company presentation - migros...focus on horeca penetration c p14 multi-channel synergistic offering...

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Company Presentation 1H 2018

P1

1

2

Agenda

Migros in a snapshot

Operating environment

2

6

Review of historical financial performance & projections

27

3

Geographical Footprint

Operating in 3 countries

— Turkey (81 cities out of 81)

— Macedonia and Kazakhstan

2,011 Stores1

1,742 (supermarkets)

50 (upscale supermarkets)

161 (Supermarkets and Hypermarkets)

17 (wholesale and foodservice stores)

41 (international stores)

Migros Online

— 1.7m members and 56% mobile orders

— Acquisition and re-launch of Tazedirekt

Innovation, Loyalty & Customer Service

7.7m active households Money Club Card

Introduced more than 100 innovations for the retail market

Sustainability and Corporate Governance

Only retail company in the “BIST Sustainability Index”

Included Corporate Governance Index since 2015

27,596 employees of which 40% are women

Best retailer of the country 14 years in a row2

Migros at a Glance

80% of HH

+100 38% of HH

A-

2017 CDP Grade:

64th Year!

1 as of June 30, 2018 2 Capital Business magazine.

P2

Ownership Structure

Shareholding Structure as of June 2018

JV Structure between BC Partners & Anadolu Group

Kenan Investments

S.A.

15.13%

MH Perakendecilik ve Ticaret A.Ş.

50.00%

AG Anadolu Grubu Holding

A.Ş.

Free Float

26.8%

Migros Ticaret A.Ş.

Moonlight Capital S.A.

8.07%

BC Partners

& related funds

P3

Istanbul Municipality/ State Institutions (49%) & Private Sector (Koç Holding 51%)

Private Sector (Koç Holding 51%) & Public 49%

BC Partners 23.2% & Anadolu Group 50.0% Joint Venture Free Float 26.8%

Foreign investment (Swiss Migros 50%) & Istanbul Municipality/State Institutions (50%) Joint Venture

BC Partners 80.51% & Public 19.49%

1st era (1954–1974)

2nd era (1975–1990)

3rd era (1991–2008)

4th era (2008–2015)

5th era (2015–…)

Migros has been a leading supermarket operator since its foundation 64 years ago

Migros was established in 1954 (as a joint venture between Swiss Migros & Istanbul Municipality/State Institutions).

Throughout its history, the company had 5 different ownership structures.

Ownership changes did not interfere with the long established Company operating principles and management.

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Note: Shareholder structure as of June 30, 2018

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1

2

Agenda



2

6


27

3

Operating Environment

Experienced management

Multi-channel synergistic offering with a footprint in 81

Turkish cities and abroad

#1 supermarket operator with an outstanding reputation

Flexible and efficient business model combined with state of

art facilities

Attractive market with significant upside potential to

support future growth

A

C

F B

E

Retail technology and innovation leadership

D

P6

Population (m) Total Grocery Spend per Capita ($)

Attractive market with significant upside potential to support future growth

Source: Planet Retail

83 81

66 65 61

46 38

Total Grocery Spend in 2017

[~ TL 380bn]

Turkish Food Retail Market MGD Grocery Market Share (%)

Unorganized 66%

Organized 34%

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A Attractive domestic market

3,670 3,516

3,200 3,008

2,031 1,781

1,282

85%

82%

81%

80%

54%

43%

34%

Market Share Evolution

Migros on a consolidated basis maintained its market shares in FMCG markets.

However, Migros brand continued its market share gains.

