Migros Ticaret A.Ş.
Tesco Kipa Acquisition Roadmap
June 2016
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Agenda
∎ Transaction Overview
∎ Overview of Kipa
∎ Strategic Rationale
∎ Way Forward for Kipa
∎ Expected Financial Impact
∎ Summary
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Acquisition of 95.5% stake in Tesco Kipa
Migros entered into an agreement with Tesco Overseas Ltd to acquire its c.95.5% stake in Tesco Kipa (1)
Transaction − 168 stores with total net sales area of 324k sqm Overview
− Including real estate property portfolio of 303k sqm with significant third party leased area
Purchase value of TL 302 million
− After deducting financial debt of Kipa in latest FY balance sheet and other adjustments
Consideration Implied estimated price per share of TL 0.2375
Final purchase value and final price per share dependent on closing adjustments
Acquisition is expected to be bridge financed by existing TL credit lines
Timing Closing upon obtaining regulatory approval from Turkish Competition Authority
Intention to apply to the Capital Markets Board for exemption from requirement to launch a mandatory Approvals tender offer with post closing
(1) Migros acquires 9,867 Class A and 1,272,639,452 Class B shares of Tesco Kipa Kitle Pazarlama Ticaret Lojistik ve Gıda Sanayi A.S.(‘’Kipa’’, or ‘’Tesco Kipa’’) from Tesco Overseas Ltd 3
Overview of Kipa
Summary Business Overview Net Sales Area (2)
Express 5% Modern grocery retailer focused on the Western regions of Supermarkets Hypermarkets 13% 39% Turkey with 168 stores, total sales of TL 2,247 million (1) and net sales area of ~324k sqm, comprising
− 17 Hypermarkets >6,000 sqm Large Supermarkets 43% − 31 Large Supermarkets between 2,000 and 6,000 sqm
− 48 Supermarkets ~324k sqm − 72 Express stores
37 retail real estate properties (mainly shopping malls, Company owned)
Centrally located distribution centre in Torbali, İzmir (owned property)
Serves over 1.5 million customers each week
Headquartered in Cigli, Izmir
(1) Refers to fiscal year ending 29 February 2016, as per CMB filings (2) Pre-restructuring/right sizing initiatives contemplated by Migros. Based on February 2016 financial results, excluding one store which was closed in April 2016 4
Kipa Store Portfolio and Formats
Store Portfolio by City Formats
1 Express 1 1 1 . No. of stores: 72 24 1 1 6 1 7 2 . Avg size: 234 sqm 1 2 . Total sales area: 16,877 sqm 1 2 . Proximity supermarkets 2 1 1 2 3 . Located in residential and business areas 2 . Provides basic fresh and retail products 3 1 3 2 6 4 2 1 Supermarkets 1 Store 50 13 2 1 . No. of stores: 48
3 4 2 1 . Avg size: 856 sqm . Total sales area: 41,128 sqm Torbali DC 1 3 2 . In addition to product range available in 3 4 1 8 8 2 express stores, also provides pastry, butcher and seafood
Express Kipa presence Hypermarkets Large Supermarkets
Supermarkets . No. of stores: 17 . No. of stores: 31
Large Supermarkets . Sales area > 6,000 sqm . Sales area ranging from 2,000 to 6,000 sqm . Avg size: 4,460 sqm Hypermarkets . Avg size: 7,509 sqm . Total sales area: 138,261 sqm . Total sales area: 127,652 sqm Distribution centre . In addition to product range available in . In addition to product range available in supermarkets, offers selected non-food Petrol filling stations (1) large supermarkets, offers electronics, categories sports and clothing ranges (1) One out of 3 petrol filling stations is subleased to a third party. 5
1 Strengthens competitive position and leverage scale benefits
Apply Migros' proven and tested ‘full range’ formats to Kipa’s portfolio of well-established and well- located shopping destinations Provide compelling format proposition addressing Turkey’s demographics and growing middle class
Gain critical scale benefits in an increasingly consolidating modern grocery segment
Integration and optimization of corporate and distribution functions
Number of Stores - Total (1) LFY Sales Densities (2) Operational Expenses/Sales(2)
TL/sqm
1.615 9.408 27.1%
6.932 20.4%
1.447
Migros Migros Pro Forma Kipa Migros Kipa Migros
(1) Migros as of March 2016. Kipa as of February 2016, excluding one store, which was closed in April 2016. Before restructuring of portfolio. (2) Migros refers to fiscal year ending 31 December 2015, only for Turkish operations. Kipa refers to fiscal year ending 29 February 2016. OPEX does not include amortisation, provisions for unused vacations, employee termination payments/provisions. 6
2 Significant real estate content increases operational flexibility
Kipa owns 37 retail real estate properties (1) with 303k sqm of total retail space
26 of the properties are shopping malls including significant third-party leased sales area adjacent to a Kipa store being an anchor
İzmir - Çigli İzmir - Balcova Yalova
Ankara - Polatli Antalya Mersin - Mezitli
(1) Excluding Torbali distribution centre
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3 Local operational excellence allows for improved cost control
Leveraging of Migros’ long-term relationships with local suppliers, localised category
management and savings from centralised logistics (67-70% for Kipa vs. 84% for Migros)
Application of Migros‘ best operating practices to Kipa stores, including
‐ Staffing
‐ IT systems
‐ Transportation from centralised logistics
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4 Proven track record of integrating and right sizing stores in Turkey
Significant step forward in Migros’ long term expansion plans
Format adoption, store transformations and rebranding as well as store rollouts are part of Migros’
DNA Based on deep understanding of Turkish food retail market
Proven track record of ‐ successful right sizing of 33,000 sqm of Migros’ large store space over last few years
‐ delivering operational initiatives, including the successful conversion and rebranding of 375 Tansas stores since 2010
‐ increasing market penetration and top-line sustainable growth without compromising profitability and balance sheet efficiency
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Way Forward for Kipa
1 Restructuring of Kipa’s store portfolio leading to sales area reduction, including
− Gradual right sizing of certain locations Restructuring of Adoption of Migros’ proven and tested ‘full range’ formats Store Portfolio Refurbishment of certain shopping malls
Opportunistic divestiture of certain real estate assets
2 Leveraging of Migros' long-term relationships with local suppliers
Localised category management
Application Apply Migros' best operating practices to Kipa estate, including of Migros’ Operating Model − Staffing practices − IT systems
− Transportation from centralised logistics
3 Increased economies of scale
Integration Integration and optimisation of corporate and distribution functions
Benefits Savings from rebranding of Kipa stores to Migros banners
Savings in distribution centre expenses
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Expected Financial Impact
Supports Migros’ double digit sales growth guidance
P&L Improvement of Kipa’s sales/sqm efficiency by right sizing of net sales area and Impact efficiency initiatives
Target neutral pro forma EBITDA margin impact within 2 years after closing
LTM Mar-16 Proforma Net Debt / EBITDA range of 3.5x-4.0x
− 3.5x reflecting with higher integration synergies, 4.0x assuming moderate integration synergies Balance Sheet Expected to achieve less than 3.0x Net Debt/EBITDA within 2 years after closing(1) Impact In parallel, ability to materially reduce leverage through divestiture of selected real estate assets to achieve targeted leverage levels rapidly
Acquisition is expected to be bridge financed by existing TL credit lines
(1) Assuming constant EUR/TL rate for the years 2016, 2017 and 2018 11
Summary
11. Strengthens competitive position and leverage scale benefits
23. Significant real estate content increases operational flexibility
34. Local operational excellence allows for improved cost control
45. Proven track record of integrating and right sizing stores in Turkey
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