Tiger Brands

The group’s results for the half year ended 31 March 2015 are characterised by a solid performance in the domestic business, which was largely offset by foreign exchange losses arising from the devaluation of the Nigerian Naira and a weak performance by the Kenyan business, Haco Tiger Brands (“Haco”).

Domestic turnover growth of 8% was driven by volume growth of 2% and pricing inflation of 6%. Through effective management of price, volume and margin, operating profit from the domestic businesses grew by 9%, notwithstanding the heightened level of market competition and significantly higher levels of marketing investment. There was a modest improvement in the domestic operating margin, demonstrating the resilience and power of the group’s brands in challenging times. Market shares overall appreciated over the six-month period.

The short-term macro-economic environment in Nigeria deteriorated significantly during the period under review following the sharp drop in crude oil prices. This resulted in volatility in the country’s financial markets and a 25% devaluation of the Naira against the US Dollar. This has significantly affected the performance of the group’s Nigerian businesses, in particular Dangote Flour Mills (“DFM”), which carries short-term US Dollar borrowings to fund its imported wheat purchases. The devaluation resulted in significant foreign exchange losses recognised on the translation of its foreign denominated borrowings into Naira. The underlying trading performance of the DFM businesses continues to reflect an encouraging positive trend, with good volume growth of 16% resulting in a 38% reduction in trading losses to R110 million, excluding the foreign exchange losses attributable to the currency devaluation.

The performance of the group’s Kenyan business was particularly disappointing. Haco’s results were negatively affected by the effects of preinvoicing and the manipulation of profits in the previous financial year. Appropriate corrective action has been implemented.

Total group turnover increased by 7% to R15,9 billion, whilst operating income before IFRS 2 share option charges declined by 3% to R1,7 billion. This was after accounting for a R134 million foreign exchange loss in DFM relating to the Naira devaluation and the effects of the prior year anomalies at Haco which resulted in a R108 million decline in its operating results.

Excluding the Naira devaluation and the year-onyear decline in Haco’s results, the group’s operating profit before IFRS 2 charges increased by 12%, reflecting a solid underlying performance.

Attributable profit after tax from continuing operations increased by 122% to R1,3 billion following the R849 million prior year impairment of goodwill and intangible assets relating to the group’s investment in DFM. Income from associates declined by 11% to R238 million, with the associate companies other than Chilean-based Empresas Carozzi, reporting a weaker trading performance.

The effective tax rate before abnormal items was higher than the prior year due to investment allowances received on qualifying capital projects in the prior year. Earnings per share from continuing operations for the current period increased by 121% to 832 cents whilst headline earnings per share from continuing operations of 853 cents was in line with the comparative figure last year.

The group’s key strategic thrusts are focused on long-term profitable growth and the sustainability of its market leading brands through increased brand support and product innovation. Steady progress has been recorded, with the group achieving 2% volume growth overall during the period and the domestic business reflecting an improvement in market shares in most categories.

Total marketing investment increased by 20%, primarily in support of the group’s core brands, further strengthening their positioning and market shares over the period.

The focus on operational efficiencies and cost management is central to the group’s strategy of continually seeking to enhance the competitiveness of its products. Cost savings have been delivered throughout the group’s supply chain as well as through the consolidation of various support functions, which has been enabled by the groupwide roll-out of a centralised ERP platform. The final stages of this ERP roll-out should be completed within the next 12 months. Importantly, a new wave of cost reduction initiatives is being targeted to improve profitability, given the ongoing cost pressures faced by the group due to continuing Rand weakness and rising soft commodity prices. This is over and above the initial annualised target of R500 million in cost savings, which will now be fully realised by the 2016 financial year following the completion of the identified initiatives.

The group continues to pursue growth opportunities through expansion into new and existing categories, both in South Africa and the balance of the continent. During the period, the Exports and International businesses, other than Haco, achieved strong volume and top-line growth. Whilst both highly competitive and challenging, the Nigerian market remains an attractive source of growth, which offers long-term opportunity given the size and demographic profile of its population. The group remains firmly focussed on driving operational improvements in its Nigerian businesses in the medium to long term, whilst minimising the downside risks as far as possible. In the short term, it is expected that trading will continue to be challenging. However, we will continue to focus on the execution of our plans to gain maximum benefit from DFM’s existing product portfolio and facilities as well as to shift its product mix to higher value categories.

Given its current losses and highly geared balance sheet, DFM will require further financial support from its shareholders in order to further stabilise the business during this difficult phase and enable the delivery of its long-term growth plans.

