It never rains but it pours. That probably sums up how Tiger Brands CEO Nick Dennis is feeling now.
The company's corporate reputation tumbled after the competition commission imposed a R99m penalty, finding that the company contravened the Competition Act with anti-competitive behaviour in the bakery and milling areas of its business.
In addition, a trading update this week warns that headline earnings per share for the 12 months ended September 30 are expected to be just 5%-7% above those in the 2006 financial year. The profit outlook may not be rosy either.
At the half-year, the company said first-half profit dropped 16% to R981m, even as sales surged 27% to R9,5bn (profit in the earlier period had been boosted by asset sales worth R356m).
At the time, Tiger Brands, SA's biggest food company and manufacturer of popular products such as Jungle Oats, expected profit growth to slow as consumer spending dropped. Simultaneously taxes, interest expenses and raw-material costs were expected to rise.
Having driven the company through several years of growth, Dennis admitted at the half-year results that the company was struggling to supply customers because its factories were running near to capacity, while shortages of commodities had increased expenses. "The outlook will remain challenging," he said.
"We could have done without this," admits company secretary Ian Isdale, referring to the competition issue. "But we cannot defend the indefensible and our own investigations revealed that at a national level, meetings had taken place where pricing was discussed. We reported this to the competition commission." He adds around 20 employees will be subjected to disciplinary action. "This has been an expensive exercise for the company; we are taking this very seriously."
Tiger Brands' strategy for about two years has been to focus on its core business in fast-moving consumer goods - and to own the strongest brands in this market. In support of this, the company last year acquired Bromor Foods, which has a turnover of about R850m/ year and brands such as Oros and Energade.
The firm said recently it would exit the pharmaceutical and hospital interests of subsidiary Adcock Ingram. This seems to be the right move. While still showing positive growth, Adcock Ingram is not the blue-chip share it once was, thanks in part to new pricing regulations and because it cannot compete with Indian and Chinese generics.
Dennis has followed a strategy of cutting costs for several years. This has worked well and centralised functions have delivered efficiencies. But it is said he may have cut to the bone. Anecdotal reports suggest staff is stressed and morale is low.
Results are due this week.
Source: Financial Mail
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