13(b.2) 18,877 13,061 -
Sale to Subsidiary 7,233 - -
Income for sale property, installations,
furniture and equipment 3,631 1,091 16,681
Claims to insurance 3,167 2,131 803
Related income to Financiera Oh! agreement,
note 26(d) - 33,422 29,413
Contingencies recovered - 1,679 2,567
Awards - - 3,480
Others 11,517 6,292 6,665
________ ________ ________

44,425 57,676 59,609

________ ________ ________

Other expenses -
Net cost of sale and disposal of property,
installations, furniture and equipment and
intangibles, note 13(a) and 15(a) 22,706 8,715 46,459
Net cost of disposal of lease liabilities 18,362 13,137 -
Expense from participation in joint venture 2,799 7,089 4,421
Related expense to Financiera Oh! agreement,
note 26(d) 2,195 - -
Other 2,520 1,220 1,257
________ ________ ________

48,582 30,161 52,137

________ ________ ________

90
Notes to the combined financial statements (continued)

25. Finance income and cost

The table below presents the components of this caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Financial income -
Interest on time deposits 4,971 10,288 10,432
Interest on related loans 141 2,890 383
Update on the fair value of obligations - 4,788
Update on the fair value of derivative financial
instruments - - 4,369
Gain of financial instruments at fair value
through profit or loss - 413 -
Other financial income 3,438 5,074 7,908
________ ________ ________
8,550 18,665 27,880
________ ________ ________

Financial costs -
Interest expense on lease liabilities, note
13(b.2) 112,764 109,996 -
Interest on senior notes issued, note 19(f) 103,445 99,726 75,747
Interest on financial obligations, note 18(e) 81,662 73,961 110,252
“Call Spread” straight-line accrued premium,
note 12(b) and 12(c) 12,623 11,128 7,557
Structuring costs accrued, notes 19(e) and
19(f) 8,554 8,270 48,031
Expenses from the early settlement of call
spread, note 12(c) - - 3,433
Interests for related-party loans 233 6,456 7,532
Premium for early settlement of senior notes,
note 19(e) - - 52,806
Other financial costs 16,019 29,766 32,263
________ ________ ________
335,300 339,303 337,621
________ ________ ________

91
Notes to the combined financial statements (continued)

26. Transactions with related parties

(a) The following table provides the total amount of transactions that have been entered into with
related parties for the relevant financial year 2020, 2019 and 2018:

2020 2019 2018

S/(000) S/(000) S/(000)

Income -
Sale of goods 31,085 4,695 6,325
Rental income 21,261 29,112 25,054
Expenses refund (basic services) 11,842 11,166 -
Collection services 9,146 14,549 18,347
Rendering of services 4,075 1,542 10,222
Interest income 3,207 2,892 1,363
Sale of property, installations, furniture and
equipment 2,087 - 14,257
Key money income 1,139 - 5,506
Revenues related to contract between
Supermercados Peruanos S.A. and Financiera
Oh! (d) - 33,422 29,413
Other 15,128 8,375 1,361

Expenses -
Common expenses 15,753 14,352 13,244
Reimbursements of expenses 9,770 8,021 930
Renting of premises and land 9,142 5,605 4,468
Minor services 8,482 7,409 40,183
Commissions 3,380 - 2,859
Expenses related to contract between
Supermercados Peruanos S.A. and Financiera
Oh! (d) 2,195 - -
Interest 233 8,355 12,426
Other 20,267 9,756 19,169

Other transactions -
Collections of loans 500 122,005 -
Loans granted to related parties (1,860) (117,250) (3,314)
Fair value effect of investment properties
distributed to associates 1,722 (2,626) 956

92
Notes to the combined financial statements (continued)

(b) As a result of the transactions with related parties, the Companies have the following balances of
receivables and payables as of December 31, 2020, 2019 and 2018:

2020 2019 2018

S/(000) S/(000) S/(000)

Receivables -
Financiera Oh! S.A. 29,531 9,064 9,297
Homecenters Peruanos S.A. 3,072 2,701 10,842
Tiendas Peruanas S.A. 1,845 2,768 1,212
Home Centers Oriente S.A.C. 1,212 1,056 22
Real Plaza S.A. 141 343 286
Banco Internacional del Perú S.A.A. - 3,996 941
IR Management S.R.L. - 2,790 1,728
Intercorp Perú Ltd. - - 3,480
Intercorp Retail Inc. - - 3,416
Other 11,047 4,305 6,191
_________ _________ _________
46,848 27,023 37,415
_________ _________ _________

Payables -
Patrimonio en Fideicomiso-DS. N°093-2002-EF
Interproperties Holding II (c) 50,150 53,158 50,282
Home Centers Peruanos S.A. (c) 40,228 42,786 32,647
Financiera Oh! S.A. 18,676 23,011 7,430
Banco Interbank -
Guarantee deposits (e) 3,393 6,634 6,046
Line of credits and other - - 80
IR Management S.R.L. 1,832 3,568 2,223
Tiendas Peruanas S.A. 1,508 635 29
Real Plaza S.A. 1,045 1,213 903
Inmobiliaria Milenia S.A. 254 1,151 423
Interseguro Compañía de Seguros S.A. 49 395 -
Other 2,852 2,131 1,688
_________ _________ _________
119,987 134,682 101,751
_________ _________ _________

For time -
Current portion 29,439 45,858 14,654
Non-current portion 90,548 88,824 87,097
_________ _________ _________
119,987 134,682 101,751
_________ _________ _________

Debts and loans bearing interest, Note 18(a)

Banco Internacional del Perú S.A.A. – Interbank 436,561 423,920 368,936

93
Notes to the combined financial statements (continued)

The policy of the Companies is to make transactions with related companies at terms equivalent
to those that prevail in arm’s length transactions.

