Tiger Brands: takes write-down on Dangote Flour Mills

Johannesburg / ZA. (tbl) The company is satisfied that sufficient certainty exists with regard to its performance for the six months ended 31 March 2014, to enable it to issue this trading statement – Tiger Brands Limited, South Africa´s largest food and branded consumer-goods company, said in a Trading Statement in preparation of its Interim Results Presentation on May 21.

Notwithstanding the tough trading conditions that continue to prevail in the domestic market, the group is making steady progress in implementing key strategic initiatives aimed at regaining market shares and further strengthening its core brands. The group experienced significant cost inflation in its domestic businesses in the first half, partly due to the rapid decline in the Rand exchange rate. This was not fully recovered in pricing and negatively affected margins, particularly in the first quarter. With the exception of Dangote Flour Mills (DFM), the International businesses, including Exports, have continued to deliver pleasing growth.

Tiger Brands is focusing its attention on enhancing the long-term prospects of its investment in DFM. In this regard, the Company continues to believe that Nigeria is central to its expansionary ambitions. Short to medium term action plans are being implemented to turn around the performance of the DFM business. The Company is also in the process of evaluating a number of key strategic initiatives aimed at rapidly expanding the business into more sustainable, value-added categories. At this stage, there is still a significant amount of work that needs to be completed to properly evaluate the new category opportunities, which if viable, should enhance margins and improve the capacity utilisation of existing DFM assets.

Given the current under-performance of DFM and the excess milling capacity that continues to increase in the Nigerian flour market, it was considered appropriate to carry out a review of the carrying value of the Company´s investment in DFM. As it is not possible, at this stage, to assess with any degree of certainty, the potential impact that the above category initiatives could have, a decision has been taken to impair the full carrying value of the goodwill and intangible assets relating to the investment. The value of the impairment amounts to 849 million ZAR which will be included in abnormal items in the group income statement for the half year ended 31 March 2014.

The carrying value of the Company´s investment in DFM will be re-evaluated at the end of the financial year. At that time the Company will be able to assess the impact of recent actions that would have been implemented as well as the results of its review of the new category opportunities in DFM.

Excluding the DFM impairment, earnings per share from continuing operations for the six months ended 31 March 2014 will increase by between six and ten percent compared to the corresponding figure for the same period last year, whilst headline earnings per share from continuing operations will increase by between five and nine percent. Taking the aforementioned impairment into account, earnings per share from continuing operations are expected to decline by between 50 and 55 percent relative to the corresponding prior period. However, the increase in headline earnings per share from continuing operations will remain at between five and nine percent.

Excluding the DFM impairment, total earnings per share, including discontinued operations, will increase by between seven and eleven percent compared to the corresponding figure for the same six month period last year, whilst headline earnings per share, including discontinued operations, will increase by between four and eight percent. Taking the impairment into account, total earnings per share, including discontinued operations, are expected to decline by between 50 and 55 percent. However, the increase in headline earnings per share, including discontinued operations, will remain at between four and eight percent.

The Company is expected to release its interim results on 21 May 2014, at which time full details in respect of the performance of the group will be provided.

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