COMMENTARY

OPERATING PERFORMANCE

Grains

Revenue in the Grains division increased marginally to R6,8 billion, whilst operating income decreased by 33% to R532 million.

Milling and Baking’s revenue increased by 5%, driven by an average selling price increase of 5% across the segment. Operating income declined by 22% to R497 million, driven primarily by Bakeries and Maize. The wheat‑to‑bread value chain continues to be impacted by the inability to fully recover cost push, high levels of promotional activity and low volume growth. The Maize category was adversely affected by volatile raw material pricing, physical supply constraints and increased competition.

Other Grains revenue declined by 6% to R2,0 billion, driven primarily by lower volumes in Rice. Rice and Pasta were affected by intense competitive activity, however, they benefited from improved demand in March 2020. Although sales of Jungle Oats benefited from new packaging, increased advertising and improved in‑store presence, this was not adequate to offset the challenges faced in Rice and Pasta. Operating income decreased by 77% to R35 million, due to the lower volumes as well as higher raw material and conversion costs across the board. The results were further affected by increased levels of marketing investment and depreciation charges on the new Oat mill.

Consumer Brands – Food

Consumer Brands – Food recorded higher levels of revenue at R5,9 billion (2019: R5,6 billion), benefiting from significant revenue growth in VAMP as well as marginal increases achieved in Groceries, Beverages and Out of Home. This improvement was partly offset by lower revenue at Snacks & Treats. Total operating income fell by 29% to R237 million. The percentage reduction in operating income was aggravated by VAMP’s continued operating losses. Excluding VAMP, operating income declined by 22% to R492 million.

Groceries revenue increased marginally to R3,0 billion. This was underpinned by price inflation of 3% on an overall volume decline of 2%. This result reflects the highly competitive trading environment with consumers shopping predominantly on promotion. The performance was further impacted by supply constraints in tomato sauce. Pre‑National Lockdown‑related volume increases in March 2020 had a marginal impact on the overall performance for the period under review. Despite all product segments recording selling price inflation, this was not sufficient to fully recover cost increases, resulting in negative operating leverage. Consequently, operating income declined by 27% to R170 million.

Revenue in Snacks & Treats fell by 8% to R1,1 billion, resulting from volume reductions of 10% less price inflation of 2%. The decline in volume was driven primarily by increased competitive activity, particularly in chocolate, exacerbated by low demand in March as orders were diverted to carbohydrate staples ahead of the National Lockdown. Operating income declined by 39% to R103 million as a result of lower volumes, factory under‑recoveries and higher logistics costs, particularly related to storage.

Revenue in VAMP increased from R213 million in the prior corresponding period to R525 million in the current period. This increase was as a result of normalised distribution and on‑shelf availability since re‑entering the category over a year ago. Although the significant volume recovery helped reduce operating losses by 14% to R256 million, the inability to recover higher than expected input costs, including the increased cost of utilities, continues to adversely impact this business’ recovery to break‑even.

The Beverages business grew revenue by 4% to R945 million, recording volume growth of 2% and price inflation of 2%. Volume growth was driven by the successful launch of innovations as well as satisfactory performances from core offerings within Oros (liquid concentrates). Operating income declined by 6% to R167 million due to increased marketing investment in support of the newly launched innovations.

Home, Personal Care and Baby (HPCB)

HPCB’s total revenue increased by 4% to R1,5 billion, benefiting from a strong performance by the Home Care category. Home Care volumes were negatively impacted in the month of March as consumption diverted to consumer staples ahead of the National Lockdown. Operating income declined by 4% to R283 million.

Revenue in the Personal Care category decreased by 11% to R270 million. This was attributable to a significant decline in sales volumes. Volume declines were experienced across all segments due to price inflation ahead of the market in an intensely competitive sector. Operating income declined by 61% to R11 million due to the lower volumes, increased logistics costs, higher marketing investment and factory under‑recoveries.

Baby Care’s revenue was flat at R475 million, with price inflation of 5% offset by volume declines of 5%. Volumes were adversely impacted by factory inefficiencies in the first quarter as well as constraints in the supply of pouch packaging. Operating income decreased by 32% to R46 million as a result of higher conversion costs, overhead under‑recoveries and increased marketing investment.

The Home Care category sustained its strong performance, underpinned by pesticides. Revenue increased by 14% to R767 million, driven primarily by price inflation of 12%. Operating income increased by 14% to R227 million. This was assisted by a favourable product mix, whilst higher production volumes had a positive effect on factory recoveries.

Exports and International

Exports and International was negatively affected by the trademark dispute with a former distributor in Nigeria, resulting in virtually no sales to Nigeria for the period. The performance of Exports was further impacted by lower demand in other export markets on the Continent, as well as the effect of Covid‑19 Lockdown measures which prevented access to certain export markets by the Deciduous Fruit business.

With regards to the trademark dispute in Nigeria, an agreement in principle has been reached with the former distributor. As such, a settlement amount of R71 million has been provided for in these results and included in abnormal items.

Total revenue for the Exports and International businesses declined by 4% to R1,6 billion, whilst operating income fell by 64%.

Chococam’s performance was affected by tough trading conditions as a result of political and social instability in the region. As a result, revenue growth of 1% was behind the historical performance of this business. Marginal volume growth was achieved, which was offset by the effects of price deflation across most categories. Operating income reduced by 16% to R71 million, due to a newly introduced excise tax on gross sales of 5%, effective from January 2020 and implemented in April 2020. Consequently, the duty, which amounted to R14 million for the period under review, could not be recovered from customers. Recovery of this tax from April onwards will have an inflationary effect which is likely to impact future demand.

Revenue in the Deciduous Fruit business declined by 6% to R576 million because of lower sales to China following the closure of foreign ports due to Covid‑19 Lockdown measures. The business reported an operating loss of R21 million (2019: R12 million loss). Given the structural category dynamics which have evolved over a prolonged period, it is unlikely that the Deciduous Fruit business will generate the requisite rate of return for Tiger Brands. To this end, the Company will commence engagement with relevant stakeholders regarding the future of the business and will provide an update when it is appropriate to do so.