S. Khonkaen Foods Public Company Limited From Farm to Table FY2012 - - PowerPoint PPT Presentation

• S. Khonkaen

Foods Public Company Limited

From Farm to Table

FY2012 Results Briefing Analyst & Investor Update Analyst & Investor Update

DISCLAIMER DISCLAIMER

This Investor Presentation has been prepared by S. Khonkaen Plc for investors, solely for information purposes. The views expressed here contain some information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. Any forward looking information in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect. Financial numbers if presented in other currencies other than THB are strictly for illustrative purpose only and based on prevailing interbank lending exchange rate at the time of presentation. based on prevailing interbank lending exchange rate at the time of presentation. This presentation should not be relied upon as a recommendation or forecast by S. KhonkaenPlc. Nothing in this release should be construed as either an offer to sell or a solicitation of an offer to buy or sell shares in any jurisdiction.

AGENDA AGENDA

Introduction Business Overview Business Overview Financial Review SORKON the Future Questions and Answers

Introduction Introduction

GROUP GROUP STRUCTURE STRUCTURE

Mahachai Food Processing

99.33% 99.33%

• S. KhonkaenFoods Public Co
• S. KhonkaenFoods Public Company Limited (Sorkon)

mpany Limited (Sorkon)

• Production and Distribution of Pork (Traditional Thai Food), Meat

Snacks, Ready-to-Eat-Frozen Foods

• Distribution of Processed Seafood Balls

S KHONKAEN KHONKAEN FOODS FOODS

Processing Company Limited (MFP )

• Distribution of Processed Seafood Balls
• Quick-Service Restaurants

Mahac Mahachai ai Food Proces Food Processi sing Company Company Limit Limited (MFP d (MFP ) )

P d ti f P d S f d B ll

• S. KHONKAEN

KHONKAEN FOODS FOODS PUBLIC COMPANY PUBLIC COMPANY LIM LIMITED TED (SORKON) (SORKON)

99.68% 99.68% 100.0% 100.0%

• Production of Processed Seafood Balls

S. S.K. K.K. Food Company Food Company Limit Limited (SKK ed (SKKF) F)

• Distribution of Processed Seafood (non‐modern trade outlets)

S.K.K. Food Company Limited (SKKF)

• S. Pasusat

Company Limited (SPS)

Distribution of Processed Seafood (non modern trade outlets)

• S. Pasusat
• S. Pasusat Company Limited (SPS)
• mpany Limited (SPS)
• Production & Distribution of Swine Farming

FY2012 results and review investor and analyst meeting | | 05 05

KEY KEY MILEST MILESTONES ONES

Sorkon acquires shares

• f its three subsidiaries

equivalent to the BV as

• f end 2011

1995 1995

• f end 2011.

After restructuring, Sorkon directly fully

• wns these subsidiaries

with no cross holdings Listed on the Stock Exchange of Thailand 19 1984 84 1995 1995 Shifted products from being only souvenir to a popular daily consumed meat snack under brand "Entre’e" 2007 2007 Acquired land and machinery assets from NaraiInterfoodCo.,Ltd. to expand capacity 2011 2011 Opened a new subsidiary in Poland to distribute locally made meat products throughout Established in Thailand Exchange of Thailand 19 1984 84 1993 1993 brand Entre e 2005 2005 Settled production base 2007 2007

• e pa d capac y

2010 2010 2011 2011 g the EU 201 2012 Disposed of investment as a distribution company marketing the Thai native food To expand business to pig farming in order to integrate the whole process of its core in Poland to serve the demand of Asia meat product in European as well as Scandinavian countries. p in See MoomMuang to Thai Food Industry Co., Ltd. Increased registered capital from THB 80 85 p business capital from THB 80.85 mn to THB 242.5 mn

FY2012 results and review investor and analyst meeting | | 06 06

KEY KEY HIGHLIGHTS HIGHLIGHTS

Str Strong growth

• ng growth

perfor performance ance Abili Ability to ty to pass pass

• n costs
• n costs to

to end end Inter International ional Invest Investment in ment in Fish ball Fish ball production production capacit capacity and y and Frozen Foods Frozen Foods Str Strong position

