interim results presentation - pioneer foods · categories at 2016 levels • deflation and sales...

INTERIM RESULTS PRESENTATION

for the six months ended 31 March 2018

Agenda

• Introduction

• Financial Review

● Group Performance

• Divisional Performance

● Essential Foods

● Groceries

● International

• Outlook

• Questions

Salient Features

• Good progress with restoring the core

• Positive volume growth with material deflation in some categories

• Maize, long life juice and cereals recaptured market positioning

• Bread and wheat flour below expectations

• Most Power Brands posted improved share1

• African beverage exports to plan

• Lizi’s UK successfully integrated

• Wellington’s / Today’s acquisition approved

1 Source: Nielsen Trade Desk 6mm March 2018

Total SA Food Performance

Source: ASK’d March 2018, Bureau of Economic Research March 2018

YTD March 2018 12 MM 6MM 3MM

ASK’d Value 0.3 0.8 -0.7

ASK’d Volume -0.9% 2.9% 2.1%

Improved economic and political sentiment and confidence not evident in demand

6MM Oct 2017 – Mar 2018

Value Share

Share points change

31.1% 1.0%

26.8% 1.4%

31.9% 0.8%

22.1% -0.2%

16.2% 0.3%

18.6% -3.2%

26.7% -1.7%

Bak

ery

Power Brands

Flo

ur

Corporate Share1

Value Share by Brand – full yearBrand Performance

Category growth

3.7%

12.8%

-13.6%

1.4%

7.0%

5.0%

6.6%

1 Measured as weighted average of Pioneer Foods’ share in 16 categories in which it operates. Nielsen Trade Desk only. Including DOB’s

Financial Review

* 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

Six months to 31 March 2018

Volume +4%

Revenue -3% to R9.9 billion

Adjusted operating profit* +36% to R949 million

Operating margin From 6.9% to 9.6%

Adjusted HEPS* +26% to 320 cents

Net cash profit from operating activities +34% to R1.2 billion

Interim dividend declared 105 cents

Group PerformanceFelix Lombard

Group Operational Income Statement

2018Rm

2017Rm

%Change

Volumes (‘000 ton) 1 184 1 135 4.3

Revenue 9 899 10 183 (2.8)

Cost raw materials and packaging 5 586 6 310 11.5

Naked margin 4 313 3 873 11.4

Naked margin % 43.6% 38.0% -

Gross profit % 29.6% 25.7% -

Operating cost 3 364 3 173 (6.0)

Adjusted operating profit* 949 700 35.6

Operating margin adjusted 9.6% 6.9% -

Maize, Breakfast Cereals (SA and UK) and Long Life Juice the major volume performers

Sales price reductions, mainly related to Maize, Wheat and Rice commodity deflation

Margin recovery related to maize performance recovery

Operating cost well contained

* Adjusted for Phase I B-BBEE share-based payment charge and the related hedge, as wellas items of a capital nature and, in 2017 only, once-off M&A costs

Segmental Performance

2018Rm

2017Rm

%Change

Revenue

Essential Foods 5 826 6 457 (9.8)

Groceries 2 647 2 432 8.8

International 1 426 1 294 10.2

Group 9 899 10 183 (2.8)

Adjusted operating profit*

Essential Foods 561 331 69.5

Groceries 292 301 (3.0)

International 121 69 75.4

Other (25) (1) -

Group 949 700 35.6

Essential Foods

Volume growth and significant deflation

Maize major contributor to improvement in performance

Groceries

Excellent growth in volumes from major categories

Gross margin reduced marginally

International

Good volume growth from UK cereal business

Major improvement in fruit profitability

Immediate profit contribution from Lizi’s

* Adjusted for Phase I B-BBEE share-based payment charge and the related hedge, as wellas items of a capital nature and, in 2017 only, once-off M&A costs

Understanding Adjustments

2018Rm

2017Rm

%Change

Adjusted operating profit 949 700 35.6

Once-off merger and acquisition costs - (9) -

Phase I B-BBEE share-based payment charge andrelated hedge

6 (3) -

Items of a capital nature (profit on sale of properties) 37 6 -

Operating profit 992 694 42.9

Investment income 15 13 15.4

Finance costs (89) (88) (1.1)

Share of (loss)/profit of investments accounted for applyingthe equity method

(22) 30 -

Profit before income tax 896 649 38.1

Income tax expense (274) (189) (45.0)

Profit for the year 622 460 35.2

Sale of rationalised properties

Once-off Heinz Foods SA adjustments

Performance of Joint Ventures and Associates

Turnover - PFG share Share of PAT*

2018Rm

2017Rm

%Change

2018Rm

2017Rm

%Change

Other 93 98 (5.1) 13 12 8.3

Bokomo Botswana 214 322 (33.5) 3 3 -

Bokomo Namibia 141 140 0.7 - 4 -

Heinz Foods SA 128 211 (39.3) (54) (1) -

Food Concepts Pioneer Ltd - 43 - - 1 -

Future Life Health Products 71 75 (5.3) 9 10 (10.0)

