Final Results

Tiger Brands Limited (Registration number 1944/017881/06) (Incorporated in the Republic of South Africa) Share code: TBSP ISIN: ZAE 000023578 Group results for the year ended 30 September 2002 The condensed financial statements included in this preliminary report have been reviewed by KPMG Inc. and their unmodified review report is available for inspection at the company's registered office. The reviewed results for the twelve months ended 30 September 2002 are set out below. This report has been prepared in accordance with the requirements of Statements of South African Generally Accepted Accounting Practice. The principles adopted herein are consistent, in all material respects, with those applied in the most recently published annual financial statements, except as disclosed in note 4. Operating profit from continuing operations + 23% Headline earnings per share + 36% GROUP INCOME STATEMENT Year ended 30 September 2002 2001 Change Rm Rm % Notes Reviewed Audited Revenue 20,181.9 16,840.5 20 Continuing operations 20,071.3 16,506.7 22 Discontinued operations 110.6 333.8 Operating profit 1 2,032.7 1,665.5 22 Continuing operations 2,013.8 1,634.0 23 Discontinued operations 18.9 31.5 Income from investments 33.9 29.0 Profit from operations 2,066.6 1,694.5 Net financing costs (274.5) (389.7) Profit before taxation and abnormal 1,792.1 1,304.8 37 items Abnormal items 2 18.3 (40.4) Profit before taxation 1,810.4 1,264.4 Income tax expense 577.8 386.4 Net profit after taxation and before 1,232.6 878.0 40 associates Income from associates 177.1 121.9 45 Net profit after taxation 1,409.7 999.9 41 Minority interest and preference 49.6 30.5 dividends Net profit for the year 1,360.1 969.4 40 Number of ordinary shares in issue 166,792 165,959 (000's) Weighted average number of ordinary shares on which headline earnings and net 166,331 165,758 profit per share are based (000's) Headline earnings per ordinary share 817 600 36 (cents) Diluted headline earnings per 809 596 36 ordinary share (cents) Net profit per ordinary share 818 585 (cents) Dividends per ordinary share (cents) 290.0 213.0 36 Interim dividend paid 79.0 68.0 Final dividend declared post balance 211.0 145.0 sheet date Reconciliation between net profit and headline earnings Rm Rm Net profit for the year 1,360.1 969.4 Adjusted for: Losses on sale or discontinuation of 35.6 24.0 operations, net (Profits)/losses on sale of fixed (8.1) 26.9 assets, including impairment charge on fixed properties Net profit on sale of interest in (151.9) (33.1) subsidiaries and joint ventures Amount written off investments (Note 103.0 14.5 3) Other, including associates 19.6 (7.0) Headline earnings for the year 1,358.3 994.7 37 GROUP BALANCE SHEET 30 September 2002 2001 Rm Rm Reviewed Audited ASSETS Non-current assets 4,109.9 3,730.2 Property, plant & equipment 1,454.3 1,413.7 Goodwill and other intangibles 44.0 30.9 Investments 2,333.8 2,047.4 Deferred tax asset 277.8 238.2 Current assets 6,408.9 6,083.0 Inventories 1,999.1 1,610.5 Accounts receivable 2,784.8 2,524.1 Cash and cash equivalents 1,625.0 1,948.4 TOTAL ASSETS 10,518.8 9,813.2 EQUITY AND LIABILITIES Capital and reserves 2,728.8 1,710.3 Share capital and premium 696.4 664.6 Non-distributable reserves and accumulated profits 2,032.4 1,045.7 Minority interest 121.0 97.7 Total non-current liabilities 3,009.3 3,329.0 Deferred tax liability 294.0 206.6 Provision for post-retirement medical aid 359.9 322.6 obligations Long-term borrowings 2,355.4 2,799.8 Total current liabilities 4,659.7 4,676.2 Short-term borrowings 835.3 1,223.3 Accounts payable 3,824.4 3,452.9 TOTAL EQUITY AND LIABILITIES 10,518.8 9,813.2 ABRIDGED CASH FLOW STATEMENT Year ended 30 September 2002 2001 Rm Rm Reviewed Audited Cash operating profit 2,347.3 1,962.4 Working capital changes (438.4) (18.0) Net interest paid (274.5) (399.2) Dividends received 52.0 43.4 Taxation paid (378.7) (421.4) Cash available from operations 1,307.7 1,167.2 Dividends paid (387.3) (390.9) Net cash inflow from operating activities 920.4 776.3 Net cash (outflow)/inflow from investing activities (332.7) 74.6 Net cash inflow before financing activities 587.7 850.9 Net cash outflow from financing activities (915.6)* (125.7) Net (decrease)/increase in cash and cash (327.9) 725.2 equivalents *Including the early repayment of long-term debt amounting to R522.0 million. Segmental analysis Year ended Year ended 30 September 30 September 2002 2001 Change Rm % Rm % % Reviewed Audited Revenue - continuing operations Food Brands 10,156.1 49 8,172.9 48 24 Dry Groceries 7,924.3 38 6,565.0 39 21 - Cereals & Beverages 4,679.3 23 3,746.3 22 25 - Culinary 2,353.0 11 2,025.9 12 16 - Confectionery 