Group Results Presentation for the six months ended 31 March 2017 - - PowerPoint PPT Presentation

Group Results Presentation

for the six months ended 31 March 2017

2

Group Results Presentation for the for the six months ended 31 March 2017

Index

Overview Financial & operational performance Strategic review

3

Group Results Presentation for the for the six months ended 31 March 2017

Disclaimer

Forward-looking statement

This document contains forward looking statements that, unless otherwise indicated, reflect the company’s expectations as at 25 May 2017. Actual results may differ materially from the company’s expectations if known and unknown risks or uncertainties affect the business,

• r if estimates or assumptions prove to be inaccurate. The company cannot guarantee that any forward looking statement will materialise and,

accordingly, readers are cautioned not to place undue reliance on these forward looking statements. The company disclaims any intention and assumes no obligation to update or revise any forward looking statement even if new information becomes available as a result of future events or for any other reason, save as required to do so by legislation and/or regulation.

Overview

Lawrence Mac Dougall Chief Executive Officer

5

Group Results Presentation for the for the six months ended 31 March 2017

Strong H1 underpinned by resilient domestic performance

Salient features*

Group turnover up 7%** to R16.4 billion Group operating income up 10% to R2.2 billion Solid domestic results Disposal of EATBI concluded, Haco on track Interim dividend up 4% to 378 cents

*From continuing operations | Group operating income from continuing operations before impairments, abnormal items & IFRS 2 charges ** Turnover restated for early adoption of IFRS 15

970 1 036

920 940 960 980 1 000 1 020 1 040 1 060 H1 16 H1 17

HEPS* up 7%

Cents

6

Group Results Presentation for the for the six months ended 31 March 2017

Turnover growth driven by pricing

Volume decline of 3% significantly impacted by timing of Easter

H1 2016 H1 2017

R15.3bn 12% price/mix R16.4bn (3%) volume (2%) forex

Total growth Price/Mix Total volume Forex Domestic operations 8% 12% (4%)

• International (including Exports)
• 11%

1% (12%) Total continuing operations 7% 12% (3%) (2%)

7

Group Results Presentation for the for the six months ended 31 March 2017

Robust domestic performance partially offset by international operations

*Before IFRS 2 charges, impairments & abnormal items

13.2 2.1 14.3 2.1

2 4 6 8 10 12 14 16 Domestic Exports & International

Turnover

H1 2016 H1 2017

+8%

• 1.8

0.3 2.0 0.2

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Domestic Exports & International

Operating income* & margin %

H1 2016 H1 2017

+15%

• 25%

Rbn Rbn 13.3% 14.2% 12.1% 9.1%

% margin

8

Group Results Presentation for the for the six months ended 31 March 2017

Operational excellence sustained

Innovation & marketing investment (MI)

• Innovation rate of 3.7%
• MI benefitting from improved media

efficiencies

• 73% marketing spend is consumer

facing

• Ongoing migration towards consumer

facing spend

Employee engagement

• Regular business updates
• Improved performance culture
• Frequent communication sessions
• Consistent & aligned strategic KPI’s

Customer excellence

• OSA maintained at 96%
• Improved in-store execution

60% 40%

ATL BTL

9

Group Results Presentation for the for the six months ended 31 March 2017

Sustained market leadership in power brands

Source: Nielsen value share, 12 month moving average to March 2017 * Homogenised Food

#1 #1 #1 #1 #1 #1 #1 #1 #1 #2 #1 #1 #2 #1* #1

TOP

10

Group Results Presentation for the for the six months ended 31 March 2017

Delivered on key focus areas

Sustain market share

• f power brands
• #1 or #2 positions in

core brands maintained

Optimise margin

• Domestic operating

margin up 90bps to 14.2%

Targeted marketing investment

• Focused on maintaining

& building brand equity

• Improved brand health

Appropriate cost control measures

• YTD continuous

improvements of R136 million

Drive high performance culture

• Improved culture driven

by regular engagement

TOP

Financial & operational performance

Noel Doyle Chief Financial Officer

12

Group Results Presentation for the for the six months ended 31 March 2017

Solid operating results

Strong operating performance offset by associates

Continuing operations – Rm H1 2017 H1 2016* % change Turnover 16 394 15 310 7% Cost of sales (11 067) (10 411) 6% Gross profit 5 327 4 899 9% Sales and distribution expenses (1 840) (1 747) 5% Marketing expenses (471) (454) 4% Other operating expenses (847) (725) 17% Operating income before impairments and abnormal items 2 169 1 974 10% Impairments

