JOHANNESBURG, May 21 (Reuters) – South Africa’s biggest consumer foods maker, Tiger Brands, will mothball some mills at its Nigerian unit in an attempt to turn around the money-losing maker of pasta and flour by 2016.
Tiger Brands, which also reported a small rise in first-half profit on Wednesday, has been trying turn a profit from Nigeria’s Dangote Flour Mills since paying $188 million for about 63 percent two years ago.
But the Nigerian company, whose half-year pre-tax loss widened by more than 10 percent on Wednesday, is struggling with tough competition, forcing Tiger Brands last week to write down value of the business by 849 million rand ($81 million).
“We’ve got to cut our coat to fit our cloth,” Peter Matlare, Tiger Brands’ chief executive said in a telephone interview.
He did not say how many of Dangote Flour’s five mills would be mothballed or how many jobs would affected.
“We are not just going to cut our way into profit, we have to drive revenue growth too and that business by 2016 ought to be breaking even,” Matlare said, adding that new high-margin products could be added to the production line.
He said Nigeria, where Tiger Brands competes with Nestle Nigeria, remained central to its expansion plans despite a low-level insurgency in the north.
Boko Haram, a militant Nigerian Islamic group, grabbed world headlines with the abduction of more than 200 schoolgirls a month ago and has claimed responsibility for series of car bombs and gun attacks, which have killed hundreds of people.
“I don’t want to downplay the importance of what’s going on in Nigeria but I really don’t think it’s something that should uncharacteristically gain primary focus, we have to run our business as best as we can,” Matlare said.
Tiger Brands posted a 6 percent rise in diluted headline earnings per share (EPS) in the six months ended March, also held back by rising raw material costs at home, where consumer spending has also slowed due to high personal debt levels.
Headline EPS is the main profit gauge in South Africa and strips out certain one-off items.
Sales rose 11 percent to 14.9 billion rand ($1.43 billion)
The rand currency, which has weakened about 20 percent this year, has pushed up imported input costs for Tiger Brands and rivals such Pioneer Food Group and AVI Ltd .
Shares in Tiger Brands rose 1.7 percent to 294 rand by 1149 GMT, outpacing a flat JSE Top-40 index