ANNUAL RESULTS PRESENTATION FOR THE YEAR ENDED 30 SEPTEMBER 2018

Transcription

1 ANNUAL RESULTS PRESENTATION FOR THE YEAR ENDED 30 SEPTEMBER 2018

2 AGENDA Year under review Financial performance Group performance Divisional performance Essential Foods Groceries International Sustainability Outlook Questions

3 YEAR UNDER REVIEW TERTIUS CARSTENS

4 SALIENT FEATURES Frail SA economic conditions prevailed, deepened Currency weakness, accelerated input inflation Key category participation and volume growth pleasing African beverage exports resilient Dried fruit export performance step changed Bread and wheat flour disappoints UK Brexit uncertainty remains Lizi s (UK), Wellington s and Today s on board Capital investments enabling, curtailed Cash generation strong, lean debt position Financing structure successfully renegotiated

5 FINANCIAL REVIEW Twelve months to 30 September 2018 Volume +4% Revenue Adjusted operating profit 1 +3% to R20.2 billion +26% to R1 603 million Operating margin From 6.5% to 8.0% Adjusted HEPS 1 Net cash profit from operating activities Dividend for the year (Final 260 cents) +25% to 553 cents +25% to R2.1 billion 365 cents 1 Adjusted for Phase I B-BBEE share-based payment charge and the related hedge, as well as items of a capital nature and, in 2017 only, once-off M&A costs

6 TOTAL SA FOOD PERFORMANCE Muted value gain, volume recovery off very weak base YTD Sep MM 6MM 3MM ASK d Value 0.7% 0.3% 1.7% ASK d Volume 3.7% 4.4% 5.5% Source: ASK d September 2018

7 Flour Bakery BRAND PERFORMANCE Value Share by Brand Corporate Share 1 12MM OCT 2017 SEP 2018 Power Brands Value Share Share points change Category growth 27.8% -1.1% 6.4% 31.2% 0.3% 3.4% 15.5% -0.3% 7.8% 30.7% -0.8% -12.6% 21.8% -1.3% 1.3% 22.1% -0.2% 4.5% 25.8% 2.0% 12.6% 1 Measured as weighted average of Pioneer Foods share in 18 categories in which it operates and reads. Nielsen Trade Desk, excluding DOB s (New categories added include defined frozen prepared meals, defined cold sauces).

8 GROUP PERFORMANCE FINANCIAL REVIEW FELIX LOMBARD

9 FINANCIAL REVIEW Year ended September % VOLUME 3% REVENUE to R20.2 million 26% ADJUSTED OPERATING PROFIT to R1 603 million 8.0% OPERATING MARGIN from 6.5% 25% ADJUSTED HEPS to 553 cents 25% NET CASH PROFIT FROM OPERATING ACTIVITIES to R2 073 million DIVIDEND DECLARED maintained at 365 cents NET DEBT (excl. BEE) Down to R442 million

10 GROUP OPERATIONAL INCOME STATEMENT 2018 Rm 2017 Rm % Change Volumes ( 000 ton) Revenue Cost raw materials and packaging Naked margin Naked margin % 43.3% 39.5% - Gross profit % 28.8% 26.3% - Operating cost (10) Adjusted operating profit Breakfast cereals (SA and UK), long life juice and export fruit the major volume performers (Acquisitions + 0.5%). Sales price deflation, mainly related to maize commodity deflation (Acquisitions + 1.5%). Margin recovery related to maize performance recovery. Operating cost contained. Per unit sold, inflation of 5%. Energy and distribution challenges (Acquisitions + 2%). Adjusted operating margin 8.0% 6.5% - 1 Adjusted for Phase I B-BBEE share-based payment charge and the related hedge, as well as items of a capital nature and, in 2017 only, once-off M&A costs

11 SEGMENTAL PERFORMANCE 2018 Rm 2017 Rm Revenue % Change Essential Foods (5) Groceries International Group Adjusted operating profit 1 Essential Foods Groceries International Other (16) (1) - Group Essential Foods Volume growth and significant deflation. Maize major contributor to improvement in performance, wheaten value chain significantly weaker. Groceries Excellent growth in volumes from major categories. Gross margin maintained. International Major improvement in fruit profitability. Excellent growth in UK cereal volumes. Immediate profit contribution from Lizi s. 1 Adjusted for Phase I B-BBEE share-based payment charge and the related hedge, as well as items of a capital nature and, in 2017 only, once-off M&A costs