The remuneration of key personnel for the years 2020, 2019 and 2018, was approximately
S/45,590,000, S/39,848,000 and S/50,173,000, respectively.

(c) Supermercados Peruanos S.A. and its subsidiaries maintain joint venture contracts with
Patrimonio en Fideicomiso – D.S. N°093-2002-EF-Interproperties Holding II and Homecenters
Peruanos S.A. (hereinafter “the associates”). The objective of these contracts is the
construction, development and exploitation of the Strip center projects “La Curva”, “Lurin” and
“Tarapoto”.

The movements in the provision of the joint venture for the years ended on December 31, 2020,
2019 and 2018, were as follows:

La Curva Lurin Tarapoto Total

S/(000) S/(000) S/(000) S/(000)

Contract’s term (*) - 30 years 60 years 30 years

Balance as of January 1, 2018 42,986 20,161 - 63,147

Contributions (**) 6,448 53 12,094 18,595
Fair value (***) (1,255) 299 - (956)
_________ ________ _________ _________
Balance as of December 31, 2018 48,179 20,513 12,094 80,786

Contributions (**) - - 5,422 5,422

Fair value (***) 384 327 1,915 2,626
Exchange difference effect - - (12) (12)
_________ ________ _________ _________
Balance as of December 31, 2019 48,563 20,840 19,419 88,822

Fair value (***) (532) 106 (1,296) (1,722)

Exchange difference effect - - 55 55
_________ ________ _________ _________
Balance as of December 31, 2020 48,031 20,946 18,178 87,155
_________ ________ _________ _________

(*) Due to the term of the contract it is considered as a long-term liability.

(**) Corresponds to capital contributions granted to associates, for the culmination and construction of
strip centers. The total amount agreed corresponds to the “Participation in Association contract”.
Construction of "Tarapoto" strip center was in 2019, year in which the store opened.

(***) Corresponds to the fair value percentage allocated to each Associate, based in the interest
shareholder of the strip center, the total effect is shown in the “changes in fair value investment
properties” caption of the combined comprehensive results statement.

94
Notes to the combined financial statements (continued)

The Strip center “La Curva” is managed by a Fiduciary trust – D.S. N°093-2002-EF-
Interproperties Holding and Strip Center “Lurin” and “Tarapoto”, are managed by Homecenters
Peruanos S.A., which distribute the results on a monthly basis (based in the EBIT) of each strip
center, according to their interest shareholder to the other party of the Participation in
association. During 2019, the income allocated to the Company and its subsidiaries for “La
Curva”, “Lurín”, Tarapoto” were approximately S/4,397,000, S/1,122,000 and S/1,571,000,
respectively. During 2019, the income allocated to the Company and its subsidiaries for “La
Curva” and “Lurín” arise approximately S/689,000 and S/157,000, respectively. Tarapoto strip
center, started operations during January of 2019.

(d) On April 27, 2015, Supermercados Peruanos S.A. and Financiera Oh! S.A. entered into a contract
by which both companies and their Subsidiaries share the results of consumer loan placement of
customers who acquire goods or services with the “Oh!” Credit Card in the stores of
Supermercados Peruanos S.A. and its Subsidiaries. Such contract and their modifications were in
force until March 31 of 2020. The distribution of the result was performed taking into
consideration the share interest of each party in respect of contract contributions.

(e) It corresponds to the guarantee deposit that Supermercados Peruanos S.A. to receives for the
rental of financial modules located in its stores to Banco Internacional del Perú S.A.A. - Interbank
for US$2,000,000. As of December 31, 2020, 2019 and 2018, Supermercados Peruanos S.A.
credited the updated present value of said balances under “Financial income” of the combined
income statement. The net present values of the balances related to guarantee deposits amount
to S/,3,393,000, S/6,634,000 and S/6,311,000 as of the dates indicated above, respectively.

(f) As of December, 31, 2020, 2019 and 2018, the Companies hold the following balances in the
cash and cash equivalent and financial investments at fair value with changes in results caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Cash and cash equivalents -

Banco Internacional del Perú S.A.A.– Interbank
S.A.A. 314,555 355,248 288,451
Inteligo Bank Ltd. 491 436 499

Financial investments at fair value with changes

in results -
Interfondos S.A. S.A.F. 40,869 - 3,031

95
Notes to the combined financial statements (continued)

27. Deferred revenue

(a) The table below presents the components of this caption:

2020 2019 2018

S/(000) S/(000) S/(000)

Other operating leases as lessor (b) 17,513 17,687 18,485

Deferred income for the loyalty program with
clients (c) 11,162 8,149 19,116
Deferred income for loss of profit (d) 7,923 8,740 9,155
Other deferred revenue 2,221 1,880 1,200
_________ _________ _________

38,819 36,456 47,956

_________ _________ _________

Current portion 13,678 2,129 22,047

Non-current portion 25,141 34,327 25,909
_________ _________ _________

38,819 36,456 47,956

_________ _________ _________

(b) As of December 31, 2019 and 2018, mainly corresponds to the entrance fee received from the
tenants of the Shopping Centers of InRetail Group, which are accrued based on contractual
terms.

(c) Corresponds mainly to the loyalty program “Monedero del ahorro” that is granted by the
Companies and its Subsidiaries to their clients, who accumulate points through their purchases in
stores that can be exchanged for products offered by the Companies and its Subsidiaries. As of
December 31, 2020, 2019 and 2018, Management estimates that the deferred income as of that
date fairly reflects the future exchanges of their clients.

