Investor Relations Index Contents Page
1. Company overview 1 1-1. CJ Group 2~3 1-2. CJ Freshway 4~7 2. Food Material Distribution 8 2-1. Business environment 9~11 2-2. Core competency and Infra 12 2-3. FreshOne Business 13 3. Catering Service 14 3-1. Business environment 15 3-2. Core competency 16 4. Sauce/ seasoning Manufacture 17 4-1. Business environment 18-19 4-2. Strategic value 20 5. Global Business 21 5-1. Global outposts 22 5-2. Global business structure 23 5-3. Mid/long-term strategy 24 1-1. CJ Group Company overview
CJ group is one of the largest conglomerate in Korea, specialized in Consumer and Culture business. CJ Freshway is a key player in the food & food service division along with CJCJ(097950 KS), CJ Foodville(U/L). Business Division
Sales mix 30% 18% 33% 17%
CJ CheilJedang CJ CheilJedang CJ Logistics CJ ENM E&M Div. Specializing in food, Bio Div. Logistics, Broadcasting, film, music, raw materials Global Top Leader parcel service performance etc. for amino acid CJ Foodville CJ OliveNetworks CJ CGV A global food/ Olive Young Div. Movie theater, cultureplex restaurant/dining co. Korea’s No. 1 Health CJ Hello CJ Freshway &Beauty Store Media platform, Food distribution& CJ ENM creating content value Catering service O Shopping Div. Home shopping channel CJ Powercast provider Digital broadcasting transmission carrier 1) Source: CJ Corp FY2017 annual report, Total revenue W27tn in 2017 including Synergy and Infra division W0.5tn(2% of total Rev.) 2 1-1. CJ Group Company overview
CJ has integrated value chain of food & food service industry. From raw material to restaurant brands, CJ maximizes synergy effect with affiliates by cost-effectiveness and product competitiveness.
Wholesale/ Franchise seeds Producer Sourcing Retailer Restaurant fertilizer/feed M Distributing Catering Manufacturer
Maker Manufacture
Under consideration
Processed food, Supply of Food distribution & Restaurant & franchise co. Foodstuff manufacture co. Cost-effective competitive food service co. . No.1 restaurant company . No.1 processed food maker raw materials processed food with 2,325 restaurants: in Korea . No.1 food material W351bn1) W255bn . Main products distributor Bakery, coffee, . Sourcing and distribution family restaurant -.Food material: sugar, W128bn wheat flour, etc. . Catering service . Main brands -.Processed food: Raw materials . Captive client(CJCJ, CJ Captive client : VIPS, Season’s table, frozen food(dumplings ,pizza & Foodville) portion: Touslesjours, etc.), meat processed Catering service 15% of total rev. A towsome place etc. food(SPAM, bacon), HMR(Microwavable rice, soup/stew) etc.
1) Source: CJ Freshway 2017 annual report 3 1-2. CJ Freshway Company overview
CJ Corp(001040 KS) + special interest group holds 58.7% of CJ Freshway. Shareholder mix diversified in the recent years, as domestic institutions & NPS added their stake in the company. Most recently foreign funds have increased their holdings.
Shareholding structure Market cap
[FY 2017] Market cap (Unit:W bn, %) Forign Share of institutional Investors investors 986.5 3.7% Share of foreign investors
Domestic institution 500.8 19.2% 463.0 472.5
CJ Corp+ 317.9 24.6 Affiliated 20.2 19.2 person 14.9 16.3 58.6% 3.7 1.8 1.9 1.4 0.6 2013 2014 2015 2016 2017
4 1-2. CJ Freshway - History Company overview
CJ Freshway, founded in 1988, is leading domestic food material distribution market and catering business with largest infrastructure and more than 20 years of experience History
1988.10 Founded Samil agriculture & marine 1996.05 Incorporated into CJ Corp (ex-CJCJ) 1999.01 Launched food material distribution business 2000.09 Launched catering business(Acquired from CJCJ), Renamed to 'CJ Foodsystem’ 2000.11 Launched PB brand for food material
Sales Contribution: FMD 84.6% FS14.5% Added manufacturing division by acquiring Songlim Food 4Q16
Ⅰ. Food material distribution(FMD) Ⅱ. Food service Ⅲ. Sauce/ seasoning Sourcing - COGS : food Global Operating Sauce, dressing, Manufacturer Producer Packer cafeteria material, labor Manufacture seasoning, RTH, (nutritionist, cook), flavored oil etc. rent, utility cost etc. Outlet Distribution Outlet Outlet Hospital distributor B2C channel ∙∙∙ Restaurant Franchise Factories Leisure Franchise/ Catering Manufacture ∙∙∙ Manufacturer Office University ∙∙∙ restaurant
Sauce/ * 2016년말 송림푸드 인수, 실적연결편입 1Q17 ~ seasoning 0.9% Food material distribution Food service (Unit: W bn) (Unit: W bn) FS Sales OPm(%) 14.5% Sales OPm(%) 2,119 362 2,004 CAGR 324 CAGR 1,792 1) 1,698 1,667 6.5% 280 15.8% Sales Mix 1,452 1,565 210 230 [FY 2017] 175 150 5.6% 4.4% 4.6% 4.8% 1.4% 3.6% 3.4% 1.1% 1.1% 0.9% 1.1% 2.6% FMD 0.2% 0.5% 84.6% 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017
1) Source: FY 2017 annual report 6 1-2. CJ Freshway Company overview Despite recent sluggish market condition, CJFW maintains its market dominance on the back of strong top-line growth. Effort to find working "Korean FMD model”, CJ FW spent years endeavoring fast changing market, often challenging through worst down-cycles.
