May 22, 2019 / 6:57 AM / 2 months ago

UPDATE 3-Tiger Brands revenue falls short after challenges at meat unit

* Reopening of meat factory posed challenges

* Domestic sales rose but exports weakened

* Consumer income under pressure in South Africa (Adds CFO quotes, recasts lead)

By Nqobile Dludla

JOHANNESBURG, May 22 (Reuters) - South Africa’s Tiger Brands underestimated the work involved in re-establishing its processed meats business after a listeria outbreak, it said on Wednesday, leaving it with disappointing sales and a battle to reclaim market share.

The outbreak in February 2018 forced the country’s leading food producer to recall cold meat products such as polony and suspend operations at its facilities. Its shares now trade around 42% lower than before the first announcement regarding the listeria.

Performance at the Value Added Meat Products (VAMP) division was hit by the challenges of re-opening the factory and relaunching products. Revenue in the six-months to end March tumbled by 79 percent and the unit posted an operating loss of 296 million rand.

The operational challenges hit Tiger Brands harder than it expected, Chief Executive Lawrence Mac Dougall said at the results presentation alongside Chief Financial Officer Noel Doyle, who added they underestimated the complexities of re-opening a plant that had not operated for nine-months.

Doyle said the facilities were re-opened slightly later than anticipated and the group ended up losing some of its key customers during the important Christmas trade.

“For the most part, the internal supply chain management issues have been resolved and we are now in position to satisfy market demand,” Doyle said.

“The real challenge for us is that having been out of the market... we got to now climb the mountain and reclaim market share.”

The operating loss in VAMP, alongside lower sales in international markets resulted in the owner of Jungle Oats and Tastic rice reporting a 2% fall in group revenue to 15.4 billion rand ($1.07 billion), compared with analysts’ expectations of 15.7 billion rand in a Refinitiv poll.

Excluding the VAMP division, revenue was up 4%.

Revenue from exports and international markets fell by 11% due to the change in a Nigerian distributor, challenging market conditions in Mozambique, exacerbated by two cyclones and price deflation in international markets.

CONSUMERS SQUEEZED

Domestic revenue excluding VAMP was 6% higher, driven by volume growth and inflation at 4%.

South African retailers and food producers are struggling to lift sales growth to double digits as consumers are dealing with a value-added tax hike, record fuel increases and rising utility costs, which have all intensified pressure on consumers’ disposable income.

The food producer said all categories, except sorghum-based products, maize, pasta and Baby Care recorded selling price inflation, however the increases were not sufficient “to fully recover cost increases, resulting in negative operating leverage.”

Tiger Brands and its peers are grappling with an industry that has become more competitive as manufacturers are forced to dip into their margins to maintain volumes and market share.

Headline earnings per share (HEPS) from continuing operations in the period dropped by 12% to 762 cents from 868 cents a year earlier.

Tiger Brands declared an interim dividend of 321 cents per share for the first half to March, down 15% due to lower earnings. Shareholders will also get a special dividend of 306 cents per share from once-off proceeds received from the Oceana Group Ltd stake sale to Brimstone.

$1 = 14.3600 rand Reporting by Nqobile Dludla; Editing by Subhranshu Sahu and Alexandra Hudson

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