Libstar Holdings Limited (LBR) Earnings Call Transcript & Summary

Good morning, everyone. Welcome, everyone, on this online presentation. Special welcome to our Board members, shareholders, members of the investment community and the media. On my way here this morning, I was quite nervous because this is quite a daunting thing to do. But as I walked in here, I told to myself, this is actually the same that I've become used to over the past 6 months. Get up in the morning. Put on a clean shirt. And go and sit down in front of your computer camera and go online. So there's no people here, a few odd ones hanging around. And I think Charl and I are quite comfortable with doing the same that we've been doing for the past 6 months. Just before I start, Charl's birthday today. Congratulations on behalf of all of us. And I won't say how much older I am than Charl. In terms of the order of the events, I will start with a few introductory comments. Charl will take us through the numbers. And I will conclude with a category review and outlook before we take some questions from you, guys. If we can go to on this -- now we can see. Go to Slide -- it's not moving. Go to Slide 4. The 6 months ended June 2020 was dominated by the effects of the COVID-19 pandemic. Libstar identified 3 key priorities in this set of results. First is protecting the safety, health and well-being of our people. Here, we spent ZAR 44 million to the 30th of June and over ZAR 50 million for the 8 months to August 2020. We've seen over 450 staff members recovered from COVID-19. I think Charl texted about 1,650 company tests conducted by us in this period. Second one, identified -- priority identified is preserving the group's financial stability and cash flows importantly so. We've preserved the group financial stability and improved our cash flow conversion from 62% to 64%, gearing ratio from 1.4 to 1.3. And we've resolved to pay the 2019 dividend of ZAR 0.25 per share, which will be done forthwith. Thirdly, we have maintained the product availability and high service levels to our customers. Was -- rather that our customers are used to with good staff attendance and higher production outputs than in previous periods. There, I think our category planning and category conversations that we have with our main customers paid off quite handsomely. And we concentrated and focused on that communication in this period of time through [indiscernible] On the right-hand side, we see that the revenue is up 1.9%. Strong quarter 1 revenue, up by 9.7%, but down in quarter 2 by 4.9%. Our GP margins improved 0.2 percentage points due to additional service revenue from Pringles and a focus on efficiencies. We see strong -- we've seen strong retail and wholesale channel performance, and we've all heard about baking and cooking and home cooking. And you will see in the presentation how retail specifically and also participation as well. Food service, due to the shutdown, nearly -- down nearly 35% in the second quarter. And exports impacted quite heavily in both May and June by the poor delays that we've seen, especially in Cape Town. Go on to Slide 5. We are pleased with the performance of the group for the first 6 months in 2020. We saw strong retail and wholesale growth, offset to a large extent by the COVID-19 restrictions placed on the QSR and hospitality industries. Our overall group revenue increased by 1.9%. Gross profit margins increased by 0.2 percentage points. As you know, at Libstar, with regard the group's normalized EBITDA, excluding all nonrecurring, nontrading, and noncash items, as our best measure for performance. Our normalized EBITDA for the first half decreased by 5.4% due to ZAR 44 million in extraordinary COVID-19 pandemic costs. Without these extraordinary costs, normalized EBITDA would have increased by 3.7%. Very important number to note. Our normalized earnings before interest and tax decreased by 16.4%, but again after discounting for the extraordinary cost, it only decreased by 9% -- 3.9%. Normalized EPS declined by 19% and HEPS by 17.7%. Charl will unpack that for us further when he gets to the financial results. Go to Slide 6. The market conditions and the channel -- mix sales channel, the changes in sale of sales channel. We operate in 5 product categories that I think you have become used to in 4 sales channels. Although we report by category, the effect of COVID-19 was most apparent in the group sales channels. And it is with this in mind that we're spending some time unpacking the channel performance. In the table, you can see that revenue [ impacted ] well, in most channels, pre-COVID. In fact, at the end of the first quarter, we were on track for a strong first half performance, showing a 9.7% increase in the group net revenue, exports being specifically strong in that period of time. Since the start of, of course, the second quarter, we saw strong performance in retail, brought about by the increased in-home cooking, baking, and other activities. Retail sales channel delivered 10.7% of the revenue growth for the first 6 months -- revenue growth for the full 6 months to June 2020, as can be seen in the pie chart. It increased its weighting within the Libstar sales vertical basket quite significantly to 68% compared to the 62% in the comparative period. Food Service, which is the second largest channel contributor to the group, suffered the effects of the lockdown, with revenue down 63% in quarter 2 and 35% for the reporting period. Our export channel felt the impact of poor delays in the second quarter, as we said, which resulted in slower shipment completion rates, particularly in the month of June. Second quarter revenue therefore declined by 26% and revenue for the full period was down 8% from, as we indicated, the 12.3% growth in the first quarter. These delays have been greatly overcome, been addressed. And we've seen vastly -- glad to say, a vast improvement in shipping in July and August. I'm sure Paul Jibson who's here today will -- can tell you more about that. In the industrial and contract manufacturing channel benefited for the first full period of its inclusion in the services revenue in the manufacturing of the Pringles snacks. Total revenue decline from this channel was limited, partly by this 2.8% in the first half, underperformance of wet condiments. Manufactured for brand owners is expected to be ameliorated in the second half by cost-saving, restructuring as well as the introduction of new products and new customers. Go on to Slide 7. Turning to the contribution of Libstar's food and nonfood categories. We see that the food categories, consisting of perishables, groceries, snacks, confectionery and baking and baking aids, constituted 91% and 93% of revenue and EBITDA, respectively. Organic revenue was flat and normalized EBITDA was down 6.6% after COVID-19 costs. EBITDA was up 1% before to the COVID-19 costs. We'll go into the category results later to unpack the revenue and the earnings performance. Household and Personal Care delivered a significant improvement in category performance during this period, with revenue up 11.5% and EBITDA up nearly 47%, as the effect of our cost savings, rationalization, new product ranges and product mix changes implemented in 2019 and carried into 2020 took effect. We're continuing with our restructuring efforts, relocating the plant, combining 4 plants into 1. And we will see some rental savings coming in the fourth quarter, and we expect a continued strong performance from HPC. Charl, I think that's the end of the first part. Can you go through the financial numbers for now?