CJ Freshway Earnings Revenue comparison with competitors (Unit: W bn) Revenue (Unit: W tn) [FY 2017] 2,504 2,072 2,328 1,873 1,877 1,603 1,795
CAGR% 7.7% 2.1 2011 2012 2013 2014 2015 2016 2017 . Revenue has grown at CAGR of 7.7% with establishment of ‘A’ JVs(FreshOne) and enhanced sourcing ability within CJ group ‘B’ 1.1 ‘C’ ‘D’ ‘E’ (Unit: W bn) Operating profit 44 OP 0.7 OPm 0.6 0.6 32 0.5 25 27 27 21
1.4% 8 1.5% 1.8% . 1.6% 1.5% 0.9% CJ Freshway is an unrivaled domestic food 0.5% material distributor with the largest economy of scale. 2011 2012 2013 2014 2015 2016 2017 . Fluctuation in OP margin caused by external events in the market 7 Food material Distribution(FMD)
8 2-1. Business environment
Domestic FMD market to grow at the rate of 3.1% annually till 2020, reaching W58tn in size. Strong growth from domestic restaurant industry to push its proportion up to 51% Vs. wholesale 34%, and FS(Food Service) 15%
Korean food distribution market size & channel mix
Market breakdown by size of restaurant (Unit: W tn) W 29.2tn (51%)
CAGR 3.1%
19.5
7.5
55.9 57.6 8.2 52.8 54.4 49.9 51.2 46.4 48.3 13.5
8.8
2013 2014 2015 2016 2017 2018(F) 2019(F) 2020(F) Wholesale Small ML Chain Catering 2) & factory Medium 1)
Source : Bank of Korea, Statistics Korea Wholesales & retail service Index, Internal interview etc. 1) Scale of restaurants : Mid-large(Yearly revenue more than W0.3bn), Mid-small(less than W0.3bn) 2) Market includes manufacturing sites, office, hospital, military, university and etc 9 2-1. Business environment
Domestic FMD market is still at its early phase of industrialization. However, recently, market consolidation/industrialization process has accelerated as consumer demand sophisticates, industry shifts gears to cope with the changes.
M/S trend of large corporations Breakdown of restaurant industry CAGR Enterprise SME Total 2.5%
26% 30% ▲2.1% Small 35% 34% 32%
28% 1.0% Mid 30% 30% & 31% 31% large
46% 40% 7.4% Franchise 33% 36% 38%
8.5% 8.2% 9.1% 10.2% 11.6% 12.7%
2012 2013 2014 2015 2016 2017 2013 2014 2015 2016 … 2020
. Korea’s food material distribution market is still . Rising needs of corporate food distributor as restaurant fragmented, large enterprises make up 12.7% of M/S industry grows . Gov’t policy changes are leading factors triggering : Franchise to grow at CAGR of +7.4%, industrialization of the market as it demands stricter : small restaurant declines at CAGR -2.1% transaction transparency and quality control
Source : Annual report from each company, Bank of Korea, Statistics Korea Wholesales & retail service Index, Internal interview etc. 10 2-1. Business environment
Residual income squeeze driven by weakening economy led eat-outers to be more prudent on their expenditures. To meet change in trend, restaurants soon turned to tighter budgeting which sparked fierce price competition between SMEs.
