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Trading Update
Tiger Brands Limited
(the “Company” or “Tiger Brands”)
(Incorporated in the Republic of South Africa)
(Registration number 1944/017881/06)
Share code: TBS
ISIN code: ZAE000071080
TRADING UPDATE
The following is the trading update that was tabled at the annual general meeting of
shareholders that was held today.
Turnover from continuing operations for the first quarter of the current financial year
amounted to R7.7 billion. This was 10% higher than the corresponding figure last
year. The Dangote AgroSacks business, which was disposed of in December 2013
for a consideration of Naira 7.5 billion, has been accounted for as a discontinued
operation. This is consistent with the accounting treatment adopted for the financial
year ended 30 September 2013.
The overall gross margin showed a decline for the quarter of 1.2 percentage points
to 30.5%, with the group operating margin, after accounting for a lower IFRS 2
charge, reflecting a slight reduction relative to the comparable quarter last year.
Turnover for the domestic businesses of R5.9 billion showed an improvement of 9%,
whereas the Export and International businesses, including Nigeria, grew turnover by
16% to R1.8 billion. Turnover from the Export and International businesses
benefited from the weaker Rand exchange rate.
Domestic sales volumes increased by approximately 4%, against a relatively weak
volume performance in the corresponding prior period. Selling price increases were
generally in line with or below inflationary levels. Sales volumes achieved by the
Export and International businesses (excluding Nigeria) were strong; however, this
was offset by pressure on volumes at Dangote Flour Mills (DFM), primarily due to
intense competitor activity.
Trading conditions in the domestic market continue to be challenging, with on-going
volume pressures resulting from rising cost inflation and the impact of the weaker
Rand. This is exacerbated by a highly competitive landscape. The group's
performance for the first quarter has been mixed, with the Grains division achieving
pleasing growth, especially within the Milling and Baking operations and Breakfast
category.
Pricing in the Groceries business was maintained in order to stimulate volume
recovery. This objective was successfully achieved with strong volume growth and
improved market shares recorded in the quarter. However, rising costs have
resulted in significant margin pressures which should ease over the balance of the
year as pricing is adjusted to absorb the higher input costs. The HPCB division
recorded a marginal decline in turnover for the first quarter. Margins were generally
under pressure because of the subdued top-line performance.
The strategic cost saving projects commenced in the previous year remain on track,
with the relocation of the tomato paste plant as well as the consolidation of the
beverage facilities having been successfully completed. Initial teething problems
resulted in supply constraints in the Beverage business; however, these
commissioning problems have now been largely resolved.
The Export and International businesses outside Nigeria continue to show strong
growth, benefiting to some extent from the Rand's relative weakness.
Trading conditions in the Nigerian market remain challenging and DFM has
continued to sustain operating losses in the quarter, primarily as a result of on-going
volume and pricing pressures. The impact of significant price discounting in the
market continues to place pressure on margins and the turnaround in the
performance of DFM over the medium term remains a key objective, which is
receiving focused management attention.
As part of the Company’s business strategy to expand in emerging markets, Tiger
Brands has recently acquired a 100% stake in each of Rafiki Millers Limited and
Magic Oven Bakeries, both of which are based in Kenya. The two acquisitions will
give the Company a meaningful presence in the Kenyan flour milling and bread
baking industry. Tiger Brands already participates in the home & personal care,
stationery and food markets through its subsidiary HACO Tiger Brands.
The acquisitions will strengthen our International operations and will provide a solid
platform to participate in a growth category where the Group already has significant
expertise. The combination of Rafiki’s local manufacturing and distribution network
together with our capabilities to operate efficient milling and baking operations will
allow for improved business operations thereby enhancing the value offering into the
Kenyan market. The combined annual turnover of the two businesses is
approximately R350 million. In the short term, the acquisitions will not have a
material impact on the Group’s earnings, net asset value or tangible net asset value
per share.
The information in this trading update has not been reviewed or reported on by the
Company’s auditors.
Bryanston
11 February 2014
Sponsor:
J.P. Morgan Equities South Africa Proprietary Limited
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