Thank you, Andries, and good morning, ladies and gentlemen. We'll start with an analysis of the revenue for the period ended June 2020. On the left-hand side of this slide, food categories delivered marginal organic revenue growth during the period. The sales mix shift towards the retail and wholesale channel favorably impacted food volumes, but this was not sufficient to compensate for the nearly 35% reduction in food service revenue, which Andries spoke to in his intro section. As a result, food category volumes declined by 2.1%. The HPC category on the other hand grew revenue well ahead of inflation at 11.5%, which was driven by strong retail and wholesale channel demand for home and personal care products. This contributed to the 2.9% increase in the HPC category volumes. The 8.5% positive price and mix impact in HPC was therefore predominantly caused by a change in the sales mix, away from lower margin powders and detergent products and was not the impact of price inflation. On the right-hand side of the slide, we examine gross profit. As you can see in the graph, the group's GP margin is usually stronger in the second half of the year. The graph demonstrates a 2.5 percentage point increase in GP margin over the past 2 years and a 0.2 percentage point increase during the current reporting period. This reporting period improvement in GP margin was mainly attributable to the first full period inclusion of service revenue from the outsourced manufacturing of Pringles, which commenced production in June 2019. We also highlight the strong retail demand in baking aids as well as multiple other product categories during the period. Our continued focus on procurement, production efficiencies and equipment effectiveness contributed to the further GP margin increase despite a very difficult operating environment. Moving on to Slide 10. And before we look at the remainder of the income statement, we will address the ZAR 44 million in direct extraordinary COVID-19-related expenses incurred during the current reporting period. This number does not include the lost revenue and earnings from our customers and channels that were effectively closed from April to June. The group incurred these extraordinary expenses under 3 main headings. Firstly, donations of over ZAR 3 million were made towards the support of needy communities in and around the regions in which we operate. Secondly, the group spent over ZAR 80 million on personnel-related benefits. Of this, more than 2/3 related to the private transportation of employees between their homes and the group's manufacturing sites in order to keep them safe from the pandemic. Lastly, ZAR 22 million was spent on COVID-19 related operating expenses. Of this, over 1/3 relates to the provision of personal protective clothing to the group's people and almost another 1/3 for the necessary overtime that was worked to maintain acceptable production outputs under circumstances of social distancing. A more detailed breakdown has been included in the appendix. Moving on to operating expenses. In the first light blue row, you can see that the group's total operating expenses increased by 16.3% over the comparable period, and we unpack these expenses on this slide. Starting with the items at the top of this slide, which form part of our normalized reported numbers, the group firstly incurred additional expenses of ZAR 9 million in relation to the incentive awards under its shareholder approved long-term incentive and group share plans. Secondly, a further ZAR 5 million in corporate restructuring costs were incurred. And this was mainly in relation to personnel in the group's Johannesburg corporate office. The benefits of these cost reductions will be seen from the next financial year. After some nonoperating or nonrecurring items then, the OpEx increase was reduced to 14.7%. This was mainly as a result of a 6.9% increase in depreciation of property, plant and equipment and the amortization of software relating to the capital expenditure incurred in 2019 as well as the first quarter of 2020. The group furthermore entered into a new lease in relation to the Pringles snack facility, which predominantly resulted in the 16.8% increase in IFRS 16, which is the lease standard depreciation during the period. Also, as mentioned in March, outsourced manufacturing of products gives rise to service revenue. And it is this service revenue that contributed strongly to the group's gross profit margin improvement over the period. The costs incurred to render these services are accounted for under the OpEx heading and increased nearly ZAR 20 million to ZAR 31.2 million due to the full period inclusion of the K Snack division. Finally, about ZAR 34 million of the ZAR 44 million in COVID-19 expenses that we've discussed on the previous slide are accounted for in OpEx, the remainder forming part of the cost of goods sold. After these item, total OpEx increased 7.9% over the comparable period. If we then look at the remainder of the income statement up to the EBITDA line, other income increased significantly in H1 2020. This was mainly due to the recording of unrealized foreign exchange translation gains, realized ForEx gains and sundry income, which included a write-back of a third-party loan. After these items and the 16.3% increase in OpEx impact on the previous slide, the group operating profit was down 14.6% on the prior period, whilst normalized operating profit was 16.4% lower. Excluding the increased depreciation and amortization expenses, which I highlighted on the previous slide, normalized EBITDA was down 5.4% on the prior period. This includes the extraordinary COVID-19 expenses that we discussed previously, without which, the group's normalized EBITDA would have increased by 3.7%. Andries will unpack the category slides a bit later. But at this stage, it is worth noting that all categories, except perishables, delivered EBITDA margins within or above the stated target bands communicated in our March presentation. The food categories averaged a normalized EBITDA margin of 11.1%, whilst HPC came in at 8.9%. The perishables category houses Libstar's largest food service channel facing division, Finlar fine foods. As a result of the significant revenue decline in the food service channel, particularly during the second quarter of the year, and due to the lockdown restrictions, this category delivered an EBITDA margin of slightly less than 8%, which is below the 10% to 13% target band. As mentioned in our most recent trading update, the resumption of quick service restaurant trade has assisted in the recovery of the food service channel since the end of this reporting period, albeit that the channel is still performing weaker than pre-COVID levels. The groceries category maintained its EBITDA margin at the top end of its target range. And the snacks and confectionery category improved its EBITDA margin due to the full period inclusion of revenue from outsourced manufacturing of Pringles snacks. The baking aids category EBITDA margin was lower than the prior period, but