Since Tjaart Kruger's appointment as CEO on 1 November 2023, the group has now finalised the appointment of the new leadership team. Thushen Govender assumed the role of CFO on 1 January 2024, followed by the appointment of Managing Directors from within the organisation for each of the six business units on 1 February 2024. The new leadership team has hit the ground running, driving forward key strategic priorities aimed at revitalising the group, stimulating growth, and enhancing profitability sustainably. It is anticipated that the effect of key initiatives will start to reflect in the short term.
Operating model
We have successfully completed the streamlining of our organisational structure into six business units, each directly reporting to the CEO. As previously announced, these include:
Segmental reporting for the six months to 31 March 2024 remains consistent with previous segmental disclosures. Future segmental reporting is in the process of being reviewed.
Category-specific services
Our restructuring efforts have extended to deploying category-specific services back to the business units from the centre, thereby enhancing agility in decision-making concerning manufacturing, procurement and customer strategies. By eliminating a senior layer of management at the centre and consolidating business units, we have eliminated duplicate roles, resulting in headcount reduction and will drive significant cost savings going forward. Retrenchment costs to date totalled R30 million.
Restoring cost leadership
We have identified an estimated R500 million in savings throughout our value chain. With implementation already commenced, all initiatives are expected to be concluded by FY26. Furthermore, we are actively streamlining our product offerings across all segments, discontinuing underperforming stock-keeping units (SKUs) and identifying further optimisation opportunities. Our goal is to reduce SKUs by at least 20% over the next three years. The cost savings together with SKU reductions will enable focused strategic investment behind our core brand portfolio, yielding a higher return on investment.
Portfolio optimisation and capital allocation
Acknowledging the pivotal role of disciplined capital allocation in driving superior returns, we have undertaken a comprehensive reassessment of our approach to capital allocation. This strategic recalibration will bolster our business turnaround efforts while simultaneously enhancing shareholder value.
The revised framework will serve as the cornerstone of our future capital allocation strategy and guide our portfolio optimisation efforts, which will enable:
Our immediate objective is to increase return on invested capital (ROIC) ahead of weighted average cost of capital (WACC) (currently at 14%).
Furthermore, we have identified self-improvement opportunities vital to our turnaround, including ongoing cost-saving initiatives, working capital optimisation, SKU rationalisation and performance enhancements across key segments, notably Bakeries and Groceries (Culinary), resulting in double-digit group operating margin over the medium term.
Considering this fundamental change to capital allocation, the Deciduous Fruit business remains operational in its current capacity to facilitate the ongoing sale process, which was recently re-opened. If a sale is not finalised within a reasonable period, the board will re-evaluate alternative options for this business.
Overview
Tiger Brands' results for the six months ended 31 March 2024 reflect the tough trading environment with negative volume growth across retail and wholesale channels, while trading ahead of the Easter period was generally slower than expected, particularly in the wholesale channel. Consumers remain constrained and continue to rationalise spend, prioritising value offerings and staple categories, which adversely impacts absolute volumes and basket mix.
Furthermore, the performance during the first half was impacted by our focus shifting towards restructuring and implementing the new operating model. This transition was effectively executed, with the new management teams now fully operational.
Total revenue from continuing operations regressed by 1% to R19,2 billion relative to the same period last year, driven by price inflation of 8%, offset by a reduction in volumes of 9%. In divisions such as Bakeries, the loss in volume was a deliberate strategy to reduce the reliance on sub-optimal promotional activity and improve price realisations. Volume growth in Exports was offset by declines in the Domestic business.
Conversion-cost efficiencies as well as reduced loadshedding helped mitigate gross margin compression. Group operating income decreased 3% to R1,3 billion, while the operating margin remained relatively flat at 6,9%. The profit on sale of a non-core brand within Personal Care (Status trademark) of R128 million increased profit, including non-operational items, by 4% to R1,5 billion.
Income from associates increased by 44% to R396 million, driven largely by strong operational performances from Carozzi as well as National Foods.
Net financing costs for the period amounted to R163 million compared to R94 million in the same period last year. The increase is in line with higher average debt levels as well as higher interest rates. Plans are in place to optimise working capital and thereby minimise operating cash requirements.
