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Tiger Brands Limited integrated annual report
2015
Our operating environment
South Africa
Given that 75% of the group’s turnover and 98% of its
operating income is currently generated in South Africa,
conditions in this market are critical to our performance
and strategic progress.
Tiger Brands is the largest constituent by market capitalisation
of the R195 billion JSE Food Producers Index. Listed and
unlisted food producers in turn, supply a R231 billion retail
market, ranging from national supermarket chains to
informal outlets.
Economic growth in South Africa was lacklustre for most of
the reporting period, with downward revisions to the GDP
rate forecast for 2015. The increasingly unfavourable
global economic environment, inflationary cost pressures
caused by the weak rand, together with electricity
shortages and unsettled labour relations have exerted further
pressure on the domestic economic outlook and undermined
business confidence. During the year, the rand weakened
by 23% against the US dollar as concerns about China’s
economy deepened and impacted emerging market assets.
The continued depreciation of the rand over the last four
years has exerted significant inflationary pressure on input
costs and pricing, increasing the pressure on consumers and
reducing demand.
These factors together with the relatively high personal debt
levels, rising interest rates, inflation and slower wage growth,
have affected consumer confidence and constrained
household consumption levels. Consequently consumers are
adjusting their consumption habits, favouring lower priced
products where necessary and deferring purchases of
discretionary items.
In response to this increasing focus by shoppers on value,
manufacturers are competing for volume sales opportunities
through pricing and value offerings. The tough trading
environment has been exacerbated by the increased
pressure from customers for additional trade spend in
respect of rebates, promotional activity, joint advertising,
and supply chain efficiencies, thereby further impacting
producer margins.
0%
1%
2%
3%
4%
2010
2,8%
3,1%
2,5%
2,1%
1,1%
1,5%
1,5%
2011
2012
2013
2014
2015
2016
Real GDP growth
SA economic growth is expected to remain subdued over the medium term
0%
1%
2%
3%
4%
5%
6%
2010
4,5%
5,0%
3,3%
2,3%
1,2%
1,2%
1,8%
2011
2012
2013
2014
2015
2016
Growth in SA household consumption remains constrained
6
7
8
9
10
11
12
13
14
Sept 2010
Sept 2011
Sept 2012
Sept 2013
Sept 2014
Sept 2015
R/US$
Continued rand depreciation against the US$ has intensi ed pressure on input costs
Sept 2013
Sept 2015
May 2014
Jan 2015
Naira /US$
US$/naira
Oil brent
140
160
180
200
220
0
20
40
60
80
100
120
140
160
Naira has come under pressure in a lower oil price environment
Source: Broker reports, BMI, StatsSA, Deutsche Bank, Datastream.