Slide 1: Larry Pope, President and Chief Executive Officer
C. Larry Pope President and Chief Executive Officer Smithfield Foods, Inc. May 13, 2009
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains “forward-looking” statements within the meaning of the federal securities laws. The forward-looking statements include statements concerning the Company’s outlook for the future, as well as other statements of beliefs, future plans and strategies
Slide 3: Agenda
Agenda 1. A(H1N1) influenza “swine flu” update 2. What we have been doing 3. Pork Group restructuring plan 4. Covenants, liquidity and refinancing 5. Bottom line 6. Appendix - - Who we are & Exports
Slide 4: A(H1N1) influenza "swine flu" update
A(H1N1) influenza “swine flu” update
Slide 5: Swine Flu "Tip" What Not To Do
Swine Flu “Tip” What Not To Do
Slide 6: A(H1N1) Influenza Chronology
April 23-26 April 27-May 1 May 4-8 News of a new flu in Mexico Smithfield sends team to Mexico Smithfield sends additional team with outside experts to Mexico Media and blogs speculate on possible link between flu and Smithfield joint venture in Veracruz Various worldwide health organizations procla
Slide 7: A(H1N1) Influenza - Pork Is Safe To Eat
A(H1N1) Influenza - Pork Is Safe To Eat • A(H1N1) is not a foodborne illness - pork and pork products are safe • No evidence of A(H1N1) influenza in Smithfield’s swine herds or employees worldwide • Smithfield continues rigorous biosecurity practices
Slide 8: Mexico
Mexico • No clinical signs or symptoms of A(H1N1) influenza in joint ventures in Mexico • Voluntarily submitted samples for genetic sequence analysis to confirm the absence of A(H1N1) influenza
Slide 9: A(H1N1) Impact on Demand
Week of April 27 Week of May 4 Domestic retail pork sales initially down nearly 10 percent Pork demand is recovering and packaged meats margins remain robust Hog prices sharply declined Markets are correcting as seasonal hog supplies tighten China and Russia have imposed export restrictions and dema
Slide 10: Smithfield Fresh Pork Exports
Note: January FY2009 five weeks versus January FY2008 and January FY2007 four weeks Smithfield fresh pork exports continue at near year ago levels Smithfield Fresh Pork Exports
Slide 11: What we have been doing
What we have been doing
Slide 12: Strategies for Today and Tomorrow
Past Today and Tomorrow Growth through acquisitions Focus on synergy, efficiency, ROIC and margins Deleverage balance sheet, manage liquidity and capital expenditures Turnarounds with minimal corporate restructuring Restructure Pork Group for higher performance Shed non-core or under-performing busi
Slide 13: Proactively Managing the Business
February 2008 Initial Five Percent Reduction of Smithfield U.S. Sow Herd Reduction of 50,000 sows and production of one million fewer market hogs annually by fiscal 2010 April 2008 Senior Management Changes Strengthened overall management team to improve operations and financial performance July 200
Slide 14: Proactively Managing the Business
July 2008 Sale of 4.95 Percent of Shares to China's COFCO Limited Improved liquidity and created long term relationship with one of China’s leading trading companies October 2008 Sale of Beef Processing and Cattle Feeding Operations to JBS Significantly improved liquidity and refocused on core busin
Slide 15: Proactively Managing the Business
December 2008 Merger of Campofrío and Groupe Smithfield Formed leading European packaged meats company and monetized joint venture into publicly-traded company February 2009 Successfully Negotiated New Covenant Amendments Improved financial stability through bottom of hog cycle February 2009 Pork Gr
Slide 16: Pork Group restructuring plan
Pork Group restructuring plan
Slide 17: Pork Group Restructuring Plan
Pork Group Restructuring Plan • Streamline Pork Group structure by reorganizing management team under George Richter • Consolidate seven IOC’s into three and close six processing plants • Merge three fresh pork sales organizations into two and consolidate three overseas export teams into one to impr
Slide 18: Improvement from Restructuring
Improvement from Restructuring
Slide 19: Estimated EBT Impact from Restructuring
(in millions) FY09Q3 FY09Q4 1 FY10 1 FY11 1 Total 1 Plant consolidation capital requirements - $3 $50 - $53 One time expenses $12 $2 $27 - $41 Non-cash asset write-off $73 $1 - - $74 EBT Improvements - - $55 $125 Estimated EBT Impact from Restructuring
Slide 20: Packaged Meats Margin Growth
1 Before restructuring charges Packaged Meats Margin Growth
Slide 21: Covenants, liquidity and refinancing
Covenants, liquidity and refinancing
Slide 22: Improved Liquidity
Smithfield continues to improve liquidity and has retired $900 million 1 in debt since the fourth quarter of fiscal Estimated Note: Amounts reflect unused borrowing capacity at quarter end and do not include cash balances reflected on balance sheet Improved Liquidity