The group has continued to execute its plans to strengthen and rebuild the Home and Personal Care businesses, which have underperformed internal growth targets over the last few years. The category portfolio includes a number of core brands that have heritage positioning and significant brand equity and a number of smaller brands which are largely positioned in the economy segment and contribute to the overall profitability of the business. In repositioning the business to focus on its core brands, including investing more aggressively in marketing support and innovation, the group is better placed to compete more effectively in these categories. Consequently, during the period, the group has increased its marketing investment in the Home and Personal Care categories by 38% and 85% respectively in support of its core brands and new market launches, resulting in a volume uplift of 13% and 4% respectively during the period. Operating profit for the period in these categories increased by 15% and 16% respectively. The business continues to invest in its people and supply chain capabilities and is exploring a number of partnership options to improve its technological capabilities in core areas.

Grains division

The Grains division achieved a 5% growth in turnover, with total volumes increasing by 2%. Overall pricing inflation of 3% was impacted by price deflation in the Maize category due to lower raw maize costs. Very strong volume growth was achieved in the Maize, Pasta and Rice categories; however, due to aggressive pricing and the introduction of additional manufacturing capacity in the Bread market, the group’s bread volumes declined by 3%. A deliberate and measured response, focussed on the functional attributes of the Albany brand and supported by tactical pricing initiatives, has started to yield positive results, with the operating margin for Bread in line with the prior period.

Operating profit for the Grains division as a whole increased by 7% to R890 million. This was achieved on the back of a 23% increase in marketing investment, with the Maize, Pasta and Rice categories recording double digit growth in operating income. During the period, the Jungle Ultra brand was launched, aimed at the fast growing energy segment of the breakfast market.

Consumer Brands – Food

The Groceries business continued to show good progress following a pricing correction in the current period, which resulted in a 12% increase in turnover. Overall volumes for the period held up well and were in line with the corresponding period, whilst the Condiments, Ingredients and Spreads categories showed good volume growth. Volumes in the Fruit and Vegetables category were hampered by increased price inflation, whilst Chutney volumes were negatively affected by a global shortage of dried peaches. Operating profit for the Groceries business in total increased by 39% to R210 million, with the overall operating margin improving by 180 basis points to 9,2%. The commissioning of the new Mayonnaise plant in Boksburg, Johannesburg is scheduled for completion in June 2015.

The heightened focus within the Groceries business on continuous manufacturing improvements is expected to drive further operational efficiencies and cost savings.

Sales volumes for the Snacks, Treats and Beverages categories were marginally down, with total turnover improving by 7%. Significant raw material cost pressures in the Snacks and Treats categories, as well as increased depreciation following the commissioning of the new Gums and Jellies plant in September 2014, negatively affected gross margins. Overall, the division achieved a marginal uplift in operating income to R262 million.

The Value Added Meat Products division performed well, reflecting top-line growth of 14% and a 12% increase in operating income to R70 million, driven by high levels of product innovation.

Home, Personal Care and Baby (HPCB)

Solid top-line growth was achieved in the Home Care division, with volume growth of 13% driven by both market growth and share gains in the Pest and Air Care categories. Volumes in the Personal Care Division grew by 4%. Operating income for the Home and Personal Care divisions increased by 15% in aggregate to R123 million, notwithstanding a 57% increase in marketing investment. Work on the factory reconfiguration at Isando has commenced and is scheduled for completion by March 2016. This will drive greater manufacturing efficiencies and enable the in-house manufacturing of certain core products that have previously been manufactured by third parties. With the increased investment in people, marketing and R&D resources, the base business is being repositioned for continued and sustained growth.

Sales volumes in the Baby Care division grew by 6%. Higher than expected raw material cost increases, as well as increased marketing investment and promotional activity, led to an 8% decline in operating profit.

Exports and International division

Total turnover for the Exports and International division was in line with the corresponding period at R2,2 billion, whilst operating profit declined by 30% to R234 million, primarily as a result of the year-on-year decline in profitability at Haco.

Davita, TBI Exports and Chococam all recorded solid top-line growth over the period, underpinned by strong volumes. Demand for Davita’s Benny powdered seasoning product outstripped manufacturing capacity, with margins negatively impacted by outsourced production during the period. New internal production capacity is scheduled to come on stream in June 2015.

The Ethiopian business, East African Tiger Brands Industries, reflected solid top-line growth of 14%, but its overall results were negatively impacted by the write down of slow moving stock during the period.