• (3)

(100%) Abnormal items 23

• Operating income after impairments and abnormal items

2 192 1 970 11% Net finance costs (120) (112) 7% Investment income 2

• 400%

Income from associated companies 239 371 (36%) Profit before taxation 2 312 2 229 4% Taxation (614) (571) 7% Profit for the period from continuing operations 1 698 1 658 2% Discontinued operations (Loss)/profit for the period from discontinued operations (1) 50 (102%) Profit for the period 1 697 1 708 (1%)

*Restated

13

Group Results Presentation for the for the six months ended 31 March 2017

Solid operating results | continued

Rm H1 2017 H1 2016* % change Attributable to: Owners of the parent 1 687 1 703 (1%) – Continuing operations 1 686 1 646 2% – Discontinued operations

• 57

(100%) Non-controlling interest 11 4 147% – Continuing operations 12 12

• – Discontinued operations

(1) (8) (83%) 1 697 1 708 (1%) Basic earnings per share (cents) 1 036 1 049 (1%) – Continuing operations 1 036 1 013 2% – Discontinued operations

• 35

(100%) Headline earnings per share (cents) 1 036 975 6% – Continuing operations 1 036 970 7% – Discontinued operations

• 5

(102%)

*Restated

14

Group Results Presentation for the for the six months ended 31 March 2017

HEPS growth diluted by associates underperformance

970 1 062 1 036 128 12 14 2 3 7 34 36 3

800 900 1 000 1 100 1 200

HEPS Mar '16 WANOS adjustment Interest & forex Share price Tax rate change Tax effect Rebased HEPS Once-off abnormals Associates Tax effect HEPS Mar ‘17 Trading performance

15

Group Results Presentation for the for the six months ended 31 March 2017

Progress made on improving margins in a challenging environment

Recovered cost push, improved efficiencies & product mix

* Group operating margin from continuing operations before IFRS 2 charges, impairments & abnormal items

32.0% 32.5% 13.2% 13.6%

0% 5% 10% 15% 20% 25% 30% 35% H1 2016 H1 2017 Gross margin % Operating margin %

16

Group Results Presentation for the for the six months ended 31 March 2017

Strong domestic performance

Exports & International challenged

Grains Consumer Brands Food HPCB Exports & International Group* Volume ▲ 2% ▼ (10%) ▼ (4%) ▲ 1% ▼ (3%) Turnover R6.9bn ▲ 13% R5.9bn ▲ 3% R1.4bn ▲ 8% R2.1bn

• R16.4bn

▲ 7% Operating income** R1.0bn ▲ 16% R0.7bn ▲ 12% R0.3bn ▲ 25% R0.2bn ▼ (25%) R2.2bn ▲ 10% Operating margin** ▲14.8% ▲ 11.5% ▲ 24.0% ▼ 9.1% ▲ 13.6%

* From continuing operations ** Before IFRS 2 charges, impairments & abnormal items

17

Group Results Presentation for the for the six months ended 31 March 2017

Grains

• Wheat-to-bread value chain performance underpinned by Albany
• Albany focus on enhanced quality & in-store execution
• High single digit volume growth
• Decline in Maize profitability
• Strong results from all other Grains categories
• Strong performance in rice

6 103 6 909 881 1 020

4 000 8 000 H1 16 H1 17

Operating income up 16% to exceed R1 billion

Turnover Operating income Rm Operating margin % 14.4% 14.8%

18

Group Results Presentation for the for the six months ended 31 March 2017

Groceries

• Revenue up 5%
• Significant pricing to recover F16 extraordinary cost push
• Operating income up 32%
• Margin improvement supported by
• Manufacturing efficiencies
• Cost savings
• Innovation
• Key challenge for H2
• Improve market share off corrected margin platform

2 562 2 695 234 310

1 000 2 000 3 000 H1 2016 H1 2017

Delivers strong margin expansion

Turnover Operating income Rm Operating margin % 9.1% 11.5%

19

Group Results Presentation for the for the six months ended 31 March 2017

Snacks, Treats & Beverages

• Revenue up 2%
• Operating income up 10%
• Volume decline driven by
• Contracting category dynamics
• Substantial SKU rationalisation to improve efficiencies