(d) During 2009, Supermercados Peruanos S.A. signed a lease contract with its related party
Patrimonio en Fideicomiso - D.S. N° 093-2002-EF Interproperties Perú (hereinafter
“Interproperties”), of a building located in Arequipa for a 30 years term. On 2016,
Supermercados Peruanos S.A. received from Interproperties the amount of S/15,300,000 as
“loss of profit” for the assignment to a third party of a portion of the building leased to
Supermercados Peruanos S.A. As of December, 31 of 2020, 2019 and 2018, the amount of the
pending balance previously mentioned is approximately S/7,923,000, S/8,740,000 and
S/9,155,000, respectively. During 2020 an amount of approximately S/817,000 was accrued
(S/421,000 and S/423,000 during 2019 and 2018), which is shown net of the “Selling
expenses” caption of the combined income statement.

96
Notes to the combined financial statements (continued)

28. Commitments and contingencies

(a) Commitments -
As of December 31, 2020, the Companies have granted guarantees to third parties for future
purchases of goods for approximately S/63,094,000, US$6,785,000 and b$104,000
(approximately S/82,689,000 US$8,029,000 y b$646,000 as of December 31, 2019 and
approximately S/96,072,000 and US$18,266,000 as of December 31, 2018).

In May 2018, InRetail Pharma S.A. issued debt instruments in the local and abroad markets for
S/385,800,000 and US$400,000,000, respectively, which is guaranteed by the following
subsidiaries: Quicorp S.A., Química Suiza S.A.C., Mifarma S.A.C. and Albis S.A.C.

(b) Contingencies –
(b.1) As of December 31, 2020, the Tax Authority has completed the audit of the income tax
returns and the monthly statements of the general sales tax presented by Supermercados
Peruanos S.A in taxable exercises from 2004 to 2013 and has requested information
regarding 2014 and 2016. Those examinations resulted in Resolutions generating higher
taxes, fines and interests for an approximate total of S/163 million to date (S/173 million
and S/197 million as of December 2019 and 2018). The resolutions issued by the years
2004 to 2010 have been challenged and are pending before the Tax Court. In
Management’s opinion and its legal advisors, Supermercados Peruanos S.A. has sufficient
grounds supporting its case.

(b.2) As of December 31, 2020, InRetail Pharma S.A., Albis S.A.C., Química Suiza S.A.C.,
Mifarma S.A.C., Jorsa de la Selva S.A.C. and Cifarma S.A.C. maintain various civil, labor
and tax legal processes for a total amount of approximately S/75,983,000
(S/40,673,000 and S/28,052,000 as of December 2019 and 2018). The Tax Authority
has requested to InRetail Pharma information regarding 2018. In Management’s opinion
and its legal advisors, such legal processes must be resolved favorably for these
components; consequently, it is not necessary to recognize additional related liabilities as
of December 31, 2020, 2019 and 2018.

(b.3) Eckerd Amazonia S.A.C. is in the process to claim against the Tax Authority for
determinations of debts and fines related to VAT for the period between January 2003
and June 2005 for approximately S/17,698,000. In Management’s opinion and its legal
advisors, these contingencies are considered as “Possible” and significant liabilities will
not arise as result of these as of December 31, 2020, 2019 and 2018.

The Companies maintain labor demands that correspond mainly to compensation for arbitrary
dismissals, non-payment of social benefits, reinstatement in the workplace, among others, which,
in the opinion of Management and its legal advisors, must be resolved favorably to the
Companies, so in the opinion of Management, it is not necessary to register additional liabilities
for these concepts

97
Notes to the combined financial statements (continued)

As of December 31, 2020, 2019 and 2018, the Companies, in coordination with their legal
advisors, maintain contingency provisions for S/110,876,000, S/80,918,000 and
S/71,604,000, respectively, see note 17(a). It should be noted that, in 2020 and 2019,
Supermercados Peruanos S.A. paid approximately S/33,032,000 and S/23,504,000 as a result
of paragraph (b.1) above, which is presented under “Claims and unsettled advances” in the
caption “Other accounts receivables, net” of the combined statements of financial position;
however, said payment will be claimed from the Tax Authority. In Management’s and its legal
advisors’ opinion, the matter will be solved. in a favorable manner for the Supermercados
Peruanos S.A.

29. Business segments

For management purposes, the Companies are organized into business units based on their products
and services and have three reportable segments i) Food Retail, ii) Pharmacies and ii) Manufacturing,
Distribution and Marketing. No operating segments have been aggregated to form the above reportable
operating segments.

Management monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is evaluated
based on operating profit or loss and is measured consistently with operating profit or loss in the
combined financial statements. Transfer prices between operating segments are on an arm’s length
basis in a manner similar to transactions with third parties.

98
Notes to the combined financial statements (continued)

29.1 Information about reportable segment -

The following table presents the financial information of InRetail Consumer and its Subsidiaries by business segments for 2020, 2019 and 2018:

Pharma
___________________________________________________________________________________
Manufacturing, Combined
distribution and Adjustments and Total adjustments and
Food Retail Pharmacies marketing eliminations Total Pharma Segments eliminations Combined
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

2020 -
Revenue
External income 6,905,308 5,296,634 1,862,411 - 7,159,045 14,064,353 - 14,064,353
Inter-segment 11,475 36,380 662,694 (666,636) 32,438 43,913 (43,913) -
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Total revenue 6,916,783 5,333,014 2,525,105 (666,636) 7,191,483 14,108,266 (43,913) 14,064,353
Cost of sales (5,118,789) (3,415,689) (1,551,768) - (4,967,457) (10,086,246) - (10,086,246)
Inter-segment - (28,525) (658,303) 662,040 (24,788) (24,788) 24,788 -
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Gross profit 1,797,994 1,888,800 315,034 (4,596) 2,199,238 3,997,232 (19,125) 3,978,107
Gain on valuation at air value of investment property on
investments (15,458) - - - - (15,458) - (15,458)
Fair value effect of investment properties distributed to associates 1,722 - - - - 1,722 - 1,722
Selling expenses (1,206,935) (1,062,312) (174,375) (35,085) (1,271,772) (2,478,707) 15,112 (2,463,595)
Administrative expenses (160,652) (214,081) (75,363) 1,861 (287,583) (448,235) (1,250) (449,485)
Other operating expenses, net (13,369) 9,817 (334) - 9,483 (3,886) (271) (4,157)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Operating profit 403,302 622,224 64,962 (37,820) 649,366 1,052,668 (5,534) 1,047,134

