Honored partners,

Economic And Sectoral Assessment

The possibility of interest rate hikes to reflect improvements in the global economic outlook was on the agenda of many of the world’s developed countries last year, but now we’re talking about interest rate cuts once again due to worries about growth. This could create new opportunities from the standpoint of capital flows tp the developing countries including Turkey. Inflation, interest, exchange, and growth rates have become more predictable and credit costs have fallen in our country. This is beneficial to the private sector’s investment plans. The impact of such positive developments on employment too will be another issue that will need to be closely watched in the period ahead.

Strategies and Operational Performance

Looking back at the company’s performance last year we see that Migros’ growth was strong in 2019. The company’s sales were up by 23.9% year-on-year and its consolidated sales reached TL 23.2 billion. Its consolidated operating profit improved as compared with the previous year while its consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) topped TL 1.5 billion, (or more than TL 2.2 billion with IFRS 16). The EBITDA margin was 6.6% (9.6% with IFRS 16). Migros continued to generate strong cashflow from its operations last year and these resources improved as compared with the previous year. Despite its strong operational performance however, the Company booked a 2019 consolidated net loss of TL 492 million owing mainly to the surge in exchange rates, which pushed up financing costs.

Our country’s food retailing sector continued to grow last year. As consumers’ disposable income increases so too will the size of their food spend. Migros itself is continuing to grow and every year it creates thousands of new job opportunities. Our investments last year amounted to TL 341 million in value and we added another 137 new stores to our store portfolio. With the inclusion of our international operations, the total number of stores in our company’s portfolio reaches 2,198. That said, we are engaged in a highly competitive sector–a sector in which many new stores are being opened–but even in this competitive environment, Migros is also gaining market share. Let me also note that over the last three years, Migros has increased its turnover by 110% and we have been achieving that growth by attracting more customers into our stores and by improving the performance of our online operations.

The “Migros Good Future Plan”

Honored partners, what our customers eat is important to us. For this reason, we strive year after year to keep our customers’ tables supplied with wholesome, healthy foods. Thanks to the fresh food-specific distribution centers that we’ve been opening in the course of the last few years, we not only have increased productivity but we are also supplying fresher foods to our customers faster. You will recall the project on which we worked with the agriculture ministry a couple of years ago and the ensuing introduction of good agricultural practices to ensure the wholesomeness of fresh fruits and vegetables when they reach consumers by having produce quality checked against hundreds of control points. We subsequently extended the scope of those practices to include red and poultry meat products as well.

Esteemed stakeholders, at Migros we believe that while striving to manage our business more productively, everything that we do out of our sense of responsibility to society and the world will make those efforts more successful. For this reason we have gathered together all of the issues on which we focus under the heading of “sustainability” and we have incorporated them into our “Migros Good Future plan”, which sets out our strategies for dealing with a wide range of issues from climate change and combatting it to waste management and from the most effective use of Company resources to innovative practices. We are particularly mindful about managing ourtransportation costs, making effective and productive use of water and energy, and measuring and reducing our carbon footprint. Put briefly, we quantify the environmental impact of our operations all along our value-creation chain and take measures in line with set targets to minimize that impact. It is through such sustainability efforts that Migros is able to continue growing soundly and generate operational profitability. It is through the same efforts that we are able to make certain that our success remains sustainable in the future as well.

Expectations for the future

The issues on which our company will be focusing in the near and medium terms will be growth and increasing the amount of cash flow being generated by our operations. We are going to be opening new stores. We are going to be creating new jobs. Another issue to which we will be giving close attention will be further reducing the company’s euro-denominated debt. In the period ahead we are going to be working even more productively, keeping our costs in check, and achieving the things we set out to do. Just as we succeeded in doubling our sales over the last three years, so too will we be coming before you with even stronger growth figures in the years ahead. Very truly yours,

Tuncay Özilhan
Chairman of the Board of Directors

Migros Ticaret A.Ş.