Tiger to build bakeries in Africa
Tiger Brands plans to build new bakeries in Nigeria and Kenya in an effort to boost non-South African revenue while at the same time re-organising its food manufacturing, distribution and administration divisions to reduce costs.
The Johannesburg–based company also plans to begin exporting noodles from its newly acquired Dangote Flour Mills (DFM) plant in Nigeria to Ethiopia, chief executive officer Peter Matlare told Fin
week in a telephonic interview. Tiger will continue to push hard to grow its food export business, which has more than doubled operating income in the last fiscal year to R451m and now accounts for 16% of group revenue.
“The rest of Africa doesn’t have bakeries of the scale and sophistication that we have here in SA, so a logical g thing g for us to do is to look at setting up bakeries in other parts of the continent,” said Matlare. “We’ll probably start by building one bakery in Nigeria, see how that goes and if it’s successful, we’ll put up another. Kenya is another market where we’re looking to put up a bakery.”
Matlare has stated publically that he wants to boost Tiger’s non-South African revenue from a current 26% to 30% of group sales in the next two years and 50% during the course of his tenure as CEO. Tiger has already spent more than R2bn on acquisitions in the rest of the continent over the last two years, including the R1.5bn it paid for the 63.35% stake in DFM.
It also paid R421.1m for a 49% stake in Nigeria’s UAC Foods and R296.3m for 100% of Deli Foods Nigeria. Tiger also forked out R112.8m for a 51% stake in East Africa Tiger, its joint venture in Ethiopia.
Growing the business through acquisitions is not without its headaches though, and Matlare said Tiger has “a bucket load of work to do” to integrate DFM into the rest of the group.
However, the need to reduce its reliance on SA was clear in its most recent set of financials, which showed a mere 5% rise in attributable profit to R2.7bn for the 12 months to end-September. Though revenue climbed 11% to R22.7bn, per share earnings rose just 4.6% to R16.72, while operating income from domestic operations added just 1.6% to R3.2bn.
“These are not really results you stand on the roof and crow about, but we’d say
they’re reasonable given the economic climate,” said Matlare.
South African consumers remain under pressure amid accelerating inflation, a persistent unemployment rate of about 25% and the slowest economic growth rate since the 2009 recession. To counter that Tiger plans to go on a cost-cutting drive that will see it reorganise its logistics, procurement and administrative processes in a plan that could result in job losses.
Matlare says the company is currently evaluating whether or not to reduce its fleet of 600 vans and trucks and is pressing ahead with plans to reduce duplication of tasks in its finance, administration and procurement divisions.
Food manufacturing plants will also be consolidated, while management looks to “leverage Tiger’s muscle” to achieve more competitive prices from suppliers, according to Matlare.
“We have 14 bakeries in SA, and one of the questions we ask is whether we really need that number or do we downscale,” he said. Matlare admitted that the drive for greater efficiencies in SA would result in some job losses but added that the company would make every effort to redeploy people within the group.
“There will be some heads out but we have no headcount reduction target,” he said.