Tiger Brands

Tiger Brands’ woes, take 2

Here’s another take on the fortunes of SA’s biggest food player, following the release of its interim results this week – excellent read from Daily Maverick

Tiger Brands’ has a new CEO Noel Doyle who is determined to change the company’s legacy of poor performance and dreadful decisions. He knows the firm inside out but faces some serious headwinds.

Tiger Brands, more than almost any other JSE organisation, with the arguable exception of Pioneer Foods and the now-defunct construction firms, is highly sensitive to suggestions that it may have benefited from increased prices during the Covid-19 crisis. 

As unpalatable as it may be, there is evidence to suggest that food prices have increased over the last two months.

A basket of 38 basic food items has increased by 78% or R249 in two months, says Mervyn Abrahams of the Pietermaritzburg Economic Justice & Dignity Group in KwaZulu-Natal. The group monitors food baskets and food prices in supermarkets and among informal traders. 

In a discussion on South Africa’s food system in and beyond the crisis, and hosted by the Institute for Poverty, Land and Agrarian Studies, Abrahams noted that rice had increased by 26%, sugar beans by 18%, brown bread by 14%, oil by 11% and fresh produce by a “massive amount” under lockdown.

This is despite the fact that the Department of Trade and Industry put in place regulations ahead of the hard lockdown to prevent price gouging by food manufacturers and retailers.

“These were proactive and sensible,” says Noel Doyle, Tiger Brands CEO, “and reinforced issues around excessive pricing.”

The DTI, he said, made it clear that price increases could only be justified in the face of massive cost pressures, and only if they did not benefit gross and operating margins. 

“We have had slight increases in our price of wheat and rice products since the lock-down began, but we alerted the Competition authorities that this was due to the weaker rand and rise in underlying commodity prices.  

“If there are food price increases they are not coming from the big food manufacturers,” he says. 

Past actions reason for caution

“You understand our history. It is important for us that we are beyond reproach when it comes to price increases.”

Presenting the group’s interim results to  30 March, Doyle warned that the impact of the pandemic would only be felt in the second half of the group’s financial year, and would be ‘dire’. 

That said, revenue for the six months to March (before lockdown), hardly shot the lights out, increasing by 2% to R15.7-billion. Group operating income dropped by 29% to R1.1-billion, with operating profit margins declining to 7.0%, impacted by lower volumes, raw material and conversion costs rising ahead of inflation and increased marketing investment.  

Headline earnings per share from continuing operations dropped 35% to 501 cents.

Operating conditions are only getting tougher. The company warned that the full-year (to September) could see profits fall by R500-million, impacted by significant cost-push due to rand weakness, global supply chain disruptions and additional costs incurred during the lockdown period. 

Unfortunately for consumers, the real impact of legitimate food inflation is still coming and will be felt in the first quarter of the next financial year (Sept-Dec 2020). 

“The consumer is not yet fully feeling the impact of commodity increases,” says Doyle. “My next shipload of rice will be 40% more expensive.”  

Covid-19 was the last thing that Tiger Brands needed. Having lurched from one crisis to crisis over the past 13 years, the company is a much-diminished version of its former self, with a reputation in tatters and its share price, at R168.55, lower than it was ten years ago….

DailyMaverick.co.za: Read the full article