Effective risk management is fundamental to the business activities of our group. Tiger Brands has a comprehensive risk management programme, which has been implemented across all its operations. By identifying and proactively addressing risks and opportunities, the group is able to sustain value for stakeholders while protecting its business operations, reputation and the wellbeing of its employees.
A formal risk policy is in place, outlining Tiger Brands’ risk management objectives and the process for continually identifying, evaluating and managing risks.
The risk management process involves identifying and documenting key risks, which are assessed by likelihood and impact. The controls and business processes in place to manage risks are evaluated and action plans developed to manage risk to an acceptable level.
Responsibility and accountability for risk management permeates all levels of the organisation and Tiger Brands has established a culture of risk management that is embedded through processes, resources and structures. These include internal audit, risk control and environmental audits, systems, insurance, IT security, compliance processes, quality management and a range of 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 controls for identified risks are operating effectively through a multi-tiered combined assurance framework, comprising the following:
| The board | Risk and sustainability committee | Executive directors and management | ||
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| Insourced and outsourced internal auditors and other assurance providers | ||||
Tiger Brands has a zero-tolerance approach to legislative non-compliance in any jurisdiction in which it operates. |
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| External auditors Ernst & Young Inc, external assurance providers, other professional service providers and regulatory/legislative audits | ||||
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| Environment risk assurance | ||||
| Marsh Proprietary Limited conducts compliance audits and reports on the group’s environment, health and safety risk management programme. |
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Tiger Brands has identified the most significant inherent risks facing the group. These are not presented in any 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.
As outlined on page 22, the operating environment in South Africa remains challenging, with low economic growth, inflationary pressures arising from the weak currency and ongoing financial pressure on consumers driving a more competitive trading environment. In response to these challenges, we have implemented clear brand investment plans and continuously review the entire value chain to identify efficiency and cost saving opportunities.
Given the intensely competitive trading environment, the group’s ability to anticipate consumer preferences and offer relevant, high-quality products is critical to ensuring that we maintain our market shares and continue to strengthen our brands. As outlined in the strategy section (page 28), the group is intensifying its brand building efforts through increased marketing support, new product development and innovation and investing appropriately in its own R&D resources as well as other external networks.
pTo stimulate consumer demand and drive volume growth into their stores, retailers are increasingly competing against branded manufacturers and other retailers through focused private-label offerings and extended promotional activity. This means increased pricing pressure on branded products and higher distribution costs for manufacturers as retailers expand their store footprint without significant additional volume growth in the overall market. Equitable trading terms are in place with customers to drive volume performance and customer and supply chain structures are being strengthened to ensure better alignment and focus. Our customer strategy is summarised on page 21.
Key to the group’s future success is the ability to attract and retain the key talent required to lead and deliver on strategy. As outlined on page 53, HR structures are being strengthened to ensure adequate depth of skills ahead of demand, along with the leadership capability and capacity to deliver on our core objectives. These include competitive incentives aligned to the group’s performance against strategic goals as set out in the remuneration report on page 80.
In South Africa, inflationary pressures are likely to result in higher input costs, exacerbated by a weakening rand. Across the rest of Africa, currency devaluation has resulted in pricing pressures from customers who are unable to pass on higher costs to their consumers. The group is on track to fully realise its cost savings target of R500 million per annum identified three years ago in the areas of centralised procurement, finance and administrative functions as well as from changes to its manufacturing architecture. Further cost savings initiatives are being targeted.
Given the ongoing pressures on disposable income, consumers have become more value conscious in their purchasing decisions, although product quality and brand loyalty remain important. The group continues to focus on ensuring that its products remain affordable on shelf, while enhancing their functional attributes through quality improvements, convenient pack formats and value-added offerings.
Tiger Brands fully complies 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 employees have adequate skills to interpret legislative requirements and remain abreast of new legislation, regular compliance training is conducted in all territories in which the group operates.
The quality and safety of our products is of paramount importance to the success of our brands and the group’s reputation. Quality control and assurance processes, as well as health and safety procedures, are embedded across all our manufacturing facilities, with restricted access controls at production facilities. Effective crisis management plans are in place and regularly tested. As detailed on page 55, our manufacturing facilities continue to adopt the requirements and principles of the internationally recognised OHSAS 18001 standard.
A significant proportion of the group’s raw material costs are either denominated in foreign currencies or trade at parity with international commodity prices. Consequently, the group is exposed to foreign currency fluctuations directly or indirectly through transactions denominated in foreign currencies. While these exposures are managed through forward exchange contracts in South Africa, the resulting volatility in costs cannot always be recovered through price increases, due to the competitive operating environment, which could impact earnings.
In South Africa, foreign exchange exposures are regularly monitored and governed by a clear foreign exchange policy that limits open positions. However, in other African countries where appropriate, cost-effective hedging instruments are not readily available and foreign currency shortages have become endemic, volatile exchange rates have had a significant direct impact on earnings, which is difficult to manage in the short term.
The group is also exposed to foreign currency translation differences due to its shareholding interests in foreign subsidiary and associate companies whose reporting currency is not denominated in rand. Where possible, the group’s investment exposure is offset by foreign currency loans to mitigate the foreign currency translation risk.
South Africa’s labour environment remains challenging, with widespread labour action in certain sectors. Industrial action could disrupt production and distribution, resulting in 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 (page 55).
The group’s 42,1% associate company, Oceana, currently contributes 52% of the total income from associates attributable to Tiger Brands. A significant portion of Oceana’s earnings is derived from fishing rights in various jurisdictions, awarded by tender in heavily regulated markets. These rights typically depend on government policy, and include regulations on the economic participation of previously disadvantaged and indigenous groups in the fishing industry which Oceana must comply with in order to retain its fishing rights. Oceana’s board monitors and ensures strict adherence to regulatory requirements and has sought to mitigate its risk by diversifying its product base and geographical span across a number of territories. This includes its entry into the global fishmeal and oil industry through its recent acquisition of the US-based Daybrook Fisheries Inc.
Other significant risks affecting the group include: