Ulker Biskuvi Outperform
Transcription
Ulker Biskuvi Outperform
June 18 2015 RESEARCH Ulker Biskuvi Outperform Turkey - Equity - Food & Beverages Coverage Initiation A tough cookie Current Mcap (TLmn) 5,968 Current EV (TLmn) 6,279 Current Mcap (US$mn) 2,199 Price Performance (TL) 21.00 years from an operational and corporate governance perspective 18.00 with its efforts to enhance transparency and efficiency. We expect 15.00 a CAGR of 12% in revenues and 17% in EBITDA over next 3 12.00 EBITDA margin set to improve by 1.6pp in 2014-2017E period. We expect the Company’s EBITDA margin to edge up by 1.6pp to 9.00 01.14 years, with the Company preserving its domination of the market. 13.1% over the next 3 years through a combination of cost ULKER 05.15 prospects. Ulker Biskuvi has evolved successfully in the last 3 22% 03.15 Astute maneuvers on corporate strategy with bullish mid-term Potential Return TL 01.15 prices yet facing pressure from strong US$, with a 0.9pp rise in the gross margin projected in 2015 through price adjustments and product mix initiatives. 21.30TL 11.14 Ulker Biskuvi to benefit from the stabilization in commodity 12M Target Price TL 09.14 course to post a CAGR of 12% in revenues and 17% in EBITDA over next 3 years, holding on to its rock-solid brand identity. 17.45TL 07.14 As a pioneer in the confectionery business, Ulker Biskuvi is on Current Price TL 05.14 recommendation and a 12 month price target of TL21.30 indicating 22% upside potential. 03.14 We initiate our coverage for Ulker Biskuvi with an OP BIST-100 management and improved operational efficiencies. We expect relatively stable raw material costs, an improvement in product mix management through new higher-margin launches and economies of scale. Stock Market Data Bloomberg/Reuters: Relative Performance: ULKER.TI / ULKER.IS 1 mth 3 mth 12mth -3% -2% -1% Saudi Arabia and Egypt operations to unlock value by 2H15. The 52 Week Range (TL): acquisition of a 55% stake in a facility in Saudi Arabia and 46% Average Daily Vol (US$mn) 3 mth: stake of a facility in Egypt will be finalized in 2015. Double digit YTD TL Return: -5% top line growth is expected in Saudi Arabia; however, no growth is Shares Outstanding (mn): 342 projected in Egypt, given the c.20% devaluation of the Egyptian Free Float (%): pound. Although acquisitions will contribute to revenues, they will Foreign Ow nership in Free Float (%): 14.2 / 21.25 5.4 43 37% be slightly dilutive on profitability margins in the short-term. Research Analyst: Irem Okutgen Financials and Ratios 2013 2014 2015E 2016E Net Sales (TLmn) 2,748 2,891 3,190 3,587 EBITDA (TLmn) 315 332 381 457 Net Income (TLmn) 189 212 228 284 11.5% 11.5% 12.0% 12.7% P/E (x) 31.6 28.2 26.1 21.0 +90 (212) 384 1155-58 EV/EBITDA (x) 19.9 18.9 16.5 13.7 [email protected] EV/Sales (x) 2.28 2.17 1.97 1.75 EPS (TL) 0.55 0.62 0.67 0.83 DPS (TL) 0.39 0.27 0.47 0.58 EBITDA Margin +90 (212) 384 1135 [email protected] Sales Contact: 1 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH SUMMARY FINANCIALS The Company in Brief Ulker Biskuvi, formerly Ulker Gida, was established in 1944 and is the flagship of Yildiz Holding as the pioneer confectionery company in Turkey. Yıldız Holding, the largest food manufacturer in MENA, Central and Eastern Europe, recorded TL15.7bn of turnover by YE13, focusing on multinational growth through strategic partnerships in the food sector. Ulker Biskuvi is engaged in the production of chocolate, chocolate coated biscuits, biscuits and cakes with 330 SKUs in domestic and international markets from its 4 plants in Istanbul (Topkapı, Silivri, Gebze and Esenyurt) and 2 plants in Karaman and Ankara. Ulker Biskuvi holds a 92% stake in Ulker Cikolata and 74% of Biskot Biskuvi, and also has a 19% stake in Godiva Belgium BVBA. Ulker Biskuvi have been quoted on BIST since 1996. Shareholders Yildiz Holding 49%, Yildiz Holding Subsidiaries and Ulker Family Members 8%, Free Float %43 Income Statement (TLmn) 2013 2014 2015E 2016E 2015E/2014 Net Sales 2,748 2,891 3,190 3,587 10% -2,115 -2,284 -2,491 -2,796 9% Gross Profit (Loss) 633 608 699 791 15% Operating Expenses -370 -330 -374 -398 13% Operating Profit 263 277 324 393 17% EBITDA 315 332 381 457 15% -240 -121 -161 -151 n.m. Profit (Loss) before Tax 279 263 277 362 5% Tax -52 -28 -49 -79 72% Net Income 189 212 228 284 8% 23.0% 21.0% 21.9% 22.1% 0.9 pp 9.6% 9.6% 10.2% 10.9% 0.6 pp 11.5% 11.5% 12.0% 12.7% 0.5 pp 6.9% 7.3% 7.2% 7.9% -0.2 pp Cost Of Sales Net financial Income/ Expense Ratios Gross Profit Margin EBIT Margin EBITDA Margin Net Income Margin Balance Sheet (TLmn) Current Assets 2015E/2014 2,129 2,037 2,285 2,347 12% 1,164 1,034 1,151 1,099 11% Short Term Trade Receivables 649 604 699 776 16% Inventories 198 212 239 268 12% Other Current Assets 117 187 196 204 5% Long Term Assets 1,033 1,151 1,272 1,338 11% Total Assets 3,162 3,188 3,557 3,686 12% Short Term Liabilities 1,827 657 845 893 29% Short Term Financial Loans 1,250 91 227 219 148% Short Term Trade Payables 508 511 560 613 9% Other Short Term Liabilities 68 55 58 62 7% 67 1,301 1,348 1,304 4% Long Term Financial Loans 10 1,244 1,287 1,239 3% Other Long Term Liabilities 57 57 61 65 7% Shareholders Equity 1,268 1,230 1,364 1,488 11% T. Liabilities & S.holders Equity 3,162 3,188 3,557 3,686 12% Cash and Cash Equivalents Long Term Liabilities 2 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH INVESTMENT SUMMARY We are initiating our coverage of Ülker Biskuvi with a “Outperform” recommendation and 12M target price of TL21.30, denoting 22% upside potential. Ulker, Turkey’s leading food company which is specialized in the confectionery business, has doubled its revenues in the last 5 years, boosting interest from corporate investors and further enhancing the stock’s liquidity, and has outperformed the BIST index by 38% in the last 2 years. Ulker is set to expand its EBITDA margin to 15% over the next decade, while maintaining its market leader position. The Company notched up a CAGR of 17% at the top line and 61% in EBITDA in the last 3 years and we expect Ulker Biskuvi to register a CAGR of 11% in revenues and 16% in EBITDA in 2014-2019E period. Ulker Biskuvi offers lucrative growth prospects and better margins through cost management with the launch of higher margin products and efficiency improvements over a long-term