Libstar Holdings Limited (LBR) Earnings Call Transcript & Summary

Good morning, all. On behalf of Libstar, I would like to welcome you to our annual results presentation for the year ended 31st of December 2020. Special welcome to our Board members, shareholders, investment community, media and the members of our Libstar family. I will start with a few introductory comments, followed by the salient features of the results. I will then take -- I will then hand over to Charl, who will take us through the financial and category review. Finally, I will conclude with some comments on the group outlook before we take questions from the audience. So let's leave good time for questions. And Charl, I think you and I will try and be as fast as possible regarding to the detail as fast as possible. Is that the right slide? Let me start by setting the scene with market conditions as in 2020. As you can see on the left-hand side of the slide, macroeconomic conditions in South Africa and the impact of the COVID-19 pandemic resulted in continued weak economic growth. We saw volume pressure within the retail sector, which were somewhat compensated by above-inflationary price growth. Consumers remained under pressure. Disposable income is reduced and shoppers exercised caution in allocating discretionary spend. Against this challenging backdrop, the group was able to show its resilience. Agility became an even more important word within our group in 2020. Our operations needed to adapt to significant changes in shopper and consumer behavior. There were also disruptions to the group supply chain, particularly in relation to our import and export-facing divisions. Our decentralized business model, entrepreneurial culture and diverse product range assisted in weathering the significant challenges of the year. During the year, we turned our strategic focus to prioritize 3 things: firstly, ZAR 65 million was spent on ensuring the safety, health and well-being of our people. We provided private COVID-19 testing to our employees that recorded over 700 recoveries to date. Secondly, through an unrelenting focus on cash preservation, we were able to deliver an improved cash conversion ratio and maintain our gearing at 1.3x EBITDA. This stable cash flow performance allowed us to declare a dividend of ZAR 0.25 a share, maintaining the dividend declared last year. Finally, we continue to roll out standardized systems, which allow us to monitor production efficiencies and more accurately measure service levels to customers. We've seen pleasing results from leveraging these systems, and we're able to strengthen our customer relationships even further by doing so. We move on to salient features. Moving on to the salient features of the year-end results, our updates to the market have emphasized the significant impact of the COVID-19 pandemic on the group sales channels. As you can see in the table, the increase of in-home consumption of products gave rise to an increased demand across multiple categories within the retail and wholesale channel. This channel delivered 12.3% revenue growth for the year. In contrast, as the Level 4 and 5 lockdowns and subsequent lower occupancies of hospitality venues impacted the food service channel. Revenue from this channel declined by 23.8% for the year. This significant change in group sales mix can be see in the -- can be seen in the pie charts on the right-hand side of the slide. They show that retail and wholesale channel contribution to group revenue increased by 4 percentage points, whilst food service channel representation reduced by the same amount. I know there are some analysts that say that we are now overweight in food service, whilst we were perfectly balanced, Charl, last year. So I think the pandemic changes many things in life. Exports were a tale of two halves. The supply chain disruptions experienced in May and June were resolved early in the second half. This skewed revenue growth towards the end of the year. The channel delivered a pleasing result, growing revenue by 6% for the year. This is the second year that we have seen strong growth in the export channel. It has been assisted by improved service delivery to our customers. And may I remark here that we've seen very much the same pattern in the international markets, which we service as we've seen locally. So the wholesale and retail pickup that we've seen locally has also been seen by our international customers, which is reassuring, I think. We have also collaborated with those customers in the launch of new private label condiment -- new private label condiment products. The industrial and contract manufacturing channel delivered revenue growth, largely in line with the prior year. This was mainly due to muted demand from the group's customers, which include national and multinational brand owners, again, food service-related mainly. We rationalized our cost base during the year to adapt to the new normal, and we're able to secure a new wet condiment contract manufacturing arrangement in the third quarter with one more that followed early in this year. This bodes well for a stronger 2021 even though we will be exiting the contract manufacturing of noodles from the second quarter of the year as our customer will be taking the production in-house. If we move on to the group results. Looking at the headline results, group revenue increased by 4%, assisted by the strong retail performance. However, some factors adversely impacted the group's gross profit margins, which reduced by 0.4 percentage points. These were the change of sales mix between retail and food service channels, increased cost of manufacturing brought about by extraordinary COVID expenses and cost inflation as a result of increased pricing of critical ingredients, utilities and services. And I stop here, we'll come back to this. This, I think, is the biggest threat that we see in the coming year with reduced inflation going up by much more than expected than general CPI. And it is a challenge that's facing us on all sides of the business, especially the commodity prices going up, as you are all aware of. Normalized EBITDA was 5% lower, while normalized operating profit was 13.1% lower mainly due to depreciation incurred on completed 2019 projects. We will analyze these projects in greater detail in Charl's section. Normalized earnings per share reduced by 55.3%, largely due to the impairment of the group's investment in Denny. Denny was particularly hard hit by the year's food service slowdown. Normalized headline earnings per share reduced by 13.8%, in line with the operating profit line. Moving on to the group's category performance. Food categories contributed 92% and 94 -- of group revenue and 94% of the group normalized EBITDA. The HPC category contributed 8% of group revenue and 6% of normalized EBITDA, a great improvement on the prior year. The food categories delivered organic revenue growth of 3.1%. However, normalized EBITDA reduced by 8.1%, impacted by the ZAR 60-odd million worth of extraordinary COVID-19 expenses. The HPC category delivered an exceptional performance, reflecting the strong retail channel demand for sanitation products and the cost savings efforts that was started in 2019, continuing in 2020, and will be drawn out further in 2021 as we will discuss later on. Revenue increased by 7.9%, whilst EBITDA grew by 37.5%. I'm handing over to Charl now to take us through the financial and category reviews.

