CHIEF EXECUTIVES OFFICER'S REVIEW
Tiger Brands’ pleasing results this year, delivered in the context of an extremely tough operating environment, should give confidence to investors and other stakeholders that the company has turned a corner after several years of disappointing performance. I believe that this year’s results, underpinned by a strong second-half recovery, should give confidence that we have stabilised the core and are now well-positioned to deliver long-term value and growth.
OUR RECENT INVESTMENTS IN TECHNOLOGY AND DIGITAL CAPABILITIES, OUR PROGRESS IN REPOSITIONING OUR INNOVATION, PROCUREMENT AND LOGISTICS ACTIVITIES, AND OUR CONTINUED INVESTMENT IN OUR PEOPLE AND MANUFACTURING OPERATIONS, ARE ENABLING US TO REALISE UNTAPPED OPPORTUNITIES.
This year we met almost all our short-term financial targets for the group, despite the pressure of a very flat consumer market, anaemic GDP growth, extraordinary input cost inflation, and the impact of industrial action in the first half. Although we have made progress in those areas where the measures are more tangible and the solutions more obvious and formulaic, I believe that we are now well-positioned to deliver results where solutions require better data interrogation and analysis, as well as rapid and agile trial and error.
Total revenue from continuing operations increased by 10% to R34,0 billion, driven by price inflation of 11%, and marginal overall volume declines of 1%. Further improvements in supply chain efficiencies and revenue management initiatives resulted in the overall gross margin (excluding the impact of the product recall and civil unrest) being maintained at 30,3%. Group operating income before impairments and non-operational items was up 53% to R3,4 billion. Earnings per share was up 65% to 1 762 cents per share, while headline earnings per share increased by 51% to 1 702 cents per share. During the year we completed a value-enhancing share buy-back programme that was well-received by the market over and above paying a total dividend of 973 cents per share.
Delivering on our strategic objectives
Our improved performance this year reflects effective execution across our strategic priorities that were developed to improve the performance of our current portfolio, deliver an effective turnaround over the short term, and set us up for longer-term growth.
We made pleasing progress this year in building a growth pipeline, stepping up our innovation activities across the group, optimising our product portfolio, and pursuing various customer and channel initiatives to win at the point of purchase. We have improved our channel segmentation and deepened our understanding of shopper profiles to inform our store execution plans and ensure more effective campaigns, pricing and promotions. We are continuing to expand into the informal market, targeting 60 000 active spaza stores by 2024, supported by a team of sales representatives and tailored distribution models. Anticipating significant further growth in e-commerce, we have been raising our online presence with a view of becoming the preferred supplier to prioritise e-commerce partners. We are embedding revenue management principles across the organisation and have developed a comprehensive decision-making tool to enable detailed analysis at an SKU and customer level to identify priority revenue growth opportunities. After a slow start for the Rest of Africa segment, we have restored sales volumes in key markets and improved factory performance, creating a solid foundation for growth.
We are driving various strategic initiatives to meet the needs of consumers. Given the constrained consumer environment, our priority focus has been on delivering market-leading solutions for the value-conscious consumer – with innovations in certain categories to meet more affordable price points, including new value packs in beverages, canned food and personal care categories – while also continuing to capture opportunities in health and nutrition, snackification and at-home consumption.
Optimising our supply chain remains a critical enabler and key priority within our growth plan. In addition to investing in upgrading and expanding some of our manufacturing operations, we have made progress in embedding a strong quality culture, supported by qualified people and robust integrated management systems. Although we saw pleasing improvements in our quality KPIs, this progress was overshadowed by a precautionary product recall of certain baby powder products. We have undertaken a root cause analysis and are implementing various corrective actions, including a thorough review of our raw material and finished product risk assessments, specifications and product release protocols across all our product categories. Despite our various occupational safety training, assessment and auditing initiatives, it was a disappointing year in terms of our safety performance, with the tragic fatality of one Albany driver and two contractors, reflecting a broader increase in work-related injuries, particularly among contractors. Addressing this issue is a top priority for next year.
