“UB Group Update” July 2010 Presentation By Dr. Vijay Mallya, Chairman, UB Group 22 nd July, 2010 1
UB Group’s Aggressive Growth History No. 1 Beer in India • Acquired 100% • Dr. Vijay stake in Whyte Mallya took and Mackay, over the reins worlds 4 th of the Group at largest scotch a tender age of company 28 1950– 1982 • Started and expanded into beer and spirits business mainly through acquisitions 2 1983– 2002 No. 1 Spirits in India No. 1 Airline in India • Completed merger of Deccan and Kingfisher to form the largest pvt. airline • Organised Spirits business under USL and Beer business under UBL • Launched Kingfisher Airlines 2003 2005 2007 • Kept acquiring • Acquired Shaw • Acquired 100% Wallace, smaller players stake in Whyte in beer and Mackay, • Brought in liquor industry. worlds 4 th Scottish New BUILT largest scotch Castle in UBL BRANDS LIKE company KINGFISHER, BAGPIPER, BLACK DOG 2008 2009 • Legal Merger of Shaw Wallace completed; • UBL and Heineken strike a deal: brings APB / Heineken brands
UB Group • United Spirits Ltd. , No. 1 Spirits Company in India United Breweries Ltd. , No. 1 Beer Company in India • • Kingfisher Airlines Ltd. , No. 1 standalone Airline in India • • Diversified Business Interests 3 2 nd largest spirits company in the world and largest spirits company in India with a market share in excess of 55% in first line brands Key brands are Dalmore, Jura, Whyte & Mackay, Black Dog, Antiquity, Signature, Royal Challenge, Mc. Dowell's No. 1, Celebration Rum, Romanov and White Mischief Undisputed leader of the Indian beer industry with over 50% market share Key brands are Kingfisher Blue, Kingfisher Strong, Kingfisher Premium, Kingfisher Ultra, Kingfisher Draught, London Pilsner, UB Premium Ice, Kalyani Black Label Premium and Kalyani Black Label ‘Best Airline in India and Central Asia’, ‘Best Economy Class Seats’ and ‘Staff Service Excellence Award for airlines in India and Central Asia’ in World Airline Awards (May, 2010) India's only 5 Star airline, rated by Skytrax and 6 th airline in the world for 3 rd consecutive year (May, 2010) Diversified presence across businesses including equity investment in Mangalore Chemicals & Fertilizers Ltd. and UB Engineering Ltd. , investment in Vittal Mallya Scientific Research Foundation and franchisee for IPL team “Royal Challengers”
United Spirits: Overview Business Overview Financial Snapshot – Q 1 ( INR Crs) • Largest spirits company in India – 20 ‘Millionaire’ brands Revenue (those that sell more than 1 MM cases p. a. ) with a market share in excess of 55% in first line brands • USL sold 100 MM cases during FY 2010 to become the 2 nd largest spirits marketer in the world. Growing at robust double digit rates • Several of USL’s brands occupy leading market positions in EBITDA India and globally − Mc. Dowell No. 1 family is the largest spirits brand in the world with sales of over 35 MM cases in FY 2010 across 3 flavors (Whisky, Brandy and Rum) − Mc. Dowell’s No. 1 Brandy continues to be the largest selling brandy in the world − Mc. Dowell’s No. 1 Celebration Rum is the 3 rd largest rum PAT with sales over 12 MM cases in FY 2010 • Bagpiper Whisky is world’s largest selling spirits brand with sales of over 16 MM cases during FY 2010 At the current growth rate of 12% pa, USL is poised to become the No. 1 Sprits company within the current fiscal 4
USL Financials: Q 1 Update Volume • Volume growth at 6% overall and 15% without AP • Volumes at 26. 7 Mio cases Q 1 FY 11 compared to 25. 6 Mio cases in Q 1 FY 10 • Low volume growth mainly on account of de-growth of 30% in Andhra Pradesh ( due to license renewal at retailers level) which accounts for almost 19% of total revenue. Post renewal, July has witnessed extremely strong growth. Sales • Sales value growth at 18%. Adjusted Sales value growth at 11% in Q 1 FY 11 vs. 6 % in Q 1 FY 10 • Sales value grew at Rs. 1463 Crs. in Q 1 FY 11 Vs. Rs. 1242 Crs. In Q 1 FY 10 5 Key Brand Performance • Scotch 39% • Signature 21% • Antiquity 20% • Directors Special Black 41% • No. 1 Brandy 29% • No. 1 Rum 19% • Green Label 20%