still within target, mainly as a result of lower food service revenue within the Amaro Foods division as well as significant COVID-19 related expenses, which mainly related to the transportation of employees. The HPC category also improved its EBITDA margin to above the target range due to strong retail channel demand and the positive effects of cost rationalization. Moving on to the income statement items below the EBITDA line. Net interest paid for the period was 4% lower. The net interest bill on facilities reduced by 13% due to the reduction in lending rates as well as the slightly lower debt levels. However, this benefit was somewhat offset by increased IFRS 16 interest expenses. Profit before taxation therefore declined by 21.1%. The group's effective tax rate was lower than the guide at 28%, and this was mainly due to the claiming of some accelerated tax allowances on capital projects finalized in 2019 as well as the inclusion of ZAR 8 million in nontaxable income, mainly in relation to a loan write-back. Profit after taxation therefore declined by 16.6%. After the normalization of items, which are shown on the right-hand side of this slide, and these mainly comprise amortization of intangible assets, expenses relating to incentives and retrenchment costs as well as the impacts of unrealized ForEx movements, normalized earnings was 19.5% lower whilst normalized headline earnings ended 18.1% lower than the comparative period. We've inserted the next slide to show the reconciliation from normalized EBITDA to normalized earnings as requested by some of our shareholders. As can be seen here in the highlighted first 2 lines of the table, it was mainly the increased depreciation charge on property, plant and equipment as well as the IFRS 16 depreciation which amounted collectively ZAR 263 million, which resulted in a weaker performance on the normalized earnings line when compared to the normalized EBITDA line. Based then on normalized earnings of ZAR 142 million from the previous slide and a 0.6% decline in the weighted average number of shares in issue for the period, normalized EPS was down 19%, whilst normalized headline earnings per share was down 17.7% over the comparable period. You will remember that the group declared a final dividend of ZAR 0.25 per share in March, but then postponed the payment of this dividend in light of the significant uncertainty brought about by the COVID-19 pandemic and the related restrictions. After giving consideration to the stable cash flow performance of the group during this period and the anticipated continuation thereof in the second half of the year, the Board has resolved to proceed with the payment of the final dividend of ZAR 0.25 per share. Although this dividend is being paid at the interim stage, it does not represent the deviation from the group's dividend policy, which is to declare a dividend once per annum and at the year-end stage, with the dividend being covered 3 to 4x by normalized headline earnings per share. Turning from the income statement to the cash flow summary. The group generated ZAR 225 million of inflows from operating activities compared to ZAR 178 million generated during the previous period. This was mainly related to lower net finance charges and taxation paid. These factors as well as lower expenditure on capital projects during the period resulted in an improved cash flow conversion ratio compared to the previous period. The group's cash conversion ratio, which is shown at the bottom of this slide and is -- and we measure this as normalized EBITDA, less CapEx divided by normalized EBITDA, increased from 62% in the first half of last year to the current level of 64%, which we regard as strong in the current environment. Turning to net working capital. Net working capital as a percentage of revenue increased 13 -- increased from 13.8% or 49 days in the previous period to 14.8% or 55 days. Whilst this is still within the group's target range of 13% to 15% of revenue, the increase was mainly due to higher inventory holding of imported grocery products and nuts sold in the retail channel. With major disruption to the supply chains worldwide and in the wake of the COVID-19 pandemic, the group elected to hold higher inventory levels of these products and raw materials to ensure product availability to its customers. As has been the case in the past, expansionary capital as opposed to replacement capital constituted the majority of CapEx during the first half of this year. On this slide, we've noted the most significant projects undertaken during the period, of which the majority relate to the Lancewood division within the perishables category. Here, a total of ZAR 34 million was invested predominantly in milk-receiving and distribution upgrades that were brought about by the restructuring of its logistics solutions. As a result of some COVID-19 related delays, this project is now expected to yield benefits from next year. The rest of our capital projects have not suffered significant delays. The facility integration of 4 sites into a single facility is underway within the HPC division, and this is expected to be completed early in Q4 2020. As a result of the reprioritization of capital expenditure, which was in pursuit of our key objective to maintain the financial stability of the group, CapEx reduced to 3% of revenue from a high of 3.5% the previous year, and this is within our previously stated range. Looking then at the group's net debt position. Gearing remained well within our stated 2x maximum normalized EBITDA cover, and the group remained compliant with its lender covenants throughout the reporting period. Details of our debt structure can be found in the appendix. It is worth noting that we continue to target new businesses that can either be bolted on to our existing infrastructure or those stand-alone opportunities that may provide further subcategory diversification or access to new channels and markets. Our gearing levels do give us enough headroom to take advantage of any opportunities which may arise. Finally, I draw your attention to the highlighted rows on the bottom half of this slide. We've showed Libstar's cash conversion ratio for the first time in March, and we'll continue to do so. As is shown here, the group has remained and maintained its liquid and solvent position despite an increased investment in net working capital. At the bottom of this slide, I would like to point out that we now report on a return on invested capital, which is a tangible invested capital, which excludes only intangible assets created during the 2014 restructuring of the group. This is a slight deviation from the previous slide shown in March, which excluded all of the intangible assets. Even when making this change and despite the effects of COVID-19, the group still delivered a return on tangible invested capital over a 12-month rolling basis, which exceeds the group's approximate 12.5% WACC rate. I'll now hand over to Andries, who will take us through the category performance and the outlook sections. Thank you.