Thanks, Andries, and good morning, everyone. I'm starting with a slide to illustrate how Libstar's continued to outperform the market in the retail channel during the year under the review. On the left-hand side, you will see that the total FMCG basket of retail products in which we participate is valued at ZAR 28 billion with 1.3 billion units sold annually. Of this total market, Libstar occupies a 12.6% value share. In the middle of the slide, we show that whilst the defined basket grew by 11.9% in value up to November 2020, which reflects the available and latest data set, Libstar delivered 15.1% growth. As a result, Libstar's value share of the defined product basket increased by 0.4 percentage points to 12.6%. It should be noted that the group's 4% revenue growth performance reflects a combination of the strong retail channel growth and significant decline in food service channel revenue as we will discuss in the remainder of the presentation. Products used in home, such as meal ingredients from the Perishables and Groceries categories, outperformed the market, while snack products lagged as a result of changing consumer behavior. Moving on to the income statement. Group organic revenue increased by 3.5% during the year under review. The group measures volumes in standard units of kilograms or liters of products sold. On this basis, volumes declined by 4.6% impacted by lower food service channel sales within the Perishables category and lower water sales within the Groceries category from Chamonix. The group continued to negotiate price increases across its entire product portfolio during the year under review, resulting in a price and mix impact on the portfolio of 8.1%. The food categories delivered organic revenue growth of 3.1%, whilst HPC revenue increased by 7.9%. The volume impacts of the aforementioned factors were largely mirrored in the food categories, whilst HPC volumes, despite strong demand, declined due to continued change of sales mix away from lower-margin powders and detergents towards higher value items. On the right-hand side of the slide, we show the evolution of the group's gross profit margin since 2015. Whilst the group improved these margins by 2.1 percentage points over the past 5 years to 2019, margins in 2020 declined by 0.4 percentage points. This was impacted by a number of factors, which include the adverse change in the food service category sales mix, as Andries detailed earlier; lower plant utilization, specifically within the food service-facing units during the Level 4 and 5 lockdowns; the additional COVID-19-related costs and significant cost inflation, which was brought about by increased cost of raw materials, particularly within the dairy subcategory of Perishables. Gross profit margins within the HPC category increased by 1.6 percentage points as a function of sales mix changes in favor of the retail channel and the cost-saving efforts mentioned earlier. Touching then on the extraordinary COVID-19 expenses incurred during the reporting period. You will see on this slide that the group spent ZAR 5 million donating products to needy communities. ZAR 28 million was spent on personnel-related benefits, which mainly comprised staff transport benefits. Finally, ZAR 31 million was incurred to maintain operations in accordance with appropriate COVID-19 protocols. Of this ZAR 65 million, approximately ZAR 50 million was recorded in operating expenses and about ZAR 15 million in cost of goods sold. The second wave of COVID-19 infections resulted in the rise of extraordinary expenses in January and February 2021 relative to the fourth quarter average of 2020. The group, therefore, expects continued COVID-19 expenses to approximate ZAR 1 million per month for the remainder of this year, subject, of course, to what may transpire in terms of the COVID-19 vaccine rollout and any further waves of infection. Focusing on the operating expenses line in the income statement. The group's total OpEx expenses increased by 22% during the year under review. After normalizing for incentives, retrenchment and settlement costs, other nonoperating items and impairment losses of ZAR 204 million, OpEx increased by 10.1%. Depreciation of assets and the amortization of software increased by 23.5% during the year under review, and that was mainly as a result of the ZAR 401 million of capital expenditure incurred in the prior year. The group is acutely aware of the importance of delivering acceptable returns on the capital projects completed over the past number of years, and I'll discuss this later in the presentation. This remains a key priority for the year ahead. Employee costs arising from the contract manufacturing channel increased by 63.8% mainly due to the full year inclusion of K Snacks, which manufactures Pringles snacks. After depreciation, contract manufacturing employee costs and the portion of COVID-19 expenses recording in operating expenses, total OpEx of remaining items increased by 5.1%. The increased focus on reducing operating expenditure and increasing our production efficiencies is evident on this slide as H1 inflation of remaining OpEx items shown at the bottom of the slide slowed from an increase of 7.9% at half year to 5.1% for the full year under review. As mentioned by Andries at the start of the presentation, the group has recorded ZAR 190 million -- ZAR 198 million after tax impairment to the goodwill attributable to the Denny division. The business experienced significant headwinds over the past number of years, intensified by the impact of increased capacity and competition within the SA market and substantially slower offtake from food service customers. While some but not all of the production could be shifted to the retail channel, annual volume sales declined and pricing offered limited compensation. Since 2013, the division has averaged a 4.6% increase in rand per kilogram sales against a 7.2% average increase in conversion costs. Considering these factors, the group lowered its 5-year growth forecast in relation to the unit. As we have done for the last few years, we continue to take substantial corrective actions focused on regaining retail market share, improving price realization, expanding the unit's value-added product basket, improving our farming practices to enhance yields and further operating cost reduction. These have made some impact already but could not compensate for the extraordinary COVID-19 market context. The food service recovery is expected to be slow. However, we are confident that these corrective actions can provide the necessary reset to enable a recovery. Within the Lancewood division, our hard cheese packing facility upgrades necessitated the demolition of an existing building to make way for the new facility. This resulted in a small impairment to the book value of buildings. After the Denny impairment, total group goodwill has reduced from -- to ZAR 2.3 billion, of which about ZAR 100 million is attributable to Denny. Moving on to the remainder of the income statement. Other income reduced by 10.5%. The other income line included the write-back of loans, which are no longer due to parties outside of the group. These loan write-backs recorded at the corporate level are not excluded from the group's normalized EBITDA calculation, which are reported in a consistent manner and in accordance with the group's accounting policies. Operating profit after the impairments discussed earlier was 47.9% lower whilst normalized operating profit shown exclusive of these impairments as well as the items shown on the right-hand side of the slide was 13.1% lower. Normalized EBITDA, the measure which best reflects the true underlying operating performance of the group, decreased by 5%. We are pleased to report that 4 of the group's 5 product categories delivered EBITDA margins within or above the stated target ranges. However, the group's largest category by revenue, Perishables, performed below target as this category also carries the group's largest exposure to the food service channel. For the