|
|
| Divisional Review – DOMESTIC FOOD |
| |
| Objectives achieved for 2006 |
| • |
Domestic Food performed well and contributed 47,4% to the total group operating income |
| • |
Operating income increased by 24% |
| • |
Turnover growth of 11% |
|
| |
| The Domestic Food category includes the Grains, Groceries, Snacks & Treats, Beverages, Perishables and Out-of-Home businesses. |
|
| |
|
 |
|
| Grains |
| Maize and wheat milling, bakeries, rice, oats, pulses and sorghum-based products all form part of the Grains category. |
| |
| Objectives achieved for 2006 |
| • |
Successful conversion of the Pietermaritzburg maize mill to a wheat mill. |
| • |
Significant innovation and successful new product launches in the Maize, Bakeries, Rice, Sorghum and Oats businesses. |
| • |
An entrenched Continuous Improvement mindset contributed to the maintenance of margins in an environment of increasing raw material prices. |
|
|
| Contribution to group |
 |
 |
|
|
| |
| Objectives for 2007 |
| • |
Seeking initiatives to minimise cost pushes. |
| • |
Sustaining the growth momentum of the various businesses with the anticipated upwards pressure on raw material prices. |
|
| |
| Maize and Wheat Milling |
The maize milling industry is in a challenging environment, with raw material prices doubling in the current year. Benefiting from ongoing initiatives to counter these challenges, including product specialisation and geographic focus, and the well-received launch of Instant Maize, Tiger’s Maize Milling business recorded improved results on the prior year.
The focus for 2007 will be on further improvements to the procurement process, entrenching its leading position in selected geographies and channels, and ongoing investment in product development and research.
The Wheat Milling business performed well, experiencing strong demand from the bakeries business. Raw material prices were stable. The successful conversion of the Pietermaritzburg maize mill to a wheat mill allowed more flexibility in the production process to increase market share in the Premium Cake Flour sector. |
| |
| |
 |
|
| Product innovation |
Numerous innovative products were launched during the year in the Frozen/ Chilled Prepared Meals category under the Enterprise, Renown and
Like-it-Lean brands, resulting in market share gains. |
|
|
|
| |
| |
| “The good results from the Bakeries business were achieved by a focus on continuous improvement, continued promotions and customer service.” |
| |
| |
| The focus in the new year will be on superior procurement, investing in flour technology and added flexibility, and optimising the mix of distribution channels. |
| |
| Bakeries |
The good results from the Bakeries business were achieved by a focus on continuous improvement, continued promotions and customer service, which have all contributed favourably to both the enhancement of processes and profitability.
The benefit of the focus on innovation in the premium end of the bread market was reflected in the successful launch of the Olde Cape and Superior Low GI bread products.
Focus areas for the Bakeries business include innovation in the form of brand building as well as business and functional processes; Continuous Improvement of processes and standardisation of services and suppliers; as well as a focus on internal and external customer services.
Improved industrial relations, talent management development and training to retain and develop skills, together with initiatives to find lower-cost alternatives, are some of the challenges facing the Bakeries business. |
| |
| Rice |
The Rice business had a challenging year with rising international raw material prices, volatile rand/dollar exchange rates, high cost of logistics and increased competitor activity. However, the launch of innovative products, particularly in the premium-end Convenience and Health markets, countered, to some extent, the pressure on margins. The launches of the Tastic Simply Delicious Authentic Curry range, an extended range of brown rices with added lentils and a range of microwaveable Basmati rices have been well received by the consumer.
The focus on infrastructural and capacity upgrades aimed at improving cost and production efficiencies will continue in 2007. The outlook for the new year appears encouraging, given steadily rising consumer maize meal prices that could result in an upswing in rice volumes. Procurement strategies will remain key to capitalising on volume increases, aided by a stable exchange rate environment. |
| |
| Sorghum |
The Sorghum business continues to show profitable volume growth, driven mainly by the strong performance of sorghum-based ready-to-eat cereals under the Morvite brand. Sorghum beverages through the King Korn and Mnanti brands are retaining market share in a declining market.
Despite increasing sorghum raw material prices, margins have been maintained through a range of Continuous Improvement initiatives and appropriate capital expenditure. Underpinned by ongoing product launches, brand strength and innovation, satisfactory volume and profit growth is expected in 2007. |
| |
| Oats |
Business performance was significantly
improved through strong organic growth of the
core Jungle product range and the continued success
of new ready-to-eat oats breakfast cereals, such
as Jungle Energy Crunch and Oatso Easy.
The facilities upgrade project is well on track for completion in 2007, and the business maintained operational effectiveness despite a serious fire at the Maitland packaging store in November 2005.