Beverages – disappointing semester

• 8% decline in revenue
• Significant impact of industrial action

1 114 1 135 147 162

200 400 600 800 1 000 1 200 H1 2016 H1 2017 Snacks & Treats

S&T – margin correction offsets volume decline

755 698 105 93

200 400 600 800 1 000 H1 2016 H1 2017 Beverages Turnover Operating income Rm Operating margin % 13.2% 14.2% 13.9% 13.4%

20

Group Results Presentation for the for the six months ended 31 March 2017

Home, Personal & Baby Care (HPCB)*

• Home Care*
• 24% turnover growth
• Operating income up 71%
• Another strong performance from Pest
• Personal Care
• 4% decline in turnover
• Operating income up 40%
• Improved product mix
• Innovation
• Phasing of marketing investment significant contributor to profit

growth

• Baby Care
• 2% decline in revenue
• Impacted by unfavourable product mix & supply disruption
• Capex in progress to exploit underserviced pouch market &

improve margins

* Excludes stationery

1 267 1 370 265 336

500 1 000 1 500 H1 2016 H1 2017

Strong performance underpinned by Home Care

Turnover Operating income Rm Operating margin % 20.9% 24.5%

21

Group Results Presentation for the for the six months ended 31 March 2017

Exports & International

• Chococam
• Operating income up 10% in constant currency terms
• 11% volume growth
• Exports impacted by forex shortages & challenging local economies
• Deli Foods
• Volumes impacted by price increase
• 65% price inflation
• Operating loss reduced
• Deciduous Fruit (LAF)
• 9% volume growth
• Offset by rand strength & adverse customer mix

2 128 2 124 257 194

500 1 000 1 500 2 000 2 500 3 000 H1 2016 H1 2017

Impacted by rand strength & tough trading

Turnover Operating income Rm Operating margin % 12.1% 9.1%

22

Group Results Presentation for the for the six months ended 31 March 2017

Cash from operations up 63% to R3 billion

Driven by improved working capital management

Rm H1 2017 H1 2016 % change Cash operating profit 2 631 2 344 12% Working capital changes 401 (483) 183% Cash generated from operations 3 032 1 862 63% Capital expenditure 383 257 49% Net debt 1 143 2 696 58% Interim dividend (cents) 378 363 4%

23

Group Results Presentation for the for the six months ended 31 March 2017

Strong cash generation & lower than anticipated capex

Lowers gearing further

* From continuing operations

H1 2017 * H1 2016 Cash generated from operations (Rm) 3 032 1 862 Net (debt) / cash (Rm) (1 143) (2 696) Net debt / equity (%) 7 18 Net debt / EBITDA* 0.5x 1.2x RONA (%)* 34 30 Net interest cover* 20x 14x

24

Group Results Presentation for the for the six months ended 31 March 2017

Continuous improvement programme on track

YTD savings of R136 million

R78m R4m R16m R38m

Manufacturing efficiencies Logistics savings Procurement savings Financial Shared Services Centre

245 481 692 708

100 200 300 400 500 600 700 800 FY 14 FY 15 FY 16 H1 17

Cumulative procurement savings Total YTD savings

R136m

Rm

25

Group Results Presentation for the for the six months ended 31 March 2017

H2 Outlook

Balance of the year remains challenging

• Domestic category volumes challenged
• Trading conditions on the rest of the continent remain tough

Focus areas

• Grow market share & volumes without compromising profitability

Driven by

• Superior execution
• Targeted marketing investment
• Appropriate cost control
• Continued focus on working capital management
• Balance business continuity with change

Strategic review

Lawrence Mac Dougall & Noel Doyle

27

Group Results Presentation for the for the six months ended 31 March 2017

Strategic review

Developing a strategy for sustainable profitable growth

Portfolio growth & strategy

• Rejuvenate domestic operations to

profitable growth

• International strategy accretive to

domestic performance

• Build a capable & cost conscious

culture with the capacity to grow

• Winning through a high performance

culture Cost & investment strategy Operating model & organisational design

Growth Capability Cost

28

Group Results Presentation for the for the six months ended 31 March 2017

Drive sustainable growth

Key highlights

• Drive sustainable growth by growing the core & expanding adjacent categories
• Adopt a category driven approach in the rest of Africa
• Build sustainable capabilities required to win with consumers, customers & partners
• Deploy an operating model that provides the right capabilities at the right cost*
• Fuel the growth through indirect spend excellence (ZBS)
• Best in class integrated supply chain to leverage scale

