Vitasoy International (0345) H2 2017 earnings summary

Executive summary

• FY2017 net sales fell 3% to HKD 5.4bn after the VUSA divestiture; excluding the divestiture, sales grew 6% and operating profit rose 3%.

• Underlying profit attributable to shareholders grew 2%, with management citing operating profit improvement and lower net finance costs; brand and geographic expansion remained investment priorities.

Financial highlights

• Gross profit rose 2% to HKD 2.9bn; gross margin expanded 2 percentage points to 53%, supported by manufacturing efficiency, volume and favorable milk powder and soybean costs.

• EBITDA rose 33% to HKD 1.083bn; excluding the VUSA divestiture impact, EBITDA increased 6%.

• Profit before tax rose 41% to HKD 844m; excluding the divestiture impact, it increased 3%.

• Profit attributable to shareholders increased 16% to HKD 618m; excluding the divestiture gain, it grew 2%. Basic EPS rose 16% to HKD 0.589, or 1% excluding the gain.

• Divestiture of the North American mainstream and SAN SUI businesses generated $51.4m consideration and a pre-tax gain of about $24.4m.

Outlook and guidance

• FY2017-18 priorities include continued investment in brand equity and geographic expansion, with higher A&P and digital media activity in China and continued brand-building investment overall.

• Raw material costs were turning from favorable to unfavorable, with some prices rising; this could pressure profitability as investment continues.

• Vitasoy began selling products to trade in the Philippines following its JV with Universal Robina Corporation; further updates were planned for the November mid-year announcement.