Message of the Chairman

Honored partners,

Economic And Sectoral Assessment

Because of the impact of the coronavirus outbreak not just on our own country but on the whole world, 2020 is a year that we will not easily forget for a very long time. Owing to the effects of the epidemic and to the measures taken and restrictions imposed to deal with them, everyday life and economic activity occasionally came to a standstill and unemployment, on the rise everywhere in the world, became a serious issue. To help businesses suffering from the pandemic, many countries’ governments unveiled support packages and launched low-cost credit programs while their monetary authorities adopted expansionary monetary policy stances.

Here in our own country, where many sectors likewise struggled to cope with the pandemic, increased demand for food products and a huge rise in at-home consumption made food retailing one of a very few business lines that were able to remain strong and go on contributing to economic growth. Migros for its own part took every possible measure both throughout its stores and in its administrative units needed to prevent the spread of infection, to protect customers and employees, and to provide a safe and healthy shopping environment. Joining forces with its suppliers and thanks also to the great dedication of its employees, Migros was able to ensure uninterrupted access to foods and other necessities even during the earliest days of the pandemic.

Strategies and Operational Performance

While contending with the pandemic conditions that prevailed, for Migros 2020 was also a year in which growth and investments emerged to the fore. Despite the year’s tough operational challenges, the company continued to undertake investments. In 2020, 183 new stores were opened. Thus, the Company’s store portfolio reached 2,319 stores. In addition to these new store openings, Migros also continued to invest in its online operations: both operational capacity and the service network were substantially expanded during the year in order to respond to rapidly-growing demand. As of end-2020, Migros was in the position of supplying online service to customers in all 81 of Turkey’s provinces. One of the most crucial lessons taught by the pandemic is the importance of having a strong presence in both physical stores and online channels.

Owing in part to the company’s physical growth but also to the contributions made by its online operations, consolidated sales were up by around 25.9% year-on-year in 2020 and reached TL 28.8 billion. The company continued to generate strong cashflow through the conduct of its operations last year and, despite higher costs arising from the effects of the pandemic, Migros’ EBITDA reached TL 2.35 billion and its EBITDA margin was 8.2%.

Food retailing is an extremely competitive sector in Turkey and increasingly more stores are being opened year after year. Another thing we’re witnessing is that the pandemic is also attracting new players into online channels. However, Migros continues to grow sustainably and to gain new market share.

A Healthier Balance Sheet

Esteemed partners, there is a matter concerning our company’s balance sheet to which I think it is especially important to draw your attention. Migros substantially reduced its exposure to EUR-denominated debt during 2020 and, as of April 2021, it carried no EUR-denominated debt at all. This is an achievement which has both eliminated a serious balance sheet risk and strengthened our company’s balance-sheet structure.

Migros’ Credibility

Migros’ credibility and the confidence it inspires manifest themselves not just among consumers but also among financial institutions, the latter especially owing to the significant improvements in its financial position. In July 2020, the international credit rating agency Fitch Ratings upgraded Migros’ national long-term credit rating from ‘A+(tur)‘ to ‘AA(tur)‘ with a “Positive” outlook.

The improvements in our company’s operational and financial performance are also being looked on favorably by domestic and international investors. Migros’ market capitalization was up by more than 75% in 2020 and the company’s publicly-traded shares attracted even stronger interest among international investors.

Good Agriculture, Good Future

Esteemed partners Migros strives at all times to keep its customers supplied with food products that are affordable, healthy, and fresh. We live in a country the richness and productivity of whose agricultural resources are like those of no other country in the world. That is why the Anatolian heartland has been the home of many different civilizations throughout history; its soil remains as generous and bounteous as ever even today. For our own part, we strive to be equally generous and bounteous in our attention to the land. For more than a decade, we have been supplying our customers with agricultural produce that conforms to the set of Good Agricultural Practices published by the government. We contribute to agricultural sustainability by educating farmers and making them aware of the need for fresh fruits and vegetables that are wholesome and whose sources are known. We support our country’s farmers, producers, and smallholders in other ways as well: we support the more widespread cultivation of local heritage crops; we introduce local culinary specialties to consumers around the country by stocking them in our stores; we encourage growers to plan production more carefully by entering into procurement contracts with them; we work increasingly more closely with the Agricultural Credit Cooperatives. In these and all of our other efforts, our actions are guided by our belief that having access to healthy and affordable fruits and vegetables is everyone’s right and that we have a responsibility to future generations to see to it that they do.

