Analyst Briefing Half year review June‘19

August 07, 2019 Confidential and Proprietary Information © FrieslandCampina Engro Pakistan Limited

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Table of content

Business highlights

Financial highlights

Business Highlights

Dairy Category offers tremendous opportunity to GROW!

Source: Tetra Milk Tree / HHP / U&A 2015

Annual Milk Consumption: 22.5 billion liters

Household penetration: 100% High usage incidence in multiple formats

96%81%

58%

31%

Avg Household Spend on Food & Beverages

40%Avg Household F&B Spend on

milk

23%

90%Loose Milk

Formalin

Caustic Soda

Detergent

Vanaspati Oil

Ammonium

Sulphate

Starch

Urea

AFLATOXIN

10%Packaged Milk

15%

PKR 40 bn Opportunity size for EFL if only 5% of loose milk users are

converted to packaged milk

Current Opportunity

Industry in Negative Growth Cycle Due to False Consumer Perceptions

Industry Volumes(Mln Liters)

981

1079

1176

1279

1420

1370

1299

2012 2013 2014 2015 2016 2017 2018

….Engaging with industry stakeholders to promote packaged milk

..and directly influencing the Government

9

“Nourishing by Nature” Focus on purity & naturalness of Olper’s

Milk leading to happy mornings

“The Best Tea for All Occasions” Leverage new product and packaging to build taste

credentials; “Tastes so good your heart wants to dance”

Dairy SegmentStrengthening the core to drive conversion from Loose milk

Elaborate branded content built and

leveraged on digital platforms

OLPER’S PROCAL

• High-protein, high-calcium, low-fat milk for an active lifestyle

• Launched: October 2018

Dairy SegmentStrong innovations further fueling business growth

OLPER’S FULL CREAM MILK POWDER • Made with 100% dairy &

fortified with additional vitamins, calcium and protein to make children Tall & Strong

• Launched: November 2018

Dairy SegmentStrong innovations further fueling business growth

OLPER’S CREAM• 100% dairy cream made from

fresh milk for rosy glow of nourishment at every breakfast occasion

• Launched: March 2019

Dairy SegmentStrong innovations further fueling business growth

Dairy SegmentStrong innovations further fueling business growth

TARANG ELAICHIMade with just the right quantity of real cardamom flavour for perfectly balanced taste and aroma

Launched: February 2019

17.5%

18.3%

19.9%

19.3%

20.4%20.0%

21.4%

22.2%22.6%

37.0%

40.1%

40.1%40.6%

42.4%

43.1% 43.2%

42.0%

42.4%

Winning in the market

18%

30% Q4’18 Vs Q4’17

Q1’19 Vs Q1‘18

Market Share improving month on MonthReversing the negative growth cycle

Tarang510bps share gain

Olpers540bps share gain

20%

Q2’19 Vs Q2‘18

-12%

Q3’18 Vs Q3’17

16

EVER Highest on

Secondary

18.8 mn liters

(Jun’19)

24% value growth

TarangBecomes Most

Distributed STC Brand

36.7%of UHT Universe

+3% VOLUME SHARE

GAIN

20% 23.1%

DEC’18 JUN’19

H1’2019 Big Wins

2%+ Market Share Gain

Vs. Exit’18

24% volume growth 16K+ outlets increased

(Source: Tetra Dispatches 3m rolling forecast) (Source: AC Nielsen)

OMORE BUSINESS HIGHLIGHTS

+4500 in 2018

+2500 in Q1 2019

+800 in 2018

+250 in Q1 2019

Asset Investment in the business Driving Mental Availability

+3344 in Q2 2019

+423 in Q2 2019

OMORE - Innovations

Expanding the brand footprint by leveraging “novelty & variety”

2018 vs 2017

+6%

5 innovations in

20188 innovations in

2019

Revenue growth

2018 vs 2017

+2%HY1’19 vs HY1’18

+9%HY1’19 vs HY1’18

+10%

Volume growth

+24% vs. SPLY

Primary Sales Volume

+10%YTD vs. LY

Primary Sales Volume

Highest ever

EID

3.05 Mn Ltrs

+22% vs. SPLY

Highest ever

QUARTER (Q2)

9.3 Mn Ltrs

Highest ever

MONTH (JUN)

