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Premier reports good interim performance in difficult environment

13th November 2023

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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JSE-listed fast moving consumer goods and personal care products company Premier Group has reported a 23.9% year-on-year increase in earnings before interest, taxes, depreciation, and amortisation (Ebitda) to R1-billion for the six months ended September 30.

Headline earnings a share also increased by 0.8% to 331c a share, while revenue rose by 7.1% year-on-year to R9.4-billion.

The trading environment has been characterised by currency and soft commodity volatility, extensive infrastructural constraints and high interest rates. The company notes that consumers remain under significant stress, which has been compounded by the low-growth economy.

The reduced loadshedding regime has, however, been a welcome relief, the company says.

“Inflation is anticipated to flatten as soft commodity prices continue to decline and stabilise. In line with this, price relief in wheat and maize has been passed through to the consumer, providing some respite from the inflationary impact on staple foods experienced in the recent past,” it notes.

The revenue increase during the half-year was driven by increases in revenue in the Millbake business of 8.1% and the Groceries and International categories of 2%.

The results are pleasing and showcase Premier's agility and resilience in the face of ongoing economic challenges, the group says.

Ebitda increased by 23.9%, mainly driven by the growth in the Millbake division's Ebitda of 27.3%. The Groceries and International division Ebitda declined by 4%, mainly as a result of macroeconomic conditions experienced by the group's business in Mozambique.

Further, the Ebitda margin improved by 150 basis points to 10.9% compared to the same period in the prior financial year.

Operating profit increased by 33.3% to R805-million. The operating profit margin improved by 170 basis points to 8.6% when compared with the half-year period in the prior financial year.

“Normalised headline earnings a share in the prior period was adjusted for foreign exchange gains on cash, as well as loans of a funding nature of R36-million net of tax and by the reversal of accrued withholding tax on preference dividends of R43-million to profit on the conversion of the redeemable preference shares to ordinary shares, which were once off in nature.

“The improvement in normalised headline earnings a share is underpinned by the growth in the group's operating profit,” Premier says.

Meanwhile, cash generated from operations increased by 33.6% to R831-million, underpinned by the growth in the group's Ebitda and supported by well-managed working capital.

The company made voluntary debt repayments of R357-million during the period, consisting of voluntary capital repayments on borrowings of R250-million and R107-million repayment on the bank overdraft.

The board of directors resolved not to declare an interim dividend.

“Premier has produced a pleasing set of maiden interim results as a listed company and is well positioned for further growth in the next six months and to deliver on its investment case and remains committed to its purpose,” the company says.

In terms of the group's outlook, revenue growth is likely to moderate compared with the prior year, which was impacted by significant inflation in soft commodity prices. Low, single-digit revenue growth is projected for the second half of the year; however, margins are expected to remain in line with those achieved for the first half of the year.

Owing to the reduced debt levels, following the debt paydown, some benefit is anticipated, despite higher interest rates. The team will continue to focus on the bakery capital expenditure projects scheduled for the remainder of the year and remain alert for value adding acquisition opportunities, it adds.

“Innovation and product renovation to grow market share, maintain and expand product margins and brand equity are a strategic focus. In addition, emphasis remains on entrenching and delivering on our sustainability vision, supporting our people and communities in need, and evolving our business to limit our impact on the environment,” Premier says.

DIVISIONS
The Millbake division delivered robust results that underpinned the group's six-month performance. The division's Ebitda margin of 12.3% had improved by 180 basis points over the same period in the prior financial year.

The increase in Millbake's revenue is attributable to price and mix growth of 8% with flat volume growth, says Premier.

Revenue growth in the Millbake division for the period has been softer owing to softer commodity prices in wheat and maize and the associated price relief being passed through to consumers.

Further price relief is expected to be muted by the rising fuel prices, high interest rates and the weakened rand, the group cautions.

Further, investment in manufacturing site upgrades and facility optimisation to maintain best-in-class efficiencies remains integral to drive growth and create opportunities for expansion.

The new mega-bakery in Pretoria has been in operation for a full 12 months and is on track to deliver its business case, the Aeroton bakery is closed for a rebuild and good progress has been made with the Mthatha bakery, which is scheduled for completion by the end of the financial year, the company says.

Meanwhile, the Groceries and International division increased revenue by 2% to R1.5-billion, while Ebitda decreased by 4% to R107-million. The Ebitda margin contracted by 40 basis points over the same period last year to 7.2%.

“Ongoing focus on site manufacturing optimisation and functionality remains critical in achieving cost efficiencies in Sugar Confectionery and home and personal care (HPC). Efficiencies and increased capacity of tampon manufacturing installed at the Durban HPC facility will enable the onshoring of supply to the UK market.

“The acquisition of a 35% stake in a UK-based niche skin care treatment range, under the brand Science of Skin, is a step towards leveraging the Group HPC infrastructure to expand participation within the broader Personal Care category. Selected Lil-lets products have also been launched on Amazon in the US,” the company says.

Additionally, Premier's CIM business division in Mozambique remains under pressure as macroeconomic factors and double-digit food inflation continue to weigh heavily on households. Political instability, climate change and widespread poverty are key issues facing the consumer.

Gross domestic product growth is, however, projected to rise considerably over the next few years driven by growth in mining, agriculture and liquefied natural gas exports. The CIM business is poised to capitalise on the economic recovery through established efficiencies in manufacturing capability and an extensive product range, Premier notes.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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