USL Financials: Q 1 Update Profitability • EBITDA of Rs. 289 Crs. in Q 1 FY 11 Vs. Rs 228 Crs in Q 1 FY 10. EBITDA growth - 26. 5%. • EBITDA margin at 19. 75% in Q 1 FY 11 compared Cost trends • ENA cost at Rs 143 per Case during Q 1 FY 2011, expected to remain at the current levels during Q 2 and expected to go down once fresh supplies come in to 18. 83% in Q 1 FY 10 • Glass prices expected to go up by around 7% • Operational PBT (excluding exceptional income) grew 12% to Rs. 182 Crs. in Q 1 FY 11 Vs. Rs. 163 Crs in Q 1 FY 10 • Adjusted PAT at Rs. 121 Crs. in Q 1 FY 11 vs. 108 Crs. in Q 1 FY 10 from August 2010 • Adjusted A&SP(regrouped for tie up units)expenditure is Rs. 107 Crs which is approximately 7. 3% of net sales. • Staff cost at Rs. 77 Crs. in Q 1 FY 11 Vs. Rs. 68 Crs. in Q 1 FY 10. Remains constant at 5. 2% of net sales
United Spirits: Financials & Debt Profile Financials Debt Profile Q 1 FY 2011 in INR Crs Q 1 FY 2010 Growth Revenues 1471 1248 18% Gross profit 672 530 27% EBITDA 289 228 182 163 12% PAT 121 177 Mar-10 441 614 Working Capital/ Unsecured Loans 1, 726 1, 408 Term Loans : Acquisition of W & M 1, 284 3, 451 3, 306 2, 231 2, 186 5, 682 5, 492 469 750 5, 213 4, 742 Capex Loans/ Term Loans 27% Operational PBT Jun-10 in INR Crs - Sub -Total W & M Acquisition Loan - Without recourse Total Gross Debt Cash & Bank Balance Total Net Debt Value of 8. 4 mio treasury stock amounts to about Rs. 1169 Crs.
United Spirits: Strategy Going Forward Continued Focus from Previous Business Plan Additional Focus in Current Business Plan • Value Growth to lead Volume Growth • Planned investment of about Rs. 1100 Crs over the next 3 years to build additional primarily distillation , increased bottling capacity and malt spirit production facility – Focus on Premiumization by enhancing salience of prestige + segments • Focus on improving ROCE to ‘Best in Class’ FMCG companies in India • ATL investments to be enhanced to support core brands • Take appropriate price increases to offset any cost push • BTL as a % of NSR to be controlled 8 • Introduce new brands in the premium segment, increase presence in the scotch segment across various price points & introduce W&M brands • Leverage Whyte & Mackay expertise – Extend Whyte & Mackay brands in India – Leverage blend & packaging expertise for new product development in India
Global Scotch Whisky market has seen resilient growth with strong support coming from large emerging markets Premiumization trend in scotch whisky segment q Global Scotch whisky market is growing at a value CAGR of about 7% ( 2004 -09) which is significantly higher than volume CAGR of about 2%. Volume (Mn. Cases) 20 -Yr CAGR q W&M’s average branded business realization for relevant vintage is 4 to 4. 5 times that of bulk business q Clear premiumization trend in Scotch with premium scotch segments 13. 7% 4. 7% 0. 3% 1. 5% growing at a faster pace than standard/value scotch segment. Growth trend in emerging markets Ø Single Malt whisky segment has grown significantly higher than 4 Yr CAGR (2004 -08) Ø Increased preference for higher vintage scotch and single malt whiskies. q Sustained growth in large emerging markets of China, India, Russia, Volume (Mn. Cases) blended scotch whisky with a volume CAGR of about 6%. 20 -Yr CAGR 4. 4% 0. 1% Brazil, and South Korea over the last decade. * 2 -Yr CAGR
Whyte & Mackay’s strategic intent has been to become a branded scotch whisky player W&M has a salient position in the global scotch whisky market q W&M is among the top 5 scotch whisky players globally. o Produces 8% of global scotch whisky consumption. q W&M has a portfolio of heritage brands across the spectrum. o Single Malts: Dalmore, Isle of Jura. o Blended Scotch : Whyte & Mackay, John Barr, Claymore q W&M has been recognized in the international arena for its strengths. o Won the ‘Global Distiller of the Year’ recognition in 2009 at the International Wine & Spirits competition. o Whyte & Mackay 30 year old was named “Best Whisky in the World 2009” o Dalmore – Oculus sets a new