Corporate strategy

Overview

Tiger Brands’ strategy is to drive profitable growth in its core South African business whilst sustaining the market-leading positions of its brands. As the South African business represents 75% of group turnover (excluding exports) and 89% of group operating income (before IFRS 2 and other operating charges), its performance remains a key area of focus, which supports the acceleration of the group’s expansionary efforts into the rest of Africa.

This international expansion is an important growth vector, which is underpinned by the strategy to “fix, optimise and grow” the African operations acquired over the last few years. The growth strategy is further supported by the exports of the group’s South African brands, which continue to show pleasing growth. The turnaround of the Nigerian DFM business remains a priority, and a strategic growth opportunity in the longer term.

Domestic business

Weak economic growth and the slowdown in consumer expenditure has continued, with above inflationary increases in food prices, fuel, energy costs and high unemployment contributing to low consumer confidence.

Market volume trends show slow recovery in the categories in which Tiger Brands participates and consumers continue to adjust their consumption patterns, favouring lower priced products where possible and foregoing purchases of discretionary items. This has forced manufacturers to compete more intensely on pricing and enhance their value proposition to consumers.

Rising cost inflation and volatile soft commodity prices have added further pressure, fuelled by the weak rand.

Given the economic constraints facing the domestic business, top-line growth will need to be created through:

	a recovery of lost market penetration and increased consumption;
	regaining market share in existing categories through brand building and innovation; and
	expansion into new categories that align with the group’s core business and are capable of delivering profitable growth.

Exports and International businesses

Economic growth in the rest of Africa is expected to remain robust, although the competitive landscape has intensified as local and multinational manufacturers pursue growth.

With rapid urbanisation and improved living standards, consumers are seeking aspirational brands and new variety. This is fuelling growth in FMCG markets, as purchasing patterns change from bulk, unbranded product to branded, packaged goods. However, the reality of low disposable income per capita places limitations on consumer expenditure, and value for money remains key to achieving brand success.

While consumers are embracing the increasing modern trade expansion in Africa, the route to market in sub-Saharan Africa remains largely informal and the reliance on wholesalers and distributors to reach the final point of purchase is critical to achieving market success.

Constrained infrastructure and logistical problems continue to place restrictions on business expansion, while socio-political instability and increasing political/regulatory controls in certain countries represent significant business challenges. Notwithstanding these challenges, Tiger Brands believes that the expansion in the rest of Africa represents a significant growth opportunity for the group in the medium to longer term.

International growth will be supported by:

continuing to “fix, optimise and grow” the businesses that have already been established while sustaining the growth trajectory of the group’s Exports and International businesses;

seeking new opportunities for expansion through green/brownfields initiatives and appropriate acquisitions;

returning the Dangote Flour Mills business in Nigeria to profitable growth by:

•	making the necessary capital and brand investments to fuel growth; and
•	evaluating the new category opportunities that will deliver top-line growth and sustained profitability in the longer term.

The business model

The delivery of the growth and profitability objectives, and the achievement of the strategic thrusts encapsulated in the corporate strategy will require the continued implementation of the defined business model, depicted in the diagram on the below.

Operating efficiency and cost savings, together with disciplined management of price, volume and margin in the group’s businesses will be required to sustain profitability and provide the fuel for investment in top-line growth.

Investment in brands, innovation and people will be required to drive the top-line growth and the international expansion envisaged in the strategy. This in turn will enable operating leverage through an accelerating top-line and appropriate margins to deliver the growth in profit and return on investment targets set in the group’s corporate strategy.