investor presentation...01 company profile 06 the background 07 appendix: market overview 05 the ipo...
TRANSCRIPT
Investor presentation
*according to 2015 BluePoint survey
THE OPPORTUNITY
The offering • Gradus is vertically-integrated poultry producing holding
with exposure to the entire meat processing sector in Bulgaria.
• The company targets to raise between BGN 100m and BGN 146m (new and existing shares) on the Bulgarian Stock Exchange in June 2018.
• full control and ownership in all underlying businesses.
• Potentially one of the most liquid large-cap companies on the BSE-Sofia with substantial post-IPO free float.
• Announced dividend policy that guarantees payout of more than 50% of consolidated net profit.
Macro & sector trends • Increasing meat consumption globally with above-average
growth of poultry meat both due to its healthier image and religious restrictions.
• The poultry meat is the only meat segment in the EU where consumption is expected to increase till 2025.
• SEE is the main driver behind poultry meat growth in the EU with annual consumption growth in the 2%-3.5% range until 2025.
• The poultry is the preferred meat in Bulgaria with 33% share in total meat consumption.
• Upward trend for the meat price in 2017-18 and drivers for positive long-term price dynamics.
Investment plans & outlook 35% cumulative increase in consolidated core revenues and 2.5x cumulative growth in core net profit by 2022, supported by:
• Capital expenditure plans for over BGN 60m for 2018 -2020 period with focus on increase of the high-margin hatching eggs production and diversification of the product mix, targeting target affluent consumers as well as the large-size HoReCa segment.
• Investments in brand awareness and sales growth of the pork products.
• Investments in processes optimization and energy efficiency, as well as in new warehouses and transport.
• Acquisition of local producers and brands.
Market position • on the Bulgarian market in all poultry products with 35%*
market share in poultry meat.
• The largest Bulgarian exporter of hatching eggs and the second largest producer in Europe.
• The largest meat processing plant on the Balkans and one of the largest white meat processing facilities in Europe with significant spare capacity.
• Already-started expansion in the higher margin segment of raw-dried and boiled-smoked pork sausages.
• Gradus is one of the best-known brands in the Bulgarian food-processing industry total brand awareness of 99,8%.*; awarded Superbrands; awarded BestBuy in fresh packaged meat
2
3
Contents
02 Strategy & Outlook
03 Financial Overview
04 The Opportunity
01 Company Profile
06 The Background
07 Appendix: Market Overview
05 The IPO
Company profile
4
GRADUS Group IN FIGURES
#1 WHITE MEAT PROCESSING PLANT ON THE BALKANS - 35% market share in poultry meat sales in Bulgaria - 11 million broilers processed in 2017 - 30k tons processed meat annual capacity - More than 150 poultry products portfolio - 1400 tons of pork sausages sold in 2017, first full year after launch.
MEAT & MEAT PROCESSING
#2 HATCHING EGGS PRODUCER IN EUROPE - 120 million eggs & 40 million 1-day chicks produced annually - Sector-leading average hatching rate of 81%
HATCHING
#1 FODDER PRODUCER IN BULGARIA - 95k tons annual fodder capacity used internally - 90k tons storage capacity - 160k tons grains sold in 2017
GRAINS
- 2017 total consolidated revenues of BGN 246 m
- Consolidated net profit of BGN 39.7 m
- BGN 340 m consolidated assets and 500k m2
gross built-up area
- 1300 employees
- Over BGN 120 m investments in the last 10 years
- Own fleet of 33 specialised trucks and over
50 non-specialised vehicles
- Distribution network with 100% coverage of retail
chains in Bulgaria
- Presence in more than 5000 small food shops
- Hatching eggs export sales to over 10 countries
in Europe & Middle East & CIS
- Exceptional brand awareness results: 99.8%
locally for the Gradus brand and 76.5% for
- Full compliance with food & quality standards
FINANCIAL & OPERATING HIGHLIGHTS
5
(BGN m) 20141 2015 2016 2017 Q1 2017 Q1 2018
Revenue 181 143 155 246 36 38
EBITDA 36 29 25 50 12 15
Net income 30 24 16 40 9 12
Assets 185 174 172 340 175 349
Total debt 47 59 54 47 59 42
Key Financial Data
1 Consolidated financial report - Gradus 1 *Gradus AD auditors are Baker Tilly Klitou & Partners OOD 6
Group structure
Gradus-1
Gradus-3
Milenium 2000 Gradus-98 Zhyuliv Lora-2004
Ivan Angelov
Luka Angelov
100%
96%
Gradus AD
100% 99.9% 100% 100%
2% 50% 2% 50%
Broiler farms
Hatching eggs producer
Hatchery
Fodder production grain trading
Poultry meat producer
Pork sausages producer
7
vertically integrated Business model
Fodder production
95k tones capacity
Largest in Bulgaria; Fodder for internal use
Parent breeding
120m hatching eggs
Second largest exporter in Europe
Egg hatching
53m 1-day broilers
Largest in Bulgaria
Broiler fattening
13m broilers capacity
Largest producer in Bulgaria; GBA
(incl. parent breeding) 0.5 m2
Meat & meat processing
30k tones*
Largest processing capacity on the Balkans; one of
largest in Europe
Transportation & Distribution
33 specialised trucks
*poultry meat, sausages, semi-prepared meals and delicatessen 8
Own transportation; Extensive distribution network with access
to all retail chains
Gradus ad In Bulgaria
Broiler farms
Administrative office
Meat processing plant
Hatchery
Parent breeding farms
Feed mill & grain storage
9
10
Gradus has been constantly expanding its global reach. Its products are sold in over 15 countries worldwide.
