Thushen Govender
Chief financial officer
Tiger Brands' results for the 12 months ended 30 September 2024 reflect a robust set of results, on the back of the implementation of the new federated operating model, and a new management team in place from April 2024. The performance for the second half of 2024 (H2) exceeded expectations, showing credible traction.
On a full-year basis, revenue was marginally ahead of the prior year at R37,7 billion, driven by price inflation of 7%, offset by volume declines of 6%. For the domestic business, volume declines were 8%, partially offset by strong growth in exports and international at 6% and 5% respectively. Notably within the domestic business, there was commendable volume growth from the food service channel as well as the Beverages and Pasta divisions.
Overall gross margin increased to 28,3%, from the 27,7% reported in the prior year, and showed continued improvement from H1. This increase was driven by continuous improvement initiatives, including value engineering savings of recipes and packaging.
Group operating income for the year was marginally ahead of the prior year at R3,1 billion, against the backdrop of implementing a new operating model and a challenging operating environment. The sale of non-core brands in H2 – Bio Classic, Crystal, Kair, Fiesta and Black Silk – together with the disposal of the Status brand in H1 generated R241 million in non-operational profit for the group. The R102 million after-tax insurance proceeds from the value-added meats product (VAMP) business is shown as profit from discontinued operation.
Income from associates increased by 4% to R724 million, driven mainly by the performance from Carozzi.
Net financing costs for the year amounted to R299 million compared to R238 million in the prior year, due to higher interest rates and higher debt levels in H1.
The group’s effective tax rate before fair value losses, non-operational items and income from associates reduced to 28,2% from 29,0% in the previous year.
Earnings per share (EPS) increased by 13% to 1 942 cents (2023: 1 725 cents). Headline earnings per share (HEPS) increased by 4% to 1 810 cents per share (2023: 1 735 cents). The variation between HEPS and EPS relates to profit on the sale of non-core brands.
In the new operating model, the business units (BUs) are classified as Milling and Baking, Grains (Maize, King Food, Jungle, Rice and Pasta), Culinary (Culinary domestic and Davita), Snacks, Treats and Beverages (STB), Home, Personal Care & Baby (HPCB) and International (the Chococam subsidiary and the deciduous fruit business). Food service solutions and exports are now allocated to the respective BUs, based on products sold, which gives a more holistic view of actual category and brand performance.
In Milling and Baking, revenue declines reflect the impact of aggressive competitor pricing within the retail channel that offset the Bakeries growth initiatives in H2. Tiger Brands deliberately managed the depth of discounting and investment behind promotional activities to protect margins. In addition to this, general trade volumes for Bakeries were lower than anticipated, which management has since rectified with the appropriate activation support. A disappointing first half, with operating income lagging the prior year was remedied in H2, with operating income recovering for the same period in the prior year. This was a direct result of operational excellence initiatives and an improved maintenance regime. Leveraging technology remains a key strategic enabler for the business, and management has now implemented route management software across all bakeries.
Culinary delivered strong revenue growth of 5% with price inflation of 8% offset by lower volumes of 3%. Promotional strategies were key to driving growth for the business, which continued to leverage the brand and product portfolio of Tiger Brands’ power brands via combo deals across the group and focused marketing investment. Operating income was a commendable 51% higher than the prior year, reflecting the initiatives executed to drive affordability through value engineering, which has enabled investment into price and strategically narrowed the price index to our competitors.
Grains’ revenue increase of 2% to R8,5 billion was enabled by strong promotional support in H2, which focused on the carbohydrates share of the plate across all channels.
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GROUP | ||
(R’million) | 2024 | 2023 |
Continuing operations | ||
Total revenue | 37 662,2 | 37 388,5 |
Total cost of sales | (26 991,8) | (27 048,2) |
Gross profit
GM% improvement to 28,3% versus 27,7% driven by continuous improvement initiatives, including value engineering savings of recipes and packaging. |
10 670,4 | 10 340,3 |
Sales and distribution expenses | (4 795,2) | (4 702,0) |
Marketing expenses | (856,6) | (969,1) |
Other operating expenses | (1 996,3) | (1 777,9) |
Sundry income | 101,5 | 167,9 |
Expected credit loss reversed | 20,0 | (59,0) |
Operating income before impairments and non-operational items
Group operating income for the year was marginally ahead of the prior year against the backdrop of implementing a new operating model and a challenging operating environment.