record at auction with a sale value of GBP 37, 000 Post the acquisition, W&M has enhanced its focus on the branded business. q Strengthened route to market o Completed transition to own setup in UK, revamped import & distribution in US. o Established new importer / distributor tie ups in China, Taiwan, South Korea, Middle East and South Africa. o Enhanced coverage of Duty Free channel from 5 to 30 key locations. o Increased distribution of scotch brands in India by 40% q Enhanced brand positioning o Launch of premium variants in Dalmore. (Gran Reserva, King Alexander, 40 & 50 YO variants), Jura and W&M. o Premiumized packaging for key brands E. g. Dalmore q Increased malt capacity to support branded business requirements. (reopened Tamnavulin malt distillery )
Since acquisition, the focus of the business has been to create a sustainable growth platform for the future. Focus areas of the business q Strengthen the branded business o Improve profitability o Increase depth of the market-brand portfolio against width. q Grow underlying business (net of bulk scotch) and profit q Reduce share of commodity bulk sale business q Enhance operational efficiency 3 year performance summary q Ended FY 2009 -10 at an EBITDA of GBP 58 Mn. q Net of Diageo contract, EBITDA has grown at a CAGR of 9% since acquisition. q Bottled business contribution has grown at a CAGR of 20% over the 2006 -07 to 2009 -10 period. q Planned decline of bulk business (net of Diageo contract and USL requirement) by 28% CAGR since acquisition. q Built a more profitable & focused branded business. o Improved contribution of branded business from 44% to 50% of sales o Increased focus has meant that 80% of contribution now comes from 17 brands / market combination compared to 31 earlier q Overheads have largely remained flat. (Planned redundancy has helped contain any overhead increase)
Going forward, W&M’s primary focus would be to expand its share of the global branded scotch whisky market Plan Strategic focus q Enhance share of premium end of scotch whisky through single malts and high end blended scotch rare Premiumize branded scotch sales editions. o Target of 25% growth in single malts over next 3 years through Dalmore and Jura o Leverage vintage scotch inventory to introduce high end rare editions. § Tap India growth potential E. g. W&M 30 YO named ‘Best Whisky in the World 2009’ q Consolidate position in the Indian scotch market. o Market growth of 20% over last 4 -5 years. However, strong latent demand still exists for Scotch whisky in India. § Highest association with premium need spaces of Status and Discernment. (USL Consumer Need scope study) § Current entry level retail price of USD 20 per bottle high due to 150% import levy. 99% of Indian spirits market at a “Future growth prospects for blended scotch industry increasingly rests on two markets : India & China” - IWSR < USD 10 price point. o Ended 2009 -10 with about 150, 000 cases sale at a share of about 15%. Up from <10% 2 years back. § Launched W&M special, W&M 13 and Black Dog variants over the last 2 years. o Target to reach 20% market share with 275, 000 case sales at a 35% CAGR over next 2 years. o To straddle all scotch sub-segments using W&M portfolio. Launch of Value scotch brand as well as high vintage variants planned. o Further increase scotch distribution to 25000 retail outlets from current 15000 spread.
Going forward, W&M’s primary focus would be to expand its share of the global branded scotch whisky market (cont…) Strategic focus Plan q Increase presence in key emerging markets. Reduce UK share of Tap growth in other emerging markets branded business from 45% to less than 30% over next 3 years. o China (60%+ 8 Y CAGR) and Russia (20% 8 Y CAGR) – key focus markets. q Tap opportunities in private label in key markets of Europe Judiciously position private label and bulk business o Build presence in key markets of Western Europe. E. g. Germany, Spain. 70% of current W&M private label business in UK. q Bulk scotch supplies to be focused on servicing growth in India.
