Overview

Tiger Brands delivered an improved financial performance for the six months ended 31 March 2021. The performance was supported by strong revenue growth in the first quarter of the financial year, whilst cost saving and efficiency initiatives gained traction across all segments of the portfolio, leading to positive operating leverage for the full six-month period.

As previously reported, Value Added Meat Products (VAMP) has been treated as a discontinued operation, with the comparative information restated accordingly.

Total revenue from continuing operations increased by 8% to R16,4 billion, underpinned by price inflation of 9% and offset slightly by an overall volume decline of 1%. Meaningful volume growth in both Exports and International was offset by volume declines in the Domestic business, primarily attributable to Out of Home, with some volume pressure also within Grains, other than the Oat-based breakfast business (Jungle). The volume declines were partially offset by strong performances in Baby and Home Care, and a solid recovery in Snacks & Treats.

The group was unable to fully recover the high level of agricultural commodity cost push, placing naked margins under pressure. However, this was mostly offset by a steady improvement in manufacturing efficiencies, resulting in the overall gross margin for the group remaining relatively flat at 30,6%. Group operating income (before IFRS 2 charges) increased by 16% to R1,6 billion, with the operating margin improving to 9,6% compared to 8,9% in the corresponding period last year.

Income from associates increased by 12% to R177 million, with Carozzi and UAC Foods reporting improved trading performances. Despite increased volumes and rigid cost control, National Foods' earnings in US dollar terms continue to be affected by the hyper-inflationary environment in Zimbabwe.

Net financing costs for the period amounted to R29 million, benefiting from lower interest rates and lower average net debt levels, due primarily to improved debtor collections. A foreign exchange loss of R56 million resulted from the significant strengthening of the rand against other major currencies, thereby negatively impacting the translation of foreign currency cash balances. In the same period last year, there was a net foreign exchange profit of R84 million.

The abnormal profit of R43 million at the half-year is attributable to the profit on sale of various non-core brands in the Personal Care division.

The effective tax rate before abnormal items and income from associates, reduced from 30,6% to 30,0%.

EPS from total operations increased by 299% to 837 cents (2020: 210 cents) and HEPS from total operations increased by 52% to 741 cents (2020: 489 cents). The higher increase in HEPS from total operations for the six months ended 31 March 2021, relative to the increase of 21% from continuing operations, was primarily due to the losses recorded by VAMP in the prior period.

The relatively higher rates of increase in EPS from both total operations and continuing operations, compared to the equivalent increases in HEPS, are primarily due to the significant impairment charges of R557 million recorded in the same period last year, all of which related to continuing operations.

Segmental operating performance

Domestic revenue increased by 7,1% to R14,6 billion, underpinned by price inflation of 9,6%, less the impact of overall volume declines of 2,5%. With the exception of Out of Home, all domestic segments delivered positive revenue growth. Efforts to contain costs and improve production efficiencies resulted in positive operating leverage, with operating income before IFRS 2 charges increasing by 14% to R1,5 billion.

Grains

Revenue increased by 10% to R7,5 billion, reflecting average price inflation of 14%, offset by overall volume declines of 4%. Our ability to pass through some input cost inflation, as well as cost savings across the segment, resulted in operating income increasing by 16% to R619 million and the total operating margin improving to 8,3% from 7,8% in the comparative period. This result was underpinned by the improved performances of the Oat-based breakfast segment (Jungle), Rice and Pasta, which had particularly challenging results in the comparative period last year.

Milling and Baking increased revenue by 6%, influenced by 12% price inflation and an overall volume decline of 6%.

The wheat-to-bread value chain was characterised by exceptionally aggressive price-led promotional activity in the second quarter, especially in formal retail channels, as well as a decline in overall bread consumption and penetration. Maize was adversely impacted by the inability to fully recover underlying raw material inflation as well as an unfavourable product mix. Despite a pleasing recovery in sorghum-based beverages, the breakfast offering performed poorly, impacted by lower volumes and aggressive category pricing. Milling and Baking's operating income declined by 4% to R477 million.

Other Grains recorded a significant recovery, driven primarily by Rice and Pasta, whilst Jungle achieved a pleasing performance.

