Tiger Brands maintains healthy dividend standard of 670c in FY20

20th November 2020 By: Marleny Arnoldi - Creamer Media Online Writer

JSE-listed consumer brands company Tiger Brands has declared a total dividend of 670c apiece for the financial year ended September 30, despite ongoing difficulties in maintaining margins in a tough trading environment compounded by Covid-19.

The company reported an 18% year-on-year decline in its operating profit to R2.6-billion, with the operating profit margin having declined to 8.7%.

A decline in volumes in certain categories, coupled with the inability to fully recover significant raw material cost push, placed gross margins under pressure, resulting in the group operating income declining to R2.6-billion, compared with group operating income of R3.2-billion reported for the year ended September 30, 2019.  

Tiger Brands’ earnings a share declined to 886c apiece for the year under review, which was a 66% year-on-year decline from the earnings a share of 2 617c reported for the prior corresponding year.  

The company explains that earnings in the prior financial year benefited from a fair value gain related to the unbundling of the company’s interest in Oceana, including the capital profit realised on the disposal of Tiger Brands’ residual shareholding in Oceana.

The company explains that it experienced a difficult consumer environment in the first half of the 2020 financial year, while the second half brought about opportunities in terms of food supply during lockdown, but also challenges related to Covid-19 impacts on the company.

“The second half of the year was affected by the closure of non-essential facilities in the home care and sorghum beverages segments, the cost of complying with the Consumer and Customer Protection and National Disaster Regulations, as well as the cost of health and safety measures,” Tiger Brands elaborates.

Lockdown measures created favourable tailwinds from a volume perspective in certain businesses, including wheat, milling, bread, oat-based breakfast offerings (Jungle), pasta and groceries.

However, Tiger Brands says there were corresponding headwinds in terms of consumer demand in snacks and treats, beverages, out-of-home and baby segments of the company.

A dispute with a former distributor in Nigeria continued to adversely impact the performance of exports.

These developments had a negative effect on profitability from continuing operations in the second half of the year under review. However, enhanced efficiencies, cost reduction measures, as well as the revised operating model resulted in a significantly lower year-on-year decline, compared with the year-on-year decline reported in the first half.

Tiger Brands continued treating its deli foods and value-added meat products (Vamp) businesses as discontinued operations with the comparative information restated accordingly.

The total after-tax loss for the period from discontinued operations amounted to R453-million.

The acquisition of the abattoir business at Olifantsfontein by Molare became effective on September 28, while the disposal of the Vamp processing facilities was successfully concluded post year-end.

The company further reports that revenue from continuing operations increased by 4% year-on-year, underpinned by price inflation of 6%, driven largely by currency weakness for most of the year, which was partially offset by an overall volume decrease of 2%.

An ordinary final dividend of 537c apiece has been declared for the year ended September 30.

Given the company’s healthy balance sheet and the fact that there are no imminent acquisition opportunities or exceptional capex requirements, the company has also declared a special dividend of 133c apiece as a result of the one-off proceeds received from the disposal of its Vamp business.

The special dividend, together with the gross final cash dividend, brings the total distribution for the year to 670c apiece, compared with the prior year's final cash dividend of 1 061c apiece.

Looking ahead, Tiger says it is likely that the current significant economic downturn will persist over the near and medium term. The anticipated volatility of the rand and increasing levels of unemployment will negatively impact on both the supply and demand dynamics of the company.

“The continuing pressure on consumer disposable income highlights the need for an enhanced focus on value offerings as well as cost reduction initiatives and operating efficiencies.

“Despite the challenging environment, the reconfiguration of our operating model, clear plans to compete effectively in a value economy as well as the successful execution of key strategic initiatives should position the group favourably to reverse the trend of declining profitability from continuing operations,” the company states.