Finance income 2,816 102,463 94,981 (187,813) 9,631 12,447 (3,897) 8,550
Finance expenses (148,442) (182,529) (17,219) 9,279 (190,469) (338,911) 3,611 (335,300)
Exchange difference, net (75,695) (43,857) (652) - (44,509) (120,204) (360) (120,564)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Profit before income tax 181,981 498,301 142,072 (216,354) 424,019 606,000 (6,180) 599,820
Income tax expense (62,418) (124,193) (17,153) (112) (141,458) (203,876) 45 (203,831)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Net profit 119,563 374,108 124,919 (216,466) 282,561 402,124 (6,135) 395,989
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

Attributable to:
Supermercados Peruanos S.A. and InRetail Pharma S.A.
Shareholders 119,563 374,108 124,919 (216,466) 282,561 402,124 (42,836) 359,288
Non-controlling interests - - - - - - 36,701 36,701
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Net profit 119,563 374,108 124,919 (216,466) 282,561 402,124 (6,135) 395,989
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

Other information
Operating assets (*) 6,732,146 5,037,335 1,475,836 (709,639) 5,803,532 12,535,678 1,442,722 13,978,400
Operating liabilities 5,435,726 4,086,394 994,155 (91,768) 4,988,781 10,424,507 611,781 11,036,288
Additions to non-current assets -
Property, installations, furniture and equipment 137,801 67,556 10,890 - 78,446 216,247 - 216,247
Investment property 7,760 - - - - 7,760 - 7,760
Intangible assets 16,106 21,001 2,205 - 23,206 39,312 - 39,312
Investment property valuation (15,458) - - - - (15,458) - (15,458)
Depreciation and amortization 163,435 108,867 16,637 - 125,504 288,939 - 288,939

(*) As of December 31, 2020, 2019 and 2018, the “Pharmacies” segment includes approximately S/373,054,000 and S/709,472,000 corresponding to the brand “Inkafarma” and the goodwill, respectively, as a result of the acquisition of the Eckerd Group.; see
note 15(a).

99
Notes to the combined financial statements (continued)

Pharma
___________________________________________________________________________________
Manufacturing, Combined
distribution and Adjustments and Total adjustments and
Food Retail Pharmacies marketing eliminations Total Pharma Segments eliminations Combined
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

2019 -
Revenue
External income 5,752,439 5,029,907 1,787,488 - 6,817,395 12,569,834 - 12,569,834
Inter-segment 9,982 4,154 677,354 (647,249) 34,259 44,241 (44,241) -
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Total revenue 5,762,421 5,034,061 2,464,842 (647,249) 6,851,654 12,614,075 (44,241) 12,569,834
Cost of sales (4,246,827) (3,232,237) (1,464,066) - (4,696,303) (8,943,130) - (8,943,130)
Inter-segment - (3,004) (657,791) 634,548 (26,247) (26,247) 26,247 -
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Gross profit 1,515,594 1,798,820 342,985 (12,701) 2,129,104 3,644,698 (17,994) 3,626,704
Gain on valuation at air value of investment property on
investments 7,117 - - - - 7,117 - 7,117
Fair value effect of investment properties distributed to associates (2,626) - - - - (2,626) - (2,626)
Selling expenses (1,113,595) (1,072,734) (200,139) (6,524) (1,279,397) (2,392,992) 15,851 (2,377,141)
Administrative expenses (141,867) (170,528) (70,211) 2,695 (238,044) (379,911) (599) (380,510)
Other operating expenses, net 22,067 2,754 4,016 (1,332) 5,438 27,505 10 27,515
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Operating profit 286,690 558,312 76,651 (17,862) 617,101 903,791 (2,732) 901,059

Finance income 2,487 125,489 52,710 (162,939) 15,260 17,747 918 18,665
Finance expenses (142,121) (199,578) (20,700) 18,414 (201,864) (343,985) 4,682 (339,303)
Exchange difference, net 13,243 9,423 (865) (11) 8,547 21,790 (265) 21,525
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Profit before income tax 160,299 493,646 107,796 (162,398) 439,044 599,343 2,603 601,946
Income tax expense (59,633) (140,347) (19,515) 15,463 (144,399) (204,032) (168) (204,200)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Net profit 100,666 353,299 88,281 (146,935) 294,645 395,311 2,435 397,746
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

Attributable to:
Supermercados Peruanos S.A. and InRetail Pharma S.A.
Shareholders 100,666 353,299 88,281 (146,935) 294,645 395,311 (35,830) 359,481
Non-controlling interests - - - - - - 38,265 38,265
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Net profit 100,666 353,299 88,281 (146,935) 294,645 395,311 2,435 397,746
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

Other information
Operating assets (*) 5,003,156 5,033,775 1,532,217 (954,194) 5,611,798 10,614,954 1,045,472 11,660,426
Operating liabilities 3,916,840 4,119,326 1,060,702 (344,730) 4,835,298 8,752,138 50,038 8,802,176
Additions to non-current assets -
Property, installations, furniture and equipment 374,498 36,858 10,338 - 47,196 421,694 - 421,694
Investment property 37,193 - - - - 37,193 - 37,193
Intangible assets 14,288 3,917 2,240 - 6,157 20,445 - 20,445
Investment property valuation 7,117 - - - - 7,117 - 7,117
Depreciation and amortization (154,221) (95,252) (16,477) - (111,729) (265,950) - (265,950)

(*) As of December 31, 2020, 2019 and 2018, the “Pharmacies” segment includes approximately S/373,054,000 and S/709,472,000 corresponding to the brand “Inkafarma” and the goodwill, respectively, as a result of the acquisition of the Eckerd Group.; see
note 15(a).

