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8/10/2019 Retail March 2014
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27
220
2012 2020E
Indian modern retail market size (USD billion)
0.5
1.3
2012 2020E
Indian retail market size (USD trillion)
1.0
3.6
2010 2020EIndia consumption expenditure (USD trillion)
Source: PWC, Economic Times, Aranca ResearchNotes: CAGR - Compound Annual Growth Rate, E - Estimate
CAGR: 13.9%
CAGR: 12.7%
CAGR: 30.0%
Consumer expenditureestimated to be USD3.6 trillion
by 2020 vis--vis USD1.0trillion in 2010
Rising income and demand forquality products to boost
consumer expenditure
Retail market in India to reachUSD1.3 trillion by 2020 from
USD0.5 trillion in 2012
Indian retail one of the fastestgrowing markets in the world
due to economic growth
Modern retail market to expandto USD220 billion by 2020 from
USD27 billion in 2012
Favourable governmentpolicies to boost investorconfidence and thereby
investments across modernretail formats
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Source: indiaretailing.com, Aranca ResearchNote: CAGR - Compound Annual Growth Rate
500
8,500
2006 2016E
Supermarkets in India
11,192
67,100
2006 2016E
Modern retail formats (store counts)
12
100
2006 2025E
FMCG market in India (USD billions)
CAGR: 7.6%
CAGR: 19.6%
CAGR: 32.8%
FMCG market expected toincrease to USD100 billion by
2025 from USD12 billion in2006
Robust consumption, ruralmarkets to augment FMCG
market
Modern retail stores projectedto reach 67,100 by 2016 from
11,192 in 2006
Increasing participation fromforeign and private players to
boost retail infrastructure
Supermarkets to total 8,500 by2016 from 500 in 2006
Rising number of tier-2 and tier-3 cities to enhance
supermarket space in thecountry
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Source: Technopak Advisors Pvt Ltd, Firstpost, Aranca Research
Manufacturersopened their ownoutlets
Pure play retailersrealised thepotential of themarket
Most of them inapparel segment
Substantialinvestmentcommitments bylarge Indiancorporate
Entry in food andgeneral
merchandisecategory
Pan-Indiaexpansion to top100 cities
Repositioning byexisting players
Initiation
Conceptualisation
Expansion
Consolidation
Large scale consolidation Movement to smaller cities and
rural areas More than 5 6 players with
revenues more than USD700million
Large scale entry ofinternational brands
FDI in single-brand retail up to100 per cent from 51 per cent
Approval of FDI limit in multi-brand retail of upto 51 per cent
Rise in private label brands byretail players
Sourcing and investment rulesfor supermarkets were relaxed
Pre 1990s
1990 05
2005 102010 onward
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Source: Aranca Research
Note: IT- Information Technology
Mono/exclusivebranded retail shops
Multi-branded retailshops
Convergence retailoutlets
Exclusive showrooms either owned orfranchised out by a manufacturer
Complete range available for agiven brand, certified product
quality
Focus on particular product categoriesand carry most of the brands available
Customers have more choices asmany brands are on display
Display most of convergence as well asconsumer/electronic products, including
communication and IT group
One-stop shop for customers;many product lines of different
brands on display
e-Trailers
It is an online shopping facility forbuying and selling products and
services; the facility is widely used forelectronics, health and wellness
Highly convenient as it provides24X7 access, saves time, and
ensures secure transaction
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Source: Aranca Research
Grocery Food and beverage Department stores Pharmacy Books, music andgifts
RETAIL
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Source: Company websites, Press Release, Aranca Research
Departmental stores HypermarketsSupermarkets/
Convenience stores Specialty stores Cash & Carry stores
Pantaloon has 75stores
Westsideoperates 74stores
Shoppers Stophas 66 stores
Reliance Retailhas launchedTrends in thisformat andcurrently hasnearly 100 storesacross India
Pantaloon Retailis the leader inthis format with162 Big Bazaarstores
HyperCITY (15stores), Trent,Spencers(Spencer Hyper),
Aditya Birla Retailand Reliance areother players
Aditya Birla Retail(additional 512stores)
Spencers (Daily,134 stores)
Reliance Fresh(700 stores)
REI 6Ten (350stores) are themajor players inthis format
Titan Industries isa large player,with 368 World ofTitan, 150Tanishq and 227Titan Eye+ shops
Vijay Sales,Croma and E-Zone are intoconsumerelectronics
Landmark, andCrossword focuson books and gifts
