BELUGA GROUP earnings presentati… · Group Magnit Lenta Gross margin, 2019 +25% LFL revenue...

BELUGA GROUP 1H2020 EARNINGS PRESENTATION

August 2020

Disclaimer

2

This presentation has been prepared by Beluga Group, Co. (the “Company“, or “Beluga Group”) 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.

BELUGA GROUP 1H2020 financial highlights

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+15% total volume +12% volume of in-house +42% volume of import

Financial and Operational highlights

Net Revenue increased

by 23% to 26,3 bln.

Rubles

Sales grew 20% and reached 38 bln. Rubles*

Operating profit increased by 25% to

2,2 bln. Rubles

EBITDA grew 23% and reached

3,3 bln. Rubles

EPS increased by 22% and achieved

36 Rubles

Ultimate leadership in major

spirits categories:

vodka, brandy, liquors, whiskey**

* - incl. excise taxes, net of VAT ** Russian Federation, production (according to Fedstat)

4

Operating performance

6 250

7 173

1H2019 1H2020

5

Beluga Group performance during COVID-19

Sources: Company data,

Volume growth in 1H 2020

Total shipment 000, 9L cases

+15%

5 620

6 283

1H2019 1H2020

In-house brands shipment 000, 9L cases

+12%

630

890

1H2019 1H2020

Import shipment 000, 9L cases

+42%

Social responsibility The Group implemented additional preventive measures at all its facilities of, including production facilities and retail stores. The Company continues to provide targeted support to the regions of its presence — in particular, in Primorsky Krai, Moscow and Arkhangelsk Regions.

Double digit volume growth is reflected in even higher growth of Group’s financials in 1H2020.

6

Unmatched leadership in home country and further advance worldwide

The leading spirits company in Russia

Sources: Rosstat 1H2020; AC Nielsen (2018); ISWR (2019) Notes: 1) Including bitters, herbal liquors, flavored liquors 2) brands over 1 mln cases a year, Millionaires Club

Strong brand positions in Russia

Russia Distilled spirits producer

#1

Russia Flavored spirits producer1

#1

Beluga In super-premium segment

#2

Russia Brandy producer

#1

Russia Independent importer

#1

Arkhangelskaya In low-premium segment

#1

Zolotoy Reserv Brandy in the country

#3

Globally Vodka producer

#4 Globally Spirits companies

#9

Belenkaya Vodka in the country

#2

Dr. August In flavored liquors

#1

Russia Whiskey producer

#1

#3 Globally Brands among bestselling Vodka brands2

7

Unmatched leadership in Russia in major spirits categories

Sources: Rosstat 1H2020

Market share in 1H2020 by volume

Top-5 vodka producers Top-5 flavored liquors producers

Top-5 brandy producers

6,4%

8,7%

9,8%

12,0%

12,6%

Global Spirits

ASG

Tatspirtprom

Roust

Beluga Group

5,6%

6,8%

7,5%

11,2%

16,7%

Tatspirtprom

Global Spirits

Sordis

OPVZ

Beluga Group

8,0%

11,8%

12,0%

12,6%

16,5%

KIN

Stellar

Allians

Alvisa

Beluga Group

Top-5 whiskey producers

5,8%

7,2%

14,1%

23,6%

36,2%

Ariant

Alvisa

Allians

Kristall-Lefortovo

Beluga Group

Nielsen Top Growing Brands, 1H 2020

8

136 147 165 205

252 294

348

407

468 518

545 570

604 612 622

0

100

200

300

400

500

600

700

9

Winelab key facts

Development of own specialized retail chain to further increase level of controlled sales

Sources: Company data, Bloomberg Notes: 1) Without beer 2) without export

Stores rollout dynamics

High profitability

Winelab accounted for 9,5% of BELUGA GROUP's in-house brands2 sold in 2019 (vs. 8% in 2018)…

…and for 38% of partners’ brands in 2019 (vs. 30% in 2018)

Focus on 3 major regions: Moscow, St. Petersburg and East Federal districts

Unique assortment with wide range of wines and own products

Lucrative locations in trading areas of stores with high traffic

Proven track record of stores rollout

# of stores (end of period)

31,1% 24,6%

22,8% 22,0%

Beluga(retail only)

X5 RetailGroup

Magnit Lenta

Gross margin, 2019

+25%

LFL revenue growth 1H2019/1H2020

+13%

# of tickets LFL growth 1H2019/1H2020

RUB 440

Average ticket

1,000 92 sqm

# of SKUs1 Average selling space

10

Fast growth of Winelab’s e-commerce. Omnichannel model.

