More bread, less chocolate for slimmed-down Tiger  

Not too long ago, Tiger Brands was getting lower returns on the money it had ploughed into its business than that cash cost to borrow. Three years into veteran CEO Tjaart Kruger’s overhaul, and the owner of Albany and Jungle Oats is now looking at returns on its invested capital of almost 25%.

“We were destroying value,” Kruger tells Currency after the company’s interim results presentation on Monday. Now, the group is growing volumes ahead of its peers and margins have swelled.

Yet the market took an initial dislike to the numbers for the six months to end-March: Tiger Brands shares opened almost 3% down, but erased all those losses and more to end the day 2.2% higher.

One issue for analysts may have been Tiger’s stilted revenue growth of 1.3%, thanks in part to a big fall in rice prices. But Kruger says he’s mystified that analysts would focus on top-line sales when so many of the other metrics are doing so well.

“We are deliberately getting pricing down to affordable levels and we’re very pleased with the volume growth we’re getting – and it’s not sacrificing margin,” he said at the results presentation.

“If you had massive revenue growth just because of inflation I think that’s worse,” he explains to Currency.

Umthombo Wealth equity analyst Talya Ginsberg calls the results “compelling”.

“I like that Tiger is becoming more like AVI in the sense that they are cutting the fat, gaining bottom-line growth through efficiencies rather than trying to chase sales, and they are growing the ROEs [return on equity],” she says.

Return on equity this half was 26.3%, up from 16.3% a year ago. Headline earnings per share, without the contribution from its Chilean business Empresas Carozzi, grew 24.1%, to 980c.

Running hot

Still, Tiger Brands shares – even with Monday’s late fillip – are down about 23% year to date, while stock in chief rival AVI has dropped 13%. Ginsberg reckons the market has largely ignored the firm after it paid a special dividend late last year.

“They were running very hot then, so I assume a lot of fund managers sold them and ran with their profit,” she says. “Also, given the soft commodity uncertainty and the hate for SA Inc at the moment, they’re being seen with that lens.”

Then there’s the undeniable pressure that local consumers are under: Tiger Brands says shoppers are buying more often and less, as and when cash is available, with as much as 80% of a shopping basket bought on promotion.

CFO Thushen Govender told the presentation it was “absolutely critical” that the group continues to deliver products at the “right” price point.

Kruger has also spent the past three years winnowing down the business. Last year, Tiger sold its 24% stake in Santiago-based Empresas Carozzi to the Carozzi family for R4.4bn, and exited its Baby Wellbeing and some personal care brands, as well as its Cameroonian unit Chococam. It’s also selling most of the local Beacon chocolate business, barring a few key items, like Maynards jellies, and Nosh and TV bars.

Not fiddling around

The group “mustn’t fiddle around with the stuff that doesn’t make a difference”, Kruger says. “You know, people say: ‘Beacon has been such a strong brand for so long, how can you sell it?’ Well, we’ve never made money from Beacon slab chocolate.”

The company makes “good money” in Maynards gums and jellies and liquorice, and “then we throw half of it away in chocolate because we subsidise it”, he explains. “You can’t compete against Cadbury’s, and by the way, if I eat slab chocolate I eat Cadbury’s – not Beacon.”

Tiger, Kruger tells Currency, has to be “unemotional” about its assets.

Instead, the company is ploughing more money into expanding its crucially important baking and milling business, including a “super bakery” that it’s building in Gauteng, which will produce 12,000 loaves of bread an hour once it’s up and running at the end of the year.

The company is “not where we want to be with cost leadership yet – we have some ways to go,” said Kruger, but Govender says “we’ve found our rhythm” when it comes to capex.

Kruger said the group is sticking to its guidance for the full year – notwithstanding the Iran conflict and the impact it has had on fuel prices. “We’re still very optimistic about the journey Tiger is on. It’s not about a turnaround anymore but a growth agenda.”

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_{Top image: supplied.}