100
Notes to the combined financial statements (continued)

Pharma
________________________________________________________________________________________
Manufacturing, Combined
distribution and Adjustments and Total adjustments and
Food Retail Pharmacies marketing eliminations Total Pharma Segments eliminations Combined
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

2018 -
Revenue
External income 5,133,163 4,734,612 1,925,383 - 6,659,995 11,793,158 - 11,793,158
Inter-segment 11,476 8,542 668,227 (632,883) 43,886 55,362 (55,362) -
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Total revenue 5,144,639 4,743,154 2,593,610 (632,883) 6,703,881 11,848,520 (55,362) 11,793,158
Cost of sales (3,793,624) (3,130,104) (1,564,778) (23,136) (4,718,018) (8,511,642) - (8,511,642)
Inter-segment - (7,100) (646,807) 602,808 (51,099) (51,099) 51,099 -
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Gross profit 1,351,015 1,605,950 382,025 (53,211) 1,934,764 3,285,779 (4,263) 3,281,516

Gain on valuation at air value of investment property on investments 2,706 - - - - 2,706 - 2,706
Fair value effect of investment properties distributed to associates 956 - - - - 956 - 956
Selling expenses (1,017,239) (1,044,651) (214,720) 3,296 (1,256,075) (2,273,314) 2,424 (2,270,890)
Administrative expenses (136,045) (175,606) (83,060) 11,045 (247,621) (383,666) (2,019) (385,685)
Other operating expenses, net 10,626 (9,643) (27,824) 32,866 (4,601) 6,025 1,447 7,472
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Operating profit 212,019 376,050 56,421 (6,004) 426,467 638,486 (2,411) 636,075

Finance income 3,704 44,730 4,062 (14,958) 33,834 37,538 (9,658) 27,880
Finance expenses (77,750) (178,729) (21,210) 17,275 (182,664) (260,414) (77,207) (337,621)
Exchange difference, net (4,301) (32,282) (707) 13 (32,976) (37,277) 1,668 (35,609)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Profit before income tax 133,672 209,769 38,566 (3,674) 244,661 378,333 (87,608) 290,725
Income tax expense (54,721) (73,889) (27,430) 11,250 (90,069) (144,790) (117) (144,907)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Net profit 78,951 135,880 11,136 7,576 154,592 233,543 (87,725) 145,818
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

Attributable to:
Supermercados Peruanos S.A. and InRetail Pharma S.A. Shareholders 78,951 135,880 11,136 7,576 154,592 233,543 (104,280) 129,263
Non-controlling interests - - - - - - 16,555 16,555
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Net profit 78,951 135,880 11,136 7,576 154,592 233,543 (87,725) 145,818
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

Other information
Operating assets (*) 3,697,616 4,498,160 1,416,089 (860,194) 5,054,055 8,751,671 1,101,907 9,853,578
Operating liabilities 2,682,733 3,735,623 1,020,015 (300,648) 4,454,990 7,137,723 107,408 7,245,131
Additions to non-current assets -
Property, furniture and equipment 456,648 30,546 6,932 - 37,478 494,126 1,447 495,573
Investment property 3,040 - - - - 3,040 - 3,040
Intangible assets 17,244 23,620 4,038 - 27,658 44,902 - 44,902
Investment property valuation 2,706 - - - - 2,706 - 2,706
Depreciation and amortization (131,573) (93,341) (15,154) - (108,495) (240,068) - (240,068)

(*) As of December 31, 2020, 2019 and 2018, the “Pharmacies” segment includes approximately S/373,054,000 and S/709,472,000 corresponding to the brand “Inkafarma” and the goodwill, respectively, as a result of the acquisition of the Eckerd Group.; see
note 15(a).

101
Notes to the combined financial statements (continued)

29.2. Geographic information -

The geographic information analyses the Group’s revenue and non-current assets by the Companies’
country of domicile and other countries. In presenting the geographic information, segment revenue
was based on the geographic location of customers and segment assets were based on the
geographic location of the assets, as follows:

Revenue:

2020 2019 2018

S/(000) S/(000) S/(000)

Peru 13,183,890 11,703,042 10,861,088

All foreign countries:
Ecuador 730,913 704,298 764,929
Other 149,550 162,494 167,141
___________ ___________ ___________
14,064,353 12,569,834 11,793,158
___________ ___________ ___________

Non-current assets (*):

2020 2019 2018

S/(000) S/(000) S/(000)

Peru 7,132,181 6,354,124 4,652,863

All foreign countries:
Ecuador 53,001 32,865 27,352
Other 3,831 7,125 4,154
___________ ___________ ___________
7,189,013 6,394,114 4,684,369
___________ ___________ __________

(*) Non-current assets exclude goodwill.

102
Notes to the combined financial statements (continued)

30. Objectives and policies of financial risk management

Due to the nature of the activities of the Companies’ are exposed to credit risk, interest rate risk,
liquidity risk, and foreign currency risk, which are managed through a process of ongoing identification,
measurement and monitoring, subject to risk limits and other controls. This process of risk
management is critical to the Companies’ continuing profitability, and each individual within the
Companies is accountable for the risk exposures relating to his or her responsibilities. The independent
risk control process does not include business risks such as changes in the environment, technology and
industry. These are monitored through the Companies’ strategic planning process.

(a) Risk management structure -

The Companies’ Board of Directors is ultimately responsible for identifying and controlling risks;
however, there are separate independent bodies in the Companies responsible for managing and
monitoring risks, as further explained below:

(i) Board of Directors

The Companies’ Board of Directors is responsible for the overall risk management
approach and for the approval of the policies and strategies currently in place. The Board
provides principles for overall risk management, as well as policies covering specific areas,
such as foreign exchange risk, interest rate risk, credit risk, liquidity risk and capital
management.