The significant capital expenditure allocated to upgrade the Jungle plant will provide further opportunities for improved efficiencies as part of the ongoing Continuous Improvement drive. In 2006, the focus on optimising direct deliveries to customers contributed to a significant improvement in logistics effectiveness.
An innovation-based strategy will continue to facilitate strong top-line growth. Given the expected increase in raw material prices, strong brands and continuously improving efficiencies will support growth momentum in the core business. |
| |
| |
 |
|
 |
| |
KOO Baked Beans continued to increase volumes exponentially by sustaining consumer value and through the line marketing support. |
|
| |
| |
| Groceries |
| The Groceries business has delivered a sustained performance for three years with a compound top-line growth of 5% per annum and EBIT growth of 23% per annum, amidst a climate of deflation. |
| |
| Objectives achieved for 2006 |
| • |
Three-year average annual compound growth in sales and profit of 5% and 23% respectively. |
|
| |
| Objectives for 2007 |
| • |
Sustained top-line and earnings performance, giving rise to market share growth. |
|
| |
| Core brand performance highlights |
During the year, the Black Cat brand produced double-digit volume growth and achieved a record market share, following significant investment in support of its 80th anniversary. All Gold Tomato Sauce successfully defended its market share, whilst the balance of the tomato portfolio improved market share. KOO Baked Beans continued to increase volumes exponentially by sustaining consumer value and through the line marketing support. There was encouraging volume growth in canned vegetables in a market spurred by the launch of innovative value-added choices.
Challenges faced during the year included pressure on volumes and market share in the Jams category from low-price competition and capacity constraints in the Pasta category. Appropriate steps are being taken, including the commissioning of a new pasta plant in 2007.
Key success factors included the focus on core brands, targeted innovation, heightened customer focus, and Continuous Improvement initiatives across the value chain. In a very competitive market, the strategy of focusing on affordability and value has paid dividends and increased market share.
Continued growth will require sustained efforts in Continuous Improvement, a higher level of innovation and entry into adjacent markets. |
| |
| |
| “Bromor has built a leading position in the Non-carbonated Soft Drinks market and has a turnover of approximately R850 million per annum.” |
| |
| |
 |
|
 |
| |
Growth in our Slabs category has been noteworthy. |
|
| |
| |
| Snacks & Treats |
| |
| Objectives achieved for 2006 |
| • |
No sales price increases for the third successive year. |
|
| |
| Objectives for 2007 |
| • |
Lift operating margin performance through continued cost containment and market innovation. |
|
| |
The Snacks & Treats business performed very well during the year, driven by increased volumes across both the Sweets and Chocolate categories.
The culture of Continuous Improvement has become entrenched in the business, offsetting the impact of no sales price increases for the third consecutive year. This lack of sales price growth has resulted in the company’s brands becoming even more competitively priced, particularly against imported alternatives.
The Sugar Confectionery market continues to be affected by high levels of imported products – with an estimated market share of 39% – although imported volumes declined by 8% compared to the previous year. Sales volume growth of the Sweets category has been boosted by the launch of a number of value-added innovations, particularly Smoothies Supa and Smoothies Bubble Gum, and increased investment in key customer activities, resulting in improved focus and performance. The Nestlé sugar confectionery acquisition, effective 1 October 2006, is expected to provide further volume impetus to this category.
Growth in Chocolate sales volumes continued, primarily driven by a robust consumer-led innovation plan. In particular, growth in our Slabs category has been noteworthy. On the back of a successful 2005 launch, Jungle Energy Bar sales have continued to grow.
Given the prevailing sales growth momentum and acquisition of Nestlé’s Sugar Confectionery business, the outlook for 2007 is favourable. Continued cost containment and market innovation are expected to lift operating margin performance. |
| |
| Beverages |
The Bromor business was acquired with effect from 1 August 2006. Bromor has built a leading position in the Non-carbonated Soft Drinks market and has a turnover of approximately R850 million per annum. The company has manufacturing and production facilities in Gauteng, Durban and Cape Town and its leading brands include Oros, Energade, Hall’s, Monis and Roses.
The results for the first two months are in line with expectations, with August and September traditionally being below-average sales months.
Management has identified Continuous Improvement as a key focus area to counteract increases in packaging costs which are being driven by high international oil prices and a weaker rand. In addition, a number of sales innovations are planned for the first quarter of the new financial year. |
| |
| |
 |
|
 |
| |
In response to market demand, the food service dedicated Chef brand was launched, which offers functional solutions for chefs and restaurateurs across the critical areas of quality, convenience, cost and indulgence. |
|
| |
| |
| Perishables |
| |
| Objectives achieved for 2006 |
| • |
Despite the increasing number of competitors entering the market, Enterprise has maintained its market leader status within the Chilled Processed Meats category. |
| • |
A good volume performance for DairyBelle derived from organic growth and high levels of innovation in the form of new products, as well as extensions to existing product ranges. |
|
| |
| Objectives for 2007 |
| • |
Stability is essential in the price sensitive Perishables market environment. |
|
| |
| Enterprise |
The business remains the market leader in the Chilled Processed Meats category, despite the spiralling number of competitors entering the market. Although local and international animal diseases have affected the supply and demand for all protein sources, the business delivered an acceptable performance.