Thank you, Charl. Sitting here thinking how I've got new respect for these sportsmen who play to empty stadiums under the lights, and this something that they would used to show. So it is -- it's not one of the most pleasant experiences. I can tell you, I've got new respect. Let us continue. We -- if you look at our category focused approach, which we haven't changed since the beginning, we consolidated some categories at last year year-end. We continue to operate in 5 product categories, 4 of which are food-related, and still comprise the majority of the food -- of the group's revenue and profitability, as we will see from the next slide. Just get this thing right. If you look at the food categories, is still 92% compared to -- 91% compared to the 92% of last year, with perishables remaining the group's largest contributor to revenue at 46%, followed by groceries at 31%. The Household and Personal Care category increased, as we indicated previously. Its relative contribution to 8% to 9% from the last year's 8%, mainly due to a strong retail and wholesale channel growth. I can say that it's commendable growth in value-add product that's being delivered to the market, especially in this testing times, and we foresee that continuing. Go to the next slide. If we look at the normalized EBITDA contribution, groceries at 40%, super seeds, perishables to become the group's largest contributor to our normalized EBITDA in this reporting period. This is mainly as a result of the significant reduction in the food service channel revenue, from specifically Finlar foods during quarter 2, which operates in a perishable category. Relative EBITDA contributions of snacks, confectionery, baking, and baking aids, and Household and Personal Care also increased as a result. In this -- in the following 4 slides, we will try to illustrate to you how our categories performed in the period under review. We are not addressing the performance of each of the businesses in the category because we would be repeating the same thing for most of them, namely at retail sales. That's a theme that comes through that you would certainly have seen. For now, the retail sales was the main impetus for the growth. And the food service in the second quarter was the main drag on earnings. If you look at perishables, at the top of the slide, you can see the breakdown of the performance of our perishable category. The column highlighted in gray, the category net revenue was down at -- down 1.7%, with a slightly lower GP margin. Category EBITDA declined 21%, mainly as a result of the channel performance as shown below. In the pie chart, you can see the perishable category contributed to retail revenue. The contribution went from 62% to 70%, making perishables the single largest retail facing category by revenue contribution. Perishables also is the largest contributor of the group's food service channel, with 19% of revenue from food service in this category under the current period compared to the 27%. That's the most significant swing that we see here. The retail sales channel performed commendably under this circumstances, particularly in relation to revenue from the sale of dairy products, pastas, vinegar, honey, sauces, soups. As we illustrated earlier, and as you most probably have gained out of mark to market info, that's also available elsewhere. This was not enough to compensate for the 34% reduction in food service channel revenue shown in the table on the right. This is the single largest negative impact on the performance of perishables in the period and took place -- and happened mainly in Finlar foods. Our Finlar foods mainly contributed to that, which applies significant volumes of dairy and meat to the fast-food sector. We carry on forward, and we go to groceries. Turning to groceries. At the top of the slide, you can see that grocery revenue declined by 2.4% and the gross profit margin by 0.6 percentage points. This translated to a 2% reduction in category EBITDA. But more significantly, you can see how the EBITDA margin has been maintained. We can see that category weighting to food service in the pie charts, which was 7% of revenue and -- in the current period and 11% in the prior period is not as large as in the perishables category because of the participation. Table on the right shows that the retail performed strongly, particularly in meal ingredients, mainly in Rialto, retail and wet condiments, which includes Cecil Vinegar and Montagu Foods. This performance was supported by the increase in our in-home food preparation in the lockdown period, as we've stated earlier. As mentioned in our market update in June, we struggled to complete export shipment orders of the dry condiments, the largest business in this category, namely Cape Herb & Spice. This improved in July and is expected to further assist our dry condiment performance for the rest of the year, which is -- as I was talking to Paul Jibson, our executive in charge of Cape Herb & Spice this morning, which we expect to be strong for the rest of the year. Demand for wet condiments have taken all foods manufactured by Libstar for brand owners continue to lag behind, although we have seen an improvement after the end of this reporting period. Usually heading into the second half of the year, we -- that's what happens. We can see it from previous year results, too. So we're not worried about it. We are positive. Moving on to the snacks and category -- snacks and confectionery category. The top table we see, whilst organic revenue increased 1.2% during the period, the category delivered a 44% increase in EBITDA, largely thanks to the full period inclusion of where service revenue coming from Pringles snacks, where we do not take -- we take the -- we include the service revenue, but we do not take the turnover into account of the manufacturing unit. In the pie charts, you can see that this category is predominantly retail facing, with retail comprising 94% to the category review in this period. Retail demand for health wellness products, such as nuts, nut mixes and other related products, continue to underpin revenue in this category. Whilst the bottom right table shows that the organic revenue from