08 Jun 2017 Tiger gets territorial in SA
The country’s biggest food producer is turning its attention to the local market to regain ground it lost to competitors.
When Lawrence MacDougall stepped into the position of Tiger Brands CEO in March last year, a lot was expected of him. But the veteran of 39 years in the fast-moving consumer goods market has delivered — and then some.
Current market conditions have demanded all the expertise MacDougall can muster. “I have experienced conditions as tough in other countries, but never in SA,” says MacDougall.
In its six months to March, SA’s largest food group defied the odds, lifting revenue 7% to R16.4bn and headline EPS (HEPS) 9.5%, excluding one-off abnormal items and a combined 36% fall in contributions from associates Oceana and Chilean group Empresas Carozzi.
“Tiger has just delivered an exceptionally good result,” says Denker Capital’s Ricco Friedrich. “You would think it is operating in another country. Compared with its peers, Tiger has cleaned up.”
Friedrich points in particular to Tiger’s largest rival, Pioneer Food Group, which he says “made a mess with its maize procurement”.
Pioneer found itself locked into maize futures contracts that were bought when the maize price was sky high. It was hedging against a feared drought-induced maize shortage that never came. With drought fears over, the maize price fell to levels last seen in early 2015.
Pioneer paid a heavy price, with its HEPS in the six months to March plummeting 56%. This brought to an end a brilliant growth run since Phil Roux became CEO in 2013 and prompted him to describe 2016 as a “year from hell”.
For good reason, it seems, Tiger does not play in the futures game, says MacDougall.
But it did participate in a game of another sort in its latest six months, playing the fine balance between pricing and volume.
It paid off for Tiger, which lifted prices by an average of 12% at the cost of a 4% fall in volumes in its SA operations. The end result: a 15% rise in operating income to R2bn.
“We played our portfolio well,” says MacDougall. “Our diversified basket of products played to our strengths.” It is a formidable basket. Of its 41-brand line-up, 13 brands are number one in their categories: Albany, Fatti’s & Moni’s, Tastic, Jungle Oats, Koo, All Gold, Crosse & Blackwell, Black Cat, Doom, Purity, Enterprise, Maynards and Beacon.
In the latest six months, the group’s groceries division achieved particularly good results, upping operating income 32% to R310m. Even more impressive was the home, personal and baby care division, where operating income soared 71% to R336m.
But Tiger did not have it all its own way in the reporting period. Its export and international division took a hit that left operating income down 25% year on year, at R194m.
Tiger hit particularly strong headwinds in three of its key export markets: Nigeria, Angola and Mozambique. Currency shortages and huge currency value falls combined to create damage.
However, there are positive signs that conditions are improving, particularly in Angola and Mozambique, says MacDougall. “In Angola we are able to leverage off a good trading relationship with Shoprite.”
The export and international division is also home to Deli Foods in Nigeria and Chococam in Cameroon, the two remnants of the African empire cobbled together by MacDougall’s predecessor, Peter Matlare.
Nigeria’s second-largest flour-milling firm, Dangote Flour Mills, has been sold off. Tiger bought a 65.7% stake in the firm in October 2012 for R1.5bn. After taking losses and write-offs of more than R5bn, the firm was sold back to Nigerian billionaire Aliko Dangote’s group for a token US$1 in December 2015.
A 51% stake in East African Group of Ethiopia is also gone, with that deal closed in April. And a 51% stake in Kenyan firm Haco is in the process of being sold.
Chococam and Deli Foods will remain on board says MacDougall, who, perhaps surprisingly, does not rule out future acquisitions in Africa.
But, for now, the focus is certainly going to remain on extracting greater efficiency and profitability from operations in SA.
MacDougall, just getting into his stride, spelt out the path Tiger will follow in a strategic review released in May.
Summing up, the review noted: “The future operating model will refocus on the consumer, reignite innovation and leverage our scale.”…..
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Tiger Brands tames costs to claw back top spot
Returning Tiger Brands to the top of the food chain after some misadventures on the African continent starts with a focus on reining in its costs.
That’s according to CEO Lawrence MacDougall, whose growth plans are anchored on creating a “cost-conscious culture” across the company producing South African staples such as All Gold tomato sauce and Jungle Oats.
It’s not a unique recipe, in that under the stewardship of his predecessor, Peter Matlare, a large emphasis was placed on reducing costs.
Since 2014, it has slashed costs by R708-million.
Through the latter part of Matlare’s tenure, costs were a major focus and flagged at corporate presentations.
He would eventually leave his position in December 2015 after excursions outside South Africa failed to reap the required dividends.
Tiger Brands bought a stake in Dangote Flour Mills in Nigeria in October 2012 for R1.5-billion.
After taking losses and write-offs of more than R5-billion, the firm was sold back to Aliko Dangote’s group for a token $1 in December 2015.
In the six-month period to end-March, MacDougall’s cost-cutting measures brought in a saving of R136-million.
While MacDougall continues to look for efficiency gains, the one departure from Matlare’s term is that expansion into the rest of the continent isn’t in the emergency tray.
The cost-cutting of operations appears justified given that South Africa’s food industry is faced with a multiplicity of economic challenges.
These include depressed consumer spending, a weak currency and the overall impact on the economy of a ratings downgrade.
Reuben Beelders, portfolio manager at Gryphon Asset Management, said Tiger Brands’ approach to Africa was going to be more “slow and steady” rather than “divide and conquer”.
Part of Tiger’s cost-focus strategy has been adopting “relevant pack-size architecture” in the different categories for middle-class consumers, who make up 70% of its sales.
Products that have been downsized include Tastic rice (from 2kg to 1kg), All Gold tomato sauces and jams and Oros.
Beelders said a lot could be done in terms of pack sizing and ensuring that customers got the right product, in the right quantities and at the right price.
“The demand is not always consistent and tastes change. Consider the current focus on Banting diets.
“This is a fairly new development and possibly one where suppliers can serve the customer at a slightly higher margin,” he said….