Consumer packaged-goods company Tiger Brands on Thursday reported “reasonably decent” results for the half year ended March 31, with CEO Peter Matlare stating that the company’s performance had suffered owing to its acquisition of a stake inNigeria-based flour milling company Dangote Flour Mills (DFM), as well as lower margins in the rice industry.

During the period under review, the group had, as part of its strategy to geographically expand, acquired a 63.35% stake in DFM for R1.5-billion. This, coupled with the “back-to-basics” approach being followed to align the business to Tiger’s operating standards, had contributed to a volume decline in the short term.

Matlare added that increased volatility and inflation in soft commodity prices, which negatively affected volumes and profit margins in the milling business, also contributed to the group’s weaker year-on-year performance, while rice margins were affected by the ongoing pricing differential between Thai and Indian rice.

Tiger Brands achieved 4% year-on-year growth in headline earnings per share (HEPS) to 818c. However, on a like-for-like basis, excluding the full impact of the DFM acquisition, HEPS grew by 14% to 897c.

Matlare pointed out that, while DFM represented a significant growth opportunity for the group over the medium term, the acquisition had had a dilutive effect on Tiger Brands’ results in the six-month period, owing to challenging and competitive market dynamics, as well as expensive debt funding in the underlying business.

He said the challenging market conditions were attributable to ongoing economic pressures, which resulted in constrained consumer spending and increased competitive intensity in the domestic market.

Excluding the impact of the rice business and DFM, operating income grew by 9%, driven by strong performances by the bakeries, snacks and treats, baby and international businesses.

However, including DFM and the rice business, Tiger Brands’ operating income was R1.7-billion, marking only a 0.5% year-on-year increase. The compression in the operating margin from 14.6% to 12% was also largely related to the impact of DFM and the change in the pricing dynamics of the rice business.

The board approved and declared an interim dividend of 310c per ordinary share for the six months.

Meanwhile, the group also increased its shareholding in fishing company Oceana Group by 4.5% at a cost of R314-million with effect from March 1 and invested R289-million in capital projects during the six-month period.

In line with the group’s strategy of extending its participation into adjacent categories, it bought the Mrs Ball’s Chutney brand for R475-million.

The company’s net debt had increased to R4.6-billion at the end of March, up from R1.2-billion in September last year, representing a 36% gearing ratio.

The group was able to recover volumes in certain key categories, notably within the bakeries, rice and snacks and treats businesses, and maintained profit margins across many of the domestic businesses while exercising pricing restraint.

Meanwhile, the performance of the remaining businesses was mixed, with the culinary, home and personal care businesses affected by intense competitive activity, while most of the other businesses in the group achieved solid results, underpinned by strong volume growth.

Turnover for the grains division increased by 6.7% to R4.8-billion, with solid volume growth being achieved in the bread, rice and oats categories.

The maize business underperformed, dragged down by increased competition and significant volatility in soft commodity prices during the period, while the performance of the consumer brands businesses was mixed.

The beverages business’ turnover increased by 4% to R633-million. This was underpinned by volume growth of 3%.

Matlare highlighted that the renewed focus on core brands through innovation and improved service levels delivered positive leverage, with operating income growing by 6% to R71-million.

Combined, the exports and international businesses, excluding the Nigerian businesses, achieved 13% growth in turnover to R1.8-billion during the period under review and operating income growth of 9% to R265-million.

Exports performed well, benefiting from strong demand, especially from countries in the Southern African Development Community region.

The East and Central African businesses in Kenya, Ethiopia and Cameroon achieved solid growth in turnover and earnings, underpinned by strong volume growth.

In Nigeria, DFM faced various challenges during the reporting period, which negatively affected sales volumes and the company’s profitability. This arose from industry competition, rising costs, internal operational inefficiencies and weak financial discipline.

Also in Nigeria, Deli Foods’ performance remained muted as a result of capacity limitations.

Looking ahead, Matlare said that while volatility in soft commodity prices and foreign currency movements were likely to persist in the short term, the group remained focused on ensuring the long-term growth of its South Africa operations and the profitable expansion of its business across the rest of the continent.

“The process of turning around the Nigerian businesses is well under way and it is expected that the businesses will fully achieve the group’s investment case within a two- to three-year timeframe,” he added.

Matlare further indicated that significant capital was being invested in the domestic businesses over the next 18 months to improve operational efficiencies and position the group to compete more effectively in a value-driven economy. These initiatives should start to yield results by the second half of the 2014 financial year.

“Quite clearly the domestic part of our business has been under pressure for a while, but we are beginning to do the right thing to regain volume and remain competitive,” he noted, while assuring shareholders that Tiger Brands had made good progress in terms of executing its domestic strategy.

“We will invest in our brands and people. We will also take costs out. Over the next four years, half-a-billion rand in costs will be coming out of our nonmarket-facing costs. Not to drop to the bottomline, but to reinvest in our brands and to increase the rate of innovation in this difficult time,” he stated.