REVENUES GEOGRAPHY
Hatching Eggs
Meat & meat products
1-day broilers
45%
33%
20%
2% 2015
Diversified Revenue Split
40%
30%
27%
3% 2016
28%
22%
42%
8%
2017
*rents, sale of assets and materials, dividends and other
Meat & meat products Hatching total Grain trading Other revenues*
11
KEY SEGMENTS
12 *hatching eggs and one-day chicks
139 150
226
28%
18% 19%
10%
20%
30%
40%
50%
0
50
100
150
200
250
2015 2016 2017
Gradus AD core revenues
63 62
70
23%
17%
19%
10%
15%
20%
25%
30%
0
25
50
75
100
2015 2016 2017
Poultry Meat and Meat Processing
48 47
54
36% 38%
44%
10%
20%
30%
40%
50%
0
15
30
45
60
2015 2016 2017
Hatching*
28
42
24%
7% 7%
0%
10%
20%
30%
40%
0
15
30
45
60
75
90
2015 2016 2017
Grain Trading
Sales (BGNm) Gross Margin
102
Poultry Business Model in DETAILS
Domestic & export markets
Purchase of grains
Meat processing ( Gradus - 1)
Import of parents
Feed mill and grain storage (Gradus-3)
Nova Zagora
Parent breeding (Gradus- 98)
Ruse region
Parent breeding (Milenium 2000)
Yambol region
Hatcheries (Zhyuliv)
Yambol region; Stara Zagora
Chirpan, Nova Zagora region
Broiler fattening farms (Milenium 2000)
Broiler fattening farms (Zhyuliv)
Haskovo
Broiler fattening farms (Lora 2004)
Stara Zagora
13
STRATEGY & OUTLOOK
14
Loading up of meat-processing unit - Targeted 4x increase in average monthly
volumes Az - Acquisition/introduction of premium pork
delicatessen brand(s)
Distribution&Logistics - Expansion of transport unit with sales - Focus to remain on branded products
Expansion in poultry - Gradual increase of broiler fattening capacity to
enter the HoReCa channel - Expansion to new export markets on the back of
hallal-certified sales - Introduction of new poultry brand to enter the
MEAT & MEAT PROCESSING
Grain trading to continue to have supporting role to poultry and hatching businesses - Gradus to remain in position to expand operations, if opportunity arise
Grain trading
Shorten the distance to #1 in Europe - 20m increase in annual hatching eggs production by end-2019 - Mid-term plan for increase in hatching capacity
Further upstream integration - Possible entrance in grandparent rearing business to produce own young broiler parents
HATCHING
15
Expansion in poultry - Gradual increase of broiler fattening capacity to
enter the HoReCa channel - Expansion to new export markets on the back of
hallal-certified sales - Introduction of new poultry brand to enter the
MEAT & MEAT PROCESSING
Loading up of meat-processing unit - Targeted 4x increase in average monthly
volumes Az - Acquisition/introduction of premium pork
delicatessen brand(s)
Distribution&Logistics - Expansion of transport unit with sales - Focus to remain on branded products
Targeted high return investments while keeping strong balance sheet with ultimate
Gradus AD
The mid-term strategy
GRADUS ad
16
142 155
245 247 254
275 293 303
18% 9% 10% 14%
18% 18% 19% 19%
0
0.1
0.2
0.3
0.4
0.5
0
50
100
150
200
250
300
2015 2016 2017 2018f 2019f 2020f 2021f 2022f
GRADUS AD
Meat&Meat ProcessingHatchingGrain TradingOtherCore Net Profit Margin
38% 34% 30% 38% 39% 41% 44% 45%
45% 57% 54%
53% 55% 54% 51% 50%
18% 9% 16% 9% 6% 5% 5% 5%
0%10%20%30%40%50%60%70%80%90%
100%
2015 2016 2017 2018f 2019f 2020f 2021f 2022f
Contribution to GROSS PROFIT
Meat&Meat Processing Hatching Graing Trading
02 Strong demand from export markets for hatching eggs and one-day chicken on the stabilisation of the Middle East
03 Gradus AD is expected to load existing and planned capacity by 2020/2021, leading to double-digit annualized revenue growth
05 More than two-fold increase in core net income by 2022 on the back of increased profitability in meat processing and sustained one in hatching
