earnings presentation for the six months ended 30 june 2015 · synergy, a leading alcohol company...

Earnings Presentation for the six months ended 30 June 2015

Speakers: Alexander Mechetin, CEO

Nikolay Belokopytov, CFO

Sergey Kuptsov, Head of corporate finance 31 August, 2015

This presentation has been prepared by Synergy, Co. (the “Company“, or “Synergy”) and together with its subsidiaries. By attending the meeting where the presentation is made, or by reading the presentation slides, you agree to the following limitations and notifications. This presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not be reproduced in any form, in whole or in part. Failure to comply with this restriction may constitute a violation of applicable securities laws. This presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire shares of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity in any jurisdiction. Neither this presentation nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation may contain statements that are, or may be deemed to be, forward-looking statements within the meaning of the U.S. federal securities laws and are intended to be covered by the safe harbors created thereby. Examples of such forward-looking statements include, but are not limited to statements of the Company’s predictions, forecasts, projections, strategies, plans, targets, objectives, expectations, estimates, intentions, beliefs or goals, including those related to acquisitions, sales, products or services, results of operations, financial condition, liquidity, prospects or dividend policy; statements concerning future business or industry performance; other statements that do not relate strictly to historical or current facts; and assumptions underlying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the forward-looking statements will not be achieved. Among other things, forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Readers should be aware that several important factors could cause the Company’s assumptions to be incorrect, and could cause actual results to differ materially from the predictions, forecasts, projections, strategies, plans, targets, objectives, expectations, estimates, intentions, beliefs or goals expressed in such forward-looking statements. These factors include:

• changes in political, social, legal or economic conditions in Russia generally, or in the regions of Russia in which the Company operates, including changes in levels of consumer spending and demand for some or all of its products;

• changes in consumer preferences and tastes, demographic trends or perceptions about health related issues; • increased competitive product and pricing pressures and unanticipated actions by competitors that could impact the Company’s market share, increase expenses and hinder growth potential; • the ability to complete business combinations, partnerships, acquisitions or disposals, existing or future, and to achieve integration, expected synergies and/or costs savings; • levels of marketing, promotional and innovation expenditure by the Company and its competitors; • the Company’s ability to protect its intellectual property rights; • increasing recognition in Russia of product liability and personal injury torts; • legal and regulatory developments and changes in the policies of the government of the Russian Federation, including regional authorities, including regulatory developments or policy

changes regarding consumption of or advertising for spirits, or taxation; • changes in the cost of raw materials and labor costs; • renewal of distribution rights and contracts on favorable terms when they expire; • technological developments that may affect the distribution of products; • changes in financial and equity markets, including significant interest rate and foreign currency exchange rate fluctuations, which may affect the Company’s access to or increase the cost of financing or which may affect the Company’s financial results; • changes in accounting standards, policies or practices; • availability of qualified personnel, including accounting personnel; and • ability to identify other risks relating to the Company’s business and manage the risks associated with the aforementioned factors.

This list of important factors is not exhaustive. Readers should carefully consider such factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which the Company operates. Such forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update or revise any of them. Readers should not place undue reliance on forward-looking statements. The Company does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario.

2

3

Synergy, a leading alcohol company in Russia reports 1H2015 financial results

1H2015 vs 1H2014

• Sales grew 15% and reached 20.3 bln. rubles • Net Revenue increased by 18% to 13.0 bln. Rubles • Gross Profit raised by 13% to 5.5 bln. rubles • EBITDA grew 9% to 1.4 bln. rubles • EBITDA margin decreased by 0.9 pp. from 11.8% to 10.9% • 64% decline in Net Income • Net Debt to EBITDA – 2.5X • 6% volume decline

Key operational

developments

• Synergy concluded several exclusive, long-term distribution agreements for Sambuca, Xentia - #1 Absinthe in Russia.

• Synergy enhanced wine distribution signing several agreements with leading winyards. Main trade marks: Cono Sur, Maset, Pierre Fontaine, Fleur Du Cap, Gran Castillo and others.