second year in a row, the Groceries category has performed above the target range of 11% to 14%, bolstered by improving export channel performance and strong demand for meal ingredients, particularly within the retail channel. Given our outlook for the category, we will be revising the EBITDA margin target upwards from its current 11% to 14% to 13% to 16% in the coming year. The HPC category performance was bolstered by strong retail channel demand and benefits from the cost restructuring undertaken in 2019. Whilst additional benefits should be forthcoming from the plant integration project in Q2, we do not expect the exceptional retail channel performance to be repeated, and therefore, consider the current margin range of 5% to 8% to be appropriate. Net interest expenses reduced by 11.2% during the year under review, mainly due to the reduction in JIBAR. We implemented a group central treasury function, which has resulted in an approximate annual saving of ZAR 2.4 million on interest incurred on group overdraft facilities. The group's effective tax rate was impacted by the impairments discussed earlier, which are nondeductible for tax purposes. Before these impairments, the group's effective tax rate was 28%, in line with the corporate tax rate. Normalized headline earnings ended the year at 14% lower. On this slide, we show the reconciliation from our normalized EBITDA to normalized earnings and headline earnings. As explained earlier, the group's depreciation charge increased, partly offset by lower finance costs and taxation. It is, therefore, largely the impact of impairments, which resulted in a reduction in normalized earnings of 55.4%. Excluding these impairments, normalized headline earnings ended 14% lower. The factors which contributed to the reduction in normalized earnings, EPS and HEPS, have been covered in the preceding slide. It's safe to mention that the weighted average number of shares in issue reduced by 0.3% as a result of the weighting of shares repurchased in the prior year. The Board has resolved to declare a dividend of ZAR 0.25 per share, in line with last year's dividend after consideration of the group's stable cash position, gearing levels within the stated range and improved cash conversion. This is slightly below the stated normalized HEPS cover range of 3 to 4x. However, the group's dividend policy remains unchanged for future periods. Looking at group cash, we have, following shareholder feedback, decided to introduce an amended cash flow conversion metric, which better considers cash generated from operations and working capital changes. In accordance with this new formula, shown at the top right-hand side of the slide, the group's cash conversion ratio has improved from 91% to 94% and remains strong. Moving to the cash flow analysis at the bottom of the slide. Cash generation from operations reduced by 8%, but was offset by a 33% reduction in rand terms in the group's working capital investment. As mentioned earlier, the group's net finance charges and taxation also reduced, resulting in an increase in cash generated from operating activities of 10%. The group invested ZAR 345 million in capital projects, representing 3.4% of revenue. Whilst capital expenditure exceeded the 2% to 3% target range over the past few years, mainly as a result of projects ongoing at Lancewood, the longer-term target of 2% to 3% of net revenue remains unchanged. After financing activities, the closing cash balance increased by ZAR 81 million to ZAR 936 million. So as I mentioned before, the delivery of acceptable returns on capital projects remains a priority for the group. Since listing, significant capital has been incurred to support the growth of the Libstar's food categories. This resulted in CapEx temporarily exceeding the 2% to 3% of revenue target range. This slide summarizes, by category, the most significant capital projects undertaken by the group over the past 2 years. From a capital allocation perspective, the largest amount of capital has been invested in the Perishables category. This category represents the group's largest contributor to revenue, and prior to COVID-19, also the group's profitability. It is also important to note that the majority of capital has been allocated to the group's 4 food categories. Focusing first on the group's successes. Plant upgrades and line improvements within the Groceries and Snacks & Confectionery categories have performed in accordance with the group's pre-project estimations. Unfortunately, projects within the Perishables and HPC categories were delayed during 2020 due to the impact of COVID-19. As such, the significant capital investment at Lancewood to upgrade milk reception areas, upgrade its distribution center and approve its hard cheese manufacturing and packing facilities will only start to deliver the expected returns from this year. The upgrades to Millennium Foods' convenience meal plant and the parbaked facility within the Amaro Foods division have not performed in line with expectations. In the instance of Millennium, the full commissioning of the plant took longer than anticipated due to technical engineering challenges and the expansion of the project scope to include frozen meal capabilities. Furthermore, the increase of in-home cooking during the COVID-19 pandemic saw demand for convenience meals reduced significantly. We are targeting the expansion of our geographic footprint and also targeting new customers with our own branded offering to be launched during 2021. The rollout of parbaked products by a customer of Amaro Foods was significantly slower than expected. Sales of these products during the COVID-19 pandemic further suffered weakened demand in favor of products used for in-home cooking. We are actively targeting the food service channel with these products. Returns on this capital investment are also expected to improve in 2021 and still further into the year thereafter. Looking at working capital days. Net working capital increased from 50 days to 54 days, ending the year at 15.1% of revenue, which was marginally above the group's targeted 13% to 15% of revenue range. The increase in net working capital was predominantly due to a decline in creditor's days resulting from the exit of the group's dairy and groceries logistics arrangements late in 2019, as well as the higher inventory levels of raw material and finished goods held throughout the year. Whilst these higher inventory levels enabled the group to maintain high service levels to customers and counteract the adverse impact of supply chain disruptions, it did adversely impact the group's cash flow position temporarily. Whilst the impact of COVID-19 remains unquantifiable, the group expects net working capital levels to remain above the 15% of revenue target range during the first half of the new year. The group has, however, not adjusted its target working capital holding as it expects the position to normalize in due course. This slide demonstrates that Libstar has been able to maintain its gearing level at 1.3x normalized EBITDA despite the significant challenges experienced during the year and without cessation of its dividend payment policy. The group operates well within its 1 to 2x gearing ratio target range and has complied with all lender financial covenants throughout the year. The group's gearing levels provide sufficient headroom for the group to continue to make bolt-on or stand-alone acquisitions. However, non-distressed opportunities have been limited and the valuation expectations of sellers have remained high. The slide shown summarizes the group's key financial ratios, most of which have been discussed in the preceding slides. During 2020, Libstar delivered a return on tangible invested capital of 13%. And although this was lower than the 15.6% delivered in the prior year, it exceeds the group's weighted average cost of capital calculated to be 12.2% at year-end. If I could then move on to the category review. Libstar continues to operate in 5 product categories. Since listing, the operations