Market Share Gain

Source: Nielsen Note: FMCG stands for Fast Moving Consumer Goods; Modern FMCG market and total FMCG market include all food-retail formats

Migros FMCG Market Share Evolution (%)

6.8

16.1

6.8

16.0

Total FMCG Market Share Modern FMCG Market Share

1H17 1H18 1H18 1H17

* including Kipa

B #1 supermarket operator with an outstanding reputation

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Macro Fundamentals

Product Innovation

Format Evolution Inorganic /

Acquisitions International

Proven ability to launch new, successful formats and products, achieve business transformations

2008 2014

1997

1997 2010

2011

1 The format started operating in 2010 on a trial basis and was fully launched in 2011

2012 2017

2016 2013

2005

Launch of new concept

Launch of 1 Space optimization of Hypermarkets

Launch of Migros jet in petrol stations

Introduction of self check-out

Launch of online

Club Card launch

Acquisition of

Acquisition of

Conversion of Tansas stores into Migros

format

Private label relaunch

Acquisition of

Growth Levers

2009

C

With a clear strategy to organically and inorganically drive growth in the decades ahead

Multi-channel synergistic offering with a footprint in all 81 Turkish cities and abroad

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Multi-channel expertise anchored around large, full-service supermarkets

C Multi-channel synergistic offering with a footprint in all 81 Turkish cities and abroad

Banner Key concept Sales

area split Supermarkets Large SPMs & HPMs Total # of stores

(Target size) 40-800 sqm 800-7,000 sqm

Core supermarkets

expertise anchored

around large

supermarkets

67% (Migros)

7% (5M)

[680]

[593]

[333]

[23]

[113]

[1,742]

Focused on the Western

regions of Turkey 2 19%

[69]

[45] [47] [161]

Well positioned in upper

income segment 3% [50] [50]

International operations 3% [21] [20] [41]

First and leading e-

commerce food retail

website

Wholesale & Food Service 1%

[17]

[17]

Total # of

stores [1,425] [586] [2,011]

(#): Number of stores as of June 30, 2018

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Number of stores: 1,742 including 469 5M, MMM & MM stores and 1,273 Migros Jet & M stores,

Penetration: 81 cities

─ (40*-4,500) sqm / (1,800* – 18,000) SKUs

─ Differentiated offering and service on fresh product categories

─ Wide branded assortment of FMCG products

─ Consistent Every Day Low Pricing on commodity Private Label products

─ Fashionable, complementary and seasonal non-food selection

Migros

Migros, Largest National Supermarket Chain

Focus on proximity supermarkets

680 Migros Jet and 593 M Migros

Proximity Stores, (40*-300) sqm,

1,800* – 3,000 SKUs

CRM applications for different customer segments

─ Customized & Differentiated Offering for Money Club Card holders

─ Club Card Loyalty Program for 17 years

Loyalty Program

(*): including Migros Jet stores and Migros Jet 7/24 forecourt stores as of June 30, 2018

C

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Exclusive shopping


Number of stores: 50

400 - 2,500 sqm / 10,000 SKUs

─ Upscale gourmet store serving with strong brand

loyalty

─ Wide product range in delicatessen, appetizers and

spirits. Premium quality in fresh products

─ Complementary and premium non-food

Customized service such as banquet ready meal delivery

C

P12


Macrocenter

Focused on the Western regions of Turkey

Number of stores: 161

Space optimization in 4 Kipa stores completed in 2017

Space optimization in 8 more stores completed so far in 2018, 6 more in 2018 pipeline

Product portfolio optimization is in progress


C

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Kipa as of June 2018

(#): Number of stores as of June 30, 2018

Currently operating in 7 regions through dedicated sales team.

Dedicated warehouses and customer delivery

17 Wholesale stores


Focus on Horeca Penetration

C

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Wholesale & Food Service

Turkey’s first and leading e-commerce web site in food retail

Top-line growth is significantly higher than the Company average

Improved operational efficiency through picking automation

Direct delivery from stores (111 stores in 28 cities across Turkey)

Natural

Fresh

Organic

Healthy

C

P15


Online Business

Kazakhstan Macedonia

1.3% of consolidated sales from Kazakh operations

Number of stores: 16, including 2 hypermarkets, 13 supermarkets and 1 Macrocenter.

