Bonuses nixed at Tiger Brands
The listeriosis tragedy was just one of a series of setbacks for Tiger Brands, which has been slow to display a conscience
What a relief it must have been for Tiger Brands’ remuneration committee that its 2018 financial year was a truly nightmarish one. The difficult economic conditions drove every performance measure sharply south — so it didn’t have to grapple with whether to pay bonuses in a year in which 209 customers died of listeriosis.
Revenue was down 9%, squeezed operating margins meant operating income slumped 28% and headline earnings were 26% lower; cash from operations was gutted. This meant there was absolutely no chance of short-or long-term bonuses for any Tiger Brands executives. Remarkably, if there had been earnings growth, there’s nothing in the group’s remuneration policy that would have stopped the committee from paying generous rewards, despite hundreds of people dying as a result of listeriosis picked up through one of the firm’s products.
This seems particularly bizarre, given that the company’s stated purpose is to "nourish and nurture more lives every day". And lest you forget all the nourishing and nurturing, the recently released 2018 integrated annual report frequently reminds us of the group’s "Eat well, live well" tag-line.
As anybody who tracked the slew of listeriosis-related Sens statements issued between March and December 2018 will know, communication is not one of Tiger Brands’ strengths. The statements were tone-deaf. The worst was the mid-March announcement, seemingly drafted by lawyers with ice in their veins. Did any shareholder take comfort from the news that the expected costs of the outbreak, which ranged from R337m to R377m, and that R94m could be reclaimed from insurers?
It has to be said, given the scale of the disaster, that the chance of the company striking the right note in its annual report was always going to be slim — but to delay discussion of listeriosis until page 30 is puzzling. This was, after all, the defining event of Tiger Brands’ year, and it looks set to haunt it for several more.
At page 30, Tiger Brands chair Khotso Mokhele begins to discuss the issue with something close to appropriate levels of compassion. He mentions the importance of food safety and the various levels of controls in place at the group before stating: "Despite these robust controls, the country’s worst outbreak of Listeria monocytogenes was attributed to our Enterprise facility in Polokwane. This was a truly devastating development to the Tiger Brands family, including the board, the leadership and the entire staff."
Mokhele devotes much of his commentary to the disaster. "For our products — intended to nourish and be enjoyed — to have been identified as the cause of illness and death was singularly shocking. Our hearts go out to all the individuals and families in any way affected by the listeriosis outbreak."
Waseem Thokan, head of research at Legae Securities, says any signs of contrition have to be seen in the context of a group that had not demonstrated significant attention to food safety in previous integrated annual reports.
The latest report is the first that includes food safety as a significant risk. The group even appeared to be late in dealing with the health effects of sugar.
"This attitude is in stark contrast to emerging global trends, where major food groups have become more proactive in dealing with these existential risks," says Thokan, who believes the successful international players place much greater focus on stakeholder inclusivity.
This is something the board of Tiger, which owns many of the dominant food brands in SA, may have to embrace if it is to continue thriving. The food business, including packaging, might once have seemed a low-risk way to generate profits, but it is now at the centre of major and potentially crippling political and environmentally sensitive battles.
Uncertainty about how the listeriosis crisis would be handled by management and the board was a major factor in the halving of the share price during 2018 — down from a January high of R478 to an October low of R239.
That said, 2018 was not a good year for any of the food groups.
But Tiger’s tendency to blunder from one major crisis to another — the bread-pricing scandal, the ill-considered Dangote acquisition and now listeriosis — does not appear to have discouraged international investors, which already feature prominently among the group’s shareholders.
A recent report by JPMorgan Cazenove reveals Tiger was, by a significant margin, the SA company most international investors wanted to meet.
As the 2019 AGM looms closer the board may be thinking back wistfully to the 2018 meeting, when all it had to deal with was shareholder frustration with the group’s remuneration policy. At that meeting only 26% of shareholders voted against the group’s policy, compared with the 46% who voted against it in 2017.
This year’s vote may be helped by the fact that 2018 is the second consecutive year the executive directors were not awarded any short-or long-term bonuses. The decision not to pay any of the directors for the 10 additional board meetings called to deal with the listeriosis crisis is an encouraging sign the group is addressing its tone-deafness.