Tiger Brands takes a hammering from bad news

This past Wednesday 12 February 2020, Tiger Brands had one of its worst days in years, with its shares finishing 6% lower on the JSE to R188 – the steepest fall since April 2011 – the day Noel Doyle presented the company’s financial results to shareholders for the first time as new CEO.

New Tiger Brands’ CEO Noel Doyle’s biggest test will be convincing shareholders that he is the right man for the top job as he is still seen as being part of the old guard at Tiger Brands. Before becoming the CEO, Doyle had been with Tiger Brands for more than seven years, serving in various roles such as CFO, COO and business executive for Nigeria operations.

About R2.4-billion was wiped off the market capitalisation of Tiger Brands after it issued a disastrous trading update for the six months to 31 March 2020 – a period in which previous CEO Lawrence MacDougall mostly managed Africa’s largest food producer. 

The share sell-off was sparked by Tiger Brands revealing that it expected earnings to drop by as much as 37% in the six months to end-March 2020 (including a forecast) – testing the patience of long-suffering shareholders who have backed the company through some rough times of late.

Tiger Brands, which is expected to report half-year results on 25 May, said it expected headline earnings per share from continuing operations – a metric that excludes once-off items such as an earnings boost from acquisitions – of 497-552 cents, down from 773 cents reported a year earlier.

Damage control tested

Shareholders are still dealing with the sudden “retirement” of 63-year-old MacDougall on 31 January after four years at the helm, with the company saying he reached its mandatory retirement age of 63. Market watchers believe he was pushed out by the board because Tiger Brands had become a perennial under-performer. 

Tiger Brands is still doing damage control after the listeriosis outbreak, which originated from the company’s factory in Limpopo that produced Enterprise branded ready-to-eat processed meat products. South Africa recorded 218 deaths when the outbreak was declared over by the government on 3 September 2018. 

Tiger Brands was also hit by market forces, mainly a low food inflation environment, which made it difficult to pass price increases to cash-strapped consumers on the household goods it produces such as Albany bread, Purity baby food, Koo canned beans, Jungle Oats, Oros juice, Black Cat peanut butter, All Gold jam, Fattis & Monis pasta, and Tastic rice. 

Said Doyle about pricing pressures: “We are seeing a continuation of pricing pressures of rice and pasta in the marketplace. We made an attempt to move pricing up in the past quarter, but it failed.”

Broader market challenges and also blunders by Tiger Brands’ management have led to its share price falling by 43% over the past five years compared with the shares of close competitor AVI (up 0.2%) and the JSE’s wider all-share index (up 13%) over the same period.

Doyle turnaround strategy 

On Wednesday, Doyle revealed his plan to return the company to the days when it pulled in double-digit growth on group turnover, which last was seen in 2016. Doyle said he won’t tweak much, adding that Tiger Brands has already done the “homework” to understand market challenges, consumer needs for value (in cost and quality) in household products, and the distribution chain of its products. 

In what may be viewed as a criticism of his predecessor, Doyle said:

“We haven’t executed fast enough to keep up with the pace of the market and how we respond to value and consumer search for value. We don’t have much to show for this.”….

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