Tiger Brands

Tiger Brands’ results for the year ended 30 September 2019 reflect the difficult trading conditions, characterised by an increasingly challenging consumer environment and input costs rising ahead of price inflation. The overall result was significantly impacted by ongoing margin compression across the Grains portfolio, tough trading conditions in the group’s primary export markets and the slower than anticipated recovery of the VAMP business. The unbundling of the company’s investment in Oceana also had a significant impact on year-on-year comparisons. Details of the impact of VAMP and the unbundling of Oceana on key financial metrics are detailed overleaf and in Annexure A.

Shareholders are referred to the SENS announcement issued by the company on 8 November 2019 regarding the cessation of operations at Deli Foods in Nigeria. The business has been treated as a discontinued operation in these results, with the comparative information restated accordingly.

Despite the challenging backdrop, total revenue from continuing operations increased by 3%, driven by price inflation of 5% and partially offset by an overall volume decline of 2%. Lower volumes, coupled with the inability to fully recover input costs, placed gross margins under pressure, resulting in group operating income before impairments and abnormal items (operating income) declining by 20% to R2,6 billion (2018: R3,3 billion).

Excluding VAMP*, operating income before impairments and abnormal items decreased by 11% to R3,2 billion compared to the reported decline of 20% to R2,6 billion.

The impairment charge was driven by a R96 million write-down in respect of VAMP’s property, plant and equipment and a R212 million goodwill impairment related to Davita, reflecting the challenging outlook in export markets. Abnormal income of R2,0 billion reported in the current period (2018: R422 million loss) largely comprises gains linked to the unbundling of Tiger Brands’ stake in Oceana and related share disposals.

Income from associates decreased by 49% to R371 million (2018: R731 million). As previously reported, the company ceased to equity account the earnings of Oceana with effect from 1 December 2018, following the decision in November 2018 to unbundle the company’s investment in Oceana. The total income from associates is therefore not comparable with that of the prior year. All associates, including National Foods Zimbabwe (which has been accounted for in line with IAS 29 Financial Reporting in Hyperinflationary Economies), reported an increase in earnings.

Net financing costs of R11 million (2018: R42 million) benefited from lower average debt levels over the past year. In addition, a net foreign exchange gain of R10 million was realised compared to a gain of R21 million in the prior year.

The effective tax rate before abnormal items, impairments and income from associates has increased marginally in comparison with the prior year. The prior year’s effective tax rate has been restated to account for the discontinuation of Deli Foods in the current year.

Headline earnings per share (HEPS) from continuing operations declined by 17% to 1 349 cents (2018: 1 633 cents). Earnings per share (EPS) from continuing operations, on the other hand, increased by 55% to 2 364 cents (2018: 1 530 cents) principally due to a capital surplus amounting to R2 billion, arising from capital profits realised and a fair value gain relating to the unbundling of the company’s interest in Oceana. This capital surplus had no impact on headline earnings per share as it is excluded for headline earnings purposes.

After adjusting for the impact of VAMP*, the unbundling of Tiger Brands’ investment in Oceana, as well as the capital profit arising from the sale of Oceana shares, attributable earnings per share from continuing operations declined by 11% compared to the reported increase of 55%.

At a headline earnings level, after adjusting for VAMP and Oceana, headline earnings per share from continuing operations reflect a decline of 8% compared to the reported decline of 17%.

The reconciling items between reported items and adjusted items are set out in the table below and in Annexure A.

Table 1: Adjusted headline earnings from continuing operations

	2019			2018
	R’million	HEPS  (cents)		R’million	HEPS  (cents)	% change cps
Headline earnings as reported (continuing operations)1	2 234	1 349		2 689	1 633	(17%)
Oceana equity-accounted earnings1	(31)	(18)		(416)	(252)
Adjusted headline earnings – excluding Oceana2	2 203	1 331		2 273	1 381	(4%)
VAMP – after-tax trading loss1	394	238		181	110
VAMP – abnormal items after tax3	(54)	(33)		303	184
Adjusted headline earnings (excluding VAMP and Oceana)4	2 543	1 536		2 757	1 675	(8%)

¹ This has been extracted from Tiger Brands’ audited financial statements for the year ended 30 September 2019 and 30 September 2018.
² Adjusted headline earnings after adjusting for all Oceana-related transactions for the year.
³ The effects of the VAMP losses have been removed as this had a significant year-on-year impact on normal operations. This has been extracted from
   Note 3 – Impairments and Note 4 – Abnormal items.
⁴ Adjusted headline earnings after adjusting for all Oceana and VAMP-related transactions for the year.

