INTERIM RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2017

Transcription

1 INTERIM RESULTS PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2017

2 SALIENT FEATURES 1 ST HALF Regression in consumer confidence and spending No business is insulated by past success Considered choices made with the best information available at the time Protracted corporate activity

3 PERFECT STORM DEFINING FEATURES: SA Junk status Brexit Africa stalls Competitor intensity Maize hedge Raisin crop shortfall Cost push

4 PERFORMANCE INHIBITORS CAUSE STRATEGIC CONSIDERATION ACTION OUTCOME DROUGHT Protect supply of SA staple Maize hedge Margin destruction CURRENCY PVM * Cost push price increases Volume & margin pressure RAISIN CROP SHORTFALL Procurement strategy Secure optimal supply First half loss Improved second half BEVERAGE COST PUSH Margin protection Price recovery Volume & margin impact * PVM Price, volume, margin It is no more logical to punish the maker of a good decision for a bad outcome than it is to reward the maker of a bad decision for a good outcome Peter McNamee / John Celona

5 FINANCIAL REVIEW Six months to 31 March 2017 Revenue Operating profit * 2% to R10.2bn 43% to R700m Operating margin from 12% to 7% HEPS * Cash generated by operations Interim dividend declared 47% to 253 cents 27% to R875m 105 cents * Adjusted for Phase I B-BBEE (charge)/income and for related hedge, as well as items of a capital nature and once off M&A costs

6 PROFIT MOVEMENT ANALYSIS Major categories unfavourable movement Contribution Maize R357m 58% International fruit R105m 17% Beverages (Local & International) R152m 25% R614m 100% Other categories favourable movement R86m +15.5% EBIT growth

7 TOTAL FOOD VALUE PERFORMANCE 25% C P I I S 6. 1 % I N M A R C H, F O O D I N F L A T I O N 8. 7 % Trended real value loss vs last year across the Total Food Basket. Continued downward sentiment in consumer confidence. Food Inflation tracks back in the short term, but above headline inflation ASK'D FOOD INDEX VS STATSSA TOTAL RETAIL GROWTH 12MM 6MM YTD 20% 15% 10% 5% 0% (5%) (10%) (1.7%) (8.4%) Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar ASK'd value ASK'd volume Total Retail curr price Total Retail const price ASK d value 8.3% 5.8% 3.2% AKS d volume 1.2% -1.7% -4.4% Total Retail curr price Total Retail const price 7.6% 7.3% 4.6% 1.0% 0.4% -2.0% CPI 6.6% Food inflation Source: ASK D Food Value & Volume Trends March 2017 Overview, STATSSA

8 MARKET SHARE CORPORATE SHARE¹ %, 6MM to March 2017 PIONEER FOODS 6MM October 2016 to March Value share Share points change Category growth (%) Sasko Bakery Sasko Flour Weet-Bix Safari Spekko White Star Liqui-Fruit Measured as weighted average of Pioneer s share in 18 categories in which it operates. TEG only. Including DOBs. Source: IRI March 2017 Overview.

9 FINANCIAL PERFORMANCE Cas Lamprecht

10 THE LANDSCAPE Commodity availability and price volatility challenges Currency volatility Pressure on margins Continued focus on cost management and operational efficiencies Strong focus on cash conversion Continued capex investment for future growth

11 SEGMENTAL REVENUE ANALYSIS Six months to 31 March 2017 Rm 2016 Rm % Change International 13% Essential Foods % Groceries (3%) Groceries 24% 2017 International (11%) Essential Foods 63% Total Revenue % International 14% Commentary Essential Foods revenue bolstered by price inflation. Cost push impacted local beverage volumes. A lack of raisin stock had a severe impact on International s revenue. Volumes of export beverages under pressure due to currency devaluation and cost push. Groceries 25% 2016 Essential Foods 61%

12 SEGMENTAL OPERATING PROFIT ANALYSIS Six months to 31 March Operating profit * Operating margin * 2017 Rm % Change Group (Adjusted) * 700 (43%) 6.9% 12.3% International 10% 2017 Essential Foods 331 (49%) 5.1% 10.6% Groceries 301 (12%) 12.4% 13.7% International 69 (73%) 5.3% 17.4% Groceries 43% International 20% ssential Food 47% Other (Group costs) (1) +79% 2016 Groceries 28% Essential Foods 52% * Adjusted for Phase I B-BBEE (charge)/income and for related hedge, as well as items of a capital nature and once off M&A costs Segmental results are reflected after the reallocation of corporate costs

13 Operating profit (Rm) FINANCIAL REVIEW OPERATING PROFIT ANALYSIS Commentary 1, Essential Foods Groceries International Corporate 2017 Operating loss from maize due to increased raw material cost. Bakeries sustained profit momentum. Operating profit of RSA beverages decreased due to cost push and volume declines (Groceries). Snacks & Treats performed well. Expensive and limited dried fruit stock. Margins of export beverages under pressure due to cost push, strong Rand and headwinds in African countries.