|
3 143,8 | 3 118,2 |
Impairments and fair value losses | (25,5) | (43,2) |
Operating income after impairments | 3 118,3 | 3 075,0 |
Non-operational items | 241,5 | 33,0 |
Profit including non-operational items | 3 359,8 | 3 108,0 |
Finance costs | (320,4) | (267,9) |
Finance income | 21,1 | 29,9 |
Foreign exchange loss | (51,1) | (33,6) |
Investment income | 20,9 | 18,0 |
Income from associated companies
Income from associates increased by 4%, driven mainly by the performance from Carozzi. |
724,3 | 696,6 |
Profit before taxation | 3 754,6 | 3 551,0 |
Taxation | (799,3) | (817,1) |
Profit for the year from continuing operations | 2 955,3 | 2 733,9 |
Discontinued operation | ||
Profit for the year from discontinued operations
VAMP insurance proceeds. |
102,2 | – |
Profit for the year | 3 057,5 | 2 733,9 |
Attributable to: | ||
Owners of the parent | 3 028,5 | 2 697,2 |
– Continuing operations | 2 926,3 | 2 697,2 |
– Discontinued operations | 102,2 | – |
Non-controlling interest | 29,0 | 36,7 |
– Continuing operations | 29,0 | 36,7 |
3 057,5 | 2 733,9 | |
Basic earnings per ordinary share (cents) | 1 942,2 | 1 724,7 |
– Continuing operations | 1 876,7 | 1 724,7 |
– Discontinued operations | 65,5 | – |
Diluted basic earnings per ordinary share (cents) | 1 916,4 | 1 700,0 |
– Continuing operations | 1 851,7 | 1 700,0 |
– Discontinued operations | 64,7 | – |
Volume declines were experienced across the Grains categories, except for Pasta. The rice volume decline was due to the Government of India implementing an export ban that impacted global pricing of parboiled rice, with consumers subsequently trading out of the category into more affordable carbohydrates. Management’s continuous improvement initiatives across the supply chain to reduce the cost base and enable more competitive price points started to yield results in H2, this improvement was not sufficient to reverse the H1 impact, with operating income for the full year ending 55% lower year-on-year. Driving affordability, leveraging Tiger Brands’ carbohydrate share of the plate and increasing presence in combo deals are the three key pillars of focus to restore Grains’ competitiveness.
Snacks, Treats and Beverages’ business recorded strong revenue growth of 9% for the full year to R5,8 billion, with price inflation of over 9% slightly offset by volume declines of 0,1%. Seasonal promotional campaigns were well executed across all channels with campaigns focusing on digital channels and in-store activities. The food service solutions channel delivered exceptional growth for Beverages, driven by a combination of well-executed marketing initiatives, strong collaborative partnerships and a strategic product and pricing mix.
Home, Personal Care & Baby's domestic business came under pressure due to aggressive promotional activity from competitors, with Tiger Brands holding back on deep discounting to preserve its operating margin.
The Home Care business was impacted by the pest season and the higher-than-expected rainfall; further to this, savings delivered by factory efficiencies were diluted by the impact of the commissioning of the new aerosol line. The export markets continue to gain traction with the appropriate focus and market support into neighbouring countries. The export channel remains a key growth driver. Strategic initiatives within the Baby business to drive combo deals across pouches and jars as well as new value offerings delivered ahead of expectations. In line with our portfolio optimisation strategy, we have signed legal agreements for the disposal of our Baby Wellbeing business, subject to regulatory approvals and completion of conditions precedent. The business is therefore recognised as held for sale and will allow management to focus on accelerating growth for the core Baby Nutrition business.
International’s performance was driven by Chococam, where the solid performance negated the decline in profitability of the LAF business resulting in full-year operating income for International growing by 3%. Chococam’s revenue growth was mainly driven by the chocolate spreads category and the export markets. Management has reacted quickly with the appropriate product formulation changes and price pack architecture strategies. LAF continued to face puree pricing challenges in H2, with the market more affected by higher global stocks resulting in lower sales and lower prices. This resulted in a decline in operating income.
Further details are provided in the operational review.
Cash operating profit at R4,8 billion improved relative to the prior year of R4,3 billion. The benefit of slightly lower inventory days and an ongoing focus on collections, assisted by an increase in trade and other payables, resulted in improving working capital by R2,3 billion. This led to a significant increase in cash generated from operations to R5,5 billion.
The group ended the period in a net cash position of R757 million (2023: net debt of R923 million). Capital expenditure for the period amounted to R0,97 billion (2023: R1,2 billion). Key capex projects for FY24 included the Aerosol HPC line, the commissioning and move of the Peanut Butter facility as well as a Jungle investment for flakes innovation.
The company declared a final ordinary dividend of 684 cents per share for the year ended 30 September 2024, in line with the company’s dividend policy of 1,75 times cover based on HEPS. Together with the interim dividend of 350 cents per share, this brings the total dividend for the year to 1 034 cents per share. Shareholders are referred to the accompanying dividend declaration in the AFS for further details.
As previously communicated, although liability in the listeriosis case has not yet been determined, the company’s attorneys have engaged with the plaintiffs’ attorneys to agree on relief to qualifying individuals who have urgent medical needs. In addition, the legal representatives are engaging in measures to arrive at a speedier resolution of the class action overall. We are committed to working diligently to bring the listeriosis class action to a close as speedily as possible.
The company has product liability insurance cover appropriate for a group of its size. Coverage is subject to the terms and limits of the policy.
Recognising the pivotal role of disciplined capital allocation in driving superior returns, we have undertaken a comprehensive reassessment of our approach to capital allocation. This recalibration to a highly disciplined capital allocation approach informed by clear targets, will bolster our business turnaround efforts while simultaneously enhancing shareholder value.
We have adopted a revised capital allocation framework (see box below) that provides the cornerstone of our capital allocation strategy and guides our portfolio optimisation strategy. This framework is intended to deliver a more efficient capital structure and an accelerated capex programme aligned with our strategic objectives, efficiency targets and return metrics. Through this framework, we aim to find an optimal balance between yield-enhancing initiatives and longer-term growth investments with extended payback horizons to maximise shareholder value and foster sustainable growth.
Our short to medium-term target is to deliver return on invested capital (ROIC) ahead of weighted average cost of capital (WACC). We have identified various self-improvement opportunities vital to our turnaround, including ongoing cost-saving initiatives, working capital optimisation, SKU rationalisation and performance enhancements across key business units, resulting in double-digit group operating margin over the medium term.
Thushen Govender
Chief financial officer
December 2024