investment horizon; the stock trades at a 2015E P/E of 26.1x and EV/EBITDA of 16.5x, marking 9% and 18% premiums over its international peers, respectively. We believe the premium is justified on account of its dominating market position, its defensive nature and the reasonably inelastic nature of the business. A carefully crafted corporate strategy and upbeat mid-term prospects As a pioneer in the confectionery business with extensive brand awareness and rock-solid brand image, Ulker Biskuvi has evolved successfully in the last 3 years in terms of operational and corporate governance thanks to its transparency, efficiency and consistency efforts. We expect a 12% CAGR in revenues and further 17% CAGR in EBITDA over next 3 years with the Company preserving its domination of the market. We expect its EBITDA margin to edge up by 1.6pp to 13.1% over the next 3 years through a combination of cost management and improved operational efficiencies. We expect the relatively stable raw material costs and the improvement in product mix management through the launch of new higher margin offerings to carry margins higher and bring about improved economies of scale in the medium term. Cost dynamics to stabilize amid exchange rate fluctuations, leading profit slide The hike in the commodity prices due to drought Ulker Biskuvi hard on the cost side; moreover the Ebola virus in Africa also precipitated hikes in cacao prices. Ulker Biskuvi is set to benefit from the normalization in commodity prices in 2015 and we expect a 0.9pp improvement in the gross margin with 10% growth at the top line through price increases and an enhancement in the product mix. However, the depreciation of the local currency is taking its toll on the cost side even though prices of its main raw materials (cacao and palm oil) have retreated. Accordingly, Ulker Biskuvi is considering reductions in the size of those products (smaller chocolate bars or boxes), which rely heavily on cacao, as a response to higher cacao prices in order to better manage profitability. 3 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Investments in Saudi Arabia and Egypt to unlock value by 2H15 The acquisition of a stake in a facility in Egypt will be finalized in the first half of the year; while an acquisition in Saudi Arabia expected to be finalized by the end of the year, on completion of ongoing paperwork and requirements in the country. Ulker Biskuvi will become the majority stake holder in both Egypt and Saudi Arabian operations following the buyouts. Its share in Saudi Arabia operations will increase to 55%, with its share in Egyptian operations increasing to 46%. The Saudi Arabia operations recorded a turnover of US$103mn with an 9% EBITDA margin in 2014. Double digit top line growth is expected in US$ terms in 2015 with a slight improvement in the EBITDA margin. Egypt recorded a US$42mn top line in 2014 with an EBITDA margin of 13%; however, given the devaluation of around 20% in the Egyptian pound, no growth or margin improvement is projected for 2015. Although the acquisitions will contribute to consolidated sales, they will dilute Ulker Biskuvi’s profit margins by negligible levels in the short term. Acquisition of United Biscuits to bring potential synergies with parent company, Yildiz Group Yildiz Holding, the parent company, which holds a 57% stake in Ulker Biskuvi including the shares owned by the Yildiz family, acquired United Biscuits, a UK biscuits producer, in November 2014. United Biscuits recorded a top line of £1.1bn in 2013, and commands a market share of around 25% in the UK, being the UK’s second largest bagged snack company, the market leader in biscuits industry in UK and the 6th largest biscuit producer in the world. Ulker Biskuvi expects to create synergies with United Biscuits and is working on such plans currently. Ulker expects to enjoy cost savings through procurement of raw materials together with United Biscuits, which will lead to economies of scale, especially in cacao and palm oil supplies. The Company has already started to work on joint procurement opportunities and expects a 3-4% reduction in costs through new procurement terms along with the expansion in the volumes. Ulker Biskuvi expects to further optimize capacity utilization rates by producing products in the United Biscuits plants and vice versa. Moreover, Ulker Biskuvi expects to utilise United Biscuits’ sales & distribution network from 2016 to support it in penetrating new regions. The Company targets joint selling opportunities, especially in the markets where United Biscuits operates: Nigeria, India, European countries and EMs, and vice versa. The synergies will become more concrete by the end of the year. 4 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Ulker’s portfolio restructuring and new launches to contribute to market share in the medium term Ulker Biskuvi started to restructure its product portfolio at the end of 2011 and eliminated unprofitable SKUs while keeping high-demand profitable ones. Accordingly, the product range was whittled down from 520 SKUs in 2010 to 330SKUs as of 2014. The Company also focused on brand investments for the star SKUs while revealing multichannel advertisements, including in social media. The Company also realized distribution efficiencies and a 2.8pp reduction in sales returns in 2011 with further 0.5pp reductions in both 2013 and 2014, while reaping the rewards of its restructuring process. Through around 3 new product launches in each category with a maximum of 8 products each year (Rodeo, Kup Gofret and Riva launches in 2015), the Company’s market share in biscuit category is expected to rise from 46% in 1Q15 to 50% by 2016, with its market share in the chocolate category set to rise from 47% in 1Q15 to over 50% by 2016 and its share in the cake category rising from 34% to 35% by 2016. Biskot Gıda’s optimization and integration efforts dragging down volumes in the transition period Ulker Biskuvi acquired a 30% stake in its subsidiary, Biskot Gıda, from its minority shareholder, the Tayyar Family (the founder of the Company), for TL200mn. This acquisition brought its total stake in the Company to 74% in May 2014. Following the acquisition, the Biskot Company initiated an SKU optimization process in the last quarter of 2014, similar to the one