Tiger Brands delivers a solid set of results for the year ended 30 September 2022 underpinned by a strong second half recovery

Tiger Brands delivered a credible set of results despite tough trading conditions and significant input cost inflation.

The year under review can be described as a year of two halves. The first half was impacted by a lag in recovering unprecedented and unanticipated levels of cost inflation. This was compounded by certain supply constraints as a consequence of global and local supply chain challenges and industrial action at Snacks & Treats and Bakeries. The second half performance, despite a continuation of the cost and supply challenges, exacerbated by prolonged periods of loadshedding, reflects the effective implementation of category specific margin recovery initiatives, as well as the execution of specific initiatives in Bakeries, Snacks & Treats and Exports. In addition, the Deciduous Fruit business benefited from improved global fruit pricing and a weaker exchange rate.

Total revenue from continuing operations increased by 10% to R34,0 billion, driven by price inflation of 11% and a marginal overall volume decline of 1%. Volume growth in Exports and International was offset by volume declines in the Domestic business, primarily attributable to Milling and Baking, Snacks & Treats, Baby as well as Home and Personal Care. These volume declines were partially offset by good volume growth in Rice, Beverages, Groceries, and Out of Home.

Although slightly lower than previously guided, cost saving initiatives and supply chain efficiencies continued to make a positive contribution to the results. This, together with further progress in revenue management, resulted in the maintenance of the overall gross margin (excluding the impact of the product recall and civil unrest referred to below) at 30.3% when compared to the prior year. This was achieved despite gross margin regression in the first half of the year. Group operating income (before impairments and non-operational items) increased by 53% to R3,4 billion. Operating income for the current period includes insurance proceeds of R218 million in total. This consists of R52 million in respect of last year’s product recall and R166 million in respect of the civil unrest which occurred in July 2021.

Last year, the group’s operating income was impacted by once-off costs related to the product recall (R647 million) and civil unrest (R85 million). Excluding the pre-tax impact of these costs as well as the benefit in the current period of the insurance proceeds as referred to above, operating income increased by 10% compared to the prior year whilst group operating margin remained unchanged at 9,6%.

Income from associates increased by 38% to R478 million. Good underlying trading performances from Carozzi and National Foods were augmented by a profit on disposal of an associate investment in National Foods and favourable currency translation gains at Carozzi.

Net financing costs for the year amounted to R75 million compared to R54 million last year. This was due to higher average debt levels and higher interest rates compared to the prior year. Debt during the year was impacted by higher raw material inventory levels and the impact of the share buy-back programme. A net foreign exchange gain of R46 million resulted from the translation, in the current year, of foreign currency cash balances at a weaker average exchange rate, whilst last year, there was a net foreign exchange loss of R9 million due to the strengthening of the rand against major currencies.

The group’s effective tax rate before impairments, fair-value losses, non-operational items and income from associates increased slightly to 29,4% from 29,1% last year.

The share buy-back programme, in terms of which 9,49 million shares were bought back at a total cost of R1,5 billion, reduced the weighted average number of shares in issue by 1,9% to 162 552 439.

Earnings per share (EPS) from continuing operations increased by 65% to 1 762 cents (2021: 1 070 cents), whilst headline earnings per share (HEPS) from continuing operations increased by 51% to 1 702 cents (2021: 1 127 cents).

Excluding the impact of the product recall and civil unrest in the prior year as well as the benefit of the related insurance recoveries in the current year, HEPS from continuing operations increased by 11%.

EPS from total operations increased by 54% to 1 762 cents (2021: 1 142 cents). Similarly, HEPS from total operations increased by 51% to 1 702 cents (2021: 1 127 cents).

