Tiger Brands takes another hit from Dan­gote

The Star Early Edition - - BUSINESS REPORT - Nom­pumelelo Mag­waza

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


Tiger Brands chief Peter Mat­lare

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