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WH Group’s 2015 Interim Results InnovationIntegrationGrowth August 2015
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Agenda
1H 2015 Financial Results Highlights
Outlook
1H 2015 Business Review
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Consolidated Financials Overview
Key Operating Metrics
1H 2015 1H 2014
% Change vs. 1H
2014
Hog Production Volume (‘000 heads) 9,338 8,990 3.87%
Slaughtering Volume (‘000 heads) 23,856 23,779 0.32%
Fresh Pork External Sales Volume (‘000 metric tons) 1,914 1,825 4.88%
Packaged Meat Sales Volume (‘000 metric tons) 1,494 1,522 -1.84%
US$ MM 1H 2015 1H 2014
% Change vs. 1H
2014
Revenue 10,205 10,540 -3.18%
EBITDA1 968 1,064 -9.02%
Operating Profit1 729 815 -10.55%
Net Profit Attributable to Parent Company (Report)1 367 366 0.27%
Net Profit Attributable to Parent Company (Core)1 405 455 -10.99%
Earnings Per Share (US Cent)1 2.57 3.23 -20.43%
___________________________ 1. Excluding biological value adjustment.
Key Financial Metrics
2
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WH Group’s Revenue and Operating Profit Breakdown
100.0% 8.0%
6.0% (14.0%)
100.0%
PackagedMeats
Fresh Pork HogProduction
Other TotalOpereating
Profit
%
1H 2015 Sales by Product (1)
___________________________ 1. External sales. 2. Excluding adjustments to biological fair value .
1H 2015 Operating Profit by Product(2)
1H 2015 Sales by Region(1) 1H 2015 Operating Profit by Region (2)
Packaged Meats 52.0%
Fresh Pork 40.9%
Hog Production
5.3%
Others 1.8%
U.S. 61.6%
China 32.0%
Europe 6.5% 6.4%
U.S. 44.9%
China 51.4%
Europe 3.7%
3
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Financial Highlights – China
US$ MM US$ MM US$ MM
Revenue and Operating Profit
Margin Packaged Meats Fresh Pork
1,331 1,407
1H 2014 1H 2015
3,402 3,261
1H 2014 1H 2015
1,989
1,771
1H 2014 1H 2015
10.56% 10.34%
17.75%
20.50%
5.14% 3.13%
Operating
Profit Margin
___________________________ 1. External Revenue 2. Segment Operating Profit Margin = Segmental Operating Profit/ Internal Revenue + External Revenue
4
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1H 2014 1H 2015
Financial Highlights – U.S.
US$ MM US$ MM US$ MM US$ MM
___________________________ 1. External Revenue 2. Segment Operating Profit Margin = Segmental Operating Profit/ Internal Revenue + External Revenue
1H 2014 1H 2015
215
1H 2014 1H 2015
3.98% 3.91%
1.96% 0.43%
7.91%
1.76%
Operating
Profit Margin
6,358 6,283
2,866 2,510
Revenue and Operating
Profit Margin Packaged Meats Fresh Pork Hog Production
1H 2014 1H 2015
3,277
3,255
6.44%
10.51%
5
518
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3,692
3,534
FY2014 End of June
Due 2015 12%
Due 2016 14%
Due 2017-20
46%
Due 2021-22
28%
Cash Flow and Debt Profile
Capex
2013, 2014, 1H2014, 1H2015 2013, 2014, 1H2014, 1H2015
Total Debt: US$ 4.38 Billion
Operating Cash Flow
US$ MM US$ MM
Net Debt / Total Equity Net Debt
Capital Structure
US$ MM
Debt Maturity Profile
70
306
1H 2014 1H 2015
61.0% 55.7%
FY2014 End of June
150
91
86
124
13 21
1H 2014 1H 2015
China U.S. Europe
249 236
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1H 2015 Business Review
Profitability continues to improve despite growth slowdown in China
Continued synergies realization through close collaboration between the
China and the U.S. management teams and execution of integration
initiatives
U.S. Packaged Meats displaying significant growth and momentum; risk
management activities helping to mitigate downturn in U.S. pork prices
1
2
3
Satisfactory results despite macroeconomic and industry challenges
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Despite Macroeconomic Challenges, Overall Profitability Improved Due To Ongoing Initiatives to Adjust and Innovate
Consumer demands were impacted as a result of
macroeconomic slowdown
Evolving consumption patterns
Rising pork price
Innovate and adjust product portfolio to adapt to changing consumer demands
Strengthen brand building efforts to increase profitability
Expand existing distribution network with a focus on the fast-growing channel
Stabilize costs through synergies realization
Ongoing improvement to enhance operating efficiency and reduce cost
Challenges Solutions
151.0 182.0
0
50
100
150
200
Q1 2015 Q2 2015
Net Margin Improvement in China
-16.9%
-0.7%
YoY Growth
QoQ Growth
-5.4%
20.9%
USD (MM)
