2014 earnings presentation

8/20/2019 2014 Earnings Presentation

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Earnings Presentation for the year ended 31 December 2014

Speakers: A lexander Mechet in, CEO

Nikolay Belokop ytov, CFO 07 April, 2015



This presentation has been prepared by Synergy, Co. (the “Company“, or “Synergy”) and together with its subsidiaries. By attending the meeting where the presentation is made, or by reading thepresentation slides, you agree to the following limitations and notifications. This presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not

be reproduced in any form, in whole or in part. Failure to comply with this restriction may constitute a violation of applicable securities laws. This presentation does not constitute or form part of, and

should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire shares of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into

investment activity in any jurisdiction. Neither this presentation nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or

commitment or investment decision whatsoever.

This presentation may contain statements that are, or may be deemed to be, forward-looking statements within the meaning of the U.S. federal securities laws and are intended to be covered by the safe

harbors created thereby. Examples of such forward-looking statements include, but are not limited to statements of the Company’s predictions, forecasts, projections, strategies, plans, targets,

objectives, expectations, estimates, intentions, beliefs or goals, including those related to acquisitions, sales, products or services, results of operations, financial condition, liquidity, prospects or dividend

policy; statements concerning future business or industry performance; other statements that do not relate strictly to historical or current facts; and assumptions underlying such statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the forward-looking statements will not be achieved. Among other

things, forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the

future.

Readers should be aware that several important factors could cause the Company’s assumptions to be incorrect, and could cause actual results to differ materially from the predictions, forecasts,projections, strategies, plans, targets, objectives, expectations, estimates, intentions, beliefs or goals expressed in such forward-looking statements.

These factors include:

• changes in political, social, legal or economic conditions in Russia generally, or in the regions of Russia in which the Company operates, including changes in levels of consumer spending and

demand for some or all of its products;

• changes in consumer preferences and tastes, demographic trends or perceptions about health related issues;

• increased competitive product and pricing pressures and unanticipated actions by competitors that could impact the Company’s market share, increase expenses and hinder growth

potential;

• the ability to complete business combinations, partnerships, acquisitions or disposals, existing or future, and to achieve integration, expected synergies and/or costs savings;

• levels of marketing, promotional and innovation expenditure by the Company and its competitors;

• the Company’s ability to protect its intellectual property rights;

• increasing recognition in Russia of product liability and personal injury torts;

• legal and regulatory developments and changes in the policies of the government of the Russian Federation, including regional authorities, including regulatory developments or policy

changes regarding consumption of or advertising for spirits, or taxation;

• changes in the cost of raw materials and labor costs;

• renewal of distribution rights and contracts on favorable terms when they expire;

• technological developments that may affect the distribution of products;

• changes in financial and equity markets, including significant interest rate and foreign currency exchange rate fluctuations, which may affect the Company’s access to or increase the cost

of financing or which may affect the Company’s financial results;

• changes in accounting standards, policies or practices;

• availability of qualified personnel, including accounting personnel; and

• ability to identify other risks relating to the Company’s business and manage the risks associated with the aforementioned factors.

This list of important factors is not exhaustive. Readers should carefully consider such factors and other uncertainties and events, especially in light of the political, economic, social and legal environment

in which the Company operates. Such forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update or revise any of them.

Readers should not place undue reliance on forward-looking statements. The Company does not make any representation, warranty or prediction that the results anticipated by such forward-looking

statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario.

2



3

Synergy, a leading distilled spirits producer in Russia reports

2014 financial results

2014 vs

2013

• Sales grew 5% and reached 46.8 bln. rubles

• Net Revenue increased by 7% to 28.1 bln. Rubles• Gross Profit raised by 7% to 12.0 bln. rubles

• Gross profit margin remain stable at 42,7%

• EBITDA declined by 19% to 3.0 bln. rubles

• EBITDA margin decreased by 3.4 pp. to 10.6%

• 29% decline in Net Income

• Net Debt to EBITDA – 2.77X

• 12% volume decline on the back of 22% Russian vodka market

decrease

Key

operational

developments

• Synergy concluded exclusive, long-term distribution agreements for

Ron Barchelo Rum, Amarula liqueur and Torres brandy.• Synergy launched wine distribution signing several agreements

with wine producers. Main trade marks: Cono Sur, Maset, Pierre

Fontaine, Fleur Du Cap, Gran Castillo and others.

• Fitch agency has upgraded Synergy's Long-term foreign and local

currency Issuer Default Ratings (IDRs) to 'B+' from 'B'. The Outlook

is Stable.