The performance of Langeberg and Ashton Foods was negatively affected by a slower start to the fruit season, which should improve in the second half. The business has recently successfully commissioned a dried fruit processing facility which will supply dried peaches for the production of Mrs Ball’s chutney.

Nigeria division

DFM achieved turnover growth of 12% (18% in local currency), with good volume growth recorded in the Flour and Pasta categories due to competitive pricing and enhanced product quality. Pricing competition intensified during the period, with market participants seeking to recover lost market shares; however, gross margins improved as a result of the higher volumes, procurement savings and efficiency gains achieved during the period. Product mix optimisation, human capital resourcing and improvements in route to market capability are key areas of focus to drive profitability and growth. DFM’s operating loss before the effects of the currency devaluation improved by 38% (32% in local currency) to R110 million. A pre-tax foreign exchange loss of R134 million was incurred on the revaluation of external foreign-denominated short-term debt following the devaluation of the Naira.

Deli Foods’ sales volumes for the period were negatively affected by the loss of a key production line, which will be replaced in the fourth quarter. The 25% decline in turnover resulted in a R16 million negative swing in the trading results of the business for the half year.

Cash generated from operations declined by 18% to R1,4 billion, largely as a result of seasonality of sales and procurement positions held at the half year. This is expected to normalise during the second half. Capital expenditure of R363 million was incurred during the period under review.

Oceana Group Limited

Oceana yesterday announced a proposed acquisition of Daybrook Fisheries that is located in Louisiana in the United States. The Oceana SENS announcement of 19 May 2015 in respect of this proposed acquisition and the detailed terms outlined therein relating to the acquisition refer. Reference is also made to the SENS announcement issued yesterday by Tiger Brands in which the Company confirmed that it was supportive of the proposed transaction and had provided irrevocable letters of support in terms of which Tiger Brands will vote in favour of the transaction at any Oceana shareholder meeting and also will participate in the rights offer that is being proposed by Oceana to part-fund the transaction. Tiger Brands’ pro rata participation in the rights issue is expected to cost approximately R525 million.

The company has declared an interim dividend of 339 cents per share for the half year ended 31 March 2015, which represents an increase of 3% compared to the 2014 interim dividend of 329 cents per share. Shareholders are referred to the dividend announcement below for further details.

The trading conditions across most of the regions in which the group operates are challenging. However, the group is confident that it has the right strategies in place and the depth of management to execute effectively against its plans. In this regard, the group has significantly strengthened its management team, including seasoned and experienced FMCG executives, both in South Africa and the balance of the continent, to hone its customer engagement, supply chain and route to market capability. The group will continue to focus on delivering against its key strategic objectives, improving the equity of its brands in the core South African markets and positioning the international businesses for growth. Whilst the relentless focus on cost savings and efficiencies will remain, further investment will continue to be made on innovation, customer engagement and brand development.

Market conditions in the South African businesses are likely to persist, with rising soft commodity prices and the weak Rand adding to inflationary pressures in a tough competitive environment.

In the short term, market conditions in Nigeria will remain challenging, with the full inflationary impact of the year-to-date devaluation of the Naira only likely to be felt by consumers later in the year. In addition, the potential for further foreign exchange losses could have a material adverse effect on the results of the Nigerian businesses in the second half. The group is pursuing a number of opportunities which could enhance the future performance of DFM, impacting positively on the outlook for the business. The group has considered all of these factors in performing a fair value assessment of the underlying assets of DFM as at 31 March 2015. It was concluded that there was no need to take any impairment at the half year, but that this would be reassessed at the year-end when it is anticipated that there would be sufficient clarity on the outcome of these opportunities as well as greater market stability following the inauguration of the new Nigerian government later this month.

By order of the board

The board has approved and declared an interim dividend of 339 cents per ordinary share (gross) in respect of the six months ended 31 March 2015.

The dividend will be subject to the Dividends Tax that was 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 15% (fifteen per centum);
• The gross local dividend amount is 339 cents per ordinary share for shareholders exempt from the Dividends Tax;
• The net local dividend amount is 288,15 cents per ordinary share for shareholders liable to pay the Dividends Tax;
• Tiger Brands has 192 069 868 ordinary shares in issue (which includes 10 326 758 treasury shares); and
• Tiger Brands Limited’s income tax reference number is 9325/110/71/7.

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

Share certificates may not be dematerialised or re-materialised between Monday, 22 June 2015 and Friday, 26 June 2015, both days inclusive.

By order of the board

T Naidoo
Secretary

Sandton
19 May 2015