Integrated annual report 2019 TIGER BRANDS
LIMITED INTEGRATED ANNUAL REPORT 2019 REPORT ANNUAL INTEGRATED
We nourish and nurture more lives every day WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Overview
WHO WE ARE
Tiger Brands is one of Africa’s largest, listed manufacturers of fast-moving consumer goods (FMCG). Our core business is manufacturing, marketing and distributing everyday branded food products to middle-income consumers. We also distribute leading brands in the Home, Personal Care and Baby sectors.
OUR PURPOSE OUR VISION OUR OPERATING MODEL
We nourish and To deliver top-tier financial results We focus on the consumer, nurture more and be recognised by all reigniting innovation and lives every day. stakeholders as the best leveraging our scale as one Tiger fast-moving consumer goods Team, resulting in an agile, lean (FMCG) company in South Africa organisation that responds quickly and most desirable growth and is aided by simple ways of company on the continent. working. We attract the best talent, and we are recognised as a great place to work. WE NOURISH AND NURTURE MORE LIVES EVERY DAY
OUR STRATEGY OUR STRATEGY FOR SUSTAINABLE PROFITABLE GROWTH IS SUPPORTED BY FOUR STRATEGIC PILLARS, UNDERPINNED BY OUR CORE VALUES.
DRIVE GROWTH BE EFFICIENT GREAT PEOPLE SUSTAINABLE FUTURE Winning category, Cost-conscious and an A winning mindset and Sustainable company, channel and customer integrated supply chain great place to work community and planet strategies
OUR VALUES
We treat each We deliver with Safety and We embrace We act with integrity other with care passion and quality are non- diversity and and accountability and respect excellence negotiable for us inclusivity in all we do
WINNING BEHAVIOURS
CONSUMER OBSESSION TEAMWORK EMPOWERED ACCOUNTABILITY FOCUSED EXECUTION WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 1
CONTENTS
OVERVIEW TIGER BRANDS’ 2019 INTEGRATED Who we are IFC REPORTING SUITE About this report 2 Our 2019 integrated reporting process comprises Our value contribution in 2019 3 the following reports: OUR BUSINESS Integrated annual report 2019 ›› Group profile 4 ›› Consolidated annual financial statements 2019 Chairman’s review 6 ›› Sustainable development report 2019 Chief executive officer’s review 10 Our business model 14 These are all available at www.tigerbrands.com Our external environment 18 Addressing material stakeholder interests 20 Managing our risks 23 Annual financial statements Integrated annual report Sustainable development report Supplement to the integrated annual report 2019 2019 30 September 2019 2019 OUR STRATEGY
We nourish and nurture more lives every day We nourish and nurture more lives every day We nourish and nurture more lives every day Drive growth 27 Be efficient 30 Great people 32 Sustainable future 34 OUR PERFORMANCE Chief financial officer’s review 38 NAVIGATION Grains 42 Consumer Brands – Food 44 Further reading within this report Home, Personal Care and Baby (HPCB) 46 Exports and International 48 Associates 49 Reference to further online disclosure OUR GOVERNANCE Who governs us 50 Creating value through good governance 54 Remuneration report 57 Interview with the chairman of the social, 83 ethics and transformation (SET) committee ADMINISTRATION Shareholders’ diary 86 Declaration of final dividend number 150 87 Company information 88
UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS (SDGs) The United Nations Sustainable Development Goals (UN SDGs) set a long-term agenda to end poverty, protect the planet and ensure prosperity for all by 2030. In fulfilling our core purpose – to nourish and nurture more lives every day – Tiger Brands is committed to playing its role in delivering on these goals. As part of our strategic pillar on Sustainable Future (see page 34), we have developed a set of commitments and targets relating to three key focus areas: health and nutrition, enhanced livelihoods, and environmental stewardship. In meeting these commitments and targets we believe we will provide a meaningful contribution to the following eleven SDGs:
Our approach to responding to these goals is reviewed in our accompanying sustainable development report 2019. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 2 Tiger Brands Limited Integrated annual report 2019 Overview
ABOUT THIS REPORT
REPORT BOUNDARY AND AUDIENCE conventional financial reporting boundary to provide This integrated report reviews Tiger Brands’ business for the relevant interests of key stakeholders; we have also model and strategy, the risks and opportunities in our considered the most significant risks, opportunities and operating environment, and our operational and impacts associated with our activities over the short term governance performance for the financial year ended (less than 12 months), medium term (one to three years) 30 September 2019. This is our primary annual report, and long term (beyond three years). written for investors and any other stakeholder who has an COMBINED ASSURANCE interest in our ability to create value over the short, medium We have adopted a combined assurance model and long term. This report should be read in conjunction comprising assurance obtained from management and with the supplementary sustainable development report from internal and external assurance providers: and our annual financial statements, published on our ›› Ernst & Young Inc. audited our consolidated annual website, www.tigerbrands.com. financial statements; from which extracts have been REPORTING FRAMEWORKS included in this integrated report. The auditor’s audit Our reporting process has been guided by the principles report does not necessarily report on all the information and requirements contained in the International Financial included in this integrated report. Reporting Standards (IFRS), the International Integrated ›› EmpowerLogic Proprietary Limited provided external Reporting Council’s (IIRC) International
OUR REPORTING BOUNDARIES
Integrated reporting boundary Integrated annual report Sustainable development report
OUR EXTERNAL MANAGING OUR RISKS STAKEHOLDER INTERESTS ENVIRONMENT Page 23 CONSIDERED INCLUDE: Page 18 Page 20
Financial reporting boundary Annual financial statements ›› Employees Consumers TIGER BRANDS ›› ›› Government ›› Investors ›› Suppliers Consumer Home, Personal Exports and Associates Communities Grains ›› Brands Care and Baby International (equity-accounted) ›› Media WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 3
OUR VALUE CONTRIBUTION IN 2019
Revenue Group operating income Group operating margin
R29,2 billion 3% R2,6 billion 20% 9,0% 260 basis points (2018: R28,4 billion) (2018: R3,3 billion) (2018: 11,6%)
Total dividend** HEPS 1 061cps 2% 1 349cps 17% (2018: 1 080 cents per share) (2018: 1 633 cents per share)
** Includes special dividend of 306 cents per share declared on 22 May 2019.
PROVIDERS OF R >>R2,3 billion paid in dividends includes, R581 million in special dividends, 23% FINANCIAL CAPITAL (2018: R1,9 billion) ˆ
>>R4,2 billion paid in salaries and benefits to 10 543 permanent employees (2018: R3,9 billion to 11 348 permanent employees) >>R127 million invested in employee training and development (2018: R61 million) EMPLOYEES >>Recognised by Top Employers Institute as a Top Employer 2019
>>One work-related employee fatality (2018: one)
>>100% penetration in South Africa; every household buys at least one Tiger Brands product >>31% of net sales fortified with micronutrient enrichment
CONSUMERS >>100% compliance with current sodium targets
>>11% reduction in sugar across the portfolio in past five years
>>25% of net sales from wholegrain, fibre-rich grains, vegetables and fruit
>>R21,3 billion total spend on suppliers
>>R14,3 billion spent with BBBEE-verified suppliers (2018: R12 billion) SUPPLIERS >>R3,5 billion spent with black-owned enterprises (2018: R2 billion)
>>R1,9 billion spent with black women-owned suppliers (2018: R1,5 billion)
>>R27,4 million total socio-economic development spend (2018: R32 million) COMMUNITIES AND ENVIRONMENT >>72 000 learners provided with breakfast meals by Tiger Brands Foundation (2018: 67 500)
All results are from continuing operations. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 4 Tiger Brands Limited Integrated annual report 2019 Our business
GROUP PROFILE
Our core business is providing everyday branded food to large and growing markets through a unified customer sales team and integrated supply chain that leverages the group’s scale. We target best-in-class profitability, underpinned by a cost-conscious culture and environmental, social and governance principles to create and share value.
Grains Consumer Brands – food
45% 45%
2019 2019 con ib ion con ib ion con ib ion con ib ion
54% 56%
■ e enue ■ e enue ■ perat ng n o e e ore I ■ perat ng n o e e ore I
Revenue Operating income Revenue Operating income R13,2bn 4% R1,4bn 24% R10,1bn 4% R494m 40% (2018: R12,8 billion) (2018: R1,9 billion) (2018: R9,7 billion) (2018: R828 million)
Milling and baking Other grains Groceries Snacks and Beverages Value Added Baking Pasta Condiments and Treats Concentrates Meat Milling: Breakfast ingredients Sugar Sports drinks Products ››Flour Rice Spreads Chocolate Ready-to-drink (VAMP) ››Maize Canned fruit ››Sorghum* and vegetables * Includes breakfast and beverages
Grains Consumer Brands food pread ai e Condiments Flour Canned fruit and egetable nac s and reats Bread Chocolate Cereals ugar Pasta Be erages Concentrates Rice ports drin s Ready to drin WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 5
We have leading positions in most categories and our iconic brands are well-entrenched across consumers in South Africa, as illustrated by the percentage share of market.
Home, Personal Care and Baby Exports and International
2019 2019 con ib ion con ib ion con ib ion con ib ion
■ e enue ■ e enue ■ perat ng n o e e ore I ■ perat ng n o e e ore I
Revenue Operating income Revenue Operating income R2,7bn 20% R546m 60% R3,2bn 11% R212m 34% (2018: R2,2 billion) (2018: R341 million) (2018: R3,7 billion) (2018: R320 million)
Home Care Personal Care Baby Exports International Deciduous fruit Sanitary cleaners Camphor cream Nutrition and operations Langeberg and Insecticides and lotions wellbeing Central Africa Ashton Food (LAF) Hair care (Chococam)
M
Home Care Personal Care Camphor cream Baby ellbeing utrition Homogenised baby food
Market share: Nielsen value share 12-month moving as at September 2019 (South Africa only). * From continuing operations.
Camphor WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 6 Tiger Brands Limited Integrated annual report 2019 Our business
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 before impairments and abnormal items was down 20%, ENVIRONMENT with rising input costs and declining volumes outweighing This has been a particularly tough year for consumers and any efficiency gains in supply chain management. retailers in South Africa and across our markets. In South Collectively, these headwinds have highlighted the need Africa, consumer spending has been constrained by for a sustained focus on driving efficiencies and focusing lacklustre GDP and wage growth, high unemployment and the product portfolio, delivering product and process debt levels, and increasing fuel, transport and utility costs, innovation, maintaining the strength of existing brands with the South African consumer spending less, consuming and key relationships, and ensuring a fit-for-purpose less, and shopping smarter. Although we have seen higher organisational culture, underpinned by a clear commitment levels of economic growth in most of our markets across to delivering broader societal value. These are all key Africa, consumers have faced similar constraints as a result elements of Tiger Brands’ strategy, which I believe lays of volatile exchange rates, subdued commodity markets a strong foundation for the company’s ability to deliver and the impacts of political uncertainty and extreme long-term value. weather patterns in certain regions. CLASS ACTION UPDATE This reduced consumer spend has been accompanied by As has been previously disclosed, the class action against rising input costs and heightened competition among food the company arising from the outbreak of listeriosis was producers and retailers, all of which are placing strong certified by the High Court on 3 December 2018 and a pressure on both margins and volumes. Not surprisingly, summons was issued on 16 April 2019. A plea was filed the impact of this very challenging context is reflected by Tiger Brands on 8 August 2019. The parties are now in Tiger Brands’ results. Although group revenue from engaged in pre-trial preparation while subpoenas have been continuing operations was up 3%, group operating income issued for the disclosure of information by third parties, WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 7
which is pertinent to the outbreak. Tiger Brands remains MAINTAINING GOOD GOVERNANCE committed to the matter being resolved as soon as possible My role as chairman is to ensure that as a board, we and will continue to conduct its defence in a responsible provide an independent oversight function, ensuring that manner. the management team delivers on its responsibilities to STRENGTHENING OUR FOCUS ON FOOD use the resources entrusted to it to protect the best SAFETY interests of the company. Our job on the board is to foster accountability and ethical conduct, engaging with the Last year in my annual statement, and in response to the executive team on its strategic decisions, approving the tragic listeriosis incident, I highlighted the need to improve capital and resources needed to achieve the identified the central oversight of food safety and quality, and to strategic objectives, and holding them to account in further enhance the quality of risk reporting to the board ensuring the most efficient and effective execution of and its committees. Food safety is a standing item on the strategy. risk and sustainability committee’s agenda, underpinned by clear reporting lines and regular internal assessments and In fulfilling this function, it is important that the board data management processes aligned with the Global Food maintains its independence, and that we bring sufficient Safety Initiative (GFSI). We also introduced an integrated diversity of opinion and perspective, finding the right short-term incentive scorecard – applicable to the CEO, balance between depth of industry and company CFO, executive directors and prescribed officers – that experience, and the benefits of new insight. We have made makes specific provision for food safety and quality as a key some important new appointments to the board this year performance indicator. that have assisted us in meeting this responsibility. In November 2018, Yunus Suleman resigned as non- This year, external food safety and quality audits were executive director after four years of service. In March undertaken at selected high-risk sites by an independent 2019, Cora Fernandez joined the board as an independent international auditing body, with all of Tiger Brands’ non-executive director, with Donald Wilson and Monwabisi manufacturing sites achieving a GFSI-aligned external Fandeso appointed to the board in June and July 2019 certification. In addition, quarterly self-assessments and respectively. Subsequent to year end, the board appointed gap closeouts were completed across the company’s Advocate Mahlape Sello with effect from 1 October 2019. operations, and unannounced hygiene audits were These new appointments bring valuable new skills and undertaken by the group’s microbiologist to ensure perspectives, further strengthening both the board’s compliance and embed the company’s newly introduced diversity and its levels of independence. standards. All new raw material and packaging suppliers are now subject to supplier quality assurance processes, This year, we commissioned an independent external and relevant factory teams at all high-risk sites have been effectiveness review that assessed the board’s overall provided with training, including in basic microbiology and performance in 2019 and identified strengths and sampling techniques. We have also been leveraging our improvement areas. The overall feedback was generally partnership with the University of Stellenbosch through positive, with the board assessed as having skilled, the Centre for Food Safety, particularly in terms of professional and experienced members, good levels of microbiological investigations and research. diversity, and a culture of frank discussion in addressing the company’s various recent challenges, supported by Although this renewed effort has contributed to a strong leadership and effective board processes and significant reduction in marketplace incidents and ensured structures. The review identified various opportunities for that there were zero public product recalls over the year, improvement. These include strengthening the board’s we recognise the need to maintain an unrelenting focus on support of current efforts to build a performance-based food safety and quality. Tiger Brands has defined and will culture with more robust accountability mechanisms, be implementing a centralised food safety and quality improving clarity on Tiger Brands’ long-term strategic verification schedule for manufacturing units. We will be goals with more ambition in driving innovation, and driving self-assessments to deliver a step-change increasing oversight of the company’s talent management improvement in performance, using international hygienic activities, at and below executive level. We have taken engineering and design guidelines as a manufacturing these various recommendations on board and are hygiene standard, and developing and implementing implementing appropriate measures to address these metrics and processes for supplier performance improvement areas. measurement. We will continue to engage actively with regulatory authorities to enhance the development and implementation of industry standards for food safety. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 8 Tiger Brands Limited Integrated annual report 2019 Our business
CHAIRMAN’S REVIEW CONTINUED
DEFINING AN AMBITIOUS GROWTH The strategic growth initiatives are underpinned by the STRATEGY company’s undertaking to develop great people, by Following feedback from our stakeholders, this year’s deepening the skills set and diversity of its talent base, integrated report includes a more explicit review of strengthening the leadership and commercial capabilities Tiger Brands’ strategy, outlining the company’s various across the organisation and creating a strong commitments and reviewing the progress it has made performance-based, purpose-driven culture that inspires within each of its four strategic focus areas: Drive Growth, innovation and enables the company to attract and retain Be Efficient, Great People and Sustainable Future. talent. As part of this commitment, the board has agreed a robust succession plan for key leadership positions, In September this year, the board spent two days with the including the CEO, with clear development plans in place executive team reviewing the company’s updated strategic that are regularly reviewed at board level. roadmap. Developed in response to the challenging operating environment – which is seeing dynamic changes This year, Tiger Brands has clarified its commitment in consumer behaviour, heightened competition, and the to promoting a sustainable future, agreeing some potentially disruptive impacts of digital technology – the ambitious targets in three priority focus areas: health board believes that this revised roadmap sets the company and nutrition, enhanced livelihoods and environmental up well to deliver on its growth ambitions. stewardship. Through this strategic pillar, Tiger Brands has detailed commitments to enable consumers to improve To realise its vision of through winning driving growth their health and wellbeing by developing best-in-class category, channel and customer strategies, the company nutritional standards, providing more nutritious, affordable has identified, and begun to deliver on, clear commitments food products, and leveraging the company brand and to optimise its product portfolio, deliver innovations to marketing activities to promote consumer nutrition; to meet changing consumer needs and expectations, and improve the livelihoods of thousands of people, by drive growth at the point of purchase. In response to the providing opportunities across our value chain for inclusive increasing competitive pressure from private label, Tiger economic participation, including through a deliberate Brands has been working to reinforce the strength of its focus on supporting black/black-women farmers and existing brands, leveraging its position as category leader enterprises; and to significantly reduce its environmental in more than half of the categories it operates in, and impact through innovative solutions. These three areas are evaluating opportunities to stretch its brands within and where Tiger Brands believes it can meaningfully intervene, across product categories. Our recent decisions on through its business activities as Africa’s largest food optimising the product portfolio are reviewed further company, in contributing to the UN Sustainable below. Development Goals and addressing some of the significant In terms of Tiger Brands’ Africa growth strategy, socio-economic and environmental challenges facing our following a very challenging year in Mozambique, Nigeria markets. and Zimbabwe, the company is looking to deliver organic OPTIMISING TIGER BRANDS’ PRODUCT growth by driving category growth through targeted brand PORTFOLIO investments, developing superior routes to markets and During the year, following the strategic review conducted investing in necessary capabilities. The strategy is defined by the board in 2017, we approved several changes to the by a clear approach to market segmentation in our company’s portfolio. In April 2019, Tiger Brands divested established and untested markets, and a structured its entire interest in Oceana Group Limited (Oceana), then approach to winning in trade in prioritised product equating to approximately 42,1% of the issued share categories in our identified key markets. capital of Oceana. Following a thorough review of In an effort to expand and protect margins in the subdued Deli Foods in Nigeria, and an assessment of all options for market, there is a heightened focus on being efficient, the loss-making company, the board approved the closure with specific commitments to drive productivity and secure of the business; we expect the process to be concluded in cost efficiencies across its value chain through improved the next few months. procurement and logistics practices, various plant and As part of the same strategic review, the role of VAMP process improvements, and the development of integrated within the group’s portfolio was earmarked for further IT and information solutions. To maintain the capacity for evaluation. The unfortunate events of 2018, which led to long-term growth, various capital expenditure projects the temporary closure of the manufacturing facilities, have been approved to upgrade older facilities, improve delayed this evaluation. Following the reopening of the production capacity, and provide for product and process VAMP business, the board initiated the review, which innovations, safety and sustainability. confirmed that the VAMP business was not an ideal fit WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 9
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 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 10 Tiger Brands Limited Integrated annual report 2019 Our business
CHIEF EXECUTIVE OFFICER’S REVIEW
“Our priority this year has been to continue work on our group strategic commitments and to accelerate the implementation of each of our four strategic focus areas, namely Drive Growth, Be Efficient, Great People and Sustainable Future.” Lawrence Mac Dougall Chief executive officer
The company’s performance this year reflects the impact Given these challenging market conditions, it was pleasing of a challenging trading environment, characterised by a to see the strong performance delivered this year by flat economy, significant pressure on consumer disposable Beverages, Snacks and Treats, Home, Personal Care and income, and low levels of business and investor Baby, all of which saw growth in revenue and operating confidence. The combination of reduced consumer spend, income, fuelled by strong volume growth and increased rising input costs and increased competitive pressure, market share in key categories. This performance reflects contributed to a 20% decline in group operating income the continuing strength of our brands, customer before impairments and abnormal items, down from relationships and distribution capabilities, which together R3,3 billion to R2,6 billion. Total revenue was up by 3%, provide a critical foundation for long-term growth. aided by price inflation of 5%, but offset by volume The performance in these divisions was unfortunately declines of 2% at a group level. The South African offset by the slow recovery of the VAMP division, margin domestic business grew revenue by 5%. Excluding VAMP, compression across the Grains segment, and tough domestic revenue grew by 7%, with a positive 2% volume trading conditions in the group’s primary export markets. growth and 5% price inflation. The international and VAMP Despite VAMP’s strong brand equity and consistent businesses declined overall. The price inflation and improvements in brand health metrics, revenue was down valuable supply chain efficiencies achieved were not 39% to R654 million, as a result of delays with the sufficient to counter above-inflation input costs and factories’ reopening, lower factory throughput and higher declining volumes, all of which negatively impacted raw material costs. In the Grains division, lower volumes margins. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 11
and margin pressure resulted in a disappointing year. namely Drive Growth, Be Efficient, Great People and Overall margins declined to 10,9%, reflecting increased Sustainable Future. We made good progress this year in pressure on Maize, Pasta and Rice volumes, aggressive each of these areas, laying the foundation for our longer- pricing from competitors, and the impact in particular of term growth ambitions. low-price pasta imports. In the Exports and International As part of our strategic commitment to optimise our businesses total revenue was down 11%, driven mainly by product portfolio, we have made various changes this year challenges in key export markets. Exports into Nigeria, to the company’s portfolio. In addition to divesting Tiger Mozambique and Zimbabwe suffered from foreign Brands’ entire interest in Oceana Group Limited in April currency shortages and slow economic recovery. This was 2019, we have more recently approved the closure of the partially offset by a significant recovery in the Deciduous loss-making Deli Foods business in Nigeria. We expect the Fruit business. Cameroon delivered another good year in closure process to be concluded over the next couple of very difficult political and economic conditions increasing months. In November 2019, after a detailed evaluation of revenue and operating margins. the VAMP business and following the receipt of several A TOUGH MARKET ENVIRONMENT indicative offers, we approved a formal due diligence Our performance needs to be seen in the context of the process for disposal of the business. This does not in any tough operating context, which has placed significant way affect our commitment to responding to the class pressure on consumer-packaged goods companies and action. retailers across the region. Consumers generally are facing In response to changing consumer expectations for particularly tough times, with rising costs and high levels convenience, affordability and healthier foods, we have of consumer debt. In South Africa, an estimated 62% delivered some successful product innovations this year of South Africans live on less than R60/day, with many across our product portfolio, including in particular in families trapped in poverty due to the high unemployment health and nutrition where we foresee significant levels. We have also seen increasing levels of social unrest commercial opportunities. Many of our anticipated new this year, with a further rise in service delivery protests and product launches will extend into new categories and industrial action, and a regrettable return of violent consumer spaces as we look to accelerate our overall instances of xenophobia. This rising social stress had a innovation rate across the business. direct impact on our business activities, with industrial action in one of our grocery facilities and two of our Recognising the increasing pressure from private label, Pretoria bakeries, attacks on retail stores and our delivery we are reinforcing the strength of our existing brands, vehicles, and a backlash against South African retailers in maintaining our marketing spend and introducing targeted some of our African markets. marketing strategies to build on our position as the category leader. In the context of the growing bargaining In addition to reduced consumer spend, we are seeing power of retailers and increasing competitive intensity, some broader changes in consumer behaviour, including we are also taking measures to increase our product a growing focus on health and wellness, an increased penetration and enhance on-shelf availability, including focus on shopping on promotion, and greater consumer by strengthening our customer relationships. pressure for corporate transparency and improved social and environmental performance. Collectively, these In terms of our Africa growth strategy, we have identified developments increase the need to secure greater opportunities to drive category growth through targeted efficiencies and improved product and process innovation, brand investments, both in our existing markets and in while increasing our efforts to achieve our sustainability prioritised new markets. This will be supported by superior goals. routes to markets and local investment in key capabilities. EXECUTING AN AMBITIOUS GROWTH We have achieved some significant cost-saving targets STRATEGY this year across our value chain, delivering efficiencies This year we undertook a comprehensive refresh and in packaging and ingredients, centralised procurement, update of our five-year growth strategy, building on our enhanced plant and process practices. We also made activities last year in introducing a new operating model good progress against our customer service excellence and implementing our culture development programmes. targets, with an 18% reduction in consumer complaints. Our priority this year has been to continue work on our I am particularly pleased with the progress made in group strategic commitments and to accelerate the delivering on our people strategy. The new appointments implementation of each of our four strategic focus areas, WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 12 Tiger Brands Limited Integrated annual report 2019 Our business
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
to the executive and senior management team have continue to build our focus on quality, with the aim of brought valuable additional skills, experience and insights. delivering a step-change improvement, accompanied by We have introduced a standardised talent management full transparency on our performance. framework, improved our succession planning, and On employee safety, I am saddened to report that this year invested in developing leadership and commercial one of our employees was killed. In April 2019, Mr Aubrey capabilities. Although we have begun to make our reward Tornado Skosana, a driver at Albany Pretoria, died mechanisms more competitive, instilling a purpose-led following a multi-collision vehicle accident while on a performance-based culture that inspires innovation and delivery. I extend my sincere condolences to Mr Skosana’s drives performance remains a top priority. family and friends. The family has been given support and In terms of our recently revised Sustainable Future pillar – counselling, and we have implemented appropriate which includes ambitious commitments on health and response measures to minimise the potential for future nutrition, enhanced livelihoods, and environmental such incidents. We continue to seek an industry solution stewardship – we have seen some pleasing initial results. for the concerning number of violent route-to-market We have driven micronutrient enrichment across 30,7% of incidents, while ensuring all our Bakery delivery routes are our net sales, fortifying staple foods such as bread, maize risk assessed and enabled with tailored response meal and cake flour with key vitamins and minerals, and measures to enhance employee safety. certain breakfast cereals and instant porridges with CLASS ACTION UPDATE micronutrients. This year, we set up a “market access In April 2019, Tiger Brands received a class action accelerator” that has already successfully supported seven summons following last year’s tragic national listeriosis black-owned enterprises in logistics opportunities, trained incident. In August, the company filed a plea in response more than 50 aspiring black entrepreneurs, and provided to this summons. Tiger Brands remains committed to 58 black smallholder farmers with both financial and having the matter determined as soon as possible and will non-financial support. On our environmental performance, continue to conduct its defence in a responsible manner. we have seen some positive initial results in addressing our most material environmental impacts, namely improving OUTLOOK energy and water efficiency, reducing greenhouse gas The sobering Medium-Term Budget Policy Statement, emissions, and reducing operational as well as given by the South African Minister of Finance in October packaging waste. 2019, suggests that the country faces some significant macro-economic challenges for the foreseeable future. MAINTAINING OUR STRATEGIC ENABLERS In the context of continuing policy and political uncertainty, Delivery of our priority focus areas is dependent on structural unemployment, high debt levels, and ongoing continuing strong performance in various strategic concerns with state-owned enterprises, investor and enablers, such as good governance practices, effective business sentiment is understandably subdued. internal processes, food quality, occupational health and safety, and stakeholder responsiveness. Our activities in I believe that the strength of our heritage brands, the each of these areas are reviewed in more detail in this diversity of our product portfolio across a range of income report. In these opening comments I wish to focus in groups, our long-standing distribution networks and particular on the issues of food safety and quality, as well customer relationships, and our strong balance sheet, will as employee safety. enable us to absorb potential future headwinds. I am also confident that we have the right strategy in place to This year, we have placed a particular priority on driving respond to these difficult and dynamic market conditions the food safety and quality agenda across the company, and ensure our long-term growth. investing heavily in ensuring that we have trained and talented people integrated across functions, a robust and integrated set of processes and tools, and a culture and passion for quality that permeates across the organisation. We have strengthened our internal and external audit and assessment processes, improved supplier quality assurance measures, and completed hazard analysis and critical control point (HACCP) training for all high-risk sites. Through our various quality initiatives, we have achieved external certification for all our manufacturing sites. We will WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 13
APPRECIATION Our ability to deliver value in this tough year is thanks to the continuing energy and hard work that I have seen first-hand across the company. I would like to express my deep appreciation to all of Tiger Brands’ employees for their contribution in working towards our strategic ambitions, as well as my colleagues on the executive team for their active support. The Tiger Brands’ board, under the strong leadership of our chairman, Dr Khotso Mokhele, has once again been an invaluable source of advice and counsel as we have developed and implemented our strategic roadmap. Although we are not yet showing the levels of growth that we aspire to, I believe that the company is well positioned for the future.
LC Mac Dougall Chief executive officer 21 November 2019 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 14 Tiger Brands Limited Integrated annual report 2019 Our business
OUR BUSINESS MODEL
Tiger Brands creates value and delivers on its purpose by producing, marketing and distributing everyday branded food, home and personal care products, predominantly in South Africa with a growing market presence across Africa.
KEY CAPITAL INFLOWS OUR EXTERNAL ENVIRONMENT SOCIAL AND RELATIONSHIP ›› Sustained macro-economic Committed workforce pressure on consumer spending Investor confidence ›› Heightened competition and Constructive relationship with government and regulators changing retail and consumer dynamics Positive supplier and customer relations WHEAT
Trusted brand and reputation with ›› Growing consumer and policy RICE consumers and society Re focus on nutrition, health and se ar Stable operating context contributing environmental stewardship ch to sustained market demand MAIZE an C d en d t e re v P s e ro l c of o OUR PEOPLE u e p OATS re x m m c e e e n l n Strong and diverse board t le t a n n c Experienced executive team d e b 10 543 employees (2018: 11 348 u SORGHUM : lk permanent) g t in r d a Enabling environment u n l s c p n i o Adequate governance systems r g t Throughput TOMATOES n Improved reward and personal i & BEANS s development opportunities of primary s
e agricultural products c
o
r
transformed p
into branded d
OUR BRAND AND REPUTATION n FRUIT & a
food items
NUTS g
Strong brand and reputation n i
r
u
Unique product formulations and trusted t
c
recipes a f
u
n Research and development capacity SUGAR a
Governance and business systems M
COCOA MANUFACTURED CAPITAL
R 41 manufacturing facilities E rs H e T li O 160 packing lines MEAT p • p u S 24 distribution centres /s E s L r B e A id M v U ro S p N ce CO FINANCIAL CAPITAL vi er • S G Borrowings IN AG CK Low gearing levels and strong cash PA generation Cash generated from operations
OUR TOP 10 RISKS NATURAL RESOURCES
Local and imported raw material ingredients 1. 2. 3. 4. 5. 6. 7. Water and energy for production Operating Albany Food safety Occupational Cybercrime Business Data and Fuel (diesel and petrol) for distribution environment route-to- and product health and and continuity information risk Fertile soil and conducive agricultural market quality safety information vulnerabilities conditions security WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 15
Our core target consumers are middle-income consumers, the largest and fastest growing segment. Our core category is food with immediate adjacencies in beverages, snacks and treats.
OUTFLOWS OUR REVENUE STREAM SOCIAL AND RELATIONSHIP
The majority of our revenue is generated in South Africa ✓ from our Grains (45%) and Consumer Brands (34%) Provision of affordable nutrition divisions, with the balance coming from the Exports ✓ Economic opportunities across value chain and International division (11%), followed by Home, ✓ Personal Care and Baby (9%). Community impact of operations ✗ Material revenue differentiators Contribution to non-communicable disease ›› The group’s long-standing market-leading position ✗ Impact of unsafe food products Re in branded food and beverages se (outcomes on page 16) ar ›› Our power brands, most of which are rated first or second ch a in their product categories n C d ›› A robust marketing strategy to ensure our brands en d t e re v remain relevant and top-of-mind OUR PEOPLE P s e ro l c of o ›› Far-reaching distribution capabilities u e p ✓ re x m Investment in employee skills and motivation m c ›› The strength and quality of our relationships with e e e n l n our customers ✓ t le t Investment in employee health and safety a n n c d e ✓ Enhanced employee and board diversity b u Milling and baking Snacks and Treats : lk ✗ Some negative health and safety incidents g t Baking Sugar in r d a (outcomes on page 16) u n Milling: Chocolate l s c p – Flour n Beverages i o
r – Maize g t Concentrates n – Sorghum i Sports drinks s OUR BRAND AND REPUTATION s Other grains Ready-to-drink e RETAILERS c Pasta ✓ o WHOLESALERS Value Added Meat Investment in maintaining brand equity
r p Breakfast
GENERAL Products (VAMP) ✓
d Rice Innovation launches including in health and
n TRADE nutrition, value and convenience
a Home, Personal Groceries
g Care and Baby
n (outcomes on page 16) i Condiments and
r
u ingredients
t PACKAGING DISTRIBUTION
c Spreads a f
u Canned fruit and
n
a vegetables MANUFACTURED CAPITAL M Economic/Process performance ‘ Profitable operations OUR COST STREAM ✓ Investment in modernising plant and ‘ Efficient resource use equipment ‘ Financial resilience ‘ Optimised product portfolio Our most significant cost streams include: ✗ General wear and tear/depreciation
R ›› Raw material procurement E (outcomes on page 17) rs H ›› Employee wages and benefits e T li O › Sales and distribution expenses p • › p u S /s E ›› Electricity and fuel s L FINANCIAL CAPITAL r B e A ›› Marketing expenses id M v U ✓ ro S ›› Regulatory compliance costs Return on equity p N ce CO ›› Maintenance and upgrading of plant and equipment ✓ rvi Return on invested capital (ROIC) Se • ›› Other administered costs NG GI ✓ Favourable funding terms KA Most of these costs have been rising in recent years, AC P many of them above inflation, driven by various external (outcomes on page 17) economic, social and environmental factors beyond our control. We have a strong focus on securing cost savings NATURAL RESOURCES on those issues within our control, through our established cost-conscious culture and a track record of delivering ✓ Investments in numerous mitigation procurement savings and supply chain efficiencies. measures We are continuing to identify opportunities for further ✓ Innovation in products, processes and efficiencies in our manufacturing operations and our sales consumption 8. 9. 10. and administrative activities. In terms of exchange rate ✗ Raw material extraction volatility, a substantial portion of our costs are directly Attract and Fraud, theft, Ageing or indirectly exposed to foreign exchange volatility. ✗ Energy use and GHG emissions across retain critical crime and infrastructure value chain skills corruption Material cost differentiators ✗ Water use and potential contamination ›› Our ability to leverage a centralised procurement hub ›› Standardisation and simplification of group ✗ Habitat impacts across supply chain processes, systems and practices ✗ Environmental incidents
(outcomes on page 17) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 16 Tiger Brands Limited Integrated annual report 2019 Our business
OUR BUSINESS MODEL CONTINUED
SOCIAL AND RELATIONSHIP OUR PEOPLE OUR BRAND AND REPUTATION
Material inputs Material inputs Material inputs Committed workforce Strong and diverse board Strong brand and reputation Investor confidence Experienced executive team Unique product formulations and trusted recipes Constructive relationship with 10 543 employees (2018: 11 348) government and regulators Research and development capacity Enabling environment Positive supplier and customer relations Governance and business systems Adequate governance systems Trusted brands and reputation with consumers and society Improved reward and personal Our actions to sustain value development opportunities ›› Strong focus on ensuring a clear Stable operating context contributing purpose and strong personality to sustained market demand Our actions to sustain value behind our master brands More diversified marketing spend Our actions to sustain value Three-pillar people strategy focusing ›› on building a diverse talent base, across different media ›› Strong drive on people strategy developing leadership capacity, and ›› Investment in innovation and R&D, (see page 32), and on developing creating a great place to work including in health and wellness positive employee relations ›› Sustained focus on promoting ›› Regular investor communication diversity and employment equity ›› Structured engagement with ›› Appropriate succession plans in regulators, continued focus on place Outcomes compliance and ensuring a societal of our activities contribution Sustained brand presence ›› Active engagement with suppliers and ✓✓100% penetration in South Africa, customers (retailers and wholesalers) Outcomes with every household having at least ›› Product and process innovation of our activities one Tiger Brands product including on health, convenience and Generally improved employee skills ✓✓Category leader in over 50% of the value categories we operate in from a Delivering societal value through and motivation ›› ✓✓ brand equity perspective our core business, supported by 40% of leadership appointments were internal ✓✓Brands compete head-on with the Tiger Brands Foundation ✓✓Recognised as a Top Employer 2019 leading brand in almost a third of ✓✓Management trainee programme categories ranked second in SA Graduate and ✓✓We can disrupt categories, being a Employee Association challenger in over 15% remaining Outcomes ✓✓R4,2 billion on wages and benefits categories of our activities ✓✓R127 million invested in skills Innovation launches, including: Generally positive relations across development ✓✓Health and nutrition: Albany BoB key stakeholder groups Board diversity: Genius, Ace+Fibre, Jungle Plus+ ✓✓18% reduction in consumer ✓✓62% black and 38% female ✓✓Value: Tastic variants; Benny complaints and 35% reduction Employee diversity: seasoning; Morvite strip pack in marketplace incidents ✓✓93% black and 30% female ✓✓Convenience: Purity pouches ✓✓ 31% of net sales fortified with ✘ Industrial action at some of our ✓✓Other: 100% durum pasta; new Oros micronutrient enrichment operations flavours ✓✓R14,3 billion BBBEE supplier spend ✘ One fatality (2018: one) ✓✓R12,3 million spend to support black ✘ 0,38 lost-time injury frequency rate farmers and small businesses (2018: 0.27) Continuing concerns in certain areas Capital trade-offs ✘ Concerns around the company’s ability to recover cost push in a challenging ›› Tiger Brands’ legacy is built on the consumer environment Capital trade-offs strength of our brands and the quality of our products, which in ✘ Listeria class action lawsuit As labour is one of our most ✘ Labour unrest (Groceries and Bakeries) ›› turn depends on our proprietary significant costs, there has been a product recipes, our capacity to strong drive to identify innovate in response to changing opportunities for further labour consumer preferences, our robust efficiencies and productivity gains food quality and safety systems, across our operations. While and our innovative marketing and Capital trade-offs reducing labour costs has benefits consumer engagement. in terms of financial capital, it has Maintaining our leadership in these ›› Our success as a business potentially significant negative depends ultimately on the quality areas is key to long-term growth, implications in human and social but often has short-term cost of our relationships with key capital. stakeholders. These stakeholders implications. have different and sometimes ›› Investing, attracting, retaining and conflicting priority interests developing executive talent is a (page 20); balancing these material cost, depleting financial competing interests requires capital in the short term, but trade-offs as we prioritise certain resulting in returns in most capital investments over others. stocks in the longer term. ›› Investing in social and relationship capital also often requires short to medium-term financial capital inputs, but generally generates positive return across most capitals over the longer term. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 17
MANUFACTURED CAPITAL FINANCIAL CAPITAL NATURAL RESOURCES
Material inputs Material inputs Material inputs 41 manufacturing facilities Borrowings Local and imported raw material ingredients for our products 160 packing lines Low gearing and strong cash generation Water for production facilities, 24 distribution centres Cash generated from operations comprising municipal supply and own borehole sources Our actions to sustain value Our actions to sustain value ›› R1,1 billion capital expenditure in Energy to fuel our manufacturing, ›› Strategy supported by focused primarily Eskom electricity manufacturing and distribution execution capability and technology ›› Continued drive on operational Fuel (diesel and petrol) for distribution efficiency Fertile soil and conducive agricultural ›› Prudent approach to capex conditions approvals Outcomes ›› Operating model embedded Our actions to sustain value of our activities through revitalised ways of Continued energy and water working ›› ✓✓Investment in Oats Mill, Beverages efficiency measures, with Strong corporate governance ✓✓97% on-shelf availability ›› supporting mitigating plans to structures ensure continuity of production Some challenges remain ›› Deliberate working capital ✘ Supply chain difficulties at management ›› Investment in innovations to Groceries impacted profitability optimise packaging and reduce ✘ Higher conversion costs at Snacks waste and Treats ›› Partnerships in place to reduce food waste and packaging waste Outcomes of our activities Capital trade-offs ✓✓21,6% return on net assets ›› Investing in plant and equipment is (RONA) (2018: 26,6%) Outcomes beneficial for longer-term growth ✓✓Net interest paid R10,6 million (2018: R41,8 million) of our activities but can impair short-term financial Some progress in mitigating impacts performance. ✓✓R3,5 billion cash generated from operations (2018: R3,3 billion) ✓✓Absolute water use down 7,2%; ›› The modernising of facilities may water intensity down 5,4% also lead to job losses, negatively ✓✓Savings of R616 million ✓✓Working capital cents per ✓✓Total carbon emissions down 6,5% impacting social and human year-on-year capital; any job losses generally R1 turnover 21,4 (2018: 21,6) contribute to reduced consumer ✘ Total dividend per share declared: ✓✓Absolute energy use down 8,5%; spend and undermine market 1 061 cents (1 080 cents) energy intensity down 5,0% growth. ✘ 14,1% return on equity (2018: ✓✓Achieved a 10% reduction in body 16,7%) plate thickness by light-weighting ✘ ROIC 14,2% > weighted average aerosol and food cans cost of capital (WACC) 12,5% (2018: ROIC 17,3% > WACC 12,5%)
Capital trade-offs ›› Natural capital is a critical input for all of our activities. Generating value across all the other capitals often involves some negative Capital trade-offs impact on natural capital. ›› Ensuring sustainable growth in ›› We strive to minimise these financial capital often involves impacts across our value chain, making significant capital by investing in mitigating investments in the short term. measures in our processes, ›› Our strategic direction informs the products and packaging. allocation of capital to balance the short-term interests of certain stakeholders with long-term growth objectives. 14 Tiger Brands Limited Integrated annual report 2019 Our business Tiger Brands Limited Integrated annual report 2019 15
OUR BUSINESS MODEL
Tiger Brands creates value and delivers on its purpose by producing, marketing and Our core target consumers are middle-income consumers, the largest and fastest distributing everyday branded food, home and personal care products, predominantly growing segment. Our core category is food with immediate adjacencies in South Africa with a growing market presence across Africa. in beverages, snacks and treats.
OUTFLOWS KEY CAPITAL INFLOWS OUR EXTERNAL ENVIRONMENT OUR REVENUE STREAM SOCIAL AND RELATIONSHIP SOCIAL AND RELATIONSHIP › Sustained macro-economic Committed workforce The majority of our revenue is generated in South Africa ✓ pressure on consumer spending from our Grains (45%) and Consumer Brands (34%) Provision of affordable nutrition Investor confidence ✓ › Heightened competition and divisions, with the balance coming from the Exports Economic opportunities across value chain Constructive relationship with and International division (11%), followed by Home, ✓ government and regulators changing retail and consumer Personal Care and Baby (9%). Community impact of operations dynamics WHEAT ✗ Positive supplier and customer relations Material revenue differentiators Contribution to non-communicable disease The group’s long-standing market-leading position ✗ Trusted brand and reputation with › Growing consumer and policy RICE › Impact of unsafe food products consumers and society Re in branded food and beverages focus on nutrition, health and se (outcomes on page 16) ar › Our power brands, most of which are rated first or second Stable operating context contributing environmental stewardship ch to sustained market demand MAIZE a in their product categories n C d › A robust marketing strategy to ensure our brands en d t e re v remain relevant and top-of-mind OUR PEOPLE P s e ro l c of o › Far-reaching distribution capabilities OUR PEOPLE u e p ✓ OATS re x m Investment in employee skills and motivation m c › The strength and quality of our relationships with e e e n l n our customers ✓ Strong and diverse board t le t Investment in employee health and safety a n n c Experienced executive team d e ✓ Enhanced employee and board diversity b 10 543 employees (2018: 11 348 u Milling and baking Snacks and treats SORGHUM : lk ✗ Some negative health and safety incidents permanent) g t Baking Sugar in r d a (outcomes on page 16) Enabling environment u n Milling: Chocolate l s c p – Flour n Beverages i o Adequate governance systems r – Maize g t Concentrates Throughput TOMATOES n – Sorghum Improved reward and personal i Sports drinks & BEANS s OUR BRAND AND REPUTATION development opportunities of primary s Other grains Ready-to-drink e RETAILERS agricultural products c Pasta ✓ o WHOLESALERS Value Added Meat Investment in maintaining brand equity r
transformed p Breakfast GENERAL Products (VAMP) ✓ into branded d Rice Innovation launches including in health and
OUR BRAND AND REPUTATION n TRADE nutrition, value and convenience FRUIT & a Home, Personal
food items Groceries
NUTS g Care and Baby
Strong brand and reputation n (outcomes on page 16) i Condiments and
r
u ingredients
Unique product formulations and trusted t PACKAGING DISTRIBUTION
c Spreads
recipes a f
u Canned fruit and
n
Research and development capacity SUGAR a vegetables MANUFACTURED CAPITAL M Economic/Process performance Governance and business systems ‘ Profitable operations OUR COST STREAM ✓ Investment in modernising plant and ‘ Efficient resource use equipment ‘ Financial resilience COCOA ‘ Optimised product portfolio ✗ General wear and tear/depreciation MANUFACTURED CAPITAL Our most significant cost streams include:
R › Raw material procurement 41 manufacturing facilities E (outcomes on page 17) rs H › Employee wages and benefits e T li O 160 packing lines › Sales and distribution expenses MEAT p • p u S 24 distribution centres /s E › Electricity and fuel s L FINANCIAL CAPITAL r B e A › Marketing expenses id M v U ✓ ro S › Regulatory compliance costs Return on equity p N ce CO › Maintenance and upgrading of plant and equipment ✓ FINANCIAL CAPITAL rvi Return on invested capital (ROIC) Se • › Other administered costs NG Borrowings GI ✓ Favourable funding terms KA Most of these costs have been rising in recent years, AC Low gearing levels and strong cash P many of them above inflation, driven by various external (outcomes on page 17) generating capabilities economic, social and environmental factors beyond our Cash generated from operations control. We have a strong focus on securing cost savings NATURAL RESOURCES on those issues within our control, through our established cost-conscious culture and a track record of delivering ✓ OUR TOP 10 RISKS Investments in numerous mitigation procurement savings and supply chain efficiencies. measures NATURAL RESOURCES We are continuing to identify opportunities for further ✓ Innovation in products, processes and Local and imported raw material efficiencies in our manufacturing operations and our sales consumption ingredients 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. and administrative activities. In terms of exchange rate ✗ Raw material extraction Water and energy for production volatility, a substantial portion of our costs are directly Operating Data and Attract and Fraud, theft, Ageing Albany Food safety Occupational Cybercrime Business or indirectly exposed to foreign exchange volatility. ✗ Energy use and GHG emissions across Fuel (diesel and petrol) for distribution environment route-to- and product health and and continuity information retain critical crime and infrastructure value chain risk skills corruption Fertile soil and conducive agricultural market quality safety information vulnerabilities Material cost differentiators ✗ Water use and potential contamination conditions security › Our ability to leverage a centralised procurement hub › Standardisation and simplification of group ✗ Habitat impacts across supply chain processes, systems and practices ✗ Environmental incidents
(outcomes on page 17) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 18 Tiger Brands Limited Integrated annual report 2019 Our business
OUR EXTERNAL ENVIRONMENT
This has been another dynamic year for consumer packaged goods (CPG) companies in South Africa, during which we have felt the impact of a very constrained consumer environment, an increasingly competitive food and retail environment, and changing consumer and regulatory expectations regarding nutrition, health and environmental responsibility. This challenging external context presents both risks and commercial opportunities, and has informed the development of our growth strategy.
PROCUREMENT MANUFACTURING LOGISTICS CUSTOMERS CONSUMERS
›› ZAR volatility ›› Unreliable and ›› Increasing ›› Squeezed ›› Constrained ›› BBBEE expensive storage costs customers consumer electricity ›› Higher fuel pushing for shopping on ›› Labour costs prices discounts promotion ›› Employee and trade terms relations ›› Water scarcity
SUSTAINED MACRO-ECONOMIC PRESSURE ON CONSUMER SPENDING
›› Consumer spending in South Africa continues to be constrained by lacklustre GDP and wage growth, high unemployment and high consumer debt, compounded by increasing fuel, transport and utility costs, and continuing rand/dollar volatility. An estimated 62% of South Africans live on less than R60/day, with many families trapped in poverty due to the 29% unemployment rate. ›› In August 2019, South Africa’s consumer inflation rate reached 4,3%, driven by price increases in food and non-alcoholic beverages, fuel and electricity, and miscellaneous goods and services. Food inflation reached its highest levels in 18 months, off the back of increases in bread and cereal, maize meal prices and oil-based food items. ›› Consumers are buying less, spending less and shopping smarter: 65% of shoppers are actively comparing prices across brands, 57% are choosing retailers with better prices, and 70% trading up to bigger packs on promotion if value is offered.1 Despite this tough environment, for the most part we have continued to benefit from our premium and heritage brands and the nature of our food basket, with our share of the market at 25,3%.2 ›› The economic outlook in South Africa remains subdued for the foreseeable future, weighed down by continuing policy and political uncertainty, high unemployment and debt levels, and ongoing challenges with the bailout of state-owned enterprises.
Our response Strategy
›› Given the constrained consumer environment, and in an effort to expand and protect margins in the subdued market, we have placed a heightened focus on driving productivity and securing cost efficiencies across the value chain (page 30). ›› We continually review consumer trends to guide the optimisation of our product portfolio and to identify opportunities for product and process innovation. We have an exciting product pipeline across a range of categories that specifically includes innovations for value-seeking consumers (page 27). ›› Our recently approved sustainability strategy includes a strategic focus on improving 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 owned enterprises in our value chain (page 34).
1 Nielsen Basket and Shoppergraphics F’19 Q1; In perspective for Tiger Brands March 2019. 2 Nielsen 12mm volume share as at 30 September 2019. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 19
HEIGHTENED COMPETITION AND CHANGING RETAIL AND CONSUMER DYNAMICS
›› There have been new entrants in the food producer sector in South Africa, some of whom are building potential contender brands. This is contributing to excess capacity in a low volume growth environment, resulting in aggressive pricing strategies. ›› Competition in food retail has also intensified, with the growth of e-commerce business and general traders, driving the rationalisation of SKUs*, the uptake of private labels and prompting more aggressive procurement, all of which is placing further pressure on food producers. ›› Consumer behaviour generally is changing, driven by various trends including rapid urbanisation, an increasing number of single households, crowded transport, and greater digital connectivity. These trends have contributed to an uptake in convenient on-the-go meals and snacks, increased demand for purpose-led brands and greater corporate transparency, and a growing consumer focus on health and wellness. ›› Cumulatively, the heightened competition and changing dynamics in the consumer and retail space, are challenging some of the traditional approaches that have driven top-line growth in CPG companies, driving innovation in products, sales and distribution.
Our response Strategy
›› Our strategic commitment to drive growth has been developed to mitigate the risks and realise the opportunities associated with the changing retail and consumer dynamics. We have identified opportunities to optimise our product portfolio, respond to the growth in private label brands, and win at the point of purchase (page 27). ›› We made further progress this year in new product launches to address consumer expectations for quality, convenience, healthier foods and affordable pack sizes. Despite the heightened competition we retained the lead in packaged food in 2019, with a 25,3% volume share. ›› We have been implementing channel-specific category management methodologies and will be continuing to embed appropriate digital technologies that enhance the monitoring of the return on investment of our promotional activity, while meeting customers’ needs, and we have been using new pricing expertise to help drive brand growth and customer support. ›› Through the diversity of our portfolio we are able to address the full range of consumers’ shopping needs, particularly those in the middle-income bracket (living standards measure 5 to 8).
GROWING CONSUMER AND POLICY FOCUS ON NUTRITION, HEALTH AND ENVIRONMENTAL STEWARDSHIP
›› South Africa has been assessed as one of the least healthy countries globally, with high levels of obesity and lifestyle-induced non-communicable disease. This has contributed to greater regulatory intervention in the food sector, with the introduction of a sugar tax and sodium regulations, as well as a rapidly growing appreciation among consumers of the benefits of healthier and more nutritious food products. ›› There has similarly been an increased consumer and regulatory focus on environmental issues, with heightened activism in particular on issues such as climate change, plastics pollution, and increasing consumer demand for food products that are seen to be “green” and organic. ›› Globally, there has been a significant uptake recently in plant-based protein, characterised by the marked success of recently listed companies in this area, and the growing adoption of alternative meat products in leading global quick service restaurants.
Our response Strategy
›› We believe that there is a sizeable commercial opportunity in the health and nutrition sector, and have been driving innovation in nutrition, for example through our vitamin-enriched Best of Both Genius bread that adds nutrients for school children, adding fibre to Ace maize meal porridge that assists with a healthy gut, and launching new flavours in our Crunchalots breakfast that are low in sugar compared to competitors (page 28). ›› In terms of our recently approved Sustainable Future strategy we have committed to enabling consumers to improve their health and well-being by developing best-in-class nutritional standards, providing more nutritious, affordable food products, and leveraging our brand and marketing activities to promote consumer nutrition and health (page 34). ›› This year, we have invested in driving the quality agenda across the company. We completed quarterly self- assessments and gap closeouts across our operations, achieved external certification (FSSC 22000) for all our manufacturing sites, implemented supplier quality assurance processes for all new raw material and packaging suppliers, and made new appointments to enhance our quality team (sustainable development report). ›› We have also committed to significantly reduce our environmental impact through innovative solutions, including optimising energy and water usage, developing innovative products and packaging, leveraging our brand and marketing, and implementing circular economy initiatives that stimulate economic opportunities (sustainable development report).
* Stock keeping units WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 20 Tiger Brands Limited Integrated annual report 2019 Our business
ADDRESSING MATERIAL STAKEHOLDER INTERESTS
This year has been an important milestone in our journey of promoting stakeholder inclusivity and ensuring effective management of material stakeholder interests as a means of promoting sustainable competitiveness.
KEY ELEMENTS OF OUR STAKEHOLDER RELATIONS STRATEGY INCLUDE:
Coordinated Consistent framework Stakeholder- approaches for focused as to stakeholder Leadership opposed to engagement management actively compliance- throughout engaging based the group with engagement Mechanism stakeholders to anticipate risk and Values- opportunity based engagement
Our journey began in 2017 where we undertook a impact programmes with communities to bring about the dedicated engagement process to develop a baseline required change. appreciation of how our stakeholders perceive our existing In the table on pages 21 and 22, we briefly identify those engagements, and to identify opportunities to foster stakeholder groups that have a substantive impact on our increased inclusivity for sustainable competitiveness. ability to create value, outlining their contribution to value We have been encouraged by the positive response from creation, our means of engaging with them, and each various stakeholders who have supported us in our stakeholder group’s primary interests relating to our activities. Since October 2018, we have been working with business activities. various stakeholder groups within our host communities Although we appreciate that there is often substantial to develop and implement site-specific stakeholder diversity of perspective and interest within each group, engagement plans. During 2019, we spent more time in we believe that the interests listed below are a sufficiently host communities undertaking social-mapping exercises, accurate reflection of each group’s most material interests the results of which have allowed us to be responsive to regarding Tiger Brands’ activities and performance. specific community needs, and enabled us to co-create WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 21
HOW WE ENGAGE MATERIAL INTERESTS OUR ACTIVITIES PAGE
EMPLOYEES – provide the experience, productivity and skills that are the foundation for delivering our strategy
›› Internal website ›› Remuneration and rewards ›› Our recently revised people strategy and operating 32 ›› Newsletters and email ›› Talent and career development model seeks to directly address each of these ›› Employee hotline ›› Strong internal engagement issues ›› Employee engagement ›› Teamwork and collaboration ›› Employee experience improvement is managed through our culture transformation journey, talent sessions and culture ›› Diversity and representativeness dialogues development practices and through our employee engagement survey ›› One-on-one consultations
CONSUMERS – provide the basis for revenue growth by purchasing our products and believing in our brand
›› Dedicated media and ›› Food safety ›› Robust systems in place to ensure that our consumer section on food complies with all regulatory requirements website for major issues ›› Founding member of Centre for Food Safety Sustainable ›› Packaging information at University of Stellenbosch development ›› Consumer care line ›› Consumer awareness campaigns on food safety report ›› Product quality ›› Strong focus on ensuring that product quality meets or exceeds consumer expectations Sustainable development report ›› Product affordability ›› Strive to mitigate inflationary pressures through 27 cost-saving initiatives and operational efficiencies ›› Alternative, more affordable packaging formats ›› Health and nutrition ›› Enable consumers to improve their health by 28 providing affordable good nutrition and promoting consumer nutrition and health awareness
GOVERNMENT – provides the regulatory framework and informs the socio-economic context essential for our activities
›› One-on-one engagements ›› Robust safety systems in place supported by ›› Engagements on draft academic partnerships and consumer campaigns regulations ›› Food safety and quality Sustainable ›› Public forums development ›› Industry consultative report bodies ›› Engage on draft policy and legislation ›› Parliamentary processes 28 ›› Consumer nutrition and health ›› Nutrition education programme with the Department ›› Regulations on sodium; tax on of Basic Education sugar-sweetened beverages ›› In-school breakfast programme in partnership with Tiger Brands Foundation ›› Growth and development of ›› Active partnerships to promote agri-sector 34 local agricultural sector development and smallholder farmers WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 22 Tiger Brands Limited Integrated annual report 2019 Our business
ADDRESSING MATERIAL STAKEHOLDER INTERESTS CONTINUED
HOW WE ENGAGE MATERIAL INTERESTS OUR RESPONSE PAGE
R INVESTORS – provide the financial capital needed for long-term growth
›› Annual and interim reports ›› Margin compression and ›› Execution of strategic priorities; dedicated resource 27 ›› One-on-one meetings, earnings regression due to to drive strategic portfolio decisions roadshows and increased sector capacity conferences in key segments SENS announcements ›› ›› Risk of private label ›› Reinforcing the strength of our purpose-led brands 27 ›› Dedicated investor relations through world-class marketing ›› Website ›› Realising opportunities to stretch our brands within and across product categories ›› Driving product innovation including explicitly for value-seeking consumers ›› Remuneration policy and ›› Improved percentage votes in favour of the 57 practice remuneration policy ›› Board engagement with shareholders on remuneration ›› Succession pipeline ›› Revised people strategy in place, prioritises 32 succession and leadership capacity development ›› Robust succession plan for key leadership positions including the CEO with clear development plans; reviewed by the board at least twice a year
SUPPLIERS – provide the services and raw materials that form the basis of our products and activities
›› Supplier forums ›› Negotiate with strategic suppliers to secure ›› Timely payment and fair terms 34 ›› Site visits requirements at reasonable cost Supplier assessments ›› ›› Strong drive in place to promote supplier and 34 ›› BEE/SME supplier development enterprise development, investing in smaller suppliers to diversify the supply base ›› Health and safety standards ›› Engage with relevant suppliers on appropriate health and safety standards Sustainable development report
COMMUNITIES – provide us with our social licence to operate, and with the social capital needed for business to flourish
›› Community social mapping ›› Food security and related ›› Partner with government and developmental 34 to identify opportunities to nutrition issues agencies to promote nutrition, health and education, share value and contribute to community development and ›› Community mobilisation poverty eradication and interaction on SED ›› Stimulate economic activity to ›› Initiatives in place on enterprise and supplier projects 34 support and sustain community development, and community investment enterprise development and job creation
MEDIA – provide us with the reputation and stakeholder awareness of our products, services and performance
›› CEO/CFO engagement ›› Increase access to management ›› All queries on consumer-related enquiries addressed within specified as appropriate and information timeframes ›› Dedicated media section on our website ›› Media governance ›› Strengthened media governance and protocols ›› Media releases ›› Enhanced media monitoring and analysis ›› Social media presence ›› Fair treatment of consumers ›› See earlier responses on consumers on page 21 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 23
MANAGING OUR RISKS
The board of Tiger Brands has ultimate responsibility for presented to the risk and sustainability committee for overseeing the group’s risk management processes. The recommendation to the board. The board reviews and board is assisted by the risk and sustainability committee approves this annually, ensuring that the company who are responsible for ensuring that the risk management effectively identifies, manages and reports on risk across process complies with relevant standards and governance all operations and all territories. The underlying reporting requirements. Senior management in each division and structure starts at site level and rolls up into the relevant business unit is responsible for managing risks in their business unit and division, culminating in risk reporting at a respective areas. Oversight of risk management at group level. divisional level rests with the relevant executive Each risk is evaluated in terms of its likelihood and impact, committees. Divisional and business unit risk registers are both on an inherent (actual impact) and residual (after updated quarterly and reviewed on an annual basis at the mitigating action) basis. The current group residual risk group executive committee risk workshop. The risk and tolerance score is set at nine, as highlighted in the heat sustainability committee meets three times a year. maps below that reflect the scoring of our top 10 risks. RISK APPETITE AND TOLERANCE The group risk profile is reviewed quarterly and may be Risk appetite refers to the level of risk that Tiger Brands’ revised after considering changes to the local and regional management is prepared to absorb before mitigating macro-economic environment, recent political and actions are implemented; risk tolerance refers to the legislative developments, socio-economic challenges and company’s strategic capacity to accept or absorb the technological advancements. Through our combined risk. The operational risk committee will assess the risk assurance model, the risk and sustainability committee management evaluation criteria on an annual basis. evaluates and approves the level of assurance provided Any changes to the evaluation criteria, including the risk for all group risks. appetite and tolerance are recommended for adoption OUR TOP 10 RISKS by the risk and sustainability committee. The following heat maps reflect the top 10 inherent and The group executive committee determines the risk residual risks for Tiger Brands in the 2019 financial year, appetite, tolerance evaluation criteria and velocity (the time identified as having the most material implications for taken to feel the impact of a risk after it materialises) and is Tiger Brands and its employees.