3.95 Mn Ltrs

+24% vs. SPLY

Q2 RECORD BREAKING FOR OMORE

Q2’2019 Big Wins

Positive Social Impact Made Along The Way

European Union recognition of EFL Dairy Development program

EFL Wins Commonwealth Company of the year award

3 NFEH Awards Received in 2019

Financial Highlights

24

Economic Overview

2.5 3.1 2.8

4.9

12.6

19.0

13.6

2013 2014 2015 2016 2017 2018 2019

Current Account Deficit ($Bln)19.4

17.6

11.4

9.3

2016 2017 2018 2019

FX Reserves ($Bln)

Reasons for entering an IMF Program:

• Increase in trade deficit and dwindling Foreign Exchange reserves

• Increasing government borrowing (Interest payments > 25% of government revenue)

• Ballooning public deficits and losses in SOEs

• Inflation increase, growth skewed toward consumption, competitive loss, low investment and job creation.

Pre-IMF Economic Conditions

A. Reducing Fiscal Deficits

B. Tightening Monetary Policy

C. Market determined Exchange rate

Pakistan entered into its 18th IMF Program – Salient Features

A. Reducing Fiscal Deficits

B. Tightening Monetary Policy

C. Market determined Exchange rate

Pakistan entered into its 18th IMF Program – Salient Features

Increase in Corporate Tax Rates

Corporate Tax fixed at 29%

Sales Tax @ 10% on Dairy portfolio (except UHT)

Elimination of tax exemptions

Stricter Tax enforcement and widening of tax base

Economic activity unrest as Trade is resisting new

compliance requirements

A. Reducing Fiscal Deficits

B. Tightening Monetary Policy

C. Market determined Exchange rate

Pakistan entered into its 18th IMF Program – Salient Features

750bps increase in Policy rate since Jan’18

6.5%

7.5%

10.0%10.8%

12.3%

13.3%

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

SBP Policy Rate

2x Finance cost to the Company

Distributor ROIs becoming relatively uncompetitive vs risk

free returns ➔ impeding further expansion

A. Reducing Fiscal Deficits

B. Tightening Monetary Policy

C. Market determined Exchange rate

Pakistan entered into its 18th IMF Program – Salient Features

Sharp Pak Rupee devaluation resulting in increase in cost of doing

business

Diminishing consumer purchasing power due to rising inflation

116

122 124

140 141

163 PKR/USD Exchane Rate

4.2%

5.1%

6.2%

9.4%8.9%

Inflation

Financial Highlights

8,202 8,596 8,497 8,683

10,007

5%

-1%

2%

15%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Revenue

Revenue (PKR in million) Growth (%age)

Financial Highlights of the Company

Revenue +15% vs Q1’19

1,617

1,277

742

1,555 1,497

20%

15%

9%

18%

15%

0%

5%

10%

15%

20%

25%

-100

100

300

500

700

900

1,100

1,300

1,500

1,700

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Gross Profit

Gross Profit (PKR in million) Gross Margin (%age)

210

2

(449)

83

(322)

3% 0%

-5%

1%

-3%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

(500)

(400)

(300)

(200)

(100)

-

100

200

300

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Profit After Tax

Profit After Tax (PKR in million) Profit After Tax (%age)

Gross Profit -4% vs Q1’19Profit After Tax Rs.-322mn in

Q2’19

Financial Highlights - Dairy

Revenue +1% vs Q1’19Profit After Tax Rs. -472mn in

Q2’19

6,803 7,401

8,302 8,184 8,276

9%

12%

-1% 1%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Revenue

Revenue (PKR in million) Growth (%age)

14

(119)

(348)

177

(472)

0%

-2%

-4%

2%

-6%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

(600)

(500)

(400)

(300)

(200)

(100)

-

100

200

300

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Profit After Tax

Profit After Tax (PKR in million) Profit After Tax (%age)

Financial Highlights – Ice Cream

Revenue +248% vs

Q1’19

Profit After Tax Rs. +184mn

in Q2’19

1,399

1,195

195 498

1,732

-15%

-84%

155%

248%

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Revenue

Revenue (PKR in million) Growth (%age)

197

129

(149)(125)

184

14%

11%

-76%

-25%

11%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

(200)

(150)

(100)

(50)

-

50

100

150

200

250

Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Profit After Tax

Profit After Tax (PKR in million) Profit After Tax (%age)

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