(ii) Finance Management

Finance Management is responsible for managing daily the cash flows of the Companies,
taking into account the policies, procedures and limits established by the Board of
Directors and the Management of the Companies. Likewise, it manages the procurement
of credit lines from financial entities, when it is necessary.

(b) Mitigation of risks -

As part of the risk management, the Companies’ constantly assess the different scenarios and
identify the different strategies to manage the expositions resulting from changes in interest
rates, foreign currency risk, capital risk and credit risk.

30.1 Credit risk -

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument
or customer contract, leading to a financial loss. The Companies are exposed to credit risk from
their operating activities (primarily for trade receivables) and from their financing activities,
including deposits with banks, investments and derivative instruments.

This risk is managed by the Finance Managers in accordance with the Board’s principles to
minimize risk concentration and, consequently, mitigate financial losses from potential defaults
of the counterpart. The maximum exposure to credit risk of the components of the combined
financial statements as of December 31, 2019 and 2018, were from the captions “Cash and
short-term deposits”, “Accounts receivable”, “Accounts receivable to related parties”, “Financial
Instruments at fair value through profit or loss and other comprehensive income” and “Derivative
financial instruments - Call spread”. The maximum exposure to credit risk of the components of

103
Notes to the combined financial statements (continued)

the combined financial statements as of December 31, 2019 and 2018, is their book value, net
of the respective provisions for impairment.

(a) Credit risk associated with:

(a.1) Trade accounts receivable
Companies asses the risk concentration of the trade accounts receivable and other
accounts receivable. In general, the Companies do not hold significant
concentrations of accounts receivable with any entity in particular. The Companies
assess the collectability risk of the accounts receivable in order to determine the
respective provision.

In case of the trade accounts receivable for retail sales, which are mainly generated
by sales with credit cards, the credit risk is minimal because they have a period
from 2 to 7 days to become cash.

Accounts receivable from the manufacture and distribution of different

pharmaceutical and mass-market products are periodically reviewed to ensure their
recovery. Trade accounts receivable are collectible from clients with credit
solvency and strength and large credit lines, which ensure the timely collection of
receivables.

In case of leases receivable and merchandise coupons, payment contracts are

maintained currently in force.

(a.2) Bank deposits, derivative financial instruments and financial instruments at fair
value through profit or loss and financial instruments at fair value through
comprehensive income-
The balances of cash and derivative financial instruments are held in top-level
financial entities, including a related financial entity. Likewise, the Companies’
financial instruments at fair value through profit or loss have fast settlements and
are managed by renowned entities. In the case of financial instruments at fair value
through other comprehensive income, as explained in note 12, corresponding to
senior notes issued by a related entity.

30.2 Market risk -

It is the risk of suffering losses in the combined statements of financial positions due to
fluctuations in market prices. These prices comprise three risk types: (i) exchange rate; (ii)
interest rate; and (iii) commodity prices and others. The financial instruments of the Companies
are affected by exchange rate risk and interest rate risk.

104
Notes to the combined financial statements (continued)

(i) Foreign currency risk -

Foreign currency risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates. The Finance
Managers of the Companies are responsible for identifying, measuring, controlling and
informing on the exposure to global exchange rate risk of the Companies. As of December
31, 2019 and 2018, InRetail Pharma S.A. maintains one "Call Spread” agreements for a
total notional amount of US$400,0000,000, to reduce its foreign currency risk related to
a part of Senior Notes issued. This derivative financial instrument has been qualified as
effective hedging instrument; see note 12.

The following chart shows the sensitivity analysis on U.S. Dollars, Bolivianos and Peso
Colombiano the only currencies different from the functional currency, reason why
InRetail Group has a significant exposure in monetary assets and liabilities and estimated
cash flows as of December 31, 2019 and 2018. The analysis determines the effect of a
reasonable possible variation in the exchange rate of those currencies, considering other
constant variables in the combined income statement before income tax. A negative
amount in the chart reflects a net potential reduction in the combined statement, while a
positive amount reflects a net potential increase.

Change in
Sensitivity analysis Exchange rates Gain/(loss) before taxes
__________________________________________________
% 2020 2019 2018
S/(000) S/(000) S/(000)

Devaluation -
US$ Dollars 5 120,782 46,944 10,397
US$ Dollars 10 241,564 93,888 20,794
Bolivianos 5 (1,164) (359) (301)
Bolivianos 10 (2,328) (719) (602)
Peso Colombiano 5 (127) (71) (59)
Peso Colombiano 10 (253) (143) (118)

Revaluation -
US$ Dollars 5 (120,782) (46,944) (10,397)
US$ Dollars 10 (241,564) (93,888) (20,794)
Bolivianos 5 1,164 359 414
Bolivianos 10 2,328 719 827
Peso Colombiano 5 127 71 59
Peso Colombiano 10 253 143 118

105
Notes to the combined financial statements (continued)

(ii) Interest rate risk -

The policy of the Companies is to maintain financial instruments that carry fixed interest
rates, which is why the operating cash flows of the Companies are substantially
independent from the changes in market interest rates. In this sense, in Management’s
opinion, the Companies do not have a relevant exposition to interest rates risk.

(iii) Price risk -

The Companies exposure to this risk is given by changes in the prices of variable income
financial instruments, classified in the combined statement of financial position as
financial instruments at fair value through profit or loss.

As of December 31, 2020, 2019 and 2018, Management conducted sensitivity tests on
the market prices of mutual funds. The effect on the combined statement of
comprehensive income would be as follows:

Sensitivity analysis Prices 2020 2019 2018

% S/(000) S/(000) S/(000)

Mutual funds +/-10 9,216 1,407 492

Mutual funds +/-20 18,514 2,799 1,200
Mutual funds +/-30 27,812 4,191 1,906

Management believes that future fluctuations in the exchange rate, interest rate and
prices of its capital securities will not significantly affect the future profit and loss of its
operations.