Expectations for the Future

Esteemed partners, in 2021 and the years ahead we intend to continue focusing on growth, on opening new stores, on investing in our online operations, and on creating new business lines as we seek to keep pace with our rapidly-changing world. We will also continue to increase our productivity while simultaneously keeping our costs under control. We will make every possible effort to create even more value for all our stakeholders. I am hopeful that the future will be even better and brighter for Migros and for all of us.

I wish you, your families, and your loved ones the very best of health as we advance into that future.

Very truly yours,

Tuncay Özilhan

Chairman of the Board of Directors

Migros Ticaret A.Ş.

Message of the CEO

Valued Migros stakeholders:

Economic Review and Migros’ Position in the Sector

Although our country’s economic indicators were signalling strong growth ahead at the outset of 2020, the pandemic that engulfed the whole world beginning in March transformed that picture beyond recognition. We have just completed a most challenging and volatile year during which we experienced a sudden the economic contraction in the second quarter followed by a rebound as a process of normalization got under way in the summer. Although the global economy shrank to a considerable degree in 2020, the Turkish economy still managed to grow 1.8% year on year.

As these extraordinary events unfolded, Migros managed to keep its supply chains alive from the very first day thanks to employees whose dedicated efforts ensured that customers were kept supplied with food and other basic necessities despite the most difficult of working conditions. To cope with rising customer demand, our Company opened new stores, substantially increased the capacity of its online operations, hired thousands of new personnel, and introduced a variety of innovative practices to make customers’ lives easier.

While retailing in general registered strong growth last year, we witnessed across-the-board expansions in both the organized and unorganized food-retailing markets. Migros for its part continued to distinguish itself and to strengthen its position in the sector by virtue of its range of affordable products, service quality, and omnichannel capabilities.

Financial and Operational Performance

Migros’ consolidated sales grew by around 25.9% year-on and reached TL 28.8 billion in 2020. Our Company opened 183 new stores in 2020 and total number of stores reached 2,319 by year end 2020.

Our online sales tripled in 2020 compared to the previous year thanks to increased service capacity and made a truly significant contribution to the company’s consolidated growth. Last year, Migros spent a total of TL 539 million on investments to support its growth in both physical and online channels, to improve existing infrastructure resources, and to put new technologies into service.

Although doing business in the midst of a pandemic increased our operational costs, Migros nonetheless booked a consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) of TL 2.4 billion in 2020 with an EBITDA margin of 8.2%. However, interest expenses and especially FX rate hikes necessitated a variety of financial charges with the result that Migros posted a net loss of TL 403 million in 2020. Nevertheless the resources generated by our operations in 2020 along with earnings received from asset sales allowed us to improve the health and structure of our balance sheet by reducing our exposure to FX-denominated debt: at end-2019, our company showed a gross FX debt of EUR 430 million on its books; as of April 2021, it had none at all. In line with our decision to exit from our foreign operations, we will be focusing entirely on our domestic operations in 2021 and we plan to open at least 170 new stores, to hire 6,500 new employees, and to invest approximately TL 600 million.

Coping with the Pandemic Environment

Conducting operations under the conditions dictated by the pandemic, last year was extremely challenging for all of us. Owing to restrictions imposed in many countries around the world, our conventional notions of social life and work life lost much of their meaning and the ways in which companies organize their operations and do business were also affected.

Doubtless very few people could ever have imagined that a public health problem could occur on such a global scale or that its impact on everyday life and business could be so severe. When putting together our 2020 budget and formulating our strategies for the period ahead we could not have foreseen even early on that the effects of a pandemic would force us to change our expectations many times in the course of the year. Perhaps we have never witnessed such a game-changing year as 2020, a year in which what we had anticipated and what actually occurred were so different from each other. On the other hand, we have seen once again how capable Migros’ management and personnel can be when adapting to and dealing with changing conditions.

