Tiger Brands : Interim Financial Results 2022 Transcript

Tiger Brands Interim Results Presentation for the six months ended 31 March 2022

Webcast Transcript

Speaker Key:

DS	Deepa Sita - Chief Financial Officer
NCW	Nikki Catrakilis-Wagner - Investor Relations Director
ND	Noel Doyle - Chief Executive Officer
TG	Thushen Govender- Chief Growth Officer: Consumer Brands
YM	Yokesh Maharaj - Chief Growth Officer: Grains
US	Unidentified speaker
NCW	Morning, everybody, and welcome to Tiger Brand's interim results presentation for the
	six months ended 31 March 2022. I'm Nikki Catrakilis-Wagner, responsible for Investor
	Relations at Tiger Brands.
	The agenda this morning is similar to what we've always done, there's just a slight
	change in speakers. Noel Doyle, the CEO, will provide an executive summary of the
	results, as well as an update on strategic progress. Deepa Sita, CFO, will then provide
	a financial review.
	The operational reviews will be presented by Yokesh Maharaj, Chief Growth Officer for
	Grains, as well as Thushen Govender, the Chief Growth Officer for Consumer Brands.
	We'll then hand back to Noel who will give us a strategic update and outlook after which
	we'll move to Q&A.
	Before we begin, I draw your attention to the forward-looking statement. With that I hand
	over to Noel. Thanks, Noel.
ND	Good morning, everybody, and thank you for joining the team this morning. I'm going to
	have a fairly brief speaking role in this morning's presentation, and you'll get the meat of
	the results from my three colleagues.
	Slide 5 - First half performance is a tale of two quarters and two businesses,
	Snacks & Treats and Bakeries
	When we look at this set of results, after three successive interim periods where we
	managed to show growth period on period, it's a bit disappointing for us that in this
	particular period we appear to be showing some signs of regression. However, it's
	important that I give you some context to the first half performance really being a tale of
	two businesses and two quarters.
	The two businesses where we were particularly challenged was the Snacks & Treats
	business where we suffered significantly in terms of stock shortages due to the lengthy
	industrial action in the first quarter that concluded right at the end of the year. In that
	business we're expecting to see a recovery of our service levels as we progress through

the rest of the financial year.

In our Bakery business we had significant deterioration in profitability, driven by volume declines as we saw the market competitiveness from a pricing perspective increase significantly. We attempted to recover cost-push at the beginning of the quarter, and we found ourselves with an overexpanded premium and suffered volume losses. Yokesh will take you through a little bit more of that detail.

We're looking at a good recovery in the Snacks & Treats business going forward, but still some challenges in the Bakery business.

When I talk about it being a tale of two quarters, in the first quarter it's fair to say that the level of cost-push that we had seen was significantly higher than what we would have anticipated when we fixed our pricing and promotional calendar for the first quarter. Therefore, we found it very difficult to catch up with the level of cost escalations that we had seen in that quarter.

We made significant strides in that respect in the second quarter. And so, notwithstanding the challenges in those two businesses, in the second quarter we saw, if you look at the portfolio overall, some growth year on year. But, obviously, from the results, not sufficient to offset the challenges that we had in respect of the first quarter.

Slide 6 - Momentum sustained on strategic priorities aimed at improving long-

term performance What is important, though, is that as we go through the presentation you get a sense that whilst we dealt with those challenges in the past six months, we've stayed quite firmly focused on driving those key strategic pillars that we believe contributed to the performance that we've had over the preceding three interim reporting periods, and which we think will deliver growth for us for the remainder of the year and create the sustainable platform for growth going forward.

In terms of meeting the needs of the consumer, it's the first time in many years that we've started to over-index our rate of innovation across the portfolio relative to the category, and you'll see some examples of that as we go through the presentation.

Our project of focusing on general trade is meeting our targets and our expectations. We're getting deeper and wider penetration, particularly in the Groceries, HPC and Baby businesses. Despite the challenges that we've seen, our brand health measures, when you look at them holistically, have been holding up very well over this period.

When it comes to people, this is one of the issues that I previously highlighted as a challenge, and we've continued to make progress in this regard. We're starting to see the people in the company emerge with a little bit more confidence, and a little less of the risk aversion that I spoke about previously. So, the cultural transformation is underway, but it's not one that happens over one or two or even three interim reporting periods, but we are making progress in that regard.

