Chief executive officer's review

Lawrence Mac Dougall Given its winning brands, diversified portfolio, extensive manufacturing footprint and integrated supply chain, Tiger Brands has all the elements required to succeed in this dynamic market. The measure of success will lie in how effectively we harness our strengths and correct areas of weakness to achieve top-tier financial performance.

 

Building the Tiger Brands of the future

I have joined Tiger Brands at an exciting time in the global FMCG industry – one where the challenges presented by significant shifts in consumer and shopper trends have spurred equally significant changes in the retail sector. Around the world, manufacturers are reviewing their portfolios, processes and strategies to prepare for these emerging trends. We discuss the salient features of our operating environment in more detail on pages 26 and 27, with arguably the most important trends and inherent opportunities being the consumer search for value, convenience and healthier options and the evolving trade environment, with the emerging strength of informal traders.

Given its winning brands, diversified portfolio, extensive manufacturing footprint and integrated supply chain, Tiger Brands has all the elements required to succeed in this dynamic market.

Global FMCG strategic themes

  • Macro-economic and political challenges
  • Changing consumer consumption patterns
  • Growing competition with acquisitive expansion in emerging markets
  • Changing trade environment
  • Focus on entire consumer pyramid
  • Innovation is driving growth
  • Digital marketing more pervasive
  • Supply chain and other cost efficiencies
  • Expanding flagship brands to new markets

The measure of our success, however, will lie in how effectively we harness our strengths and correct areas of weakness to achieve top-tier financial performance.

We operate in an intensely competitive industry where increasing market share against well-funded and established participants requires the full commitment of an experienced and expert team working towards a clear strategy.

I am mandated by the board to continue to grow our business by focusing on profitable brands. The first step is a thorough review of our strategy and underlying capabilities. In recent months, I have had many frank conversations with people at every level that highlighted the depth of experience and expertise in our group. The insights from these discussions have fuelled a common goal – together, we can create a winning team and a cost-conscious culture that will recover ground with both our customers and consumers through focus and accountability.

This commitment underpins the process of reviewing our strategy and setting the targets that will measure our progress against corporate goals. On pages 20 and 21, we set out our thinking and our progress to date on improving the basics. We expect to finalise this review in the new financial year, setting a clear framework for the group over the next five years.

Our brands

The group produced solid results, given the difficult trading environment and significant input cost pressure driven by the prolonged drought in South Africa and sizeable currency movements. Based on continuing operations, group turnover increased by 11% and operating income (before impairments, abnormal items and IFRS 2 charges) by 5%. Headline earnings per share from continuing operations increased 2% to 2 130 cents per share while headline earnings per share from total operations (including TBCG) increased 19% to 2 127 cents per share.

We invested R866 million supporting our core brands and a further R945 million in capital expenditure to build capacity for growth and improve efficiencies.

In our Grains division, we maintained our leadership in the bread market, although operating income was marginally constrained by responsible pricing decisions. Our pasta and oats businesses delivered strong results.

In the Consumer Brands division, the Groceries business maintained its operating margin and market leadership in core categories. The Home, Personal Care and Baby business delivered another strong performance with excellent growth and improved margins.

Results from our International division were mixed. Operating results were affected by macro-economic issues, including currency devaluations and foreign-exchange shortages. Cameroon delivered a solid performance, however, and continued to record profitable growth.

Associates made significant contributions to our earnings, with a 43% increase in income to R861 million driven by Oceana and Empresas Carozzí.

Our people

People are the heart of our organisation, which makes it imperative to retain their skills while developing their full potential:

  • We continue to invest in preparing our teams to win in this challenging macro-environment and are proud to have retained our level 3 BBBEE rating in 2016
  • Tiger Brands again achieved Top Employer status with a better year-on-year score, and was ranked among the top three preferred employers in the FMCG sector by graduates
  • Regrettably, four colleagues were killed in armed robbery attempts, despite the focus on route to market security. Another colleague was accidentally electrocuted in our Ethiopian operation. We extend our sincere condolences to their families and reiterate our commitment to zero harm. Reflecting our focus on eliminating recurring behaviour-based incidents, the group reduced lost-time injuries by 13% in FY16
  • Group talent processes were entrenched to ensure a solid pipeline of skills on page 56. Our remuneration structures were reviewed and adjusted where necessary to retain the skills on which our business depends on pages 94 and 97.

Our communities

We invested R23 million (over 1% of net profit after tax) in socio-economic development initiatives. In addition, our breakfast programme, facilitated by the Tiger Brands Foundation, ensured 60 000 school children per day did not start their lessons hungry. In just five years, this translates to over 40 million meals served. Our initiatives are detailed on page 66.

Environmental commitments

The review period was the last year of a rolling three-year programme focused on reducing our key environmental impacts. This targeted approach proved constructive and new targets have been set. Understanding that a concerted approach will have a broader impact, we also strive to build on a culture where our supply chain is engaged, empowered and supported in improving environmental sustainability practices. Please refer to pages 74 to 79 for more information.

Outlook

Tiger Brands enters the new financial year on a stronger footing, energised by the progress made in 2016 as well as the new thinking in our group. While we understand that trading conditions are likely to remain difficult, we are excited about the many opportunities for profitable growth in our core markets.

Supported by a strong balance sheet, capable and committed teams, as well as the strength and leading positions of our brands, we are focused on establishing a solid foundation for future growth based on an appropriate business model and cost structure.

Appreciation

I greatly appreciate the welcome and support I have received from the Tiger Brands teams. I believe the collective commitment encountered across our group bodes well for our sustained growth and I thank every member of our many teams for their contribution. I also thank our loyal service providers, suppliers and customers for their continued support.

Lawrence Mac Dougall
Chief executive officer

22 November 2016