19 May 2008 - Tiger Brands Limited today reported a 14,7% increase in headline earnings per share to 756,6 cents for the six months ended 31 March 2008 as consumer demand remained robust across most Fast Moving Consumer Goods (FMCG) categories. Earnings per share increased by 10,5% to 690,8 cents per share for the same period.
Peter Matlare, the Chief Executive Officer of Tiger Brands, said the results had been adversely impacted by the inclusion of a provision of R53,5 million, being the cost of the settlement reached with the Competition Commission as a consequence of contraventions of the Competition Act by Adcock Ingram Critical Care.
Turnover from continuing operations for the six months ended 31 March 2008 increased by 18% to R9,4 billion compared with the previous period. Matlare said the increase was driven by a significant level of selling price inflation, together with good volume growth across most of the company’s FMCG basket.
“While selling price inflation in the balance of the business was contained to single digits, the substantial increases in global soft commodity prices resulted in exceptional cost pressures in our Grains businesses, which impacted on selling prices.”
Matlare said the high global price increases in food commodities and fuel costs were continuing to have a negative impact on both food processors and consumers. “It is creating a difficult trading environment.”
The contraction in the operating margin, from 13,9% last year to 13,6% in the current period, reflected the challenges encountered in recovering raw material cost increases in the Milling and Baking operations, as well as the impact of the cool and wet summer on the Beverages business. This margin pressure was largely offset by the significant margin expansion experienced in the Export and Out of Home businesses, as well as margin improvements in the Other Grains, Perishables and Consumer Healthcare operations.
Overall growth in operating income of 15% to R1,28 billion was negatively impacted by the significant decline in operating income recorded by Beverages and the below inflationary increase in profits recorded by Milling and Baking.
The company has declared an interim dividend of 245 cents per share, which represents an increase of 15% on the interim capital distribution of 213 cents per share declared last year.
Matlare said the company’s FMCG business had managed to weather the storm of an increasingly challenging economic environment during the period under review.
“Volume growth was a key contributor to the good operating performance and has helped offset margin declines resulting from under recovery in certain businesses of the significant raw material cost increases experienced in the past six months.”
Proportionately consolidated Oceana (45% held), reported a 63% increase in headline earnings per share for the six months ended 31 March 2008.
Sea Harvest (74% held) recorded a decline in operating income despite strong turnover growth. Matlare said the results were negatively impacted by lower catch rates and increased costs, particularly in relation to fuel and cold storage.
The results achieved by the company’s Healthcare interests are disclosed under discontinued operations as a consequence of the decision to unbundle and in terms of IFRS 5. The Healthcare business reported an improved performance for the six months ended 31 March 2008, reflecting the measures put in place to respond to the challenging healthcare environment.
Matlare said the company anticipated that the unbundling of its Healthcare interests would be completed by 30 September 2008.
“The process, which was expected to have been completed by 31 March 2008, was delayed as a result of the investigation by law firm Edward Nathan Sonnenbergs, conducted at the request of the Tiger Brands board, in response to the allegations of collusive tendering and market allocation made against Adcock Ingram Critical Care by the Competition Commission.”
On prospects for the full year results, Tiger Brands said the FMCG business continued to face challenges in the form of ongoing pressure on consumer spending and rising global prices for soft commodities and other raw materials. It is likely that growth in operating income for the full year ending 30 September 2008 would be lower than that recorded for the first six months.
Adcock Ingram is expected to sustain its current performance for the reminder of the year, assisted by the recently announced single exit price increase of 6,5% on pharmaceutical products, effective from May 2008.
Including the full year results for Adcock Ingram, and notwithstanding the difficult trading environment, it is anticipated that headline earnings per share for the full year ending 30 September 2008 will growth in real terms.