Dragon Capital 8th Annual Ukraine Investor Conference March 21-23, 2012 KYIV www.ovostar.ua
Disclaimer This presentation is presented by Ovostar Union N.V. (the Company ), and all information and opinions contained herein are, unless otherwise stated, solely those of the Company and have been compiled or arrived at from sources believed to be reliable. In particular, financial data for 2011, included in the presentation are based on the Consolidated financial results (unaudited) of Ovostar Union N.V. and its subsidiaries for the year ended December 31, 2011. This document should not be used in substitution for the exercise of independent judgment. The Company and its affiliates disclaim all warranties regarding this presentation and shall not be responsible or liable for any damages due to statements, errors or omissions in this presentation. The Company and its affiliates shall have no responsibility or liability whatsoever for any loss arising from the use hereof, and make no representation or warranty, in respect of any inaccuracy in or omission from this presentation. The information and opinions contained herein are subject to change without notice. The Information may contain forward-looking statements. Forward-looking statements are generally identifiable by the use of the words may, will, should, plan, expect, anticipate, estimate, believe, intend, project, goal or target or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company does not undertake publicly to update or revise any forward-looking statement that may be made herein, whether as a result of new information, future events or otherwise. 2
Table of contents 1 Business update 4 2 2011 financial results 7 3 Egg segment 10 4 Egg products segment 15 5 Implementation of current investment program 19 6 Appendix 22 3
Section 1 Business update 4
Ovostar Union: 2011 performance highlights Segment Group Eggs Egg products Performance highlights Revenues rose by 37% to musd 50.6 EBITDA grew by 88% to musd 21.7 Current investment program is being timely implemented Production volume grew by 14% to 623 mln pcs Revenue increased by 32% to musd 35.5* Retail chains accounted for 43% of eggs revenue (2010: 39%) New sub-brand launches: Bio eggs, Organic eggs, Real beefcake and Euro eggs Market share in Ukraine (by production volume) was 5.7% Production volume of liquid and dry products grew both by 10% Revenue of liquid and dry products increased by 32% and 38%, respectively Kraft Foods, a large international confectionary producer, became the client of the Group Market share in Ukraine (by production volume) was 40% Revenue and EBITDA, musd 37.0 +37% +88% 50.6 Revenues, musd 11.6 EBITDA 21.7 Key operational results, 2011 Indicator Units Value YoY change Total flock (year end) mln hds 3.1 29% Shell eggs production volume Liquid egg products production volume Dry egg products production volume mln pcs 623 14% tons 3,842 10% tons 1,352 10% * including poultry and other sales of musd 1.2 5
Macroeconomic and market fundamentals Macroeconomic update GDP dynamics GDP structure, Jan-Sep 2011 Ukraine s GDP growth of 5.2% was one of the highest among CEE countries in 2011 Private consumption and real disposable income increased by 15.7% and 10.3%, respectively, in Jan-Sep 2011 400 300 Nominal GDP, USD billions 4.2% 7.6% 2.3% Real GDP growth, YoY 10% 5.2% 5% 0% Agriculture Mining Processing Utilities Construction Trade Transport Education Healthcare Other 31% 8% 7% Ukraine s currency has remained stable at the average level UAH 8 = USD 1 Country risk indicators have declined: S&P set sovereign rating to B+ (stable) and Fitch Rating to B (positive) 200 100 0-15.1% 2007 2008 2009 E -5% -10% -15% -20% 3% 5% 11% 14% 3% 15% 3% Market update Agriculture contributed 8% to GDP Share of industrial shell eggs production expanded to 63% (2010: 60%) Eggs consumption in Ukraine increased by 10.5% to 17.9 kg per capita per year Shell eggs exports increased by 101% due to favorable conditions on foreign egg markets Egg products exports decreased by 48% due to high demand on domestic market Source: The State Statistics Committee of Ukraine; consensus forecast Industrial shell eggs production as % of total production in Ukraine 56% 58% 60% 63% 2008 2009 Source: UPFU Source: The State Statistics Committee of Ukraine Eggs consumption in Ukraine, kg per capita per year 15.0 Source: UPFU 15.4 16.2 17.9 2008 2009 6