undertaken at Ulker Biskuvi in 2011. As a result, its product range was reduced from 1,200SKUs to 650SKUs and is targeted to be cut further to 450SKUs in 2015. However, the optimization process has hurt volumes and the top line growth at Biskot – and, accordingly, for Ulker Biskuvi, as a result of the transition period. However, its profitability has improved through the program, with the Company’s EBITDA margin edging up by 2pp in the first quarter of 2015. Sluggish exports preventing growth despite solid results at home Ulker Biskuvi notched up 3% YoY sales volume growth in the domestic market in both 4Q14 and 1Q15. However, the Company has languished in export markets and in the Private Label (PL) category in the last couple of quarters, negatively affecting volumes. Exports, constituting 17% of consolidated volumes (14% of total revenues), suffered a 32% YoY plunge in volumes to 20,000 tonnes in Q1, in what was the main reason behind the sluggish growth. This came on the back of political instability in neighbouring countries. Export volumes to Iraq were down by 15% YoY with exports to Yemen tumbling by 17% YoY in 1Q15. 5 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Risks Fluctuations in commodity prices, geographical and political instability in the Company’s operating markets, negative consumer sentiment and exchange rate exposure pose risks for the Company. Ulker’s profitability margins are sensitive to volatility in raw material prices (cacao, palm oil, sugar, wheat, pistachio and nutpuree). Natural disasters, epidemics and uncertainty regarding the weather will have both direct and indirect effects on the Company’s financials. Ulker is mainly exposed to volatility in the €/TL and also US$/TL exchange rate on the cost front, as the main raw materials are imported (cacao is imported from Ghana and Ivory Coast in Africa and palm oil is imported from Malaysia and Indonesia). The Company had a TL359mn short FX position as of 1Q15, which was denominated in US$ currency (around US$120mn). 6 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH VALUATION Our target Mcap for Ulker Biskuvi is based on both DCF valuation and a comparison of peer group multiples, giving equal weight to both methods. Accordingly, our 12M target Mcap of TL7.3bn indicates 22% upside potential. Valuation Summary Calculated Value Weight in Valuation Total Value DCF Analysis 8,238 50% 4,119 Peer Comp. 6,328 50% 3,164 TLmn Target Value 7,283 Current Mcap 5,968 12M Target Share Price (TL) 21.30 Current Share Price (TL) 17.45 Upside Potential (TL) 22% DCF Analysis We calculated a target value of TL8,238mn for Ulker Biskuvi based on DCF analysis, assuming a 4.0% terminal growth rate in our DCF model. We applied 8.75% as the TL risk free rate while assuming a market risk premium of 5.5% and Beta of 0.7 in calculating the cost of equity. We applied a 10% cost of debt with a corporate tax rate of 20%. Accordingly, we assume an average WACC of 10% for the cash flows in our DCF analysis. Assumptions and Results (TLmn) - 2015E Weight of equity 40% PV of FCF 2,737 Cost of Equity 13% PV of Terminal Value 5,813 0.7 Implied Firm Value 8,550 Beta Risk free rate 8.75% Market Risk Premium 5.5% Cost of Debt 10% Tax rate 20% WACC 10% Terminal Value Growth 4.0% Net Debt Target Mcap 312 8,238 Source: Garanti Securities Estimates 7 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH DCF Analysis Ulker Biskuvi - Free Cash Flow Projections (TLmn) 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 3,190 3,587 4,021 4,461 4,904 5,347 5,822 6,288 6,792 7,338 EBIT 324 393 455 533 610 687 771 838 911 986 Taxes 49 79 91 107 122 137 154 168 182 197 275 314 364 426 488 550 617 670 729 789 57 65 72 80 88 96 105 113 122 132 Gross cash flow 333 379 437 506 576 646 721 783 851 921 Change in WCR 73 53 51 53 54 54 58 56 61 66 Capex 150 108 113 116 118 118 116 113 122 132 Free Cash Flow 109 218 273 337 405 474 547 614 668 723 EBITDA 381 457 528 613 698 783 875 951 1,033 1,118 12.0% 12.7% 13.1% 13.7% 14.2% 14.6% 15.0% 15.1% 15.2% 15.2% Revenues NOPLAT Depreciation EBITDA Margin Source: Garanti Securities 8 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Peer Group Comparison Our peer group comparison implies a fair equity value of US$2.4bn for Ulker Biskuvi with equal weighting given to valuations derived from the average 2015E-2016E EV/EBITDA, P/E and EV/Sales multiples of international peers. Company Chocoladefabriken Lindt & Sprungli AG Lotus Bakeries EV/EBITDA P/E EV/Sales Country MCAP (US$mn) 2015E 2016E 2015E 2016E 2015E 2016E SWITZERLAND 13,757 20.84 19.03 36.09 32.72 3.64 3.43 BELGIUM 1,201 15.66 14.86 25.70 24.39 2.94 2.80 Flowers Foods Inc USA 4,533 11.54 10.94 22.34 20.75 1.39 1.36 Hershey Co/The USA 19,902 12.57 11.79 21.04 19.36 2.84 2.70 13.52 12.78 20.51 19.09 2.60 2.48 14.58 13.19 23.45 19.93 1.28 1.23 14.79 13.77 24.85 22.71 2.45 2.33 Nestle SA SWITZERLAND 240,030 Barry Callebaut AG SWITZERLAND 6,530 Developed Markets Want Want China Holdings Ltd CHINA 13,781 13.11 12.01 19.42 17.78 3.31 3.05 Petra Foods Ltd SINGAPORE 1,579 17.40 14.75 31.51 26.64 2.91 2.59 Mayora Indah Tbk PT INDONESIA 1,692 13.58 11.00 27.84 20.31 1.57 1.36 Indofood Sukses Makmur Tbk PT INDONESIA 4,327 8.30 7.51 13.21 12.06 1.22 1.13 SOUTH AFRICA 4,229 12.56 11.02 14.91 12.98 1.78 1.65 MEXICO 12,351 11.23 10.29 26.26 22.08 1.21 1.17 PHILIPPINES 8,610 17.24 14.80 28.51 24.10 3.53 3.10 Developing Markets 13.35 11.62 23.10 19.42 2.22 2.01 Ulker Multiple Valuation (US$mn) 2,105 2,180 2,204 2,205 2,828 2,752 Tiger Brands Ltd Grupo Bimbo SAB de CV Universal Robina Corp Average (US$mn) 2,379 Source: Garanti Securities, Bloomberg 9 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Bloomberg vs. Garanti Estimates Our top line forecasts for both 2015 and 2016 are slightly lower than the Bloomberg consensus numbers as we now expect lower growth following the unchanged YoY sales performance in Q1, yet we still expect an improvement in the remaining quarters. As far as EBITDA is concerned, we are also at the lower end of the consensus due to our more sluggish sales forecasts, and our projection of more conservative margins in line with the Company’s guidance. We believe most of the market participants have not yet updated the YE forecasts to take account of the 1Q results, causing the deviation from our