04 Grain trading to continue to have facilitating role for the poultry meat and hatching businesses.
01 Local business conditions to improve over 2018-2022 on the back of strong consumption growth and decrease in import competition
06 Meat & meat processing is expected to become the largest contributor to profits by 2022 while grain trading contribution to bottomline is expected to decrease further
63 62 70
87
105 119
133 140
23%
17% 19%
23% 24% 25% 26% 26%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
20
40
60
80
100
120
140
2015 2016 2017 2018f 2019f 2020f 2021f 2022f
Poultry Meat and Meat Processing
Sales (BGNm) Gross Margin
Poultry meat & Meat processing 01 The meat processing facility has been modernized
in 2015 and has significant spare capacity.
02 Strong nationwide presence of Gradus brand in all retail chains with mid-term goal to increase distribution of poultry products in B2B channels.
03 The company to remain focused on the expansion product portfolio.
04 2018 sales are expected to expand by c.20% on higher meat prices, introduction of new products and volume growth in pork sausages.
05 Pork products are projected to grow above market averages in 2018-2022 period, supported by significant investments in brand awareness.
06 Poultry products would depend on the planned expansion of broiler flocks.
07 Pork products yield 25%+ gross margins, which would help the overall increase in the segment profitability.
17
51% 47% 48% 43% 37% 35% 32% 31%
6% 9% 15% 21% 24% 25% 24% 0%
2% 3% 4% 5% 5%
49% 48% 43% 40% 39% 37% 38% 39%
0%
20%
40%
60%
80%
100%
2015 2016 2017 2018f 2019f 2020f 2021f 2022f
Sales split
Gradus Other Brands Unbranded
Hatching
01 B2B segment, dependent on the quality of genetic material and distances to end-clients.
02 Segment sales are realized either as hatching eggs or one-day broilers.
03 Most of Gradus AD parent breeding farms operate at full capacity.
04 Planned 25% increase in parent breeding capacity on strong demand and excess capacity in hatcheries.
05 Hatching egg prices declined sharply in 2015 and 2016, but marked significant recovery since H2 2017; One-day broilers followed similar trend, but with milder fluctuations.
06 Sales are projected to grow on strong demand for new capacity and price normalisation.
07 Margins are projected to expand back to historical levels.
18
48 47 54
60
74 79 82 83
36% 38%
44%
48% 49% 49% 49% 49%
30%
38%
45%
53%
60%
0
13
25
38
50
63
75
88
100
2015 2016 2017 2018f 2019f 2020f 2021f 2022f
Hatching Segment
Sales (BGNm) Gross Margin
27 24 25
29
41 45 46 46
15 17 21 23 22 22
25 26
0
10
20
30
40
50
60Hatching segment split (BGNm)
Hatching egg exports 1-day chick exports
grains
02 Focus is on sunflower seeds with some trading of wheat, rapeseed and coriander, depending on the market conditions.
03 Own grain storage capacity of c.90k tones, improves price risk management.
04 Grains are purchased from local farmers/traders and sold to international players Cargil, Bunge, ADM, Glencore etc.
05 Fodder production is for internal use with feed mill capacity utilized at c.80%.
06 2018-2022 grain trading volumes are conservatively projected to remain close to historical averages.