• ng position

in Thailand in Thailand and and export markets export markets

• n costs
• n costs to

to end end consumer consumers Inter International ional Stan Standard dard manufa manufacturing ng practise practises Frozen Foods Frozen Foods expansion to expansion to drive drive growth growth Robust balance Robust balance sheet and sheet and prudent prudent financial financial managemen management

• Revenues

increased 9% YoY

• n the back of both
• Domestic market

share of 80% in modern trade sector in

• Sorkon’s majority

market share allows it to pass on costs to

• All of Sorkon’s

manufacturing facilities are of

• Investment of THB

250 mn in 2012 to expand fish ball

• Management

committed to maintaining an optimum level of

• n the back of both

Traditional Thai and Seafood Balls

• Net Profits

increased 82% YoY modern trade sector in native foods category

• Worlds largest fish

ball manufacturer it to pass on costs to end consumers facilities are of international standard especially the ready to heat food factory has complied with the expand fish ball production

• Investment of THB

50 mn to expand Frozen Foods an optimum level of financial leverage

• Financial flexibility

allows us to expand capacity and i t t h because of Sorkon’s strong

• perating leverage

and a robust balance sheet “BRC” (British Retailing Consortium) standard

• Aim to have 200

restaurants by 2015 investments where necessary

• Generating strong

cash flow from operations

FY2012 results and review investor and analyst meeting | | 07 07

Business Overview Business Overview

Strong Market Positioning in Core Businesses

• S

ORKON is the largest player in Traditional Thai Foods and S eafood Balls market (together accounting for almost 80% f l l ) i h h 80% k h i d

Pioneer in Meat-Base-Snack

• S

ORKON is the single largest producer in Meat-Based- S nacks with strong brand recognition S trong R&D and kno ho

• f total sales) with more than 80%

market share in modern trade

• Multi-brand/ multi-grade strategy, strong brand loyalty,

price leadership

• Barrier to entry for new comers in modern trade segment

(hi h li ti f hi h itt d l d t

• S

trong R&D and know-how

• Cost efficiency

QSR

Sales Mixed

(high listing fee, high committed volume, and cost efficiency)

QSR – Zaap: Successfully Launched

T di i l Snack Ready Meal 7% 1%

Swine 9%

• Zaap has continuously gained its popularity from its four

flagship restaurants (3 in CBD); S

• i Aree, S

ilom, All S easons Building, and Bangplee.

• All 4 outlets have positive contribution margin

Traditional Thai Foods 43% Seafood Balls Snack 6%

Niche Player in Ready Meal

• Not competing in high competitive segments
• A Niche player in few selected categories, i.e.
• Frozen Thai dessert “ tweet ”

Balls 34%

• Frozen Thai dessert tweet
• Yunnan stewed pork leg
• Frozen facilities will serve our
• wned fast growing QS

R

FY2012 results and review investor and analyst meeting | | 09 09

PROCESSED FOOD MADE FROM PORK PROCESSED FOOD MADE FROM PORK (T (Tradi raditiona tional Thai l Thai Food) Food)

• Produced in Bangplee & NakonPathom
• 80% Domestic Market Share

Ke Key De Details tails

35.6% 37.4% 42.8%

35 0% 40.0% 45.0% 700 0 800.0 900.0

Revenues a venues and G nd Gross Pr

• ss Profit M

it Margins rgins

(Units in THB millions)

• Distributed through major retailers & convenience

stores w/ upcountry reps

• Exports to China, HK & Macau
• OEM 7% ; Brand 93%

646.0 776.5 791.5

5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 100.0 200.0 300.0 400.0 500.0 600.0 700.0

• Operating at 60% capacity, 50,000 t.p.a
• Consistent sales growth of 10% CAGR (from 2009) as

a result of retail spaces expansion and GDP Growth

0.0% ‐ 2010 2011 2012

Brand Name(s) Brand Name(s)