The group's effective tax rate prior to fair value losses, non-operational items, and income from associates improved from 29,7% to 29% compared to the previous year. This is largely due to investment allowances received on qualifying major capital projects.
EPS from continuing operations increased by 10% to 827 cents (2023: 749 cents). HEPS from continuing operations was marginally up at 743 cents (2023: 731 cents). The variation in EPS when compared to HEPS is due to the inclusion of the profit on sale of the Status trademark in EPS, which is excluded from HEPS.
EPS from total operations increased by 19% to 892 cents (2023: 749 cents) due to the accounting of insurance proceeds related to previously written-off and obsolete stock within the Value-added Meats business. This business has been disposed of and disclosed as a discontinued operation. HEPS from total operations increased by 11% to 808 cents (2023: 731 cents).
Domestic revenue decreased by 4% to R16,7 billion, as price inflation of 8% was offset by a 12% decline in volumes. In Bakeries specifically, the loss in volume is a deliberate strategy to enhance margins over time by reducing the reliance on promotional activity which, in turn, will improve price realisations and allow the timely recovery of input cost inflation. Significantly improved performances from Groceries, Beverages, Personal Care, Tiger Brands Food Services Solutions (Food Services) and Baby were diluted by Grains' underperformance.
Revenue in Grains decreased by 9%, driven by significant volume declines across all segments other than the Oat-based Breakfast segment (Jungle) and Pasta. Consumer Brands recorded an increase in revenue of 3%, driven by good top-line performances in Snacks and Treats, Beverages, and Food Services, while Home and Personal Care's performance was impacted by the late pest season. Domestic operating income declined 4% to R1,1 billion.
Grains
The Grains business and, more specifically, Milling and Baking, has been the biggest source of the group's negative performance over the last five to seven years. The negative trend continued during most of the first half amid the leadership transition. This business will naturally require the most amount of effort and time to turn around, while potentially having the most significant payoff for the group.
During the period under review, Grains was impacted by significantly higher raw material costs as the effects of El Nino as well as the export ban on Indian rice adversely impacted physical supply and led to substantial price increases.
Revenue decreased by 9% to R8,2 billion, reflecting volume declines of 15% offset by average price inflation of 6%. All segments reported a decline in operating income relative to the same period last year, driven primarily by significant volume declines and raw material inflation. As a result, operating income ended 50% lower at R171 million relative to the same period last year.
Revenue in Milling and Baking decreased by 16% to R5,1 billion, driven solely by volume declines. Bread volumes were negatively impacted by a deliberate strategy to protect naked margins by not participating in some of the heavy discounting that took place in the previous year. In the second quarter, the team commenced a deliberate and extensive maintenance programme across the Bakery portfolio, which, while resulting in short-term volume losses, began to reduce the level of damages while improving bread and supply chain quality. The business started to see lower monthly operating expenses, with some bakeries achieving up to 50% reduction in damages. Bakery optimisation initiatives, including rebasing the operational cost base, route and fleet optimisation, depot rationalisation and timely passing through of inflationary costs are progressing to plan and are expected to begin yielding positive results in the second half of the financial year.
Maize's performance was adversely impacted by overall category declines driven by high inflation and aggressive competitor pricing, particularly in private label. This was partially offset by lower conversion costs, resulting in an improved operating income performance relative to the prior period. The Sorghum-based Breakfast and Beverages business continues to be negatively impacted by lower demand. Overall, Milling and Baking's operating income declined by 32% to R182 million.
Revenue in Other Grains grew by 6% to R3,1 billion, driven largely by price inflation across all segments. The Oat-based Breakfast segment reported improved volumes as the Jungle brand experienced positive momentum driven by recent innovations. Jungle's operating profit was impacted by adverse product mix, higher raw material costs as well as increased marketing investment in support of new product launches.
Pasta was impacted by higher conversion costs and adverse product mix, while overall category declines as well as increased promotional activity by competitors resulted in significant volume declines in Rice. As a result, Other Grains reported an operating loss of R10 million for the period.