Section 2 2011 financial results 7
Financial results and profitability analysis The Group s revenues increased by 37% to musd 50.6 due to strong retail, B2B as well as export sales Eggs segment contributed 70% to the Group s revenues, egg products segment 27%, sunflower products segment 3% Gross profit increased by 124% to musd 22.5 mainly due to the increase of selling prices and decrease in production costs as a result of improvement of production performance Summary Income Statement, musd YoY change Revenues 37.0 50.6 37% Gross profit 10.0 22.5 124% Operating profit 9.5 19.7 108% EBITDA 11.6 21.7 88% Revenues structure Shell eggs Egg products Sunflower products 27% 27% 73% 70% EBITDA increased by 88% to musd 21.7 mainly due to the increase in volumes sold and consequent increase in revenue Group s margin dynamics EBITDA Margins improved as a result of increased production efficiency and lower feed consumption rates (more efficient hen cross) 44% 43% EBITDA EBITDA margin 43% 27% 31% 31% 21.7 11.6 Gross margin EBITDA margin 8
Outlook for 2012 Eggs Egg products The Group s current investment program (eggs) will be completed in 2012, enhancing eggs production annual capacity to 1,050 mln pcs Market industrialization is expected to continue Average eggs price is expected to be higher than in 2011 Average market price for key fodder components is expected not to be lower than in 2011 The Group s current investment program (egg products) have been completed in February 2012, enhancing dry and liquid egg products production capacity to 2.9 and 6.8 ths tons per year, respectively Tendency of egg products price growing is expected to continue Continuing growth of food industry is expected to stimulate additional demand for egg products 9
Section 3 Egg segment 10
Global and Ukrainian egg markets Global eggs production grew by 0.9% to 64.1 mln tons in 2011 and is expected to grow further due to (i) rising demand for egg products and (ii) disposable income growth in developing countries In 2010, Ukraine was #2 egg producer in Europe and #9 in the world Total shell egg production in Ukraine in 2011 increased by 10.7% to 18.7 bln pcs Egg market is moving towards consolidation and industrialization: industrial producers share in total eggs production expanded to 63% in 2011 56.5 Global production, mln tons 57.8 Source: FAO; WATT 59.3 60.7 62.0 63.6 64.1 2005 2006 2007 2008 2009 E Egg price in Ukraine, wholesale, USD per 10 pcs Shell egg production in Ukraine, bln pcs Total shell egg production, bln Industrial producers' share in total production 56% 14.9 58% 15.7 60% 16.9 63% 18.7 2008 2009 Source: UPFU Average price for key fodder components, USD/ton Ukraine is one of the world s leading producers of grains and sunflower seeds, the key components of poultry feed 0.62 0.64 198 198 195 201 Low cost of egg production enables Ukraine to have significant competitive advantage on the global egg market 152 153 Growth of Ukrainian GDP per capita (+39% from 2011 to 2016)* is expected to drive local demand for eggs *IMF (April 2011) Note: prices are shown net of VAT (20%) Wheat Corn Sunflower meal 11
Trading update Volume of egg sold increased by 25% to 439 mln pcs in 2011 due to growing demand for high quality eggs from expanding modern retail chains Egg exports share expanded to 14% in total eggs sales due to favorable export prices in 2011 (USD 0.62 per 10 pcs in 2011 vs. USD 0.50 per 10 pcs in 2010) Eggs sold, mln pcs 351 439 Average egg prices, USD/10pcs* 0.69 0.78 Branded egg revenue rose by 26% to musd 26.0 in 2011 due to increase of price and volume sold Growing disposable income of middle class population and brand loyalty allowed to increase prices by 13% to USD 0.78 per 10 pcs Note: prices are shown net of VAT (20%) Chicken eggs production in Ukraine The Group is one of the leading chicken egg producers in Ukraine, with market share having increased from 5.4% in 2010 to 5.7% in 2011 5.4% 5.7% 10.1 bln eggs 11.0 bln eggs Ovostar Union Others Source: UPFU; Ovostar Union 12
