Tiger Brands’ Peter Matlare answers the hard questions about Dangote, results

Tiger Brand's released its full year results today for the year ended 30 September 2014. Alec Hogg was joined by the group's Chief Executive Peter Matlare in the CNBC Africa studios, to discuss the shortcomings of the Nigerian Dangote Flour investment, and its subsequent write-down, Hogg takes Matlare to task on the accountability of Tiger Brand's response to losses, as well the group's performance over the last year, where Matlare accepts that it has been a poor showing. Despite this, it does appear that the group is continuing its Africa growth strategy with renewed focus, wisdom and more support from its international shareholders than before. – LF

ALEC HOGG: In the full-year results, Tiger Brands reported a 21 percent drop in its earnings per share, largely due to impairments on the Group's investment in Dangote Flour Mills. Turnover was up 11 percent to just over R30bn. Joining us on the line is Peter Matlare, Chief Executive of Tiger Brands. Peter, thanks for coming onto the line with us. We've just had South Africa's favourite stockbroker, David Shapiro, in the studio questioning why you went into Nigeria in the first place and why heads haven't rolled. It's nearly R1bn that you've written off, on Nigeria. You've no doubt, had to field similar questions from other shareholders.

PETER MATLARE: Yes, of course, Alec. Strategically, we still believe that Nigeria is a market we should be in and in which we'll remain. The assets that we bought in Nigeria are not dissimilar to categories in which we play in South Africa, so we're talking about flour, pasta, and noodles. Granted, David was absolutely correct in that we've had a poor showing in this last year. We wrote off R846m worth of goodwill and now, another, in terms of the physical aspects of the business… We'd always indicated to the market that at the year-end, we would assess the carrying value of those assets, and we've written off another R105m. Having said that, we've reduced losses significantly, relatively to last year. We think that directionally, we are doing the right thing.

We've changed management in that market. I would have though David would have been on top of that. We've certainly changed management in that market. We've re-launched certain parts of those businesses, so it's a flexi-business. That's where we are with that business.

ALEC HOGG: He said that he felt that maybe Aliko Dangote or whomever was selling to you, saw you coming, Peter.

PETER MATLARE: Alec, we've had this said to us many times. There are really, two parts to it. The one is that we looked at the assets. We believed we were getting the right set of assets. He was the seller and we were the buyer. The onus is on us, as the buyer, to value correctly, what we're buying. If we erred, or we went wrong, there have been consequences because of that. My arguments to everybody is that we fundamentally, still believe we're in the right market and that we have a decent set of assets that we have to bring to good account.

ALEC HOGG: The reality of this though, is that you have been pulling in a lot of criticism. It's R1bn that you've written off in a R72bn business, just to keep it in context. Is it spooking you? Is it going to make you a little more cautious now of aggressively pursuing your Africa strategy?

PETER MATLARE: Alec, up until we did this particular transaction, we had done several relatively small transactions – anything between R150m and R200m – so they were not large transactions per se, other than the Davita transaction, which really, is a business that has a South African asset base and exports onto the balance of the continent. We've learned many, important lessons in Nigeria and I suppose in the history of any company, as you seek to expand, these are lessons that I suspect many companies learn. I'm sure you'd have seen that, whether it's been a Unilever, a Nestlé, or others that have entered that market. There have been important lessons, which they've learned and Tiger is no different. We're not immune to that. The real question has to be around 'can we bring this asset to good account'.

We think we can. Are we going to continue to go after assets on our continent? Absolutely, yes. Have we learned things that will make us more cautious? Again, yes, otherwise we've not learned. I'm quite confident that with the management team that leads these businesses now, we're doing the right thing.

ALEC HOGG: Would you be looking in future…? It's interesting that you contrast the previous strategy of bolt on almost, or smallish acquisitions and then this big one with Dangote Flour that didn't work out. Will you be going back to the previous strategy of just getting little bites every time?

PETER MATLARE: Alec, it will be a combination. Clearly, what we are not looking for every day is some massive transaction that's completely going to transform Tiger. Those don't come every day. We wanted to get scale in Nigeria. We believe we've created the platform for us to get to scale. By and large, the smaller bolt on is where we would go and certainly, we would wish to expand in relation to the categories where we already are, so there'll be new categories we would enter, based on the platform that we've created – adjacencies that we operate in, in South Africa.

ALEC HOGG: Peter, just to close off with, your share price has been on a tear in the last few months. Do you have any insight into whose been buying the shares, or whose been pushing it up?

PETER MATLARE: Obviously, we track that to the extent that it is possible and it's a range of institutional and other investors – not a single investor who's been buying it. Our share is now held (more or less) 50/50 between domestic and international, and internationally, it ranges from Europe to the United States all the way to Asia. We have a spread of investors, both domestically as well as internationally. By and large, they're institutional-type investors.

ALEC HOGG: That was Peter Matlare, the Chief Executive of Tiger Brands, and it was interesting to hear that final comment. Although they had a misstep in Nigeria and David Shapiro (as you heard earlier) was most distressed by it, the international investment community still sees Tiger Brands as a play into Africa. If you take that from a long-term strategic approach, shareholders should be happy because the message is certainly catching on.