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A Turkish Confectionery Powerhouse

A Turkish Confectionery Powerhouse I N V E S T O R P R E S E N T A T I O N N i n e M o n t h s R e s u l t s Updates on Operational Efficiency & Corporate Governance Istanbul Stock Exchange: ULKER
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A Turkish Confectionery Powerhouse I N V E S T O R P R E S E N T A T I O N N i n e M o n t h s R e s u l t s Updates on Operational Efficiency & Corporate Governance Istanbul Stock Exchange: ULKER ULKER.TI (Bloomberg) ULKER IS (Reuters) Disclaimer This presentation contains information and analysis on financial statements and is prepared for the sole purpose of providing information relating to Ülker. This presentation contains forward-looking statements which are based on certain expectations and assumptions at the time of publication of this presentation and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in these materials. Many of these risks and uncertainties relate to factors that are beyond Ülker s ability to control or estimate precisely, such as future market and economic conditions, the behavior of other market participants, the ability to successfully integrate acquired businesses and achieve anticipated cost savings and productivity gains as well as the actions of government regulators. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this presentation. Ülker does not undertake any obligation to publicly release any revisions to these forwardlooking statements to reflect events or circumstances after the date of these materials. This presentation merely serves the purpose of providing information. It neither represents an offer for sale nor for subscription of securities in any country, including Turkey. This presentation does not include an official offer of shares; an offering circular will not be published. This presentation is not allowed to be reproduced, distributed or published without permission agreement of Ülker. The figures in this presentation are rounded to provide a better overview. The calculation of deviations is based on figures including fractions. Therefore rounding differences may occur. Neither Ülker nor any of its managers or employees nor any other person shall have any liability whatsoever for any loss arising from the use of this presentation. 2 Ülker: A Confectionery Powerhouse A Compelling Investment Oppportunity Review of Operations Financial Overview & Tables Ülker: A Confectionery Powerhouse Ülker is Turkey s leading confectionery company, producing biscuits, chocolate covered biscuits, crackers, wafers, chocolates and cakes. BISCUITS CHOCOLATES CAKES 49.1% 46.6% 36.6% Market Share Market Share Market Share # 1 # 1 # 2 Market Position Market Position Market Position Source: AC Nielsen year to date report, September Ülker: At-a-Glance Headquartered in Istanbul, Ülker is Turkey s leading producer of biscuits, chocolates, chocolate covered biscuits, crackers, wafers, and cakes; The flagship brand for Yıldız Holding, one of Turkey s leading groups; Unrivaled supply chain and distribution channel management; Production facilities strategically located across Turkey; Exceptional food quality and safety record; Dynamic Growth Fund 27.29% Shareholder Structure Ülker Family 4.60% Yıldız Holding 40.64% Free Float 27.47% Listed on the Istanbul Stock Exchange since 2004 under ticker symbol «ULKER TI*»; and Yıldız Holding is one of the leading Turkish food and beverages groups. 5 0,06 0,38 0,30 (in TL) 0,69 2,23 (in TL MM) (in TL MM) Months Financial Overview 9M 2011 Financials - Ulker increased domestic sales by 0.8% in the 9M of 2011, despite the initial negative effects of transitioning its distribution channels, which occurred in the 2Q. - Net income declined 5.0% during 9M 2011 due to Ulker s exporting subsidiary Istanbul Gida ceased the sale of another groups products - EPS boosted by one-off item, i.e. the divestiture of various financial assets. 