Migros - Kipa Presentation

Migros Ticaret A.Ş.
Tesco Kipa Acquisition Roadmap
June 2016
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1
Agenda
∎ Transaction Overview
∎ Overview of Kipa
∎ Strategic Rationale
∎ Way Forward for Kipa
∎ Expected Financial Impact
∎ Summary
2
Acquisition of 95.5% stake in Tesco Kipa

Transaction
Overview
Migros entered into an agreement with Tesco Overseas Ltd to acquire its c.95.5% stake in Tesco Kipa (1)
− 168 stores with total net sales area of 324k sqm
− Including real estate property portfolio of 303k sqm with significant third party leased area

Purchase value of TL 302 million
−
Consideration
Timing
Approvals
After deducting financial debt of Kipa in latest FY balance sheet and other adjustments

Implied estimated price per share of TL 0.2375

Final purchase value and final price per share dependent on closing adjustments

Acquisition is expected to be bridge financed by existing TL credit lines

Closing upon obtaining regulatory approval from Turkish Competition Authority

Intention to apply to the Capital Markets Board for exemption from requirement to launch a mandatory
tender offer with post closing
(1) Migros acquires 9,867 Class A and 1,272,639,452 Class B shares of Tesco Kipa Kitle Pazarlama Ticaret Lojistik ve Gıda Sanayi A.S.(‘’Kipa’’,
or ‘’Tesco Kipa’’) from Tesco Overseas Ltd
3
Overview of Kipa
Summary Business Overview

Modern grocery retailer focused on the Western regions of
Turkey with 168 stores, total sales of TL 2,247 million (1)
Net Sales Area (2)
Supermarkets
13%
Express
5%
Hypermarkets
39%
and net sales area of ~324k sqm, comprising
− 17 Hypermarkets >6,000 sqm
− 31 Large Supermarkets between 2,000 and 6,000 sqm
− 48 Supermarkets
Large
Supermarkets
43%
~324k sqm
− 72 Express stores

37 retail real estate properties (mainly shopping malls,
Company owned)

Centrally located distribution centre in Torbali, İzmir
(owned property)

Serves over 1.5 million customers each week

Headquartered in Cigli, Izmir
(1) Refers to fiscal year ending 29 February 2016, as per CMB filings
(2) Pre-restructuring/right sizing initiatives contemplated by Migros. Based on February 2016 financial results, excluding one store which was closed in April 2016
4
Kipa Store Portfolio and Formats
Store Portfolio by City
Formats
Express
1
1
1
1
24
1
1 6
2
1
1
2
2
1
2
1
7
1
2
3
2
3
2
4
50 13
2
2
3 4
Torbali DC
1
Store
1
3
1
8
3
Express

Avg size: 234 sqm

Total sales area: 16,877 sqm

Proximity supermarkets

Located in residential and business areas

Provides basic fresh and retail products
Supermarkets
1
1
2
No. of stores: 72
3
1
6
1

4
2
8

No. of stores: 48

Avg size: 856 sqm

Total sales area: 41,128 sqm

In addition to product range available in
express stores, also provides pastry,
butcher and seafood
2
Large Supermarkets
Hypermarkets
Kipa presence
Supermarkets

No. of stores: 17

No. of stores: 31
Large Supermarkets

Sales area > 6,000 sqm

Sales area ranging from 2,000 to 6,000 sqm
Hypermarkets

Avg size: 7,509 sqm

Avg size: 4,460 sqm

Total sales area: 138,261 sqm

In addition to product range available in
supermarkets, offers selected non-food
categories
Distribution centre
Petrol filling
stations (1)
(1) One out of 3 petrol filling stations is subleased to a third party.