12% 2% 15%
83%
82% 59%
15%
4% 2%
25%
0%
20%
40%
60%
80%
100%
2015 2016 2017
Grain Trading Split
Wheat Sunflower Rapeseed Other
19
Grain trading business supports broiler and parent breeding operations as Gradus is the largest single grain consumer in Bulgaria.
01
28
42
102 100
76 77 78 79
24%
7% 7% 5% 5% 5% 5% 5%
0%
5%
10%
15%
20%
25%
30%
0
20
40
60
80
100
120
2015 2016 2017 2018f 2019f 2020f 2021f 2022f
Grain Trading
Sales (BGNm) Gross Margin
Planned capex to be Focused on the most Profitable parts Of the business
Project Indicative expenditure Expected result
Increase in parent breeding capacity (+20.5m hatching eggs/year)
BGN 20m (including working capital needs)
+BGN 13m in consolidated sales when fully loaded
Expansion of brand through introduction of new pork products
BGN 6.7m (marketing costs and working capital)
4-times increase in brand sales up to BGN 32m by 2020
Introduction of new poultry products, tailored to customer demand
BGN 4.5m investments in introduction of new breed
BGN 7.5m in annual revenues by 2021
Additional expansion of the poultry production targeting the HoReCa segment
BGN 5.8m (equipment and marketing)
c.BGN 10m annual revenue increase by 2020
Expansion of the transportation unit to match the increased production capacity
BGN 1.6m Purchase of 5 new specialized trucks
Energy efficiency and cost optimisation, new ERP system
BGN 4.6m
Improvements in operational management and higher average end-prices
Acquisition of a cold storage facility for pork meat
BGN 10m Cost optimization of c. BGN 1 per kg input
Acquisition of other local producers or brands
BGN 11m Expansion of product portfolio
20
FINANCIAL OVERVIEW
21
Key Segments
*hatching eggs and one-day chicks 22
139 150
226
247
28%
18% 19% 22%
10%
20%
30%
40%
50%
0
50
100
150
200
250
2015 2016 2017 2018E
Gradus AD core revenues
63 62
70
87
23%
17%
19%
23%
10%
15%
20%
25%
30%
0
25
50
75
100
2015 2016 2017 2018F
Poultry Meat and Meat Processing
48 47
54
60
36% 38%
44%
48%
10%
20%
30%
40%
50%
0
15
30
45
60
2015 2016 2017 2018F
Hatching*
28
42
102 100
24%
7% 7% 5%
0%
10%
20%
30%
40%
0
15
30
45
60
75
90
105
120
2015 2016 2017 2018E
Grain Trading
Sales (BGNm) Gross Margin
Profitability breakdown
23
02 2017 was first full-reached 150t/month in year-end with only 4 products on the shelf
03 Hatching eggs prices were also on the rise marking high teen price growth in 2017 but remained below 10-year average
04 In 2017 grain trading registered record-breaking year but bottomline contribution was less than BGN 4m
05 Gradus AD reported consolidated net profit of BGN 40m. Gradus AD dividend policy would allow for BGN 19.4m+ distribution in 2019 out of 2017 profit.
01 Poultry meat market conditions improved significantly in H2 2017 as inefficient imports were eliminated. This allowed for double-digit increase in meat prices
34 23
33 46
58
12 15
2
18
24%
15% 15%
19%
23%
0%
5%
10%
15%
20%
25%
30%
0
10
20
30
40
50
60
70
80
90
100
2015 2016 2017 2018F 2019F Q1 '17 Q1 '18
EBITDA
Core Net Profit Non-core EBITDA Margin
25
13 23
35 45
9 12
2
17
18%
9% 10%
14%
18%
-2%
3%
8%
13%
18%
23%
0.00%
1000.00%
2000.00%
3000.00%
4000.00%
5000.00%
6000.00%
2015 2016 2017 2018F 2019F Q1 '17 Q1 '18
NET PROFIT
Core Net Profit Dividents Net profit
Debt & liquidity
24
2015 2016 2017 2018
F 2019
F
Total debt 59 305 54 300 46 890 43 945 42 041
-Long-term debt 1 320 227 0 0 0
-Short-term debt (grains & fodder)
47 367 36 762 22 489 31 496 32 079
-Short-term debt (meat processing)
