Tiger Brands is regarded by some as a deep-value play, and by others as a company that will take huge pain from rising inflation and SA’s strained economy. Year to date, shares in the owner of Albany bread, Oros and Tastic have slid 19% and interim results to end-March saw its margins contract, to just 8.9%. The FM spoke to CEO Noel Doyle.
How fragile are consumers? An immediate fall in volumes the minute you hiked bread prices earlier this year suggests they are very brittle indeed.
I think that was more about relative pricing than the consumer per se. Inflation at 5.9%, that’s not terrible, but now everybody’s running out of cover and we’re all having to cost on true replacement cost [of commodities like wheat]. The fuel price is going to hit consumers, as will interest rate hikes. But basic food was defensive during Covid and I think it will be fairly defensive now. I look at the large number of people who don’t have an income and they’re not necessarily Tiger’s consumers, and inflation in their basket is going to be well north of 20% and we’re worried about the social upheaval that could come.
And I think wage negotiations this year are going to be incredibly challenging. We’ve had two years where we’ve managed to settle between 3.5% and 4.5% and I don’t think that’s going to be possible without significant disruption. I think we can ride out a period where we have these incredible price rises but if they don’t start to reverse in the new year then we’ll be in trouble.
There are still suggestions that Tiger split its business and offload commodities — like bread. Would you consider that?
It’s something that comes up regularly but we use the same route to market in terms of logistics, so it would be quite hard for us to get any particular cost synergies.
Can food producers like yourselves cut Russia or Ukraine out of the supply chain entirely or does it just come at a price?
It’s just going to be a lot more expensive. Until this time next year we are going to see wheat prices sitting where they are — and we still have to harvest everything in the northern hemisphere, so any major adverse weather effect will be a significant problem. In SA rail is a problem and there are delays on offloading at the ports. One month’s demurrage on a ship of wheat — if it arrives and is waiting to offload — is about R20m.
But my biggest single supply chain challenge today is actually sugar. I’ve got a team of incredibly senior people sitting every day trying to make sure that our factories continue to run because of this sugar shortage. It’s a combination of a slow recovery from what happened last July [the riots] and planned maintenance; we were limping along until the floods and the floods just made our position quite perilous. In one or two of our factories we are living from hand to mouth on packaging. And then there’s a shortage of gelatine, globally. I could write a novel on the challenges of importing gelatine.
My biggest single supply chain challenge today is actually sugar. I’ve got a team of incredibly senior people sitting every day trying to make sure that our factories continue to run because of this sugar shortage
— Noel Doyle
So is it fair to say the Tiger recovery has run aground?
I wouldn’t say run aground, but if we keep with the nautical imagery, I’d say it’s a little becalmed. What is pleasing for me is that in groceries, if you look at the strong demand for products and volumes in personal care, baby, out-of-home, we’re seeing pretty solid numbers. It’s not on the rocks.
But people are worried about your operating margins being sliced away. They’re at 8.9% — is that not pretty skinny already?
It’s probably fair under the circumstances. Of course, you’ve got such a mix of businesses, so you really have to look across the mix. The one area where we were disappointed with our performance was in beverages, where we had fantastic volumes but didn’t have the kind of pricing discipline that we should have had in the first quarter. We’ve got to get it back, I’d like 10%, but it’s not going to happen this year.
So you’re not expecting a horror destruction of margins?
No, I don’t think so. As I say, if you go back, the biggest hit we’ve taken in successive years — it’s now our fourth year — we’ve taken strain in the Millbake business, but the sense we have is that the levels we saw in the first half have bottomed out.
Are you close to settling the listeriosis case? It’s been years.
On that, it’s difficult for us to comment on the detail of something that is before the courts and just to reiterate that we are desperate to get to a conclusion on the case. We are doing everything that we can. Unfortunately, because of the process that’s in place I can’t really say more than that but I’m quite confident that we won’t be held to have unreasonably held up the process. The chair of the board puts incredible pressure on us to move this forward; the board is very clear, but it’s not very easy to deviate from the process.
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