Defend Truth


Business highlights of the week: Liberty Two Degrees, Tiger Brands, Mr Price


Stephen Gunnion is a financial journalist and news anchor.

While many JSE-listed companies have announced salary sacrifices for management and even those further down the rungs, Liberty Two Degrees (L2D) has raised the hackles of some investors after it decided to compensate top management including CEO Amelia Beattie and financial director José Snyders for the damage that Covid-19 may have caused to their share options due to its already moribund share price. 


 Following the precedent set by parent company Liberty Holdings earlier this month, L2D’s board has generously decided to top up their existing long term incentive plan with additional awards up to 100% of their annual guaranteed package. Last year, Beattie’s guaranteed remuneration was R3.37 million and her total package came to R9.16 million.

 It’s justified this due to the impact of Covid-19 on the property sector – and by implication its share price – as a result of poor trading conditions and the subsequent relief provided to retail tenants at its shopping centres, which include Sandton City, Eastgate and Melrose Arch, amongst others. The mall owner says it faces a situation in which the interest of shareholders and other stakeholders need to be protected by retaining and motivating the management team – as if their salaries and perks aren’t motivation enough. 

 While it’s in line with the plan approved by shareholders back in May, it’s clearly not in the spirit. 

 At around R5, L2D’s shares are down by about a quarter this year – and have recovered by about the same margin from their low point in March as investors headed for the exits of shopping centre owners. In fact, it ended February at R5.40 before any lockdowns or Covid-19 cases had been reported in SA, one disgruntled shareholder activist vented on Twitter.

 “80-90% of the destruction of shareholder value therefore clearly pre-dates Covid-19. The board’s assertion that the long-term share scheme has been severely affected by the pandemic is misleading to say the least,” he said.

 L2D is by no means the worst-performing of the JSE’s real estate investment trusts since the Covid-19 outbreak. But it’s been on a longer downward trend that can’t be blamed on Covid-19. Its shares have halved since it listed on the JSE almost four years ago at R10 per share. 

 Conditions are attached to the new awards, although how it plans to measure delivery is another story. In order to qualify, management has to make substantial progress in creating ‘Smart Spaces’, ‘Good Spaces’, ‘Interactive Spaces’ and ‘Safe Spaces’ within L2D’s properties. It’s up to the Board’s Remuneration Committee to assess this. 

 The executives’ existing share options that were awarded over the past three years are well out of the money at the moment. Both Beattie and Snyders forfeited the shares that vested in March at R9.50 and R10.20 respectively as its share price was well below that level.

 Isn’t that the point of share options though – to achieve alignment with shareholders?

 Slow-acting Tiger Brands declawed by Covid

 Tiger Brands has admitted that it didn’t get its act together fast enough for the challenging consumer environment that existed way before Covid-19 hit our shores in March, with the result that it was caught on the backfoot by the pandemic. 

 In the words of CEO Noel Doyle, its results for the year to end-September were “disappointing”.  While the first half of the year was bad, Covid-19 derailed any improvement in the second six months as it footed R450 million of Covid-related costs and faced other problems, including a dispute with a former Nigerian distributor that halted sales into that country. 

Doyle only took the top job in February, replacing the retiring Lawrence MacDougall, so perhaps he doesn’t have to shoulder all the blame for Tiger’s positioning going into the pandemic. But he has occupied all the top posts since rejoining the group eight years ago, including chief operating officer and, more recently, chief financial officer.

 One of the problems facing the group – now that it’s managed to sell the Value Added Meat Products (VAMP) business that was at the heart of the listeriosis crisis of three years ago – is pricing. With consumers under pressure, they’re shopping down and replacing some of the fancier brands with cheaper alternatives and no-name brands. To compete effectively in what it calls the ‘value economy’, it has to lower prices, which would affect profit margins that are already under pressure. While some brands like Oros, Energade, Doom and Peaceful Sleep are resilient, others are less so and are hemorrhaging market share . 

 It also has to adapt to new shopping habits, as it discovered during the hard lockdown. Local sales of staples like Golden Cloud flour, Fatti’s and Moni’s pasta, Ace mielie meal, and Jungle Oats perked up but its Snacks & Treats and Beverages divisions suffered as spending was diverted to essential items and customers made fewer shopping trips, reducing the impulse for import purchases. Doyle says it tried to counter this by stocking larger pack sizes and multipacks on supermarket shelves. 

 The company is now reconfiguring its operating model and devolving more decision making to the MDs of its individual product categories so they can respond faster and more aggressively to changing circumstances. 

 It also plans to take out costs of R500 million going forward, which equates to about 1.5% or 1.6% of turnover. This will give it the opportunity to make some of its fancier brands more competitive. 

 While Tiger has had a reasonable start to its new financial year in the run up to Christmas, Doyle says it is preparing for the new year when the harsh reality facing consumers and the economy kicks back in.

 Mr Price finds kindred culture in Durban 

 Mr Price is taking full advantage of the shift to value, with plans to take on PEP, Ackermans and Jet in the school uniforms market and also launch a new baby range. It’s also come clean on the acquisition it’s been eyeing – and won’t need any more capital from shareholders to fund it due to a stronger than expected cash position. 

 The retailer’s interim results were a sideshow to the other announcements it made on Thursday as it had already guided the market on the damage caused by Covid-19 – although the resumption of dividends may have come as a surprise after it held back on a payout at its year-end in June. 

 It has cash – lots of it – and will use about R1.6 billion to buy fellow Durban-based retailer Power Fashion, which comes with an estimated price tag of R1.6 billion. That means it won’t need to take advantage of the big rights issue its shareholders approved in June. The company ended September with cash and cash equivalents of R6.4 billion, up 35% from March, and no debt. Rather than issuing new shares, it started buying back stock as trading stablised after the hard lockdown and it generated more cash. 

 Power Fashion has 170 stores across Southern Africa and sells clothing as well as basic household items to the deep value segment of the market. Its CEO Noel Otto says the two businesses share ‘kindred cultures’ and Mr Price agrees, saying they were built on similar entrepreneurial mindsets. 

 After testing the waters for expansion in Australia and Poland and existing Nigeria, Mr Price says buying Power Fashion is a low-risk deal, with no need for a turnaround strategy and opportunities for significant future growth. It will also add to earnings as soon as the deal closes in April – assuming it gets approval from the competition authorities. 

 Until then, it hopes to grow its share of the market through mrpBaby, mrpSchoolgear and novelty and gifting division mrp&co.  BM/DM




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