10 618 17 311 24 401 12 449 9 962
EBITDA 29 212 25 219 50 272 45 702 58 211
Total debt/Assets 34.4% 31.4% 13.8% 10.2% 9.7%
Non-cash working capital 57 570 78 625 103 644 115 328 121 485
CAPEX 17 349 33 294 8 146 30 400 24 300
02 Gradus AD has financed its BGN 120m capital expenditures over the last 10 years using predominantly own funds.
03 Working capital facilities are extended to grain trading and meat processing units.
04 Financial leverage is expected to decrease over mid-term.
05 Operating cash flow in 2017 amounted to BGN 45m.
06 Low leverage would allow generous dividend policy.
01 Gradus AD boasts top-in-sector debt ratios.
The opportunity
25
26
THE NEW BULGARIAN
5% 6%
0%
7%
5%
7% 8%
0%1%2%3%4%5%6%7%8%9%10%
0
0.05
0.1
2018f 2019f 2020f 2021f 2022f
Expected dividend yield*
Minimal DY Optimistic DY
RATIOS
AS PER MAY 21 UNIVERSE1 GRADUS
P/E TTM (ex-banks and ex-diversified holdings)
15.5 9.0-14.0
P/B MRQ (ex-banks and ex-diversified holdings)
1.6 1.4-1.9
2018 EPS Growth 7.2% 48%2
2017 Dividend yield2 1.7% 7%
02 Low leverage is prerequisite for richer valuation.
03 Gradus AD incorporation of over BGN 540m
04 A dividend stock that will offer top-in-class 7% gross dividend yield in 20191 and 4%+ onwards, compared to less than 2% on average by SOFIX members and foreign food processing companies
05 Gradus AD is expected to enter SOFIX in March
06 Gradus AD might turn into regional food-processing platform over the mid-term, growing both organically and through acquisitions
* after implementation of semi-annual dividend and based on BGN 516M market cap 1 Manufacturing companies part of BGBX40, EPS Growth for FFBH Universe
2 Sofix - current vs Gradus 2019
01 A value company to become growth stock on the back of market-leading profitability ratios.
The comparison
27
Company Country Market
cap /E /B EV/EBITDA
Ebitda margin
(%)
Net debt/
EBITDA Div yield
(%)
Gradus AD Bulgaria 9.2x-14.0x 1.4-1.9x 8.0-10.2x 23.60 0.61x 6.80
Poultry and meat protein producers
MHP SA Ukraine 1,239 9.21x 1.76x 5.52x 35.31 2.43x 5.47
Cherkizovo Group PJSC Russia 656 6.72x 0.86x 5.93x 18.22 3.02x 6.92
Koka DD Varazdin Croatia 11 10.48x 0.14x 8.64x 3.80 6.98x 0.00
Astral Foods Ltd South Africa 795 14.47x 3.52x 9.13x 9.97 -0.45x 3.84
Charoen Pokphand Foods PCL
Thailand 5,675 13.86x 1.15x 15.84x 6.85 7.93x 3.01
GFPT PCL Thailand 398 10.26x 1.24x 7.36x 14.39 1.07x 2.50
Banvit Bandirma Vitaminli Yem Sanayii ASA
Turkey 240 5.68x 2.07x 3.49x 17.00 0.47x 0.00
Industrias Bachoco SAB de CV
Mexico 2,433 10.39x 1.55x 6.08x 12.05 -1.81x 1.44
BRF SA Brazil 4,047 n.m. 1.58x 11.20x 8.60 4.98x 0.00
Marfrig Global Foods SA Brazil 1,097 n.m. 2.18x 7.99x 8.17 4.46x 0.00
Tyson Foods Inc USA 22,972 11.73x 1.67x 10.07x 9.17 2.67x 1.55
Sanderson Farms Inc USA 2,057 9.05x 1.64x 3.99x 14.91 -0.76x 2.07
Pilgrim's Pride Corp USA 4,384 6.79x 2.67x 5.36x 13.15 1.62x 0.00
LDC SA France 2,392 20.88x 2.21x 8.39x 7.94 0.17x 0.99
Scandi Standard AB Sweden 388 20.91x 2.93x 11.13x 6.81 4.31x 2.25
Weighted-average 11.57x 1.81x 8.01x 12.42 2.47x 2.00
Median 10.39x 1.67x 7.99x 9.97 2.43x 1.55
Grain trading
Archer-Daniels-Midland Co
USA 21,393 17.87x 1.35x 14.56x 3.74 3.53x 2.90
Bunge Ltd USA 8,348 46.29x 1.55x 19.25x 1.99 6.81x 2.63
GrainCorp Ltd Australia 1,152 25.05x 0.96x 12.49x 6.16 5.40x 5.48
