ANNUAL RESULTS PRESENTATION - Pioneer Foods Foods... · SALIENT FEATURES Frail SA economic conditions prevailed, deepened Currency weakness, accelerated input inflation Key category

ANNUAL RESULTS PRESENTATION

FOR THE YEAR ENDED 30 SEPTEMBER 2018

AGENDA• Year under review

• Financial performance

• Group performance

• Divisional performance• Essential Foods

• Groceries

• International

• Sustainability

• Outlook

• Questions

YEAR UNDER REVIEWTERTIUS CARSTENS

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

FINANCIAL REVIEW

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

Twelve months to 30 September 2018

Volume +4%

Revenue +3% to R20.2 billion

Adjusted operating profit1 +26% to R1 603 million

Operating margin From 6.5% to 8.0%

Adjusted HEPS1 +25% to 553 cents

Net cash profit from operating activities +25% to R2.1 billion

Dividend for the year (Final 260 cents) 365 cents

TOTAL SA FOOD PERFORMANCE

YTD Sep 2018 12MM 6MM 3MM

ASK’d Value 0.7% 0.3% 1.7%

ASK’d Volume 3.7% 4.4% 5.5%

Muted value gain, volume recovery off very weak base

Source: ASK’d September 2018

Corporate Share1

Value Share by Brand

BRAND PERFORMANCE

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).

12MM OCT 2017 – SEP 2018

Value Share

Share points change

31.2% 0.3%

25.8% 2.0%

30.7% -0.8%

21.8% -1.3%

15.5% -0.3%

22.1% -0.2%

27.8% -1.1%

Bak

ery

Power Brands

Flo

ur

Category growth

3.4%

12.6%

-12.6%

1.3%

7.8%

4.5%

6.4%

FINANCIAL REVIEWFELIX LOMBARD

GROUP PERFORMANCE

FINANCIAL REVIEW

4%VOLUME

3%REVENUEto R20.2 million

26%ADJUSTED OPERATING PROFITto R1 603 million

8.0%OPERATING MARGINfrom 6.5%

25%ADJUSTED HEPSto 553 cents

25%NET CASH PROFIT FROM OPERATING ACTIVITIESto R2 073 million

DIVIDEND DECLAREDmaintained at 365 cents

NET DEBT (excl. BEE)Down to R442 million

Year ended September 2018

2018Rm

2017Rm

%Change

Volumes (‘000 ton) 2 286 2 197 4

Revenue 20 152 19 575 3

Cost raw materials and packaging 11 420 11 845 4

Naked margin 8 732 7 730 13

Naked margin % 43.3% 39.5% -

Gross profit % 28.8% 26.3% -

Operating cost 7 129 6 453 (10)

Adjusted operating profit1 1 603 1 277 26

Adjusted operating margin 8.0% 6.5% -

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%).

GROUP OPERATIONAL INCOME STATEMENT


2018Rm

2017Rm

%Change

Revenue

Essential Foods 11 859 12 470 (5)

Groceries 5 120 4 403 16

International 3 173 2 702 17

Group 20 152 19 575 3

Adjusted operating profit1

Essential Foods 915 800 14

Groceries 419 357 17

International 285 121 136

Other (16) (1) -

Group 1 603 1 277 26

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.

SEGMENTAL PERFORMANCE


UNDERSTANDING ADJUSTMENTS

2018Rm

2017Rm

%Change

Adjusted operating profit 1 603 1 277 26

Once-off merger and acquisition costs - (18) -

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

(30) (103) -

Items of a capital nature 73 (57) -

Operating profit 1 646 1 099 50

Investment income 28 22 27

Finance costs (198) (196) (1)

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

- 60 -

Profit before income tax 1 476 985 50

Income tax expense (399) (259) (54)

Profit for the year 1 077 726 48

Sale of properties, captive listed shares and Heinz Foods SA JV to subsidiary.

Heinz Foods SA performance.

Pioneer Foods share price performance. Hedge 100% valued while liability is phased over time.

Turnover - PFG share Share of PAT1

2018Rm

2017Rm

%Change

2018Rm

2017Rm

%Change

Other 193 179 8 26 20 30

Bokomo Botswana 464 555 (16) 19 18 6

Bokomo Namibia 272 279 (3) 1 8 (88)

Heinz Foods SA 180 375 (52) (70) (27) (159)

Food Concepts Pioneer Ltd - 70 - - 3 -

Future Life Health Products 142 148 (4) 17 17 -

Weetabix East Africa 90 42 114 14 5 180

1 341 1 648 (18) 7 44 (84)

Namibia encountered challenging economic circumstances.

Acquired March 2017.Performed well notwithstanding political challenges and liquidation of Nakumatt.