of 3 separate HPC divisions have been merged into a single market-facing division. This process of functional consolidation is ongoing, particularly within the perishables category, where Millennium Foods will operate under the guidance of Lancewood from this year. And also within the Groceries category where we are starting to consolidate our food service-facing components of Rialto Foods and Multi-Cup as well as our dry condiment divisions of Cape Herb & Spice and Khoisan. These consolidations are implemented to extract internal operational efficiencies from our portfolio as well as to improve service delivery to our markets and our customers. Food categories continued to contribute 92% of group revenue with HPC contributing 8%. Perishables constituted 46% of the group's revenue, down 1 percentage point from last year, whilst Baking & Baking Aids category increased its contribution by the same percentage points. In contrast to the minimal category revenue contribution changes during the year under review, the changes in category contribution to normalized EBITDA were more significant. In particular, the perishables category reduced its EBITDA contribution by 9 percentage points, whilst the Groceries category increased its EBITDA contribution by 6 percentage points. The changes were largely a result of the significant weighting of the Perishables category to the food service channel, which was most adversely impacted by the effect of COVID-19. Conversely, the Groceries category showed its resilience as a result of strong retail channel demand for products used in home cooking, thereby increasing its relative EBITDA contribution. Moving on to the detailed performance within each product category and starting with Perishables. And due to time constraints, I'll confine myself to addressing the 2 largest sales channels in this category, namely retail and wholesale and food service. In the pie chart at the top end of the slide, you'll see that retail and wholesale remains the single largest channel contributor to Perishables revenue, having improved by 6 percentage points to 66% in 2020. Food service, the second largest contributor, reduced its contribution by 6 percentage points to 23%. When we look at the revenue performance by channel in the table at the top right, perishable sales into retail increased by over 9%, whilst revenue from food service sales declined over 21%. The Lancewood division showed its agility by being able to direct milk intake away from softer cheese variants sold into the food service market to hard cheese sold in the retail channel. The [ finder ] division, which predominantly sells its products in the food service channel, ceased production of food service products for much of April and May 2020 due to the impact of COVID-19 lockdowns. It is this significant shift in sales mix and the lower plant utilization which adversely impacted the category volume sales. The bottom table summarizes the performance of the Perishables division. Category organic revenue was largely flat on the prior year, with price and mix changes compensating for volume declines. Gross profit margins declined by 1.9 percentage points and normalized EBITDA declined by 25.4% at a substantially lower margin. The contribution to Groceries category revenue from the retail sales channel, shown in the pie charts at the top left, increased by 5 percentage points to 46%. The export channel continued to contribute a strong 28% of category revenue, up 1 percentage point from last year. Looking at the table on the right. The strong retail sales performance of pasta, meal ingredients, vinegar, honey, private label and branded sources outperformed compared to historic levels, which resulted in a 16.4% increase in that channel's revenue. Sales to the food service channel took the brunt of the lockdown effects with revenue declining by almost 35%. Groceries category revenue, in the bottom table, increased by 4.7% on the prior year. The sales volume decline in this category was predominantly a result of the discontinuation of water sales from Chamonix in favor of carbonated soft drinks during the year under review. Without this impact, volume sales were largely in line with the prior year. Volumes were positively impacted by stronger dry condiment export sales from Cape Herb & Spice as well as retail sales within Rialto. This was, however, largely offset by lower volume sales of wet condiments at Dickon Hall Foods and lower bulk tea export sales by Khoisan. This change in sales mix was largely responsible for the 12% price and mix impact that we see on the slide. Category gross profit margins were bolstered by the performance of most retail-facing units and the beneficial currency impact of export sales, which were concluded at favorable FEC rates. As a consequence, gross profit margins improved by 1 percentage point and normalized EBITDA improved by 8.1% at an improved margin. Moving on to Snacks & Confectionery and starting on the left-hand side of the slide, the retail channel, the largest contributor to Snacks & Confectionery revenue, increased its contribution by 6 percentage points to 94%. This excludes revenue from K Snacks, which manufactures Pringles snacks as this year was the first full year of revenue contribution. Looking at the top table -- excuse me, looking at the table at the bottom of the slide, the Snacks & Confectionery category organic revenue performance was in line with the prior year. Category volumes, which increased by 9%, were positively impacted by increased volume sales of lower-value peanuts and raisin mixes within the retail channel, in contrast to lower sales of high-value snacking items such as nut [ dubs ] and granolas. Whilst the category gross profit margin performance was bolstered by the full year inclusion of service revenue from K Snacks, the category EBITDA was adversely impacted by the change of sales mix in Ambassador Foods towards lower-value items. Looking at the Baking & Baking Aids category and starting with the channel contribution. The retail channel, also the largest contributor to revenue, increased its contribution to the category revenue from 84% to 86% in 2020. Sales into this channel improved by a strong 16.4%, driven by an exceptional performance of baking aid products within the retail sales channel. As you can see in the table on the bottom of the slide, total organic revenue for this category grew by 16.5% and by 7.4% in volume terms, with a 9.1% improvement in the price and mix equation. However, a number of factors contributed to a 2.9 percentage point decline in category gross profit margins. Firstly, the majority of the group's transport expenses during the COVID-19 pandemic were incurred in this category. Furthermore, significant cost inflation was experienced in relation to critical raw materials used in the baking operations, such as flour and imported ingredients used in production of gluten-free ranges. Finally, an adverse sales mix brought about by higher volume sales of lower-value items such as hot cross buns impacted category gross profit margin and normalized EBITDA performance. The HPC category continued its performance improvement as seen in the prior year and in H1. The largest channel contributor to the categories revenue, the retail channel, increased its contribution from 83% to 86% in 2020, benefiting from an 11.8% increase in sales to this channel. As outlined in the table on the bottom of the slide, category revenue grew -- growth of 7.9% was supported by a 9.8% improvement in price and mix driven by strong retail channel demand for sanitation products. Volumes declined by 2% as the group continued to reduce its exposure to low-value powders and detergents. The gross profit margin was significantly improved by 1.6 percentage points and normalized EBITDA increased by 37.5%. This performance reflects the benefits of strong retail channel demand as well as the cost rationalization actions, which commenced in 2019. I'll now hand back to Andries, who will take us through the group outlook slides.