Weighted-average 29.73x 1.28x 15.43x 3.96 5.25x 3.67
Median 25.05x 1.35x 14.56x 3.74 5.40x 2.90
Source: Bloomberg All data unajusted
28
The IPO
Ipo Term sheet
Issuer Gradus AD
Industry Food processing
Business Segments Meat products, Hatching eggs, Grain trading
Listing Bulgarian Stock Exchange-Sofia
Offering period 2 days
Number of existing shares 221 000 000
Number of shares offered 55 555 556 shares --27 777 778 (new shares) --27 777 778 (existing shares)
Green shoe 6 638 888 existing shares
Offer price range* BGN 1.80-2.35 (EUR 0.92-1.20)
Minimum placement for the issue to be successful* 65% of offered shares (36 111 111 shares)
Max offering proceeds (incl. green shoe) BGN 146 156 943 (EUR 74 730 005)
Post IPO MarketCap (at max placement) BGN 447m-585m (EUR 229m-EUR 299m)
Lock-up 12 months
Post IPO FreeFloat (at max placement) 25%
29
Ipo Auction
Info description
IPO dates June 18&19
Marketplace IPO Segment on BSE-Sofia
Offering type IPO Auction
IPO call phase 4 hours / each day
Order type Limit Orders; Market Orders for volume
IPO currency BGN
Price range BGN 1.80-2.35
Price setting mechanism Single price each day
Priority Market over Limit Orders, Time priority for Limit Orders
Greenshoe Offered on Day 2
Secondary trading Expected in mid-July
30 * The lowest bid price which ensures execution of maximum number of offered shares
31
The BACKGROUND
32
Management team
Ivan angelov
Angel angelov
Luka angelov
Georgi Babev
Founder and majority owner
30Y experience in the sector
Founder and majority owner
30Y experience in the sector
Managing director
Long-term experiance in food and
healthcare sectors
Financial director
Long-term experiance in financial
services sector
1992
The fodder plant was opened
The hatchery started operations
The poultry processing plant started operations.
Gradus was named Investor of the year
Initiation of the investment project
for the sausages unit
Gradus launched pork sausages under
the brand name
2001 2005 2013 2006 2016 2018
Offering on BSE-Sofia
BestBuy award for packaged fresh meat
2015
The brand Gradushas been awarded
Super brands
The company was founded
by 2 brothers Ivan and Luka Angelovi
Company History
33
Proven Quality
34
Contact information
Nadejda Dafinkicheva
General Manager
+359 882 024 138
FIRST FINANCIAL BROKERAGE HOUSE
Angel Angelov
Chief Executive Officer
Georgi Babev
Member of the
Management Board
+359 888 939 426
GRADUS AD
Stoian Nikolov
General Manager
+359 888 619 325
Appendix: Market overview
36
2015 2016 2017 2018f
GDP (EUR, bn.) 45.3 48.1 50.4 53.4
Real GDP Growth (%) 3.0% 3.4% 3.7% 3.8%
HICP (YoY, %) - 0.9% - 0.5% 1.8% 2.1%
CA balance/GDP 0.0% 2.3% 4.5% 3.0%
FDI (EUR, m.) 2 475.9 1 079.6 950.1 1 441.4
FDI/GDP 5.5% 2.2% 1.9% 2.7%
Unemployment rate 10.0% 8.0% 7.1% 6.2%
Government
debt/GDP 26.2% 29.1% 25.6% 24.1%
Budget surplus
(deficit)/GDP -2,8% 1,6% 0.9% -1.0%
Source: IMF, BNB, Ministry of Finance; FFBH estimates
Bulgaria at a Glance
37
01 Bulgaria is a member of EU, CEFTA, and WTO.
02 Among the fastest-growing EU economies, with the IMF projecting 2018 real GDP growth rate of 3.8% YoY, supported by 4.1% real annual growth in private consumption.
03 The country is fiscally stable with virtually balanced budget and the 3rd lowest government debt level in Europe 26% of GDP as of end-2017.