Became a subsidiary during 2017.

Once-off adjustments of certain items on the Heinz Foods SA balance sheet as well as poor operational performance.

PERFORMANCE OF JOINT VENTURES AND ASSOCIATES

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.

1 Before items of a capital nature

CASH FLOW ANALYSIS

2018Rm

2017Rm

%Change

Net cash profit from operating activities 2 073 1 661 25

Change in working capital 281 752

Inventory (38) 178

Debtors (20) 271

Creditors 339 303

Cash effect from hedging activities 2 166

Net cash generated by operations 2 356 2 579

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 1 991 1 770 12

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.

Improved operating performance.

Continued strong cash generation

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

DIVISIONAL PERFORMANCE

ESSENTIAL FOODSRIAAN HEYL

1

• 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 growth2

○ Significant down-trading observed

• Bakeries H2 traction encouraging

ESSENTIAL FOODS

Performance summary

1 Source: Nielsen Trade Desk 12MM Sep 2018 2 Source: SAGIS

ESSENTIAL FOODS

Performance summary – 12 months ended 30 September 2018

Rice & maize, but all categories positive

Bakeries +1% (Q4: +5%)

+2%VOLUMES

Strong full year maize performance

Wheat milling & baking

remained under pressure

+14%OPERATING PROFIT

R915M

Balance of Grains lost

momentum in H2

+1.3ppOPERATING MARGIN

7.7%

2017: 6.4%

-5%EXTERNAL REVENUE

R11.9BN

Maize deflation 22%

Marginal inflation

bread and rice only

Generated R1.6bn cash

from operations

ESSENTIAL FOODS

Maize

• Industry milling all time high September 20181

○ Raw material, consumer value, capacity

• Category down-trading accelerated

○ Fuel/transport cost impact on consumer

○ Deflation despite raw material inflation2

○ DOB volume share of Trade Desk: 26% → 34%3

• White Star maintained value share leadership

○ White Star value/volume share ratio: 1.11 → 1.253

○ White Star RSP deflation 11% vs. category 25%3

• White Star Instant Porridge gained further traction

○ Trade Desk Q4 volume leadership established3

○ Enhanced overall category performance1 Source: SAGIS 2 Source: SAFEX WM near month, STATS SA Food Price Monitor3 Source: Nielsen Trade Desk 3MM Sep 2017 vs. Sep 2018

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

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 20171

○ 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

○ 6 700 additional outlets served on average daily September 2018 vs. 2017

1 Source: STATS SA Food Price Monitor

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

ESSENTIAL FOODS

Pasta, rice, dried vegetables

• Reasonable pasta performance

○ H2 impacted by growth of imports and categorydeflation

• Rice delivered despite promotional frenzy

○ Spekko market share restored post H1 supply chaindisruptions

• Dried vegetables sustained performance

OUTLOOK

• Pasta category growth potential and capacity to participate

• Spekko growth to be sustained

○ Recognised quality platform

○ Supply chain capabilities


GROCERIESMARTIN NEETHLING

2

GROCERIES

• Portfolio delivered strong volume recovery in corecategories

• Improved returns on trade investment unlocks growth

• Input inflation felt on beverages and fruit

• Intensified consumer pursuit of value, with littleinflation vs. 2017

• GP margins maintained

• Category volume growth in 10 out of 14 categories1

• 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

Performance summary

GROCERIES


Driven by cereals, LLFJ and Wellington’s

Cereals +22%

LLFJ +28%

+15%VOLUMES

+16%EXTERNAL REVENUE

R5.1BN

Wellington’s adds 4%,

Organic growth of 12%

Portfolio inflation of 1.3%

Moderate inflation


8.2%

2017: 8.1%Strong cereals and LLFJ

performance

+17%OPERATING PROFIT

R419M

Snacks, dilutables and

Lipton regress,

Wellington’s dilutes

profitability

Wellington’s contributes

to 0.6pp margin dilution

GROCERIES

Cereals

• Excellent volume performance

• Weet-Bix 450g up 1% in Q4F18 vs. declines earlier in the year2

• Portfolio delivered 1.7% CAGR growth in price from 2016

• Weet-Bix additional capacity utilised in line with plan – factoryoperates at high levels of efficiency

• Cereals grows volume and value share in expanding category1

and Pronutro achieves 3 year market share high

• Strong volume growth of 31% on Bokomo Corn Flakes, due toclose management of relative shelf pricing

• Bokomo Corn Flakes surpasses Kellogg’s 1kg value share inmajor retailer past 3 months

