Tiger Brands posts higher income despite inflationary pressure

23rd November 2016

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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The prolonged drought and significant currency volatility has contributed to significant inflation in raw material input costs for JSE-listed fast-moving consumer goods producer Tiger Brands in the financial year ended September 30.

The higher costs impacted the grains and groceries divisions, in particular, with the grains division’s operating margin having declined by 2.5 percentage points to 15.6%, Tiger Brands, which is led by CEO Lawrence MacDougall, noted on Wednesday.

The effect of the drought and foreign currency volatility had raised raw material and packaging costs in the groceries division significantly; however, the division still increased its operating margin to 9.9% from 9.6% the year before.

Ongoing cost management programmes delivered savings of R380-million during the year; however, these savings, coupled with higher realisations, were insufficient to counter the inflationary pressures experienced in soft commodity inputs. Consequently, the overall domestic operating margin declined from 15.2% to 14%.

The difficult trading environment is expected to persist with inflation levels remaining high. Speaking at the company’s results presentation in Johannesburg, MacDougall added that, as consumers face greater financial strain, the competitive environment increases “dramatically”.

Meanwhile, strong domestic volume growth of 2% drove group turnover from continuing operations up 11% to R31.7-billion for the year under review.

The group posted a 5% increase in its operating income to R4.2-billion for the year ended September 30, which Tiger Brands attributed to its resilient brands delivering a solid underlying performance.

MacDougall highlighted that eight of the brands in Tiger Brand’s portfolio had a turnover of R1-billion. “That is fairly significant in any market,” he said.

Further, he pointed out that Tiger Brands held a 32% share in the bread market, a 62% share in the pasta market and a 59% market share in hot breakfasts. “These are powerful brands . . . with resonance,” he stated.

Turnover in the grains division increased 13% to R12.8-billion driven by price inflation. However, overall volumes were flat owing to significant declines in maize. Operating income reduced by 3% to R2-billion.

In its food division, Tiger Brands posted a 9% increase in turnover, to R11-billion, with a similar increase in operating profit to R1.2-billion. The operating margin was maintained at 10.8%, with volumes increasing by 3%.

Groceries continued to recover and produced an improved performance. Turnover rose 10% to R4.7-billion while operating income increased by 13% to R466-million. As a result, the operating margin improved from 9.6% to 9.9%.

It also reported a 19% increase in total headline earnings a share to 2 127c apiece, which was boosted by the disposal of its Tiger Brands Consumer Goods (TBCG) division in February.

Further, the company posted a final dividend of 702c, with total dividend up 12% to 1 065c a share.

Tiger Brands’ results were also bolstered by a 19% increase in operating income from its international division, which included a strong performance from deciduous fruit, including Langeberg and Ashton Foods, a recovery at Haco Tiger Brands and another “exceptional set of results” from Chococam.

This performance was partially offset by lower profitability in exports owing to the challenging economic environment and foreign exchange liquidity issues in key markets including Zimbabwe, Nigeria and Mozambique.

Overall operating charges declined to 13.4% from 14.1%, influenced by responsible pricing decisions to protect the brand franchises.

Income from associates increased by 43% to R861-million, driven primarily by Oceana Group and Chilean-based Empresas Carozzí. The contribution from associates includes capital profits of R117-million, up from R3-million in 2015, arising from certain asset disposals.

A 13% reduction in net financing costs resulted from a net foreign exchange gain of R12-million, including a one-off foreign exchange gain of R153-million, following the settlement of a naira denominated loan, which had been assumed as part of the exit from TBCG, partly offset by the impact of higher domestic interest rates in the current year.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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