Tough times for Tiger Brands

 Johannesburg - Branded food group Tiger Brands [JSE:TBS] on Tuesday reported a 5% rise in diluted headline earnings per share to 567.1c for the six months ended March 2010 from 624.5c previously. HEPS excluding once-off empowerment transaction costs were up 7% to 668.9c, while diluted HEPS for continuing operations were 9% higher at 657.1c.

Earnings per share increased by 5% to 662.2c per share. Headline earnings of R1.057bn and profit attributable to ordinary shareholders of R1.046bn increased by 7% and 6% respectively.   Revenue for continuing operations was down 9% to R10.313bn, while operating income after abnormal items was also down 9% to R1.407bn.

Excluding the company's BEE Phase II transaction, which resulted in a once-off charge amounting to R150.7m after tax, HEPS and EPS for the half year ended  March 2010, reflect an increase of 22% and 20% respectively compared to that achieved in the corresponding period last year.

The group declared a cash distribution in lieu of the interim dividend by way of a reduction of capital out of share premium of 270c - an increase of 10% on the 2009 interim dividend of 245c per share. The declaration of the capital distribution out of share premium is subject to shareholder approval.

CEO Peter Matlare said the trading environment for the period under review was characterised by price deflation on the group's staple product categories such as wheat, rice and maize, as well as an overall market contraction which resulted in a general decline in sales volumes.

"Nevertheless good performances were experienced in most of the group's businesses despite consumer demand having weakened."

Turnover from continuing operations (excluding Oceana) amounted to R10.2bn, reflecting a decrease of 2% on the previous period.

Operating income for the half year, excluding Oceana, rose by 5% to R1.6bn. The group operating margin improved from 14.6% last year to 15.7%, benefiting from the decline in soft commodity prices.

The grains, snacks and treats, beverages and value added meat products businesses all contributed to the operating margin improvement.

Turnover in the domestic food business decreased by 1% as food inflation declined rapidly during the period under review.

Matlare said core groceries volumes and margins were negatively impacted by abnormally high cost increases in respect of cans and glass packaging containers.

"These cost increases have been partially absorbed by the groceries business as a result of the tight economic conditions."

The Crosse & Blackwell mayonnaise business, which was acquired from Nestle in October 2009, was successfully integrated into the groceries division and produced a good performance.

"The acquisition is a meaningful addition to Tiger Brands' basket of leading brands."

Matlare said the performance of the home and personal care business was disappointing with both turnover and operating income declining by 6%.

"The integration of Designer Group into Tiger Brands' personal care business provided a number of challenges, contributing to a significant decline in turnover and operating income during the current six month period."

According to Matlare, the consolidation of the two personal care businesses has now been successfully completed. "The newly focused personal care business is expected to see the benefits of the integration in the medium term."

Its exports and international division reported a decline in operating income of 84% compared to the prior year. The deciduous fruit business, Langeberg & Ashton Foods, incurred an operating loss, primarily as a result of the strong rand exchange rate and high price increases on cans.

Tiger Brands International's enhanced distribution capability contributed to increased sales, particularly in Zambia, Zimbabwe and Malawi.

The company's African subsidiaries, Haco and Chococam, performed satisfactorily but the translation of their results was negatively impacted by the strong rand exchange rate.

The company's remaining fishing interest comprises its investment in Oceana Group  (45% held). Oceana is separately listed on the JSE and reported a 5% increase in headline earnings per share for the half year ended 31 March 2010.

Looking ahead to the 2010 financial year, the company said it continues to experience difficult trading conditions as consumer spending remains under pressure. Assuming the difficult trading conditions continue, the company expects HEPS for the year ending September 2010, excluding the once-off IFRS 2 charges relating to the Company's BEE Phase II transaction, to show an increase compared to the figure of 1 407.4c per share reported in respect of the previous financial year, albeit that the rate of increase is anticipated to be at a lower level than previously indicated to shareholders on 16 February 2010.

- I-Net Bridge