Tiger Brands, Pioneer on the prowl

Two of South Africa’s largest food companies, Tiger Brands and Pioneer Foods, are on the prowl for acquisitions.

Pioneer has a bullish and confident view on acquisitions while Tiger has acquisitions cautiously and almost warily on its radar for now, the key issues for the company are getting back to basics and getting the most out of its existing assets.

On the other hand, Rhodes Food Group, a smaller rival of Tiger and Pioneer, is a local food company that has completed two acquisitions: dry-packed food company Pakco, its largest to date, worth a total of R390 million; and Ma Baker, a pies and pastries maker.

Phil Roux, Pioneer Foods CEO, said this week that the company was looking to initiate an acquisition to bulk up its groceries portfolio.

“Organic growth will not be enough so we need to rekindle our acquisition pipeline. Pioneer Foods needs another big chunk in its portfolio, most particularly its groceries portfolio,” he said during an investor presentation.

“Many other opportunities will surface in South Africa and beyond,” Roux said.

Tiger Brands chief financial officer Noel Doyle said that the group’s acquisition focus was more likely to be in food than in the home or personal care space.

“Any of the food categories that we are in are probably fairly exportable. The one that we would be nervous of expanding significantly would be processed meat. We would be open across the balance of the portfolio,” he added.

“The short-term weighting is about getting the business right. While we are doing that we will build an acquisition pipeline. One of the learnings from the Dangote acquisition was that we need to make sure you have the management bandwidth to handle big acquisitions.”

Tiger Brands is still feeling the after-effects of the failed acquisition in Nigeria of Dangote Flour Mills, from which the company was ultimately forced to exit amid mounting losses.

Doyle said Tiger wanted to get its core business, margins and market shares right.

Lawrence MacDougall, Tiger Brands CEO, said that the group was looking at “brilliant basics”.

MacDougall denied that Tiger was too big and had no further growth prospects.

“If a great acquisition fell into our laps today, we have the balance sheet to do it but the big question that the board would ask would be management capacity, so we may or may not do it,” Doyle said.

“In 18 months’ time, we believe we will have an attractive pipeline and capacity,” he added.

The primary focus of acquisitions would be in the rest of Africa while the secondary focus would be on South America, where Tiger has a 24% stake in Chile-based Empresas Carozzí.

“What you would see different from the previous management team is that we would go beyond the Sahara and be prepared to look at North Africa as well.”

Tiger’s almost half-heartedness about acquisitions was also reflected by Doyle’s comment that while the group was looking for acquisitions, if it didn’t complete one it would be quite happy to pay surplus money to its shareholders.

MacDougall mentioned the words “tough” and “challenging” a number times this week to describe conditions in South Africa and other African countries such as Nigeria, Mozambique and Zimbabwe, where Tiger has a presence. He said Tiger wanted to go from a “negative spiral” to a “virtuous growth circle”.

Pioneer’s Roux described the company’s latest year as a “year from hell”.

A key factor that hurt the company’s profit was a bet the group placed on its maize procurement that went horribly wrong amid skyrocketing maize prices due to the worst drought in decades.

“The most dramatic financial impact was our maize business – consequent on the worst drought in 30 years. We made a strategic consideration as a board to protect [maize] supply ... We broke from our very conservative hedging policy and went long and priced our position. The outcome being significant margin destruction,” Roux said.

Roux got numerous questions from investors this week regarding the procurement decision. He said that the decision would see Pioneer suffer losses at its maize business in April and May.

Like Tiger and Pioneer, Rhodes Food CEO Bruce Henderson said the company was experiencing
tough trading conditions in South Africa and the rest of Africa.

Rhodes Food Group was a company on the up this week, announcing market share gains in all key product categories while Tiger and Pioneer have been losing market share.

“Our beverage category has been attacked on all fronts by our competitors,” Roux said.

Roux said the company faced severe margin pressure in most of its food and beverage categories.

“We are seeing price aggression from some of our competitors that we haven’t seen in the past few years,” he added.

There was “price warfare” in some of the categories in which Pioneer competed, Roux said.