Tiger Brands

Chief executive officer's review

Achieving our true potential

The head and the heart of our strategy

When I addressed the Tiger Brands team on the first day of our new financial year, it was with a sense of pride for the organisation we are and excitement for the significant opportunities ahead.

In the review period, we completed the groundwork for the strategy that will guide us to 2022, detailed in our strategic review. This required much work and, arguably, an unprecedented level of support, collaboration and commitment, all while delivering a strong operating result for the year. This was indeed an achievement and source of pride for the entire group.

Essentially, 1 October 2017 was the start of our new five-year strategy and the first step towards our 2022 ambition to achieve our true potential. When we started this journey, almost a year ago, we agreed that our historical performance had not met expectations. We also had feedback from all levels of the organisation that our ways of working were not entirely conducive to leveraging our scale as one Tiger team resulting in an agile, lean organisation that responds quickly.

 

We therefore set about creating a new strategy and a new operating model that would unlock our true growth potential and deliver a sustainable, top-tier performance.

We started by defining our higher purpose, our reason for being:to nourish and nurture more lives every day:

• In the workplace,by creating meaningful opportunities for professional development and growth; committing to working safely; living our values; caring for each other and creating a great place to work
• Focusing on our communities and minimising our environmental footprint.

We then agreed a clear and compelling vision that encapsulates the head (financial targets) and heart (our stakeholders, beginning with our people) of our strategy:

• Deliver top-tier financial results and be recognised by all stakeholders as the best FMCG company in South Africa as well as the most desirable growth company on the continent. Fundamental to achieving our vision is attracting the best talent because we are recognised as a great place to work.

With a clear purpose and vision, we were able to focus on the growth plans to reach these goals:

• Realise maximum growth from our core business and brands in South Africa – by harnessing existing capabilities while building skills for the longer term,and managing costs while capitalising on organisational opportunities
• Expand our presence in developing markets, with the immediate priority of expanding the footprint of our power brands into Africa.

While we prepared for a sustainable future, we clearly still had to navigate the present by delivering against our FY17 targets. The operating environment remained intensely challenging,exacerbated by a highly competitive market. The level of political turmoil and social unrest escalated sharply as the economy deteriorated. For the group, social unrest manifested in strikes at two operating units (beverages,and snacks and treats). While lost production clearly had a bottom-line cost for the group, improving our relationship with organised labour is more important. We are focused on strengthening both lines and means of communication to ensure we address concerns timeously and in a way that benefits all.

Our response to material issues within our control and those outside our control is detailed in our material issues, but key for the executive team is to correctly manage the scale of change under way in our group needed to support our strategy. Essentially, this is a process that begins with refreshed values that, in turn, elicit the behaviours that support the key metrics or KPIs that mark our progress towards our strategic goals. We keenly understand that our people are fundamental to our strategy and as important as our brands, and we use periodic employee surveys to track their satisfaction and ensure we anticipate their changing needs.

While key factors in our market are summarised on here, the state of South Africa highlights the need for companies to honour their commitments as responsible corporate citizens and deploy their resources most effectively to assist their own people, communities and broader society. We take this responsibility very seriously, investing in our people and communities during the year, and against clear strategies to deliver tangible and growing benefits for all in years to come.

Overall,as detailed in the financial review, Tiger Brands delivered strong operating results in FY17, driven by our domestic business, particularly our flagship Grains and Groceries divisions, under difficult conditions.

Importantly, these results reflect our focus on balancing trade-offs, for example managing absolute growth in profitability against volume and market share movements,while driving the efficiencies that will create the fuel for our future. Similar trade-offs are being made to better manage our environmental footprint, for example by investing in the security of water supply through various water stewardship initiatives. While this benefits specific manufacturing units, it is vital for affected communities. These and other environmental initiatives are detailed here.

New operating model

Throughout this review process, we benchmarked ourselves against best-in-class, locally and internationally, and we learned from detailed talent mapping where the capability gaps are, as well as where efficiency could be improved. This enabled us to craft an operating model that is truly specific to Tiger Brands, one that defines the capabilities we need to win and ensures the most effective trade-offs.

Implementing this new model is a complex project in a sizeable group with distinct operating units and a legacy spanning decades. It is founded on integration and the process has been facilitated by maximising available resources, such as pockets of excellence in specific disciplines or divisions, across the group. A good example of this approach is the progress made in scaling up centralised procurement into a hub that covers manufacturing, procurement itself and logistics or distribution. Our aim is to channel 80% of all procurement through the central hub over the medium term,from 50% at present. The hub has been appropriately staffed and targets set to maximise the scale of our group and simplify processes.

A vital component in the collaborative operating model is corporate culture. This, in turn, is a function of ways of working, ways of rewarding and ways of governing. We are simplifying our ways of working and reducing management levels while improving individual development and accountability. To attract the talent we need and retain existing capabilities, and after feedback from stakeholders, we have reviewed our remuneration structures and strengthened the link to performance. Governance has been strengthened at board and executive level, with clear rotation and succession plans for the optimum balance between fresh insight and continuity. The new executive team is working well, and the group is benefiting from the experience and insight of external appointments to head grains, company secretariat and corporate affairs. We are also recruiting a new head of marketing as the incumbent retires in March 2018, a new head of human resources and a chief strategy officer, a new resource in the group. The executive team enters the new financial year well positioned to execute our strategy.

Transforming the corporate culture is a lengthy process, and one we have just begun. The progress and commitment to date are, however, deeply encouraging.

Outlook

We have a compelling strategy and clear targets that will allow us to win with consumers and grow the strength of our brands sustainably. These results also underscore the capability of our team in a period when much of our focus was internal. In the year ahead, our focus will be more external as we concentrate on incorporating the insights from our broad stakeholder engagement.

The economic outlook for 2018 is muted and we expect the operating environment to remain highly competitive. The group is, however, well positioned to navigate this environment and our focus will be on recovering volumes and market share while remaining committed to a cost-conscious culture.

In addition, we will pay significant attention to growing our core portfolio, increasing market penetration through our customer strategy and unlocking much greater value through a world-class, integrated supply chain. We will also drive far more focused innovation and marketing excellence through distinctive new marketing capabilities, directing our capital expenditure and marketing investment to our power brands to improve returns. These strategic aims will support our broader growth ambitions outside South Africa.

Appreciation

The commitment of Tiger teams across levels, divisions and geographies has been both humbling and inspiring. In return, unleashing the power of our people and creating a great place to work remains our priority and strategic lever for success.

Our board has been a source of great counsel and support throughout the year. We are deeply grateful. The contributions of our strategic partners and ongoing support from our service providers, suppliers and customers is equally valued. We will continue to listen to you, and work together towards mutual goals.

Lawrence Mac Dougall
Chief executive officer

28 November 2017