30.3 Liquidity risk -

It is the risk that the Companies could not comply with their payment obligations related to
financial liabilities at maturity. The consequence would be the default in the payment of their
obligations to third parties.

Liquidity risk management implies maintaining sufficient cash and availability of funding through
an adequate amount of committed credit sources and the ability to settle transactions, mainly
debt. To that respect, Management of the Companies focuses its efforts to maintain funding
sources through the availability of credit lines. Likewise, the Companies assess medium-term and
long-term liquidity through a structural analysis of its funds inflows and outflows in different
maturity terms. This process allows to know, for each currency, the various funding sources, how
liquidity needs increase and which terms are mismatched.

The Companies have evaluated and implemented the necessary measures in order to mitigate in
their operations and financial situation the effects caused COVID-19 in Peru and worldwide.

106
Notes to the combined financial statements (continued)

The table below summarizes the maturity profile of the Companies’ financial liabilities based on contractual undiscounted payments:

Up to 1 months 1 to 3 months 3 to 12 months More than 1 year Total

S/(000) S/(000) S/(000) S/(000) S/(000)

As of December 31, 2020 -

Trade accounts payables 2,772,443 338,762 137,656 - 3,248,861
Accounts payables to related parties 21,075 4,582 3,782 90,548 119,987
Other accounts payables 535,479 28,253 49,023 23,448 636,203
Current income tax payables, net 73,682 - - - 73,682

Lease liabilities -
Principal amortization 20,054 39,390 170,282 1,417,144 1,646,870
Interests amortization 9,406 14,450 85,726 905,487 1,015,069

Senior notes and financial obligations on long term -

Principal amortization 85,138 43,246 1,544,233 3,147,970 4,820,587
Interests amortization 13,683 39,180 152,291 333,859 539,013
__________ __________ __________ __________ ___________

3,530,960 507,863 2,142,993 5,918,456 12,100,272

__________ __________ __________ __________ ___________
As of December 31, 2019 -
Trade accounts payables 454,707 2,235,363 209,896 - 2,899,966
Accounts payables to related parties - 45,858 - 88,824 134,682
Other accounts payables 178,171 180,238 30,943 21,289 410,641
Current income tax payables, net - 21,301 - - 21,301
Lease liabilities -
Principal amortization 25,402 64,864 179,391 1,262,835 1,532,492
Interests amortization 4,091 25,255 74,799 702,829 806,974
Senior notes and financial obligations on long term -
Principal amortization 38,533 230,880 84,596 2,980,847 3,334,856
Interests amortization 9,882 74,572 211,672 553,421 849,547
__________ __________ ________ __________ __________

710,786 2,878,331 791,297 5,610,045 9,990,459

__________ __________ ________ __________ __________
As of December 31, 2018 -
Trade accounts payables 1,625,212 1,210,671 67,814 10,733 2,914,430
Accounts payables to related parties 11,312 3,313 29 87,097 101,751
Other accounts payables 344,792 43,656 20,837 21,854 431,139
Current income tax payables, net - 8,892 1,773 - 10,665
Senior notes and financial obligations on long term -
Principal amortization 68,530 84,413 258,775 2,862,380 3,274,098
Interests amortization 21,355 31,080 101,889 525,218 679,542
__________ __________ __________ ___________ __________

2,071,201 1,382,025 451,117 3,507,282 7,411,625

__________ __________ __________ ___________ __________

107
Notes to the combined financial statements (continued)

30.4 Changes in liabilities arising from financing activities:

The table below presents the changes in liabilities arising from financing activities

Balance at
beginning of Adoption of Acquisition of Dividends Accrued Call Spread New Exchange Balance at end
year IFRS 16 Subsidiary declared interests Financing leasing Contributions Other difference Cash flows of year
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

As of December 31, 2020 -

Financial obligations 3,334,856 - 59,775 - - - - - (40,119) 189,875 1,276,200 4,820,587
Dividends paid - - 277,176 - - - - - - (277,176) -
Lease liabilities 1,532,492 - 26,404 - 112,764 - 298,978 - (24,032) 92,580 (392,316) 1,646,870
Interests for financial obligations 23,824 - 124 - 185,107 - - - - - (183,182) 25,873
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
Liabilities to financing activities 4,891,172 - 86,303 277,176 297,871 - 298,978 - -64,151 282,455 423,526 6,493,330
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________

As of December 31, 2019 -

Financial obligations 3,274,098 - - - - - 4,064 - (9,799) (7,658) 74,151 3,334,856
Dividends paid - - - 168,707 - - - - - - (168,707) -
Lease liabilities - 1,651,441 - - 109,996 - 239,081 - (78,809) (19,093) (370,124) 1,532,492
Interests for financial obligations 23,542 - - - 184,460 - - - - 3,369 (187,547) 23,824
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
Liabilities to financing activities 3,297,640 1,651,441 - 168,707 294,456 - 243,145 - (88,608) (23,382) (652,227) 4,891,172
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________

As of December 31, 2018 -

Financial obligations 853,425 - 1,212,360 - 36,240 70,353 21,677 - 48,612 94,794 936,637 3,274,098
Dividends paid - - - 21,658 - - - - - - (21,658) -
Cash contribution of non-controlling interest
and InRetail Perú - - - - - - - (884,001) - - 884,001 -
Interests for financial obligations 2,693 - 2,402 - 191,864 - - - - (4,521) (168,896) 23,542
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________
Liabilities to financing activities 856,118 - 1,214,762 21,658 228,104 70,353 21,677 (884,001) 48,612 90,273 1,630,084 3,297,640
__________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________

108
Notes to the combined financial statements (continued)

30.5 Capital management risk -

The objectives of the Companies when managing capital are to ensure they have a strong credit
qualification and to maintain sound capital ratios to support the business and maximize the value
for shareholders.