In previous years, while many retailers in many countries focused exclusively on increasing customer footfalls in their physical stores, as Migros, we focused on “the growth through omnichannel strategy” at the beginning of 2019. At that time, Migros’ online operations were accessible only in 30 cities in Turkey. We made our plans accordingly and set ourselves and announced a target of serving all 81 cities by the end of 2020. Of course back then, nobody could have anticipated an epidemic on such a global scale. However, when restrictions radically altered shopping habits at a time when our customers were most in need of us, we stepped in quickly to satisfy their new expectations. The teams that we had set up throughout the company knew what needed to be done: the target dates on previously made short and long-term plans were quickly moved forward; the number of online service stores tripled; our supply-chain channels were kept open; thousands of new people were hired in the course of just a couple of weeks; some of our stores in shopping malls, which were closed due to pandemic-related restrictions, were temporarily converted into darkstores to support our online operations. The result was that by midyear, Migros’ online operations were being provided in all 81 cities in Turkey. To sum up, we adapted quickly to pandemic conditions and we are emerging from this process even stronger than we were when we embarked upon it. What made and kept us strong last year were our omnichannel strategy, our ability to adapt to change, our planned rather than haphazard responses, our agile and goal-focused teams, and our bedrock culture of getting the job done which we have worked so diligently to foster over many years.

Coping with the Future

Esteemed partners, we can be certain that henceforth we’ll be encountering even more competition in the online channel because the pandemic has made it more attractive to new players. We can be certain also that more retailers, more entrepreneurs, and more new companies are going to invest in this channel and that in turn they will be followed by still more. For our own part, we will continue to expand our online operations with the support of our bricks & mortar retailing channel by offering even more competitively priced products and by managing those operations even more efficiently through new technologies such as our TARO robotic order-picking system.

However, what’s more important for us now than what happened last year is what the future has in store for us. And for that our teams have already begun formulating strategies that will enable us to be the first to exploit every opportunity that may arise from whatever changes may occur in the post-pandemic landscape.

We have installed kitchens in some Migros and Macrocenter stores that prepare ready-meals made from wholesome, natural ingredients. We’ve begun offering our customers choice examples of traditional Anatolian and international cuisine in those stores and also through online operations. We’ve launched our Pizza Mi-Go brand of pizzas freshly baked in our in-store ovens. We’ve introduced and are making use of blockchain technology to provide our customers with end-to-end fresh-produce handling transparency: using the “Migros Blockchain” feature of the Migros Mobile App, customers can easily get information about how more than 750 fruits and vegetables bearing the “Migros Blockchain” logo have moved from field to shelf.

In addition to exploring new business lines that are capable of contributing to our future growth and development, we’re also working on a variety of new store formats, one of them being a 24/7 self-service store. On the other hand, our MoneyPay digital-wallet mobile app is equipped with such features as contactless payment, money transfers, new payment options for consumers, and allocated credit limits that customers can use to pay for their shopping purchases. Launched last year, MoneyPay is a new Migros subsidiary that is currently gearing up to enable our company to tap into the new opportunities made possible by next generation financial technologies.

Migros’ response to consumers’ heightened health, quality, trust, and environmental concerns as the pandemic process unfolds is informed by its many years of experience with addressing such issues. Our efforts in such areas as promoting healthy lifestyles, reducing food and plastic waste, farming sustainably, combating climate change, standardizing and clarifying product information, and upholding gender and equality opportunity gain increasingly greater strength through practices capable of serving as benchmark references not just in our own country but throughout the world.

Lean Transformation is Good For You

Esteemed Migros stakeholders, the Migros approach to management is one that is both flexible and agile. We are confronted by conditions that change with dizzying speed day by day. That, along with stiffer competition, means that the only way to keep pace with changing customer expectations is through strategies that are both insightful and correct. Traditional organizational structures and ways of doing business are simply incapable of supporting sustainable growth and development anymore.

With this in mind, as Migros, we must embrace a lean and value driven transformation process that fixes on the customer as its polestar. Since change is always going to be a part of our life, we must address transformation processes not as disconnected “projects” but rather as a part of the continuous development philosophy that underlies how we do business. We continue move forward with passionate Migros employees who are open to change and who constantly improve both themselves and what they do.

As Migros advances surefootedly towards its rightful place among the future’s leading retailers, we must all work to create a better future for Migros’ customers and employees and indeed for all of its stakeholders.

I offer you all my respects,

Ö. Özgür TORT

Board Member & CEO

Migros Ticaret A.Ş.