W&M Guidance • As a result of the deliberate downplay in bulk and focus on branded business, the net sales in FY 2011 will be GBP 110 Mio. • The EBITDA for FY 2011 would be about GBP 33 Mio. This level and trend of EBITDA would be adequate to meet debt servicing and Capex until May 2012. • The fundamental shift in strategy, which creates long term value accretion to shareholders and a sustainable business model will generate an annual EBITDA of GBP 60 Mio in 5 years time. • The company has received several expressions of interest to refinance the debt. 14
USL Consolidated • 15 The new business model of WM will still provide an accretive EPS at USL consolidated level.
United Breweries: Overview Business Overview Financial Snapshot- Q 1 ( INR Crs. ) • With over 50% market share, UBL is the undisputed leader of Revenue the Indian beer industry, with over 5 decades of market leadership • Sold 101 MM cases during FY 2010 • Kingfisher is the ubiquitous Indian beer, available as Kingfisher Premium, Strong, Blue, Red and Ultra • UBL is uniquely positioned with manufacturing facilities in all EBITDA key markets − Ensuring freshness of beer − Leveraging India’s interstate tariff difference to economic advantage UBL – Heineken Deal • Heineken holds 37. 5% stake in UBL and has a shareholder’s agreement with UBL based on which Heineken will be active PAT in India solely through UBL. We are working towards creating a unified structure, and realize synergies • Heineken will be produced in India by UBL will now have an access to Heineken’s distribution and manufacturing facilities in the international markets, which UBL is currently catering through exports 16
United Breweries: Q 1 Update • UBL volumes have grown with 32%, powered by a 36% growth in strong beer. • NSR growth of 36% is resulting for 90% from volume increase and 10% from price • With an industry growth of 30%, UB continues to strengthen its relative market share of >200 bps Benefiting from economic growth and favourable weather, all regions except the North showed growth rates of 25% and above. • • In absolute terms, Andhra Pradesh, Karnataka and Maharashtra were the main contributors to our growth. • EBITDA margin up from 15. 9% to 20. 0% due to strong topline growth combined with contained fixed costs 17
United Breweries: Financials & Debt Financials Q 1 FY 2011 Q 1 FY 2010 Growth 776 557 37% Cost of Sales 377 280 34% Gross profit 399 285 EBITDA 155 PAT 76 in INR Crs Revenues • 72% growth in EBITDA 40% • PAT more than doubled 90 72% • 35 114% Net debt/LTM EBITDA comfortably below 2. 5 x Debt profile in INR Crs Net Debt 18 Q 1 FY 2011 Q 1 FY 2010 473 599
United Breweries: Strategy Going Forward • India is one of the World’s most exciting beer markets − Beer consumption is only 1. 3 liter per capita − Excellent demographics, an expanding middle class, and increasing income levels have huge potential to propel domestic demand − Disposable income set to increase significantly on back of sustained GDP growth • The industry is projected to grow 10 – 15% volumes in the near term, and UBL will take its share • UBL plans to continue investing in capacity and capability to meet growing consumer demand • UBL expects to benefit from economies of scale arising from capacity growth both strategically and financially • UBL intends to focus on the emerging premium segment through offerings such as Kingfisher Ultra and Heineken 19
Kingfisher Airlines: Overview Business Overview • Started airline operations in May 2005, merged with Deccan Aviation w. e. f. April 2008. Operates around 380 flights a day • Started international operations in September 2008 by connecting Bangalore to London • Network spread across 61 Indian cities and 8 foreign cities with a fleet size of 66 aircraft • Carried 3. 1 Mio passengers in Q 1 FY 2011 Market Share KFA Is Focused on Profitability • KFA has cut capacity by 20% % in domestic & 6% in international routes. Number of aircrafts reduced by 20 % (80 vs. 64) in the same period • Aircraft utilization has been increased by 11% (FY 2010 vs. FY 2009) to ~12 hrs for Airbus and ~10. 3 hrs for ATR’s 20 Financial Snapshot ( INR Crs)
