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.
Group chief executive Peter Matlare said yesterday that the food producer was in the process of evaluating a number of key strategic initiatives in the country.
Tiger Brands has had to write off about R849 million, more than half of its initial investment in Dangote Flour Mills. It bought a 63.4 percent stake in the operation in 2012 for about R1.5 billion.
“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.
“We decided to strategically position our business by gaining back the market share. So we decided not to put through any price increases in the first quarter of the year.
“However, in the second quarter we began to cross recover, by putting through price increases – because we had to correct that margin which is significantly below where it was last year this time.”
Shares gained 3.18 percent to R299.21 on the JSE yesterday.