892.0 4 792.8 5 13 Perishables 2,231.8 11 1,607.9 9 39 Healthcare 2,107.1 10 1,850.3 11 14 - Pharmaceutical 900.9 5 805.4 5 12 - Consumer 687.6 3 601.0 4 14 - Critical Care 483.4 2 415.3 2 16 - International 35.2 0 28.6 0 23 Spar 8,345.3 41 7,075.4 41 18 Other 6.3 6.3 20,614.8 100 17,104.9 100 21 Less: Intragroup Revenue 543.5 598.2 20,071.3 16,506.7 22 Operating profit - continuing operations Food Brands 1,065.6 53 783.4 48 36 Dry Groceries 743.1 37 545.2 33 36 - Cereals & Beverages 443.5 22 287.2 18 54 - Culinary 225.4 11 186.1 11 21 - Confectionery 74.2 4 71.9 4 3 Perishables 322.5 16 238.2 15 35 Healthcare 702.6 35 646.2 40 9 - Pharmaceutical 425.5 21 395.5 25 8 - Consumer 133.5 7 111.9 7 19 - Critical Care 133.4 7 131.5 8 1 - International 10.2 0 7.3 0 40 Spar 293.3 15 233.4 14 26 Other (47.7) (3) (29.0) (2) 2,013.8 100 1,634.0 100 23 NOTES Year ended 30 September 2002 2001 Rm Rm Reviewed Audited 1. Operating profit Operating profit is reflected after charging: Cost of inventories utilised 14,478.4 11,678.3 Depreciation and amortisation 227.7 221.4 2. Abnormal items Net loss on discontinued and disposed operations (35.1) (24.9) Profit/(loss) on sale of land and buildings 4.5 (41.0) including impairment charge on properties Net profit on sale of interest in subsidiaries 173.3 38.4 and joint ventures Amount written off investments (Note 3) (103.0) (14.5) Other, including associates (21.4) 1.6 Abnormal profit/(loss) before taxation 18.3 (40.4) Taxation 15.7 0.4 2.6 (40.8) Outside shareholders' interest (0.6) 0.9 Abnormal profit/(loss) attributable to 3.2 (41.7) shareholders in Tiger Brands Limited 3. Amount written off investments This includes an amount of R89.1 million written off in 2002 in respect of the Group's 6.3% shareholding in Aurora Foods Inc.. The carrying value of the investment at 30 September 2002 is R31.7 million. 4. Changes in accounting policies The following new accounting policies were adopted with effect from 1 October 2001: - Provision for dividend AC107 (revised) - Events after the balance sheet date - precludes the raising of a provision for any dividends declared after the balance sheet date. Dividends, including any applicable secondary tax on companies (STC) charge, will now be accounted for in the period they are actually declared. The adoption of AC107 (revised) has resulted in the Group increasing the opening balance of distributable reserves at 1 October 2001 by R270.8 million and restating the headline earnings for the year ended 30 September 2001 to reflect an increase of R0.3 million. Presentation of dividends per share is not affected by this change in policy. - Post-retirement medical aid obligations In accordance with the requirements of AC116 (revised) - Employee benefits - the Group has recognised its obligation to fund certain post-retirement benefits. These were previously accounted for on a cash paid basis. The adoption of AC116 (revised) has resulted in the Group raising an additional provision of R235.4 million as at 30 September 2001, being the full actuarially calculated liability of R322.6 million less the amount partly provided as at 30 September 2001 of R87.2 million. This change has been accounted for by reducing the distributable reserves at 30 September 2001 by R160.4 million after deferred taxation of R70.6 million and accounting for minority interests of R4.4 million. Headline earnings for the year ended 30 September 2001 have been restated to reflect a reduction of R12.2 million. - Depreciation of buildings In terms of AC135 - Investment property - all buildings owned by the Group are now depreciated over their expected remaining useful life. Previously, only specialised buildings were depreciated. The adoption of AC135 has resulted in the Group reducing the opening balance of distributable reserves at 1 October 2001 by R68.9 million and decreasing the carrying value of fixed asset by R78.8 million. In addition, the headline earnings for the twelve months ended 30 September 2001 have been restated to reflect an earnings reduction of R7.0 million as a result of the additional depreciation. - Provision for leave pay In terms of AC116 (revised) - Employee benefits - the Group now provides for leave pay on a total cost to company basis. Previously, leave pay was provided for based on the gross salary of the employee. This change in accounting policy has resulted in the Group reducing the opening balance of distributable reserves at 1 October 2001 by R9.8 million. There was no effect on headline earnings for the twelve months ended 30 September 2001. OTHER GROUP SALIENT FEATURES Year ended 30 September 2002 2001 Rm Rm Reviewed Audited Net worth per ordinary share (cents) 1,863 