INHERENT RISK SNAPSHOT RESIDUAL RISK SNAPSHOT
1 2 3 4 2 3 4 5 5 5
5 6 8 1 8 9 10 6 7 4 4
9 10 7 3 3 IMPACT IMPACT
2 2
1 1
1 2 3 4 1 2 3 4 PROBABILITY PROBABILITY WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 24 Tiger Brands Limited Integrated annual report 2019 Our business
MANAGING OUR RISKS CONTINUED
The following table briefly reviews the implications and mitigation measures for each of the top 10 risks.
MATERIAL RISKS IMPLICATIONS FOR VALUE MITIGATING ACTIONS
1. Operating ›› Weakened consumer demand off the back of ›› Driving growth through customer strategies focused environment lower economic growth negatively impacts on winning at the point of purchase. volumes, and heightened consumer focus on ›› Creation of a health and nutrition strategy. shopping on promotion, negatively impacts ›› Being efficient by unlocking costs and cash through profitability. incremental supply chain savings and driving ›› Similarly, the rising cost of utilities, labour, general continuous improvement efficiencies, fuelling growth input costs and regulatory requirements, is and continuing to build an advantaged and agile increasing the cost base at a higher rate than supply chain. inflation, weighing on margins. ›› A people strategy focused on talent, leadership and creating a great place to work. ›› A sustainability strategy is aimed at health and nutrition, enhanced livelihoods and environmental stewardship. 2. Albany route- Increasing levels of violent crime against drivers ›› All delivery routes are risk assessed, and tailored to-market in the bakery route-to-market can result in: response measures developed. ›› employee and service provider loss of life ›› Security assessment reports have been compiled for ›› distribution disruptions all facilities to address security-related improvement ›› reputational and brand damage opportunities. ›› potential loss of market share. ›› Rationalisation of security service providers. ›› Exploring technological solutions for more effective security provision at a reduced cost. 3. Food safety Challenges with food safety and product quality ›› Revised good manufacturing practice (GMP) and product can have significant implications in terms of: standards and food safety system certification quality ›› loss of life standard (FSSC 22000) implemented across the ›› reputational and brand damage group, supported by standardised quality self- assessments for all our manufacturing sites, training loss of market share ›› of quality teams, and a robust supplier quality ›› disruptions to production management process. ›› expensive product recall ›› Manufacturing, group legal and regulatory ›› potential litigation. compliance functions collaborate to ensure products comply with regulatory standards and meet consumer preferences. ›› Entrenched partnership with Stellenbosch University to remain at the forefront of scientific trends; through the Centre for Food Safety. ›› Adoption of European Hygienic Engineering and Design Guidelines (EHEDG) in terms of manufacturing hygiene standards. 4. Occupational Occupational health and safety incidents can ›› Robust safety programme implemented across the health and result in: group, supported by self-audits, annual independent safety ›› loss of life of employees and service providers audits, and behavioural safety and awareness ›› reputational and brand damage initiatives, reinforced with disciplinary action. ›› regulatory non-compliance costs ›› Safety improvement targets signed off annually for each division and manufacturing site. ›› loss of market share. ›› Standardised occupational health and hygiene programme and fitness to work standards have been operationalised at all manufacturing sites. ›› An external support model is being evaluated to further strengthen compliance to occupational health and safety. 5. Cybercrime Increasing interconnectivity, globalisation and ›› Various external security specialist providers are and information “commercialisation” of cybercrime are driving utilised to ensure that we enhance our security security greater frequency and severity of cyber incidents, posture. including data breaches. ›› Penetration testing is part of the standard project ›› This can compromise the confidentiality, integrity lifecycle approach. and availability of information and technology ›› The new Cyber Security Bill has been drafted and is resources, leading to disclosure of commercially out for public comment. The conditions and impact sensitive information, intellectual property and/or of the Bill need to be assessed against our current disruption to operations. processes and controls. ›› In addition to non-compliance risks, the release ›› IT policies have been established to support the of any personal information also has negative group’s approach to managing information security. reputational and brand implications. ›› The cybersecurity landscape is monitored with a view to implementing the latest security practices and revising existing controls to safeguard the group against cybercrime and maintaining cyber resilience. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 25
MATERIAL RISKS IMPLICATIONS FOR VALUE MITIGATING ACTIONS
6. Business Disruption at our facilities – for example, following ›› Business continuity plans are in place for all continuity a significant technical breakdown, floods or fire, high-priority packaging and raw materials across vulnerabilities political or labour unrest, and/or interruption of the business; a formal management process for the IT services, energy or water supply – can lead to: group’s manufacturing facilities is in place. This ›› interruptions in production, resulting in lost sales, includes IT business continuity and annual technical and reduced market share and reputation testing of the IT disaster recovery environment. ›› damage to plant and equipment ›› A network upgrade project is currently under way ›› increased production costs. to implement secondary network links at all Tiger Brands sites. ›› Annual external risk, control and environmental audits inform improved business-continuity planning and disaster-recovery processes. ›› Appropriate insurance cover is reviewed annually, and disaster-recovery plans are in place. 7. Data and ›› Suboptimal information management could lead ›› A holistic data and information strategy is being information to inconsistent data quality, compromising developed in FY20 to manage this risk across the risk decisions and contributing to privacy/identity organisation. management and information security risks. ›› Advanced information capabilities are being ›› Increased regulation is placing additional demand explored in a prioritised manner in order to ensure on system capabilities and IT teams and presents that Tiger Brands is able to take advantage of the implications in terms of compliance and potential upcoming data science and engineering capabilities non-compliance costs. which will result in proactive decision-making, efficient operations and lead to competitive advantage. 8. Attract and ›› A loss of critical skills can negatively impact our Comprehensive people strategy is in place to attract, retain critical ability to deliver our strategy and maintain develop, reward and retain talent, with provision for: skills business viability and profitability. ›› performance management and incentive structures ›› An inability to ensure sufficient level of diversity in aligning performance to group objectives the executive team and across the employee base ›› proactive talent mapping and engagement plans also undermines our effectiveness and has by role and function to drive talent acquisition reputational implications. ›› skills development and leadership initiatives ›› robust induction and onboarding programme. 9. Fraud, theft, ›› Instances of fraud, theft, crime and corruption can ›› Internal controls are in place and are reviewed to crime and result in loss of life, financial loss, reduced profit guard against fraud and crime through employee corruption margin and negative impact on reputation. awareness, strict access control, and working with local police in investigating syndicated crime. ›› Each business completes quarterly self- assessments, independently assessed by internal audit. ›› Tiger Brands’ ethics line is available to employees, suppliers and customers to confidentially report unethical business practice; the ethics committee validates the close out of all ethics reports. 10. Ageing ›› Ageing plant and equipment has implications in ›› Replacement and maintenance capital expenditure infrastructure terms of increased maintenance costs, inefficient is implemented annually; this year R1,1 billion was operations and variable production quality, and disbursed in capital expenditure, with R1,5 billion cost of product recall and replacement. planned for FY20. ›› A total productive maintenance system is in place to maintain and improve the integrity of production systems; a maintenance management system is in place at all sites across the group to ensure proper and consistent application of maintenance planning and scheduling. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 26 Tiger Brands Limited Integrated annual report 2019 Our strategy
OUR STRATEGY
Tiger Brands is one of Africa’s largest, listed manufacturers of fast-moving consumer goods (FMCG). Our core business is manufacturing, marketing and distributing everyday branded food products to middle-income consumers. We also distribute leading brands in the Home, Personal Care and Baby sectors.
WE NOURISH AND NURTURE MORE LIVES EVERY DAY
DRIVE GROWTH BE EFFICIENT GREAT PEOPLE SUSTAINABLE FUTURE Winning category, Cost-conscious and an A winning mindset and Sustainable company, channel and customer integrated supply chain great place to work community and planet strategies
›› Optimising our ›› Unlocking costs ›› Building a diverse ›› Enabling consumers product portfolio and cash talent base to deliver to improve their health ›› Responding to the ›› Fuelling growth our growth strategy and well-being growth in private label through customer ›› Developing leadership ›› Improving the ›› Realising commercial service excellence capability to inspire livelihoods of opportunities in ›› Leveraging scale and winning performance thousands of people health and nutrition increasing ›› Creating a great place ›› Significantly reducing ›› Delivering growth responsiveness to be to work to energise a our environmental through our innovation ‘advantaged and consumer-obsessed footprint pipeline agile’ agile team ›› Winning at the point ›› Delivering digital of purchase optimisation ›› Driving growth in Africa ›› Realising opportunities for inorganic growth
OUR VALUES
We treat each We deliver with Safety and We embrace We act with integrity other with care passion and quality are non- diversity and and accountability and respect excellence negotiable for us inclusivity in all we do
WINNING BEHAVIOURS
CONSUMER OBSESSION TEAMWORK EMPOWERED ACCOUNTABILITY FOCUSED EXECUTION WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 27
DRIVE GROWTH
WINNING CATEGORY, CHANNEL AND CUSTOMER STRATEGIES
To deliver on our growth ambition through winning category, channel and customer strategies, we will be optimising our product portfolio, driving an innovation pipeline, realising commercial opportunities in health and nutrition, and winning at the point of purchase. This will be accompanied by our strategy to drive growth in Africa and to realise opportunities for mergers and acquisitions.
Performance summary 2019 >>Strong performance in Snacks and Treats, Beverages and HPCB >>Innovation launches, including: extending the variants in Purity pouches; Albany Best-of-Both Genius; Ace + Fibre; Tastic variants; new Oros flavours; and the introduction of 100% Durum pasta in Fattis & Monis – Bellisimo range >>Share gains in Sugar lines, Chocolate, Baby Nutrition, Flour, Maize, Beverages, Jam >>Portfolio optimisation progressed – Deli Foods, Oceana and VAMP
OPTIMISING OUR PRODUCT PORTFOLIO
Over the last three years, despite some top-line growth, we have seen margin contraction across many of our product lines. To deliver longer-term growth we have followed a structured approach to evaluate and optimise our product portfolio, identifying those categories with high attractiveness and competitive strength that should be protected, invested in and grown, and those to be evaluated further for possible exit through a carefully structured process. Informed by this assessment we see particular potential for further growth and profitability in Baby (Food and Wellbeing), Breakfast (Jungle and King Food), Snacks and Treats, Beverages and Home Care, Baked Goods, Rice, Pasta, Condiments and Spreads. These are areas in which we are investing in product and process innovation, driving further process efficiencies and/or expand production capacity. Similarly, firm decisions have been made in respect of VAMP and Deli Foods. Following a thorough evaluation of all alternatives, the board approved the cessation of operations at Deli Foods, which are expected to be concluded within the next few months. In terms of VAMP, following receipt of several indicative offers for the business, the board approved commencement of a formal due diligence process. Upon completion of this process, including the submission of binding offers by potential buyers, all disposal options will be further evaluated. Further updates will be given as key milestones are reached.
DELIVER GROWTH THROUGH OUR INNOVATION PIPELINE
Product and process innovation lies at the heart of our growth agenda. Robust innovations were launched in the second half of FY19. Successful examples of these product innovations include: Albany Best-of-Both Genius nutrient-enriched bread; extending Purity pouches variants, containing top-selling jar variants of Purity baby food; Purity instant cream of maize porridge in two flavour variants; our nutritionally enhanced maize meal (Ace + Fibre); new flavours in KOO beans in tomato sauce as well as a new range of KOO black beans and expanding our Oros range of flavours. Building on the early success of these offerings we have an exciting product pipeline across a range of categories, including in health and nutrition, on-the-go, and value. Many of the anticipated product launches will extend into new categories and consumer spaces as we look to accelerate our overall innovation rate across the business. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 28 Tiger Brands Limited Integrated annual report 2019 Our strategy
DRIVE GROWTH CONTINUED
REALISING THE COMMERCIAL OPPORTUNITIES IN HEALTH AND NUTRITION
Recent studies suggest that there is a sizeable commercial opportunity in the health and nutrition sector. Globally, health and nutrition packaged foods are growing faster than other packaged foods, and some estimates suggest that the sector is worth R65 billion in South Africa1. Our recently agreed health and nutrition strategy seeks to realise these significant commercial opportunities, and deliver on our core purpose of nourishing and nurturing more lives every day. We will renovate our existing product range to make more of our products compliant with our Eat Well Live Well standards, while striving towards global best practice. We will be driving innovation within our existing brands and categories to develop more nutritious, affordable food products, and we will be working in partnership with government, academia and NGOs, through Eat Well Live Well, to educate consumers in a manner that allows them to make better informed decisions about their well-being. We have already made progress in our product portfolio in line with this strategy. In addition to ensuring full compliance with government’s 2019 targets for sodium reduction:
Achieved a Compliance Achieved a Driven with our Eat Well Maintained micronutrient 37% Live Well nutritional strong sales in whole reduction in 1 505 ton enrichment across sugar reduction in profile criteria across grains, fibre rich sugar across our Bakeries and 30,7% grains and fruit and sugar sweetened 25,3% Milling of our net sales vegetables beverages of net sales
LEVERAGING THE STRENGTH OF OUR BRANDS
In the context of the challenging market conditions, we have seen material growth in sales of private label products in South Africa, including in some of our priority product categories. We have developed a strategic response to the competitive threat of private label that builds explicitly on the strength of our existing brands. From a brand equity perspective, Tiger Brands is the category leader in more than half of the categories we operate in. Recent studies show that historically strong brands consistently outperform other brands over time, and that after tough times they return to growth faster2. We will be reinforcing the strength of our existing brands through world-class marketing, leveraging technology to measure our marketing effectiveness, ensuring that we become closer to individual consumers by focusing on their specific individual interests, and that our brands are more clearly imbued with purpose. In addition, we will realise opportunities to stretch our brands within and across product categories, as well as implementing price-ladder opportunities within specific brands and categories. To consolidate our leadership position, we will be aggressively driving continuous improvement of existing products and processes, by fostering a culture of “value improvement projects” within R&D, and fast-tracking these projects for priority categories, with the aim of reducing wastage, driving down costs and optimising packaging. Given the very constrained consumer environment, we are developing and will provide products explicitly for value- seeking consumers, using a bottom-up target-costing methodology to value engineer low-cost products and capture market share in identified priority categories.
1 Euromonitor 2017. 2 https://brandz.com/admin/uploads/files/BZ_Global_2019_WPP.pdf. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 29
WINNING AT THE POINT OF PURCHASE
During the year we made some progress in driving growth at the point of purchase in a very tough operating environment. We reviewed our sales structure, improved our category focus and customer relationships and optimised pricing capabilities. We have also embedded jointly developed business plans with our key customers, developed various shopper propositions, and rolled out our commercial analytics tool (CAT) across our activities.
Despite these various initiatives, we have continued to face internal and external challenges associated with the increasing competitive intensity and growing bargaining power of retailers. To address these challenges, we will be looking to deliver growth in our existing and new channels by: strengthening our route-to-market and expanding the reach of our portfolio in the general trade; building an enhanced online presence and leveraging other non-traditional shopping destinations, as well as developing a consolidated and focused approach to customer promotions. These activities will be supported by a strong focus on driving efficiencies and ROI on promotional activity, while using Big Data to deepen our understanding of in-store behaviour and enhance our ability to realise opportunities at store level. Finally, we will be deepening the skills set and diversity of our sales force, building people capability and developing a programme specifically to attract, develop and retain women.
DRIVING GROWTH IN AFRICA
We intend to deliver substantial organic growth in our Africa business by driving category growth through targeted brand investments, developing superior routes to markets, and investing in key capabilities. Our Africa growth strategy is defined by a clear approach to market segmentation, and a structured approach to winning in trade in the identified key markets: >>In terms of market segmentation, in our existing established markets, we will leverage our existing presence and capability, and invest to reach full potential and grow market share. In those countries where we currently have multi-category presence, we will invest in people, brands and infrastructure to increase our ability to win and grow market share. In currently untested markets that present attractive in-country and category opportunities, we will validate the opportunity and our ability to win, and we will develop a business case indicating the best market-entry approach. >>In looking to win trade in the identified key markets, we will be prioritising product categories to drive volume growth, invest in focus brands and develop new products. We have engaged selected partners to ensure an optimised and effective route-to-market, underpinned by clear standards processes and measurements with each partner. We plan to optimise our value chains to drive competitive responsible sourcing, where relevant and we will be appointing targeted marketing resources in key countries, to ensure a tailored approach to local market conditions as needed.
REALISING OPPORTUNITIES FOR INORGANIC GROWTH
While our focus remains primarily on driving organic growth by driving the initiatives outlined above, we will also be exploring possible opportunities for mergers and acquisitions. These include opportunities that are core and/or near adjacencies to our current business, as well as opportunities that are aligned with our core activities in new markets where we do not currently have a local presence. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 30 Tiger Brands Limited Integrated annual report 2019 Our strategy
BE EFFICIENT
COST-CONSCIOUS AND AN INTEGRATED SUPPLY CHAIN
To expand and protect margins in the subdued market, we have specific commitments to unlock costs and cash, fuel growth through customer service excellence, and leverage our scale and responsiveness, underpinned by digital transformation.
Performance summary 2019 >>Centralised procurement hub delivering savings of R233 million >>Warehouse network consolidation on track >>Lowered logistics costs by 4% per ton on the FY17 base >>Improved forecast accuracy in key product categories >>Capex accelerated to R1,1 billion (2018: R720 million) >>Consumer complaints down 18% and marketplace incidents down 35%, with zero public recalls >>Manufacturing Excellence Customs and Practices (MECP) deployed across all manufacturing sites in South Africa
UNLOCKING COSTS AND CASH
We made some progress this year on our strategic ambitions and milestone targets to unlock costs and cash and deliver cost leadership and optimal working capital. By delivering efficiencies in packaging and ingredients, we secured procurement savings of R233 million. We delivered R193 million in manufacturing savings through plant and process improvements, as well as R15 million in logistics savings. Improvements in indirect spend resulted in savings of R53 million. We have agreed ambitious savings and efficiency targets for FY20, underpinned by a range of activities to deliver on these targets across our supply chain. We will continue optimising centralised procurement, realising manufacturing savings, optimising our inventories to reduce working capital, extending payment terms to worldclass benchmarks, and driving zero-based spend initiatives across the supply chain.
FUELLING GROWTH THROUGH CUSTOMER SERVICE EXCELLENCE
Progress was made this year in terms of customer service. We achieved on-shelf availability of 97% and progressed in embedding a common profit, sales and operations planning (PS&OP) process by improving capabilities and entrenching systems across the business. We have streamlined demand planning to a single planning process and introduced product management review processes. For the year ahead, we have prioritised various activities and milestone targets aimed at further optimising our processes, ensuring product on-shelf availability at all times, embedding a customer service mindset across the business, and meeting speed-to-market deadlines for innovation execution. We are investing in manufacturing sites and will be engaging with key customers to implement collaborative forecasting and joint business planning. We will further embed our planning processes with the aim of ensuring more accurate forecasting. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 31
LEVERAGING SCALE AND INCREASING RESPONSIVENESS TO BE ADVANTAGED AND AGILE
We have implemented various initiatives this year aimed at leveraging our scale and increasing our responsiveness. These include investments across the group’s portfolio with various projectsPRINT aimed AD - 200X313 at efficiency improvements and increasing capacity. For example, commissioning a new oat mill as part of Jungle’s capacity expansion and automation of Jolly Jus lines in Exports. For FY20, numerous capital expenditure projects have been approved to upgrade manufacturing facilities, expand production capacity, deliver enhanced efficiencies, and/or provide for product and process innovations, safety and sustainability to support brand growth. These include product and packaging innovation across the portfolio, a generator project to provide business continuity during load shedding, and various automation projects to increase efficiency and reduce costs.
DELIVERING DIGITAL OPTIMISATION
We are committed to delivering digital optimisation and providing integrated IT and information solutions to meet our growth ambitions and realise our vision of developing an integrated supply chain recognised as best in our industry. We are developing a digital roadmap that will harness artificial intelligence, real time data, IoT (Internet of Things) and big data analytics to boost productivity, deliver operational efficiencies, ensure compliance and enable more informed data-driven decisions. We have agreed a digital roadmap that will assist at delivering improvements in stock availability and inventory modelling, ensure better traceability across the supply chain, enhance forecast accuracy, and improve customer collaboration. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 32 Tiger Brands Limited Integrated annual report 2019 Our strategy
GREAT PEOPLE
A WINNING MINDSET AND GREAT PLACE TO WORK
To unleash the power of our people we are building a diverse talent base, developing leadership capability to inspire winning performance, and creating a great place to work, supported by our commitment to execution excellence.
Performance summary 2019 >>Implemented a standardised talent management framework >>Established a “One Tiger” onboarding framework >>Embedded talent reviews and accelerated talent mobility >>Developed an executive leadership succession plan >>Implemented a leadership capability assessment methodology >>Developed a long-term HR enabling technology and digitisation roadmap
BUILDING A DIVERSE TALENT BASE TO DELIVER OUR GROWTH STRATEGY
We undertook numerous initiatives this year to further strengthen our diverse talent base and develop our core capabilities to deliver on our growth strategy. We reviewed management structures to improve efficiency and effectiveness, and we developed and implemented a standardised talent management framework, supported by targeted talent strategies for core functions and growth categories. We reviewed our learning and development framework, established a long-term workforce plan, and developed an employer brand and employee value 10 543 proposition aimed at attracting and retaining talent. permanent To provide a compelling work environment that recognises employees and rewards talent, we have embedded action-based R127m talent reviews and accelerated talent mobility. Recognising investment in skills the critical importance of driving diversity across all development management levels, we have developed and approved GREAT PEOPLE a five-year employment equity plan, as well as a gender Employee diversity equity strategy. 93% black and To attract talent for our Africa operations, we have 30% developed a talent sourcing strategy that includes female partnerships with LinkedIn, in-country distributors and 40% tertiary institutions. We have developed a customised leadership Africa management trainee programme, and this year we appointments were sourced management trainees from Mozambique, Zambia internal and Nigeria. A priority talent focus area for the year ahead 214 is to continue to build commercial and supply chain culture dialogues capability. We will also continue to work on embedding across sites a fit-for-future organisational structure, drive digital learning, and execute clear career development and appropriate learning and skills development. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 33
DEVELOPING LEADERSHIP CAPABILITY TO INSPIRE WINNING PERFORMANCE
The current FMCG environment is experiencing a shift in leadership focus away from functional specialised teams, towards purpose-driven cross-functional teams that leverage the broader ecosystem. This shift has informed the work that we are doing to develop the right leadership capability to lead the company into the future. Guided by this understanding, we focused our leadership development efforts this year on developing a focused executive leadership succession plan, undertaking leadership capability assessments for key successors, and reviewing the leadership development framework. Informed by the benchmark assessment of our senior leadership team, we have prioritised various focus areas for leadership development in FY20, including driving winning business performance, and a culture of consumer obsession. To improve our talent pipeline and strengthen business performance, we continue to ramp up leadership development and rotation. We are embedding coaching and mentoring practices as part of the Tiger development approach, implementing a company-wide multi-rater tool to enable feedback on leadership behaviour, and we are embedding the outcomes of our women in leadership programme.
CREATING A GREAT PLACE TO WORK TO ENERGISE AN AGILE “ONE TIGER” TEAM
Providing a “great place to work” is critical both to attracting and retaining talent, and to ensuring that we have an agile culture that inspires innovation and drives winning performance. This year, we established a strong foundation to enable the “one Tiger” winning culture transformation journey. Key activities included embedding our refreshed values and winning behaviours, developing and commencing execution of a diversity and inclusion framework, an employee relations strategy, and an employee well-being strategy. Although progress has been made in making our reward strategy more competitive, we recognise the need to improve business performance to address the retention risk presented by the resulting state of the short- and long-term incentives for key talent. We will be further executing our reward mechanisms to ensure that we are able to attract and retain talent, and to appropriately recognise and reward winning performance. We will be undertaking a Tiger-wide employee engagement survey, executing an employer brand campaign, and further embedding the reward and recognition strategy as well as the well-being programme, “THRIVE”. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 34 Tiger Brands Limited Integrated annual report 2019 Our strategy
SUSTAINABLE FUTURE
SUSTAINABLE COMPANY, COMMUNITY AND PLANET
To optimise our societal-value proposition and enhance social and natural capital, we will deliver on our strategic commitments to: enable consumer health and nutrition; enhance livelihoods; and significantly reduce our environmental impact. These are underpinned by our strategic anchors relating to: robust food safety and food quality; occupational health, safety and security; ethical supply chain practices; and transparency, stakeholder responsiveness and partnerships.
Performance summary 2019 >>One employee fatality >>Lost-time injury frequency rate of 0,38 (2018: 0,27) >>R14,3 billion spend on BBBEE verified suppliers >>Strong enterprise and supplier development drive, sourcing wheat, maize, oats and beans from black farmers >>R27,4 million committed to socio-economic development, reaching around 100 000 beneficiaries >>78 million meals delivered, and 72 000 learners supported per day through the Tiger Brands Foundation >>6,5% reduction in GHG emissions intensity >>5,4% reduction in water intensity Additional detail on our sustainability strategy and performance is available in our sustainability report.
ENABLING CONSUMERS TO IMPROVE THEIR HEALTH AND NUTRITION
We will enable consumers to improve their health and well-being by providing affordable good nutrition. We are reviewing and updating our nutritional standards for our products to meet or exceed globally recognised guidelines, and we are developing more nutritious, affordable food products, including through the fortification of new and existing products. We are committed to leveraging our brand and marketing activities to promote Driven consumer nutrition and health awareness and to inspire positive micronutrient enrichment across behaviour change, and to playing a leadership role in modern food Eat Well labelling practices. Live Well nutritional 30,7% profile criteria across of our net sales 25,3% of net sales We have made some valuable progress on these commitments. Achieved a Achieved a As part of the Tiger Brands Foundation’s in-school breakfast programme, this year we donated five school kitchens in vulnerable 1 505 ton 37% communities, with three of these schools winning top honours at the sugar reduction in reduction in National School Nutrition Programme (NSNP) run by the Department Bakeries and sugar across our of Basic Education. During the year we sponsored three new schools Milling sugar sweetened on our in-school breakfast programme, bringing the total up to Beverages 101 schools on the programme across all provinces. Since its launch, we have served more than 78 million breakfasts to the country’s most vulnerable learners, and creating over 390 jobs as food handlers, monitors and regional coordinators. Independent studies undertaken to assess the social return on investment (SROI) of the in-school breakfast programme in Limpopo and the Northern Cape have shown significant positive benefits.9
9 These studies are available at www.thetigerbrandsfoundation.com WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 35
IMPROVING THE LIVELIHOODS OF THOUSANDS OF PEOPLE
We are committed to improving the livelihoods of thousands of people by providing opportunities across our value chain for inclusive economic participation. We will continue to create sustainable livelihood opportunities by providing financial and non-financial support to black-owned and black women-owned enterprises and smallholder farmers, through our supplier and farmer development programmes, and our preferential procurement policies. In addition, we will continue on an annual basis to contribute at least 1,5% of net profit after tax towards socio-economic development activities that promote sustainable thriving communities.
This year, we set up a “market access accelerator” to support those black-owned enterprises that need intensive business development assistance by providing support to enable them to access Tiger Brands’ supply chain opportunities, build their products or services offerings, and assist in ensuring compliance. The accelerator has already successfully supported seven black-owned enterprises to secure logistics opportunities and trained more than 50 aspiring black entrepreneurs. We also provided 58 black smallholder farmers with both financial and non-financial support, including agronomics and agrarian advice, business mentorship and interest-free loans, helping them to participate within our procurement chain. In addition, we spent R14,3 billion with BBBEE-verified suppliers, including R3,5 billion with black-owned enterprises, of which R1,9 billion spent with black women-owned businesses. In line with our recently revised socio-economic development strategy, we invested R28,5 million on community development, achieving several milestones including: distributing over 89 000 high-quality, nutrient dense and fortified food packages; reaching 30 000 direct and indirect beneficiaries each month through the Tiger Brands food and nutrition support programme; training 396 community members in food gardening and community skills development.
SIGNIFICANTLY REDUCING OUR ENVIRONMENTAL IMPACT
We will significantly reduce our environmental impact by implementing innovative solutions that optimise energy and water consumption in our operations, reduce the negative impacts of packaging, and minimise waste, effluent and emissions. We are exploring opportunities to develop innovative product offerings that are “good for you” and “kind to the environment”, implementing circular economy initiatives that stimulate sustainable economic opportunities, and leveraging our brand and marketing activities to inspire positive behaviour change in consumers.
This year we made valuable progress in reducing the environmental impact of our operations, focusing on the most material issues: improving energy and water efficiency, reducing greenhouse gas emissions, and striving for zero waste to landfill operations. As a result of various energy efficiency measures, we achieved a 6,5% reduction in total carbon emissions year-on-year, with emissions intensity down from 0,23 ton in FY18 to 0,21 ton CO2-equivalent per ton of product this year. We undertook baseline work on energy management, and next year we will be working on defining the ISO 50001 implementation and certification roadmap for our 10 most energy-intensive facilities. All of our coal fired boilers above 10MW were upgraded and grit arrestors installed to reduce particulate emissions below the legislated requirements. We conducted water efficiency assessments in multiple operations, contributing to a 7,2% reduction in total water use, and a slight improvement in water intensity. We completed a mapping of our waste streams across the business units, and we have engaged with the National Cleaner Production Centre to support our circular economy activities and identify opportunities for industrial symbiosis. All our manufacturing operations that went through their surveillance and recertification audits for ISO 14001 have successfully retained their certification. (Further details are in our online sustainability report.) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 36 Tiger Brands Limited Integrated annual report 2019 Our strategy
SUSTAINABLE FUTURE CONTINUED
ROBUST FOOD SAFETY AND FOOD QUALITY SYSTEMS
We are committed to energising the quality agenda, raising the bar and offering superior products. We are determined to develop a quality capability that differentiates Tiger Brands from our competitors, supported by trained and talented people integrated across functions, a robust and integrated set of processes and tools, and a culture and passion for quality that permeates across the organisation. This year, we invested in driving the quality agenda across the company. Quarterly self-assessments and gap closeouts were completed across our operations, and we achieved external certification (FSSC 22000/HACCP) for all our manufacturing sites. Supplier quality assurance processes are now in place for all new raw material and packaging suppliers, and we successfully delivered an online self-assessment module and incident management tool against the Global Food Safety Initiative (GFSI) for reporting and managing quality data. We completed HACCP training for all high-risk sites, provided basic microbiology and sampling training for relevant factory teams, and made progress with quality onboarding and awareness training across our operations. Through our various quality initiatives, this year we have seen a 18% reduction in consumer complaints, a 35% reduction in marketplace incidents, and zero public recalls. During 2020, we will build on this renewed focus on quality, defining and implementing a centralised hygiene and quality verification schedule for manufacturing units, and we will continue to drive self- assessments to deliver a step-change improvement in performance. We will deploy European Hygienic Engineering and Design guidelines as a manufacturing hygiene standard, deploy testing protocols at our operations, and develop and implement metrics and processes for supplier performance measurement.
OCCUPATIONAL HEALTH, SAFETY AND SECURITY
Ensuring zero injuries and delivering strong behavioural safety, health and security performance through visible, felt leadership is a top priority. We have a holistic health and safety programme with clear roadmaps and deliverables, supported by a behavioural safety programme that drives leadership accountability and responsibility, as well as by effective auditing to ensure that process safety management is implemented properly. A brief performance review is provided below. Safety performance This year, tragically, one employee was killed in a work-related incident. In April 2019, Mr Aubrey Tornado Skosana, a driver at Albany Pretoria, died following a multi-collision vehicle accident while on a delivery. The Albany drivers have all subsequently been provided with additional training on defensive driving, with an online training programme delivered to all Bakery drivers and van assistants on route-to-market alertness. The family has been given support and counselling. Regrettably, there was an increase in the group’s lost-time injury frequency rate (LTIFR) to 0,38. For all reported incidents, we undertake a thorough root cause analysis. The findings inform the implementation of appropriate preventative measures, and are used to improve the operational safety culture. Disciplinary action is metered where appropriate. We are in the process of rolling out behaviour-based safety to all our manufacturing facilities and ensuring safety visual management standardisation in all operations. Occupational health (OH) This year we focused on driving the implementation of a revised OH strategy and improving the reporting of OH KPIs and incapacity cases. We have run ongoing operational OH awareness campaigns and interventions with the support of external OH service providers, developed and standardised our occupational hygiene surveys, and conducted health risk assessments. We have commenced a process of rationalising the health service providers across the group to deliver a consistent, cost-effective and standardised approach, and ensure that mobile healthcare service providers are available at relevant sites. Where necessary, we have contracted occupational health nurses, and are upgrading medical clinics’ infrastructure and equipment. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 37
OCCUPATIONAL HEALTH, SAFETY AND SECURITY continued
Security management We have maintained a major focus on managing the concerning number of violent route-to-market incidents. All delivery routes are risk assessed, and tailored response measures developed. We have also improved security at our facilities, informed by site security risk assessments using a methodical security management system to review and ensure the availability of appropriate physical security measures and access controls. Training awareness is provided, and appropriate incident management, reporting and investigations undertaken. This year, we enhanced security personnel and controls at Bakeries and site security, revised the firearms policy and cash management guidelines, and commenced the process of rationalising security service providers across the group.
TRANSPARENCY, STAKEHOLDER RESPONSIVENESS AND PARTNERSHIPS
Recognising the importance of transparency and partnerships we are committed to playing an active role in industry forums to help shape sustainable consumption standards, tools and best practices. We are a member of industry bodies such as the National Business Initiative (NBI), Manufacturing Circle, Business Leadership South Africa, Consumer Goods Council of South Africa (CGSA), South African Agricultural Processors Association (SAAPA), South African Fruit and Vegetable Export Council (SAFVEC) and the South African Fruit Juice Association (SAFJA). We play an active role on various sustainability initiatives with these organisations, including for example on the UN SDGs, responsible labelling and marketing, and plastics packaging. We are working with South Africa’s Council for Scientific and Industrial Research (CSIR) on assessments to enhance manufacturing industry competitiveness through resource efficiency and cleaner production, and we partner with various academic bodies and NGOs. Each year, we voluntarily disclose our performance on carbon emissions and water management as part of the global CDP initiative. We are also signatories to the “We Mean Business” initiative, through which we have committed to adopting a science-based emissions reduction target, promoting responsible corporate engagement on climate policy, and reporting climate change information in mainstream reports as a fiduciary duty. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 38 Tiger Brands Limited Integrated annual report 2019 Our performance
CHIEF FINANCIAL OFFICER’S REVIEW
“Tiger Brands’ full year results have been impacted by the unbundling of the company’s interest in Oceana, the challenging operating environment, and a slower than anticipated recovery in the Value Added Meat Products (VAMP) business.” Noel Doyle Chief financial officer
SALIENT FEATURES*
Revenue Operating income** Group operating margin** R29,2bn 3% R2,6bn 20% 9,0% 260 bps
† < † (excluding VAMP , R28,6 bn 5%) (excluding VAMP , < 11% R3,2 billion) (2018: 11,6%)
HEPS EPS 1 349 cps 17% 2 364 cps 55% (2018: 1 633 cps) (2018: 1 530 cps)
Total dividend*** Unbundling of Deli Foods 1 061 cps 2% investment in discontinued (2018: 1 080 cps) Oceana concluded
* From continuing operations. ** Before impairments and abnormal items. *** Includes special dividend of 306 cents per share declared on 22 May 2019. † Refer to Annexure A of the audited group results and dividend declaration for the year ended 30 September 2019 available on the company’s website. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 39
OVERVIEW Income from associates decreased by 49% to R371 million Tiger Brands’ results for the year ended 30 September 2019 (2018: R731 million). As previously reported, the company reflect the difficult trading conditions, characterised by an ceased to equity account the earnings of Oceana with effect increasingly challenging consumer environment and input from 1 December 2018, following the decision in November costs rising ahead of price inflation. The overall result was 2018 to unbundle the company’s investment in Oceana. The significantly impacted by ongoing margin compression total income from associates is therefore not comparable across the Grains portfolio, tough trading conditions in with that of the prior year. All associates, including National the group’s primary export markets and the slower than Foods Zimbabwe (which has been accounted for in line with anticipated recovery of the VAMP business. The unbundling IAS 29 Financial Reporting in Hyperinflationary Economies), of the company’s investment in Oceana also had a reported an increase in earnings. significant impact on year-on-year comparisons. Details of Net financing costs of R11 million (2018: R42 million) the impact of VAMP and the unbundling of Oceana on key benefited from lower average debt levels over the past year. financial metrics are detailed below and overleaf. In addition, a net foreign exchange gain of R10 million was Shareholders are referred to the SENS announcement realised compared to a gain of R21 million in the prior year. issued by the company on 8 November 2019 regarding The effective tax rate before abnormal items, impairments the cessation of operations at Deli Foods in Nigeria. The and income from associates has increased marginally in business has been treated as a discontinued operation comparison with the prior year. The prior year’s effective tax in these results, with the comparative information restated rate has been restated to account for the discontinuation of accordingly. Deli Foods in the current year. Despite the challenging backdrop, total revenue from Headline earnings per share (HEPS) from continuing operations continuing operations increased by 3%, driven by price declined by 17% to 1 349 cents (2018: 1 633 cents). Earnings inflation of 5% and partially offset by an overall volume per share (EPS) from continuing operations, on the other hand, decline of 2%. Lower volumes, coupled with the inability increased by 55% to 2 364 cents (2018: 1 530 cents) principally to fully recover input costs, placed gross margins under due to a capital surplus amounting to R2 billion, arising from pressure, resulting in group operating income before capital profits realised and a fair value gain relating to the impairments and abnormal items (operating income) unbundling of the company’s interest in Oceana. This capital declining by 20% to R2,6 billion (2018: R3,3 billion). surplus had no impact on headline earnings per share as it is Excluding VAMP*, operating income before impairments excluded for headline earnings purposes. and abnormal items decreased by 11% to R3,2 billion After adjusting for the impact of VAMP*, the unbundling of compared to the reported decline of 20% to R2,6 billion. Tiger Brands’ investment in Oceana, as well as the capital The impairment charge was driven by a R96 million profit arising from the sale of Oceana shares, attributable write-down in respect of VAMP’s property, plant and earnings per share from continuing operations declined equipment and a R212 million goodwill impairment related by 11% compared to the reported increase of 55%. to Davita, reflecting the challenging outlook in export At a headline earnings level, after adjusting for VAMP and markets. Abnormal income of R2,0 billion reported in the Oceana, headline earnings per share from continuing current period (2018: R422 million loss) largely comprises operations reflect a decline of 8% compared to the reported gains linked to the unbundling of Tiger Brands’ stake in decline of 17%. Oceana and related share disposals. * Refer to Annexure A of the audited group results and dividend declaration for the year ended 30 September 2019 available on the company’s website. The reconciling items between reported items and adjusted items are set out in the table below and overleaf. Table 1: Adjusted headline earnings from continuing operations 2019 2018 HEPS HEPS % change R’million (cents) R’million (cents) cps Headline earnings as reported (continuing operations)1 2 234 1 349 2 689 1 633 (17%) Oceana equity-accounted earnings1 (31) (18) (416) (252) Adjusted headline earnings – excluding Oceana2 2 203 1 331 2 273 1 381 (4%) VAMP – after-tax trading loss1 394 238 181 110 VAMP – abnormal items after tax3 (54) (33) 303 184 Adjusted headline earnings (excluding VAMP and Oceana)4 2 543 1 536 2 757 1 675 (8%) 1 This has been extracted from Tiger Brands’ audited financial statements for the years ended 30 September 2019 and 30 September 2018. 2 Adjusted headline earnings after adjusting for all Oceana-related transactions for the year. 3 The effects of the VAMP losses have been removed as this had a significant year-on-year impact on normal operations. This has been extracted from note 3 – Impairments and note 4 – Abnormal items in the audited group results and dividend declaration for the year ended 30 September 2019 available on the company’s website. 4 Adjusted headline earnings after adjusting for all Oceana and VAMP-related transactions for the year. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 40 Tiger Brands Limited Integrated annual report 2019 Our performance
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
HEPS from total operations decreased by 17% to 1 322 cents The pro forma financial information is presented in (2018: 1 589 cents), while EPS from total operations accordance with the JSE Listings Requirements. The JSE increased by 60% to 2 333 cents (2018: 1 458 cents). Listings Requirements require that pro forma financial information be compiled in terms of the JSE Listings BASIS OF PREPARATION Requirements, the SAICA Guide on Pro forma Financial Non-IFRS measures, such as adjusted revenue from Information and any relevant guidance issued by the IRBA. continuing operations, and adjusted operating income from continuing operations before impairments and abnormal Ernst & Young Inc.’s independent reporting accountants’ items as well as adjusted earnings from continuing assurance report on the pro forma financial information operations, are considered to be pro forma financial for the year ended 30 September 2019 as presented in information as per the JSE Listings Requirements. The pro Annexure A of the audited group results and dividend forma financial information is the responsibility of the group’s declaration for 2019, is available for inspection at the board of directors and is presented for illustrative purposes company’s registered office. The independent reporting only. Due to its nature the pro forma financial information accountants’ assurance report on the pro forma financial may not fairly present the company’s results of operations. information for the year ended 30 September 2019 does not necessarily report on all the information contained in The pro forma financial information is based on the Annexure A of the audited group results and dividend condensed consolidated income statement for the year declaration for 2019. Shareholders are therefore advised that ended 30 September 2019. The pro forma financial in order to obtain a full understanding of the nature of the information has been prepared to illustrate the impact of independent reporting accountants’ engagement, they the company’s unbundling of Oceana as well as VAMP’s should obtain a copy of the independent reporting performance on the condensed consolidated income accountants’ assurance report together with the statement for the year ended 30 September 2019. accompanying pro forma financial information for the year ended 30 September 2019 from the issuer’s registered office. Table 2: Adjusted revenue from continuing operations 2019 2018 R’million R’million % change Revenue1 29 233 28 365 3% VAMP revenue for the period1 (654) (1 066) Revenue excluding VAMP2 28 579 27 299 5%
1 This has been extracted from Tiger Brands’ audited financial statements for the years ended 30 September 2019 and 30 September 2018. 2 Revenue from continuing operations excluding VAMP, the performance of which distorts the group’s performance as this had a significant year-on-year impact on normal operations. Table 3: Adjusted operating income from continuing operations before impairments and abnormal items
2019 2018 R’million R’million % change Operating income before impairments and abnormal items1 2 623 3 289 (20%) VAMP losses1 547 252 Adjusted operating income before impairments and abnormal items2 3 170 3 541 (11%)
1 This has been extracted from Tiger Brands’ audited financial statements for the years ended 30 September 2019 and 30 September 2018. 2 Total adjusted operating income after adjusting for the VAMP operating losses which had a significant year-on-year impact on normal operations. Table 4: Adjusted earnings from continuing operations 2019 2018 EPS EPS % change R’million (cents) R’million (cents) cps Earnings as reported (continuing operations)1 3 916 2 364 2 519 1 530 55% Oceana equity-accounted earnings1 (31) (18) (420) (255) Oceana – profit on sale of associate investment2 (340) (205) – – Oceana – realised fair value gain on unbundling2 (1 630) (984) – – Adjusted earnings – excluding Oceana3 1 915 1 157 2 099 1 275 (9%) VAMP – after-tax trading loss1 394 238 181 110 VAMP – impairments and abnormal items after tax2 21 13 328 199 Adjusted earnings (excluding VAMP and Oceana)4 2 330 1 408 2 608 1 584 (11%)
1 This has been extracted from Tiger Brands’ audited financial statements for the years ended 30 September 2019 and 30 September 2018. 2 The effects of the Oceana unbundling as well as the VAMP losses have been removed as these had a significant year-on-year impact on normal operations. Items have been extracted from note 3 – Impairments and note 4 – Abnormal Items in the audited group results and dividend declaration for the year ended 30 September 2019 available on the company’s website. 3 Adjusted earnings after adjusting for transactions related to the unbundling of the company’s interest in Oceana for the year. 4
Adjusted earnings after adjusting for transactions related to the unbundling of the company’s interest in Oceana and VAMP-related transactions for the year. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 41
SEGMENTAL OPERATING PERFORMANCE OUTLOOK Domestic revenue increased by 5% to R26 billion in line with Significant progress has been made in terms of optimising price inflation of 5%, with overall volume growth unchanged. the portfolio, with firm decisions having been made in Particularly strong performances were delivered by Snacks respect of VAMP and Deli Foods. With respect to the and Treats, Beverages, Home, Personal Care and Baby, potential disposal of VAMP, the formal due diligence process offset by disappointing results in Grains and VAMP. is under way and further updates will be given as key Industrial action affecting Groceries in the first half and milestones are reached. The ongoing work to optimise Tiger Bakeries in the second half, as well as load shedding during Brands’ portfolio will ensure that the group is appropriately the year, had an adverse impact on both revenue and costs. positioned for growth. These contributed to operating income from domestic It is expected that the significant macro-economic operations decreasing by 19% to R2,5 billion (2018: challenges facing the country are likely to persist for R3,1 billion). Excluding VAMP, operating income from the foreseeable future. In the context of structural domestic operations, decreased by 9% to R3,0 billion unemployment, ongoing challenges relating to state-owned (2018: R3,3 billion). enterprises and increased competitive pressure, the Total revenue for the Exports and International businesses operating environment is likely to remain subdued. To this declined by 11% to R3,2 billion, while operating income end, we will prioritise investment in the group’s key brands reduced by 34% to R212 million. A poor operating while delivering product innovations to meet changing performance from Exports was partially offset by a consumer needs. In addition, Tiger Brands will leverage the significant recovery in the Deciduous Fruit business. strength of its brands by evaluating opportunities to stretch its brands within and across existing and new product Further details of the performance of our operations are categories. provided on pages 42 to 49. In terms of Tiger Brands’ Africa growth strategy, the CASH FLOW AND CAPITAL EXPENDITURE company is looking to deliver organic growth by driving Cash generated from operations increased by 6% to category growth through targeted brand investments, R3,5 billion. This improvement was largely the result of a developing superior routes to market and investing in reduction in working capital requirements of R91 million enabling capabilities. compared to an increased investment in working capital of R573 million in the prior year. The level of capital To protect margins in a constrained consumer environment, expenditure for the year accelerated to R1,1 billion the company has placed heightened focus on driving (2018: R720 million) with investments across the group’s productivity and securing cost efficiencies across the portfolio including various projects to deliver efficiency value chain. improvements and increase capacity. The group ended APPRECIATION the year in a net cash position of R1,2 billion compared with Thank you to our local and international shareholders for a net cash position of R669 million in the previous year. your continued investment in the company and to the FINAL DIVIDEND broader investment community for their interest and A gross final cash dividend of 434 cents per share has been engagement. I also thank my colleagues in the finance declared for the year ended 30 September 2019. This, department who constantly strive towards best practice together with the interim ordinary dividend of 321 cents standards and disclosure and extend my gratitude to the per share, brings the total ordinary dividend for the year to audit committee for their guidance throughout the year. 755 cents, in line with Tiger Brands’ dividend policy of 1,75x cover based on headline earnings per share. In addition, a special dividend of 306 cents per share was declared for the six months to 31 March 2019 as a result of the once-off proceeds received from the disposal of Oceana shares to Brimstone. Noel Doyle The special dividend, together with the total ordinary Chief financial officer dividend for the year, brings the total distribution for the year to 1 061 cents per share (2018: 1 080 cents). 21 November 2019 Shareholders are referred to the dividend announcement on page 87 for further details. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 42 Tiger Brands Limited Integrated annual report 2019 Our performance
OPERATIONAL REVIEW Grains
COPY TO BE SUPPLIED
Revenue Operating income Operating margin R13,2bn 4% R1,4bn 24% 10,9% (2018: R12,8 billion) (2018: R1,9 billion) (2018: 14,8%)
SALIENT FEATURES
✓ Jungle increases operating profit ✗ Baking results negatively impacted by adverse pricing dynamics and small volume losses ✗ Increasing costs and competition, as well as subdued consumer behaviour, place ✗ Pasta impacted by aggressively priced imports pressure on margins
Revenue in the Grains division increased by 4% to R13,2 billion, while operating income decreased by 24% to R1,4 billion. Price inflation was insufficient to offset the impact of higher input costs. Overall operating margins consequently reduced to 10,9%. Milling and Baking’s revenue increased by 6%, with selling prices up 7% across the segment, slightly offset by a 1% decline in volumes. Operating income was down 20% to R1,2 billion. Within Maize, despite good volume growth, operating profit declined significantly as pricing pressures intensified. Bakeries experienced small volume losses, which were compounded by margin compression as the competitive environment did not allow for the full recovery of cost increases. In Other Grains, revenue declined by 2% to R3,8 billion, driven by 3% price inflation but offset by volume declines of 5%. Volume declines were driven predominantly by lower ■ ■ ■ ■ volumes in Pasta as the category continues to be adversely impacted by low-price ■ ■ imports. Rice also had a disappointing year, being unable to recover cost push due to increased promotional activity in the category. Jungle benefited from price inflation, despite increased competition from private label in the core oats and ready-to-eat segments of the Breakfast category, achieving a marginal increase in operating income for the year. The lower volumes in Pasta and Rice had an adverse impact on factory efficiencies, with the overall operating income declining by 41% to R202 million. We have continued to target cost savings across the value chain, including by identifying new procurement opportunities, and are looking to drive margin improvement by optimising the product mix, driving innovation in response to consumer insights, and delivering further efficiencies across the cost base.
■ ■ ■ ■ ■ ■ WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 43
COPY TO BE SUPPLIED
OPERATING FACILITIES
Mpumalanga Milling and baking (Bakeries)
Gauteng Milling and baking
North West Sorghum-based breakfast and beverages (Potchefstroom)
Free State Milling and baking
KwaZulu-Natal Milling and baking (Bakeries and milling) Other grains (Rice)
Western Cape Milling and baking Other grains (Jungle)
Perfect. Every time. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 44 Tiger Brands Limited Integrated annual report 2019 Our performance
OPERATIONAL REVIEW CONTINUED Consumer Brands – food
COPY TO BE SUPPLIED
Revenue Operating income Operating margin R10,1bn 4% R494m 40% 4,9% (2018: R9,7 billion) (2018: R828 million) (2018: 8,5%) R9,4 billion (excluding VAMP) 9% R1,0 billion (excluding VAMP) 4% 11,0% (excluding VAMP) (2018: R8,7 billion) (2018: R1,1 billion) (2018: R12,5%)
SALIENT FEATURES
✓ Groceries’ sales ahead of market with revenue ✗ Absolute revenue and operational efficiencies up 7% negatively impacted by strike action early in the year ✓ Gains in market share across all segments within Beverages ✗ Challenges in reopening VAMP, with launch logistics adversely impacting service levels ✓ Strong performance from Oros and Energade contributes to double-digit volume growth in = Revenue growth and share gains in Snacks and Beverages Treats, diluted by higher conversion costs
Consumer Brands – Food has continued to feel the impact of the Valued Added Meat Products (VAMP) operation. Excluding VAMP, the division delivered solid growth across the businesses, with Beverages enjoying a particularly strong performance. Total revenue increased 9% to R9,4 billion, underpinned by 3% price inflation and 6% volume growth, while operating income fell by 4% to R1,0 billion (excluding VAMP). At Groceries, revenue was up 7% to R5,1 billion, underpinned by volume growth of 4% and price inflation of 3%. Despite this higher top-line growth, operating income was down 25% to R325 million, reflecting the impact of the three-week strike at the start of the financial year as well as supply challenges.
Revenue at Snacks and Treats increased 9% to R2,3 billion, off the back of 5% volume growth and average price increases of 4%. Growth was recorded across the portfolio, with ■ ■ ■ the relaunch of Beacon and Maynards supported by focused marketing investment and ■ ■ successful in-store activations. Operating income was up 3% to R313 million.
The Beverages business delivered another year of strong revenue growth with revenue up 19% to R1,5 billion, fuelled by a pleasing 14% volume growth, ahead of category growth.
Market share gains were achieved as a result of effective in-store activations, strong marketing campaigns throughout the year and new launches performing ahead of expectations. Operating income rose 39% to R296 million, benefiting from recent investments in the plant. In addition, we gained market share across all segments in beverages with the exception of ready-to-drink. Revenue at VAMP was down 39% to R654 million, impacted by challenges in managing the factory’s reopening and product launch logistics. Despite excellent brand equity, revenue was impacted by distribution gaps and tactical pricing strategies. The lower factory throughput and delayed reopening, together with higher raw material costs, led to an ■ ■ operating loss of R547 million (2018: R252 million). ■ ■ ■ WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 45
COPY TO BE SUPPLIED
OPERATING FACILITIES
Limpopo Groceries (Musina, Polokwane) VAMP
Gauteng Groceries (spreads, condiments and ingredients) Beverages (Roodekop) VAMP (Germiston)
KwaZulu-Natal Snacks and Treats
Western Cape Groceries (Paarl) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 46 Tiger Brands Limited Integrated annual report 2019 Our performance
OPERATIONAL REVIEW CONTINUED Home, Personal Care and Baby (HPCB)
COPY TO BE SUPPLIED
Revenue Operating income Operating margin R2,7bn 20% R546m 60% 20,4% (2018: R2,2 billion) (2018: R341 million) (2018: 15,3%)
SALIENT FEATURES
✓ Home Care recovered well from last year’s poor ✓ Strong in-store execution and flavour pest season, with operating income up 60% innovations drive growth in baby food pouches ahead of market ✓ Personal Care benefits from continuous improvement initiatives
HPCB’s overall revenue increased 20% to R2,7 billion, with operating income up 60% to R546 million. The Home Care category (including stationery) recovered strongly from last year’s disappointing performance, with revenue growth up 29% to R1,1 billion. Operating income increasing strongly by 112% to R306 million as result of sustained demand in the pest category, improved product mix and lower factory costs. The higher production volumes had a positive effect on factory recoveries. This year we had a better pest season and the stock position was normalised.
In the Personal Care category, revenue was up 4% to R639 million, aided by inflation ■ ■ of 5%, partly offset by volume declines of 1%. Operating income increased by 37% to ■ R89 million, supported by continuous improvement programmes in the factory as well as reduced promotional spend. Baby Care grew revenue by 23% to R981 million, with the infant nutrition segment performing particularly well off the strength of the Purity brand. The pleasing 24% volume growth was driven by effective in-store execution, optimal pricing and improved distribution, particularly in pouches, resulting in market share gains across the nutrition portfolio. The benefit of improved volumes was partially offset by higher conversion costs, resulting in an increase in operating income of 14% to R151 million. Given increasing competitive pressure, we have retained a strong focus on innovation to underpin margin growth.
■ ■ ■ WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 47
COPY TO BE SUPPLIED
OPERATING FACILITIES
Gauteng HPCB (Isando)
Western Cape Baby WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 48 Tiger Brands Limited Integrated annual report 2019 Our performance
OPERATIONAL REVIEW CONTINUED Exports and International
COPY TO BE SUPPLIED
Revenue Operating income Operating margin R3,2bn 11% R212m 34% 6,5% (2018: R3,7 billion) (2018: R320 million) (2018: 8,8%)
SALIENT FEATURES
✗ Challenging market conditions in Mozambique, Zimbabwe and Nigeria impacted performance
✓ Improved offtake agreement in Deciduous Fruit Cameroon Chococam ✓ Efficiencies realised through consolidation of facilities Gauteng Powdered soft drinks (Jolly Jus) and Benny seasoning ✓ Profitability in Chococam off the back of sound for export markets cost management and favourable product mix Western Cape Deciduous Fruit (LAF)
Total revenue for the Exports and International businesses declined by 11% to R3,2 billion, reflecting the challenging trading conditions particularly in Mozambique, as well as foreign currency shortages in Zimbabwe. The adverse performance of Exports was partially offset, however, by a significant recovery in the Deciduous Fruit business.
