Chairman's letter to stakeholders

This integrated annual report is intended to give stakeholders a clear understanding of Tiger Brands’ performance and its strategy for driving growth in complex and competitive markets.

I am pleased to present results for the year to 30 September 2015 that underscore the progress achieved against our strategy, despite the challenges experienced in certain of our exports and international businesses.

Operating environment

In South Africa, a constrained economy has placed pressure on consumers while increasing competitor activity, particularly in the food sector, has exacerbated the challenges. We elaborate on our operating environment on page 22. Commendably, the group has maintained its leading position in key categories, and protected both its brands and margins through improved operational focus, increased marketing investment and greater efficiencies. Progress has also been achieved in reducing the group’s environmental impact and managing our natural and human resources more effectively, as detailed later in this report.

In Nigeria, the 55% decline in the oil price has had a significant effect on the country’s government revenues while the local currency devalued 25% against the US dollar over the year. The capable team now in place in Nigeria has managed these factors as well as could be expected, increasing volumes and market share. This has, however, not translated into an improved bottom-line result due to the challenging trading environment.

Subsequent to the year end, the group announced that it would not extend any further financial support to Tiger Branded Consumer Goods plc (TBCG) (formerly known as Dangote Flour Mills plc (DFM)) and indicated that it was in discussions with the board of TBCG regarding future funding options for TBCG. This decision was taken after considerable and lengthy deliberations, taking into account the group’s international expansion ambitions, especially in the important Nigerian market, as well as the group’s responsibility to the shareholders of Tiger Brands to deliver an appropriate return on capital while managing risk. It is the group’s intention to retain its interests in the other two Nigerian businesses, namely Deli Foods and UAC Foods.

On 14 December 2015, the group announced that it had reached agreement with Dangote Industries Limited (DIL) in terms of which DIL would, subject to regulatory approvals, provide TBCG with an immediate cash injection of N10 billion (R0,7 billion). Tiger Brands would, in return, sell its 65,7% shareholding in TBCG to DIL for a nominal consideration of US\ and write off its shareholder loans to TBCG of R0,7 million. Tiger Brands will also assume and settle outstanding debt guaranteed on behalf of TBCG, amounting to R0,4 billion. The transaction is aimed at ensuring that TBCG is maintained as a viable going concern, able to retain its employees and meet its obligations to its stakeholders.

Performance

Details of the group’s results are detailed by the chief financial officer on page 32.

From the board’s perspective, we believe the 11% increase in domestic operating earnings in a highly competitive market underscores the strength of our brands, the capability and experience of our management teams as well as the commitment of our workforce.

While acknowledging setbacks during the period, we are confident that the group’s strategy continues to support our long-term growth ambitions. However, renewed focus is required in respect of our international expansion plans to ensure the delivery of sustainable, profitable growth for the group.

Responsible citizenship

The current low rate of growth in South Africa cannot address the challenges faced by the large number of marginalised citizens in need of social and economic upliftment. As a leading food producer, Tiger Brands is playing its part together with government, NGOs and other businesses through our corporate social investment projects outlined later in this report. In the review period, we invested over R24 million in projects focused on food security, nutrition education, hygiene and sanitation.

We are particularly proud of the progress made by the Tiger Brands Foundation through an integrated model of working effectively with government to provide free breakfasts to learners at schools throughout the country. In only four years, this programme has grown to cover 64 schools in nine provinces, providing the essential breakfast meal to over 43 000 learners. This year we reached the cumulative milestone of 30 million meals served to needy learners who would otherwise have started their daily studies hungry.

Given the success of the feeding programme, the foundation is expanding its activities to other schools across the country. This has been funded by doubling the feeding programme’s share of dividends received by the Tiger Brands Foundation from 15% to 30%.

Governance

Tiger Brands is committed to maintaining governance standards that reflect best practice. Throughout the group, structures and controls are in place to ensure compliance as a minimum standard. We were particularly disappointed by the setback in the performance of our Kenyan business in the first half due to prior year irregularities. Appropriate corrective action has been implemented. Importantly, lessons learned from this have been shared across the group.

Just before the year end our chief executive officer, Peter Matlare, announced his decision to step down. Peter has served Tiger Brands with distinction for more than seven years – a period characterised by a turbulent external environment, especially in the latter half of his tenure. He has done well in steering the company through these challenges to where it is today, Africa’s largest branded foods company. Personally, I have found Peter to be a man of huge intellect and dignity. We will miss him and wish him well in his future endeavours. He has much to offer the business landscape in South Africa. Hamba kahle bra Peter!

Other changes to the board during the year were:

  • Richard Dunne retired after nine years on our board as an independent non-executive director. We deeply appreciate his valuable contributions as chair of both the audit and risk and sustainability committees, and as a member of the remuneration and investment committees
  • Michael Ajukwu was appointed as an independent non-executive director in March 2015. His financial and business experience in Africa, particularly Nigeria, will strengthen the breadth of experience on the risk and sustainability committee
  • Yunus Suleman was appointed as an independent non-executive director in July 2015, bringing extensive financial acumen to our audit, remuneration and investment committees
  • Noel Doyle was appointed as an executive director in July 2015, bringing industry and operational experience to the board.

Ian Isdale, our group company secretary and legal adviser, retired after over 30 years’ service. We wish Ian a long and healthy retirement and thank him for his many contributions over the years. We welcomed Thiroshnee (Rosh) Naidoo to the group in the capacity of group company secretary and look forward to her contributions.

Outlook

The outlook for the year ahead remains challenging, with low domestic economic growth, rising costs and job security concerns weighing on the South African consumer. These factors are exacerbated by the weak rand which is fuelling inflationary pressures and intensifying the competitive trading dynamics already evident. The macro-economic outlook for the rest of sub-Saharan Africa is muted, with currency weakness and foreign exchange liquidity presenting additional risks.

We are confident that the right strategies are in place to address these challenges, and that Tiger Brands has the depth of management to execute effectively against its plans. We will continue to focus relentlessly on cost savings and efficiencies, as well as further investment in innovation, customer engagement and brand development.

Appreciation

On behalf of the board, I thank our strategic partners in Nigeria, Chile, Kenya, Cameroon, Ethiopia and Zimbabwe, whose valued input supports our continued operation in these countries.

I thank our loyal consumers and business partners for their continued support. In return for your confidence, we will continue striving to meet your needs.

These results bear testimony to the calibre of people across our group. We thank our management teams and all our people for their commitment and constant willingness to go beyond the expected. In return, we will work with you to realise your full potential.

André Parker
Chairman