Roland Berger RetailFE 20081220

8/4/2019 Roland Berger RetailFE 20081220

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Retail in Ukraine:Today's realities, tomorrow's possibilities

Kyiv, December 2008

Main conference: Sessions 1 and 2

Olga Sagirova, Partner

Roland Berger Strategy Consultants


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During our conference we would like to discuss key strategic andoperating aspects in preparing retail chains for future economicgrowth in light of the current crisis

1

4

3

2 What opportunities exist that will ensure future growth forUkrainian retail chains under current market conditions?

What are the targets and criteria for selecting acquisition targetsfrom the viewpoint of strategic and financial investors?

5

What are the priorities for future value chain developmentunder the current market conditions?

What are the development prospects of the Ukrainian retail marketin light of the economic crisis?

How can Roland Berger Strategy Consultants supportfurther value chain growth?


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The Ukrainian retail market is still growing The economic crisiswill bring it to the maturity stage

Dynamic of modern retail markets

Formation Growth Maturity Saturation

DevelopedEurope3)

SouthernEurope2)

CentralEurope1)

Slovakia

TurkeyGreece

Russia

Baltic states

Rumania

Bulgaria

Unorganizedtrade

Rapid growth oforganized trade

Profilingformats

Format

Selectedcountries

Phase

1) Poland, Hungary, Czech Republic 2) Italy, Spain, Portugal 3) Germany, France, Great Britain, Netherlands, Belgium

Poland

Spain

FranceGermany

1 UKRAINIAN RETAIL MARKET

Source: Roland Berger Strategy Consultants

Ukraine


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Even with inflation, the Ukrainian retail market showed rapidgrowth in 2003-2008

4

Real and nominal growth of the Ukrainian retail market, 2003-2008

7,5

1,20,40,70,90,3

2003 2004 2005 2006 2007 2008

30,0

12,6

2,36,9

9,97,1

2003 2004 2005 2006 2007 2008

Food Products

Non-food Products

Inflation, food and non-food products [%] Volume of the Ukrainian retail market [bn UAH]

237

172

130

9468

50

200

163

128

9164

48

2003 2004 2005 2006 2007 2008

Retail turnover in actual prices

Retail turnover in 2002 prices

Source: State Statistics Committee, Roland Berger Strategy Consultants

38%26% 35% 40% 38%

41%22% 33% 42% 22%

Growthvs.previous

year [%]

32%

27%



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Despite declining forecasts for industry development in 2009,market consolidation could spur future growth

Key indicators overview of the Ukrainian retail market

Volume of the Ukrainian retail market, 2002-20091) [bn EUR]2)

25

2007

46%

54%

45%

55%

10

2004 2008

44%

38%

31

Optimist.2006

21

32

56%

48%

52%

35%

65%

8

2002

56%

44%

Pessimist.

30

+26% p.a.

62%

Forecast

Food Non-food

Investor attractiveness of theUkrainian market

5

1

+4% -5% In recent years, the Ukrainian

market was one of the most

attractive retail markets worldwide

Market share of foreign retailersis small Few internationalplayers have entered the"overheated" market

Crisis developments in the industryand falling multipliers duringbusiness sales will allow newinvestors to enter the market

Industry consolidation and newplayers' entry will give a newimpetus for industrydevelopment

Source: State Statistics Committee, Roland Berger Strategy Consultants

UKRAINIAN RETAIL MARKET

1) In current prices 2) growth includes EUR inflation


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So far, the share of retail chains is not very significant as apercentage of the overall retail turnover structure The crisis willcontribute to the increase in chains market share

3%

27%

70%

100% = EUR 24.8 bn

2007

Unorganizedmarkets

Organizedmarkets

Other companiesand stakeholders

in retail

5%

13%

14%

15%

16%

37%

Supermarkets

Cash&Carry

Hypermarkets

Discounters

Convenience

Other

Retail sales structure

Retail sales structure in Ukraine, 2007 [%]