Period-on-period revenue for the overall segment increased by 21% to R2,4 billion, largely driven by price inflation in Rice of 28%. Jungle's performance was premised on the continued growth of its core oats offering, which benefited from increased in-home consumption. Higher volumes and lower conversion costs contributed to the improvement. Revenue growth in Rice was underpinned by price inflation and strong volume growth in the first quarter. This, together with an improved mix, resulted in a margin recovery relative to the comparative period. Although revenue growth in Pasta was modest, a marked improvement in factory performance, including a significant reduction in material usage variances, resulted in positive operating leverage.

Consumer Brands

In order to bring external segmental reporting in line with management reporting, the Baby category results have been disclosed under the Consumer Brands segment, whereas previously these results were reflected under Home, Personal Care and Baby. This change has no financial impact on the group results and better reflects how management reviews financial information in order to allocate resources and assess performance. Prior year segmental numbers have been restated to reflect this change.

Within Consumer Brands, muted top line performances in Groceries and Beverages were bolstered by increased demand in Snacks & Treats and Baby. Out of Home continued to feel the effects of
post-lockdown demand dynamics. Overall revenue in this segment increased by 4%, comprising price inflation of 6% and a 2% reduction in volumes. Price increases and significantly improved factory performances were the primary reasons for operating income increasing by 19% to R640 million.

Groceries' sales were negatively impacted by a competitive trading environment and poor seasonal demand. Price inflation of 6% was partly offset by a 4% reduction in volumes. Despite this, significantly improved factory performance and the delivery of cost-saving plans ahead of target delivered improved profitability, with operating income increasing by 31% to R222 million.

Snacks & Treats increased revenue by 10% to R1,2 billion, driven by a recovery in demand, which translated to a 3% increase in volumes, particularly in chocolate, as well as price inflation of 7%. Operating income increased by 32% to R136 million as a result of optimal promotional activity and improved factory efficiencies which benefited from increased volumes.

Beverages' revenue was in line with the comparative period at R948 million, whilst operating income increased by 5% to R175 million, mostly due to distribution efficiencies.

Volumes across the Baby Care segment recovered well, with revenue increasing by 14% to R544 million. This was driven equally by pricing and volume growth during the period. Operating income increased by 21% to R56 million, benefiting from a favourable product mix and tight cost control.

Home and Personal Care (HPC)

Overall revenue in HPC increased by 6% to R1,1 billion due to the sustained strong performance from Home Care.

Personal Care's performance was impacted by low opening stocks and a slow recovery due to Covid-related production shutdowns. Consequently, revenue of R271 million was relatively unchanged compared to the same period last year, with a 2% increase in volumes offset by lower average price realisations. Increased costs and factory under-recoveries resulted in an operating loss of R9 million for the period.

Revenue in Home Care increased by 8%, driven by 3% price inflation and 5% increase in volumes. The strong first half volume performance was due to a favourable pest season as well as increased demand for hygiene solutions (Jeyes). The increased volumes resulted in improved operating efficiencies which led to operating income increasing by 15% period-on-period.

Exports and International

Total revenue for Exports and International increased by 18% to R1,8 billion. This was driven by an improved performance from exports of powdered soft drinks and seasoning and a solid performance from our business in Cameroon. Operating income increased by 58% to R85 million, albeit after accounting for an operating loss in the Deciduous Fruit business.

The Exports business grew revenue by 27%. This growth was supported by strong double-digit volume growth, primarily due to the resumption of trade into Nigeria, and 12% price inflation. Operating income of R51 million reflects a significant improvement relative to the same period last year, despite regrettable industrial action at our Davita factory (powdered soft drinks and seasoning) which significantly impacted the second quarter. This was resolved during the month of April.

Chococam's revenue increased 14% to R532 million (3% in local currency), primarily due to favourable exchange rate movements, improved distribution to neighbouring countries and successful trade and consumer activations in the chocolate spread segment. Operating income increased by 20% in rand terms. Apart from the exchange rate benefit, the improvement in operating income was assisted by a 5% increase in volumes. In addition, the corresponding period last year included the absorption of an excise tax on gross sales which amounted to R14 million.

The Deciduous Fruit business was negatively impacted by soft post-Covid-19 demand in Asia, the inability to take price increases in hard currency and ongoing restrictions in Cape Town's harbour. The business recorded revenue of R586 million for the period under review and an operating loss of R52 million.

Update on Deciduous Fruit

As previously reported, Tiger Brands has been pursuing a formal process for the potential disposal of the Deciduous Fruit business. As a consequence of this process, the company is in very early stages of negotiations. A successful conclusion to these negotiations is far from certain. In the event that there is no successful conclusion, the company will evaluate alternative options for the Deciduous Fruit business.