• S. Khonkaen
• HuayKaew

Food made from Meat

• Moo-dee
• Bann Pai
• Moo-Hoar
• 3 RienThong

FY2012 results and review investor and analyst meeting | | 10 10

SEAFOOD BALLS SEAFOOD BALLS

Revenues a venues and G nd Gross Pr

• ss Profit

it Margins Margins Ke Key De Details tails

• Manufactured by MFP
• Worlds largest manufacturer of fish balls
• Distributed through major retailers & convenience stores

w/ upcountry reps

Revenues a venues and G nd Gross Pr

• ss Profit

it Margins Margins

(Units in THB millions)

y

18.7% 22.7% 24.9%

25.0% 30.0% 500 0 600.0 700.0

• Exports to USA, Europe, Japan, Korea (15% of

production)

• Domestic sales through fresh food markets 50%, modern

trade 35%

467.9 534.0 618.4 18.7%

5.0% 10.0% 15.0% 20.0% 100.0 200.0 300.0 400.0 500.0

• OEM 4% ; Brand 96%
• Operating at 100% capacity, 6,500 t.p.a.
• Strong growth at 15% CAGR (from 2009)

0.0% ‐ 2010 2011 2012

Brand Name(s) Brand Name(s)

• Chiu Chow
• Kwang Chow

K l

• Yaowarat
• Heng Heng

K i Z

• Kowloon
• Mahachai
• O-Deng
• Kai-Zen
• YUMI

Seafood Balls

FY2012 results and review investor and analyst meeting | | 11 11

MEA MEAT SNACKS SNACKS

• Manufactured at Bangplee
• Sorkon manufactures and Diethelm is the distributor

Revenues a venues and G nd Gross Pr

• ss Profit M

it Margins rgins

(Units in THB millions)

Ke Key De Details tails

31.2%

35.0% 120.0

• Domestics sales 92%
• Consists of snacks made from pork, chicken and

seafood

• THB 21.7 bn market with 13% growth p.a

92.8 103.3 114.2 20.8% 17.7%

15.0% 20.0% 25.0% 30.0% 60.0 80.0 100.0

g p

• Experienced 18% CAGR (from 2009)

0.0% 5.0% 10.0% ‐ 20.0 40.0 2010 2011 2012

• Entre’e

Brand Name(s) Brand Name(s)

• Moochi

FY2012 results and review investor and analyst meeting | | 12 12

READY READY MEAL MEAL

Ke Key De Details tails Revenues a venues and G nd Gross Pr

• ss Profit M

it Margins ins

• Manufactured at Samutsakorn
• Purchased the plant from Narai Interfood in 2010
• Successfully Churning from OEM-Export to Domestic

OEM and developing our own brand products

g

(Units in THB millions)

6 7% 9.6%

8 0% 10.0% 12.0% 120.0 140.0 160.0

• Niche player in a few select categories: meal foods and

desserts

• Successfully launched our own brands “Tweet” (for Thai

Desserts) and “Yunnan” (Stewed Pork Leg)

151.7 117.1 126.1 6.7% 3.3%

2.0% 4.0% 6.0% 8.0% 20.0 40.0 60.0 80.0 100.0 0.0% ‐ 2010 2011 2012

Ready

• Tweet
• Yunnan

Brand Name(s) Brand Name(s)

Ready Meal

FY2012 results and review investor and analyst meeting | | 13 13

QUICK SER QUICK SERVICE REST VICE RESTAU AURANT RANT

Ke Key De Details tails Revenues a venues and G nd Gross Pr

• ss Profit

it Margins Margins

• Revenues continue to grow strongly as more QSR’s

are opened

• Currently has 6 flagship outlets (Soi Aree, Silom, All

Seasons Building, Bangplee, and 2 outlets in food

Revenues a venues and G nd Gross Pr

• ss Profit

it Margins Margins

(Units in THB millions)

43.0% 46.0% 39.8%

45.0% 50.0% 20.0 25.0

court at Central Rama 3 and Rama 9)

• QSR’s will mainly sell Sorkon manufactured products
• Signature dishes differentiate Zaap from competitors

via quality and presentation

3.0 8.8 19.3

25.0% 30.0% 35.0% 40.0% 5.0 10.0 15.0 20.0% ‐ 2010 2011 2012

• Zaap Express
• Zaap

Brand Name(s) Brand Name(s)