* The operating model vision is subject to consultations in terms of the Labour Relations Act

29

Group Results Presentation for the for the six months ended 31 March 2017

Grow the core Drive new capabilities Optimise the cost base

Our vision

Strategic pillars

Deliver top tier financial results and be recognised by all stakeholders as the best FMCG company in South Africa and the most desirable growth company on the continent We attract the best talent and are recognised as a great place to work Drive Sustainable Growth Unleash the Power of our People Fuel for Growth

30

Group Results Presentation for the for the six months ended 31 March 2017

Portfolio growth & strategy

Focus on the core to achieve full potential

• Top-line growth in line with category

growth +1%-2% p.a.

• Improved profitability & cash

generation

• Increased investment
• Improved returns

Focus on the core

• Target consumer – middle-income
• Core category – food supported by relevant adjacencies
• Geographic focus – “South Africa out”
• Complemented by targeted growth through M&A leveraging core capabilities

How to win

• Improve management of price, volume & margin, optimise pack sizes

& formats, rationalise SKUs

• Enhance “big idea” innovation
• Expand into new geographic & consumer segment adjacencies
• Raise marketing investment
• Reduce set of master & standalone brands, disproportionately investing behind

power brands

31

Group Results Presentation for the for the six months ended 31 March 2017

Defining the core

Growth through a focused portfolio

Source: Bain & Company

from a negative spiral…

Poor in store execution High

• verheads

Low speed (decisions, launches) Sub-

• ptimal

capex Low purchasing scale High supply costs Low marketing ROI

Current state

Perfect in store execution Optimum

• verheads

High speed implementati

• n

Capex for growth High purchasing scale Competitive supply costs High marketing ROI

Growth through focused portfolio

…to a virtuous growth circle

• Create fuel for growth through focusing the portfolio and distorting investment

32

Group Results Presentation for the for the six months ended 31 March 2017

Target consumer – the growing middle market

LSM 5 to 8 represent a growing proportion of the South African market

Source: Global Advisors

5 10 15 20 25 LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 Percentage of the population in each LSM segment 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

• Similar baskets
• More brand loyal
• Similar shopping

destinations

• Similar media use

33

Group Results Presentation for the for the six months ended 31 March 2017

Tiger’s core consumer

Middle-income consumer accounts for 70% of Tiger’s sales

Source: Company reports, Global Advisors

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Baby Beverages Bread C&I Confectionary Homecare Jungle Oats King Foods Maize Pasta Personal Care Rice Snacks & Treats Spreads

Percentage revenue of Tiger Brands’ categories sold by LSM segment (percentage) LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 LSM 1 LSM 2 LSM 3 LSM 4

• Building consumer insight capabilities to understand wants and needs

Core

• Imm. adjacency
• Imm. adjacency

34

Group Results Presentation for the for the six months ended 31 March 2017

Core categories

Food supported by relevant adjacencies

Source: Nielsen 2015 value and share, Global Advisors

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

R106bn (38%) R62bn (22%) R32bn (11%) R30bn (10%) R16bn (6%) R12bn (4%) R10bn (3%) R9bn (3%) R4bn (1%)

Category value (Rand millions, % of total)

Food Beverages Toiletry Snacks & confectionery Household GM Baby Health Pet

• Tiger is the biggest single player in food

Food Beverages Toiletry Snacks & confectionery Household GM Baby Health Pet

35

Group Results Presentation for the for the six months ended 31 March 2017

Strategic growth drivers

Grow the category & increase share

Source: Global Advisors

Availability & fair share

• Modern trade
• General trade

Brand trends Price Pack size / format Unmet need states & trends

3 4 5 1 2

Growth drivers

Consumption Penetration

        

Increase share of category Grow the category

Penetration Consumption

• Adopt a hybrid model of master & standalone brands

36

Group Results Presentation for the for the six months ended 31 March 2017

Six strategic principles

Grow the core to reach full potential Focus on brilliant basics & a defined set of growth drivers Drive an embedded Tiger Way 1 Expand into adjacencies & new geographies to protect the core Optimise portfolio for current performance & future potential Simplify & distort behind growth & RONA winners 2 3 4 5 6

