Del Monte Pacific Registers $379.2M Sales During Transition Period

Manila/Singapore—(PHStocks)—Del Monte Pacific Limited (PSE: DMPL, Bloomberg: DELM SP) has started the process of aligning its financial year with that of US Del Monte Foods Inc. (DMFI), whose financial year runs from May to April.

DMPL completed the acquisition of DMFI on 18 February 2014 for $1.675 billion subject to working capital adjustments, transforming the Group into a global branded food and beverage company. DMFI’s results have been consolidated since then and the Group today released results for the January-April 2014 Transition Period.

The Group generated sales of $379.2 million for the Transition Period which included DMFI’s sales of $292.9 million for 18 February-end April 2014 and posted a net loss of $42.8 million due to one-off acquisition expenses of $46.7 million. Before the non-recurring items, DMPL would have generated a net income of $3.8 million for the Transition Period.

Excluding DMFI, DMPL’s branded business in Asia, comprising of Del Monte in the Philippines and the Indian subcontinent as well as S&W in Asia and the Middle East, and non-branded business globally, recorded sales of $94.7 million (which included sales to DMFI), lower than prior year period mainly due to lower sales in the Philippines.

In the United States, DMPL benefited from DMFI’s Easter shipments while in Asia, the S&W branded business delivered sales growth of 27% mainly driven by market expansion into the Middle East, business development in the Philippines and strong growth in Korea.

On 16 May 2014, the Group announced that one-off acquisition expenses would adversely impact its bottom-line for the Transition Period. These expenses include:

  • $15 million for higher fixed manufacturing costs net of tax.

In a normal 12-month period, the average of the actual fixed costs, which are highly seasonal,
would have approximated the standard cost for the year. Due to the timing of the acquisition in
February 2014, DMFI had to book a higher than average fixed cost for the Transition Period ending
April which is a seasonally leaner production period.

  • $14 million net of tax restatement to fair market values of the assets which formed part of the acquisition as required by purchase accounting standards. The amount is subject to external audit verification.

This had a corresponding impact on DMFI’s costs during the Transition Period, primarily due to an
upward revaluation of inventory which corresponded to a higher cost of goods sold.

  • $6.2 million net of tax for acquisition-related transaction fees. This is in addition to the $16.6 million booked by DMPL in 2013.

“We retained a strong management team in the US who are committed to increase market opportunities and profitability for the iconic Del Monte brand,” said Joselito D. Campos Jr., Managing Director and CEO of DMPL. “We continue to make good progress with the S&W branded business in Asia and the Middle East.”

The Group expects to generate higher earnings on a recurring basis in FY2015 as it drives both topline growth across its key markets in the USA, the Philippines and rest of Asia, optimizes synergies and actively manages cost. Cash flow generation will continue to be strong in the current financial year. In the 10-week Transition Period alone, DMFI paid down its revolving working capital facility by $75 million.

DMFI is pursuing new initiatives such as developing the Del Monte range of products for the ethnic markets. Cross selling of products, from the USA to Asia and vice-versa, is also in the pipeline for FY2015.

“Given the timing of the acquisition towards the end of the fiscal year in April 2014, a majority of the revalued inventory will be sold in the financial year ending April 2015, and will continue to impact the bottomline of the Group,” explained Campos.

DMFI is pursuing new initiatives such as developing the Del Monte range of products for the ethnic markets. Cross selling of products, from the USA to Asia and vice-versa, is also in the pipeline for FY2015.

“Given the timing of the acquisition towards the end of the fiscal year in April 2014, a majority of the revalued inventory will be sold in the financial year ending April 2015, and will continue to impact the bottomline of the Group,” explained Campos.

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