Chief executive officer's statement

Its brands are strong, the product offerings are comprehensive and well-represented, and many of the recent challenges it has faced have been internal, signifying that solutions are within our reach. As is evident over the last few years, the company has the financial strength to withstand some significant headwinds, and that places it in a good position for further growth.

In taking on this role for the next 26 months, my primary objective is clear: to increase sales, optimise pricing, and establish a cost structure and operating model that will enable sustainable growth. To achieve this, I will be working to foster a focused and entrepreneurial spirit throughout the organisation that will ensure a responsive and nimble organisation.

Financial performance

Despite strong revenue growth, Tiger Brands’ gross margins this year were down on the prior year, while group earnings were boosted by improved income from associates. Total revenue increased this year by 10% to R37,4 billion off the back of price inflation of 11%, favourable foreign exchange gains of 1%, and overall volume declines of 2%. Group operating income ended lower than FY22. The ongoing challenges of fully recovering higher input costs persisted in the second half, resulting in marginally lower volumes. Together with the year-on-year impact of incremental retrenchment costs of approximately R100 million, this proved too significant to be offset by the group’s cost reduction initiatives, which ended ahead of the R460 million target previously guided.

Good performances from Beverages, Home and Personal Care, Tiger Brands Food Services Solutions, Exports and Deciduous Fruit were more than offset by poor performances in Rice, Bakeries, Groceries, and Snacks and Treats, with the last two of these businesses operating in categories marked by absolute volume declines.

Despite making good progress with cost-saving initiatives and supply chain efficiencies, this was not enough to counter high input cost inflation and the substantial costs of loadshedding, which amounted to R126 million for the year. As a result, gross margins declined to 27,7% from 30,3% last year. Group operating income (before impairments and non-operational items) decreased by 9% to R3,1 billion. Earnings per share were down 2% to 1 725 cents per share, while headline earnings per share increased marginally to 1 735 cents per share.

A particularly tough operating environment

This year’s results reflect the impacts both of a very challenging trading environment and some internal goals. Globally, the green shoots of a post-COVID-19 economic recovery have been undermined by high inflation, tighter monetary and fiscal policies, and increasing geopolitical instability, further exacerbated by extreme weather events. The outlook for the global economy remains subdued amid growing concerns around the fragility of the Chinese economy. Closer to home, our markets across Africa face their own macro-economic challenges, with increasing youth unemployment, glaring income disparity, and continuing political and regulatory instability.

In South Africa, the company has faced strong headwinds associated with record levels of unemployment, significant infrastructure bottlenecks, and increasing frustration with service delivery. On the political and regulatory front, businesses have been working in what can best be described as a “holding pattern” in the run-up to next year’s national election that could result in an untested coalition government. With consumer confidence dropping to its second-lowest level since 1994, the anticipated growth of the emerging middle class is stalling as it submerges under sustained waves of economic challenges, such as high interest rates and debt levels, and soaring fuel and food prices. As disposable income comes under increased pressure, consumers have responded by trading down, reducing demand for discretionary and premium products, and increasingly relying on promotional pricing and private-label products, with brand-loyal customers reverting to smaller pack sizes. In the context of heightened price competition, volumes and margins are threatened, and cost recovery ahead of inflation remains a challenge.

Back to basics

To deliver on Tiger Brands’ full potential in this very challenging context, there are certain aspects that I wish to highlight:

• Fostering the right culture: In any company, culture is the cornerstone of success. It shapes the way we interact with one another, ideally underpinned by strongly shared values such as mutual respect, hard work, and unwavering commitment. As an organisation, we should be clear on working together as a cohesive team, setting high standards for ourselves, informed by a spirit of collaboration, while being at ease within our working environment
• Operating model: While there is certainly value in achieving operational efficiencies through centralised synergies, it is equally important that critical decision-making should be as close to the operations as possible. I believe that there are opportunities for Tiger Brands to strengthen its decentralised decision-making. We will also be realising some specific cost-saving opportunities that have been identified, and we will seek to deliver on specific targets by expense type and category. To this end, the most appropriate organisational design will be implemented with renewed intensity and urgency
• Managing complexity: Tiger Brands’ business and product portfolios are still unnecessarily complex. I believe that there remains valuable opportunity to optimise the product mix and further streamline the business by eliminating non-performing products. We will be looking to deliver changes in our current portfolio, exiting certain categories that are no longer deemed future-fit, and seizing identified opportunities for entry in adjacent categories where we see valuable synergies, a growing market, and/or higher margin potential. We will be further simplifying, rationalising and stretching our brands through rigorous investment to ensure that our brands talk to the relevant consumer and demand spaces, with progress measured both in terms of brand profitability and brand equity indicators
• Innovation: While innovation should be a key element of the company’s growth strategy, this must be viewed through the dual lens of both continuous improvement and product innovation. We need to ensure the continuing relevance of our products – informed by an assessment of their cost, taste, and overall value proposition – striving constantly to update our recipes to remain relevant while driving cost-savings. Our initial focus should be on ensuring that the core business remains relevant before we explore opportunities to innovate and introduce new products

Outlook

The immediate market outlook remains challenging. Consumer confidence is likely to remain under pressure given current high interest rates and food inflation, which have continued to accelerate this year. While there has been a recent softening in global food prices, this has been offset in South Africa by a weakening rand as well as loadshedding, which has disrupted food production and distribution, and significantly increased costs for manufacturers and food retailers. Although some projections suggest food inflation in the country will abate in 2024, this assumes a further slowdown in global food inflation, an easing in electricity outages, an improvement in our summer crop production, and a stable rand, none of which is guaranteed.

Given the anticipated low to no growth environment, and in response to the recent shifts in consumer and shopper behaviour, we have prioritised the below key focus areas in addition to the fundamentals mentioned above.

• Restoring cost leadership: We will continue our rigorous approach to cost savings, having identified additional opportunities informed by an extensive external and internal benchmarking exercise, which will deliver on specific targets by expense type and category
• Turbo-charging our growth in general trade: To capture the growth opportunities evident in the informal sector we are expanding our presence in this segment of the market by implementing robust route-to-market support and solutions for our general trade customers
• Executing our identified key growth platforms in three priority areas: We have prioritised three growth platforms aimed at driving broader consumer and shopper relevance and increasing market success: driving affordability, democratising health and nutrition, and over-indexing on snackification

I am confident that, with motivated people who are aligned to a clear purpose, we can deliver the necessary results. While the full return to ultimate performance will not be achieved in 26 months, we should certainly be on a measurable track towards it.

I am looking forward to leading Team Tiger on this journey.

Tjaart Kruger
Chief executive officer

30 November 2023