Quick Service Restaurant

FY2012 results and review investor and analyst meeting | | 14 14

SWINE F SWINE FARMING RMING

• Farming and distribution of swine
• Farming located in Korat

Revenues a venues and G nd Gross Pr

• ss Profit M

it Margins rgins

(Units in THB millions)

Ke Key De Details tails

• Farming located in Korat
• Swine farming is used to support the main

business lines to stabilise the cost of pork and to alleviate potential pork supply shortages

• Effectively hedges against volatility in pork

12.6% 8.9%

8.0% 10.0% 12.0% 14.0% 150.0 152.0 154.0 156.0

y g g y p prices

143.5 142.2 153.5

‐4.0%

4 0% ‐2.0% 0.0% 2.0% 4.0% 6.0% 138 0 140.0 142.0 144.0 146.0 148.0 ‐6.0% ‐4.0% 136.0 138.0 2010 2011 2012 FY2012 results and review investor and analyst meeting | | 15 15

Financial Review Financial Review

REVEN REVENUE BREAKDOWN E BREAKDOWN

% % %

15% CAGR

(from 2009 to 2012)

Units in THB millions 1,682.0 1,822.9 100% 100% 100%

(from 2009 to 2012)

31.1% 31.7% 33.9% 1,504.9 467.9 534.0 618.4 42.9% 46.2% 43.4% 646.0 776.5 791.5 All product categories experienced growth YoY Processed pork and seafood represent

• ver 75% of

revenue

2010 2011 2012 2010 2011 2012

Processed Food from Pork Processed Snacks made from Pork Restaurants

revenue

Processed Seafood Ready‐to‐eat Frozen Food Sales of Swine FY2012 results and review investor and analyst meeting | 17 | 17

FINANCIAL FINANCIAL HIGHLIGHTS FY2012 HIGHLIGHTS FY2012

Year on Year Comparison

Units in THB millions Revenue Growth Net Profit (Loss) 93.5 1,846.2 Revenue Growth &Operating Cash Flow ( ) Growth/Decline & Basic and Diluted EPS 51.3 1,700.1

141.8 7.87 110.8 4.83

# of shares increased from 8.1 mn to 24.3 mn in 2Q12

2011 2012 2011 2012

Revenue Operating Cash Flow Net Profit (Loss) Basic and Diluted EPS

FY2012 results and review investor and analyst meeting | | 18 18 Not to scale. For illustrative purposes only

30.6%

GROSS PROFITS GROSS PROFITS

Units in THB millions

25.5% 27.5%

Gross Profit Margin* 468.4 565.3 +21%YoY 390.2 Continued strong improvement in gross profit margins from 25.5% in 2010 to 31% in 2012 as a result of efficiency increase combined with stronger sales improving gross profit growth by 21% YoY

2010 2011 2012

FY2012 results and review investor and analyst meeting | | 19 19 Not to scale. For illustrative purposes only (*) Calculated as a percentage of total revenue

EBITDA EBITDA

Units in THB millions 9.2% 9.7% 11.2% EBITDA margin* 204.3 9.2% +25%YoY 138.6 163.2

Improvement in EBITDA and EBITDA margin mainly results from improvement core

• perations (in line with improvement with GP)

2010 2011 2012

• perations (in line with improvement with GP)

FY2012 results and review investor and analyst meeting | | 20 20 Not to scale. For illustrative purposes only (*) Calculated as a percentage of total revenue

PROFIT PROFIT AND AND LOSSES LOSSES FY2012 FY2012

All units in THB millions Increased sales for seafood products, Traditional Th i F d d QSR Lower interest rates due to reduce in short term borrowing as capital increase Due to the minimum wage increase, minimum salary for under graduates and Thai Food and QSR 146.0 graduates and increase in marketing costs, SGA increased 18% YoY (28.2) 9.7

93.5

+82.3% YoY (49.1) (29.7) (6.5)