results. Although we have assumed that the plunge in commodity prices is embedded on the cost front, we expect a negative exchange rate impact, leading to cost pressure. The deviation at the bottom line, which exceeds the difference at the operating profitability line, can be put down to differences in exchange rates projections, leading to a divergence in exchange rate positions given the sharp depreciation of the TL and, moreover, variations in financial expenses which have also played a part in the disparity. Our TP is in line with the Bloomberg averages, despite our lower margin forecasts for the next couple of years and our projection of a more gradual improvement in profitability. ULKER Bloomberg Garanti Securities Difference (TLmn) 2015E 2016E 2015E 2016E 2015E 2016E Net Sales 3,279 3,713 3,190 3,587 -3% -3% EBITDA 409 499 381 457 -7% -8% Net Profit 266 332 228 284 -14% -15% EBITDA Margin 12.5% 13.4% 12.0% 12.7% -0.5 pp -0.7 pp Net Profit Margin 8.1% 8.9% 7.2% 7.9% -1 pp -1.1 pp Target Share Price 21.25 21.30 0% Source: Bloomberg, Garanti Securities “ 10 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH MAIN ASSUMPTIONS & FORECASTS Volumes & Revenues Ulker Biskuvi recorded 4% growth in sales volumes in the cake category, which constituted 14% of consolidated volumes in 2014, and 3% growth in the biscuits category, which constituted 55% of total volumes during the year. However, sales volumes of chocolate, which accounted for 31% of consolidated volumes, contracted by 6% in 2014. While the Company realized an average 8% price increase throughout all categories on average, the price increase in the chocolate category was 10% as the Company faced input cost pressure; this, along with a drop in export volumes, led to a fall in chocolate sales volumes in 2014. The increases in raw material costs, which were reflected to prices, negatively affected the volume figures. Ulker Biskuvi Volume Breakdown (’000 tonnes) Cake growth 2013 2014 2015E 2016E 2017E 2018E 65 68 71 75 81 87 15% 4% 5% 6% 8% 8% 159 150 153 162 173 184 growth 19% -6% 2% 6% 7% 6% Biscuit 255 263 278 297 315 334 growth 10% 3% 6% 7% 6% 6% 479 481 501 534 569 605 13% 0% 4% 7% 7% 6% Chocolate Total growth Source: Garanti Securities Estimates While exports constituted 18% of the consolidated revenues in 2014 (20% in 2013), overall export volumes were down by 7% YoY in 2014 due to the 25% YoY plunge in Iraq amid turmoil in the region. Moreover in 1Q15, consolidated sales volumes were down by 7.5% YoY to 120,000 tonnes, again due to a 32% YoY fall in export volumes (with Iraq and Yemen accounting for most of the decline) to 20,000 tonnes in 1Q, with the share of exports in total revenues standing at 14%. The main reason behind the contraction in export volumes was the optimization and integration process at Biskot Gıda, which exports approximately 60% of its production, and also the contraction in PL sales in the domestic market, which played a part in the drop of overall volumes. 11 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH The volume growth of 2.8% in the biscuit category and the volume contraction of 6% in the chocolate category were both below the market growth rates of 5.9% and 7.4%, respectively, in 2014. As Ulker Biskuvi being the price setter in the confectionery market, its competitiors’ product prices follow with a lag, the result being they are more attractively priced for a period of time. Note that Ulker Biskuvi is the market leader in both biscuits and chocolates market, being the number 2 in cake category. We project a 5% increase in volumes in the cake category in 2015 (down by 7% YoY in 1Q15), 6% volume growth in the biscuits category (down 2.5% YoY in 1Q15) and 2% volume growth in chocolate category given the 16% contraction in 1Q15. In 2016, however, we expect an improvement in volumes of each category, projecting 6% growth in the cake category, 7% in the biscuit segment and 6% in the chocolate segment, leading to 7% growth in consolidated volumes. We expect the chocolate category to rebound next year following the completion of the optimization period in Biskot Gıda, along with easing currency pressure on the cost side, leading to price increases in 2014 and 1Q15. Ulker Biskuvi Revenue Breakdown (TLmn) Cake growth Chocolate 2013 2014 2015E 2016E 2017E 2018E 314 358 398 447 507 572 19% 14% 11% 12% 14% 13% 1,329 1,387 1,507 1,690 1,901 2,105 growth 17% 4% 9% 12% 12% 11% Biscuit 1,000 1,119 1,258 1,424 1,586 1,757 growth 18% 12% 12% 13% 11% 11% Other 105 26 26 26 26 26 Total 2,748 2,891 3,190 3,587 4,021 4,461 17% 5% 10% 12% 12% 11% growth Source: Garanti Securities Estimates Despite the fairly slack volume growth projections for 2015, with price increases expected to keep up with the rate of food inflation, we project 10% consolidated revenue growth in 2015, exceeding the 5.2% in 2014. In 1Q15, Ulker’s top line growth was flat on a YoY basis due to weak export revenues, price increases and the downsizing impact with the divestiture of sales companies. 12 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH The share of the chocolate category in total revenues increased from 43% in 2011 to peak at 51.7% in 2012 before falling back to 47.6% in 1Q15, with the decline in the last couple of quarters being a result of price pressure. The share of biscuits in total revenues hovers at around 35-40% with a lower price range per kg than in the chocolate category, despite having a higher share in the quantity base. In 2014, average price hikes amounted to 8% in all categories (10% in the cake category, 11% in the chocolate category and 8% in biscuits category). We project an average price hike of 5.8% in 2015, slightly below our average headline inflation forecast of 6.6% for the year. Ulker maintained its market share in the biscuits and cake category in 2014, yet the Company suffered a 2pp market share loss in the chocolate category where its market share slipped to 46% on the back of the average 11% price hike throughout the year, as Turkey’s volumes grew by 3% in 2014. However, as Ulker is the price setter, we expect the Company to claw back its lost market share, as competitors realize price increases with a lag. Ulker Biskuvi Revenue Growth (TLmn) 8000 10% Revenue CAGR 6000 4000 2000 0 2013 2015E 2017E Cake 2019E Chocolate 2021E 2023E Biscuit Source: Garanti Securities Estimates We project that Ulker Biskuvi will record a CAGR of 10% in revenues over the next decade thanks to retaining its market leader position on the back of product mix management and price increases in line with the average inflation through new launches. Moreover, we project further penetration in international operations over our projection period. 