Financial Mail - Investors Monthly
Tiger Brands' chairman on recovering from Nigeria
Tiger Brands CEO-designate Lawrence MacDougall is an old Africa hand in the fast-moving consumer goods market. Chairman Andre Parker spoke to Giulietta Talevi about the company’s fresh start after a series of ill-fated deals in Africa
Q What was Tiger Brands looking for in its new CEO? A We were looking for somebody with a track record of operating in SA as well as other developing markets because Tiger’s future cannot be limited to SA alone, in terms of sources of growth. As you know we have been looking for and made some investments outside SA — not all of them spectacularly successful, probably a point you’ll get back to. So we wanted someone who has operated outside SA as well and then obviously someone from that branded FMCG space, preferably with multinational experience, able to bring across some proven processes and systems, how to build brands, how to innovate successfully … and someone who came out of the hard operations — sales and marketing — and I think we found the guy in Lawrence. Q Did you look inside and then widen the search or was it thrown open from the start? A Our people were included from the start. Heidrick & Struggles helped us with the search. We had some good [internal] candidates who were short on experience and one exceptional internal candidate in Noel Doyle and we compared our own people with what came out from their international search — and we used them because they do have offices all over the world. Q Quite a few analysts were worried that if Noel was passed over for the job he’d leave. Is he happy to resume the role of chief operating officer? Was he disappointed? A I think it’s fair to say that he was disappointed but in the time that I’ve spent with him he has accepted the fact that we’re bringing in Lawrence and he’s pledged to work with Lawrence and be part of the Tiger story in the years ahead, so I’m pretty confident that Noel’s on board and settled. Q You talk about someone having “hard experience” in the FMCG sector — is this a tacit admission that former CEO Peter Matlare was the wrong candidate for Tiger? A You know, if you cast your mind back, when Peter started it was just after that bread price fixing debacle and Peter did a heck of a job to re-establish our reputation. And in fact our South African business throughout his tenure has done pretty well in tough circumstances. (Peter) said the Dangote Flour Mills (DFM) entry in Nigeria wasn’t executed perfectly, he could have done a lot better. He’s a very honest and endearing man, and I have the highest regard for him. When we started looking outside SA to build a business … we set ourselves a target of getting up to 30% of earnings outside SA. I think that was probably where Peter’s lack of experience in working outside SA came in. [Tiger Brands’ earnings have been in decline since 2012, due in part to losses incurred through the DFM acquisition.] But to just blame it on Peter would be obviously wrong: I mean we as a board were also complicit and Africa has struck some headwinds. It’s not the get-rich-quick scenario that perhaps once we naively thought it might be. But Peter gave it his best shot, and both Peter and ourselves felt that seven or eight years at it was probably a good time for leaders to change anyway, so let’s try to find somebody who has some experience of what it takes to be successful out there. Q So it wasn’t just Peter’s error in buying DFM, but that of the whole board? A I suppose you should be the jury, or your readers. The facts, as we see them … [were] that the DFM acquisition was bang on our stated strategy: we had to look north of SA’s borders for growth. Nigeria was the next big thing and there was a credible entity that gave us an entry into the Nigerian market of some substance. Then, to be frank, in the early days we could have done a better job of checking out in terms of our due diligence. You know, we did a normal, decent technical due diligence as you would expect with PwC, so the numbers all stacked up. But it was the more difficult things to read, such as route to market, the strength of the DFM brand that we took on board, the intricacies of the industry including some new capacity that was in the process of coming on stream — and that was the stuff that we were probably negligent about signalling right up front and
therefore in tempering our appetite for that acquisition. And also in the early days, we sent in a management team and were perhaps a bit naive [to think] we’d do it the South African way of building brands and getting to our customers. There were some Nigeria-specific ways of doing things that took us a while to learn and get under our belts and that led to us, as you perhaps know, changing our management team. In fact, we have a really good strong team under Thabo Mabe there, who has Unilever experience in Nigeria, and operationally things were doing quite nicely until the external factors started hitting us in the past two years: oil price dropping, foreign exchange shortages and so on.
Q Does it put Tiger in a real fix in that you can’t only look to grow in SA, you need external growth, but Africa is clearly full of pitfalls? Do you just have to be resolute?
A I think you’ve answered your own question [laughs] … that’s the chief reason why we changed leadership and brought Lawrence in: to come and help us with that. You’re dead right — we can’t stay SA-bound — though there’s more to be done in SA, and it will for the foreseeable future be the chief contributor to our earnings, but we have to expand outside SA. Because of the proximity and our knowledge, and the fact that we export lots of products into the rest of Africa, it would be the next logical theatre for us. But the pitfalls have increased and Lawrence needs to help us find a way into Africa and other growth markets.
Q Tiger’s shares were sold off, so you did take punishment from the market. But they’ve rallied on the news of Lawrence’s appointment — do you feel that your investors are supportive of Tiger?
A Yes, certainly in my interactions and those of our investor relations folk, and the share price movement, our moves to close DFM and to appoint Lawrence have been welcomed by our shareholders as the kind of corrective action they were expecting from us. The issue with a thing like DFM is that apart from the bleeding there it also consumed management and the board. It just takes so much time and attention. As hard as it was to just shut the business and exit, and apart from further capital that would have been required, it just frees up management time and attention to focus on further growth opportunities.
Q It strikes me that when I go to stay with family in Italy, apart from the exchange rate, goods there seem to be much better priced and SA has become really expensive. Some analysts say that local firms just can’t produce competitively or efficiently. Do you think that’s a fair criticism?
A I would say that your criticism is valid as far as Tiger goes … I don’t think we have been as productive and efficient as we could be and should be. Certainly Lawrence and his team must look at that. In a way those are the low-hanging fruit and hopefully he can come with his benchmarks from the likes of Mondelez and Kraft and help us on the unit costs front. I’d just make one comment though: a lot of our raw materials are imported — all Tastic rice is imported; lots of our flour is imported; so, given the weak rand, that complicates direct comparisons [with overseas producers]. But, in principle, I think we’ve got to have a good close look at our cost base.
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