Tiger thrives under new chief, wary of uncertainty in SA

FAST-moving consumer goods company Tiger Brands said yesterday that it was nervous about the uncertainty in the country.

Chief financial officer Noel Doyle said the group had managed to show resilience in the midst of challenging economic conditions and sustained subdued consumer spending.

“We have made good progress in the last 18 months, especially since the arrival of our chief executive Lawrence MacDougall, but the political uncertainty remains a concern in the country,” Doyle said.

In the year to September, the group increased its revenue 2 percent to R31.3 billion, while operating income was up 11 percent to R4.6bn. Operating margins increased 110 basis points (bps) to 14.8 percent.

The group said this improvement was due to improved pricing strategies enhanced by good procurement and better cost control.

Intense competitor pricing activity and declining consumer confidence resulted in volumes declining 3 percent. Cash generated from operations increased 43 percent to R6.1bn, benefiting from improved working capital management.

Headline earnings a share increased 2 percent to 2 155 cents a share, driven by the domestic performance and diluted by a disappointing performance from associates and the deciduous fruit business.

The company declared a final dividend of 1 080c a share, up 1 percent, compared with last year’s 1 065c.

“Overall, we were happy about the results, but we think we need to improve on our biscuits division in Nigeria, which has not been performing well for the past 6 to 12 months. We were happy that we exited Ethiopia without any losses,” Doyle said.

Tiger Brands operates in a number of divisions. The grains division delivered 5 percent revenue growth, while operating income increased 18 percent to R2.4bn

The exports business grew revenue 7 percent to R1.7bn, attributed to increased sales into the Democratic Republic of Congo and Mozambique. Operating income increased 10 percent to R273 million.

David Lerche, a senior investment analyst at Sanlam Private Wealth, said Tiger Brands’ revenue growth of only 2 percent was a bit disappointing, but the margin improvement of 150 basis points to 15.6 percent was encouraging and ahead of their estimates.

“This drove a strong 11 percent rise in group operating income from continuing operations. The poor performance of the associates, particularly Oceana, meant that despite the rise in operating income, headline earnings a share were up only 2 percent, which was below our expectations,” Lerche said.

He said Tiger Brands not only faced a tough environment, given the constraints on consumer spending, but also from continued high levels of competition in the food and groceries space.

“The margin improvement shows the group is doing well with the things it can control. It appears well-motivated under the leadership of Lawrence MacDougall,” Lerche said.

However, he added that the problem was that volume growth will be limited by the weak consumer and intense competition.

“The success or failure of the group’s capital allocation over the next three years is now the key variable given the recovery of the core operations,” he said.

Tiger Brands shares fell 1.45 percent to close at R397 on the JSE yesterday.