Consumer Brands
Revenue in Consumer Brands increased by 3% to R7,2 billion. The successful execution of continuous improvement programmes resulted in increased profitability. Overall operating income increased by 25% to R694 million, a satisfactory improvement on the prior period. This was driven by particularly strong performances from Groceries, Beverages, Baby and Food Services.
Price inflation of 11% in the Groceries segment was offset by volume declines of 13%, resulting in revenue declining by 2% to R3,3 billion. The muted top-line performance is reflective of lower demand, supply issues in the first quarter due to raw material and ingredients shortages, and delays in commissioning the new peanut butter plant.
Profitability benefited as we successfully mitigated the adverse effects of volatile ingredient prices and factory under-recoveries stemming from raw material shortages and quality issues in the prior period. Operating income increased by 60% to R203 million. With the newly commissioned peanut butter plant stabilised and marked improvements in demand across the customer base, top-line recovery is expected in the second half. Profitability is expected to be sustained as value engineering initiatives gain traction.
Snacks and Treats achieved significant revenue growth, reaching R1,5 billion, marking a 7% increase. This growth was primarily supported by 12% price inflation, albeit offset by a 5% decline in volume. The volume decrease was mainly driven by reduced chocolate sales due to soaring costs, notably sugar and cocoa, with the latter experiencing a 60% year-on-year increase. Nonetheless, stringent cost containment measures partially safeguarded profitability, resulting in a modest decline in operating income to R106 million.
Beverages recorded a strong six months, with revenue increasing by 10% to R1,3 billion, supported by volume growth of 4% and price inflation of 6%. Volume growth was achieved across dilutables and Oros ready-to-drink as well as value propositions. Significant increases in the cost of key ingredients and packaging items were offset by improved factory efficiencies as well as sports drinks (Energade) performing ahead of expectations. Operating income increased by a pleasing 17% to R230 million.
Revenue in the Baby segment was marginally up at R600 million, driven by price inflation of 14% and offset by volume declines of 11%. Operating income increased by 46% to R67 million, with the benefit of improved factory efficiencies boosted by cost savings in sales and distribution. Volumes are reflective of lower demand across key segments as consumers opt for cheaper offerings and rotate out of baby-specific products into general offerings suitable for the whole family.
Food Services delivered a pleasing set of results as operating income growth outpaced revenue growth over the period. Revenue grew by 5% to R451 million, with volume declines of 4% offset by price inflation of 9%. Operating income increased 14% to R89 million, as the business successfully executed its drive to manage product mix as well as improved efficiencies in distribution.
Home and Personal Care (HPC)
Overall revenue in HPC was flat year-on-year at R1,3 billion while operating income increased by 8% to R276 million as segments reported mixed performances.
Personal Care's revenue decreased by 4% to R358 million, where price inflation of 14% was insufficient to cover volume declines of 18%. Lower inflation on key ingredients, better factory efficiencies and a favourable product mix improved profitability. Operating income more than doubled from R15 million last year to R31 million in the current period.
Home Care's performance was hindered by a delayed pest season relative to last year. Revenue grew 1% to R912 million as price inflation of 9% was offset by volume declines of 8%. Good cost-containment initiatives resulted in flat operating income of R244 million.
Exports and International
Total revenue for Exports and International increased by 22% to R2,6 billion, driven by price inflation of 7%, 10% volume growth, and favourable foreign exchange translation gains of 5%. Total operating income increased by 63% to R265 million, benefiting from improved profitability across all segments, particularly Deciduous Fruit.
The positive trajectory reported at the end of the previous year continued for the Rest of Africa business, as Exports continued to report sustained volume growth and improved profitability. Building on the key distributor model, volumes increased in Mozambique, Zambia and Zimbabwe, supported by deeper market penetration of our core brand portfolio. As a result, sales momentum achieved in the second half of FY23 was sustained in the current period, with revenue increasing 9% to R1,3 billion. Operating income increased to R117 million (2023: R76 million), benefiting from positive operating leverage and ongoing cost reduction initiatives.
