SOUTH Africa’s largest food company, Tiger Brands, on Wednesday reported an 11% increase in revenue to R22.7bn for the year to September amid a slowdown in local consumer spending, weaker business confidence and rising cost pressures.
Despite record low interest rates, consumers are under pressure because of high levels of unemployment, indebtedness and rising inflation.
Tiger Brands, whose net income grew 5% to R2.7bn for the period, said higher than inflation cost increases had been affecting real disposable incomes and consumers continued to make tough choices in their spending decisions. They were cutting back on consumption levels where necessary and widening their brand repertoire to include economic alternatives.
The group, which owns All Gold, Tastic and KOO, posted a 7.1% rise in diluted headline earnings per share to 1‚654.2c.
CEO Peter Matlare said the group’s star performers in the period under review had been exports and international businesses.
"If you compare domestic and international, our international businesses as a whole — that’s exports as well as the operational businesses in east, west and central Africa — have done exceptionally well. We’ve seen some improvements not only in operating margins, but in market penetration."
Tiger Brands said domestic sales volumes declined 3% because of increased competition across most categories.
Avior equity analyst Jiten Bechoo said the results were in line with expectations.
"What was pleasing was that the milling and baking margins, which are quite important because they’re quite a big contributor to group profits, didn’t decline as much as the market was expecting.
"There was a lot of concern before, so that was a positive surprise. The general performance of the other operations to a large extent offset that performance."
Tiger Brands said growth in the rest of Africa was more robust and the group’s prior-year acquisitions had performed well.
As part of its African expansion, the company earlier this year bought a 63.35% stake in Dangote Flour Mills, the second-largest flour milling company in Nigeria for R1.5bn.
Mr Matlare said the company would look to increase its share in Dangote Flour Mills to 70%. Further, Tiger Brands had acquired Davita Trading last year to strengthen its distribution network across Africa.
"The Davita acquisition was a good one. The other (African) businesses are volatile and did not perform as well as management said before. Just by the nature of the Davita business, which is one that uses a South African manufacturing base to export products widely into Africa — that kind of approach has proved to achieve better margins quicker compared to going in and buying companies on the continent, refurbishing equipment and trying to build brands from within. On these businesses you buy in Africa, the return on invested capital is low," Mr Bechoo said.