As Africa’s largest food producer, with a legacy of establishing and maintaining some of South Africa’s best-loved brands over its one-hundred-year history, Tiger Brands has a particularly important responsibility in delivering and sharing value for its many stakeholders. It is fair to say that the company has been underperforming over the past five to 10 years; much of this has been due to various management missteps, and the market has punished us accordingly.
I BELIEVE THAT TIGER BRANDS’ IMPROVED PERFORMANCE THIS YEAR, IN THE CONTEXT OF SOME CHALLENGING EXTERNAL HEADWINDS, REFLECTS AN IMPORTANT SHIFT IN TRAJECTORY.
It gives me confidence that the company has passed an inflexion point and is now heading in the right direction. The management team has made significant progress in stabilising the business and getting the basics right, positioning the company to be more creative, more agile and more aggressive in hunting down and delivering on some of the untapped opportunities for growth.
Encouraging performance in a challenging environment
This year, group operating income and HEPS from continuing operations were up 53% and 51% respectively, year-on-year. At financial year end, we declared an ordinary final dividend of 653 cents per share, in line with the dividend policy of 1,75x cover. In addition, we initiated a share buy-back programme. A total of 9,49 million shares were purchased returning R1,5 billion to shareholders, demonstrating our commitment to better returns. These improvements in financial performance were delivered in the face of a very challenging socio-economic environment, characterised by low economic growth, higher than expected cost inflation and reduced consumer spend, compounded by an uncertain macro-economic and political environment in South Africa and globally. Following the profound disruption of the pandemic, we have seen further impacts on global supply chains and input costs associated with the conflict in Ukraine, while locally we are impacted by continuing electricity supply constraints and broader infrastructure challenges, high unemployment, political and socio-economic challenges exacerbated by growing levels of inequality.
In addition to these significant external headwinds, the company has faced various internal challenges, including prolonged strike action at the Snacks & Treats operation, some recent vacancies at a senior management level, and the impact of a general skills shortage in some technical areas critical to our business. Given these challenges, it has been pleasing to see some important improvements in the company’s performance, as well as the progress it has been making in some core areas, laying an important foundation for growth.
In response to the constrained consumer environment, there has been a heightened focus on value-led innovation and renovation in Tiger Brands’ product offerings and price-pack architecture, as well as various initiatives with customers aimed at strengthening our positioning at the point of purchase. Increased effort is now being put into harnessing digital technologies and information solutions to drive operational efficiencies, increase automation, and improve customer and consumer data and analytics. The company is also further developing its centralised procurement capability and repositioning its logistics activities, both of which offer the potential to unlock significant value.
While I believe that Tiger Brands has turned the corner and is beginning to produce the desired step change in performance, there is still work to be done if the company is to fully deliver on its potential in a sufficiently timely manner. Given our scale and the strength of our legacy brands, this year’s performance in Bakeries has been a particular disappointment. Looking ahead, the management team has a good understanding of the underlying challenges, and the board has recently approved a compelling five-year strategic roadmap for Bakeries aimed at driving volume growth, strengthening our position through innovation, accelerating cost savings, and embedding the right performance-based culture. This has been a year of consolidation in our Rest of Africa operations, with sales volumes restored in key markets and investment in some of our operations creating a solid foundation for growth. Despite a slow start to the year, the underlying fundamentals suggest that we have the right strategy and that there are exciting growth prospects in our portfolio.
Focusing on product safety
One of our key responsibilities as Africa’s largest food producer, is to contribute to regional food security, improve nutrition and maintain the highest levels of food safety and quality. Following the tragic listeriosis incident in February 2018, Tiger Brands’ board has strengthened its oversight of the company’s product safety and quality management practices, both across its own operations and among suppliers and third-party manufacturing partners. Although we have seen further significant improvements this year in some key quality metrics – with a 14% reduction in consumer complaints, on top of the step change in improvement in the prior year – this has been overshadowed by the precautionary recall in September 2022 of certain baby powder products. Coming off the back of last year’s precautionary recall of just over 20 million cans of vegetable product, this has understandably caused some concern in the market about the robustness of the company’s management of product quality and safety. Although the recall has not had a material impact on Tiger Brands’ direct financial performance, it has undermined our reputation.
