Meat Industry in Poland

To proof the Polish meat industry is attractive for portfolio investment

Where? Poland

In what? Meat Industry

To whom? Portfolio investors, who are interested in long term investment.

Why Poland?

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3580000600000620000640000660000680000700000720000740000

0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%

GDP of Poland, 2009-2013

Poland Growth rate

2009

Jan

2009

Mar

2009

May

20

09Ju

l 20

09Se

p

2009

Nov

20

10Ja

n 20

10M

ar

2010

May

2010

Jul

2010

Sep

2010

Nov

2011

Jan

2011

Mar

20

11M

ay

2011

Jul

2011

Sep

2011

Nov

2012

Jan

2012

Mar

20

12M

ay

2012

Jul

2012

Sep

2012

Nov

2013

Jan

2013

Mar

20

13M

ay

2013

Jul

2013

Sep

20

13No

v 20

14Ja

n

-1.00%0.00%1.00%2.00%3.00%4.00%5.00%6.00%

Relationship between interest rates and infla-tion, 2009-2014

Inflation Long-term interest rate Short-term interest rate

• World’s 14th most attractive country for investments 2013-2015;

• 24th GDP in the world;

• Cheap labor cost (7.1 €/hour);

• Low taxation (19%);

• Stable S&P A-; Moody’s A2.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03

0.04

0.05

Volatility of exchange rate, 2008-2014

Change of EUR-PLN Volatility of EUR-PLN

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

Volatility of exchange rate, 2008-2014

Change of RU-PLN Volatility of RU-PLN

Why Poland?• 4th biggest meat producer within EU;

• Main trading partners – countries of EU.

Ger-many15%

UK9%

Czech Repub-

lic6%

France5%

Russia3%

Italy8%

Nether-lands7%

China4%

Others44%

Structure of meat export to main trading partners, 2013

Domestic Polish meat market in 2013

27,9 % of the food sector sales

2 344 thousand tons

47 248 zl billion

71,7 kg per capita

Capabilities ThreatsThe market has been stable for the past 5 years A strong downward trend of pork and beef meat

The increasing tendency of production of poultry Animal diseases and infections

Price of Polish meat is about 30% lower than in EU Growth of average market prices of beef and pork meat

Per capita consumption of meat can reach 80 kg by 2015

Strong dependence of animal feeding costs, weather, climatic conditions and possible environmental pollutions

Expected growth of demand of more quality meat products

Embargo from countries-members of Commonwealth of States

The growing import of meat products to China and other Asian countries

The strong strong concentration of the market

The BCG matrix

Low Market Share High

Low

Th

e gr

owth

of s

ales

H

igh

1% 2% 8% 19,5% 20% 21% 24% 50%

2

%

6

%

7%

1

0%

11

%

34

%

118%

The growth of sales

Market Share

Indykpol 2% 19,5 %

Henryk Kania 34% 8%

KANvsIND

KANvsINDFinancial Ratios 2008-2013

INDyear

P/E bv/share p/b ratio

2008 46,09 0,54

2009 17,49 50,25 0,93

2010 54,99 50,57 1,29

2011 20,00 52,81 0,86

2012 51,21 0,73

2013 3,14 52,58 0,69

KAN year

P/E bv/share p/b ratio

2008 7,82 0,93 0,92

2009 16,14 1,40 2,94

2010 8,64 1,47 2,30

2011 2,99 7,07 0,22

2012 34,47 1,09 1,65

2013 32,66 1,22 3,21

KAN&IND vs WIG20

Er(WIG20) = CAGR = (P1/P0)^(1/y) -1 = 10,07%

Source: ft.com

INDvsWIG20E(r)

14%

SML

ß

rf=3,7%

1.78

Er(market) = CAPM= 15,03%

Er(IND) = CAGR = 14, 09%OVERpriced!

IND

*Corr coef highly positive = 0,6

E(r)

12.5%SML

ß

rf=3,7%

0.9

Er(market) = CAPM= 9,43%

Er(IND) = CAGR = 12,53% UNDERpriced!