51.3

Revenue Selling Expenses Admin Expenses/ Others Finance Costs

201 2011

Income Taxes

2012 2012

COGS

FY2012 results and review investor and analyst meeting | | 21 21 Not to scale. For illustrative purposes only

Return on Equity (1) Return on Assets (2)

Key Financial Ratios Key Financial Ratios

Return on Equity (1) Return on Assets (2)

9.2% 10.3% 12.7% 18.4% 16.3% 20.4% Net D/E (3)

2010 2011 2012 2010 2011 2012

Net D/E (3)

1.91 1.73 0 66

Not e: Rat io calculat ion based on S ET Manual Guide (1) ROE = NI / Average Tot al S hareholders Equit y (2) ROA = EBIT / Average Tot al Asset s (3) Net D/ E = Net Int erest Bearing Debt / S hareholders Equit y

0.66

2010 2011 2012

FY2012 results and review investor and analyst meeting | | 22 22

Balance Sheets Balance Sheets

All units in THB millions

424 332 1,222 217 388 33 585

Current

466

PP&E Land Total Assets Current

217

Net Int. Other Total

Target rget Ne Net Int.

• t. Be

Bearing ng D b D bt t t E it < < 1 25 25

Assets (invest.) (Excl. Cash) Current Liabilities Net Int. Bearing Debt Liabilities Equity

• As of Dec-12, Net D/E was 0.66x as a result of the capital increase in 2Q12
• Sorkon aims to maintain it’s a Net D/E not higher than 1.25 times

Debt t bt to E Equ quit ity < < 1.25 25 g

• Estimated capex in 2013 will be financed by both debt and internal cash

flows Existin Existing Land for Land for

• Book value of Land for Investment: THB 332 mn
• Aim is to gradually liquidate these lands to maintain the company’s capital

g Invest Investment ent

• Aim is to gradually liquidate these lands to maintain the company s capital

structure and for future CAPEX financing

FY2012 results and review investor and analyst meeting | | 23 23

CASH FLOW CASH FLOW

Cash and cash equivalents increased 3x by Baht 20.0 million Cash & Cash Equivalents

30.2 10.2 6.2

CF from Financing CF From Operations CF from Investments

All units in THB millions

141.8 110.8 66.4 (13.8) (36 9) (70.0) (15.6) (46.7) (108.0) (36.9)

2012 2011 2010

FY2012 results and review investor and analyst meeting | | 24 24 Not to scale. For illustrative purposes only

SORKON the Future SORKON the Future

MAINTAIN MARKET LEADERSHIP WITH GROWTH

(Traditional Thai Food and Seafood Balls)

• Multi-brand/ multi-grade strategy, strong brand loyalty, price leadership
• Maintain cost leadership via technology improvement
• Continuous new product development geared towards Ready-to-Eat products to

match new life-style

S trategy

• Increase market coverage
• Expand to new potential market – HoReCa market segment
• Traditional Thai Foods

Traditional Thai Foods

 High Nutrition Foods for kids and Healthy products for health conscious

consumers

 Increase variety of product flavors to cater a new generation

• S

eafood Balls

New Products to be Introduced in 2013

 Grilled/ Fried S

eafood Balls with special sauces

• Ready for AEC market

 Business collaboration with strong domestic strategic partners (trade/ JV)

g g p ( )

• Traditional Thai Foods

 Expansion of OEM in Europe (to overcome trade barrier)

• S

eafood Balls

 Diversify export to Middle East and other Muslim countries

Expand Export Markets to Enhance Growth

y p

FY2012 results and review investor and analyst meeting | | 26 26

READY MEALS TO EXPAND FURTHER

• S

uccessful 2012 FY,

S f ll Ch

 Domestic sales volume dramatically increased along with margin

improvement

 Own Brand Products ( Thai S

weet “ tweet” , and Yunnan S tewed Pork Leg “ Yunnan” ) were successfully launched in December 2012

S uccessfully Churning from OEM-Export to Domestic OEM and Own Brand

• Frozen Foods will be completely turned around and profitable in 2013
• Additional OEM contracts in pipeline

