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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.
This article originally appeared in the 2 June 2016 edition of finweek. Buy and download the magazine here.