When it comes to building the growth pipeline, I think one of the key things that we've moved very quickly on is around our revenue management capabilities. We've made great progress, which Deepa will cover a bit later, in getting the right people on board and generating real rands out of the initiatives in that space.

In addition, we've been very internally focused on the businesses currently in the portfolio for the past number of years, and we've started to build a pipeline of potential activities, both locally and in the rest of Africa. We've been working very hard on building our networks and attempting to identify opportunities for growth. Of course, these are

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	not short-term in nature, but the pipeline is certainly a lot fuller than it was this time last
	year.
	In terms of putting some actions to the good intent, you will have seen the announcement
	in terms of the VC fund, which we initiated last year, making its first investment and we
	anticipate more to come in that space as we go forward.
	Our supply chain continues to be one of the highlights where we have made progress
	on top of the prior year. Some really good progress in terms of managing material usage
	variances, significant progress in the sites that we targeted for OEE improvement, and
	in this inflationary environment, the fact that we're already gaining traction and
	momentum in the space, where productivity and efficiency is going to be key, is a positive
	for us.
	The focus on consumer quality is paying off. We saw a dramatic reduction in consumer
	complaints in the previous reporting period and for this period consumer complaints are
	down 12%. We're quite pleased with that.
	The obsession around cost savings is critical in this environment where we are managing
	almost unprecedented levels of inflation, which we'll take you through in a little bit more
	detail later.
	We're happy that across the logistics and supply chain side of our business, we've hit
	the targets that we've set for ourselves. We acknowledge that we need more and to that
	end we've got the Every Tiger Counts programme, which is headed up by Deepa, which
	kicked off in this period and we believe this will augment some of the programmes that
	we had put in place prior to the beginning of this period.
	In terms of sustainability, we're obviously working very hard around the health and
	nutrition driver, and for us Herbivore Earthfoods represents one of the steps in that area.
	We're also working on our recycling initiatives. We're working on alternative energy
	initiatives and we're about to do our first solar projects in four of our sites with the
	intention of rolling this out progressively across our group. We were also very pleased
	that we hit the target of getting to Level 2 from a triple BBBEE scorecard last year, ahead
	of the targets that we had committed to at board level.
	With that I'm going to hand over to Deepa, Yokesh and Thushen to take you through the
	detail of the presentation. Thank you.
DS	Slide 8 - Improved Q2 performance falls short of negating poor start
	Thank you very much, Noel. Good morning, everybody. Before we kick off into the actual
	numbers for the day, I'd like to take a moment to just talk a little bit around the highlights
	and headwinds that we've experienced in our H1, some of which Noel has already
	spoken to and I'll certainly cover a lot more of that in the presentation to follow.
	In terms of the general highlights that we've experienced in our first half, we did see the
	successful rollout of our Revenue Management programme across most segments in
	Tiger Brands. As Noel indicated, that programme continues to gain traction, with some
	delivery in terms of actual tangible rands to our bottom line, and I'll cover a lot of that in
	the rest of the presentation.
	Our productivity and efficiency initiatives continue to gain traction. You would have
	recalled we spoke about this in our FY21 results. That continues to gain momentum in
	terms of improved factory performances. But FY22 certainly sees more focus in the
	logistics space where we were able to deliver savings of R55 million to date in that
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particular space.

On the OEEs and effective cost control side of things, we delivered a R187 million year to date, and that's tracking ahead of plan at an aggregate level. Also new to the presentation today is the capital structure optimisation that we've embarked on. That programme is still in progress, and we'll talk to the share repurchase programme that we commenced during H1.

In terms of the headwinds, as Noel mentioned, we continue to see the pressures come through in terms of global supply and logistics constraints, as most organisations are feeling in South Africa. This has impacted both the cost as well as availability of both raw material and packaging. The unanticipated cost-push pressures as well as the timing of our price increases did result in gross margin compression and that's something that we continue to focus on in the second half.

Working capital investment did increase in H1 compared to the prior year. This was largely due to our inventory balances going up, as we took a conscious decision to increase volume of raw materials, where those stocks were available, and also reflects the impact of inflation in terms of the values of raw materials and packaging alike.