Sources: Company data

Launched in Aug’18, Omnichannel platform now:

Winelab.ru web site with more than 340k visitors and 16k orders (monthly)

Mobile App with more than 100k uploads and 200k estimate uploads at the end of the year

> 600 off-line stores which support e-commerce and operate on the “click-and-collect” basis

Share of e-commerce in total sales and in Moscow&SPB regions

Presence in Social Media and on Yandex.Market

1,6%

0,4%

5%

1%

1H2020 1H2019 1H2020Moscow&SPB

1H2019Moscow&SPB

1 896

839

1H'2020 1H'2019

Website and App traffic, ths. visitors

RUB 3000

Average ticket in 2Q2020, 5 times higher than in store

40% Clients on Winelab.ru are completely new clients

11

New product development: own brands, launch in 2020

New vodkas in premium and low-premium price segments

Traditional Siberian Vodka. Made from highest quality spirits and purest natural water on Mariinskiy production facility (where Beluga vodka is produced). Premium price segment.

Launch: June 2020.

Vodka from the North. Made from Lux spirits. Deep freezing purification. Low premium price segment.

Launch: June 2020.

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Premium Russian sparkling wine TÊTE DE CHEVAL

Tête de Cheval – premium Russian sparkling wine produced according to traditional method of bottle champagnization. Made on own Golubitskoye estate vineyard. No less than 12 months aging in the bottle. Tête de Cheval family: Brut, Rose Brut, Semi-Dry, Sweet, Rose Sweet, Blanc de Blancs Reserve, Zero Dosage Reserve, Reserve Brut 2017. Launch: May 2020

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Caribbean rum Devil’s Island

Spirits from Caribbean Islands. Aging in oak barrels. Bottling on Georgievskiy production facility. Mainstream price segment. Launch: June 2020.

14

New import contracts, 2020

Noy Armenian brandy - best selling imported brandy in Russia*

#1 imported brandy in Russia. #1 Armenian brandy in Russia. Aging in oak barrels. From Middle to Premium price segment. Launch: March 2020.

* Nielsen, 1Q2020

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New import contracts, 2020

Mateus - best selling Portuguese wine in Russia*. Part of Portuguese producer Sogrape portfolio

#1 Portugal wine in Russia. #1 Rose wine in the World. Launch: May 2020.

* Russian Custom 2019

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Financial overview

59% 29%

12%

17

Consolidated Revenue and Gross Profit

Sources: Company data * - including intersegment

Total Net Revenue RUB bn

21,5 26,3

1H2019 1H2020

15,4 16,9

1H2019 1H2020

+10%

+23%

Revenue breakdown by main segments RUB bn*

Alc

oh

ol

54% 36%

9%

Food Alcohol

Retail

Consolidated Revenue split*

1H2019

1H2020

Revenue growth by 23% in 1H2020 mainly due to 15% growth of Company’s shipments

8,4 9,2

1H2019 1H2020

+9%

Total Gross Profit RUB bn

Gross Profit grew 9% mainly due to changes in gross profit composition: share of import and Winelab’s operations in the total revenue/gross profit is growing

7,4

11,4

1H2019 1H2020

+53%

Ret

ail

Food Alcohol

Retail

0,45 0,46

0,38

1H2019 1H2020

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Consolidated EBITDA and Net Profit


Consolidated EBITDA RUB bn

2,2 2,7

0,5

0,7

1H2019 1H2020

1,61 1,55

4,85 5,24

1H2019 1H2020

G&A distribution

-3%

+23%

G&A and distribution expenses RUB bn

Operating Profit and Net Income RUB bn

+8%

1,7

2,2

1H2019 1H2020

+2%

Operating Profit Net Income

+25%

Distribution expenses grew only 8% on the back of 23% net revenue growth due to the optimization of trade-marketing policy.

G&A expenses decreased by 3% mostly due to improvements in operating efficiency.

EBITDA grew 23% due to: double-digit growth of total sales; Winelab’s profitability improvement since major part of the stores matured

IFRS 16 effect

IFRS 16 effect

One-off effects

+81%

Net profit increased by 2%. However, without one-off currency exchange losses and additional charity due to COVID-19 Net profit grew 81%.

2,7

3,4

19

Segment EBITDA*

Sources: Company data * - including intersegment

EBITDA breakdown by main segments RUB bn

2,32 2,34

1H2019 1H2020

+1%

Alcohol

65,9%

33,9%

0,2%

Food Alcohol

Retail

EBITDA split

1H2020 EBITDA in Retail segment significantly grew since major part of the stores matured

0,48

1,20

1H2019 1H2020

Retail

EBITDA margin by main segments %

13,8%

10,5%

Alcohol Retail

Since 2018 the Company has reported 3 segments: Alcohol, Retail, Food.

