Consumer Brands – food businesses

(R’million) 2014   2013   % change   Turnover (Rm) 9 464,4   8 321,9   14%   Operating income before abnormal items (Rm) 977,3   906,6   8%   Operating margin (%) 10,3%   10,9%       Salient features Market share gains in Groceries Improved operating performance across all businesses Cost-efficiency and optimisation projects delivering to expectation Trading conditions for the year remained challenging, with increased input costs impacting all of the businesses in the division. Overall performance for the division was, however, respectable, with turnover up 14% to R9,5 billion and operating income increasing by 8% to R977 million.

Groceries achieved its strategic goal of regaining market share in target categories and made progress in enhancing its manufacturing architecture. Within the sugar confectionery segment, Snacks & Treats successfully retained its leading brand positions in a highly competitive market. Initial delays in the commissioning of the Beverages facility at Roodekop were overcome, which resulted in a much-improved second-half performance. Valued Added Meats (Enterprise), continued to gain market share in a subdued market, while Out of Home acquired additional customers with its customised offering.

Groceries

This division includes well-known brands such as KOO, All Gold, Mrs Ball’s, Black Cat and Crosse & Blackwell, which hold either the number one or number two brand position in their respective categories. With effect from 1 October 2013, the Pasta category was transferred to the Grains division, while the Canned Meats business was transferred to the Value Added Meats division.

Grattan Kirk Business Executive: Consumer Brands – Foods

Turnover increased by 23% to R4,0 billion (2013: R3,2 billion) on a like-for-like basis, while operating income increased by 9% to R320 million (2013: R295 million). Overall sales volumes grew by 16% including the annualisation effect of the prior year acquisition of Mrs Ball’s. The performance of the business was a tale of two halves. The first half saw significant increases in raw material costs which were not recovered in pricing. While this negatively affected operating margins in the first half, the business managed to regain market share across all major categories and volumes recovered to drive turnover growth. Following pricing adjustments in the second half, the financial performance improved significantly against the prior year. As part of the ongoing focus on our manufacturing architecture, R230 million was invested in consolidating the Mayonnaise facility into Boksburg. This should result in manufacturing and supply chain efficiencies which will materialise fully in the 2015 financial year. The tomato paste factory, which was consolidated in the prior year, is delivering in line with expectations. In order to maintain and gain further market share, new product ranges and variants are being introduced across all major categories.

Snacks & Treats

This business is focused on sugar confectionery, chocolates, gums, jellies and hard boiled sweets. It operates in a very price-sensitive category which demands continuous innovation. Turnover increased by 7% to R2,1 billion (2013: R1,9 billion) and operating income by 1% to R309 million (2013: R305 million) with operating margins negatively affected by significant raw material cost increases, particularly in cocoa and hazel nut costs. Volumes remained flat year on year.

A new R160 million gums and jellies plant was commissioned in Durban in July 2014, resulting in increased capacity and enhanced capability which will enable further innovation in this sub-segment of the sugar category.

Beverages

The business posted an overall pleasing performance with a particularly good improvement in the second half. Turnover increased by 9% to R1,1 billion (2013: R1,0 billion), while operating income grew by 19% to R127 million (2013: R106 million). In the 2013 financial year, three beverage factories were consolidated into a single facility to optimise operational efficiencies. Delays in commissioning the facility resulted in constraints in meeting demand, which impacted the first-half financial performance. These issues were subsequently resolved, with the second half reflecting the benefits of the factory consolidation.

We maintain our continued focus on innovation in this highly competitive category, particularly in respect of new variants in our power brands such as Oros, Energade, Rose’s and Hall’s.

Value Added Meats

This business is focused on the Value Added Meats category and recorded a respectable financial performance for the year. Turnover increased by 9% to R1,9 billion (2013: R1,7 billion) and operating income by 9% to R131 million (2013: R120 million). The Enterprise brand gained market share despite constrained demand. The strategic focus was on operational efficiencies, improved on-shelf availability, greater route to market capabilities, as well as innovation. We are seeking to extend the depth and breadth of the product range and expand into locations outside our traditional market such as forecourts and smaller retailers. The business introduced a number of innovations to products during the year such as the resealable Vienna packets.

Out of Home

The Out of Home business posted very pleasing results for the year, growing turnover by 9% to R437 million (2013: R403 million) and operating income by 12% to R90 million (2013: R80 million). The increases were attributable to new customer gains and the extension of the depth and range of its product offering. This business sells all of Tiger Brands’ products to caterers and restaurants and is unique in its ability to customise solutions.

Outlook

Factors such as slow economic growth, continued pressure on consumer spending and a muted performance from retailers are expected to result in continued challenging trading conditions. With no significant improvement anticipated in the next 12 months, we will continue to focus on maintaining market share, driving cost savings and efficiencies where possible and prioritising marketing efforts. In a highly competitive market, it is imperative that the company continues to focus on innovation across all categories and the further strengthening of its core brands.