Tiger heads for calmer wa­ters Tiger Brands is re­cov­er­ing from past “mis­steps” and a strate­gic re­view by its new CEO aims to iden­tify growth op­por­tu­ni­ties as well as pos­si­ble head­winds com­ing its way.

Finweek English Edition - - THE WEEK - Ed­i­to­rial@fin­week.co.za

just two weeks into his ten­ure as CEO of Tiger Brands, Lawrence MacDougall’s first or­der of busi­ness is to kick off a full strate­gic re­view, in­clud­ing of the role of each port­fo­lio of brands and how they will pro­vide growth and prof­itabil­ity. Tiger Brands’ re­sults for the six months to March re­flect a re­cov­ery from what di­rec­tors re­fer to as “mis­steps” in the past, which in­clude an un­suc­cess­ful in­vest­ment in Dan­gote Flour Mills in Nige­ria.

MacDougall says the solid re­sults were achieved from a busi­ness that the ex­ec­u­tive team “has man­aged to sta­bilise”.

The fact that the ex­ec­u­tive team it­self is not sta­ble – with chief fi­nan­cial of­fi­cer Funke Igho­daro re­sign­ing re­cently and MacDougall join­ing on 10 May af­ter chief op­er­at­ing of­fi­cer Noel Doyle stepped in as in­terim CEO fol­low­ing the de­par­ture of CEO Peter Mat­lare at the end of last year – was raised as a con­cern by one in­vestor who wanted to see “in­sti­tu­tional mem­ory” re­tained. MacDougall says he will try to bal­ance knowl­edge and ex­pe­ri­ence with fresh ideas.

In the six months to March, group turnover from con­tin­u­ing op­er­a­tions was up 9% to R15.9bn, op­er­at­ing in­come in­creased 7% to R2.1bn, earn­ings were up 7% to 1 021c/share and head­line earn­ings were un­changed at 978c/share. A 7% higher in­terim div­i­dend of 363c/share was de­clared.

Doyle sounds a cau­tion­ary note on in­fla­tion – which was 8% for its bas­ket of prod­ucts for the six months and is ex­pected to in­crease in the sec­ond half to some­where be­tween 8% and 10%.

Nev­er­the­less, the group has con­tin­ued with a strat­egy of in­vest­ing in mar­ket­ing its brands – which in­clude house­hold names like All Gold, Pu­rity, Al­bany and Koo – well ahead of sales growth. Mar­ket­ing spend was up 23% against turnover growth of 9%. He says that when cost pres­sures were so high, there was “a temp­ta­tion to cut the oxy­gen sup­ply”, which the group has re­sisted. The pres­sure on mar­gins and op­er­at­ing profit re­flects all of these is­sues and ac­tions.

Soft com­mod­ity prices, par­tic­u­larly maize and sorghum, were se­verely af­fected by rand weak­ness and the drought. The rest of the group’s do­mes­tic busi­nesses showed a solid per­for­mance.

In the grains di­vi­sion, high in­fla­tion in raw ma­te­rial costs and in­tense com­pe­ti­tion af­fected both vol­umes and mar­gins, and turnover was up 10% to R6.2bn but op­er­at­ing in­come dropped by 1% to R881m.

Milling and bak­ing vol­umes dropped 2%, driven pri­mar­ily by maize and sorghum. But turnover in­creased 9% to R4.3bn, largely due to price in­creases, while op­er­at­ing in­come de­clined by 4% to R710m.

Con­sumer brands food turnover in­creased 8% to R5.8bn while op­er­at­ing in­come grew 4% to R609m. Gro­ceries, bev­er­ages, “out of home” and meat cat­e­gories were off­set by snacks and treats, where op­er­at­ing in­come de­clined by 12% due to com­pet­i­tive pres­sure, op­er­at­ing is­sues and pres­sure on dis­cre­tionary spend­ing.

Pu­rity baby food main­tained its lead­ing brand po­si­tion and is adapt­ing to the trend to buy baby food in re­seal­able pouches.

In­ter­na­tion­ally, Kenyan con­sumer goods com­pany Haco Tiger Brands and the de­cid­u­ous fruit ex­port busi­ness per­formed well. Tiger Branded Con­sumer Goods, for­merly Dan­gote Flour Mills, was sold. To­tal turnover for the ex­ports and in­ter­na­tional busi­nesses in­creased 8% to R2.6bn and op­er­at­ing in­come in­creased by 34% to R292m due to a profit re­cov­ery at Haco and good growth at Cho­co­cam in Cameroon off­set by re­sults from Deli Foods in Nige­ria. The ex­ports busi­ness was af­fected by lo­cal cur­rency de­val­u­a­tion and for­eign cur­rency short­ages – a prob­lem that be­came “crit­i­cal” in March and which will per­sist, specif­i­cally in Mozam­bique and Nige­ria.

Asked if this will prompt the group to con­sider with­draw­ing from these coun­tries, Doyle says this is un­likely, and while it may lead to less profit, it will not re­sult in losses.

The group is in a sound fi­nan­cial po­si­tion, with cash gen­er­ated from op­er­a­tions im­prov­ing 31% to R1.9bn and net in­ter­est-bear­ing debt re­duc­ing by R1.1bn.

It warns that the full im­pact of the value of the rand and the drought is “yet to be fully felt on the shelf” and there will be price in­creases. The group is fo­cus­ing on costs. “We are fac­ing a tsunami of cost-push,” says Doyle. But it will not cut back costs which will haunt it in fu­ture years, hence its con­tin­u­ing in­vest­ment in mar­ket­ing its brands.

MacDougall says the strate­gic re­view is aimed at un­der­stand­ing op­por­tu­ni­ties for growth as well as cur­rent and potential head­winds, with a fo­cus on the brand cat­e­gories and rel­e­vant ge­ogra­phies. The sit­u­a­tion is volatile in terms of hu­man be­hav­iour and shop­ping trends, and the re­view is aimed at very spe­cific and strate­gic choices.

As he has just joined the group, it is not ap­pro­pri­ate for him to com­ment on what went wrong in the past, he says. But this set of re­sults shows that the team has made progress and a fair amount of work has been done to en­sure it does not re­peat its mis­takes.

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