Distribution channels Target segment with high quality requirements Key distribution channel Over 200 own branded points of sale Traditional sales channel Retail chains 43% 32% 39% 37% Branded POSs and other retail 2011 2010 34.3 musd +42% YoY 9% 15% 6% Wholesale Export 14% 5% B2B Capitalization on favorable situation on external markets Supplementary segment allowing for hedging currency exchange risks Meeting customers demand in food processing industry and HoReCa 13
Product range and key retail clients The Group offers the widest range of packed chicken eggs in Ukraine under YASENSVIT brand, the most recognized umbrella egg brand in Ukraine In 2011, the Group launched 4 new packed eggs: Bio Eggs, Organic eggs, Real beefcake and Euro eggs The Group collaborates with 9 modern retail chains (8 chains in 2010), covering all regions of Ukraine The Group is the leading producer of private label eggs in Ukraine New launches in 2011 Client name Key retail clients Description More than 550 stores in 153 cities 206 stores in all regions of Ukraine 22 supermarkets (7 in Kiev) in 13 cities 117 stores and supermarkets in all regions of Ukraine 43 stores in 21 cities 8 hypermarkets (4 in Kiev) in 5 cities 18 stores in 8 cities 31 stores in 23 cities Shell eggs portfolio Bio eggs Premium segment Organic eggs Premium segment Segment # of subbrands # of packages offered Illustrations Premium 6 11 Real beefcake Standard segment Euro eggs Standard segment Standard 7 8 Economy 3 9 Private label 9 14 14
Section 4 Egg products segment 15
Ukraine South Africa China (2009) UK Netherlands USA UAE 5% 5% 12% Global and Ukrainian egg products markets Global production of egg products grew to 4.0 mln tons in 2009 (5-year CAGR of 2.3%) and is expected to rise by 2.0% per annum, primarily due to increased use of egg products in the food industry Egg products production in Ukraine increased by 32% to 16.2 ths tons in 2011 Domestic demand for liquid egg products continue to grow, with 4.2 ths tons produced in 2011 (2010: 3.6 ths tons), and is expected to double by 2017 Improving quality and competitive prices allow domestic egg products to substitute import with domestic products. The main factor curbing full substitution of egg products imported in Ukraine is insufficient production capacity of domestic producers Export sales decreased by 48% to 2.1 ths tons in 2011 due to growing demand on domestic market In 2010, share of egg products in total egg consumption in Ukraine was 5% (2009: 4%); such low share implies significant room for growth in the future 3.6 Source: UPFU Global production, mln tons 3.7 3.8 3.9 4.0 4.0 4.1 2005 2006 2007 2008 2009 2010E 2011E Egg products production in Ukraine, ths tons, 2005-2011 Egg consumption per capita per year, pcs, 2010 290 Egg products* Shell eggs % of egg products in total egg consumption 50% 132 344 24% 24% 182 185 Source: IEC Source: IEC; UPFU * in egg equivalent 2.2 Dry egg products 3.2 5.8 2.7 3.1 Liquid egg products 9.3 9.5 3.5 3.8 5.8 5.7 12.3 3.6 8.7 16.2 4.2 12.1 2005 2006 2007 2008 2009 Note: production volume of dry egg products in 2011 includes dry egg shell, as the State Statistics Committee of Ukraine prescribes 31% 248 242 Egg products export from Ukraine, ths tons, 2005-2011 1.0 1.8 3.9 2.1 2008 2009 E Source: UPFU 16
Trading update As a result of strong demand from food industry in Ukraine (production of sauces, confectionery, convenience foods etc.), volume of egg products sold increased by: 21% to 1.3 ths tons for dry products 24% to 4.1 ths tons for liquid products, as many clients are switching from dry to liquid egg products due to better properties of the latter Domestic prices increased by: 14% for dry egg products 7% for liquid egg products The Group is the leading egg products producer in Ukraine with market share of 40% in 2011 (2010: 38%) Egg products sold, tons 1.1 Dry 1.3 3.3 Liquid 4.1 38% 40%* Egg products production in Ukraine Average prices for egg products, USD/kg 4.44 Dry 5.06 1.56 Liquid 1.66 The Group is fully ready to satisfy growing demand for egg products, as it has expanded its production capacity by almost twice 12.3 ths tons 16.2 ths tons Ovostar Union Others * incl. production volume of dry egg shell of 1.3 ths tons Source: UPFU; Ovostar Union 17
