|
|
| Letter to Shareholders |
| Strategic objectives |
 |
| • |
acquisitions which are supportive of strategy |
| • |
investment in categories that can deliver significant top-line growth
and value creation for shareholders |
| • |
divestments when businesses are no longer considered to be core or
of strategic relevance |
| • |
using the existing strong South African base as a platform for
accelerating our entry into the rest of Africa |
|
|
|
 |
|
| |
| |
| “The strength of Tiger Brands lies in its people and in its powerful basket of brands in the food, healthcare, babycare, personal care and homecare categories.” |
| |
| |
| Dear Shareholder |
It is my privilege to write to you for the first time as Chairman of Tiger Brands. I was appointed as Chairman of the company upon Robbie Williams’ retirement from the board at the conclusion of the annual general meeting of shareholders held in February 2006. The significant role played by Robbie as a director of Tiger Brands and as Chairman of the company for over twenty years cannot be overemphasize. The company has sound corporate governance practices, a clear strategic vision and a strong management team which is a solid foundation upon which the company can build for the future.
It is my role as Chairman, with the support of the board, to continuously improve and enhance on this existing platform with the objective of having Tiger Brands conforming with best practice both nationally and internationally.
The year under review is dealt with in detail in the report of the Chief Executive Officer and the operational reviews that appear later in this annual report. The company has completed another successful year with headline earnings of 1 206,7 cents per share increasing by 22%. This was achieved on the back of a 13% increase in turnover and a 16% increase in operating income. The operating margin now stands at 16,1%, being the third consecutive year that the group has recorded an improved operating margin. This performance has been achieved in a robust South African economy, notwithstanding evidence of a slowdown in consumer spending following upon the upward pressure on inflation and interest rates during the second half of the review period. This increase in headline earnings per share is particularly pleasing when one considers that the average annual compound growth in HEPS over the past three years (excluding Spar from the base year, as Spar was unbundled out of Tiger with effect 1 October 2004) is 24,7%.
The strength of Tiger Brands lies in its people and in its powerful basket of brands in the food, healthcare, babycare, personal care and homecare categories. The building of this array of household names and heritage brands has evolved over many years. The company, however, must continually review its portfolio of businesses and grow and trim its portfolio, where appropriate. This entails making acquisitions which are supportive of strategic objectives and making disinvestments when such businesses are no longer considered to be core or of strategic relevance.
In line with these objectives, the year under review has seen important developments that are consistent with our stated business strategy of investing in categories that can deliver significant top-line growth and value creation for shareholders. These included the following corporate actions, which are discussed in more detail within the Chief Executive’s Review: |
| • |
The merger of the deciduous fruit canning businesses of the company and of Ashton Canning to form Langeberg and Ashton Foods (Pty) Limited. |
| • |
The acquisition of a 74% interest in The Scientific Group (Pty) Ltd. |
| • |
The Out-of-Home business acquired the Cape-based Hot Favourites business in the first quarter of the 2006 financial year. |
| • |
The acquisition of the ClassiClean business marked the entry of the company into a new sector of the market. |
| • |
The acquisition of the entire issued share capital of Bromor Foods (Pty) Limited with effect from 1 August 2006, was undoubtedly the most significant corporate event during the 2006 financial year. |
| • |
An important addition to the company’s portfolio of brands was the acquisition of Nestlé’s sugar confectionery business in South Africa with effect from 1 October 2006. |
| • |
With effect from 1 October 2006, the entire shareholding in Designer Group Holdings Limited was acquired, thereby increasing the company’s critical mass in the personal care market. |
| • |
Subject to the approval of the Competition Authorities, Sea Harvest has concluded an agreement to merge Sea Vuna (50% owned) with Vuna Fishing, giving Sea Harvest a 50% interest in the merged company. |
|
| |
| The company’s foreign interests are constantly reviewed and investments that are not consistent with the company’s strategy are disposed of. During the year under review, these disinvestments included the following: |
| • |
19% interest in Pescanova SA of Spain. |
| • |
17% interest in Agro-Tech Foods of India. |
| • |
50% interest in the barley-malting joint venture C & T Malt. |
|
| |
Tiger Brands has a strong South African base and we intend to use that base as a platform for accelerating our entry into the rest of Africa. We continue to seek international opportunities which are consistent with our policy, where appropriate, of having both shareholder and management control in businesses that are focused on fast moving consumer goods in emerging markets.
