Mills headache doesn't sour Tiger on Nigeria

Nigeria is still the right strategic opportunity for Tiger Brands even though the company has had to impair its latest investment in the country - a 63.5% stake in Dangote Flour Mills.

This is according to Thabi Segoale, group executive of corporate strategy and business development at Tiger Brands.

The Dangote deal has been nothing but a headache for South Africa's largest food distributor, but "the Nigerian environment is massive . How we move from where we are and what we've inherited to where we want to be, that's the challenge," Segoale said.

"The team up there is up to the task of fixing that," he added, speaking on the sidelines of Retail Congress Africa in Johannesburg this week.

On Wednesday, the fast-moving consumer goods company, which makes All Gold tomato sauce and Five Roses tea, revealed a further impairment of R105-million on the Dangote mills in financial results for the year to September. Earlier this year it wrote down R849-million on goodwill and intangibles on about R1.5-billion Tiger Brands paid for four mills.

But the company's appetite for ambitious deals doesn't appear to have subsided.

Segoale said Tiger Brands was keen on expansion in South America and Asia.

But he added: "We're having to choose our battles. We've got a finite set of resources. That finite set of resources is less about money than about management capacity. The capacity to take on those massive tasks is a big issue for us."

Tiger Brands CEO Peter Matlare said this week, after the release of the company's results, that it was committed to fixing the Dangote milling business it bought two years ago, while "investing into adjacent categories that are expected to deliver long-term profitable growth".

Earlier this year he indicated that the company was wary of further deals outside its South African home base because it had underestimated the complexity of fixing and operating the Dangote mills business.

Tiger Brands does not expect the mills business to become profitable before 2016.

Mark Saner, equity research analyst at Imara SP Reid, said the losses from the mills business were improving.

"What is clear is that the company overpaid for what it got. Tiger has now impaired over 60% of the Dangote operation."

Partly as a result of the latest impairment, the company saw a 21% slump to R12.43 in earnings per share from continuing operations.

However, headline earnings per share or profit from total operations gained 11% to R18.16.

Tiger Brands gained 2.78% in intraday trading on Wednesday when the results were published, but shed 1.24% to R376.30 by 5pm on the JSE.

So, did Tiger Brands approach Nigeria without caution?

Segoale said it was difficult to pin the downfall on a particular problem. "It's a systemic issue as opposed to just people, because those people were guided by a corporate template that has succeeded in Kenya, Ghana and other countries."

For the year, group turnover increased 11% to R30.1-billion as volumes grew 4%. This was also due to below-inflationary pricing of 5%. The domestic businesses increased operating income by 7% to R3.3-billion. The performance was tempered by a 9% decrease in home, personal care and baby businesses. The food businesses in South Africa grew income by 12% to R2.9-billion.

Saner said the company had good long-term prospects. "It remains a solid company with decent prospects. Dangote will be turned around."

Revenue from exports and international businesses excluding Nigeria gained 16% to R4.6-billion and grew operating income by 20% to R691-million.

Segoale said Tiger's challenge was about profitability rather than revenue and revenue mix.

"A profit momentum coming out of the rest of the continent is perhaps more important as an immediate focus. So getting those businesses to become more efficient and getting them to build scale is certainly a primary focus for us."