SA’s biggest food manufacturer, Tiger Brands, is looking to put some of its R2.2bn net cash pile to use for acquisitions, saying an “obsession” with costs has helped margins even as the industry battles to pass on surging input costs to consumers.
For the first time in years the group has managed to carve out volume share growth while protecting margins, CEO Noel Doyle told Business Day, with the relentless focus on costs to continue as the industry battles with a need to pass on “super inflation” to consumers.
“Consumers will only feel the effect after Christmas. Retailers try to lock in prices for December,” he said.
The owner of iconic brands such as Oros, Koo, Jungle Oats and All Gold tomato sauce battled supply-chain disruptions, rising prices for commodities such as grains, strikes and an expensive product recall in its 2021 year. The group has 41 manufacturing sites and deals with more than a dozen trade unions.
Group revenue rose 4% to R31bn to end-September but headline earnings, the key profit measure in SA, fell 5.7% to R1.87bn as once-off costs related to civil unrest in July and an expensive product recall hit hard.
The group was forced to recall about 20-million canned vegetable products from the Koo and Hugo’s range due to concerns about defective welding that posed a risk of leaks.
The costs ran up to R732m before tax. Doyle said the recall took up a lot of management’s focus while further putting a strain on supply chains.
However, the company had done well in controlling costs, saving R498m in 2021 and is looking to save another R480m in its 2022 year. Cash generated by operations rose by about a third to R3.9bn to end-September and the group’s cash pile grew 21% to R2.16bn.
The group had focused on wringing out efficiencies across the business and also focused heavily on its supply-chain by, for example, switching to tendering instead of long-term contracts.
“It’s allowed us to be a little bit more generous in terms of our pricing,” Doyle said.
“We will need every cent to repeat the kind of performance we had this year in holding on to our gross margins.
“The wave of inflation has come at a time when it is not always easy to pass on those [costs] to customers, especially in the run-up to Christmas when pricing and promotional activity has been fixed for a period of time.”
Outlook
Tiger Brands said on Friday it was in the final stages of making an offer for a business closely aligned to its health and nutrition strategy, while a further nine opportunities were being assessed. The group would not go into details on its acquisitions but said they were in an area the company was not currently involved in.
Doyle said the group remained interested in bulking up its plant-based food interests as there were still gaps in its SA portfolio, including carbonated beverages and certain categories of energy drinks.
The group is also putting a lot of effort into innovation, seeking to tap into shifts in consumer trends while battling with the rise of private label brands.
“We have to focus in two directions. We have to try bring products that cannot be commoditised or copied, that provide some barrier to entry and provide some differentiation,” said Doyle.
“At the same time we are still a mass-market portfolio by and large and we need to make sure we can make our brands within reach of consumers.”
Despite the muted second-half growth, domestic revenue for the year increased 5% to R27.6bn while total revenue from the exports and international businesses increased 7% to R3.6bn.
The board declared a final ordinary dividend of 506c, bringing its total dividend to 826c, up almost a quarter year on year.
Tiger Brands shares closed 0.94% weaker at R195.50 on Friday, having fallen 6.1% in the year to date and by 7.2% since the beginning of 2020.
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