WH Group 2014 Annual Results Presentation March 2015
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1
The Undisputed Market Leader with a Global Footprint
73.3%
100% 37%
Asia’s Largest Meat Company
China
Europe’s Largest Packaged Meats Company 1
U.S.’s Largest Pork Company
Europe
U.S.
墨西哥 UK Netherlands Poland Germany Belgium
France
Portugal Spain
Shuanghui Development and Smithfield Note: 1. Based on 2012 sales revenue
JV in Mexico
Romania
Italy
Affiliate in Europe (Campofrio) 2
Value Creation via Sustainable Growth
Investment Highlights Overview
Organic Growth Intrinsic Strengths ● Extensive sales network of the world’s largest pork company covering major global markets ● Fully integrated industry value chain mitigates industry risks and ensures food safety
● Well-known and trusted brands underpinned by comprehensive product offerings and strong innovation capabilities ● Trusted product quality and stringent food safety measures ● Visionary, experienced and focused global management team
● Favorable industry dynamics will continue to enhance our market leadership in China ● Enormous growth potential for our US business through organic improvement
Synergies ● Connect the largest pork consumption market and the largest pork export country ● Unique vertically integrated business on a global scale enables effective allocation of resources and expedites market expansion ● Minimize volatility from hog price movements and ensure steady growth by proactively adjusting business strategies
World’s Largest Packaged Meat, Fresh Pork and Hog Producer – The Undisputed Leader in the Global Pork Industry 3
1 2014 Results Highlights
2 Business Review
3 Outlook
4
Section 1
2014 Results Highlights
2014 in Review
• Production and sales volume continued to expand, with market share growing steadily
• Record high results in both China and the U.S. despite changing market conditions • Further improved debt structure and reduced leverage ratio through solid performance and strong
cash flows • Continued to improve management and operation efficiency
• Synergies began to take effect
6
Overview of 2014 Financial Performance Key Operating Metrics 2013A1
2014A
% Change
5,460
17,685
223.9%
22,772
47,170
107.1%
2,169
3,227
48.8%
US$ MM
2013A1
2014A
% Change
Sales Revenue2
11,253
22,243
97.7%
EBITDA3
461
2,158
368.1%
Operating Profit Net Profit Attributable to Parent Company4 (Reported) Net Profit Attributable to Parent Company4 (Adjusted)
886
1,614
82.2%
-289
737
N/A
507
956
88.6%
Adjusted EPS (US cent)
5.04
8.03
59.3%
Hog Production Volume (‘000 heads) Slaughtering Volume (‘000 heads) Packaged Meat Sales Volume (000’ tons)
Key Financial Metrics
Note:1. Results of 2013 included contribution from Smithfield since September 26, 2013, when the acquisition of Smithfield by WH Group was completed 2. External sales 3. Results after biological fair value adjustments 4. Results before biological fair value adjustments
7
WH Group Revenue and Operating Profit Breakdown 2014 WH Group Total Revenue1 Breakdown by Segment
2014 WH Group Operating Profit 2 Breakdown by Segment %
160 Hog Production 2.6%
25.5%
140
Others&HQ 1.9%
-12.6%
120 13.1%
100 80 Packaged Meat 53.4%
Fresh Meat 42.1%
100.0%
74.0%
60 40 20 0
2014 WH Group Total Revenue1 Breakdown by Region
Packaged Meat
Fresh Meat
Hog Others&HQ Production
Total
2014 WH Group Operating Profit2 Breakdown by Region Europe 5.8%
Europe 7.3% China 33.2%
China 47.9% US 46.3% US 59.5% Notes: 1. External sales 2. Excluding profit/loss from biological asset valuation
8