13 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Cost Structure Raw material costs constitute 65% of Ulker’s COGS structure. While cacao is imported from Ghana and Ivory Coast, palm oil is imported from Malaysia and Indonesia to Turkey, both in US$ terms; however, wheat and sugar are procured in the domestic market. The price hikes in the raw material, cacao, were the main issue in 2014 due to the cacao shortage as a result of the weather and the Ebola virus. Cacao prices jumped around US$3,3000/tonne in September 2014 (US$3,234/tonne as of 10 June 2015, CCNF Comdty) with the Ebola outbreak in Ivory coast, the world’s major cacao supplier. Accordingly, margins in the chocolate category felt the impact from cost pressure, TL weakness against the US$ and market share loss due to competition from Eti, the second major player in the Turkish confectionery market. Breakdown of COGS Cacao 15% Other 35% Palm Oil 15% Raw Materials (65%) Wheat 20% Sugar 15% Source: Garanti Securities Estimates In 2014, cacao prices increased by 10% YoY in US$ terms, while sugar and wheat prices increased by around 10% YoY in TL terms and pistachio and nut-puree prices recorded a surge of above 20% YoY. Palm oil prices peaked at US$2,783/ tonne in May 2014 (US$2,293/tonne as of 10 June 2015, KOU5 Comdty), yet as procurement is based in US$ terms, the Company was negatively impacted by the depreciation of the TL on the cost side. There has been a 4% YoY increase in cacao prices since the Company realized the contracts in September 2014 for the full year and already purchased its cacao need until September 2015. 14 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH MAIN ASSUMPTIONS Profit Margins Ulker’s gross margin was down by 2pp in 2014 due to raw material cost pressures. We expect the Company’s gross margin to improve by 0.9pp over this year through the carry on price increases, downsizing impact and product mix management. The 0.7pp improvement in the gross margin in Q1 to 23.4% supports our YE expectation. We project an average 22% gross margin in our projection horizon, marking an increase of 1.2pp in the long run. EBITDA (TLmn) & EBITDA margin (%) 700 13.1% 11.5% 500 11.5% 12.0% 12.0% 9.4% 300 8.0% 4.3% 100 -100 16.0% 12.7% 4.0% 2011 2012 2013 2014 2015E EBITDA (TL mn) 2016E 2017E 0.0% EBITDA margin Source: Garanti Securities Estimates The Company recorded 61% CAGR in its EBITDA between 2011 and 2014, propelling its EBITDA margin up by 7.1pp to 11.5% on the back of the transformation program that the Company implemented. We project a 0.5pp YoY improvement in the EBITDA margin to 12% in 2015 (12.3% in Q1, up by 1.2pp YoY) given the lower G&A expenses and SKU optimization program at Biskot Gıda. 35% of the Company’s operating costs are in hard currency; thus the combination of a weak TL and strong US$ is negative for the Company’s operating performance. Ulker Biskuvi aims to achieve further margin improvement in the medium term by enhancing its optimization and efficiency models, paving the way for further synergies within the business units. Accordingly, we project a 1.6pp improvement in the EBITDA margin by 2017, taking the margin to over 13%, and expect the Company to attain EBITDA margins of over 15% during the next decade. 15 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Capital Expenditures The Company realized TL96mn of capex in 2014, leading to a 3.3% capex/sales ratio; accordingly, we forecast capex spending of TL150mn in 2015 and TL108mn in 2016, corresponding to a capex/sales ratio of 4.6% in 2015 and 3.0% in 2016. The addition of four new production lines in the domestic market (one for chocolate, one for biscuits and two for the cake segment) are the reasons behind our expectation of a higher ratio in 2015E. We project an average capex/sales ratio of 2.5% throughout our forecast horizon, decreasing from 3.0% to 1.8% in the long run, in line with the Company’s projection that capex would amount to 2.53.0% of net sales. Working Capital Ulker recorded a cash cycle of 28 days and WCR to Sales ratio at 11% in 2014 and we project the WCR/sales ratio to stand at around 12% over our forecast horizon. Receivable and payable days both declined by around 10 days in the last 3 years, to 76days and 82 days in 2014, respectively. Even so, inventory days improved to 34 days in 2014 over the same period, mainly attributable to the better management of the supply chain model and distribution channels. Working Capital (WC) - Cash Conversion Cycle (days) 120 100 80 60 40 20 0 2012 2013 Inventory Days 2014 Receivable Days 2015E 2016E Payable Days Source: The Company, Garanti Securities Estimates We project average payables turnover of 80 days while our model assumes that the Company has receivable turnover of 79 days and inventory turnover of 35 days over our forecast horizon. The reasonable inventory turnover rates, achieved through a well bedded supply chain and logistics model, contributes to the reduced working capital requirement in the business model and enables the Company to liquidate its investments rapidly. 