Tiger Brands tamed by earnings decline

Tiger Brands has reported a sharp decline in full-year earnings after some of its operations were impacted by Covid-19 and exports were held back by a dispute with a former distributor in Nigeria. However, it’s sweetened its payout to shareholders with a special dividend and says a rejig of its operating model should help reverse the trend of declining profitability.

The fast-moving consumer goods group said it was able to keep most of its operations running due to its role in ensuring food supply during the initial lockdown periods. This resulted in strong cash flow generation, supporting its balance sheet. Still, it says its results for the year to end-September have been disappointing, reflecting its challenges in maintain margins in what was an already difficult consumer environment even before the Covid-19 pandemic.

While its food operations kept going, it closed non-essential facilities in Home Care and Sorghum Beverages. It also faced pricing regulations under the Consumer and Customer Protection and National Disaster Regulations, as well as additional health and safety costs. While the lockdown boosted volumes in a number of divisions including Wheat, Milling, Bread, Pasta and Groceries, other segments such as Snacks & Treats, Beverages, Out of Home and Baby came under pressure. A dispute with a former distributor in Nigeria impacted exports. This was tempered by cost reduction measures and a revised operating model.

Revenue rose 4% to R29.8 billion for the year as it raised prices by an average 6%. Before allowing for impairments and any abnormal items, operating income fell 18% to R2.6 billion as its operating margin declined to 8.7%. Earnings per share (EPS) declined by 66% to 886c. It said the earnings in the prior year benefitted from the fair value gain on the disposal of its remaining shareholding in fishing group Oceana. Headline EPS from continuing operations came in 23% lower at 1,196c per share. Continuing operations exclude Deli Foods in Nigeria, where it terminated operations last October, and the local Value-Added Meat Products (VAMP) operation, which has been sold. It’s paying an ordinary total dividend of 537c per share for the year as well as a special dividend of 133c following the disposal of VAMP. It said this was supported by a healthy balance sheet, with no imminent acquisition opportunities or exceptional capex requirements. That takes its total distribution for the year to 670c, down 37% from last year.

It is likely that the current significant economic downturn will persist over the near and medium term,” Tiger Brands said. “Despite the challenging environment, the reconfiguration of our operating model, clear plans to compete effectively in a value economy as well as the successful execution of key strategic initiatives should position the group favourably to reverse the trend of declining profitability from continuing operations.”