9M2011 Income Statement figures do not include Chocolate operations ,5 2 1,5 1 0,5 0 Net Sales M M 2011 Gross Profit M M 2011 EPS M M Ülker: An Alluring Equity Story Play on the Turkish Consumer One of the largest economies in the world Ranked 6th in Europe and 16th globally Per capita income has grown by 7.3% per year (CAGR of ) 1 Young population with 60% under the age of 35 years old 2 A Highly-Attractive Category Confectionery is a high-growth business Turkish biscuits market has grown consistently in recent years; 7.2% volume growth in Chocolates business has higher margins and offers steady growth prospects Unrivaled Position Number #1 in biscuits category Number #1 in chocolates category Enjoys the strongest and increasing market position in Turkey, commanding approximately 50% share in both biscuits and chocolates categories 4 Exceptional Track Record and Robust Growth Prospects Significant organic top line growth potential driven by attractive market and sector fundamentals Consistent annual solid financial performance despite adverse impact of recent global economic crisis Strong Management Strong and highly experienced top management with a total experience of more than 300 years Committed to further grow the business and margin expansions Best in Class Route-To-Market Strong distribution capabilities with approximately 200,000 point-of-sale in Turkey Opportunity to further leverage existing distribution networks in the Middle East, North Africa and Europe A Power Brand Ülker is the brand in the Turkish confectionery market, including biscuits Consistently ranks at the top as The Most Recognized Brand of Turkey Supported by smaller well-known brands of local gems Innovation / R&D Strong innovation capability as an integral part of Ülker s heritage Recent acquisition of Ülker Çikolata to fuel new products Consumer trends leaning towards combining biscuits and chocolates 1, 2: Turkish Statistical Institute 3, 4: AC Nielsen Report, July An Award-Winning Brand For many generations, the Ülker brand has been beloved and synonymous with quality and good taste, both in Turkey and abroad. Most Recognized Company AC Nielsen, 2nd place, Ülker Bisküvi (2010) Brand That Consumers Feel Closest To AC Nielsen, Ülker Bisküvi (2010) The Best in the Sweet and Salty Category Silver Effie Award, «Ülker Rondo» (2010) 8 Corporate Structure as of 30 September 2011 Subsidiaries Financial Assets Other Shareholdings Manufacturing Ülker Çikolata (91.7%) Produces Ülker branded chocolate and chocolate confectionery Sales & Marketing Atlantik Gıda (91.7%) Domestic Sales & Marketing of Ülker branded products Fresh Cake (10.0%) Cake Producer Godiva (19.23%) Premium chocolates, including bonbons, truffles, flavored coffees, cocoa mixes, cookies and ice cream İdeal Gıda (98.5%) Produces Ülker branded products Birleşik Dış Ticaret (78.2%) Exporting Agent of Non-Ülker branded products Biskot Bisküvi (50.8%) Produces Non-Ülker branded products Atlas Gıda (98.3%) Domestic Sales & Marketing of Ülker branded products Birlik Pazarlama (99.0%) Flour producer for the Group companies Rekor Gıda (47.9%) Domestic Sales & Marketing of Non-Ülker branded products İstanbul Gıda (91.4%) Exporting Agent of Ülker branded products 9 Ülker: A Confectionery Powerhouse A Compelling Investment Opportunity Review of Operations Financial Overview & Tables The Global Confectionery Market In the five years leading through 2010, the global cocoa, chocolate and sugar confectionery manufacturing industry revenue increased at an annualized rate of 0.6%, totaling USD$107.9 billion 1 ; The industry s revenue is expected to increase at an annualized rate of 2.4% to USD$121.3 billion by ; Confectionery retail sales in Western Europe surpassed USD$56.3 billion in 2010, up 2% from 2009 levels in terms of sales value ~ driven by strong demand for premium and indulgence products 3 ; Chocolates was largest category, capturing 64% of the total retail value in sales in ; In 2010, chocolate confectionery was best performing posting a 2% retail value growth