1,396 Net debt to equity (%) 54.9 114.8 Interest cover - net (times) 7.5 4.3 Current ratio (:1) 1.4 1.3 Capital expenditure (R million) 257.1 322.9 - expansion 145.9 128.0 - replacement 111.2 194.9 Capital commitments (R million) 125.9 122.4 - contracted 44.6 32.0 - approved 81.3 90.4 Capital commitments will be funded from normal operating cash flows and the utilisation of existing borrowing facilities. Contingent liabilities Guarantees and contingent liabilities* 605.5 479.8 * R435.4 million (2001: R318.8 million) comprises contingencies in respect of head leases entered into by the Spar group for which they have entered into equivalent sub-leases. Market and directors' valuation of investments Listed - market value 357.6 468.8 Unlisted - directors' valuation 2,355.3 2,185.8 STATEMENT OF CHANGES IN EQUITY Share Non- capital and distributable Accumulated premium reserves profits Total Rm Rm Rm Rm Balance at 30 September 701.9 287.7 (9.9) 979.7 2000 (as previously reported) Prior year adjustment in 270.5 270.5 terms of AC107 Prior year adjustment in (61.9) (61.9) terms of AC135 Prior year adjustment in (158.0) (158.0) terms of AC116 Restated balance at 30 701.9 287.7 40.7 1,030.3 September 2000 Issue of share capital 12.4 12.4 and premium Foreign currency 44.5 44.5 translation reserve movement Transfers between 34.5 (34.5) 0.0 reserves Movements on associates 20.9 20.9 not taken to income Prior year goodwill 238.1 238.1 written off on Lagap - now realised Deferred surplus on 5.6 5.6 revaluation of financial instruments Net profit for the year 969.4 969.4 Dividends on ordinary (353.5) (353.5) shares Distribution in specie in respect of unbundling of Astral Foods Limited (49.7) (207.7) (257.4) Restated balance at 30 664.6 393.2 652.5 1,710.3 September 2001 Balance at 30 September 664.6 393.2 620.8 1,678.6 2001 (as previously reported) Prior year adjustment in 270.8 270.8 terms of AC107 Prior year adjustment in (68.9) (68.9) terms of AC135 Prior year adjustment in (170.2) (170.2) terms of AC116 Restated balance at 30 664.6 393.2 652.5 1,710.3 September 2001 Issue of share capital 31.8 31.8 and premium Foreign currency (39.4) (39.4) translation reserve movement Transfers between 164.7 (164.7) 0.0 reserves Movements on associates 43.3 43.3 not taken to income Prior year goodwill 1.3 1.3 Realised surplus on (5.6) (5.6) revaluation of financial instruments Net profit for the year 1,360.1 1,360.1 Dividends on ordinary (373.0) (373.0) shares Balance at 30 September 696.4 556.2 1,476.2 2,728.8 2002 Comments Tiger Brands achieved an increase of 36% in headline earnings per share to 817 cents for the twelve months ended 30 September 2002. This represents a significant improvement on the performance at the half year. The year under review was characterised by Tiger's continued progress towards a branded, demand-driven organisation based on newly defined category structures. Important steps were taken in synergising the Food business with the consolidation of the brand development and customer management functions within one location. Although benefits from the synergisation process have been realised, these are being reinvested in the core brands. Material benefits from the programme are only expected to be realised from 2004. Results Revenue and operating profit from continuing operations increased by 22% and 23% respectively, with the overall operating margin remaining virtually unchanged at 10%. The effects of sharply higher grain prices were mitigated by the benefits of an effective procurement programme, which resulted in the group being able to source its grain requirements at below market prices. Furthermore, the company has benefited significantly from the depreciation of the Rand against the major currencies over the period, through enhanced profits from exports and from the improved Rand contribution of the foreign associates. In total, approximately 26% (2001: 21%) of profits were generated in foreign currencies in 2002. Net financing costs reduced by R115 million, or 30%, compared to the previous year. This was due to a good operating cash flow performance and was assisted by the cash proceeds of approximately R800 million raised from the sale of non-core assets since March 2001. The share of profits from associates showed a strong increase of 45%, with the contribution from the group's foreign associates - ConAgra Malt and Empresas Carozzi - benefiting from the higher Rand conversion of their profits. Food Brands Food Brands increased operating profit by 36% on a revenue increase of 24%. This performance was achieved through a combination of currency related benefits arising from exports, cost effective purchasing of