Owns 1 shopping mall in Almaty

Total sales area of 23,789 sqm

─ Serving in the cities of Almaty and Astana in a large

country

Operates in multi-format since 1999

1.4% of consolidated sales from Macedonian operations

Number of supermarkets: 25

Owns 1 shopping mall in Skopje

Total sales area of 21,485 sqm

Operations started in 2005

1 Shopping Mall 2 Hypermarkets 13 Supermarkets 1 Macrocenter

1 Shopping Mall 25 Supermarkets

International Operations

C

P16


Migros Intelligent Office

Mkolay Scan&Go

Migros Mobile App & Personalized

Campaign Engine Self-Service Checkout+

BKM E-Wallet & Self-Service

Checkout Integration

Electronic Smart Tag

Mi-Fi

Me-Mobil Supplier Information

Center

Migros

R&D Center

Innovations

Sales Over ‘pin-on-receipt’

Technologies

P17

D Retail technology and innovation leadership

D

Money Club & CRM


P18

Advanced Segmentation Turkey’s

largest loyalty programme

Effective Communication

Network

10.3 Million Active Cards

75% of Loyalty Card

Sales

887 k Followers

6.1 Million

Mobile Phones

1.1 Million

E-Mails

25 Communication &

CampaignChannels

6 Life Style Segments

7.7 Million Active Households

Partnerships With Strong

Brands 305 k

1 Money = 20 Miles

48.0 Million Money Points

900k customer benefited "Just For You" campaigns

Programme With Highest Customer

Interaction

1.7 Million Money Winning Customer

Store Segmentation

Customer Value Model

Self-service technologies

Self-service revolution in retail

2009:

1 pilot store (4 SSCO)

2014:

189 stores (603 SSCO)

3.5

30%

61%

Million transactions per month

% average transaction ratio2

Generation cash register

Top 10 stores’ average transaction ratio1 %

2018:

250 stores (860 SSCO1)

D

Turkey’s First In-store self scanning experience

Statistical fraud and security algorithm

Hassle free direct bagging and payment

System will be available over 20 stores by the end of the year

Mkolay – Scan&Go

1 SSCO stands for Self Service Check Out 2 Share of transactions made via self-service checkouts in equipped stores

3.

P19


Mi-Beacon, Migros mobile apps and Mi-Fi

Personalized – Customer Communication Channel

At the right place– At the right time

New I-beacon technology

Highlights of Mi-Beacon, Migros mobile apps

D

Free wireless internet access during shopping – a first in Turkey

Available for 200 5M and MMM stores in large cities, stores where pedestrian traffic and tourist potential are high

Highlights of Mi-Beacon, Migros mobile apps

Turkey’s First Mobile wallet integration on a physical store payment

Currently available on 860 self service checkout and will be available over 6400+ regular checkouts Q2 2018

BKM E-Wallet & Self-Service Checkout Integration

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IOS & Android platform

4,5 M downloads

Core functionalities

‒ Mkolay –self scan shopping experience

‒ ‘Just For You’ campaign offers

‒ Closest store finder

‒ Migros Wi-Fi access

‒ Easy access to Migros TV

‒ Migros ‘İyi Gelecek Elçileri’ platform

‒ Call center

Capex as a percentage of sales 2017 (%)¹

Largely rented business model

Flexible lease terms

‒ Leases can be exited on average with a 1-3 month notice

‒ Termination rights of landlords more limited (selected leases locally registered with the Land Registry)

Well-invested facilities and low capex requirements

‒ One of the lowest capex as a percentage of sales amongst peers

‒ The meat plant, the distribution center sorter system and a centralized control systems on energy savings are examples of major one off investments realized over the last years

Leveraging “must have” anchor tenant position in malls and in the high street

‒ Preferred relationship status

‒ Power to (re-)negotiate size of the store

Flexible / capital light model with preferred tenant status

P21

2.5% 2.6% 2.6% 2.7% 2.8%

2.9% 2.9% 2.9%

3.7% 4.0%

4.6%

6.9%

Tes

co

Mo

rris

on

Mig

ros

Ah

old

Del

hai

ze

Sain

sbu

ry

Dix

y

Car

refo

ur

Cas

ino

Sho

pri

te

Co

lru

yt

Mag

nit

X5

Source: Company estimates, Reuters ¹ Latest reported fiscal year

Flexible / capital light model

E Flexible and efficient business model

Unparalleled capabilities in fresh categories

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E

Highlights

Focusing on fresh products (vegetables, fruit, fresh meat, etc.)

