Tiger Brands : Interim Financial Results 2023 Transcript

Tiger Brands Interim Results Presentation Transcript 30 May 2023

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bolts of the business before we do a wrap up.

Slide 5 - Increasingly tough consumer environment with accelerated volume declines and a clear shift towards essentials

I'm not going to dwell on the top half of the slide, which covers the consumer environment and the macroeconomic environment. One can see from the stats that we've highlighted that it's certainly becoming ever-more challenging in an environment that has not been easy, certainly for the last number of years, in terms of what we are seeing in terms of consumer behaviour and consumer disposable income.

What that's translating into in terms of consumer sentiment and consumer wallet, is the kind of dynamic that is set out in the bottom half of the slide where you're seeing a shift in consumption towards the centre-of-plate carbohydrate, if you like, which is where you're seeing some growth and where margins for us have been particularly challenged in this period, and an accelerating trend of volume decline across many of the other categories. This really reflects the variability of consumer spend and the extent to which discretionary spend is being eliminated in favour of the very basics across our target market.

The stats that you see here are stats for modern trade but based on a triangulation of different data available to us. I don't think that the trend is markedly different (in the wholesale and traditional trade). In fact, we think that if you look at the wholesale and traditional trade sector, the trends are probably more pronounced in that space.

Slide 6 - Return on effort not reflected in return on sales and equity

When you look at our performance, it's very clear that the return on effort is not reflected in the poor results that you see, the disappointing result for these six months in terms of our returns. Whilst in the background we've had very good progress in terms of ongoing improvements in our efficiencies, in reducing waste and we're ahead of our target in terms of cost savings initiatives for this year, there's been some offset with the cost of loadshedding, which we'll go into in detail, and because of that consumer environment, quite a lot of pricing constraints in terms of trying to maximise or optimise the value-volume equation.

A feature of the results, which we'll unpack in more detail, is the significant underperformance or disappointing level of performance of both our Tice and Groceries businesses where we really saw, towards the end of this period, a significant change in the trajectory of those businesses. On the positive side, within the portfolio, apart from some of the individual domestic segments which we will take you through, we've been pleased with the sustained progress in Exports.

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Slide 7 - Good performance in the modern trade over weighted to Milling & Rice resulting in margin compression - less successful in wholesale & general trade where price sensitivities are greater

We saw poor price/volume management in the rice category, which became apparent to us as we were finalising our half-year results, and that's as a result of the billing cycles that had been completed where we noticed the poor price/volume management that had come through.

Increase in cost-push pressures. Like I said earlier on, loadshedding continues to have an impact on our business. The total impact for the H1 was R76 million with an incremental energy cost of R48 million for H1.

We also saw some headwinds come through in working capital investment, albeit some through deliberate stock build in our inventory, both in raw materials as well as finished goods, as well as some issues that have come through in debtors collection, which I'll talk to shortly.

Despite the cost savings ending ahead of target, the under recoveries and pricing constraints that we've seen in a number of our categories has certainly resulted in gross margin compression.

Slide 11 - Strong revenue growth while higher operating costs dilute earnings

Having a look at the snapshot of our results, certainly a disappointing result for H1 in what can be only deemed as a very challenging environment. We saw total revenue from continuing operations increase by 16% to R19.4 billion. This was largely driven by price inflation of 17% and a volume decline of 1%.

The volumes held steady, as I indicated in the previous slide, in the domestic business. This was driven by strong recoveries that we saw come through in bakeries, our snacks and treats business, personal care, as well good performances seen in sorghum breakfast, rice, beverages, as well as the out of home categories.

The volume declines that were recorded were in our flour to retail and wholesale customers. We saw declines come through in the sorghum beverages, the groceries business, as well as baby, where we saw also a marginal decline come through in the home care business.

The firm recovery that we saw come through in export volumes was partially offset by the significant decline that we saw come through in our deciduous fruit business.

Gross margins have certainly been impacted, declining from 29.2% to 27% and that's largely driven by the higher input cost inflation, as well as the impact of loadshedding.

The group operating income before the impairments and non-operational items decreased by 9% to R1.4 billion. But it is important to call out that the prior year period did see the benefit of our insurance proceeds, which amounted to an amount of R161 million, and that was related to the product recall as well as the civil unrest which took place in July 2021.

For comparative purposes, the insurance proceeds in the current financial year amount to R20 million and excluding the impact of these proceeds, the group operating income would have actually declined by 2% versus the 9% noted on the

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slide.

The group's effective tax rate before non-operational items and income before associates increased slightly to 29.7% from the 29.6% reported last year.

The income from associates increased by 51% to R275 million. That was largely driven by a strong top-line performance particularly in the Carozzi business, as well as the benefits that we saw come through from favourable currency translations. National Foods also reported a satisfactory result in the H1.

Earnings per share increased by 2% to 749 cents per share, compared to the 733 cents last year, while headline earnings per share increased marginally to 731 cents compared to the 728 cents in the prior year. In terms of declaration of interim dividend, we are declaring an interim dividend which is flat on last year at 320 cents per share.

Slide 12 - Revenue boosted by price inflation while volumes supported by recoveries in key segments

As I've indicated, total revenue was certainly boosted by price inflation, while volumes were supported by recoveries in the key segments which I've spoken to. We saw 17% price inflation at a total level, partially offset by the 1% volume decline.

In terms of domestic revenue, that increased by 16% to R17.3 billion and that was driven entirely by price inflation and volume which remained flat. The exports and international revenue was driven by price inflation of 15%, forex at 4%, but volume decline of 9%, and as indicated, that decline was predominantly driven by the deciduous fruit business.

Slide 13 - Revenue increased 16% year-on-year to R19,4bn driven largely by price inflation, while operating income was impacted by higher costs associated with operating in an inflationary environment

Just looking at a snapshot of our income statement, despite the strong revenue growth that we saw come through, the first half performance was certainly impacted by the challenging operating environment in which we were operating and that was largely driven by prolonged loadshedding that we saw come through during H1.

Also, high levels of inflation and the impact of the interest rates on consumer confidence and disposable income also affected the consumer behaviour where we saw consumers shift to more value products and that in turn, also affected our volume as well as our basket mix overall.

As I've indicated, although the cost-saving initiatives and supply chain efficiencies are delivering ahead of plan for half year, these were unfortunately not enough to offset the high input cost inflations that we're seeing come through from a procurement point of view, as well as the further impact of the loadshedding that I've spoken to.

Just for comparative purposes, the loadshedding amounted to R76 million, as I've indicated, compared to the prior year amounted to R12 million. So, quite a significant impact in terms of the year-on-year movement in terms of loadshedding

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