Turning Around with

• Momentum in “ tweet” and “ Yunnan” in modern trade and HoReCa segment
• Increase demand for Ready-to-Heat products from HoReCa segment (due to

high labor cost and labor shortage)

g High Business Potential

• To be a niche player in few select categories
• To increase number of modern trade outlets
• More emphasize on “ HoReCa” market segment
• Co-brand with retailers
• Continuing with domestic OEM (with decent margin) to maintain the economy of

scale

• Frozen facilities will serve our owned fast growing QS

R

S trategy

FY2012 results and review investor and analyst meeting | | 27 27

Pioneer in Meat -Base-Snacks

(Huge Room To Grow)

• THB 21.7 billion with 13%

growth p.a*

• Meat-Base-Snack category shares less than 1%
• S

ORKON is the pioneer and the single largest producer in Meat-Based-S nacks

• Entrée (the first Meat-Base-S

nack in Thailand) successfully built brand

Low market penetration represents an t it

( ) y awareness

• To launch lower price products to compete in traditional trade channel
• pportunity

(expected in Q4)

• Pork Rinds is being launched
• Distribution via Pens Marketing, S

ahapat Group( Entrée is distributed via DKS H)

New Products to be Launched

• Ready for AEC market:

 Working with DKS

H for the plan to distribute our products to AEC

 S

• me Business collaborations are being discussed with potential trade

Diversify Export

 S

• me Business collaborations are being discussed with potential trade

partners

• New Halal snacks line will be completed by 2013; to export to Middle East and

Muslim countries

Diversify Export Market * S

• urce: AC Nielsen

FY2012 results and review investor and analyst meeting | | 28 28

“Z ”

C i l i i i l i f i i fl hi l (S i A S il All

“Zaap”

Revenues continue to grow strongly as more QS R’s are opened

• Continuously gaining its popularity from its six flagship outlets (S
• i Aree, S

ilom, All S easons Building, Bangplee, and 2 outlets in food court at Central Rama 3 and Rama 9)

• Unique outlet design serving selected Thai-Esarn-Traditional dishes with trendy

presentation

• Menu differentiation (S

ignature Dish): Crispy S kin Roasted Chicken, S teamed Black S ticky Ri ( i l i ti k i f N th t f Th il d) T Y P k Rib

Rapidly Gaining Brand Awareness from 6 Flagship Outlets

Rice( special species sticky rice from North part of Thailand), Tom Yam Pork Rib,…

• To rapidly build Zaap to be a leading Traditional Thai Foods QS

R:

 8 additional outlets to be added within 2013 in CBD and popular tourists

destination in Bangkok to build brand awareness among Thai white collars and foreigners

To open 8 new Outlets in 2013

foreigners

 2014 onwards, 10 additional outlets expansion per year, diversifying to maj or

cities and tourist destinations

• Restaurant size and restaurant management is being reviewed:

in 2013 O ti i i th O tl t  To reduce number of staffs avoiding labor shortage  Delivery service will be added to enhance revenues and to quickly gain brand

awareness

Optimizing the Outlets and add Delivery S ervice

• Infrastructure for “ Zaap” franchise business

 Brand and operation manual are completed  Training course and material are being finalized  Logistic and network system implementation plan are being conducted

• The first franchise expected in 2014

Infrastructure for Franchise Business in Progress

• The first franchise expected in 2014

FY2012 results and review investor and analyst meeting | | 29 29

FUTURE BUSINESS EXP FUTURE BUSINESS EXPANSION ANSION Seafood 6,500 2011

• Investment of THB 250 mn to

increase production of fish balls

• This will expand capacity by

approximately 100% from 6,500

13,000 2013

t.p.a to 13,000 t.pa

• Improved efficiencies and cost

savings

• Expected completion by 4Q2013

100% I 100% Increase ease

Frozen Foods Frozen Foods

• Investment of THB 50 mn
• Currently operating at more than 60% capacity

Currently operating at more than 60% capacity

• Improved efficiencies and cost savings
• Expected completion not later than 1Q2014

FY2012 results and review investor and analyst meeting | | 30 30

Questions and Answers Questions and Answers