Risk management

Effective risk management is fundamental to the business activities of the group. Tiger Brands has a comprehensive risk management programme, which has been implemented across all of its operations. By identifying and proactively addressing risks and opportunities, the group is able to sustain value for its stakeholders while protecting its business operations, the wellbeing of its employees and its reputation.

A formal risk policy is in place, which outlines Tiger Brands’ risk management objectives and the process for identifying, evaluating and managing risks on an ongoing basis.

Risk control framework

The risk management process involves identifying and documenting key risks, which are assessed in terms of likelihood and impact. The controls and business processes in place to manage the risks are evaluated and action plans are developed to address any residual risk exposure, where necessary.

Responsibility and accountability for risk management permeates all levels of the organisation and Tiger Brands has established a culture of risk management which is embedded through processes, resources and structures. These range from internal audit, risk control and environmental audits, systems, insurance, IT security, compliance processes, quality management and a range of other line management interventions. Risk management is further strengthened by enforcing the group’s Code of Conduct and encouraging employees to use the confidential ethics hotline to report concerns.

The board obtains assurance that the controls over identified risks are operating effectively through a multi-tiered combined assurance framework, comprising:

1.	The board, executive directors and management The board Retains ultimate responsibility for the oversight of the group’s risk management processes Sets the level of risk tolerance and limits of risk appetite for the group Instils a prudent approach to risk Ensures that the group’s strategic objectives, management of reputational risk, management priorities and stakeholder expectations inform decisions Monitors the effectiveness of the risk management process The risk and sustainability committee Actively monitors the group’s key risks as part of its standard agenda Oversees the group’s risk management programme Reports to the audit committee and the board Regularly focuses on the process of determining the group’s lost-time injury frequency rate (LTIFR) occurrences and the degree of seriousness of such injuries, in addition to reviewing on an annual basis the setting of LTIFR targets across the group Group executives and operational management Are responsible for day-to-day risk management Regularly review the strategic and operational risks at a divisional level, prioritising high-risk areas. Responsibility for each of the identified risks is assigned to an appropriate member of the senior management team, who is required to report to the executive committee on the steps taken to manage or mitigate the risks in question Drive specific risk control initiatives, addressing health and safety management, security, fire defence, food safety, environmental management and quality management
2.	Commercial Audit Unit, internal auditors KPMG and other assurance providers Conduct compliance and risk-based audits focused on the control environment, as well as key risks identified through the company’s risk management process Address potential fraud or criminal activity and respond to issues arising from the confidential ethics hotline Follow-up work in respect of incidents of defalcation or other issues requiring investigation The company has a zero-tolerance approach to non-compliance with legislation in all jurisdictions in which it operates.
3.	External auditors, external assurance providers, other professional service providers and regulatory/legislative audits The preparation of the annual financial statements remains the responsibility of the directors. The audit committee, on behalf of the board, regularly meets with the external auditors and formally evaluates their independence on an annual basis The independent external auditors, Ernst & Young Inc., report on whether the annual financial statements fairly present the state of affairs of the company and the group, in compliance with IFRS and the Companies Act
4.	Environment risk assurance Marsh (Pty) Limited conducts compliance audits and reports on the group’s environmental, health and safety risk management programme.

Significant risks

Tiger Brands has identified the following key risks as being the most significant risks facing the group. These do not comprise all of the risks affecting the group and are not presented in any particular order of priority. Additional risks and uncertainties not presently known to the group (or currently deemed immaterial) may arise (or worsen in severity), which could affect the long-term sustainability of the group’s business and/or operations.

Domestic trading environment

The trading environment in South Africa remains challenging, with manufacturers facing intense competition and weak consumer demand due to the ongoing financial constraints on disposable incomes. These factors are exacerbated by above inflationary input cost pressures, which are fuelled by the weak rand and cannot be fully recovered in pricing or increased volumes. Further pressures persist as consumers have become more value conscious, increasing their trial of cheaper products.

Tiger Brands’ response has been to maintain itsprice competitiveness on shelf by driving operational efficiencies and cost savings. The level of marketing support and focus on new product innovation has also increased in order to drive top-line growth.

Innovation

Critical to Tiger Brands’ success is its ability toanticipate consumer preferences and offer relevant, high-quality products in a competitive and ever-changing consumer environment. Failure to drive innovation could negatively impact the brands’ relevance to consumers andconsequently erode the equity value of the company’s brands and result in the loss of market share. Tiger Brands continually monitors and analyses market trends and conducts research on consumer habits and attitudes. Thegroup keeps its core brands pertinent and contemporary by investing extensively in innovation through product performance enhancements, variant and range extensions and new category entities. The group is intensifying its efforts on brand building through increased marketing support, new product development and innovation, as well as through the appropriate investment in R&D resources.

