Migros Ticaret A.Ş. Tesco Kipa Acquisition Roadmap June 06
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Agenda Transaction Overview Overview of Kipa Strategic Rationale Way Forward for Kipa Expected Financial Impact Summary
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 () Transaction Overview 68 stores with total net sales area of 4k sqm Including real estate property portfolio of 0k sqm with significant third party leased area Purchase value of TL 0 million After deducting financial debt of Kipa in latest FY balance sheet and other adjustments Consideration Implied estimated price per share of TL 0.75 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 Approvals Intention to apply to the Capital Markets Board for exemption from requirement to launch a mandatory tender offer with post closing () Migros acquires 9,867 Class A and,7,69,45 Class B shares of Tesco Kipa Kitle Pazarlama Ticaret Lojistik ve Gıda Sanayi A.S.( Kipa, or Tesco Kipa ) from Tesco Overseas Ltd
Overview of Kipa Summary Business Overview Net Sales Area () Modern grocery retailer focused on the Western regions of Turkey with 68 stores, total sales of TL,47 million () Supermarkets % Express 5% Hypermarkets 9% and net sales area of ~4k sqm, comprising 7 Hypermarkets >6,000 sqm Large Supermarkets between,000 and 6,000 sqm Large Supermarkets 4% 48 Supermarkets 7 Express stores ~4k sqm 7 retail real estate properties (mainly shopping malls, Company owned) Centrally located distribution centre in Torbali, İzmir (owned property) Serves over.5 million customers each week Headquartered in Cigli, Izmir () Refers to fiscal year ending 9 February 06, as per CMB filings () Pre-restructuring/right sizing initiatives contemplated by Migros. Based on February 06 financial results, excluding one store which was closed in April 06 4
Kipa Store Portfolio and Formats Store Portfolio by City Formats 4 6 4 50 6 7 Store No. of stores: 7 Avg size: 4 sqm Total sales area: 6,877 sqm Proximity supermarkets Located in residential and business areas Provides basic fresh and retail products No. of stores: 48 Express Supermarkets Torbali DC 4 8 4 8 Avg size: 856 sqm Total sales area: 4,8 sqm In addition to product range available in express stores, also provides pastry, butcher and seafood Express Supermarkets Kipa presence No. of stores: 7 Hypermarkets Large Supermarkets No. of stores: Large Supermarkets Sales area > 6,000 sqm Sales area ranging from,000 to 6,000 sqm Hypermarkets Distribution centre Petrol filling stations () () One out of petrol filling stations is subleased to a third party. Avg size: 7,509 sqm Total sales area: 7,65 sqm In addition to product range available in large supermarkets, offers electronics, sports and clothing ranges Avg size: 4,460 sqm Total sales area: 8,6 sqm In addition to product range available in supermarkets, offers selected non-food categories 5
Strengthens competitive position and leverage scale benefits Apply Migros' proven and tested full range formats to Kipa s portfolio of well-established and welllocated 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 () LFY Sales Densities () Operational Expenses/Sales () TL/sqm.65 9.408 7.% 6.9 0.4%.447 Migros Migros Pro Forma Kipa Migros Kipa Migros () Migros as of March 06. Kipa as of February 06, excluding one store, which was closed in April 06. Before restructuring of portfolio. () Migros refers to fiscal year ending December 05, only for Turkish operations. Kipa refers to fiscal year ending 9 February 06. OPEX does not include amortisation, provisions for unused vacations, employee termination payments/provisions. 6
Significant real estate content increases operational flexibility Kipa owns 7 retail real estate properties () with 0k sqm of total retail space 6 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 () Excluding Torbali distribution centre 7
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 8
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,000 sqm of Migros large store space over last few years delivering operational initiatives, including the successful conversion and rebranding of 75 Tansas stores since 00 increasing market penetration and top-line sustainable growth without compromising profitability and balance sheet efficiency 9
Way Forward for Kipa Restructuring of Store Portfolio Restructuring of Kipa s store portfolio leading to sales area reduction, including Gradual right sizing of certain locations Adoption of Migros proven and tested full range formats Refurbishment of certain shopping malls Opportunistic divestiture of certain real estate assets Leveraging of Migros' long-term relationships with local suppliers Localised category management Application of Migros Operating Model Apply Migros' best operating practices to Kipa estate, including Staffing practices IT systems Transportation from centralised logistics Increased economies of scale Integration Benefits Integration and optimisation of corporate and distribution functions Savings from rebranding of Kipa stores to Migros banners Savings in distribution centre expenses 0
Expected Financial Impact Supports Migros double digit sales growth guidance P&L Impact Improvement of Kipa s sales/sqm efficiency by right sizing of net sales area and efficiency initiatives Target neutral pro forma EBITDA margin impact within years after closing LTM Mar-6 Proforma Net Debt / EBITDA range of.5x-4.0x Balance Sheet Impact.5x reflecting with higher integration synergies, 4.0x assuming moderate integration synergies Expected to achieve less than.0x Net Debt/EBITDA within years after closing () 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 () Assuming constant EUR/TL rate for the years 06, 07 and 08
Summary. Strengthens competitive position and leverage scale benefits. Significant real estate content increases operational flexibility 4. Local operational excellence allows for improved cost control 45. Proven track record of integrating and right sizing stores in Turkey