HEPS from total operations decreased by 17% to 1 322 cents (2018: 1 589 cents), while EPS from total operations increased by 60% to 2 333 cents (2018: 1 458 cents).

* Refer to Annexure A for the pro forma detail.

Domestic revenue increased by 5% to R26 billion in line with price inflation of 5%, with overall volume growth unchanged. Particularly strong performances were delivered by Snacks and Treats, Beverages, Home, Personal Care and Baby (HPCB), offset by disappointing results in Grains and VAMP. Industrial action affecting Groceries in the first half and Bakeries in the second half, as well as load shedding during the year, had an adverse impact on both revenue and costs. These contributed to operating income from domestic operations decreasing by 19% to R2,5 billion (2018: R3,1 billion). Excluding VAMP, operating income from domestic operations, decreased by 9% to R3,0 billion (2018: R3,3 billion).

Grains

Revenue increased by 4% to R13,2 billion, reflecting price inflation of 6%, while overall volumes declined by 2%. Price inflation was insufficient to offset the impact of higher input costs, with operating income declining by 24% to R1,4 billion. The operating margin consequently reduced to 10,9% (2018: 14,8%).

Milling and Baking had a particularly disappointing year, driven predominantly by poor performances in Maize and Baking. Revenue increased by 6%, influenced by 7% price inflation across the segment and an overall volume decline of 1%. Operating income declined by 20% to R1,2 billion. Within Maize, despite good volume growth, operating profit declined significantly as pricing pressures intensified. Bakeries experienced small volume losses, which were compounded by margin compression as the competitive environment did not allow for the full recovery of cost increases.

The Other Grains category had a challenging period with no meaningful recovery in the second half. Revenue declined by 2% to R3,8 billion, driven by 3% price inflation, which was more than offset by the impact of volume declines of 5%. Volume declines were primarily the result of lower volumes in Pasta due to supply challenges in instant noodles and low-priced imports in core pasta segments. Rice also had a disappointing year, being unable to recover cost push due to increased promotional activity in the category. The business was further impacted by supply chain challenges. Jungle benefited from price inflation, despite increased competition from private label in the core oats and ready-to-eat segments of the Breakfast category, achieving a marginal increase in operating income for the year.

The poor volume performance in Pasta and Rice, coupled with the inability to recover cost increases in raw materials and other operating expenses, was the primary reason for operating income declining by 41% to R202 million.

Consumer Brands – Food

Consumer Brands – Food continued to feel the impact of VAMP’s performance and this business’s slower than anticipated recovery in the market. Although revenue increased by 4% to R10,1 billion, operating income declined to R494 million (2018: R828 million). Excluding VAMP, Consumer Brands – Food delivered a strong top line performance with revenue growth of 9%, underpinned by 3% price inflation and 6% volume growth. The strong revenue growth was not sufficient to counter the effect of cost increases, which resulted in negative operating leverage. Excluding VAMP, operating income declined by 4% to R1,0 billion.

Groceries’ sales were ahead of the market with revenue increasing by 7%, supported by volume growth of 4% and 3% price inflation. However, pricing constraints, industrial action in the first quarter and supply chain challenges, adversely impacted profitability, with operating income declining by 25% to R325 million.

Revenue in the Snacks and Treats category increased by 9% to R2,3 billion. Sustained volume growth of 5% was achieved through the year and price inflation accelerated to 4% for the year. Growth was recorded across the portfolio, with the relaunch of Beacon and Maynards supported by focused marketing investment as well as successful in-store activations. Operating income increased by 3% to R313 million as improved price realisations were more than offset by higher conversion costs.