14 INCOME STATEMENT SUMMARY Six months to 31 March 2017 Rm % Change Revenue % Cost of goods sold (7 562) +10% Gross profit (16%) Gross margin 26% 2016: 31% Net other operating expenses * (1 921) +3% Adjusted operating profit * 700 (43%) Operating margin 6.9% 2016: 12.3% Commentary Increased raw material cost of maize was the major contributor to increased cost of goods sold. Maize cost increases not recovered in full responsible for decline in gross profit. Decline in gross profit also attributed to weak performances from beverages and export fruit. Operating costs well managed through efficiency and cost saving measures. Major contributors to operating profit decline were maize, beverages and export fruit. * Adjusted for Phase I B-BBEE (charge)/income and for related hedge, as well as items of a capital nature and once off M&A costs

15 INCOME STATEMENT SUMMARY Six months to 31 March 2017 Rm % Change Adjusted operating profit * 700 (43%) Investment income 13 (53%) Finance costs (88) +18% Equity accounted earnings 30 (28%) Profit before tax * 655 (47%) Income tax (185) (46%) Per income statement (189) Tax effect of BEE hedge 4 Tax effect of other capital items - Commentary Increased borrowing levels led to higher finance costs and decreased investment income. Borrowings negatively impacted by settlement of the accrual for the phase I BEE hedge of R493m. Bokomo Botswana the major contributor to poor performance from JVs maize related. Future Life and Bowman Ingredients continued excellent performances. Effective tax rate was 28.2% for period, on an adjusted basis. Adjusted profit for the period * 470 (47%) * Adjusted for Phase I B-BBEE (charge)/income and for related hedge, as well as items of a capital nature and once off M&A costs

16 OPERATING PROFIT AS REPORTED Six months to 31 March 2017 Rm 2016 Rm % Change Operating profit as reported (50%) Adjustments 7 (155) Phase I B-BBEE charge/(income) and related hedge 3 (143) M&A transaction costs 9 - Items of a capital nature (5) (12) Impairment of BEE SPV QF shares - 18 Profit on disposal of subsidiary - (24) Other profit on disposals (5) (6) Adjusted operating profit (43%)

17 GROUP EARNINGS Six months to 31 March 2017 Rm 2016 Rm % Change Adjusted headline earnings (47%) Adjusted HEPS 253 cents 479 cents (47%) Phase I B-BBEE (charge)/income and related hedge (7) 143 Once off M&A costs (9) - Headline earnings (56%) HEPS 244 cents 556 cents (56%) Items of capital nature 6 7 Earnings (56%) EPS 248 cents 560 cents (56%)

18 CASH FLOW ANALYSIS Six months to 31 March 2017 Rm 2016 Rm % Change Cash profit from operating activities (38%) Change in working capital (166) (780) Inventory (33) (571) Debtors (46) (225) Creditors (87) 16 Cash effects from commodity hedging Cash generated by operations % Settlement of phase I BEE hedge accrual (493) - Income tax paid (230) (285) Share-based payments cash items (12) - Commentary Cash profit declined in line with operating profit regression. Inventory was well managed. Creditors declined due to change in strategy for dried fruit procurement. The phase I BEE hedge entered into in 2016 was settled in October Cash generated by operations increased significantly due to working capital initiatives. Net cash flow from operating activities (65%)

19 CASH FLOW ANALYSIS Six months to 31 March 2017 Rm 2016 Rm Net cash flow from investment activities (464) (394) PPE additions (272) (217) PPE replacements (97) (132) Proceeds on disposal of PPE Proceeds on disposal of subsidiary - 74 Investment in JV s and associates (190) (201) Available-for-sale financial assets and JV loans 14 (15) Interest and dividends received Net cash flow from financing activities (618) (552) Other 8 (12) Net cash and cash equivalents at the beginning of the period Net cash and cash equivalents at the end of the period (512) 840 Commentary Increased capital expenditure focused on enhancing capacity and efficiencies. Major projects include the Aeroton Bakery expansion and the additional Weet-Bix line. Weetabix East Africa acquired for R190m. Decreased opening cash and cash equivalents resulting from increased investment in working capital and repayment of bullet loans amounting to R400m in 2016.

