CFA Investment Research Challenge presentation by David Antunes & David Buyck

1. ORIOR CFA GIRC Neuchâtel
Investment Analysis December 17th 2011

2. SNAPSHOT & RECOMMENDATION
1. ORIOR Snapshot & Recommendation
1.1 Financial Snapshot: Business Segments
A business dedicated to meat refinement, processed meals & convenience food:
‣ Refined meat sales are contributing 56% to sales (2010)
Graph I. - Segment revenues, Assets & Utilization efficiency (2010)
REFINEMENT CONVENIENCE CORLOGEX
56% 38% 6%
RENVUES
52% 16% 33%
ASSET UTILISATION
EBITDA (MCHF) 25,6 31,6 - 3,2
EBITDA / ASSETS 9,1 36,6 - 1,7
2010 INVESTMENTS 53% 36% 11%
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3. SNAPSHOT & RECOMMENDATION
1. ORIOR Snapshot & Recommendation
1.1 Financial Snapshot: Past Results & International Presence
Company contracts with local partners (95% of sales in Switzerland).
‣ Company exports to markets where operating (EBIT) margins are lower.
‣ Slight increase in revenues, combined with higher margins
improved the bottom line (EPS dropped due to IPO).
Graph 2 - Sales per country (MCHF)
20.000
Table 1 - Revenues - EBITDA - Net Income
(MCHF) 2008 2009 2010 YoY change 15.000
REVENUES 463,3 500,7 505,5 1,0% 10.000
EBITDA 45,0 52,2 54,2 3,8% 5.000
NI 12,2 24,0 26,9 12,3%
0
EPS (CHF) 2,2 5,6 5,0 -11,5% 200 2009 2010
France Italy Total Germany
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4. SNAPSHOT & RECOMMENDATION
1. ORIOR Snapshot & Recommendation
1.2 Recommendation to SELL at 46,31 CHF
LIMITED ACQUISITIONS OPPORTUNITIES RETAIL
High performance requirements Increasing backward integration by retailers
Financing cost inversely linked to performance Significant bargaining power
SELL
EXPORTS REFINEMENT
Franc limits CH produce export
Depressed consumer sentiment
Contrary momentum EU markets
Stagnant market (< market growth)
Customs (tarifs & quotas) barriers
CONVENIENCE
Future convenience growth not materialized yet
Loss of major wholesale contract
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5. SNAPSHOT & RECOMMENDATION VALUE CHAIN
2. Value Chain: Producers
RETAILERS
PRODUCERS PROCESSORS CONSUMERS
PARTNERS
Production & external factors drive up prices:
Production and external factors drive up prices:
(%) Graph 3 - Cross-Country Self-Sufficiency
‣ Lacking Swiss self-sufficiency 300
Source: : Eurostat, DG Agriculture, Swiss Agricultural Report (’04)
‣ Concentration of beef slaughterers 225
202
150 165
‣ Global meat consumption unsustainable
115 113 107 107 105
75 82 76 75
‣ Rising prices in food concentrates
0
NL BE ES DE FI EU-15 FR SW IT CH
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6. SNAPSHOT & RECOMMENDATION VALUE CHAIN
2. Value Chain: Processors & Retailers
RETAILERS
PRODUCERS PROCESSORS CONSUMERS
PARTNERS
Backward integration & market share of retailers increases pressure on margins:
‣ Retailers (Migros & Coop) increase their participation in the value chain.
‣ High concentration of retailers > negotiation strength > higher prices.
Graph 4 - Herfindahl-index : Neighboring countries concentration
28%
30%
Source: : Own computations
20%
10%
10% 8% 7%
5%
3%
0%
CH NL FR DE (09) AT (06) IT (09)
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7. SNAPSHOT & RECOMMENDATION VALUE CHAIN
2. Value Chain: Consumers Trends
RETAILERS
PRODUCERS PROCESSORS CONSUMERS
PARTNERS
New food trends have not materialized yet:
‣ Falling household size is expected, although substation changes observed.
