The initial fervour that greeted Tjaart Kruger’s appointment as CEO of Tiger Brands in 2023 has worn off a little, and after a special dividend paid late last year, shares in the owner of Albany bread and Jungle Oats have retreated as much as 23% year to date. But the company, which released interim numbers this week, says it’s left the turnaround phase and is now firmly on a growth trajectory — even as top-line sales numbers suggest otherwise. The FM spoke to Kruger.
You said in the presentation that the revenue growth isn’t where you wanted it to be, yet volumes were up 4.5%, margins were better and headline earnings per share from continuing operations were 24% ahead ...
I’m not actually worried about the revenue growth if you understand the context. We’ve been growing volumes way ahead of the market, and we’ve improved margins and return on equity and return on invested capital. If you look at creating value in our capital allocation model, there are three things you must do well: you must get your gross margins sorted out (you get your recipes right); you must get your operating margins sorted out, which is getting your overheads right; and then you must manage your working capital properly. We took about R4bn-R5bn out of working capital in the past two or three years, and then you get a return on invested capital that starts making sense.
You said the return on invested capital was lower than your cost of capital when you came into the business?
It was 13% and cost of capital was 15% two years ago. We were destroying value. I really don’t understand the analysts’ concern about lack of revenue growth: it’s because of the deflation in some categories [such as rice] which is good for the consumer and gets the price points right down. Everything else is growing. If you had huge revenue growth just because of inflation, I think that’s worse.
You’ve been spending money on such things as a new “super bakery” — why’s that such a big deal for Tiger Brands?
It more than halves your production cost and it improves your quality because you bake with proper technology. If you run a manufacturing plant, you’ve got wastage and damages that cost money. This is the first bakery in Africa, I think, where we’ve automated the pre-mix part; normally that’s done manually — and when you do it manually, you make mistakes. That’s one thing. The other is the pure scale. If you look at Premier Foods, they’ve got an 8,000-loaf-per-hour plant, their mega bakery; we’ve got a 12,000/hour plant. And it doesn’t use 50% more fuel in the oven; it uses probably 10% more fuel, maybe not even. And that’s the benefit you get with that pure size.
Nobody gets up in the morning and says to themselves: ‘I’m going to be useless today.’ OK, maybe one or two
You said in the presentation that there are still a lot more efficiencies to be had. Such as?
Almost everywhere. I think we’ve done a great job in getting our costs right — we’re right in the middle of a budgeting process now for next year, and you can see the DNA of the business where [people] have budgeted for costs to go up 4%. I ask why, and they say: “Well, that’s the inflation guideline.” I say: “Why don’t you take it down 10%?” If you get a budget guideline where everything must increase by inflation, that’s inflationary thinking itself. People in the organisation have made a huge shift over the past two years in how they think about things and how they take responsibility, but we’re not there yet. I guess, philosophically, if you think you’re there, then you’ve lost it. If you look at the clumsiness of our shared services and the size and where it will be in a year’s time — it’s just unbelievable. We’re not going to quantify the numbers, but we’ll save money by not passing credit notes incorrectly or by not getting late payments, for example.
Has it been a hard slog to get it right, in terms of work culture?
People just need leadership. Nobody gets up in the morning and says to themself: “I’m going to be useless today.” OK, maybe one or two, but humans are not like that.
Was it easier than you expected?
It was. I think the past couple of years in Tiger were terrible and people were just desperate to see some light — and we could show light very quickly, and then people started enjoying it.
Are you worried about Pick n Pay and what the impact might be if its turnaround fails?
Yes. I think it’s a national asset almost, it’s a very strong brand. They just have to fix it. It won’t be significant in our immediate short-term results, but if they fail, the other guys will just become more powerful, and then their bargaining power increases. That’s a risk in itself and you can say Shoprite’s bargaining power is very strong, but you could probably say the same of us. It probably has happened in the past where the retailers bullied us, and we fell for it, but we don’t fall for it anymore.
As for Beacon — why sell it? Especially if you’re keeping some of the products,such as TV Bar, Nosh and the Jungle energy bar?
You know, people say: “Beacon has been such a strong brand for so long, how can you sell it?” Well, can I show you the numbers, because we’ve never made money from Beacon slab chocolate. We make good money in Maynards gums and jellies and liquorice, and then we throw half of it away in chocolate because we subsidise it. You can’t compete against Cadbury, and by the way, if I eat slab chocolate I eat Cadbury — not Beacon. Get unemotional, and let’s make that call. I think my predecessors were too scared to. Just be bold.
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