Metro started thecash-and-carrymodel in India; thecompanyoperates 16stores acrossMumbai, Kolkata,Delhi, Punjab,Hyderabad andBengaluru
Reliance openedits first cash-and-carry store inSeptember 2011and plans to open20 stores by theend of the fiscal
Retail
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Source: KPMG International, Aranca Research
Offering discounts Most retailers have advanced off-season sales from 15 days to a month with discounts
ranging from 20-70 per cent on certain products Higher discounts and other value added services for members
Lowering prices Certain retailers adopt First Price Right approach. Retailers do not offer discounts underthis strategy they directly compete on the selling price by offering a best price without
any markdowns
Offering value-addedservices
Companies offer innovative value added services such as customer loyalty programmes,happy hours on shopping deals
Offers for senior citizens, contests for students, and lottery gains are now very common
Leveraging partnerships In order to keep customers on shop floors for a longer time and increase conversions,
retailers are now pitching to partner with manufacturers, service providers, financialcompanies, etc. to create a buzz around certain product categories
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Source: Indian Retail Market January 2013,Deliotte, Aranca Research
Market break-up by revenues (2012)In 2012, Food and Grocery accounted for nearly 60.0 percent of total revenues in the retail sector followed by
Apparel (8.0 per cent)
In 2011, 48 per cent of total household income in India wasspent on food and groceries
Demand for western outfits and readymade garments hasbeen growing at 40-45 per cent annually; apparelpenetration is expected to increase to 30-35 per cent by2015 60%
8%
6%
5%
4%3%
3%
11% Food & Grocery
Appareal
Mobile and telecom
Food service
Jewellery
Consumer Electronics
Pharmacy
Others
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Source: Indian Retail Market January 2013, Aranca Research
Organised retail penetration (2012)
Organised Retail Penetration (ORP) in India is low (8 per cent) compared to other countries such as the US (85 per cent)
This indicates strong growth potential for organised retail in India
Contribution to organised retail (2012)
92%
8%
Unorganised retailpenetration
Organised retail
penetration
11%
33%
11%7%
6%
8%
4%
20%Food & Grocery
Appareal
Mobile and telecom
Food service
Jewellery
Consumer Electronics
Footwear
Others
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Source: indiaretailing.com, Deloitte report,Winning in Indias Retail Sector, Aranca Research
Note: Mom -and- pop stores are small stores that aretypically owned and run by members of a family
Significant scope for expansion in organised retailIndian retail market is in its nascent stage; unorganisedplayers control the market with 92 per cent market shareduring 2012
There are over 15 million mom-and-pop stores
Organised retail is expected to account for 20 per cent ofthe overall retail market by 2020 92%
80%
8%20%
0%10%
20%
30%40%
50%
60%
70%
80%90%
100%
2012 2020
Unorganised retail penetration Organised retail penetration
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500
4,000
2006 2011
40
300
2006 2011
10,000
30,000
2006 2011
2
30
2006 2011
Hypermarkets number of storesSupermarkets number of stores
Speciality stores number of stores Cash and carry number of stores
Source: indiaretailing.com, Aranca Research
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Source: Technopak Advisors Pvt Ltd,Cushman & Wakefield Research
Notes: * - NCR, Mumbai, Kolkata and Chennai,** - Bengaluru, Pune, Hyderabad and Ahmadabad
Additional mall space requirement by 2013-14(million sq feet)
Grocery sales growth across countries (2010)
18.4%
12.4% 11.1%10%
3%2%
0%
India China Russia Brazil UK USA Japan
45
21
Top 4 Cities* Next Four Cities**
Source: IGD International: Indian Retail Forum presentation - 2010
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Source: Indian Retail Market September 2011, Times of India, Aranca Analysis
India is ranked fifth in the Global Retail Development Index in 2012
Indias strong growth fundamentals along with increased urbanisation and consumerism opened immense scope for retailexpansion for foreign players
Recent government reforms for attracting FDI and boosting investor sentiment
Rapid emergence of organised retail outlets like mega malls and hypermarkets are augmenting the growth of organisedretail in the country
Constant improvements in supply chains and logistics by retailers for competitive advantage and meeting consumerdemands