• New product development and launches: Captain’s and Ussuriisky balsam families, Arkhangelskaya and Rjanoi Kolos vodkas; restyling: Beloye Ozero, Syli Prirody, Tigroff and others

4

Consolidated Revenue for 1H2015

11 032

13 022

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

1H2014 1H2015

Consolidated Revenue, million RUB

+18% Y-o-Y

Revenue breakdown by segments, million RUB (1)

Alc

oh

ol

(1)

Fo

od

(1)

2 577

3 238

0

1 100

2 200

3 300

1H2014 1H2015

+26% Y-o-Y

25%

75%

Alcohol

Food

Consolidated Revenue split, %

1H2015: 13 022 million RUB(1) 1H2014: 11 032 million RUB(1)

23%

77%

Alcohol

Food

o 16% Y-o-Y increase in alcohol revenue despite of 6% fall in volume

o Ongoing diversification – growth of export-import operations

o Food segment revenue was driven by poultry and milk divisions: favorable market conditions and growing effectiveness

Source: IFRS financial statement for 1H2015

Note (1): Net of intersegment operations

8 455 9 768

0

5 000

10 000

1H2014 1H2015

+16% Y-o-Y

12%

88%

5

Consolidated Gross Profit for 1H2015

Consolidated Gross Profit, million RUB

4 864 5 483

0

3 000

6 000

1H2014 1H2015

42.1%

Gross Profit

Gross Margin

Gross Profit breakdown by segments, million RUB (1)

4 305 4 691

0

2 500

5 000

1H2014 1H2015

48%

Alc

oh

ol

(1)

Fo

od

(1) 573

763

0

300

600

900

1H2014 1H2015

Consolidated Gross Profit split, %

1H2015: 5 483 million RUB(1) 1H2014: 4 864 million RUB(1)

14%

86%

Alcohol

Food

Alcohol

Food

oMain drivers for the Consolidated Gross Profit and for the

Alcohol segment Gross Profit were diversification of the operations mix and price indexation.

oDouble digit growth of premium import operations.

oSignificant improvement of the Food segment profitability due to proactive price policy, focus on marginal products



+33% Y-o-Y

+9% Y-o-Y

44.1%

+13 % Y-o-Y

51%

24%

22%

6

Alcohol segment breakdown(1)

7 224

1 231

7 894

1 875

0

3 000

6 000

9 000

Spirits Production Distribution

Alcohol segment revenue breakdown, million RUB

1H2014

1H2015 3 897

408

4 091

600

0

1 500

3 000

4 500

Spirits Production Distribution

Alcohol segment gross profit breakdown, million RUB

+5% 1H2014

1H2015

85%

15%

Spirits production

Distribution

Alcohol segment consolidated revenue split, %

1H2014: 8 455 million RUB 1H2015: 9 768 million RUB

81%

19%

Spirits production

Distribution

Key Alcohol segment drivers in 1H2015

oSpirits production: 9% Y-o-Y increase in revenue on the back of 6% drop in volume. Company increased prices in the beginning of 2015 - as a result the volume reduction was significantly compensated

oGross margin of the Spirits production slightly decreased (from 53.9% to 51.8%) mainly due to inflation

oDistribution: sales growth of premium imported brands such as William Grant & Sons along with new exclusive agreements to extend our premium portfolio. As a result - this sub-segment showed considerable growth

Note (1): Anaudited

+9%

+52% +47%

51.8% 53.9%

32.0% 33.1%

7

Consolidated EBITDA and Net Profit for 1H2015

1 301 1 418

0

500

1 000

1 500

1H2014 1H2015

EBITDA, million RUB

+9 Y-o-Y

EBITDA

EBITDA Margin

1153 1238

2 750

3 551

0

1 000

2 000

3 000

4 000

1H2014 1H2015

+29% Y-o-Y

+7% Y-o-Y

G&A and distribution expenses , million RUB

General & Administrative expenses

Distribution expenses

3 903

4 789

945 1 031

275

98

0

300

600

900

1 200

1H2014 1H2015

+9% Y-o-Y

Operating profit and Net Income, million RUB

-64% Y-o-Y

o 7% year-on-year increase in G&A expenses was mainly due to inflation o 29% year-on year increase in distribution expenses mainly due to

additional marketing support of our sales in terms of declining consumption and growth of salaries including new sales personnel in Noble House division.

o Net income decreased by 64% mainly due to significant growth of finance costs including banks guarantees and credit lines



10.9%

11.8%

Opertating profit

Net income

8

Company’s debt

875

2 824 3 164

1 493

5 804

4 907

5 544

6 670

YE2013 1H2014 YE2014 1H2015

Debt breakdown, million RUB Long-term debt

Short-term debt

5 919 6 212

8 226 7 732

YE2012 YE2013 YE2014 1H2015

Net debt (1) evolution, million RUB

As of 31 December, 2014

29%

53%

18%

Less than 1 year

1-2 years

2-5 years

Total = 8 163 mln RUB

o Debt remains stable o The cost of borrowing significantly increased

(14.8% p.a. in 1H2015 vs 11.7% p.a. in FY2014)

o Debt structure improved: long-term debt was 82% (64% at the end of 2014); share of the unsecured loans increased from 49% to 58%.