04 Predictable and relatively low inflation environment.
05 Stable currency - currency board arrangement since 1997 with Bulgarian lev (BGN) pegged to the Euro.
07 Low cost destination low-cost and well-qualified workforce, and competitive energy prices.
09 The low interest rates, higher real disposable income and positive developments in the labor market are all in favor of further expansion in food and beverages sector.
08 Strategic location, which allows direct access to a wide number of markets from EU to Asia, MENA, and CIS.
06 Among the most favorable tax regimes in Europe 10% corporate and individual tax rate, 18.1% social security rate for employers, 0% dividend withholding tax for EU-based institutional investors and no capital gains tax on BSE trades.
38
Poultry Market
Source: European Commission; Food and Agriculture Organization of the United Nations, Association of Meat Processors in Bulgaria
02 to grow, led by SEE with annual consumption growth in the range of 2.0% - 3.5% until 2025.
03 The primary drivers for the higher demand would be
affordability and absence of religious restrictions.
04 Bulgaria lags behind the EU in terms of poultry consumption per capita 12.4 kg vs. 24.1 kg in 2017, also supporting stable demand and production increase trends.
05 The increasing production is expected to depress global poultry prices but the Bulgarian market is to diverge, due to price convergence potential and increasing preferences for premium higher-priced products (slow-growing, branded).
01 Global meat consumption continues to grow, boosted by demand from developing countries and is expected to increase by 16% in the next decade.
14,477 14,669 14,823 14,909 14,975 15,030 15,104
611 655 651 611 596 579 584
1,779 1,804 1,748 1,711 1,721 1,751 1,759
,0
,400
,800
1,200
1,600
2,000
8,000
10,000
12,000
14,000
16,000
2016 2017 2018f 2019f 2020f 2021f 2022f
Developments ('000, t)
Indigenous Production Net trade EU market price in EUR/t
98 97 102 109 114 116 119
87 87 90 92 94 95 96
2,833 2,861 2,825 2,790 2,772 2,769 2,782
4,660 4,711 4,695 4,679 4,691 4,730 4,793
-25,000-24,000-23,000-22,000-21,000-20,000-19,000-18,000-17,000-16,000-15,000-14,000-13,000-12,000-11,000-10,000-9,000-8,000-7,000-6,000-5,000-4,000-3,000-2,000-1,000,01,0002,0003,0004,0005,000
0
20
40
60
80
100
120
140
2016 2017 2018f 2019f 2020f 2021f 2022f
BG's Poultry Price & Market Developments ('000, t)
Production Consumption
Wholsale Price (BGN/t) Retail Price (BGN/t)
39
Processed Meat Market
04
03
Consumption per Household (kg) and Average Price (BGN) /kg in Bulgaria
2016 2017
Cons. Price Cons. Price
Dry Meat 3.0 10.0 2.9 10.6
Perishable Sausages 16.3 5.7 16.7 5.9
Non-perishable Sausages 5.6 12.9 5.7 13.5
Meat Cans 0.7 7.2 0.8 7.1
Total Processed Meat 25.6 - 26.1 -
Pork Meat 21.3 6.9 21.1 7.3
Poultry Meat 22.7 4.6 23.4 4.5
128 120 117 117 115
128 119 117 117
113
631 595 586 575 588
200.0
300.0
400.0
500.0
600.0
,50.0
,100.0
,150.0
2012 2013 2014 2015 2016
Bulgarian Sausages & Salted, Dried or Smoked Meat Balance*
Production (k, tonnes) Consumtption (k, tonnes)
Producers' Sales (mln, BGN) *Last Data Update on 05.02.2018
02
*Gradus has been selling pork sausages since April 2016. Source: National Statistical Institute; Association of Meat Processors in Bulgaria
02 The consumption of processed meat in Bulgaria is expected to remain above the EU average.
03 At the same time consumer preferences trend towards more expensive higher-quality production, due to faster improving living standards in the country.
04 The strong volumes and higher margins stimulate the production side and increase the local competition. Despite the market looking saturated, quality and branding sell well. Gradus Apr-pork sausages sales grew by 31% and 39% YoY to 1.2k tones and BGN 5.0m, respectively, signaling that the company has found the right recipe to gain new market share*.
01 The processed meat segment is the largest meat segment in terms of turnover in Bulgaria, supported by very strong demand, due to regionally-specific feeding patterns. The processed meat consumption per household in 2017 was 26.1 kg vs. 23.4 kg and 21.1 kg for the non-processed poultry and pork, respectively.
