VENTURES AFRICA – South African packaged goods company, Tiger Brands have been in Nigeria two years and has lost the whole time, following a $181.9 million acquisition of 63.35 percent stake in Dangote Flour Mills (DFM). But the company says it has learnt from its mistakes in the country.
“Some of the lessons must carry over to any other deal, whether in SA, Nigeria, Kenya, Ethiopia, Ghana, Cameroon — any deal that we do, if we’ve not taken certain lessons from DFM then we’ve done our shareholders a disservice,” said Peter Matlare, CEO of Tiger Brands.
Deal gone wrong
Months after the Nigerian acquisition, the South African company increased its stake to 70 percent. However, Dangote Flour Mill reported a loss of $40.5 million for the year ended September 2013. It further reported a loss of $34.3 million a year later, which the company proudly reported as a 15.3 drop in loss.
Mr Matlare admits that Tiger Brand got it all wrong in the assessment of the ways of doing business in Nigeria, as well as the competition in the country.
The company has had to abandon two of its five flour mills
and shut a noodles factory, as losses continue. Dangote Flour Mills now operates at 40 percent production capacity in flour.
The Nigerian market is a complex one, Matlare admits. He said this, as well as unexpected challenges like the kidnap of two of its staff have also affected the company.
Tiger Brands’ Noel Doyle, who heads the grains unit and also serves as the group chief executive officer of Dangote Flour said the business was unlikely to make any profit until after 2016.
Fight for reputation
Matlare says the Nigerian experience has increased the South African company’s desire to ensure “we don’t drop catches. DFM matters big time in our lives: reputationally it’s important for us, strategically it’s very important.”
The turnaround plan for the flour miller includes improvement in wheat extraction rates. In furtherance of this, the company now sources wheat from two origins and also intends to invest in new silos.
Tiger has also turned focus to improving the quality and consistency of Dangote’s products, benefits of which Matlare said was starting to show.
The group has also started investing in human capital by enrolling its top and middle managers from Nigeria to its academies in South Africa.
Brand investment is another area the company is working on, but the Tiger Brands CEO noted that products and structures had to be fixed first.
The group is looking at expanding to other parts of Nigeria. It has historically been focused in Nigeria’s North, as it considers ways to restructure DFM’s debt.
As it seeks a return to profitability, the group is also looking at ways to improve route-to-market capabilities, It is therefore considering outsourcing its logistics functions at some point. This system, according to Matlare has been successful in South Africa, where Tiger outsources about 90 percent of its logistics.
The losses regardless, Tiger Brands will continue getting involved in other major deals across Africa. “We continue to look for deals, we’ve got a strong balance sheet,” said Matlare.
The company’s search for African growth is partly to identify new opportunities and partly because of less promising prospects in South Africa, he says.
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