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Tiger burning not so bright


Tiger burning not so bright

Three shameful episodes in the food producer’s recent history portray a company losing its conscience

Chris Gilmour

Fool me once, shame on you.
Fool me twice, shame on me.
Fool me three times, and we have a deadly listeriosis outbreak.There have been several occasions in recent memory that Tiger Brands has displayed greed, gross incompetence or lack of conscience.Three key events are Nick Dennis’s bread price collusion scandal, followed by Peter Matlare’s Nigerian money-sucker in the form of Dangote Flour Mills, and now it is Lawrence MacDougall’s listeria tragedy, as Enterprise brand meat products are implicated.Current chief financial officer Noel Doyle (formerly chief operating officer; interim CEO; and grains and Nigeria business executive) has been there on all three instances.At the recent March 2018 interim financial results presentation, MacDougall kicked off by addressing this national heartbreak. He assures that if Tiger is found to have any link to any of the specific listeria incidents, he will make sure it does the right thing.The financial impact of the Enterprise brand scandal is put at R415-million cost for product recall, which includes well over R200-million relating to stock written off, as well as retailer claims and the destruction costs of incinerating 4,000 tons of ready to eat and ready to cook product. Insurance recoveries so far should be around R50-million and, with the initial claim being made against only one level of the Tiger insurance policy, this recovery should increase.
After the shame of listeria, MacDougall then had to explain a very disappointing first half trading result. Revenue was down 4%, driven by volume decline as well as price deflation which was especially evident in the grains and milling segment.
However, the group managed to hold on to gross margin percentage, marginally up to 33.3%, because it did not lead the race to the lowest point through fierce pricing tactics as some competitors did. But this margin expansion was lost due to the poor top line performance.Despite cost control efforts, both operating income and operating margin percentage were down. As headline earnings per share were reduced by the recall costs, they were 16% down. MacDougall admits they definitely “left money on the table”.As the trading environment ahead looks fierce, MacDougall says the strategy is to move focus back to the local market. He explains that the international strategy should be accretive to the local one, and that has not been achieved.
Bemoaning that short-term growth has proved elusive, the CEO admits that this has not been an interim period to be proud of, and with the market starting to show some turn around, Tiger Brands did not manage to participate fully in the uptick.Reverting to the listeria crisis, MacDougall notes that the group does not operate in a commodity industry, but one which is rather all about brands. Tiger has been tracking the listeria impact on its other brands, and says there has been very small, if any, spillover. It is set on rebuilding the reputation of “ready to eat, value added” meats, as well as that of Tiger Brands as a whole, amplifying the community work it does, and through active participation in ensuring that food standards in the industry are always evolving.
He assures that their biggest priority is to do everything in their power so this does not happen again, not just at Tiger, but the industry as a whole, as this can “pop up anywhere at any time”.
He cannot be drawn on class action discussions, as this would be premature, with the specific class of any action not certified yet, and other liable parties not yet established.
Despite Tiger Brands not liking the way the media has portrayed it, one must concede that its corporate communications are opaque, defensive and insensitive. On the issue of whether he should resign, MacDougall says this is rather for the board and nominations committee to decide. That is not correct, as resignation is solely a matter for the individual, based on one’s own social conscience.
Chris Gilmour is an investment analyst.

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