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Tiger Brands’ road to recovery

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Jun 05 2018 10:26 Lloyd Gedye

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In May, the group released its results for the six months to
31 March – its first results following the news that the ■ Disrupt SA's elite, says political analyst
listeriosis outbreak in South Africa could be linked to a
strain found in facilities owned by Enterprise Foods, one if
its subsidiaries.

With its share price at a peak of R474.50 in January, it is

currently trading at around R335 per share. Its market cap
is down R27bn since January to around R64bn at the time
of writing, Wayne McCurrie, senior portfolio manager at
Ashburton Investments, points out.

To date, Tiger Brands has recalled and destroyed 4 000

tonnes of value-added meat products (VAMP), costing the
company R415m, according to its chief financial officer,
Noel Doyle.
Tiger Brands. (Iavan Pijoos, News24)
“On a daily basis, we are incinerating products,” said CEO
Lawrence MacDougall. RELATED ARTICLES
Pig farmers 'pray' as Tiger Brands
It has also closed three plants, and Tiger Brands has since shuts plants after deaths
spent R50m in remediating its facilities. According to
Doyle, the food giant is planning to have all its facilities Tiger Brands seeks new food
reopened by September this year. Floors have been safety standard
replaced and changes to process flows have been Zambia partially lifts ban on SA
implemented. listeriosis-risky food

“We have changed how we move products from one place

to another,” he says.

Despite the closures, Tiger Brands has maintained its 1 600 permanent employees. Carrying these
costs while facilities are not in production is a challenge, making it critical to get facilities back up
and running as soon as possible, says Doyle.

The listeriosis news broke at the beginning of March, and therefore only four weeks of closures
have been included in the recent set of results. Volumes in VAMP have dropped by 12% over the
period and revenue by 16%, delivering an operating income of R133m.
“These closures have already seen [operating] income plunge almost 80%, so the longer they stay
closed, the worse it gets for Tiger Brands,” says Pietropaolo.

“Their forward guidance was also somewhat bleak, expecting trading conditions to remain tough for
the rest of the year.”

The cost of a class action

McCurrie says Tiger Brands is likely looking at a direct cost of R800m to R1bn to its income
statement, before it even gets to the class action lawsuits relating to the listeriosis outbreak, which
to date have resulted in over 200 deaths.

There are currently two class actions in motion, and the two cases are expected to be combined
into one, says Doyle, adding that Tiger Brands’ insurance lawyers are close to the process. He
believes the company has appropriate cover to respond to the crisis.

“Just how big the settlement [relating to the two class action lawsuits] will be, is anybody’s guess,”
says Pietropaolo.

McCurrie points to a potential settlement figure of between R1bn and R2bn, and suggests that Tiger
Brands should choose to settle the class actions rather than have them drag on for years.

“That would be the quickest way to repair your brand and truly put this thing behind you,” says
McCurrie.

Other bad apples

Doyle argues that Tiger Brands sees the current performance as a “fairly satisfactory environment”,
given the level of deflation in the market.

The company’s revenue for the period was down 4% year-on-year to R15.7bn. According to Tiger
Brands, had the impact of the recall been removed, revenue would have been down by 2%.

Tiger Brands also identified “specific challenges” in its grains, consumer brands, home and personal
care (HPC) and Langeberg & Ashton Foods (LAF) divisions, which it said significantly impacted on the
group’s overall performance.

Volumes at LAF, its deciduous fruit business, dropped 22.9%, and revenue by 23%.

It reported an operating loss of R72m, a decrease of 337% on last year’s operating profit of R30m.
The poor performance in this division was largely down to the drought in the Western Cape and the
subsequent lack of volume to sell, according to Doyle. “Yields were poorer,” he says. “That was the Follow on Follow on
biggest driver.” facebook twitter

Volumes at its HPC division were down 12%, and revenue down 16%. Operating income, at Watch on Receive
R133m, was down 46% year-on-year. YouTube our
newsletter
While Doyle also cited an intense price war between Clicks and Dis-Chem, he says the major
reason for the poor performance in this division was grain. Contact Us

According to Doyle, Tiger Brands’ Deli Foods in Nigeria has faced 24 months of significant
downturn, linked to the devaluation of the naira and the deep recession that followed the oil price
collapse. 21 June issue
“We haven’t found the right way to recover that business,” says Doyle, adding that Tiger Brands had
made some management changes at Deli Foods and would like to still make some more.

“We are looking at it carefully,” he adds.

This article originally appeared in the 7 June edition of finweek. Buy and download the magazine
here, or sign up for our weekly newsletter here.

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