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Chairman's letter to stakeholders
Dear stakeholders It gives me much pleasure to update you on the performance of your company for the year ended 30 September 2014, and to inform you of progress made in implementing Tiger Brands’ strategy over the period under review. In addition, the objective of this Integrated Annual Report is to provide all our stakeholders with a clear understanding of Tiger Brands’ focus on ensuring that it is a responsible company when it comes to environmental issues, whilst also assisting those less fortunate members of society. Lastly, the report also contains the necessary information that will enable the reader to have comfort in the group’s efforts in addressing inherent business risks, thereby ensuring long-term sustainability. Environment The international economic environment remained unsettled, and while signs of recovery were evident in selected regions, the South African economy, where Tiger Brands makes the bulk of its profits, substantially underperformed the rest of the continent, thereby placing severe pressure on personal disposable income, the lifeblood of our industry. As a result, particular focus has been placed on the price positioning of the group’s products, at the appropriate level that meets both the expectations of our consumers in terms of affordability, while taking into account the impact of raw material cost increases on the cost of production. In the rest of Africa where Tiger Brands operates, environmental factors were more favourable. Ethiopia and Kenya, in particular, continued on their strong economic growth trend, with the latter in particular settling down well following the implementation of a new constitution and recent elections. The Nigerian economy also remains robust, although the highly competitive environment represents considerable challenges to our business there. Further details in respect of the performance of our Nigerian operations are dealt with hereunder. Strategy implementation Although Tiger Brands remains on the lookout for potential value-adding acquisitions in sub-Saharan Africa, the year under review did not deliver any targets that met our criteria. This has enabled management to focus on addressing key strategic and operational issues in our existing portfolio of businesses. In my letter to stakeholders last year, I notified you of our intention to acquire Rafiki Milling and Magic Oven Bakeries, a flour milling and bread baking business in Kenya. However, this transaction did not proceed due to the performance of these companies not meeting the expected thresholds in the period between the conclusion of agreements and approvals received by the regulatory authorities. Significant focus was given during the year to the performance of Dangote Flour Mills (DFM) of Nigeria which was acquired on 4 October 2012. As I reported last year, the performance for that period was disappointing. Steps were taken during the year under review to significantly strengthen our management team in Nigeria with seasoned executives who have significant experience of operating in Nigeria. Although DFM has not yet been able to return to profitability, good progress has been made in reducing losses, and we remain confident that this investment will prove to be beneficial to Tiger Brands in the medium term. Given the current underperformance of the DFM business, it was considered prudent to impair the goodwill and intangible assets related to Tiger Brands’ investment, as well as certain surplus fixed assets of the company. We remain positive with regard to the prospects of both Nigeria and DFM, and are cautiously optimistic that all our Nigerian businesses are now well positioned to take advantage of the substantial growth potential offered by this large and vibrant market. Results Despite the tough trading conditions in South Africa alluded to earlier, the company achieved a pleasing performance by improving headline earnings from continuing operations to 1 804 cents per share for the year ended 30 September 2014, an increase of 15% over the previous year. This pleasing performance has been achieved by focusing on top-line growth and market share retention in our core South African businesses. A combination of successful management of the price-value relationship of our branded product offerings, assisted by increased marketing support and related brand building initiatives contributed to these pleasing results. A keen focus on improved operating efficiencies and cost reductions further assisted the financial performance. In South Africa, the Grains division performed strongly, while the recovery in the performance of the Groceries business was particularly pleasing following last year’s disappointment. A strategic decision was taken to relocate the stand-alone Crosse & Blackwell Mayonnaise manufacturing plant in Cape Town to the Groceries facility in Gauteng, thereby sharing utilities, as well as being closer to its major markets and the source of its raw materials. The new plant was successfully commissioned towards the end of the 2014 financial year. Our established businesses in the rest of Africa all performed well. As reported earlier, recently acquired DFM in Nigeria continued to make losses, albeit at a reduced rate. Our businesses in the developing economies of Kenya, Cameroon, Ethiopia and Nigeria offer profit growth potential in excess of South Africa, and we are committed to developing these businesses towards reaching their full potential. A particularly strong performance was achieved by the Exports division which is reflective of the increasing acceptance of our branded products throughout Africa. The further growth and development of our Davita business significantly enhanced the profitability of our export offerings. It is true that South Africa possesses a large number of marginalised citizens who are in need of social and economic upliftment, and also that one can never do enough. However, Tiger Brands is willing and able to play its part in joining government, NGOs and other businesses in contributing to this process. We are active in a number of corporate social investment projects that are outlined later in this report. We are particularly proud of the role played by the Tiger Brands Foundation which has evolved an integrated model of working effectively with government in providing free breakfast to learners at beneficiary schools throughout the country. This year we celebrated the 20 millionth meal served to needy learners who otherwise would have had to start their daily studies on an empty stomach. Outlook The outlook for our South African operations is closely linked to the economic outlook for the country, and therefore remains muted. On the balance of the continent economic prospects are brighter, although challenges of a different nature need to be addressed, especially in Nigeria. In short, we do not expect much assistance from the macro-environment, and understand that it is up to us, your board and the management team, to achieve the results that you expect from us. Appreciation The board and I are particularly appreciative of our strategic partners in our ventures in Nigeria, Chile, Kenya, Cameroon, Ethiopia and Zimbabwe. Without them, we would have no business to speak of in these countries. On a similar note, I wish to thank our loyal consumers and business partners for their continued support that makes Tiger Brands the largest branded food company in Africa. We realise that this display of confidence places an onus on us to meet your needs. Finally, and on behalf of the board, I wish to thank Peter Matlare and his excellent team of managers for their endeavour in producing this set of results. It is comforting to know that we have a great management team who give it their all. Andre Parker |
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