Tiger Brands hit by weak economy

• In wake of listeriosis outbreak, group struggles in first quarter with low sales and its inability to recover input costs

SA’s largest food producer, Tiger Brands, says it has not been able to raise prices in key product categories because of pressure on consumer spending. This affected the performance of the group’s bakeries, pasta and rice products in the first quarter of the 2020 financial year, CEO Noel Doyle said.

SA’s largest food producer, Tiger Brands, says it has not been able to raise prices in key product categories because of pressure on consumer spending.

This has affected the performance of the group’s bakeries, pasta and rice products in the first quarter of the 2020 financial year, CEO Noel Doyle said on Wednesday. He said the company’s export business also underperformed.

“Eighty percent of our problems are in the four businesses (bakeries, pasta, rice and exports),” Doyle said.

The owner of Jungle Oats and Tastic rice brands said that in the six months to end-March 2020 earnings per share from continuing operations, which include the soon to be sold value-added meat business (VAMP) unit, could fall at least 36% or 311c, compared with the 864c reported for the matching period last year. Headline earnings per share were expected to drop 30%-37%.

In early trade, Tiger Brands’s share price fell 8.34% to R182.51, its lowest level since September 2011, after it warned of the expected earnings fall. The stock was down 5.58% to R188 at the close of trade on Wednesday.

The company, which is still dealing with the fallout of the 2018 listeriosis outbreak, said it struggled in the first quarter with low sales and its inability to recover input costs, which affected its profitability.

Doyle said there was “an ongoing” struggle to increase prices in the pasta and rice categories. He said the company’s previous attempt to increase the price of rice failed as that led to loss of volumes.

Doyle replaced Lawrence Mac Dougall, who left the company on January 31 after reaching the mandatory retirement age of 63. On Mac Dougall’s watch, Tiger Brands was criticised for its handling of the listeriosis outbreak, which killed more than 200 people in SA.

During Mac Dougall’s tenure, the Tiger Brands share price fell almost 40%. Tiger Brands said it was likely to conclude the sale of the VAMP business — its brands include Enterprise, Mieliekip, Renown and Bokkie — after the end of March.

The company said that it had received several offers for the business, which was at the centre of the listeriosis outbreak.

As a result, the company had commenced with a due diligence for some of the bidders.

VAMP owns three factories, one in Polokwane and two in Gauteng.

“Good progress has been made in this regard,” said Tiger Brands. “However, several issues are subject to clarification and discussion between various parties, and as such no definitive agreements have been concluded at this stage.”

Doyle said the VAMP business, which was put on the market because it was not an ideal fit in the Tiger Brands portfolio, had been a drag on the company’s operating performance in the first six months of the 2020 financial year. The disposal of the VAMP business would herald Tiger Brands’s exit of the value-added meat category.

Doyle said that in the six months, the company’s export division had made “virtually” no sales in Nigeria because of a legal dispute with a former distributor in that country. He said the dispute, over ownership of trademark, was set to stifle the export division’s performance in the second quarter.

“A court hearing on the matter was held at the end of January, but was adjourned to mid-March 2020 to allow the parties more time to amicably resolve the matter,” Tiger Brands said in a statement.