23 May 2014 Tiger Brands undaunted by Nigeria misstep
Tiger Brands will continue to pin its colours to the mast of the “Nigerian growth story” despite experiencing some hurdles created by underperformance at its Dangote Flour Mills business. It has had to write off about R849 million, more than half of its initial investment in DFM, after buying a 63.4 percent stake in the operation in 2012 for about R1.5 billion.
In CEO Peter Matlare’s presentation on the group’s results for the half year to March, he said that the food producer was in the process of evaluating a number of key strategic initiatives in the country.
“We continue to believe in the Nigerian growth story. Over time we will see that micro factors underpinning Nigerian growth will remain strong. So it is a right market to be in,” Matlare said.
He said Tiger Brands had learnt an important lesson about how to operate in the Nigerian market. “I think there have been some important lessons. We have a strong partner who is very supportive and frankly there are things that we simply got wrong – which we want to relook at and rethink in order to get them right.”
For the six months to March, Tiger Brands increased turnover from continuing operations by 11 percent to R14.9bn.
The group’s overall gross margin declined by 0.9 percentage points to 30.9 percent, negatively affected by inflationary effects of the weak rand on input costs, which were not fully recovered in pricing in the South African operations.
Operating income rose 9 percent to R1.7bn with headline earnings a share up 7 percent to R8.56.
“Tiger Brands is making steady progress in implementing key strategic initiatives aimed at regaining market share and further strengthening core brands,” Matlare said.
On the Nigerian business, Matlare said one of the group’s strategies was to improve on value-added products offered in that market. It also planned to enter the bread market.
“We have always said that we are not buying that business for the flour but we buy it so that it should enable us to enter value-added categories and the pasta and noodle parts of this business are highly competitive added-value businesses.
“Therefore we have to improve our performance in those businesses.”
In South Africa, Matlare said Tiger Brands was working towards regaining its footing in the grocery category. Domestic sales volumes rose 4 percent.
“The domestic business is key to our success,” Matlare told analysts. There are two priorities. The first is intensifying marketing activity to ensure that the Tiger brands remain either number one or two in their category. “If we do not we will feel the pressure, as is the case in baby and home care.”
Tiger Brands’ two key risks were (and remain) stemming losses in Nigeria and ensuring that volumes and margins in South Africa did not fall to intolerable levels. In both cases the company has worked hard to manage these risks.
The second is to continue the focus on efficiencies and cost savings. “Last year we targeted R500 million in savings over three years. We have to look for more.”
In the domestic business performance was mixed, with sectors like grains growing well – particularly in the breakfast cereal category. In some cases volume growth has come at the expense of profitability. Fatti’s and Moni’s pasta products are a case in point. Restoring price profitability is a focus for the second half of the year.
Source: Business Report
Nigerian talk detracts from Tiger’s heartland growth
Tiger Brands’ Nigerian business Dangote Flour Mills (DFM) contributes less than 2% to top line earnings, yet details of the disaster in Nigeria dominated CEO Peter Matlare’s presentation on the group’s results for the half year to March, prompting questions on whether Tiger would be better rid of it.
This is unfortunate because in its heartland Tiger Brands is making steady progress in regaining market shares and strengthening its core brands. The domestic business drives 75% of group turnover and 91% of earnings before interest and tax.
The Nigerian discussion also detracts from the impressive growth, off a small base, of Tiger’s export and international businesses (excluding Nigeria), which contributed 15% of turnover and 20% of earnings…..