Cold meat recall weighs on Tiger Brands results

by Eric Schroeder
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Grain transportation
Company income improves in Grains division during first half of year.
 
JOHANNESBURG, SOUTH AFRICA — Tiger Brands Ltd. profit before tax during its first six months ended March 31 decreased 18% to R1.9 billion ($152 million), primarily reflecting costs associated with the company’s recall of Value Added Meat Products (VAMP).

Total sales for the company totaled R15.7 billion, down 4.4% from R16.4 billion in the same period last year.

In the company’s Grains division, meanwhile, operating income increased to R1.047 billion from R1.020 billion, while sales eased to R6.594 billion from R6.909 billion.

“So within the grains business, we had classified this as a fairly satisfactory environment, given the level of deflation, but also given the level of aggression that we’ve seen from competitors, particularly in the sort of wheat-to-bread value chain, we’ve seen new capacity come on stream,” Noel Doyle, chief financial officer, said during a conference call with analysts on May 24. “And we’ve seen a lot of price aggression, particularly in the top end of the trade. I think as the category leader, we’ve tried to sort of maintain ourselves in terms of the national response in a, what I describe as a sort of a sea of irrationality and we’re particularly pleased with the fact that we’ve managed to hold our operating performance in that wheat-to-bread value chain steady for the period-on-period.

“We had a good performance out of our sorghum business and a satisfactory performance from our maize business in the first six months. In other grains where we specifically made decisions to go after market share and volume growth, we changed our procurement model in rice. We went after market share by reinvesting that procurement benefit, and there we’ve been quite happy with the outcome of that strategic initiative.”

Within the Grains business, Milling and Baking operating income increased 4% to R826 million behind strength in maize and sorghum, while sales fell nearly 9% to R4.473 billion, reflecting a price deflation in maize, the company said.

Operating income of Other Grains fell about 3% to R220 million, while sales increased 4% to R2.121 billion. The increase in sales was underpinned by a 10% volume increase, driven primarily by rice, Tiger Brands said.

The Exports and International division operating income was narrowly lower, falling to R111.7 million from R112.6 million, while sales decreased to R1.892 billion from R2.123 billion.

“So there we had a very strong performance out of the Davita business,” Doyle said in discussing the company’s Exports and International segment. “So in a challenging market, the liquidity issues that we’ve had before, the currency issues and particularly in respect of sort of getting exports into Zimbabwe and Përmet, we’ve had ongoing challenges. So notwithstanding all those challenges, we’ve been quite pleased that, that business has sort of stabilized year-on-year with strong growth coming out of the Davita business.

“Chococam, any of you who have covered us for a period of time will — well almost got used to this business delivering sort of a steady progressive growth and that continued in the current year. Unfortunately, the growth that we saw in the Cameroon has largely been offset by ongoing challenges with our biscuit business in Nigeria.”

Looking ahead to the remainder of fiscal 2018, Tiger Brands said the year “remains challenging,” with “intense competitor activity” in the domestic market and no meaningful recovery anticipated in international markets.

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