contract manufacturing has declined by nearly 57%, this is more than compensated for in strong retail and wholesale sales channel -- the channel sales. Service revenues from the manufacturing of Pringles snacks is included in the table, as it shows only organic revenue, being revenue from operations, which operated during the full comparative and current reporting periods. Including the service revenue, revenue increased by 18.1%. We're on to Slide #29, baking and baking aids category. Top table baking and baking aids delivered organic revenue increase of 23% at an improved gross profit margin. However, the category EBITDA declined by 2%, mainly due to 6.5% -- ZAR 6.5 million COVID-related costs incurred in this category. This is mainly related to the provision of transport benefits to employees and also mainly out of the Maral foods few sites in which we operate where we had significant taxi and taxi-related transport -- public transport related problems in the Western Cape. In the pie charts, you can see this category is largely retail facing, where we saw a strong performance in the sale of rusks and baking products due to the lockdown and increased efforts from our sales teams and category teams. And this channel revenue grew by 24%. So somewhat offset by significantly lower food service channel revenue in the Maral foods division, relating to, as you can probably recall the gaps that the production, mainly for QSRs risk errands for retail, but also a strong participation in QSR. We carry on to the next slide. And we look at Household and Personal Care. We've already touched on some of the aspects here. The Household and Personal Care was up 11.5%, mainly due to new product launches of Home and Personal Care products, and the retail channel constituting 88% of the category's revenue. These are products like sanitation products and home care products, mainly a lot of innovation coming from the team quite commendably. Household and Personal Care also benefited from the 2019 restructuring efforts, combining 3 divisions into a single market-facing business and resulted in a turnaround of the business, with a 46.8% increase in EBITDA. We'll continue that rationalization into the second half. If we can move now to the outlook for the next period. Looking at the next 6 months, it's quite busy, but I'll try and guide you through this as quickly as we can. Looking at the next 6 months, trading conditions are volatile and will -- and makes any prediction more difficult than normal. This aside, we -- starting on the left, we expect to see the continued strong demand in retail and wholesale, with a pickup in export shipments, as we already indicated. Food service, especially on the QSR side, are coming back strongly, but return to previous levels will be slow and gradual. Improved demand for retail markets in our industrial and contract manufacturing channel. It's been experienced since the start of the second half. And we're launching new food service products in this channel. So we're quite bullish about that part of the business. Translating this to the category outlook on the right. All categories are likely to benefit from a stronger retail and wholesale demand. However, the customer, as we said, remain under pressure. Perishables and groceries should improve most due to the recovery in the food service business. Improved shipments, we've discussed that, are expected to benefit the groceries category. And snacks and confectionary should continue to benefit from a first-time contribution of the Pringles snacks manufacturing. Baking and baking aids will also benefit from the improved food service demand. Finally, HPC should continue to see the benefits of the increased demand and the rationalization that we touched on. We can then turn to our key priorities and strategies. I think we started off with that, and it's remaining the same way. We are prioritizing and continue to operate in a COVID environment, prioritizing the focus -- continued focus on the protection of the Libstar people, preserving the group's financial stability and cash flows and maintaining our service levels. Those 3 themes we've carried through from the end of March, and we think it has delivered to the group as expected. We will also continue to restructure where necessary in order to contain costs and improve overall efficiencies. In fact, one of the group's main priorities will be to continue our pre-COVID divisional consolidation in the wider group to reduce sales and merchandising duplication as well as rationalize our strategies. This will yield -- is yielding greater collaboration, efficiencies and growth opportunities coming from there. From a strategic perspective, we will continue to invest in expansion and replacement capital, as indicated by Charl earlier, but at a lower rate at -- than the peak of 2019. But we really plan to reduce CapEx somewhat in 2020 even before the COVID change in -- a world-changing event. Finally, a continuation of the group's innovation strategy is core to everything we do. Go to the next slide. Just the indication of products that we brought to market in the period. Notable here is the launch of 88 new products, 30 -- 36 renovated products, a total of 124 in the review period. And some examples of that, you can see in the Lancewood new range of yogurts, new flavors, no sugar added yogurt, lactose-free yogurt, and continuing to grow and do well in that premium yogurt sector where we want to participate. If you turn to the left-hand bottom side, there's a cheese melt from Lancewood and mushroom, bolt-on mushroom chips, chips that we're launching on a test basis at the moment and a number of other products coming from HPC. Bottom right-hand side, new products, including hand sanitizer, surface sanitizers, et cetera. So I think a commendable effort on the new product and launches and the continuation of our innovative culture. We can turn to a number of Libstar's competitive advantages. Again, quite a busy slide, but at the insistence of Charl and a few others, I included this. I think most of it has been communicated before, but we can run through it quickly again, including a strong culture of innovation and differentiation that we