Renewed meat production facility

Exclusive licensing from Ministry of Agriculture: “Good Agricultural Practice”, covering now poultry & red meat

Broader range of bakery products and self service bakery model.

Fresh and ready to cook fish range in MAP packaging (modified atmosphere packaging),

Flexible and efficient business model

Meat processing/production plants – Miget and Gebze

Location Closed Area # of Employees

Miget Meat Production Plant Izmir Torbali 11,356 m2 249

Gebze Meat Production Plant Kocaeli GOSB 3,632 m2 43

Service Products Special Products

Packed Veal and Lamb Products Special Gourme Products

Lamb Parts Packed Meatballs

Vacuum Packed Meatball Patty Offal

Packed Minced Meat

Vacuum Packed Minced Meat Dough

2 meat production plants, for meat processing

18,455 ton production capacity per year per shift, in product groups

E

P23


Distribution centers and logistics - overview

E

24 Distribution Centers (including 1 Kipa DC and 7 Fruit and Vegetable DCs)

19,000 active SKUs

% of sales delivered centrally to the stores has reached 83%

Continuing to improve round trip store distances

Sorting and picking automation started

Bayrampasa Gebze Gebze (Meat)

Bursa (F&V)

Izmir (F&V)

Kemalpasa Pinarbasi

Miget (Meat)

Mugla

Kumluca (F&V)

Antalya (F&V)

Antalya

Mersin (F&V)

Adana (Meat)

Saray

Gölbaşı

Samsun (F&V)

Erzurum

Antalya (Meat) Adana

Saray (Meat)

Esenyurt

Torbalı

Tarsus (F&V)

P24


Best-in-class quality management and recognized excellence

E

CDP Turkey “Climate Leadership Award”

Capital “Most Admired Retailer”

Grand Stevie “Stevie Awards for Great

Employers”

Mobile Marketing Association “The Smarties Awards”

Association for Talent Development “Excellence in Practice Awards”

Annual records Selected awards

ISO Certificates

Laboratories and Audits

1,000+ supplier audits

30,000 product analysis

7,000 approvals of new products for sales

3,200 store audits

ISO 9001 Quality M.S.

ISO 22000 Food Safety M.S.

OHSAS 18001 Occupational Health & Safety M.S.

TS EN ISO 14001:2004 Environmental M.S.

ISO 10002 Customer Satisfaction M.S

13 owned laboratories

10 outsourced laboratories and audit firms

P25


P26

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Agenda



2

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27

3

19.3% Domestic sales growth w/o Kipa operations in 2Q 2018 Strong growth momentum despite high base of last year

Consolidated sales turnover increased by 20.3% and reached TL 8,463 million in 1H2018

Domestic sales growth excluding Kipa was stronger in 2Q 2018 with 19.3% vs 17.9% in 1Q 2018

Sales Growth in 2Q18 15.3%

Sales Growth in 1H18 20.3%

Sales in 1H 2018

*Kipa’s financial results have been consolidated since 01 March 2017.

Sales in 2Q 2018 (TL million)

4,523

3,923

2Q 2017 2Q 2018

Sales in 1H 2018 (TL million)

8,463

7,037

1H 2017 1H 2018

P27

Capital Expenditures

Capex (TL million)

12 Kipa stores Space optimization completed

TL 440m Targeted consolidated capex in 2018 Capex as a percentage of sales is expected to remain at 2017 level at the year end

Capex as a Percentage of Sales

297

399

2016 2017

154

271

1H 2017 1H 2018

2.2% 3.2% 2.7% 2.6%

P28

Consolidated Gross Profit in 1H 2018

Targets exceed in gross profit Further synergies expected following the legal merger with Kipa

Consolidated Gross profit reached TL 2,338 million with an increase of 27.6% in 1H 2018

2018 FY gross profit margin expansion is expected to exceed the Company’s targets for the year

Gross Profit 2Q (TL million)

1,261

1,015

2Q 2017 2Q 2018

Margin 27.9% 25.9%

Gross Profit in 1H (TL million)