Convenience
‣ Population growth by management overoptimistic
Health
ckaged
Organic • Pre-Pa to Heat
Functional • • • Ready
‣ No indication R&D related to sensory or • Portable
Nutritional • • Ready to E
health convenience product types. at
‘Free From’ • Health Convenience
t, Salt•
Low Fa
Convenience
Convenience Convenience Sensory Sensory
Health Health
Gourmet • • Flavour
Sensory • Variety
Premium • • Ethn
ic/Exot
ic
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8. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.1 Top-down approach: SWOT analysis
STRENGTHS
WEAKNESSES
Poor geographical diversification
Solid position in niche markets
Stagnant meat market
Strong corporate culture
Dependence on meat prices
Innovation
Dependence on major Swiss retailers
SWOT
OPPORTUNITIES
THREATS
Push Bundnerfleisch internationally" Free trade agreements with EU
"
International acquisition
Retailers are backwardly integrated
Growth prospects in the " Increasing market share of hard
Convenience segment
discounters (i.e. Lidl and Aldi)
2011 CFA Global Investment Research Challenge
ORIOR Investment Analysis 8

9. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.2 Revenues Forecasts
Revenues’ CAGR 2010-15 equal to 1,4% Disappointing Convenience Segment
drives 2011 sales down
Graph 5 - Total Revenues per Segment (MCHF) Graph 6 - Total Revenues (MCHF)
350
288 291 294 297 Refinement: ‘10 - ‘15 550 542
284 285
CAGR: 0,9%
538 529
263
207 214 525
200 196 196 201 Convenience: ‘10 - ‘15 518
CAGR: 1,38% 513 508
175 506 504
500
88 10 11 12 13 14 15
20 E2
0
E2
0
E2
0
E2
0
E2
0
31 CORLOGEX: ‘10 - ‘15
21 22 24 26 28
CAGR: 7,78%
0 Graph 7 - Convenience Revenues (MCHF)
10 01
1
01
2
01
3
01
4
01
5
20 E2 E2 E2 E2 E2 220
214
215
-2 %
210
,0% 9,3 207
‣ Refinement mature market with low growth. 205
200
201
200
196
196
‣ Convenience growing market (3 and 3,5% p.a.). 195
190
‣ CORLOGEX fastest growing segment. 185
10 11 12 13 14 15
20 E2
0
E2
0
E2
0
E2
0
E2
0
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10. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.3 Margins Forecasts
Operating margins under pressure in 2011, rebounding afterwards Major Assumptions (2011-2015)
Gross Margin
Graph 8 - Gross Margin & EBITDA Margin
% %
(1) COGP based on revenues:
Gross Margin EBITDA Margin
41 12 Table 2 - Costs of Goods Purchased (% of revenues)
40,3
40,0 1HY 1HY
39,8 2010 E2011 E2012 E2013 E2014 E2015
10,7 11 2010 2011
10,4
40 COGP 58,6% 59,2% 62,7% 62,5% 62,0% 61,5% 61,3% 61,0%
9,9
9,7 10
9,5 39,0
9,2
39 8,7 38,5
38,8
9
‣ Worldwide increase in meat prices
increase COGP
38,0 8 ‣ Poor global macro outlook
38
7,4 eases mid-term food prices pressure
37,5
7
EBITDA Margin
37 6
2008 2009 2010 E2011 E2012 E2013 E2014 E2015
(2) Goodwill impairment as revenues
Gross Margin EBITDA Margin growth for 2011 lower than 1%
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11. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.4 Cash availabilities
Standing Credit Facility Utilization Assumptions (2010-2015)
60
Thousands
45.3
No Utilization (1) PP&E
40
28.5
20
14.8
2010-2014
-2.1
Growing at revenues’ CAGR of 1,4%
MCHF 0
-20
-19.8
2015-onwards
-40
Equal to the depreciation of the period
-60
E2011
E2012
E2013
E2014
E2015
60
45.3
(2) Acquisitions
With Utilization
40
28.5
24.6
22.2
18.8
2011
20
Kellar SA and Bernatur
MCHF 0
-20
2012-2014
40MCHF over 3 years
-40
-60
2015
No acquisitions
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12. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.5 Equity returns, Leverage & Liquidity
