Chairman's review
“The headwinds faced this year have highlighted the need for a sustained focus on driving efficiencies and focusing the product portfolio, maintaining the strength of existing brands and key relationships underpinned by a clear commitment to delivering broader societal value. These are all key elements of Tiger Brands’ strategy, which I believe lays a strong foundation for the company’s ability to deliver long-term value.”
Khotso Mokhele 
Chairman
A CHALLENGING OPERATING ENVIRONMENT
This has been a particularly tough year for consumers and retailers in South Africa and across our markets. In South Africa, consumer spending has been constrained by lacklustre GDP and wage growth, high unemployment and debt levels, and increasing fuel, transport and utility costs, with the South African consumer spending less, consuming less, and shopping smarter. Although we have seen higher levels of economic growth in most of our markets across Africa, consumers have faced similar constraints as a result of volatile exchange rates, subdued commodity markets and the impacts of political uncertainty and extreme weather patterns in certain regions.
This reduced consumer spend has been accompanied by rising input costs and heightened competition among food producers and retailers, all of which are placing strong pressure on both margins and volumes. Not surprisingly, the impact of this very challenging context is reflected in Tiger Brands’ results. Although group revenue from continuing operations was up 3%, group operating income before impairments and abnormal items was down 20%, with rising input costs and declining volumes outweighing any efficiency gains in supply chain management.
Collectively, these headwinds have highlighted the need for a sustained focus on driving efficiencies and focusing the product portfolio, delivering product and process innovation, maintaining the strength of existing brands and key relationships, and ensuring a fit-for-purpose organisational culture, underpinned by a clear commitment to delivering broader societal value. These are all key elements of Tiger Brands’ strategy, which I believe lays a strong foundation for the company’s ability to deliver long-term value.
CLASS ACTION UPDATE
As has been previously disclosed, the class action against the company arising from the outbreak of listeriosis was certified by the High Court on 3 December 2018 and a summons was issued on 16 April 2019. A plea was filed by Tiger Brands on 8 August 2019. The parties are now engaged in pre-trial preparation while subpoenas have been issued for the disclosure of information by third parties, which is pertinent to the outbreak. Tiger Brands remains committed to the matter being resolved as soon as possible and will continue to conduct its defence in a responsible manner.
STRENGTHENING OUR FOCUS ON FOOD SAFETY
Last year in my annual statement, and in response to the tragic listeriosis incident, I highlighted the need to improve the central oversight of food safety and quality, and to further enhance the quality of risk reporting to the board and its committees. Food safety is a standing item on the risk and sustainability committee’s agenda, underpinned by clear reporting lines and regular internal assessments and data management processes aligned with the Global Food Safety Initiative (GFSI). We also introduced an integrated short-term incentive scorecard – applicable to the CEO, CFO, executive directors and prescribed officers – that makes specific provision for food safety and quality as a key performance indicator.
This year, external food safety and quality audits were undertaken at selected high-risk sites by an independent international auditing body, with all of Tiger Brands’ manufacturing sites achieving a GFSI-aligned external certification. In addition, quarterly self-assessments and gap closeouts were completed across the company’s operations, and unannounced hygiene audits were undertaken by the group’s microbiologist to ensure compliance and embed the company’s newly introduced standards. All new raw material and packaging suppliers are now subject to supplier quality assurance processes, and relevant factory teams at all high-risk sites have been provided with training, including in basic microbiology and sampling techniques. We have also been leveraging our partnership with the University of Stellenbosch through the Centre for Food Safety, particularly in terms of microbiological investigations and research.
Although this renewed effort has contributed to a significant reduction in marketplace incidents and ensured that there were zero public product recalls over the year, we recognise the need to maintain an unrelenting focus on food safety and quality. Tiger Brands has defined and will be implementing a centralised food safety and quality verification schedule for manufacturing units. We will be driving self-assessments to deliver a step-change improvement in performance, using international hygienic engineering and design guidelines as a manufacturing hygiene standard, and developing and implementing metrics and processes for supplier performance measurement. We will continue to engage actively with regulatory authorities to enhance the development and implementation of industry standards for food safety.
MAINTAINING GOOD GOVERNANCE
My role as chairman is to ensure that as a board, we provide an independent oversight function, ensuring that the management team delivers on its responsibilities to use the resources entrusted to it to protect the best interests of the company. Our job on the board is to foster accountability and ethical conduct, engaging with the executive team on its strategic decisions, approving the capital and resources needed to achieve the identified strategic objectives, and holding them to account in ensuring the most efficient and effective execution of strategy.
In fulfilling this function, it is important that the board maintains its independence, and that we bring sufficient diversity of opinion and perspective, finding the right balance between depth of industry and company experience, and the benefits of new insight. We have made some important new appointments to the board this year that have assisted us in meeting this responsibility. In November 2018, Yunus Suleman resigned as non-executive director after four years of service. In March 2019, Cora Fernandez joined the board as an independent non-executive director, with Donald Wilson and Monwabisi Fandeso appointed to the board in June and July 2019 respectively. Subsequent to year end, the board appointed Advocate Mahlape Sello with effect from 1 October 2019. These new appointments bring valuable new skills and perspectives, further strengthening both the board’s diversity and its levels of independence.
This year, we commissioned an independent external effectiveness review that assessed the board’s overall performance in 2019 and identified strengths and improvement areas. The overall feedback was generally positive, with the board assessed as having skilled, professional and experienced members, good levels of diversity, and a culture of frank discussion in addressing the company’s various recent challenges, supported by strong leadership and effective board processes and structures. The review identified various opportunities for improvement. These include strengthening the board’s support of current efforts to build a performance-based culture with more robust accountability mechanisms, improving clarity on Tiger Brands’ long-term strategic goals with more ambition in driving innovation, and increasing oversight of the company’s talent management activities, at and below executive level. We have taken these various recommendations on board and are implementing appropriate measures to address these improvement areas.
