Civil unrest, product recall eat into Tiger Brands earnings resulting in 6% decline of HEPS

SOUTH AFRICA – South African food manufacturing giant, Tiger Brands, has reported a 4% rise in full year revenue for the year ended September 2021 to R31.0 billion (US$1.97 billion).

However, the company notes that its total revenue rise from continuing operations would have been 5% to R31.2 billion (US$1.98 billion), excluding the product recall and civil unrest incidences.

Tiger Brands had announced previously that a number of its sites in KZN had been affected by acts of looting and vandalism, resulting in damage to the Rice and Snacks & Treats operations.

This incident was shortly followed by the recall of 20 million KOO and Hugo’s canned vegetable products due to potential defects in the cans.

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As a result of the costs related to the product recall amounting to R308 million (US$19.5m) and civil unrest at R85 million (US$5.4m), operating income from continuing operations declined to R2.2 billion (US$139m) from R2.5 billion (US$158.7m) the previous year.

Gross margin and operating margin declined to 28.5% and 7.2%, respectively. In addition, naked margins came under pressure due to the high level of agricultural commodity cost push not being fully recovered through selling price increases.

However, this was offset by a steady improvement in manufacturing efficiencies, resulting in a marginal improvement of overall gross margins to 30.3% from 30.1% in the prior year.

The manufacturer of All Gold, Black Cat, Albany and Jungle Oats brands has reported a 21% increase in Earnings per share (EPS) from continuing operations to 1 070cents (2020: 886 cents).

Whilst headline earnings per share (HEPS) from continuing operations declined by 6% to 1 127 cents from 1 196 cents the previous year.

EPS from total operations increased by 87% to 1 142 cents from 2020: 612 cents, and HEPS from total operations increased by 20% to 1 127 cents from 940 cents.

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The increase in HEPS from total operations was primarily due to the losses recorded in Value Added Meat Products (Vamp) in FY2020 compared to a small profit in the year ended 30 September 2021.

In 2020, Tiger Brands sold its Vamp business, made up of the Enterprise brand, to Silver Blade Abattoir, a subsidiary of Country Bird Holdings.

In terms of the group’s underlying performance, the year under review can be characterised as a year of two halves, with a solid first half result, driven primarily by a strong first quarter, offset in part by slower top line growth in the second half.

Despite revenue challenges, cost savings and efficiency initiatives were sustained, resulting in positive operating leverage for the full year.

Tiger Brands, recently announced that its ordinary shares will be listed and traded on alternate exchange, A2X Markets.

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