NOMPU SIZIBA: JSE-listed food producer Tiger Brands released half-year results. For the six months ended March, 2021 the company reported that its revenue came in at R16.4 billion. That was up 8% on the year prior. Headline earnings per share rose by 21% to 741 cents, and shareholders will be getting an interim dividend of 320 cents a share.
Well, to take us through the company’s performance I’m joined on the line by Noel Doyle. He’s the CEO at Tiger Brands. Thanks very much, Noel, for joining us. Now steady but sure your metrics are improving. What were the main drivers behind the performance?
NOEL DOYLE: I think the biggest driver for us is that we finally got our ducks in a row in terms of our own internal productivity measures, as well as correcting some areas where in the previous year we had a very low base effect. So in a business like our pasta business, where we lost money in the same period last year largely due to issues that we had in our pasta-manufacturing plant, we’ve managed to solve those. Previously we weren’t allowed to because of litigation in Nigeria, we had issues distributing … product range, and in this period, we were able to do that.
So I just think we had a good set of results. But if you went back a year previously you would see that we still have a long way to go to get back to a reasonable level of performance if you benchmark 2019 as that level.
NOMPU SIZIBA: Now, keeping a good handle on your costs, which you alluded to, is always a priority for you guys. What were some of the cost pressures that you had to deal with, and how did you mitigate them?
NOEL DOYLE: We were faced with what you could only call a massive wave of inflation that was coming from soft commodities, where the international markets have gone a bit haywire over the last 12 months and we found that we weren’t able to always pass those raw-material cost increases through. So we worked really hard at driving our productivity in our factories. We were quite aggressive in dealing with our supplier base in terms of asking them to sharpen their pencils; and then just kind of good old-fashioned housekeeping around our overhead control.
But the biggest driver was that, when you’re running your factories efficiently, apart from that productivity gain, you also find that efficient factories run with a lot less material usage variances, a lot less stop-starts, so you don’t end up destroying product halfway through the process. That all made a contribution to allowing us to at least hold on to our gross margin.
And then some good performances in the top line in some of our businesses like our groceries business, our snacks and treats business. But again, being very frank, there was an element of the base effect in our results. Nonetheless they are not bad in a very challenging environment.
NOMPU SIZIBA: Yes. But the picture that you paint, it does seem as though it’s still continuing – that of the quite high-priced soft commodities – going forward. Are you concerned that that’s also going to be difficult for you to pass down to the consumer, who of course is still under a lot of pressure right now. On your side you can only do so much. You can only cut the fat so much. To what extent are you worried that you may not be able to protect your gross margin in the way that you have recently?
NOEL DOYLE: I think that is a significant concern for us. We are hoping for a little bit of relief for ourselves in the consumer on inflation, particularly in the grains area, where some of the soft commodities, wheat and maize, look like they’re softening a little bit. If you go into other commodities, sunflower oil, soya-based, all still seem to be sort of running away.
But on balance I think we expect a level of inflation in the second half – it’s a little bit lower – to give us some relief. But we are anticipating that pressure on margins in the domestic business. That’s why we’re going to try very hard to make sure that we lay the table or finish laying the table for a good year in 2022 in our exports rest of Africa division.
NOMPU SIZIBA: I know it’s not a very good variable to rely on, because it’s not one that you can control, but to what extent does the stronger rand help you as well?
NOEL DOYLE: The stronger rand has been a benefit, I think, in dampening the pressure on the overall consumer demand. Without it, inflation levels could be well into double digits, and so preserving that is important to us. But with a portfolio like ours it’s a mixed bag. So you expect to be able to run our deciduous food business at break-even this year. With the rand at R14/dollar we’re looking at very significant losses for the 12 months to the end of September. It is a big variable for us. Even as there’s some relief on international soft commodity prices, the risk of the rand depreciating sharply is always there with us. We’ve just got to hope that Mr Biden keeps printing those dollars to keep the rand around where it is.
NOMPU SIZIBA: He might not be doing it for that much longer. Now, while you reported an improved performance, what are your thoughts about the condition of the South African consumer?
NOEL DOYLE: Unfortunately sometimes you don’t want to be proved right in predictions, but I think we are seeing the impact of a period of economic stagnation, compounded by what’s happened with Covid. Certainly employment levels are not back to where they were pre-Covid. If you look at our results presentation, you’ll see that volumes in our markets are still down on two years ago, so it’s not just a Covid impact. I think it talks to the levels of employment, and it also talks to the fact that even those of us lucky enough to hold on to our jobs have not been able to increase our incomes anywhere. Cost pressure, particularly in the lower LSMs, where food and transport is, is a big part of their basket.
At Tiger Brands none of our salaried employees received any increases last year. And with our unionised labour, most of the settlements were in anywhere between 2.5% and 4%. So in that environment even those who have held on to their jobs are finding that they are having to make some hard decisions about where they spend their money, and that’s really reflected. We won’t see any major change in that going forward.
So we have to find other growth factors. If we grow in our existing markets it’ll come at a cost of discounting, and therefore we need to go after innovation, new products, new opportunities – perhaps even acquisitions where you’d be cautious in that space. And then exploiting the benefits of the foundations we’re lowering for the rest of the continent.
NOMPU SIZIBA: Did you finally manage to sell your value-added meat products business?
NOEL DOYLE: Yes, we did. We completed that deal at the end of last year. We were really pleased with the outcome and we sold that to a couple of parties, including Country Bird Holdings, which was one of the main participants in that transaction. We were really lucky; we managed to sell it as a going concern and therefore we saved all of the jobs in that business.
NOMPU SIZIBA: Excellent. You’ve given shareholders an interim dividend of R3.20 a share for this financial year, for 2021. But I do see that because of the strains brought about by Covid last year you didn’t give shareholders anything in the interim, but it’s something that apparently you guys are looking at, at board level. Are you able to give clarity on when a decision will be made in that regard?
NOEL DOYLE: What we did last year, we passed on the interim dividend, but when we made the final dividend payment last year, we kept to our dividend covers of 1.75 times cover. So we made up the interim dividends in the final last year, and we think going forward we will pay out, at least in terms of our dividend policy, 1.75 times cover.
NOMPU SIZIBA: In terms of your outlook for the balance of the year, what is that? I think you’ve given us a lot of flavour, but what is it?
NOEL DOYLE: Look, we really see continued pressure on volume, and hopefully a little bit of a relief for the consumer – certainly in some of our big lines, particularly on the soft commodity grains side of things. We had a poor year last year. Again, there’ll be a base effect in terms of the disruption of Covid. If we’re able to get through the six months without major disruption as Tiger Brands, we still think we can do a better performance than the second half of 2020 and 2019. But there will be ongoing pressure on margins and ongoing pressure on volume. So the outlook into 2022 is still extremely challenging.
NOMPU SIZIBA: That was Noel Doyle, the CEO at Tiger Brands.