2,338

1,832

1H 2017 1H 2018

Margin 27.6% 26.0%

P29

Consolidated EBITDA(R) in 1H 2018

*EBITDA(R)= Operating Profit+Amortization+Employee Termination Benefits +Unused Vacation Provision-Other Income+Other Expenses+(Rent Expenses)

42.9% EBITDA increase in 2Q18

11.3% EBITDAR margin in 2Q18

EBITDA 1H (TL million)

Margin 5.7% 5.0%

486 348

1H 2017 1H 2018

EBITDA 2Q (TL million)

Margin 6.1% 4.9%

2Q 2017 2Q 2018

275 193

EBITDAR 1H (TL million)

Margin 11.1% 10.0%

936 704

1H 2017 1H 2018

EBITDAR 2Q (TL million)

Margin 11.3% 9.9%

2Q 2017 2Q 2018

512 387

P30

Track Record of Deleveraging

Migros 1H 2018 Cash and Leverage Position

Cash & Debt Items Total TL m TL m EUR m

Cash & Cash equivalents 1,359 1,238 23

Financial Debt* 4,092 865 608

Net Debt 2,733

Net Debt / EBITDA LTM 2.7x

Deleveraging Profile - Net Debt / EBITDA LTM

4.0x

3.2x 2.9x 2.7x 2.6x

2013 2014 2015 2016 2017

Net debt/EBITDA improved in 1H 2018 y-o-y despite hard currency appreciation

* Based on amortised costing as indicated in financial statements

Euro/TL Currency : 2.9365 2.8207 3.1776 3.7099 4.5155

3.2x 2.7x

1H 2017 1H 2018

4.0030 5.3092

P31

Expectations and Guidance

Management Agenda in 2018

Merger of Migros & Kipa by the end of August 2018

Space optimisation in large Kipa stores will continue

Total gross Euro debt decreased

by almost 10% in 1H18 versus 2017 year-end

Migros TL bond debut with

TL 150 million

Focus on digitalization of physical stores and online business growth

Strengthening our pioneer position in Turkish Retail

2018 Guidance [Consolidated]

2018E Previous Guidance New Guidance

Sales Growth 15-18% ~20%

EBITDA Margin 5.5-6.0% 5.5-6.0%

Expansion Target 120-150

new stores 200+

new stores

CAPEX Target TL 400 mn TL 440 mn

P32

IFRS Consolidated Income Statement Summary

SUMMARY OF INCOME STATEMENT – 1H 2018

Net Sales 8,463.4 7,036.9

Cost of sales -6,125.4 -5,205.1

Gross Profit 2,338.0 1,831.9

Operating Expenses -2,054.7 -1,667.1

Other Operating Income / (Expense) -154.3 -111.9

Operating Profit 129.0 52.8

Income / (Expense) from Investment activities 0.2 1,065.2

Operating Income Before Finance Income / (Expense) 129.2 1,118.0

Financial Income / (Expense) -631.6 -320.2

Income/Loss Before Tax From Continuing Operations -502.4 797.8

Tax Income / (Expenses) -37.9 -12.0

Deferred Tax Income 8.8 0.8

Net Profit / Loss -531.5 786.6

Net Profit / Loss - Non-controlling interest -3.3 -2.9

Net Profit / Loss - Equity holders of parent -528.2 789.5

EBITDA 486.3 348.5

EBITDAR 935.8 703.8

(TL Million) 1H 2018 1H 2017

P33

IFRS Consolidated Balance Sheet Summary

SUMMARY OF BALANCE SHEET – 1H 2018

Current Assets 3,623.0 3,776.3

Non-current Assets 6,684.7 6,526.4

Total Assets 10,307.8 10,302.7

Current Liabilities 5,778.3 5,516.1

Non-current Liabilities 3,512.7 3,259.4

Total Liabilities 9,291.0 8,775.5

Equity 1,016.7 1,527.1

Total Liabilities and Equity 10,307.8 10,302.7

(TL Million) 1H 2018 2017

P34

company presentation - migros...focus on horeca penetration c p14 multi-channel synergistic offering...

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