Product range and key clients The Group has the most complete В2В product offering and significant market share in all egg products categories in Ukraine The Group is the only producer of liquid egg white and liquid egg yolk in Ukraine Key customers include multinational food companies such as Nestle and McDonalds and domestic companies in food industry (Roshen, AVK, etc.) Kraft Foods, the global confectionery producer, became the client of the Group in 2011 Supplying high quality tailored products allows the Group to achieve customers loyalty Client name Key clients Description Leading confectionery producer Leading mayonnaise, sauces and instant noodles producer Over 70 restaurants in 21 cities Leading sauces and mayonnaise producer Leading confectionery producer #1 confectionery producer Top 10 confectionery producer Leading frozen foods and ice cream producer Egg products portfolio The Group exported egg products to 8 countries in 2011 and is allowed to export egg products to Muslim countries and Israel Egg albumen Dry egg products Fermented egg yolk Egg white Liquid egg products Melange End-use : confectionary production End-use : confectionary and mayonnaise production End-use : Confectionary and crab sticks production End-use : substitutes shell egg use Egg powder Egg yolk Egg yolk Fermented egg yolk End-use : confectionary and mayonnaise production End-use : mayonnaise production End-use : confectionary production End-use : confectionary and mayonnaise production 18
Section 5 Current investment program 19
Current investment program: overview Current investment program has been launched following the Group s IPO Current investment program is being implemented in line with original time frame of 14 months Current investment program envisages doubling of laying hens flock and production capacities of eggs and egg products The full effect of current investment program is achieved in 2012 for laying hens flock and 2013 for production of eggs and egg products Investment program original time frame - 14 months Egg production increase to 1 billion pieces in 2013 Doubled egg processing capacity at implementation Laying hens capacity, mln hds, eop Shell egg production, mln pcs Dry egg products production, ths tons Liquid egg products production, ths tons 2010 level 2010 level 1,050 2010 level 2010 level 3.9 3.9 2.9 840 504 2.7 1.8 1.8 623 2.0 294 0.6 77 1.4 0.8 1.7 3.8 5.0 1.5 6.8 3.3 2.1 2.1 2.1 546 546 546 1.2 1.2 1.2 3.5 3.5 3.5 2011 2012F 2013F 2011 2012F 2013F 2011 2012F 2013F 2011 2012F 2013F 20
Current investment program: implementation progress IPO proceeds received Launch of a laying hens house (281 ths hen places) Launch of a young laying hens house Launch of a laying hens house (309 ths hen places) Launch of a laying hens house (309 ths hen places) Jun 11 Aug 11 Oct 11 Dec 11 Jan 12 Feb 12 Mar 12 May 12 July 12 Aug 12 Launch of a laying hens house (309 ths hen places) Launch of a young laying hens house Launch of enhanced egg processing plant Launch of a young laying hens house Launch of a laying hens house (309 ths hen places) Launch of a laying hens house (309 ths hen places) 21
Section 6 Appendix 22
Management team Name: Borys Bielikov Position: CEO Industry experience: 19 years Name: Vitalii Veresenko Position: Chairman of the Board Industry experience: 21 years Name: Natalia Malyovana Position: Commercial Director Industry experience: 13 years Name: Vitaliy Voron Position: Production Director Industry experience: 26 years Name: Yuriy Doroshev Position: CFO Industry experience: 14 years Name: Natalia Vlasniuk Position: Marketing Director Industry experience: 16 years 23
Integrated business model Hatchery Breeder farm Grain storage facility 2 farms for growing young laying hens 2 fodder mills 2 laying hens farms Ovostar Egg Processing Plant Sunflower Seed Processing Retail chains Branded points of sale B2B Export Wholesale Local sales Export High quality coldwring oil (B2B) Sold to third parties grain fodder eggshell powder sunflower meal shell eggs hatching eggs laying hens young laying hens packed branded eggs unpacked branded and unbranded eggs dry egg products liquid egg products sunflower oil peel fuel briquettes Geographical location Kyiv region Saltanivka Stavyshche Skybyn Kyiv Vasylkiv Nahirna Kaharlyk Cherkasy region The Group s production facilities are concentrated in Kyiv and Cherkasy regions The distance of all facilities from Kyiv Headquarters are between 40 and 180 km Headquarters Farm for growing young laying hens Fodder mill Farm for laying hens (egg production and sales) Hatchery Egg processing Plant Breeder Farm 24