Tiger Brands

The group achieved solid results for the six month period ended 31 March 2017. A strong domestic performance was partially diluted by tough trading conditions in Exports and International coupled with a decline in income from associates.

Shareholders are referred to the SENS announcements of 9 June 2016 and 21 February 2017 relating to the disposals of East African Tiger Brands Industries Plc (EATBI) and Haco Tiger Brands (E.A.) Limited (Haco), respectively. The disposal of EATBI has been concluded with an effective date of 4 April 2017, while the disposal of Haco is well progressed. Consequently, both operations have been treated as discontinued operations in these results, with the comparative information restated accordingly.

Group turnover from continuing operations increased by 7% to R16,4 billion (2016: R15,3 billion), whilst operating income from continuing operations, before IFRS 2 charges, impairments and abnormal items, increased by 10% to R2,2 billion (2016: R2,0 billion). Turnover growth was driven by pricing whilst overall volumes declined by 3%. There was positive operating leverage as a result of improved pricing and efficiencies, particularly in the domestic business.

Turnover in the domestic business increased by 8% to R14,3 billion (2016: R13,2 billion), driven primarily by the Grains division. Operating income grew by 15% to R2,0 billion (2016: R1,8 billion), whilst the operating margin increased to 14,2%. Overall volumes in the domestic business declined by 4% due, in part, to the Easter period falling in March last year compared to April in the current year.

The group’s overall operating performance was negatively impacted by the underperformance of Exports and International. Turnover was unchanged at
R2,1 billion whilst operating income decreased by 25% to R194 million. The performance of the Exports division was negatively impacted by the lack of foreign exchange liquidity in many of the countries to which we export, the strict imposition of credit terms as well as an unfavourable product mix. The strengthening of the rand impacted negatively on the performance of the Deciduous Fruit business relative to the prior period.

Abnormal income of R23 million comprises income in respect of insurance claim proceeds and certain warranty claims, offset by costs relating to the ongoing strategic review. Income from associates decreased by 36% to R239 million (2016: R371 million). The comparative period included once-off capital profits of
R73 million relating primarily to the disposal of certain assets by our Chilean based associate, Empresas Carozzí (Carozzí). After adjusting for these once-off capital profits, associate income decreased by 20%, reflecting the challenging operating conditions facing Oceana and Carozzí, as well as the impact of the stronger rand.

Net financing costs of R120 million (2016: R112 million), reflect a reduction in financing costs of R35 million, driven by lower debt levels, offset by foreign exchange losses on foreign cash and loan balances of R10 million (2016: foreign exchange gain of R33 million).

Profit before tax from continuing operations increased by 4% to R2,3 billion.

Earnings per share from continuing operations increased by 2% to 1 036 cents (2016: 1 013 cents), whilst headline earnings per share from continuing operations was up 7% to 1 036 cents (2016: 970 cents) due to the once-off capital profits from associates of R73 million in the comparative period. Earnings per share from total operations declined by 1% to 1 036 cents (2016: 1 049 cents). However, headline earnings per share from total operations increased by 6% to 1 036 cents due to the inclusion of capital profits from associates and the profit on disposal of TBCG (Dangote Flour Mills) of R50 million in the comparative period.

Grains division
Turnover in the Grains division rose by 13%, whilst operating income increased by 16% to R1,0 billion.

Milling and Baking delivered 14% turnover growth, supported by a 3% increase in volumes. Operating income rose by 12% to R792 million, driven primarily by the wheat-to-bread value chain benefiting from market share gains, improved execution and enhanced quality. Profitability in Maize, however, was negatively affected by higher raw material costs, which were not fully recovered in selling prices.

Other Grains reflected strong growth, increasing turnover by 11% to R2,0 billion and operating income by 33% to R228 million. The stronger rand contributed positively to improved margins.

Consumer Brands – Food
A good performance was delivered in the period under review, driven primarily by Groceries. Overall turnover increased by 3% to R5,9 billion, whilst operating income grew by 12%. The focus on recovering cost push inflation experienced in the previous financial year resulted in an overall margin improvement from 10,6% to 11,5%.

The Groceries business continued to focus on margin recovery and delivered a strong operating performance, albeit at the cost of volumes and market share in the short term. Turnover increased to R2,7 billion, while operating income increased by 32% to R310 million, resulting in an operating margin of 11,5%, up from 9,1% in the comparative period.

Snacks & Treats delivered a marginal increase in turnover to R1,1 billion, underpinned by higher realisations and an improved mix. This was offset by volume declines in a contracting market as well as the impact of a product rationalisation exercise. An improvement in margins resulted in enhanced profitability, with operating income increasing by 10% to R162 million.

The Beverages business delivered lower volumes in the period under review. This was largely due to industrial action in the first quarter as well as drought-related water restrictions and electricity disruptions in the second quarter, which negatively impacted service levels. This led to turnover reducing by 8%. Operating income declined by 11% to R93 million, reflecting the lower volumes. This was offset in part by improved realisations and a positive sales mix.