touched on. As we indicated, we are well positioned for the private label growth and increasing our sector participation -- other participation in private label. Our portfolio is capitalizing on the key health wellness, eco-friendly, and convenience trends, management capabilities, valuable insights from our deep customer relationships and category knowledge, where we invested quite heavily in people and data purchases. These deep customer relationships are in niche product categories. And our reputation for delivering the right product is invaluable. Market share in the chosen many markets, as we indicated, continues to grow. And we have a low exposure to the volatile commodity product, few things that we again saw yesterday. In view on that, we are not really participating in most of those categories as reported. We've got world-class low-cost manufacturing and portfolio optimization capabilities. Finally, as we demonstrated, the group has a strong balance sheet, and most importantly, strong cash flows, which, as I said, stands us in good stead in facing uncertain market conditions. Go to the next slide. If you look at our market positioning, Libstar enjoys a strong market position in the market as we are well positioned to meet the changing customer needs and behaviors in a number of areas. Private label and dealer-owned brands continue to go ahead of branded products, as we indicated, and Libstar is growing its own share within this market. Our market share is up from 12.4% to 12.7% of the refined basket in the first 6 months. Health conscious shoppers are supporting the growth in the health. Wellness spends, we've indicated yogurt and a number of other products that we have gone to market and that we're reinforcing. The other going trend is that of environmentally friendly products. We benefited from this trend through our paper store manufacturing and growth in food service market through our packaging company, which also understandably suffered in the period under review. But talking to Terry Cousins this morning, the executive in charge of that business, we've seen very positive signs in that business, especially also in retail and on the environmentally friendly business, and we're positive about that business. Small business, but again, being at the innovative edge of the market. We have launched the Precious Planet brand, as we indicated, with the new range of private label and dealer-owned brand products. And Denny started to use some of the compostable planets. And some of the other products, you will find in the market, too. In summary, what do we expect of 2020? We can look at challenges. Main challenge is still the COVID-19 pandemic, which has not fully manifested it is in the South African economy. We see unemployment on the eyes, the disposable cash, weak economy and -- but for us, it's unquantifiable at the moment. And no use worrying about it. We need to act in our markets best we can. It's our challenge to continue innovating to alleviate some of these pressures, as we indicated. Although the food service channel is starting to recover, this recovery is expected to be slow and impacting Libstar's perishable category through Finlar, in particular. We have though in Finlar, is seeing especially on the QSR side of the business, a faster recovery than on -- than in the normal hospitality industry. And we predict that will continue going forward and will have not the same effect that it's had in the first half going forward. And yes, we will do a lot better on the food service side of the business in the second half, as indicated. The CapEx mainly affected. Where are we now? I've lost my note. Let's continue and go to the benefits from -- the CapEx in the last 2 years has been delayed by the COVID-19 pandemic and also by changing needs on our distribution and distribution -- especially retail distribution in the Lancewood business, where our CapEx plans had to be postponed because one of our trading partners decided to leave that sector. And we had to make new plans and that reallocate priorities in that. Do we expect to see around ZAR 800,000 to ZAR 1 million per week COVID extraordinary expenses going forward in this period? As we indicated, this has affected us and cost us quite a bit of money, considering the number of sites that we operate and especially the effect that transport has had on the extraordinary costs. If you look at a few tailwinds going forward, a number of positive factors that we should rely on that we can, I think, rely on the strong retail channel sales. We expect to continue, maybe not at the same rate, maybe a bit slower. Libstar's stable cash flow and financial stability has allowed the group to deal with the current market challenges, as indicated. And in July and August, the first 2 months of the second half, we've seen improved shipments, as we said. And this should result in a marked improvement in Cape Herb & Spice performance in the groceries category. Benefits of cost realization, especially on the HPC side, should start coming through in the fourth quarter, and we will continue to focus on innovation in that category. And hopefully, the strong demand will continue. Our second half has always been better and -- than the first because of the seasonality. And we've usually seen a 40-60 ratio split, as we indicated before, and which has been consistent over a number of years. COVID-19 could however affect this ratio in the second half, depending on the further impact on the customers and consumers which, as we say, remains unquantifiable, unpredictable. Big risk in the medium-term -- it's a big risk in the medium-term, and it will take some time for our economy to recover from the impact of this pandemic. And the second wave could result in a repeat of the negative impacts. It's really difficult to forecast our operating environment under these circumstances. And -- but we are well positioned to take, as we have, take maximum advantage of market conditions that may [indiscernible]. Then lastly, just thank you for listening. And we are now able to take a few questions. We've got a few of our executives here with us this morning. Johan, will you introduce the guys, or should I do it?

