Tiger Brands : Annual Financial Results 2022 Transcript

Tiger Brands FY22 Results Presentation Transcript

Speaker Key:

If we look at our performance for the full year, it really was a tale of a first half and a second half performance where the second half performance helped pull us out of the doldrums that we saw with the first half performance, which was severely impacted by unanticipated galloping inflation on the cost base, as well as our issues at the Snacks & Treats facility where we had significant and lengthy industrial action. I'll come back to how we've dealt with the issues of industrial action a little bit later in my presentation.

In the performance in the second half, we were particularly pleased with the recovery that came from the Snacks & Treats business, as well as the Bakeries and Exports business. In the second half, we certainly continued to feel the impact in the Home Care business, due to the lack of insects or the impact of the heavy rainfall at the beginning of the season, which had an impact on the propagation of insects and therefore the usage of our products.

We had a real challenge as we entered the second half. We were behind the curve from an operating profit perspective and the wave of inflation was continuing. Therefore, it was really important for us that we take some urgent steps to recover our margin, but at the same time be conscious of the fact that in an economy like ours, at this phase where it's very much a value economy, that we could recover margin and end up with no volume.

And so, we had to take some very specific steps, category specific, down to SKU specific in terms of our pricing and watching our volume. We did have some ebb and flow in the second six months within the categories on volume, but overall, as you'll see a little bit later, we exited from a market share perspective in a fairly healthy position, despite having to take very significant price increases to recover the margin.

I think for me what's pleasing about the results that we're presenting now, is that we've posted these numbers without doing anything that would impact on the quality of earnings from a long-term sustainability perspective. We've stayed true to our commitment to revamp our IT infrastructure and to invest heavily in the technology of the future for us. The revenue management that we started to invest in last year, we ramped that up, but it's really paying very immediate and short- term dividends for us.

At the same time as we're seeing the massive levels of inflation, particularly in the base commodities, we were able to put aside R42 million to fund a special programme for child nutrition. That comes on top of all of the extra work that we've done in KZN for our own staff, as well as for communities that were impacted by the floods. This year marked the year when the Tiger Brands Foundation fed it's 100 millionth school feeding meal in the course of the past year.

Slide 6 - Sequential improvement in underlying trading while strategic initiatives position the group for future stability

If you look at our performance over the last three years, and I will touch on the pre- COVID 2019 in my closing remarks, but you can see there's been a fairly solid,

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steady progress over that period. These numbers are obviously stripping out the impact of the major product recall that we had in the prior year and the impact of any impairments specifically related to the floods.

But I think what's pleasing is that with a little bit of a kicker from the export side of the business in the current year, despite this level of price increases that you've seen in the second half of the year, we've managed because of the efficiencies that we've been driving within the business, we've managed to hold onto that margin and at the same time bring our price points down relative to our competitors.

Slide 7 - Constrained consumer leading to category volume declines while increasingly discerning in terms of spend with a bias towards essentials

The environment remains very challenging. I think you have all seen the comments that have been made around Black Friday where you're seeing consumers shift towards essential foods or the more basic necessities and you can see that. What this graph really shows you is that the volume in the market as measured over 12, six or three months as we've got here, is definitely skewing towards commodities.

You see rice, which was actually deflating for some of the period, became a much more attractive carbohydrate and we've seen a shift out of some of the traditional carbohydrates into rice. But overall, on the left of that slide you'll see where the volume is growing. On the right where you could say there's a higher level of consumer discretion, we're seeing significant levels of volume pressure.

Slide 8 - Volume shares prove resilient in the long-term with gains driven by Rice, Beverages, and Groceries

Our volume shares have proven resilient in the long-term. Over a two-year period, we've managed to show some volume share gains. If you look here, and this is as read by IRI, over a 12-month period we've managed to hold onto our volume in the aggregate across the total market. There are of course different dynamics within different categories and the team will take you through that later.

Slide 9 - Value shares reflect judicious price/volume management without over-extending price premiums

Holding onto that volume has come at the expense, if you like, of pricing. We've had to be very judicious in our pricing and we've had to manage our price premium very carefully and in some cases bring the price premium down, particularly in a category like bread so that we could hold onto those volumes. But the positive sign, I think, is that we've held the volume, done it with products that are more price competitive and managed to hold onto the gross margin if you look at the total portfolio.

Slide 10 - Billion Rand Brands remain firm favourites despite a tough trading environment

When we look at market shares, you will see within the categories there are some market share pressures. Maybe just on this slide, to make one or two comments to say we're showing you the 12-month picture to be consistent with what we've shown in the past. But if you looked at bread, for example, which has a significant

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positive impact on our results overall. A further highlight was the successful completion of our share buy-back programme, which saw us returning in approximately R1.5 billion to the shareholders during the year.

The conscious decision that we took to increase raw materials in light of the constant global supply chain crisis, as well as a decision that we took to build stock in terms of finished goods ahead of plant shutdowns did impact the working capital during the year and saw us having higher working capital impact compared to the prior year.

The level of working capital was further impacted by the significant cost inflation that we saw come through in raw materials, etc., also impacting the value of stock at the end of the year. A further headwind that we experienced was the precautionary recall of the baby talcum powder and that costed us a once-off cost of R16 million.

Slide 13 - Full year gross margins maintained through margin recovery initiatives in H2 as well as cost savings, supply chain efficiencies and revenue management

In terms of specific salient features that we can report on for the 2022 financial year, revenue increased by 10% to R34 billion. Cost-saving initiatives, supply chain efficiencies, as well as progress in our revenue management programme all contributed towards the maintenance of our gross margin percentage at 30.3% in comparison to the prior year.

The group operating income before impairments, fair value losses, as well the non- operational items increased by 53% to R3.4 billion. Income from associates also reported a significant increase by 38% to R478 million. This was driven by the strong performance that we saw come through in our Carozzi business, as well as National Foods, which was further augmented by the disposal of associate investment in National Foods, as well as favourable currency gains that we noted in Carozzi.

EPS from continuing operations increased by 65% to 1 762 cents per share. HEPS from continuing operations increased by 51% to 1 702 cents per share. Excluding the impact of the product recall from the prior year as well as the civil unrest that we experienced, as well as the benefit of related insurance claims in the current year, HEPS from continuing operations increased by 11%.

We're also pleased to advise that the board has approved a final dividend, which is up 29% on last year, to an amount of 653 cents for the year. The full-year dividend is up 18% to an amount of 973 cents per share. In terms of the group's effective tax rate, this ended slightly higher than the prior year at 29.4% compared to the 29.1% in the prior year.

Slide 14 - Revenue in H2 reflects astute price/volume management in the domestic business with a boost from export volumes

Total revenue from continuing operations, as I indicated previously, increased by 10% to R34 billion and this was largely driven by price inflation of 11% and a margin overall decline of 1% in terms of volume. The volume growth that was

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