EBITDA margin in Retail segment is higher than the average in the retail sector in Russia

+152%

31%

62%

7%

20

Debt Profile overview

4,6 2,4 2,4

11,5 12,6

17,3

30 Jun'19 31 Dec'19 30 Jun'20

Short-term debt Long-term debt

56% 32%

12%

1-2 years

2-5 years

Debt statistics summary

RUB mln 30 Jun’19 30 Jun’20

Financial debt (loans and bonds) 16,084 19,703

Cash and cash equivalents 812 3,017

Net Debt 15,272 16,686

EBITDA1 (LTM) 5,033 5,762

Net Debt / EBITDA 3.0x 2.9x

Interest coverage 2.3x 2.1x

16,1

19,7

15,0

Debt evolution RUB bn

Debt breakdown by maturity and type As of 30 Jun, 2020

Less than 1 year

Bonds

Unsecured debt

Secured debt

RUB 19.7 bn

RUB 19.7 bn

Sources: Company data Notes: 1) Without IFRS16 effect

Decrease in cost of borrowing from 8.9% p.a. in 2019 to 8.5% p.a. in 1H2020

The debt structure was improved through issuance of two 5 bln., 5 years bonds in July and December 2019

Share of unsecured loans is stable (93%)

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Income statement

Sources: Company data * including 321 mln rubles FX losses

Rub mln 2018 2019 1H2019 1H2020 YoY, %

Net revenue 43,411 53,074 21,450 26,283 23%

Cost of sales (26,521) (33,547) (13,055) (17,097) 31%

Gross profit 16,890 19,527 8,394 9,186 9%

margin 38.9% 36,8% 39,1% 35,0% -4.1 pp

G&A expenses (3,102) (3,042) (1,605) (1,553) -3%

Distribution expenses (10,269) (11,939) (4,851) (5,241) 8%

Other income / (expenses) (246) (154) (204) (225)

Operating profit 3,273 4,392 1,734 2,167 25%

margin 7.5% 8.3% 8.1% 8.2% +0.1 pp

EBITDA 4,251 6,495 2,703 3,325 23%

margin 9.8% 12,2% 12,6% 12,7% +0.1 pp

Net finance costs (2,059) (2,429) (1,128) (1,601)* 42%

Income tax (276) (530) (154) (106) -31%

Net income 938 1,433 452 460 2%

margin 2.2% 2.7% 2.1% 1.8% -0.3 pp

Basic earnings per share (Rub) 68.34 103.71 29.41 35.76 22%

22

Balance sheet


Rub mln 31 Dec’19 30 Jun’20 ASSETS

Non-current assets

Property, plant and equipment 13,885 13,382

Goodwill 3,511 3,511

Intangible assets 10,017 10,025

Other long-term assets 260 398

Deferred tax assets 1,786 1,807

Total non-current assets 29,459 29,123

Current assets

Inventories 16,181 18,911

Biological assets 159 158

Trade and other receivables 9,813 6,980

Prepayments 605 1,123

Income tax prepayment 126 255

Cash and cash equivalents 1,085 3,017

Total current assets 27,969 30,444

TOTAL ASSETS

57,428

59,567

Rub mln 31 Dec’19 30 Jun’20

SHAREHOLDERS’ EQUITY AND LIABILITIES

Equity and reserves Share capital 1,940 1,580 Treasury shares (669) (338) Share premium 3,339 3,019 Retained earnings 14,222 14,271

Total equity 18,832 18,532 Non-controlling interest 1,201 966 Total equity and reserves 20,033 19,498 Long-term liabilities Loans and bonds 12,628 16,907 Long-term payables 580 - Long-term lease liabilities 2,326 2,000 Deferred tax liabilities 1,077 1,237 Total long-term liabilities 16,611 20,144 Current liabilities Loans and bonds 2,388 2,796 Lease liabilities 1,232 1,363 Trade and other payables 16,800 15,436 Income tax payable 364 330 Total current liabilities 20,784 19,925

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 57,428 59,567

23

Cash Flow


Rub mln 2018 2019 1H2019 1H2020

Operating profit 3,273 4,392 1,734 2,167

Depreciation and amortization 978 2,103 969 1,158

Other non-cash transactions 28 229 32 153

Changes in working capital 466 (2,218) (2,834) (2,999)

CF from operating activities 4,745 4,506 (99) 479

Interest paid (1,927) (2,063) (1,060) (1,124)

Income tax paid (636) (595) (305) (148)

Net CF from operating activities 2,182 1,848 (1,464) (793)