16 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Dividend Policy Ulker distributed a gross cash dividend of TL94mn (TL0.27 per share) from its 2014 earnings, indicating a dividend yield of 1.3% and a pay-out ratio of 44%. The dividend distribution in 2014 was lower than the 70% pay-out ratio stipulated in the Company’s dividend policy due to the higher capex for 2015 and acquisition of operations in Saudi Arabia and Egypt. However, the Company has averaged a 68% payout ratio (90% in 2012, 71% in 2013) in the last 3 years. Accordingly, we project an average 70% payout ratio in line with the Company’s guidance, and a 2.9% dividend yield for the 2015-2018 period. Dividend Payments (TLmn) 400 100% 90% 70% 71% 300 70% 44% 80% 60% 200 40% 100 20% 0 0% 2012 2013 Dividend 2014 Net Income 2015E 2016E Payout Ratio Source: The Company, Garanti Securities Estimates 17 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH THE COMPANY Ulker Biskuvi, formerly Ulker Gıda, was established in 1944 and is the flagship of Yildiz Holding as the pioneer confectionery company in Turkey. Ulker Biskuvi is engaged in the production of chocolate, chocolate coated biscuits, biscuits and cakes with 330 SKUs in domestic and international markets. Ulker Biskuvi holds a 92% stake in Ulker Cikolata and 74% of Biskot Biskuvi, and also has a 19% stake in Godiva Belgium BVBA. 49% of the shares in Ulker Biskuvi are held by Yildiz Holding, the parent company, with Yildiz Holding subsidiaries and Ulker family members holding 8% of the shares and 43% of the shares being free float. Shareholder Structure Free Float 43% Yıldız Holding 49% Yıldız Holding Subsidiaries & Ulker Family Members 8% Source: The Company Ulker Biskuvi has a total of 6 plants, located in Topkapı (Istanbul), Hadımkoy (Istanbul), Silivri (Istanbul), Ankara, Karaman and Gebze (Izmit). The Factory in Topkapi, Istanbul, established in 1991, produces chocolate with an annual capacity of 194,000 tonnes and an enclosed area of 68,000 sqm; the Hadimkoy, İstanbul Factory, established in 1992, produces cakes with an annual capacity of 45,000 tonnes and an enclosed area of 27,000 sqm; the Silivri, Istanbul Factory, established in 1995, produces chocolate and chocolate covered biscuits with an annual capacity of 30,000 tonnes and an enclosed area of 12,000 sqm; the Gebze, İzmit Factory, established in 1997, produces biscuits and crackers with an annual capacity of 59,000 tonnes with an enclosed area of 41,000 sqm; the Ankara Factory, established in 1969, is the largest biscuit production facility in the Middle East with an annual capacity of 109,000 tonnes on an enclosed area of 86,000 sqm; the Karaman Factory, established in 1986, which is 74% owned by Ulker, produces biscuits, cakes, crackers and chocolate with an annual capacity of 195,000 tonnes on an enclosed area of 102,000sqm. 18 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Ulker Biskuvi acquired Biskot Biskuvi Gıda for TL200mn in March 2014, raising the Company’s share in Biskot Biskuvi to 74%. However, Ulker Biskuvi sold its 91% stake in Istanbul Gıda Dıs Ticaret, the trading company, and 79% stake in Birlesik Gıda Ticaret, the trading company, to Yildiz Holding for TL29mn and TL3mn, respectively, on 6th May 2014. Moreover, Ulker Biskuvi’s subsidiary, Biskot Biskuvi Gıda, also sold its 100% owned subsidiary, Rekor Gıda Pazarlama, the marketing company, in which Ulker Biskuvi holds a 44% indirect stake, to Yildiz Holding for TL4mn on May 6th. Product Categories: Biscuit, Chocolate, Cake The Main biscuit brands are Potibor, Cizi, Krispi, Mavi Yesil, Hanımeller, Bebe Bıskuvisi, Biskrem, Krim Kraker, Probis, Cokoprens, As Kraker, Basak, Ikram, Canpare, Rondo, Altınbasak, 9 Kat Tat, Halley, Kat Kat Tat, Cubuk Kraker, Alpella Ring, Hasat, Bolero, Saklikoy, Dore and Haylayf. The Ankara Plant reached a CUR of 86%, producing 109,000 tonnes of biscuits and net sales of 103,000 tonnes of biscuits. The Gebze Plant worked to a CUR of 94%, producing 71,000 tonnes of biscuits and realizing net sales of 75,000 tonnes in 2014. Moreover, the Karaman Plant produced 84,000 tonnes of biscuits, realizing 86,000 tonnes of net biscuit sales, with a CUR of 65% in 2014. The main chocolate brands are: Ulker Cikolatalı Gofret, Cokokrem, Metro, Albeni, Cokonat, Dido, Ulker Napoliten, Ulker Smart, Hobby, Smartt, Bi’ruya, Piko, Ece, Cikolatin, Halk Cokomilk, Caramio and HalkAlpella. The Topkapı plant produced 107,000 tonnes of goods and realized net sales of 112,000 tonnes in 2014. In the Silivri facility, Ulker’s subsidiary Biskot produced 23,000 tonnes chocolate and 21,000 tonnes sales, with a CUR of 63%. The main cake brands are Dankek, Kesktra, O’lala, Albeni, Alpella, Halk and Karsa. The Esenyurt Plant operated at full capacity in 2014, producing 40,000 tonnes of confectionery and realizing 40,000 tonnes of sales. Ulker’s subsidiary, Biskot, produced 28,000 tonnes of goods, all of which were sold in 2014. Ulker’s new launches are Dore ( June 2013) – indulgence biscuits, Diet Biscuits (Sept 2013), Laviva (Sept 2013) – new chocolate, “O La La” (March 2014) – a new cake line, Dido Black (August 2014) – a new wafer, Bi Rüya (Sept 2014) – new chocolate, Rodeo (Feb 2015) – new chocolate, Kup Gofret (Feb 2015) – new biscuits, Riva (March 2015) – a new chocolate. 19 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH 1Q15 Financial Results Ulker’s top line came in at TL790mn, remaining flat YoY and up by a mere 3% QoQ on the back of weak export revenues, price increases and the downsizing impact (divestiture of sales companies). LFL sales growth came in at 5.4% in the first quarter. In terms of their proportion in sales volumes, biscuits accounted for 56.4% of the total in 1Q15 (compared to 53% in 1Q14), the chocolate category accounted for 29% (compared to 32% in 1Q14) and the cake category had a 14% share (unchanged from 1Q14). The Company’s consolidated sales volumes edged down by 7.5% YoY in the quarter to 120,000 tonnes (with a decrease of 2.5% in biscuit sales volumes, a 16% contraction in chocolate sales volumes and 7% decrease in sales volumes for cakes). The contraction in sales volumes was mainly attributable to the 32% slump in export volumes (mainly attributable to the collapse in exports to Iraq and Yemen) in Q1 to 20,000 tonnes, while the share of exports in total revenues was 14% in 1Q15. Ulker’s gross margin was up by 0.7pp at 23.4% in Q1 thanks to continued price hikes, the downsizing impact and product mix management. Accordingly, Ulker recorded TL97mn of EBITDA in 1Q15 (up 10% YoY, flat QoQ), corresponding to a 12.3% EBITDA margin, up by a further 1.2pp YoY but down by 0.3pp QoQ on the back of lower G&A expenses and SKU optimization program at Biskot Gıda. Ulker posted TL37mn of net income (down 28% YoY and 35% QoQ) in its 1Q15 consolidated financial statements on the back of the TL109mn in financial expenses given the Company’s US$120mn short FX position (1Q15: TL312mn net debt) as of the end of 1Q15. The net FX loss of TL29mn (TL4mn in 1Q14) in the quarter dragged the bottom line in the quarter lower given the 12% depreciation of the TL against US$ in the first quarter. 