grain raw materials and overhead containment. The Cereals & Beverages business performed particularly well under difficult circumstances. The flour and bakery categories significantly increased their operating profit, with the full benefits of the prior year's bakery rationalisation being achieved. The bakery business enjoyed increased consumer acceptance of its 'Superior' loaf which has a longer shelf-life and enhanced nutrient value compared to the regular product. A good performance was achieved by the pasta category, but the rice category, as a fully imported product, was affected by sharply higher raw material prices. The maize business benefited from effective procurement positions taken with regard to its raw material requirements and from the leading brand 'Ace' increasing its market share. The hot breakfast cereal category, represented by Jungle Oats, had a disappointing year whilst the sorghum beverages business produced slightly lower profits due to pressure on margins. The Culinary business, which markets brands such as 'Koo', 'All Gold', 'Colmans' and 'Black Cat', increased operating profit by 21%. The introduction of new products contributed to this sound performance. 'All Gold' tomato sauce achieved a record market share despite heightened competitive activity in the tomato sauce market. DairyBelle Cheese's new product, the convenient 'Easy Slice' cheese, contributed to the performance of the category. Overall, Culinary profits were strongly bolstered by currency related benefits from canned fruit exports. The Confectionery business achieved a 3% improvement in operating profit from a 13% increase in revenue in an extremely competitive sector. Growth has continued to be driven by innovation, although profitability was affected by increased marketing expenditure and new product launch costs. The business successfully introduced the 'Fast Forward' energy bar during the period as well as a number of other product innovations. The Perishables business, which comprises the group's fishing interests (Sea Harvest and Oceana) and the DairyBelle fresh milk operations, achieved an operating profit increase of 35%. Oceana, which is a separately listed company, achieved a 27% increase in headline earnings per share. Turnover rose by 29% mainly due to a substantial increase in midwater pelagic volumes traded out of Mauritania. Improved performances in most operations contributed to an operating profit increase of 21%. Sea Harvest performed particularly well despite a reduced hake quota and poor mid-winter fishing conditions. Export revenues increased by 41% as a result of the weaker Rand and increased sales of value-added products. The fresh milk business continued to disappoint and recorded a loss for the year. Healthcare Brands Healthcare Brands achieved a 9% improvement in operating profit on a 14% increase in revenue. A solid performance was achieved by the Consumer business whilst improved results were recorded by Pharmaceuticals and Critical Care in the second half of the year. The Pharmaceuticals business includes key brands such as 'Myprodol', 'Synap Forte', 'Corenza C', 'Pynstop' and 'Adco-Dol'. An 8% improvement in operating profit was achieved on a 12% increase in revenue. The increased investment in major brands and new product development exerted pressure on margins. In the Consumer business a 14% growth in revenue translated to a 19% increase in operating profit. This was achieved through a more focused investment in marketing, with most major brands showing double digit volume growth. The business markets brands such as 'Ingram's Camphor Cream', 'Panado', 'Compral', 'Purity' and 'Gill'. The Critical Care business improved its performance in the second six months, leaving operating profit marginally ahead of last year for the year as a whole. This business is successfully moving away from an over-reliance on hospital tender business in the intravenous solutions market to the provision of complementary hospital products and services. Innovation accounted for 30% of turnover for the full year. Spar Spar produced strong results with an increase in operating profit of 26% on revenue growth of 18%. Spar continues to increase its market share and during the year 60 new stores were opened, whilst 100 stores were refurbished. Good progress was made in respect of two strategic goals aimed at enhancing top-line growth. This related to the opening of 59 new 'Tops' liquor stores and the substantial increase in Spar house brand sales. Spar continues to focus on the fresh food and home meal replacement markets, which are expected to make a growing contribution to future profits. Plans are underway to increase warehouse