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Source: A.T.Kearney 2011 & 2012 Global Retail Development Report, Aranca Analysis
India ranks sixth in the 2011 Global Apparel IndexIndia ranks fifth in the 2012 Global RetailDevelopment Index
61.4%58.9%
48.6%46.4%
43.9% 42.0%40.1%
37.4% 37.3% 36.9%
73.8%
65.3%
63.8% 63.1%60.8% 60.6% 60.6%
58.9%58.5% 58.0%
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Source: A.T.Kearney 2013 FDI Confidence Index, Aranca AnalysisNotes: FDI - Foreign Direct Investment;
* - The FDI Confidence Index assesses the impact of political,economic and regulatory changes on FDI preferences
FDI Confidence Index 2013India has occupied a remarkable position in global retailrankings; the country has high market potential, loweconomic risk, and moderate political risk
In market potential, India ranks fifth after United States,China, Brazil and Canada
Net retail sales in India is also quite significant amongemerging and developed nations; the country is ranked thirdafter China and Brazil
From an overall perspective, given its high growth potential,India scores well among foreign investors compared toglobal economy peers
1.83
1.85
1.86
1.97
2.02
2.09
0 0.5 1 1.5 2 2.5
Australia
India
Canada
Brazil
China
United States
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Source: 2013 Global Retail Development Index - AT Kearney, Aranca ResearchNotes: GRDI - Global Retail Development Index, * - based on weighted score of market attractiveness, market saturation and time pressure of top 30 countries
2013 GRDI country attractiveness in retail investment
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Source: MasterCard Worldwide Insights 4Q 2010, Aranca Research
E-commerce industry in India (USD billion)
E-commerce is expected to be the next major area for retail growth in India. The industry is projected to increase fromUSD70 billion in 2011 to USD200 billion in 2020
With growth in the E-commerce industry, online retail is estimated to reach USD70 billion by 2020 from USD0.6 billion in2011
Online retail in India (USD billion)
0.6
70
2011 2020E
Online retail in India (USD billions)
10
200
2011 2020E
E-commerce industry in India (USD billions)
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Source: MasterCard Worldwide Insights 4Q 2010, Aranca Research
Note: APMEA - Asia/ Pacific, Middle East and Africa
APMEA Master Card Regional Online ShoppingIndex
The key drivers for growing importance of online retail are ayoung population aided by easier access to credit andpayment options; increasing internet penetration and speed,24-hour accessibility, convenient and secured transactions
Computer peripherals, camera and mobiles, and lifestylesegments account for a majority of total purchases
6570
25 21 2528
65 62
30 31 30 33
6357
3832 29
36
0
20
40
60
80
SouthKorea
Japan China India HongKong
GlobalIndex
2008 2009 2010
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Source: Aranca Research
Favourabledemographics
Rise in income andpurchasing power
Change inconsumer mindset
Easy consumercredit and increasein quality products
Brandconsciousness
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Source: Aranca Research
1991
1997
2006
2008
2012
Liberalisation: FDI of upto 51 percent allowed under the automatic
route in select priority sectors
FDI of upto 100 per cent allowedunder the automatic
route in Cash & Carry(wholesale)
Government proposedintroducing FDI in multi-brand
retail (2008); follows up in 2012by approving plan to raise the FDI
limit to 51 per cent
FDI of upto 51 per cent allowedwith prior government
approval in single-brandretail
Government approved 51 per
cent FDI in multi-brand retail andincreased FDI limit to 100 per
cent (from 51 per cent) in singlebrand retail
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Increase in employment Infrastructure investment Removing middlemen Benefiting Indianmanufacturers
Benefits of FDI in Indian retail
FDI limitSector Entry route
Whole sale cash andcarry trading
Single brand productretailing
Multi brand, front endretail
100%
100%
51%
Automatic
Foreign Investmentand Promotion Board
Foreign Investmentand Promotion Board
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51% FDI in multi -
brand retailStatus: Policy passed
100% FDI in singlebrand retail
Status: Policy passed
Minimum investment cap is USD100 million
30 per cent procurement of manufactured or processed products must be from SMEs
Minimum 50 per cent of total FDI must be invested in back-end infrastructure (logistics, cold
storage, soil testing labs, seed farming and agro-processing units)