o Net debt/EBITDA ratio is on level 2.5x

Source: IFRS financial statement 2011-2015

Note (1): Net debt = Total debt – Cash & Cash equivalents

7 731

8 708

6 679

8 163

43%

21%

36%

Less than 1 year

1-2 years

2-5 years

Total = 8 708 mln RUB

As of 30 June, 2015

APPENDICES

9

Widening borders of BELUGA vodka exports

Improving the quality of export distribution platform by carefull selecting partners

Focus on the US super-premium vodka market

COMPANY STRATEGY

10

Focus on the core business of production, distribution and sale of spirits

Ongoing process of divesting non core assets

Balanced portfolio of brands covering all price categories

Focus on three key upper-priced brands including flagship super-premium Beluga

Expansion in growing alcohol categories

Increasing brand equity

Premiumizing own sales mix

Strong distribution platform with focus on direct sales

Better contact with final consumer through trade marketing activity

Best in class IT platform

Product portfolio

Global exports

Distribution platform

Focus on core operations

Become the dominant spirits company in Russia with a diversified portfolio of brands and products and best in class distribution platform

Trad

itio

nal

q

ual

ity

vod

ka

VEDA ICE

Gosudarev Zakaz

(Sovereign’s Order)

Hig

h-q

ual

ity

pro

du

ct

DIVERSIFIED PORTFOLIO OF NATIONAL BRANDS WITH FOCUS ON 3 KEY BRANDS

Low-middle Premium

RUR 1200 RUR 4500

Russky Lyod

(Russian Ice)

Beluga Noble

Beluga Gold line

Belenkaya (Whitish)

Myagkov

Pat

rio

tism

, V

icto

ry

Tren

dy

Vo

dka

fo

r co

ckta

ils

Han

dcr

afte

d

No

ble

vo

dka

Gas

tro

no

mic

vo

dka

Pu

re,

org

anic

vo

dka

Exclusive agreement for production and distribution

Key priority brand Key priority brand Key priority brand

RUR 230 RUR 280 RUR 300 RUR 310 RUR 400

+8% +9% +7% +7% +5% +4% +17%

+2% +3% +3% +3% +3% +16%

Sub-premium Super-premium, Ultra-premium Middle

RUR 1350 RUR 2800

+6% +31%

+5% +29%

Beluga Transatlanti

c Racing

Beluga Allure

Vo

dka

fo

r Tr

end

sett

ers

Ari

sto

crat

ic

Well-established portfolio of brands with high awareness is serious competitive advantage on “dark market” for advertisement

Average retail price per 0.5 liter from Jan 2013

Increase in net price to distributor from Dec 14 vs Jan 14

Increase in gross price to distributor from Dec 14 vs Jan 14

Brand name

Positioning

11

Vo

dka

p

ort

folio

+3%

Trad

itio

nal

, cl

assi

c, R

uss

ian

b

ran

dy

Trad

itio

nal

b

len

ded

w

his

ky

DEVELOPING PORTFOLIO OF NATIONAL BROWN SPIRITS BRANDS

Brandy

Zolotoy Rezerv

(Golden Reserve)

RUR 400

+2%

+1%

Source: Company data

Whisky

RUR 500

new

new

Fox&Dogs

Balsam and herbal liqueurs

Eco

, pu

re

nat

ure

RUR 610

new

new

Ussuriiskiy Balsam

Average retail price per 0.5 liter from Jan 2013

Increase in net price to distributor from Dec 14 vs Jan 14

Increase in gross price to distributor from Dec 14 vs Jan 14

Brand name

Positioning

12

+2 +6

+4 +1

Infusions

Dr August

new

new

RUR 250- 290

Nature, unique tastes

Bro

wn

sp

irit

s p

ort

folio

new

new

RUR 560

Ussuriiskiy Liqueur

RUR 460 RUR 500

Cla

ssic

Fr

ench

sty

le.