+ 3,1%

*Corr coef low positive = 0,22

KAN

Impact of external factors on the volatility of Kania and IndykpolVolatility of Indykpol = 0.015768 + 0.071756*RESID(-1)^2 + 0.915586*GARCH(-1) + + 0.672698*EUR + 54.59582*RUB - 0.000104*FTSEFOOD + 0.004149*CACFOOD - 0.000296*WIG20 - 0.000630*MICEXCPG

Volatility of ZM Henryk Kania = 0.000683 + 0.151850*RESID(-1)^2 + 0.757839*GARCH(-1) + 1.37E-05*CACFOOD - 1.17E-05*WIG20 -0.015299*EUR

Indykpol Henryk KaniaMICEX CPG -0.000630 EUR -0.015299EUR 0.672698 CAC FOOD 1.37E-05RUB 54.59582 WIG 20 -1.17E-05WIG 20 --0.000296

FTSE FOOD 0.000104

CAC FOOD 0.004149

Agroton (Ukraine)

Bonafarm (Hungary)

AGROFERT HOLDING AS

(CZ)

Penta (Slovakia)

Tönnies ( Germany)

Vion Food (Germany)

Henryk Kania (Poland)

IndykPol (Poland)

0

50

100

150

200

250

300

350

Total Assets, million USD

Agroton (Ukraine)

Bonafarm (H

ungary)

AGROFERT HOLD

ING AS (CZ)

Penta (Slovakia)

Tönnies ( G

ermany)

Vion Food (Germ

any)

Henryk Kania (Poland)

IndykPol (Poland)

020406080

100120140160180

Market Capitalization, million USD

Agroton (Ukraine)

Bonafarm (H

ungary)

AGROFERT HOLD

ING AS (CZ)

Penta (Slovakia)

Tönnies (Germ

any)

Vion Food (Germ

any)

Henryk Kania (Poland)

IndykPol (Poland)

0

1

2

3

4

5

6

7

Net Income, million USD

Agroton (Ukraine)

Bonafarm (H

ungary)

AGROFERT HOLD

ING AS (CZ)

Penta (Slovakia)

Tönnies (Germ

any)

Vion Food (Germ

any)

Henryk Kania (Poland)

IndykPol (Poland)

0

50

100

150

200

250

300

350

Revenue, million USD

2007 2008 2009 2010 2011 2012 20130.000

0.500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

Current ratio

Henryk Kania (Poland) IndykPol (Poland)

Agroton (U

kraine)

Bonafarm

(Hungar

y)

AGROFERT H

OLDING AS (

CZ)

Penta

(Slova

kia)

Tönnies

(Germ

any)

Vion Food (G

erman

y)

Henryk

Kania (

Poland)

IndykPol (P

oland)

0.0000.2000.4000.6000.8001.0001.2001.4001.6001.8002.000

Current Ratio 2013

2007 2008 2009 2010 2011 2012 2013

-0.5000

-0.4000

-0.3000

-0.2000

-0.1000

0.0000

0.1000

0.2000

0.3000

Operating Profit Margin

Henryk Kania (Poland) IndykPol (Poland)

Agroton (U

kraine)

Bonafarm

(Hungar

y)

AGROFERT H

OLDING AS (

CZ)

Penta

(Slovak

ia)

Tönnies

(Germ

any)

Vion Food (G

erman

y)

Henryk

Kania

(Poland)

IndykPol (P

oland)

0.0000

0.0500

0.1000

0.1500

0.2000

0.2500

0.3000

0.3500

Operating Profit Margin 2013

2007 2008 2009 2010 2011 2012 2013

-0.1000

-0.0500

0.0000

0.0500

0.1000

0.1500

0.2000

0.2500

0.3000

Net Profit Margin

Henryk Kania (Poland) IndykPol (Poland)

Agroton (U

kraine)

Bonafarm

(Hungar

y)

AGROFERT H

OLDING AS (

CZ)

Penta

(Slovak

ia)

Tönnies

(Germ

any)

Vion Food (G

erman

y)

Henryk

Kania

(Poland)

IndykPol (P

oland)

