International markets boosted Tiger Brands

International markets boosted Tiger Brands

South African consumer goods group Tiger Brands has reported higher annual profits as improved earnings from its international markets offset challenging conditions at home.

Tiger said operating income from its export markets "more than doubled" as it benefited from full-year contributions from acquisitions in Nigeria and Ethiopia.

Operating income from its operations outside South Africa reached ZAR451m (US$51m) in the 12 months to 30 September.

Higher earnings from export markets helped drive a 7% increase in group operating income to ZAR3.5bn, although Tiger's businesses outside South Africa still only accounts for 13% of earnings.

Tiger's revenues also benefited from its international growth. Turnover was up 11% at ZAR22.7bn. Tiger said inflation in South Africa of 8% also helped sales but noted domestic volumes slid 3%.

The company is trying to revitalise its domestic business, which has seen "economy" brands and increased competition from private label hit sales.

Tiger said the next financial year would be "challenging" with consumers "under pressure" in South Africa. However, it said its "growth prospects" in Africa look "encouraging".

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The 2012 financial year was challenging, reflecting in broad measure the state of the South African economy. Intense market competition and muted domestic growth were compounded by significantly increased volatility in the pricing of soft commodities, which negatively affected the food sector. Consumer spending, which had previously been the main driver of domestic demand, slowed in the face of weaker business confidence and rising cost pressures. With aboveinflationary cost increases affecting real disposable incomes, consumers continued to make tough choices in their spending decisions, cutting back on consumption levels where necessary and widening their brand repertoire to include economy alternatives.

Growth on the balance of the African continent was more robust and the Group’s prior year acquisitions performed well, contributing positively to the 7,3% growth in headline earnings per share achieved for the year. Tiger Brands retained its strong financial position and continued to generate strong cash flows, affirming the Group’s record of stringent financial discipline and resilience in challenging economic times. The Group maintained its number 1 or 2 brand position across most of the categories in which it participates and its core brands were recognised through various awards for their brand stature. Significant progress has been achieved in the Group’s international expansion strategy, with the conclusion of the Dangote Flour Mills acquisition subsequent to the year-end, providing added momentum.


Group turnover increased by 11% to R22,7 billion, driven primarily by domestic pricing inflation of 8% and a solid contribution from exports and the international businesses. Domestic sales volumes declined by 3% due to increased competition across most categories. Strong volume and pricing growth underpinned the 53% increase in turnover from exports and the international businesses, with foreign currency translation gains contributing approximately 8% of this growth.

The Group’s operating margin compressed by 60 basis points to 15,3% due to the substantial cost inflation experienced during the year, which was exacerbated by increased volatility in agricultural soft commodity prices and the weak Rand exchange rate. These costs were partly absorbed to maintain the competitiveness of the Group’s products on shelf and to protect sales volumes. The operating margin was also negatively affected by the sharp increase in the IFRS 2 share option charge for the year, which largely resulted from the mark to market revaluation of the Group’s cash-settled share option liability following the 30% increase in the Company’s share price over the period. It is pleasing to note that notwithstanding these factors, the Group was able to maintain its operating margin above its benchmark target of 15%. 

Operating income increased by 7% to R3,5 billion. Excluding the effect of the IFRS 2 cash-settled share option charges, operating income grew by 9% to R3,6 billion. The domestic businesses reflected subdued growth, increasing operating income by 2% to R3,2 billion, whilst the export and international businesses more than doubled operating income to R451 million, partly as a result of the full year effect of the acquisitions made in the previous financial year.

Net financing costs increased from R64 million to R138 million. Associate companies performed exceptionally well during the year, with the Group’s share of earnings growing by 57% to R416 million. Earnings per share increased by 4,8% to 1 707 cents and headline earnings per share increased by 7,3% to 1 689 cents. 

The Group’s balance sheet remains strong, reflecting total shareholders’ equity of R11,7 billion and net debt of R1,2billion, resulting in a gearing ratio of 10% at year end. 

During the year, the Group spent R408 million on acquisitions, primarily on the acquisition of the Status deodorant brand and the increased shareholdings in Langeberg and Ashton Foods and National Foods Holdings. 


The Group’s overarching goal is to reposition its domestic businesses for growth, by lowering their cost base to ensure long-term competitiveness. Over the last three years, volumes have softened across a number of product categories due to pricing differentials relative to economy brands and increased competition from private label offerings. Whilst the Group maintains strong equity in all of its core brands, it has taken corrective action to stimulate volume growth in the domestic market and regain market share.