The Beverages business continued to perform strongly throughout the year, with revenue increasing by 19% and operating income rising 39% to R296 million. Volume growth of 14% was ahead of category growth, driven primarily by Oros and Energade. The resultant market share gains were supported by focused marketing campaigns throughout the year and new launches performing ahead of expectations. The business continues to benefit from cost-containment initiatives and improved factory efficiencies.

Although there was steady improvement in VAMP’s performance since the re-opening of the manufacturing facilities, the second half performance was below expectations. As a result, full year revenue declined 39% to R654 million, while an operating loss of R547 million was incurred. Despite excellent brand health metrics, revenue and margins were impacted by distribution gaps and tactical pricing strategies as well as higher costs of production. Lower volume throughput impacted negatively on factory overhead recoveries.

Home, Personal Care and Baby

The strong performance of HPCB continued through the second half, with overall revenue up 20% to R2,7 billion supported by strong volume growth in Home Care and Baby Care. The volume uplift, as well as favourable product mix in Home Care, led to a 60% increase in operating income to R546 million.

Revenue in Personal Care increased by 4% to R639 million, with 5% price inflation and an overall volume decline of 1%. Lower conversion costs, which benefited from effective continuous improvement initiatives in the factory, as well as reduced promotional spend, led to operating income increasing by 37% to R89 million.

Baby Care delivered a strong performance, with revenue up 23% to R981 million in line with volume growth of 24%. This performance was driven by effective in-store execution, optimal pricing and improved distribution, particularly in pouches, resulting in market share gains across the nutrition portfolio. Operating income increased by 14% to R151 million.

The Home Care category (including Stationery) recovered strongly from last year’s disappointing performance, with revenue growth of 29% to R1,1 billion and a 112% improvement in operating income to R306 million. This was due to sustained demand in the pest category, improved product mix and lower factory costs.

Exports and International

Total revenue for the Exports and International businesses declined by 11% to R3,2 billion, while operating income reduced by 34% to R212 million. A poor operating performance from Exports was partially offset by a significant recovery in the Deciduous Fruit business.

Revenue in the Deciduous Fruit (LAF) business declined by 2%. This was primarily due to lower carry-over stocks at the beginning of the year as a result of the effects of the severe drought in the Western Cape in 2018, as well as the postponement of certain export shipments into the first quarter of FY20. The business recorded a significantly reduced operating loss of R8 million (2018: R128 million loss) due to favourable foreign exchange positions as well as the benefits from the operational restructuring that was implemented at the beginning of the year.

In line with the guidance provided earlier in the year, Exports’ performance in the second half was adversely impacted by operational issues in Mozambique, while exports to Zimbabwe were affected by ongoing macroeconomic challenges resulting in foreign exchange shortages. Trading in Nigeria was affected by the transition to a new distributor in the first half of the year. Revenue declined by 18% to R1,5 billion, while operating income fell by 84% to R48 million.

In a difficult trading environment, Chococam delivered another good performance. A 3% decline in revenue in local currency terms was a consequence of tactical pricing being implemented to sustain volumes in a challenging macroeconomic environment. Revenue in rand terms increased by 3% to R906 million. Operating income increased by 8% in rand terms to R172 million (2% in local currency), supported by a favourable product mix and sustained tight cost management.

Cash generated from operations increased by 6% to R3,5 billion. This improvement was largely the result of a reduction in working capital requirements of R91 million compared to an increased investment in working capital of R573 million in the prior year. The level of capital expenditure for the year accelerated to R1,1 billion (2018: R720 million) with investments across the group’s portfolio including various projects to deliver efficiency improvements and increase capacity. The group ended the year in a net cash position of R1,2 billion compared with a net cash position of R669 million in the previous year.

A gross final cash dividend of 434 cents per share has been declared for the year ended 30 September 2019. This, together with the interim ordinary dividend of 321 cents per share, brings the total ordinary dividend for the year to 755 cents, in line with Tiger Brands’ dividend policy of 1,75x cover based on headline earnings per share.