China Business Performance Overview 2014 China Business Revenue1 & Operating Profit Margin
2014 China Packaged Meat Revenue1 & Operating Profit Margin 2 US$ MM
US$ MM 8,000 7,407
7,395
20.0%
US$ MM
4,500
20.0% 4,074
7,000
17.5%
6,000
15.0%
3,500
20.0% 3,172
4,039
4,000 17.6% 3,500
2014 China Fresh Pork Revenue1 & Operating Profit Margin 2
17.5%
3,010
17.5%
3,000
16.6% 15.0%
15.0% 2,500
3,000 5,000
12.5%
12.5% 10.3%
10.5%
4,000
2,000
2,500 10.0%
10.0% 2,000
3,000
12.5%
10.0% 1,500
7.5%
7.5%
7.5%
1,500 2,000
5.0%
5.0%
1,000
1,000 3.1%
1,000
2.5%
500
2.5%
500
0
0.0%
0
0.0%
0
2013
2014
2013年 2013年
2014年 2014年
Notes: 1. External sales 2. Segment operating profit margin = segmental operating profit / internal & external sales
3.5%
5.0%
2.5%
0.0% 2013年
2014年
Operating Profit Margin
9
U.S. Business Performance Overview 2014 U.S. Business Revenue & Operating Profit Margin 1
2014 U.S. Packaged Meat Revenue1 & Operating Profit Margin 2
US$MM 13,235
8.0%
8,000
8.0%
6,000
8.0%
5,540
7,173 7.0%
12,000
7,000
7.0%
6.3% 5.7%
6,000
6.0%
5.0%
5,000
5.0%
4.0%
4,000
600
15.0%
522
7.0%
5,000
6.0%
10,000
2014 U.S. Hog Production Revenue1 & Operating Profit Margin 2
US$MM
US$MM
US$MM
14,000
2014 U.S. Fresh Pork Revenue1 & Operating Profit Margin 2
12.5% 500
10.0%
6.0% 4,000
400
4.8%
5.0%
7.5%
8,000
6,000 3.0%
3.0% 4,000
4.0%
4.0% 3,000
3,000
4.0%
3.0%
2,000
2.0%
2,000
1.0%
1,000
1,969
300
5.0%
3.0% 2,000
3,428
2.0%
2.5% 200
1,287
172
2.0%
1,000
0.0% 100
1.0%
1.0%
-2.5%
1.1% 0
0.0%
2013
2014
10.0%
-4.6% 0
0.0%
2013
2013年
0
2014
0.0%
2013
2014年
Notes: 1. External sales 2. Segment operating profit margin = segmental operating profit / internal & external sales
0
2014
-5.0%
2013
2014
Operating Profit Margin
10
Europe Business Performance Overview 2014 Europe Business Revenue & Operating Profit Margin1
US$MM 1,800
8.0%
US$MM
US$MM
US$MM 700
664
8.0%
700
7.0%
1,400
5.8%
7.0%
600
6.0%
5.0%
656
1,613 1,600
4.0%
600
6.0% 500
1,000
800
300
2.0%
300
400
200
1.0%
0
0.0%
169
2.0%
100
1.0%
1.1%
2013
2014
0.0%
2013年
10.0%
0.0%
200
-1.3%
-1.3%
100
-1.0%
-2.0%
7.5% 20 5.0%
10
2.5%
3
0
2013
12.5%
30
246
3.0% 200
15.0%
1.0%
600
418
17.5%
40
4.0%
3.0%
58
2.0% 400
4.0%
16.0%
12.7% 5.0%
400
4.8%
60
20.0%
50
1,200
4.7%
70
3.0% 500
5.0%
2014 Europe Hog Production Revenue1 & Operating Profit Margin 2
2014 Europe Fresh Pork Revenue1 & Operating Profit Margin 2
2014 Europe Packaged Meat Revenue1 & Operating Profit Margin 2
0
2014
-3.0%
2013
2014年
Notes: 1. External sales 2. Segment operating profit margin = segmental operating profit / internal & external sales
0
2014
0.0%
2013
2014
Operating Profit Margin
11
Capital and Cash Flow Capex
Operating Net Cash Flow US$MM
US$MM 2,000
952
1,000
1,560
651 500
700
331 261 0
0 2013
2013
2014 China
Due over 5 years: 19.1%
Net Debt / Net Asset Net Debt (US$MM)
Due over 5 years: 30.2%
Due within 1 year: 15.4%
Total Debt US$MM
2013: 7,432
Net debt / Net Asset
8,000
300% 6,557
Due within 1-2 years: 4.9% Due within 2-5 years: 66.6%
2014
U.S. & Europe
Total Debt Breakdown Due within 1 Due year: within 1-2 10.2% years: 4.1%
301
70
6,000
209.0%
200% 3,692
4,000 Due within 2-5 years: 49.5%
61.0%
2,000 2014: 4,670
0
0% 2013
2013Net debt
100%
2014Net debt
2014 Net Debt / Net Asset
12
Section 2
Business Review
China: 1 Maintained Steady Market Share Growth Despite Challenges in the Macro Environment Packaged meat market share in hyper/supermarket channels continued to grow as Shuanghui actively adjusted product mix 1
SHD 37.5%
Others 41.3%
SHD 38.0%
Others 40.2%
No.2-4 21.2%
No.2-4 21.8%
2013