21 150 22 441

0

8 000

16 000

24 000

2013 2014

26 37828 163

0

10 000

20 000

30 000

2013 2014

4

Consolidated Revenue for FY2014

Consolidated Revenue, million RUB

+7%

Revenue breakdown by segments, million RUB (1)

A l c o h o l ( 1 )

F o o d

( 1 )

20%

80%

Alcohol

Food

Consolidated Revenue split, %

2014: 28 163 million RUB(1)2013: 26 378 million RUB(1)

20%

80%

Alcohol

Food

Source: IFRS financial statement for FY2014

Note (1): Net of intersegment operations

5 228 5 722

0

3 000

6 000

2013 2014

+6%

+9%

o 6% Y-o-Y increase in alcohol revenue on the back of 12%

fall in volume due to proactive pricing policy. Ongoingdiversification leads to growth of scale of the premium

distribution as well as export sales in our operations

o Food segment revenue was driven by poultry division due

to better operational effectiveness and favorable market

conditions



1 066

1 369

0

500

1 000

1 500

2013 2014

10 253

10 779

0

4 000

8 000

12 000

2013 2014

48,0%11 280

12 028

0

4 000

8 000

12 000

2013 2014

42.8%

5

Consolidated Gross Profit for FY2014

Consolidated Gross Profit, million RUB

Gross Profit

Gross Margin

Gross Profit breakdown by segments, million RUB (1)

A l c o h o l ( 1 )

F o o d ( 1 )

Consolidated Gross Profit split, %

FY2014: 12 028 million RUB(1)FY2013: 11 280 million RUB(1)

11%

89%

9%

91%

Alcohol

Food

Alcohol

Food

o

Main drivers for the Consolidated Gross Profit growth wereexport-import operations, proactive pricing policy and

positive dynamic in Food segment

oProfitability in Food business significantly improved in 2014

due to better margin in our Poultry business

Source: IFRS financial statement for FY2014


+28%

+5%

42.7%

+7%

48,4%

20%

24%



6

Alcohol segment breakdown(1). Ongoing diversification.

18 458

2 692

18 336

4 105

0

5 000

10 000

15 000

20 000

Spirits Production Distribution

Alcohol segment revenue breakdown, million RUB

2013

2014

9 570

683

9 496

1 283

0

2 500

5 000

7 500

10 000

Spirits Production Distribution

Alcohol segment gross profit breakdown, million RUB

-0,8%2013

2014

82 %

18%

Spirits production

Distribution

Alcohol segment consolidated revenue split, %

2014: 18 336 million RUB 2013: 18 458 million RUB

87%

13%

Spirits production

Distribution

Key Alcohol segment drivers in 2014

oSpirits production: Just 0,7% Y-o-Y decline in revenue on the

back of 12% drop in volume. Company considerably increased

prices in the beginning of 2014 - as a result the volume

reduction was significantly compensated

oGross margin of the Spirits production was flat ( 51.8%)

oDistribution: focus on premium imported brands such as

William Grant & Sons and Camus along with new exclusive

agreements. As a result the profitability of this subsegment

considerably improved.

Note (1): Anaudited

-0,7%

+52%+88%

51.8% 51.8%

25.4 31.3%



3 127

2 274

1 541

1 090

0

1 100

2 200

3 300

2013 2014

2 053 2 411

5 871

7 389

0

5 000

10 000

2013 2014

+10%

+17%

3 674

2 973

0

1 000

2 000

3 000

4 000

2013 2014

-19% Y-o-Y

7

Consolidated EBITDA and Net Profit for FY2014

EBITDA, million RUB

EBITDAEBITDA Margin

G&A and distribution expenses , million RUB

General & Administrative expenses

Distribution expenses

7 924

9 800

Operating profit and Net Income, million RUB o G&A expenses increased by 17% due to growth in salaries, rent expenses

and inflation

o 26% year-on year increase in distribution expenses as a result of increase

in trade-marketing expenditures in modern retail which are connected

with excise duties (duties grew by 25%)

o EBITDA declined by 19% mainly due to excise duty growth and distributors

destocking process

o Net income declined by 29% mainly due to the same factors as EBITDA

declined along with growth of the financial costs including banks

guarantees which are connected with excise duties

Source: IFRS financial statement for 2014


13.9%

10.6%

Opertating profit

Net income

+26%

-27% Y-o-Y

-29% Y-o-Y



8

The Company’s debt structure

Debt breakdown, million RUB

4 849

5 919 6 212

8 226

YE2011 YE2012 YE2013 YE2014

Net debt (1) evolution, million RUB

43%

21%

36%

Less than 1

year

1-2 years

2-5 years

Total = 8 708 mln RUB

As of 31 December, 2014

12%

34%

52%

13%

Less than 1

year

1-2 years

Over 5 years

2-5 years

Total = 6 679 mln RUBo Debt increased due to growth of excise duties

and corresponding trade receivables rise, buy-

back of own shareso Average cost of borrowing grew by 1 p.p. (to

11.74% p.a.)

o Net debt/EBITDA ratio is 2.77x

o In December 2014 Fitch Rating has upgraded

Synergy's Long-term foreign and local currency

Issuer Default Ratings (IDRs) to 'B+' from 'B'.