In this regard, a number of cost saving initiatives are being implemented, aimed at ensuring the Group’s competitive positioning on shelf and securing top-line growth. These include a three-year project to standardise the different ERP platforms across the Group which will improve visibility of costs and provide better leverage of the Group’s back end functions through shared services in finance, procurement and other areas. In addition, through the various continuous improvement programmes, the Group continues to generate efficiency gains and is improving its manufacturing and supply chain architectures.

The Group’s international expansion efforts into the rest of the African continent have gained momentum over the last two years. This has led to significant growth in exports, assisted by the prior year acquisition of Davita and the strengthening of the Group’s distribution network across Africa. This will, over time, facilitate the successful roll-out of the Group’s flagship brands into new markets.

Subsequent to the year-end, the Group concluded the acquisition of a 63,35% shareholding in Dangote Flour Mills, the second largest flour milling Company in Nigeria. Dangote Flour Mills has significant downstream interests in Pasta and Noodles and strong branding, production and distribution capabilities. The acquisition represents an important step in

Tiger Brands’ growth strategy on the balance of the continent and adds substantial scale to the Group’s existing interests in Nigeria. The Nigerian market is recognised as one of the fastest growing in sub-Saharan Africa, and represents a significant growth opportunity for the Group.


Grains The Grains division faced substantial input cost inflation and pricing volatility during the year, which resulted in higher selling prices and softer volumes. Overall pricing inflation of 10% was offset by a 4% volume decline which largely arose in the Maize and Rice businesses. The raw material prices of maize and sorghum were at historical highs, whilst pricing in the rice market was affected by the abnormally high differentials between the cost of higher grade Thai rice, largely used by the Group, and lower grade Indian rice that was available in the market during the year and used in economy brands. Following the intense competition experienced in the prior year due to price discounting bycompetitors, pricing in the Millbake business normalised, limiting the extent of the margin compression for the business as a whole. 

Operating income of R1,7 billion was in line with the prior year. The outlook for the year ahead remains challenging and the high levels of inflation and volatility in the soft commodity market are likely to persist, exacerbated by the current weakness in the Rand exchange rate. It is expected that the pricing of Thai rice will remain artificially high for some time due to the Thai government support of its local farmers, and this may result in some level of instability in the rice market in the immediate period ahead. Innovation remains core to the business and significant work has been done across the division, based on consumer research and trials, to ensure that the Group continues to win with customers and consumers in its core markets.

Consumer brands Markets came under pressure during the period under review, as consumers faced ongoing constraints with regard to their disposable income. Whilst market shares stabilised, margins compressed as a result of aggressive competition. These factors necessitated a deeper focus on cost and efficiency improvements as well as a drive for volume growth, through pricing activities and an increased investment in marketing and trade spend. Across the division, a number of value chain re-engineering work streams were initiated in an effort to position the business for sustained competitiveness. In addition, there was a heightened focus on innovation, particularly within the Snacks, Treats and Beverages businesses. Operating income, in total, increased by 4,5% to R1,5 billion.

Exports and International Good progress has been made in integrating into the Group, the businesses acquired in the prior financial year. Other than in respect of Deli Foods, which experienced some challenges during the year, the newly acquired businesses performed well and are trading in line with expectations. The Exports and International businesses now account for 16% of total Group turnover. The overall operating margin for the division improved from 8,8% to 12,4%, assisted by the profit turnaround achieved by Langeberg & Ashton Foods as well as the high margin contribution from Davita.

Operating income increased by 116% to R451 million, with the newly acquired businesses contributing 55% of this growth.

Organic growth remains a key thrust within the International division, driven by new product development and deeper market penetration across the various territories in which the Group operates.


The integrated report for the year ended 30 September 2012 will be posted during December 2012 to certificated shareholders and those shareholders with dematerialised shares who have requested a copy of the report through their 

Central Securities Depository Participants (CSDPs). Salient features of the integrated report will be available on the Company’s website ( shortly after the integrated report is posted. 


Given the ongoing weakness in the global economy, the continued volatility in soft commodity prices and the Rand exchange rate, it is expected that 2013 will be another challenging year. In the domestic economy, consumers are likely to remain under pressure as a result of rising costs and increased unemployment, whilst competition will remain intense. 

On the balance of the African continent, growth prospects look encouraging. However, none of these economies will be immune to the declining fortunes of the global economy. The Group’s focus will be on delivering against its strategies, with precision, in order to achieve sustained growth and a further strengthening of its brands.


Original source: Tiger Brands