• Breakfast portfolio strategy gaining traction

1 Source: Nielsen Trade Desk 6MM March 2018 2 Morgan Stanley report, 30 October 2018

GROCERIES

• Excellent juice volume performance, up 28%

• Strong LLFJ market share recovery, with LiquiFruit gaining 2.0% pointsvalue market share growth1. 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’s2 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 Islandvolumes recovered in H2

• Lipton gained share in weak category

1 Source: Nielsen Trade Desk 12MM Sep 2018 2 Morgan Stanley report, 30 October 2018

Beverages

GROCERIES

• 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’sbasket growing 14.4%1

• Condiments grew 1.3% in volume, with Wellington’s/Heinz basket growing 26%1

• Supply discontinuities on imported lines hamperedservice levels

• Introduction of John West MSC Tuna a first in SA

1 Source: Nielsen Trade Desk 3MM Sep 2018

Pioneer Foods Wellington’s (previously Heinz Foods SA)

GROCERIES

Balance of Portfolio

• Fruit margins contracted due to unfavourable supplymix

• Moir’s baking aids continues to gain in growingcategory

• Manufacturing consolidation positively contributed,full year effect enjoyed

• Black spreads shows real volume growth and gains inmarket share

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 efficiencyplanned

• Ongoing procurement focus to manage costs


INTERNATIONALTHUSHEN GOVENDER

3

INTERNATIONAL


Fruit and beverage exports delivered

Lizi’s (UK) acquisition contributed

+12%VOLUMES

+17%EXTERNAL REVENUE

R3.2BN

Continued traction

in Nigeria

Vine fruit USD export

prices at all time high


9%+136%

OPERATING PROFIT

R285M

Nigeria and UK contribution increasing

Fruit availability, Mozambican recovery

Strong performance across portfolio

Weaker rand delivers margin enhancement

2017: 4.5%

INTERNATIONAL

Consumer Exports

• Notable improvement from strategic markets enabled by newroute to market models

• Improved USD liquidity in some markets

• Prudent credit management regime

• East African markets continue to grow, enabled by in-marketbeverage team within the WEA JV

• Socio-economic conditions in Zimbabwe remain under pressure

• Increasing tariff and non-tariff barriers across African marketsremain an issue

• Ongoing focus on supply chain efficiencies to improve servicedelivery

Increasing focus on brand development

INTERNATIONAL

INTERNATIONAL

Fruit Exports

• 2018 season delivered a record raisin crop with improvedquality

• 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, inparticular apricots

• International market development in progress to addresslocal surplus of peaches and pears

• Hedging policy mitigates currency risk

INTERNATIONAL

United Kingdom

• Overall volume growth driven by granolas and porridges

• Fruit Bowl redesign and launch

○ Brand architecture updated to appeal to a broader targetmarket

○ Price/margin focus reduces volume however enhancesprofitability

• Private label wheat biscuit performance impacted by categorydecline

• 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 growahead of inflation

INTERNATIONAL

Nigeria

• Current year performance driven by the sausage rollcategory

• Local R&D underway to broaden the snacking range underthe Yum Yum brand

• New bread plant on order

• Route to market capability enhanced by investment intodistribution hubs and vehicles

• Credit risk management remains prudent

• Management team focus on building a more resilientbusiness platform

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 becommissioned in H2

○ Establishment of a regional hub via the WEA acquisition

○ Commenced work on new market entry in Africa with aninternational JV partner

• African market development remain key to portfolio and growth ambition

○ Market development work continues

• UK focus on brand development, innovation and manufacturingefficiencies remain key

• Subject to weather the current vine fruit crop holds potential

• Export pricing on vine fruit expected to remain at current levels

SUSTAINABILITYTERTIUS CARSTENS

SUSTAINABILITY

• Corporate Social Investment

○ School Breakfast Nutrition Programme

○ 6 provinces, 29 schools, 26 000 learners

• Enterprise and Supplier Development

○ 4 x Majority black-owned commercial farms

○ 7 x Independent Distribution Contractors, withR21m 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

Flagship projects

OUTLOOKTERTIUS CARSTENS

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 abarrier

• Geographic expansion

○ Baking capacity in Lagos, Nigeria

○ Exploring similar approaches elsewhere in Africa

EXPECTATIONS

• 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

Facing the challenges

THANK YOUThis document contains forward looking statements that, unless otherwise indicated, reflect the company’s expectations as at 19 November2018. Actual results may differ materially from the company’s expectations if known and unknown risks or uncertainties affect the business, or ifestimates 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 andassumes no obligation to update or revise any forward looking statement even if new information becomes available as a result of future eventsor for any other reason, save as required to do so by legislation and/or regulation.

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ANNUAL RESULTS PRESENTATION - Pioneer Foods Foods... · SALIENT FEATURES Frail SA economic conditions prevailed, deepened Currency weakness, accelerated input inflation Key category