Tiger Brands to slash costs by R450m as full-year profit slumps

Listed fast-moving consumer goods (FMCG) manufacturing giant Tiger Brands is set to slash costs by R450 million in its 2022 financial year after the recall of about 20 million canned vegetable products and the July unrest cost it R732 million pre-tax.

On Friday the group released its annual results for the full-year ended September 2021, which showed headline earnings per share (Heps) slumping 6%. Its latest Heps came in at 1 127 cents, compared to 1 196 cents for its prior (2020) financial year.

The decline in headline earnings and also operating profit came largely from the fall-out of losses suffered due to the recall of Koo and Hugo canned vegetable products together with the impacts of the unrest seen in KwaZulu-Natal and parts of Gauteng in July.

Operating income (profit) from continuing operations fell around 10% to R2.2 billion.

However, Tiger Brands noted in its full-year results Sens statement that if the product recall and civil unrest are excluded, then operating income actually increased 20% to R3 billion.

The owner of well-known food brands like Oros, Jungle Oats, Albany Bread and Purity, saw its gross margin drop to 28.5% (2020: 30.1%) and operating margin fall to 7.2% (2020: 8.3%).

Read: Tiger Brands eyes deal to invest in nutrition business

The group’s total revenue, excluding the effects of the product recalls and civil unrest, increased by 5% to R31.2 billion but this was underpinned by 7% price inflation and partially offset by volume decrease of 2%.

‘Bitter cocktail’

Commenting on the results, Just One Lap’s Simon Brown told Moneyweb that the moving parts of increased input costs related to increasing prices of raw materials, coupled with the costs of the unrest and Tiger Brands’ own mishap which led to the recall of millions of canned products, all came together in a bitter cocktail of substandard results.

“There are a lot of moving parts here, and broadly a poor set of results, albeit as I said not really all their fault … But if you look at the civil unrest and the product recall, it sliced probably 12% or 14% off headline earnings per share,” he said.

Brown commended the FMCG producer for continuing with its cost-cutting measures saying that the company has done most of the heavy lifting in this regard.

Wage protests

Tiger Brands’ latest results come as workers at its Beacon Sweets and Chocolate factory in KwaZulu-Natal have been on a wage strike for over week.

Those who are members of the African Meat Industry Allied Trade Union (Amitu) embarked on an indefinite strike last week after negotiations with Tiger Brands for a 7% wage increase reached a deadlock.

The JSE-listed group has instead offered the union a 3% increase.

Tiger Brands CEO Noel Doyle told Moneyweb during a results briefing on Friday that the protest could have a significant impact on the group’s performance should the strike continue.

He said the union has “excessive expectations” that Tiger Brands as a business cannot meet, given the group’s latest financial performance.

“The strike in KwaZulu-Natal has been going on now for just over a week. We do have a meeting scheduled for Monday [November 22] … The impact of the strike, if it goes on for much longer, could be quite significant,” Doyle said.

However, according to Brown, the wage protests should not have too much of an impact on the business, especially given that the snacks and treats division benefitted significantly from the work-from-home trend which saw more people snacking from home.

Tiger Brands declared a total dividend of 826 cents for the year, which shows a 23% increase on the prior financial year.

The group’s share price closed almost 1% weaker on Friday, at R195.50 a share.