The Outlook is Stable.

Source: IFRS financial statement 2011-2014

Note (1): Net debt = Total debt – Cash & Cash equivalents

1 243 1 663875

3 164

4 324

4 9635 804

5 544

YE2011 YE2012 YE2013 YE2014

Long-term debt

Short-term debt

6 679

5 567

8 708

6 626

As of 31 December, 2013



APPENDICES

9



Widening borders of BELUGA vodka

exports Improving the quality of export distribution

platform by carefull selecting partners

Focus on the US super-premium vodka market

COMPANY STRATEGY

10

Focus on the core business of

production, distribution and sale ofspirits

Ongoing process of divesting non core

assets

Balanced portfolio of brands covering all price

categories

Focus on three key upper-priced brands including

flagship super-premium Beluga

Expansion in growing alcohol categories

Increasing brand equity

Premiumizing own sales mix

Strong distribution platform with focus on direct

sales

Better contact with final consumerthrough trade marketing activity

Best in class IT platformProduct

portfolio

Global

exports

Distribution

platform

Focus on core

operations

Become the dominant spirits company in Russia with a diversified portfolio of brands and products and best inclass distribution platform



T r a d i t i o n a l

q u a l i t y

v o d k a

VEDA

ICE

Gosudarev

Zakaz

(Sovereign’s

Order)

H i g h - q u a l i t y

p r o d u c t

DIVERSIFIED PORTFOLIO OF NATIONAL BRANDS WITH FOCUS ON 3 KEY BRANDS

Low-middle Premium

RUR 1200 RUR 4500

Russky

Lyod

(Russian Ice)

Beluga

Noble

Beluga

Gold line

Belenkaya

(Whitish)Myagkov

P a t r i o t i s m ,

V i c t o r y

T r e n d y

V o d k a f o r

c o c k t a i l s

H a n d c r a f t e d

N o b l e v o d k a

G a s t r o n o m i c

v o d k a

P u r e ,

o r g a n i c

v o d k a

Exclusive agreement for

production and distribution

Key priority brand Key priority brand Key priority brand

RUR 230 RUR 280 RUR 300 RUR 310 RUR 400

+8% +9% +7% +7% +5% +4% +17%

+2% +3% +3% +3% +3% +16%

Sub-premium Super-premium, Ultra-premiumMiddle

RUR 1350 RUR 2800

+6% +31%

+5% +29%

Beluga

Transatlanti

c Racing

Beluga

Allure

V o d k a f o r

T r e n d s e t t e r s

A r i s t o c r a t i c

Well-established portfolio of brands with high awareness is serious competitive advantage on

“dark market” for advertisement

Average retail

price per 0.5 liter

from Jan 2013

Increase in net

price to distributor

from Dec 14 vs

Jan 14

Increase in gross


from Dec 14 vs Jan

14

Brand name

Positioning

11

V o d k a

p o r t f o l i o

+3%



T r a d i t i o n a l ,

c l a s s i c , R u s s i a n

b r a n d y

T r a d i t i o n a l

b l e n d e d

w h i s k y

DEVELOPING PORTFOLIO OF NATIONAL BROWN SPIRITS BRANDS

Brandy

Zolotoy

Rezerv

(Golden

Reserve)

RUR 400

+2%

+1%

Source: Company data

Whisky

RUR 500

new

new

Fox&Dogs

Balsam and herbal liqueurs

E c o , p u r e

n a t u r e

RUR 610

new

new

Ussuriiskiy

Balsam

Average retail

price per 0.5 liter

from Jan 2013

Increase in net


from Dec 14 vs

Jan 14

Increase in gross


from Dec 14 vs Jan

14

Brand name

Positioning

12

+2 +6

+4+1

Infusions

Dr August

new

new

RUR 250- 290

Nature,

unique tastes

B r o w n s p i r i t s

p o r t f o l i o

new

new

RUR 560

Ussuriiskiy

Liqueur

RUR 460 RUR 500

C l a s s i c

F r e n c h s t y l e .

1 0 0 % F r e n c h

s p i r i t s

Kamennyi

Lev

(Stone

Lion)

Staraya

Gvardia

(Old

Guard)

H i s t o r y ,

R u s s i a n

v i c t o r y

Low-middle Middle Sub-premium

E c o , p u r e

n a t u r e



SYNERGY IS #1 INDEPENDENT SPIRITS DISTRIBUTOR IN RUSSIA

• Synergy distributes in Russia a comprehensive portfolio of premium international brands.