Weetabix East Africa 41 5 - 7 1 -

688 894 (23.0) (22) 30 -

* Before items of a capital nature

Namibia encountered challenging economic circumstances

Acquired March 2017

Performed well notwithstanding political challenges in Kenya

Became a subsidiary during 2017

Maize deflation. Short-term performance impaired through mill upgrades

Once-off adjustments of certain items on the Heinz Foods SA balance sheet

Cash Flow Analysis

2018Rm

2017Rm

%Change

Net cash profit from operating activities 1 195 892 34.0

Change in working capital (1 152) (166)

Inventory (358) (33)

Debtors (255) (46)

Creditors (539) (87)

Cash effect from hedging activities (12) 149

Net cash generated by operations 31 875

Share-based payment related cash flow - (12)

Settlement of forward purchase contract on own equity

- (493)

Income tax paid (206) (230)

Net cash flow from operating activities (175) 140

Normalised working capital investment circa R800 million in first half

2018 investment higher to benefit from local pricing differential on maize and wheat

Material decrease in creditors

Debtors days outstanding improved

Improved operating performance

Cash Flow Analysis

2018Rm

2017Rm

% Change

Additions of PPE and intangible assets (127) (272) 53.3

Replacements of PPE and intangible assets (95) (97)

Proceeds on disposal of PPE and intangible assets 74 35

Business combinations (264) -

Investment in joint venture (15) -

Investment in associate - (190)

Interest and dividends received 37 46

Proceeds on disposal of available-for-sale assets and loans (21) 14

Net cash flow from investment activities (411) (464) 11.4

Progress with additions per plan

Investment in existing assets maintained

Investment in Lizi’s

Bowman’s the major contributor

Further investment in the Alpen Food Company

Group net debt and debt equity ratio

Outflow related to investments in:

● Lizi’s acquisition

● Working capital to benefit from local pricing differential on maize and wheat

Forecast:

● Working capital should normaliseat year-end

● Heinz Foods SA acquisition outflow in second half

8% -1% 6% 6% 18% 8% 22%

Net Debt Equity Ratio excl. phase II

BEE debt

Alternate pic

Divisional Performance

ESSENTIAL FOODSRiaan Heyl

Essential Foods

Source: SAGIS, Nielsen, SARS, STATS SA

Trading environment

• Deflation across categories

• Strong maize category volume recovery

• Weaker wheaten demand cycle

• Pasta continues to grow

• Rice imports flat

• Procurement discontinuities

● Wheat import duty and dispensations

● Currency volatility

• Trade Desk outperformance

• Maize, rice & pasta

driven

• Bakeries down 1%

despite positive

Gauteng growth

• Strong maize

performance

• Wheat milling & baking

regressed

• Balance of basket

performed well

OPERATING PROFIT (R561M)VOLUMES

• Deflation across the

basket

• Maize @ 31%

EXTERNAL REVENUE (R5.8BN)

• 2017: 5.1%

OPERATING MARGIN (9.6%)

+70%-10% +4.5pp

Essential FoodsPerformance Summary

6 Months ended 31 March 2018

+3%

MaizeEssential Foods


• Strong volume and profit growth

● Normalised procurement position

● Industry milling at all time high

● White Star brand leadership1

• White Star Instant Porridge leads category growth

OUTLOOK

• Local maize availability sound

• Maize meal consumer value proposition to remain

• Brand position to sustain growth

Flour / Bread / PastaEssential Foods

• Milling and Bakeries profitability regressed

• Volume and margin compression

● Gauteng bakeries volume and profit expansion

● Increased competition in coastal regions

• Procurement volatility (duty & exchange rate)

• Pasta performance sound

OUTLOOK

• Competitive environment to remain

• KZN baking capacity fully available

• KZN milling participation early 2019

• Bakeries efficiencies, availability and quality focus

Rice / Dried VegetablesEssential Foods

• Sustained volume and profit growth

● Enhanced Spekko availability and supply chain efficiencies

• Supply disruption

● Durban DC storm damage and shipment delays

● Promotional participation curtailed

● Spekko share sacrificed1

OUTLOOK

• Thai vs. Indian pricing dynamics

• Supply chain benefits and brand support



GROCERIES Martin Neethling

Martin – use this commentary together

with previous slide

• Portfolio managed to deliver volume recovery

• Input inflation on beverages and fruit

• Intensified pursuit of value, with pricing in certain categories at 2016 levels

• Deflation and sales mix squeezed margins

• Proactive and efficient trade investment delivered

• Category volume growth in 6 out of 10 categories1

• Snacks & Treats, Ice Tea and Dilutablesunderperformed


Performance SummaryGroceries

• Excellent volume

growth in Cereals

and LLFJ

• In line with “restore

the core” strategy

VOLUMES

• Poor performance of

Snacks & Treats,

Dilutables and Ice Tea

• Operating cost diligently

managed

• Volume-driven revenue

growth

• Some price deflation as a

result of competitive

landscape

• Prices 5.4% up on 2016

levels

• 2017: 12.4%


Performance Summary


Groceries

+70% +88%+3% -3%+9% -1.4pp+11%

OPERATING PROFIT (R292M)