20 Net debt (Rm) NET DEBT AND DEBT EQUITY RATIO Net Debt Equity Ratio excl phase II BEE debt 8% (1%) 6% 6% 18% 4,000 3,500 3,000 Debt capacity Commentary Increase in debt equity ratio due to settlement of phase I BEE hedge of R493m. Final dividend of R483m paid in January ,500 2,000 1,500 1,425 1, (500) (97) March 15 September 15 March 16 September 16 March 17

21 GROUP NET WORKING CAPITAL TO REVENUE 20% 17.1% 17.1% 15.6% 17.7% 16.8% 17.4% 15% 12.9% 11.5% 14.0% 10% 5% 0% Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17

22 Cents per share INTERIM DIVIDEND PER SHARE MAINTAINED DIVIDEND PER SHARE

23 ESSENTIAL FOODS Tertius Carstens

24 ESSENTIAL FOODS SALIENT FEATURES AT A CATEGORY LEVEL Weak category consumption growth Inflation drag across categories Maize and wheat volume marginally positive Slower rice imports Bread in TEG shows volume resilience Source: SAGIS, IRI, SARS Data TEG Top End Grocers

25 PERFORMANCE SUMMARY YTD MARCH % VOLUMES Led by maize and rice 7% EXTERNAL REVENUE (R6.5bn) Inflation across all categories 49% OPERATING PROFIT (R331m) Maize contributes more than 90% Wheaten value chain sustains strength 52% OPERATING MARGIN March % March %

26 PERFORMANCE PER CATEGORY Category Volume Revenue EBIT (R) EBIT % Value share * Bread Wheat Pasta Maize Rice Legumes * Source: 6MM March 2017 IRI

27 MAIZE Unprecedented supply uncertainty Market leadership obligation Carefully considered decision to secure supply Financial outcome poor, however: No supply interruptions Held milling participation Brand commitment maintained OUTLOOK New crop will restore supply Significant deflation evident Profit step up from June

28 MAIZE PERFORMANCE HISTORY EBIT EBIT % HISTORIC PERFORMANCE Resilient and positive long term performance Positive and consistent contribution 2016/17 unprecedented anomaly WHITE STAR Marketing investment stepped up Innovation White Star Instant Porridge Household penetration and Brand loyalty increased * * Source: Extract, Nielsen March 2017 maize study (January 2017 data)

29 WHEAT/BREAD/PASTA Pioneer Foods wheat volume maintained Bakery volume growth Pasta volumes affected by imports/ wheat duty structure Value chain profitability remains encouraging OUTLOOK Ample international wheat supply Aeroton bakery commissioned Shakaskraal expansion triggered

30 RICE/LEGUMES TEG rice category volumes -6% * Pioneer Foods rice volume contracted Major competitor s RSP inflation half that of the category Spekko share holds in TEG Legume profitability was pleasing OUTLOOK Anticipate rice profit recovery * IRI 6MM March 2017

31 OUTLOOK Improved soft commodity supply bodes well for staple categories Geared for growth Fixed capital investment Insight led brand investment to continue Restoration of maize profitability Bakery investment delivers with precision Enhanced competitive stature

32 GROCERIES Felix Lombard

33 PERFORMANCE SUMMARY YTD MARCH 2017 V O L U M E P R E S S U R E M A J O R I N H I B I T O R -3% EXTERNAL REVENUE (R2.4bn) -9% OPERATING MARGIN March % March % -12% OPERATING PROFIT (R301m) CHALLENGING ENVIRONMENT: Significant year-on-year input inflation Cooler summer - impacts beverage volume Limited category growth Competitor intensity increases

34 PERFORMANCE PER CATEGORY Category Volume Revenue EBIT (R) EBIT % Market share Cereals Beverages Baking aids & desserts Spreads Snacks & treats

