Tiger Brands reports disappointing results

This morning, food processing business Tiger Brands reported weaker-than-expected results, with headline earnings-per-share at 16.24 cents, down 3.8%, and a group turnover of R27 billion, up 19.1%. 

The results were strongly influenced by disappointing results from the Nigerian stock exchange listing Dangote Flour Mill (DFM), a local groceries business. If you exclude DFM from the headline earning results, headline earnings-per-share would be up 5.8% with a group turnover of R24.7 billion, up 8.8%.

Rest of Africa

Tiger Brands continues to grow its business outside South Africa, as strong GDP growth in African countries offers opportunities. Excluding DFM and Nigerian operations, the rest of Africa (which contributed 13% to revenue) continues to have good growth with a 21.6% growth in net sales and a 25.3% increase in earnings before interest and tax. The group highlighted Kenya, Ethiopia and Cameroon as stand-out performances, sighting excellent volume and share growth in core categories. The group continues to put in measures to expand margins as well as implementing new market penetration initiatives.

Nigeria, which contributes around 15% to group revenue, saw a difficult trading period. A 63.35% (R1.5 Billion) stake in DFM was acquired in October 2012, and it remains a negative contribution to group revenue as Tiger Brands continues to re-energise its current brand portfolio and entrench the new corporate culture. The business suffered a R389 million ($38.24 million) operating loss because of bad debts provisions and one-off job cuts. Management has plans in place to increase the holding to the full 100% by December 2013, planning to leverage Tiger Brands' group capabilities to accelerate improvements. As a means of recouping some cost, Dangote Agro Sacks, DFM's packaging subsidiary, has been earmarked for sale. It has been highlighted in results as a discontinued operation, and its profit contribution for the year is reflected as a single-line item outside operating income.

Grains business

Tiger Brands’ grains businesss, which contributes around 30% to revenue, achieved pleasing volume-growth in a contracting market within its bakery business. The rice business (under common household brand Tastic) achieved strong volume-growth, exceeding the levels of 2011 after pricing was adjusted to reflect a more realistic premium compared to other rice offerings. Management highlighted that there has been an increase in new competitors within this business segment, which, together with falling Thai rice prices, will affect margins going forward.

Consumer brands

The consumer brands division, which contributed around 40% to revenue, and the groceries business within this division, faced extremely tough trading conditions during the year, with intense pricing competition, higher input costs and volume pressures having a significant impact on profitability. Divisional turnover declined by 1.7% to R3.7 billion, while operating income fell by 33.1% to R361 million. The snacks and treats business achieved a solid performance for the year, driven by volume growth and a positive sales mix, as well as strong operational leverage resulting from manufacturing cost efficiencies.

The beverages business achieved satisfactory volume growth for the year, which was primarily driven by the Oros, Roses and Superjuice brands. However, sales mix and profitability were negatively affected by short-term supply issues relating to Energade, stemming from manufacturing architecture changes implemented during the year.

Challenging conditions

Management highlighted that trading conditions in South Africa remain challenging, citing ongoing financial pressure on consumers as a significant facto,r as well as high input costs and an inability to fully recover costs through price increases.

Source: JSE SENS and Tiger Brands Presentation

Tiger Brands chart

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