Cash flow and capital expenditure

Cash generated from operations increased by 15% to R1,7 billion (2020: R1,5 billion). This was driven by the significant improvement in cash operating profit, which was partially offset by an increased investment in working capital from R13 million in the corresponding period last year to R335 million in the period under review. The increase in working capital was primarily influenced by the decision to carry higher stock levels in anticipation of supply chain disruptions from a potential third wave of Covid-19 infections.

Capital expenditure amounted to R381 million. The group ended the period in a net cash position of R1,2 billion (2020: R1,1 billion) after accounting for a dividend payment of R1,1 billion during the period under review.

Class Action update

As previously reported, Tiger Brands awaits the allocation of a hearing date by the Supreme Court of Appeal (SCA) regarding the request by the company for third parties to provide epidemiological information required for the Class Action lawsuit. With agreement from all parties, our insurers' legal team has approached the Registrar of the SCA for an expedited hearing date. We are now awaiting the allocation of a hearing date.

Tiger Brands is committed to abiding by the legal process to ensure that a resolution of the matter is reached in the shortest possible time in the interest of all parties, particularly the victims of Listeriosis.

Covid-19

Tiger Brands continues to implement Covid-19- related health and safety protocols. These include the frequent screening of employees as well as the use of Antigen test kits across our sites.

Antigen testing was implemented in the case of employees returning to work after extended periods of absence, such as the Christmas holidays. Regrettably, 21 colleagues have passed on as a result of contracting Covid-19 since the start of the pandemic. These are tragic losses and our heartfelt condolences go out to their families, friends and colleagues. To date, we have had a total of 1 922 positive cases out of a total number of 19 712 tests conducted. There were eight active cases as at 15 May 2021, with one admitted to hospital. Our recovery rate to date has been 98%.

The company is actively engaging with Government, through the offices of Business Unity South Africa, to ensure that our employees receive vaccinations in accordance with the Government roll-out programme, as soon as practically possible.

Although there were no major disruptions to business continuity during the period, some businesses were impacted by inbound supply disruptions. As a precautionary measure, contingency plans have been put in place, including a stock build programme for critical and essential products, to mitigate the potential disruption to our internal and external supply chains in the event of a third wave.

Preventative costs, including personal protective equipment, private transport, testing and cleaning costs directly attributable to Covid-19, amounted to R47 million for the six months to 31 March 2021.

Outlook

In the second quarter, there was a decline in overall consumer demand across many of our categories. This reflects the dire impact of Covid-19 on the economy and on livelihoods. In an environment such as this, where growth comes from share gains, there is likely to be inevitable pressure on pricing and margins.

To this end, the ongoing cost-saving initiatives and successes achieved to date in extracting further supply chain efficiencies will be intensified, whilst initiatives to grow the top line will be prioritised.

Whilst we are confident that operating income will show improvement in the second six months, relative to both the second half of 2020 as well as the second half of 2019, the environment remains one of the most challenging experienced in recent years.

Any forward-looking information has not been reviewed or reported on by the group's auditors.

By order of the board

Bryanston
19 May 2021

Date of release: 20 May 2021

Declaration of interim ordinary dividend

The board has approved and declared an interim ordinary dividend for the six months ended 31 March 2021.

No interim dividend was declared in respect of the 2020 half-year results. Given the uncertainty at the time related to the Covid-19 lockdown measures, a decision was taken by the board to defer the matter for reconsideration to the end of the financial year.

In accordance with paragraphs 11.17(a) (i) to (x) and 11.17(c) of the JSE Listings Requirements the following additional information is disclosed:

• The ordinary dividend has been declared out of income reserves
• The local Dividends Tax rate is 20% (twenty percent) effective 22 February 2017
• The gross total dividend amount of 320,00000 cents per ordinary share will be paid to shareholders who are exempt from the Dividends Tax
• The net total dividend amount of 256,00000 cents per ordinary share will be paid to shareholders who are liable for the Dividends Tax
• Tiger Brands has 189 818 926 ordinary shares in issue (which includes 10 326 758 treasury shares)
• Tiger Brands Limited's income tax reference number is 9325/110/71/7.

Shareholders are advised of the following dates in respect of the interim ordinary dividend:

Share certificates may not be dematerialised or rematerialised between Wednesday, 30 June 2021 and Friday, 2 July 2021, both days inclusive.

By order of the board

JK Monaisa
Company Secretary

Bryanston
19 May 2021