Revenue in Deciduous Fruit declined by 2% due to lower volumes as the drought in the prior year impacted opening stocks as well as the postponement of certain export shipments into the first quarter of FY20. The business recorded a significantly reduced operating loss of R8 million (2018: R128 million loss) due to favourable foreign exchange positions, as well as the benefits of operational restructuring implemented ■ at the beginning of the year. ■ ■ In line with the guidance provided earlier in the year, the Exports business was adversely impacted by operational issues in Mozambique, while exports to Zimbabwe were affected by ongoing macro-economic challenges resulting in foreign exchange shortages. Trading in Nigeria was affected by the transition to a new distributor in the first half of the year. Revenue declined by 18% to R1,5 billion, while operating income fell by 84% to R48 million. In a difficult trading environment, Cameroon-based Chococam recorded a 3% revenue decline in local currency terms, as tactical pricing was implemented to sustain volumes. Revenue in rand terms increased by 3% to R906 million. Operating income was up 8% in rand terms to R172 million (2% in local currency), supported by ■ favourable product mix and tight cost management. ■ ■ WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 49
Associates
COPY TO BE SUPPLIED
on ib ion o ssoci inco Earnings Contribution to headline earnings
R371m 49% ■ ■ ■ ■ (2018: R731 million) to 17% (2018: 28%)
As previously reported, the company ceased to equity account the earnings of Oceana with effect from 1 December 2018, following the decision in November 2018 to unbundle the company’s investment in Oceana. The total income from associates is therefore not comparable with that of the prior year. Excluding Oceana, all other associates reported an increase in earnings.
Chile: Empresas Carozzí (24,4% held) This improvement was despite operating in a highly Empresas Carozzí S.A., a Chilean company competitive market that is yet to recover fully from a headquartered in Santiago, is one of the largest and most recession that has greatly curtailed consumers’ purchasing respected South American food producers that has power. Production capacity constraints impacted volumes manufacturing operations in Chile, Peru and Argentina. in the water category. Carozzí has two main business areas: fast-moving Zimbabwe: National Food Holdings Limited consumer goods and agro-industrial (business-to- (37,4% held) business) products. Its main customer markets are National Foods is a leading branded food manufacturer Chile and Peru. in Zimbabwe. In addition to maize and flour milling, the Chilean economic growth slowed amid the trade company produces a range of food products, including negotiations between the world’s biggest economies that stockfeed, snacks and treats, rice, peanut butter and oil. adversely impacted the copper price and other Chilean This has been another tough year for the company, as exports. The Peruvian economy has also seen negative a result of the country’s significant macro-economic effects while the impact of the recession in Argentina challenges. Foreign currency shortages worsened in the on the year under review was not material. Despite the past year and continue to create challenges for importers challenging environment, the company’s consolidated in settling foreign creditors. net revenues increased 4,1%, and earnings before taxes The financial year saw the newly elected Zimbabwean increased 1,1% (in local currency). The growth in FY19 government introduce reforms aimed at stabilising the was driven primarily by the fast-moving consumer goods economy. A local currency was reintroduced in February segment. 2019. The reforms precipitated significant market Nigeria: UAC Foods (49,0% held) corrections resulting in a decline in the value of the local UAC Foods is a leading manufacturer and marketer of currency and consequently significant inflation. The country convenience foods in Nigeria, with respected brands in also experienced a crippling drought and a devastating snacks, dairy products and beverages. The snacks cyclone. category comprises Gala sausage roll, Funtime cupcakes, The group reported a profit growth supported by volume Funtime coconut chips and the new Gala Chinchin growth and improved margins. Performance was driven (a popular regional fried snack). The dairy category includes by the Maize and Stockfeeds divisions, partially offset by the Supreme range of ice-cream and yoghurt products, the Flour division. while the beverage category includes Swan Natural Spring Water. UAC Foods Limited’s marginally improved performance this year is due to increased revenues arising from improved market penetration. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 50 Tiger Brands Limited Integrated annual report 2019 Our governance
WHO GOVERNS US
Tiger Brands’ board of directors plays a critical role in the governing of the business. Its diversity lends important perspective and depth to the group’s direction. We are therefore committed to building a board that is diverse in terms of race, gender and experience
NON-EXECUTIVE DIRECTORS
Khotso Mokhele Monwabisi Fandeso Cora Fernandez Emma Mashilwane Makhup Nyama
CHAIRMAN
64 60 46 44 62
Appointed Appointed Appointed Appointed Appointed August 2007 July 2019 March 2019 December 2016 August 2010
Experience Experience Experience Experience Experience ››General management ››Executive leadership ››Finance and investment ››Auditing and financial ››General management and strategy and strategy ››Governance and general management ››HR and remuneration ››Risk management ››Agriculture and tourism management ››Governance ››Governance ››Auditing and accounting ››FMCG Africa ››Leadership and strategy ››Corporate finance ››ICT ››Governance ››Mergers and acquisitions ››Auditing and accounting ››Banking, finance and ››Remuneration and risk ››Stakeholder relations ››Stakeholder relations FMCG
Other directorships Other directorships Other directorships Other directorships Other directorships Non-executive director of Non-executive director Non-executive director of Non-executive director Non-executive director AECI, Afrox, MTN Group, of Thebe Investment Sphere Holdings, Spar of Murray & Roberts and of Marsh Inc, director of Mapitso Consortium, Hans Corporation, Empact Group Corporation, National Famous Brands. Zensar SA, Makhup Merensky Holdings, Kenosi and SABSA Holdings Empowerment Fund and Co-founder and CEO Properties, Kapela Holdings Investment Holdings. Allan Grey Retirement of MASA Risk Advisory and its subsidiaries Special advisor to the Funds Services Minister of Science and Technology and chancellor of the University of the Free State
Committee memberships Committee memberships Committee memberships Committee memberships Committee memberships ■ Nomination and ■ Risk and sustainability ■ Risk and sustainability ■ Audit (Chair) ■ Risk and sustainability governance (Chair) (Member) (Chair) ■ Risk and sustainability (Member) ■ Investment (Chair) ■ Nomination and ■ Audit (Member) (Member) ■ Social, ethics and ■ Remuneration governance (Member) transformation (Member) (Member) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 51
Board committee membership key
Audit committee Social, ethics and transformation committee Remuneration committee Nomination committee Risk and sustainability committee Investment committee
NON-EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS
Maya Makanjee Donald Wilson Mahlape Sello Lawrence Mac Dougall Noel Doyle
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
57 62 57 62 53
Appointed Appointed Appointed Appointed Appointed August 2010 June 2019 October 2019 May 2016 July 2015
Experience Experience Experience Experience Experience ››Strategy and general ››Finance and general ››Legal and commercial ››General management ››Accounting and auditing management management ››General management ››Strategy execution ››Corporate finance ››Stakeholder relations and ››Governance, leadership and leadership ››FMCG in Africa and ››Mergers and acquisitions reputation management and strategy ››Governance and strategy developing markets ››FMCG in South Africa and ››Human resources ››Mergers and acquisitions ››Stakeholder relations Africa ››Sustainable development ››Stakeholder engagement ››FMCG in Africa
Other directorships Other directorships Other directorships Other directorships Non-executive director of Non-executive director of Non-executive director of Non-executive director of Mpact, Truworths Life Healthcare Group Empresas CarozzÍ (Chile) National Foods Holdings International, Datatec, AIG Holdings Limited. Member (Zimbabwe) South Africa, trustee of of International Court of Nelson Mandela Foundation Arbitration of the ICC Council and a panellist with the Arbitration Foundation of Southern Africa
Committee memberships Committee memberships Committee membership ■ Social, ethics and ■ Audit (Member) ■ Social, ethics and transformation (Chair) ■ Remuneration transformation ■ Nomination and (Member) (Member) governance (Member) ■ Investment (Member) ■ Remuneration (Member) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 52 Tiger Brands Limited Integrated annual report 2019 Our governance
WHO GOVERNS US CONTINUED
NON-EXECUTIVE DIRECTORS EXECUTIVE COMMITTEE
Mark Bowman Michael Ajukwu Gail Klintworth Lawrence Mac Dougall
CHIEF EXECUTIVE OFFICER 53 63 56
Appointed Appointed Appointed 62 June 2012 March 2015 August 2018 Appointed Experience Experience Experience May 2016 Strategy and general Stakeholder relations General management and ›› ›› ›› Experience management Risk and general governance ›› General management FMCG sector in Africa management Sustainability leadership ›› ›› ›› Strategy execution Corporate governance Corporate finance and strategy ›› ›› ›› FMCG in Africa and Mergers and acquisitions West Africa Stakeholder relations ›› ›› ›› ›› developing markets ››Remuneration ››Banking, finance and ››Brand and reputational FMCG management ››Marketing Other directorships Other directorships Other directorships Non-executive director Non-executive director of Non-executive director of Dis-Chem, Mr Price Group, MTN Nigeria, Intafact GlobeScan, advisory board Grand Parade Investments Beverages (subsidiary of member to MAS Holdings Limited, Signal Mill SABMiller) in Nigeria, and NESTE, advisory group Products and The Sterling Bank Plc, Novotel member for SIG, advisory Alternative Power (Pty) Ltd hotel and Port Harcourt, council member of Wheeler Nigeria (member of Accor Business and Development Committee memberships Hotels group) Institute, London Business ■ Remuneration (Chair) School and partner at ■ Nomination and Committee membership SYSTEMIQ governance (Member) ■ Risk and sustainability ■ Investment (Member) (Member) Committee membership ■ Social, ethics and transformation (Member)
■ All our non-executive directors are independent as determined by the board. Any term in office by an independent non-executive director exceeding nine years is subject to a rigorous review by the board. Dr Khotso Mokhele completed 12 years of service as a non-executive director on 30 September 2019. After taking into account, among other considerations, the extent to which the diversity of his views, skills and experience continue to enhance the board’s effectiveness, the board is satisfied that Dr Mokhele’s independence is not impaired by his length of service.
The board is determined to achieve a target of 50% women and black representation, respectively by end of FY22. ■ ■ ■ ■ ■ ■ ■ ■ WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 53
Noel Doyle Mary-Jane Morifi Becky Opdyke Patrick Sithole Luigi Ferrini
CHIEF FINANCIAL CHIEF CORPORATE CHIEF MARKETING CHIEF SUPPLY CHAIN CHIEF CUSTOMER OFFICER AFFAIRS AND OFFICER OFFICER OFFICER SUSTAINABILITY OFFICER 53 57 40 52 52
Appointed Appointed Appointed Appointed Appointed July 2012 December 2016 October 2018 August 2012 May 2019
Experience Experience Experience Experience Experience ››Accounting and auditing ››Corporate affairs ››FMCG in USA, SA and ››FMCG ››FMCG in South Africa ››Corporate finance ››Sustainability globally ››Supply chain and globally ››Mergers and acquisitions ››Oil, gas and mining ››Marketing and brand management ››Sales strategy and ››Governance sectors leadership execution ››FMCG in South Africa and ››Commercial ››Customer management Africa and customer relations
Kamal Harilal S’ne Magagula Yokesh Maharaj Pieter Spies Clive Vaux
CHIEF STRATEGY CHIEF HUMAN CHIEF GROWTH OFFICER: CHIEF GROWTH OFFICER: EXECUTIVE: CORPORATE OFFICER RESOURCES OFFICER CONSUMER BRANDS GRAINS, OUT OF HOME FINANCE
46 46 47 54 68
Appointed Appointed Appointed Appointed Appointed April 2018 May 2018 July 2018 February 2017 June 2000
Experience Experience Experience Experience Experience ››FMCG in South Africa ››Human resources ››FMCG in South Africa ››Executive leadership in ››Executive leadership and Africa strategy and leadership and Africa FMCG and agricultural in FMCG ››Strategy development ››Oil and gas sector in ››Sales and distribution sectors in Africa ››Corporate finance and execution South Africa and Europe ››Human resources ››Strategy development ››Mergers and acquisitions ››Business strategy and execution ››Corporate finance development and execution WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 54 Tiger Brands Limited Integrated annual report 2019 Our governance
CREATING VALUE THROUGH GOOD GOVERNANCE
The Tiger Brands board provides effective leadership and strategic direction in the best interest of the company and its stakeholders. The board embraces the principles of ethical leadership and good corporate governance aligned to the King IV Report on Corporate Governance, the JSE Listings Requirements, the Companies Act and other relevant laws and regulations. In executing its mandate, the board regularly reviews its business model to ensure that it supports long-term value creation, that effective systems of risk management and internal control are in place, and that a culture of ethical leadership has been established across the group. In this year’s integrated annual report, we have chosen to provide a summarised review of those governance activities pertaining to value creation. This includes an overview of the skills and diversity of our leadership team (page 50), a review of the board’s main focus areas of discussion during the year (page 55), and a detailed summary of our remuneration policies and practices (pages 57 to 82). Additional information on our governance policies and activities, including on the application and explanation of the King IV principles, is available online at www.tigerbrands.com/investor.
Special Nomination nomination Special Risk and and and Social, Special Audit audit sustainability Remuneration governance governance ethics and Ad hoc: Board board committee committee committee committee committee committee transformation investment Number of meetings 6 6 3 1 3 4 4 1 3 4 KDK Mokhele 6 6 4 4 1 2 4 MO Ajukwu 6 6 – 3 MJ Bowman 6 5 2 4 4 1 4 NP Doyle 6 6 MP Fandeso 3 3 CH Fernandez 4 4 2 2 GA Klintworth 6 6 1 LC Mac Dougall 6 6 3 M Makanjee 5 5 4 3 1 3 TE Mashilwane 6 6 3 1 3 MP Nyama 6 6 2 2 2 3 DG Wilson 3 3 1 1 1 YGH Suleman 1 1 1 1 1 1
1. CH Fernandez was appointed to the board on 1 March 2019 2. MO Ajukwu was appointed as member of the audit committee on 21 November 2018 and ceased to be a member on 1 June 2019 3. MJ Bowman was appointed as member of the audit committee on 2 November 2018 and ceased to be a member on 1 June 2019 4. GA Klintworth was appointed as member of the social, ethics and transformation committee on 1 March 2019 5. MP Fandeso was appointed to the board on 1 July 2019 6. MP Nyama was appointed as member of the risk and sustainability committee and ceased to be a member of the remuneration and nomination governance committees on 1 March 2019 7. DG Wilson was appointed to the board and as member of the audit, remuneration and investment committees on 1 June 2019 8. KDK Mokhele ceased to be a member of the social, ethics and transformation committee on 1 March 2019 9. YGH Suleman resigned as director on 22 November 2018 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 55
The following table briefly reviews the main areas of discussion and review by the board and its sub-committees during the year, in fulfilling its fiduciary responsibility of ensuring long-term value growth in accordance with its charter, corporate governance standards and applicable regulatory and legislative requirements.
DRIVE BE GREAT SUSTAINABLE GROWTH EFFICIENT PEOPLE FUTURE
BOARD COMMITTEE STRATEGY
Strategy review >>Deep dived into challenges affecting the business operating environment Board >>Tracked the business performance against the group’s strategy >>Monitored milestones of group strategic pillars aimed at driving the 2022 strategy
Good governance, succession planning and leadership >>Assessed board structure for its experience, skills, diversity and ability to create value N&G >>Identified and assessed skilled candidates for potential board appointments N&G >>Assessed directors retiring by rotation N&G >>Assessed independence of the non-executive directors N&G >>Commissioned external board performance review N&G >>Reviewed induction programme for new non-executive directors appointed during FY19/20 N&G >>Conducted performance assessment of chairman and CEO N&G >>Monitored the succession plans for chairman, CEO and key executives N&G >>Approved appointments of new directors on the board Board
Risk management >>Reviewed risk appetite and risk tolerance R&S >>Reviewed business and group risks and ensured management actions R&S are implemented Investment and divestment decisions >>Assessed investment opportunities identified in strategic planning process INVCO >>Made recommendations on Oceana group investment INVCO >>Approved sale of Oceana shares to Brimstone and Oceana unbundling transaction Board >>Attended to post-investment reviews INVCO
VAMP business >>Approved the relaunch of the VAMP business Board >>Monitored status of VAMP insurance claims, accounting treatment Board and related disclosures
Occupational health >>Considered the work undertaken within the Occupational Health Framework with R&S regard to implementation of the Occupational Health Strategy >>Approved the Firearm and Human Rights policies Board
Committees: AC – audit committee REMCO – remuneration committee R&S – risk and sustainability committee SETCO – social, ethics and transformation committee N&G – nomination and governance committee INVCO – investment committee WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 56 Tiger Brands Limited Integrated annual report 2019 Our governance
CREATING VALUE THROUGH GOOD GOVERNANCE CONTINUED
BOARD COMMITTEE STRATEGY
IT security and business continuity >>Conducted an IT security assessment R&S >>Progressed on the implementation plans on cybersecurity R&S >>Monitored implementation of business continuity plans across the business R&S >>Approved IT governance charter and framework Board Remuneration >>Engaged shareholders on remuneration policy REMCO >>Approved the remuneration strategy amendments for implementation in FY20 REMCO >>Considered outcome of the benchmarking exercise REMCO >>Approved performance target for the CEO and CFO REMCO
Transformation >>Approved the BBBEE strategy for 2022 and the implementation plans SETCO >>Monitored progress on the transformation and culture journey SETCO >>Prioritised transitioning contingency labour to permanent workforce SETCO Ethics >>Monitored organisational ethics SETCO >>Progressed in addressing the reported ethics matters SETCO Stakeholder relations and sustainability >>Monitored relationship with Consumer Goods and Services Ombudsman; progressed on consumer complaints SETCO >>Monitored implementation of socio-economic development (SED) strategy and Enterprise Development initiatives SETCO >>Monitored engagement with stakeholders and regulators SETCO Budget and financial controls >>Approved capital expenditures for our business operations Board >>Approved the group’s budget 2019/2020 Board >>Approved the dividend cover Board >>Approved amendments to the foreign exchange and hedging policy Board Audit processes >>Completed the audit plan including mapping to the group register AC >>Approved the policy on the use of external auditors for non-audit services AC >>Approved the internal audit charter and structure AC >>Reviewed the outcomes of impairment assessments AC >>Reviewed and recommended the proposed share repurchase programme AC >>Considered contract management systems AC >>Recommended the annual financial statements, integrated and sustainable development reports to the board for approval AC >>Considered the reports of the internal and external auditors on the group’s systems of internal control, including financial controls AC >>Considered the independence of external auditors AC
Committees: AC – audit committee REMCO – remuneration committee R&S – risk and sustainability committee SETCO – social, ethics and transformation committee N&G – nomination and governance committee INVCO – investment committee
The board performance and effectiveness assessment The outcomes of this assessment can be found on page 7. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 57
REMUNERATION REPORT Section 1: Background statement
STATEMENT FROM THE CHAIRMAN OF THE During the period under review, various changes were REMUNERATION COMMITTEE made to the remuneration strategy and policy to align with DEAR STAKEHOLDER market practices and drive further alignment on critical On behalf of the remuneration committee (the committee), business key performance indicators (KPIs) to measure I am pleased to present the 2019 remuneration report and reward performance against our strategy. To this end, which, in compliance with best practice reporting as the remuneration committee approved the implementation recommended by the King IV™ Report on Corporate of a revised short-term incentive (STI) scorecard that Governance for South Africa (King IV™ Code for Corporate creates a balance between the focus on financial and Governance), highlights: sustainability measures and a move from the allocation ›› Key components of our remuneration policy of share appreciation rights (SARs) to the allocation of full ›› Alignment of our remuneration policy with the Tiger value shares with performance conditions for members Brands business strategy and priorities of the executive committee, including the CEO, CFO, ›› Implementation of the policy for the 2019 financial year executive directors, prescribed officers and a combination (FY19) of performance shares and restricted shares for senior management and below, to ensure that the long-term During the period under review we focused our efforts on incentive scheme (LTI) remains competitive. This revised ramping up the execution of our four strategic priorities: incentive structure is simple, easily understood by 1. Drive Growth: Winning category, channel and participants and creates a better and longer-term customer strategies. alignment of management’s interests with that of stakeholders. The new incentive structure enhances 2. Be Efficient: Cost-conscious and an integrated our reward framework, which follows a “Total Reward” supply chain. approach, consisting of salary, a range of market relevant 3. Great People: A winning mindset and great place benefits and professional growth opportunities that to work. recognise individual contributions, as well as performance. This holistic approach enables us to attract, motivate and 4. Sustainable Future: Health and nutrition, enhanced retain high-performing people (see further details on livelihoods and environmental stewardship. page 60). The focus on these priorities is placing the company in a better position to react appropriately to prevailing market conditions. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 58 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
SHAREHOLDER VOTING OUTCOMES The non-binding advisory votes by shareholders at the In line with our commitment to remunerate our people in a 2019 and 2018 annual general meetings (AGM) are fair and equitable manner, we maintain strong relationships summarised as follows: with stakeholders, and strive towards high standards of February February disclosure of our remuneration approach to ensure that % vote in favour 2019 2018 there is a clear understanding of our remuneration policy and the practices that have been implemented. Remuneration policy 76,33% 73,41% Remuneration implementation 99,42% 82,59% Non-executive directors’ fees 97,45% 99,80%
The following common themes were highlighted by shareholders: SHAREHOLDER FEEDBACK REMUNERATION COMMITTEE ACTION/RESPONSE
Matching plans are considered contrary to Deferred bonus shares and company matching shares will be best practice especially if awarded without discontinued from FY20. specific performance criteria. The vesting scale for Share Appreciation The long-term incentive scheme design does not include SARs as an Rights (SARs) does not include sufficient instrument from FY20. Performance vesting shares will be awarded to stretch. members of the executive committee, with revised vesting conditions. The revised vesting conditions are broad enough to create a balance between entry and stretch targets on the vesting scale. Details on pages 66 and 67. Non-executive directors are paid hourly fees The payment of hourly fees was discontinued with effect from for extra work and additional meetings 1 October 2018. The payment of NED fees for additional meetings attended. This may affect their ability to over and above the standard meetings, will only be permitted at the function independently. discretion of the chairman of the remuneration committee and chairman of the board. Detailed disclosure on additional payments, if made, to be included in the remuneration report.
SHAREHOLDER ENGAGEMENT ›› Approved the redesign of the STI scorecard and LTI The remuneration committee is committed to shareholder instruments; engagement and will take the following steps if 25% or ›› Approved the STI and LTI performance conditions, more of total votes exercised by shareholders at the targets and weightings in respect of FY19/20; upcoming AGM are against the remuneration policy ›› Approved the adjustments to LTIs as a consequence or implementation report: of the unbundling of Oceana; ›› Tiger Brands will seek to actively engage with dissenting ›› Approved the non-executive directors’ (NEDs) fee shareholders by inviting them to one-on-one meetings increases; and and, where necessary, will issue a SENS announcement ›› Re-evaluated the effectiveness of the current BBBEE requesting shareholders to appropriately engage on their share scheme. specific concerns; and FOCUS AREAS FOR FY20 Tiger Brands will consider the shareholder concerns ›› The committee is committed to remaining up to date with and report on the outcome of the engagements and the latest remuneration market trends and best practice, measures taken, in its next integrated report. business needs, as well as our responsibilities to our REMUNERATION COMMITTEE OBJECTIVES AND people, shareholders and communities to ensure that ACTIVITIES FOR FY19 our remuneration practices are aligned to the business In FY19 the committee undertook the following activities: strategy. ›› Approved total remuneration packages (TRP) salary increase mandate; ›› Approved the remuneration for executive directors, prescribed officers and senior management; WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 59
Key focus areas include: ›› Embed the STI integrated scorecard to align our people with business objectives; ›› Cement and refine our approach to monitor and address identified pay inequities; ›› Continue to review our reward mechanisms and practices with a view to introducing innovative reward strategies to: ✓✓Ignite winning performance; and ✓✓Attract, retain and motivate key talent. EXTERNAL ADVICE PROVIDED TO THE COMMITTEE IN FY19 In reviewing our remuneration offering to ensure that it is competitive, fair, transparent and responsible, we enlisted the services of PwC South Africa and Vasdex Associates to assist us with design, market practice and survey data. The committee is satisfied that PwC South Africa and Vasdex Associates are independent. VOTING AT AGM As required by the King IV Code on Corporate Governance, the remuneration policy and implementation report which follows will be tabled for separate non- binding advisory votes by shareholders at the upcoming AGM. As required by the Companies Act, non-executive directors’ fees for the coming year will be put to shareholders by way of a special resolution. We encourage all shareholders to provide feedback on their position on the various voting requirements. We are committed to engaging with shareholders as required to discuss issues of concern. On behalf of the committee, I am confident that our remuneration policy has achieved the desired outcomes for FY2019 and is aligned with the company’s strategic goals.
Mark Bowman Chairman – Remuneration committee 4 November 2019 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 60 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED Section 2: Overview of remuneration policy
TIGER BRANDS PEOPLE STRATEGY The remuneration strategy is aligned to the Tiger Brands people strategy, which is directly linked to our business strategy and it combines the three pillars of TALENT, LEADERSHIP AND GREAT PLACE TO WORK underpinned by the foundation of EXECUTION EXCELLENCE. Our remuneration principles have been designed to drive the execution of the people strategy, in the belief that great people and great brands are at the core of our success. Our reward framework is holistic, encompassing the monetary elements of reward, as well as non-financial aspects such as growth, development and the work environment.
BUSINESS STRATEGY
Develop talent Great people
Inspire winning GUARANTEED SHORT- LONG- delivering performance PACKAGE BENEFITS TERM TERM RECOGNITION winning INCENTIVE INCENTIVE performance Employee value proposition
PEOPLE STRATEGY
The following key objectives of our remuneration policy drive the Tiger Brands people strategy: ›› Strengthen our ability to competitively attract and retain talent to enable the execution of our strategy; ›› Align Tiger Brands’ annual and long-term performance to the delivery of the strategy; ›› Align Tiger Brands’ people performance with shareholder interests; ›› Motivate and stimulate high performance across Tiger Brands through competitive short and long-term incentives; ›› Cement the foundation for fair and responsible pay we have already built; and ›› Ensure that reward mechanisms are simple and provide line of sight to all employees. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 61
The following tables summarise the various remuneration elements (guaranteed package, short-term incentive and long-term incentive) that Tiger Brands offers at different levels of employment: GUARANTEED PACKAGE (EXCLUDING BARGAINING UNIT PEOPLE) Description Guaranteed package (GP) offered to people on a total remuneration package (TRP) comprises base pay, allowances, retirement and medical benefits. It is reviewed annually based on personal performance (KPIs based on a balanced scorecard that includes financial and non-financial metrics), business performance (linked to budget), behaviours aligned with the company values and market competitiveness (national and sector benchmarks). Benchmarks Benchmarking for executive directors and prescribed officers is based on a peer group of companies. The peer group is determined using the closeness metric formula, based on: Turnover Total assets Operating income before tax EBITDA Number of people Market capitalisation
Companies included in the peer group comprise: Rest of exco, senior management and Factor Executive directors and prescribed officers below
Bespoke survey REMchannel survey Survey type Public data of South African companies listed on the JSE, based on the closeness metric is used to determine an appropriate peer group Aspen Pharmacare Ltd Massmart Holdings Ltd Remgro Ltd Comparator Bid Corporation Ltd Pick n Pay Stores Ltd Shoprite Holdings Ltd National and consumer group Distell Group Ltd Pioneer Foods Ltd The Spar Group Ltd goods circles Imperial Holdings Ltd RCL Foods Ltd Woolworths Holdings Ltd
The peer group is reviewed on a bi-annual basis.
Anchor point Tiger Brands has anchored its current pay position at the 65th percentile of the national market, where a normal distribution around the anchor point is based on individual performance, talent/potential, experience and in certain instances, tenure. It is important to note that guaranteed packages are not automatically adjusted to the anchor point. The performance-based increases granted in the organisation (including those for executive directors and prescribed officers) are managed within the overall salary increase budget and the pay progression model as discussed below. Benefits Benefits include retirement fund contributions, funeral cover, permanent health insurance, death-in- service cover, medical aid contributions and travel allowances (where applicable). Pay progression The intention of the pay progression model is to competitively reward performance and to actively model align our remuneration to the market. The pay progression model will, gradually over time and within the confines of our salary increase budget, correct the guaranteed packages for high-performing people to align them closer to the market. The model considers the employee’s salary positioning in relation to the pay scale as well as performance when granting an increase whilst ensuring that the company remains within the overall salary budget. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 62 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
SHORT-TERM INCENTIVE ›› All permanent employees on a guaranteed package Description and link to strategy in Paterson grades CU and above, are eligible to In FY17, we revised the operating model for Tiger Brands participate. Previously CU employees were not eligible to help maximise the potential of our people in line with our to participate; however, to better align our people and business goals. To ensure that our reward approach is motivate winning performance, we have included this aligned with our integrated operating model, we group in the STI. have revised and simplified the STI scheme to align the ›› The STI is paid annually in cash to qualifying people who contributions of all our people to a One Team Tiger bottom are employed by the organisation on the payment date. line, thereby creating greater potential for reward across ›› The on-target percentage (as a percentage of the board. The STI scheme is summarised below. guaranteed package) is benchmarked against the South African market to ensure we are aligned with market Summary of changes for FY19 practice. It is based on affordability and the STI payment ›› STI formula change – to drive performance and ensure is based on achieving the defined objectives. retention, the company has moved away from the The STI outcomes are determined based on a multiple multiplicative approach, which was an “all or nothing” ›› of the on-target percentage of guaranteed package, approach, to an additive approach that provides which comprises three performance factors: participants with an opportunity to earn the STI based ✓✓A group performance factor focused on group on individual elements (financial and non-financial) of financial and non-financial metrics. performance delivered. To improve line of sight between ✓✓A business unit performance factor focused on individual contribution, team and business performance, business unit financial and non-financial metrics. the STI scheme now includes an Individual Performance ✓✓An individual performance factor focused on individual Factor at a weighting of 20%; performance objectives and allows for differentiation ›› Inclusion of an integrated group STI scorecard for in rewarding high performers. the whole of Tiger Brands with a greater focus on sustainability measures to align teams on a One Tiger Payment of an STI is subject to the overriding condition bottom line; and that the group/business unit meets or exceeds the agreed ›› Revision of group, business unit and individual entry threshold in respect of its earnings before interest performance factors and weightings. and tax (EBIT). The primary intention of the STI is to improve business Calculation performance by focusing participants’ attention on key STI = Annual guaranteed package X on target % X financial, strategic, functional and personal performance {group performance factor (0 to 200%) + business unit objectives (KPIs based on a balanced scorecard), which performance factor (0 to 200%) + Individual Performance are aligned with the long-term business strategy for Factor (0 to 200%). sustainable value creation. This drives high performance Predetermined weightings will be applied to each of by explicitly creating line of sight in linking group, business the performance factors. In respect of the Individual unit and individual performance. Performance Factor, participants will be rated on a rating scale ranging from 1 (poor performer) to 5 (exceptional performer). Target and maximum The following ranges of STI awards apply to the various categories of people covered by this report:
On-target Maximum guaranteed of on-target package amount % %
CEO, CFO and executive directors 60 200 Prescribed officers 50 200 Other participants (Paterson grades CU to E band) 8,5 to 30 200 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 63
Group and business unit performance factors The underlying values and weightings for each KPI are set and approved by the remuneration committee in advance of each year to determine parameters for the STI in the form of a balanced scorecard. Below is the group STI scorecard for FY19 that applied to the CEO, CFO, executive directors, prescribed officers and other participants:
Key Strategic performance Strategic objective Key performance indicator objective weighting indicator weighting Score = 50% Score = 100% Score = 200% 60% Sales volume growth 10% 40,0% 100,0% 140,0% Growth*,** Absolute gross margin 10% 98,6% 100,0% 103,6% PBIT 40% 98,6% 100,0% 103,6% 10% Cost savings initiatives 5% 98,6% 100,0% 123,4% Efficiency*,** Net working capital 5% 101,2% 100,0% 97,7% Reduction in execution-related marketplace incidents 30% Quality 10% year-on-year by People and 10% 15% 20% sustainability* Safety (LTIFR) 10% 120,0% 100,0% 80,0% BBBEE score 10% Level 7 (60 to 61) Level 7 (61.1 to 65) Level 6
* The actual targets have not been provided as they are linked to budget and considered commercially sensitive information. ** For the key performance indicators within the growth and efficiency strategic objectives, the targeted percentages for “threshold”, “on-target” and “stretch” as set out above per key performance indicator represent the targeted percentage achievement of the underlying budgeted amounts.
The group, business unit and individual weightings applicable to the various employee categories are detailed below:
Employee category Group Business unit Individual
CEO, CFO and executive directors 80% 0% 20% Prescribed officers 80% 0% 20% Other participants (Paterson grades CU to E band) 10% to 40% 40% to 70% 20%
LONG-TERM INCENTIVE – MANAGEMENT ›› Restricted shares as retention specific shares for (PATERSON GRADE D AND ABOVE) African, Coloured and Indian (ACI) employees in D band Description and above (full value shares with a three-year vesting To ensure that we align our reward approach to our period, no performance criteria) integrated operating model, we have revised and simplified ›› Share appreciation rights (SARs). the LTI for FY20 to consider the following: The allocations of SARs were subject to performance Strengthen our ability to competitively attract and retain ›› vesting criteria. Apart from a 5% vesting of the third talent to enable the execution of our business strategy; tranche of SARs allocated in FY14, all the tranches of and SARs allocated in subsequent financial years that Align Tiger Brands’ management’s performance to our ›› would have vested in FY19 have been forfeited due long-term strategy and, in particular, to unleashing the to performance criteria not having been met. Any power of our people objective. continuation of this trend is of concern to the company The original Tiger Brands 2013 Share Plan (LTIP) as the mechanism is ineffective in providing key people comprised the following instruments: with a vested interest in the company. Performance vesting shares (full value shares with a ›› In mitigation of this risk, the committee approved the three-year vesting period, performance vesting criteria reintroduction of the award of performance shares, ie full linked to the FINDI30 Index in terms of shareholder value shares that are subject to performance conditions, return) with effect from FY20. At the same time, the company will Restricted shares issued as bonus-matching shares ›› also commence with the grant of restricted shares on (full value shares with a three-year vesting period, no a “specific retention basis”. The allocation of SARs will performance criteria) thus be discontinued going forward. ›› Restricted shares issued as deferred bonus shares and company-matching shares (full value shares with a three-year vesting period, no performance criteria) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 64 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
The practice of the grant of restricted shares in the form of Calculation “bonus-matching shares” (which were linked directly to the The number of SARs at allocation date is determined as achievement of an STI in the previous financial year) will be follows: SARs = (GP x SARs multiple/share price) x PDT discontinued as from FY20. In addition, as from FY20, the multiplier. A performance differentiation tool (PDT) is used voluntary deferral of a portion (25%, 33% or 50%) of to modify the standard quantum of SARs, based on an participants’ STI awards into restricted shares (“deferred individual’s personal performance, leadership and ability. bonus shares”) which are matched by the company on This is a discretionary percentage ranging from 0% to a 1:1 basis in the form of “company-matching shares” will 200%. be discontinued (due to shareholders raising best practice Share price concerns and a historical low uptake from participants). The share price is determined based on the volume- All previous grants of bonus-matching shares, deferred weighted average price (VWAP) of a Tiger Brands share bonus shares and company-matching shares will continue for the 10 trading days before the allocation date. to vest in accordance with the rules of the LTIP. Vesting Below is a description of the share instruments In addition to meeting the required performance utilised in FY19 conditions, vesting is time-based according to the Share Appreciation Rights following pattern: The last grant of Share Appreciation Rights was made on 5 June 2019. The following multiples of Share Appreciation Year from allocation date Rights, based on guaranteed package, applied to the 0 1 2 3 4 5 employee categories shown below: Vesting 1/3 1/3 1/3 Value of awards
% of guaranteed Employee category package CEO 120% CFO 120% Prescribed officers and executive directors 110%
Performance metrics The allocations of SARs during the 2019 financial year are subject to the performance criteria as set out in the table below: Metric Measurement Weight Metric
HEPS (real HEPS Compound annual growth 50% Full vesting: HEPS = > CPI + rate of growth in GDP (measured growth) on an annual compound basis over the applicable period) Pro rata vesting on a linear scale: HEPS growth > CPI but below CPI + GDP rate. No vesting if HEPS < = CPI ROIC Average ROIC measured 50% ROIC < WACC +1% No vesting over three, four and five ROIC = WACC +1% 25% vesting years for each one-third ROIC > WACC +1% but tranche < WACC +2% Pro rata vesting on a linear scale ROIC => WACC +2% 100% vesting
HEPS: Headline earnings per share ROIC: Return on invested capital (after tax) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 65
For SARs allocated in December 2016, September 2017 matching shares is directly linked to the achievement of a and December 2017, the performance vesting condition is STI. Performance is, therefore, determined “on the way in”. as follows: The executive directors and prescribed officers did not meet their STI targets in FY18 and therefore did not qualify Maximum for STIs. No bonus-matching shares were, therefore, Metric Weight 0% vesting 100% vesting granted to executive directors and prescribed officers HEPS 100% CPI and below CPI +GDP in FY19.
Pro rata vesting on a linear scale of HEPS growth >CPI but Deferred bonus shares and company-matching below CPI + GDP rate. Further vesting condition: Average shares annual return on capital over the relevant performance Previously the CEO, CFO, executive directors, prescribed period must exceed the company’s weighted average officers and members of the executive team could cost of capital (WACC). voluntarily defer a portion (25%, 33% or 50%) of their STI into deferred bonus shares, which were then matched by Bonus-matching shares the company on a 1:1 basis. The last grant of bonus-matching shares was made in December 2018. The following multiples of bonus- Value of awards matching shares, based on the face value of the STI Deferred bonus shares and company-matching shares award, applied to the employee categories covered could only be granted if a bonus/STI was earned. Hence by this section. performance is “on the way in”. Value of awards Calculation The number of deferred bonus shares and company- % of STI earned matching shares, at grant date, is determined as: Deferred Employee category (face value) bonus shares and company-matching shares = (actual STI CEO 50% deferred x 2/share price). If no bonus is earned or a CFO 50% participant elects not to voluntarily defer a portion of their Prescribed officers 50% STI, no deferred bonus shares and company-matching shares will be awarded. Calculation The number of bonus-matching shares at grant date is Share price determined as follows: Bonus-matching shares = (actual The share price is determined based on the VWAP of STI x 50%/share price) x PDT multiplier. The performance a Tiger Brands share for the 10 trading days before the differentiation tool (PDT) is used to modify the standard grant date. quantum of bonus-matching shares based on an Vesting individual’s personal performance, leadership and ability. Vesting of deferred bonus shares and company-matching This is a discretionary percentage ranging from 0% to shares takes place on the third anniversary of the date 200%. No bonus-matching shares are awarded if no STI of grant: is earned. Year from grant date Share price 0 1 2 3 4 5 The share price is determined based on the VWAP of Vesting 100% a Tiger Brands share for the 10 trading days before the grant date. Performance metrics Vesting There are no further performance conditions to determine Vesting takes place on the third anniversary of the date vesting. of grant: The executive directors and prescribed officers did not Year from grant date meet their STI targets in FY18 and, therefore, did not 0 1 2 3 4 5 qualify for STIs in December 2018. No deferred bonus Vesting 100% shares and company-matching shares were, therefore, granted to executive directors and prescribed officers in Performance metrics FY19. No upward adjustment of other share instruments There are no further performance conditions to determine was implemented to compensate. vesting, which is therefore time-based. The reason for no further vesting conditions is that the quantum of bonus- WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 66 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
Historical LTI information BEE shares SARs performance conditions for previous allocations The following two schemes were established as part of the company’s black empowerment strategy: For SARs allocated before December 2016, the Tiger Brands Black Managers Trust (BMT I) performance vesting conditions are based on a targeted ›› ✓✓Established in 2005 to attract and retain diverse talent. rate of 3% per annum real growth in HEPS over three, four ✓✓Rights allocated – Tiger Brands shares. Rights are and five-year periods. Percentage threshold levels for real settled after making the required capital contributions HEPS growth and the corresponding percentage of the to BMT I. For all rights allocated on or before 31 July allocation to vest are as follows: 2010, settlement may take place at any time after HEPS growth Vesting outcome the initial lock-in period, ie from 1 January 2015. For >0% and <0,5% 5% all rights allocated after 31 July 2010, the lock-in ≥0,5% and <1,0% 10% date varies depending on the date of allocation. ≥1,0% and <1,5% 16% Periodically, new allocations are made to new joiners ≥1,5% and <2,0% 27% and top-up allocations are made to existing ≥2,0% and <2,5% 44% participants promoted to higher grades out of shares ≥2,5% and <3,0% 75% that may become available as a consequence of ≥3,0% 100% forfeitures. ›› Thusani Trust Performance conditions for previous allocations of ✓✓Established in 2005 as part of the company’s BEE performance shares phase I empowerment initiative. The trust’s resources Performance shares vest on the third anniversary of their were enhanced in 2009 under the company’s BEE award, to the extent that the company has met the phase II transaction. specified performance criteria over the period, which ✓✓The trust provides bursaries for tertiary education to were determined as the company’s comparative total dependants of permanently employed black people shareholder return (TSR) relative to constituent members who might not otherwise be able to afford this cost. of the FINDI 30 index. If the company’s relative TSR over Dilution the three-year period place it in: Under the rules of the Tiger Brands Phantom Cash Option Position 15 out of 30: the targeted number (one-third ›› Scheme (replaced by the LTIP), at any point the aggregate of maximum number) of performance shares awarded number of unexercised phantom options is limited to will vest; 10% of the total issued share capital of the company. ›› Position 7 or better: the maximum number (three times targeted number) of performance shares awarded will At 30 September 2019, aggregate outstanding options vest; under this scheme represented 0,0% (2018: 0,02%) of the ›› Position 23 or worse: all performance shares awarded company’s issued share capital. The maximum aggregate will be forfeited; and number of shares that may be acquired by participants ›› Between position 7 and 15, or between 15 and 23: under the LTIP and any other share plan may not a pro rated number of performance shares will vest. exceed 5,5 million shares, and for any one participant 550 000 shares. In determining these limits, shares As far as the awards of performance shares made in acquired through the JSE and transferred to participants February 2016 and May 2016 are concerned, the are not considered. At 30 September 2019, the performance of the company can be summarised aggregate number of shares that may be acquired by as follows: participants under the various schemes was 2 543 551 February 2016 award (2018: 1 898 112), which represents approximately 1,3% The company’s TSR over the three-year period ended of the number of issued ordinary shares. This is in line with February 2019 placed it in 20th position, resulting in a JSE regulations. vesting of 37,5% of the performance shares awarded. Changes for FY20 May 2016 award As from FY20, performance shares will be awarded to The company’s TSR over the three-year period ended executive management, prescribed officers, senior May 2019 placed it in 26th position, resulting in a forfeiture management and middle management. Grants of of the award. restricted shares (ie specific retention shares) will be made to selected senior management and key people whose contribution has been identified as being critical to achieving Strategy 2022. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 67
The table below provides further details regarding performance and restricted shares:
INSTRUMENT PERFORMANCE SHARES RESTRICTED SHARES
Performance Restricted Employee category shares multiple Employee category shares multiple CEO 81,3% CEO – Award CFO 81,3% CFO – mechanism Prescribed officers and executive Prescribed officers and executive directors 61,0% directors – Senior management and below 10,6% – 27,7% Senior management and below 14,5% – 16,3%
Calculation ›› (GP x performance share multiple/share price) x ›› (GP x restricted share multiple/share price) x performance multiplier performance multiplier ›› The personal performance multiplier is used to modify the standard quantum of performance shares and Performance restricted shares, based on an individual’s personal sustained performance and potential multiplier ›› This is a discretionary percentage ranging from 0% to 200% Three-year time-based vesting based on Vesting Three-year vesting based on anniversary of award ›› ›› anniversary of grant HEPS (weighted at 50%): ›› 0 – less than CPI + GDP ›› 25% vesting (threshold) – CPI + GDP ›› 100% vesting – CPI + GDP +2% ›› 200% vesting (stretch) – CPI + GDP +4% The HEPS calculation is performed on an annual Performance compound basis over the three-year vesting period conditions Linear vesting to apply between threshold and stretch applicable to performance ROIC – (weighted at 50%) shares ›› 0 – less than WACC +1% ›› 25% vesting (threshold) – WACC +1% ›› 100% vesting – WACC +2% ›› 200% vesting (stretch) – WACC +5% and above The measurement will be the average ROIC over the three-year vesting period Linear vesting to apply between threshold and stretch Share price ›› Based on the volume-weighted average price (VWAP) for a Tiger Brands share calculated for the 10-trading day period ending immediately prior to the date of award/grant.
Minimum shareholding policy We have a minimum shareholding policy, where senior executives are expected to build up their personal shareholding in the company over a specific period of time. In the case of the CEO, the target is 200% of guaranteed package whilst the target for executive directors, prescribed officers and other members of the executive committee is 100% of guaranteed package. Senior executives who were in service when the policy was adopted in 2016 have six years to build up their shareholding from date of adoption. Senior executives appointed after adoption have six years to build their shareholding from date of appointment. They may use any vesting LTIs or their own resources to acquire these shares. Current minimum shareholding summary
Current Original value of Years Number of value of shares Target remaining to Name Date of engagement GP* shares held shares held held** % of GP % of GP meet target
LC Mac Dougall 10 May 2016 9 537 728 699 257 309 147 181 3 200 3 NP Doyle 1 July 2012 6 877 238 11 750 4 106 615 2 474 080 60 100 3 P Spies 1 February 2017 5 095 650 2 318 893 102 488 078 18 100 4 Y Maharaj 1 July 2018 5 092 500 – – – – 100 5 PD Sithole 1 August 2012 5 097 331 7 000 2 701 072 1 473 920 53 100 3
* GP as at 30 September 2019.
** Value calculated with reference to the closing price of a Tiger Brands share as at 30 September 2019, ie R210,56. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 68 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
Clawback and malus Prescribed of cers A clawback and malus policy is in place with the intention to minimise risk. Ma imum
With respect to malus, if the remuneration committee, in n-target consultation with the board and/or any committee of the board, believes that a trigger event has occurred, it has full Minimum discretion to reduce, in part or whole, unvested variable ■ P ■ S ■ remuneration (ie STIs and LTIs) before the end of the O vesting or payment period. In the case of clawback, it is the responsibility of the remuneration committee, in Ma imum consultation with the board and/or any committee of the board, to implement clawback for the whole or portion of n-target vested variable remuneration in the event of a trigger event Minimum occurring over a period of three years from the date on which payment was made of such vested variable ■ P ■ S ■ remuneration. Trigger events include, but are not limited to: EXECUTIVE SERVICE CONTRACTS ›› Material misstatement of financial results; Senior executives are employed full-time under standard ›› Misconduct, incompetence, fraud, dishonesty; agreements, with a notice period of three months. ›› Negligence or material breach of obligations to the We strive to bind all senior executives by a restraint-of- company; trade agreement. To the extent that executives have ›› Deliberate harm to the company’s reputation; and access to proprietary business insights and intellectual ›› Material failure of risk management. property, Tiger Brands will enforce the agreement should Illustrating potential remuneration outcomes they join a competitor. The restraint comprises a three- The variable pay arrangements described above have month notice period or three months’ special leave (paid various potential outcomes. These outcomes could be as a three-month lump sum (based on guaranteed from zero (minimum) to the expected level of performance package) on termination). outcomes (target) to the maximum potential variable pay SIGN ON AND SPECIFIC RETENTION PAYMENTS outcomes (maximum). In the illustrations presented In exceptional circumstances (mainly for the recruitment alongside, it should be noted that: and retention of critical and/or scarce talent), Tiger Brands ›› STI represents the cash component of short-term will award a sign on/retention payment which will be performance; and subject to the following conditions: ›› LTI represents the total share appreciation rights awards, bonus-matching awards, deferred bonus shares and Employees must remain in the service of Tiger Brands as company-matching shares. a permanent employee for an uninterrupted period of 24 months from date of the payment. Should the employee CEO or Tiger Brands decide to terminate the employment relationship for any reason, excluding those listed below, Ma imum before the expiration of 24 months, the employee will be n-target required to repay Tiger Brands the full gross amount. There will be no pro rata refunds. Should Tiger Brands Minimum terminate the employment relationship because of ■ P ■ S ■ operational reasons (for example, retrenchment or CFO redundancy) or ill health, or if termination occurs as a result of death, the employee will not be required to repay Ma imum Tiger Brands the full gross amount.
n-target
Minimum
■ P ■ S ■ WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 69
Payments on termination of employment
REMUNERATION VOLUNTARY TERMINATION INVOLUNTARY TERMINATION (RETRENCHMENT, POLICY COMPONENT (IE RESIGNATION) RETIREMENT, DEATH)
Guaranteed package Paid up to last day of service Paid up to last day of service including notice period, where applicable. Medical aid Benefit continues to last day Benefit continues up to last day of service. Employees who of service qualify for post-retirement medical aid funding will continue to receive the employer contribution with effect from their normal retirement date. Retirement and risk Employer contributions paid until last day of service. Employee is entitled to the value of the plans investment, but all risk benefits cease on termination of service. Other benefits Not applicable Severance package in respect of retrenchments – one or two weeks for every completed year of service in terms of the relevant rules. Short-term incentive No pro rata bonus paid Pro rata STI payment (based on extent of achieving specified financial and strategic targets for the period and a personal performance agreement being in place at the date of exit). Long-term incentives All unvested awards (other than Depending on the nature of the instrument and reasons for certain deferred bonus shares) termination, a participant may retain all units or a pro rata will be forfeited portion. Accelerated vesting and settlement of retained units may apply in certain circumstances.
EXTERNAL BOARD APPOINTMENTS members serving on the boards of associate companies Tiger Brands encourages members of the executive appear on page 51. committee to consider accepting appropriate opportunities Non-executive directors to serve as non-executive directors on the main board or Fees and approval process committees of external companies. We believe this Non-executive directors are paid an annual retainer that encourages our executives to broaden their skills base reflects their overall contribution and input to the company, and experience. and not just for attendance at board and committee Under a formal policy, an executive is limited to one meetings. Fees are reviewed annually, and increases substantive outside directorship. The chairman of the Tiger are implemented in March after approval at the AGM. Brands board, chairman of the nominations committee, A bespoke survey is conducted every two years to and chairman of the remuneration committee are required benchmark these fees against South African companies to authorise these appointments based on a listed on the JSE, based on market capitalisation, revenue, recommendation from the CEO. Other than in respect of total assets and number of people. These are similar their appointment to the boards of associate companies, metrics to that of the benchmark group for executive directors’ fees under this policy may be retained by the directors and prescribed officers, but further expanded individual. Other than associate companies, Tiger Brands to include the diversity of skill and calibre required on the currently has no executive members serving as non- board or relevant committee. Companies comprising executive directors on the main boards or committees the peer group are detailed below: of external companies. Details of executive committee
RCL Foods Limited The Spar Group Ltd MTN Group Ltd Blue Label Telecoms Ltd Clicks Group Ltd Vodacom Group Ltd Pioneer Food Group Ltd Sappi Group Standard Bank Group Ltd Telkom SA SOC Ltd Woolworths Holding Ltd Datatec Ltd Distell Group Ltd Aspen Pharmacare Holdings Ltd JD Group Ltd WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 70 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
Targeted remuneration for FY19 was based on the 65th percentile of the peer group, which is in line with the revision of our internal anchor point. Non-resident non- executive directors are paid a premium in comparison to resident directors. The table below shows the range of the premium paid to non-resident non-executive directors across large JSE-listed organisations in various industries:
Premium for non-resident Target position non-executive directors
Minimum 72% Maximum 296% Average 171% Median 155%
The median for non-resident non-executive directors’ fees reflects a premium of 155% above resident director fees. Tiger Brands currently pays a premium of 130% for non-resident non-executive directors, which is below the market median. The chairman does not receive any additional remuneration for participating in committees of the board. Non-executive directors who perform services outside the scope of their ordinary duties will not receive additional remuneration. Shareholder approval will be sought for increasing non-executive directors’ fees, including fees paid for attending special board meetings. Details of proposed increases for FY20 appear in the notice of AGM of shareholders to be held on 18 February 2020. Details of non-executive directors’ fees paid in the review period appear on pages 80 and 81. Voting statement This remuneration policy is subject to a non-binding advisory vote by shareholders at the upcoming AGM. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 71
Section 3: Implementation report
In this section of the remuneration report we explain the implementation of our remuneration policy, providing details of the remuneration paid to our executive directors, prescribed officers and senior management for the financial year ended 30 September 2019. SALARY ADJUSTMENTS The remuneration committee approved an overall guaranteed package salary increase budget of 5% for the period 1 December 2018 to 30 November 2019. This included executive management. An additional budget was ringfenced and managed centrally to correct pay disparities. 2019 GUARANTEED PACKAGE The following increases to guaranteed packages were implemented in the reporting period for executive directors and prescribed officers. New amounts were effective from 1 December 2018: 1 Dec 2018 to 1 Dec 2017 to 30 Nov 2019 30 Nov 2018 Rand Rand % increase Executive directors LC Mac Dougall 9 537 728 9 083 550 5% NP Doyle 6 877 238 6 549 750 5% Prescribed officers PW Spies 5 095 650 4 853 000 5% Y Maharaj 5 092 500 4 850 000 5% PD Sithole 5 097 331 4 549 157 12,1%*
* PD Sithole was awarded a 12,1% increase to align remuneration with the market and that of his peers.
An average increase of 6% (2018: 6%) was awarded to executive directors and prescribed officers in comparison to an average increase of 5,32% (2018: 6%) for the rest of the company. 2019 SHORT-TERM INCENTIVE As indicated in the policy section, the STI for executive directors and prescribed officers is based on the combination of a business performance component and personal performance component. EXECUTIVE DIRECTORS The business multiplier for executive directors is weighted according to the table below. Results for FY19 were as follows:
Key Achievement Strategic performance Strategic objective indicator Threshold Target Stretch objective weighting Key performance indicator weighting Score = 50% Score = 100% Score = 200% Actual result Weighted result Growth 60% Sales volume growth 10% 40,0% 100,0% 140,0% <40% – Absolute gross margin 10% 98,6% 100,0% 103,6% <98,6% – PBIT 40% 98,6% 100,0% 103,6% <98,6% – Efficiency 10% Cost-saving initiatives 5% 98,6% 100,0% 123,4% 100% – Net working capital 5% 101,2% 100,0% 97,7% >101,2% – 30% Quality Reduction in execution-related People and 10% marketplace incidents yoy by >20% – sustainability 10% 15% 20% Safety (LTIFR) 10% 120,0% 100,0% 80,0% <120% – Level 7 Level 7 Level 6 Level 6 BBBEE score 10% (60 to 61) (61,1 to 65) –
The targeted percentages for “threshold”, “target” and “stretch” as set out above per KPI represent the targeted percentage achievement of the underlying budgeted amounts. Linear vesting will apply if the actual result falls between “threshold” and “target” or between “target” and “stretch”. Targets for the STI for 2018 and 2019 were not met, hence no STI was paid. Note for 2019, the EBIT threshold was not met to trigger payment of the STI. This is an overriding condition of the scheme. Therefore the weighted result for each KPI was zero in FY19. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 72 Tiger Brands Limited Integrated annual report 2019 Our governance
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For the review period, in addition to the financial targets above, the following KPIs as per the balanced scorecard applied to the CEO, CFO and prescribed officers. The level of achievement is reflected alongside each KPI in the table below. The FY19 personal performance multiplier is the aggregated result of assessing the KPIs for the relevant executive, as follows: Executive directors The business multiplier for executive directors is weighted according to the table below. The results for FY19 were as follows: LC Mac Dougall NP Doyle Key performance indicators Not met Partially met Met Exceeded Not met Partially met Met Exceeded Top-tier financial results Revenue Gross margin Cost savings Return on net assets Market performance On-shelf availability Innovation rate Power in Mind (Brand Health)* Compliance Zero high level 1 audit findings Reduction in consumer complaints Safety (LTIFR) BBBEE implementation People Improved employee engagement Percentage of leadership positions filled internally Diversity and inclusion Individual KPIs * Brand Health is measured on an individual category and not on an aggregated basis. Actual group Actual personal performance performance 2019 STI 2018 STI** Name GP* On-target % factor % factor % (Rand) (Rand) LC Mac Dougall 9 537 728 x 60% x – + – – – NP Doyle 6 877 238 x 60% x – + – – –
Prescribed officers The business multiplier for the prescribed officers is weighted according to the table below. Results for FY19 were as follows: Key Strategic performance Achievement Strategic objective indicator Threshold Target Stretch objective weighting Key performance indicator weighting Score = 50% Score = 100% Score = 200% Actual result Weighted result Growth 60% Sales volume growth 10% 40,0% 100,0% 140,0% <40% – Absolute gross margin 10% 98,6% 100,0% 103,6% <98,6% – PBIT 40% 98,6% 100,0% 103,6% <98,6% – 10% Cost savings initiatives 5% 98,6% 100,0% 123,4% 100% – Efficiency Net working capital 5% 101,2% 100,0% 97,7% >101,2% – Reduction in execution-related People and 30% Quality 10% marketplace incidents yoy by >20% – sustainability 10% 15% 20% Safety (LTIFR) 10% 120,0% 100,0% 80,0% <120% – Level 7 Level 7 Level 6 Level 6 BBBEE score 10% (60 to 61) (61.1 to 65) –
The targeted percentages for “threshold”, “target” and “stretch” as set out above per key performance indicator represent the targeted percentage achievement of the underlying budgeted amounts. Linear vesting will apply if the actual result falls between “threshold” and “target” or between “target” and “stretch”. Targets for the STI for 2018 and 2019 were not met, hence no STI was paid. Note for 2019, the EBIT threshold was not met to trigger payment of the STI. This is an overriding condition of the scheme. Therefore the weighted result for each KPI was zero in FY19. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 73
PW Spies Y Maharaj PD Sithole Partially Partially Partially Key performance indicators Not met met Met Exceeded Not met met Met Exceeded Not met met Met Exceeded Top-tier financial results Revenue Gross margin Cost savings Return on net assets Market performance On-shelf availability Innovation rate Power in Mind (Brand Health)* Compliance Zero high level 1 audit findings Reduction in consumer complaints Safety (LTIFR) BBBEE implementation People Improved employee engagement Percentage of leadership positions filled internally Diversity and inclusion Individual KPIs * Brand Health is measured on an individual category and not on an aggregated basis.