40
Hatching Market
Source: European Commission; Organization for Economic Co-operation and Development
Poultry Imports Outlook In Adjacent Markets ('000, t)
2017 2027 CAGR
European Union 824 853 0.3%
Middle East 1 543 2 062 2.9%
Former Soviet Union 586 807 3.3%
North Africa 137 246 6.0%
805
860
901 909 919
,450
,550
,650
,750
,850
,950
2018f 2019f 2020f 2021f 2022f
EU's Hatching Eggs Total Use
02 Main drivers would be higher poultry production and stable fodder prices.
03 Gradus key export markets include the Black Sea region and the fast-growing Middle East. The poultry imports in the Middle East and Transcaucasia would grow by CAGR of 2.9%-3.3% over 2017 2027, vs. CAGR of only 0.3% for the EU.
04 The more rapid growth would be on insufficient indigenous production capacity as well as on faster growing demand, both of which signal potential for accelerated need of hatching eggs.
01 The demand for hatching eggs in the EU is forecast to increase over 2018 2022 at a CAGR of 3.3%.
41
Grain Trading Market
22.3 21.5 21.4 21.4 21.4 21.4
9.2 8.5 8.5 8.6 8.7 8.8
34.1 32.6 32.6 32.7 32.8 33.0
51.3 49.4 49.4 49.9 50.2 50.5
-,45.0
-,25.0
-,5.0
,15.0
,35.0
,55.0
,0.0
,20.0
,40.0
2017 2018f 2019f 2020f 2021f 2022f
EU's Oilseeds Balance (mln. tonnes)
Rapeseed Production Sunseed Production
Soyabeans Production Total Prduction
Total Consumption
151 155 156 157 159 160 127 128 129 130 130 131 150 158 159 160 161 162 157 156 158 159 160 162
13 14 14 14 15 15
26 29 29 29 30 30
0
10
20
30
0
50
100
150
200
2017 2018f 2019f 2020f 2021f 2022f
EU's Cereals Balance (mln. tonnes)
Wheat Production (mln. t) Wheat Consmption (mln. t)
Coarse Grains Production (mln. t) Coarse Grains Consumption (mln. t)
Wheat Year-End Stock (mln. t) Coarse Grains Year-End Stock (mln. t)
Source: European Commission; Organization for Economic Co-operation and Development
02 wheat balance would remain at a surplus, slowly increasing its stock, while coarse grains would also revert to small excess supply.
03 Even though the EU consumption of oilseeds is forecast to increase slowly over 2018-2022 (CAGR of 0.6%), it would still exceed the production (CAGR of 0.3%), supporting positive price fundamentals over the period.
04 should see positive price dynamics as well on EU production decline from 9.2 mln. in 2017 to 8.8 mln. tonnes in 2022, despite rising demand.
01 The agriculture in Bulgaria is traditionally strong, thanks to the availability of fertile lands and, during the last 10 years, due to EU funding support.
DISCLAIMER
The Prospectus has been approved by the Bulgarian Financial Supervision Commission on 28 May 2018. Any decision to purchase shares in this offering should be made solely on the basis of the information contained in the Prospectus.
Neither this presentation nor any copy of it may be taken or transmitted into, or distributed, directly or indirectly in, the United States of America or its territories or possessions. This presentation is not a public offer of securities for sale in the United States. The securities described in the Information Document have not been and will not be
States absent registration or an exemption from registration under the Securities Act. The Company does not intend to register any portion of the securities described in the Prospectus under the applicable securities laws of the United States or conduct a public offering of any such securities in the United States. Any failure to comply with these restrictions may constitute a violation of U.S. securities laws.
The distribution of this document in other jurisdictions may also be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. This presentation is being supplied to you solely for your information. This presentation has been prepared by and is the responsibility of the Company and FFBH, in its role of Manager of the offering. The information herein may be subject to updating, completion, revision and amendment and such information may change materially. The Company and FFBH are under no obligation to update or keep current the information contained in this presentation.
This presentation includes statements that are forward-looking in nature. By their nature, forward-looking statements involve (known and unknown) risks, uncertainties and assumptions because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Company. Actual results and developments may differ materially from those expressed in such statements and from historical trends depending on a variety of factors. Such factors may cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.
NOT FOR DISTRIBUTION IN THE UNITED STATES
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