20 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH 1Q15 Financial Results Ulker Summary Financials (mn TL) Change 1Q14 2Q14 3Q14 4Q14 1Q15 Net Sales 792 658 673 768 790 Gross Profit 180 136 125 166 Operating Profit 74 61 59 83 EBITDA 88 75 73 Net Other Income/Expense 5 -1 Profit (Loss) from Subsidiaries 0 0 Financial Inc./ Exp. (net) -41 Tax -17 3M15/3M14 0% 3% 185 3% 11% 3% 83 12% 0% 12% 96 97 10% 0% 10% 5 -2 8 56% n.m. 56% 0 0 0 n.m. n.m. n.m. -15 -39 -26 -109 n.m. n.m. n.m. 2 -5 -9 -11 n.m. n.m. n.m. -28% -35% -28% Net Income 51 68 36 56 37 Net Cash -20 -334 -491 -300 -312 Working Capital 1Q15/1Q14 1Q15/4Q14 0% 387 365 488 305 396 1,199 1,066 1,104 1,230 1,177 Gross Margin 22.7% 20.7% 18.7% 21.7% 23.4% 0.7 pp 1.7 pp 0.7 pp Operating Margin 9.4% 9.3% 8.7% 10.8% 10.5% 1.1 pp -0.3 pp 1.1 pp EBITDA Margin 11.1% 11.3% 10.8% 12.6% 12.3% 1.2 pp -0.3 pp 1.2 pp Net Profit Margin 6.5% 10.4% 5.3% 7.4% 4.7% -1.8 pp -2.7 pp -1.8 pp Shareholders Equity Ratios 21 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH APPENDIX Godiva Belgium BVBA — Ulker Biskuvi’s Financial Investment Ulker Biskuvi holds a 19.23% stake in Godiva Chocolatier Inc, the owner of the Godiva brand. Godiva is a leading premium chocolate producer with significant brand equity worldwide. Since its acquisition by Yildiz Holding for US$850mn in 2008, Godiva has sought to enter leading international markets, which include China, Australia, South Korea, Indonesia, Macau, Saudi Arabia and Turkey. As a global brand, international sales constitute 52% of the total sales of Godiva Chocolatier, up from 43% five years ago. Geographical diversification of Godiva Chololatier Source: The Company Available through 10,000 specialty retailers, Godiva owns and operates 444 retail boutiques, reaching 32,000 points of sale, with a presence in 100 countries as of the end of 2014. Godiva attained 14% EBITDA growth over the 2013-2014 period, with 8% growth in revenues, recording a top line of US$732mn. Godiva plans to open 50 new stores per annum, aiming to reach US$1bn in revenues and US$120mn EBITDA in 2017. Godiva has yet to reach its potential in terms of growth and margins by restructuring the company, investing in store expansion (especially in the Far East), closing down inefficient stores and reshuffling the product portfolio. The Company plans to expand its business in under-penetrated markets with high growth potential. 22 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH APPENDIX Profile of the confectionery markets in Saudi Arabi and Egypt Saudi Arabia Saudi Arabia has a population of 30.6mn, which has grown at CAGR of 2.9% between 2008 and 2014. Its current GDP stands at US $745bn, growing at around 2% per year. The country has a confectionery market of approximately US$2.6bn, comprising an 8% market share in the biscuit market worldwide, as well as a 1% market share in the global chocolate market. Its chocolate market, which amounted to US$1,117mn, has grown at a CAGR of 9.7% in 2008-2014 period, whereas its biscuit market, worth US$752mn, has recorded around 5.6% growth. Per capita consumption of chocolate in Saudi Arabia stood at 2.1kg in 2014 with per capital consumption of 3.7kg of biscuits. Yildiz Holding operates in Saudi Arabia through FMC which produces biscuits, chocolate and cakes. FMC has a production capacity of 43,000 tonnes, and operates with around 100 goods vehicles reaching approximately 10,000 sales points. Established in 2000, 45% of FMC is owned by a local partner, with Yildiz Holding holding the remaining 55% stake. FMC’s net sales increased from US$ 91mn to US$103mn over the course of 2013-2014. Its EBITDA margin in the same period increased from 6% to 9%. Egypt Egypt has a population of 83mn which has grown at a CAGR of 2.0% between 2008-2014. Its current GDP stands at US$ 272bn, growing at around 3% per year. The country has a confectionery market worth US$ 1.8bn, and makes up less than 1% of the global biscuit market. Meanwhile Egypt’s chocolate market, which had a volume of US$408mn, has posted growth of 5.3% per year, while its biscuit market, amounted to US$869mn, has grown more rapidly with 9.4% growth. Per capita consumption of chocolate in Egypt stood at 0.4kg in 2014, with per capita consumption of biscuits standing at 2.9kg. Yildiz Holding produces in Egypt through Hi Food which produces biscuits. Hi Food has a production capacity of 27,500 tonnes. Established in 2007, 54% of Hi Food is owned by a local partner, with the remaining 46% stake owned by Yildiz Holding. Hi Food’s net sales increased from US$ 36mn in 2013 to US$42mn in 2014, while its EBITDA margin decreased from 18% in 2013 to 13% in 2014. 23 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH APPENDIX YILDIZ HOLDING Ulker’s founders, Sabri and Asım Ulker, began baking their first petit beurre biscuits in Istanbul in 1944. The Company started production in Ankara with Anadolu Gıda in 1970, established as Turkey’s first public company. The companies were consolidated under the “Yildiz Holding” name in 1989. In 1992, the company invested in the oil and fats industry via the establishment of Besler Gıda. In 1993, Yildiz partnered with Cerestar Group, the largest starch producer in Europe, and established the Pendik Nişasta Company. Ülker then entered the dairy products industry with the opening of the Ak Gıda factory and the launch of the Ülker İçim brand in 1996. In 2001, Yildiz acquired a significant stake in Baycan, the world’s third largest chewing gum producer at the time. After entering the beverage industry in 2001 with the brand Link, Ülker acquired the soda brand Çamlıca in 2002 to reinforce its position in the market. Della Gıda began beverage production within the same year. Ülker then became partners with Kellogg’s, the world’s largest cereal manufacturer, in 2005. Yildiz Holding acquired the international premium chocolate brand Godiva, a division of the Campbell Soup Company, in 2007. Yildiz invested in Unmas, producer of UNO, Turkey’s first packaged bread, and Doruk Unlu Mamulleri, which runs the bakery chain Komsu Fırın. Yildiz then acquired tea companies Dogacay and Obacay. In 2010, Yildiz signed a partnership agreement with the EckesGranini Group, one of the leading juice producers in Europe, founding a new company called Yildiz Granini, as well as signing an equal partnership agreement with the global spice company McCormick to create a new Turkish spice company called Yildiz McCormick. In 2011, Yildiz acquired the Italian company Nuroll, one of the largest packaging companies in Europe. The holding then acquired the Sok retail chain from BC Partners, Migros’ main shareholder. In the same year, Yildiz became a partner with the Swedish paper company, SCA, and the cash & carry company, Bizim Toptan, went public. Yildiz partnered with the Japanese company, Nissin Foods in 2013, acquired Aytaç Et, one of Turkey’s largest meat producers, and acquired the Adapazarı Sugar Factory. As the leading food & beverage company in the EMEA, Ülker acquired all of the shares in the DeMet’s Candy Company, a chocolate confectionery manufacturer with strong distribution channels in the United States. Yildiz Holding became the world’s third largest biscuit manufacturer through the acquisition of the British United Biscuits. 