JSE-listed Tiger Brands CEO Peter Matlare was quick to come to the defence of struggling Nigerian asset, Dangote Flour Mill (DFM), which was partly responsible for offsetting the company’s solid domestic performance in a tough trading environment.

Tiger was currently evaluating opportunities to enhance DFM’s volumes and highlighted additional shareholder funding of R350-million.

“Given its current losses and highly geared balance sheet, DFM will require further financial support from its shareholders to further stabilise the business during this difficult phase and enable the delivery of its long-term growth plans,” the company explained in a statement to shareholders.

Tiger would reassess the outlook for DFM at year-end when financial markets were expected to stabilise. “We are at a stage where we need to make a significant call,” Matlare said on Wednesday at a presentation on the unaudited group results for the six months ending March 31.

He noted that operational progress in DFM during the period under review was pleasing despite the naira devaluation.

DFM, whose management team had been strengthened, increased its volumes by 16% in a highly competitive market. However, the devaluation impact was not fully recovered in the price of products.

Matlare foresaw further devaluation in the Nigerian market, but believed the business was headed in the right direction. For the period under review, DFM improved its operating loss by 38%, excluding foreign exchange loss, to R110-million, while gross margin improvement was driven by operational efficiencies and the employment of a gristing model. Marketing investment had been increased by 70%.

“We have done the right things to fix this business, but we are not there yet,” said Matlare, adding that Tiger expected to break even in 2016.

“DFM remains a key part of what we need to get right,” he stressed.

The way forward for DFM involved pursuing value-added product offerings within existing categories, and new category opportunities and strategic alliances to enhance volumes and mitigate risk.

Although, currency devaluation and liquidity would remain a risk.

EXPORTS AND INTERNATIONAL
Exports and international delivered a mixed performance for the six-month period ending March 31, with East Africa disappointing. The division achieved turnover of R2.2-billion, in line with the previous corresponding period, and operating profit of R234-million, a 30% drop.

Delivering solid top-line growth of 7% underpinned by strong volumes of 5%, the division’s performance was tainted by its Kenyan business, Haco Tiger Brands, and prior-year irregularities impacted on its first half performance.

Tiger revealed that the effects of pre-invoicing and the manipulation of profits in the previous financial year impacted negatively on Haco’s results. 

Haco, in which Tiger currently had a 51% interest, disappointed in the first half with corrective actions in place to improve its second-half performance, following disciplinary action having been taken.

“They didn’t stick to the rules… [and] we got rid of those who did wrong,” Matlare advised.

The Ethiopian business, East African Tiger Brands Industries, reflected “solid” top-line growth of 14%, but its overall results were negatively impacted by the write-down of slow moving stock.

DOMESTIC PERFORMANCE
In South Africa, Tiger achieved a turnover growth of 8%, improved market shares with overall volumes by 2%, while continuing to focus on brand health during the period, growing its marketing investment by 15%.

Matlare also noted the effective management of pricing relativities and that the company’s operating income had increased by 9% through operational efficiencies and cost savings achieved in the six months to March 31.

With regard to groceries, Tiger was experiencing ongoing positive momentum in South Africa despite consumer pressure. The division employed effective price, volume and margin management, with the overall margin up 180 basis points to 9.2% and operating income up 39%.

In terms of grains, margins were maintained and operating income improved by 7% despite a competitive environment. Marketing investment was up 23% and the division achieved consistent operational excellence and market share gains in most categories.

Matlare noted that bread margins held despite volume pressures, with market share losses experienced over the period under review, especially in KwaZulu-Natal and Cape Town.

“We will use our basket [of products] continually to take back share and grow it,” he emphasised.

In the context of home personal care and baby, the business unit’s rebuild and reinvest phase was gaining traction. Tiger increased investment in innovation, which was supported by 57% increase in marketing investment. During the period, volumes climbed by 13% in home care and 4% in personal care, while operating income was up 15% to R123-million.

Meanwhile, work on the factory reconfiguration at Isando, in Gauteng, had started and was scheduled for completion by March 2016.

“This will drive greater manufacturing efficiencies and enable the in-house manufacturing of certain core products that have previously been manufactured by third parties. With the increased investment in people, marketing and research and development resources, the base business is being repositioned for continued and sustained growth,” Tiger pointed out.

In the baby care division, sales volumes grew by 6%, however, operating profit declined by 8% on higher-than-expected raw material cost increases and increased marketing investment and promotional activity.

GROUP RESULTS
During the period under review, Tiger had enhanced investment in core brands, a move seen by Matlare as critical, while good executional progress against strategic enablers was also highlighted.

The company reported turnover of R15.9-billion, a 7% increase, for the six months ended March 31, while its operating income before abnormal items was R1.6-billion, down 5%.

The company’s headline earnings a share from continuing operations were 853c, in line with last year, and earnings a share from continuing operations were 832c, up 121%. Dividend a share was 339c, up 3%.

Cash generated from operations declined by 18% to R1.4-billion, largely as a result of seasonality of sales and procurement positions held at the half-year. “This is expected to normalise during the second half,” Tiger added.

Capital expenditure of R363-million was incurred during the period under review.

GOING FORWARD
Matlare advised that the company was resolute on driving long-term growth and would continue to focus on brands and operational efficiencies.

Tiger, he said, had the depth of management in place to drive execution, but intense competition in South Africa was expected to prevail. The company would continue to defend its market shares responsibly.