Tiger brand To Invest $98m In South Africa

With consumer spending still strained, South Africa’s largest food company, Tiger Brands, has said it will put R1bn into its domestic business over the next 18 months, as it seeks to improve efficiency to compete more effectively in the cut-throat environment.

At its interim results presentation on Thursday, CEO Peter Matlare joined the growing list of retail players highlighting South Africa’s difficult trading climate. "Our consumer remains under significant constraint," he said.

"That’s not about to change in the short term. In addition, our competitors continue to be as strident about success … clawing for each bit of opportunity because of this really volume-and value-strained environment in South Africa."

Tiger Brands’ strategy is to centralise certain parts of its business, invest in facilities, brands and market capability.

The company, which owns All Gold, Tastic and Koo brands, reported a 4% rise in headline earnings per share to 818c for the six months ended March. Dangote Flour Mills had an earnings-dilutive effect and rice margins, affected by the pricing differential between Thai and Indian rice, weighed heavily.

"There are two anomalies that have hit us hard in this period," Mr Matlare said. "One is ( Dangote), and we have always signalled since we made that acquisition that that was going to be a two-to three-year fix — we are now kind of saying 18-24 months.

"The regulatory impact of what the Thai government has decided about rice pricing and our decision not to commoditise our brand means we’ve taken a hit in some respect."

As part of its African expansion, the company last year bought a 63.35% stake in Dangote, the second-largest Nigerian flour milling firm, for R1.5bn.

According to the African Development Bank, in 2060 there will be 1.1-billion middle-class Africans, and consumer goods companies are hoping to tap into that market.

Independent analyst Ian Cruickshanks said Tiger Brands’ expansion into Nigeria was a good thing. "I think Dangote was a good choice — it’s the right thing to have done; it gave them a leap ahead.

"Getting Dangote on track … has been more of a challenge than they have expected."

Dangote, saddled with debt, faced a number of challenges during the reporting period including rising competition and costs, internal operational inefficiencies, and weak financial discipline.

Turnover for Tiger Brands’ groceries business was flat year at R2bn, with raw material cost pressures driving above-inflationary price increases. These negatively affected volumes and exacerbated the price-driven market competition.

The group’s snacks and treats business grew turnover 11%, underpinned by volume growth of 7%. In aggregate, its exports and international businesses, excluding the Nigerian businesses, achieved 13% growth in turnover to R1.8bn and operating income growth of 9% to R265m.

Avior equity analyst Jiten Bechoo said the results were weak. "They did signal that the Dangote business was not in a very good space.

"Their results for the full year are also likely to be weak. I like the fact that they’re addressing their cost inefficiencies.

"They’re also making it known that its going to be a long lead time till Dangote contributes materially. I think in 2015 or the latter end of the 2014 year, we might see double-digit growth, but at best for now single-digit to high single-digit is most likely."

-Business Day Live