24 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH Yildiz Holding’ Companies Ulker Biskuvi (ULKER.IS) Yildiz Holding’s main brand, which was founded in 1944 and which commands a 50% market share. As the flagship company in the Yildiz Group, Ülker manufacturers more than 100 products that are distributed domestically. Bizim Toptan (BIZIM.IS) One of the largest cash-and-carry wholesalers in Turkey with wholesale outlets nationwide, offering consumers an important channel for branded food staples, non-alcoholic beverages, tobacco products and cleaning and personal care products. Makina Takım (MAKTK.IS) Turkey’s largest producer of cutting tools, manufacturing tools for drilling, cutting, and sawing for the cutting tools sector. The company offers customers a wide range of over 30,000 different individual products, as well as producing customdesigned products for industry. FFK - Fon Financial Leasing (FONFK.IS) FFK, Fon Financial Leasing is a leasing company in Turkey, which leases land and sea vehicles, machines, fixtures and other fixed assets. Gozde Venture-Capital Trust (GOZDE.IS) An investment company that was founded after a portion of FFK Fund Financial Leasing’s shares in Türkiye Finans Katılım Bankası and Kaynak Leasing were spun-off. In March 2011, the Capital Marketing Board (CMB) approved the company’s application to convert into a venture-capital trust. Kerevitas (KERVT.IS) The company, which was the first to introduce Turkey to frozen food, was established in 1969. It is the market leader in the frozen food and canned tuna segments under the ‘Superfresh’ main brand. Saglam REIT, SAF REIT (SAFGYO.IS) Following the developments in the real estate market in Turkey, Saglam REIT and Saf REIT merged in 2011 with the aim of creating revenue and providing investors with a high level return. 25 Please see the last page of this report for important disclosures. June 18, 2015 Food & Beverages Ulker Biskuvi RESEARCH APPENDIX Market Shares in Turkey Confectionery Sector by Company Biscuit Category 48% 48% 47% 43% 40% 12% 10% 2011 2013 Ulker Eti 43% 11% 9% 9% 2012 46% 46% 45% 43% 2014 1Q15 Other Chocolate Category 51% 48% 9% 12% 48% 21% 19% 5% 2011 47% 46% 23% 21% 10% 10% 8% 8% 12% 8% 12% 10% 8% 2012 2013 2014 Ulker Nestle Eti Kraft Ferrero 19% 15% 8% 9% 1Q15 Other Cake Category 49% 39% 36% 12% 2011 58% 56% 53% 33% 14% 2012 Ulker 2013 Eti 34% 32% 10% 55% 10% 2014 11% 1Q15 Other Source: AC Nielsen, Euromonitor 26 Please see the last page of this report for important disclosures. RESEARCH Disclaimer Definition of Stock Ratings OUTPERFORM (OP) The stock's return is expected to exceed the return of the BIST-100 over the next 12 months. MARKET PERFORM (MP) The stock's return is expected to be in line with the BIST-100 over the next 12 months. UNDERPERFORM (UP) The stock's return is expected to fall below the return of the BIST-100 over the next 12 months. RESEARCH Disclaimer This document and the information, opinions, estimates and recommendations expressed herein, have been prepared by Garanti Securities Research Department, to provide its customers with general information regarding the date of issue of the report and are subject to changes without prior notice. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind. Investor who have access to this document should be aware that the securities, instruments or investments to which it refers may not be appropriate for them due to their specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this report. Therefore, investors should make their own investment decisions considering the said circumstances and obtaining such specialized advice as may be necessary. The information in this report has been obtained by Garanti Securities Research Department from sources believed to be reliable. However, Garanti Securities cannot guarantee the accuracy, adequacy, or completeness of such information, and cannot be responsible for the results of investment decisions made on account of this report. The market prices of securities or instruments or the results of investments could fluctuate against the interests of investors. Investors should be aware that they could even face a loss of their investment. Transactions in futures, options and securities or high-yield securities can involve high risks and are not appropriate for every investor. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, investors may be required to pay more money to support those losses. Thus, before undertaking any transaction with these instruments, investors should be aware of their operation, as well as the rights, liabilities and risks implied by the same and the underlying stocks. Investors should also be aware that secondary markets for the said instruments may be limited or even not exist. This report is to be distributed to professional emerging markets investors only. This report is for private use only and intended solely for the individual(s). No information in this report may be copied, modified, republished or exploited in anyway without the prior consent of Garanti Securities. Additionally, with respect to our statements above, all our claims and plea rights are covered in the regulations which apply in the countries that this report has been sent to. Garanti Securities Etiler Mah. Tepecik Yolu Demirkent Sokak No:1 34337 Besiktas, Istanbul / Turkey Phone: +90 (212) 384-1155 Fax: +90 (212) 352-4240