Let me do it.

Oh, you will you do that. Johan will introduce the executives, also the ones that's online -- who will join us online for question and answer session. Thank you. Thank you for now. See you now.

Good morning, everyone, and thank you for joining us for the presentation by Charl and Andries. We're going to take some questions and answers now. I'd like to just introduce you the panel that's join me on the stage as well as some of our guests joining us from Italy, White River, and Johannesburg. So on the stage with us, we have on our left-hand side, my left-hand side, Kunal joining us from Lancewood. We have then Charl and Andries which you both -- which everybody knows. Within a pool that's heading up the Cape Herb business and Wendy that's joining us next to me with regards to the category and customer side of things. On the screen, you'll also see [ Luciano, ] that's joining us from Italy. Thanks for joining us Luciano. We've got Robin joining us from Johannesburg. And then lastly, we have Daniel joining us from Light River that looks after the Ambassador business. [Operator Instructions] So the first question that's popped up here is from an anonymous user. The question reads, please speak specifically to the private label performance during lockdown compared to other countries? Wendy, would you like to take that?

Yes. I'll take that question. So we -- in our market share on private label as -- from a South African point of view has increased year-on-year, and that's something we measure. Our private label participation and growth have been significant especially over the COVID period. We do not measure this against other countries. So we like to keep it local, but a very positive growth throughout the categories on private label specifically.

Thanks, Wendy. There's another question that's also come up from an anonymous user. Question is around mergers and acquisitions. What are we seeing in the marketplace? And is there any view on that? Robin, would you like to take that question?

Yes. Thanks, Johan. The group continues to regard the selected acquisitions as one of the key components of our 3-pronged growth strategy. We constantly have to look out for opportunities. And we also, as you would imagine, we see direct approaches from potential centers, but also from banks and business brokers and our broader network. We do have a few selective acquisition opportunities in mind that are currently being evaluated. We haven't noticed a dramatic increase in valuations out there that one might imagine if one consider that there might be some of the stressed assets out there. However, we're not really in the market of seeking up the stressed assets. And the valuation expectations in our experience in the last couple of months have not halted. Standards are still looking for full prices for their business.

Thanks, Robin. We don't seem to have any other questions. So is there anything that would like to be added, Andries, from yourself?

I just maybe we would like to add to what Wendy has mentioned on private label, our participation in private label, as we also indicated in the presentation. It's necessary to make a distinction between typical private label, meaning a substitute for bread, maize, flour, and so forth commodity-type products versus where we participate in the dealer-owned brand or the private label or whatever you call it. As we indicated, we continue to innovate. And we continue to grow that part and sector of the market. So if you look at private label data, it's significantly skewed and difficult to read and interpret in terms of what we are doing and where we participate but I think we can say with confidence, Wendy, that where we participate with the dealer-owned brand and private label. And Luciano, you can maybe come in there where you participate with the products that you delivered to market, we've seen significant growth where there's not really any competition for us. Maybe you want to comment, Luciano?

Yes. No, I can comment. Thanks, Andries. From our point of view, I head up the realty business. And what we've seen is, and we've repeated it earlier on, there's massive growth from a grocery. And obviously, home cooking, people been in lockdown and lots of home cooking happening. We've seen a massive jump in our groceries category. And Andries alluded to some of them earlier on when it comes around cluster and a few other ingredients that are needed for home cooking. And that's where we've seen a massive growth from our side. And obviously, we deal with the private label manual product.

Great. Thanks. We've got another question that's come through from anonymous user, saying it strikes me that retail and wholesale performance, 10% plus revenues, lag the performance of your top retail channels. The question is post 2 parts. Can you give some color as to why that is? And secondly, in what categories do you take share, private label and dealer-owned brands, over the period?

That's a quite a lot. Wendy has to go about it.

Yes. Right.

So let's just go and break it down. So With regards to the retail and wholesale performance. Question is, can we give some color as to why we've lagged the performance of top retail channels? So maybe potentially the retail performance has come up. So why are we lagged?

In the market.

In the market, yes.

Nuts...

I mean I think maybe just to say that we measure and gain our information from various sources in the market. And that is based on a defined product basket. It's very difficult sometimes to compare apples with apples in the market. So in what we've been able to see in the categories that we play in is that we have been able to gain market share, particularly if I think about the -- on the dairy side, in the yogurt, significant market share that we've gained, particularly in the retail side of the business. So I would not necessarily say that that's been lagging. I think we're quite satisfied with the performance during the period.

All right. The second part is probably to Wendy. In what categories did we take share with regards to private label and dealer-owned brands over the period?

So we have seen some significant -- or strong shares coming through on cheese, the perishables side, wet condiments specifically and then also baking aids specifically, taking share within those categories. Our private label participation and share has grown over the period.

Great. Thanks, Wendy. We've got another question with regards to, how will COVID likely change some of the key categories we manage today? I think, Wendy, that's also for you.