No STI was awarded to prescribed officers as illustrated below:
Actual group Actual business Actual personal performance unit performance performance 2019 STI 2018 STI** Name GP* On-target % factor % factor % factor % (Rand) (Rand) P Spies 5 095 650 x 50% x – + – + – – – Y Maharaj 5 092 500 x 50% x – + – + – – – PD Sithole 5 097 331 x 50% x – + – + – – –
* Annual guaranteed package in rand as at 30 September 2019. ** Includes the value of bonus deferrals. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 74 Tiger Brands Limited Integrated annual report 2019 Our governance
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2019 LONG-TERM INCENTIVES Long-term incentive awards made during the year to executive directors and prescribed officers are set out below: Deferred bonus shares and SARs Bonus-matching shares company‑matching shares Expected value (based on fair value) Deferred bonus shares Bonus- and company- matching matching Name PDT multiplier*** GP Award % Face value Number STI** Award % Face value Number Match % Face value Number SARS shares shares LC Mac Dougall* 137,5% 9 537 728 120% 15 737 099 57 420 – 50% – – 100% – – 4 721 130 – – NP Doyle* 175,0% 6 877 238 120% 14 443 489 52 700 – 50% – – 100% – – 4 333 047 – –
* Allocated on 6 December 2018 at a VWAP of R274.07. ** STI in respect of the year ended 30 September 2018. *** A performance differentiation tool (PDT) is used to modify the standard quantum of SARs and bonus-matching shares, based on an individual’s personal performance, leadership and ability. This is a discretionary percentage ranging from 0% to 200%. Deferred bonus shares and SARs Bonus-matching shares company‑matching shares Expected value (based on fair value) Deferred bonus shares Bonus- and company- matching matching Name PDT multiplier*** GP Award % Face value Number STI** Award % Face value Number Match % Face value Number SARS shares shares P Spies* 125,0% 5 095 650 110% 7 007 970 25 570 – 50% – – 100% – – 2 102 391 – – Y Maharaj* 137,5% 5 092 500 110% 7 704 108 28 110 – 50% – – 100% – – 2 311 232 – – PD Sithole* 175,0% 5 097 331 110% 9 814 447 35 810 – 50% – – 100% – – 2 944 334 – –
* Allocated on 6 December 2018 at a VWAP of R274,07. ** STI in respect of the year ended 30 September 2018. *** A performance differentiation tool (PDT) is used to modify the standard quantum of SARs and bonus-matching shares, based on an individual’s personal performance, leadership and ability. This is a discretionary percentage ranging from 0% to 200%.
Only share appreciation rights were awarded. Bonus-matching shares, deferred bonus shares and company-matching shares were not awarded to executive directors and prescribed officers in addition to Share Appreciation Rights as the STI targets were not met. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 75
2019 LONG-TERM INCENTIVES Long-term incentive awards made during the year to executive directors and prescribed officers are set out below: Deferred bonus shares and SARs Bonus-matching shares company‑matching shares Expected value (based on fair value) Deferred bonus shares Bonus- and company- matching matching Name PDT multiplier*** GP Award % Face value Number STI** Award % Face value Number Match % Face value Number SARS shares shares LC Mac Dougall* 137,5% 9 537 728 120% 15 737 099 57 420 – 50% – – 100% – – 4 721 130 – – NP Doyle* 175,0% 6 877 238 120% 14 443 489 52 700 – 50% – – 100% – – 4 333 047 – –
* Allocated on 6 December 2018 at a VWAP of R274.07. ** STI in respect of the year ended 30 September 2018. *** A performance differentiation tool (PDT) is used to modify the standard quantum of SARs and bonus-matching shares, based on an individual’s personal performance, leadership and ability. This is a discretionary percentage ranging from 0% to 200%. Deferred bonus shares and SARs Bonus-matching shares company‑matching shares Expected value (based on fair value) Deferred bonus shares Bonus- and company- matching matching Name PDT multiplier*** GP Award % Face value Number STI** Award % Face value Number Match % Face value Number SARS shares shares P Spies* 125,0% 5 095 650 110% 7 007 970 25 570 – 50% – – 100% – – 2 102 391 – – Y Maharaj* 137,5% 5 092 500 110% 7 704 108 28 110 – 50% – – 100% – – 2 311 232 – – PD Sithole* 175,0% 5 097 331 110% 9 814 447 35 810 – 50% – – 100% – – 2 944 334 – –
* Allocated on 6 December 2018 at a VWAP of R274,07. ** STI in respect of the year ended 30 September 2018. *** A performance differentiation tool (PDT) is used to modify the standard quantum of SARs and bonus-matching shares, based on an individual’s personal performance, leadership and ability. This is a discretionary percentage ranging from 0% to 200%.
Only share appreciation rights were awarded. Bonus-matching shares, deferred bonus shares and company-matching shares were not awarded to executive directors and prescribed officers in addition to Share Appreciation Rights as the STI targets were not met. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 76 Tiger Brands Limited Integrated annual report 2019 Our governance
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LTI AWARDS VESTING OR WITH A PERFORMANCE PERIOD ENDING IN 2019 The outcome for awards due to vest in FY19, and whose performance conditions ended by 30 September 2019, are shown below. This applies to all eligible participants. Performance LTI measures condition result Total shareholder Real HEPS LTI allocation return growth (% vesting) Company-matching shares granted in 2016 N/A N/A 100% (time-based vesting) Deferred bonus shares granted in 2016 N/A N/A 100% (time-based vesting) Bonus-matching shares granted in 2016 N/A N/A 100% (time-based vesting) Performance shares granted in 2016*# 9 February 2016 – partially met, and 24 May 2016 – not met N/A 37,5%/0%
Share appreciation rights granted in 2014 – third tranche N/A 5% Share appreciation rights granted in 2015 – second N/A – tranche
Share appreciation rights granted in 2016 – first tranche N/A –
* Performance conditions for awards made on 9 February 2016 partially met, but not met for awards made on 24 May 2016. # The last allocation of performance shares was in May 2016.
Met Partially met Not met
Payments for termination of office No additional payments were made for executives terminating office. Compliance with remuneration policy There were no deviations from the remuneration policy in the financial year. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 77
SINGLE TOTAL FIGURE OF REMUNERATION The following tables disclose total remuneration received and receivable by executive directors and prescribed officers for the period 1 October 2018 to 30 September 2019: EXECUTIVE DIRECTORS LC Mac Dougall NP Doyle FY2019 FY2018 FY2019 FY2018 Remuneration element R’000 R’000 % R’000 R’000 % Basic salary 8 973 398 8 511 653 5 831 685 5 497 977 Retirement funding 328 810 339 880 960 971 913 148 Other benefits 159 824 153 092 30 000 72 000 Guaranteed package 9 462 032 9 004 625 6 822 656 6 483 125 Short-term incentive – – – – Cash remuneration 9 462 032 9 004 625 6 822 656 6 483 125 SARs – – 4 446 313 – Bonus-matching shares – – – – Deferred bonus shares and company- matching shares – – – – Total remuneration 9 462 032 9 004 625 5,1 11 268 969 6 483 125 73,8
PRESCRIBED OFFICERS PW Spies Y Maharaj PD Sithole FY2019 FY2018 FY2019 FY2018* FY2019 FY2018 Remuneration element R’000 R’000 % R’000 R’000 % R’000 R’000 % Basic salary 4 354 374 4 029 942 4 347 451 1 021 587 4 547 133 3 988 160 Retirement funding 338 725 344 639 338 732 84 797 338 836 344 981 Other benefits 363 917 408 446 365 901 1 106 116 120 000 141 624 Guaranteed package 5 057 016 4 783 027 5 052 084 2 212 500 5 005 969 4 474 765 Short-term incentive – – – – – – Cash remuneration 5 057 016 4 783 027 5 052 084 2 212 500 5 005 969 4 474 765 SARs – – – – 1 674 224 – Bonus-matching shares – – – – – – Deferred bonus shares and company-matching shares – – – – – – Total remuneration 5 057 016 4 783 027 5,7 5 052 084 2 212 500 128,3 6 680 193 4 474 765 49,3
* Y Maharaj appointed 1 July 2018. NUMBER AND VALUE OF LTI SHARE AWARDS Disclosure of the quantum and value of awards for the CEO and CFO outstanding at the beginning and end of the reporting period, as well as new awards made in the period, are provided in the tables on pages 78 and 79, with the cash value of awards settled during the reporting period indicated in the value-based tables. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 78 Tiger Brands Limited Integrated annual report 2019 Our governance
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Revised grant Value of Grant price price due to Adjustment Granted Adjustment Forfeited Performance Settled Face value Cash shares Closing fair at award Oceana Opening due to Oceana during due to Oceana during condition during Closing at award received acquired value vesting Name and awards Award date Vesting date ZAR unbundling*** number unbundling*** the year unbundling*** the year achieved the year number ZAR ZAR ZAR ZAR LC Mac Dougall 2016 Deferred bonus shares 07/12/2016 07/12/2019 – – 650 49,00 – – – – – 699 257 308,89 – – 146 803,98 2016 Company-matching shares 07/12/2016 07/12/2019 – – 650 49,00 – – – – – 699 257 308,89 – – 146 803,98 2016 Bonus-matching shares 07/12/2016 07/12/2019 – – 650 49,00 – – – – – 699 257 308,89 – – 146 803,98 2016 Performance shares 24/05/2016 24/05/2019 – – 8 160 618,00 – – 8 778 – – – – – – – 2016 SARS 24/05/2016 24/05/2019 341,68 317,64 12 000 – – – 12 000 – – – – – – – 24/05/2020 341,68 317,64 12 000 908,00 – – – – – 12 908 4 100 097,12 – – 113 461,32 24/05/2021 341,68 317,64 12 000 908,00 – – – – – 12 908 4 100 097,12 – – 159 671,96 2016 SARS 07/12/2016 07/12/2019 395,97 368,11 10 946 828,33 – – – – – 11 774 4 334 249,84 – – 79 947,72 07/12/2020 395,97 368,11 10 947 828,33 – – – – – 11 775 4 334 617,95 – – 90 787,82 07/12/2021 395,97 368,11 10 947 829,00 – – – – – 11 776 4 334 863,36 – – 92 794,88 2017 SARS 11/12/2017 11/12/2020 414,45 385,29 2 996 227,00 – – – – – 3 223 1 241 789,67 – – 24 430,34 11/12/2021 414,45 385,29 2 997 227,00 – – – – – 3 224 1 242 174,96 – – 30 015,44 11/12/2022 414,45 385,29 2 997 227,00 – – – – – 3 224 1 242 174,96 – – 44 168,80 2018 SARS 06/12/2018 06/12/2021 274,07 254,79 – – 19 140 1 448,00 – – – 20 588 5 245 616,52 – – 734 579,84 06/12/2022 274,07 254,79 – – 19 140 1 448,00 – – – 20 588 5 245 616,52 – – 823 520,00 06/12/2023 274,07 254,79 – – 19 140 1 448,00 – – – 20 588 5 245 616,52 – – 888 578,08 Total 87 940 5 748 57 420 4 344 20 778 – – 134 674 41 438 841 – – 3 522 368 NP Doyle 2015 Company-matching shares 03/12/2015 03/12/2018 – – 2 688 – – – – – 2 688 – – 497 243 231 323 – 2015 Deferred bonus shares 03/12/2015 03/12/2018 – – 2 688 – – – – – 2 688 – – 497 512 231 050 – 2016 Company-matching shares 07/12/2016 07/12/2019 – – 1 060 80,00 – – – – – 1 140 419 645,40 – – 239 422,80 2016 Deferred bonus shares 07/12/2016 07/12/2019 – – 1 060 80,00 – – – – – 1 140 419 645,40 – – 239 422,80 2015 Bonus-matching shares 04/02/2015 04/02/2018* – – 2 320 – – – – – 2 320 – – 429 411,36 199 407 – 2016 Bonus-matching shares 09/02/2016 09/02/2019 – – 1 330 – – – – – 1 330 – – 161 916,00 190 634 – 2016 Bonus-matching shares 07/12/2016 07/12/2019 – – 1 590 120,00 – – – – – 1 710 629 468,10 – – 359 134,20 2015 Performance shares 04/02/2015 04/02/2018* – – 4 358 – – – – – 4 358 – – 806 396,16 374 808 – 2016 Performance shares 09/02/2016 09/02/2019 – – 5 720 – – – 3 575 – 2 145 – – 261 214,00 307 371 – 2012 Phantom cash share options 02/07/2012 02/07/2015** 252,01 – 5 000 – – – – – 5 000 – – 89 950 – – 02/07/2016** 252,01 – 5 000 – – – – – 5 000 – – 89 950 – – 02/07/2017** 252,01 – 5 000 – – – – – 5 000 – – 89 950 – – 2013 Phantom cash share options 13/02/2013 13/02/2016 299,83 – 5 000 – – – 5 000 – – – – – – – 13/02/2017 299,83 – 5 000 – – – 5 000 – – – – – – – 13/02/2018* 299,83 – 5 000 – – – 5 000 – – – – – – – 2014 SARs 28/02/2014 28/02/2017 254,45 236,55 6 067 459,00 – – – – – 6 526 1 543 725,30 – – 18 077,02 28/02/2018* 254,45 236,55 6 067 459,00 – – – – – 6 526 1 543 725,30 – – 18 077,02 28/02/2019 254,45 236,55 6 066 23,00 – – 5 766 – – 323 76 405,65 – – 894,71 2015 SARs 04/02/2015 04/02/2018* 385,33 358,22 1 038 79,00 – – – – – 1 117 400 131,74 – – 793,07 04/02/2019 385,33 358,22 3 847 291,00 – – – – – 4 138 1 482 314,36 – – 2 937,98 04/02/2020 385,33 358,22 3 847 – – – 3 847 – – – – – – – 2016 SARs 09/02/2016 09/02/2019 291,71 271,19 7 623 – – – 7 623 – – – – – – – 09/02/2020 291,71 271,19 7 623 577,00 – – – – – 8 200 2 223 758,00 – – 76 014,00 09/02/2021 291,71 271,19 7 624 577,00 – – – – – 8 201 2 224 029,19 – – 146 797,90 2016 SARs 07/12/2016 07/12/2019 395,97 368,11 11 260 852,00 – – – – – 12 112 4 458 548,32 – – 82 240,48 07/12/2020 395,97 368,11 11 260 852,00 – – – – – 12 112 4 458 548,32 – – 93 383,52 07/12/2021 395,97 368,11 11 260 852,00 – – – – – 12 112 4 458 548,32 – – 95 442,56 2017 SARS 11/12/2017 11/12/2020 414,45 385,29 15 276 1 156,00 – – – – – 16 432 6 331 085,28 – – 124 554,56 11/12/2021 414,45 385,29 15 277 1 156,00 – – – – – 16 433 6 331 470,57 – – 152 991,23 11/12/2022 414,45 385,29 15 277 1 156,00 – – – – – 16 433 6 331 470,57 – – 225 132,10 2018 SARS 06/12/2018 06/12/2021 274,07 254,79 – – 17 566 1 329,00 – – – 18 895 4 814 257,05 – – 674 173,60 06/12/2022 274,07 254,79 – – 17 567 1 329,00 – – – 18 896 4 814 511,84 – – 755 840,00 06/12/2023 274,07 254,79 – – 17 567 1 330,00 – – – 18 897 4 814 766,63 – – 815 594,52 Total 182 226 8 769 52 700 3 988 35 811 – 30 529 181 343 57 776 055 2 923 542 1 534 593 4 120 924 * Vesting date and, where applicable, settlement of shares extended as a consequence of the voluntary closed period. ** Lapsing of shares extended as a consequence of closed period. Shares should have been exercised by 02/07/2018. *** Tiger Brands implemented the unbundling of its investment in Oceana Group Limited on 29 April 2019. Shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 79
Revised grant Value of Grant price price due to Adjustment Granted Adjustment Forfeited Performance Settled Face value Cash shares Closing fair at award Oceana Opening due to Oceana during due to Oceana during condition during Closing at award received acquired value vesting Name and awards Award date Vesting date ZAR unbundling*** number unbundling*** the year unbundling*** the year achieved the year number ZAR ZAR ZAR ZAR LC Mac Dougall 2016 Deferred bonus shares 07/12/2016 07/12/2019 – – 650 49,00 – – – – – 699 257 308,89 – – 146 803,98 2016 Company-matching shares 07/12/2016 07/12/2019 – – 650 49,00 – – – – – 699 257 308,89 – – 146 803,98 2016 Bonus-matching shares 07/12/2016 07/12/2019 – – 650 49,00 – – – – – 699 257 308,89 – – 146 803,98 2016 Performance shares 24/05/2016 24/05/2019 – – 8 160 618,00 – – 8 778 – – – – – – – 2016 SARS 24/05/2016 24/05/2019 341,68 317,64 12 000 – – – 12 000 – – – – – – – 24/05/2020 341,68 317,64 12 000 908,00 – – – – – 12 908 4 100 097,12 – – 113 461,32 24/05/2021 341,68 317,64 12 000 908,00 – – – – – 12 908 4 100 097,12 – – 159 671,96 2016 SARS 07/12/2016 07/12/2019 395,97 368,11 10 946 828,33 – – – – – 11 774 4 334 249,84 – – 79 947,72 07/12/2020 395,97 368,11 10 947 828,33 – – – – – 11 775 4 334 617,95 – – 90 787,82 07/12/2021 395,97 368,11 10 947 829,00 – – – – – 11 776 4 334 863,36 – – 92 794,88 2017 SARS 11/12/2017 11/12/2020 414,45 385,29 2 996 227,00 – – – – – 3 223 1 241 789,67 – – 24 430,34 11/12/2021 414,45 385,29 2 997 227,00 – – – – – 3 224 1 242 174,96 – – 30 015,44 11/12/2022 414,45 385,29 2 997 227,00 – – – – – 3 224 1 242 174,96 – – 44 168,80 2018 SARS 06/12/2018 06/12/2021 274,07 254,79 – – 19 140 1 448,00 – – – 20 588 5 245 616,52 – – 734 579,84 06/12/2022 274,07 254,79 – – 19 140 1 448,00 – – – 20 588 5 245 616,52 – – 823 520,00 06/12/2023 274,07 254,79 – – 19 140 1 448,00 – – – 20 588 5 245 616,52 – – 888 578,08 Total 87 940 5 748 57 420 4 344 20 778 – – 134 674 41 438 841 – – 3 522 368 NP Doyle 2015 Company-matching shares 03/12/2015 03/12/2018 – – 2 688 – – – – – 2 688 – – 497 243 231 323 – 2015 Deferred bonus shares 03/12/2015 03/12/2018 – – 2 688 – – – – – 2 688 – – 497 512 231 050 – 2016 Company-matching shares 07/12/2016 07/12/2019 – – 1 060 80,00 – – – – – 1 140 419 645,40 – – 239 422,80 2016 Deferred bonus shares 07/12/2016 07/12/2019 – – 1 060 80,00 – – – – – 1 140 419 645,40 – – 239 422,80 2015 Bonus-matching shares 04/02/2015 04/02/2018* – – 2 320 – – – – – 2 320 – – 429 411,36 199 407 – 2016 Bonus-matching shares 09/02/2016 09/02/2019 – – 1 330 – – – – – 1 330 – – 161 916,00 190 634 – 2016 Bonus-matching shares 07/12/2016 07/12/2019 – – 1 590 120,00 – – – – – 1 710 629 468,10 – – 359 134,20 2015 Performance shares 04/02/2015 04/02/2018* – – 4 358 – – – – – 4 358 – – 806 396,16 374 808 – 2016 Performance shares 09/02/2016 09/02/2019 – – 5 720 – – – 3 575 – 2 145 – – 261 214,00 307 371 – 2012 Phantom cash share options 02/07/2012 02/07/2015** 252,01 – 5 000 – – – – – 5 000 – – 89 950 – – 02/07/2016** 252,01 – 5 000 – – – – – 5 000 – – 89 950 – – 02/07/2017** 252,01 – 5 000 – – – – – 5 000 – – 89 950 – – 2013 Phantom cash share options 13/02/2013 13/02/2016 299,83 – 5 000 – – – 5 000 – – – – – – – 13/02/2017 299,83 – 5 000 – – – 5 000 – – – – – – – 13/02/2018* 299,83 – 5 000 – – – 5 000 – – – – – – – 2014 SARs 28/02/2014 28/02/2017 254,45 236,55 6 067 459,00 – – – – – 6 526 1 543 725,30 – – 18 077,02 28/02/2018* 254,45 236,55 6 067 459,00 – – – – – 6 526 1 543 725,30 – – 18 077,02 28/02/2019 254,45 236,55 6 066 23,00 – – 5 766 – – 323 76 405,65 – – 894,71 2015 SARs 04/02/2015 04/02/2018* 385,33 358,22 1 038 79,00 – – – – – 1 117 400 131,74 – – 793,07 04/02/2019 385,33 358,22 3 847 291,00 – – – – – 4 138 1 482 314,36 – – 2 937,98 04/02/2020 385,33 358,22 3 847 – – – 3 847 – – – – – – – 2016 SARs 09/02/2016 09/02/2019 291,71 271,19 7 623 – – – 7 623 – – – – – – – 09/02/2020 291,71 271,19 7 623 577,00 – – – – – 8 200 2 223 758,00 – – 76 014,00 09/02/2021 291,71 271,19 7 624 577,00 – – – – – 8 201 2 224 029,19 – – 146 797,90 2016 SARs 07/12/2016 07/12/2019 395,97 368,11 11 260 852,00 – – – – – 12 112 4 458 548,32 – – 82 240,48 07/12/2020 395,97 368,11 11 260 852,00 – – – – – 12 112 4 458 548,32 – – 93 383,52 07/12/2021 395,97 368,11 11 260 852,00 – – – – – 12 112 4 458 548,32 – – 95 442,56 2017 SARS 11/12/2017 11/12/2020 414,45 385,29 15 276 1 156,00 – – – – – 16 432 6 331 085,28 – – 124 554,56 11/12/2021 414,45 385,29 15 277 1 156,00 – – – – – 16 433 6 331 470,57 – – 152 991,23 11/12/2022 414,45 385,29 15 277 1 156,00 – – – – – 16 433 6 331 470,57 – – 225 132,10 2018 SARS 06/12/2018 06/12/2021 274,07 254,79 – – 17 566 1 329,00 – – – 18 895 4 814 257,05 – – 674 173,60 06/12/2022 274,07 254,79 – – 17 567 1 329,00 – – – 18 896 4 814 511,84 – – 755 840,00 06/12/2023 274,07 254,79 – – 17 567 1 330,00 – – – 18 897 4 814 766,63 – – 815 594,52 Total 182 226 8 769 52 700 3 988 35 811 – 30 529 181 343 57 776 055 2 923 542 1 534 593 4 120 924 * Vesting date and, where applicable, settlement of shares extended as a consequence of the voluntary closed period. ** Lapsing of shares extended as a consequence of closed period. Shares should have been exercised by 02/07/2018. *** Tiger Brands implemented the unbundling of its investment in Oceana Group Limited on 29 April 2019. Shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 80 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
INTERESTS OF DIRECTORS AND PRESCRIBED OFFICERS IN BBBEE SCHEMES No executive director or prescribed officer, was granted shares in terms of the Black Managers Trust (BMT) Scheme. Non-executive directors’ remuneration 2019 The non-executive director remuneration paid for the year ended 30 September 2019 is disclosed below, excluding VAT in rand:
Committee MO Ajukwu MJ Bowman MP Fandeso CH Fernandez GA Klintworth M Makanjee TE Mashilwane KD Mokhele RD Nisbet MP Nyama YGH Suleman BS Tshabalala DG Wilson
Notes 4 2 1 3 Board fees 938 898 408 216 104 543 209 086 938 898 408 216 408 216 1 895 752 – 408 216 99 565 – 104 543 Audit committee fees 207 382 133 619 – 93 426 – – 314 782 – – – 43 453 – 46 712 Investment committee fees – 38 418 – – – – – – – – 10 417 – 8 792 Remuneration committee, nomination and governance committee fees – 225 390 – – – 103 586 – – – 49 920 – – 13 416* Social, ethics and transformation committee fees – – – – 113 236 188 730 – – – 94 820 – – – Risk and sustainability committee fees 334 080 – 109 636 – – 145 252 – – 74 050 70 155 – – Extraordinary fees 50 837 – 22 103 22 103 50 837 22 103 22 103 22 103 – 22 103 – – 22 103 Ad hoc work/meetings – – – – – – 8 334 – – – 8 334 – – Total FY19 1 531 197 805 643 126 646 434 251 1 102 971 722 635 898 687 1 917 855 – 649 109 231 924 – 195 566 Total FY18 1 208 332 647 384 – – 229 000 683 284 555 884 1 805 504 873 012 572 598 876 207 525 362 –
* Member of the remuneration committee only. 1. YGH Suleman resigned on 22 November 2018. 2. CH Fernandez appointed on 1 March 2019. 3. DG Wilson appointed on 1 June 2019. 4. MP Fandeso appointed on 1 July 2019. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 81
INTERESTS OF DIRECTORS AND PRESCRIBED OFFICERS IN BBBEE SCHEMES No executive director or prescribed officer, was granted shares in terms of the Black Managers Trust (BMT) Scheme. Non-executive directors’ remuneration 2019 The non-executive director remuneration paid for the year ended 30 September 2019 is disclosed below, excluding VAT in rand:
Committee MO Ajukwu MJ Bowman MP Fandeso CH Fernandez GA Klintworth M Makanjee TE Mashilwane KD Mokhele RD Nisbet MP Nyama YGH Suleman BS Tshabalala DG Wilson
Notes 4 2 1 3 Board fees 938 898 408 216 104 543 209 086 938 898 408 216 408 216 1 895 752 – 408 216 99 565 – 104 543 Audit committee fees 207 382 133 619 – 93 426 – – 314 782 – – – 43 453 – 46 712 Investment committee fees – 38 418 – – – – – – – – 10 417 – 8 792 Remuneration committee, nomination and governance committee fees – 225 390 – – – 103 586 – – – 49 920 – – 13 416* Social, ethics and transformation committee fees – – – – 113 236 188 730 – – – 94 820 – – – Risk and sustainability committee fees 334 080 – 109 636 – – 145 252 – – 74 050 70 155 – – Extraordinary fees 50 837 – 22 103 22 103 50 837 22 103 22 103 22 103 – 22 103 – – 22 103 Ad hoc work/meetings – – – – – – 8 334 – – – 8 334 – – Total FY19 1 531 197 805 643 126 646 434 251 1 102 971 722 635 898 687 1 917 855 – 649 109 231 924 – 195 566 Total FY18 1 208 332 647 384 – – 229 000 683 284 555 884 1 805 504 873 012 572 598 876 207 525 362 –
* Member of the remuneration committee only. 1. YGH Suleman resigned on 22 November 2018. 2. CH Fernandez appointed on 1 March 2019. 3. DG Wilson appointed on 1 June 2019. 4. MP Fandeso appointed on 1 July 2019. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 82 Tiger Brands Limited Integrated annual report 2019 Our governance
REMUNERATION REPORT CONTINUED
NON-EXECUTIVE DIRECTORS’ REMUNERATION FY20 The following table reflects the proposed fees from 1 March 2020, excluding VAT, subject to the approval of shareholders at the AGM on 18 February 2020: Proposed fees to be Proposed rate resident paid to non-resident Current rate board members – board members – Forum Capacity effective March 2019 effective March 2020 effective March 2020
Main board Chairman 1 941 990 2 077 929 * Member 418 173 435 000 1 000 500 Audit Chairman 326 890 344 869 * Member 186 851 194 325 * Remuneration and nominations Chairman 229 810 245 897 * Member 107 331 114 844 * Risk and sustainability Chairman 290 443 302 061 * Member 148 100 154 024 354 255 Social, ethics and transformation Chairman 195 111 202 915 * Member 98 467 103 883 238 930 Hourly fees* 4 396 4 572 10 516 Extraordinary meetings** 22 103 22 987 52 870
* Hourly fees are for the sole purpose of the calculation of fees for the investment committee meetings which are held on an ad hoc basis. ** Payment of fees for extraordinary meetings are at the discretion of the chairman of the board and chairman of the remuneration committee. NON-BINDING ADVISORY VOTE This implementation report is subject to a non-binding advisory vote by shareholders at the AGM on 18 February 2020. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 83
INTERVIEW WITH THE CHAIRMAN OF THE SOCIAL, ETHICS AND TRANSFORMATION (SET) COMMITTEE
Last year was a very challenging year for A further challenge experienced last year Tiger Brands as it engaged in managing was the significant drop in Tiger Brands’ Q the listeriosis crisis and the class action Q BBBEE rating, from a level 3 to a level 8 instituted against the company. What has contributor. You indicated in your the company done since the outbreak to chairman’s report last year that plans will regain consumer confidence? be put in place to improve the BBBEE score to level 4 by 2022. What improvement Yes, it certainly was a challenging period and we have measures have been put in place? worked very hard to regain the trust of our consumers regarding the quality of our products. We have implemented The revised agri-sector codes introduced sub-minimum a comprehensive seven-step safety promise and elements last year which, if missed, result in discounting. accompanying protocols that include full traceability from raw These revisions impacted our enterprise and supplier material sourcing through to the finished product. This year, development scores, which in turn also impacted our we commissioned an independent international auditing body preferential procurement score. I am, however, pleased to undertake food safety and quality audits at all relevant with the significant progress that we made in 2019, and operations; it is pleasing to report that all of Tiger Brands’ I am confident that the plans we are putting in place will manufacturing sites have achieved external certification set us firmly on the path to achieving a level 4 contributor aligned with the Global Food Safety Initiative (GFSI). status by 2022. To promote broader food safety, Tiger Brands funded This year we launched the Dipuno Enterprise and Supplier the establishment of the Centre for Food Safety at Development Fund to support smallholder farmers and Stellenbosch University, which conducts academic other emerging suppliers and enterprises to transform research in this area. The results of its independent our supply value chain. The fund will be managed as an research activities will be used to inform government on independent entity with its own board. It will be used food safety regulation, raise consumer awareness and as a vehicle through which Tiger Brands will execute its improve communication on food safety. The centre is also enterprise and supplier development projects and drive training postgraduate students in food safety, which will job creation and procurement spend with black-owned ensure that regulators and the food industry in South enterprises. Africa and the southern African region will have increased We have also done some work to understand who the access to qualified food safety scientists. beneficiaries of the mandated investments are, as these We have engaged actively with the class action process were formerly excluded from our scorecard calculations. to facilitate a speedy resolution of the matter for all This year we will be including mandated investments as stakeholders, by co-funding the class action communication we now have a better understanding of the profile of the campaign once it was certified. We will continue to act with beneficiaries. integrity and do the right thing once the courts have ruled on the matter. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 84 Tiger Brands Limited Integrated annual report 2019 Our governance
INTERVIEW WITH THE CHAIRMAN OF THE SOCIAL, ETHICS AND TRANSFORMATION (SET) COMMITTEE CONTINUED
Skills development and employment equity continued to There has been increasing evidence receive focus in 2019, with detailed and refreshed training recently of corruption within both the public and development programmes being implemented across Q and the private sector; what is Tiger Brands the company. Our socio-economic development unit doing to prevent this from happening within continues to implement the community development the company? strategy which now places greater emphasis on We recognise that there is a need for an agreed set of community skills and enterprise development, in addition values that are unique to Tiger Brands, and we firmly to building on the company’s successful community and believe that our values will help drive the right behaviours university food and nutrition programmes. across the business. We have recently rolled out our Tiger Brands had a protracted strike by its refreshed values and culture programme, supported by an bakery employees in Pretoria; unfortunately intensive communication campaign. The company has a Q at times the strike turned violent. How has confidential tip-off line that can be accessed by all this matter been resolved? employees and external stakeholders. All complaints received through the tip-off line or our consumer care line, The SET committee monitors and considers the employee or those that are uncovered through internal audits, are relations climate as part of its mandate. The strike was as investigated and reported to the SET committee. All senior a result of wage negotiations and was a protected strike. employees are required to undergo annual anti-bribery What was unfortunate was the violence against and and anti-corruption training. intimidation of those staff members who decided to return to work. The perpetrators of the violence were put through As a food company, product quality is disciplinary processes when they returned to work and clearly very important. Last year you appropriate consequence management was implemented. Q reported that the consumer contact centre The strike was limited to the Pretoria bakeries. received an increased number of consumer complaints because of the listeriosis crisis. One of the company’s top 10 risks is Have the consumer complaints reduced employee safety. How was the company’s significantly during this review period? Q performance this year? Quality of our products is critical to our success and we Employee safety is not negotiable for us and remains a top monitor consumer complaints very closely to ensure swift priority at Tiger Brands. We are very conscious that our responses to any issues. This year, we reported an 18% Bakery drivers sometimes travel into unsafe areas as part year-on-year reduction in consumer complaints; five of of their delivery routes. To enhance employee safety on the six cases referred to the consumer goods services these routes we have implemented security monitoring Ombudsman were closed with one pending closure. and support, and we are looking at solutions to remove We will continue to implement continuous improvement to cash from the vehicles. We are continuing to work with law ensure that our consumers are provided with quality enforcement agencies to gather information on the delivery products they can trust. routes and safety of the areas to which we deliver our products. Do you have any closing remarks? Despite our strong focus on employee safety, I am deeply It is increasingly clear that environmental, social saddened that one of our employees died while on duty. Qand governance (ESG) issues influence our ability In April 2019, Mr Aubrey Tornado Skosana, a driver at to generate value and could ultimately affect the Albany Pretoria, died following a multi-vehicle collision company’s future sustainability. For the Tiger Brands SET while on a delivery. I extend my sincere condolences to committee these are issues that receive as much focus his family and colleagues. Regrettably, there was also an as financial matters, as they have the potential to have a increase in the group’s lost-time injury frequency rate material negative impact on the company’s financial (LTIFR) to 0,38; this was accompanied by a 20,19% performance. Strategically, ESG issues also offer Tiger increase in the number of lost-time injuries. We will Brands a potential competitive advantage to be a source continue to look for solutions to improve the safety and for revenue generation. With this in mind, we are exploring security of our employees. some exciting business opportunities relating to closed loop economies, inclusive business, conversion of waste into energy or other valuable products, plant-based protein, and regenerative agriculture. These are some of the areas we will be focusing on and will progress as part of our sustainability strategy going forward. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 85
SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE (SET) MANDATE The SET committee is primarily focused on areas that impact the long-term growth and sustainability of the business; these cover the broader issues around economic, social and environmental impacts. The SET committee provides oversight of the company’s social and ethical performance through its monitoring and reporting function to the board; it receives and considers reports from the risk and sustainability committee covering the environmental risks that they monitor. This year the SET committee reviewed the following issues to ensure that there is effective and ethical leadership and an integrated approach to how Tiger Brands carries out its business activities:
WORKPLACE SOCIAL ENVIRONMENT ECONOMY NATURAL ENVIRONMENT
›› Transformation ›› Social development ›› Social and economic ›› Greenhouse gas ›› Employment equity ›› Consumer relations development emissions ›› Decent work and protection ›› Corruption prevention ›› Waste ›› Employee safety and ›› Advertising ›› BBBEE ›› Water health ›› Human rights ›› Energy ›› Employee relations ›› Public health and ›› Education and training safety ›› Organisational ethics ›› Sponsorships
The SET committee’s annual work plan is structured to focus on material ESG issues. The committee provides guidance to the CEO and the executive committee in respect of continuous improvement within these performance areas. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 86 Tiger Brands Limited Integrated annual report 2019 Administration
SHAREHOLDERS’ DIARY
Financial year end 30 September Annual general meeting 18 February 2020
Reports and accounts Announcement of interim results and dividend for the six months ending 31 March 2020 May 2020 Announcement of annual results and final dividend for the year ending 30 September 2020 November 2020 Integrated annual report December 2020
Dividends 2020 Declaration Payment Ordinary shares Interim dividend May 2020 July 2020 Final dividend November 2020 January 2020 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Integrated annual report 2019 87
DECLARATION OF FINAL DIVIDEND NUMBER 150
The board has approved and declared a final gross cash dividend of 434 cents per ordinary share in respect of the year ended 30 September 2019. The dividend will be subject to the dividends tax introduced with effect from 1 April 2012. In accordance with paragraphs 11.17(a)(i) to (x) and 11.17(c) of the JSE Listings Requirements the following additional information is disclosed: ›› The dividend has been declared out of income reserves ›› The local dividends tax rate is 20% (twenty percent) effective 22 February 2017 ›› The net local dividend amount is 434 cents per ordinary share for shareholders exempt from the dividends tax ›› The net local dividend amount is 347,2 cents per ordinary share for shareholders liable to pay the dividends tax ›› Tiger Brands has 189 818 926 ordinary shares in issue (which includes 10 326 758 treasury shares) ›› Tiger Brands Limited’s income tax reference number is 9325/110/71/7. Shareholders are advised of the following dates in respect of the final dividend: Declaration date Friday, 22 November 2019 Last day to trade cum the final dividend Tuesday, 7 January 2020 Shares commence trading ex the final dividend Wednesday, 8 January 2020 Record date to determine those shareholders entitled to the final dividend Friday, 10 January 2020 Payment date in respect of the final dividend Monday, 13 January 2020
Share certificates may not be dematerialised or rematerialised between Wednesday, 8 January 2020 and Friday, 10 January 2020, both days inclusive.
By order of the board
JK Monaisa Company secretary Bryanston 21 November 2019 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 88 Tiger Brands Limited Integrated annual report 2019 Administration
COMPANY INFORMATION
TIGER BRANDS LIMITED SOUTH AFRICAN SHARE TRANSFER Registration number: 1944/017881/06 SECRETARIES Computershare Investor Services Proprietary Limited COMPANY SECRETARY Rosebank Towers, 15 Biermann Avenue JK Monaisa Rosebank, 2196 REGISTERED OFFICE PO Box 61051, Marshalltown, 2107 3010 William Nicol Drive AMERICAN DEPOSITORY RECEIPT (ADR) Bryanston FACILITY Sandton ADR Administrator POSTAL ADDRESS The Bank of New York Mellon PO Box 78056, Sandton, 2146 INVESTOR RELATIONS Telephone: +27 11 840 4000 Nikki Catrakilis-Wagner AUDITORS Telephone: +27 11 840 4000 Ernst & Young Inc. WEBSITE ADDRESS PRINCIPAL BANKER www.tigerbrands.com Nedbank Limited CONTACT DETAILS SPONSOR [email protected] JP Morgan Equities South Africa (Pty) Limited [email protected] Consumer helpline: 0860 005342
FORWARD-LOOKING INFORMATION This integrated annual report contains forward-looking statements that, unless otherwise indicated, reflect the company’s expectations at the time of finalising the report. Actual results may differ materially from these expectations if known and unknown risks or uncertainties affect the business, or if estimates or assumptions prove inaccurate. Tiger Brands cannot guarantee that any forward-looking statement will materialise and, accordingly, readers are cautioned not to place undue reliance on these statements. The company assumes no obligation to update or revise any forward-looking statements, even if new information becomes available as a result of future events or for any other reason, save as required by legislation or regulation. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 TIGER BRANDS
LIMITED INTEGRATED ANNUAL REPORT 2019 REPORT ANNUAL INTEGRATED
Head office: South Africa Physical address Tiger Brands Limited 3010 William Nicol Drive Bryanston Postal address PO Box 78056 Sandton, 2146 South Africa www.tigerbrands.com WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Annual financial statements 2019 TIGER BRANDS
LIMITED ANNUAL FINANCIAL STATEMENTS 2019
We nourish and nurture more lives every day WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 CONTENTS
ANNUAL FINANCIAL STATEMENTS Preparation of annual financial statements 1 Responsibility for annual financial statements 1 Directors’ approval 1 Certificate by company secretary 1 Audit committee report 2 Independent auditor’s report 5 Statutory information 9 Income statements 10 Statements of comprehensive income 11 Statements of financial position 12 Statements of changes in equity 13 Statements of cash flows 16 Notes to the statements of cash flow 17 Notes to the financial statements 19 Annexures 72 Segment report 99 Value added statement 101 Five-year review 102 Summary of ratios and statistics 103 Definitions 105 Shareholders’ information 107 Company information IBC WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 1
PREPARATION OF ANNUAL FINANCIAL STATEMENTS
The preparation of the annual financial statements for the year ended 30 September 2019, which appear on pages 10 to 104 in the annual financial statements, has been supervised by Noel Doyle, chief financial officer of Tiger Brands Limited.
RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS
The directors of Tiger Brands Limited are responsible for the integrity of the annual financial statements of the company, consolidated subsidiaries, associates and the objectivity of other information presented in the integrated annual report. The fulfilment of this responsibility is discharged through the establishment and maintenance of sound management and accounting systems, an organisational structure which provides for delegation of authority and establishes clear responsibility, together with the constant communication and review of the operations’ performance measured against approved plans and budgets. Management and employees operate in terms of a code of ethics approved by the board. The code requires compliance with all applicable laws and maintenance of the highest integrity in the conduct of all aspects of the business. The annual financial statements, prepared in terms of International Financial Reporting Standards, are audited by our external auditors in conformity with International Standards on Auditing. An audit committee of the board of directors, composed entirely of independent non-executive directors, meets periodically with our internal and external auditors as well as management to discuss internal financial controls and auditing and financial reporting matters. The auditors have unrestricted access to management, financial records as well as the audit committee. The directors have no reason to believe that the group’s operations will not continue as going concerns in the year ahead, other than where closures or discontinuations are anticipated, in which case provision is made to reduce the carrying cost of the relevant assets to net realisable value.
DIRECTORS’ APPROVAL
The annual financial statements for the year ended 30 September 2019, which appear on pages 10 to 104 are in agreement with the books of account at that date, were approved by the board of directors on 21 November 2019 and signed on its behalf by:
Khotso Mokhele Lawrence Mac Dougall Chairman Chief executive officer 21 November 2019
CERTIFICATE BY COMPANY SECRETARY
Certified in terms of section 88(2)(e) that the company has filed required returns and notices in terms of the Companies Act, No 71 of 2008, and that all such returns and notices appear to be true, correct and up to date.
Kgosi Monaisa Company secretary 21 November 2019 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 2 Tiger Brands Limited Annual financial statements 2019
AUDIT COMMITTEE REPORT
The fundamental role of an audit committee is to assist the board in fulfilling its oversight responsibilities in areas such as financial reporting, internal control systems and internal and external audit functions. The committee works closely with the group’s risk and sustainability committee, the social and ethics committee to identify common risk and internal control themes, and achieve synergies across all combined assurance processes to ensure that where appropriate, these functions can leverage off each other. This report is provided by the audit committee appointed for FY19.
The committee is constituted as a statutory committee ›› Determined the nature and extent of all non-audit of Tiger Brands in respect of its duties in terms of services provided by the external auditor and pre- section 94(7) of the Companies Act No 71 of 2008, as approved all non-audit services amended. The committee’s activities are guided by a ›› Obtained assurances from the external auditor that detailed charter informed by the Companies Act and adequate accounting records were being maintained King IVTM*, which was reviewed and approved by the board. ›› Considered whether any reportable irregularities were identified and reported by the external auditor in terms The committee has executed its duties and responsibilities of the Auditing Profession Act, No 26 of 2005, and for the group’s accounting, internal control, external determined there were none auditing and financial reporting practices for the review The committee chairman met with senior leadership period in line with its approved charter. ›› of the audit firm to discuss the firm’s risk and quality COMPOSITION processes independently from what the audit team The committee comprises three independent non- disclosed to the committee. executive directors, and its chairman is not the chairman INDEPENDENCE OF THE EXTERNAL AUDITOR of the board. Members and attendance are on pages 50 The audit committee is satisfied that Ernst & Young Inc. is and 51 of the integrated annual report. independent of the group after considering the following Biographical details of members are on pages 50 and 51 factors: of the integrated annual report, while fees are noted in the ›› Representations by Ernst & Young Inc. to the committee remuneration report on pages 80 and 81 of the integrated ›› The auditor does not, except as external auditor or in annual report. rendering permitted non-audit services, receive any AREAS OF FOCUS remuneration or other benefit from the company The auditor’s independence was not impaired by any EXTERNAL AUDIT ›› consultancy, advisory or other work undertaken The committee, among other matters: The auditor’s independence was not prejudiced by any ›› Nominated Ernst & Young Inc. to shareholders for ›› previous appointment as auditor appointment as the external auditor, with Ahmed The auditors met, in all material respects, the criteria Bulbulia as the designated auditor, for the financial year ›› specified for independence by the Independent ended 30 September 2019. It ensured that the Regulatory Board for Auditors and international appointment complied with all applicable legal and regulatory bodies. regulatory requirements, and that the auditor and designated auditor are accredited by the JSE Limited Non-audit fees ›› Approved the external audit engagement letter, plan The committee annually reviews and approves the list of and budgeted audit fees. Fees paid to the auditor are non-audit services which the auditors are permitted to detailed in note 3 of the group annual financial perform in line with the company’s Audit and Non-Audit statements Services Pre-Approval policy. There is a pre-approval ›› Reviewed the audit results, evaluated the effectiveness process where all non-audit service engagements above of the auditor and its independence, and evaluated the a certain threshold must be approved by the group chief external auditor’s internal quality-control procedures financial officer, and pre-approved by the chairman of the ›› Obtained an annual written statement from the auditor committee. If a higher threshold is to be applied it has to that its independence was not impaired be approved by the entire committee. A maximum limit of ›› Considered the reports of the external auditor on the 5% of the group’s annual audit fee is in place for non-audit group’s systems of internal control, including financial services, in aggregate and individually per firm. Quarterly, controls the cumulative spend for the year to date is presented to
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the committee to keep track of the non-audit spend and ›› Received assurance that proper and adequate the nature of services. The 2019 non-audit fees were 1,4% accounting records were maintained and that the of the audit fees. group’s systems safeguarded its assets against unauthorised use or disposal FINANCIAL STATEMENTS Reviewed significant issues raised by internal and For the financial statements, the committee: ›› forensic audit functions and the adequacy of corrective ›› Confirmed the going concern requirement as the basis action taken of preparing interim and annual financial statements ›› Assessed the performance of the internal audit function ›› Reviewed compliance with the financial conditions of and found it to be in general conformance with the loan covenants and determined that the capital and debt International Standards for the Professional of Internal facilities of the group are adequate Auditing as issued by the Institute of Internal Auditors ›› Examined and reviewed the interim and annual financial (IIA) standards. statements, as well as all financial information disclosed to the public before submission to and approval by the The committee confirms it has no reason to believe there board were any material breakdowns in the design and operating ›› Ensured that the annual financial statements fairly effectiveness of internal financial controls in the period that present the financial position of the company and group have not been addressed or are not being addressed at the end of the financial year and the results of by management. operations and cash flows for that period, and In terms of risk management and information considered the basis on which the company and group technology relevant to its functions, the committee: were determined to be a going concern ›› Reviewed the group’s policies on risk management Considered accounting treatments, significant unusual ›› practices, including fraud and information technology transactions and accounting judgements risks as they relate to financial reporting and the Considered the appropriateness of accounting policies ›› going concern assessment, and found them to be adopted and any changes adequate and effective ›› Reviewed the external auditor’s audit report including ›› Considered and reviewed the outcomes of the risk the key audit matters identified by the external auditors and sustainability committee meetings. which are included in the Tiger Brands Limited annual financial statements. The committee has considered the For sustainability issues, the committee: appropriateness of the key audit matters reported on by ›› Considered the outcomes of the risk and sustainability the external auditors and is satisfied with management’s committee meetings treatment and audit response thereof ›› Met with senior management to consider findings ›› Reviewed the representation letter on the group financial on assurance and made appropriate enquiries from statements signed by management management. Through this process, it has received the ›› Considered any problems identified and reviewed any necessary assurances that material disclosures are significant legal and tax matters that could have a reliable and do not conflict with financial information. material impact on the financial statements For legal and regulatory requirements, where these Met separately with management and external audit to ›› may affect the financial statements, the committee: review and discuss the annual financial statements ›› Reviewed, with management, legal matters that could Received and considered reports from the internal ›› have a material impact on the group auditors. ›› Reviewed, with the company’s internal counsel, the INTERNAL CONTROLS AND INTERNAL AUDIT adequacy and effectiveness of the group’s procedures For internal controls and internal audit, including forensic to ensure compliance with legal and regulatory audit, the committee: responsibilities ›› Reviewed and approved the internal audit charter and ›› Monitored concerns on accounting matters, internal annual audit plan, and evaluated the independence, audit, internal accounting controls, contents of the effectiveness and performance of the internal audit financial statements, potential violations of the law function and compliance with its charter and questionable accounting or auditing matters ›› Considered reports of the internal auditor on the group’s ›› Considered reports provided by management, the systems of internal control including financial controls internal auditor and external auditor on compliance and business risk management with legal and regulatory requirements. ›› Received assurance that an adequate and effective system of internal control and risk management is being maintained WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 4 Tiger Brands Limited Annual financial statements 2019
AUDIT COMMITTEE REPORT CONTINUED
COMBINED ASSURANCE ANNUAL FINANCIAL STATEMENTS During the year, the committee reviewed the plans and Following its review of the annual financial statements of work outputs of the external and internal auditors and Tiger Brands Limited for the year ended 30 September concluded these were adequate to address all significant 2019, the committee believes that, in all material respects, risks facing the business. these comply with the relevant provisions of the Companies Act and International Financial Reporting There is an enterprise-wide system of internal control Standards (IFRS) and fairly present the consolidated and and risk management in all key operations to manage separate financial position of the company at that date and and mitigate risks. The combined assurance approach is the results of its operations and cash flows for that year. integrated with the risk management process to assess The committee has also satisfied itself on the integrity of assurance activities across the various lines of defence. the remainder of the integrated annual report for the year CHIEF FINANCIAL OFFICER EXPERTISE AND ended 30 September 2019. EXPERIENCE Having achieved its objectives, the audit committee The committee considered the expertise, resources and recommended the annual financial statements and experience of the chief financial officer, Noel Doyle, and integrated report for approval by the board. The board concluded that these were appropriate. has since approved the annual financial statements and In addition, the committee is satisfied with: integrated report 2019, which will be open for discussion ›› The expertise, effectiveness and adequacy of resources at the upcoming annual general meeting. and arrangements in the finance function ›› The experience, effectiveness, expertise and continuous professional development of senior members of the On behalf of the committee finance function. Biographical details appear on page 53 of the integrated annual report. COMPANY SECRETARY The board is satisfied that Advocate Kgosi Monaisa Emma Mashilwane has the necessary skills, experience and qualifications for Chairman – Audit committee this position. 21 November 2019 All directors have unlimited access to the services of the company secretary, who is responsible to the board for ensuring proper corporate governance principles are applied. The company secretary also ensures the proper administration of proceedings and matters relating to the board, the company and shareholders in line with applicable legislation and procedures. He is responsible for director training and induction, as well as the annual board evaluation. The committee confirms that the company secretary maintains an arm’s length relationship with the board and directors, taking into account that the company secretary is not a director of the company nor related to any directors. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 5
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF TIGER BRANDS responsibilities, as applicable, in accordance with the IRBA LIMITED Codes and in accordance with other ethical requirements applicable to performing audits of the group and company REPORT ON THE AUDIT OF THE FINANCIAL and in South Africa. The IRBA Codes are consistent with STATEMENTS the corresponding sections of the International Ethics Opinion Standards Board for Accountants’ Code of Ethics for We have audited the consolidated and separate financial Professional Accountants (IESBA Code) and the statements of Tiger Brands Limited and its subsidiaries International Ethics Standards Board for Accountants’ (the group) and company set out in pages 10 to 100, which International Code of Ethics for Professional Accountants comprise the consolidated and separate statement of (including International Independence Standards) financial position as at 30 September 2019, and the respectively. We believe that the audit evidence we have consolidated and separate statement of comprehensive obtained is sufficient and appropriate to provide a basis income, the consolidated and separate statement of for our opinion. changes in equity and consolidated and separate statement of cash flows for the year then ended, and Key audit matters notes to the financial statements, including a summary Key audit matters are those matters that, in our of significant accounting policies. professional judgement, were of most significance in our audit of the consolidated and separate financial statements In our opinion, the consolidated and separate financial of the current period. These matters were addressed in statements present fairly, in all material respects, the the context of our audit of the consolidated and separate consolidated and separate financial position of the financial statements as a whole, and in forming our opinion group and company as at 30 September 2019, and its thereon, and we do not provide a separate opinion on consolidated and separate financial performance and these matters. For each matter below, our description of consolidated and separate cash flows for the year then how our audit addressed the matter is provided in that ended in accordance with International Financial Reporting context. Standards and the requirements of the Companies Act of South Africa. We have fulfilled the responsibilities described in the auditor’s responsibilities for the audit of the consolidated Basis for opinion and separate financial statements section of our report, We conducted our audit in accordance with International including in relation to these matters. Accordingly, our Standards on Auditing (ISA). Our responsibilities under audit included the performance of procedures designed those standards are further described in the auditor’s to respond to our assessment of the risks of material responsibilities for the audit of the consolidated and misstatement of the consolidated and separate financial separate financial statements section of our report. We are statements. The results of our audit procedures, including independent of the group and company in accordance the procedures performed to address the matters on the with sections 290 and 291 of the Independent Regulatory following pages, provide the basis for our audit opinion on Board for Auditors’ Code of Professional Conduct for the accompanying consolidated and separate financial Registered Auditors (revised January 2018), parts 1 and statements. 3 of the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (revised We have identified that there are no key audit matters November 2018) (together the IRBA Codes) and other relating to the separate financial statements and the independence requirements applicable to performing identified key audit matters relate only to the consolidated audits of financial statements of the group and company financial statements. and in South Africa. We have fulfilled our other ethical WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 6 Tiger Brands Limited Annual financial statements 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
Key audit matter and audit consideration How the matter was addressed in the audit
Revenue recognition – rebates and discounts As described in the accounting policy notes and Our audit procedures included: reflected in notes 2 and 23 to the group financial ›› Considering the appropriateness of the group's revenue statements, revenue is measured at the amount recognition accounting policies in terms of IFRS including rebates, of consideration to which the group expects to discounts and promotional allowances. be entitled in exchange for transferring promised ›› Evaluating the contract terms and conditions of a sample of goods. Normal discounts, volume rebates and contracts with customers in terms of the revenue recognition settlement discounts are treated as variable accounting policies. consideration which is estimated upfront and ›› Testing the effectiveness of the group's controls over the adjusted for in the transaction price accordingly. calculation of incentives and rebates and the correct timing Payments to customers such as promotional of revenue recognition and measurement. allowances and rebates are deducted from ›› On a sample basis based on the high value rebates and incentives revenue. paid, we inspected the terms in the agreements and agreed them to inputs used in the calculation. There are a number of operational, supply and Using data extraction tools, we agreed the sales volumes used in market share metrics which vary annually and ›› the calculation to those per the accounting records and considered are used in the estimation of the rebates, whether the amounts being used related to the correct period per discounts and promotional allowances due to the agreement and recalculated the rebates and incentives due to each customer and thus deducted from revenue. each customer based on their contractual terms. The majority of these rebates, discounts and ›› Developing an independent expectation of the estimated rebates promotional allowances tend to be low in unit and incentives due to each customer based on actual sales year to value but based on high volume. The date and operational, supply and customer market share metrics. agreements include those which span the We then compared this expectation to actual results. Where our financial year end of the group and to a lesser recalculation based on the contractual terms and estimation based extent may span the customer’s financial year on sales year to date and operational, supply and customer market end whose timing does not coincide with the share metrics differed to management’s final provision, we group’s year end. obtained support for the differences to vouch their validity. Testing the arithmetical accuracy of the management calculation There are therefore a number of agreements ›› and agreed the amount calculated to the amount recognised in requiring revenue estimation at the financial year the financial statements. end and for which final settlement will only occur Testing the prior period accrual to actual payments made to at the end of the agreement or at a future point. ›› customers to assess the historical accuracy of management’s Due to the number of customers that are eligible estimation process for incentives and rebates. for rebates, discounts and promotional ›› In addition, we tested the validity of the amounts payable at the allowances, the complexity of the arrangements year end by agreeing the amounts to subsequent payment to and the significant judgement and estimation customers where these had been completed by the date of required by management each year we consider our audit report. this to be a key audit matter. ›› Considering the adequacy and accuracy of the related disclosures in the financial statements. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 7
Key audit matter and audit consideration How the matter was addressed in the audit
Impairment assessment of non-financial assets (goodwill and property, plant and equipment (PPE)) Non-financial assets – goodwill and PPE Our audit procedures included: represent 29% of total assets and 42% ›› Assessing the reasonableness of the completeness of the of total equity. impairment assessments by evaluating management’s impairment assessment process. Management tests goodwill annually for Evaluating the determination of the cash-generating units to impairment. PPE is assessed annually for an ›› distinguish between standalone business valuations and brand indication of impairment and if such an indication valuations and fair value less cost to sell as these have different exists, management conducts an impairment valuation methodologies applied to them. assessment. ›› Evaluating the models used by management in determining The impairment assessment process is the value in use of the identified cash-generating units or the complex, and the calculation of the recoverable recoverable amount, as well as independently using our internal amount requires the use of estimates and transaction support experts, to assess the discount rates and assumptions concerning the future cash valuation methodology used. flows, evaluation of discount rates and other ›› Comparing the cash flow forecasts used in the impairment model assumptions, which are inherently uncertain to approved budgets and other relevant market and economic and could change over time. information. Identifying different risk dependent cash flows used in the valuation In performing the yearly assessment of ›› models so as to assess whether different specific risk premiums impairment as required by IAS 36 Impairment needed to be added to the discount rate when discounting those of Assets, management noted that certain cash flows. cash-generating units were either possibly Evaluating and challenged management’s future cash flow impaired or were sensitive to changes in volume ›› forecasts and the process by which they were drawn up, and and discount rates applied to the valuation tested the underlying value-in-use calculations by comparing future model impairments of goodwill and PPE. Refer cash flows to prior period actual results to assess management’s to note 13. forecast accuracy rate. Due to the complexity of the impairment ›› Calculating a range of possible impairment by performing a calculations and the estimates and judgement sensitivity analysis around the key assumptions of volume growth, required in evaluating recoverable amounts we margins and the discount rate used in the models as well as the fair consider this to be a key audit matter. value of the asset. ›› Considering the adequacy and accuracy of disclosures in the financial statements.