The performance of Value-added Meat Products was impacted by lower sales volumes. This was primarily due to price increases and lower promotional activity by retailers. Turnover increased by 5% to R1,1 billion, whilst operating income declined by 21%, primarily attributable to price increases only partially offsetting higher raw material costs.

Home, personal care and baby (HPCB)
HPCB’s performance was driven by another strong contribution from the Home Care category, with overall turnover increasing by 8% to R1,4 billion and operating income growing by 25% to R341 million.

Volumes in the Personal Care category were negatively affected by price inflation, reduced promotional activity and constrained consumer spending, which resulted in turnover declining by 4%. Notwithstanding this, operating income increased by 40% to R66 million, benefiting from an improved product mix, the phasing of marketing investment and sound cost control.

Volumes in Baby Care declined as a result of down-trading within the cereals and jarred baby food segments in favour of more affordable options, as well as due to stock supply shortages in the medicinal segment, which have subsequently been resolved. Turnover decreased marginally to R434 million, whilst operating income declined by 18% due to an unfavourable product mix.

The Home Care category (excluding stationery) produced another strong performance with turnover growth of 24% and an improvement in operating income of 71%. This was underpinned by excellent volume growth across all brands in the pest category, driven by strong market demand, effective in-store execution, successful innovation and optimal pricing. Volumes in sanitation and home enhancement have come under pressure due to aggressive competitor pricing. However, operating margins remain healthy and were ahead of the prior period in both segments.

Exports and International
The Exports and International businesses were negatively impacted by challenging trading conditions and rand strength. Exports, in particular, were impacted by ongoing foreign currency shortages, resulting in tighter credit terms and slower replenishment of stocks by distributors. Total turnover for the Exports and International businesses was unchanged at R2,1 billion compared with the corresponding period last year. Operating income decreased by 25%, driven largely by Exports and Deciduous Fruit.

Chococam recorded a 10% decline in turnover due to the period-on-period strengthening of the rand. However, turnover in constant currency terms increased by 1,2% underpinned by 11% volume growth. Operating income increased by 10% in constant currency assisted by tight cost management, but decreased by 4% on translation due to the stronger rand.

Volumes at Deli Foods were severely impacted by price increases taken during the period to recover significant input cost inflation. This, together with an improved product mix and effective cost control measures, resulted in the operating loss reducing by 23% in constant currency terms. Furthermore, on translation, the operating loss of R15 million showed an improvement of 54% compared to the previous period loss (2016: R33 million).

In the Exports business, revenue in the corresponding period last year was negatively affected by the absence of a distributor in Mozambique for a period. With the new distributor now in place, turnover increased by 11% to R877 million. However, an unfavourable product mix impacted negatively on operating income.

The Deciduous Fruit business was adversely affected by the strengthening of the rand, recording turnover growth of 3% despite volume growth of 9%. This was aggravated by an adverse customer mix, which contributed to a 67% reduction in operating income to R30 million.

Net debt decreased by R885 million from September 2016. Cash generated from operations increased by 63% to R3,0 billion, driven primarily as a result of enhanced working capital management. Capital expenditure incurred during the period amounted to R383 million (2016: R257 million) and is likely to be lower than initially budgeted for the balance of the year.

The company has declared an interim dividend of 378 cents per share for the six month period ended 31 March 2017, which represents an increase of 4% compared to the previous interim dividend of 363 cents per share. Shareholders are referred to the dividend announcement below for further details.

The outlook for the balance of the year is particularly challenging, with volumes in the domestic market having significantly slowed in the second quarter, while a recovery on the balance of the continent is not imminent. Having largely been successful in correcting margins and recovering exceptional cost push, the key challenge will be to manage market share and volume growth without compromising profitability. This will be driven by focused execution, targeted marketing investment to sustain the strength of the company’s power brands and appropriate cost control measures.

Our associate companies also face similar challenges for the remainder of the year.

The implementation of the recommendations of the strategic review has commenced. Relevant strategies and resources will be deployed to ensure the smooth running of the business while simultaneously implementing the necessary changes.

Shareholders are referred to the accompanying SENS announcement which is being released simultaneously with this announcement.

By order of the board

Bryanston
24 May 2017

Date of release: 25 May 2017

The board has approved and declared an interim dividend of 378 cents per ordinary share (gross) in respect of the six months ended 31 March 2017.

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 20% (twenty percent) effective 22 February 2017
• The gross local dividend amount is 378 cents per ordinary share for shareholders exempt from the Dividends Tax
• The net local dividend amount is 302,40 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)
• 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 Wednesday, 28 June 2017 and Friday, 30 June 2017, both days inclusive.

By order of the board

T Naidoo
Secretary

Bryanston
25 May 2017