Thank you, Charl. Where are we now? Let -- if I could start with an update on some corporate matters. Briefly looking at the slide, at the upper left-hand side of the slide, a successful new B-BBEE transaction remains challenging at the current share price with an estimated 10% equity deal envisaged. We're working on it, and there's a few proposals on the table. But as we said, it remains challenging with the share price where it sits at the moment. We're engaging various parties and will approve the market -- will approach the market for approval in due course. In terms of our acquisition strategy, we remain acquisitive in looking for synergistic opportunities and bolt-on expansions. However, the Libstar share price and the higher seller valuation expectations do pose some challenging -- some challenges in being able to execute on this growth pillar of ours. Looking at succession, we do have a succession plan in place, which is updated regularly. This plan has enabled us to make various senior appointments from the existing talent pool during the year. And as mentioned, we are topping up that talent pool continuously with people, young people emerging from our program -- from our continuous program of employing young talent. With regards to this, the executive team works closely with the Board and the Nomination Committee. If we look at our priorities for the year ahead, we will continue our strategy of protecting, number one, our people, our customers and other stakeholders and our cash. We are well positioned in the markets and channels that we serve. Food service activity continues to improve and operate at up to 90% of pre-pandemic levels. This, we need to put into perspective. Some of the food service channels have come back much faster than others. If you look at QSR, it has made a fast recovery after the initial shutdown, whilst the upper end restaurants has been slower. Lately, we've seen in our Rialto food service division that we -- especially the past month or 2, we are almost at pre-pandemic levels with that part of food service, the upper end part of food service also improving significantly. We're on strategy to recover that with a few changes made as Charl has indicated, and we're positive about our food service businesses and food service channels seeing opportunities. We continue to see a strong demand for our -- in our export markets for our spices and teas as markets follow the same trends as locally as we discussed earlier. Our retail and wholesale performance remained strong. We see the shift to in-home dining continuing with meal ingredients and baking aids in strong demand. In the past few months, we've seen a buy-down shift in the upper, middle and lower end of the market. If I can maybe just stop for a moment here to explain this. We have seen significant growth of up to 30% in pasta, canned tomatoes and other products in the upper end of the market. An indication that I think the upper end of the market is coming under pressure. In the middle and lower end of the markets, we've seen increased demand for our condiments to add flavor to foods, our condiments and sauces. And as indicated by some of our -- some other food companies, there's been a significant decline in demand for bread, for factory-baked bread, we can always say, moving back to the more basic commodities in the market. So that's a trend that we're starting to see. I think having said this, this favors us with products like pasta, canned tomatoes and the upper-end condiments, sauces in the middle end of the market, as we explained. Private label and DOB continues to grow at a faster rate compared to branded products. This is our advantage -- to our advantage as we continue to innovate with our trading partners. Snacks & Treats or Snacks & Confectionery, as Charl calls it, remain under pressure with schools and the workplace still disrupted by COVID-19. And we can maybe later on ask Cornel from Lancewood to fill in and Daniel will also fill in on that, where the lunch box items like the small TV cheeses, The Laughing Cow cheeses simply -- the demand for that has simply dropped away and Cornel -- has not really come back up to now. So we've seen a lot of pressure on the snacks and, I call it, treats market, which I'm sure will return as things normalize. And we do not -- we were -- in a very innovative way, he's trying to flank this in Ambassador Foods, and we can maybe chat about that later on the questions and answers. Our culture of innovation remains strongly embedded, presenting our markets with newness in meat replacement products, the Denny mushroom-based products, hamburger patties, sausages, et cetera; plant-based milk and cheeses, which we've launched in the past few weeks; gluten-free products; and eco-friendly packaging. Taking advantage of market trends, the Libstar occupies a strong position in the market as we are well positioned to meet changing consumer needs and behaviors in a number of areas. Starting with the change in consumer behavior in in-home dining, a number of Libstar products are positioned to benefit from this continued trend. Private label and dealer-own brands continue to grow ahead of branded products, and Libstar is growing its share within this market. Our value share is up from 12.2% to 12.6% in the 12 months ending November 2020, which illustrates this. Health-conscious shoppers are supporting the growth in health and wellness trends. Example -- for example, lactose-free yogurt, as I mentioned, the cheeses and dairy-free products that we're manufacturing. Another growing trend is that of environmentally friendly products, and we can expand on that as required. We benefit from this through our paper [ store ] manufacturing capability, which has seen significant growth in the food service market since its launch a bit more than a year ago. We have also launched the Precious Planet brand, which is the new range of private label and dealer-own brand products. Denny has switched to compostable punnets. And we'll continue this trend that -- to lead this trend in the market. Looking at Libstar's competitive advantages. We have a resilient, adaptable and diversified portfolio, which is well positioned to take advantage of the market pains discussed on the previous slide. Our consumer profile is also resilient. And our customer relationships are supported by our hands-on category approach. Our private label, DOB offering continues to grow ahead of the market, with strong growth in sauces and condiments underpinned by a culture of innovation. Product innovation has been and remains a cornerstone of our growth strategy. Libstar launched 624 new and renovated products during the year, I think a record number for this pandemic age that we live in. I heard yesterday, one of the big retailers talk about 120 that they've launched in the past 6 months. This is showcasing our diverse product capabilities, as illustrated earlier, and responding to the changing consumer behavior trends, which will continue to change, I'm sure. During the year ahead, we expect a stronger retail channel demand to support growth in all categories. However, the impact of a weak economy and COVID-19 on the consumer remains unquantifiable and -- but plannable. Looking at our channels, retail and wholesale demand has normalized from quarter 4 at a stronger than prepandemic level. Whilst we still expect the recovery in food service sales to be slow, sales over the past number of months have shown signs of improved demand. We expect our exports to remain -- the export demand to remain at strong levels. And good to say that our Khoisan Tea business is doing well and growing consistently. Within the industrial and contract manufacturing channel, we have taken on new contract manufacturing customers from quarter 3, and we'll be exiting noodle manufacturing where, as indicated, the principal will be doing his own manufacturing. Focusing on our categories on the right-hand side, all categories continue to benefit from the stronger retail demand with Perishables to benefit both from the food service recovery as indicated earlier. Groceries are benefiting from the strong retail and export demand, while Snacks & Treats are under pressure, as noted previously. Baking & Baking Aids continue to benefit from retail activity with the improvement in QSR demand expected to bolster app sales, the [ tier apps ] that we do for a big QSR client and the retail also. HPC will benefit from the new consolidated premises from -- and the benefit will start flowing through from end of quarter 2, quarter 3, still an argument when that will get online. If we look at key strategies, we continue to operate in -- as we continue to operate in the COVID environment, we'll continue to focus on protecting Libstar's people, preserving the group's financial stability and cash flows and maintaining high service levels to our customers. We will also continue to restructure when 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 resources. This will yield greater collaboration efficiencies and growth opportunities. From a strategic perspective, we will continue to invest in expansionary and replacement CapEx, but at a slower rate than the peak of 2019, where we still bring some of these benefits, pulling that through into the markets which we service. We had already planned to reduce CapEx somewhat in 2020 even before the COVID-19 changed the world. Finally, the continuation of the group's innovation strategy remains core. In conclusion and with the outlook of the pandemic remaining uncertain, we will remain resilient and agile. The biggest challenges facing us are the growing input cost inflation and pricing in the market. I have to emphasize this as previously, we see the inflation that we're experiencing and the ability to achieve that pricing in the market is putting tremendous pressure on the most important thing to protect our margins. With these additional costs, we found it increasingly challenging, as I've said, to protect the margins. And added to this, we see a continuing ZAR 1 million per month of extraordinary COVID-19 expenses that we need to recover somewhere. We expect inflation to accelerate, which will place additional pressure on us. But with our strong market positioning, we are placed -- well placed to further grow our markets and value share. The recovery of food service sales and the repositioning of Snacks & Treats will add to the recovery. Our efforts are supported by stable cash generation and a strong balance sheet. In the coming year, we will fully implement CapEx projects, such as parbaked frozen prepared meals and cheese packaging, with HPC consolidation coming online, dare we say, quarter 2 again. Cost and cost rationalization will remain as indicated, top of mind. Thank you for your time. We will take a quick break. And I see we're saving some time, and then we'll welcome your questions. For these purposes, we'll -- with a team of how many people, 6, 7 people of our executives here that will join Charl and myself in trying to answer any queries that you may have on what we've presented to you guys this morning. Thank you very much again. Thanks for your patience. [Break]

