Chairman's review
In last year’s integrated annual report, in my capacity then as chairman designate, I referred to Tiger Brands as being at a critical inflection point – with the company’s management team facing significant pressure to deliver a rapid and visible change in fortune – and to do so in the context of the pandemic and a particularly tough operating environment. One year on, and while the company has not yet crossed this inflection point, I believe that it has made some important progress in key areas of its strategy and I remain confident that it is on the right path for recovery and growth. The next two years will be critical in ensuring that Tiger Brands is able to build on its 100-year legacy and deliver on its potential.
Geraldine Fraser-Moleketi
Chairman
Tiger Brands' main market, South Africa, continues to face a very challenging socio-economic environment, with the Covid-19 pandemic exacerbating already high levels of inequality and unemployment, and further dampening GDP and wage growth.
Combined with rising input costs and food inflation, this is placing profound pressure on consumers. All of us in the FMCG sector have been feeling the impact of these pressures, with the combination of reduced consumer spend and heightened competition among food producers and retailers, impacting volumes, market share and margins. The costs associated with the civil unrest that took place in July, and the precautionary recall of canned vegetable products following the early detection of defective welds, had a further negative impact on group earnings.
These costs are reflected in Tiger Brands’ results this year, with group operating income and HEPS from continuing operations down 10% and 6%, respectively. Excluding the impact of the civil unrest and the product recall, group operating income increased by 20%, proving the defensive nature of the core portfolio. At financial year end an ordinary final dividend of 506 cents per share was declared. The company’s dividend policy of 1,75x cover was applied to normalised headline earnings per share, excluding the impact of the canned vegetable recall and the civil unrest. Despite the challenges faced this year and some specific areas where strategy execution has fallen short of expectations – most notably in Milling and Baking, and Exports – there has been valuable progress in some of the company’s critical strategic drivers, particularly in improving operational performance, realising efficiencies within the supply chain and in delivering on product quality and food safety objectives.
For Tiger Brands to turn the corner and produce the necessary step change in performance – and at most, we have two years to do so – the company will need to build substantially on its recent foundational work in striving to instil a high-performance culture, supported by best-in-class capabilities.
We all know that “culture eats strategy for breakfast”. For too long the company has been playing it safe; the Tiger has been complacent, sitting in the sun. It’s time for the Tiger to start hunting – to develop a bolder, hungrier, more aggressive and creative mindset, to be out there in the trade, finding the entry points and driving the innovations that will enable the company to fulfil its growth aspirations and do justice to its rich history and 100-year legacy. The management team is fully aware of the challenges that lie ahead, the tough decisions to be taken, and the work to be done in driving a more aggressive approach to both organic and inorganic growth.
EMBEDDING A CULTURE OF FOOD SAFETY AND QUALITY
An important area of progress this year has been the company’s drive to enhance product quality and ensure consumer safety. As Africa’s largest food producer, we recognise that we have an incredible responsibility to strengthen regional food security, improve nutrition and strive to maintain the highest levels of food safety and quality. Following the tragic listeriosis incident in February 2018, the board has maintained a heightened focus on driving a sustained improvement in Tiger Brands’ food safety and quality practices and on strengthening the quality of reporting and board oversight.
The company has continued to make progress in embedding a strong quality culture and in implementing robust management and auditing systems, both across its own operations and among its suppliers and third-party manufacturing partners.
It is pleasing to see that against some key metrics there have been marked improvements this year, with a 25% reduction in consumer complaints and a 40% reduction in marketplace incidents. Within Tiger Brands’ own operations, the company has implemented necessary critical control measures in identified high-risk areas, introduced new automation and in-line inspection technologies, and continued to conduct quarterly self-assessments against the Global Food Safety Initiative requirements. All of Tiger Brands’ manufacturing facilities maintained their certifications this year against either the globally recognised Food Safety System Certification (FSSC 22000) or the Hazard Analysis and Critical Control Points (HACCP) system.
In terms of suppliers, the product recall in our canned vegetable range, after the company identified a latent defect in a supplier’s cans, was of course a great disappointment. Tiger Brands acted quickly and decisively in recalling the cans, ensuring a strong precautionary approach to minimise any potential impact on public health. Various measures have subsequently been taken to strengthen the quality assurance processes of suppliers, including introducing a new supplier quality accreditation protocol and a more robust supplier audit programme, working with suppliers to proactively close any identified gaps.