GDP growth rate Service industry GDP growth rate(%)
(Unit: %) (Unit: %) V shaped 10.4 10.2 Perk-up
L shaped Slow growth recession (4%)
-2.7 -5.5 2018~2025 Forcast1)
1990 1998 2009 2016 2025 1990 1998 2009 2016 2025
⇒ Entering into L shaped recession, unable to break above, sluggish growth rate to last in coming years
1) 2012~2060 long-term financial prospects(National Assembly ), 2016~2020 : 3.4%, 2021~2025(F) : 3.0% 11 2-2. Core competency
Market differentiation by core competency; 1) Global sourcing network, 2) SCM ability, 3) distribution channels, and 4) quality control infrastructure
1 Sourcing Competitiveness 2 SCM – largest logistics - sourcing network Infrastructure . Sourcing status . Freshway(6) : domestic W2.18tn(87.4%), : Icheon(2), Suwon, Yangsan, Overseas W0.31tn (12.6%) Jangsung, Daegu . 30,000SKU of B2B food products . FreshOne(10), branches(7) . PB, global exclusive food products - FreshOne(10) : Kwangju, Namseoul, Daejeon, YongIn, Namyangju, Daegu, Busan, Incheon, Gunsan, Mokpo
: FW : FO
3 Diversification of Distribution Channel 4 Top tier class of food safety infra - Restaurant(including FreshOne), . Specialties in Food Safety catering, wholesale/factory : Designated food safety inspection centers and food safety experts (total 60 specialists) Total sales [FY 2017] . Risk Management Activity W2.5tn : systematic audit, on-site training programs . Customer Satisfaction Activity :VoC analysis→ understanding customer needs → propose business insight → customer satisfaction ▪ Designated as the Best Food Safety Company for 4 consecutive years
Restaurant Catering Wholesales Factory Others 12 2-3. FreshOne Business One-stop service to cut out unnecessary distribution stages by expanding direct transactions (CJFW⇌B2B client), strengthening bargaining power through integration/consolidation of distribution channel → Result : simplified distribution structure & gain cost competitiveness.
Business overview Current status
SMEs FreshOne • Invested & developed FO branches • Sales network in local infrastructure Chuncheon area Yangju-si • Food safety and SCM • Participating as Ilsan competency shareholders Incheon Dongseoul • Product competitiveness Namseoul Hanam Gangnam Pyeongtaek
• Win-win model between Conglomerate and SMEs Jungbu • Simplified VC, industrialization, food safety • Acquire bargaining power Daegu Gyung-ju Jeonbuk Distribution structure Ulsan B2B direct channel Gwangju Busan Mokpo CJ FW Traditional SMEs
Local Wholesaler, (Maker/Vendor) Food maker
Small/ middle size B2B food distributor • FreshOne(10), FO branches(7)
13 Food service (FS)
14 3-1. Business environment
Food Service(FS) market to grow at the rate of 3.3% annually till 2020 to W16.0tn. Outsourcing market leading the growth.
Domestic market size & channel mix Market share (Unit: W tn) [FY 2017] CAGR 3.3% ‘14~’20 16.0 CAGR Others 14.8 Hanwha0.7% 13.1 13.4 12.7 6.1% 5.3 5.0% Samsung 4.8 (33%) Shinsegye 4.3 Outsourcing 4.0 4.2 14.0% Wellstory (%) (30%) 24.9% CJ Freshway 7.7% LG 10.7 2.7% 9.1 9.3 9.5 10.0 In-house (67%) ECMD Ourhome (%) (70%) Hyundai (67%) 13.9% 19.8% Greenfood 12.9% 2014 2015 2016 … 2018(F) … 2020(F)
. Domestic FS outsourced market to grow at CAGR of 5% . Domestic FS outsourcing market is already consolidated, until 2020. M/S competed amongst conglomerates. . . Recently, In-house operations are turning toward CJ FW continues to gain M/S by winning top tier contracts outsourcing as a solution to improve efficiency and quality available and wielding its core competency in hospital and leisure channel
Source : Bank of Korea, Statistics Kore, Internal Interview etc. 1) Assuming that middle/high school and military cafeteria maintained In-house catering service 15 3-2. Core competency
CJ Freshway’s FS core competency lies with its customizable service, and indisputable top position in specialty areas. Remarkable new order momentum and competitive client retention rate yielded positive growth.