Dedicated team (Synergy Import) – more than 400 people

• Key partners: William Grant & Sons, Camus, Distell, Great Valley, Ron Barcelo

• Main categories: Scotch and Irish whiskies, French Cognac, Tequila, Gin, Armenian Brandy, Rum

13

Irish Whisky Tequila Gin

Cognac

Scotch Whisky

Armenian Brandy

Bitter Cream liquor Rum



FOCUS ON QUALITY DISTRIBUTION

Domestic sales breakdown by geographical regions, % of Group’s volume, 2013

Targeting “Golden Shelf”

F o c

u s

Southern Federal districtPopulation: 13,9 millionGRP per capita: $ 5,942 ABP(*) :50%

North-Western Federal

district

Population: 13,7 millionGRP per capita: $10,166

ABP(*)

:55%

Urals Federal district

Population: 12 millionGRP per capita: $15,992

ABP(*)

:54%

Siberian Federal

district

Population: 19 millionGRP per capita: $7,198

ABP(*)

:51%

Far Eastern Federal

district Population:: 6 millionGRP per capita: $ 9,637

ABP(*)

:55%

Privolzhsky FederaldistrictPopulation: 29,7 millionGRP per capita: $7,139 ABP (*) :52%

16%

15%4%

20% 18%

Central Federal district

Population: 38,8 millionGRP per capita: $14,030 ABP (*) :54%

North CaucasianFederal districtPopulation: 9,5 millionGRP per capita: $ 2,459 ABP(*) : 47%

5%

% - 2013

- 2012

16%

16%

4%

22%17%

%

21%

19%

5%

1%

Note (*) able-bodied population

Source: Rosstat, Company’s

data

14

1%

«Mobile Sales Automation» Project

High quality resource management (finances, sales team,

marketing, distributors) • to create a system that enables to centralize and optimize sales record

processes, to get business-analytics, to control the financial discipline;• the whole process of field sales is formed under the control of Synergy

Group followed by the information being passed to the Distributor. The

Distributor is acting as a logistics' provider;

Employee control (planning, organization, motivation):

• to create a single Centralized Command and Control System of

Dedicated Sales Force Activity at the level of supervisors, territory

managers, region managers and Synergy OJSC management.

• Significant improvement of Synergy brand

portfolio presence on the shelf space

• Establishment of unique IT distribution control

system enabling to track and evaluate the

efficiency of distribution team. Full activation –

beginning of 2014

• Unification of the corporate structure

• Launch of the Mobile Sales Automation system

• 3 key brands: BELUGA, Myagkov and

Belenkaya

• High-grade distribution

• Innovative approach

• Better contact with final consumer through

trade marketing activity

R e c e n t u p d a t e s

F o

c u s



Two foreign offices – Miami (USA) and Kiev

(Ukraine)

Six foreign sales teams

In 2014 BELUGA exports is growing by 19% and

accounting for 40% of overall BELUGA sales

BELUGA is exported in 70 countries + World Duty Free

15

Home market

Export

SYNERGY’S EXPORT REPRESENTS 6% OF THE SPIRITS SALES

AND IT IS STEADILY GROWING

Official website: WWW.BELUGA.RU Find Beluga vodka page on Facebook

Miami

Kiev

Synergy Foreign offices

World Duty Free Mexico

Abkhazia Moldova

Andorra Mongolia

Armenia Montenegro

Australia Netherlands

Austria New Zealand

Azerbaidjan Oman

Bahrein Portugal

Belarus Poland

Belgium Qatar

Brazil Romania

Bulgaria Singapore

China Slovakia

Croatia Slovenia

Cyprus Serbia

Czech Republic South Korea

Dominican Republic Spain

Estonia Sweden

Finland SwitzerlandFrance Taiwan

Georgia Tajikistan

Germany Thailand

Greece Turkey

Hungary Turkmenia

India USA

Indonesia UAE

Iran UK

Iraq Ukraine

Israel Uzbekistan

Italy Vietnam

Japan

Jordan

Kazakhstan

Kyrgizia

Latvia

Lebanon

Lithuania

Mariana Islands

Malaisia

Synergy sales team

France

Germany

UK

Kazakhstan

Georgia

Baltic

NEW markets 2014

http://www.beluga.ru/

http://www.beluga.ru/



16

Address: 30/1 Obrucheva Str., bldg. 1

Moscow 117485

Russia

Phone: +7 495 510 2695

+7 495 775 3050

Fax: +7 495 510 2697+7 495 775 3052

E-mail: [email protected]

Contacts: Sergey Kuptsov,

Head of Corporate finance

Prokhor Malutin,

PR director

www.sygroup.ru

CONTACTS

mailto:[email protected]

http://www.sygroup.ru/

http://www.sygroup.ru/

mailto:[email protected]

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