Acquisition of subsidiaries (463) (551) (275) (361)

Acquisition and disposal of PPE (1,720) (1,643) (870) (457)

Net CF from investing activities (2,183) (2,194) (1,145) (818)

Issue of share capital

Repurchase of treasury shares (1,281) (545) (364) (349)

Dividends (81)

Payments of lease liabilities (1,197) (504) (684)

Loans received 38,804 54,502 22,270 22,925

Loans repaid (37,258) (52,412) (19,064) (18,268)

Net CF from financing activities 265 348 2,338 3,543

Net increase/(decrease) in cash 264 2 (271) 1,932

Cash at the beginning of the year 819 1,083 1,083 1,085

Cash at the end of the period 1,083 1,085 812 3,017

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Appendix

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Key direction for business diversification

Diversified business with high share of non-vodka products

Categories extension

BELUGA GROUP alcohol revenue evolution

Acquisition of vineyards and winery in Russia, focus on premium Russian wines

Expansion of imported brands portfolio

Brand innovation

Distribution platform focused on direct sales

Growing share of export operations

Product portfolio has been significantly diversified: shares of export & import operations as well as brown spirits and wine categories continue its growth

Vodka (local sales)

Vodka (export)

80% 39%

4% 8%

Brandy, flavored liquors & other

12% 26%

Wine & spirits 4% 27%

In-h

ou

se p

rod

uct

ion

Im

po

rt

2011

Total alcohol sales

Sources: Company data, AC Nielsen Notes: 1) AC Nielsen, 2018 2) Controlled sales include direct sales and sales through dedicated sales force 3) xx% - share of a given category in alcohol segment revenue

2019

Focus on new product development (launches of Green Baboon gin, Vogue sparkling wine, Fox & Dogs whisky, etc.)

Successful launch of new vodka brands (e.g. Arhangelskaya and Mednaya Loshadka): Arhangelskaya gained 5% market share in the category on its third year1

High and growing level of the controlled sales2 (85% of total sales in 2019)

Expansion of own specialized retail chain Winelab

Export to more than 95 countries across the world

8% of alcohol revenue in 2019 (vs. 4% in 2011)

Natural FX hedge against exchange rate swings

RUB 38.9 bn RUB 21.2 bn

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Super premium

Diversified product portfolio: own brands

Sub-premium / premium

Middle

Mainstream

Vodka Brandy / Cognac / liquor Wine Other spirits

(gin, tequila, rum, etc.)

Sources: Company data Notes: Price range for every segment could differ based on product category

27

Super premium

Diversified product portfolio: imported brands

Sub-premium / premium

Middle

Mainstream

Whisky Brandy / Cognac / liquor Wine Other spirits

(gin, tequila, rum, etc.)

Sources: Company data Notes: Price range for every segment could differ based on product category. Whiskys Cigars Barrel, Fox&Dogs, Trouble Maker, Eagle’s Rock are bottled on Georgiyevskiy Plant

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High level of corporate governance with independent members on the Board of directors


ALEXANDER MECHETIN

CEO

Founder of Beluga Group

NIKOLAY BELOKOPYTOV

Chairman of the BoD

CFO

KONSTANTIN PROKHOROV

Head of Retail

ROSTISLAV ORDOVSKY-TANAEVSKY BLANCO

Independent Non-Executive Director

Founder and Chairman of the BoD of Rosinter

SERGEY MOLCHANOV

Chief Operating Officer

MIKHAIL KASHIRIN

Head of Business Development

ALEXANDER IKONNIKOV

Independent Non-Executive Director

Acknowledged Russian expert in corporate governance and Board efficiency

New members on the Board of Directors

4

In June 2019, BELUGA GROUP reinforced the Board of Directors:

Independent non-executive directors

2

The Board of Directors has audit committee with the following members:

Alexander Ikonnikov (chairman of the committee)

Rostislav Ordovsky-Tanaevsky Blanco

Nikolay Belokopytov

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Company strategy for further development




Сноска или примечание

Brand portfolio Diversified brand portfolio, coverage of

all segments

Focus on premium and profitable

products

Increase in price and brand recognition

Strengthening the presence in growing

categories

Retail and distribution Continued development of the

distribution platform with a focus on

direct sales

Development of Winelab

Direct contact with end customers

through trade marketing and own retail

Best IT platform

Key business Production, sale and distribution of its

own alcohol products

Use of modern technologies to

enhance the overall operational

performance

Export Expansion of the general export

geography and Beluga brand in particular

Improving the quality of imported

operations through targeted selection of

partners

Focus on super-premium international

vodka markets

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