Sales structure of chain retail

56%

44%

Chain

Non-chain

24.1 bn

Sales structure of organized retail

100% = EUR 17.3 bn 100% = EUR 7.5 bn


Source: State Statistics Committee, Roland Berger Strategy Consultants 6


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Declining buying power will accelerate competition between retailformats

Retail food sales per capita by formats, 2007 [EUR]

Comments2007

Source: Planet Retail, EIU, Roland Berger Strategy Consultants

485

16825

Ukraine Poland Germany

1,302

France

268

7361

Ukraine Poland Germany

1,065

France

244

710

9025

Ukraine Poland Germany France

7

HYPERMARKET

DISCOUNTER

SUPERMARKET

Low-cost format has significant growth potential Buyer focus to a larger extent on price more

than on quality Non-food assortment and introducing ones' own

brands will be key issues facing this segment

Segment has the main growth potential,especially in middle income level cities

Pre-requisites for future demand will beconditioned on the development of new tradingtechnologies and the developments of one's

own brands

Markets format's presence is relativelysaturated, but growth prospects still exist

Further growth due to consolidation and filling-inof previously uncovered niches in certainregions



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During the financial crisis companies have limited options left inattracting external funds Search for internal growth reservesbecomes vital


Possible fund attraction sources to secure further growth

LOANS SHAREHOLDER CAPITAL

Bank loans, bonds

INTERNAL GROWTH

Today's most realisticmethod

Focused growth,accurate work withinternal efficiency andliquidity

Internal efficiencyincrease

Private placement(strategic investors, direct

investment funds, etc.)

The amount of loansoffered has been cut

Loan value is going up

Attraction of strategicinvestors is still possible

but often means sale of

part or all of theirbusiness

Investment funds andFIGs become more

interested in retail butremain cautious

IPO/SPO

Share value is falling

In such situation most

companies havecancelled IPO

2 FUNDING SOURCES FOR FURTHER GROWTH


9/15MUC-90007-143-09-01-G 9Source: Roland Berger Strategy Consultants

Requirements of strategic and financial investors to potential partnersare very similar

Criteria requested and assessed by strategic and financial investors are very similar

These criteria could be separated into 3 main groups:

Profitability

Professionalism

Transparency

Retail chains should consider these criteria during further business build-up and take

them into account when making decisions and designing the future business model

Only upon retailers fulfilling requirements and implementing the designed action plan

regarding every key criterion will investors be ready to pay a fair price for company

shares

Key requirements of strategic and financial partners

3 INVESTOR TARGETS AND CRITERIA


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The crisis, which began as a result of external environmentalconditions, exposed many problems inside of retail chains

Comments

The current liquidity crisis has beenprovoked mostly by externalenvironment conditions: an abrupt

increase of funding costs Simultaneously, in the most cases the

crisis revealed internal problems andunpreparedness of companies tooperate in a volatile environment, forthe following reasons:

No clear market strategies Operational inefficiency of

companies, no control over costs,

expansion periods, etc. Ill-considered investment policies

Classification of crisis situations

CRISIS CHARACTERISTICS

Strategy crisis

Performance

crisis

Liquidity crisis

Destroying

Threatening

Crisis

preconditionedby internal

environment

Crisis

preconditionedby external

environment

CRISISTYPES

STAGES

OF CRISIS

CRISIS SOURCES

4 INTERNAL DEVELOPMENT PRIORITIES



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A recovery program should address the main problems Fromoperational liquidity issues to structural transformations in thebalance sheet and business model

Development of the initial concept and anti-crisis measures concept

EMERGENCY MEASURES AND LONG-TERM MEASURES



STRATEGIC CONCEPT

Strategic positioning Value creation model Strategy of shop formats Regional strategy Shop portfolio management

Category management Trading unions and

franchising Increasing productivity due

to IT application

Structural changes (structureis stipulated by strategy)

Organizational structure

Value chain (outsourcing,insourcing)

Optimization/ formation ofmain processes

OPERATIONAL CONCEPT

Actions to increase operational effectiveness

Supplier portfolio optimization

Goods flow optimization

Product range optimization

Shop portfolio optimization

Cost-cutting including personnel costs

Actions to enhance liquidity

Cutting investments

Closure of separate shops and warehouses

Inventory optimization

Outsourcing

Accounts payable/receivable management

Recurrent check of main initialconditions for recovery measures

FINANCIAL CONCEPT

Structural cleansing

Structure change/balance

management

Reassignment of debts

Liability management

Injection of own capital

Actions for liquidity enhancement

Increasing capital

Private Equity, etc.