Total sales area: 127,652 sqm

In addition to product range available in
large supermarkets, offers electronics,
sports and clothing ranges
5
1 Strengthens competitive position and leverage scale benefits
Apply Migros' proven and tested ‘full range’ formats to Kipa’s portfolio of well-established and welllocated shopping destinations
Provide compelling format proposition addressing Turkey’s demographics and growing middle class
Gain critical scale benefits in an increasingly consolidating modern grocery segment
Integration and optimization of corporate and distribution functions
Number of Stores - Total (1)
LFY Sales Densities (2)
Operational Expenses/Sales(2)
TL/sqm
1.615
9.408
27.1%
20.4%
6.932
1.447
Migros
Migros Pro Forma
Kipa
Migros
Kipa
Migros
(1) Migros as of March 2016. Kipa as of February 2016, excluding one store, which was closed in April 2016. Before restructuring of portfolio.
(2) Migros refers to fiscal year ending 31 December 2015, only for Turkish operations. Kipa refers to fiscal year ending 29 February 2016. OPEX does not include amortisation,
provisions for unused vacations, employee termination payments/provisions.
6
2 Significant real estate content increases operational flexibility
Kipa owns 37 retail real estate properties (1) with 303k sqm of total retail space
26 of the properties are shopping malls including significant third-party leased sales area
adjacent to a Kipa store being an anchor
İzmir - Çigli
Ankara - Polatli
İzmir - Balcova
Antalya
Yalova
Mersin - Mezitli
(1) Excluding Torbali distribution centre
7
3 Local operational excellence allows for improved cost control
Leveraging of Migros’ long-term relationships with local suppliers, localised category
management and savings from centralised logistics (67-70% for Kipa vs. 84% for Migros)
Application of Migros‘ best operating practices to Kipa stores, including
‐
Staffing
‐
IT systems
‐
Transportation from centralised logistics
8
4 Proven track record of integrating and right sizing stores in Turkey
Significant step forward in Migros’ long term expansion plans
Format adoption, store transformations and rebranding as well as store rollouts are part of Migros’
DNA
Based on deep understanding of Turkish food retail market
Proven track record of
‐
successful right sizing of 33,000 sqm of Migros’
large store space over last few years
‐
delivering operational initiatives,
including the successful conversion and
rebranding of 375 Tansas stores since 2010
‐
increasing market penetration and top-line
sustainable growth without compromising
profitability and balance sheet efficiency
9
Way Forward for Kipa
1

Restructuring of Kipa’s store portfolio leading to sales area reduction, including
− Gradual right sizing of certain locations
Restructuring of
Store Portfolio
2
Application
of Migros’
Operating Model

Adoption of Migros’ proven and tested ‘full range’ formats

Refurbishment of certain shopping malls

Opportunistic divestiture of certain real estate assets

Leveraging of Migros' long-term relationships with local suppliers

Localised category management

Apply Migros' best operating practices to Kipa estate, including
− Staffing practices
− IT systems
− Transportation from centralised logistics
3
Integration
Benefits

Increased economies of scale

Integration and optimisation of corporate and distribution functions

Savings from rebranding of Kipa stores to Migros banners

Savings in distribution centre expenses
10
Expected Financial Impact
P&L
Impact

Supports Migros’ double digit sales growth guidance

Improvement of Kipa’s sales/sqm efficiency by right sizing of net sales area and
efficiency initiatives

Target neutral pro forma EBITDA margin impact within 2 years after closing

LTM Mar-16 Proforma Net Debt / EBITDA range of 3.5x-4.0x
−
Balance
Sheet
Impact
3.5x reflecting with higher integration synergies, 4.0x assuming moderate integration
synergies

Expected to achieve less than 3.0x Net Debt/EBITDA within 2 years after closing(1)

In parallel, ability to materially reduce leverage through divestiture of selected real estate
assets to achieve targeted leverage levels rapidly

Acquisition is expected to be bridge financed by existing TL credit lines
(1) Assuming constant EUR/TL rate for the years 2016, 2017 and 2018
11
Summary
1
1. Strengthens competitive position and leverage scale benefits
2
3. Significant real estate content increases operational flexibility
4. Local operational excellence allows for improved cost control
3
5. Proven track record of integrating and right sizing stores in Turkey
4
12