Other information The directors are responsible for the other information. the other information is materially inconsistent with the The other information comprises the information included consolidated and separate financial statements or our in the 108-page document titled “Tiger Brands Limited knowledge obtained in the audit, or otherwise appears annual financial statements for the year ended to be materially misstated. If, based on the work we 30 September 2019”, which includes the directors’ report, have performed, we conclude that there is a material the audit committee’s report and the company secretary’s misstatement of this other information, we are required to certificate as required by the Companies Act of South report that fact. We have nothing to report in this regard. Africa. The other information does not include the Responsibilities of the directors for the consolidated or the separate financial statements and our consolidated and separate financial statements auditor’s report thereon. The directors are responsible for the preparation and fair Our opinion on the consolidated and separate financial presentation of the consolidated and separate financial statements does not cover the other information and we statements in accordance with International Financial do not express an audit opinion or any form of assurance Reporting Standards and the requirements of the conclusion thereon. Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable In connection with our audit of the consolidated and the preparation of consolidated and separate financial separate financial statements, our responsibility is to read statements that are free from material misstatement, the other information and, in doing so, consider whether whether due to fraud or error. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 8 Tiger Brands Limited Annual financial statements 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
In preparing the consolidated and separate financial obtained up to the date of our auditor’s report. However, statements, the directors are responsible for assessing the future events or conditions may cause the group and/or group and the company’s ability to continue as a going the company to cease to continue as a going concern. concern, disclosing, as applicable, matters related to going ›› Evaluate the overall presentation, structure and content concern and using the going concern basis of accounting of the consolidated and separate financial statements, unless the directors either intend to liquidate the group and including the disclosures, and whether the consolidated company or to cease operations, or have no realistic and separate financial statements represent the alternative but to do so. underlying transactions and events in a manner that achieves fair presentation. Auditor’s responsibilities for the audit of the Obtain sufficient appropriate audit evidence regarding consolidated and separate financial statements ›› the financial information of the entities or business Our objectives are to obtain reasonable assurance about activities within the group to express an opinion on whether the consolidated and separate financial statements the consolidated and separate financial statements. as a whole are free from material misstatement, whether We are responsible for the direction, supervision and due to fraud or error, and to issue an auditor’s report that performance of the group audit. We remain solely includes our opinion. Reasonable assurance is a high level responsible for our audit opinion. of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material We communicate with the directors regarding, among other misstatement when it exists. Misstatements can arise from matters, the planned scope and timing of the audit and fraud or error and are considered material if, individually significant audit findings, including any significant deficiencies or in the aggregate, they could reasonably be expected to in internal control that we identify during our audit. influence the economic decisions of users taken on the basis We also provide the directors with a statement that we of these consolidated and separate financial statements. have complied with relevant ethical requirements regarding As part of an audit in accordance with ISAs, we exercise independence, and to communicate with them all professional judgement and maintain professional relationships and other matters that may reasonably be scepticism throughout the audit. We also: thought to bear on our independence, and where ›› Identify and assess the risks of material misstatement applicable, related safeguards. of the consolidated and separate financial statements, From the matters communicated with the directors, we whether due to fraud or error, design and perform audit determine those matters that were of most significance procedures responsive to those risks, and obtain audit in the audit of the consolidated and separate financial evidence that is sufficient and appropriate to provide a statements of the current period and are therefore the key basis for our opinion. The risk of not detecting a material audit matters. We describe these matters in our auditor’s misstatement resulting from fraud is higher than for one report unless law or regulation precludes public disclosure resulting from error, as fraud may involve collusion, about the matter or when, in extremely rare circumstances, forgery, intentional omissions, misrepresentations, or we determine that a matter should not be communicated in the override of internal control. our report, because the adverse consequences of doing so Obtain an understanding of internal control relevant to ›› would reasonably be expected to outweigh the public the audit in order to design audit procedures that are interest benefits of such communication. appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness Report on other legal and regulatory requirements of the group and the company’s internal control. In terms of the IRBA Rule published in Government ›› Evaluate the appropriateness of accounting policies Gazette Number 39475 dated 4 December 2015, we used and the reasonableness of accounting estimates report that Ernst & Young Inc. has been the auditor of and related disclosures made by the directors. Tiger Brands Limited for 16 years. ›› Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast Ernst & Young Inc. significant doubt on the group and the company’s ability Director – Ahmed Bulbulia to continue as a going concern. If we conclude that a Registered Auditor material uncertainty exists, we are required to draw Chartered Accountant (SA) attention in our auditor’s report to the related disclosures 102 Rivonia Road in the consolidated and separate financial statements or, Sandton if such disclosures are inadequate, to modify our opinion. Johannesburg Our conclusions are based on the audit evidence 21 November 2019 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 9
STATUTORY INFORMATION for the year ended 30 September 2019
AUTHORISED AND ISSUED SHARE CAPITAL Details of the directors’ shareholding (direct and indirect Details of authorised and issued share capital are set out in beneficial) are reflected below. note 20 on page 51 of the annual financial statements and in 2019 2018 the statements of changes in equity on pages 13 to 15. Direct Indirect Direct Indirect number number number number SUBSIDIARIES, ASSOCIATES AND of of of of INVESTMENTS Name of director shares shares shares shares Financial information concerning the principal subsidiaries, NP Doyle 10 610 – 4 950 – associates and investments of Tiger Brands Limited are set out in Annexure A and B of the annual financial statements. There were no changes to the direct and indirect beneficial DIVIDENDS interests of directors from 30 September 2019 to the date Details of dividends declared and paid during the year are the integrated annual report was released. outlined in note 10 to the annual financial statements. AMERICAN DEPOSITORY RECEIPT FACILITY MAJOR SHAREHOLDERS With effect from 9 September 1994, a sponsored American Details of the registered and beneficial shareholders of the Depository Receipt (ADR) facility was established. This ADR company are outlined on page 108 of the annual financial facility is sponsored by the Bank of New York Mellon and statements. details of the administrators are reflected under company information. DIRECTORS The following movements in the directorate were recorded SPECIAL RESOLUTIONS during the year under review: No special resolutions were passed during the year under review that would have affected the capital structure, APPOINTMENTS borrowing powers or any other material matter that affects 1 March 2019 Cora Fernandez the understanding of the group. 1 June 2019 Donald Wilson 1 July 2019 Monwabisi Fandeso PENSION AND POST-RETIREMENT MEDICAL 1 October 2019 Mahlape Sello AID OBLIGATIONS Details in respect of the pension and post-retirement medical RESIGNATIONS aid obligations of the group are set out in notes 28 and 29 The names of the directors who presently hold office are and Annexure E and F of the annual financial statements. set out on pages 50 to 52 of the integrated annual report. INSURANCE AND RISK MANAGEMENT No director holds 1% or more of the ordinary shares of the The group’s practice regarding insurance includes an annual company. The directors of the company beneficially hold, assessment, in conjunction with the group’s insurance directly and indirectly, 10 610 ordinary shares of its issued brokers, of the risk exposure relative to assets and possible ordinary shares. liabilities arising from business transactions. In addition, the The register of interests of directors in shares of the company group’s insurance programme is monitored by the risk and is available to the members on request. sustainability committee. All risks are considered to be adequately covered, except for political risks in the case of which as much cover as is reasonably available has been arranged. In respect of the group’s assets programme, cover of R6 billion per individual loss is purchased. Self-insurance programmes are in operation covering primary levels of risk at a cost more advantageous than open-market premiums. Regular risk management audits are conducted by the group’s risk management consultants, whereby improvement areas are identified and resultant action plans implemented accordingly. Assets are insured at current replacement values. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 10 Tiger Brands Limited Annual financial statements 2019
INCOME STATEMENTS for the year ended 30 September 2019
COMPANY GROUP
2018 2019 2018 (R’million) Notes 2019 Restated*
Continuing operations 1 562,3 2 026,9 Revenue 2 29 232,7 28 364,7 Cost of sales (20 382,4) (19 106,8) 1 562,3 2 026,9 Gross profit 8 850,3 9 257,9 Sales and distribution expenses (3 935,9) (3 664,4) Marketing expenses (860,0) (839,2) (12,9) (12,8) Other operating expenses (1 431,1) (1 465,0) Operating income before impairments 1 549,4 2 014,1 and abnormal items 3 2 623,3 3 289,3 (301,7) (245,0) Impairments and fair value losses 5 (307,1) (197,8) 3 274,0 616,0 Abnormal items 6 2 042,0 (422,1) Operating income after impairments and 4 521,7 2 385,1 abnormal items 4 358,2 2 669,4 54,1 115,2 Net (finance costs)/interest received 7 (1,0) (21,1) Investment income 12,7 2,5 Income from associated companies 14 371,2 730,7 4 575,8 2 500,3 Profit before taxation 4 741,1 3 381,5 (29,8) (43,9) Taxation 8 (797,8) (835,3) Profit for the year from continuing 4 546,0 2 456,4 operations 3 943,3 2 546,2 Discontinued operations Loss for the year from discontinued operations 33 (52,5) (114,9) Profit for the year 3 890,8 2 431,3 Attributable to: 4 546,0 2 456,4 Owners of the parent 3 863,3 2 401,1 – Continuing operations 3 915,8 2 519,3 – Discontinued operations (52,5) (118,2) Non-controlling interest 27,5 30,2 – Continuing operations 27,5 26,9 – Discontinued operations – 3,3
4 546,0 2 456,4 3 890,8 2 431,3 Basic earnings per ordinary share (cents) 2 332,6 1 457,7 – Continuing operations 2 364,3 1 529,5 – Discontinued operations (31,7) (71,8) Diluted basic earnings per ordinary share (cents) 2 325,3 1 451,2 – Continuing operations 2 356,9 1 522,6 – Discontinued operations (31,6) (71,4) Headline earnings per share is disclosed in note 9. * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 11
STATEMENTS OF COMPREHENSIVE INCOME for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) Notes 2019 2018
4 546,0 2 456,4 Profit for the year 3 890,8 2 431,3 (3,3) 4,3 Other comprehensive (loss)/income, net of tax (397,6) (108,5) Net gain/(loss) on hedge of net investment in foreign operation1 5,5 ( 7,9) Foreign currency translation (FCTR) adjustments1 (23,7) 24,0 Share of associates other comprehensive income and FCTR1 (389,0) (171,1) Net gain on cash flow hedges1 3,9 26,5 Net (loss)/gain on available-for-sale financial (3,3) 4,3 assets/FVOCI* financial assets1 (21,6) 8,6 Remeasurement raised in terms of IAS 19R2 54,6 20,9 Tax effect 22 (27,3) (9,5) Total comprehensive income for the 4 542,7 2 460,7 year, net of tax 3 493,2 2 322,8 Attributable to: 4 542,7 2 460,7 Owners of the parent 3 465,9 2 283,9 Non-controlling interests 27,3 38,9 4 542,7 2 460,7 3 493,2 2 322,8 * FVOCI – Fair value through other comprehensive income. 1 Items that may be subsequently reclassified to profit or loss including the related tax effects, with the exception of R24,3 million loss (2018: R24,3 million gain) relating to the share of associates’ other comprehensive income and fair value gains/(losses) on equity instruments measured at FVOCI. 2 Comprises a net actuarial gain of R48,6 million (2018: R24,5 million) and unrecognised gain due to asset ceiling of R6,0 million (2018: R3,6 million loss). WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 12 Tiger Brands Limited Annual financial statements 2019
STATEMENTS OF FINANCIAL POSITION as at 30 September 2019
COMPANY GROUP
Notes/ 2019 2018 (R’million) Annexures 2019 2018
Assets Non-current assets Property, plant and equipment 11 4 976,4 4 599,2 Goodwill 12 1 477,4 1 695,4 Intangible assets 12 1 744,4 1 751,8 2 551,4 2 551,4 Interest in subsidiary companies A 2 889,8 2 524,9 Amounts owed by subsidiaries 32 3 140,5 4 157,2 Investments 2 731,7 5 102,2 268,2 1 138,7 Investments in associated companies 14 2 274,1 4 910,2 2 189,7 2 166,1 Other investments 15 429,0 189,2 682,6 852,4 Loans 16 28,6 2,8 Deferred taxation asset 17 13,7 16,8 149,2 1 131,1 Current assets 11 213,4 10 763,0 Inventories 18 5 501,7 5 064,0 17,8 326,9 Trade and other receivables 19 3 987,8 4 117,9 64,0 499,5 Amounts owed by subsidiaries 32 67,4 304,7 Cash and cash equivalents 1 723,9 1 581,1 Assets classified as held for sale 34 23,5 – 8 730,9 10 364,6 Total assets 22 180,5 23 928,4 Equity and liabilities 8 697,9 10 215,5 Issued capital and reserves 15 244,4 17 302,0 142,0 142,0 Ordinary share capital and share premium 20 142,0 142,0 2 941,5 2 944,8 Non-distributable reserves 2 886,9 3 432,6 5 031,6 6 571,3 Accumulated profits 13 784,9 15 581,1 Tiger Brands Limited shares held by subsidiary 21 (718,0) (718,0) Tiger Brands Limited shares held by empowerment entities 21 (1 483,6) (1 747,1) 582,8 557,4 Share-based payment reserve 27 632,2 611,4 Non-controlling interests 163,1 163,2 8 697,9 10 215,5 Total equity 15 407,5 17 465,2 5,2 5,2 Non-current liabilities 998,6 1 062,2 5,2 5,2 Deferred taxation liability 17 415,8 370,4 Provision for post-retirement medical aid 29 582,8 617,5 Long-term borrowings 25 – 74,3 27,8 143,9 Current liabilities 5 625,2 5 401,0 27,8 23,8 Trade and other payables 23 4 504,6 3 841,5 Provisions 24 548,2 523,2 Taxation 53,4 119,4 Short-term borrowings 25 519,0 916,9 – 120,1 Amounts owed to subsidiaries 32 Liabilities directly associated with assets classified as held for sale 34 149,2 – 8 730,9 10 364,6 Total equity and liabilities 22 180,5 23 928,4 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 13
STATEMENTS OF CHANGES IN EQUITY for the year ended 30 September 2019
Non-distributable reserves Available- for-sale financial Total Share assets/ attributable capital Non- Other FVOCI Share-based to and distributable capital financial Accumulated payment owners of (R’million) premium reserves reserves asset profits reserve the parent
Company Balance at 1 October 2017 148,5 2 918,6 19,3 2,6 6 164,9 511,0 9 764,9 Profit for the year – – – – 2 456,4 – 2 456,4 Other comprehensive income for the year – – – 4,3 – – 4,3 Total comprehensive income – – – 4,3 2 456,4 – 2 460,7 Repurchase of Tiger Brands shares (6,5) – – – – – (6,5) Share-based payment – – – – – 46,4 46,4 Dividends on ordinary shares – – – – (2 050,0) – (2 050,0) Balance at 30 September 2018 142,0 2 918,6 19,3 6,9 6 571,3 557,4 10 215,5
Profit for the year – – – – 4 546,0 – 4 546,0 Other comprehensive loss for the year – – – (3,3) – – (3,3) Total comprehensive (loss)/ income – – – (3,3) 4 546,0 – 4 542,7 Share-based payment – – – – – 25,4 25,4 Dividends on ordinary shares – – – – (6 085,7) – (6 085,7) Total dividends – – – – (2 522,4) – (2 522,4) Dividends in specie – – – – (3 563,3) – (3,563,3) Balance at 30 September 2019 142,0 2 918,6 19,3 3,6 5 031,6 582,8 8 697,9 Note 20 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 14 Tiger Brands Limited Annual financial statements 2019
STATEMENTS OF CHANGES IN EQUITY CONTINUED for the year ended 30 September 2019
Non-distributable reserves Available- Shares for-sale held by financial subsidiary Share asset/ Foreign and Share- Total capital Share of net Other Cash flow FVOCI currency Accumu- empower- based attributable Non- and earnings of capital hedge financial translation lated ment payment to owners controlling Total (R’million) premium associates reserves reserve asset reserve profits entities reserve of the parent interests equity
Group Balance at 1 October 2017 148,5 2 361,2 (3,9) (5,9) 92,4 596,2 15 544,5 (2 489,2) 560,0 16 803,8 257,4 17 061,2 Profit for the year – – – – – – 2 401,1 – – 2 401,1 30,2 2 431,3 Other comprehensive income/(loss) for the year – – – 22,9 8,2 (163,4) 15,1 – – (117, 2) 8,7 (108,5) Total comprehensive income/(loss) – – – 22,9 8,2 (163,4) 2 416,2 – – 2 283,9 38,9 2 322,8 Disposal of subsidiary – – – – – (13,2) – – – (13,2) (94,5) (107,7 ) Transfers between reserves – 538,1 – – – – (550,3) – 12,2 – – – Share-based payment1 – – – – – – – – 39,2 39,2 – 39,2 Dividends on ordinary shares – – – – – – (1 829,3) – – (1 829,3) (19,7) (1 849,0) Total dividends – – – – – – (1 990,2) – – (1 990,2) (19,7) (2 009,9) Less: Dividends on empowerment shares – – – – – – 160,9 – – 160,9 – 160,9 Sale of shares by empowerment entity2 – – – – – – – 24,1 – 24,1 (18,9) 5,2 Repurchase of Tiger Brands shares3 (6,5) – – – – – – – – (6,5) – (6,5) Balance at 30 September 2018 142,0 2 899,3 (3,9) 17,0 100,6 419,6 15 581,1 (2 465,1) 611,4 17 302,0 163,2 17 465,2
Profit for the year – – – – – – 3 863,3 – – 3 863,3 27,5 3 890,8 Other comprehensive income/(loss) for the year – – – 4,7 (32,8) (408,5) 39,2 – – (397,4) (0,2) (397,6) Total comprehensive income/(loss) – – – 4,7 (32,8) (408,5) 3 902,5 – – 3 465,9 27,3 3 493,2 Transfers between reserves – 79,2 – – – – (74,6) – (4,6) – – – Share-based payment1 – – – – – – – – 25,4 25,4 – 25,4 Allocated shares on unbundling of Oceana4 – – – – – – – 260,1 – 260,1 – 260,1 Dividends on ordinary shares – – – – – – (5 624,1) – – (5 624,1) (27,4) (5 651,5) Total dividends – – – – – – (2 439,1) – – (2 439,1) (27,4) (2 466,5) Dividend in specie5 – – – – – – (3 369,2) – – (3 369,2) – (3 369,2) Less: Dividends on empowerment shares – – – – – – 184,2 – – 184,2 – 184,2 Disposal of investment in associate6 – – – – – (188,3) – – – (188,3) – (188,3) Sale of empowerment shares2 – – – – – – – 3,4 – 3,4 – 3,4 Balance at 30 September 2019 142,0 2 978,5 (3,9) 21,7 67,8 (177,2) 13 784,9 (2 201,6) 632,2 15 244,4 163,1 15 407,5 Notes 20 14 21 27
1 Included in the movement of the share-based payment are options exercised amounting to R32,9 million (2018: R46,5 million). 2 Relates to the exercising of options vested post the December 2014 lock-in period in terms of the Black Managers Participation Right Scheme (BMT). In the current year, R3,4 million (2018: R10,7 million) related to BMT I and nil to Brimstone SPV (2018: R13,4 million). 3 Tiger Brands Limited repurchased 2 250 942 of its own shares from BMT II and Brimstone SPV. 4 Relates to the value of Oceana shares allocated to the BEE entities on the unbundling of Oceana Group Limited (Oceana). 5 Relates to the non-cash dividend declared to the shareholders of Tiger Brands as part of the unbundling of Oceana. 6 Relates to release of the previously equity accounted FCTR on Oceana. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 15
Non-distributable reserves Available- Shares for-sale held by financial subsidiary Share asset/ Foreign and Share- Total capital Share of net Other Cash flow FVOCI currency Accumu- empower- based attributable Non- and earnings of capital hedge financial translation lated ment payment to owners controlling Total (R’million) premium associates reserves reserve asset reserve profits entities reserve of the parent interests equity
Group Balance at 1 October 2017 148,5 2 361,2 (3,9) (5,9) 92,4 596,2 15 544,5 (2 489,2) 560,0 16 803,8 257,4 17 061,2 Profit for the year – – – – – – 2 401,1 – – 2 401,1 30,2 2 431,3 Other comprehensive income/(loss) for the year – – – 22,9 8,2 (163,4) 15,1 – – (117, 2) 8,7 (108,5) Total comprehensive income/(loss) – – – 22,9 8,2 (163,4) 2 416,2 – – 2 283,9 38,9 2 322,8 Disposal of subsidiary – – – – – (13,2) – – – (13,2) (94,5) (107,7 ) Transfers between reserves – 538,1 – – – – (550,3) – 12,2 – – – Share-based payment1 – – – – – – – – 39,2 39,2 – 39,2 Dividends on ordinary shares – – – – – – (1 829,3) – – (1 829,3) (19,7) (1 849,0) Total dividends – – – – – – (1 990,2) – – (1 990,2) (19,7) (2 009,9) Less: Dividends on empowerment shares – – – – – – 160,9 – – 160,9 – 160,9 Sale of shares by empowerment entity2 – – – – – – – 24,1 – 24,1 (18,9) 5,2 Repurchase of Tiger Brands shares3 (6,5) – – – – – – – – (6,5) – (6,5) Balance at 30 September 2018 142,0 2 899,3 (3,9) 17,0 100,6 419,6 15 581,1 (2 465,1) 611,4 17 302,0 163,2 17 465,2
Profit for the year – – – – – – 3 863,3 – – 3 863,3 27,5 3 890,8 Other comprehensive income/(loss) for the year – – – 4,7 (32,8) (408,5) 39,2 – – (397,4) (0,2) (397,6) Total comprehensive income/(loss) – – – 4,7 (32,8) (408,5) 3 902,5 – – 3 465,9 27,3 3 493,2 Transfers between reserves – 79,2 – – – – (74,6) – (4,6) – – – Share-based payment1 – – – – – – – – 25,4 25,4 – 25,4 Allocated shares on unbundling of Oceana4 – – – – – – – 260,1 – 260,1 – 260,1 Dividends on ordinary shares – – – – – – (5 624,1) – – (5 624,1) (27,4) (5 651,5) Total dividends – – – – – – (2 439,1) – – (2 439,1) (27,4) (2 466,5) Dividend in specie5 – – – – – – (3 369,2) – – (3 369,2) – (3 369,2) Less: Dividends on empowerment shares – – – – – – 184,2 – – 184,2 – 184,2 Disposal of investment in associate6 – – – – – (188,3) – – – (188,3) – (188,3) Sale of empowerment shares2 – – – – – – – 3,4 – 3,4 – 3,4 Balance at 30 September 2019 142,0 2 978,5 (3,9) 21,7 67,8 (177,2) 13 784,9 (2 201,6) 632,2 15 244,4 163,1 15 407,5 Notes 20 14 21 27
1 Included in the movement of the share-based payment are options exercised amounting to R32,9 million (2018: R46,5 million). 2 Relates to the exercising of options vested post the December 2014 lock-in period in terms of the Black Managers Participation Right Scheme (BMT). In the current year, R3,4 million (2018: R10,7 million) related to BMT I and nil to Brimstone SPV (2018: R13,4 million). 3 Tiger Brands Limited repurchased 2 250 942 of its own shares from BMT II and Brimstone SPV. 4 Relates to the value of Oceana shares allocated to the BEE entities on the unbundling of Oceana Group Limited (Oceana). 5 Relates to the non-cash dividend declared to the shareholders of Tiger Brands as part of the unbundling of Oceana. 6 Relates to release of the previously equity accounted FCTR on Oceana. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 16 Tiger Brands Limited Annual financial statements 2019
STATEMENTS OF CASH FLOWS for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) Notes 2019 2018
225,9 1 783,6 Cash operating profit A 3 401,5 3 857,4 315,4 5,6 Working capital changes B 90,7 (573,2) 541,3 1 789,2 Cash generated from operations 3 492,2 3 284,2 56,7 71,7 Finance income and income from investments 45,8 35,1 (2,6) (0,1) Finance costs (67,0) (114,1) Dividends received from associate companies 1 323,2 – and subsidiaries 282,4 178,5 (32,1) (34,5) Taxation paid C (852,0) (780,6) 1 886,5 1 826,3 Cash available from operations 2 901,4 2 603,1 (2 522,4) (2 050,0) Dividends paid D (2 284,5) (1 854,5) Net cash inflow/(outflow) from operating (635,9) (223,7) activities 616,9 748,6 Purchase of property, plant and equipment E (1 103,5) (719,6) Net cash on disposal of subsidiary 103,5 (refer note 33) 307,7 103,4 581,5 – Proceeds on sale of associate investment 757,9 – (1,5) – Acquisition of investments – – Proceeds from disposal of property, plant, equipment and intangible assets 2,4 5,6 Proceeds on insurance claims – 11,7 (Increase)/decrease in loans to subsidiaries, (181,4) 85,0 associates and other – – Movement in trademark 2,3 – Net cash (outflow)/inflow from investing 398,6 188,5 activities (33,2) (598,9) Net cash inflow/(outflow) before financing (237,3) (35,2) activities 583,7 149,7 – (6,5) Repurchase of Tiger Brands shares – (6,5) Black Managers Trust (BMT) shares exercised 15,5 17,9 Shares exercised relating to equity-settled scheme (33,0) (46,6) Long-term borrowings (repaid)/raised (2,7) 86,3 Short-term borrowings (repaid)/raised (79,8) (52,9) Net cash outflow from financing – (6,5) activities (100,0) (1,8) Net increase/(decrease) in cash and (237,3) (41,7) cash equivalents 483,7 147,9 Effect of exchange rate changes on cash and cash equivalents 8,8 35,0 Cash and cash equivalents at the beginning 304,7 346,4 of the year F 669,2 486,3 Cash and cash equivalents at the end of 67,4 304,7 the year G 1 161,7 669,2 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 17
NOTES TO THE STATEMENTS OF CASH FLOWS for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) Notes 2019 2018
A Cash operating profit Operating profit before abnormal items and impairment 1 549,4 2 014,1 – Continuing operations 2 623,3 3 238,8 – Discontinued operations (17,1) 11,0 Proceeds/(costs) included in abnormal items 99,9 (99,6) Add back: Depreciation 621,6 593,1 Share-based payment expenses 60,9 81,9 Provision for post-retirement medical aid 3,7 22,0 Amortisation 9,2 9,8 Loss on disposal of plant, equipment and vehicles – 0,4 Dividends received from associate (1 323,2) (241,5) companies and subsidiaries (0,3) 11,0 Other non-cash items – – 225,9 1 783,6 Cash operating profit 3 401,5 3 857,4 B Working capital changes Increase in inventories (428,4) (444,0) (Increase)/decrease in trade and other 311,4 10,5 receivables (89,7) 3 47,7 Increase/(decrease) in trade and other 4,0 (4,9) payables 608,8 (476,9) 315,4 5,6 Working capital changes 90,7 (573,2) C Taxation paid Amounts (payable)/receivable at the 0,2 (17,0) beginning of the year, net (86,7) (66,4) Income statement charge (29,8) (43,9) – Continuing operations 8 (797,8) (8 37,0) – Discontinued operations 33 – (3,9) – 26,6 Deferred tax 17 19,7 41,0 Exchange rate difference and other non-cash items – (1,0) Amounts payable/(receivable) at the end of (2,5) (0,2) the year, net 12,8 86,7 (32,1) (34,5) Total taxation paid (852,0) (780,6) D Dividends paid (6 085,7) (2 050,0) Per statement of changes in equity (5 624,1) (1 829,3) Dividend in specie on unbundling of 3 563,3 – Oceana 3 369,2 – Dividends paid to outside shareholders (29,6) (25,2) (2 522,4) (2 050,0) Total dividends paid (2 284,5) (1 854,5) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 18 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE STATEMENTS OF CASH FLOWS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) Notes 2019 2018 E Purchase of property, plant and equipment Replacement (600,3) (496,3) Expansion (503,2) (223,3) (1 103,5) (719,6) F Cash and cash equivalents at the beginning of the year 304,7 346,4 Cash resources 1 581,1 1 221,4 Short-term borrowings regarded as cash – – and cash equivalents 25.4 (911,9) (735,1) 304,7 346,4 669,2 486,3 G Cash and cash equivalents at the end of the year 67,4 304,7 Cash resources 1 723,9 1 581,1 Short-term borrowings regarded as cash – – and cash equivalents 25.4 (518,5) (911,9) Discontinued operation (43,7) – 67,4 304,7 1 161,7 669,2 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 19
NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 September 2019
1 Accounting policies Losses are attributed to the non-controlling interest even Corporate information if that results in a deficit balance. The financial statements of Tiger Brands Limited (the Foreign currencies company) and the Tiger Brands group (the group) for Foreign currency transactions the year ended 30 September 2019 were authorised for The consolidated financial statements are presented in issue in accordance with a resolution of the directors on South African rand, which is the company’s functional 21 November 2019. Tiger Brands Limited is incorporated and presentation currency. Each foreign entity in the group and domiciled in South Africa, where the shares are determines its own functional currency. Transactions in publicly traded. foreign currencies are initially recorded in the functional Basis of preparation currency at the rate of exchange ruling at the date of The consolidated and separate financial statements have the transaction. been prepared on the historical-cost basis, except for Translation of foreign currency transactions items measured at fair value as indicated below and in Monetary assets and liabilities denominated in foreign accordance with the JSE Listings Requirements. The currencies are retranslated at the functional currency separate and consolidated financial statements are stated rate of exchange ruling at the reporting date. Exchange in millions. differences are taken to profit or loss, except for Statement of compliance differences arising on foreign currency borrowings that The consolidated and separate financial statements have provide a hedge against a net investment in a foreign been prepared in accordance with International Financial entity. These are taken directly to other comprehensive Reporting Standards (IFRS), IFRIC Interpretations (IFRS income, in the consolidated annual financial statements, Interpretations Committee), the Companies Act of South until the disposal of the net investment, at which time they Africa and the SAICA Financial Guides as issued by are recognised in profit or loss. Tax charges and credits the Accounting Practices Committee and the Financial attributable to such exchange differences are also Pronouncements as issued by the Financial Reporting accounted for in other comprehensive income. Standards Council. If non-monetary items measured in a foreign currency are Basis of consolidation carried at historical cost, the exchange rate used is the rate The consolidated financial statements include the financial applicable at the initial transaction date. If they are carried statements of the company and its subsidiaries (as well as at fair value, the rate used is the rate at the date when the structured entities controlled by the group or company). fair value was determined. The gain or loss arising on The financial statements of the subsidiaries are prepared retranslation of non-monetary items is treated in line with for the same reporting period using consistent accounting the recognition of gain or loss on change in fair value of the policies. Where the financial year end of a subsidiary is item (ie translation differences on items whose fair value not coterminous with that of the group or the accounting gain or loss is recognised in other comprehensive income policies adopted by the subsidiary differ from the group’s or profit or loss is also recognised in other comprehensive accounting policies, the financial statements of the income or profit or loss, respectively). subsidiary are adjusted in accordance with the group’s Foreign operations accounting policies and year end. At the reporting date the assets and liabilities of the foreign In assessing control (direct or de facto control) the operations are translated into the presentation currency following is considered: of the group (rand) at the exchange rate ruling at the ›› Power over the investee; reporting date. The income statement is translated at the ›› Exposure, or rights, to variable returns from its weighted average exchange rate for the year. Exchange involvement with the investee; and differences are taken directly to a separate component ›› The ability to use its power over the investee to affect of other comprehensive income. On disposal of a foreign the amount of the investor’s returns. operation, the deferred cumulative amount recognised in other comprehensive income relating to that particular A change in the ownership interest of a subsidiary, without foreign operation is recognised in the income statement. a change of control, is accounted for as an equity transaction. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 20 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued The company carries its investments in subsidiaries and On 11 October 2019, the Public Accountants and associate companies at cost less accumulated Auditors Board of Zimbabwe classified Zimbabwe impairment losses. as a hyperinflationary economy in accordance Associates with the provisions of IAS 29 Financial Reporting in An associate is an entity over which the group has Hyperinflationary Economies (IAS 29), applicable to entities significant influence through participation in the financial operating in Zimbabwe with financial periods ended on or and operating policy decisions. The entity is neither a after 1 July 2019. subsidiary nor a joint arrangement. Tiger Brands concurs with this classification and have Associates are accounted for using the equity method accounted for the associate National Foods Holdings of accounting in the consolidated financial statements. Limited in terms of IAS 29. Refer note 2 of Annexure B Goodwill relating to an associate is included in the carrying for more details. amount of the investment and is not tested separately for impairment. Goodwill and fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition The income statement reflects the group’s share of the of a foreign operation are treated as assets and liabilities associate’s profit or loss. However, an associate’s losses of that foreign operation, and are translated at the in excess of the group’s interest are not recognised. closing rate. Where an associate recognises an entry directly in other Interest in group companies comprehensive income, the group in turn recognises its Business combinations share in the consolidated other comprehensive income. Business combinations are accounted for using the Profits and losses resulting from transactions between the acquisition method. The value of an acquisition is group and associates are eliminated to the extent of the measured as the aggregate of the consideration interest in the underlying associate. transferred, measured at acquisition date fair value and After application of the equity method, each investment the amount of any non-controlling interest in the acquiree. is assessed for indicators of impairment. If applicable, the For each business combination, the acquirer measures the impairment is calculated as the difference between the non-controlling interest in the acquiree either at fair value current carrying value and the higher of its value in use or at the proportionate share of the acquiree’s identifiable or fair value less cost of disposal. Impairment losses are net assets. Acquisition costs incurred are expensed. recognised in profit or loss. If the business combination is achieved in stages, the Where an associate’s reporting date differs from the acquisition date fair value of the acquirer’s previously held group’s, the associate prepares financial statements as equity interest in the acquiree is remeasured to fair value of the same date as the group. If this is impracticable, as at the acquisition date through profit or loss. financial statements are used where the date difference Any contingent consideration to be transferred by the is no more than three months. Adjustments are made for acquirer is recognised at fair value at the acquisition date. significant transactions between the relevant dates. Where Subsequent changes to the fair value of the contingent the associate’s accounting policies differ from those of the consideration which is deemed to be an asset or liability, group, appropriate adjustments are made to conform the is recognised in accordance with IFRS 3.58 where the accounting policies. acquirer shall account for changes in the fair value of Segment reporting contingent consideration that are not measurement period The group has reportable segments that comprise the adjustments as follows: structure used by the chief operating decision-maker a. Contingent consideration classified as equity shall not (CODM) to make key operating decisions and assess be remeasured and its subsequent settlement shall be performance. The group’s reportable segments are accounted for within equity operating segments that are differentiated by the activities b. Other contingent consideration that: that each undertakes and the products they manufacture I. Is within the scope of IAS 39 shall be measured at and market (referred to as business segments). fair value at each reporting date and changes in fair value shall be recognised in profit or loss in accordance with that IFRS II. Is not within the scope of IAS 39 shall be measured at fair value at each reporting date and changes in fair value shall be recognised in profit or loss. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 21
1 Accounting policies continued Goodwill and intangible assets Goodwill The group evaluates the performance of its reportable Goodwill is initially measured at cost being the excess segments based on operating profit. The group accounts of the consideration transferred over the group’s net for intersegment sales and transfers as if the sales and identifiable assets acquired and liabilities assumed. If this transfers were entered into under the same terms and consideration is lower than the fair value of the net assets conditions as would have been entered into in a market- of the subsidiary acquired, the difference in profit or loss related transaction. is recognised as a "gain on bargain purchase". Goodwill The financial information of the group’s reportable relating to subsidiaries is recognised as an asset and is segments is reported to the CODM for purposes of making subsequently measured at cost less accumulated decisions about allocating resources to the segment and impairment losses. assessing its performance. Goodwill is reviewed annually for impairment, or more A number of segments comprising international entities frequently if there is an indicator of impairment. Goodwill are included in the “International operations” portion of is allocated to cash-generating units expected to benefit “Exports and International” as they individually don’t from the synergies of the combination. When the meet the qualitative thresholds indicated in IFRS 8 recoverable amount of a cash-generating unit is less than Operating Segments. its carrying amount, an impairment loss is recognised in Property, plant and equipment profit or loss. The impairment loss is allocated first to any Property, plant and equipment are stated at cost, goodwill assigned to the unit, and then to other assets excluding the costs of day-to-day servicing, less of the unit pro rata on the basis of their carrying values. accumulated depreciation and accumulated impairment Impairment losses recognised for goodwill cannot be losses. Expenditure incurred on major inspection and reversed in subsequent periods. overhaul, or to replace an item, is accounted for as Intangible assets separate components if the recognition criteria are met. Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset Depreciation is calculated on a straight-line basis, on the acquired in a business combination is the fair value at the difference between the cost and residual value of an asset, date of acquisition. Subsequently, intangible assets are over its useful life. Depreciation starts when the asset is carried at cost less any accumulated amortisation and available for use. An asset’s residual value, useful life and accumulated impairment losses. Unless internally depreciation method are reviewed at least at each financial generated, costs meet the criteria for development costs year end. Any adjustments are accounted for eligible for capitalisation in terms of IAS 38 (refer to the prospectively. research and development costs accounting policy on The following useful lives have been estimated: page 22); all internally generated intangible assets are Freehold land Not depreciated expensed as incurred. Freehold buildings The useful lives of intangible assets are either finite or ›› general purpose 40 years indefinite. ›› specialised 20 – 50 years Leasehold improvements Shorter of the lease term Intangible assets with finite lives are amortised over their or useful life useful life and assessed for impairment when there is an Vehicles and computer indication that the asset may be impaired. equipment 3 – 5 years The amortisation period and method are reviewed at each Plant and equipment 5 – 15 years financial year end. Changes in the expected useful life or An item of property, plant and equipment is derecognised pattern of consumption of future benefits are accounted upon disposal or when no future economic benefits are for prospectively. expected from its use. Any gain or loss arising on The following useful lives have been estimated: derecognition of the asset (calculated as the difference Trademarks and other 1 – 20 years between the net disposal proceeds and the carrying Customer and supplier-related intangibles 5 – 15 years amount of the asset) is included in profit or loss in the year the asset is derecognised. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 22 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued for use and indefinite life intangible assets, at each Intangible assets with indefinite useful lives are not reporting date for an indication that an asset may be amortised but are tested annually for impairment either impaired. If such an indication exists, the recoverable individually or at the cash-generating level. The useful lives amount is estimated as the higher of the fair value less are also reviewed each period to determine whether the cost of disposal and the value in use. If the carrying value indefinite life assessment continues to be supportable. exceeds the recoverable amount, the asset is impaired If not, the change in the useful life assessment to a finite and is written down to the recoverable amount. Where it life is accounted for prospectively. is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash- Certain trademarks have been assessed to have indefinite generating unit to which the asset belongs is estimated. useful lives, as presently there is no foreseeable limit to the period over which the assets can be expected to generate In assessing value in use, the estimated future cash flows cash flows for the group. are discounted to their present value using an appropriate pre-tax discount rate that reflects current market Research and development costs assessments of the time value of money and the risks Research costs, being the investigation undertaken specific to the asset. In determining fair value less cost of with the prospect of gaining new knowledge and disposal, the fair value is determined in terms of IFRS 13. understanding, are recognised as an expense in profit This is measured using the assumptions that market or loss as they are incurred. participants would use when pricing the asset, assuming Development costs arise on the application of research that market participants act in their economic best interest. findings to plan or design for the production of new or A fair value measurement of a non-financial asset takes substantially improved materials, products or services, into account a market participant’s ability to generate before the start of commercial production. Development economic benefits by using the asset in its highest and costs are only capitalised when the group can best use or by selling it to another market participant that demonstrate the technical feasibility of completing the would use the asset in its highest and best use. project, its intention and ability to complete the project and For assets excluding goodwill, an assessment is made at use or sell the materials, products or services flowing from each reporting date as to whether there is any indication the project, how the project will generate future economic that previously recognised impairment losses may no benefits, the availability of sufficient resources and the longer exist or may have decreased. If such an indication ability to measure reliably the expenditure during exists, the group estimates the asset’s or cash-generating development, otherwise development costs are unit’s recoverable amount. A previously recognised recognised as an expense in profit or loss. impairment loss is reversed only if there is a change in During the period of development, the asset is tested the estimates used to determine the asset’s recoverable annually for impairment. Following the initial recognition amount since the last impairment loss was recognised. of the development costs, the asset is carried at cost less If this is the case, the carrying amount of the asset is accumulated amortisation and accumulated impairment increased to the revised recoverable amount, but not in losses. Amortisation begins when development is excess of what the carrying amount would have been had complete. The development costs are amortised over there been no impairment. A reversal of an impairment loss the period of expected future sales. is recognised directly in profit or loss. Derecognition of intangible assets Financial instruments An intangible asset is derecognised on disposal, or when Financial instruments are initially recognised when the no future economic benefits are expected from its use. group becomes a party to the contract. The group has adopted trade date accounting for “regular way” Gains or losses arising from derecognition of an intangible purchases or sales of financial assets. The trade date asset are measured as the difference between the net is the date that the group commits to purchase or sell disposal proceeds and the carrying amount of the asset an asset. and are recognised in profit or loss when the asset is derecognised. Financial instruments are initially measured at fair value plus transaction costs, except that transaction costs in Impairment of non-financial assets respect of financial instruments classified at fair value The group assesses tangible and intangible assets, through profit or loss are expensed immediately. excluding goodwill, development assets not yet available WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 23
1 Accounting policies continued Financial liabilities at amortised cost Transaction costs are the incremental costs that are After initial recognition, liabilities that are not carried at fair directly attributable to the acquisition of a financial value through profit or loss are measured at amortised instrument, ie those costs that would not have been cost using the effective interest rate method. incurred had the instrument not been acquired. Gains and losses are recognised in profit or loss when (Pre 1 October 2018) the liabilities are derecognised as well as through the Classification amortisation process. The group’s classification of financial assets and financial Fair value liabilities are as follows: The fair value of listed investments is the quoted market Description of asset/liability Classification bid price at the close of business on the reporting date. Investments Available-for-sale For unlisted investments, the fair value is determined Derivatives Financial instruments at using appropriate valuation techniques. The group fair value through profit uses valuation techniques that are appropriate in the or loss circumstances and for which sufficient data is available Loans and advances receivable Loans and receivables to measure fair value, maximising the use of relevant Loans to subsidiaries Loans and receivables observable inputs and minimising the use of unobservable Trade and other receivables Loans and receivables inputs. Such techniques include using recent arm’s length Cash and cash equivalents Loans and receivables market transactions, reference to the current market value Loans payable and borrowings Financial liabilities at of similar instruments, discounted cash flow analysis and amortised cost option-pricing models. Trade and other payables Financial liabilities at An analysis of fair values of financial instruments and amortised cost further details as to how they are measured are provided Loans from subsidiaries Financial liabilities at in note 31. amortised cost Impairment of financial assets The group assesses at each reporting date whether there Available-for-sale financial assets These are non-derivative financial assets that are is objective evidence indicating that a financial asset, or designated as available-for-sale or are not classified as group of financial assets, is impaired. loans and receivables or held-to-maturity investments Available-for-sale financial assets or financial assets at fair value through profit or loss. In the case of equity investments classified as available- for-sale, objective evidence would include a significant or Available-for-sale financial assets are subsequently prolonged decline in the fair value of the investment below measured at fair value with unrealised gains or losses its cost. “Significant” is to be evaluated against the original recognised directly in other comprehensive income. When cost of the investment and “prolonged” against the period such a financial asset is disposed of, the cumulative gain in which the fair value has been below its original cost. or loss previously recognised in other comprehensive Factors taken into consideration would include external income is recognised in profit or loss. Interest earned on market and economic outlook reports, observable trends the financial asset is recognised in profit or loss using the and cyclicality. effective interest rate method. Dividends earned are recognised in profit or loss when the right of receipt has If an available-for-sale asset is impaired, the respective been established. other comprehensive income amount is transferred to Loans and receivables profit or loss. Loans and receivables are non-derivative financial assets Reversals in respect of equity instruments classified as with fixed or determinable payments that are not quoted available-for-sale are not recognised in profit or loss. in an active market. After initial recognition, loans and Reversals of impairment losses on debt instruments are receivables are measured at amortised cost, using the reversed through profit or loss based on the extent of the effective interest rate method, less impairment losses. impairment loss previously recognised. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 24 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued Loans to subsidiaries Amortised cost Loans and receivables Trade and other receivables Amortised cost If there is objective evidence that an impairment loss has Cash and cash equivalents Amortised cost been incurred, the amount of the loss is measured as the Loans payable and borrowings Financial liabilities at difference between the asset’s carrying amount and the amortised cost present value of the estimated future cash flows (excluding Trade and other payables Financial liabilities at future expected credit losses) discounted at the asset’s amortised cost original effective interest rate. Loans from subsidiaries Financial liabilities at amortised cost The group assesses whether there is objective evidence * Loans to some empowerment entities in the company are non-recourse of impairment. In relation to trade receivables, a provision in nature. The loan and the investment in the company are the only for impairment is made when there is objective evidence source of finance in these entities. As such, the loans fail “solely (such as the probability of insolvency or significant financial payments of principal and interest” (SPPI) and have been classified as FVTPL under IFRS 9. difficulties of the debtor) that the group will not be able to collect all of the amounts due under the original terms of Financial assets the sale. The carrying amount of the asset is reduced Initial recognition and measurement through the use of an allowance account, and is Financial assets are classified, at initial recognition, as recognised in profit or loss. Impaired debts are subsequently measured at amortised cost, fair value derecognised when they are assessed as uncollectible. through other comprehensive income (OCI), and fair value through profit or loss. If, in a subsequent period, the amount of the impairment decreases and the decrease relates objectively to an event The classification of financial assets at initial recognition occurring after the impairment, it is reversed to the extent depends on the financial asset’s contractual cash flow that the carrying value does not exceed the amortised characteristics. With the exception of trade receivables cost. Any subsequent reversal of an impairment loss is that do not contain a significant financing component or recognised in profit or loss. for which the group has applied the practical expedient, the group initially measures a financial asset at its fair value Derivative instruments plus, in the case of a financial asset not at fair value Derivatives are financial instruments whose value changes through profit or loss, transaction costs. Trade receivables in response to an underlying factor, requires little or no net that do not contain a significant financing component or investment and are settled at a future date. Derivatives, for which the group has applied the practical expedient other than those arising on designated hedges, are are measured at the transaction price determined under measured at fair value with changes in fair value being IFRS 15. recognised in profit or loss. (Post 1 October 2018) In order for a financial asset to be classified and measured Classification at amortised cost or fair value through OCI, it needs to The group’s classification of financial assets and financial give rise to cash flows that are SPPI on the principal liabilities are as follows: amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Description of asset/liability Classification Other investments Financial instruments at The group manages its financial assets in order to fair value through other generate cash flows primarily from collecting contractual comprehensive income cash flows. (OCI) and fair value Subsequent measurement through profit or loss For purposes of subsequent measurement, financial (FVTPL) assets are classified in the following categories: Derivatives Financial instruments at ›› Financial assets designated at fair value through OCI fair value through profit with no recycling of cumulative gains and losses upon or loss derecognition (equity instruments) Loans Amortised cost/fair ›› Financial assets at fair value through profit or loss value through profit or ›› Financial assets at amortised cost. loss* WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 25
1 Accounting policies continued assets with cash flows that are not solely payments of Financial assets at amortised cost (debt instruments) principal and interest are classified and measured at fair This category is the most relevant to the group. The group value through profit or loss, irrespective of the business measures financial assets at amortised cost if both of the model. Notwithstanding the criteria for debt instruments following conditions are met: to be classified at amortised cost or at fair value through ›› The financial asset is held within a business model with OCI, as described above, debt instruments may be the objective to hold financial assets in order to collect designated at fair value through profit or loss on initial contractual cash flows recognition if doing so eliminates, or significantly reduces, ›› The contractual terms of the financial asset give rise on an accounting mismatch. specified dates to cash flows that are solely payments Financial assets at fair value through profit or loss are of principal and interest on the principal amount carried in the statement of financial position at fair value outstanding. with net changes in fair value recognised in the statement Financial assets at amortised cost are subsequently of profit or loss. measured using the effective interest rate (EIR) method Financial liabilities at amortised cost and are subject to impairment. Gains and losses are After initial recognition, liabilities that are not carried at fair recognised in profit or loss when the asset is value through profit or loss are measured at amortised derecognised, modified or impaired. cost using the effective interest rate method. The group’s financial assets at amortised cost includes Gains and losses are recognised in profit or loss when trade receivables, cash and cash equivalents and loans. the liabilities are derecognised as well as through the Financial assets designated at fair value through OCI amortisation process. (equity instruments) Fair value Upon initial recognition, the group can elect to classify The fair value of listed investments is the quoted market irrevocably its equity investments as equity instruments bid price at the close of business on the reporting date. designated at fair value through OCI when they meet the For unlisted investments, the fair value is determined definition on equity under IAS 32 Financial Instruments: using appropriate valuation techniques. The group Presentation and are not held for trading. The classification uses valuation techniques that are appropriate in the is determined on an instrument-by-instrument basis. circumstances and for which sufficient data are available Gains and losses on these financial assets are never to measure fair value, maximising the use of relevant recycled to profit or loss. Dividends are recognised as observable inputs and minimising the use of unobservable other income in the statement of profit or loss when the inputs. Such techniques include using recent arm’s length right of payment has been established, except when the market transactions, reference to the current market value group benefits from such proceeds as a recovery of part of similar instruments, discounted cash flow analysis and of the cost of the financial asset, in which case such gains option-pricing models. are recorded in OCI. Equity instruments designated at fair An analysis of fair values of financial instruments and value through OCI are not subject to impairment further details as to how they are measured are provided assessment. in note 31.
The group elected to classify irrevocably its non-listed Impairment of financial assets equity investments under this category. The group recognises an allowance for expected credit Financial assets at fair value through profit or loss losses (ECLs) for all debt instruments not held at fair value Financial assets at fair value through profit or loss include through profit or loss. ECLs are based on the difference financial assets held for trading (derivatives) and non- between the contractual cash flows due in accordance recourse loans to empowerment entities. Financial assets with the contract and all the cash flows that the group are classified as held for trading if they are acquired for expects to receive, discounted at an approximation of the purpose of selling or repurchasing in the near term. the original effective interest rate. The expected cash flows Derivatives, including separated embedded derivatives, will include cash flows from the sale of collateral held or are also classified as held for trading unless they are other credit enhancements that are integral to the designated as effective hedging instruments. Financial contractual terms. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 26 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued undertaking the hedge. The documentation includes ECLs are recognised in two stages. For credit exposures identification of the hedging instrument, the hedged item for which there has not been a significant increase in credit or transaction, the nature of the risk being hedged and risk since initial recognition, ECLs are provided for credit how the entity will assess the hedging instrument’s losses that result from default events that are possible effectiveness in offsetting the exposure to changes in the within the next 12 months (a 12-month ECL). For those hedged item’s fair value or cash flows attributable to the credit exposures for which there has been a significant hedged risk. Such hedges are expected to be highly increase in credit risk since initial recognition, a loss effective in achieving offsetting changes in fair value or allowance is required for credit losses expected over the cash flows and are assessed on an ongoing basis to remaining life of the exposure, irrespective of the timing determine that they actually have been highly effective of the default (a lifetime ECL). throughout the financial reporting periods for which they were designated. For trade receivables and contract assets, the group Fair value hedges applies a simplified approach in calculating ECLs. Fair value hedges cover the exposure to changes in Therefore, the group does not track changes in credit risk, the fair value of a recognised asset or liability, or an but instead recognises a loss allowance based on lifetime unrecognised firm commitment (except for foreign ECLs at each reporting date. The group has established currency risk). Foreign currency risk of an unrecognised a provision matrix that is based on its historical credit loss firm commitment is accounted for as a cash flow hedge. experience, adjusted for forward-looking factors specific to the debtors and the economic environment. In terms The gain or loss on the hedged item adjusts the carrying of intercompany amounts and investments, the group amount of the hedged item and is recognised immediately evaluates potential impairments based on the net asset in profit or loss. The gain or loss from remeasuring the value of the subsidiary company and its liquidity. hedging instrument at fair value is also recognised in profit or loss. The group considers a financial asset in default when contractual payments are 60 days past due. However, When an unrecognised firm commitment is designated in certain cases, the group may also consider a financial as a hedged item, the change in the fair value of the firm asset to be in default when internal or external information commitment is recognised as an asset or liability with a indicates that the group is unlikely to receive the corresponding gain or loss recognised in profit or loss. outstanding contractual amounts in full before taking into The change in the fair value of the hedging instrument is account any credit enhancements held by the group. also recognised in profit or loss in the “Operating income A financial asset is written off when there is no reasonable before impairments and abnormal items” line in the income expectation of recovering the contractual cash flows. statement. Factors taken into consideration would include external The group discontinues fair value hedge accounting if market and economic outlook reports, observable trends the hedging instrument expires or is sold, terminated or and cyclicality. exercised, the hedge no longer meets the criteria for In terms of intercompany amounts, the group evaluates hedge accounting or the group revokes the designation. potential impairments based on the nature of the entity, Cash flow hedges and its liquidity and solvency position. Even with the Cash flow hedges cover the exposure to variability in consideration of forward-looking information relevant to the cash flows that are attributable to a particular risk industries and environment in which the group companies associated with: operate, the credit risk relating to these entities is very low ›› A recognised asset or liability and no/limited provisioning is required. No further ›› A highly probable forecast transaction IFRS 7/ECL disclosure is provided in this regard. ›› The foreign currency risk in an unrecognised firm (Pre and post 1 October 2018) commitment. Hedge accounting The portion of the gain or loss on the hedging instrument At the inception of a hedge relationship, the group formally that is determined to be an effective hedge is recognised designates and documents the hedge relationship to directly in other comprehensive income, while any which the group wishes to apply hedge accounting ineffective portion is recognised in profit or loss. and the risk management objective and strategy for WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 27
Amounts taken to other comprehensive income are in its present condition. For a sale to be highly probable, transferred to profit or loss when the hedged transaction management must be committed to the sale at a price affects profit or loss, such as when the hedged income that is reasonable to its current fair value and an active or financial asset or liability is recognised or when the programme to locate a buyer and complete the plan forecast sale or purchase occurs. Where the hedged item must be initiated. This should be expected to qualify for is the cost of a non-financial asset or liability, the amount recognition as a completed sale within one year from deferred in other comprehensive income is transferred the date of classification. to the initial carrying amount of the non-financial asset Assets classified as held for sale are not subsequently or liability. depreciated and are held at the lower of their carrying If the forecast transaction is no longer expected to occur, value and fair value less cost to sell. amounts previously recognised in other comprehensive A discontinued operation is a separate major line of income are transferred to profit or loss. If the hedging business, separate component or geographical area instrument expires or is sold, terminated or exercised of operation that has been disposed of, or classified without replacement or rollover, or if its designation as held for sale, as part of a single coordinated plan. is revoked, amounts previously recognised in other A subsidiary acquired exclusively with a view to resale comprehensive income remain in other comprehensive and that meets the criteria of a non-current asset held for income until the forecast transaction occurs. If the related sale is also defined as a discontinued operation. transaction is not expected to occur, the amount is taken to profit or loss. In the consolidated income statement of the reporting period and of the comparable period, income and Hedges of a net investment in a foreign operation Hedges of a net investment in a foreign operation, expenses from discontinued operations are reported including a hedge of a monetary item that is accounted for separate from income and expenses from continuing as part of the net investment, are accounted for similarly to activities down to the level of profit after taxes, even cash flow hedges. On consolidation, gains or losses on the when the group retains a non-controlling interest in the hedging instrument relating to the effective portion of the subsidiary after the sale. The resulting profit or loss (after hedge are recognised in other comprehensive income, taxes) is reported separately in the income statement. while any gains or losses relating to the ineffective portion Inventories are recognised in profit or loss. On disposal of the foreign Inventories are stated at the lower of cost or net realisable operation, the cumulative gain or loss recognised in other value. Costs incurred in bringing each product to its comprehensive income is transferred to profit or loss. present location and conditions are accounted for as follows: Derecognition of financial assets and financial liabilities Financial assets or parts thereof are derecognised when: Raw materials: Purchase cost on a first-in, first-out ›› The right to receive the cash flows have expired basis. ›› The right to receive the cash flows is retained, but an Finished goods and Cost of direct material and labour obligation to pay them to a third party under a “pass- work-in-progress: and a proportion of manufacturing through” arrangement is assumed overheads based on normal ›› The group transfers the right to receive the cash flows, operating capacity, but excluding and also transfers either all the risks and rewards, or borrowing costs. control over the asset. Consumables are written down with regard to their age, Financial liabilities are derecognised when the obligation condition and utility. is discharged, cancelled or expired. Costs of inventories include the transfer from other Non-current assets held for sale and discontinued comprehensive income of gains and losses on qualifying operations cash flow hedges in respect of the purchases of raw An item is classified as held for sale if its carrying amount materials. will be recovered principally through a sale transaction Net realisable value is the estimated selling price in the rather than through continuing use. This condition is ordinary course of business, less estimated completion regarded as met only when the sale is highly probable and and selling costs. the asset or disposal group is available for immediate sale WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 28 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued rebates and settlement discounts are treated as variable Provisions consideration, which is estimated upfront and adjusted Provisions are recognised when the group has a present for in the transaction price accordingly. Payments to legal or constructive obligation, as a result of past events, customers such as promotional allowances and rebates for which it is probable that an outflow of economic are deducted from revenue. If such a payment relates to a benefits will be required to settle the obligation, and period covering more than one financial year, the payment a reliable estimate can be made of the amount of the is recognised as a contract asset and is utilised over the obligation. related period of transferring control over goods sold to the customer. Returns and refunds are accepted from Leases customers based on individual trade term agreements, Group as a lessee and are not significant to the group. At inception date an arrangement is assessed to determine whether it is, or contains, a lease. An arrangement is Sale of goods accounted for as a lease where it is dependent on the Revenue from the sale of goods is recognised when the use of a specific asset and it conveys the right to use transfer of control has passed to the buyer when the that asset. performance obligation is satisfied. For domestic and international operations, the performance obligation is Leases are classified as finance leases where substantially generally satisfied upon delivery of goods and for export all the risks and rewards associated with ownership of an operations, the performance obligation is generally asset are transferred from the lessor to the group as satisfied upon shipment of goods. lessee. Finance lease assets and liabilities are recognised at the lower of the fair value of the leased assets or the Financing components on sales with a payment term of present value of the minimum lease payments. Finance 12 months or less from the transfer of control over goods lease payments are allocated, using the effective interest until payment date (or vice versa) are not adjusted for the rate method, between the lease finance cost, which is time value of money as allowed by the practical expedient included in financing costs, and the capital repayment, explained in IFRS 15.63. which reduces the liability to the lessor. With regards to unsatisfied performance obligations, Capitalised lease assets are depreciated in line with the the group applied the practical expedient relinquishing group’s stated depreciation policy for each asset. If there disclosure for contracts with a duration of one year or less. is no reasonable certainty that the group will obtain Dividend income ownership by the end of the lease term, the asset is Dividend income is recognised when the group’s right depreciated over the shorter of its estimated useful life to receive payment is established. Non-resident and lease term. shareholders’ taxation is provided in respect of foreign Operating leases are those leases which do not fall within dividends receivable, where applicable. the scope of the definition of a finance lease. Operating Interest received lease rentals are charged against trading profit on a For all financial instruments measured at amortised cost, straight-line basis over the lease term. interest received or expensed is recorded using the Group as a lessor effective interest rate, which is the rate that exactly Leases in which the group does not transfer substantially discounts the estimated future cash payments or receipts all the risks and benefits of ownership as an asset are through the expected life of the financial instrument or classified as operating leases. Initial direct costs incurred a shorter period, where appropriate, to the net carrying in negotiating an operating lease are added to the carrying amount of the financial asset or liability. Interest received amount of the leased asset and recognised over the lease is included in finance income in the income statement. term on the same basis as rental income. Contingent Borrowing costs rents are recognised as revenue in the period in which Borrowing costs directly attributable to the acquisition, they are earned. construction or production of an asset that necessarily Revenue takes a substantial period of time to get ready for its Revenue comprises sale of goods. Revenue is measured intended use or sale are capitalised as part of the cost at the amount of consideration to which an entity expects of the respective assets. All other borrowing costs are to be entitled in exchange for transferring promised goods, expensed in the period they occur. Borrowing costs net of value added tax and internal revenue which is consist of interest and other costs that an entity incurs eliminated on consolidation. Normal discounts, volume in connection with the borrowing of funds. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 29
1 Accounting policies continued Deferred tax relating to items recognised outside profit or Abnormal items loss is recognised outside profit or loss. Deferred tax items Abnormal items are items of income and expenditure are recognised in correlation to the underlying transaction which are not directly attributable to normal operations either in other comprehensive income or directly in equity. or where their size or nature are such that additional Deferred tax assets and deferred tax liabilities are offset, disclosure is considered appropriate. if a legally enforceable right exists to set off current tax Taxation assets against current income tax liabilities and the The income tax expense represents the sum of current deferred taxes relate to the same taxable entity and tax payable (both current and deferred). the same taxation authority.
