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Recovery at Dangote set for delay - Nigeria
Recovery at Dangote set for delay - Nigeria

Recovery at Dangote set for delay - Nigeria

INTERNATIONAL NEWS - Feb 12th 2015, 09:26

The depreciating oil price and Nigerian naira, and postponed presidential elections in the West African country, could delay the recovery of Tiger Brands’ Nigerian business by 6-12 months, CEO Peter Matlare said in a conference call on Tuesday. 

Tiger’s recent forecasts were for its 65.7%-held Dangote Flour Mills business to return to profitability from 2016 thanks to turnaround efforts. Dangote last week reported a 4.1% greater loss of 2.92-billion naira (about R170m) for its first quarter ended December compared to the same period a year ago, as currency weakness in the local market offset a 27.5% surge in sales.

Dangote included a currency devaluation charge of 1.29-billion naira, made up of foreign exchange losses on its wheat procurement contracts and on its rand-based funding provided by Tiger.

Tiger’s chief financial officer, Funke Ighodaro, said that over the past year Tiger had advanced about 10-billion naira to Dangote, denominated in rand.

"We will continue to support the Dangote business in terms of its cash requirements," Ms Ighodaro said, adding that Tiger would be able to advise on a debt restructure plan for Dangote at the group’s half year.

"Once the currency markets have settled down, there will be a recapitalisation of that business," she said.

Mr Matlare said Tiger’s Nigerian unit was being affected by a 40% devaluation of the naira — which made wheat imports more expensive — and a crash in the oil price, which would put consumers in the oil-rich nation under "more pressure than they’ve been under in recent times". Militant group Boko Haram, whose growth prompted the country to delay elections six weeks, also affected trading in northeast Nigeria.

While the postponement would not make a "fundamental change" to trading conditions, Mr Matlare said it pushed back stability.

"In terms of our performance projections over the next two to three years, yes, there will be some impact in terms of pushing out that target (for a return to profitability). We would say between six and maximum 12 months," Mr Matlare said.

"We’d always indicated that around 2016-17 is when we would be getting to that time of decent performance in profitability."

Dangote’s volumes had lifted significantly in the quarter-ended December, following gains in the prior quarter, he said.

"This kind of underlying momentum in the business is particularly encouraging. In addition, the cost control in the business has been particularly good, and led by a strong management team now that’s taken us in this direction."

Tiger on Monday reported a slowdown in sales growth for its first quarter-ended December, with turnover of R8.2bn up 7% on the same quarter the previous year. Tiger’s shares fell 5.24% on Monday and a further 4.1% on Tuesday, while the naira declined to more than 200 against the dollar for the first time.

Mr Matlare said while trading conditions were "challenging … we have seen some nice volume growth and market share improvements."From DFM Publishers (Pty) Ltd 

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