and 1% volume growth 6 ; and In Western Europe, the three largest markets were Germany, UK and France, which accounted for 55% of retail value sales and 62% of retail volume sales in Turkey, Finland and Portugal were the strongest in terms of sales growth in 2010 Turkey recorded 5% retail sales volume, with Finland and Portugal recording 2% retail sales volume each in : 2: IBISWorld Inc - Global Cocoa, Chocolate and Sugar Confectionery Manufacturing report (December 2010) 3-7: Euromonitor report, Confectionery: Market Performance in Western Europe (July 2011) 11 Turkish Confectionery Prospects 12% Growth in retail value sales of chocolates in Turkey, % Growth in retail value sales of overall confectionery in Turkey, Turkey Chocolate Confectionery Sale by Volume 5 (tons/year) 91K 202K 96K 198K 102K Turkey Biscuits Sale by Volume 6 (tons/year) 212K Turkey s chocolate confectionery was TL 1.8 billion in 2010; Unit prices on average increased by 4%, which lead to higher value and volume growth 3 ; The biscuit retail sales reached c.212k tons in 2010, a yearon-year volume growth of approx. 7% and approx. 11% value growth; Turkish consumer more willing to spend extra income to buy indulgence products; and Chocolate confectionery is expected to achieve 27% constant value growth by : Euromonitor report: Confectionery Retail Performance in Turkey, May : Euromonitor report: Chocolate Confectionery Turkey, August : AC Nielsen Data covering c.70% of retail and traditional channels excluding BİM, July Chocolate Acquisition: Tapping into Growth and Profitability A Stronger Confectioner, A More Competitive Company The acquisition of Ülker Çikolata creates a more significant, stronger confectioner; Further enhances competitive strength in Turkey and surrounding regions; Synergies: for future growth and margin improvements; Doubles total annual revenue to TL 2.3 billion, strengthens financial foundation for future growth; Brings further growth opportunity to tap into profitable segment of the confectionery market; Increased scale to compete more effectively and widen market share; and Creates significant cost saving and overall operating efficiencies. 13 Rationale and Terms of the Transaction Greater Growth Prospects, Better Competitive Position CHOCOLATE provides Ülker entrée into the high-growth chocolates category, margins and highly-experienced management team; Solidifies Ülker s position as the confectionery leader in a fast and growing market; Ülker purchased 92% of CHOCOLATE for TL 825 million; Significant reduction in overheads, enhanced coordination in market space and efficiency in decision making; and Consolidation in the distribution channels to reduce route to market costs, while expanding cross sales efforts and shelf space retention, paving way for better sales and OPEX performance. Valuation based on an independent study conducted by KPMG using the Discounted Cash Flow method and Market Multiples method; Funded with cash on hand, no financing maintains balance sheet flexibility; 14 Steps Taken for Corporate Governance Cancellation of Priviledged Share Types* There were four types of shares, namely A, B, C, D and founder certificates; The holders of Class A and B type shares and Founders shares provided with additional Class C shares in return from giving up from their dividend privileges; Will have only shares of A, B and C types. None of those types of shares will have privileges in terms of distribution. A shares will continue to have a privilege to appoint four board members and B shares will have one member; and There will be no cash outflow from the Company. The capital will be increased by using reserves in the equity funds. * The terms and finalization of the process are subject to CMB s approval. Simplification of Corporate Structure Exit of financial assets and non-core subisidiaries simplified Ülker s structure; Financial assets, namely 12.05% stake in BİM, 7.0% stake in Besler Gıda, 10.7% stake in Sağlam GYO and other shareholdings, namely 23.99% in Pendik Nişasta, 39.59% stake in Hero Gıda and 6% stake in Godiva were divested; Total proceedings from the sale of those stakes, amounting to TL 1,064 MM (TL 143 MM in 2010 and TL 921MM in 2011), were received in cash; and Medium-term: Ülker s shares of Godiva will be transitioned out of the balance sheet. 