Domestic revenue increased by 8% to R29,8 billion, underpinned by price inflation of 10%, less the impact of an overall volume decline of 2%. Revenue growth in Grains of 6% was driven by cost-led price increases across the Milling and Baking segments and a strong volume performance in Rice. Consumer Brands recorded an increase in revenue of 12%, driven by a solid second half recovery in Snacks & Treats, which was significantly impacted by industrial action in the first half, as well as sustained performances from Beverages, Groceries and Out of Home. Home Care’s top line regressed further in the second half following a poor start to the year due to weak demand within the pesticide category driven by unfavourable weather conditions. Domestic operating income improved marginally to R3,0 billion despite the poor first half, as better profitability in Other Grains, and Consumer Foods was offset by lower contributions from Milling and Baking, and Home and Personal Care.

Grains

Revenue increased by 6% to R15,5 billion, reflecting average price inflation of 9%, offset by overall volume declines of 3%. Operating income recorded a recovery in the second half driven by all segments except Maize. Despite this, it wasn’t enough to offset the poor first half performance and the full year operating income ended 7% lower at R1,3 billion.

Revenue in Milling & Baking increased by 5% to R10,6 billion, influenced by price inflation of 16% and an overall volume decline of 11%. Operating income generated by the wheat-to-bread value chain was significantly higher than in the first half although flat on the second half comparative period and therefore the full year performance reflects the significant decline reported at the end of the first half. The improved performance of the value chain in the face of both pricing pressure and significant cost escalations, reflects the impact of a refreshed leadership and management team in executing on initiatives aimed at driving volume, price/volume management, quality and internal efficiencies. Volume performance has been pleasing with the double-digit declines of the first quarter reversed with solid growth in volume achieved in the fourth quarter. Management are confident that this business has been stabilised and have aspirations for further improvements in performance going forward.

Maize’s performance was adversely impacted by continued volume pressure as well as volatile raw material prices. This was compounded by the effect of higher conversion costs driven by increased generator utilisation amidst excessive loadshedding and power outages. The sorghum-based breakfast and beverages business delivered a muted performance, impacted by supply challenges and lower demand. Overall, Milling & Baking’s total operating income declined by 21% to R803 million.

Revenue in Other Grains grew by 9% to R4,9 billion and operating income increased by 33% to R469 million, largely as a result of Rice’s significantly improved volume performance. Although the Oat-based breakfast (Jungle) and Pasta businesses delivered solid revenue growth, higher raw material, and distribution costs as well as sub-optimal factory performances adversely impacted profitability. Volumes in Rice benefited from category deflation relative to other carbohydrates as well as successful brand and customer initiatives.

Consumer Brands

Within Consumer Brands, all segments delivered top line growth with a particularly strong performance from Out of Home as the business recovered in line with post lock-down demand. Groceries also recorded strong revenue growth that benefited from new product innovations. Snacks & Treats produced a strong second half recovery following supply challenges in the first half due to industrial action as well as low opening stock levels resulting from the civil unrest and floods in the region. Overall revenue in Consumer Brands increased by 12% to R12,4 billion. Operating income increased by 25% to R1,4 billion, attributed primarily to strong second half recoveries in Snacks & Treats, as well as sustained strong performances in Groceries, Beverages, and Out of Home. The Baby segment recorded a marginal improvement in operating income despite muted volumes as constrained consumers exited the category due to inflationary pressures.

Groceries’ strong top line performance resulted in revenue growing by 15% to R6,4 billion, driven primarily by price inflation of 11%, whilst total volumes increased by 4%. Despite significantly higher selling prices, volumes benefited from innovation and support from retailers as well as growth in the wholesale channel. Core offerings benefited from cost-competitive value packs and price pack solutions for value-seeking consumers, resulting in market share gains across most segments. Volumes were further supported by distribution gains on product innovations such as canned fish. The improved top line, together with ongoing efficiency improvements, logistics savings, optimal promotional activity and revenue management benefits, resulted in operating income increasing by 51% to R597 million.