Our cost savings and efficiencies drive across the group delivered R387 million in savings this year. Although this was slightly short of our target, due mainly to external inflationary pressure in procurement, the improved efficiencies reflect our work in further embedding the well-established cost-savings culture across the group, supported by improved accountabilities, strengthened revenue management capabilities, and further portfolio optimisation and SKU rationalisation, primarily in Groceries, Snacks & Treats, and Beverages. Although this was a challenging year for procurement, with global supply chain constraints and inflationary pressures resulting in a focus on securing supply rather than unlocking new value, we have a detailed roadmap in place to strengthen our core procurement capabilities, complete the transition to a centralised operating model, and ensure priority investment in the digital tools and technology.
One of the most important and often most challenging areas of competitive differentiation for a business, lies in the quality and leadership of its people. While much of the necessary foundational work is in place in delivering on our strategic commitment to igniting our people, we recognise that more still needs to be done to fully embed an agile performance-based culture that will allow us to join the ranks of truly high-performing businesses. The high level of attrition in key technical roles and senior leadership levels in recent years has highlighted some significant gaps in talent in specific areas and underlined the importance of improving our performance and processes in external recruitment to deepen our bench strength. Given the momentum gained in strategy execution, we have reviewed measures to manage the retention of Exco members, which is imperative to the stability of our strategic and operational support team. As a means of providing a compelling value proposition, the remuneration committee has thus approved retention payments for Exco members (excluding the CEO). This was a once-off payment intended to retain executives rather than reward performance, and it is deemed to be in the company’s long-term interest.
We have made some important strides this year in delivering on our sustainable future strategy, leveraging our influence, and increasing our effort and investment, to progress our commitments to improve consumer health and nutrition, enhance livelihoods, and ensure responsible environmental stewardship. Through our launches of new healthy products, nutrition labelling activities, and our Eat Well Live Well programme, as well as our recent investment in a plant-based and vegan start-up, we are enabling consumers to improve their health and wellbeing. We have continued to provide valuable support to black and black women-owned farming and agri-processing enterprises, through our enterprise and supplier development activities, preferential procurement, agriculture aggregator model, and investments in socio-economic development. In terms of environmental stewardship, an important development this year was the conclusion of a power purchase agreement to introduce solar power at four of our sites, an important step towards our goal of sourcing 65% of our manufacturing electricity requirements from renewable energy by 2030. Although there is still significant room for improvement, our engagement with government, regulatory bodies and host communities has gained positive momentum.
Following the tragic listeriosis outbreak in 2018 and the subsequent Class Action, pre-trial preparations to get the matter ready for trial are currently ongoing. The process of discovery, which is a key part of the pre-trial preparation, is at an advanced stage. I reiterate our collective commitment to ensure that a resolution of the matter is reached in the shortest possible time, in the interest of all parties, particularly the victims of listeriosis and their families.
The immediate and medium-term outlook looks challenging. Local inflation is at a 20-year high and rising, GDP growth expectations are anaemic, rising youth unemployment levels are a lead indicator of potential social unrest, and we are operating in a political environment that can best be described as a ‘holding pattern’ ahead of the significant election in South Africa in 2024. Given this challenging outlook, and the level of economic stratification within the country, it is essential that we prioritise the growing number of value-conscious consumers by focusing relentlessly on cost reduction, value engineering, brand and product tiering, and efficient end-to-end supply chain management.
Despite these challenges, I believe that the company made significant progress in repositioning itself for the future, and that our strategic approach and recently revised operating model present the right foundation to ensure our resilience, enabling us to harness the strength of our iconic brands, the diversity of our product portfolio, the quality of our customer relationships, and the health of our balance sheet to absorb these future headwinds. The time is now right for Tiger Brands to take some calculated risks, act on our size, back ourselves, and put forward more ambitious investment plans, thinking bigger and bolder to attract and retain the talent and expertise we require, supported by an unwavering focus on execution.
This has been a rewarding if challenging year, thanks to the dedication and support provided by Tiger’s employees and my colleagues on the executive team. I wish to extend my thanks also to the Tiger Brands’ board for their oversight and advice. I am confident that together the company’s employees and leadership teams will ensure that Tiger Brands successfully executes our strategy for long-term growth.
Chief executive officer
1 December 2022