While this recall is disappointing, I remain confident that the management team is fully committed to instilling a culture of product safety and quality across the company, building on the robust internal management and review systems, critical control measures and new technologies that were introduced across its manufacturing facilities and externally managed warehouses. In response to this product recall, we have undertaken a root cause analysis and are implementing various corrective measures. As a board, we will ensure an appropriate level of accountability for any mistakes that were made, and that the necessary measures are taken to uphold our commitment to product safety and quality.
Upholding strong ESG performance
In delivering on the company’s purpose – to nourish and nurture more lives every day – and as part of our sustainable future strategy, the company has recently revised environmental, social and governance (ESG) targets for 2030 relating to health and nutrition, enhanced livelihoods, and environmental stewardship, with some of these introduced into remuneration incentives. Pleasing progress has been made this year in each of the three focus areas, aimed at leveraging our business model to drive positive social change. To address some of the more immediate food security challenges, and the recent troubling rise in hunger-related deaths among children in South Africa, in September this year the company launched Isondlo, a R42 million nutrition programme that supports 10 000 food-insecure children, aged five and younger, and their families, with a monthly food hamper for nine months. This initiative is in addition to the 9 000 food hampers that are already distributed monthly as part of Tiger’s existing food nutrition programmes, as well as our longer-term core business initiatives to improve health and wellbeing by providing more nutritious and affordable food products, developing best-in-class nutritional standards, and leveraging our brand to promote better consumer nutrition.
Given the tough macro-economic environment, we recognise that as a larger company we have a particular responsibility in fostering inclusive development, stimulating job creation and improving livelihoods across our value chain. The challenge of protecting jobs and maintaining business viability has been highlighted recently as the company strives to find a solution for our deciduous fruit business, Langeberg and Ashton Foods (LAF), that no longer aligns with our portfolio. Following an exhaustive process over the past two years, in which prospective buyers have been unable to secure the funding needed to meet working capital requirements, the company recommenced operations for another season while continuing to engage with organised labour, employees, and members of the Canning Fruit Producers Association, as well as provincial and national government and prospective buyers, to identify a sustainable commercial solution that will protect the 250 permanent and 4 300 seasonal jobs, sustaining the broader local economy. It has also been pleasing to see the progress made this year in minimising our environmental footprint, the various projects aimed at increasing the use of renewable energy at our facilities, improving energy and water efficiency, and minimising packaging and food waste. We recognise that we have a significant responsibility to continue addressing our material ESG impacts and commit to fully integrate this responsibility across the business.
As chairman, I am incredibly fortunate to have a strong and highly engaged board, with significant FMCG skills and a strong international presence, well-suited to ensuring robust accountability of the management team.
There have been several changes to the board this year. Ms Maya Makanjee stepped down as independent non-executive director with effect from 31 December 2021, and Mr Mark Bowman retired from the board immediately after the close of the AGM in February 2022, both after more than 10 years of service. The board extends its gratitude to each of these departing members for their valuable contribution and wishes them well in their future endeavours. Mr Frank Braeken and Ms Lucia Swartz were appointed as independent non-executive directors with effect from 1 April 2022 and 1 June 2022, respectively. Frank has deep FMCG and emerging markets experience, having held various senior and executive roles at Unilever in Eastern Europe, Latin America, Africa and Asia, while Lucia has wide-ranging experience in human resources leadership having worked for BP Southern Africa, the Seagram Group of companies, and Sappi, before serving as Vice President, People at AB InBev Africa.
This has been another challenging year, but one in which I believe the company has turned a corner. If we maintain a relentless focus on execution, underpinned by a strong culture, the right capabilities and clear end goal, then I have no doubt that Tiger Brands will fulfil its potential and further strengthen its position as a market leader. On behalf of the board, I would like to thank the Tiger Brands management team and all the employees for their effort in responding to some significant challenges and moving the company on a path to growth.
Geraldine J Fraser-Moleketi
1 December 2022