Good morning, everyone. My name is Johan Greeff. Thank you for joining us at the Libstar annual results question and answers. I'd like to welcome on stage our management team from across the Libstar family. It's really great to have everybody on stage. In these challenging times, we made sure everybody is about 1.5 meters apart from each other. And just to be sure, we opted to run the broadcast off of a generator to keep the lights on. Please feel free to send your questions via the online portal. While you enter your questions, let me start by introducing everybody that's on stage. On my left, we've got Wendy van Zyl, the Category & Customer Executive. Then we have Paul Jibson, the CEO of Cape Herb & Spice. Next to him, we have Charl De Villiers, our CFO of Libstar. Then we have Andries Van Rensburg, CEO of Libstar. We've got Robin, the Commercial Director. Next to him, we've got Cornel Lodewyks, the CEO of Lancewood. Then we have Tim Judge joining us from -- as the CEO of Finlar Foods. And lastly, we have got Daniel Jacobs, the CEO of Ambassador Foods. So let's get stuck in with the first question. The first question is for you, Andries. With resumption in trade and a slow return to normal now that we're in lockdown level 1, could you provide a bit more color on the outlook for the next 6 months, especially as consumer shopping patterns seems to have changed?

Thanks, Johan. I was anticipating that question. During the presentation -- Charl prompted me before the presentation and tried to cover it as well as possible. I think we'll see more of a normalization in trading as we are already seeing in the food service side of the business. As I said in now with our food service side of the business, we're back to 90%. And some of these, you can just take a drive on a Sunday afternoon, and you will see, everybody is clamoring to get out of their homes. And there's almost a new food service normal developing there, new places opening, et cetera, and we're participating in that. What we see further in the retail side of the business, and that's where Daniel can come in, Snacks & Treats and that type of thing, it's as if the whole market -- you can see right from the top end of the market to the bottom end of the market, everybody is under pressure. I think one of the big companies who announced their results, their bakeries are 15% down. And we know that under difficult circumstances, the guys go back from the [ 20 round a loaf ] government bread, as they call it, to top end [ Mashiba ]. And there, we see our [ Mashiba ] selling. At the upper end, we see pasta and tomatoes just going stronger and stronger and stronger. So yes, I think, and I don't want to stick out my neck too much, we see this shift in the total market. But that being good for us, as we indicated, our product ranges and so forth. I think we've done a lot of work in the categories. Wendy in the past year, we've bought a lot of information, and we track that on a daily basis. We got people tracking that, understanding where we should focus our efforts and where we can expect the demand to occur. And I think that's very, very important. Of course then, our cooperation on dealer-own brands, specifically dealer-own brands with our main trading partners remains paramount in identifying this early and reacting to that. I don't know whether that's enough.

