For Tiger Brands, the past year has been one of the most challenging in recent memory, with external and internal events combining to truly test the mettle of the group’s leadership, including its board.
Khotso Mokhele, Chairman
As one of the largest and most well-established manufacturers of food products in Africa, food safety is a non-negotiable priority. We have a central function to monitor adherence to good manufacturing practice standards across all our sites in South Africa, and all sites are certified under the Global Food Safety System 22000. In addition, our manufacturing, group legal and compliance functions collaborate effectively to ensure our products comply with all regulatory standards.
Despite these robust controls, the country's worst outbreak of Listeria monocytogenes was attributed to our Enterprise facility in Polokwane. This was a truly devastating development to the Tiger Brands family, including the board, the leadership and the entire staff.
Globally, Listeria is a risk in food-preparation facilities. In South Africa, data from the National Institute of Communicable Diseases proves that 60 – 80 cases of listeriosis have been identified annually for the past five years. National food-safety regulations acknowledged this risk, and the group's hygiene processes and testing protocols had proved effective in keeping contamination levels well below statutory limits.
The advent of the ST6 (sequence type 6) strain of Listeria was, therefore, a massive outbreak that caught all role-players by surprise – from national regulators to the scientific community and, of course, the industry. Testing for the little-known ST6 was not required at the time, the strain is particularly aggressive, and consumers most at risk include those with immune deficiencies. This was a lethal and tragic combination in South Africa, one that caused 209 deaths, including 91 newborn infants and infected over 1 000 people1. While the outbreak was officially declared over in September 2018, the full impact is yet to be determined. Legal processes to certify a class action lawsuit were still under way at the time of writing. A detailed case study is included in our sustainability report.
Tiger Brands has a long and proud history, producing some of South Africa's most-loved and iconic branded food products, and with our company purpose to 'nourish and nurture more lives every day', we pride ourselves in providing quality food products that are loved and expected by consumers. For our products – intended to nourish and be enjoyed – to have been identified as the cause of illness and death was singularly shocking. Our hearts go out to all the individuals and families in any way affected by the listeriosis outbreak.
There are several key outcomes to this tragic event, with national benefits. The government has tightened its industry regulations, with processors of heat-treated, ready-to-eat meat products now required to implement a hazard-analysis and critical control point system (known as HACCP) by mid-2019. Collaboration between all levels of government, the scientific community and the industry has enhanced processes and protocols, while the involvement of global bodies will ensure national standards are on par with international best practice.
For our group, the outbreak highlighted the need for centralised oversight of quality. This had already been established as part of our new operating model, along with raising awareness of the importance of maintaining robust standards at all times. It has also underscored the value of stringent governance and sharing knowledge across the group. The new executive team has proved itself in this respect, working together to ensure that learnings are effectively shared and, more importantly, internalised.
From the board's perspective, we understand that there is no second chance after the events of 2018. Accordingly, we have requested – and received – further enhancements in risk reporting to the board and its committees. We are encouraged by the improved collaboration with government that will enhance industry standards of food security, although we believe this responsibility begins with each company. Given our purpose to nourish and nurture more lives every day, it's simply the right thing to do.
Risk of foodborne diseases
According to the World Health Organisation, the global burden of foodborne diseases, including listeriosis, shows that almost one in 10 people fall ill every year from eating contaminated food and 420 000 die as a result. Almost one third (30%) of all deaths from foodborne diseases are in children under the age of five years, even though children make up only 9% of the global population. Most worryingly, the African and South-East Asia Regions have the highest burden of foodborne diseases. More than 91 million people in the WHO African region are estimated to fall ill and 137 000 die each year.
Encouragingly, what this period has proved is that there is a deep pool of experience and expertise in Tiger Brands, and a sincere commitment to honouring the responsibility inherent in the group's purpose.
Sadly, we also recorded one fatality during the year when an Albany driver, Mr Thulani Shoba, died in a robbery during his delivery rounds on 10 August 2018. Our sincere condolences go to his family and loved ones. See the sustainability report for details on how we are mitigating this risk.
Moving beyond internal challenges in the review period, the group was also operating in a very difficult environment. The CEO details these challenges but, from a macro perspective, data shows that South Africa is becoming chronically poor. Terms like income inequality, poverty alleviation and infrastructural constraints mask the dire reality for the majority of our people. Our national economy is shrinking, and is now out of sync with population growth. The result is less disposable income – or no income at all – which in turn means the search for value will be paramount and pervasive. This has important implications for groups manufacturing basic foodstuffs, like Tiger Brands. As a result, the financial performance of the business was disappointing.