capacity in two distribution centres in order to improve service levels and drive growth. Associates Income from associates increased by 45% to R177 million as a consequence of higher foreign currency earnings boosted by currency translation benefits following the sharp depreciation in the value of the Rand. Excluding currency translation benefits, the contribution from associates showed an improvement of 18%. The international malted barley business ConAgra Malt (50% owned) and branded food group Empresas Carozzi of Chile (24%) both improved their performances. Enterprise Foods (50%) is involved locally in the manufacture and marketing of chilled processed meats. The company experienced a significant increase in its raw material input costs as a result of the depreciation of the Rand. Notwithstanding the higher raw material costs and pressure on sales volumes, operating profits were in line with the previous year. Acquisition of Robertsons Homecare Subsequent to the year end, the Competition Tribunal approved the acquisition by Tiger Brands of Robertsons Homecare. The total purchase consideration amounting to R325 million was paid on 13 November 2002. The purchase of the business including the trademarks provides the company with an entry to attractive new household markets. The Robertsons Homecare business has well established leading brands in the insecticide and airfreshener markets. The brands acquired include 'Doom', 'Fastkill', 'Airoma' and 'Peaceful Sleep'. Changes in Accounting Policies. Comparative figures have been restated as a result of the adoption of a number of new accounting policies with effect from 1 October 2001. The overall effect is that headline earnings for the year ended 30 September 2001 were reduced by R18.9 million. (Refer note 4 for further details). Provision for dividends and STC In terms of accounting statement AC107 (revised), dividends, including any applicable secondary tax on companies (STC) charges, are now accounted for in the period that the dividends are actually declared. Therefore, the STC charge included in the 2002 results relates to the final dividend in respect of the 2001 financial year and the interim dividend paid in July 2002. Post-retirement medical aid obligations In accordance with AC 116 (revised) the group recognises its obligation to fund its post-retirement medical aid contributions over the expected working lives of its employees. Provision for leave pay In terms of AC 116 (revised), the group calculates its provision for leave pay on a total cost to company basis. Previously, the majority of operations calculated the leave pay provision based on the gross salary cost. Depreciation of investment properties In terms of AC 135, all buildings owned by the group are now depreciated over their expected remaining useful life. Final dividend The company has declared a final dividend of 211 cents per share, which brings the total dividend for the year to 290 cents per share. The total dividend represents an increase of 36 % over that of the previous year. Annual Report The annual report will be posted to shareholders in December. Outlook The exceptional growth in earnings achieved in 2002 means that the results for 2003 will be measured off a high base, with the prospects for real growth largely dependent on the strength of the economy and some improvement in consumer demand. The company remains on course to achieve its long-term objective of delivering profitable top-line growth for its shareholders. Tiger Brands will continue to invest in its core brands and build for the future through an emphasis on profitable top-line growth and an increased focus on innovation in products and processes. For and on behalf of the Board R A WILLIAMS N DENNIS Chairman Chief Executive Officer 20 November 2002 Directors: Non-executive: R A Williams (Chairman), B H Adams, D D B Band, B P Connellan, D E Cooper, U P T Johnson, A C Nissen, G N Padayachee, I B Skosana, J L van den Berg Executive: N Dennis (Chief Executive Officer) (British), M H Franklin, J H McBain (British), M C Norris, R V Smither, C F H Vaux Company secretary: I W M Isdale Share registrars: South Africa: Computershare Investor Services Limited, 70 Marshall Street, Johannesburg, 2001 Postal address: PO Box 1053, Johannesburg, 2000 United Kingdom: Computershare Investor Services plc, PO Box 82, The Pavilions, Bridgewater Road, Bristol, BS99 7NH Registered office: 85 Bute Lane, Sandown, Sandton, South Africa Postal address: PO Box 78056, Sandton, 2146, South Africa London office: St James Corporate Services Limited, 6 St James's Place, London, SW1A 1NP http://www.tigerbrands.com

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