No. Thanks, Andries. I think that definitely answers the question. We've got a question from [ Frank Agliotti ]. Robin, I think this is good for you. When considering an acquisition of a food producer, what qualities do you consider within your framework in buying a wonderful business like Lancewood, as an example?

Thanks, Johan. Thanks for the question, [ Frank ]. I'm not sure if you're aware, but when we acquired Lancewood all those years ago, it was anything but a wonderful business. But typically, what we would look at in any acquisition that we would make, in no particular order, would firstly be the management team or the owners or the sellers of that business, the quality of the management team, the level of entrepreneurship, the level of competency and very important, their willingness to run another lap, if you were. It's been our tried and tested model whereby we form partnerships rather than buy businesses outright is our preferred model, and that's what's worked for us. So cultural fit with Libstar, extremely important. The next thing would be to have an in-depth look at their products and the category or categories in which they operate and the growth opportunities for those categories and products. And if they still have runway for growth, that would be ability to [ tick that box ] for us. Then you would look at the customer base. You would look at the quality of earnings by assessing the customer base and then the opportunities for additional customers within different channels. Then we would obviously look at the manufacturing facilities. We are essentially a manufacturing group. We would look at the quality of the factories, the accreditations, capabilities, et cetera, et cetera. And then important for us is what value can we, as Libstar, add to the business, be that assistance with innovation, be it assistance with systems, capital, just general parenting advantages. If we can't add any value really not necessary to file an acquisition simply for the sake of doing so. And then lastly, and also importantly, price value and return on investment.

Great. Thanks, Robin, I appreciate that. There's a question here referring to private label. Wendy, I think maybe you can take this. You mentioned that private label market share grew during lockdown. What is the role of private label and dealer-own brands will fulfill across the different categories within the South African retailers? And what's the margin compared to branded goods? I just joined a few of them together.

Together. Thanks, Johan. Yes, that is correct. We saw private label really growing quite ahead of the branded goods sector. I think what happened mostly was a lot of consumers with all the changing sort of consumption behavior, a lot of consumers were also, during the lockdown period, enticed or maybe encouraged to trial private label products. And they've obviously been quite satisfied with that. Also understanding that consumers are cash-strapped during -- because of the whole COVID pandemic, and they are consistently looking for value for money and also for differentiation. So the role of private label has definitely changed significantly if you have to compare it to a couple of years ago. And I think it will continue to change. We are very good and well positioned within Libstar because we've got a diversified brand solution offering private label and a dealer-own brands. And we, in essence, partner with our trading partners to bring their strategies to life, offering the products within their retail environments that answers to all of these consumer -- changing consumer behavior trends. I also think that in the future, private label and dealer-own brand will play a more important role as innovation is starting to really take the -- sort of the high road.

Great. Thanks, Wendy. We've got a question from [ Taylor Ginsberg ]. Andries, I think maybe you can take this. Historically, Libstar has participated in a lot of mergers and acquisition activity. Do you believe it's possible to continue your historic revenue growth through organic revenue?

I think if we look at our strategy where we say we prioritize the growth -- organic growth in our companies, that's where we've identified projects like the parbaked frozen, which is new innovative. It's been slow in rolling it out because it needs to be rolled out to 400 retail stores and in this COVID pandemic era that we live in, it's been very difficult in rolling that out. But we believe in those type of projects, those, I call it, make-rich projects rather than to go and look for something that's in the market that's maybe not an ideal fit. As indicated previously, we still see a very high price expectation in the market that for quality companies. And it's not so easy to identify a quality company that you can simply bolt on. We've done a few good bolt-ons in Lancewood, et cetera, but those opportunities do not come frequently -- do not come by frequently. So what I'm trying to say, I think our culture of innovation and innovatively identifying routes to market products that we can take advantage from in markets like, again, the launch with Amaro Foods, et cetera, will remain a priority for us going forward in rather identifying the make-rich projects. That's also true to our culture of innovation and decentralization and encouraging our people to create and build.

Thanks, Andries. We've got a question from [ Sean Brands ]. Thanks, [ Sean ]. I think Charl, you can take this one. Given, number one, the gearing; number two, the lack of acquisition opportunities; and number three, our share price, why are you not more aggressively looking at share buyback?

Thanks, Johan. It's a question we often get asked. And certainly, if one looks at perception of value, then I would absolutely agree with [ Sean ] on that one. But I think we have to bear in mind that our -- one of our major priorities in 2020 was preserving cash. At that point in time, we were very unsure around what consequences would eventuate from this COVID-19 pandemic. So whilst I understand the comment being made, I think the preservation of cash will remain a priority. And therefore, we would probably look to preserve that rather than look at buybacks in the forthcoming year.

Great. Thanks, Charl. We've got a question here from [ Miner Abed ]. Outside of food service-focused businesses, are there any underperforming, even loss-making product categories that's currently a drag on the group return on capital, which you think needs to be closed on? Charl?