Amount of new order 1) Differentiated capability and service
Winning contract(W bn) Retention rate(%) 11 Hospital channel – menu expertise for the patients . Customized menu to accommodate different types 96 96 of patients 96 95 . Meal services for foreign patients
2 Leisure channel – Customized service and menu . Unrivaled M/S No.1 company with specific menu
91 for Leisure site . Optimized staff management system for leisure channels 3 2013 2014 2015 2016 2017 2 Synergy within CJ group . Restaurant/retail brands of sister companies. . Value of new order exceed W50bn(forecasted annual - Café, restaurants, drugstores, etc revenue) since 2014 . CJ group events . Contract renewal rate maintained above 90%, on the back of strong customer satisfaction level - Foodville: FC brand menu day - E&M: celebrity autograph event 1) Total estimated to-be earned revenue over year contract 16 Sauce/ seasoning manufacture
17 4-1. Business environment
Songlim Food’s sales grew at CAGR of 20.4% in the recent 5 years Market growth driven by franchise restaurant and HMR market expansion
Earnings trend Domestic sauce/ seasoning market
(Unit: W bn) (Unit: W tn) 2.27 CAGR 9.7% Sales Whole market OP(OPm) Sum of Top 6 companies 2) 1.72 25.1 1.58 21.6 18.3 1.10
14.6 0.87 12.8
(11.6%) (8.1%) 0.60 17.1% (7.5%) (6.4%) (10.8%) 3.4 2.1 2.8 0.27 1.0 1.2 0.17 0.21 0.10 2013 2014 2015 2016 2017 2009 2011 2013 2015 - 2020(E) 13 14 15 16 17
. Rapid growth at the rate of CAGR 20.4% past . Stable market growth on the back of the growth of 5 years franchise restaurant and HMR market . Factory #3 completed construction end of 1Q18
1) Acquisition at the end of 2016, Incorporated from 171Q 18 4-1. Business environment
Sauce/seasoning market growth driven by rising demand for HMR and related products, and development franchise restaurants
Franchise brand/ store trend 1) HMR Market trend 2)
# of franchisee # of FC brand Correlation(R2) 0.99 12~16 btw one person household 6.3 CAGR and HMR market 2020(E) 106,890 10.2% 99,544 4.0 88,953 84,046 2018(E) 72,903
2.3 4,017 15.6% 3,587 3,142 2016(E) 2,246 2,623 1.3 1.0 0.8 2014 % of one person 2012 2010 household 2012 2013 2014 2015 2016 23.5% 25.5% 27.5% 29.5%
. Fueled by dampening economy, many retirees are . Looking back at the growth of Japanese HMR pushed to build post-retirement income as a market, there was close correlation with franchisee increase of 1 person household - Franchisee numbers has risen from 76,138 (2012) to - Domestic 1 person household ratio to 106,890 (2016) at a whooping rate of 10.0% CAGR2) increase from 27.1% (2015) →29.6% (2020) . Increase in the number of franchise brands(`12-`16 . HMR market competition to become fierce as CAGR 15.6%) brought needs for differentiation companies try to be the first mover into the which raised importance of sauce and seasoning new market 1) FTC(fair trade committee statistics 2) News media report on franchises 19 4-2. Strategical Value To add value to current business model with both captives & non-captives, and to build foothold in the new fast growing market
Strategical Values [Major products]
1 Add value on current restaurant deals
2 Group synergy creation(ie. HMR sauce)
[RTP* : Meal kit] 3 Sharing of client Pool
4 Creation of attractive PB products and buying power
*Ready to prepare
20 Global Business
21 5-1. Global outposts
Recent expansion to China, Vietnam and the US market to add growth momentum mid/long-term. Collaboration between domestic and overseas market to provide regional expertise and synergy between outposts.
Overseas entities
▶ China . CJ Freshway Qingdao Co.(2012) USA, L.A /Food distribution Korea . Shanghai Blue Wish(2012)/Catering Qingdao . CJ Freshway Yonghui(Shanghai) Trade(2016)/Food distribution Shanghai
▶ Vietnam . CJ Freshway Vietnam(2013) /Food distribution Ho Chi Minh Overseas Revenue . Fides foods system/Catering 130 (Unit: W bn) 91 31 ▶ USA 65 16 34 57 . CJ Freshway America(2013) 13 23 USA 8 /food distribution 13 16 Vietnam 65 51 China 35 36
2014 2015 2016 2017
22 5-2. Global business structure
Expansion strategy : Localization & utilization of global outposts
Two-Track Mechanism
Utilizing global sourcing capability to its full extent, Gained competitive edge over local competitors
Global food material Overseas trade business Global Localization of food Local material distribution based on sourcing sourcing networks distribution in emerging market
Expansion of sourcing volume As distribution channels diversify
Further expansion of local sales channels and development of global packer network
23 5-3. Mid-long term strategy
Expanding local distribution and purchase integration with overseas entities on the back of global sourcing competency and local partnership
China USA
Export to Korea and import core US-Asia No.1 Trade products & Wholesale Company . Exports of raw material . Merchandising / trading post Beijing . Expanding local distribution channel Califonia between US-ASIA based on strong sourcing network HQ USA South-east Asia Qingdao High growth market, implementing Shanghai Meat, fruit, Guangzhou market research and choosing dry fruit optimal business model . Considering profitability, industrialization level and volume of imported food Thailand Korea Vietnam Ho Chi Minh Integration of global sourcing and Developed food distributor in acquire bargaining power Vietnam Indochina . Build co-work structure with . Expanding local distribution channel overseas companies by sharing based on core products market intelligence Salmon/ Mussel Australia etc. Beef/ lamb etc. Chile
Distribution Sourcing Sales chanel Triangle hub hub expansion trade 24 Investor Relations
E-mail : [email protected]
Website : www.cjfreshway.com