Tiger Brands takes another hit from Dangote
TIGER Brands took another write-down at its money-losing Nigerian unit, the company said yesterday, as South Africa’s biggest consumer goods maker posted a 17 percent decline in full-year profit before tax.
Tiger Brands, which makes pasta, energy drinks and breakfast cereals, wrote off R105 million of factory assets at Dangote Flour Mills following a review of its utilisation levels.
The impairment comes within a year of a separate R849m write-down at the Nigerian unit, which yesterday posted a full-year pre-tax loss of 9.28 billion naira (R589m), which was 11 percent wider than the year before.
Tiger Brands has been trying to turn a profit from Dangote Flour since paying almost $200m (R2bn) for a controlling stake two years ago as part of broader plan to expand into the rest of Africa to offset slow growth in South Africa.
As part of a turnaround plan for Dangote Flour, Tiger Brands has closed two of its five mills, including one in Nigeria’s northern city of Kano, which has been the target of several bombings by Boko Haram Islamist insurgents.
Tiger Brands’ head of grains Noel Doyle, who also looks after Dangote Flour, said the business was unlikely to make any profit until after 2016.
Since purchasing a 63.35 percent stake in Dangote Flour in October 2012, Tiger Brands’ performance has been disappointing.
However, the group expected that it would take at least two to three years to align their money-losing business in Nigeria with the group’s standards and to deliver acceptable returns. Meaning they have until next year to turn the business around.
The group’s chief executive Peter Matlare said the company had an opportunity to prudently clean up its book.
“The momentum currently displayed to fix that business will be continued into 2015. We will hopefully see reduced losses again into the first and second quarter of next year.
“We think we are doing the right things and we certainly see improved volumes in the months of October and November,” he said.
Besides the write-offs this year, Matlare had previously said it was difficult to trade in the Nigerian market as it still had high-levels of an informal market.
Now that the group has achieved a positive volume momentum, it plans to launch new consumer offerings such as flour, pasta and noodles in the new year.
Victor Seanie, an investment analyst at Kagiso Asset Management, said: “Investors had been negative on the company due to Dangote Flour Mills where they perhaps focussed too much attention.”
In order to avoid continuous losses at its Nigerian business, Tiger Brands needed to improve distribution, significantly increase volumes, continue improving product quality and consistency to win back customer confidence.
Seanie also suggested that Tiger Brands should introduce higher margin products like branded bread and lower the cost base. He was not sure whether shareholders were satisfied with the little progress made in the Dangote Flour business.
Tiger Brands overcame a disappointing first-half performance by growing its operating profit by 15 percent while headline earnings per share from continuing operations grew 15 percent to R18.04.
Its share price fell 0.33 percent to R376.30. – Additional reporting by Reuters