10

0%

Fre

nch

sp

irit

s

Kamennyi Lev

(Stone Lion)

Staraya Gvardia

(Old Guard)

His

tory

, R

uss

ian

vi

cto

ry

Low-middle Middle Sub-premium

Eco

, pu

re

nat

ure

Rum

new

new

RUR 350

Captain’s Rum

Vo

yage

, A

dva

ntu

res

SYNERGY IS #1 INDEPENDENT SPIRITS DISTRIBUTOR IN RUSSIA • Synergy distributes in Russia a comprehensive portfolio of premium international brands.

Dedicated team (Synergy Import) – more than 400 people • Key partners: William Grant & Sons, Camus, Distell, Great Valley, Ron Barcelo

13

Irish Whisky Tequila Gin

Cognac

Scotch Whisky

Armenian Brandy

Bitter Cream liquor Rum

Absinthe Sambuca

SYNERGY LAUNCHED WINE DISTRIBUTION Synergy provides the best platform for massive and qualitative wine distribution in Russia. Wine producers from France, Italy, Spain, Chile, Germany, South Africa Categories: red and white still wines, sparkling wines

14

South Africa

France Chile Italy

Spain

Germany

Tigr

off

(S

ub

-pre

miu

m)

RES

TYLI

NG

Cap

tain

’s R

um

Cap

tain

’s G

in

Focus on NPD is important marketing tool especially in terms of “dark market” for advertisement*

* Dark market – total ban for alcohol ads except points of sale

15

FOCUS ON NEW PRODUCT DEVELOPMENT. RECENT LAUNCHES

Cap

tain

’s S

pir

it L

ine

Uss

uri

(P

rem

ium

Bit

ter)

Dr.

Au

gust

infu

sio

n

fam

ily

28

SK

U’s

Be

loe

Oze

ro

(Mid

dle

)

Ark

han

gels

kaya

(S

ub

-pre

miu

m) NEW

PR

OD

UC

TS

Syli

Pri

rod

i (M

idd

le)

Rzh

ano

y K

olo

s (M

idd

le)

FOCUS ON QUALITY DISTRIBUTION

Domestic sales breakdown by geographical regions, % of Group’s volume, 2013

Targeting “Golden Shelf”

Fo

cu

s

Southern Federal district

Population: 13,9 million

GRP per capita: $ 5,942

ABP(*) :50%

North-Western Federal

district


GRP per capita: $10,166

ABP (*) :55%

Urals Federal district

Population: 12 million

GRP per capita: $

15,992

ABP (*) :54%

Siberian Federal

district

Population: 19 million


ABP(*) :51%

Far Eastern Federal

district

Population:: 6 million


ABP(*) :55%

Privolzhsky Federal

district



ABP (*) :52%

16%

15% 4%

20% 18%

Central Federal district



ABP (*) :54%

North Caucasian

Federal district



ABP(*) : 47%

5%

% - 2013

- 2012

16%

16%

4%

22% 17%

%

21%

19%

5%

1%

Note (*) able-bodied population

Source: Rosstat, Company’s

data

16

1%

«Mobile Sales Automation» Project

High quality resource management (finances, sales team,

marketing, distributors)

• to create a system that enables to centralize and optimize sales record

processes, to get business-analytics, to control the financial discipline;

• the whole process of field sales is formed under the control of Synergy

Group followed by the information being passed to the Distributor. The

Distributor is acting as a logistics' provider;

Employee control (planning, organization, motivation):

• to create a single Centralized Command and Control System of

Dedicated Sales Force Activity at the level of supervisors, territory

managers, region managers and Synergy OJSC management.

• Significant improvement of Synergy brand

portfolio presence on the shelf space

• Establishment of unique IT distribution control

system enabling to track and evaluate the

efficiency of distribution team. Full activation –

beginning of 2014

• Unification of the corporate structure

• Launch of the Mobile Sales Automation system

• 3 key brands: BELUGA, Myagkov and

Belenkaya

• High-grade distribution

• Innovative approach

• Better contact with final consumer through

trade marketing activity

Rec

en

t u

pd

ate

s

Fo

cu

s

17

Address: 30/1 Obrucheva Str., bldg. 1 Moscow 117485 Russia Phone: +7 495 510 2695 +7 495 775 3050 Fax: +7 495 510 2697 +7 495 775 3052 E-mail: [email protected] Contacts: Sergey Kuptsov, Head of Corporate finance Prokhor Malutin, PR director www.sygroup.ru

CONTACTS

mailto:[email protected]

http://www.sygroup.ru/

earnings presentation for the six months ended 30 june 2015 · synergy, a leading alcohol company...

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