Customers

The increasing consolidation of the retail trade and emergence of buying groups has intensified the competitive pressures on manufacturers. Retailers are competing against branded manufacturers through their focused private label offerings whilst driving selling prices down through extended promotional activity.

In driving increased penetration through the retailers’ new store openings, further cost pressure is exerted on manufacturers without significant additional volume growth in the total market.

The group has put in place equitable trading terms with customers to drive volume performance and is increasing its focus on brand building to stimulate increased demand from consumers. Tiger Brands’ customer and supply chain structures are also being strengthened to ensure better alignment and focus.

Human resources

The group continues to implement consistent HR policies and people strategies across its businesses. Clearly defined roles, responsibilities and reporting lines ensure that the organisational structure is optimal for delivering against the group’s strategic objectives. The group has in place talent management and succession planning structures, which anticipate the requirements for functional skills ahead of demand and sets a rolling “cover target” for key positions in order to ensure the group’s sustainability. Tiger Brands’ internal talent plans continually seek innovative ways of finding and retaining skilled people. Individual development plans and an effective performance management system contribute to employee retention, supported by competitive incentives which are aligned to the group’s performance against its strategic goals.

Geographic expansion into Nigeria

The expansion into Nigeria represents a significant growth opportunity for the group, notwithstanding the current operational challenges being faced. Failure to successfully implement the changes required to fix, optimise and grow the Nigerian businesses, could significantly affect the group’s future growth prospects. Adequate resources have been deployed to implement Tiger Brands’ operating standards, stabilise the business and drive profitable growth through increased market penetration and entry into new product categories. Significant investment is being made, through increased marketing support and new product development, to build existing and new brands, and also in optimising the group’s route to market capabilities in Nigeria.

Changes in consumer preferences

Consumers have become more value conscious in their purchasing decisions, switching to cheaper alternative brands where possible. Tiger Brands continues to focus on cost containment initiatives across its value chain and on the management of the pricing of its products relative to competitor brands. In addition, it strives to enhance the perceived benefits of its products through improved functional attributes, convenient pack formats and value-added offerings.

IT systems

The group continually assesses the IT risks that could have a materia limpact on its operations and has comprehensive disaster recovery plans in place to mitigate these risks. The group iscurrently in the process of completing the consolidation of its various ERP systems onto asingle Oracle platform and has centralised certain functions, including procurement and finance. Change risk is being managed through detailed planning to ensure a smooth and effective transition and integrity of the group’s information management systems.

Legislative issues

Tiger Brands is fully compliant with the regulatory framework within which it operates. Areas relevant to the group, where interaction at appropriate governmental level is required, include fair trade, product safety and tariff enforcement. To ensure that employees have adequate skills to interpret legislative requirements and remain abreast of new legislation, regular compliance training is conducted. This applies to all territories in which the group operates.

Product safety

The quality and safety of the group’s products is of paramount importance for its brands and reputation. Embedded quality control and assurance processes, as well as health and safety procedures, are in place across all ofthe group’s manufacturing facilities, with restricted access controls at production facilities. Following the recent product recall ofa batch of “Simply Delicious” products that were distributed into the market, the group has taken steps to further reinforce these controls.Effective crisis management plans are in place and are regularly tested. The majority of the group’s manufacturing facilities are HACCP compliant or in the process of seeking HACCP or ISO22000 accreditation.

Resources and procurement

Tiger Brands is exposed to soft commodity price risk when acquiring strategic raw materials such as wheat, maize, rice, oats, sorghum, tomatoes, white beans and sunflower oil. Price variations are triggered by supply conditions, weather, economic conditions and other factors. The group monitors and reviews the impact of climatic conditions on agricultural produce and the implications for its supply chain. It also reviews procurement exposures on an ongoing basis.

Foreign currency risk

Exposures to foreign currency fluctuations arise as Tiger Brands operates in various countries and undertakes transactions denominated in foreign currencies. The group enters into various types of foreign exchange contracts as part of the management of its exposures in this regard. These exposures are monitored on an ongoing basis and transactions involving foreign currency are governed through a clear foreign exchange policy where open positions are limited.

Labour unrest

South Africa’s labour environment has become increasingly challenging, with widespread labour action taking place in certain sectors ofthe economy during the last year. Industrial action could result in the disruption of production and distribution of products and consequent failure to meet customer service delivery expectations. Tiger Brands prioritises strong relationships with its labour force and unions and promotes open communication with union representatives.

Other risks which require significant management attention

	Reputation and increased consumer activism through social media
	Merger and acquisition risks
	Electricity and water supply
	Catastrophic loss of manufacturing facility
	Political/country risk