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
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
Source: IFRS financial statement for 1H2015
Note (1): Net of intersegment operations
+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
Source: IFRS financial statement for 1H2015
Note (1): Net of intersegment operations
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
Population: 13,7 million
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
GRP per capita: $7,198
ABP(*) :51%
Far Eastern Federal
district
Population:: 6 million
GRP per capita: $ 9,637
ABP(*) :55%
Privolzhsky Federal
district
Population: 29,7 million
GRP per capita: $7,139
ABP (*) :52%
16%
15% 4%
20% 18%
Central Federal district
Population: 38,8 million
GRP per capita: $14,030
ABP (*) :54%
North Caucasian
Federal district
Population: 9,5 million
GRP per capita: $ 2,459
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