___________________________ Source: Company report.
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Consistent Increase in Market Share and Profitability of Packaged Meats Segment
Historical Packaged Meats Operating Margin in China Steady Growth in Packaged Meats Market Share (1)
___________________________ Source:Company report, CICC 1. Industry data based on 5,500 supermarkets.
18.0%
19.4%
21.4%
Operating Margin
Q4 2014 Q1 2015 Q2 2015
405
470
492
Unit Operating Profit(USD / MT)
Accumulative Market Share,
ended June 30 2014
Accumulative Market Share,
ended June 30 2015
9
By end of June 2015, Shuanghui has uplifted the
monthly market share to 39.9%.
WH 35.9%
Company A 7.4%
Company B
12.2%
Company C 2.5%
Other 42.1%
WH 36.9%
Company A 6.5%
Companay B 10.5%
Company C 2.1%
Other 44.0%
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New Product Initiatives
Enhance efficiency during the
production of Chinese style
products
• E.g. Chinese Meatball and
Barbeque Pork
Introduce western style
products
• E.g. Hot Dog with Corn and
Smoked BBQ Sausages
Transition from snacks to table
food
• E.g. Hawaiian Series, Bacon
and Sausages
Focus on New Product
Launches
Launched 15 mid to high end
Packaged Meats products in
February
Launched 18 mid to high end
Packaged Meats products since
May
New Product Launch in February New Product Launch from May to August
Focus on Product Mix Optimization and New Product Launches in Packaged Meats
Chinese Series
High Temp. Products
Virginia Series Low Temp. Products
Hawaiian Series
Shixiangjia
High Temp. Products Virginia Series
Low Temp. Products
High Temp. Products
Chinese Series
10
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Strengthen Brand Image and Expand Into High Growth Distribution Channels
Consolidation of Market and Industry Leading Position
Ranked #25 among the top 100
most valuable Chinese
“BRANDZ”; ranked #3 in the food
& beverage category; the only
Chinese food brand that was
ranked top 25
Marketing Strategy Involving Sponsorships and TV Ads
Launched TV Advertisement for
Shuanghui’s New Product in
2015
Sponsored Wang Xiaoya’s TV show
“Dinning At Home”, which was
broadcasted nation-wide on CCTV during
Chinese New Year golden week
Expansion Into High Growth and High Return Channels
Hotels and restaurants
Supermarkets and convenience store
Schools and group-purchase
Meat snack stands built by Smithfield
Opportunistic entrance into fresh food e-commerce
Distribution Network Expansion
Packaged Meat Sales Network Fresh Pork Sales Network
25,770
37,023 39,563
0
10,000
20,000
30,000
40,000
2013 YearEnd
2014 YearEnd
1H 2015
651,400
689,361
758,752
400,000
500,000
600,000
700,000
800,000
2013 YearEnd
2014 YearEnd
1H 2015
Ranked #35 among Fortune’s
Top 500 Chinese Companies,
#1 among all the FMCG
companies
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Satisfactory Result Despite Volatile and Competitive Industry Landscape
Mature and highly competitive market in the U.S.
