KEY POINTS

Tiger Brands scraps dividend
Gets burnt in Nigeria again

Food giant Tiger Brands has passed on paying a dividend as it faces job losses and cost-cutting in its operations after a bruising first half trading on the cusp of COVID-19 that saw operating income drop by 29% to R1.1 billion and a squeeze on profit margins, in the six months to March 31. A settlement in a long-running trademark dispute in Nigeria and the fall in the rand also cost the company dear in the first-half numbers.

Profit margins declined to 7% because of lower volumes, rising raw material and conversion costs greater than inflation and increased marketing investment. Headline earnings per share (HEPS) from operations dropped 35% to 501 cents. Tiger Brands warned before the results that it was facing a write-down of R557 million.

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“This was a challenging and disappointing performance,” says Tiger Brands CEO Noel Doyle.

“Across every category margins and operating profit is expected to decline meaning we can’t recover costs and show growth at the same time.”

Doyle said the company was starting to look through its operations at jobs and costs.

“In terms of job losses it is difficult to give a number at this stage. If the business trajectory continues we do expect as we work through each category there are likely to be job losses, but we haven’t yet engaged internally, we wouldn’t want to put any numbers,” says Doyle.

“We expect to make greater savings from other savings like value improvements, not job cuts, but they (job cuts) will be at the end of the process, it is not the first lever we will pull.”

A second time

Tiger Brands also admitted it has burnt its fingers in Nigeria for the second time within a decade. This time it was a trademark dispute in court over brands: Jolly Jus drink and Benny seasoning.

“We had an ownership dispute that was tied up in litigation in court and we couldn’t export our product to Nigeria. That litigation was going to go on for years so we had to make a commercial decision. The settlement was agreed in principle and we are taking it to court. The settlement was R71 million and the profits at stake were worth more than that.”

Jolly Jus and Benny are the only Tiger Brands names left in Nigeria – a country surely the South African company wants to forget. Tiger Brands began a foray in Nigeria, in 2012, when it bought a 63% stake in struggling Lagos Flour Mills from billionaire Aliko Dangote for $182 million. It was part of a board-driven expansion across the continent.

Unfortunately for Tiger Brands, its executives didn’t understand the complexities of operating the mills, or the complications of the Nigerian market. It sold it back to Dangote, for a song, in 2015, suffering a $120 million write off.

Doyle said that the company had passed on paying a dividend for now.

“We have passed on a dividend. Should circumstances allow it could change, we are predicting now how we are going to declare a final dividend that makes up for the lost interim dividend.”