The Companies manage their capital structure and make pertinent adjustments depending on
changes in economic conditions. In order to maintain and adjust their capital structure, the
Companies might modify the payments of dividends to shareholders, reimburse them capital
stock or issue new shares. During 2020, 2019 and 2018 there were no modifications in the
objectives, policies or processes related to capital management.

The Companies control the capital using a debt ratio, defined as the quotient between the net
debt and equity plus net debt. The Companies have the policy of maintaining the debt ratio
between 70 and 80 percent. The Companies include in the net debt the interest-bearing loans
and borrowings, trade accounts payable, accounts payable to related parties, other payables,
income tax liabilities and senior notes issued, less cash and short-term deposits.

2020 2019 2018

S/(000) S/(000) S/(000)

Interest-bearing loans and borrowings (note

18) 2,999,674 1,640,443 1,559,808
Trade accounts payable, accounts payable to
related parties, other accounts payable and
income tax liability (notes 16, 26(b), 17 and
20(d)) 4,078,733 3,466,590 3,468,718
Lease liabilities, note 13(b.2) 1,646,870 1,532,492 -
Senior note issued, note 19 1,820,913 1,694,413 1,714,289
Less: Cash and short-term deposits (note 5) (907,048) (701,730) (614,572)
Net debt (a) 9,639,142 7,632,208 6,128,243
Equity 2,942,169 2,858,250 2,608,447
Capital stock and net debt (b) 12,581,311 10,490,458 8,736,690
Leverage ratio (a/b) 77% 73% 70%

109
Notes to the combined financial statements (continued)

31. Fair value

The methodologies and assumptions used by the Companies to determine the estimated market values,
depend on the stipulations and characteristics of the risks of the financial instruments, and include the
following:

(a) Financial instruments which fair value is similar to book value:

For the assets and liabilities that are liquid or have short-term maturity (less than three months),
it is considered that the carrying value is similar to their fair value. This assumption is applicable
too for the time deposits and savings accounts with no specific maturity. These instruments are
classified in the Level 1 of the hierarchy of fair value.

(b) Fixed-rate financial instruments –

The fair value of financial assets and liabilities at fixed interest rates and amortized cost is
determined by comparing market interest rates at their initial recognition to current market rates
related to similar financial instruments. These instruments are classified in the Level 2 of the
hierarchy of fair value.

(c) Financial instruments at fair value through other comprehensive income and financial
instruments at fair value through profit or loss -
The fair value of financial instruments at fair value through other comprehensive income or
through profit or loss is based on the quoted prices of active markets, if available; in the case
they are not available, the fair value is estimated using the discounted cash flow method. These
instruments are classified in the Level 2 of the hierarchy of fair value.

110
Notes to the combined financial statements (continued)

(d) Derivative financial instruments, interest-bearing loans and borrowings, lease liabilities and senior notes issued -
These fair values were determined by level 3 of the hierarchy, their fair values were determined by comparing the market interest rates at the time of initial recognition
with the current market rates related to similar financial instruments. The comparison between the book values and the fair values of these financial instruments, is
presented below:

2020 2019 2018

________________________________ ________________________________ ____________________________
Book value Fair value Book value Fair value Book value Fair value
S/(000) S/(000) S/(000) S/(000) S/(000) S/(000)

Derivative financial instrument – “Call Spread” 112,273 112,273 63,508 63,508 86,694 86,694
Interest-bearing loans and borrowings 2,999,674 3,092,853 1,640,443 1,914,191 1,559,489 1,680,606
Lease liabilities 1,646,870 1,262,835 1,532,492 1,532,492 - -
Senior notes issued 1,820,913 1,879,891 1,694,413 1,743,261 1,714,289 1,716,221

Based on the criteria described above, Management estimates that there are no significant differences between the book value and the fair value of the financial
instruments of the Companies as of December 31, 2020, 2019 and 2018.

111
Notes to the combined financial statements (continued)

32. Subsequent events

On January 22, 2021 InRetail Pharma S.A. sold its participation in Química Suiza Colombia S.A.S. for
approximately US$1,958,000 (equivalent to S/7,092,000), to a non-related entity.

In the General Shareholder’s Meeting of Supermercados Peruanos S.A. and InRetail Foods S.A.C., dated
February 15, 2021, the merger of both companies was agreed, as mentioned before. InRetail Foods
S.A.C. was the entity absorbed, see note 2(b).

From December 31, 2020 to the date of this report, no events have occurred that affect the combined
financial statements.

112
 00072

COLEGIO DE CONTADORES PUBLICOS DE

LIMA

Constancia de Habilitación
El Decano y el Director Secretario del Colegio de Contadores Públicos
de Lima, que suscriben, declaran que, en base a los registros de la
institución, se ha verificado que:

PAREDES, BURGA & ASOCIADOS S. CIVIL DE

R.L.
REGISTRO DE SOCIEDAD: SO761

Se encuentra HABIL, para el ejercicio de las funciones profesionales que

le faculta la Ley N.º 13253 y su modificación Ley N.º 28951 y conforme al
Estatuto y Reglamento Interno de esté Colegio; en fe de lo cual y a
solicitud de parte, se le extiende la presente constancia para los efectos
y usos que estime conveniente. Esta constancia tiene vigencia hasta el
31 de MARZO del 2021.

Lima 07 de Mayo de 2020.

CPC. GUILLERMINA ZAVALA PAUCAR CPC. GLADYS MILAGROS BAZAN ESPINOZA

DECANA DIRECTORA SECRETARIA

Sede Administrativa:
Jr. José Díaz N° 384
Urb. Santa Beatriz
Cercado de Lima
Celular: 977 197 467
[email protected]
www.ccpl.org.pe
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