12 UNDERSTANDING ADJUSTMENTS 2018 Rm 2017 Rm % Change Adjusted operating profit Once-off merger and acquisition costs - (18) - Phase I B-BBEE share-based payment charge and related hedge (30) (103) - Items of a capital nature 73 (57) - Operating profit Investment income Finance costs (198) (196) (1) Share of (loss)/profit of investments accounted for using the equity method Profit before income tax Pioneer Foods share price performance. Hedge 100% valued while liability is phased over time. Sale of properties, captive listed shares and Heinz Foods SA JV to subsidiary. Heinz Foods SA performance. Income tax expense (399) (259) (54) Profit for the year

13 PERFORMANCE OF JOINT VENTURES AND ASSOCIATES 2018 Rm Turnover - PFG share Share of PAT Rm % Change 2018 Rm 2017 Rm % Change Other Bokomo Botswana (16) Bokomo Namibia (3) 1 8 (88) Heinz Foods SA (52) (70) (27) (159) Food Concepts Pioneer Ltd Future Life Health Products (4) Weetabix East Africa Before items of a capital nature (18) 7 44 (84) Very good performance from food coating business driven by strong volume growth. Botswana major overhaul of milling operations. Two months out of commission. Strong run rate thereafter. Namibia encountered challenging economic circumstances. Once-off adjustments of certain items on the Heinz Foods SA balance sheet as well as poor operational performance. Became a subsidiary during Acquired March Performed well notwithstanding political challenges and liquidation of Nakumatt.

14 CASH FLOW ANALYSIS Continued strong cash generation 2018 Rm 2017 Rm % Change Net cash profit from operating activities Change in working capital Inventory (38) 178 Debtors (20) 271 Creditors Cash effect from hedging activities Net cash generated by operations Cash effect B-BBEE share-based payment charge and the related hedge (1) (28) Settlement of forward purchase contract on own equity - (493) Income tax paid (364) (288) Net cash flow from operating activities Improved operating performance. Major contributors: International debtors management step changed. Accounts payable performance enhanced by Sunday year-end. Further opportunity in: Inventory - Investment in S&OP. Accounts payable - Interest rate differentials.

15 GROUP NET DEBT AND DEBT EQUITY RATIO Excellent cash conversion: Growth in cash profit Improved working capital management Contained capital spend Cash conversion ratio of 67% Highest in 6 years Increased syndicated debt facilities at very competitive rates

16 DIVISIONAL PERFORMANCE ESSENTIAL FOODS RIAAN HEYL 1

17 ESSENTIAL FOODS Performance summary Improved EBIT performance lead by maize Wheaten value chain underperformed Industry capacity and competitive landscape Balance of portfolio satisfactory Continued deflation vs. cost pressure All 6 main categories (Trade Desk) 1 Essential Foods lower deflation than category (5 out of 6 including maize and bread) 1 Maize category sustained volume growth 2 Significant down-trading observed Bakeries H2 traction encouraging 1 Source: Nielsen Trade Desk 12MM Sep Source: SAGIS

18 ESSENTIAL FOODS Performance summary 12 months ended 30 September 2018 VOLUMES +2% EXTERNAL REVENUE R11.9BN -5% OPERATING PROFIT R915M +14% OPERATING MARGIN +1.3pp 7.7% Rice & maize, but all categories positive Marginal inflation bread and rice only Strong full year maize performance 2017: 6.4% Bakeries +1% (Q4: +5%) Maize deflation 22% Wheat milling & baking remained under pressure Generated R1.6bn cash from operations Balance of Grains lost momentum in H2

19 ESSENTIAL FOODS Maize Industry milling all time high September Raw material, consumer value, capacity Category down-trading accelerated Fuel/transport cost impact on consumer Deflation despite raw material inflation 2 DOB volume share of Trade Desk: 26% 34% 3 White Star maintained value share leadership White Star value/volume share ratio: White Star RSP deflation 11% vs. category 25% 3 White Star Instant Porridge gained further traction Trade Desk Q4 volume leadership established 3 1 Source: SAGIS 2 Source: SAFEX WM near month, STATS SA Food Price Monitor 3 Source: Nielsen Trade Desk 3MM Sep 2017 vs. Sep 2018 Enhanced overall category performance

20 ESSENTIAL FOODS Maize OUTLOOK Category demand and consumer quest for value sustained Ample raw material and constrained consumer Inflationary pressure across staple categories Response Manage immediate raw material cost pressure Restore White Star volume relevance Investment in process innovation Uncompromised White Star quality Optimise sales mix Sustain White Star brand support and leverage basket Weaker F19 EBIT contribution expected in H1

21 ESSENTIAL FOODS Wheat milling and baking Wheat milling and baking margins remained constrained Industry milling capacity in a soft demand cycle Inability to recover cost pressure Bread deflation first time ever from January Some price relief noted in September 2018 Procurement volatility remains Import duty, import origins, currency Bakeries operational execution and route-to-market effectiveness step-changed in H2 volume traction Production damages all time low Bread quality improved Increased Sasko bread availability and service additional outlets served on average daily September 2018 vs Source: STATS SA Food Price Monitor