KFA: Q 1 Update Overall EBITDA profit of Rs 127 Cr (An improvement of Rs 198 Cr over Q 1 FY 10) • Domestic operations EBITDA profit at Rs 177 Cr in Q 1 ’ 11 (An improvement of Rs 101 Cr) − Domestic EBITDA margin improved from 6% to 13% − Total RASK of domestic operations improved by over 26% to Rs 4. 63 over Q 1 FY 10 Load factor up 12 percentage points to 81%; ATV improved by 5% over same period last year Ancillary revenue doubled in comparison to Q 1 FY 10; driven by growth in Xpress Cargo & FFP alliances − Ex-Fuel CASK reduced by 10% over FY 10 (Rs 2. 65 vs. Rs 2. 95) on the back of several cost control initiatives • International operations EBITDA Loss at Rs 51 Cr (An improvement of Rs 96 Cr) − New International routes launched in calibrated manner Presence expanded on existing markets of LHR, HKG, BKK and DXB in order to strengthen position − Initial performance in line with expectation - EBITDAR profit margin of 4% ( vs loss of 110% in Q 1 ‘FY 10) − Revenue has increased 4 times with a doubling of capacity on international routes Load factor up 16 percentage points to 76% ; Revenue per RPK improved by 46% over same period last year 21
KFA: Q 1 Update • Total Operating Revenues of Rs. 1, 640 Cr (+29% over Q 1 FY 10) − Domestic Revenues of Rs. 1, 324 Cr vs. Rs. 1, 191 Cr in Q 1 FY 10; 11% increase in revenue despite 14% reduction in capacity (seats offered) − International Revenues of Rs. 316 Cr vs. Rs. 81 Cr in Q 1 FY 10; growth disproportionate to capacity increase • EBITDAR profit of Rs 367 Cr vs. Rs 226 Cr profit for Q 1 FY 10 − Domestic EBITDAR of Rs. 354 Cr vs. Rs. 315 Cr in Q 1 FY 10; improvement of Rs 39 Cr with improved EBITDAR margin of 26% vs. 24% in Q 1 FY 10 − International EBITDAR profit at Rs 13 Cr ; improvement of Rs. 102 Cr in comparison to Q 1 FY 10; improvement seen on the back of strong acceptance of Kingfisher product and new route additions • EBITDA profit of Rs. 127 Cr vs. loss of Rs. 72 Cr in Q 1 FY 10 − Domestic EBITDA profit of Rs. 177 Cr vs. profit of Rs 75 Cr in Q 1 FY 10; despite excess costs of Rs. 35 Cr incurred on account of aircraft on ground in the current quarter − International EBITDA loss of Rs. 51 Cr vs loss of Rs 147 Cr in Q 1 FY 10 22
Kingfisher Airlines : Key parameters Load Factor Trend Average Ticket Value Trend
Kingfisher Airlines: Initiatives Cost-reduction initiatives • Non Fuel cost Reduction of Rs. 530 Cr achieved in domestic operations FY 10 Capacity rationalization • 20% reduction in domestic operations and 6% reduction in international operations in FY 10 • Reduction in lease costs through redelivery of non-operational • Shifting of capacity from Kingfisher Class to Kingfisher Red - aircraft and lease renewals at lower rentals (~ Rs. 176 Kingfisher Red now accounts for around 65% of the capacity Cr reduction in FY 10 over FY 09) offered on domestic routes • Reduction in personnel costs by replacement of expat pilots by Indian pilots (~ Rs. 108 Cr reduction in FY 10 over FY 09) • Achieved reduction in other operating costs through tighter controllership (~ Rs. 246 Cr reduction in FY 10 over FY 09) • Appointed Seabury as aviation consultant and identified further improvement opportunities of Rs. 168 Cr • Fuel monitoring system implemented to drive reduction in fuel consumption • Renegotiating vendor contracts in order to reduce engineering & maintenance costs • Planned reduction of S&D costs through restructuring of GDS contracts and planned channel shift • Significant further reduction possible on Fuel & Airport charges based on improved cash flow To join One World Alliance in 2011 • Would provide greater access to international network without significant capital expenditure • Appreciable increase in Domestic and International traffic expected through this alliance
