Tiger Branded Goods recurring losses calls for urgent restructuring

The recurring losses recorded by Tiger Branded Consumer Goods Plc means owners should intensify its restructuring.

For the first three months through December 2015, Tiger Branded Consumer posted a loss after tax of N900.75 million, 69.20 percent lower than the N2.92 billion loss after tax posted the previous year.

The reduction in losses was a result of exchange rate gain of N962.40 million, which represents a 174.69 percent drop from an exchange rate loss  of N1.29 billion recorded last year.

Tiger Branded Consumer’s sales remained flattish at N10.67 billion as a weaker economy stoked inflation hence hurting consumer spending.

Nigeria’s consumer inflation was at 9.6 percent year-on-year in December, above the central bank’s target upper limit, data from the national bureau of statistics show.

Growth in Africa’s largest economy has dropped to the slowest pace this decade following a plunge in prices for crude, its main export, while currency restrictions have also brought unease to businesses and investors.

Analysts say millers in Africa’s largest oil producer are finding it difficult to access the necessary dollars to buy raw materials from abroad.

The devaluation of the currency by the apex bank also makes wheat; a material component in the manufacture of flour is more expensive since it is imported.

As a result of the recurring losses recorded by the Nigerian miller and incessant write offs of huge impairments on assets, Parent company Tiger Brands has agreed to sell its stake in its Nigeria business to Dangote industries Ltd.

Dangote will provide Tiger Branded Consumer 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 last year.

Analysts say such huge cash injection through the scheme of capital reduction and reorganization will restore the Nigeria miller to the path of profitability. This strategy is needed to revamp a company that has been recording losses since 2014.

Further analysis of the financial statement of Tiger Branded Consumer showed cost of sales ratio was 88 percent, which means the for every N100 the company generates in sales, it spends N88 naira on production costs.

Cost of sales was flattish at N9.40 billion as huge energy costs, bad roads and high interest rate environment, swells cost of production.

Tiger Branded Consumer has a negative working capital of N29.60 billion, which is detrimental because it signifies additional capital that will be required to run the business after closing.

The company’s current ratio, a measure of working capital was 0.46 xs in 2015 as against 0.555 xs in 2014, which is below the industry standard of 2.1 xs. An unfavourable current ratio means that the company can no longer convert liquid assets to cash to cover payable.

Analysts say a buyer actually prefers to see a working capital ratio of 1 to 1.5 times, which means there is at least one N1 of current assets for every naira of current liabilities.

BALA AUGIE