22 ESSENTIAL FOODS Wheat milling and baking OUTLOOK Competitive environment to remain intense Inflationary cost push evident Impact of VAT legislative change uncertain Durban Mill on stream early 2019, enabling: Bread growth Supply chain efficiencies Flour category participation Bakeries operational execution to be sustained Availability and quality Capacity investments made

23 ESSENTIAL FOODS Pasta, rice, dried vegetables Reasonable pasta performance H2 impacted by growth of imports and category deflation Rice delivered despite promotional frenzy Spekko market share restored post H1 supply chain disruptions Dried vegetables sustained performance OUTLOOK Pasta category growth potential and capacity to participate Spekko growth to be sustained Recognised quality platform Supply chain capabilities

24 DIVISIONAL PERFORMANCE GROCERIES MARTIN NEETHLING 2

25 GROCERIES Performance summary Portfolio delivered strong volume recovery in core categories Improved returns on trade investment unlocks growth Input inflation felt on beverages and fruit Intensified consumer pursuit of value, with little inflation vs GP margins maintained Category volume growth in 10 out of 14 categories 1 Snacks, ice tea and dilutables underperformed Latent demand observed for Today s, Wellington s, Heinz, John West, HP Sauce, Lea & Perrins 1 Source: Nielsen Trade Desk 12MM Sep 2018 volume

26 GROCERIES Performance summary 12 months ended 30 September 2018 VOLUMES +15% EXTERNAL REVENUE R5.1BN +16% OPERATING PROFIT R419M +17% OPERATING MARGIN +0.1pp 8.2% Driven by cereals, LLFJ and Wellington s Moderate inflation Strong cereals and LLFJ performance 2017: 8.1% Cereals +22% LLFJ +28% Wellington s adds 4%, Organic growth of 12% Portfolio inflation of 1.3% Snacks, dilutables and Lipton regress, Wellington s dilutes profitability Wellington s contributes to 0.6pp margin dilution

27 GROCERIES Cereals Excellent volume performance Weet-Bix 450g up 1% in Q4F18 vs. declines earlier in the year 2 Portfolio delivered 1.7% CAGR growth in price from 2016 Weet-Bix additional capacity utilised in line with plan factory operates at high levels of efficiency Cereals grows volume and value share in expanding category 1 and Pronutro achieves 3 year market share high Strong volume growth of 31% on Bokomo Corn Flakes, due to close management of relative shelf pricing Bokomo Corn Flakes surpasses Kellogg s 1kg value share in major retailer past 3 months Breakfast portfolio strategy gaining traction 1 Source: Nielsen Trade Desk 6MM March Morgan Stanley report, 30 October 2018

28 GROCERIES Beverages Excellent juice volume performance, up 28% Strong LLFJ market share recovery, with LiquiFruit gaining 2.0% points value market share growth 1. Ceres and Fruitree also gain share Judicious price point management, and effective promotional support, assisted to restore the core Increased price competitiveness compared to CSD s 2 supported demand Summer pricing moved only 0.7% on key 1l LiquiFruit pack LLFJ manufacturing architecture progressed well Dilutables category volume continues to decline, however Wild Island volumes recovered in H2 Lipton gained share in weak category 1 Source: Nielsen Trade Desk 12MM Sep Morgan Stanley report, 30 October 2018

29 GROCERIES Pioneer Foods Wellington s (previously Heinz Foods SA) Included in portfolio from June 2018 Provided top line growth, but margin dilutive Immediate uptick in sales performance achieved Frozen category grew 4.5% in volume, with Today s basket growing 14.4% 1 Condiments grew 1.3% in volume, with Wellington s/ Heinz basket growing 26% 1 Supply discontinuities on imported lines hampered service levels Introduction of John West MSC Tuna a first in SA 1 Source: Nielsen Trade Desk 3MM Sep 2018

30 GROCERIES Balance of Portfolio Fruit margins contracted due to unfavourable supply mix Moir s baking aids continues to gain in growing category Manufacturing consolidation positively contributed, full year effect enjoyed Black spreads shows real volume growth and gains in market share

31 GROCERIES Outlook Price increases to recover cost movements Continued sales momentum evident Major focus on relative pricing, shelf health, service levels Increased availability, channel development priority Innovation step change on LiquiFruit executed Low sugar formulations completed Lipton rejuvenation well advanced Relaunch of Safari brand well advanced Pioneer Foods Wellington s turnaround to be completed Continued manufacturing interventions for efficiency planned Ongoing procurement focus to manage costs