Chococam's brand and product strength upheld demand, resulting in 23% (11% in local currency) revenue growth to R836 million, despite significant raw material price increases. This comprised 7% volume growth, 6% price inflation, and a favourable foreign currency translation movement of 10%. In line with revenue growth, operating income increased by a pleasing 20% to R123 million (9% in local currency), driven by cost-containment initiatives and the benefit of rand weakness on translation.
Cash operating profit increased 6% to R2,1 billion. Working capital outflows of R1,4 billion declined by 19% relative to the same period last year, mainly due to improved debtor collections in line with the focused working capital initiatives that are currently underway. As a result, cash generated from operations increased to R760 million from R333 million last year. Capital expenditure for the period amounted to R560 million (2023: R476 million). The group ended the period with elevated net debt levels of R2,7 billion (2023: R1,7 billion), primarily attributable to higher opening debt levels.
The class action remains pending. There have been no material developments since the last update in December 2023 as part of the company's year-end disclosures. Tiger Brands will update shareholders on the class action when material developments unfold.
Shareholders are referred to the voluntary withdrawal of canned vegetable products that took place in July 2021. Following formal demand by Tiger Brands for restitution and recovery of costs and losses arising from the recall, the relevant packaging supplier (the supplier) and its insurers agreed with Tiger Brands for the matter to be referred to mediation. It is expected that the mediation will be held during the latter part of May 2024. As part of the civil claim process, Tiger Brands issued a summons in the Gauteng Local Division of the High Court, which was served to the supplier on 29 April 2024. The next steps after mediation, if the matter remains unresolved, will entail a referral of the dispute (including the High Court civil suit) for determination by arbitration as contemplated in the applicable master supply agreement. The claimed amount is approximately R700 million.
Ms Gail Klintworth will step down as independent non-executive director of the company with effect 31 May 2024. This decision stems from her increasingly demanding time commitments, having diligently served on the board since 16 August 2018. She will accordingly also step down as a member of the social, ethics and transformation committee as well as the risk and sustainability committee.
The operating landscape is likely to remain challenging. Preliminary macro-economic indicators suggest heightened strain among South African consumers. While there has been a nominal uptick in employment, wage growth has notably decelerated, particularly amid a surge in inflation, disproportionately impacting low-income consumers. Forecasts indicate restrained wage growth, with any potential relief from interest rate adjustments to be marginal and gradual. Given the high levels of consumer indebtedness and limited prospects for substantial labour market improvements within a subdued economic backdrop, it is anticipated consumers will continue to face significant hurdles.
The next reporting cycle will mark the first six-month period under new leadership, with the first green shoots of our turnaround efforts expected to emerge. We are confident in the immediate measures taken to streamline our operating model, coupled with clear targets for further simplification and enhancement. Moreover, our robust portfolio of market-leading brands positions the group for improved performance in the short term.
Looking ahead, our focused strategy will enable strategic investments in brands, activities and segments poised to deliver superior and sustainable long-term returns.
Any forward-looking information has not been reviewed or reported on by the group's auditors.
By order of the board
GJ Fraser-Moleketi
Chairman
TN Kruger
Chief executive officer
Bryanston
24 May 2024
Date of release: 27 May 2024
The company declared an interim ordinary dividend of 350 cents per share for the six months ended 31 March 2024, in line with the company's dividend policy of 1,75x cover based on HEPS and in line with the higher headline earnings per share. This resulted in a 9% increase relative to the prior year interim dividend.
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:
Shareholders are advised of the following dates with respect to the final ordinary dividend:
Declaration date | Monday, 27 May 2024 |
Last day to trade cum the ordinary dividend | Tuesday, 2 July 2024 |
Shares commence trading ex the ordinary dividend | Wednesday, 3 July 2024 |
Record date to determine those shareholders entitled to the ordinary dividend | Friday, 5 July 2024 |
Payment date in respect of the ordinary dividend | Monday, 8 July 2024 |
Share certificates may not be dematerialised or rematerialised between Wednesday, 3 July 2024 and Friday, 5 July 2024, both days inclusive.
By order of the board
JK Monaisa
Company secretary
Bryanston
24 May 2024