On 31 October 2006, the Department of Health made its long awaited announcements relating to various pricing structures within the healthcare industry. Although this clears up much of the uncertainty in the industry, it will take some time before the impact of these changes is known. In particular, international benchmarking of pharmaceutical prices is a complex matter and it is expected that the new guidelines, once implemented, will only be effective from July 2007. In addition, the maximum permissible price increase of 5,2% that pharmaceutical manufacturers may take – the first price increase permitted since the introduction of the single exit pricing legislation in 2004 – will, on average, be lower than this due to the highly competitive nature of the generic drug manufacturing industry, both internationally and in South Africa.
Being a South African company, Tiger Brands is fully supportive of the transformation objectives of government. The company has a transformation committee, which is a sub-committee of the board. The committee comprises three non-executive directors, the chief executive officer and various representatives of senior and middle management. The first phase of the company’s BEE ownership initiative took place in October 2005, when each of our employees was given a small shareholding in the company and shares were also set aside for allocation to eligible Black managers. In addition, the Thusani Trust was created, which is aimed at providing for the compassionate and social needs of our Black employees and their immediate families. Tertiary education requirements have been identified as the prime focus area and the initial grants by the trust are now due to be made in respect of the forthcoming academic year.
The company is now considering how best to implement phase two of its BEE ownership programme. The objective of phase two remains the same, which is to widen the shareholder base of the company in line with the principles of broad-based black economic empowerment.
Whilst Tiger Brands is committed to the objectives of transformation, it is keen to ensure that decisions taken are such as to secure maximum conformance with the final version of the Codes of Good Practice that are to be issued by the Department of Trade and Industry. The length of time it has taken the authorities to finalise these Codes is reflective of the complex nature of the exercise. The sooner, however, these codes are finalised, the better, as certainty will then exist surrounding the precise details of the transformation targets. This will clearly have practical significance at an operational level. The same comments apply to the finalisation of the Healthcare Charter.
Meaningful progress has been made from an employment equity perspective, details of which are outlined later in this annual report. We cannot, however, be complacent and more work can still be done in this critical area.
The observance of the strictest standards of corporate governance continues to be the cornerstone of our obligations as a board. Achieving these objectives requires a board of directors that is both experienced and which possesses a blend of various key attributes and skills. The Tiger Brands board has these qualities. To this end, an independent firm of consultants recently conducted an evaluation of the board’s performance and, in this regard, its findings and recommendations are being addressed.
Turning to the prospects for the year ahead, this is covered in detail in the Chief Executive Officer’s review. Suffice it to say that 2007 is likely to be a challenging year, with the buoyant growth enjoyed over the past year showing signs of slowing. However, Tiger’s strong management team is more than capable of rising to the challenges that lie ahead.
Overall, Tiger Brands is expected to deliver another year of real earnings growth in 2007, although the rate of increase in headline earnings per share is expected to be below the growth achieved in 2006.
The board of Tiger Brands has been well served by outstanding individuals over many years. I have already made reference to the invaluable contribution made by Robbie Williams. During the year, Roy Smither retired as an executive director and Jan van den Berg as a non-executive director, each of whom in their different roles provided many years of distinguished service. The significant contributions made by both Roy and Jan are greatly appreciated. We welcome Richard Dunne and Noel Doyle as directors and look forward to their participation on the board. Richard is the former Chief Operating Officer of a major accounting firm from which he retired on 31 May 2006. He has been appointed a non-executive director of Tiger Brands. Noel Doyle, the Chief Financial Officer of the company, was appointed as an executive director with effect from 1 June 2006.
As previously announced, simultaneously with my appointment as Chairman, Bheki Sibiya was appointed to the position of Deputy Chairman. I look forward to Bheki’s support in his new role.
The most important strength of Tiger Brands lies in the calibre and the motivation of all of its employees. It is accordingly appropriate to pay tribute to Nick Dennis, his executive team and all the employees of Tiger Brands. I would also like to acknowledge and thank all our business partners and associates and you, our shareholders, for your support during another most successful year.
Yours sincerely |
| |
 |
Lex van Vught, Chairman
14 December 2006 |
|