The recurring losses recorded by Tiger Branded Consumer Goods (TBCG) Plc, validates the parent company decision to relinquish the stake in a subsidiary it bought three years ago.
For the year ended September 2015, TBCG posted a loss after tax of N12.67 billion, which eclipsed the N6.27 billion losses recorded the previous year.
Sales however increased by 16.63 percent to N48.02 billion.
The faltering performance by TBCG has resulted in accumulated losses or negative reserves or debit balance of N23.05 billion in 2015 higher than the N10.52 billion recorded last year. This means the company has made more operating losses than profit since its existence.
Total borrowings in TBCG’s balance sheet totaled N40.81 billion in 2015 from N33.66 billion last year. The company is also highly geared as debt to assets ratio increased to 82.69 percent in the period under review from 62.33 percent last year. Finance costs were up by 36.01 percent to N3.89 billion.
A high debt to asset ratio means a large proportion of the company’s assets are financed by debts and not equity thus exposing it to financial risk as cost of capital spikes to the point that diminishes the share price.
The savvy management of Tiger Brand Ltd., South Africa largest food producer (TBCG parent company) has read the hand writing on the wall that its subsidiary is in need of urgent restructuring in form of cash injections, capital reduction and reorganization.
Tiger Brands Ltd., has agreed to sell its stake to Dangote Industries Ltd.
Dangote will provide Tiger Branded Consumer Goods Plc of Nigeria with an immediate cash injection of N10 billion ($50 million), with Tiger transferring its 65.7 percent stake for a nominal $1, the Johannesburg-based company said in a December 15 note.
Tiger will assume and settle debt that it’s guaranteed for the West African business, amounting to N5.6 billion, and will write off 700 million rand ($46 million) of loans that it granted the operation.
Tiger’s write down on TBCG has amounted to 2.85 billion Rand, the figure includes Deli Foods, another subsidiary. The continued impairment has however been a drain on parent company’s bottom lines.
Analysts say a turnaround of TBCG for better performance doesn’t make it less susceptible to the economic lethargy caused by more than 70 percent fall in the price of oil and spiraling inflation that eroded consumer discretionary income.
Millers in Africa largest economy are hard hit by devaluation of the currency that made the price of wheat, which is imported, more expensive, hence culminating in spiraling cost of production.
Tiger Branded Consumer Goods formerly known as Dangote Flour Mills succumbed to currency risks as cost of sales increased by 14.45 percent to N 43.55 billion. Foreign exchange losses were up by 391.66 percent to N1.77 billion.
Further operating expenses were up by 11.37 percent to N8.91 billion in 2015 as against N8 billion the previous year.
TBCG share price closed at N1.87 while total assets stood at N49 billion.
BALA AUGIE
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