Removes the middlemen and provides a better price to farmers
Development in the retail supply chain system
50 per cent of the jobs in the retail outlet could be reserved for rural youth and a certain amountof farm produce could be required to be procured from poor farmers
To ensure the Public Distribution System (PDS) and Food Security System (FSS), government
reserves the right to procure a certain amount of food grains
Multi brand retail would keep food and commodity prices under control
Will cut agricultural waste as mega retailers would develop backend infrastructure
Consumers will receive higher quality products at lower prices and better service
Products to be sold under the same brand internationally
Sale of multi brand goods is not allowed, even if produced by the same manufacturer
For FDI above 51 per cent, 30 per cent sourcing must be from SMEs
Consumerism of the retail market
Any additional product categories to be sold under single brand retail must first receive
additional government approval
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Source: IMF, Aranca Research
Notes: E- Estimate, F - Forecasts
Rising per capita income in IndiaReal income growth projections
0.0%
3.0%
6.0%
9.0%
12.0%
0
350
700
1050
1400
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3 E
GDP constant prices, USD Billion Annual growth rate
-10.0%
-1.0%
8.0%
17.0%
26.0%
35.0%
0
400
800
1,200
1,600
2,000
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3 E
2 0 1 4 F
2 0 1 5 F
2 0 1 6 F
2 0 1 7 F
2 0 1 8 F
Per capita income, USD Annual growth rate
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1.4 1.5
2.0
2.5 2.4
FY08 FY09 FY10 FY11 FY12*
Source: Reuters Knowledge, Aranca Research
Notes: FY Jul to Jun, * - Jan to DecThe company changed its financial year from Jul Jun to Jan - Dec
Future retail sales growth (USD billion)Revenues expanded at a CAGR of 14.9 per cent duringFY08-12
Hypermarket and supermarket formats have a network ofnearly 315 stores encompassing an area of over 11 millionsquare feet.
Under Future Fashion, the company owns a portfolio of 24leading brands and covers more than 121 cities
CAGR: 14.9%
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Source: Company Annual Report, Aranca Research
Note: msf - Million Square Feet
Has a good understanding of the Indian retail sector and its customers
Future Retail Ltd (FY12)
Revenue: USD3.3 billion for
18 months Operational retail
space:16.3 msf
Over 1000 stores in 121cities
Employees: 36,000
Ground-upDevelopment
The Right JVs at theRight Time Winning Team Versatile Retailing
Multiple Formats,Multiple Brands-AComprehensive
Retail Experiment
Pantaloon retailsuccess factors
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Non Apparels35%
Apparels65%
Apparels59%
FY05 FY13
Shoppers Stop(apparel, accessories,footwear, jewelry and
dcor)
Homestop(home furnishing)
Crossword(Books and otherentertainement)
Mothercare(infant and toddler
care)
Estee Lauder, Macand Clinique
(Beauty)
Shoppers Stop(Brands and JVs)
276.5 284.7307.8
491.0
581.7 583.8
FY08 FY09 FY10 FY11 FY12 FY13
Shoppers Stops diversified p ortfolioShoppers Stops sales growth (USD million)
Source: Company Annual Report, Aranca Research
CAGR: 16.1%
Non Apparels40%
Apparels60%
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Average selling price (INR)Footfalls (in million)
Source: Company Annual Report, Aranca Research
Average transaction size (INR)Members ('000)
24.922.8 23.3
30.9
36.740.2
0
9
18
27
36
45
FY08 FY09 FY10 FY11 FY12 FY13
759821 856
913 977 1,062
FY08 FY09 FY10 FY11 FY12 FY13
1,013 1,2771,611
2,017
2,5032,880
0
700
1400
2100
2800
3500
FY08 FY09 FY10 FY11 FY12 FY13
1,720 1,843 2,029
2,2072,311
2,481
FY08 FY09 FY10 FY11 FY12 FY13
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Source: KPMG International 2011, Aranca Research
D e m a n
d F a c
t o r s
Higher brand consciousness
Growing young populationand working women
Rising incomes and purchasing power
Changing consumer preferences andgrowing urbanisation
Indian Retail Opportunity
Rapid real estate and infrastructuredevelopment
Development of supply chain improvingefficiency
Easy availability of credit
R&D, innovation and new productdevelopment S
u p p
l y F a c t o r s
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Source: Indian Retail Market September 2011, Deliotte,Winning in Indias Retail Sector, PwC, Aranca Research
Investment options in organised retail IndiaRetail component of real estate is an attractive opportunitywhich is currently attracting 29 per cent of total investmentin real estate