In addition, a special dividend of 306 cents per share was declared for the six months to 31 March 2019 as a result of the once-off proceeds received from the disposal of Oceana shares to Brimstone.

The special dividend, together with the total ordinary dividend for the year, brings the total distribution for the year to 1 061 cents per share (2018: 1 080 cents). Shareholders are referred to the accompanying dividend announcement for further details.

Yunus Suleman resigned as an independent non-executive director on 22 November 2018, after serving on the board and on various sub-committees since July 2015.

On 1 March 2019, Cora Fernandez was appointed as an independent non-executive director, bringing significant financial and investment experience gained in various leadership roles.

Donald Wilson was appointed as an independent non-executive director on 1 June 2019, bringing significant financial experience accumulated over many years while working for listed entities with global operations.

On 1 July 2019, Monwabisi Fandeso joined the board as an independent non-executive director. He has extensive industry experience in strategy, governance, leadership, mergers and acquisitions and fast-moving consumer goods.

After year end, the board was further strengthened with the appointment of Mahlape Sello as an independent non-executive director on 1 October 2019, bringing extensive legal and commercial expertise to the board.

On 8 August 2019, Tiger Brands filed its plea in response to the listeriosis class action summons received on 16 April 2019.

Tiger Brands will continue to conduct its defence in a responsible manner while remaining committed to the matter being resolved as soon as possible.

Significant progress has been made in terms of optimising the portfolio, with firm decisions having been made in respect of VAMP and Deli Foods. With respect to the potential disposal of VAMP, the formal due diligence process is under way and further updates will be given as key milestones are reached. The ongoing work to optimise Tiger Brands’ portfolio will ensure that the group is appropriately positioned for growth.

It is expected that the significant macroeconomic challenges facing the country are likely to persist for the foreseeable future. In the context of structural unemployment, ongoing challenges relating to state-owned enterprises and increased competitive pressure, the operating environment is likely to remain subdued. To this end, we will prioritise investment in the group’s key brands while delivering product innovations to meet changing consumer needs. In addition, Tiger Brands will leverage the strength of its brands by evaluating opportunities to stretch its brands within and across existing and new product categories.

In terms of Tiger Brands’ Africa growth strategy, the company is looking to deliver organic growth by driving category growth through targeted brand investments, developing superior routes to market and investing in enabling capabilities.

To protect margins in a constrained consumer environment, the company has placed heightened focus on driving productivity and securing cost efficiencies across the value chain.

By order of the board

Bryanston

21 November 2019

Date of release: 22 November 2019

The board has approved and declared a final gross cash dividend of 434 cents per ordinary share in respect of the year ended 30 September 2019.

The dividend will be subject to the dividends tax introduced with effect from 1 April 2012.

In accordance with paragraphs 11.17(a)(i) to (x) and 11.17(c) of the JSE Listings Requirements the following additional information is disclosed:

• The dividend has been declared out of income reserves
• The local dividends tax rate is 20% (twenty percent) effective 22 February 2017
• The net local dividend amount is 434 cents per ordinary share for shareholders exempt from the dividends tax
• The net local dividend amount is 347,2 cents per ordinary share for shareholders liable to pay the dividends tax
• Tiger Brands has 189 818 926 ordinary shares in issue (which includes 10 326 758 treasury shares)
• Tiger Brands Limited’s income tax reference number is 9325/110/71/7.

Shareholders are advised of the following dates in respect of the final dividend:

Declaration date	Friday, 22 November 2019
Last day to trade cum the final dividend	Tuesday, 7 January 2020
Shares commence trading ex the final dividend	Wednesday, 8 January 2020
Record date to determine those shareholders entitled to the final dividend	Friday, 10 January 2020
Payment date in respect of the final dividend	Monday, 13 January 2020

Share certificates may not be dematerialised or rematerialised between Wednesday, 8 January 2020 and Friday, 10 January 2020, both days inclusive.

By order of the board

JK Monaisa

Company secretary

Bryanston

21 November 2019