2014 Shuanghui further consolidated the slaughtering industry through expansion 2
2.5% 2.0%
3.0% 1.86%
2.04%
2.5%
2.41%
2.64%
2.0%
1.5%
1.5% 1.0%
1.0%
0.5%
0.5%
0.0%
0.0% 2013
2014
Market Share by Slaughtering Volume
2013
2014
Market Share by Fresh Pork Production Volume
Notes: 1. Source: China’s chain stores and supermarkets information website, CICC Research 2. Statistical Communiqué of the People's Republic of China on the 2014 National Economic and Social Development, Statistical Communiqué of the People's Republic of China on the 2013 National Economic and Social Development
14
China: 2 Further Strengthened Competitiveness Through Expansion of Sales Network Increased Number of Fresh Pork POS
Increased Number of Packaged Meat POS
40,000
800,000 37,023 4,067
30,000
700,000
7,186 25,770
20,000
600,000
10,000
500,000
0
651,400
82
End of 2013
1H2014
37,879
689,361
2H2014
End of 2014
400,000 End of 2013
1H2014
2H2014
End of 2014
15
China: 3 Enhanced Brand Image Shuanghui Ranked #25 among Most Valuable Chinese Brands and #3 in Food & Beverage Category
Shuanghui Ranked # 1 among Chinese Companies in Forbes “World’s Most Innovative Companies” List
Shuanghui exclusively sponsored the premier of movie “Tiny Times”
“Shuanghui 100 Best restaurant in China”was awarded the “Best Marketing Topic”by Sohu
16
US: 1 Winning Leadership Position in Branded Packaged Meat Industry through Strengthening Marketing and Innovation and Improving Profitability
Strong Performance
Business Strategies
Operational Improvement
Synergies
Despite the prevalence of PEDv, U.S. business maintained revenue and profit growth,
even reaching record high levels; all segments saw improvement in performance European business grew significantly despite the sluggish EU economy
Accelerated transformation into a consumer goods company Continued to expand export capacity Continued to enhance internal management, strengthen budget control and improve operational efficiency
Fostered stronger partnerships with WH Group and Shuanghui to realize synergies through trading and commercial cooperation between China and the U.S.
17
US: 2 Winning Leadership Position in Branded Packaged Meat Industry through Strengthening Marketing and Innovation and Improving Profitability New Packaged Meat Products
Steady Growth in Packaged Meat Market Share 2013
No.1: 19.0%
Bacon
Spiral Ham
2014
No.1: 19.3%
No.1: 32.1%
No.1: 32.6%
2013 Market Share
2014 Market Share
% Change
Rank
Dinner Sausage
16.4%
16.8%
0.4%
#2
BBQ
14.7%
17.4%
2.6%
#3
Hotdogs
10.9%
12.8%
1.9%
#4
18 Notes: Sources: Information Resources Inc. (IRI)及Nielsen Perishables Group尼尔森
Synergies Continued to create synergies between our global platforms by adopting flexible import/export strategies, introducing high-end packaged meat products, sharing of management and technology experiences, global procurement and leveraging worldwide client resources
1) Smithfield started to export fresh pork to China in 2014 2) The first packaged meat project - Zhengzhou Shuanghui project progressed smoothly with products, production techniques and procedures finalized, while plant construction and equipment installation are on schedule. The plant will commence production in the 3rd quarter this year. 3)Management improvement: executed daily review, performance management, and budget management in SFD 4)Technological exchange on food safety, hog raising (feed formula & introduction of breeders), and marketing &branding 19
Section 3
Outlook
Future Strategies Strategies ‧ Global expansion strategy to become bigger and stronger.
