Tiger Brands’ volume growth in international markets offset by decline in domestic performance

SOUTH AFRICA – South Africa’s largest food manufacturer, Tiger Brands, has registered a marginal rise in top line performance, posting 2% increase in half year revenue to R16.8 billion (US$1.06 billion), for the period ended March 2022.

This was driven by price inflation of 3% and partially offset by overall volume declines of 1%, the group said.

Its headline earnings per share, a key earnings measure in the country, for continuing operations fell by 2% to 729 cents in the six months ended March 31, down from 741 cents a year earlier.

Meanwhile group operating income – before impairments and non-operational items – dropped by 5% to R1.5 billion (US$94m) and operating margin declined to 8.9% from 9.6%.

The company’s performance was impacted by a poor first quarter, driven by significant volume declines in Bakeries and a protracted strike at the company’s Snacks & Treats division.

The group’s improved top line and profitability in the second quarter fell short of negating the slow start to the year.

This was compounded by the inability to offset the unexpected cost push through sufficient price increases and availability challenges on certain raw materials, ingredients and packaging.

Domestic performance dip

Although the group reported a 2% increase in domestic revenue for the period to R14.8 billion (US$930,000), volume losses reported by its Grains portfolio hampered growth.

“Domestic revenue was adversely impacted by Grains with the primary drivers being Bakeries, which experienced significant volume losses following the implementation of price increases intended to recover category cost push, and Rice, where prices deflated in line with lower international rice prices,” highlighted the company.

The Grains portfolio reported a 1.5% decline in revenue to R7.4 billion (US$467m) and a 32% reduction in operating income to R423 million (US$26.7m).

Tiger Brands, which owns well-known breakfast cereal brand Jungle Oats, noted a change in consumers’ cereal preference, with their gravitation towards ready-to-eat cereals having a major impact on the performance of Jungle’s core oats offering.

Further, the group added that the Jungle brand also suffered from “higher raw material prices and increased distribution costs.”

The Consumer Brands segment reported an overall better performance for the period with revenue rising by 6% and operating income increasing by 2% to R654 million (US$41.2m).

The groceries portfolio managed to increase revenue by 11% to R3.4 billion (US$214.59m). This it says was driven by the solid growth of mayonnaise, tomato sauce and chutney products.

Further, revenue in its beverages and baby segments (it owns Purity) grew by 9% and 6% respectively.

Terminates sale of fruit business

The group’s exports and international segment reported some positive growth, with its total revenue increasing by 5% to R1.9 billion (US$119m), supported by an improvement in performance by its deciduous fruit portfolio.

“Revenue in the Deciduous Fruit business increased 19% to R698 million (US$44m), benefiting from elevated international fruit prices and improved volumes.”

“Despite an improved top line, the business recorded an increased operating loss of R54 million (US$3.4m) due to an adverse sales mix and higher freight and packaging costs.”

In light of the improved performance, the group says it will no longer be selling the Deciduous Fruit business, after trying to find a buyer for more than two years.

However, it adds that the decision to terminate the process comes after interested parties were unable to secure funding to conclude the disposal of the business.

“Engagements with key stakeholders regarding the future of this business are currently underway, the outcome of which will be communicated to shareholders over the coming months.”

In less than a year since it announced the launch of the Tiger Brands’ Venture Capital Fund, the company also made its first investment in Herbivore Earthfoods, a business specialising in the manufacture and sale of plant-based and vegan products. The investment is aligned with Tiger Brands’ health and nutrition strategy and taps into a growing segment. Together with co-investor Secha Capital, the investment by Tiger Brands will help scale the business and support Herbivore Earthfoods’ growth trajectory as it aims to offer consumers more plant-based options that are tasty and affordable.

Inflationary pressures to persist

In its outlook for the rest of the financial year, the food producer noted that although it continues to see the effect of persisting supply chain challenges as well as related inflationary pressures, it remains dedicated to protecting consumers from selling price increases by continuing with its cost reduction and efficiency initiatives.

However, despite its efforts, Tiger Brands warns the possibility of consumers seeing significant price increases across most of its portfolios remains.

“Inflation in the second half is likely to run into double digits with the full impact of this on consumer demand for our brands a key unknown. Balancing margin and volume will be key challenge over the next 12 months,” states Tiger Brands.

Liked this article? Subscribe to Food Business Africa News, our regular email newsletters with the latest news insights from Africa and the World’s food and agro industry. SUBSCRIBE HERE

Newer Post

Thumbnail for Tiger Brands’ volume growth in international markets offset by decline in domestic performance

Fazer’s new factory in Finland to produce the world’s first xylitol made from oats

Older Post

Thumbnail for Tiger Brands’ volume growth in international markets offset by decline in domestic performance

ITFC extends Egypt US$3B in additional credit to cover wheat imports amid rising wheat prices