Normal tax – current Dividend withholding tax The normal tax is based on taxable profit for the year. A dividend withholding tax of 20% is withheld on behalf Taxable profit differs from profit as reported in the income of the taxation authority on dividend distributions where statement because it excludes items of income or expense applicable. The net amount payable to the taxation that are taxable or deductible in other years, and it further authority is included as part of trade and other payables excludes items that are never taxable or deductible. at the time a dividend is declared. Normal tax may include underprovisions or overprovisions Value added tax relating to prior year taxation. The group’s liability for Revenues, expenses and assets are recognised net of normal tax is calculated using tax rates that have been the amount of value added tax except: enacted or substantively enacted by the reporting date. ›› Where the value added tax incurred on a purchase of Normal tax relating to items recognised outside profit assets or services is not recoverable from the taxation or loss is recognised outside profit or loss. Normal tax authority, in which case the value added tax is items are recognised in correlation to the underlying recognised as part of the cost of acquisition of the asset transaction either in other comprehensive income or or as part of the expense item as applicable directly in equity. ›› Receivables and payables that are stated with the amount of value added tax included. Normal tax – deferred Deferred tax is calculated on the liability method. The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of Deferred tax liabilities are recognised for taxable temporary receivables or payables in the statement of financial differences except: position. ›› Where the “initial recognition exception” applies ›› In respect of outside temporary differences relating Employee benefits to investments in subsidiaries. A liability is recognised when an employee has rendered services for benefits to be paid in the future, and an Deferred tax assets are recognised for all deductible expense when the entity consumes the economic benefit temporary differences, carry forward of unused tax credits arising from the service provided by the employee. and unused tax losses, where it is probable that the asset will be utilised in the foreseeable future except: In respect of defined contribution plans, the contribution ›› Where the “initial recognition exception” applies paid by the company is recognised as an expense. ›› In respect of outside temporary differences relating In respect of defined benefit plans, the company’s to investment in subsidiaries. contributions are based on the recommendations of The carrying amount of deferred tax assets is reviewed independent actuaries and the liability is measured using at each reporting date and reduced to the extent that it is the projected unit credit method. no longer probable that sufficient taxable profits will be Remeasurements, comprising actuarial gains and losses, available to allow all or part of the asset to be recovered. the effect of the asset ceiling, excluding amounts included Unrecognised deferred tax assets are reassessed at each in net interest on the net defined benefit liability and the reporting date and recognised to the extent it has become return on plan assets (excluding amounts included in net probable that future taxable profit will allow the asset to interest on the net defined benefit liability), are recognised be utilised. immediately in the statement of financial position with a Deferred tax is calculated at the tax rates that are corresponding debit or credit to retained earnings through expected to apply in the period when the liability is settled other comprehensive income in the period in which they or the asset realised based on tax rates and tax laws that occur. Remeasurements are not reclassified to profit or have been enacted or substantively enacted by the loss in subsequent periods. reporting date. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 30 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued Share Option Plan portion and the Black Managers Past service costs are recognised in profit or loss on the Participation Right Scheme. earlier of: Shares awarded to employees in terms of the rules of ›› The date of the plan amendment or curtailment the Tiger Brands Long-Term Incentive Plan (LTIP) are ›› The date that the group recognises related restructuring measured by reference to the fair value at the date on costs. which they are granted. The fair value is determined by Net interest is calculated by applying the discount rate to an external valuer using a modified version of the Black- the net defined benefit liability or asset. The group Schöles model or Monte-Carlo simulation, further details recognises the following changes in the net defined benefit of which are given in Annexure D. obligation under “cost of sales”, “administration expenses” The cost of equity-settled transactions is recognised, and “selling and distribution expenses” in the consolidated together with a corresponding increase in equity, over the statement of profit or loss (by function): period in which the service conditions are fulfilled, ending ›› Service costs comprising current service costs, past- on the date on which the relevant employees become fully service costs, gains and losses on curtailments and entitled to the award (“the vesting date”). The cumulative non-routine settlements expense recognised reflects the extent to which the ›› Net interest expense or income. vesting period has expired and the group’s best estimate Post-retirement medical obligations of the number of equity instruments that will ultimately The group provides post-retirement healthcare benefits to vest. The income statement charge for a period represents certain of its retirees based on the qualifying employee the movement in the cumulative expense at the beginning remaining in service up to retirement age in the form of a and end of that period. defined benefit medical plan. The expected costs of these No expense is recognised for awards that do not ultimately benefits are accrued over the period of employment, using vest, except for equity-settled transactions where vesting the projected unit credit method. Valuations are based on is conditional upon a market or non-vesting condition, assumptions which include employee turnover, mortality which are treated as vesting irrespective of whether or rates, discount rate based on current bond yields of not the market or non-vesting condition is satisfied, appropriate terms, healthcare inflation costs and rates provided that all other performance and/or service of increase in salary costs. Valuations of these obligations conditions are satisfied. are carried out by independent qualified actuaries. Where an equity-settled award is cancelled (other than Actuarial gains or losses are recognised in the same forfeiture), it is treated as if it had vested on the date of manner as those of defined benefit pension obligations cancellation, and any unrecognised expense recognised noted in the previous accounting policy. immediately. If a new award is substituted and designated Share-based payments as a replacement for the cancelled award, the cancelled Certain employees (including senior executives) of the and new awards are treated as if they were a modification group receive remuneration in the form of share-based of the original award, as described above. payment transactions, whereby employees render services The dilutive effect of outstanding equity-settled options is as consideration for equity instruments (“equity-settled reflected as additional share dilution in the computation transactions”) or share appreciation rights that are of earnings and headline earnings per share. classified as (“cash-settled transactions”). Cash-settled transactions Equity-settled and cash-settled share options The cost of cash-settled transactions such as the General Equity-settled transactions Employee Share Option Plan portion is measured initially at Under the scheme, executives and selected managers of fair value at the grant date using a modified version of the Tiger Brands Limited and its subsidiaries are offered, on Black-Schöles model, taking into account the terms and an annual basis, a weighted combination of share conditions upon which the instruments were granted (refer appreciation rights, performance shares, restricted shares to Annexure D). This fair value is expensed over the period linked to the annual cash bonus scheme (bonus matching) until vesting with recognition of a corresponding liability. and restricted shares linked to a deferred portion of The liability is remeasured at each reporting date up to bonuses received by these employees. All these and including the settlement date with changes in fair components are accounted for as equity-settled share- value recognised in profit or loss. based payments in addition to the General Employee WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 31
1 Accounting policies continued authorised for issue, provided there is evidence of Accounting for BEE transactions conditions that existed at the reporting date. Events after Where equity instruments are issued to a black economic the reporting date that are indicative of conditions that empowerment (BEE) party at less than fair value, the arose after the reporting date are dealt with by way of instruments are accounted for as share-based payments note 35. in terms of the stated accounting policy. Significant accounting judgements and estimates A restriction on the BEE party to transfer the equity Judgements instrument subsequent to its vesting is not treated as In the process of applying the group’s accounting policies, a vesting condition, but is factored into the fair value management has made the following judgements, apart determination of the instrument. from those involving estimations, which has the most significant effect on the amounts recognised in the Treasury shares financial statements. Shares in Tiger Brands Limited held by the group are classified within total equity as treasury shares. The Consolidation of structured entities shares acquired by the Black Managers Trust (I and II) The structured entities established in terms of the BEE are accounted for as treasury shares in line with the transaction implemented in October 2005 and October consolidation requirement for special-purpose entities. 2009, have been consolidated in the group results with Treasury shares are treated as a deduction from the issued the exception of The Tiger Foundation Trust, Thusani Trust and weighted average number of shares for earnings per and Dipuno ESD Foundation SPV. These entities are not share and headline earnings per share purposes, and the consolidated as the board comprises primarily of cost price of the shares is reflected as a separate independent trustees who are appointed to make all component of capital and reserves in the statement of necessary decisions in terms of beneficiaries, funding financial position. Dividends received on treasury shares and other matters. are eliminated on consolidation. No gain or loss is For the entities that are consolidated, the substance of the recognised in the income statement on the purchase, sale, relationship between the company and these entities has issue or cancellation of treasury shares. Consideration been assessed and the decision made that they are received or paid in respect of treasury shares is controlled entities, mainly due to the fact that they have recognised in equity. been formed to carry out specific objectives and that they Contingent assets and contingent liabilities will operate in terms of the autopilot principles as set out A contingent asset is a possible asset that arises from in IFRS 12. past events and whose existence will be confirmed by the Assessing control (direct and de facto) of associates occurrence or non-occurrence of one or more uncertain The conclusion regarding control or significant influence future events not wholly within the control of the company. relating to associates is reassessed on an annual basis. Contingent assets are not recognised as assets on the In performing this assessment, the directors determine statement of financial position, but appropriate disclosure whether or not the group has control over the respective is provided in the notes to the financial statements. investee based on whether the group has the practical A contingent liability is a possible obligation that arises ability to direct the significant activities unilaterally. from past events and whose existence will be confirmed In making this assessment, the following factors are by the occurrence or non-occurrence of one or more considered: uncertain future events not wholly within the control of the ›› The group’s shareholding in the investee relative to other company. Alternatively, it may be a present obligation that investors arises from past events but is not recognised because an ›› The relative size of and concentration of other outflow of economic benefits to settle the obligation is not shareholders probable, or the amount of the obligation cannot be ›› The inability of the group to unilaterally appoint the measured with sufficient reliability. Contingent liabilities majority of board members of the investee are not recognised as liabilities unless they are acquired ›› The absence of related key management between as part of a business combination, but disclosed. the group and the investee Events after the reporting date ›› Composition of the investee’s board and board Recognised amounts in the financial statements are appointees of the group adjusted to reflect significant events arising after the ›› The lack of any contractual or legal rights conferred reporting date, but before the financial statements are upon the group by the investee or any other shareholder of the investee to direct its activities. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 32 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued obligations. Judgement is applied in establishing whether Detailed disclosures of non-controlling interests or not a payment relates to a payment to a customer to be The group does not have subsidiaries that have a material deducted from revenue versus a payment for a distinct non-controlling interest in the context of the group and good or service bought. accordingly a detailed non-controlling interest disclosure Impairment assessment of goodwill, tangible and is not required in the current year in terms of IFRS 12 intangible assets Disclosure of Interests in Other Entities. In determining Goodwill and indefinite life intangible assets are tested whether or not any non-controlling interests are material, for impairment annually or more frequently if there is an the group considered the share of the individual non- indicator of impairment. Tangible assets and finite life controlling interests in the consolidated net assets of the intangible assets are tested when there is an indicator group. In addition, the total non-controlling interest is of impairment. When identifying impairment indicators, below 10% of the group’s consolidated net assets and management considers the impact of changes in hence considered not to be material to the group. competitors, technological obsolescence, discontinuance Detailed disclosures of investment in associates of products, market changes, legal changes, operating The group does have associate interests that are, in environments and other circumstances that could indicate aggregate, material in the context of the group, and that impairment exists. This requires management to make accordingly detailed disclosure requirements in terms significant judgements concerning the existence of of IFRS 12 Disclosure of Interests in Other Entities are impairment indicators, identification of cash-generating assessed on an annual basis. In determining whether units and estimates of projected cash flows and fair value or not any individual associate is material, the group less costs of disposal. considers a combination of the share of the individual The group applies the impairment assessment to its associate interest in the consolidated profits, other cash-generating units. Management’s analysis of cash- comprehensive income, headline earnings as well as generating units involves an assessment of a group of total assets of the group. If any of these contributions assets’ ability to independently generate cash inflows and exceed 10%, it is concluded as individually material. involves analysing the extent to which different products Deferred tax assets make use of the same assets. Deferred tax assets are recognised for all unused tax The calculation of the recoverable amount requires the use losses to the extent that it is probable that taxable profit of estimates and assumptions concerning the future cash will be available against which the losses can be utilised. flows which are inherently uncertain and could change Management judgement is required to determine the over time. Recoverable amount is calculated using the amount of deferred tax assets that can be recognised, discounted cash flow valuation method when determining based upon the likely timing and level of future taxable value in use. Key assumptions on which management has profits together with future tax planning strategies. based its determination of recoverable amount include the Further details are contained in note 17. weighted average cost of capital, projected revenues and Estimates and assumptions gross margins. In addition, changes in economic factors, The key assumptions concerning the future and other key such as discount rates, could also impact this calculation. sources of estimation uncertainty at the reporting date, Further details are given in note 13. that have a significant risk of causing a material adjustment Residual values and useful lives of tangible and to the carrying amounts of assets and liabilities within the intangible assets next financial year, are discussed. Residual values and useful lives of tangible and intangible IFRS 15: Revenue from Contracts with Customers assets are assessed on an annual basis. Estimates and The policies were changed in accordance with the judgements in this regard are based on historical transitional provisions in 2017, but without making use of experience and expectations of the manner in which the practical expedients while adopting the standards. The assets are to be used, together with expected proceeds group has certain customers that may receive cash-based likely to be realised when assets are disposed of at the end incentives or credits, which are accounted for as variable of their useful lives. Such expectations could change over consideration. The estimation of variable consideration is time and therefore impact both depreciation charges and measured on an expected value method based on past carrying values of tangible and intangible assets in the history. This relates to returns, refunds and similar future. Further details are given in notes 11 and 12. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 33
1 Accounting policies continued Net investment in foreign operations Fair value of share allocations Certain loans with the group’s foreign investments are In calculating the amount to be expensed as a share- designated as part of the group’s net investment as they based payment, the group was required to calculate the are not expected to be repaid in the foreseeable future. fair value of the equity instruments granted to participants. This results in the foreign exchange differences on the This fair value was calculated by applying a valuation portion of the loans that are viewed as “capital model, which is in itself judgemental and takes into contributed” being recorded in equity under the Foreign account certain inherently uncertain assumptions (detailed Currency Translation Reserve as required per IAS 21 in Annexure D). The Effects of Changes in Foreign Exchange Rates, as opposed to being recognised in the statement of profit or Pension and other post-employment benefits loss. This designation is reassessed on an annual basis. The cost of defined benefit pension plans and other post-employment medical benefits is determined using Value Added Meats (VAMP) actuarial valuations. The actuarial valuation involves Some indicative offers were received in respect of the making assumptions about discount rates, expected sale of the VAMP business and the formal due diligence rates of return on assets, future salary increases, mortality process has commenced. As such, the determination of rates and future pension increases. Due to the long-term whether the VAMP business should be disclosed and nature of these plans, such estimates are subject to measured as held for sale in terms of IFRS 5 as at significant uncertainty. Further details are given in 30 September 2019 is a significant judgement area. notes 28 and 29. In applying this judgement, specific consideration was given to whether it is highly probable that the sale will be Provisions completed within one year from 30 September 2019. Best estimates, being the amount that the group would Given the early stages of the due diligence process and rationally pay to settle the obligation, are recognised as the uncertainties inherent in the VAMP business and the provisions at the reporting date. Risks, uncertainties and general South African economy, it was determined that future events, such as changes in law and technology, are this threshold was not met and therefore IFRS 5 was not taken into account by management in determining the applied at 30 September 2019. best estimates. Where the effect of discounting is material, provisions are discounted. The discount rate used is the Changes in accounting policies pre-tax rate that reflects current market assessments of The accounting policies adopted are consistent with those the time value of money and, where appropriate, the of the previous financial year, except for the adoption risks specific to the liability, all of which requires of IFRS 9 Financial Instruments. management estimation. IFRS 9 Financial Instruments The establishment and review of the provisions require IFRS 9 replaces IAS 39 and addresses the classification, significant judgement by management as to whether or measurement and derecognition of financial assets not a reliable estimate can be made of the amount of and liabilities. IFRS 9 introduces new rules for hedge the obligation. accounting and a new impairment model for financial assets. The group is required to record provisions for legal or constructive contingencies when the contingency is The group has adopted IFRS 9 (excluding new hedge probable of occurring and the amount of the loss can be accounting requirements) and applied the new rules using reasonably estimated. Liabilities provided for legal matters a modified retrospective approach from 1 October 2018. require judgements regarding projected outcomes and Comparatives for 2018 have not been restated. ranges of losses based on historical experience and recommendations of legal counsel. Litigation is, however, unpredictable and actual costs incurred could differ materially from those estimated at the reporting date. Further details are given in note 30. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 34 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
1 Accounting policies continued Classification and measurement Given the nature of the entity’s financial instruments, the adoption of IFRS 9 did not have a significant impact on the classification and measurement as detailed in the table below. IFRS 9 IAS 39 Other investments FVOCI without recycling Available-for-sale Trade and other receivables Amortised cost Loans and receivables Amounts owed by subsidiaries Amortised cost Loans and receivables Loans Amortised cost/FVTPL* Loans and receivables Cash and cash equivalents Amortised cost Loans and receivables Derivatives FVTPL FVTPL Trade and other payables Amortised cost Amortised cost Borrowings Amortised cost Amortised cost Amounts owed to subsidiaries Amortised cost Amortised cost * Loans to some empowerment entities (as reflected in notes 15 and 16) in the company are non-recourse in nature. The loan and the investment in the company are the only source of finance in the empowerment entities. As such, the loans fail SPPI and have been classified as FVTPL under IFRS 9. There has been no significant change in the measurement of the loans as the underlying investment in the company was considered in measuring/impairing the loans prior to the adoption of IFRS 9.
Impairment IFRS 16 will impact most significantly the group’s leases In terms of IFRS 9, the group has applied the ECL model relating to property, plant and equipment and vehicles. rather than the incurred loss model. The calculation of The group has elected to apply IFRS 16 using the modified ECLs incorporates forward-looking variables which include retrospective approach. As prescribed by IFRS 16, lease potential risks in the current economic environment, liabilities are measured at the present value of the historic trends and management judgement. The group remaining lease payments discounted at the incremental did not present an adjustment to opening retained borrowing rate at the date of initial application. The group earnings and its impairment losses/reversals determined has elected to measure right-of-use assets on transition in accordance with IFRS 9 separately in the statement of date at their carrying amounts as if IFRS 16 had applied profit or loss as the amounts are not material. The reason since the lease commencement dates, discounted using why the impact was not material was due to the fact that the incremental borrowing rate at the date of initial a large percentage of the receivables book is covered by application. Right-of-use assets relating to new leases are credit insurance and therefore there is limited credit risk measured at the amount of initial measurement of the even when considering forward-looking variables which lease liability plus initial direct costs. As part of the include potential risks in the current economic modified retrospective transition approach, the group has environment, historic trend and expert management elected to apply the practical expedient which allows a judgement. single discount rate to be applied to a portfolio of leases with reasonably similar characteristics. In terms of intercompany amounts, the group evaluates the nature of the entity and its liquidity and solvency position. As an accounting policy election, the group will apply the Even with the consideration of forward-looking information following recognition exemptions, which allow for certain relevant to industries and environment in which the group lease payments to be expensed over the lease term as companies operate, the credit risk relating to these entities opposed to recognising a right-of-use asset and related is very low and no limited provisioning is required. lease liability on the lease commencement date: Short‐term leases – these are leases with a lease term Standards and interpretations not yet effective ›› of 12 months or less The group has not applied the following applicable IFRS Leases of low value assets – these are leases where and IFRIC Interpretations that have been issued during the ›› the underlying asset is of low value. year but are not yet effective and will be adopted by the group as and when they become effective: The group’s assessment determined that the right-of-use asset and lease liability to be recognised on adoption IFRS 16 Leases of the standard will amount to R400,7 million and IFRS 16 introduces significant changes to lease R463,4 million respectively. accounting as it removes the distinction between operating and finance leases under IAS 17 and requires a lessee to The net impact on profit or loss is not expected to be recognise a right-of-use asset and a lease liability at material. Rental expense currently disclosed as part of commencement for all leases, except for short-term operating expenditure will be replaced with depreciation leases and leases of low value assets. IFRS 16 will be and finance costs. effective for the group for the financial year commencing 1 October 2019. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 35
Other standards not yet effective, the impact is as follows: Standard Effective date* Impact
IAS 19 Plan amendment, curtailment or 1 January 2019 The amendments are not expected to have a material settlement – Amendments impact on the group. IFRIC 23 Uncertainty over Income Tax 1 January 2019 The amendments are not expected to have a material treatments impact on the group. Definition of a business – amendments to 1 January 2020 The amendments are not expected to have a material IFRS 3 impact on the group. Definition of material – amendments to 1 January 2020 The amendments are not expected to have a material IAS 1 and IAS 8 impact on the group. Conceptual framework financial reporting 1 January 2020 The amendments are not expected to have a material impact on the group.
* Effective for annual periods beginning on or after the specified date. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 36 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
2018 2019 2018 (R’million) 2019 Restated*
2 Revenue (group) Revenue constitutes the sale of manufactured goods in the FMCG sector including Food, Home, Personal Care and Baby products throughout South Africa and selected other countries. 2.1 Revenue from the sale of goods comprises: Sale of goods inside of South Africa 25 987,9 24 706,5 Sale of goods outside of South Africa 3 244,8 3 658,2 29 232,7 28 364,7 Refer to the segmental analysis on page 99 for details of the segmental split. 2.2 Revenue by major customer Customer 1 4 992,7 4 901,2 Customer 2 3 537,2 3 455,5 Customer 3 2 944,8 2 793,9 Customer 4 2 623,8 2 603,7 Customer 5 218,6 248,2 All other customers 14 915,6 14 362,2 29 232,7 28 364,7 Customers 1 to 5 relate to sale of goods within South Africa. 2.3 Revenue (company) Investment income reflected as revenue. From subsidiary companies and associate 1 323,2 1 801,3 companies 239,1 224,9 From BEE empowerment entities – 0,7 From other investments 1 562,3 2 026,9 * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 37
COMPANY GROUP
2018 2019 2018 (R’million) 2019 Restated*
3 Operating income before impairments and abnormal items Operating income has been determined after charging/(crediting): External auditors’ remuneration 23,6 27,0 – Audit fees 22,1 22,9 – Other fees and expenses 1,5 4,1 Internal auditors’ remuneration 10,3 8,5 Operating lease charges 209,0 189,5 – On land and buildings 81,0 69,4 – On plant, equipment and vehicles 128,0 120,1 Loss on disposal of plant, equipment and vehicles – 0,4 Research, development and related expenditure 64,1 62,3 IFRS 2 charges 60,9 81,9 – Cash settled 2,5 (3,9) – Equity settled, including BEE-related IFRS 2 charges 58,4 85,8 Staff costs 3 492,4 3 387,1 Employer’s contribution to retirement funding 267,8 266,8 Employer’s contribution to medical aid 86,3 85,4 (0,1) (2,0) Foreign exchange profit (4,1) (11,6) Rental and fee income (4,0) (5,3) 4 Directors’ emoluments Executive directors – Salaries and bonuses 14,8 16,0 – Retirement, medical and other benefits 5,9 2,4 Non-executive directors 8,6 8,1 – Fees 8,6 8,1 8,6 8,1 Total directors’ emoluments 29,3 26,5 Less: Paid by subsidiaries (20,7) (18,4) 8,6 8,1 Emoluments paid by company 8,6 8,1 For further details refer to Annexure C. * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 38 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
2018 2019 2018 (R’million) 2019 Restated*
5 Impairments and fair value losses Impairment of intangible assets (refer note 13) (218,0) (144,3) Impairment of property, plant and equipment (refer note 13) (97,8) (53,5) Reversal of impairment of property, plant and equipment 8,7 – (35,1) – Fair value loss on Thusani II receivable** (266,6) – Fair value loss on Foundation SPV receivable** (245,0) Impairment on interest in subsidiary company (301,7) (245,0) Impairments loss before taxation (307,1) (197,8) Income tax 25,0 14,5 Attributable to shareholders in Tiger Brands (301,7) (245,0) Limited (282,1) (183,3) ** As a result of the decline in the net asset value of Thusani II and Foundation SPV due to the devaluation of the listed investment, the respective receivables in Thusani II and Foundation SPV were written down. 6 Abnormal items 2 814,5 – Realised fair value gain on unbundling of Oceana 1 630,4 – 459,5 567,5 Profit on sale of shares in associate investment 368,8 – Proceeds from insurance claims 99,9 63,5 Restructuring and related costs (32,1) (57,9) Costs associated with Enterprise product recall (25,0) (430,0) Profit on disposal of property – 2,3 – 58,0 Profit on disposal of investments Exchange rate translation of Tiger Brands – (9,5) Mauritius loan 3 274,0 616,0 Abnormal profit/(loss) before taxation 2 042,0 (422,1) – 2,7 Income tax (expense)/income (41,2) 118,4 Attributable to shareholders in Tiger Brands 3 274,0 618,7 Limited 2 000,8 (303,7) 7 Net (finance costs)/interest received (2,6) (5,4) 7.1 Interest paid (41,0) (98,9) Bank and other short-term borrowings (24,6) (85,6) (2,6) (5,4) Other – financial liabilities (15,6) (11,7) Other – non-financial liabilities (0,8) (1,6) 93,2 120,8 7.2 Interest received 30,4 57,1 23,0 21,1 From subsidiary companies – – 70,2 99,7 From cash and cash equivalents 30,4 57,1 (36,5) (0,2) 7.3 Net foreign exchange profit/(loss) 9,6 20,7 Profit/(loss) on cash balances and loans of (36,5) (0,2) a funding nature 9,6 20,7
54,1 115,2 Net (finance costs)/interest received (1,0) (21,1) * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 39
COMPANY GROUP
2018 2019 2018 (R’million) 2019 Restated*
8 Taxation 15,1 7,6 8.1 South African current taxation 676,2 848,4 15,1 12,8 Withholding and foreign taxes 82,9 70,7 30,2 20,4 759,1 919,1 – 26,6 Deferred taxation – temporary differences 37,7 54,2 30,2 47,0 796,8 973,3 Adjustments in respect of previous years (0,4) (0,4) – Current taxation 4,3 ( 7,5) – Deferred taxation (19,5) 2,4 29,8 46,6 781,6 968,2 Taxation on abnormal items and impairments – (2,7) – Current 14,7 (115,6) – Deferred 1,5 (17,3) 29,8 43,9 797,8 835,3 8.2 The reconciliation of the effective rate of taxation with the statutory taxation rate % % is as follows: % % Taxation for the year as a percentage of income 0,7 2,2 before taxation 16,8 24,7 – – Impairment of goodwill and intangibles (1,3) (1,2) 20,0 – Oceana unbundling 11,2 – 9,6 26,7 Dividend income 0,1 – (0,1) (0,3) Expenses and provisions not allowed for taxation (0,7) (0,7) Additional investment allowances 0,3 0,2 Prior year adjustments 0,3 0,1 (0,3) (0,6) Withholding taxes (0,6) (0,7) Income from associates 2,2 6,1 Effect of differing rates of foreign taxes (0,4) (0,3) (1,9) – Other sundry adjustments 0,1 (0,2) 28,0 28,0 Rate of South African company taxation 28,0 28,0 Tax effect of current year losses available to reduce future taxable income – 26,2 8.3 Reconciliation of movement on deferred taxation Movement recognised in the income statement for the year – 26,6 Current year charge 37,7 54,2 Adjustments in respect of previous years (19,5) 2,4 Deferred tax on abnormal items 1,5 (17,3) – 26,6 19,7 39,3 Movement per deferred tax accounts – 21,4 (Increase)/decrease in deferred taxation asset (27,0) (10,4) – 5,2 Increase in deferred taxation liability 46,7 49,7 – 26,6 19,7 39,3 * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 40 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
GROUP
2018 2019 Restated*
9 Calculation of weighted average number of shares and headline earnings per share 9.1 Weighted average number of shares in issue 165 622 916 164 714 348 Number of ordinary shares 179 492 168 181 743 110 Weighted number of ordinary shares – repurchased – (1 492 405) Weighted number of shares held for BEE deal (13 869 252) (15 536 357) 9.2 Diluted weighted average number of shares in issue 166 142 401 165 456 405 Weighted average number of shares in issue – per 9.1 above 165 622 916 164 714 348 Dilutive number of shares 519 485 742 057 9.3 Headline earnings (R’million) 2 190,0 2 616,9 – Continuing operations 2 233,7 2 689,4 – Discontinued operations (43,7) (72,5) 9.4 Headline earnings per share Headline earnings per ordinary share (cents) 1 322,3 1 588,8 – Continuing operations 1 348,7 1 632,8 – Discontinued operations (26,4) (44,0) Diluted headline earnings per ordinary share (cents) 1 318,1 1 581,7 – Continuing operations 1 344,4 1 625,5 – Discontinued operations (26,3) (43,8)
* Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33.
9.5 Reconciliation between profit for the year and headline earnings
Non- controlling (R’million) Gross Taxation interest Net
2019 Continuing operations Profit attributable to shareholders of the parent 3 915,8 Adjusted for: Impairment of intangible assets 218,0 – – 218,0 Impairment of property, plant and equipment 97,8 (27,4) – 70,4 Reversal of impairment of property, plant and equipment (8,7) 2,4 – (6,3) Profit on sale of shares in associate investment (368,8) 29,1 – (339,7) Realised fair value gain on unbundling of Oceana (1 630,4) – – (1 630,4) Headline earnings adjustments – associates – Impairment of property, plant and equipment 6,3 – – 6,3 – Profit on disposal of property, plant and equipment (0,4) – – (0,4) Headline earnings for the year (1 628,2) 4,1 – 2 233,7 Discontinued operations Loss attributable to shareholders of the parent (52,5) Adjusted for: Impairment of property, plant and equipment 8,8 – – 8,8 Headline earnings for the year 8,8 – – (43,7) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 41
9 Calculation of weighted average number of shares and headline earnings per share continued 9.5 Reconciliation between profit for the year and headline earnings continued Non- controlling (R’million) Gross Taxation interest Net
2018* Continuing operations Profit attributable to shareholders of the parent 2 519,3 Adjusted for: Loss on disposal of plant, equipment and vehicles 0,4 (0,1) – 0,3 Impairment of intangible assets 144,3 – – 144,3 Impairment of property, plant and equipment 53,5 (14,5) – 39,0 Proceeds from insurance claims (10,5) 2,9 – ( 7,6) Profit on disposal of property (2,3) 0,4 – (1,9) Headline earnings adjustments – associates – Profit on sale of other assets (1,7) 0,5 – (1,2) – Profit on loss of control of subsidiary (3,9) 1,1 – (2,8) Headline earnings for the year 179,8 (9,7) – 2 689,4 Discontinued operations Loss attributable to shareholders of the parent (118,2) Adjusted for: Impairment of property, plant and equipment 49,8 – – 49,8 Impairment of other assets 3,4 – – 3,4 Profit on disposal of subsidiary ( 7,5) – – ( 7,5) Headline earnings for the year 45,7 – – (72,5) * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33.
COMPANY GROUP
2019 2018 (R’million) 2019 2018
10 Dividends 6 085,7 2 050,0 10.1 Dividends on ordinary shares – paid 5 624,1 1 829,3 Dividend by Empowerment Trusts 53,7 51,7 – 1 332,5 Dividend No 146 of 702 cents per share – 1 151,7 – 717,5 Dividend No 147 of 378 cents per share – 625,9 1 332,5 – Dividend No 148 of 702 cents per share 1 162,6 – 3 563,3 – Dividend in specie 3 369,2 – 1 189,9 – Dividend No 149 of 627 cents per share* 1 038,6 –
1 061 1 080 10.2 Dividends per ordinary share (cents) 1 061 1 080 – 378 Dividend No 147 – paid – 378 – 702 Dividend No 148 – paid – 702 306 – Dividend No 149 – paid (special dividend) 306 – 321 – Dividend No 149 – paid 321 – 434 – Dividend No 150 – declared on 21 November 2019 434 –
* Includes a special dividend of 306 cents per share. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 42 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
Freehold Leasehold Plant, Capitalised Group land and land and vehicles and lease (R’million) buildings buildings equipment assets Total
11 Property, plant and equipment 11.1 Movement of the group property, plant and equipment 2019 Carrying value at the beginning of the year Cost 1 892,8 10,8 7 897,0 16,3 9 816,9 Accumulated depreciation and impairment (540,1) (10,4) (4 654,2) (13,0) (5 217,7) Net balance at the beginning of the year 1 352,7 0,4 3 242,8 3,3 4 599,2 Current year movements – cost Transfer to assets held for sale (refer note 34) (35,6) – (210,9) – (246,5) Additions 159,5 – 944,0 – 1 103,5 Disposals (0,8) – (65,3) – (66,1) Exchange rate adjustments 5,3 – 2,7 – 8,0 Cost movements for the current year 128,4 – 670,5 – 798,9 Current year movements – accumulated depreciation and impairment Transfer to assets held for sale (refer note 34) 20,3 – 208,7 – 229,0 Depreciation* (65,2) – (555,1) (1,3) (621,6) Impairment (refer note 13) (34,0) – (63,8) – (97,8) Reversal of impairment (refer note 13) – – 8,7 – 8,7 Disposals 0,8 – 62,9 – 63,7 Exchange rate adjustments (1,6) – (2,1) – (3,7) Accumulated depreciation and impairment movement for current year (79,7) – (340,7) (1,3) (421,7) Carrying value at the end of the year Cost 2 021,2 10,8 8 567,5 16,3 10 615,8 Accumulated depreciation and impairment (619,8) (10,4) (4 994,9) (14,3) (5 639,4) Net balance at the end of the year 1 401,4 0,4 3 572,6 2,0 4 976,4 * Relates to depreciation for total operations. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 43
Freehold Leasehold Plant, Capitalised Group land and land and vehicles and lease (R’million) buildings buildings equipment assets Total
11 Property, plant and equipment continued 11.1 Movement of the group property, plant and equipment continued 2018 Carrying value at the beginning of the year Cost 1 815,0 10,8 7 4 37,8 25,7 9 289,3 Accumulated depreciation and impairment (481,3) (10,4) (4 188,4) (20,8) (4 700,9) Net balance at the beginning of the year 1 333,7 0,4 3 249,4 4,9 4 588,4 Current year movements – cost Additions 88,5 – 631,1 – 719,6 Disposals (3,4) – (159,4) (9,4) (172,2) Exchange rate adjustments ( 7,3) – (12,5) – (19,8) Cost movements for current year 77,8 – 459,2 (9,4) 527,6 Current year movements – accumulated depreciation and impairment Depreciation* (62,1) – (529,4) (1,6) (593,1) Disposals 2,2 – 156,9 9,4 168,5 Impairment (refer note 13) (0,4) – (102,9) – (103,3) Exchange rate adjustments 1,5 – 9,6 – 11,1 Accumulated depreciation and impairment movement for current year (58,8) – (465,8) 7,8 (516,8) Carrying value at the end of the year Cost 1 892,8 10,8 7 897,0 16,3 9 816,9 Accumulated depreciation and impairment (540,1) (10,4) (4 654,2) (13,0) (5 217,7 ) Net balance at the end of the year 1 352,7 0,4 3 242,8 3,3 4 599,2
* Relates to depreciation for total operations. 11.2 Borrowing costs amounting of R11,0 million relating to plant was capitalised during the year (2018: R7,2 million) at an average effective rate of 8% (2018: 8%). A full list of title deeds are available at the registered office for inspection. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 44 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
Trademarks, licence Group agreements Customer (R’million) Goodwill and other lists Total
12 Goodwill and intangible assets 12.1 Movement of group goodwill and intangible assets 2019 Carrying value at the beginning of the year Cost 2 568,6 1 756,3 542,3 4 867,2 Accumulated amortisation and impairment (873,2) (474,7) (72,1) (1 420,0) Net balance at the beginning of the year 1 695,4 1 281,6 470,2 3 447,2 Current year movements – cost Addition of trademark – 2,3 – 2,3 Exchange rate adjustments – (0,5) – (0,5) Cost movements for the current year – 1,8 – 1,8 Current year movements – accumulated amortisation and impairment Amortisation – (8,6) (0,6) (9,2) Impairment (refer note 13) (218,0) – – (218,0) Accumulated amortisation and impairment movement for the current year (218,0) (8,6) (0,6) (227,2) Carrying value at the end of the year Cost 2 568,6 1 758,1 542,3 4 869,0 Accumulated amortisation and impairment (1 091,2) (483,3) (72,7) (1 647,2) Net balance at the end of the year 1 477,4 1 274,8 469,6 3 221,8 2018 Carrying value at the beginning of the year Cost 2 567,0 1 753,6 542,3 4 862,9 Accumulated amortisation and impairment (792,8) (401,6) (71,5) (1 265,9) Net balance at the beginning of the year 1 774,2 1 352,0 470,8 3 597,0 Current year movements – cost Exchange rate adjustments 1,6 2,7 – 4,3 Cost movements for the current year 1,6 2,7 – 4,3 Current year movements – accumulated amortisation and impairment Amortisation – (9,2) (0,6) (9,8) Impairment (refer note 13) (80,4) (63,9) – (144,3) Accumulated amortisation and impairment movement for the current year (80,4) (73,1) (0,6) (154,1) Carrying value at the end of the year Cost 2 568,6 1 756,3 542,3 4 867,2 Accumulated amortisation and impairment (873,2) (474,7) (72,1) (1 420,0) Net balance at the end of the year 1 695,4 1 281,6 470,2 3 447,2 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 45
12 Goodwill and intangible assets continued 12.1 Movement of group goodwill and intangible assets continued Trademarks comprise well-established, growing brands. The brand portfolios are considered to have indefinite useful lives and are therefore not amortised, with the exception of trademarks with a carrying value of R65,0 million (2018: R74,6 million) which are viewed with a definite useful life and thus amortised. Refer to the accounting policies for further details on amortisation. Indefinite useful life Goodwill intangible asset Group (R’million) 2019 2018 2019 2018
12.2 The carrying value is allocated to cash- generating units as follows: Exports and International 579,7 791,7 519,1 519,1 Beverages 580,5 580,5 194,6 194,6 Snacks and treats – – 119,6 119,6 Groceries 72,3 72,3 725,0 725,0 Value Added Meat Products – 6,0 – – Home, Personal Care and Baby (HPCB) 244,9 244,9 121,2 118,9 1 477,4 1 695,4 1 679,5 1 677,2 13 Impairment testing of non-financial assets If there is an indication of impairment, or at least annually, all indefinite life intangible assets and goodwill are assessed for impairment unless stated otherwise. Goodwill acquired through business combinations, trademarks, licence agreements, supplier relationships and customer lists have been allocated to cash-generating units to facilitate this assessment. The key assumptions disclosed below are based on management’s past experience and expectations. Based on this experience and the well-established brands the group owns, management considers forecast cash flow periods in excess of five years to be appropriate. 13.1 Methods and assumptions The group applies a discounted cash flow methodology (value in use) to assess goodwill and certain indefinite life intangible assets for impairment. Where this results in a value lower than the carrying amount, the higher of this value or the fair value less costs of disposal is used. For the current year, all recoverable amounts were based on the value in use, being the higher value. This methodology entails a calculation of the present value of future cash flows generated by applicable cash-generating units over a period of five years and incorporates a terminal growth rate. These cash flows have been based on the approved budget for the 2020 financial year which include assumptions on profit before interest and tax, depreciation, working capital movements, capital expenditure, an appropriate discount rate and a terminal growth rate. The terminal growth rate used is 5,5% (2018: 1,0% and 5,5%). However, it is dependent on the industry and maturity of the cash-generating unit (CGU). 13.2 Discount rates The group has calculated a weighted average cost of capital (WACC) which is utilised as a basis for performing the value-in-use calculation. In cases where the cash-generating unit is deemed to be of greater risk than the group as a whole, a risk premium has been included within the discount rate applied. The discount rate utilised for the purposes of the impairment testing was between 13,5% and 17,6% (2018: 12,5% and 17,9%). A comparable pre-tax discount rate for purpose of the impairment testing would be between 14,3% and 18,5% (2018: 16,3% and 21,5%). 13.3 Growth rates In determining the growth rate, consideration is given to the growth potential of the respective cash-generating unit. As part of this assessment, a prudent outlook is adopted that mirrors an inflationary increase in line with the consumer price index and real growth expected within the specific market. Based on these factors, the growth rates applied for the purposes of the impairment testing ranges between 5% and 8%. Volume growth assumptions are based on management’s best estimates of known strategies and future plans to grow the business. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 46 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
13 Impairment testing of non-financial assets continued 13.4 Specific impairments in the current year The table below reflects the detail of the respective impairments for the year, with the comparatives noted. Group (R’million) 2019 2018
Consumer Brands – goodwill and indefinite life intangible assets* (6,0) (144,3) International and exports – property, plant and equipment – (63,2) Consumer Brands food – property, plant and equipment** (97,8) (16,4) Consumer Brands food – property, plant and equipment*** 6,5 – Grains – property, plant and equipment*** 2,2 (3,7) Other – property, plant and equipment – (20,0) International and Exports – goodwill and indefinite life intangible assets**** (212,0) – Total (307,1) (247,6) The impairments recognised in the current year are as a result of the annual impairment assessment performed on property, plant and equipment, goodwill and indefinite useful life intangible assets. * Impairment of Enterprise goodwill during the current year. ** Included in the Consumer Brands food segment is the impairment of value added meat products’ (VAMP) property, plant and equipment which was evaluated and an impairment of R96,0 million was recorded. The impairment was due to the declining profits in the VAMP business during the current period. The five-year discounted cash flow model was compared to the valuation report (fair value less costs to sell) which resulted in a higher value and in terms of IAS 36, with the higher value being used in the impairment testing. *** As part of the ongoing portfolio efficiency and capability analysis, prior years’ impairment was reversed. **** Impairment of the goodwill of the Davita business (R212,0 million). Davita is included in the Exports and International cash-generating unit. The impairment arose as a result of the consistent risks associated with key export markets, with lower sales projected for Nigeria and Mozambique, as well as lower sales forecast for the powdered seasoning brand, Benny. A five-year discounted cash flow model was used with the post-tax discount rate utilised for the purposes of impairment testing of 17,6% (2018: 17,9%). A +1%/-1% change in the post-tax discount rate would result in an approximately +/-R140,0 million change in the valuation. There is currently an ongoing legal dispute with a Nigerian distributor. The sales value in Nigeria in FY19 was R55,4 million. The impairments recognised in the prior year relate mainly to the Personal Care category within the HPCB business (R125,0 million) as well as the full impairment of the goodwill and the intangible assets of the Hercules business (R19,3 million). The impairments on property, plant and equipment in the prior year within International and Exports, Consumer Brands food and Grains were derived as a result of the ongoing portfolio analysis and category optimisation processes. These assets were fully impaired down to a recoverable amount of Rnil, being their value in use. This is also representative of fair value less cost to sell given the nature of these assets. Other impairments related to group infrastructure assets, which were identified as part of the ongoing portfolio efficiency and capability analysis. 13.5 Changes in key assumptions The determined value in use of each cash-generating unit is sensitive to the discount rate. No reasonably probable change in any of the above key valuation assumptions would cause the carrying amount of cash-generating units to materially exceed their recoverable amounts, with the exception of the Crosse & Blackwell intangible asset, where a further 1% increase in the discount rate applied would result in an impairment of R4,3 million.
COMPANY GROUP 2019 2018 (R’million) 2019 2018 14 Investments in associated companies 14.1 (For more detail, refer Annexure B) 97,1 9 67,6 Listed, at cost 601,6 1 472,1 171,1 171,1 Unlisted, at cost less amounts written off* 755,8 755,8 Share of accumulated other comprehensive income (439,4) 152,1 Share of accumulated profits since acquisition 1 356,1 2 530,2 268,2 1 138,7 2 274,1 4 910,2 The trading results of the associate companies whose results are equity accounted in the consolidated financial statements are as follows: Revenue (100%) 22 478,8 29 384,1 Profit for the year (100%) 1 310,0 2 015,4 * As part of the annual impairment assessment performed for all investments, using the methods and assumptions as noted in note 13.1, no impairment has been recognised in the current year. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 47
14 Investments in associated companies continued 14.2 Reconciliation of associates’ income National Foods Group Empresas Holdings (R’million) Oceana Carozzí UAC Foods Limited Total
2019 Income attributable to ordinary shareholders of Tiger Brands before abnormal items 30,5 245,1 28,6 72,9 377,1 Abnormal items – – (5,9) – (5,9) Income attributable to ordinary shareholders of Tiger Brands 30,5 245,1 22,7 72,9 371,2 Less: Total dividends (292,0) Total share of associated companies’ income less dividends received 79,2 2018 Income attributable to ordinary shareholders of Tiger Brands before abnormal items 415,5 240,9 17,4 52,9 726,7 Abnormal items 4,0 – – – 4,0 Income attributable to ordinary shareholders of Tiger Brands 419,5 240,9 17,4 52,9 730,7 Less: Total dividends (192,6) Total share of associated companies’ income less dividends received 538,1
GROUP
(R’million) 2019 2018
14.3 Summarised statement of financial position of all associates The aggregate statement of financial position of all associates are summarised as follows (100%): Property, plant and equipment 11 354,0 12 937,7 Goodwill and intangible assets 4 026,9 8 096,7 Investments 64,0 405,5 Deferred taxation 192,5 226,3 Net current assets 2 583,6 4 980,2 Total assets 18 221,0 26 646,4 Long-term liabilities (5 012,3) (8 779,6) Deferred taxation (2 031,9) (2 3 37,7 ) Total shareholders’ funds 11 176,8 15 529,1 14.4 The assessment criteria as noted in the accounting policies are performed annually. In 2018, Oceana Fishing Limited was a material associate of Tiger Brands and thus further disclosure is noted in Annexure B. All current associates did not meet the assessment criteria to be classified as a material associate and thus no further disclosure is provided in Annexure B. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 48 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) 2019 2018
15 Other investments 15,7 19,1 Listed, at fair value* 343,0 109,8 7,8 6,2 Unlisted, at fair value 7,8 6,2 Employer controlled reserve invested by one pension fund on behalf of Tiger Brands Limited – Defined contribution 2,9 2,7 – Defined benefit (refer note 28) 75,3 70,5 BEE Phase II empowerment entities’ preference 1 610,4 1 610,4 shares** Notional investment in subsidiary companies in 555,8 530,4 terms of IFRS 2** * Listed investments comprise Oceana Limited, Adcock Ingram Holdings Limited, Spar Limited and JSE Limited. (company listed investment includes JSE Limited only). ** Classified as FVTPL under IFRS 9. 2 189,7 2 166,1 429,0 189,2 16 Loans Loans to empowerment entities (refer note 16.1) 567,0 719,5 – Tiger Brands Foundation** 113,1 130,7 – Thusani II** Dipuno ESD Foundation SPV (RF) Proprietary Limited* 25,5 – 2,5 2,2 Other loans 3,1 2,8 682,6 852,4 28,6 2,8 * This relates to the long-term portion of the loan to Dipuno ESD Foundation SPV (RF) Proprietary Limited. ** Classified as FVTPL under IFRS 9. 16.1 Loans to empowerment entities Loans to empowerment entities consist of accrued dividends receivable on the investment in preference shares in connection with the BEE Phase II empowerment transaction (refer to note 15). Preference dividends are calculated based on 93,5% (2018: 93,5%) of the prime interest rate prevailing from time to time. 17 Deferred taxation 17.1 Reconciliation of deferred taxation (5,2) 21,4 Balance at the beginning of the year (353,6) (303,7) Adjustment in respect of currency profits taken directly to non-distributable reserves – 0,9 Fair value adjustments – investments (11,2) (1,5) IAS 19 adjustments taken to other comprehensive income (15,4) (3,1) Exchange rate translation reserve (3,0) (2,4) Income statement movement – continuing – (26,6) operations (19,7) (41,0) Adjustment in respect of currency losses taken directly to other comprehensive income 0,8 (2,8) (5,2) (5,2) Balance at the end of the year (402,1) (353,6) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 49
COMPANY GROUP
2019 2018 (R’million) 2019 2018
17 Deferred taxation continued 17.2 Analysis of deferred taxation Property, plant and equipment (623,6) (603,8) Liability in respect of intangibles raised on acquisition of businesses (145,2) (147,1) Withholding taxes (75,0) (70,0) Retirement fund surpluses (43,1) (38,5) Fair value adjustments – investments (17,4) (5,1) Prepayments (5,0) ( 7,4) Provisions 511,1 505,1 Income received in advance 0,8 2,9 Revaluation of loans 15,3 15,8 (5,2) (5,2) Other temporary differences (20,0) (5,5) (5,2) (5,2) (402,1) (353,6) Disclosed on the statement of financial position as follows: Deferred tax asset 13,7 16,8 (5,2) (5,2) Deferred tax liability (415,8) (370,4) 18 Inventories Raw materials 2 030,2 2 183,7 Partially processed goods (WIP) 98,0 53,6 Finished goods and merchandise 3 161,9 2 650,2 Consumable stores and minor spares 190,6 158,0 Other 21,0 18,5 Inventory value, net of provisions 5 501,7 5 064,0 Inventories carried at net realisable value included in total inventories 47,0 37,6 Inventories written down and recognised in cost of sales as an expense 179,8 132,7 Inventory provision deducted in arriving at total inventories net of provisions 303,4 279,4 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 50 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) 2019 2018 19 Trade and other receivables 19.1 Analysis of trade and other receivables Trade receivables 3 564,3 3 372,5 VAT receivable 73,1 76,1 15,3 326,7 Sundry receivables 192,5 544,7 Prepayments 121,4 103,8 Pension fund contribution holiday (refer note 28) 75,7 64,5 2,5 0,2 Tax receivable 40,6 32,7 Contract asset – rebates 3,6 12,6 17,8 326,9 Total gross receivables 4 071,2 4 206,9 Impairment provision – trade receivables (83,4) (89,0) 17,8 326,9 Total net receivables 3 987,8 4 117,9 Trade receivables, which generally have 30 to 60 day terms, are non-interest-bearing and are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. Included within trade receivables are derivative assets of R27,0 million (2018: R14,7 million) which are carried at fair value (refer note 31.7 for further details). 19.2 Impairment provisions Balance at the beginning of the year (89,0) (56,0) Utilised during the year 8,4 9,2 Reversed during the year 9,1 1,8 Raised during the year (11,9) (44,0) Balance at the end of the year* (83,4) (89,0) * IFRS 9 introduces a new trade debtors impairment model based on “expected credit loss” (ECL) and not the previously used “incurred loss” approach, resulting in the recognition of a loss allowance before the credit loss is incurred. Factors that are considered must account for current conditions along with reasonable and supportable forward-looking information that is not time consuming or costly to obtain. The company has adopted the “simplified approach” in determining the expected credit loss. Considering that IFRS 9 does not provide an explicit guide or any specific requirements, we have opted to use a provision matrix approach to calculate the expected credit loss. This involves allocating individual trade debtors into groups that share similar credit risk characteristics. Customers’ risk rating was determined by applying the following criteria: ›› Historical data spanning three years which include payment history and behavioural trends ›› Economic environment that has a significant impact on each customer ›› Geographical location of the customer. The percentage used to calculate the ECL for each risk segment was determined by: ›› Past three years: specific impairment provisions ›› Past three years: specific bad debts written off ›› Past three years: trade credit insurance claims ratios ›› Management’s forward-looking analysis of the FMCG environment ›› An unbiased approach that involves evaluating a range of possible outcomes based on current economic trends. The company makes use of selective trade credit insurance. For those debtors that are not insured, the full carrying value of the outstanding debt was included in the calculation of the ECL. For those debtors that are insured, only the uninsured portion of the debt was included in the calculation of the ECL. A process of identifying specific impairments is included in the total impairment provision. Management will raise a specific impairment provision when all internal and or pre-legal efforts to collect overdue debt have been exhausted. Performing trade receivables Medium risk Medium risk Medium risk Defaulted (R’million) Low risk level 1 level 2 level 3 receivables Total
As at 30 September 2019 2 092,2 826,9 478,1 152,7 14,4 3 564,3 Allowance for doubtful debts (0,8) (37,4) (4,2) (26,6) (14,4) (83,4) Net amount 2 091,4 789,5 473,9 126,1 – 3 480,9 % risk mitigating factor – (4,5) (0,9) (17,4) (100,0) (2,3) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 51
COMPANY GROUP
2019 2018 (R’million) 2019 2018
19 Trade and other receivables continued 19.3 Past due analysis As at 30 September, the ageing of trade receivables was as follows: Not past due 2 558,5 3 021,4 Past due: Current to 60 days 871,3 272,3 61 to 90 days 94,8 28,5 91 to 180 days 26,9 18,9 > 180 days 12,8 31,4 Total 3 564,3 3 372,5 As at 30 September, the ageing of all other receivables, excluding tax receivables and prepayments, was as follows: 3,3 297,4 Not past due 161,1 599,1 Past due: 0,3 – Current to 60 days 100,1 64,4 61 to 90 days 0,6 5,7 6,3 9,0 91 to 180 days 71,0 5,6 7,9 20,5 > 180 days 12,1 23,1 17,8 326,9 Total 344,9 6 97,9 19.4 Trade receivable analysis Industry spread of trade receivables: Retail 1 743,5 1 447,0 Wholesale/Distributors 1 123,5 1 197,7 Export 478,0 642,7 Other 219,3 85,1 Total 3 564,3 3 372,5 Geographical spread of trade receivables: South Africa 2 988,0 2 418,8 Rest of Africa 425,3 823,8 Europe 50,0 40,8 Rest of the World 101,0 89,1 Total 3 564,3 3 372,5 19.5 Collateral held Fair value of collateral held 16,3 19,0 Collateral held represents hawker deposits which may be applied against accounts which are in default. 20 Share capital 20.1 Authorised share capital 250 000 000 (2018: 250 000 000) ordinary shares of 10 cents each 19,0 19,0 20.2 Issued share capital 19,0 19,0 189 818 926 (2018: 189 818 926) ordinary shares 19,0 19,0 of 10 cents each 19,0 19,0 123,0 123,0 20.3 Share premium 123,0 123,0 123,0 129,3 Balance at the beginning of the year 123,0 129,3 – (6,3) Repurchase of Tiger Brands shares – (6,3) 142,0 142,0 142,0 142,0 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 52 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
Number of shares Number of shares 2019 2018 (R’million) 2019 2018
60 181 074 60 181 074 21 Unissued shares 60 181 074 60 181 074 21.1 Tiger Brands Limited shares held by subsidiary 10 326 758 (2018: 10 326 758) shares are held as treasury stock. 21.2 Tiger Brands Limited shares held by empowerment entities 13 818 961 (2018: 13 898 066) shares are owned by empowerment entities. 22 Tax effect of other comprehensive income The tax effect of the items reflected in the statement of comprehensive income is as follows: Net (gain)/loss on hedge of net investment in foreign operations (1,5) 2,2 Foreign currency translation adjustments – (1,9) Net loss/(gain) on cash flow hedges 0,8 (3,6) Net loss on available-for-sale financial assets/ FVOCI financial asset (11,2) (0,4) Remeasurement raised in terms of IAS 19R (15,4) (5,8) (27,3) (9,5) 23 Trade and other payables Trade payables 2 604,9 2 224,3 Contract liabilities – rebates and incentives* 999,6 555,7 Accruals 628,0 685,3 VAT payable – 13,7 27,8 23,8 Other creditors 270,1 360,6 Defined benefit pension fund liability (refer note 28) 2,0 1,9 27,8 23,8 4 504,6 3 841,5 * During the year, R3,7 billion (2018: R3,2 billion) was raised and R3,4 billion (2018: R3,4 billion) was settled. Trade payables are non-interest-bearing and are normally settled within 30 to 45 day terms. Included within trade payables are derivative liabilities of R5,2 million (2018: R6,5 million) which are carried at fair value. Refer to note 31.7 for further details. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 53
24 Provisions Group (R’million) Leave pay Other Total
2019 Balance at the beginning of the year 382,9 140,3 523,2 Raised during the year 250,8 93,1 343,9 Utilised during the year (219,7) (99,2) (318,9) Balance at the end of the year 414,0 134,2 548,2 2018 Balance at the beginning of the year 341,8 273,1 614,9 Raised during the year 242,7 102,6 345,3 Utilised during the year (201,6) (235,4) (4 37,0) Balance at the end of the year 382,9 140,3 523,2 Leave pay is provided on accumulated leave balances at year end based on employees’ total cost to company. Included in “Other” is a provision for cash-settled share-based payments of R10,6 million (2018: R14,5 million). Other provisions include employee-related benefits of R59,9 million (2018: R36,8 million) and restructuring provisions of R37,2 million (2018: R71,7 million).