0.0000

0.0500

0.1000

0.1500

0.2000

0.2500

0.3000

0.3500

Net Profit Margin 2013

Agroton (U

kraine)

Bonafarm

(Hungar

y)

AGROFERT H

OLDING AS (

CZ)

Penta

(Slova

kia)

Tönnies

(Germ

any)

Vion Food (G

erman

y)

Henryk

Kania

(Poland)

IndykPol (P

oland)

0.0000

0.0200

0.0400

0.0600

0.0800

0.1000

0.1200

0.1400

Return on Assets 2013

2007 2008 2009 2010 2011 2012 20130.0000

0.5000

1.0000

1.5000

2.0000

2.5000

3.0000

3.5000

4.0000

Debt to Equity

Henryk Kania (Poland) IndykPol (Poland)

Agroton (U

kraine)

Bonafarm

(Hunga

ry)

AGROFERT H

OLDING AS (

CZ)

Penta

(Slovak

ia)

Tönnies

(Germ

any)

Vion Food (G

erman

y)

Henryk

Kania

(Poland)

IndykPol (P

oland)

0.0000

0.5000

1.0000

1.5000

2.0000

2.5000

3.0000

3.5000

Debt to Equity 2013

2007 2008 2009 2010 2011 2012 2013

-0.2000

-0.1500

-0.1000

-0.0500

0.0000

0.0500

0.1000

0.1500

0.2000

0.2500

Return on Assets

Henryk Kania (Poland) IndykPol (Poland)

Indyk Pol (Poland)

Henryk Kania (Poland)

Agroton (Ukraine)

Bonafarm (Hungary)

AGROFERT HOLDING AS

(CZ)

Penta (Slovakia)

Tönnies (Germany)

Vion Food (Germany)

012345678

WACC

  Indyk Pol (Poland)

Henryk Kania (Poland)

Agroton (Ukraine)

Bonafarm (Hungary)

AGROFERT HOLDING AS (CZ)

Penta (Slovakia) Tönnies (Germany) Vion Food

(Germany)

WACC 5,42 5,82 7,95 3,60 3,28 2,34 2,71 1,49

E, thousands USD 53652 45385,33333 62604 14815 35453 37781 123644,46 42167,574

D, thousands USD 99508 75271,33333 63625 30698 78800 112424 219887,68 140475,36

D+E, thousands USD 153160 120656,6667 126229 45513 114253 150205 343532,14 182642,934

Return on equity 14 12,5 15,970 11,000 10,500 9,200 7,500 6,350

Return on debt 0,0478624 0,06179422 0,072 0,035 0,044 0,044 0,032 0,037

% debt 0,64969966 0,62384728 0,504044237 0,674488608 0,689697426 0,748470424 0,640078917 0,769125621

% equity 0,35030034 0,37615272 0,495955763 0,325511392 0,310302574 0,251529576 0,359921083 0,230874379

Tax,% 19 19 16 19 19 23 30,175 30,175

Why it is worth to invest: What are the risk factors:• Polish meat industry has potential to growth,

especially in area of poultry• It is due to the increasing trend of meat consumption

• In comparison to European firms, financial performance of Indykpol and Henryk Kania is competitive

• Better than companies from Hungary, Czech Republic, Slovakia and Ukraine

• Slightly worse than German representatives

• Portfolio Investment in Polish meat industry could be profitable, hence, some firms (such as Henryk Kania) are underpriced

• It offers a higher return than market with the same level of risk

• According to ratio analysis, Indykpol is more attractive than Henryk Kania, which can be explained by Kania’s recent split of shares

• However, split of shares is a sign of Henryk Kania’s long term growth strategy

• Prices of shares are influenced by external factors• Especially stocks of Indykpol

• It could be caused by the fact that this firm is more exposed to the foreign markets

• Polish meat industry has to face the problem with current embargo in Russia and CIS countries

• It could have negative impact on financial performance of Polish firms

• Polish firms have to find new markets

• Law regulations and provisions increase the operating costs of meat industry

• Management of Polish companies should increase return on assets and decrease debt