‧ Global resource consolidation strategy to achieve complementarity and synergies. ‧ Global brand consolidation strategy to enhance brand influence and product competitiveness. ‧ Strict controls over food safety to secure sustainable development. ‧ Global talent consolidation strategy to build an elite team
Objective • In the next three to five years, WH Group will adapt to market changes, continue to expand production and sales volume, and strengthen its global leading position. Our objective is to achieve a profit growth rate of 10% approximately.
21
Development Strategies 1
2
China: adjust product mix, expand network, launch new products and scale up
US: continue internal integration, optimize organizational structure and strengthen performance management; intensify marketing to enhance brand value
3
Continue to promote the realization of synergies and capitalize on global resources
22
Actively Confront Challenges from the Macro Environment Challenges
Consumption Demand Impacted due to Further Economic Slowdown Decreased Welfare Spending and Reduced Excessive Consumption
Transformation of Consumption Structure
Risk in Hog Price Fluctuation
Solutions
1.
Closely track market pork price and effectively pass through price increases
2.
Adjust packaged meat product mix
3.
Expand sales network
4.
Improve infrastructure layout and increase capacity
5.
Leverage Smithfield’s customer resources to develop new customer relationships
1.
Leverage hedging instruments to stabilize profit
2.
Expand on export to increase sales volume and profitability
3.
Strengthen packaged meat product marketing to enhance profitability
4.
Expand Slaughtering volume
5.
Continue to optimize organizational structure through internal integration
23
Shuanghui: Market New Products, Explore New Channels, Develop New Clients and Launch New Marketing Initiatives New Packaged Meat Products under the Shuanghui Brand
Channel Expansion
Expand into Catering Channels Tap into E-commerce Channels Actively Engaged in Marketing Activities to Enhance Brand Image and Influence
Sponsored Wang Xiaoya’s TV show “dinning at home”, which is broadcasting nation-wide on CCTV during the Chinese New Year golden week
Placed ad in television drama
Launched TV advertisements for Shuanghui’s new products in 2015 24
Smithfield Continues to Focus on Internal Integration and Optimize Organizational Structure Before Realignment
SmithfieldSmithfieldFarmland
John Morrell Morrell Group Food Group
Packaged Meat Business
Packaged Meat Business
After Realignment
New Smithfield Product
Murphy Murphy Brown Brown Hog Production Business
Packaged Meat Segment
Fresh Pork Segment
Hog Production Segment
Fresh Pork Business
Enhance operational and management efficiency
Optimize various processes: brand management, production, sales and marketing
Share marketing platform
Strengthen performance evaluation
Reduce back office costs
25
Appendix
Shuanghui Performance Overview (China GAAP)
Packaged Meat
US$ MM
Revenue(1)
Operating Profit
Operating Margin(2) (%)
Fresh Pork
Others
Total
2014
Change (%)
2014
Change (%)
2014
Change (%)
2014
Change (%)
4,076.3
-0.6%
3,186.5
4.6%
152.5
-4.6%
7,415.3
1.5%
710.6
0.8%
136.6
23.6%
-47.6
53.2%
799.7
1.9%
17.4%
16bps
3.6%
56bps
-19.7%
-906bps
10.8%
5bps
Notes: 1. External sales 2. Segment operating profit margin = segmental operating profit / internal & external sales 3. Exchange rate applied in 2013: 1USD 6.1507RMB;2014:1USD=6.1624RMB
27
Smithfield Performance Overview (US GAAP)
Packaged Meat
Fresh Pork
Hog Production
Int’l
Corporate
Total
2014
Change (%)
2014
Change (%)
2014
Change (%)
2014
Change (%)
2014
Change (%)
2014
Change (%)
7,173.0
10.0%
5,780.0
12.1%
3,384.6
(1.1%)
1,654.0
6.3%
0
N/A
15,031.3
8.2%
Operating Profit
459.8
21.6%
96.7
27.2%
344.2 1,671.7%
155.8 157.5%
(124.9)
18.9%
931.6 175.2%
Operating Margin (%)
6.4%
60bps
1.7%
20bps
10.2% 1,080bps
N/A
N/A
6.2% 380bps
US$ MM
Revenue(1)
Notes: 1. Segment sales before eliminations
9.4%
550bps
28