Injection of loan capital Assets implementation

Other funding forms


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Strategic concept should prepare the company for a new wave ofgrowth

Logic of strategic chain development Key questions

What is the mid- and long-term target of the chain

development?Mission and vision

What format should be focused on later? What marketsegment will be the most attractive?Format strategy

What regions should be developed as high-priority oneswith regard to market attractiveness and entry costs? How

to achieve profitable growth?Regional strategy

Marketing strategy How to ensure maximum flexibility in marketing policyfor increasing the chain's turnover and gross margin growthas well as cutting stocks and releasing working capital?

Product range Prices Location Promotion

How to standardize all chains supporting processes inorder to speed up order processing and reduce costs

(procurements, logistics, in-shop processes, regionalrepresentative offices and HQ)?

How to optimize the chain's management system fortimely and focused company value enhancement?

Functional strategy

Supply chain In-shop operations

Organization and staff

Planning and controlling

Evaluation system for efficiency and motivation

IT




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The current situation requires focusing the entire managementsystem on recovering from the crisis and implementing a balancedgrowth strategy

Development of strategicroadmaps Prioritizing Balanced Scorecards Target KPIs for each

management level Introduction of KPI scales and

target values

Development of planningprocesses at theCC/regional/shop level (top-down and bottom-up) Stages Order of interaction and

decision making Periods Joint management bodies

Formats and order of presenting documents and reportsdepending on the management level

Implementation of the monitoring and controlling systemwithin the existing IT system

Optimization of efficiency evaluationprocesses

System of divisions' performanceevaluation aimed at incentives/motivation

Planning stage

Efficiency monitoring,controlling and evaluation stage

Change Management

stage

Balancedmetrics

Planningand

budgeting

Managementinformationsystem

Efficiencyestimation

Motivationsystem

Organizationalstrategy

Corporate strategy

Adaptation of tools andstructureof incentivefunds

Determination of scalesfor key performanceindicators and frequencyof bonuses depending onsizes of stimulation funds


MANAGEMENTSYSTEM



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Roland Berger can support retailers in a wide range of consultingservices

Company

Business

efficiencyBusiness

growth

Strategicalliances/ Mergers and Acquisitions

Businessvalue increase Formatand regional strategies

Strategicaudit and due diligences

Strategy

Target consumer analysis

Brand management Salesorganization

Pricing

Market analysis / Marketing and sales

Innovative management

Process of new product entry Process of product development

Innovation/New product development

New sales channels

2

E-commerce

Reengineering of core business processes and

organizational structure

Business processes reengineering

Cost-cutting Liquidity management

Restructuring

Availabilityof shelf stock

Efficiencyof in-shop processes Organizational structure of shop and headcount

planning

Servicequality improvement

In-shop operations

Organization

Strategy/Bestglobal experience Implementation

Category management

5 ROLAND BERGER STRATEGY CONSULTANTS



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Roland Berger Strategy Consultants is the largest strategic consultancyof European origin

Amsterdam I Bahrain I Barcelona I Beijing I Berlin I Brussels I Bucharest I Budapest ICasablanca I Chicago | Detroit I Dsseldorf I Frankfurt I Hamburg I Hong Kong I

Istanbul I Kyiv I Lisbon I London I Madrid I Milan I Moscow I Munich I New York I ParisI Prague I Riga I Rome I So Paulo I Shanghai I Stuttgart I Tokyo I Vienna I Warsaw I

Zagreb I Zurich

36 offices in 25 countries

Turnover of EUR >600 m

2,000 employees76% international projects

Turnover growth in Asia 50%

Turnover growth in CEE 24%

5 ROLAND BERGER STRATEGY CONSULTANTS


Roland Berger RetailFE 20081220

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