Significant increase in pork supplies
Pork price decline
Previously decentralized organizational structure
Continue transformation into Consumer Packaged
Goods company through ongoing investments in
brand portfolio
Control and manage risks from pork price volatility
through hedging
Implement “One Smithfield” initiative
Challenges Solutions
Continued Improvement in U.S. Packaged Meats Operating Profit
Operating Profit
(US$/Pound)
$0.13
$0.14 $0.16
$0.25
FY2012 FY2013 FY2014 FY2015 YTD
1. Fiscal Year (FY) ending April 30.
2. Fiscal Year (FY) ending December 31.
(1) (1) (2) (2)
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-10%
-5%
0%
5%
10%
15%
20%
LA
ND
O L
AK
ES
S
TA
RB
UC
KS
CO
FF
EE
M
EA
D J
OH
NS
ON
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ITIO
N
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AR
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NT
O F
OO
D
JO
HN
SO
NV
ILLE
SA
US
AG
E
D
OLE
FO
OD
W
HIT
EW
AV
E F
OO
DS
T
HE
HA
IN C
ELE
ST
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G
RU
MA
K
EU
RIG
GR
EE
N M
OU
NT
AIN
E
&J G
ALLO
WN
RY
H
ILLS
HIR
E
C
ON
ST
ELLA
TIO
N
A
BB
OT
T L
AB
S
C
HIQ
UIT
A
H
P H
OO
D
T
HE
HE
RS
HE
Y
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WA
N F
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NY
DE
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LA
NC
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G
RP
DA
NO
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EP
SIC
O
C
OC
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OR
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L F
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FO
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S
C
AM
PB
ELL S
OU
P
O
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AN
SP
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RA
NB
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M
CC
OR
MIC
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CO
A
NH
EU
SE
R B
US
CH
IN
BE
V
K
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FO
OD
S
D
R P
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R S
NA
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EV
ER
M
ON
DE
LE
Z IN
TL
S
AB
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R
P
INN
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FO
OD
S
D
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AR
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G
RU
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BO
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ON
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ON
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OD
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G
EN
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ILL
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P
OS
T H
OLD
ING
S
T
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J M
SM
UC
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R
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N
ES
TL
E
D
EA
N F
OO
DS
K
ELLO
GG
C
HO
BA
NI
H
EIN
Z
Dollar Sales % Change YOY
Source: Information Resources, Inc. (IRI) 52 week volume
share; 2015 YTD week ending 05/10/15
Source: Information Resources, Inc. (IRI) premium beef hot
dogs 12 week volume share Source: Third party sales volume based on internal shipment
data
Retail Sales Growth
U.S. Dollar
Sales Growth
Volume at 16%
Smithfield is the Fastest Growing Packaged Consumer Goods Company in the U.S.
#1
Source: Information Resources, Inc. (IRI) 52 weeks ending May 17, 2015.
Brand strengthening
Enhanced production process and
increased production efficiency
Product innovation and brand portfolio
optimization
Strategic expansion in targeted
geographies
Focused marketing and sales teams
Efforts to Accelerate Transition Into
Packaged Consumer Goods Company
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39
.8%
41
.2%
Beg of 2015 Mid 2015(End of 1H
Review)
Sales and Market Share Growth
10
.6%
11
.7%
11
.3%
12
.4%
13
.2%
14
.6%
2010 2011 2012 2013 2014 2015 YTD
27.2 32.8 39.4 40.9 56.2
2010 2011 2012 2013 2014
Smithfield bacon sales volume is +29 mm lbs since 2010
+37% YOY
Bacon Smoked Sausage Hot Dogs
Market Share Market Share Mm lbs
Product Innovation Strategy
Source: Information Resources, Inc. (IRI) 52 weeks ending May 10, 2015.
Licensing Snacking Brand Extension Line Extension Health
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Brand Building and Marketing Activities in the U.S.
Note: TTM performance of SKUs introduced during the past 24 months; includes retail, deli, foodservice – branded and private label
Brand Activation
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191 5.41
-3.72
22.90
3.60
1.46
1.34
1.64
1.14
1.0
1.2
1.4
1.6
1.8
2.0
-5
0
5
10
15
20
25
FY2012 FY2013 FY2014 FY2015 YTD
Unit Operating Profit Monthly Average Hog Price
Successfully Managed Hog Price Decline
U.S. hog price has experienced a sharp decline during 1H 2015. Smithfield successfully
managed price volatility, outperformed peers and achieved profitability through
hedging
Operating Profit
(US$/Head) Hog Price
(US$/kg)