COMPANY GROUP
2019 2018 (R’million) 2019 2018
25 Borrowings In terms of the company’s memorandum of incorporation, the group’s borrowings are unlimited. The secured and unsecured loans are all at floating rates unless otherwise mentioned. 25.1 Secured loans Loan bearing Year of interest at repayment Denomination – 77,3 19,0% per annum* 2020 Nigerian naira – 77,3 Analysis of secured loans by nature of security: Corporate guarantee – 77,3 – 77,3 * During the prior year Deli Foods (Nigeria) Limited entered into a term loan. The tenure of the loan was 18 months. The term loan was secured by a corporate guarantee that has been issued by Tiger Consumer Brands Limited. Deli Foods (Nigeria) Limited is classified as a discontinued operation. As such this has been transferred to assets held for sale, refer note 34. 25.2 Capitalised finance leases 0,5 2,0 Repayment during the next year 0,5 1,4 Repayments later than one year and no later than five years – 0,6 Refer note 26.4 Liabilities under capitalised finance leases bear interest at 9,25% per annum. Capitalised finance leases relate to plant and equipment with a book value of R2,0 million (2018: R3,3 million) as per note 11. 0,5 79,3 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 54 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
COMPANY GROUP
2019 2018 (R’million) 2019 2018
25 Borrowings continued 25.3 Instalments disclosed as: Short-term borrowings 0,5 5,0 Long-term borrowings – 74,3 0,5 79,3 25.4 Short-term borrowings 519,0 916,9 Bank overdrafts 518,5 911,9 Current portion of long-term borrowings 0,5 5,0
25.5 Changes in liabilities arising from financing activities September Transfer to September 2018 held for sale Cash flows 2019
Current portion of long-term borrowings 5,0 (3,0) (1,5) 0,5 Long-term borrowings 74,3 (74,3) – – Total liabilities from financing activities 79,3 ( 77,3) (1,5) 0,5 26 Group commitments 26.1 Approved capital expenditure, which will be financed from the group’s own resources, is as follows: Contracted 84,8 96,5 Not contracted 910,8 1 779,9 995,6 1 876,4
26.2 Additional capital commitments of R559,8 million are expected to be approved in 2020. The capital commitments noted above include various capital efficiency and expansion projects. 26.3 Commitments in respect of operating leases
Property, Group Land and Motor plant and Total (R’million) buildings vehicles equipment commitments
2019 During 2020 21,3 27,9 35,0 84,2 During 2021 16,2 10,0 36,5 62,7 During 2022 – 2,8 4,0 6,8 During 2023 and thereafter – 2,3 3,5 5,8 During 2024 and thereafter – 0,8 1,3 2,1 37,5 43,8 80,3 161,6 2018 During 2019 26,2 33,0 35,0 94,2 During 2020 16,7 23,8 35,1 75,6 During 2021 0,6 13,6 34,8 49,0 During 2022 and thereafter – 6,7 1,5 8,2 During 2023 and thereafter – 0,9 1,5 2,4
43,5 78,0 107,9 229,4 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 55
26 Group commitments continued 26.3 Commitments in respect of operating leases continued With the exception of the lease described below, operating leases are generally three to six years in duration, without purchase options and in certain instances have escalation clauses of between 7,0% and 10,0% or are linked to the prime rate of interest or Consumer Price Index (CPI). Other contingent rentals are generally not applicable. One lease, relating to fruit processing equipment, has a contingent rental linked to tons of fruit processed and escalates based on the American CPI, amounts to R5,2 million (2018: R3,5 million). 26.4 Commitments in respect of finance leases The group has finance leases for various items of plant and machinery. These leases have terms of renewal with a purchase option and are linked to the prime interest rate. Renewals are at the option of the specific entity that holds the lease. Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments, are as follows:
2019 2018 Group Minimum Present value Minimum Present value (R’million) payments of payments payments of payments
Within one year 0,7 0,5 1,6 1,4 After one year but not more than five years – – 0,6 0,6 Total minimum lease payments 0,7 0,5 2,2 2,0 Less: amounts representing finance charges (0,2) – (0,2) – Total 0,5 0,5 2,0 2,0
Please refer to note 25.2 for further details. 26.5 Commitments in respect of inventories In terms of its normal business practice, certain group operations have entered into commitments to purchase certain agricultural inputs over their respective seasons. 26.6 Commitments in respect of transport The group maintains long-term contracts, including certain minimum payments, with various transport companies for the distribution of its products. 27 Share-based payment The total expense recognised for employee services received during the year to 30 September 2019 is R60,9 million (2018: R81,9 million). Of the total expense recognised, the portion arising from the share appreciation rights, performance shares and restricted share option transactions amounted to R16,9 million, R2,1 million and R14,0 million (2018: R21,1 million, R6,4 million and R24,7 million respectively). The remaining expense relates to the cost associated with the BMT1 of R16,3 million and BMT2 of R9,1 million (2018: R25,3 million and R21,1 million respectively). Detailed disclosure of each scheme and the respective assumptions and valuation inputs have been included in Annexure D. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 56 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
GROUP
(R’million) 2019 2018 28 Pension obligations Movement in the net asset/(liability) recognised in the statement of financial position Balance at the beginning of the year 133,1 121,5 Contributions paid 268,7 268,5 Other movements (net expense in the income statement) (260,7) (261,3) Interest cost (24,9) (25,0) Current service cost (271,6) (270,4) Interest on plan assets 38,0 35,7 Interest on limit (2,2) (1,6) Remeasurements recognised in other comprehensive income 7,9 4,4 Net actuarial gain raised in terms of IAS 19R 1,9 8,0 Unrecognised gain/(loss) due to paragraph 65 limit in terms of IAS 19R 6,0 (3,6) Balance at the end of the year 149,0 133,1 The net asset is included in the statement of financial position as follows: Investments – refer note 15 75,3 70,5 Other receivables – refer note 19 75,7 64,5 Other payables – refer note 23 (2,0) (1,9) 149,0 133,1 Detailed disclosure and the respective assumptions and valuation inputs have been included in Annexure E. 29 Post-retirement medical aid obligations Balance at the end of the year Present value of obligations (582,8) (617,5) Liability at reporting date (582,8) (617,5) Movement in the liability recognised in the statement of financial position: Balance at the beginning of the year (617,5) (619,1) Contributions paid 48,2 45,8 Other expenses included in staff costs (60,2) (60,7) Current service cost (2,2) (2,4) Interest cost (58,0) (58,3) Actuarial gain released in terms of IAS 19R in other comprehensive income 46,7 16,5 Balance at the end of the year (582,8) (617,5) The employer’s estimate of contributions expected to be paid for the 2020 financial year is R49,8 million (2019: R48,2 million). Detailed disclosure and the respective assumptions and valuation inputs have been included in Annexure F. 30 Guarantees and contingent liabilities Guarantees (unutilised) 21,0 30,0 During the course of the financial year, the performance of Deli Foods Nigeria Limited was negatively affected by currency devaluation and has also been severely affected by ongoing unfavourable economic conditions. A guarantee with Rand Merchant Bank Nigeria Limited was established in favour of Deli Foods Nigeria Limited which is almost fully utilised. Company Guarantees exist against the company for the obligations of certain subsidiaries amounting to R4,1 million at 30 September 2019 (2018: R3,6 million). Contingent liability The class action against the company arising from the outbreak of listeriosis was certified by the High Court on 3 December 2018. Summons was issued on 16 April 2019. A plea was filed by the company 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. As previously confirmed, the company has product liability insurance cover appropriate for a group of its scale. Coverage is subject to the terms and limits of the policy. Our insurers have advised that the product liability policy does not include cover for exemplary or punitive damages should such an award be made by the court and, in addition, should an award be made for constitutional damages, the product liability policy will not cover that portion of the award which relates to exemplary or punitive damages not compensatory in nature. The company reserves its rights in this regard. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 57
31 Financial instruments The group’s objective in using financial instruments is to reduce the uncertainty over future cash flows arising principally as a result of commodity price, currency and interest rate fluctuations. The use of derivatives for the hedging of firm commitments against commodity price, foreign currency and interest rate exposures is permitted in accordance with group policies, which have been approved by the board of directors. Where significant finance is taken out, this is approved at board meetings. The foreign exchange contracts outstanding at year end are marked-to-market at closing spot rate. The group finances its operations through a combination of retained surpluses, bank borrowings and long-term loans. The group borrows short-term funds with fixed or floating rates of interest through a subsidiary company, Tiger Consumer Brands Limited. The main risks arising from the group’s financial instruments are, in order of priority, procurement risk, foreign currency risk, interest rate risk, liquidity risk and credit risk as detailed below. 31.1 Procurement risk (commodity price risk) Commodity price risk arises from the group being subject to raw material price fluctuations caused by supply conditions, weather, economic conditions and other factors. The strategic raw materials acquired by the group include wheat, maize, rice, oats and sorghum. The group uses commodity futures and options contracts or other derivative instruments to reduce the volatility of commodity input prices of strategic raw materials. These derivative contracts are only taken out to match an underlying physical requirement for the raw material. The group does not write naked derivative contracts. The group has developed a comprehensive risk management process to facilitate, control and monitor these risks. The procurement of raw materials takes place in terms of specific mandates given by the executive management. Position statements are prepared on a monthly basis and these are monitored by management and compared to the mandates. The board has approved and monitors this risk management process, inclusive of documented treasury policies, counterparty limits, controlling and reporting structures. At year end the exposure to derivative contracts relating to strategic raw materials is as follows:
Derivative contracts Derivative contracts expiring expiring within within 0 – 3 months 0 – 6 months Unrealised Group (profit)/loss at Hedged Hedged (R’million) 30 September value value
2019 Maize and wheat Options – Futures (4,3) 280,9 2018 Maize and wheat Options 104,2 Futures (1,1) 141,1
Commodity price sensitivity analysis The following table details the group’s sensitivity to a 10% increase and decrease in the price of wheat, rice, maize and sorghum, excluding the impact of cash flow hedges. A +10% increase would result in an outflow whereas a -10% decrease would result in an inflow. The 10% stringency is the sensitivity rate used when reporting the commodity price risk internally to key management personnel and represents management’s assessment of the possible change in the relevant commodity prices. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 58 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
31 Financial instruments continued 31.1 Procurement risk (commodity price risk) continued Profit/(loss) after tax Group 2019 2018 (R’million) (+10%)/-10% (+10%)/-10%
Milling and Baking 30,6 36,6 Other grains 173,2 166,2 Other* 44,1 108,8 Total 247,9 311,6 * Other includes tomato paste, sugar, pork, soya and sundry other items. Commodity price sensitivity is not applicable to the company. 31.2 Foreign currency risk The group enters into various types of foreign exchange contracts as part of the management of its foreign exchange exposures arising from its current and anticipated business activities. As the group operates in various countries and undertakes transactions denominated in foreign currencies, exposures to foreign currency fluctuations arise. Exchange rate exposures on transactions are managed within approved policy parameters, utilising forward exchange contracts or other derivative financial instruments in conjunction with external consultants who provide financial services to group companies as well as contributing to the management of the financial risks relating to the group’s operations. The group does not hold foreign exchange contracts in respect of foreign borrowings as its intention is to repay these from its foreign income stream or subsequent divestment of its interest in the operation. Foreign exchange differences relating to investments, net of their related borrowings, are reported as translation differences in the group’s net other comprehensive income until the disposal of the net investment, at which time exchange differences are recycled through profit or loss. Forward exchange contracts are entered into to cover import exposures and export exposures on an individual currency basis. The fair value is determined using the applicable foreign exchange spot rates at 30 September 2019.
The exposure and concentration of foreign currency risk is included in the table below.
South Group African US Pound Nigerian (R’million) rand dollar sterling Euro naira Other* Total
2019 Financial assets Accounts receivable 3 512,7 136,5 17,5 30,1 – 257,1 3 953,9 Cash and cash equivalents 1 274,0 105,6 17,7 7,9 – 318,7 1 723,9 Financial liabilities Borrowings** (519,0) – – – – – (519,0) Accounts payable (4 625,4) (128,4) 3,7 10,8 – (313,5) (5 052,8) 2018 Financial assets Accounts receivable 3 415,1 435,8 8,2 43,9 5,4 176,8 4 085,2 Cash and cash equivalents 793,6 518,0 1,5 13,3 2,0 252,7 1 581,1 Financial liabilities Borrowings** (894,2) – – – (97,0) – (991,2) Accounts payable (4 069,2) (29,4) (4,7) (8,9) (25,8) (226,7) (4 364,7) * Other includes the Australian dollar, Canadian dollar, Japanese yen, Swiss franc, New Zealand dollar and Cameroon franc. ** In 2019, Rnil (2018: Rnil) is held by the company. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 59
31 Financial instruments continued 31.2 Foreign currency risk continued The following spot rates were used to translate financial instruments denominated in foreign currency:
2019 2018 Group Assets Liabilities Average Assets Liabilities Average
US dollar 15,15 15,15 15,15 14,16 14,19 14,17 Pound sterling 18,65 18,66 18,66 18,43 18,46 18,44 Euro 16,51 16,52 16,52 16,40 16,43 16,41 Forward exchange contracts outstanding at the reporting date all fall due within 12 months. A summary of forward exchange contract positions bought to settle group foreign liabilities and sold to settle group foreign assets is shown below.
2019 2018 Foreign Foreign currency Average Rand currency Average Rand Group (in millions) rate (in millions) (in millions) rate (in millions)
Foreign currency sold US dollar 9,5 14,51 141,5 35,5 14,16 522,1 Pound sterling 0,7 18,10 12,6 1,9 18,78 37,3 Euro 3,8 16,51 63,5 6,6 17, 27 115,1 Other currencies – – 5,7 – – 44,4 Foreign currency purchased US dollar 37,8 14,73 550,0 41,2 14,31 586,0 Pound sterling 3,9 18,26 72,0 1,6 19,56 29,8 Euro 8,6 16,59 144,5 6,7 16,62 112,1 Other currencies – – 8,6 – – 11,5
2019 2018 Foreign Foreign currency Average Rand currency Average Rand Group (in millions) rate (in millions) (in millions) rate (in millions)
Unhedged foreign currency monetary assets US dollar 13,8 15,15 209,6 9,9 14,16 140,0 Pound sterling 0,9 18,65 16,3 0,4 18,43 8,2 Euro 2,0 16,51 32,5 2,7 16,40 44,2 Other currencies – – 16,1 – – 25,2 Unhedged foreign currency monetary liabilities US dollar 0,4 15,15 6,8 0,5 13,67 6,5 Pound sterling – 18,65 – – – – Euro 0,1 16,52 1,0 0,1 16,45 1,6 Other currencies – – 0,2 – – 0,9 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 60 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
31 Financial instruments continued 31.2 Foreign currency risk continued Cash flow hedges At 30 September 2019, the group had foreign exchange contracts outstanding designated as hedges of future purchases from suppliers outside South Africa for which the group has firm commitments or highly likely forecast transactions. A summary of these contracts is: 2019 2018 Foreign Foreign currency Average Rand currency Average Rand Group (in millions) rate (in millions) (in millions) rate (in millions) Foreign currency bought US dollar 34,8 14,89 517,9 20,3 14,07 286,0 Euro 2,7 16,53 45,4 1,3 16,69 21,1 Pound sterling 0,8 18,42 13,9 0,8 18,80 15,8 Other currencies – – 1,3 – – 3,7
The terms of the forward currency contracts have been negotiated to match the terms of the commitments. The cash flow hedge of expected future purchases was assessed to be effective and an unrealised profit of R24,1 million (2018: profit of R12,8 million) relating to the hedging instrument included in other comprehensive income. Timing of cash flows relating to foreign currency is as follows: GROUP
Foreign currency (in millions) 1 – 6 months 7 – 12 months
US dollar 34,8 – Pound sterling 0,8 – Euro 2,7 0,1 Japanese yen 9,3 –
These are expected to affect the income statement in the following year. During the year R8,2 million (2018: R5,9 million) was released from other comprehensive income and included in the carrying amount of the non-financial asset or liability (highly probable forecast transactions). There are no forecast transactions for which hedge accounting was previously used but is no longer expected to occur. Ineffective hedges to the value of R0,4 million (2018: R3,4 million) have been recognised in profit or loss. Cash flow hedges At 30 September 2019, the group had foreign exchange contracts outstanding designated as hedges of future sales to customers outside South Africa for which the group has firm commitments or highly likely forecast transactions. A summary of these contracts is: 2019 2018 Foreign Foreign currency Average Rand currency Average Rand Group (in millions) rate (in millions) (in millions) rate (in millions)
Foreign currency bought US dollar 4,5 14,89 67,1 5,3 14,07 75,2 Euro – 16,53 – 1,5 16,69 25,7 Pound sterling 0,5 18,42 8,7 0,6 18,80 10,5 Australian dollar – 10,07 0,3 1,7 11,11 18,6 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 61
31 Financial instruments continued 31.2 Foreign currency risk continued The terms of the forward currency contracts have been negotiated to match the terms of the commitments. The cash flow hedge of expected future sales was assessed to be effective and an unrealised gain of R2,4 million (2018: R13,7 million) relating to the hedging instrument was included in other comprehensive income. Timing of cash flows outflows/(inflows) relating to foreign currency is as follows:
GROUP
Foreign currency (in millions) 1 – 6 months 7 – 12 months
US dollar 4,5 – Pound sterling 0,5 – Euro – – Australian dollar – –
These are expected to affect the income statement in the following year. During the year R8,8 million (2018: Rnil) was released from other comprehensive income and included in the carrying amount of the non-financial asset or liability (highly probable forecast transactions). There are no forecast transactions for which hedge accounting was previously used but is no longer expected to occur. Ineffective hedges to the value of R0,9 million (2018: R1,8 million) have been recognised in profit or loss. Foreign currency sensitivity The following table details the group’s and company’s sensitivity to a 10% weakening/strengthening in the South African rand against the respective foreign currencies. The sensitivity analysis includes only material outstanding foreign currency denominated monetary items as detailed in the table above and adjusts their translation at the reporting date for a 10% change in foreign currency rates. A positive number indicates an increase in profit or loss and other comprehensive income where the South African rand weakens against the relevant currency.
Other comprehensive income Profit or loss (R’million) 2019 2018 2019 2018
Group USD +10% (44,0) (15,8) 66,7 (23,1) USD -10% 44,0 15,8 (66,7) 23,1 Pound sterling +10% (0,5) 1,4 (14,2) (0,8) Pound sterling -10% 0,5 (1,4) 14,2 0,8 EUR +10% (4,7) (2,5) 19,3 0,1 EUR -10% 4,7 2,5 (19,3) (0,1) Other +10% (0,1) 2,6 17,8 1,2 Other -10% 0,1 (2,6) (17,8) (1,2) Total +10% (49,3) (14,3) 89,6 (22,6) Total -10% 49,3 14,3 (89,6) 22,6 Company USD +10% – – 1,1 21,4 USD -10% – – (1,1) (21,4) Pound sterling +10% – – – – Pound sterling -10% – – – – Other +10% – – 6,7 – Other -10% – – (6,7) – Total +10% – – 7,8 21,4 Total -10% – – (7,8) (21,4) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 62 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
31 Financial instruments continued 31.2 Foreign currency risk continued Forex currency sensitivity on associates The following table details the group’s sensitivity to a 5% weakening/strengthening in the ZAR against the respective foreign currencies in which the associates operate.
Other comprehensive Group income (R’million) 2019
Chilean peso +5% (97,5) Chilean peso -5% 103,7 Zimbabwean dollar +5% (5,2) Zimbabwean dollar -5% 4,6 Nigerian naira +5% (10,8) Nigerian naira -5% 12,0 Total +5% (113,5) Total -5% 120,3
31.3 Interest rate risk management Interest rate risk results from the cash flow and financial performance uncertainty arising from interest rate fluctuations. Financial assets and liabilities affected by interest rate fluctuations include bank and cash deposits as well as bank borrowings. At the reporting date, the group cash deposits were accessible immediately or had maturity dates up to six months. The interest rates earned on these deposits closely approximate the market rates prevailing. Interest rate sensitivity The sensitivity analysis addresses only the floating interest rate exposure emanating from the net cash position. The interest rate exposure has been calculated with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. If interest rates had increased/(decreased) by 1% and all other variables were held constant, the profit for the year ended would (increase)/decrease as detailed in the table below due to the use of the variable interest rates applicable to the long-term borrowings and short-term borrowings. The fixed interest rate on the borrowings would not affect the financial performance. Any gain or loss would be unrealised and consequently the notional impact is not presented.
COMPANY GROUP
2019 2018 (R’million) 2019 2018
Profit/(loss) after tax ZAR borrowings (7,1) (9,5) (+1%)/-1% (7,6) (34,0) Foreign borrowings – – (+1%)/-1% 0,3 (0,2) Total (7,1) (9,5) (+1%)/-1% (7,3) (34,2) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 63
31 Financial instruments continued 31.4 Liquidity risk management Liquidity risk arises from the seasonal fluctuations in short-term borrowing positions. A material and sustained shortfall in cash flows could undermine investor confidence and restrict the group’s ability to raise funds. The group manages its liquidity risk by monitoring weekly cash flows and ensuring that adequate cash is available or borrowing facilities maintained. In terms of the memorandum of incorporation, the group’s borrowing powers are unlimited. Other than the major loans disclosed in note 25 to these annual financial statements, which are contracted with various financial institutions, the group has no significant concentration of liquidity risk with any other single counterparty. The group’s liquidity exposure is represented by the aggregate balance of financial liabilities as indicated in the categorisation table in note 31.7. Contractual maturity for non-derivative financial liabilities The following tables detail the group and company’s remaining contractual maturity for non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the group and company will be required to pay. The table includes both interest and principal cash flows. The “finance charge” column represents the possible future cash flows attributable to the instrument included in the maturity analysis, which are not included in the carrying amount of the financial liability.
Group Carrying Finance 0 – 6 7 – 12 1 – 5 (R’million) amount charge months months years
2019 Trade and other payables 4 504,6 – 4 504,6 – – Borrowings (long and short term)* 0,5 – 0,5 – – Liabilities held for sale 149,2 – 149,2 – – Total 4 654,3 – 4 654,3 – – 2018 Trade and other payables 3 841,5 – 3 841,5 – – Borrowings (long and short term)* 79,3 (14,7) 7,4 8,7 77,9 Guarantees and future commitments not on the statement of financial position – – 30,0 – – Total 3 920,8 (14,7) 3 878,9 8,7 77,9 Company 2018 Borrowings (long and short term) – – – – – Intergroup loan accounts 120,1 – – – 120,1 Guarantees not on the statement of financial position – – 3,6 – – Total 120,1 – 3,6 – 120,1 * Excludes bank overdrafts of R518,5 million (2018: R911,9 million) and cash of R1 723,9 million (2018: R1 581,1 million). These are repayable on demand and subject to annual review. Refer to notes 26.3 and 26.4 for disclosure relating to operating and finance lease commitments. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 64 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
31 Financial instruments continued 31.5 Credit risk management Group Credit risk arises from the risk that a counterparty may default or not meet its obligations timeously. The group limits its counterparty exposure arising from financial instruments by only dealing with well-established institutions of high credit standing. The group does not expect any counterparties to fail to meet their obligations given their high credit ratings. Credit risk in respect of the group’s customer base is controlled by the application of credit limits and credit monitoring procedures. Certain significant receivables are monitored on a daily basis. Where appropriate, credit guarantee insurance is obtained. The group’s credit exposure, in respect of its customer base, is represented by the net aggregate balance of amounts receivable. Concentrations of credit risk are disclosed in note 19.4. Company Credit risk exposure at 30 September 2019 relating to guarantees amounted to R4,1 million (2018: R3,6 million). Refer note 30. 31.6 Capital management The primary objective of the company and group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The company and group manage their capital structure, calculated as equity plus net debt, and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the company and group may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or increase or decrease levels of debt. No changes were made in the objectives, policies or processes during the years ended 30 September 2019 and 30 September 2018. The company and group monitor capital using a gearing ratio, which is net debt divided by total equity. The company and group target a long-term gearing ratio of 30% to 40%, except when major investments are made where this target may be exceeded.
COMPANY GROUP
2019 2018 (R’million) 2019 2018
(67,4) (304,7) Cash and cash equivalents (1 723,9) (1 581,1) – – Long-term borrowings – 74,3 – – Short-term borrowings 519,0 916,9 (67,4) (304,7) Net cash (1 204,9) (589,9) 8 697,9 10 215,5 Total equity 15 407,5 17 465,2 (0,8) (3,0) Net cash to equity (%) (7,8) (3,4) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 65
31 Financial instruments continued 31.7 Categorisation of financial assets and liabilities Financial Financial Financial Other instruments assets assets liabilities at fair value Non- Total Group amortised through OCI amortised through financial book (R’million) cost fair value cost profit or loss items value
2019 Assets – – – – 15 987,7 15 987,7 Other investments 78,2 350,8 – – – 429,0 Loans 28,6 – – – – 28,6 Trade and other receivables 3 725,7 – – 27,0 235,1 3 987,8 Cash and cash equivalents 1 723,9 – – – – 1 723,9 Assets classified as held for sale 1,2 – – – 22,3 23,5 Total 5 557,6 350,8 – 27,0 16 245,1 22 180,5 Shareholders’ equity and liabilities – – – – (17 007,7) (17 007,7) Long-term borrowings – – – – – – Trade and other payables – – (3 601,3) (5,2) (898,1) (4 504,6) Short-term borrowings – – (519,0) – – (519,0) Liabilities directly associated with assets classified as held for sale – – – – (149,2) (149,2) Total – – (4 120,3) (5,2) (18 055,0) (22 180,5)
Financial Financial Loans and assets Other instruments receivables available liabilities at fair value Non- amortised for sale amortised through profit financial Total book (R’million) cost fair value cost or loss items value
2018 Assets – – – – 18 037,4 18 037,4 Other investments 73,2 116,0 – – – 189,2 Loans 2,8 – – – – 2,8 Trade and other receivables 3 890,6 – – 14,7 212,6 4 117,9 Cash and cash equivalents 1 581,1 – – – – 1 581,1 Total 5 547,7 116,0 – 14,7 18 250,0 23 928,4 Shareholders’ equity and liabilities – – – – (19 095,7) (19 095,7) Long-term borrowings – – (74,3) – – (74,3) Trade and other payables – – (2 775,4) (6,5) (1 059,6) (3 841,5) Short-term borrowings – – (916,9) – – (916,9) Total – – (3 766,6) (6,5) (20 155,3) (23 928,4) Refer to the accounting policies for further details on the above classifications. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 66 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
31 Financial instruments continued 31.7 Categorisation of financial assets and liabilities continued Financial Financial Financial Other instruments assets assets liabilities at fair value Non- Company amortised through OCI amortised through financial Total (R’million) cost fair value cost profit or loss items book value
2019 Assets – – – 2 819,6 2 819,6 Other investments – 23,5 – 2 166,2 – 2 189,7 Loans 2 956,3 – – 680,1 – 3 636,4 Trade and other receivables 15,3 – – – 2,5 17,8 Cash and cash equivalents 67,4 – – – – 67,4 Total 3 039,0 23,5 – 2 846,3 2 822,1 8 730,9 Shareholders’ equity and liabilities – – – (8 703,1) (8 703,1) Trade and other payables – – (27,8) – – (27,8) Total – – (27,8) – (8 703,1) (8 730,9)
Financial Financial Loans and assets Other instruments receivables available liabilities at fair value Non- amortised for sale amortised through profit financial Total book (R’million) cost fair value cost or loss items value
2018 Assets – – – – 3 690,1 3 690,1 Other investments 2 140,8 25,3 – – – 2 166,1 Loans 3 876,8 – – – – 3 876,8 Trade and other receivables 326,7 – – – 0,2 326,9 Cash and cash equivalents 304,7 – – – – 304,7 Total 6 649,0 25,3 – – 3 690,3 10 364,6 Shareholders’ equity and liabilities – – (120,1) – (10 220,7) (10 340,8) Trade and other payables – – (23,8) – – (23,8) Total – – (143,9) – (10 220,7) (10 364,6) Refer to the accounting policies for further details on the above classifications. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 67
31 Financial instruments continued 31.8 Fair value hierarchy Financial instruments are normally held by the group until they close out in the normal course of business. The fair values of the group’s financial instruments, which principally comprise put, call and futures positions with SAFEX, forward exchange contracts and JSE-listed investments, approximate their carrying values. The maturity profile of these financial instruments falls due within 12 months. The maturity profile of the group’s long-term liabilities is disclosed in note 25.1 of these annual financial statements. There are no significant differences between carrying values and fair values of financial assets and liabilities. Trade and other receivables, amounts owed by subsidiaries, investments and loans and trade and other payables carried on the statement of financial position approximate the fair values. The group used the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data As at 30 September, the group held the following financial instruments measured at fair value:
2019 2018 Level 1 Level 2 Level 3** Total Level 1 Level 2 Level 3** Total
Group Assets measured at fair value Financial assets Other investments 343,0 0,3 7,5 350,8 109,8 0,3 5,9 116,0 Derivatives – 27,0 – 27,0 – 14,7 – 14,7 Liabilities Derivatives – (5,2) – (5,2) – (6,5) – (6,5) Company Assets measured at fair value Financial assets Other investments 2 181,9 0,3 7,5 2 189,7 19,1 0,3 5,9 25,3 Loans*** 680,1 – – 680,1 – – – – ** The value of the investment in Group Risk Holdings is based on Tiger Brand’s proportionate share of the net asset value of the company. There are no other significant inputs that are used in the valuation and any changes in these inputs would not result in a significant fair value change. *** The fair value of these loans are assessed on returns based on the listed investment held by the related party. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 68 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
32 Related-party disclosures The board of directors of Tiger Brands Limited has given general declarations in terms of section 75 of the Companies Act on directors’ personal financial interests. These declarations indicate that certain directors hold positions of influence in other entities which are suppliers, service providers, customers and/or competitors of Tiger Brands Limited. Transactions conducted with these director-related customers and suppliers were on an arm’s length basis. The sales to and purchases from related parties are made at normal market prices. Outstanding balances at the year end are unsecured and settlement occurs in cash. This assessment is undertaken at each financial year through examining the financial position of the related party and the market in which they operate. Given the ongoing liquidity and forex shortages experienced within Nigeria and Zimbabwe, the expected timing of receipt of the amounts owing from these related parties has been assessed. As a result, a further provision of R28,9 million (2018: R30,0 million) has been provided against these outstanding balances, being the impact of the discounting factor applied and expected liquidity premiums payable. Details of material transactions with related parties not disclosed elsewhere in the financial statements are as follows:
Amounts Group Management Directors’ owed by (R’million) fees fees related parties
2019 Related party – associates Empresas Carozzí (Chile) – 3,8 – National Foods Holdings Limited 3,5 – 13,9 2018 Related party – associates Oceana Group Limited – 0,8 0,2 Empresas Carozzí (Chile) – 3,3 – National Foods Holdings Limited 3,3 – 36,8
GROUP
(R’million) 2019 2018
Other related parties Key management personnel* Short-term employee benefits 94,2 78,3 Post-employment and medical benefits 8,2 7, 2 Share-based payments 10,2 35,2 Total compensation paid to key management personnel 112,6 120,7
* Key management personnel comprises the top tier of the organisation and the managing executives of the individual businesses. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 69
2019 2018 Amounts Amounts Company owed by/(to) Dividends owed by/(to) Dividends (R’million) related parties received related parties received
32 Related-party disclosures continued Related party – intergroup Subsidiaries1 Durban Confectionery Works Proprietary Limited 33,0 – 33,0 – Tiger Consumer Brands Limited 1,8 350,0 (120,1) 1 500,0 Tiger Brands International Holdings Limited 249,6 – 343,0 – Enterprise Foods Proprietary Limited 0,4 – 0,4 – Langeberg Holdings Limited 500,8 – 500,8 – Langeberg & Ashton Foods Proprietary Limited 499,5 – 499,5 – Tiger Food Brands Intellectual Property Holding Company Proprietary Limited 293,9 550,0 271,0 – Pharma I Holdings Proprietary Limited 1 211,2 – 1 211,2 – Chocolaterie Confiserie Camerounaise 64,0 74,5 – 58,1 Davita Trading Proprietary Limited – 150,0 – 150,0 Investment and dormant companies 99,6 – 165,5 – Empowerment entities Tiger Brands Foundation 567,0 200,5 719,5 188,3 Thusani II 113,1 38,6 130,7 36,6 Associate Oceana Group Limited – 173,6 0,2 64,0 National Foods Holdings Limited 13,9 9,6 36,8 16,6 UAC Foods – 14,5 – 12,5
1 Interest-free with no fixed repayment terms. These balances are not expected to be called upon within the next 12 months. In assessing the credit risk of intercompany transactions, the company considers the liquidity position, available cash resources and the industry. These factors are considered to give rise to a low credit risk and, therefore, no further disclosure is required. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 70 Tiger Brands Limited Annual financial statements 2019
NOTES TO THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 September 2019
GROUP
2018 (R’million) 2019 Restated*
33 Analysis of loss from discontinued operations In the current year, the results of the held-for-sale business Deli Foods Nigeria Limited (Deli Foods) was included in the profit for the year as set out below and comparatives restated accordingly (refer note 34). The prior year includes the results of the held-for-sale business (Haco Tiger Brands (E.A.) Limited (Haco)) and Deli Foods. Loss for the year from discontinued operations (attributable to owners of the company) Revenue 151,0 152,1 Expenses (168,1) (191,6) Operating loss before impairments and abnormal items (17,1) (39,5) Impairments** (8,8) (63,8) Abnormal items (6,9) 7,5 Operating loss after impairments and abnormal items (32,8) (95,8) Finance costs (19,7) (13,5) Loss before taxation (52,5) (109,3) Taxation – (5,6) Loss for the year from discontinued operations (52,5) (114,9) Attributable to non-controlling interest – (3,3) Attributable to owners of parent (52,5) (118,2) Cash flows from discontinued operations Net cash outflows from operating activities (58,0) (126,0) Net cash inflow from investing activities 22,2 44,6 Net cash inflow/(outflow) from financing activities 16,8 (70,0) Net cash outflows (19,0) (151,4) Cash flow on disposal of subsidiary Cash and cash equivalents disposed – (0,1) Proceeds received on disposal*** 307,7 103,5 Total cash inflow on disposal of subsidiary 307,7 103,4
Balance sheets disposed of: December (R’million) 2017
Summarised statement of financial position Non-current assets 178,4 Current assets 202,7 Non-current liabilities (28,9) Current liabilities (150,6) Net asset value 201,6 * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. ** Subsequent to the reclassification to held for sale in terms of IFRS 5, property, plant and equipment were remeasured at fair value less costs to sell per IFRS 5. *** The final tranches were received from East African Group (EAG) on the sale of East African Tiger Brands Industries Plc. (EATBI) in 2017. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 71
GROUP
(R’million) 2019 2018
34 Assets classified as held for sale A detailed review of the Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) business was conducted in the context of Tiger Brands’ long-term growth strategy and core competencies. Deli Foods is currently loss-making and thus no longer meets the wider strategic plan of the company. Its inability to hold market share and compete with global brands resulted in a negative payback. Taking into account these factors, it was decided that Deli Foods would be reflected as held for sale at 30 September 2019 and suitable buyers for the business are being explored. Further, included in the assets held for sale is the remaining investment in Oceana which is in the process of being sold. Property, plant and equipment 8,7 – Investments 10,4 – Inventory 3,2 – Cash and cash equivalents 1,2 – 23,5 – Liabilities directly associated with the assets classified as held for sale Short-term borrowings 130,3 – Trade payables 18,9 – 149,2 – Net carrying value of Deli and Oceana (125,7) – 35 Subsequent events Subsequent to 30 September 2019, no acceptable offers were made for Deli Foods and it was announced that the business would be closed down.
With the exception of the closure of Deli Foods, there are no other material subsequent events that occurred during the period subsequent to 30 September 2019, but prior to these consolidated financial statements being authorised for issue. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 72 Tiger Brands Limited Annual financial statements 2019
ANNEXURE A INTEREST IN SUBSIDIARY COMPANIES for the year ended 30 September 2019
Principal Company’s interest place of Functional Effective percentage Shares at cost business currency holding (net of impairment) 2019 2018 (R’million) % % 2019 2018
Designer Group Holdings Limited South Africa South African rand 100,0 100,0 132,1 132,1 Durban Confectionery Works Proprietary Limited South Africa South African rand 100,0 100,0 63,4 63,4 Enterprise Foods Proprietary Limited South Africa South African rand 100,0 100,0 49,7 49,7 Langeberg Holdings Limited South Africa South African rand 100,0 100,0 190,8 190,8 Langeberg & Ashton Foods Proprietary Limited South Africa South African rand 100,0 100,0 85,8 85,8 Tiger Food Brands Intellectual Property Holding Company Proprietary Limited South Africa South African rand 100,0 100,0 17,3 17,3 Tiger Consumer Brands Limited South Africa South African rand 100,0 100,0 0,1 0,1 Tiger Brands (Mauritius) Limited Mauritius US dollar 100,0 100,0 337,9 3 37,9 Chocolaterie Confiserie Camerounaise1 Cameroon CAF franc 74,7 74,7 152,7 152,7 Deli Foods Nigeria Limited2 Nigeria Nigerian naira 100,0 100,0 – – Davita Trading Proprietary Limited South Africa South African rand 100,0 100,0 1 521,6 1 521,6 Pharma I Holdings Proprietary Limited3 South Africa South African rand 100,0 100,0 – – 2 551,4 2 551,4 1 All year ends are 30 September, except for Chocolaterie Confiserie Camerounaise which has a 31 December year end. 2 Investment in Deli Foods Nigeria Limited was fully impaired in the prior year. 3 Previously Adcock Ingram Holdings Proprietary Limited. All rand amounts of less than R100 000 are shown as – in the above table. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 73
ANNEXURE B INTEREST IN ASSOCIATE COMPANIES for the year ended 30 September 2019
Principal place of Percentage Nature of Listed/ business Currency Year end holding business Unlisted 2019 2018 (R’million) % %
Oceana Group Limited (note 1) South Africa South African rand September –* 42,1 Fishing Listed National Foods Holdings Limited Food (note 2) Zimbabwe US dollar June 37,4 37,4 processing Listed Food Empresas Carozzí Chile Chilean peso December 24,4 24,4 processing Unlisted Food UAC Foods Nigeria Nigerian naira December 49,0 49,0 processing Unlisted * Taking treasury shares into account, the voting rights are 0% (2018: 43,8%). After accounting for the treasury and empowerment shares, the earnings are equity accounted at 0% (2018: 48,9%). Note 1 – Unbundling of Oceana As a consequence of the decision taken to unbundle the company’s investment in Oceana, the company ceased to equity account the earnings of Oceana with effect from 1 December 2018. From this date, the investment has been accounted for as a held-for-sale asset on the balance sheet. The Brimstone sale was concluded on 20 March 2019. The total sale consideration amounted to R581,4 million, giving rise to a capital profit of R281,9 million and a release of R26,4 million on FCTR. On 3 April 2019, the board formally approved the unbundling of the remaining 49 104 774 shares that the company holds in Oceana (equating to approximately 36,2% of the issued share capital of Oceana) (the unbundled shares) by way of a distribution in specie in terms of the company’s memorandum of incorporation. This was concluded on 29 April 2019. The dividend in specie gives rise to a realised fair value gain in terms of IFRS 5 of R1 630,4 million. This gain has no impact on HEPS as it has been excluded for headline earnings purposes. Further, Tiger Brands group received 2 671 457 Oceana shares in respect of the 10 326 758 treasury shares in Tiger Brands held by its wholly owned subsidiary, Tiger Consumer Brands Limited. These shares are being sold into the market at a market-related price. This sale has given rise to an abnormal capital profit of R86,9 million. The capital profit has no impact on HEPS as it has been excluded for headline earnings purposes. The impact of the unbundling on the empowerment entities in the Tiger Brands group has been appropriately accounted for. Detailed disclosure of Oceana Fishing Limited as per note 14.3 is noted on page 74. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 74 Tiger Brands Limited Annual financial statements 2019
ANNEXURE B CONTINUED INTEREST IN ASSOCIATE COMPANIES continued for the year ended 30 September 2019
Summarised statement of comprehensive income September (R’million) 2018
Revenue 7 732,7 Profit after taxation 882,2 Attributable to outside shareholders 8 57,8 Other comprehensive income, net of taxation 240,1 Total comprehensive income for the year 1 122,3 Attributable to outside shareholders 1 098,0
Dividends received from Oceana 64,0 Summarised statement of financial position September (R’million) 2018
Non-current assets 6 685,1 Current assets 4 014,4 Non-current liabilities (3 818,7) Current liabilities (2 158,9) Net asset value 4 721,9 Reconciliation of the summarised financial information presented to the carrying amount of Tiger Brands’ interest in Oceana September (R’million) 2018
Tiger Brands’ effective share of Oceana’s NAV 2 307,1 Goodwill on acquisition 238,8 Carrying value of Oceana 2 545,9 Fair value of investment in Oceana 4 709,4 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 75
Note 2 – National Foods Holdings Limited (NFH) Accounting for investment in associate The group has a 37,4% investment in National Foods Holdings Limited (NFH), an associate company incorporated in Zimbabwe and which operates throughout Zimbabwe. On 11 October 2019, the Public Accountants and Auditors Board of Zimbabwe classified Zimbabwe as a hyperinflationary economy in accordance with the provisions of IAS 29 Financial Reporting in Hyperinflationary Economies (IAS 29), applicable to entities operating in Zimbabwe with financial periods ended on or after 1 July 2019. Tiger Brands concurs with this classification, supported by the following factors: ›› The significant deterioration of the interbank Real Time Gross Settlement (RTGS) dollar and Zimbabwe dollar (ZWL$) exchange rates, the official currencies adopted in Zimbabwe during the period; ›› The rapid increase in year-on-year Zimbabwe inflation rates, from 21% in October 2018, as published by the Reserve Bank of Zimbabwe (RBZ), to a calculated 290% in September 2019 based on the RBZ published CPI index. The equity accounted results of NFH included in these results have therefore been prepared in accordance with IAS 29, with the following key accounting principles and judgements applied by the group: ›› Hyperinflation accounting requires transactions and balances of each reporting period presented to be stated in terms of the measuring unit current at the end of the reporting period in order to account for the loss of purchasing power during the period. The group has elected to use the Zimbabwe Consumer Price Index (CPI) as the measuring unit current (or general price index) to restate amounts as CPI provides an observable indication of the change in the price of goods and services. ›› The carrying amounts of non-monetary assets and liabilities carried at historical costs are restated to reflect the change in the general price index. ›› All items recognised in the statement of comprehensive income at historical costs are restated by applying the change in the general price index from the dates when these items were initially earned or incurred. ›› Gains or losses on the resulting net monetary position are recognised in the statement of comprehensive income and included in our share of associate’s income. ›› Impairment losses are recorded in the statement of comprehensive income if the remeasured value of assets exceeds the estimated recoverable amount and included in our share of associate’s income. ›› The application of IAS 29 on a retrospective basis within the statement of comprehensive income of NFH have resulted in the recognition of both a gain on the net monetary position and an impairment loss on the revalued assets in the current and prior periods. As the group’s presentation currency is not that of a hyperinflationary economy, the comparative information of the group’s financial results relating to NFH is not restated. Any difference between our share of NFH adjusted equity balance after applying IAS 29 and the balance previously recorded by the group as at 30 September 2019 is recognised in other comprehensive income as part of foreign currency translations for the current period. Exchange rates applied in translating the results of investment in associate During the current and prior period under review, the following changes to the functional and presentation currencies of NFH occurred: ›› Since the adoption of multiple currencies by the Zimbabwean Government in 2009, entities in Zimbabwe were operating in a multi-currency regime. As a result, prior to 1 October 2018, the US dollar was designated as the functional and presentation currency of NFH. ›› On 1 October 2018, following the directive issued by the RBZ, the RTGS dollar was adopted as the functional and presentation currency of NFH. The application of the change in functional currency was applied prospectively. As disclosed in the accounting policies, judgement was applied in the estimation and application of exchange rates used when translating the results of NFH for the 2019 financial year. Inputs considered in this estimate include the official inflation rate and the premium at which Old Mutual shares trade on the Zimbabwe Stock Exchange versus on the JSE. ›› On 24 June 2019, the RBZ introduced statutory instrument 142 of 2019 resulting in the renaming of the RTGS dollar to the Zimbabwe dollar (ZWL$), and the ZWL$ being the only form of legal tender in the country. The ZWL$ was therefore adopted as the functional and presentation currency of NFH prospectively from this date. In line with the judgements applied during the 2019 financial year, management assessed that the official interbank closing exchange rate of 1,00 ZWL$ to the South African rand and this was therefore used when translating the result of NFH. The results and net asset value of NFH have been translated into the group’s presentation currency at the closing exchange rate, in accordance with hyperinflationary provisions of IAS 21 The Effects of Changes in Foreign Exchange Rates. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 76 Tiger Brands Limited Annual financial statements 2019
ANNEXURE C DIRECTORS’ EMOLUMENTS
Table of directors’ emoluments for the year ended 30 September 2019
GROUP
Retirement fund Gains on Cash Other contribu- options Total (R000) Fees salary Bonus benefits tions exercised 2019
Executive directors LC Mac Dougall – 8 973 – 160 329 – 9 462 NP Doyle – 5 832 – 30 961 4 446 11 269 Total A – 14 805 – 190 1 290 4 446 20 731 Non-executive directors** EFs* CH Fernandez1 434 – – – – – 434 DG Wilson2 196 – – – – – 196 GA Klintworth 1 103 – – – – – 1 103 KDK Mokhele (chairman) 1 918 – – – – – 1 918 M Makanjee 723 – – – – – 723 MJ Bowman 806 – – – – – 806 MO Ajukwu 1 531 – – – – – 1 531 MP Fandeso3 127 – – – – – 127 MP Nyama 649 – – – – – 649 TE Mashilwane 890 8 – – – – 898 YGH Suleman4 224 8 – – – – 232 Total B 8 601 16 – – – – 8 617 Total A + B 8 601 14 821 – 190 1 290 4 446 29 348 Details of remuneration paid to prescribed officers of the company are set out hereunder: PW Spies – 4 354 – 364 339 – 5 057 Y Maharaj – 4 347 – 366 339 – 5 052 PD Sithole – 4 547 – 120 339 1 674 6 680 Total – 13 248 – 850 1 017 1 674 16 789 Aggregated details of remuneration paid to members (eight) of the executive committee, excluding executive directors and prescribed officers above, are set out hereunder Total – 23 952 106 3 549 2 181 1 429 31 217 1 CH Fernandez appointed on 1 March 2019. 2 DG Wilson appointed on 1 June 2019. 3 MP Fandeso appointed on 1 July 2019. 4 YGH Suleman resigned on 22 November 2018. * EFs – fees paid to non-executive directors in respect of their attendance at special board meetings of the company. ** The fees to non-executive directors exclude VAT. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 77
Table of directors’ emoluments for the year ended 30 September 2018
GROUP
Retirement fund Gains on Cash Other contribu- options Total (R000) Fees salary Bonus benefits tions exercised 2018
Executive directors LC Mac Dougall – 8 512 – 153 340 – 9 005 NP Doyle – 5 498 – 72 913 – 6 483 CFH Vaux1 – 1 968 – 23 146 725 2 862 Total A – 15 978 – 248 1 399 725 18 350 Non-executive directors** EFs* MO Ajukwu 1 208 – – – – – 1 208 SL Botha2 117 – – – – – 117 MJ Bowman 627 20 – – – – 647 GA Klintworth3 229 – – – – – 229 M Makanjee 661 22 – – – – 683 TE Mashilwane 556 – – – – – 556 KDK Mokhele (chairman) 1 797 8 – – – – 1 805 RD Nisbet4 845 28 – – – – 873 MP Nyama 573 – – – – – 573 YGH Suleman 854 22 – – – – 876 BS Tshabalala5 525 – – – – – 525
Total B 7 992 100 – – – – 8 092 Total A + B 7 992 16 078 – 248 1 399 725 26 442 Details of remuneration paid to prescribed officers of the company are set out hereunder: PW Spies – 4 030 – 423 345 – 4 798 AG Kirk6 – 3 861 – 239 316 3 597 8 013 Y Maharaj7 – 1 022 – 1 106 85 – 2 213 PD Sithole – 3 988 – 142 345 – 4 475 Total – 12 901 – 1 910 1 091 3 597 19 499 Aggregated details of remuneration paid to members (eight) of the executive committee, excluding executive directors and prescribed officers above, are set out hereunder8 Total – 16 863 – 5 548 1 800 2 245 26 456 1 Stepped down as an executive director in February 2018. 2 Resigned effective 24 November 2017. 3 Appointed effective 16 August 2018. 4 Resigned effective 7 September 2018. 5 Resigned effective 15 August 2018. 6 Resigned effective 31 August 2018. 7 Appointed effective 1 July 2018. Sign-on bonus of R1 000 000 in lieu of variable pay forfeited at former employer. 8 Sign-on bonus paid to new CHRO of R1 263 212 in lieu of variable pay forfeited at former employer. A retention bonus of R3 503 161 was granted to the previous CHRO on 1 December 2015, but payment was elected to be made at the end of the retention period, effective 30 November 2017. * EFs – fees paid to non-executive directors in respect of their attendance at special board meetings of the company. ** The fees to non-executive directors exclude VAT. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 78 Tiger Brands Limited Annual financial statements 2019
ANNEXURE C CONTINUED DIRECTORS’ EMOLUMENTS continued
Phantom cash-settled option scheme Executive directors Details of phantom cash-settled options held by executive directors under this scheme at 30 September 2019 appear below: Fair market value of Number Number vested of options Number of options options at Holding at Holding at vested at of options subject to Grant 30 September Date of 1 October Granted Exercised Forfeited 30 September 30 September subject to performance price 2019 Name grant 2018 2019 2019 2019 2019 2019 retention targets (Rand) R’000
NP Doyle February 2013 15 000 – – 15 000 – – – – 299,8 – July 2012 15 000 – 15 000 – – – – – 252,0 – Total 30 000 – 15 000 15 000 – – – – –
Prescribed officers Aggregated details of phantom cash options held by prescribed officers at 30 September 2019 appear below: Fair market value of Number Number vested of options Number of options options at Holding at Holding at vested at of options subject to Grant 30 September Date of 1 October Granted Exercised Forfeited 30 September 30 September subject to performance price 2019 Name grant 2018 2019 2019 2019 2019 2019 retention targets (Rand) R’000
PD Sithole February 2013 1 400 – – 1 400 – – – – 299,8 –
Executive committee members (excluding executive directors and prescribed officers) Aggregated details of phantom cash options held by members of the executive committee, other than executive directors and prescribed officers above, at 30 September 2019 appear below: Fair market value of Number Number vested of options Number of options options at Holding at Holding at vested at of options subject to Grant 30 September Date of 1 October Granted Exercised Forfeited 30 September 30 September subject to performance price 2019 Name grant 2018 2019 2019 2019 2019 2019 retention targets (Rand) R’000
Total Various* 3 633 – – 3 633 – – – – Various –
* Includes CFH Vaux who stepped down as an executive director in February 2018. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 79
Phantom cash-settled option scheme Executive directors Details of phantom cash-settled options held by executive directors under this scheme at 30 September 2019 appear below: Fair market value of Number Number vested of options Number of options options at Holding at Holding at vested at of options subject to Grant 30 September Date of 1 October Granted Exercised Forfeited 30 September 30 September subject to performance price 2019 Name grant 2018 2019 2019 2019 2019 2019 retention targets (Rand) R’000
NP Doyle February 2013 15 000 – – 15 000 – – – – 299,8 – July 2012 15 000 – 15 000 – – – – – 252,0 – Total 30 000 – 15 000 15 000 – – – – –
Prescribed officers Aggregated details of phantom cash options held by prescribed officers at 30 September 2019 appear below: Fair market value of Number Number vested of options Number of options options at Holding at Holding at vested at of options subject to Grant 30 September Date of 1 October Granted Exercised Forfeited 30 September 30 September subject to performance price 2019 Name grant 2018 2019 2019 2019 2019 2019 retention targets (Rand) R’000
PD Sithole February 2013 1 400 – – 1 400 – – – – 299,8 –
Executive committee members (excluding executive directors and prescribed officers) Aggregated details of phantom cash options held by members of the executive committee, other than executive directors and prescribed officers above, at 30 September 2019 appear below: Fair market value of Number Number vested of options Number of options options at Holding at Holding at vested at of options subject to Grant 30 September Date of 1 October Granted Exercised Forfeited 30 September 30 September subject to performance price 2019 Name grant 2018 2019 2019 2019 2019 2019 retention targets (Rand) R’000
Total Various* 3 633 – – 3 633 – – – – Various –
* Includes CFH Vaux who stepped down as an executive director in February 2018. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 80 Tiger Brands Limited Annual financial statements 2019
ANNEXURE C CONTINUED DIRECTORS’ EMOLUMENTS continued
Tiger Brands Limited 2013 Share Plan Executive directors Details of share appreciation rights allocated to executive directors under this plan at 30 September 2019 are set out below: Fair market Number Revised grant value of Adjustment Number of options price due to vested due to Oceana of options subject to Oceana options at Holding at unbundling Holding at vested at performance Grant unbundling 30 September Date of 1 October Granted (Note 1) Forfeited 30 September 30 September targets and price (Note 1) 2019 Name grant 2018 2019 2019 2019 2019 2019 retention (Rand) (Rand) R’000
NP Doyle December 2018 – 52 700 3 988 – 56 688 – 56 688 274,1 254,8 December 2017 45 830 – 3 468 – 49 298 – 49 298 414,5 385,3 December 2016 33 780 – 2 556 – 36 336 – 36 336 396,0 368,1 February 2016 22 870 – 1 154 7 623 16 401 – 16 401 291,7 271,2 February 2015 8 732 – 370 3 847 5 255 1 117 4 138 385,3 358,2 1 February 2014 12 950 – 670 4 102 9 518 9 518 – 254,5 236,6 26 Note 2 February 2014 5 250 – 271 1 664 3 857 3 857 – 254,5 236,6 11 Total 129 412 52 700 12 477 17 236 177 353 14 492 162 861 38
LC Mac Dougall December 2018 – 57 420 4 344 – 61 764 – 61 764 274,1 254,8 December 2017 8 990 – 681 – 9 671 – 9 671 414,5 385,3 December 2016 32 840 – 2 485 – 35 325 – 35 325 396,0 368,1 May 2016 36 000 – 1 816 12 000 25 816 – 25 816 341,7 317,6 Total 77 830 57 420 9 326 12 000 132 576 – 132 576 Note 1: Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. Note 2: A special retention allocation of share appreciation rights was made on 28 February 2014. These are subject to normal performance and vesting conditions. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 81
Tiger Brands Limited 2013 Share Plan Executive directors Details of share appreciation rights allocated to executive directors under this plan at 30 September 2019 are set out below: Fair market Number Revised grant value of Adjustment Number of options price due to vested due to Oceana of options subject to Oceana options at Holding at unbundling Holding at vested at performance Grant unbundling 30 September Date of 1 October Granted (Note 1) Forfeited 30 September 30 September targets and price (Note 1) 2019 Name grant 2018 2019 2019 2019 2019 2019 retention (Rand) (Rand) R’000
NP Doyle December 2018 – 52 700 3 988 – 56 688 – 56 688 274,1 254,8 December 2017 45 830 – 3 468 – 49 298 – 49 298 414,5 385,3 December 2016 33 780 – 2 556 – 36 336 – 36 336 396,0 368,1 February 2016 22 870 – 1 154 7 623 16 401 – 16 401 291,7 271,2 February 2015 8 732 – 370 3 847 5 255 1 117 4 138 385,3 358,2 1 February 2014 12 950 – 670 4 102 9 518 9 518 – 254,5 236,6 26 Note 2 February 2014 5 250 – 271 1 664 3 857 3 857 – 254,5 236,6 11 Total 129 412 52 700 12 477 17 236 177 353 14 492 162 861 38
LC Mac Dougall December 2018 – 57 420 4 344 – 61 764 – 61 764 274,1 254,8 December 2017 8 990 – 681 – 9 671 – 9 671 414,5 385,3 December 2016 32 840 – 2 485 – 35 325 – 35 325 396,0 368,1 May 2016 36 000 – 1 816 12 000 25 816 – 25 816 341,7 317,6 Total 77 830 57 420 9 326 12 000 132 576 – 132 576 Note 1: Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. Note 2: A special retention allocation of share appreciation rights was made on 28 February 2014. These are subject to normal performance and vesting conditions. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 82 Tiger Brands Limited Annual financial statements 2019
ANNEXURE C CONTINUED DIRECTORS’ EMOLUMENTS continued
Tiger Brands Limited 2013 Share Plan continued Executive directors continued Details of performance shares awarded to executive directors under the Tiger Brands Limited 2013 Share Plan as at 30 September 2019 appear below: Options received/ forfeited Adjustment as result of Number 10-day due to performance of options VWAP Holding at Oceana conditions Holding at vested as at share price Date of 1 October unbundling achieved/ Exercised 30 September 30 September on grant date Name grant 2018 (Note 1) not achieved 2019 2019 2019 (Rand)
NP Doyle February 2016 5 720 – 3 575 2 145 – – 291,7 February 2015 4 358 – – 4 358 – – 385,3 Total 10 078 – 3 575 6 503 – – LC Mac Dougall May 2016 8 160 618 8 778 – – – 341,7 Total 8 160 618 8 778 – – –
Details of restricted shares granted to executive directors under the Tiger Brands Limited 2013 Share Plan as at 30 September 2019 appear below: Adjustment Number 10-day due to of options VWAP share Holding at Oceana Holding at vested as at price on Date of 1 October Granted unbundling Exercised Forfeited 30 September 30 September grant date Name grant 2018 2019 (Note 1) 2019 2019 2019 2019 (Rand)
NP Doyle December 2016 3 710 280 – – 3 990 – 396,0 February 2016 1 330 – – 1 330 – – – 291,7 December 2015 5 376 – – 5 376 – – – 342,9 February 2015 2 320 – – 2 320 – – – 385,3 Total 12 736 – 280 9 026 – 3 990 – LC Mac Dougall December 2016 1 950 – 147 – – 2 097 – 396,0 Total 1 950 – 147 – – 2 097 – Note 1: Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 83
Tiger Brands Limited 2013 Share Plan continued Executive directors continued Details of performance shares awarded to executive directors under the Tiger Brands Limited 2013 Share Plan as at 30 September 2019 appear below: Options received/ forfeited Adjustment as result of Number 10-day due to performance of options VWAP Holding at Oceana conditions Holding at vested as at share price Date of 1 October unbundling achieved/ Exercised 30 September 30 September on grant date Name grant 2018 (Note 1) not achieved 2019 2019 2019 (Rand)
NP Doyle February 2016 5 720 – 3 575 2 145 – – 291,7 February 2015 4 358 – – 4 358 – – 385,3 Total 10 078 – 3 575 6 503 – – LC Mac Dougall May 2016 8 160 618 8 778 – – – 341,7 Total 8 160 618 8 778 – – –
Details of restricted shares granted to executive directors under the Tiger Brands Limited 2013 Share Plan as at 30 September 2019 appear below: Adjustment Number 10-day due to of options VWAP share Holding at Oceana Holding at vested as at price on Date of 1 October Granted unbundling Exercised Forfeited 30 September 30 September grant date Name grant 2018 2019 (Note 1) 2019 2019 2019 2019 (Rand)
NP Doyle December 2016 3 710 280 – – 3 990 – 396,0 February 2016 1 330 – – 1 330 – – – 291,7 December 2015 5 376 – – 5 376 – – – 342,9 February 2015 2 320 – – 2 320 – – – 385,3 Total 12 736 – 280 9 026 – 3 990 – LC Mac Dougall December 2016 1 950 – 147 – – 2 097 – 396,0 Total 1 950 – 147 – – 2 097 – Note 1: Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 84 Tiger Brands Limited Annual financial statements 2019
ANNEXURE C CONTINUED DIRECTORS’ EMOLUMENTS continued
Tiger Brands Limited 2013 Share Plan continued Prescribed officers Details of share appreciation rights allocated to prescribed officers under the Tiger Brands Limited 2013 Share Plan at 30 September 2019 are set out below: Fair market Number Revised value of Adjustment Number of options grant price vested due to of options subject to due to options at Holding at Oceana Holding at vested at performance Grant Oceana 30 September Date of 1 October Granted unbundling Forfeited 30 September 30 September targets and price unbundling 2019 Name grant 2018 2019 (Note 1) 2019 2019 2019 retention (Rand) (Note 1) R’000
PW Spies December 2018 – 25 570 1 935 – 27 505 – 27 505 274,1 254,8 – PW Spies December 2017 17 710 – 1 340 – 19 050 – 19 050 414,5 385,3 – PW Spies September 2017 13 102 – 992 – 14 094 – 14 094 403,6 375,2 – Y Maharaj December 2018 – 28 110 2 127 – 30 237 – 30 237 274,1 254,8 – PD Sithole December 2018 – 35 810 2 710 – 38 520 – 38 520 274,1 254,8 – PD Sithole December 2017 24 150 – 1 827 – 25 977 – 25 977 414,5 385,3 – PD Sithole December 2016 11 040 – 835 – 11 875 – 11 875 396,0 368,1 – PD Sithole February 2016 10 220 – 515 3 406 7 329 – 7 329 291,7 271,2 – PD Sithole February 2015 5 410 – 229 2 383 3 256 692 2 564 385,3 358,2 – PD Sithole February 2014 12 090 – 624 3 831 8 883 8 883 – 254,5 236,6 25 Note 1: As Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%.
