Tiger Brands redefines its African strategy as reality sets in

Last week South African fast-moving consumer goods (FMCG) giant, Tiger Brands, announced its decision to sell its 51% stake in the Kenyan business, Haco Tiger Brands. The company, which specialises in branded personal care and consumer products, was acquired in 2008 and represents Tiger Brands’ only acquisition in the market – despite previous attempts in 2014 to buy additional Kenyan companies.

Haco was also one of Tiger Brands’ first acquisitions in Africa outside of its home market, and marked the start of an expansion strategy that resulted in various operations across the continent. But today it has refocused its approach and sold off a handful of businesses. The company recently underwent a change in its leadership after facing declining profits and a considerable writedown in the value of its Nigerian business, Dangote Flour Mills. The business had been acquired by Tiger Brands in 2012 for just over N30bn (more than US$190m at the time), but by 2015 it had taken a R2.2bn (about $169m at the current exchange rate) writedown. Peter Matlare and Funke Ighodaro, the CEO and CFO who oversaw the acquisition, have since stepped down.

Tiger Brands’ new leaders – CEO Lawrence MacDougall and CFO Noel Doyle – have taken a new approach, and over the last 15 months the company has disposed of three of its African businesses. This includes its unprofitable stake in Dangote Flour Mills, followed by its majority shareholding in its Ethiopian business, East Africa Tiger Brands Industries, and most recently Haco in Kenya.

The decision is part of the company’s efforts to focus on its core business of food and personal care products. According to the new CFO, both the acquisition of Haco and East Africa Tiger Brands Industries were a step away from the company’s main competencies.

“The initial acquisition [of Haco] was done eight or nine years ago. It was the first acquisition we did outside of South Africa, so at that stage it was more [about] geography than core category and the idea was to get a foothold in the east African market,” Doyle told How we made it in Africa.

“The Haco business does have a small personal care component and the idea was that we would try build a more broad-based FMCG business around the core of that business – which, to be frank, we haven’t been incredibly successful in doing.”

Despite the divestment from Dangote Flour Mills, Tiger Brands still holds stakes in two Nigerian businesses: biscuit manufacturer Deli Foods and snack foods producer UAC Foods. Doyle says that the performance of Deli Foods (which Tiger Brands owns 100%) has been “in line with expectations”, despite the country’s “incredibly challenging market”.

However, the company is taking a less aggressive approach in its African expansion strategy these days. Frank Kahumba, equity research analyst at Momentum SP Reid Securities, says that Africa’s current economic challenges have served as a wake-up call for the company, which should take a steadier and more cautious expansion approach.

“All they can really do now is make sure they aren’t as aggressive with plans like they were in Nigeria with the milled flour [business] and just be a bit more cautious in where to spend. Right now even their capex is not going to be as large because now they need to recuperate some of the losses they have made,” adds Kahumba.

“It is something that the company needs to look at and restructure their balance sheet first before having a proper strategy for acquiring something else.”

Although Doyle says Tiger Brands will focus on exporting its products into markets like Kenya, he adds the company will continue to look for potential African acquisitions going forward.

“Acquisitions are not that plentiful and acquisitions of scale are even scarcer, but the African growth story is still very much on our strategic agenda,” he adds.

“Our immediate focus is still very much around looking after the core domestic business but we have certainly not drawn a line on future investments in Africa. We do believe that, while there are short term challenges, it represents a significant opportunity for growth for our business in the long run.”