Tiger Brand boldly ups the ante in the face of a decline of quarterly profit

Boxes of Jungle Oats, one of South Africa's Tiger Brands original products, sit on a shelf in a Cape Town convenience store. File: Reuters

Boxes of Jungle Oats, one of South Africa's Tiger Brands original products, sit on a shelf in a Cape Town convenience store. File: Reuters

Published Feb 23, 2024


Food retailer Tiger Brands has aggressively upped the ante to turn its fortunes around as it faces the coalface of reduced South African consumer spend, on the back of a whopping hike in food prices by up to 20%, which has reduced its quarterly earnings.

On Thursday, Tiger Brands issued a voluntary trading update for the four months to January 31, in which it said group revenue for quarter one declined by 1% year-on-year, driven by volume declines of 8% offset by price inflation of 7%.

In as Stock Exchange News Statement it said: “Tiger Brands' domestic performance reflects the difficult trading environment with inflation in food and non- alcoholic beverages rising ahead of CPI (consumer price index).

“Prices of essential items such as sugar, vegetables, meat, eggs and rice surged by almost 20% (Stats SA). As a result of the higher inflation over the period, consumer shopping habits shifted towards buying more on promotion and limiting their spend to essentials,” it said.

Operational performance

Quarterly one trading had proven difficult, with Black Friday sales and promotional activity over December falling short of expectations, the firm said, adding that that was a continuation of the under-performance of key segments of the portfolio evident in the past financial year resulting in significant volume declines.

“The new management team is committed to arresting this trend while at the same time restructuring the business for long-term sustainability,” it said.

However, on the positive side, the firm said quarter two was beginning to show a recovery as competitor pricing and promotional activity aligned with input cost inflation.

Its divisions performance:

– The Grains division experienced volume regression across all segments, due to a difficult trading environment.

- The Consumer Brands division, year-on-year volume growth was achieved in the Snacks & Treats and Baby segments, as well as strong volume growth in Beverages.

– Groceries experienced volume regression due to absolute volume declines across categories. Home Care was adversely impacted by a slow start to the pest season due to excessive rainfall, while Personal Care volumes benefited from the excellent traction of recent innovation.

– Chococam delivered a “pleasing top-line performance”, further supporting the strong performance from Exports and International, including the Deciduous Fruit business.

Tiger Brands said income from associates continued to perform well, significantly growing earnings on the previous year in local currency and in rand terms.

Despite the volume regression over the period and consequential muted revenue performance, the benefit of improved factory efficiencies and price realisations negated the impact to the gross margin percentage.

Management overhaul

The results update comes hot on the heals of it detailing its new management structure. This week, Business Report reported: “ Fresh executive team at Tiger Brands to drive growth in its new business units.” (Readers can click on the embedded link to see the new structure).

Tiger Brands said on Thursday: “The business is currently busy with the next level of restructuring below the managing director level. A key objective of this re-structure is to deploy support functions and shared services from head office back into the business units, which is aimed at achieving the following objectives:

- Operating a decentralised model with most decisions being made at the business unit level.

- Quicker and better decision making with regard to manufacturing, procurement and customers, as well as speed to market.

The group said it anticipated the second part of the restructure would be completed by the end of the second quarter.

Restoring cost leadership

“In line with our revised operating model aimed at empowering the business units, efforts to decentralise procurement based on uniqueness of spend are well advanced,” it said.

The renewed focus on rationalising stock keeping units (SKU) would reduce complexity, resulting in manufacturing and procurement efficiencies in due course. Additionally, achievements in portfolio and SKU rationalisation were expected to reduce the number of brands requiring support, allowing for more focused investment yielding a higher return on investment, said the firm.

Multiple value engineering projects had been expedited to improve the competitiveness of core brands and were expected to start delivering results within 2024.

Portfolio optimisation and capital allocation

“It is important that we direct our resources, both financial and human capital, towards the business segments, which generate or, have the potential to generate the highest returns. To date, significant progress has been made on the disposal of certain non-core brands within HPC. In addition, focused initiatives are under way to optimise current working capital levels,” Tiger Brands said.

A detailed capital allocation framework review and portfolio rationalisation exercise was also under way, with a further update expected during the the year.

“While no sale has been concluded in terms of the Deciduous Fruit business, operations have been extended for another season as we continue to explore optimal solutions for this business,” it added.

Market and trading environment overview

Tiger Brands said that given the slow start to the year, much of which was a function of the internal headwinds the company had been facing, as well as a continuation of the under-performance of the last nine months of 2023, operating income for the six months ending March, 31, 2024 was expected to be flat to lower, relative to the same period last year.

The second quarter recovery remained largely dependent on improved trading before Easter.

The company reassured investors that “management is focused on restructuring the business for the long term and believes that the current restructuring efforts will start to gain momentum in the second half of the year”.

However, markets reacted negatively on Thursday, which saw the share price end the day 3.59% lower at R202.91.

This as in the past six months, the share price has surged 29.32% and is up 4.56% in the year to date.

Of note, the share price has only fallen 1.57% in the past three years despite the challenges of Covid-19, geopolitical volatility that disrupted supply chains and caused a spike in prices, rate hikes in the face of high inflation and surging food prices, among other factors.

This after its reputation was shredded in 2018 after its meat division’s Enterprise Foods brand was at the centre of a listeriosis outbreak in South Africa, which claimed roughly 200 lives.

There is a class action lawsuit on the cards against Tiger Brands, with lawyers muscling up on documentation and evidence.