ROE hampered by low operating profitability Sufficient liquidity to cover ST claims
Table 3 - RoE decomposition
Graph 9 - Current Ratio
Measure Ratio 2009 2010 E2011 E2012 E2013 E2014 E2015
ROE 33,3% 15,6% 7,8% 10,1% 10,6% 10,4% 10,4% 1.92
2.00
Profitability NI/Sales 4,6% 5,2% 2,7% 3,7% 4,1% 4,2% 4,4% 1.71
1.75
1.74
1.72
1.74
1.75
Assets Turn. Sales/TA 1,28 1,30 1,32 1,30 1,27 1,24 1,22
1.50
Leverage TA/E 5,68 2,29 2,21 2,11 2,05 2,01 1,95
1.25
1.29
Table 4 - Debt repayment
1.00
2009 2010 E2011 E2012 E2013 E2014 E2015
09 10 11 12 13 14 15
Debt payments -30.018 -79.952 -11.750 -12.500 -13.250 -7.000 0 20 20 E2
0
E2
0
E2
0
E2
0
E2
0
Credit lines 0 0 0 10.000 15.000 15.000 0
Graph 10 - Debt Covenants evolution
2.50
350%
Orior is limited by the covenants to leverage up
Net Debt / EBITDA Covenant
Net Debt / EBITDA
300%
2.00
Equity / Assets
2.00
1.81
250%
‣ Net Debt / EBITDA < 3
1.50
1.71
1.67
200%
1.45
1.00
150%
‣ Equity / Assets > 35%
100%
0.50
45.25%
47.40%
48.89%
49.83%
51.42%
50%
Equity/Assets Covenant Covenants are not breached
-
0%
2010
E2011
E2012
E2013
E2014
E2015
allowing utilization of the Credit Line
2011 CFA Global Investment Research Challenge
Net debt/EBITDA
Equity/Assets
ORIOR Investment Analysis 12
Covenant
Covenant

13. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.6 Discounted Cash-Flow valuation
Fundamental value is in line with the market price Discounting Assumptions
E2011 F2012 F2013 F2014 F2015 WACC COMPUTATION
FCFu 20.069 15.775 14.755 9.052 33.807
Discount Factor 100% 92% 86% 79% 73% Rf 2,44% Debt 60%
DFCF 20.069 14.590 12.623 7.162 24.742 Market Pr. 8,00% Equity 40%
PV (2011-15) 79.186,08 Beta 1,00 wacc 6,87%
PV (Terminal value) 345.460,7 Re 10,44% Liquidity Pr. 1,25%
EV 424.646,8 Tax rate 22% TV growth 1,40%
LT Debt 104.983 Rd 5,75% WACC 8,12%
Cash 45.298,00
Equity 274.365,8
Total shares (M) 5.925,00 Orior Peer Valuation
Price 46,31
70
Peer performance indicates that Orior is overpriced 60
CHF / SHARE
Fleury 50
46,31 DCF
Bell
Huegli
LDC
Median
DCF
Michon
40
P/E
10,57
5,79
7,25
10,05
8,65
P/E
30
Orior price
48,60
40,82
33,30
46,20
43,51
P/B
P/B
1,28
1,36
0,75
1,10
1,19
20
Orior price
36,70
38,99
21,50
31,54
34,12
10
0
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14. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS
3. Financial Analysis
3.7 Investment Risks & Exposures
Risk investors are (indirectly) exposed to:
1. Concentration of receivables
1. Credit & New
Liquidity Competitors
2. LIBOR, EURIBOR exposure
High
8. CHF 2. Financing
Costs 3. Liquidity issues in banking market
4. Insider 3. Credit
trading lines
4. Possible pre-announcement drift
5. OBS Animal 6. Trading
RISK
Medium
claims Deceases volume 5. Large OBS operational leases
7. EU-MS 6. Low trading volume after IPO
7. Brake-up of EU agreements
Low
8. Further strengthening of CHF
PROBABILITY
Low Medium High
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15. SNAPSHOT & RECOMMENDATION VALUE CHAIN FINANCIAL ANALYSIS SUMMARY
4. Summary
Wrapping-up
‣ Active in both premium and budget segments
Low geographic diversification cap refinement growth
‣ Good margins & solid position in niche markets
Selective criteria for acquisition targets
Focus on horizontal VC expansion
‣ Convenience food sales expected to increase
R&D not in line segments growth
Investment policy inconsistent (focus on Refinement)
‣ Unfavorable market conditions (lower consumer and business confidence)
Due to backward integration Orior is hit by retailers’ repricing
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