35 CEREALS: MAINTAINED PROFIT GROWTH MOMENTUM CATEGORY: Limited volume growth Consumer inflation below producer inflation PIONEER FOODS: Volumes declined Price Inflation ahead of the market Corn Flakes - profit step change WEET-BIX maintained share GP% maintained despite high input inflation High single digit operating profit growth

36 LONG LIFE FRUIT JUICE: CHALLENGING SUMMER CATEGORY: Volume declines in short and medium term Marginal recovery of input inflation CSD s declined by 8% in volume (3mm IRI) PIONEER FOODS: Volume under pressure Liqui-Fruit maintained market share Share losses on other brands Successful launch of Liqui-Fruit Sparkling H1 material EBIT decline

37 BEVERAGE RESPONSE PLAN PORTFOLIO GROWTH STRATEGY Price positioning Brand investment Portfolio honing Network optimization Input cost respite reinvest

38 ICE TEA & DILUTABLES: MARGIN FOCUS BEARS FRUIT ICE TEA: Negative category growth Pioneer Foods: Lipton gains further market share Manufacturing cost savings realised EBIT performance maintained DILUTABLES: Material category contraction Pioneer Foods: Volume declines Product re-engineering bolsters profitability

39 SNACKS, TREATS & ACCOMPANIMENTS CATEGORY: Only two of the seven categories show volume growth Baking Aids and Rusks PIONEER FOODS: Volume performance matches the market Bovril & Marmite - strong volume growth Double digit profit growth Pricing strategy Cost management Consolidation of facilities nears completion

40 OUTLOOK LOW CATEGORY GROWTH AND HEIGHTENED COMPETITION So what: Intensify big brand behavior Capitalize on brand portfolio advantage Lift innovation run rate Value chain cost competitiveness Further hone the portfolio Augment with top talent

41 INTERNATIONAL Thushen Govender

42 PERFORMANCE SUMMARY YTD MARCH % VOLUMES -11% EXTERNAL REVENUE (R1.3bn) -73% OPERATING PROFIT (R69m) -70% OPERATING MARGIN March % March %

43 AFRICA EXPORTS Strengthening ZAR impacts margin H1-16 (R15.02) to H1-17 (R13.58) Significant cost push Price recovery constrained within key markets Prudent credit management limits volume growth Consumer down trading evident Beverage margin recovers between Q1 and Q2

44 FRUIT EXPORTS Stronger ZAR significantly impacts profit 2016 carry in crop c.41% lower Facilities investment begins to improve waste reduction and quality Notable improvement in 2017 crop Global demand for high quality SA dried fruit H1 Index Analysis: 2016 vs 2017 Period Cost/ton USD Selling price/ton Rand price/ton Realisation H % 105% 116% 281% H % 100% 100% 100%

45 UK OPERATIONS Brexit leads to significant cost push Price inflation remains muted Streamfoods integration successfully concluded Once off integration costs of c.r9m Stronger ZAR reduces profitability by c.r10m

46 JOINT VENTURES NIGERIA FCPL Brand and product quality initiatives enhance margins Distribution investment drives market penetration Business is profitable EAST AFRICA - WEA Acquisition concluded effective 3 March 2017 New partner (Post) remains committed to the region

47 OUTLOOK MANAGEMENT INITIATIVES Market development in growth zones New agency partnerships Hiring new talent Cost reduction initiatives Investment in Nigeria Search for related acquisitions MACRO OUTLOOK Relative Rand strength Recovery of African markets Increasing competition for SA raisin supply SA Raisin proposition remains globally relevant UK - healthy snacking remains on trend Weaker GBP drives EU exports African JV s poised for growth STRUCTURAL IMPACT

48 2 ND HALF AND BEYOND SA & ROA portend low growth Medium term African Investment Case is compelling BUT Short term pressure 1 st Half impact cannot be restored in H2 Improved 2 nd half vs prior year for Groceries and Essential Foods 2018 Normalized margin target at 12% Corporate activity remains a strategic imperative ROA Rest of Africa

49 TOWARDS 2020 REMAINS RELEVANT Drive above-market growth Enhance competitiveness Shape a winning portfolio Focus on power brands Strategic customer management Reset the cost base and efficiencies Build a high performance team Restore the core Rekindle acquisition pipeline Strengthen brand investment Maintain cost resolve Hire the best talent

50 Time is the friend of a wonderful company, and the enemy of the mediocre (Apologies to W Buffett)

51 THANK YOU FOR YOUR TIME