INTERIM RESULTS PRESENTATION for the six months ended 31 March 2018 - - PowerPoint PPT Presentation

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%

Bakery

Power Brands

Flour

Corporate Share1

Value Share by Brand – full year

Brand 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 Performance Felix Lombard

Group Operational Income Statement

2018 Rm 2017 Rm % 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 well as items of a capital nature and, in 2017 only, once-off M&A costs

Segmental Performance

2018 Rm 2017 Rm % 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 well as items of a capital nature and, in 2017 only, once-off M&A costs

Understanding Adjustments

2018 Rm 2017 Rm % Change Adjusted operating profit 949 700 35.6 Once-off merger and acquisition costs

• (9)
• Phase I B-BBEE share-based payment charge and

related 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 applying the 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* 2018 Rm 2017 Rm % Change 2018 Rm 2017 Rm % 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

2018 Rm 2017 Rm % 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

• wn 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

2018 Rm 2017 Rm % 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 normalise

at 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 FOODS

Riaan 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 Foods

Performance Summary

6 Months ended 31 March 2018

+3%

Maize

Essential Foods

1 Source: Nielsen Trade Desk 6mm March 2018

• 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 / Pasta

Essential 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 Vegetables

Essential 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

1 Source: Nielsen Trade Desk 6mm March 2018

Divisional Performance

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 Dilutables

underperformed

1 Source: Nielsen Trade Desk 6mm March 2018

Performance Summary

Groceries

• 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%

OPERATING MARGIN (11.0%)

Performance Summary

6 Months ended 31 March 2018

Groceries

+70% +88% +3%

• 3%

+9%

• 1.4pp

+11%

OPERATING PROFIT (R292M) EXTERNAL REVENUE (R2.65BN)

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 share

in expanding category1

• Breakfast portfolio strategy gaining traction

Groceries

1 Source: Nielsen Trade Desk 6mm March 2018

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

1 Source: Nielsen Trade Desk 6mm March 2018

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

Divisional Performance

INTERNATIONAL

Thushen Govender

VOLUMES OPERATING MARGIN (8.5%)

Performance Summary

6 Months ended 31 March 2018

International

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

OPERATING PROFIT (R121M) EXTERNAL REVENUE (R1.4BN)

• 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 endeavour

expected to support longer term growth in SA

• Stronger currency mitigates input cost inflation
• Soft commodity pricing reaches end of deflationary

cycle

• 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

Expectations

Drive 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.