Singapore Mainboard and Philippine Stock Exchange dual listed Del Monte Pacific Ltd (PSE: DMPL; Bloomberg: DELM SP, DMPL PM) has reported a turnaround in its results for the second quarter ending October 2015.
The group achieved strong sales for the second quarter of FY2016, up 20% to $658.3 million as its key branded business in the United States and the Philippines under the Del Monte brand, and the rest of Asia under the S&W brand, delivered significantly improved performance. The group generated a recurring EBITDA (excluding one-offs) of $73.8 million, almost double that of last year’s, and achieved a turnaround performance registering a recurring net profit of $18.1 million after two years of losses attributed to acquisition and transition-related expenses since the group announced the purchase of Del Monte Foods (DMFI) in October 2013.
For this quarter, the group reported an EBITDA of $113.2 million and a net income of $53.3 million inclusive of a one-time favourable adjustment arising from DMFI’s retirement plan amendment that reduced SG&A expenses by $39.4 million.
DMFI’s sales were $542.4 million, up 25%, while DMFI’s base business, excluding its recently acquired Sager Creek vegetable business, also performed strongly with sales up 13%, supported by better product availability. Initiatives taken post-acquisition, which included reverting to competitive pricing levels, reintroducing the well recognised classic Del Monte label and reinstating trade support levels, also resulted in much improved sales and better market share across major categories. DMFI achieved a higher gross margin of 21.9% from 19.8% due to better sales mix and optimised trade spending. It contributed an EBITDA of $92.8 million and a net income of $47.1 million to the group, both inclusive of the one-time adjustment.
“Our performance in the second quarter reflects the fundamentals that have been restored since the group’s acquisition, coupled with effective promotion of our products in the retail channel along with cost optimisation programs. We expect to maintain the momentum in the second half of our fiscal year having established Del Monte as the brand of choice for festive occasions. As we continue to unlock the growth potential of our products, accelerate our penetration of the food service sector and enter new vegetable market segments through Sager Creek, our results will improve further,” said Nils Lommerin, CEO of DMFI.
The Philippine market delivered a strong set of results for the second quarter, up 12% in peso terms and 7% in US dollar terms, driven by expanded penetration and increased consumption for its juices, tomato-based sauces and packaged pineapple products. The group continued to promote its pineapple juice health benefits while in the culinary segment the “Come-Home-to-Del Monte” campaign supported volume growth.
Sales of the S&W branded business in Asia and the Middle East improved by 25% in the second quarter as a result of the strong performance of the Fresh segment.
Despite constrained supply resulting from the El Niño weather pattern, DMPL ex-DMFI delivered a higher gross margin of 27% from 23% in the prior year quarter due to improved sales mix and cost optimisation measures. DMPL ex-DMFI generated an EBITDA of $20.5 million and a net income of $6.3 million.
DMPL’s share of loss in the FieldFresh joint venture in India was lower at $0.4 million from $0.6 million in the prior year period due to the robust performance of Del Monte packaged business, primarily led by improved volume in juices and the culinary segment. As a result, FieldFresh maintained its positive EBITDA results.
For the first half of FY2016, the group achieved sales of $1.1 billion, 14% higher versus the same period last year. Del Monte Foods’ sales of $915.9 million inclusive of Sager Creek grew 18%, while the base business grew 8%. The Philippine market’s sales were up 11% in peso terms and 7% in US dollar terms.
DMFI’s gross margin in the first half improved to 20.5%, much higher than the 17% in the same period last year. DMPL ex-DMFI achieved a gross margin of 25.2%, also higher than the 22.5% last year.
The group posted an EBITDA of $130.5 million and a net income of $41.3 million in the first half, inclusive of the one-off adjustment. DMFI accounted for $97.2 million of group EBITDA and $33.5 million of group net profit.
“After incurring losses arising from acquisition and transition-related expenses for the purchase of Del Monte Foods, we are on track to continue improving our financial performance having laid a strong foundation for sustained profits in the remainder of the year. A key driver of our achievement is the dedication and skill of our management team and employees who are working tirelessly to execute our multi-pronged strategies and growth initiatives. We are very pleased with where we are today,” said Joselito D Campos Jr., managing director and CEO of DMPL.
As part of the group’s deleveraging plan, DMPL intends to issue US dollar denominated perpetual preference shares in the Philippine Capital Market, to be listed on the Philippine Stock Exchange. Barring unforeseen circumstances, the group anticipates to launch this in the first half of 2016 subject to regulatory approvals and market conditions. The proposed issue will amount to $360 million that will result in a further improvement of the group’s leverage ratios. In the meantime, the conversion of a substantial amount of unsecured short-term loans to unsecured medium-term loans has significantly improved the group’s current ratio and liquidity.
DMFI’s cash flow is expected to improve in the seasonally stronger second semester with peak sales around Thanksgiving, Christmas and Easter, coupled with lower working capital needs past the production peak in October. DMFI contributes about 80% of group performance.