37

Group Results Presentation for the for the six months ended 31 March 2017

Cost & investment strategy

Cost & investment strategy

Creating a cost conscious culture

Bulk of savings to be re-invested

• Zero-based organisation (ZBO)
• Zero-based spend (ZBS)
• Integrated supply chain

38

Group Results Presentation for the for the six months ended 31 March 2017

Zero Based Spend (ZBS)

Achieving indirect spend excellence – significant savings identified

• Zero-based spend (ZBS)

Indirect spend relatively low versus local & international peers Identify and deliver savings in SG&A costs Create cost transparency & establish a cost conscious culture Cost & investment strategy

39

Group Results Presentation for the for the six months ended 31 March 2017

Making it stick

Execution of ZBS will be based on 6 principles

Rigorous governance Establish new budgetary discipline Compliance with new guidelines & policies Change management & communications Embed savings in the FY18 budgeting process Ongoing tracking

40

Group Results Presentation for the for the six months ended 31 March 2017

Integrated Supply Chain

Three initiative groupings will deliver our supply chain vision

Fuelling growth

• Manufacturing
• Logistics & customer service
• Supply chain waste

Unlock cash

• Inventory reduction
• Creditor days

Agile & dynamic supply chain

• Procurement operational centre (POC)
• Customer service excellence
• Standardisation & simplification

41

Group Results Presentation for the for the six months ended 31 March 2017

Delivering an advantaged integrated supply chain

The big opportunities… Results …enabled by… Manufacturing optimisation & consolidation Logistics consolidation Better customer service Creditors & inventory in line with benchmark Waste reduction Right systems Better processes Highly skilled people Standardisation & simplification

• Deliver gross margin improvement between

150bps – 180bps

• Expand operating margin before IFRS 2 charges

between 100bps – 160bps

• Improve RONA >35%

42

Group Results Presentation for the for the six months ended 31 March 2017

Operating model & organisational design

Focus on the consumer, re-ignite innovation and leverage our scale as one Tiger Team

Integrated

Having one face to our customers & suppliers and using our scale to aggressively compete

Performance driven

Uncompromising & commercially savvy, with the best talent in the industry

Ambitious

Relentlessly innovating & growing in SA and beyond

Consumer obsessed

Putting the consumer at the heart of every decision

Agile

Responding to the market through fast decision making & simple ways of working

BETTER TOGETHER – THE TIGER TEAM

Cost consciousness

Rigorously challenging our bottom-line to unlock fuel for growth

The operating model vision is subject to consultation in terms of the Labour Relations Act

43

Group Results Presentation for the for the six months ended 31 March 2017

From federated to integrated

From… To… Independent business units under a common umbrella A consolidated category model focused on driving our brands & products, whilst maintaining our commercial edge (with a clear P&L) BU-by-BU approach to innovation, focused on the short-term Concentrated innovation capabilities, with a deeper understanding

• f our consumers, a renewed focus on R&D, and a forward-looking innovation portfolio

Distinct BU teams with multiple customer & supplier interfaces Unified customer sales team & an integrated supply chain that can truly leverage Tiger’s scale & the power of our basket High value resources undertaking transactional work New shared service organisation run as a business, delivering repeatable activity at the right quality & cost (enabled by automation & continuous improvement) Deep structures, overlapping responsibilities, concentrated authority A flatter & faster organisation, with clear roles, responsibilities and interfaces Decentralised expertise, inconsistently spread across BUs Centralised expertise in the form of Centre’s of Excellence (COEs) to drive economies of skill

44

Group Results Presentation for the for the six months ended 31 March 2017

Strategic review

Developing a strategy for sustainable profitable growth

Portfolio growth & strategy

• Rejuvenate domestic operations to

profitable growth

• International strategy accretive to

domestic performance

• Build a capable & cost conscious

culture with the capacity to grow

• Winning through a high performance

culture Cost & investment strategy Operating model & organisational design

Growth Capability Cost

Investor Relations

Nikki Catrakilis-Wagner Group Investor Relations Executive

investorrelations@tigerbrands.com T: +27 11 840 4841