Revenue at Snacks & Treats increased by 4% to R2,4 billion, supported by price inflation of 8% less an overall volume decline of 4%. Revenue in the second half increased by 24% relative to the first half, following industrial action in the first quarter of the financial year which adversely impacted sales and inventory levels going into the peak Easter season. A particularly strong performance was delivered in the second half across the portfolio with distribution gains in the general trade supporting recovery. Operating income increased by 12% to R263 million due to a favourable product mix, whilst the factory benefited from increased throughput as inventory levels were restored in the second half.

Beverages’ revenue increased by 11% to R1,8 billion, supported by volume growth of 5% and price inflation of 6%. Volume growth was driven by concentrates in the first half of the year as a result of price pack innovation in Oros, a strong performance from sports drinks (Energade) and improved distribution of the full ready-to-drink flavour range. Despite a meaningful recovery in second half profitability relative to last year, operating income for the full year increased marginally to R269 million. This was mostly due to the impact of higher raw material costs and packaging inflation that could not be passed onto the consumer.

Revenue growth of 4% to R1,1 billion in the Baby segment was driven by price inflation of 11%, offset by volume declines of 7%. Volumes are reflective of lower demand across the jar and pouch segments, particularly in the second half of the year. Operating income increased by 3% to R147 million, with the benefit of improved factory efficiencies being partially offset by an unfavourable product mix. Once-off costs related to the precautionary recall of certain Baby powder products amounted to R16 million, and largely comprise the cost of the affected stock that has been written off, as well as the logistics costs of the recall.

Home and Personal Care (HPC)

Overall revenue in HPC declined by 5% to R1,9 billion, primarily due to lower volumes in the pesticides segment within Home Care. This, together with significant cost push, resulted in operating income declining by 29% to R308 million.

Personal Care’s revenue increased by 4% to R672 million as a result of price inflation of 12%, offset by volume declines of 8%. Despite improved profitability in the second half, significant increases in ingredients and packaging costs, as well as an adverse product mix, resulted in operating income declining by 66% to R16 million. The category is expected to remain under pressure in the current trading environment as consumers rebalance their purchases towards basic food items.

Home Care was unable to recover from a poor start to the year as unfavourable weather conditions impacted category demand for pesticides. Revenue declined by 9% to R1,2 billion, due to 17% lower volumes, offset by price inflation of 8%. Lower volumes, together with higher raw material and packaging costs, resulted in operating income declining by 24% to R292 million.

Exports and International

Total revenue for Exports and International increased by 19% to R4,3 billion, with total operating income increasing to R350 million (2021: R96 million). A significant driver of this performance came from the Deciduous Fruit business, which benefited from higher international fruit prices and improved volumes, resulting in revenue increasing by 32%.

The Exports business grew revenue by 14% following improved sales of powdered soft drinks and seasoning into key export markets in the second half. Operating income increased significantly to R143 million (2021: R71 million) due to better realisations, increased factory efficiencies, improved stock management and a favourable product mix.

Chococam’s revenue increased by 10% to R1,1 billion (14% in local currency), comprising 7% volume growth and 7% price inflation, reduced by an unfavourable foreign currency translation movement of 4%. Volumes were driven by the implementation of optimal pricing strategies and packaging solutions, an improved distribution network in key markets and market share gains in chocolate. Operating income in rand terms increased by 5% to R181 million.

Shareholders are referred to the SENS announcement of 12 July 2022 in which the company advised that operations at its Deciduous Fruit business would be extended for another season. We have reopened the sale process, while reviewing all options for sustainable operations at LAF.

As previously reported, Tiger Brands’ newly established Venture Capital Fund made its first investment in Herbivore Earthfoods (Herbivore), a company founded in 2014 with the goal of making healthy, plant-based foods more accessible and affordable in South Africa. Since this investment, Herbivore has acquired additional machinery to increase capacity and drive innovation, with their recently launched crumbed range and additional dairy-free offerings gaining traction. The partnership with Tiger Brands has enabled the company’s first foray into the food service and quick service restaurant market, leveraging the strategic expertise of our Out of Home team. The Venture Capital Fund has a compelling pipeline of opportunities which are in the process of being evaluated, particularly within health and nutrition and snackification.