Slide 23: New Covenant Amendments in Place
FY09 3Q 1.6:1 versus 2.4:1 actual FY09 4Q 1.2:1 FY10 1Q 1.35:1 FY10 2Q 1.35:1 FY10 3Q 2.0:1 FY10 4Q to maturity 3.0:1 New Covenant Amendments in Place • Interest coverage covenant • Estimated increase in annual interest expense of $20 -25 million and amendment fees of $12 million
Slide 24: Debt to Total Capitalization
• Reduced debt by $900 million 1 since the fourth quarter of fiscal • Goal is to reduce debt to total capitalization to below 50% Estimated Debt to Total Capitalization
Slide 25: Covenant Update
Covenant Update • Smithfield expects to meet all FY09 Q4 covenants • Projections show continued compliance for all of fiscal 2010 • Proactive discussion of refinancing ongoing
Slide 26: Bottom line
Bottom line
Slide 27: Bottom Line
Bottom Line • Cautiously optimistic about impact of A(H1N1) influenza • Already benefitting from Pork Group restructuring plan • Continue to reduce debt, improve liquidity and strengthen the balance sheet • Despite A(H1N1), market conditions appear to be moving in the right direction • We believe th
Slide 28: Smithfield
Smithfield
Slide 29: Appendix - Who we are & Exports
Appendix - - Who we are & Exports
Slide 30: Smithfield
Smithfield
Slide 31: Market Leader: Hog Production
#1 *Note: Fiscal 2008 sales (before eliminations) and operating loss Source: United States Industry Data Successful Farming 1 The majority of hogs from Prestage Farms and Goldsboro Hog Farm are sold to Smithfield Foods, Inc. under long-term contract 2 Approximate market shares of Five Producers: Car
Slide 32: Market Leader: Pork
#1 Pork * Sales: $9.6 billion Operating Profit: $449.4 million • World’s largest pork processor • Processed 31 million hogs in FY08 • Sold approximately 4.0 billion pounds of fresh pork in FY08 • Sold approximately 3.1 billion pounds of packaged meats in FY08 *Note: Fiscal 2008 sales (before elimina
Slide 33: Market Leader: Turkey Processing
#1 Other Segment * Sales: $149 million Operating Profit: $28.2 million • Comprised of turkey production operations and Butterball joint venture • Butterball is the largest turkey processor in the U.S. • Butterball processed 54 million turkeys in FY08 *Note: Fiscal 2008 sales (before eliminations) an
Slide 34: Market Leadership: International
International * Sales: $1.2 billion Operating Profit: $76.9 million • Subsidiaries in Poland, Romania and the United Kingdom • 37% ownership of Campofrío Food Group (public company) with production facilities in Belgium, France, Italy, The Netherlands, Portugal and Spain • Joint ventures or major in
Slide 35: Campofrío Food Group - Dominant Brands
1 Pro-forma combined figure as of December 2007 2 Based on May 8, 2009 closing price Campofrío Food Group - Dominant Brands • Leading European packaged meats company, and one of the largest worldwide with sales of €2.1 billion 1 • Smithfield owns 37% of publicly-traded company • Current market value
Slide 36: Smithfield
Smithfield
Slide 37: International Situation Analysis
International Situation Analysis • Smithfield remains optimistic on exports – Pork production declining worldwide – Production in several major importing countries declining – Production in major exporting countries declining – U.S. pork prices are cheap
Slide 38: World Pork Prices
Note: Week ending April 25, 2009 U.S. pork prices are among the lowest on the worldwide market World Pork Prices
Slide 39: U.S. Monthly Pork Exports
U.S. exports of pork and pork variety meats continue to increase year over year Source: USDA Foreign Agricultural Service (FAS) U.S. Monthly Pork Exports
Slide 40: Top Ten Worldwide Pork Producers
Rank Country 2008 Production (billion lbs) Projected change 2008 to 2009 1 China/HK 96.6 0% 2 EU-27 49.2 -6% 3 United States 23.5 -4% 4 Brazil 6.7 -1% 5 Russian Federation 4.5 4% 6 Vietnam 4.1 -3% 7 Canada 4.1 -10% 8 Japan 2.7 -5% 9 Philippines 2.6 -5% 10 Mexico 2.5 -9% Other 14.9 0% Total 211.4 -2%
Slide 41: Top Five Worldwide Pork Importers
Rank Country 2008 Imports (billion lbs) Imports % of Domestic Production Projected Change in Domestic Production 1 Japan 2.8 100% -5% 2 Russian Federation 2.1 46% 4% 3 China/HK 1.9 2% 0% 4 Mexico 1.2 47% -9% 5 Korea 1.0 43% -2% Other 3.9 - - Total 12.9 - - • Top five pork importers account for 70% o
Slide 42: Top Five Worldwide Pork Exporters
Rank Country 2008 Exports (billion lbs) Projected change 2008 to 2009 1 United States 5.3 -4% 2 EU-27 3.4 -6% 3 Canada 2.4 -10% 4 Brazil 1.5 -1% 5 China/HK 0.4 0% Other 0.7 - Total 13.7 - • Top five pork exporters account for 95% of all international pork trade • With exception of China, all exporte
Slide 43: Smithfield
Smithfield