Details of performance shares awarded to prescribed officers under the Tiger Brands Limited 2013 Share Plan at 30 September 2019 are set out below: Options received/ forfeited as result of Number 10-day performance of options VWAP Holding at conditions Holding at vested as at share price Date of 1 October Granted achieved/ Exercised Forfeited 30 September 30 September on grant date Name grant 2018 2019 not achieved 2019 2019 2019 2019 (Rand)
PD Sithole February 2016 1 860 – 1 162 698 – – – 291,7 PD Sithole February 2015 2 275 – – 2 275 – – – 385,3 Details of restricted shares awarded to prescribed officers under the Tiger Brands Limited 2013 Share Plan at 30 September 2019 are set out below: Adjustment Number 10 – day due to of options VWAP Holding at Oceana Holding at vested as at share price Date of 1 October Granted unbundling Exercised Forfeited 30 September 30 September on grant date Name grant 2018 2019 (Note 1) 2019 2019 2019 2019 (Rand)
PW Spies December 2017 7 270 – 550 – – 7 820 – 414,5 PD Sithole December 2017 6 300 – 477 – – 6 777 – 414,5 PD Sithole December 2016 770 – 58 – – 828 – 396,0 PD Sithole February 2016 1 220 – – 1 220 – – – 291,7 PD Sithole February 2015 1 870 – – 1 870 – – – 385,3 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 85
Tiger Brands Limited 2013 Share Plan continued Prescribed officers Details of share appreciation rights allocated to prescribed officers under the Tiger Brands Limited 2013 Share Plan at 30 September 2019 are set out below: Fair market Number Revised value of Adjustment Number of options grant price vested due to of options subject to due to options at Holding at Oceana Holding at vested at performance Grant Oceana 30 September Date of 1 October Granted unbundling Forfeited 30 September 30 September targets and price unbundling 2019 Name grant 2018 2019 (Note 1) 2019 2019 2019 retention (Rand) (Note 1) R’000
PW Spies December 2018 – 25 570 1 935 – 27 505 – 27 505 274,1 254,8 – PW Spies December 2017 17 710 – 1 340 – 19 050 – 19 050 414,5 385,3 – PW Spies September 2017 13 102 – 992 – 14 094 – 14 094 403,6 375,2 – Y Maharaj December 2018 – 28 110 2 127 – 30 237 – 30 237 274,1 254,8 – PD Sithole December 2018 – 35 810 2 710 – 38 520 – 38 520 274,1 254,8 – PD Sithole December 2017 24 150 – 1 827 – 25 977 – 25 977 414,5 385,3 – PD Sithole December 2016 11 040 – 835 – 11 875 – 11 875 396,0 368,1 – PD Sithole February 2016 10 220 – 515 3 406 7 329 – 7 329 291,7 271,2 – PD Sithole February 2015 5 410 – 229 2 383 3 256 692 2 564 385,3 358,2 – PD Sithole February 2014 12 090 – 624 3 831 8 883 8 883 – 254,5 236,6 25 Note 1: As Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%.
Details of performance shares awarded to prescribed officers under the Tiger Brands Limited 2013 Share Plan at 30 September 2019 are set out below: Options received/ forfeited as result of Number 10-day performance of options VWAP Holding at conditions Holding at vested as at share price Date of 1 October Granted achieved/ Exercised Forfeited 30 September 30 September on grant date Name grant 2018 2019 not achieved 2019 2019 2019 2019 (Rand)
PD Sithole February 2016 1 860 – 1 162 698 – – – 291,7 PD Sithole February 2015 2 275 – – 2 275 – – – 385,3 Details of restricted shares awarded to prescribed officers under the Tiger Brands Limited 2013 Share Plan at 30 September 2019 are set out below: Adjustment Number 10 – day due to of options VWAP Holding at Oceana Holding at vested as at share price Date of 1 October Granted unbundling Exercised Forfeited 30 September 30 September on grant date Name grant 2018 2019 (Note 1) 2019 2019 2019 2019 (Rand)
PW Spies December 2017 7 270 – 550 – – 7 820 – 414,5 PD Sithole December 2017 6 300 – 477 – – 6 777 – 414,5 PD Sithole December 2016 770 – 58 – – 828 – 396,0 PD Sithole February 2016 1 220 – – 1 220 – – – 291,7 PD Sithole February 2015 1 870 – – 1 870 – – – 385,3 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 86 Tiger Brands Limited Annual financial statements 2019
ANNEXURE C CONTINUED DIRECTORS’ EMOLUMENTS continued
Tiger Brands Limited 2013 Share Plan continued Executive committee members (excluding executive directors and prescribed officers) Aggregated details of share appreciation rights allocated to members of the executive committee, other than executive directors and prescribed officers above, as at 30 September 2019, are set out below: Fair market Number Revised value of Adjustment Number of options grant price vested due to of options subject to due to options at Holding at Oceana Holding at vested at performance Grant Oceana 30 September Date of 1 October Granted unbundling Exercised Forfeited 30 September 30 September targets and price unbundling 2019 Total for FY grant 2018 2019 (Note 1) 2019 2019 2019 2019 retention (Rand) (Note 1) R’000
2019* December 2018 – 213 410 15 029 – 24 482 203 957 – 203 957 274,1 254,8 – 2018 December 2017 31 650 – 1 694 – 15 672 17 672 – 17 672 414,5 385,3 – 2017 December 2016 33 940 – 2 184 – 8 275 27 849 – 27 849 396,0 368,1 – 2016 February 2016 16 400 – 709 – 7 755 9 354 – 9 354 291,7 271,2 – 2015* February 2015 9 980 – 423 – 4 396 6 007 1 276 4 731 385,3 358,2 1 2014* February 2014 34 903 – 1 580 2 203 11 834 22 446 22 446 – 254,5 236,6 62
* Includes CFH Vaux who stepped down as an executive director in February 2018. Note 1: As Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%.
Aggregated details of performance shares awarded to members of the executive committee, other than executive directors and prescribed officers above, as at 30 September 2019, are set out below: Options received/ forfeited as 10-day result of Number VWAP performance of options share price Holding at conditions Holding at vested as at on grant Date of 1 October Granted achieved/ Forfeited Exercised 30 September 30 September date Total for FY grant 2018 2019 not achieved 2019 2019 2019 2019 (Rand)
2016 February 2016 2 236 – – 980 1 256 – – 291,7 2015* February 2015 4 726 – – – 4 726 – – 385,3
* Includes CFH Vaux who stepped down as an executive director in February 2018.
Aggregated details of restricted shares granted to members of the executive committee, other than executive directors and prescribed officers above, as at 30 September 2019, are set out below: 10-day Adjustment Number VWAP due to of options share price Holding at Oceana Holding at vested as at on grant Date of 1 October Granted unbundling Forfeited Exercised 30 September 30 September date Total for FY grant 2018 2019 (Note 1) 2019 2019 2019 2019 (Rand)
2018 Various 8 510 – 645 893 3 690 4 572 – 414,45 2017 Various 2 780 – 115 700 2 195 – – 396,0 2016 Various 1 450 – – – 1 450 – – 291,7 2015* Various 2 940 – – – 2 940 – – 370,2
* Includes CFH Vaux who stepped down as an executive director in February 2018. Note 1: As Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. Tiger Brands Limited Annual financial statements 2019 87
Tiger Brands Limited 2013 Share Plan continued Executive committee members (excluding executive directors and prescribed officers) Aggregated details of share appreciation rights allocated to members of the executive committee, other than executive directors and prescribed officers above, as at 30 September 2019, are set out below: Fair market Number Revised value of Adjustment Number of options grant price vested due to of options subject to due to options at Holding at Oceana Holding at vested at performance Grant Oceana 30 September Date of 1 October Granted unbundling Exercised Forfeited 30 September 30 September targets and price unbundling 2019 Total for FY grant 2018 2019 (Note 1) 2019 2019 2019 2019 retention (Rand) (Note 1) R’000
2019* December 2018 – 213 410 15 029 – 24 482 203 957 – 203 957 274,1 254,8 – 2018 December 2017 31 650 – 1 694 – 15 672 17 672 – 17 672 414,5 385,3 – 2017 December 2016 33 940 – 2 184 – 8 275 27 849 – 27 849 396,0 368,1 – 2016 February 2016 16 400 – 709 – 7 755 9 354 – 9 354 291,7 271,2 – 2015* February 2015 9 980 – 423 – 4 396 6 007 1 276 4 731 385,3 358,2 1 2014* February 2014 34 903 – 1 580 2 203 11 834 22 446 22 446 – 254,5 236,6 62
* Includes CFH Vaux who stepped down as an executive director in February 2018. Note 1: As Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%.
Aggregated details of performance shares awarded to members of the executive committee, other than executive directors and prescribed officers above, as at 30 September 2019, are set out below: Options received/ forfeited as 10-day result of Number VWAP performance of options share price Holding at conditions Holding at vested as at on grant Date of 1 October Granted achieved/ Forfeited Exercised 30 September 30 September date Total for FY grant 2018 2019 not achieved 2019 2019 2019 2019 (Rand)
2016 February 2016 2 236 – – 980 1 256 – – 291,7 2015* February 2015 4 726 – – – 4 726 – – 385,3
* Includes CFH Vaux who stepped down as an executive director in February 2018.
Aggregated details of restricted shares granted to members of the executive committee, other than executive directors and prescribed officers above, as at 30 September 2019, are set out below: 10-day Adjustment Number VWAP due to of options share price Holding at Oceana Holding at vested as at on grant Date of 1 October Granted unbundling Forfeited Exercised 30 September 30 September date Total for FY grant 2018 2019 (Note 1) 2019 2019 2019 2019 (Rand)
2018 Various 8 510 – 645 893 3 690 4 572 – 414,45 2017 Various 2 780 – 115 700 2 195 – – 396,0 2016 Various 1 450 – – – 1 450 – – 291,7 2015* Various 2 940 – – – 2 940 – – 370,2
* Includes CFH Vaux who stepped down as an executive director in February 2018. Note 1: As Tiger Brands implemented the unbundling of its investment in Oceana, shareholders were notified that participants in the Tiger Brands 2013 Share Plan will be placed in a position which is as close as possible to the position that they would have been in, had the unbundling not taken place. Consequently, the number of instruments that had been awarded in terms of the WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 rules of the plan were increased by 7,5679% and the strike prices applicable to SARs were reduced by 7,035%. 88 Tiger Brands Limited Annual financial statements 2019
ANNEXURE D SHARE-BASED PAYMENT PLANS
The information noted below summarises all key assumptions, valuation inputs and key disclosures relating to the Tiger Brands share-based payment plans. 1 General Employee Share Option Plan Certain senior employees are entitled to receive options based on merit. Options are issued annually by the board of directors of the company. Between January 2006 and March 2013 a cash-settled option scheme was applied by the company, which replaced the previous equity-settled share option scheme. During March 2013, a hybrid scheme was introduced where executives and managers of the company and its subsidiaries are offered a weighted combination of: ›› Allocations of share appreciation rights (last allocation to employees – 5 June 2019) ›› Conditional awards of full value performance shares ›› Grants of full value restricted shares (bonus matching and deferral element). As a result of the unbundling of Oceana, and to put shareholders (including holders of instruments under the plan) into a position, which is approximately similar to what shareholders would have been in had the unbundling not taken place, adjustments were made to the strike prices (where applicable) and the number of instruments in issue at the date of unbundling. Since the adjustments to the terms of the issued instruments were designed to be financially neutral, the impact of the adjustments would not lead to an increase in the total value of the instruments previously granted, and therefore no additional costs are required in terms of IFRS 2. This hybrid scheme is regarded as an equity-settled share option scheme. Share appreciation rights The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share appreciation rights during the year.
2019 2018 WAEP WAEP Number (Rand) Number (Rand)
Outstanding at the beginning of the year 1 583 769 363,7 1 441 342 336,2 Granted during the year 1 093 677 254,4 594 390 414,5 Granted in respect of Oceana unbundling 174 704 305,7 – – Forfeited during the year (477 651) 303,2 (405 446) 360,8 Exercised during the year (10 361) 236,6 (46 517) 259,6 Outstanding at the end of the year 2 364 138 304,4 1 583 769 363,7 Exercisable at the end of the year 165 947 252,0 160 472 270,0 Weighted average remaining contractual life (years) 4,1 years 3,8 years Weighted average fair value of options granted (per option) 74,6 127,7 Weighted average fair value of options granted in respect of Oceana unbundling (per option) 6,7 – Range of exercise prices outstanding at the end of the year (per option) R218,9 – R385,3 R254,5 – R414,5 Options were valued using a modified Black-Schöles model taking into account the dividend cover, expected exercise pattern and volatility of the Tiger Brands share price. Subject to certain performance conditions, one-third of the equity-settled share options vest on each of the third, fourth and fifth anniversary dates from the date of the original grant date. All the equity-settled options mature six years after the grant date. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 89
1 General Employee Share Option Plan continued Share appreciation rights continued The following inputs were used: Expected Revised strike Market price volatility of price of option of the the stock due to the Original underlying over the Expected unbundling of Strike price stock at remaining life dividend Oceana of option grant date of the option cover Date of grant (Rand) (Rand) Expiry date (Rand) (%) (times)
28/02/2014 236,6 254,5 12/02/2020 250,0 21,5 3,0 04/02/2015 358,2 385,3 04/02/2020 394,9 21,3 2,9 09/02/2016 271,2 291,7 09/02/2021 302,9 25,5 3,0 31/03/2016 299,7 322,4 31/03/2021 325,2 25,7 3,0 24/05/2016 317,6 341,7 24/05/2021 337,0 25,7 2,9 07/12/2016 368,1 396,0 07/12/2021 386,8 25,8 2,9 05/09/2017 375,2 403,6 05/09/2022 380,0 24,9 2,8 11/12/2017 385,3 414,5 11/12/2023 425,0 24,7 2,8 06/12/2018 254,8 274,1 06/12/2023 271,0 27,1 3,0 02/01/2019 249,7 268,6 02/01/2024 264,1 27,0 3,0 05/06/2019 218,9 218,9 05/06/2024 217,6 27,3 3,3 Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option. Performance shares The following table illustrates the number of, and movements in, performance shares during the year:
2019 2018 Number Number
Outstanding at the beginning of the year 62 002 94 850 Granted in respect of Oceana unbundling 854 – Forfeited during the year (34 980) (17 317) Exercised during the year (27 876) (15 531) Outstanding at the end of the year – 62 002 Exercisable at the end of the year – 21 221 Weighted average remaining contractual life (years) – 0,3 years Options were valued using the Monte-Carlo simulation approach to estimate the price of the options that are subject to TSR market performance conditions using 50 000 simulations taking into account the dividend cover, expected exercise pattern and volatility of the Tiger Brands share price. The following inputs were used: Expected Market price volatility of of the the stock underlying over the Expected stock at remaining life dividend grant date of the option cover Date of grant Expiry date (Rand) (%) (times)
28/02/2014 27/02/2017 244,4 22,4 3,0 04/02/2015 04/02/2018 394,9 23,6 2,9 09/02/2016 04/02/2019 302,9 27,5 3,0 24/05/2016 24/05/2019 337,0 27,0 2,9 Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 90 Tiger Brands Limited Annual financial statements 2019
ANNEXURE D CONTINUED SHARE-BASED PAYMENT PLANS continued
1 General Employee Share Option Plan continued Restricted shares The following table illustrates the number of, and movements in, restricted shares during the year: 2019 2018 Number Number
Outstanding at the beginning of the year 242 924 205 820 Granted during the year 6 360 139 070 Granted in respect of Oceana unbundling 13 998 – Forfeited during the year (28 057) (35 921) Exercised during the year (78 632) (66 045) Outstanding at the end of the year 156 593 242 924 Exercisable at the end of the year 1 831 16 952 Weighted average remaining contractual life (years) 1,0 year 1,4 years Weighted average fair value of options granted (per option) 231,8 391,4 Weighted average fair value of options granted in respect of Oceana unbundling (per option) 26,0 – Options were valued using a modified Black-Schöles model taking into account the dividend cover, expected exercise pattern and volatility of the Tiger Brands share price. The following inputs were used: Expected Market price volatility of of the the stock underlying over the Expected stock at remaining life dividend grant date of the option cover Date of grant Expiry date (Rand) (%) (times)
28/02/2014 27/02/2017 244,4 22,4 3,0 04/02/2015 04/02/2018 394,9 23,6 2,9 03/12/2015 03/12/2018 320,0 26,3 3,0 09/02/2016 09/02/2019 302,9 27,5 3,0 31/03/2016 31/03/2019 325,2 27,4 3,0 07/12/2016 07/12/2019 386,8 26,9 2,9 31/03/2017 31/03/2020 325,2 27,4 3,0 11/12/2017 07/12/2020 425,0 25,4 2,8 06/12/2018 06/12/2021 271,0 26,5 3,0 Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 91
1 General Employee Share Option Plan continued Cash settled The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, cash-settled options during the year: 2019 2018 WAEP WAEP Number (Rand) Number (Rand)
Outstanding at the beginning of the year 49 315 282,9 124 203 274,6 Forfeited during the year (34 315) 296,5 (21 492) 291,6 Exercised during the year (15 000) 252,0 (53 396) 258,7 Outstanding at the end of the year – – 49 315 282,9 Exercisable at the end of the year – – 49 315 282,9 Range of exercise prices outstanding at the end of the year (per option) – R252,01 – R299,83 Weighted average share price at the date of exercise (per option) – R426,6 Cash options were valued using a modified Black-Schöles model taking into account the dividend cover, expected exercise pattern and volatility of the Tiger Brands share price. Subject to certain performance conditions, one- third of the cash-settled share options vest on each of the third, fourth and fifth anniversary dates from the date of the original grant date. All the cash-settled options mature six years after the grant date. At 30 September 2019, six years after grant date, all cash-settled options have been forfeited due to the performance conditions not being met. The following inputs were historically used: Expected Market price volatility of of the the stock underlying over the Expected Strike price stock at remaining life dividend of option grant date of the option cover Date of grant (Rand) Expiry date (Rand) (%) (times)
03/02/2012 253,2 02/02/2018 255,0 31,3 2,9 02/07/2012 252,0 01/07/2018 247,0 31,3 2,9 01/10/2012 265,4 30/09/2018 272,4 31,3 2,9 13/02/2013 299,8 12/02/2019 289,5 30,4 2,9 The average volatility was 0% (2018: 30,5%) and the risk-free rate was 0% (2018: 7,2%) during the year. The carrying amount of the liability relating to the cash-settled options at 30 September 2019 is Rnil (2018: R0,3 million) – refer to note 27. Cash-settled options exercised during the year amounted to Rnil (2018: R9,1 million). Volatilities are based on the historical volatility of the Tiger Brands share price matching the remaining life of each option. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 92 Tiger Brands Limited Annual financial statements 2019
ANNEXURE D CONTINUED SHARE-BASED PAYMENT PLANS continued
2 Black managers participation rights scheme (equity settled) In terms of the BEE transaction implemented on 17 October 2005, 4 381 831 Tiger Brands shares were acquired by the Tiger Brands Black Managers Trust. The allocation of vested rights entitles beneficiaries to receive Tiger Brands shares (after making capital contributions to the Black Managers Trust) at any time after the lock-in period. In respect of options allocated on or before 31 July 2010, the lock-in period ends on 31 December 2014. In respect of allocations made after 31 July 2010, the lock-in date will be the latter of 31 December 2014 or, in respect of one-third of the allocations, three years after the allocation, the next third, four years and the last third, five years after the allocation. These vested rights are non-transferable. After the lock-in date, the beneficiaries may exercise their vested rights, in which event the beneficiary may: ›› Instruct trustees to sell all of their shares and distribute the proceeds to them, net of the funds required to pay the capital contributions, taxation (including employees’ tax), costs and expenses ›› Instruct the trustees to sell sufficient shares to fund the capital contributions, pay the taxation (including employee’s tax), costs and expenses, and distribute to them the remaining shares to which they are entitled ›› Fund the capital contributions, taxation (including employees’ tax) costs and expenses themselves and receive the shares to which they are entitled. The expense recognised for employee services received during the year to 30 September 2019 is R16,3 million (2018: R25,3 million). The following table illustrates the number of, and movements in, share participation rights during the year:
2019 2018 Number Number
Outstanding at the beginning of the year 839 127 1 035 365 Granted during the year 90 835 35 000 Forfeited during the year (77 350) (101 435) Shares sold (62 462) (129 803) Outstanding at the end of the year 790 150 839 127 Exercisable at the end of the year 479 870 466 017 Weighted average remaining contractual life (years) 6,7 7,9 Weighted average fair value of options granted during the year (per option) R189,3 R351,1 Notional average exercise price (per option) R250,3 R415,9 Participation rights were valued using the Monte-Carlo simulation approach to estimate the average, optimal payoff of the participation rights using 10 000 permutations. The payoff of each random path was based on the projected Tiger Brands share price, outstanding debt projections and optimal early exercise conditions. Volatility is measured as the annualised standard deviation of the daily price changes in the underlying share under the assumption that the share price is log-normally distributed. Historical daily share price data was used to estimate the expected volatility. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 93
2 Black managers participation rights scheme (equity settled) continued The following inputs were used: Expected Expected volatility of dividend yield the stock of the stock Market price over the over the Initial strike of the remaining remaining life price of underlying life of the of the participation stock at participation participation rights grant date right right Date of grant (Rand) Expiry date (Rand) (%) (%)
31/01/2014 85,8 30/09/2027 266,0 25,3 3,8 31/07/2014 85,9 30/09/2027 308,8 25,3 3,8 31/01/2015 81,9 30/09/2027 394,2 25,3 3,8 31/07/2015 82,5 30/09/2027 284,9 25,3 3,8 31/01/2016 79,0 30/09/2027 291,0 25,3 3,8 31/07/2017 74,5 31/07/2023 399,5 24,1 3,8 31/01/2018 70,6 31/01/2024 461,0 24,6 2,9 31/07/2018 69,6 31/07/2024 350,0 26,0 3,2 31/01/2019 66,0 30/09/2024 276,2 26,4 3,1 31/07/2019 58,1 30/09/2024 222,9 26,5 2,8
The risk free interest rate was obtained from constructed ZAR swap curves on the valuation dates using key inputs being South African money-market rates and swap rates as published by Bloomberg. 3 Black Managers Trust II and Brimstone participation rights schemes (equity settled) Brimstone Brimstone held 1 813 613 Tiger Brands shares via Brim Tiger SPV Proprietary Limited (Brimstone SPV). Brimstone and the Brimstone SPV were prohibited from selling or encumbering such shares until 31 December 2017 (the "end date"). The IFRS 2 charge of R61,9 million relating to Brimstone was expensed upfront. Tiger Brands repurchased 861 257 shares from Brimstone SPV at a subscription price of R7,40 and the number of shares were calculated in terms of a repurchase formula, whose inputs were: ›› The total discounted value of the shares (being an amount equal to R148,07 per share) less the initial equity contribution by Brimstone, increased over the transaction term by a hurdle rate (being 85% of the prevailing prime rate) ›› An amount equal to 85% of the distributions declared by Tiger Brands but not received by Brimstone SPV as a result of the condition attaching to the issue of the shares increased over the transaction term by the hurdle rate; ›› The market value of a Tiger Brands ordinary share at the end date; and ›› The subscription price of R7,40 per share. The remaining 952 356 Tiger Brands shares were retained by Brimstone SPV. Black Managers Trust II Over the period of the Tiger Brands Black Managers Trust No II (BMT II), 2 814 149 Tiger Brands shares were allocated to qualifying black managers. The lock-in period for the scheme expired on 31 December 2017. Immediately following this date, Tiger Brands exercised its rights in terms of a repurchase option, and repurchased 1 389 685 shares from BMT II at a subscription price of 10 cents per share. The remaining shares, 1 424 464, were distributed to the participating black managers, with 130 361 shares subject to a further retention period of three years, which will expire on 30 September 2020. The number of shares repurchased by Tiger Brands was calculated in terms of a repurchase formula, the inputs of which are similar to those as disclosed under the "Brimstone" heading above, other than for the fact that 90% of any distributions declared by Tiger Brands are not received by the Black Managers Trust II (as opposed to 85% in the case of Brimstone SPV) and the subscription price is 10 cents per share (as opposed to R7,40 in the case of the Brimstone SPV). The expense recognised for employee services received during the year to 30 September 2019 is R9,1 million (2018: R21,1 million). WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 94 Tiger Brands Limited Annual financial statements 2019
ANNEXURE D CONTINUED SHARE-BASED PAYMENT PLANS continued
3 Black Managers Trust II and Brimstone participation rights schemes (equity settled) continued Black Managers Trust II continued The following table illustrates the number of, and movements in, share participation rights during the year. 2019 2018 Number Number
Outstanding at the beginning of the year – 2 814 792 Granted during the year – – Forfeited during the year – (643) Shares sold/distributed during the year – (2 814 149) Outstanding at the end of the year – – WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 95
ANNEXURE E PENSION OBLIGATIONS
The information noted below summarises all key assumptions, valuation inputs and key disclosures relating to Tiger Brands. The company and its subsidiaries contribute to retirement plans that cover all employees. The retirement plans are either defined benefit plans or defined contribution plans and are funded. The assets of the funds are held in independent trustee administered funds, administered in terms of the Pension Funds Act 24 of 1956, as amended. In terms of the Pension Funds Act, certain of the retirement funds are exempt from actuarial valuation. Those funds not exempt from valuation must, in terms of the Pension Funds Act, be valued at least every three years. For purposes of production of these disclosures, and in order to comply with the requirements of IAS 19, valuations have been performed by independent actuaries, using the projected unit credit method. Where valuations were not possible due to the limited availability of complete data, roll forward projections of prior completed actuarial valuations were used, taking account of actual subsequent experience. Within the company’s group of subsidiaries, there are a total of 20 retirement plans, three of which are defined benefit pension funds, two are defined contribution pension funds, one is a defined benefit provident plan, one is a benefit fund and nine are defined contribution provident funds. There are a further four schemes of insurance into which the company and its subsidiaries contribute. Certain companies within the group sponsor external death, funeral and disability benefit insurance policies. These insurance costs have been allowed for in the disclosures provided. All of the funds above are funded with one exception. The actual return on plan assets for the period 1 October 2018 to 30 September 2019 was R27,6 million (2018: R28,5 million). This compares with the expected return for the same period of R38,0 million (2018: R35,7 million). The value of contributions expected to be paid by group companies for the year ending 30 September 2020 amounts to R291,2 million (2019 actual: R268,7 million). As at 30 September 2019, there were no properties occupied by, or other assets used by, group companies which formed part of the fair value of plan assets (2018: Rnil). As at 30 September 2019, the percentage of the fair value of plan assets in respect of defined benefit arrangements invested in Tiger Brands Limited shares amounted to 0% (2018: 0%). Major categories of plan assets in respect of defined benefit arrangements as at 30 September are shown in the table below:
GROUP
(%) 2019 2018
Equities 6,1 6,5 Bonds 30,0 26,8 Cash 58,2 61,0 Property 1,0 0,9 International 3,6 3,7 Other 1,1 1,1
100,0 100,0
GROUP
(R’million) 2019 2018
Balance at the end of the year Present value of defined benefit obligations (273,7) (269,0) Fair value of plan assets in respect of defined benefit obligations 441,8 425,0 Funded status of defined benefit plans 168,1 156,0 Unrecognised due to paragraph 65 limit (19,1) (22,9) Asset at reporting date 149,0 133,1 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 96 Tiger Brands Limited Annual financial statements 2019
ANNEXURE E CONTINUED PENSION OBLIGATIONS continued
The disclosure of the funded status is for accounting purposes only, and does not necessarily indicate any assets available to the company or its subsidiaries. Once a surplus apportionment exercise is completed, and approved by the Registrar of Pension Funds in terms of the provisions of the Pension Funds Second Amendment Act, 2001, only at that stage would it be appropriate for the company or its subsidiaries to recognise any assets in respect of the retirement funds, to the extent that they have apportioned such assets. The surplus apportionment schemes for the Tiger Brands Defined Benefit Pension Fund and the Beacon Products Staff Pension Fund were approved by the Registrar in 2008. The surplus apportionment scheme for the ICS Pension Fund was approved in 2011. Where appropriate, the surplus apportioned to the company has been recognised on the balance sheet. This legislation is not applicable to arrangements not registered in terms of the Pension Funds Act, such as special purpose entities established for purposes of providing disability benefits.
GROUP
2019 2018
Actuarial assumptions The principal actuarial assumptions used for accounting purposes were: Discount rate Full yield Full yield Tiger Brands Defined Benefit Pension Fund curve curve Tiger Oats Benefit Foundation 7,50% 8,00% Nestlé Pension Fund 11,10% 10,70% ICS Pension Fund 7,50% 8,00% Future salary increases 1% above 1% above inflation + inflation + Tiger Brands Defined Benefit Pension Fund merit scale merit scale 8,00% + 8,10% + Nestlé Pension Fund merit scale merit scale Defined Contribution Funds 7,8% 8,1% ICS Pension Fund, Tiger Oats Benefit Foundation and Tiger PRDBS Provident Fund 5,1% 5,8% Tiger PRDBS Provident Fund Pension increase allowance 100% 100% Tiger Brands Defined Benefit Pension Fund of inflation of inflation 80% of 80% Nestlé Pension Fund inflation of inflation Post-retirement discount rate Tiger Brands Defined Benefit Pension Fund 3,00% 3,00% Nestlé Pension Fund 3,00% 3,00%
(R’million) 2019 2018
Reconciliation of the defined benefit obligation: Defined benefit obligation at the beginning of the year (269,0) (292,5) Current service cost (4,9) (5,5) Member contributions (0,7) (0,9) Interest cost (24,9) (25,0) Actuarial gain 12,1 15,3 Benefits paid 11,2 36,5 Administrative expenses 2,2 2,8 Risk premiums (Group Life and Permanent Health) 0,3 0,3 Defined benefit obligation at the end of the year (273,7) (269,0) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 97
GROUP
(R’million) 2019 2018
Reconciliation of fair value of plan assets Assets at fair market value at the beginning of the year 425,0 431,6 Interest on plan assets 38,0 35,7 Contributions 2,8 4,5 Risk premiums (Group Life and Permanent Health) (0,3) (0,2) Benefits paid (11,2) (36,5) Administrative expenses (2,2) (2,8) Actuarial loss (10,3) ( 7,3) Assets at fair market value at the end of the year 441,8 425,0 Reconciliation of asset ceiling Unrecognised due to paragraph 64 limit (19,1) (22,9) Asset ceiling at the end of the year (19,1) (22,9) Asset balance at the end of the year 149,0 133,1
The risks faced by the group as a result of pension obligations can be summarised as follows: ›› Inflation: The risk that future CPI inflation is higher than expected and uncontrolled. ›› Longevity: The risk that pensioners live longer than expected and thus their pension benefit is payable for longer than expected. ›› Open-ended, long-term liability: The risk that the liability may be volatile in the future and uncertain. ›› Future changes in legislation: The risk that changes to legislation with respect to the post-employment liability may increase the liability for the company. ›› Future changes in the tax environment: The risk that changes in the tax legislation governing employee benefits may increase the liability for the company. ›› Administration: Administration of this liability poses a burden to the company. Sensitivity analysis The sensitivity analysis has been prepared for the Tiger Brands Defined Benefit Pension Fund and the Nestlé Pension Fund. The liabilities of the Tiger Brands PRDBS Provident Fund and the ICS Pension Fund are not sensitive to changes in either the discount rate or the inflation rate.
Balance 2019 +1% –1%
Discount rate Defined benefit obligation (R’million) (226,5) (214,8) (241,6) Change (%) (5,5) 6,2 Inflation rate Defined benefit obligation (R’million) (226,5) (240,8) (218,6) Change (%) 5,9 (3,6) WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 98 Tiger Brands Limited Annual financial statements 2019
ANNEXURE F POST-RETIREMENT MEDICAL AID OBLIGATIONS
The information noted below summarises all key assumptions, valuation inputs and key disclosures relating to Tiger Brands. The company and its subsidiaries operate post-employment medical benefit schemes that cover certain of their employees and retirees. This practice has since been stopped for new employees. The liabilities are valued annually using the projected unit credit method. The latest actuarial valuation was performed on 30 September 2019.
(%) 2019 2018
The principal actuarial assumptions used for accounting purposes were: Discount rate 9,80 9,80 Medical inflation 7,10 7,8 0 Future salary increases 7,10 7,8 0 Post-retirement mortality tables PA(90) PA(90) ultimate rated down 2 years ultimate rated down 2 years plus 1% improvement pa from 2006 plus 1% improvement pa from 2006
The risks faced by the group as a result of the post-retirement medical aid obligation can be summarised as follows: ›› Inflation: The risk that future CPI inflation and healthcare cost inflation are higher than expected and uncontrolled. ›› Longevity: The risk that pensioners live longer than expected and thus their healthcare benefit is payable for longer than expected. ›› Open-ended, long-term liability: The risk that the liability may be volatile in the future and uncertain. ›› Future changes in legislation: The risk that changes to legislation with respect to the post-employment liability may increase the liability for Tiger Brands. ›› Future changes in the tax environment: The risk that changes in the tax legislation governing employee benefits may increase the liability for Tiger Brands. ›› Perceived inequality between current employees: The risk of dissatisfaction of current employees who are not eligible for a post-employment healthcare subsidy. ›› Administration: Administration of this liability poses a burden to Tiger Brands. ›› Enforcement of eligibility criteria and rules: The risk that eligibility criteria and rules are not strictly or consistently enforced. ›› Future National Health Insurance (NHI): The risk that the liability could be impacted due to the implementation of NHI and its impact on medical schemes. 2019 2018 Sensitivity analysis Base case Medical inflation Base case Medical inflation
Key assumption (%) 7,10 (1,0) 1,0 7,8 0 (1,0) 1,0 Accrued liability 30 September (R’million) 582,8 532,0 641,9 617,5 560,6 684,4 % change (8,7) 10,2 (9,2) 10,8 Current service cost plus interest cost (R’million) 56,3 51,1 62,5 60,2 54,3 67, 2 % change (9,3) 10,9 (9,8) 11,6 Sensitivity analysis Base case Discount rate Base case Discount rate
Key assumption (%) 9,80 (1,0) 1,0 9,80 (1,0) 1,0 Present value of obligations 30 September (R’million) 582,8 639,2 535,0 617,5 681,9 563,5 % change 9,7 (8,2) 10,4 (8,7) Sensitivity analysis Base case Expected retirement age Base case Expected retirement age
60/63/65 1 year 1 year 60/63/65 1 year 1 year Key assumption years younger older years younger older Present value of obligations 30 September (R’million) 582,8 586,1 579,8 617,5 621,0 614,2 % change 0,6 (0,5) 0,6 (0,5) The duration of the liability at 30 September 2019 is 11 years (2018: 10,8 years). WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 99
SEGMENT REPORT for the year ended 30 September 2019
Depreciation and Revenue1 Operating income2 amortisation (R’million) 2019 2018* 2019 2018* 2019 2018*
Domestic operations 25 987,9 24 706,5 2 472,1 3 050,8 551,9 520,5 Grains 13 225,9 12 753,5 1 441,8 1 886,0 187,8 181,4 Milling and baking3 9 436,7 8 889,2 1 240,0 1 544,2 169,1 164,9 Other Grains4 3 789,2 3 864,3 201,8 341,8 18,7 16,5 Consumer Brands 12 762,0 11 953,0 1 039,1 1 169,3 284,5 268,2 Groceries 5 100,4 4 747,5 325,3 432,4 134,3 126,4 Snacks and Treats 2 249,4 2 060,6 312,7 304,8 41,9 37,5 Beverages 1 546,9 1 294,7 296,2 212,5 25,0 29,3 Value Added Meat Products 653,8 1 065,5 (547,0) (252,0) 42,6 39,7 Out of Home 541,3 559,1 106,3 130,2 – – Home, Personal Care and Baby (HPCB) 2 670,2 2 225,6 545,6 341,4 40,7 35,3 Personal Care 639,3 615,5 88,6 64,7 22,8 11,2 Baby Care 980,8 795,9 150,8 132,5 12,7 12,2 Home Care 1 050,1 814,2 306,2 144,2 5,2 11,9
Other5 – – (8,8) (4,5) 79,6 70,9 Exports and International 3 244,8 3 658,2 212,1 320,4 75,8 65,4 Exports 1 491,6 1 820,4 47,8 289,7 17,2 16,8 International operations – Central Africa (Chococam) 906,2 881,7 172,0 159,0 28,6 24,7 Deciduous Fruit (LAF) 1 281,7 1 303,9 (7,7) (128,3) 30,0 23,9 Other intergroup sales (434,7) (347,8) – – – – Total from continuing operations – before IFRS 2 charges 29 232,7 28 364,7 2 684,2 3 371,2 627,7 585,9 IFRS 2 charges – – (60,9) (81,9) – – Total from continuing operations – after IFRS 2 charges 29 232,7 28 364,7 2 623,3 3 289,3 627,7 585,9 Discontinued operations – East Africa – 42,9 – 11,0 – (12,5) Discontinued operations – West Africa 151,0 109,2 (17,1) (50,5) 3,1 17,0 Total 29 383,7 28 516,8 2 606,2 3 249,8 630,8 590,4 * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. 1 Refer to note 2.1 of the financial statements for further information on geographical split. 2 Operating income is stated after amortisation of intangible assets. 3 Comprises maize milling, wheat milling and baking, sorghum beverages and malt-based breakfast cereals. 4 Comprises rice, pasta and oat-based breakfast cereals. 5 Includes the corporate office and management expenses relating to international investments.
All segments operate on an arm’s length basis in relation to intersegment pricing. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 100
SEGMENT REPORT CONTINUED for the year ended 30 September 2019
Accounts payable, Total provisions and accruals Capital assets and taxation expenditure (R’million) 2019 2018 2019 2018 2019 2018
Domestic operations 18 360,0 19 878,3 4 424,3 3 802,2 903,3 629,3 Grains 5 136,1 5 623,8 1 719,6 1 266,1 389,2 231,3 Milling and baking1 3 553,6 4 097,2 1 050,3 939,5 196,0 112,7 Other Grains2 1 582,5 1 526,6 669,3 326,6 193,2 118,6 Consumer Brands 8 858,8 8 331,1 2 300,7 1 980,8 449,5 316,5 Groceries 4 173,8 3 958,8 1 025,5 890,3 106,4 145,6 Snacks and Treats 1 342,7 1 238,7 434,1 313,1 83,1 49,1 Beverages 1 518,0 1 292,4 246,2 174,0 179,0 9,8 Value Added Meat Products 605,9 621,0 208,1 257,5 53,3 93,0 Home, Personal Care and Baby (HPCB) 1 218,4 1 220,2 386,8 345,9 27,7 19,0 Other3 4 365,1 5 923,4 404,0 555,3 64,6 81,5 Exports and International 3 783,3 4 033,3 681,9 681,9 196,4 90,3 Exports 1 916,2 2 416,1 191,9 239,5 102,2 10,6 International operations – Central Africa (Chococam) 778,8 680,3 352,0 265,9 42,1 38,6 International operations – West Africa (Deli Foods) – 32,2 – 26,1 – 4,2 Deciduous Fruit (LAF) 1 088,3 904,7 138,0 150,4 52,1 36,9 Assets classified as 23,5 – – – 3,8 – held-for-sale4 Total 22 166,8 23 911,6 5 106,2 4 484,1 1 103,5 719,6 1 Comprises maize milling, wheat milling and baking, sorghum beverages and malt-based breakfast cereals. 2 Comprises rice, pasta and oat-based breakfast cereals. 3 Includes the corporate office. 4 Refer to note 34 for detail on assets classified as held for sale.
(R’million) 2019 2018
Split of non-current assets South Africa 6 818,8 6 346,9 Outside South Africa 1 379,4 1 699,5 Total 8 198,2 8 046,4 Reconciliation of total assets: Total assets per statement of financial position 22 180,5 23 928,4 Deferred taxation asset (13,7) (16,8) 22 166,8 23 911,6 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 101
VALUE ADDED STATEMENT for the year ended 30 September 2019
Value added is a measure of the wealth the group has been able to create. The following statement shows how this wealth has been distributed. 2019 2018* (R’million) % %
Revenue 29 232,7 100,0 28 364,7 100,0 Less: Net cost of products and services 21 524,5 73,6 20 509,7 72,3 Value added 7 708,2 26,4 7 855,0 27,7 Add: Income from investments and associates 414,3 1,4 790,3 2,8 Wealth created 8 122,5 27,8 8 645,3 30,5 Applied to: Employees – Salaries, wages and other benefits 4 219,1 51,9 3 857,5 44,6 Providers of capital 5 682,9 70,0 1 932,7 22,4 – Interest on borrowings 31,4 0,4 78,2 0,9 – Dividends and capital distributions to non-controlling interests and preference shareholders 27,4 0,3 25,2 0,3 – Dividends to ordinary shareholders 5 624,1 69,3 1 829,3 21,2 Government Taxation (refer note 1) 998,5 12,3 1 033,9 12,0 Retained in the group (2 778,0) (34,2) 1 821,2 21,0 8 122,5 100,0 8 645,3 100,0
(R’million) 2019 2018
Note 1 Income taxation (excluding deferred tax) 763,4 911,6 Skills development levy 30,4 32,4 Rates and taxes paid to local authorities 36,0 28,5 Customs duties, import surcharges and excise taxes 168,7 61,4 Gross contribution to government 998,5 1 033,9 The payments to government exclude taxation deducted from employees’ remuneration of R621,1 million (2018: R674,5 million), net VAT of R25,2 million (2018: R428,8 million), excise duty on revenue and UIF payments.
(R’million) 2019 % 2018* % 2017 % 2016 % 2015 %
Trend of value added Employees 4 219,1 52 3 857,5 45 3 733,7 39 3 621,8 39 3 422,6 39 Providers of capital 5 682,9 70 1 932,7 23 2 066,6 22 1 837,9 20 1 814,3 21 Government 998,5 12 1 033,9 12 1 257,8 13 1 292,6 14 1 128,0 13 Retained in the group (2 778,0) (34) 1 821,2 20 2 444,2 26 2 524,1 27 2 374,6 27 8 122,5 100 8 645,3 100 9 502,3 100 9 276,4 100 8 739,5 100 * Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (Deli Foods) (International operations – West Africa) as a discontinued operation. Refer to note 33. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 102
FIVE-YEAR REVIEW
2018 2017 2016 2015 (R’million) 2019 Restatedo Reclass+ Restated*# Restated~ Consolidated income statements Revenue 29 233 28 365 31 298 30 588 28 690 Profit before taxation, income from associates, abnormal items and impairments 2 635 3 271 4 317 3 941 3 823 Income from associates 371 731 533 861 603 Abnormal items and impairments 1 735 (620) (583) (324) (339) Profit before taxation 4 741 3 382 4 267 4 478 4 087 Taxation (798) (835) (1 234) (1 209) (977) Profit for the year from continuing operations 3 943 2 547 3 033 3 269 3 110 Attributable to: Owners of the parent – continuing operations 3 915 2 520 3 011 3 243 3 122 Non-controlling interests – continuing operations 28 27 22 26 (12) Consolidated statements of financial position Property, plant and equipment 4 976 4 599 4 588 4 542 4 641 Goodwill and intangible assets 3 221 3 447 3 597 3 941 4 233 Investments 2 732 5 102 4 720 4 905 4 312 Current assets 11 213 10 764 10 665 11 099 11 617 Assets classified as held for sale 24 – 365 – – Total assets 22 166 23 912 23 935 24 487 24 803 Issued capital and reserves before share-based payment reserve 14 612 16 691 16 244 15 059 13 407 Share-based payment reserve 632 611 560 489 424 Non-controlling interests 163 163 257 487 (53) Deferred taxation liability/(asset) 402 354 304 211 150 Provision for post-retirement medical aid 583 618 619 666 643 Long-term borrowings – 74 2 1 069 1 215 Current liabilities 5 625 5 401 5 776 6 506 9 017 Liabilities classified as held for sale 149 – 173 – – Total equity and liabilities 22 166 23 912 23 935 24 487 24 803 Consolidated cash flow statements Cash operating profit after interest and taxation 2 528 2 998 4 024 3 432 2 841 Working capital changes 91 (573) 745 (604) (812) Dividends received 282 179 350 406 326 Cash available from operations 2 901 2 604 5 119 3 234 2 355 Dividends and capital distributions paid (2 284) (1 855) (1 834) (1 661) (1 643) Net cash flow from operating activities 617 749 3 285 1 573 712 Net cash flow from investing activities (33) (599) (803) 115 (1 056) Net cash flow before financing activities 584 150 2 482 1 688 (344) Net cash flow from financing activities (100) (2) (1 140) (562) 76 Net increase/(decrease) in cash and cash equivalents 484 148 1 342 1 126 (268) o Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (International operations – West Africa) as a discontinued operation. Refer note 33. + As part of the annual assessment of all disclosure and presentation, the JSE Report on Proactive Monitoring of Financial Statements issued in February 2018 was reviewed. As a consequence, the group has restated its cash flow treatment relating to equity-settled share option schemes as financing activities. * The comparatives have been restated for the early adoption of IFRS 15 Revenue from Contracts with Customers. # Restated as required by IFRS 5 in relation to the treatment of East Africa Tiger Brands Industries Plc. (EATBI) and Haco Tiger Brands (EA) Limited (Haco) as discontinued operations. ~ Restated as required by IFRS 5 in relation to the treatment of Tiger Branded Consumer Goods Plc (TBCG) as a discontinued operation. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 103
SUMMARY OF RATIOS AND STATISTICS
2018 2017 2016 2015 2019 Restatedo Reclass+ Restated*# Restated~
Ordinary share performance Number of ordinary shares upon which headline earnings per share is based (000)2 165 623 164 714 162 896 162 480 161 693 Headline earnings per ordinary share (cents) 1 322 1 589 2 161 2 127 1 786 Dividends per ordinary share (cents)1 627 1 080 1 080 1 065 950 Dividend cover (times)1 2,1 1,5 2,0 2,0 1,9 Net worth per ordinary share (cents) 9 201 10 448 10 307 9 553 8 507 Profitability and asset management Asset turnover (times) 2,4 2,3 2,5 2,5 2,3 Working capital per R1 revenue 21,4 21,6 19,9 21,2 22,3 Operating margin (%) 9,0 11,6 14,5 13,4 14,0 Effective taxation rate (%) 16,8 24,7 28,9 27,0 23,9 Return on equity (%) 14,1 16,7 22,1 23,4 24,8 Return on average net assets (%) 21,6 26,6 35,3 30,4 26,4 Financing Current ratio 2,0 2,0 1,8 1,7 1,3 Net interest cover (times) 249 79 25 14 18 Net debt/(cash) to net funding (%) (8) (3) (3) 11 22 Total liabilities to total shareholders’ funds (%) 37 31 34 47 74 Cash flow to net liabilities (%) 65 77 88 50 31 Employee statistics Number of employees at year end3 11 103 11 678 12 196 12 794 15 163 – permanent 10 543 11 348 11 705 11 829 12 800 – seasonal 560 330 491 965 2 363 Revenue per employee (R000) 2 633 2 438 2 566 2 391 1 892 Value added per employee (R000) 694 670 733 656 541 Operating profit per employee (R000) 236 277 371 321 265 Economic indicators Consumer Price Index (September on September) (%) 4,1% 4,8% 4,9% 6,5% 4,5% Key closing exchange rates at 30 September versus ZAR – USD 15,15 14,17 13,51 13,80 13,87 – GBP 18,66 18,44 18,06 17,92 21,05 – EUR 16,52 16,41 15,95 15,47 15,52 1 Based on the sum of the interim dividend paid in the current year and the final dividend declared post year end. 2 Net of treasury and empowerment shares. 3 Includes employees of International operations. o Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (International operations – West Africa) as a discontinued operation. Refer note 33. + As part of the annual assessment of all disclosure and presentation, the JSE Report on Proactive Monitoring of Financial Statements issued in February 2018 was reviewed. As a consequence, the group has restated its cash flow treatment relating to equity-settled share option schemes as financing activities. * The comparatives have been restated for the early adoption of IFRS 15 Revenue from Contracts with Customers. # Restated as required by IFRS 5 in relation to the treatment of East Africa Tiger Brands Industries Plc. (EATBI) and Haco Tiger Brands (EA) Limited (Haco) as discontinued operations. ~ Restated as required by IFRS 5 in relation to the treatment of Tiger Branded Consumer Goods Plc (TBCG) as a discontinued operation. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 104 Tiger Brands Limited Annual financial statements 2019
SUMMARY OF RATIOS AND STATISTICS CONTINUED
2018 2017 2016 2015 2019 Restatedo Reclass+ Restated*# Restated~
Stock exchange statistics Market price per share (cents) – year end 21 056 26 502 37 735 38 024 30 479 – highest 26 942 47 450 42 900 40 152 40 086 – lowest 20 505 26 502 35 945 26 958 26 732 Number of transactions 993 320 914 360 952 691 854 893 873 519 Number of shares traded (’000) 179 529 197 471 171 231 179 123 179 732 Value of shares traded (Rm) 44 278 72 584 67 133 60 448 57 859 Number of shares traded as a percentage of total issued shares 108 104,0 89,2 93,3 93,6 Dividend yield at year end (%) 5,0 4,1 2,9 2,8 3,1 Earnings yield at year end (%) 6,3 5,9 5,9 5,6 5,9 Price earnings ratio at year end 16 17 17 18 17 Market capitalisation at year end (Rm) 39 968 50 306 72 478 73 033 58 541 Market capitalisation to shareholders’ equity at year end (times) 2,6 2,9 4,3 4,7 4,2 1 Based on the sum of the interim dividend paid in the current year and the final dividend declared post year end. 2 Net of treasury and empowerment shares. 3 Includes employees of International operations. o Restated as required by IFRS 5 in relation to the treatment of Deli Foods Nigeria Limited (International operations – West Africa) as a discontinued operation. Refer to note 33. + As part of the annual assessment of all disclosure and presentation, the JSE Report on Proactive Monitoring of Financial Statements issued in February 2018 was reviewed. As a consequence, the group has restated its cash flow treatment relating to equity-settled share option schemes as financing activities. * The comparatives have been restated for the early adoption of IFRS 15 Revenue from Contracts with Customers. # Restated as required by IFRS 5 in relation to the treatment of East Africa Tiger Brands Industries Plc. (EATBI) and Haco Tiger Brands (E.A.) Limited (Haco) as discontinued operations. ~ Restated as required by IFRS 5 in relation to the treatment of Tiger Branded Consumer Goods Plc (TBCG) as a discontinued operation. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 105
DEFINITIONS
Headline earnings per Headline earnings divided by the weighted average number of ordinary share shares in issue during the year (net of treasury and empowerment shares).
Dividend cover Headline earnings per share divided by the total ordinary dividend per share for the year, comprising the interim dividend paid and final dividend declared post-year end. Where applicable, the denominator includes the capital distribution paid out of share premium.
Net worth per ordinary Interest of ordinary shareholders after deducting the cost of treasury and share empowerment shares divided by the number of ordinary shares in issue at the year end, excluding treasury and empowerment shares.
Asset turnover Revenue divided by the average of net assets, excluding cash resources, short-term and long-term borrowings, taxation, shareholders for dividends and the carrying value of investments, at the beginning and end of the financial year.
Working capital per The average of inventory and receivables less payables, excluding dividends R1 000 revenue payable to shareholders and taxation, at the beginning and end of the financial year divided by turnover (R000).
Operating margin Operating profit as a percentage of revenue.
Abnormal items Items of income and expenditure which are not directly attributable to normal operations or where their size or nature are such that additional disclosure is considered appropriate.
Effective taxation rate Taxation charge in the income statement as a percentage of profit before taxation.
Return on equity Profit attributable to ordinary shareholders excluding abnormal items divided by issued capital and reserves.
Return on average net Operating profit as a percentage of the average of net assets, excluding cash assets employed resources, short-term and long-term borrowings, taxation, shareholders for dividends and the carrying value of investments, at the beginning and end of the financial year. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 106 Tiger Brands Limited Annual financial statements 2019
DEFINITIONS CONTINUED
Current ratio Ratio of current assets to current liabilities.
Net interest cover Operating profit plus dividend income divided by net finance costs.
Net funding Capital and reserves, non-controlling interests and long-term and short-term borrowings net of cash.
Net debt Cash and cash equivalents less long-term borrowings and short-term borrowings.
Total liabilities Long-term borrowings and current liabilities.
Total equity Total equity includes ordinary share capital and share premium, less treasury shares and shares held by empowerment entities, plus reserves and non-controlling interests.
Cash flow to net liabilities Cash generated from operations after interest and taxation as a percentage of total liabilities less cash resources.
Dividend yield Dividends and capital distributions as a percentage of year-end market price per share.
Earnings yield Headline earnings per share as a percentage of year-end market price per share.
Price:earnings ratio Year-end market price per share as a multiple of headline earnings per share. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 Tiger Brands Limited Annual financial statements 2019 107
SHAREHOLDERS’ INFORMATION
Analysis of registered shareholders and company schemes Registered shareholder spread In accordance with the JSE Listings Requirements, the following table confirms the spread of registered shareholders dated 27 September 2019 as:
Number % of total Number % of issued Shareholder spread of holders shareholders of shares capital 1 – 1 000 shares 16 011 84,76 3 634 024 1,91 1 001 – 10 000 shares 2 196 11,63 6 493 249 3,42 10 001 – 100 000 shares 522 2,77 16 824 517 8,86 100 001 – 1 000 000 shares 129 0,68 40 247 369 21,21 1 000 001 shares and above 31 0,16 122 619 767 64,60 Total 18 889 100,00 189 818 926 100,00
Public and non-public shareholdings Within the shareholder base, we can confirm the split between public shareholdings and directors/company-related schemes as being:
Number % of total Number % of issued Shareholder type of holders shareholders of shares capital Non-public shareholders 8 0,04 24 366 560 12,84 Empowerment holdings 4 0,02 13 818 961 7, 28 Own holding 1 0,005 10 326 758 5,44 Share trusts 2 0,01 210 231 0,11 Directors and associates 1 0,005 10 610 0,01 Public shareholders 18 881 99,96 165 452 366 87,16 Total 18 889 100,00 189 818 926 100,00 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 108 Tiger Brands Limited Annual financial statements 2019
SHAREHOLDERS’ INFORMATION CONTINUED
Substantial investment management and beneficial interests Substantial investment management and beneficial interests above 3% Through regular analysis of STRATE registered holdings, and pursuant to the provisions of section 56 of the Companies Act, the following shareholders held directly and indirectly equal to or in excess of 3% of the issued share capital as at 27 September 2019: Investment management shareholdings Total Investment manager shareholding % Public Investment Corporation (PIC) 21 406 206 11,28 Colonial First State Global Asset Management 13 971 221 7,3 6 Silchester International Investors LLP 11 806 970 6,22 Allan Gray Proprietary Limited 9 832 572 5,18 Sprucegrove Investment Management 7 743 532 4,08 BlackRock Inc. 7 057 287 3,72 The Vanguard Group Inc. 6 420 266 3,38 Janus Henderson Investors 6 067 881 3,20 Total 84 305 935 44,42
Beneficial shareholdings Total shareholding % Government Employees Pension Fund (GEPF) 22 342 341 11,77 Tiger Consumer Brands Limited 10 427 558 5,49 Tiger Brands Foundation SPV 9 095 712 4,79 Stewart Investors Global Emerging Markets Leaders Fund 8 092 114 4,26 Silchester Intl Business Trust 6 915 857 3,64 Total 56 873 582 29,95 WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 COMPANY INFORMATION
TIGER BRANDS LIMITED SOUTH AFRICAN SHARE TRANSFER Registration number: 1944/017881/06 SECRETARIES Computershare Investor Services Proprietary Limited COMPANY SECRETARY Rosebank Towers, 15 Biermann Avenue JK Monaisa Rosebank, 2196 REGISTERED OFFICE PO Box 61051, Marshalltown, 2107 3010 William Nicol Drive AMERICAN DEPOSITORY RECEIPT (ADR) Bryanston FACILITY Sandton ADR Administrator POSTAL ADDRESS The Bank of New York Mellon PO Box 78056, Sandton, 2146 INVESTOR RELATIONS Telephone: +27 11 840 4000 Nikki Catrakilis-Wagner AUDITORS Telephone: +27 11 840 4000 Ernst & Young Inc. WEBSITE ADDRESS PRINCIPAL BANKER www.tigerbrands.com Nedbank Limited CONTACT DETAILS SPONSOR [email protected] JP Morgan Equities South Africa (Pty) Limited [email protected] Consumer helpline: 0860 005342
FORWARD-LOOKING INFORMATION The report may contain forward-looking statements that, unless otherwise indicated, reflect the company’s expectations at the time of finalising the report. Actual results may differ materially from these expectations if known and unknown risks or uncertainties affect the business, or if estimates or assumptions prove inaccurate. Tiger Brands cannot guarantee that any forward-looking statement will materialise and, accordingly, readers are cautioned not to place undue reliance on these statements. The company assumes no obligation to update or revise any forward-looking statements, even if new information becomes available as a result of future events or for any other reason, save as required by legislation or regulation. WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074 TIGER BRANDS
LIMITED ANNUAL FINANCIAL STATEMENTS 2019
Head office: South Africa Physical address Tiger Brands Limited 3010 William Nicol Drive Bryanston Postal address PO Box 78056 Sandton, 2146 South Africa www.tigerbrands.com WorldReginfo - 67a4857a-781c-4d40-9dda-1e800cafc074