Yes. I think the range being agile within the different categories we participate in and offering the range and being able to answer to what the new ranges should be as people are changing behavior in terms of consumption and buying patterns and also how they spend their time at home will be key to winning in those categories that we participate in.

Great. Thanks, Wendy. Another question's popped up. How much of your food service business is restaurants versus fast food outlets? And how have these channels performed since June. Andries?

Food service is weighted towards the QSR business. I would say, Charl, at least 70% QSR versus 30% of general food service hospitality. If we look at our -- the performance in July and August of QSR, in some areas, it's been faster and others slower -- more slowly. I recall as out of [ TLX ] taking a bit longer to get back into swing, you can almost say, in food service, where we've seen a much more immediate effect on our meat products in -- meaning QSR, slow -- on that side, we see quite a significant uptake on our meat products. You can just -- all of you that drive around these days being too afraid to get out of your cars go past to McDonald's 9 O' Clock in the morning and see the drive-through queues outside McDonald's. And that has been like that since the comeback of QSR. So yes, we've seen a strong comeback in QSR. We've seen a strong performance on that side, where the general food service, 30% of the business seems to be coming back, but coming back, but coming back more slowly.

Great. Thanks, Andries. There's a question with regards to the tea business. So Paul, this will wonder be for you. Please, can you update us on the progress being made in the tea business, both locally and export? And how has the recent acquisition year performed. Paul?

Yes. So could break that down.

So the question is, how is the tea business going? And the recent acquisition of Healthwise, how has it performed?

Okay. So tea business locally doing exceptionally well. We've obviously seen an uptick in grocery shopping. And tea being considered a health category, we've seen some exceptional results locally. Healthwise acquisition also doing extremely well, predominantly tea into Japan. So exports strong on tea into Japan.

Great. Thanks, Paul. There's a question around the dairy business. Kunal, so this is for you. You have been investing capacity in the dairy business. Are you comfortable that supply of milk in South Africa will be sufficient to support this increased capacity?

If you look on a national basis, milk production is basically flat. I think it's 0.5% down. Lancewood's intake this year versus same period last year was up 1.4%. Last year, the burning fact for our industry was the chart in our intake areas. But Southern Cape Herb & Spice which ran full. So we're quite positive for the outlook of dairy production.

Great. Thanks, Kunal. There's a question around what -- with the planned cutback on expansion CapEx, what are the implications for growth opportunities going forward? Charl?

I think I wouldn't necessarily use the word cutback. Maybe we've used the word reprioritization. And I think I can honestly say that none of the critical projects that we see in improving our capabilities or capacity that those will certainly continue. I think this environment has just ensured that we take a critical view at what the priorities are at this point in time. And there, I think we've done the right thing in focusing on our dairy category in the milk receiving side, also enhancing some of our capacity on [indiscernible] packing. And then also on the HPC side, where we know that we will see or have some low-hanging fruits, so some immediate benefit. So I think we are still -- despite the cutback, so to speak, we are still well positioned to spend in terms of areas that deliver growth.

Great. Thanks, Charl.

So maybe coming -- I was thinking about it as we were talking about CapEx. It -- maybe did not reflect those well in our presentation. But on the smaller CapEx item side, we've spent significant amounts of money over the past year and also in the first half of the year now with the advent of load shedding that we see again in the past week, ensuring from Lancewood, right to Finlar, ensuring that we have the necessary generator backup. The last big installation that we've done was in Amargo bakeries a short while ago. So we also started, and our first project completed is Finlar in Johannesburg to maximize on alternative energy, more specifically sun panels on factory roofs, et cetera, and we will roll that out across the group to make us more and more, not necessarily self-sufficient, but to protect our businesses against these violent swings in power disruptions. So we're well positioned. And we did spend significant CapEx on ensuring our availability of our factories going forward.

Thanks, Andries, for giving that additional color. Can you remind us what businesses are more H2 skewed? How do you expect the 40-60 to change due to the COVID? Andries, I think you can take that one?

Difficult to say. The 40-60, I believe, should still be fairly accurate, and if you ask my personal opinion, but I can't say. I don't want to be quoted, but is -- we're seeing strong demand, as we indicated. Strong demand for our product still in the retail sector. And I think we should get away from the private label versus branded side of the business. As we indicated, we're not really participating and competing against the branded product unless we've got a branded product in the market. And we would like to see that continuing on our food service side of the business, our export side of the business. I think we're okay, and we'll be okay going forward. Food service will come back. And especially on the QSR side, our exports will remain strong. We've seen strong demand on our export side of the business. And we should be fine. Retail, I think a lot will be dependent on how retail plays itself out in the local South African market. We've seen a strong July and August, particularly strong July and August on all fronts in the business. Good friend of ours said yesterday, he remains worried about the spending power of the consumer in the last quarter, which is a big quarter for us. The quarter that we're into at the moment is usually one of the more quiet quarters. But in the last quarter, you can ask Kunal, it is huge, for instance, Lancewood, where you do double in the last month. So I think the concern remains, and that's with everyone in the country, how long will the money last? Having said that, there, where we participate, I think we are better hedged, let's call it hedged against the decline in expendable disposable income. More, I cannot say at the moment. It's unquantifiable, but that's the feel that I've got at the moment.