32 DIVISIONAL PERFORMANCE INTERNATIONAL THUSHEN GOVENDER 3

33 INTERNATIONAL Performance summary 12 months ended 30 September 2018 VOLUMES +12% EXTERNAL REVENUE R3.2BN +17% OPERATING PROFIT +136% R285M OPERATING MARGIN 9% +4.5pp 2017: 4.5% Fruit and beverage exports delivered Vine fruit USD export prices at all time high Fruit availability, Mozambican recovery Strong performance across portfolio Lizi s (UK) acquisition contributed Continued traction in Nigeria Nigeria and UK contribution increasing Weaker rand delivers margin enhancement

34 INTERNATIONAL Consumer Exports Notable improvement from strategic markets enabled by new route to market models Improved USD liquidity in some markets Prudent credit management regime East African markets continue to grow, enabled by in-market beverage team within the WEA JV Socio-economic conditions in Zimbabwe remain under pressure Increasing tariff and non-tariff barriers across African markets remain an issue Ongoing focus on supply chain efficiencies to improve service delivery

35 INTERNATIONAL Increasing focus on brand development

36 INTERNATIONAL Fruit Exports 2018 season delivered a record raisin crop with improved quality Higher USD vine export prices fuels local competition Strong global demand for SA vine fruit, supported pricing Vine fruit quality Short US crop Short Greece currant crop Western Cape drought impacted currants and tree fruit, in particular apricots International market development in progress to address local surplus of peaches and pears Hedging policy mitigates currency risk

37 INTERNATIONAL United Kingdom Overall volume growth driven by granolas and porridges Fruit Bowl redesign and launch Brand architecture updated to appeal to a broader target market Price/margin focus reduces volume however enhances profitability Private label wheat biscuit performance impacted by category decline Integration of the Lizi s completed, focussed growth strategy Adjacent category entry, breakfast drinks Relaunch of kids product offering Continued focus on efficiencies as labour and energy costs grow ahead of inflation

38 INTERNATIONAL Nigeria Current year performance driven by the sausage roll category Local R&D underway to broaden the snacking range under the Yum Yum brand New bread plant on order Route to market capability enhanced by investment into distribution hubs and vehicles Credit risk management remains prudent Management team focus on building a more resilient business platform

39 INTERNATIONAL Outlook Good progress on strategic initiatives Branded contribution in the UK enabled by inorganic growth Incremental low risk entry into Nigeria on track - new bakery to be commissioned in H2 Establishment of a regional hub via the WEA acquisition Commenced work on new market entry in Africa with an international JV partner African market development remain key to portfolio and growth ambition Market development work continues UK focus on brand development, innovation and manufacturing efficiencies remain key Subject to weather the current vine fruit crop holds potential Export pricing on vine fruit expected to remain at current levels

40 SUSTAINABILITY TERTIUS CARSTENS

41 SUSTAINABILITY Flagship projects Corporate Social Investment School Breakfast Nutrition Programme 6 provinces, 29 schools, learners Enterprise and Supplier Development 4 x Majority black-owned commercial farms 7 x Independent Distribution Contractors, with R21m in loans advanced and 191 jobs created Pioneer Foods Education and Community Trust 55 bursary students, community and youth projects Enrolled 193 unemployed learnerships, 59 apprentices Environment Water conservation success across the business

42 OUTLOOK TERTIUS CARSTENS

43 STRATEGIC FOCUS Profitable growth Drive above market growth Alternative routes to market - local and export Innovation - highly selective approach Smaller categories to contribute Continue to enhance competitiveness Operating cost discipline Process efficiency fixation Logistics network enhanced SAP ERP refresh and future readiness Acquisitive vigilance M&A work in progress, price expectations pose a barrier Geographic expansion Baking capacity in Lagos, Nigeria Exploring similar approaches elsewhere in Africa

44 EXPECTATIONS Facing the challenges Muted trading and demand environment Input cost inflation a reality Competitiveness in maize elevated and to remain Bread volume traction encouraging Sound vine fruit crop expected Beverage capacity investment Pioneer Foods Wellington s turnaround Trade participation and consumer relevance key Prudent capital investment for growth and efficiency

45 THANK YOU This document contains forward looking statements that, unless otherwise indicated, reflect the company s expectations as at 19 November Actual results may differ materially from the company s expectations if known and unknown risks or uncertainties affect the business, or if estimates or assumptions prove to be inaccurate. The company cannot guarantee that any forward looking statement will materialise and, accordingly, readers are cautioned not to place undue reliance on these forward looking statements. The company disclaims any intention and assumes no obligation to update or revise any forward looking statement even if new information becomes available as a result of future events or for any other reason, save as required to do so by legislation and/or regulation.