In terms of mitigating macro challenges, we are making progress, from fortifying basic foods to controlling our costs to keep products affordable while supporting small farmers to broaden the procurement base. We acknowledge that more needs to be done, but the scale of this issue demands a coordinated approach from the highest levels of government to the smallest producer of raw materials. Tiger Brands is committed to playing its part.
The two sets of challenges outlined previously – listeriosis and the macro environment – have sharpened the board's awareness of the quality of leadership required to steer the company forward. Equally important is the need for vigilance to identify possible challenges and to act and react swiftly and with great agility to meet and overcome those challenges.
The board is committed to aligning Tiger Brands with King IV principles and entrenching a culture of good leadership, strong organisational ethics and responsible corporate citizenship.
We are making good progress in identifying suitable candidates to reconstitute the board after Swazi Tshabalala and Rob Nisbet resigned as independent non-executive directors on 15 August 2018 and 7 September 2018, respectively. Swazi resigned after being appointed vice president of finance and chief financial officer of the African Development Bank. She also stepped down as member of the risk and sustainability committee. Rob stepped down as chairman of the audit committee, as well as a member of the investment and risk and sustainability committees. He has served on the board since August 2010. The board thanks Swazi and Rob for their significant contributions to the company and wishes them well in their future endeavours.
Gail Klintworth became an independent non-executive director on 16 August 2018. Her knowledge and experience in sustainability matters in our industry are important additions to the skills set of the board, and we look forward to her contributions.
Tiger Brands is developing a sustainability strategy to ensure we achieve our true potential and our purpose. The strategy will align existing sustainability initiatives in the different functions and businesses, covering the sustainability of our products, improved efficiencies of our production facilities, focus on our employees and the communities where we operate, and our wider stakeholder community. Many initiatives are already in place and delivering results.
In line with this approach, we have produced our first stand-alone sustainability report, guided by the GRI Standards (formerly known as the Global Reporting Initiative). This report reviews Tiger Brands' environmental, social and governance performance for the past year, and covers issues of particular interest to stakeholders in the environmental, social and governance (ESG) aspects of our operations, namely our shareholders, employees, local communities, non-governmental organisations (NGOs), investors, customers, partners, suppliers and government.
Despite our challenges in the review period, management has made progress in implementing the group's strategy. This is detailed in the CEO's review.
The board remains confident that this strategy will unlock the full potential of Tiger Brands and create value for all stakeholders. As a board, our role is to ensure the required focus and energy in implementing this strategy are attained.
Towards the end of the period, we approved the group's strategy for Africa over the next four years. This complements the strategy in South Africa and supports the local operations, our current exports business as well as the operations in Cameroon and Nigeria. Importantly, given the group's history on the continent, we stress that the Africa strategy builds on what we have – driving category growth through selected brand investments, shaping superior routes to markets and investing in key capabilities. The fact-based strategy is supported by a detailed business plan and clear roadmap, with milestones.
Simultaneous implementation of the group's strategy to optimise operations in South Africa while winning on the continent will be a standing item on the agenda at board meetings.
I have noted the challenges facing South Africa politically, economically and, therefore, societally. The next months will be difficult as we approach national elections in 2019. The political situation is fluid and citizens will be deluged by pre-election promises and posturing that will do little to address the real issues in our country. We do believe that President Cyril Ramaphosa is sincere in his efforts to stimulate the economy and he has made some progress.
While focusing on our strategic objectives in South Africa, we will need to accelerate our strategy for Africa by building on the many inherent strengths of our group.
Simultaneously, as the only consumer goods company in the JSE's top 40, we are fully committed to our societal responsibilities. We will continue to work with stakeholders at every level to address concerns such as food safety, food security and water supply, with the longer-term goal of creating a more equitable and sustainable economy that benefits all citizens. We vow to work tirelessly to ensure that South Africa does not experience a repeat of the listeriosis outbreak of 2018.
Tiger Brands is still undergoing extensive change. This is never an easy process and we deeply appreciate the commitment evident at every level. I am also grateful for the support and insight of my fellow board members, and the dedication of the executive team, several of whom are new members. Willing engagement from key stakeholders, particularly all levels of government and industry bodies, were especially valuable this year. We trust the outcomes will benefit the country at large. We also sincerely thank our shareholders for their continued support during an exceptionally trying year and their confidence in our ability to execute our strategy for long-term value creation.
21 November 2018