Cereals

• Excellent volume performance

• Weet-Bix pricing tactically managed and ahead of 2016 levels

• Portfolio delivered 3.2% CAGR growth in price from 2016

• Weet-Bix additional capacity utilized in line with plan – factory operates at high levels of efficiency

• Weet-Bix grows volume and value market sharein expanding category1

• Breakfast portfolio strategy gaining traction

Groceries


Beverages

• Excellent juice volume performance

• Strong LLFJ market share recovery, with Liqui-Fruit the star performer

● Plus 1.4% points volume market share growth1

• Judicious price point management, and effective promotional support, assisted to “restore the core”

• LLFJ manufacturing architecture progressed well

• Dilutables category volume continues to decline

● Wild Island volume recovery in Q2

• Constrained Ice Tea performance

● Supply chain disruptions, now addressed

● Weak category demand

Groceries


Balance of Portfolio – mixed results

• Fruit margin contraction due to unfavourable supply mix

• Moir’s baking aids gains in growing category

• Manufacturing consolidation positively contributes

• Black spreads shows real volume growth and gain market share

Groceries

Outlook

• Price increases implemented during Q2

• Continued sales momentum to deliver

• Tight management of relative pricing, shelf health, service levels

• Innovation step change on Liqui-Fruit well advanced

• Low sugar formulations completed

• Lipton Ice Tea rejuvenation done

• Relaunch of Safari brand

• Continued manufacturing interventions for efficiency

• Impact of VAT increase and HPL implementation negligible to date

Groceries


INTERNATIONAL Thushen Govender

VOLUMES


Performance Summary


International

+70% +88%+3% +75%+10.2% +3.2pp+7.5%

OPERATING PROFIT (R121M)


• Recovery of fruit

volumes

• Consolidation of

Nigerian results

• UK granola category

growth

• Driven by fruit recovery

• Solid performance from

the UK and Nigeria

• Beverage exports to

plan

• Volume-driven revenue

growth

• 2017: 5.3%

• General portfolio

improvement

Consumer Exports

International

• Beverage volume and profit recovery on track

• Food labelling legislation changes in Mozambique mutes progress

• Distributor partners making inroads in key markets

• Volatile ZAR creates trading difficulties

• Market and brand development initiatives continue

• Zimbabwe remains challenged

• Prudent credit management

• Vine fruit performance turnaround

• 2018 raisin crop quality much improved

• Competition for the crop intensifies

• Tree fruit and currants supply and pricing impacted by Western Cape drought

• Strong global demand for SA vine fruit aids margin upliftment

Fruit Exports

International

• Sound overall volume growth

• Fruit Bowl innovation pipeline going to market

• Lizi’s integrated

● New launches imminent

● Immediate positive contribution

• Private label wheat biscuit performance impacted by category decline

• Private label granola business continues to deliver strong growth

• European export opportunities pursued

United Kingdom

International

• Solid performance driven by sausage rolls

• Route to market capability enhanced by investment in distribution hubs

• Initial consumer research on market relevant Pioneer Foods products in progress

• Capacity investment in a new bread plant approved

Nigeria

International

• African exports growth enhanced by market development initiatives

• Build on East African JV route to market capability

• Focus on growth and innovation in the UK

• Successfully implement new bakery project in Nigeria

Outlook

International

Outlook

Tertius Carstens

CEO

Strategic progress

Drive above market growth

• Major categories except bread and flour performed

• Business has installed capacity to grow

Continue to enhance competitiveness

• Manufacturing footprint optimisation contributing

• Operating cost discipline maintained

Restoring the core takes precedence

• Performance in maize, local beverages and cereals

• African export market stability and gains

Acquisitive vigilance

• Lizi’s & Heinz Foods SA

• Additional African opportunities being explored

• Improved sentiment and political endeavourexpected to support longer term growth in SA

• Stronger currency mitigates input cost inflation

• Soft commodity pricing reaches end of deflationarycycle

• Improved demand in key African export markets expected to continue

• Western Cape water supply risk remains

● Mitigations in place, excellent progress with usage efficiency

● Effect on some raw material pricing and local economy to endure

• Food safety

● Increased vigilance and review of management systems

Outlook

• Maize, juice and cereals to sustain improved performance

● Power Brand focus and investment continues

● Strengthened category demand supportive

• Bakeries enabled to compete

● Sound progress in Gauteng

● KZN capability fully available

● Availability drive to continue

• Export beverage and fruit performance to accelerate

• Wellington’s and Today’s will contribute post integration

• Leadership teams fully capacitated

ExpectationsDrive above market growth

QUESTIONS?

THANK YOU

This document contains forward looking statements that, unless otherwise indicated, reflect the company’s expectations as at 21 May 2018. 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.

interim results presentation - pioneer foods · categories at 2016 levels • deflation and sales...

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