15 Ülker Reorganization Efforts Near-term Focus Near-term Organization Structure Chocolate Biskot İstanbul Godiva Birleşik Rekor Sales companies that were acting in the market separately for baked goods and chocolate will be consolidated; and Move will reduce route-to-market costs Reinforce the shelf presence and channel effectiveness Further considering the reorganization of international sale companies; İstanbul Gıda and Birleşik, as well as Rekor, which are second tier domestic sales company; Focus on cost reduction and revenue enhancement projects; and Managing the production, sales and marketing strategies for the aggregate of the confectionary business will add force to innovation, sales and distribution efforts. 16 Ülker Reorganization Efforts - Long-term Benefits Long-term Organization Structure Chocolate Biscuits & Cakes Private Label (Biscuits, Chocolates and Cakes) At the completion of the reorganization, Ülker will streamlined with all the existing subsidiaries, either merged into or spun-off from the companies; Over the next two years ÜLKER will focus on persistent cost reduction and revenue build-up opportunities. Ülker s corporate structure will be a subsidiary structure with executive leadership of the baked goods and chocolate businesses reporting to Ülker Executive Chairman; and 17 Ülker: A Confectionery Powerhouse A Compelling Investment Opportunity Review of Operations Financial Overview & Tables Core Focus: Drive Future Growth and Shareholder Value Improving Cost Structure Dedicated to Corporate Social Responsibility Solid Execution of Business Strategy Sound Corporate Governance Indisputable Brand Recognition Focus on International Markets Highest Quality of Standards R&D and New Developments Increasing Consumption Trends and Urbanization 19 World-Class Production Facilities Ülker s production facilities are some of the largest in Turkey; Acquisition of Ülker Çikolata, increased total to eight state-of-the-art production facilities; Facilities are ISO 9000 and HACCP certified and adhere to the strictest and highest standards of operation; Minimal CapEx requirements to increase production capacity in the coming years; and Main production facilities based in Istanbul Topkapı, Hadımköy, Ankara, Gebze, Karaman are diversified and strategically located throughout the country. ISTANBUL PLANTS GEBZE PLANT ANKARA PLANTS KARAMAN PLANT Ton M M 2011 Production Production Production Biscuits Total 268, , ,022 Birlik Pazarlama (Flour Mill)* 225, , ,458 Chocolates Total** 87, * Production of bagged flour and spagetthi (discontinued in 2011) is excluded from Birlik Pazarlama s 2010 production figure for the sake of comparability. ** Since the acquisition of Ülker Çikolata is finalized on September 23th, Chocolate operation s revenues are not included in the 9M financial tables. 20 Absolute Leverage in Consumer Reach Ülker s has a national distribution network that reaches approx. 200k sales points across Turkey; Network is one of the widest and most sophisticated in the country, with the biggest reach to consumers, only after beverages and tobacco industries; Able to cross-utilize the resources of the overall Yıldız Group; and Collectively, strength lies in its distribution channels and allows Ülker to benefit from its; Ability to streamline and eliminate excess costs in distribution and marketing; Monetize point of sale with additional shelving space; and Develop hybrid products based on consumer trends. 