The category headwinds, you'd note that we'll talk around the volume that we're seeing in Bakeries, as well as the impact of the labour unrest that we saw in the Snacks & Treats business in Quarter 1.

Coming back to global supply constraints and the impact that it's having on the ports, these bottlenecks are certainly impacting our imports of raw materials and packaging, as well as our Exports business, and in particular the LAF business.

Slide 9 - Top line performance impacted by supply disruption at S&T while operating income includes insurance proceeds

If we just move on to some key highlights in terms of the actual numbers, we did see a slow start to the year following the industrial action that we saw in the Snacks & Treats division, as well as the significant volume decline that we saw in Bakeries, and this saw the business delivering a subdued performance in the first half of the financial year.

This was exacerbated by the supply chain constraints in certain key ingredients, raw materials as well as packaging, as well as our inability to fully recover those cost-push pressures and as a result having an impact on our gross margin.

Although the cost saving initiatives as well as the supply chain efficiencies have been accelerated and are delivering ahead of targets, as I indicated previously, they were not enough, unfortunately, to counter the impact of the cost inflation that we've seen, and this did result in gross margin compression to 29.2% in terms of our reported H1.

The group's effective tax rate decreased to 29.6% from 30% and that was largely due to the adjustments in the current period in respect of special investment allowances that we had previously claimed on capital projects.

In terms of the income from associates, these increased by 3% to R182 million with Carozzi and National Foods delivering improved revenue performances, which were certainly assisted by rigid cost control. We saw Carozzi do particularly well in local currency. However, unfortunately, some of this impact was offset by the local currency translation into rand. National Foods performed exceptionally well and ahead of target, and this was driven by a better sales mix, as well as the impact of price inflation.

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In terms of EPS, EPS from continuing operations decreased by 3% to 733 cents, while HEPS from continuing operations decreased by 2% to 729 cents. With that being said, we are pleased to advise that the board has declared an interim ordinary dividend of 320 cents, which is flat on the prior year.

Slide 10 - Volume declines show sequential signs of slowing as revenue management initiatives gain traction

In terms of our price-volume mix, the total revenue from continuing operations increased by 2% to R16.8 billion. This was driven by price inflation of 3%, which was partially offset by volume declines of 1% relative to the prior year.

The Exports revenue was driven primarily by improved performance from the LAF business, which benefited from elevated prices of fruit, as well as improved volumes in terms of international supply.

The volume growth in Exports and International was, however, offset by volume declines that we saw come through in the domestic business, and this was primarily attributable to Milling and Baking, the impact of the Snacks &Treats unrest, as well as the performance in our Home and Personal Care businesses.

The volume declines in domestic were, however, offset by some strong performances coming through in Out of Home, as well as good performances in Rice, Beverages and Groceries, and my colleagues will certainly talk more to that shortly.

In terms of the domestic business, domestic revenue increased by 2% to R14.8 billion and this was underpinned by price inflation of 3% less the impact of the overall volume decline of 1%.

Slide 11 - Excluding the adverse impact of Bakeries & Snacks & Treats, balance of portfolio shows promising signs of growth

It is important to call out that the domestic business, as I said previously, was impacted by the Grains business, with the primary driver being Bakeries, which experienced significant volume losses following the implementation of price increases to recover the category cost-push that we had experienced.

The Consumer Brands business recorded an increased revenue of 6%, notwithstanding the 12% decline that they saw in the Snacks & Treats business. If we excluded the impact of Bakeries and Snacks & Treats, our total revenue from continuing operations actually increased by 5% and this was driven by price inflation of 2% and volume growth of 3%.

Slide 12 - Revenue management goals aligned with our corporate strategy to stabilise and grow

As Noel spoke about earlier, we're pleased to advise that the Revenue Management project, continues to gain some good traction in the FY22 period. The focus remains on building a sustainable capability in terms of revenue management and this will be underpinned by three key enablers.

The first one is the introduction of tools, such as the profit waterfall tool, as well as other commercial decision-making tools, which allow timely analysis and analytics in terms of decision making where we can base these decisions on actual facts.

The second enabler will be the implementation of defined revenue management

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