1. Fiscal Year (FY) ending April 30.
2. Fiscal Year (FY) ending December 31.
1 1 2 2
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Further Realize Synergies Through Integration
Exchange of technical and marketing
know-how
Realize synergies through “One
Smithfield” initiative
Capitalize on pork price differential in
China and the U.S. to increase
exports
Smithfield’s packaged meat
factory to officially commence
operations in China in Q3
Unlock growth potential through integration
One
Smithfield
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“One Smithfield”
Before Realignment Benefits to WH Group
Optimize management structure, reduce costs and
improve profitability
Optimize distribution efficiency through
restructuring of logistics network
Significantly improve “front end’ customer
interface; Improve distribution with “total
portfolio” sales strategy
Optimize plant manufacturing platform;
Improve production planning process, plant
capacity and utilization
Independently Managed
Operating Companies
Brands managed
independently
Independent
production facilities
and planning
process
Independent sales
and marketing teams
Established Four Key
Business Units
Cohesive and
complimentary
strategy for entire
brand portfolio
Centralized planning
of production
capacity and
distribution
Combined sales and
marketing functions
After Realignment
Stand-alone
logistics operations
Consolidated
logistics platform
Strengthen brand management and promote
product development
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Outlook
Maintain strong
momentum in
China in 2H 2015
Packaged Meats
performance
expected to
maintain an
upward trend for
2H 2015; while
Hog Production
and Fresh Pork
remain
challenged
1
2
3
1
2
3
4
Continue to promote product innovation Continue to launch new product, adjust product mix and upgrade product portfolio
Smithfield-branded products to launch in China
Benefitting from product, distribution channel, logistic network, terminal sales
platform improvement efforts in 1H 2015, sales volume for 2H 2015 is expected to
improve, driven in particular by mid to high end products, new products, American
style products and food services channel
Stabilize procurement costs by capitalizing on WH Group’s unique positioning
in China and the U.S. Control costs
Reduce expenses
Increase sales volume
Enhance competitive positioning
Expand distribution network, particularly in the fast-growing and high-value
channels
Continue momentum in Packaged Meats: Strengthen marketing and brand building
Ongoing investment to improve efficiency
Product innovation
Manage pork price volatility through hedging
Implement “One Smithfield” initiative
Focus on operational improvements in Fresh Pork: Enhance manufacturing efficiency
Logistics savings
Improve product mix and sales
4
Improve efficiency by transforming processes, reducing expenditure and
lowering production cost
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Appendix
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Notes:
1. External Sales
2. Segment operating profit margin = Segmental operating profit / Internal & External Sales
8
RMB MM Packaged Meat Fresh Pork Others Total
1H 2015 Change
(%) 1H 2015
Change
(%) 1H 2015
Change
(%) 1H 2015
Change
(%)
Sales(1) 11,141 -9.13% 8,821 5.06% 392 1.56% 20,354 -3.27%
Operating Profit 2,247 4.68% 322 -38.13% -129 24.56% 2,440 -5.57%
Operating Profit(2) (%) 19.98% 264
bps 3.05%
-216
bps -18.44%
-223
bps 11.99%
-29
bps
22
Shuanghui Performance Overview(China GAAP)
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Smithfield Performance Overview(US GAAP)
Notes:
1. External Sales
2. Segment operating profit margin = Segmental operating profit / Internal & External Sales
8
US$ MM Packaged Meat Fresh Pork Hog Production Int’l Corporate Total
1H 2015 Change
(%) 1H 2015
Change
(%) 1H 2015
Change
(%) 1H 2015
Change
(%) 1H 2015
Change
(%) 1H 2015
Change
(%)
Sales(1) 3,255 -0.66% 2,670 -9.92% 518 140.83% 660 -15.49% 0 N/A 7,103 -1.84%
Operating
Profit 349 59.41% 18 -79.57% 32 -76.39% 31 -56.64% -56 -6.82% 374 -18.02%
Operating
Margin(2)
(%)
10.72% 404
bps 0.67%
-229
bps 2.06%
-606
bps 4.50%
-434
bps N/A N/A 4.55%
-65
bps
22