21 18,1% 22,5% 18,1% 22,1% 16,9% 16,2% 17,1% 22,8% 20,8% Ülker s Export Markets and Opportunities Turkish confectionery exports have experienced significant growth due to modernization of production facilities; Of the total biscuits exported from Turkey, sweet and sugar-added biscuits are the majority items commanding 58.2% of the total export volumes in ; Turkey is the leading exporter of chocolates to the Middle East by volume, outpacing the EU collectively 2 ; Turkey s biscuits exports valued at USD $229.1 million in 2009; Biscuits exports accounted for approx. 18.1% of Ülker s net sales in 2010 and 16.5% in 1H 2011; Chocolates exports accounted for approx. 6.2% of Ülker s total revenue in 2010 and remains stable; and Ülker s main export markets are Saudi Arabia, Iraq, Germany, UAE, the US, Yemen and Senegal. Exports Share as of Total Biscuits Sales 25% 20% 15% 10% 5% 0% Q'10 1Q'11 2Q'10 2Q'11 3Q'10 3Q'11 1: Export Promotion Center of Turkey, 2010 Report 2: Deliotte Turkish Food & Beverage Industry Report (July 2010) 22 Leadership Position Supported by Innovation types of biscuits, crackers, wafers, chocolates in diverse portfolio. new products in 2010 new products in YTD Board of Directors and Executive Management Title Years of Experience Murat Ülker Executive Chairman of the Board 27 Ali Ülker Deputy Chairman of the Board 24 Mehmet Tütüncü Board Member and Division President 24 Ahmet Özokur Board Member 7 Alain Strasser Board Member (Independent) 39 Cengiz Solakoğlu Board Member (Independent) 47 Mahmut Mahir Kuşçulu Board Member (Independent) 41 Şener Astan Executive Vice President, Baked Goods Division 32 Emin Özkan Executive Vice President, Chocolates Division 25 Bora Yalınay CFO 14 24 Ülker: A Confectionery Powerhouse A Compelling Investment Opportunity Review of Operations Financial Overview & Tables ,06 0,38 0, ,69 2, Financial Summary Net Sales Operating Profit EBITDA M M M'10 9M' M M 2011 Net Profit EPS Gross Profit M'10 9M' M'10 9M' M'10 9M'11 In TL MM, except per share 9Months 2011 figures do not include Chocolate operations. 26 M 2011 Consolidated Financial Summary Net Sales Ülker managed to increase domestic sales (0.8%) slightly in 9M 2011 results In 9M 2011, export sales declined by 25.8%; M M 2011 EBITDA M M 2011 Net Profit M M 2011 In TL MM Due to price increases in raw materials, Gross Profit margin declined by 310bps to 20.5% in 9M EBITDA declined to TL 42 MM in the 9M 2011, compared to TL 75 MM in same period of 2010; EBITDA margin was 3.9% in 9M 2011 versus 6.5% in 9M 2010; and TL 608 MM of net profit has been realized in 9M Net profit was boosted by one-off item, i.e. the divestiture of financial assets. 9M2011 Income Statement figures do not include Chocolate operations. 27 Income Statement (in TL m) Q Q Q M 2011 Sales Revenue 1,412 1,506 1, ,089 Cost of Sales (1,106) (1,128) (1,193) (292) (293) (281) (867) GROSS PROFIT Marketing, Sales and Distribution Expenses (182) (200) (228) (46) (57) (52) (156) General Administration Expenses (52) (65) (61) (15) (15) (15) (45) Research and Development Expenses (1) (1) (1) (0) (0) (0) (1) Other Operating Income Other Operating Expense (4) (3) (11) (4) (2) (2) (8) OPERATING PROFIT Share in net profit of investments accounted for under equity method (15) (3) (14) 1 (9) (5) (13) Finance Income Finance Expenses (304) (237) (235) (18) (45) (157) (226) PROFIT BEFORE TAXATION Tax Charge from Continued Operations (4) (26) (32) (7) (33) (5) (44) Current Tax Charge (4) (26) (37) (5) (32) (7) (45) Deferred tax (charge) / benefit (1) (1) 3 1 PROFIT FOR THE PERIOD M2011 Income Statement figures do not include Chocolate operations. 28 Balance Sheet Highlights (in TL MM) Q Q Q 2011 Current Assets 1,121 1,486 1,512 1,367 2,161 1,921 Non-current Assets 913 1,243 1,374 1, Current Liabilities 901 1, ,265 Non-current Liabilities Shareholders Equity 756 1,187 1,527 1,547 1, Total Financial Liabilities ,126 - Short-Term Long-Term Net Debt 203 (36) (761) 96 EPS (TL) M 2011 Balance Sheet includes Chocolate operations. 29 Net Debt Position (in TL MM) Q Q Q Short-Term Long-Term Total Financial Liabilities ,126 Inter-Company Receivables Inter-Company Payables Inter-Company Net Cash and Cash Equivalents ,
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