Consumer packaged goods company Tiger Brands says it experienced challenges within its Grains, Groceries, Value Added Meat Products (Vamp) and Exports divisions in the six months ended March 31.

So much so that its earnings per share (EPS) were down 75% year-on-year to 221c apiece, and its headline earnings a share were down 35% year-on-year to 501c apiece.

Tiger Brands explains that EPS from continuing operations were impacted on by a significantly higher impairment charge in the six months under review, while earnings in the prior comparable six months ended March 31, 2019, which amounted to 875c apiece, had benefited from an after-tax capital profit of R282-million, arising from the sale of the company’s Oceana shares.

The company’s operating income was 29% lower year-on-year at R1.1-billion.

Tiger Brands has received two offers for the acquisition of separate parts of the Vamp business and discussions are ongoing towards sale and purchase agreements. The business has been classified as a continuing operation in the results.

In the interim period under review, Tiger Brands terminated its Deli Foods operation, in Nigeria, and it has been classified as a discontinued operation in the results. 

Group revenue from continuing operations increased by 2% year-on-year to R15.7-billion, with price inflation of 4% offset by an overall volume decline of 2%.

The company states that gross profit margins were impacted on by lower volumes, as well as raw material and conversion costs rising ahead of inflation, with the consolidated gross profit margin declining from 31.4% to 29.4%.

Additionally, marketing expenses increased by 9% year-on-year in the six months under review to R528-million, in line with the strategy to enhance brand health and drive consumption.

“The continuing losses incurred by Vamp, although showing a 14% improvement on the prior comparable six months, further impacted on profitability. Group operating income before International Financial Reporting Standards 2 charges, impairments and abnormal items decreased by 29% to R1.1-billion, while the operating profit margin decreased from 10.2% to 7%.

“Excluding Vamp and new accounting standards, impairments and abnormal items declined by 27% to R1.4-billion, while the operating profit margin decreased to 8.9% from 12.3%,” Tiger Brands notes.

The board has decided it best not to declare an interim dividend, given short-term uncertainty related to Covid-19.

Tiger Brands says it will again consider a dividend at financial year-end in September.

Tiger Brands states that the pace at which South Africa moves through the various lockdown phases until the full reopening of the economy remains uncertain, while the impact on consumers, unemployment and disposable incomes is likely to remain dire.

“We anticipate that demand patterns will change and we are preparing for significant changes in consumption and shopping behaviour as we move out of the acute phase of the national disaster period and into, what is likely to be, a deep and prolonged recession,” says CEO Noel Doyle.

The company adds that, as existing procurement positions are depleted, the second half of the year will be impacted by significant costs owing to rand weakness, global supply chain disruptions and additional costs incurred during the lockdown period.

Tiger Brands says its profitability could be impacted by more than R500-million.

“In the short to medium term, cognisant of a constrained consumer, we will prioritise innovation towards value offerings whilst re-engineering our business to optimise costs and improve efficiencies,” Doyle points out.

OPERATING PERFORMANCE

Although revenue increased marginally to R6.8-billion in the company’s Grains division, operating income decreased by 33% year-on-year to R532-million.

Tiger Brands says the wheat-to-bread value chain continues to be impacted by the inability to fully recover cost push, high levels of promotional activity and low volume growth.

The maize category was adversely affected by volatile raw material pricing, physical supply constraints and increased competition.

The rice and pasta category was affected by intense competitive activity, but benefited from improved demand in March.

The Food division’s operating income fell by 29% year-on-year to R237-million, which was aggravated by Vamp’s continued operating losses.

The groceries category in the Food division suffered a decrease in operating income of 27% year-on-year to R170-million, owing to a highly competitive trading environment and supply constraints in tomato sauce.

The snacks and treats category also reported lower income, owing to low chocolate demand, as orders in March were diverted to carbohydrate staples ahead of the national lockdown.

Sales were also generally down in the company’s Home, Personal Care and Baby division, with operating income down 6% year-on-year to R167-million, which was also partly owing to increased marketing investment in support of newly launched innovations.

Tiger Brands’ Exports and International division was negatively affected by a trademark dispute with a former distributor in Nigeria, resulting in no sales to Nigeria for the six months under review.

The performance of exports was further impacted by lower demand in other export markets in Africa, as well as the effect of Covid-19 lockdown measures, which prevented access to certain export markets by the deciduous fruit category.

Most of Tiger Brands’ manufacturing and distribution sites were classified as essential services during the lockdown and have continue to operate. However, certain facilities and offices were closed in line with regulatory requirements or demand dynamics.

“To ensure the health and safety of our employees, a number of measures have been implemented, including private transport for staff, staggered shifts where possible to ensure safe working conditions and increased health screening and awareness across the group.

“All affected facilities, which were temporarily closed, have since resumed operations except for sorghum-based beverages, which remains closed in terms of the regulations.”