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Tiger Brands focused on future fitting while navigating a complex operating environment

25 May 2020

Tiger Brands CEO Noel Doyle says that the complex operating context and prevailing economic uncertainty have provided an extraordinary landscape for the business while it strives to ensure the continued availability of its products and the safety of its people during the lockdown. Amid these unprecedented challenges, he and his team are also directing efforts to refocus the organisation and leverage its scale as part of his strategy to future-fit the organisation for its sustainability and growth.

The company’s interim results released on 25 May reflected the difficult trading environment. Group revenue from continuing operations increased by 2% to R15,7 billion. However, 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 (HEPS) from continuing operations dropped 35% to 501 cents.

"We are extremely conscious of the drivers of our performance and have implemented a series of initiatives to promote better agility in decision making, drive focus and generate savings. The need to position the group to respond to uncertainty, shifting consumer behaviours in an intensely competitive trading environment as well as a poorly performing economy, are necessary,” said Doyle. The company is in the process of implementing a reengineered organisational structure to grow in its categories as well as plans to optimise costs.

Doyle has also been deliberate about the Group’s business portfolio and has taken action to exit businesses and categories that do not align with the company’s future growth aspirations. This included the closure of Deli Foods– a biscuit factory based in Nigeria, the intention to sell its Value-Added Meat Products business and exploring options for its Deciduous Fruit business which produces canned fruit and fruit purees largely for export markets.

“While we are working to streamline the organisation and unlock opportunities, we must not underplay the impact of Covid-19 and the resultant lockdown measures on the overall economy. The pace at which we move through the various lockdown phases to fully re-opening the economy remains uncertain, while the impact on consumers, unemployment and disposable incomes is likely to be dire. We anticipate that demand patterns will change and are preparing for significant changes in consumption and shopping behaviour as we move out of the acute phase of the National Disaster period and into, what is likely to be, a deep and prolonged recession.”

Recognising the critical leadership role it plays in food security in South Africa, Tiger Brands has rallied behind Government’s efforts to promote stability and safety during the Covid-19 pandemic. The company has continued with its community food and nutrition programmes during the pandemic, donating an additional 12 000 food hampers for food relief efforts to augment the hampers it distributes monthly to feed 30 000 community beneficiaries. It is also providing donations of bread to frontline healthcare workers and hospitals to the tune of R9 million a month for the duration of the national disaster. Its University Food Programme which currently feeds around 4 500 university students has continued despite the institutions being closed, while the Tiger Brands Foundation, which provides a hot breakfast to 77 000 school children every day, has distributed 15 000 food hampers in April and May while schools remain closed.

Tiger Brands’ leadership has given considerable time and effort to additional employee safety measures during the lockdown. The company has staggered shifts where possible to ensure a safe working environment, increased health screening and awareness across the Group and provided private transport for staff. Essential workers across its operations are being compensated with additional income through a special incentive provision over the lockdown period. These investments have equated to in excess of R60 million with an additional R20 million planned for May. “We are grateful for the exceptional contribution from our employees to ensuring food security during the lockdown period,” said Doyle.

To assist with Covid-19 relief initiatives, the Executive Committee and Board of Directors have agreed to forfeit up to 30% of their salaries and fees for three months.

Given the extremely challenging outlook, the Board of Directors of Tiger Brands has decided to withhold an interim dividend. The Board considers this prudent given the short-term uncertainty from Covid-19. Depending on the Group’s trading performance for the full financial year and the financial outlook at that time, a dividend will be reconsidered at year-end in line with the Group’s dividend policy.

The company expects that the second half will likely be impacted by significant cost push due to Rand weakness, global supply chain disruptions and additional costs incurred during the Lockdown period. Profitability during the National Disaster period may continue to be impacted by Government regulations on pricing.

“Our immediate focus is to ensure the availability of our products whilst building stock levels in the event of potential disruptions to the supply chain while keeping our employees safe. In the medium to long term, cognisant of a constrained consumer, we will prioritise innovation towards value offerings, ensure that the right people are in the right places, whilst re-engineering our business to optimise costs and improve efficiencies,” concludes Doyle.

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