Risks

A. Exchange rate risk

The Company is exposed to three types of currency risk. The first risk arises from accounts payable in foreign currency, the second from financial debt in currencies other than the functional currency of each business, and the third from investments abroad.

A portion of the products acquired for sale are imported and, therefore, are denominated in a foreign currency. This generates an exposure to the variation between the different local currencies of the countries in which the Group operates and foreign currencies, mainly the U.S. Dollar. The Company hedges accounts payable and future obligations in foreign currencies, which reduces its exposure to less than 2% of its liabilities in foreign currencies.

In order to minimize the Group’s exposure to exchange rate fluctuations, most of the debt is raised in the local currencies in which the Company operates. As of December 31st, 2014, 74.2% of the consolidated financial debt was expressed in Chilean Pesos (including debt in UF), 17.4% in Peruvian Soles, 2.2% in Colombian Pesos and 4.3% in Argentine Pesos, all net of hedges. As of this date, the company also had CLP 30,275 million of financial debt denominated in dollars, net of hedges (excluding letters of credit, which is explained in the preceding paragraph), which represents 1.0% of the Group’s consolidated financial debt. The Company raised this dollar denominated debt because market conditions were favorable at the time and this debt is partially hedged with derivatives.

The Company has business investments in Peru, Argentina, Colombia and Brazil. These foreign investments are managed in the functional currencies of each country.

B. Interest rate risk

Most of the Group’s debt carries fixed interest rates, thus avoiding any exposure to fluctuations that may take place with variable interest rates that may cause financial expenses to increase. As of December 31st, 2014, at a consolidated level and after derivatives, 87.2% of the Company’s financial debt had fixed interest rates, 7.8% had floating interest rates and 5.0% corresponded to overdraft facilities and letters of credit that, given their term, can be considered to have floating interest rates.

C. Risk of foreign investments

Investments in countries such as Argentina, Peru, Colombia and Brazil, which have risk ratings that are inferior to Chile’s, represent a greater weighted average risk than if the Group only had domestic investments. At the same time, however, there is a higher probability of receiving higher returns in each one of the international markets where the Company has invested. This consideration is contained in the risk rating reports issued by the two private rating agencies that rated the solvency of S.A.C.I. Falabella as “AA”.

D. General economic risks

The Company, which is dedicated to providing retail services to its customers and to granting convenient loans, is correlated to the realities and expectations that impact consumption. The growth rate of revenues and profits should fall when demand is restrained, and the opposite should occur when demand expands.

E. Specific trade risk

The Company does not depend exclusively on any one particular supplier as it has a diversified and global procurement operation. The Company also does not depend on a small set of customers, as it serves millions of customers across a wide socio-economic spectrum. The Company sells several thousands of different products, and thus is not subject to any particular pricing cycle. As a result, the Group does not face any specific or distinctive trade risks beyond what is faced by retail in general and department stores in particular.

F. Asset risk

The Company’s fixed assets in buildings, infrastructure, facilities and equipment, are amply covered from all types of operational risks by pertinent insurance policies.