26 per cent of the overall investors are interested ininvesting in Tier II and III cities
Training and warehouse spacing are the other viableoptions for investments
29%26%
20%
10% 8%4% 3%
C u r r e n
t r e a
l e s t a
t e
v a
l u e s
T i e r
I I & I I I t o w n s
T r a
i n e
d
m a n p o w e r
C u s t o m
i s e
d
w a r e
h o u s i n g
s p a c e
I T
S u p p
l y c h a
i n
m a n a g e m e n
t
M o r e r e
t a i l
r e s e a r c
h
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Source: Cushman & Wakefield, Aranca Research
Migration trend towards urban areas(Urban population as share of total) (2011)
Employment opportunities, increased urban amenities andbetter lifestyle opportunities are attracting rural populationtowards cities for better life style every year
In 2011, the urban-rural migration was at 33.0 per cent, upfrom 27.8 per cent in 2010
This could be a major driver for the organised retail sector infuture as the working population would consequentlyincrease
17.3% 18.0% 19.9%
23.3% 25.7%
27.8% 33.0%
1951 1961 1971 1981 1991 2001 2011
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Source: Bloomberg and Thomson ONE Banker, Aranca Research
Acquirer name Target name Year Deal type
Trent Ltd Landmark Ltd February 2013 Acquisition
Future Venture India Ltd Big Apple (convenience store) September 2012 Acquisition
Peter England Ltd Pantaloons Retail India Ltd September 2012 Acquisition
Pantaloons Retail India Ltd R&R salons May 2012 Private Equity
Phoenix Mills Ltd Classic Housing Projects Pvt Ltd March 2012 Acquisition
Flipkart online services Pvt Ltd eTree Marketing Pvt Ltd February 2012 Acquisition
Gitanjali Gems Ltd Crown Aim, China December 2011 Acquisition
Shoppers Stop Ltd Gateway Multichannel Retail India Ltd June 2011 Acquisition
TTK Prestige Ltd Triveni Bialetti Pvt Ltd September 2011 Acquisition
TV18 On-graph Technologies Pvt Ltd July 2011 Acquisition
Pantaloons Retail India Ltd Home Solutions Retail(India) Ltd August 2010 Acquisition
Shoppers Stop Ltd HyperCITY Retail India Pvt Ltd (hypermarket) June 2010 Acquisition
TPG Capital, Bain Capital Lilliput Kidswear Ltd (branded kidswear retail) April 2010 Private Equity
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Retailers Association of India111/112, Ascot Centre,Next to Hotel Le Royal Meridien, Sahar Road, Sahar,
Andheri (E),Mumbai 400099.Tel: 91- 22 - 28269527 - 28Fax: 91- 22- 28269536E-mail: [email protected]: www.rai.net.in
The Franchising Association of India A-13, Kailash ColonyNew Delhi 110048Tel: 91- 11- 2923 5332Fax: 91- 11- 2923 3145Website: www.fai.co.in
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FDI: Foreign Direct Investment
FMCG: Fast Moving Consumer Goods
FY: Indian Financial Year (April to March)
So FY10 implies April 2009 to March 2010
IT: Information Technology
MoU: Memorandum of Understanding
MT: Million Tonnes
MTPA: Million Tonnes Per Annum
SEZ: Special Economic Zone
USD: US Dollar
Wherever applicable, numbers have been rounded off to the nearest whole number
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Year INR equivalent of one USD
2004-05 44.95
2005-06 44.28
2006-07 45.28
2007-08 40.24
2008-09 45.91
2009-10 47.41
2010-11 45.57
2011-12 47.94
2012-13 54.31
2013-14* 59.23
Exchange rates (Fiscal year)
Year INR equivalent of one USD
2005 45.55
2006 44.34
2007 39.45
2008 49.21
2009 46.76
2010 45.32
2011 45.64
2012 54.69
2013* 57.72
Exchange rates (Calendar year)
Average for the year2013* - from January to October 20132013-14* - from April to October 2013
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India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been preparedby Aranca in consultation with IBEF.
All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. Thesame may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any mediumby electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or inany manner communicated to any third party except with the written approval of IBEF.
This presentation is for information purposes only. While due care has been taken during the compilation of thispresentation to ensure that the information is accurate to the best of Aranca and IBEFs knowledge and belief, thecontent is not to be construed in any manner whatsoever as a substitute for professional advice.
Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned inthis presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result ofany reliance placed on this presentation.
Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission onthe part of the user due to any reliance placed or guidance taken from any portion of this presentation.