DISAPPOINTING PROGRESS IN AFRICA
Tiger Brands’ aspiration is to be a truly pan-African business with a South African head office. The company has ambitious growth targets for the next five years, building on its established presence across the continent, targeting consumer-led category growth through carefully chosen brand investments and innovations, developing superior routes to markets, and investing in developing supply chain capacity. As I mentioned in last year’s report, I believe that these are credible and appropriate ambitions. Some of the most exciting growth opportunities are in markets across Africa, where we are likely to see stronger levels of economic growth than in South Africa. While I appreciate that some investors and board members might be cautious – given Tiger Brands’ and other South African companies’ recent experiences on the continent – I believe that the company is correct to expand its current export strategy, learning from past mistakes and building on the success in Cameroon.
Given this context, it has been disappointing for me to see the performance this year in the Exports portfolio, where I expected us to do much better. I have spent time this year visiting some of our operations, meeting with management teams and service providers and seeing first-hand the challenges on the ground. While some of the performance disappointments have been a result of headwinds beyond our control, there are clear areas where the company has underperformed, reflecting challenges both in our business model and in the execution of our strategy. The board and the management have reflected on the experiences learned and are taking various steps to ensure improved performance, recruiting the right skills, developing an innovation pipeline, investing in improving overall equipment effectiveness in key operations and building distributor management capabilities.
ENCOURAGING ESG AND SUSTAINABILITY PERFORMANCE
In the context of the recent significant increase in investor interest and engagement on environmental, social and governance (ESG) issues, it has been pleasing to see the continuing progress the company has been making in delivering on its sustainable future strategy, and on its commitments in each of its three strategic focus areas: health and nutrition, enhanced livelihoods, and environmental stewardship.
Tiger Brands has launched several new healthy and affordable products, improved its labelling to accommodate more nutrition information, and run a television campaign in partnership with KOO and SABC 2 to promote healthy home-cooking, supported by further investment in our Eat Well Live Well programme.
Significant further strides have been taken in promoting economic inclusion and food security through the company’s enterprise and supplier development fund, preferential procurement activities and ongoing investments in socio-economic development. In addressing some of the more immediate food security challenges in poor communities, the Tiger Brands Foundation has continued to make a meaningful impact to the nutritional needs of learners, students and vulnerable families across the country.
As a large food company, we recognise our significant responsibility in responding to the climate change challenge; globally the food sector is both one of the largest contributors to greenhouse gas emissions and also potentially one of the most vulnerable. While it is encouraging to see the company’s progress this year in improving energy and water efficiency, reducing GHG emissions and striving for zero waste-to-landfill operations, more still needs to be done to fully integrate this thinking across the organisation. I encourage you to read the separate sustainability report which reviews the company’s progress in addressing its most significant ESG impacts in more detail.
GOVERNANCE AND ACCOUNTABILITY
There have been several changes to the board this year. In February, Mr Makhup Nyama retired from the board, after 10 years of service, and in June Mr Ian Burton resigned from the board, stepping down as chairman of the investment committee. Ian has subsequently entered into an agreement to provide consulting services to the company, enabling us to access his valuable insight and extensive FMCG experience. Looking ahead, Ms Maya Makanjee will be stepping down as independent non-executive director, and as chairman of the social, ethics and transformation committee with effect from 31 December, and Mr Mark Bowman will retire from the board, and as chairman of the remuneration committee immediately following the AGM in February 2022. Both have been on the board for more than 10 years; the board extends our gratitude to each of these departing members for their valuable contribution and wish them well in their future endeavours.
I believe that we have a highly engaged board, that brings differing individual strengths and that is robust in ensuring accountability of the management team. Following the recent and imminent departures of some longstanding board members, we will be announcing some new appointments shortly, where we will be looking to bring in valuable new skills, experience, and insights, particularly in the FMCG and retail sectors, as well as ideally on ESG issues.
APPRECIATION
This has been a stimulating and rewarding first year as chairman of the Tiger Brands’ board. I would like to thank all my colleagues on the board for their support and insight in fulfilling our governance responsibilities, as well as all the Tiger Brands’ executive committee and employees for their efforts in striving to deliver value in this particularly challenging environment.
Geraldine Fraser-Moleketi
Chairman
18 November 2021