Cash operating profit increased by 11% to R4,3 billion. However, continued investment in working capital due to increased stock holdings, particularly on raw material purchases as well as due to the rebuilding of inventory levels at Groceries and Snacks & Treats, resulted in cash generated from operations declining to R2,6 billion from R4,0 billion in FY21. This is in line with the strategy to carry higher stock levels to ensure continuity of supply due to ongoing global and local supply chain disruptions. The level of investment is further exacerbated by the unprecedented levels of inflation over the past year. Capital expenditure for the year amounted to R961 million (2021: R1,0 billion), whilst the cash position was further impacted by the completion of the general share buy-back programme. The group ended the period in a net cash position of R143 million (2021: R2,2 billion).

As previously disclosed, the board approved a share buy-back programme to return cash to shareholders over and above ordinary dividends.

In line with the general authority granted by shareholders for the company to acquire shares from its shareholders, the buy-back was limited to 5% of the issued share capital of Tiger Brands. On 20 July 2022, the company completed the repurchase up to the limit of the general authority, acquiring 9,49 million shares at a total cost of R1,5 billion. All the shares repurchased have been cancelled.

Given the company’s ungeared balance sheet and in the absence of any significant or imminent corporate activity, the board will continue to consider a share buy-back programme as part of its capital allocation deliberations.

As previously reported, pre-trial preparations by the parties to get the matter ready for trial, are ongoing. The process of discovery, which is part of the pre-trial preparations, is at an advanced stage. Tiger Brands reiterates its commitment 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.

The year ahead is likely to remain challenging. Persistently high unemployment and inflation levels together with higher interest rates will place further pressure on over-extended consumers. In addition to local and global supply chains remaining volatile, our cost base is sensitive to rand weakness as well as higher commodity prices whilst the cost of mitigating the regular occurrence of loadshedding is significant. This will require ongoing agility and judicious price/volume management in the face of a challenged consumer.

To this end, the progress made over the last three years in terms of stabilising the core and building a solid foundation for growth will help facilitate the agility required. Significant investments have been made in technology and digital capabilities, which will help drive operational efficiencies, increase automation, improve data analytics, and drive revenue management initiatives. In addition, there are further cost-saving opportunities that are potentially available within our procurement and logistics activities.

In response to the constrained consumer environment, we have accelerated value-led innovation and renovation including price-pack architecture solutions across key segments of the portfolio. In addition, we have various initiatives with customers aimed at strengthening our position at the point of purchase.

Whilst the performance this year is encouraging and provides forward momentum as well as internal confidence, there is still much work to be done to deliver the group’s full potential. We are confident in our strategies and our focus for the foreseeable future remains on relentless and flawless execution.

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

By order of the board

Bryanston
1 December 2022

Date of release: 2 December 2022

The company has declared a final ordinary dividend of 653 cents per share for the year ended 30 September 2022. This, together with the interim dividend of 320 cents per share brings the total dividend for the year to 973 cents per share, an 18% increase relative to last year. In calculating last year’s total dividend, HEPS was adjusted to exclude the costs of the product recall and the civil unrest. This year, the company’s dividend policy of 1.75x cover was applied to HEPS, inclusive of insurance proceeds received in respect of these events.

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 final dividend amount of 653,00000 cents per ordinary share will be paid to shareholders who are exempt from the dividends tax
• The net final dividend amount of 522,40000 cents per ordinary share will be paid to shareholders who are liable for the dividends tax
• Tiger Brands has 180 327 980 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 final ordinary dividend:

Share certificates may not be dematerialised or re-materialised between Wednesday, 18 January 2023 and Friday, 20 January 2023, both days inclusive.

By order of the board

JK Monaisa
Company secretary

Bryanston
1 December 2022