Numerous innovative products were launched during the year in the Frozen/Chilled Prepared Meals category under the Enterprise and Like-it-Lean brands, resulting in market share gains.
Highlights of the period included various awards for customer service, HACCP (Hazard Analysis Critical Control Point) certification at all manufacturing facilities, a four-star HAS (Hygiene Assessment System) rating for the abattoir for outstanding hygiene practices as well as SA Export accreditations for the Pork Packers, Germiston and Polokwane sites.
Various capital projects were approved in 2006, a number of which have already been commissioned and their benefits reflected in the business’s overall performance.
In the new year, the business will focus on strengthening its competitiveness by automating current facilities, Continuous Improvement and increased focus on new market development. Acquisitions as well as innovation in the Frozen/Chilled category remain a focus area for potential growth.
Skills development initiatives, such as learnerships and internships which started in 2006, will remain a key focus area throughout 2007. |
| |
| DairyBelle |
The operating results of the DairyBelle business were characterised by growth and cost containment. A good volume performance was delivered as a result of organic growth and high levels of innovation in the form of new products as well as extensions to existing product ranges. New products were particularly well received in the market, and DairyBelle continues to strengthen its position as a leading brand in the Dairy category.
Cost containment has been achieved through a focus on Continuous Improvement interventions, which have contributed significantly to offsetting unavoidable cost increases in the supply chain.
Consumer demand for dairy products continues to show a positive growth trend, giving rise to numerous growth opportunities in both the value-added and the commodity product offerings. The business is well positioned to benefit from these opportunities through its well-balanced product portfolio and processing capabilities. A number of capability upgrades and extensions are planned which will further enhance the Dairy business’s position and improve efficiencies.
The movement towards a more demand-driven production of milk in the Primary Agricultural sector is gaining momentum and is essential for stability in this sensitive perishables market environment. |
| |
| |
| “Numerous innovative products were launched during the year in the Frozen/Chilled Prepared Meals category under the Enterprise and Like-it-Lean brands, resulting in market share gains.” |
| |
| |
| Out-of-Home Solutions |
| |
| Objectives achieved for 2006 |
| • |
Increased footprint within the Food Service channel, together with share gains from competitors. |
| • |
Long-term projects with franchise Quick Service Restaurant customers have started to pay off. |
| • |
Exceptional growth from the Hot Favourites acquisition. |
|
| |
| Objectives for 2007 |
| • |
Continued investment in flexible and low-cost manufacturing facilities for pre-prepared meal solutions. |
| • |
Sustaining and growing margin improvement in the Business-to-Business channel, which supplies ingredients to re-manufacturers. |
|
| |
The Out-of-Home Solutions division, focusing on the Food Service and Convenient Meals markets, has delivered a pleasing result for the review period.
In line with Tiger Brands’ longer-term strategy, this relatively untapped market offers a high-growth opportunity for the group to extend its presence into out-of-home meal consumption occasions.
In the past year, Tiger Brands increased its footprint and market share in the Food Service channel. Long-term projects with franchise Quick-service Restaurant customers have also started to pay off. Unfortunately, the Business-to-Business channel – which supplies ingredients to re-manufacturers – again produced disappointing results. This team has now been restructured, with a resultant improvement in margins.
In response to market demand, the food service dedicated Chef brand was launched, which offers functional solutions for chefs and restaurateurs across the critical areas of quality, convenience, cost and indulgence. It is intended to develop a portfolio of out-of-home specific products under this new brand, and a range of sauces, mayonnaise, dressings and meal solutions was launched during the year.
December 2005 saw the acquisition of Hot Favourites, a Cape Town-based business manufacturing chilled and frozen pre-prepared meal solutions for both Food Service and Convenience Retail markets. This business has shown exceptional growth and is well placed to benefit from increased consumer demand for convenience meals, as well as high levels of demand for consistent, quality meal solutions for the Franchise Quick-service Restaurant sector.
The expected growth in the Out-of-Home market augurs well for this division in the year ahead. Innovation is planned to address demand in the Traditional Food Service market, while work has begun to increase capacity and further improve standards in the Hot Favourites production facility in order to benefit from escalating demand for pre-prepared meal solutions. |
|
|