Q&A with the chief executive officer
As noted by the chairman, this is my last report as I will step down as CEO on 31 December 2015. After careful consideration, I believe this is the right time for new leadership at Tiger Brands. I am proud of the progress we have made since my appointment. Our business is more resilient and disciplined on cost management and we have introduced key strategies that will improve our position both locally and on the rest of the continent. While the external environment will remain challenging, I am confident the group has the wherewithal to overcome these challenges over time.
How would you summarise 2015 for Tiger Brands?
On balance, the group has recorded a solid underlying performance from the core business in South Africa while our international operations presented some challenges. These included a volatile macro-environment in Nigeria with increased competition, the failure of a key distributor affecting our exports business and irregularities in Kenya.
However, our performance in the 12 months to 30 September 2015 is the result of several years of hard work and focused investment.
In South Africa, our strategic objective in recent years has been to profitably defend and grow our market shares. To achieve this, we initiated a multi-pronged action plan:
- Marketing and innovation: Understanding that our primary asset is our portfolio of high quality brands, we continued to support our brands through increased marketing investment and innovation. In the current year, marketing investment increased by 12% to R845 million while our rate of innovation increased to 3,5% from 3,3%, helping to support the continued leadership of our brands in core categories as highlighted by the awards achieved during the year (page 24).
- Manufacturing facilities: We have continued to invest in our facilities to improve efficiencies and support the drive for innovation. In 2015, R882 million was spent on various capital projects in execution of this objective and to provide for expansionary growth.
- People: Skills development is a key element to achieving our strategic goals. We have invested in our existing talent pool and brought on board new skills that have enhanced the breadth and depth of our leadership teams. Tiger Brands continues to perform favourably against its peers in country-wide benchmarks, such as the Top Employers survey.
- Supply chain and route-to-market: In an intensely competitive and evolving trading environment, building an efficient and effective route-to-market and supply chain capability is essential to ensuring that we continue to win with our customers and consumers. Accordingly, the group has streamlined its supply chain structures to drive efficiencies and is on track to fully realise its target of R500 million cost savings per annum, off the 2012 base, from changes to our manufacturing architecture and the centralisation of procurement, finance and various administrative functions. Customer-facing structures have also been enhanced with the introduction of technology to improve our market reach and development of joint business planning initiatives to drive category growth.
How would you characterise the external environment in which you operated over the past year?
Our operating environment (page 22) was challenging across many fronts, with more headwinds than tailwinds. Given the slow growth in South Africa and on the balance of the continent, I believe our progress in managing and reducing costs was commendable. Equally, regaining market share in key categories is testimony to the quality of our brands, depth of management and determination of our teams.
What pleased you most about the company’s performance in 2015?
On the financial side, results from our Grains, Groceries, and Home and Personal Care divisions reflect solid operational execution and the benefit of investing in our manufacturing facilities and marketing support. The Grains division remains a strong and well-run business. At the half year, there were concerns about volume declines and market share losses in the bread category. The recovery in the second half to a market-leading position again highlights the strength of our brands and the quality of management. In the Groceries division, margins are gradually improving towards our targeted levels of between 10% and 12%.
As part of the recovery of the performance of the Home and Personal Care division, we focused on supporting the long-term competitiveness of our brands with appropriate investment in marketing, research and new product development. The success of this collective effort is reflected in the division’s results (page 44).
Success in the highly competitive Personal Care category is dependent on continuous innovation to drive brand loyalty and support brand extensions. Accordingly, we will continue to pursue technical partnerships to enhance our innovation funnel going forward.
We keenly understand that expanding into the rest of Africa will drive long-term growth but there will be salutary lessons for us along the way. While we have recorded good progress with our Central African operation (Cameroon) and our Exports business in recent years, we faced some challenges in 2015 which have now been addressed.
The underlying trading performance of Tiger Branded Consumer Goods plc (formerly known as Dangote Flour Mills plc (DFM)) continued to reflect a positive trend, although this did not result in an improved bottom-line performance.
As outlined in the chairman’s report, the board of Tiger Brands took the difficult decision to discontinue funding TBCG with effect from mid-November 2015 and has subsequently reached agreement with Dangote Industries Limited to sell its interest in TBCG in return for an immediate cash injection to sustain TBCG’s operations going forward.
The irregularities in Kenya in the 2014 financial year unfortunately affected perceptions of the quality of management and oversight of that business. We are confident that the Haco board has taken appropriate measures to strengthen controls and ensure the company’s continued progress. From a Tiger Brands perspective, we have increased oversight from the centre through more regular interaction.
On the non-financial side, we have made significant progress in strengthening the depth and breadth of skill and experience in our group in recent years. As the group has grown and become more complex, we have recruited both functional and operational expertise. I am proud of the fact that Tiger Brands enjoys the benefits of teams with accumulated FMCG experience spanning Nigeria, Ethiopia, the UK, Brazil and, of course, South Africa. Collectively, our senior management teams have significant years of FMCG experience, with clear benefits for our group. Importantly, much of this expertise is country-specific, a distinct and competitive advantage in establishing Tiger Brands in new territories.
The skill of all our people is fundamental to our sustainable growth. To ensure that we retain and attract the calibre of people we need, we launched a far-reaching talent management programme in the review period, supported by performance-based rewards. We also benchmarked our group against peers by participating in the Top Employers survey. Commendably, Tiger Brands was certified as a top employer because of our attractive employee offerings.
We appointed Noel Doyle as chief operating officer. His exceptional industry knowledge and experience in both South Africa and Nigeria provides an operational focus that frees the chief executive officer and, by extension the board, to concentrate more externally on the longer-term view.
What do you see as the principal challenges for Tiger Brands in the year ahead?
The FMCG industry is currently characterised by change, which is happening at an unprecedented pace and on multiple levels. Success in this fluid market will require quick thinking, supported by accurate market intelligence, deep experience and appropriate investment to remain ahead.
I believe Tiger Brands has the financial and non-financial resources to meet these challenges.
I thank the leadership team and employees of Tiger Brands for their commitment and support over the years. I also value the guidance and support received from the board during my tenure. I wish the group every success and am confident it will succeed in its goal of becoming the pre-eminent FMCG company in emerging markets.
Peter Matlare
Chief executive officer