DEFINING AN AMBITIOUS GROWTH STRATEGY
Following feedback from our stakeholders, this year’s integrated report includes a more explicit review of Tiger Brands’ strategy, outlining the company’s various commitments and reviewing the progress it has made within each of its four strategic focus areas: Drive Growth, Be Efficient, Great People and Sustainable Future.
In September this year, the board spent two days with the executive team reviewing the company’s updated strategic roadmap. Developed in response to the challenging operating environment – which is seeing dynamic changes in consumer behaviour, heightened competition, and the potentially disruptive impacts of digital technology – the board believes that this revised roadmap sets the company up well to deliver on its growth ambitions.
To realise its vision of driving growth through winning category, channel and customer strategies, the company has identified, and begun to deliver on, clear commitments to optimise its product portfolio, deliver innovations to meet changing consumer needs and expectations, and drive growth at the point of purchase. In response to the increasing competitive pressure from private label, Tiger Brands has been working to reinforce the strength of its existing brands, leveraging its position as category leader in more than half of the categories it operates in, and evaluating opportunities to stretch its brands within and across product categories. Our recent decisions on optimising the product portfolio are reviewed further below.
In terms of Tiger Brands’ Africa growth strategy, following a very challenging year in Mozambique, Nigeria and Zimbabwe, the company is looking to deliver organic growth by driving category growth through targeted brand investments, developing superior routes to markets and investing in necessary capabilities. The strategy is defined by a clear approach to market segmentation in our established and untested markets, and a structured approach to winning in trade in prioritised product categories in our identified key markets.
In an effort to expand and protect margins in the subdued market, there is a heightened focus on being efficient, with specific commitments to drive productivity and secure cost efficiencies across its value chain through improved procurement and logistics practices, various plant and process improvements, and the development of integrated IT and information solutions. To maintain the capacity for long-term growth, various capital expenditure projects have been approved to upgrade older facilities, improve production capacity, and provide for product and process innovations, safety and sustainability.
The strategic growth initiatives are underpinned by the company’s undertaking to develop great people, by deepening the skills set and diversity of its talent base, strengthening the leadership and commercial capabilities across the organisation and creating a strong performance-based, purpose-driven culture that inspires innovation and enables the company to attract and retain talent. As part of this commitment, the board has agreed a robust succession plan for key leadership positions, including the CEO, with clear development plans in place that are regularly reviewed at board level.
This year, Tiger Brands has clarified its commitment to promoting a sustainable future, agreeing some ambitious targets in three priority focus areas: health and nutrition, enhanced livelihoods and environmental stewardship. Through this strategic pillar, Tiger Brands has detailed commitments to enable consumers to improve their health and wellbeing by developing best-in-class nutritional standards, providing more nutritious, affordable food products, and leveraging the company brand and marketing activities to promote consumer nutrition; to improve the livelihoods of thousands of people, by providing opportunities across our value chain for inclusive economic participation, including through a deliberate focus on supporting black/black-women farmers and enterprises; and to significantly reduce its environmental impact through innovative solutions. These three areas are where Tiger Brands believes it can meaningfully intervene, through its business activities as Africa’s largest food company, in contributing to the UN Sustainable Development Goals and addressing some of the significant socio-economic and environmental challenges facing our markets.
OPTIMISING TIGER BRANDS’ PRODUCT PORTFOLIO
During the year, following the strategic review conducted by the board in 2017, we approved several changes to the company’s portfolio. In April 2019, Tiger Brands divested its entire interest in Oceana Group Limited (Oceana), then equating to approximately 42,1% of the issued share capital of Oceana. Following a thorough review of Deli Foods in Nigeria, and an assessment of all options for the loss-making company, the board approved the closure of the business; we expect the process to be concluded in the next few months.
As part of the same strategic review, the role of VAMP within the group’s portfolio was earmarked for further evaluation. The unfortunate events of 2018, which led to the temporary closure of the manufacturing facilities, delayed this evaluation. Following the reopening of the VAMP business, the board initiated the review, which confirmed that the VAMP business was not an ideal fit within the Tiger Brands portfolio, given the business’s unique value chain and the perishable nature of its underlying products. In November 2019, following receipt of several indicative offers, the board approved commencement of a formal due diligence process. Upon completion of this process, all disposal options will be further evaluated. The company will be issuing further communication as the process reaches key milestones. This development does not, in any way, affect Tiger Brands’ commitment to the class action process currently under way.
OUTLOOK
Addressing the profound economic challenges that South Africa faces will require resolute and committed leadership. The national general election that took place earlier this year raised great hopes that the political leadership would inject serious energy into confronting these challenges. Unfortunately, the political developments in the months that followed the election have not inspired much confidence that the sorely needed injection of energy will materialise as soon as is required. The challenge thus remains for all spheres of leadership, including within the private sector, to continue to engage to ensure an increased level of confidence in the future.
APPRECIATION
After what has been a challenging year for all of us, I would like to thank my colleagues on the board for their valuable support and insight in fulfilling our governance responsibilities. I also deeply appreciate the hard work and dedication of the Tiger Brands executive team, and all the company’s employees, in striving to deliver value in this particularly trying environment. The ongoing engagement of our key stakeholders – including our shareholders, suppliers, customers and those in government and industry – continues to play a critically supportive role in our activities. Working together, I am confident that Tiger Brands will successfully execute its strategy for long-term growth and value creation and deliver on its purpose of nourishing and nurturing more lives every day.
Khotso Mokhele
Chairman
21 November 2019