Kingfisher Airlines: Strategy Going Forward • • Further revenue enhancement initiatives planned in FY 11 − Membership with One World Alliance to drive passenger growth in domestic and international markets − Launch of code share operations with British Airways − Further leveraging international Points of sale to stimulate demand in key international markets − Further growth of ‘Kingfisher Xpress’ service to tap under penetrated DTD air-cargo delivery market Stringent cost reduction initiatives planned − Reduction in S&D costs by undertaking a channel shift and other planned initiatives around the GDS systems − Reductions in Engineering & Maintenance costs through new contracts in specific areas − Further tighten controls across Overheads Equity being infused through GDR issuance and infusion of promoter funds − Conversion of Rs. 3, 950 mio of unsecured loans & preference capital from UB Group into equity − Planned Infusion of equity amounting to Rs. 3, 500 mio in FY 2011 − KFA to raise around USD 200 mio by issue of GDRs in FY 2011 • Citibank, Morgan Stanley, CLSA and UBS have been appointed as the bankers • Preliminary road shows have been conducted SBI Caps has been mandated with the task of financial restructuring − Process is expected to be completed in a 6 - 8 weeks time period − Proposal: 9 year repayment of all loans with a 2 year moratorium on principal repayments
UBHL Overview • Single window to invest in the growing Indian consumer story • • • Owns controlling stakes in UB Groups’ market leading companies: USL, UBL, KFA. Each of the principal investments is dominant leader in its space Each investee company is in a fast growing segment catering to current and emerging consumer trends • Apart from the above key investments, other group investments into engineering, fertilizers are also through UBHL • Transparent shareholding structure and ultimate economic benefit of holding in each of the investments flows to UBHL • Also holds stake in UB City and UB Global • • • Engaged in the export of spirits, beer, leather footwear, apparel and processed foods UB Global’s turnover for Q 1 FY 2011 was about Rs 34 Crs Prestigious clients such as GEOX, Esprit, Bugatti, Pavers England, Asda, Colins, Gaastra and Next 26 UB CITY • Is in the heart of Bangalore’s central business district • UB City complex comprises of serviced apartments, restaurants, food courts, pubs, health clubs, cafes and multi-level parking facility • UB City is the best mixed use development – City scape awards • Annual rental revenue – from commercial space Rs. 25 Crs and from retail space Rs 9 Crs • Planning permit obtained for construction of additional 500, 000 square feet by way of super premium residential space in UB City. 55% accrues to UBHL
UBHL : Q 1 Financials & Value of Investments Financials Value of Investments Q 1 FY 2011 Q 1 FY 2010 Revenue 68 70 EBITDA 26 27 Shareholders’ Funds 1, 624 1, 510 Net Debt 1, 522 1, 305 in INR Crs *Closing prices of July 20 th, 2010 Assets Equity Stake of UBHL CMP (Rs. ) Market Cap * (INR Crs. ) Value of UBHL investments (INR Crs. ) USL UBL 29. 11% 12. 6% 1, 391. 5 234. 7 17, 476 5, 634 5, 087 711 KFA 60. 6% 49. 4 1, 314 796 MCF UB Engineering Mc. Dowell Holdings Real Estate Total Less Net Debt Net Asset Value 24. 5% 34. 2 405 99 37. 2% 194. 2 331 123 36. 2% 96. 1 117 42 892 7, 751 1, 340 6, 411
Diversified Business Interests Mangalore Chemicals & Fertilizers Ltd. • • • UB Engineering Ltd. • • Only manufacturer of chemical fertilizers in Karnataka Produces a wide range of products that include urea, di-ammonium phosphate, granulated fertilizers, micronutrients and soil conditioners Q 1 FY 2011 – Total Income Rs. 490 Crs (+22%) – PAT Rs. 13 Crs (+67%) Into EPC, O&M and Erection services for large industrial projects such as power, refineries, steel, cement, etc YTD FY 2010 – Total Income Rs. 527 Crs – PAT Rs. 31 Crs (+46%) Royal Challengers • The Bangalore-based franchisee – one of eight – in the Indian Premier League T 20 cricket tournament – possibly the world’s largest commercially run sports event Vittal Mallya Scientific Research Foundation • Is a non-profit organization named after Dr. Vijay Mallya’s father, Mr. Vittal Mallya Is into research in areas of biotechnology and organic chemistry 28 •
Thank You 29
United Spirits: Raw Material Cost
United Spirits : Glass Cost Movement
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