WH Group 2014 Annual Results Presentation. March 2015

WH Group 2014 Annual Results Presentation March 2015 Disclaimer This presentation and the accompanying slides (the “Presentation”) have been prepare...
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WH Group 2014 Annual Results Presentation March 2015

Disclaimer This presentation and the accompanying slides (the “Presentation”) have been prepared by WH Group Limited ("WH Group " or the "Company") solely for information purposes. This Presentation does not constitute or form part of and should not be construed as, an offer or invitation to acquire, purchase or subscribe for any securities of the Company nor is it calculated to invite any such offer or invitation nor shall it constitute any offer or sale of such securities in any jurisdiction. No part of this Presentation shall form the basis of or be relied upon in connection with any investment decision, contract or commitment whatsoever. This Presentation has been prepared by the Company based on information and data which the Company considers reliable, but the Company makes no representation or warranty, express or implied, whatsoever, on the truth, accuracy, completeness, fairness and reasonableness of the contents of this Presentation. The Company reserves the right to amend or update all or any part of this Presentation at any time, but the Company shall not be under any obligation to provide the recipient of this Presentation with any such amended or updated information or correct any inaccuracies herein unless otherwise required by the Rules Governing The Listing Of Securities On The Stock Exchange Of Hong Kong Limited or any applicable law. This Presentation may not be all-inclusive and may not contain all of the information that you may consider material. Neither the Company nor any of its affiliates or representatives make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein or any other written or oral communication transmitted or made available to any recipient. The Company and its affiliates and representatives expressly disclaim any and all responsibility or liability based, in whole or in part, on any of the information contained herein, errors herein or omissions here from. In all cases, interested parties should conduct their own investigations and analyses of the Company, its businesses, assets, financial conditions and prospects, and of the information set forth in this Presentation.

This Presentation contains statements that reflect the Company's intentions, beliefs or expectations about the future or future events (the "forward- looking statements"). These forward looking statements are based on a number of assumptions about the Company's operations, its future development plans, market (financial and otherwise) conditions, growth prospects and certain plans and objects of the management of the company, and are subject to significant risks, uncertainties and other factors beyond the Company's control, and accordingly, actual results may differ materially from these forward-looking statements. You should not take any forward-looking statements contained in this Presentation regarding past trends or activities as a representation that such trends or activities will continue in the future. The Company expressly disclaims any obligation to update these forward-looking statements.

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