I think that we, in the past, had a slide that showed that we have the HPC businesses that, at that point in time, were underperforming. But given the changing consumer behavior that Wendy spoke to earlier and the significant restructuring and the implementation of integration of various sites in the new year, that HPC category has turned around quite nicely. So if one looks at it from a group perspective and holistically, I think we are quite satisfied with our current portfolio, and I wouldn't highlight any particular underperforming business for sale.

Great. Thanks. We've got a question from [ Jennifer Flandrin ]. Paul, this is for you. Can you expand on your confidence in ongoing demand in the export businesses? Is this growing within existing markets or customers? Or have you opened up new markets or channels linked to this as the [ new UHT ] export business performing according to your last year -- versus last year?

Okay. So yes, I think the markets -- our growth last year was a combination of new customers, which is years in the making of innovation and attending trade shows as well as existing growth, organic growth of our existing customer base. The trend that we've seen in South Africa of home cooking and home dining, that demand has -- is seen globally with retail around the world. So it's very difficult to predict what -- what's -- what our performance is going to be with uncertainty around COVID. But what we're seeing at the moment is that the demand is there and that it should stay for a while.

Great. Thanks so much. We've got a question here from the panel -- to the panel. Quick-service restaurant's recovery is still gradual despite significant relaxing of lockdown restrictions. Tim, I think this is for you. How do you see this changing long term? And can you give us any more color on that?

Sure, Johan. As Charl mentioned in the presentation, our beef plant was shut down during the period of April and May. And if we then look at the numbers, both value and volume from June through to February, we're probably tracking between 80% to 85% of pre-COVID levels. And I think it's fair to assume that, that level will remain for the rest of the year. It's -- there's a lot of promotional activity, which we're obviously participating in. But I think to err more on the cautious side, I think that 80% to 85% of pre-COVID levels is where we will remain for the balance of the year.

Thanks, Tim. Cornel, do you want to comment on that as well? I know Lancewood is also in food service quite significantly.

Well, it's obviously difficult to compare to last year. But if you compare it -- or use 2019 as a base, we're also tracking 10% below at 19% levels. We also see, especially in February, a positive performance recovery on the food services business, especially on our bigger customers. Yes.

Great. Thanks so much for that. There's a question here from [ Murray Mur ]. In light of input cost pressure you're seeing, do you believe you'll be able to maintain margins within the guided ranges of financial year '21? Which segments may miss the beat and guidance, Charl?

I think having presented those ranges, we were willing to stick our neck out and to raise the EBITDA margin target range of Groceries, which has seen the increase and the strong demand for retail products. I think we are cautious, but we are confident that those ranges will apply. Andries mentioned the pressure on the consumer, and we did mention the pressure arising from input costs. But we continue to engage our partners in the trade, and that process is ongoing. So there's no -- there was, at a point in time, a perception around price increases being halted completely, and that simply was not the case. So we continue to engage our partners, and we still believe those ranges are relevant.

Great. Thanks, Charl. We've got a question from Sumil Seeraj. "Thank you for your presentation. This is for you, Cornel. Could you please indicate if Lancewood experienced EBITDA growth in financial year '20? Or did profits drop due to exposure to the food service channel?"

No. Definitely it did drop due to exposure. I mean food services channel has always been -- will be a major focus for Lancewood. Just over 20% of our total revenue that dropped to 10% of our revenue last year. But like I mentioned earlier, there's a positive recovery. There's a reason that food service has always been launched with [ strong health ], and it will still be our focus going forward.

Great. Thanks. We've got a question here. Wendy, this might be good for you. Is there a risk of increased promotional activity in the retail product category of 2021? Can you provide a range of potential margin dilution as a result?

We've picked up that there, obviously, is a lot of promotional activity, but I think consumers are -- and trading -- the trade is obviously looking at what are the value-add kind of promotions they can drive. It either comes down to absolute price point or a value kind of offering due to everybody being cash-strapped. And we've also picked up that a lot of broadsheet activity. You'll go into a store and you'll actually see a shopper walking around with the actual broadsheet in their hands as they shop. So I think as we try and manage our categories and our business product ranges within our categories to the best of our ability. I'm uncertain as to sort of a clear indication whether it will drop. I think it's a partnership between our trading partners and internally as we manage our businesses to see how we best manage that to not have any margin degradation.

Great. Thank you. There's a question here from [ Ernest ]. As risk insights, we have been tracking your company's performance on ESG over the last 5 years. Your disclosure on environmental, social and governance factors is okay. With regard to the environmental factors, what is your company's strategy towards tackling carbon emissions and climate change issues? Charl?

Yes. Thanks. That -- we are fully aware that the ESG aspects are becoming much more relevant, and we are certainly trying to do our bit in terms of that. So we, in 2019, already started a process to start to measure our carbon emissions. We actually, in fact, made our first payment on carbon tax in 2020, which was about ZAR 1.5 million. And now we have that database of information. We've invested in some solar projects, particularly at the Finlar plant in Johannesburg to try and reduce our dependence on the grid. And we've launched a few other initiatives, particularly around usage of water. So I'd like to see us starting to improve our disclosures, also in our integrated reporting in the forthcoming years as we mature into a business that starts to measure and put KPIs to the ESG aspects.

Great. Thank you so much. There's another question for you from [ Peter Cromberg ]. Will Libstar consider a bond program in order to diversify its funding?

I don't think that -- so just maybe to start with context. So our debt profile has no maturities in the forthcoming 12 months, so we are still some way out to have to consider our current funding facilities. Those that are in place at the moment do give us sufficient headroom to make bolt-on acquisitions and to execute on the strategy. But when the time does come, I think that we would consider all options. There are clearly benefits to that, but also some drawbacks around the regulatory aspects of a bond issuance program. So I wouldn't dismiss it off the table, but when the time is appropriate, we could consider something like that, but it's not necessary at the moment.

Thanks, Charl. There's a question about the Snacks and that's -- Snacks & Confectionery category, Daniel, for you. With regards to the slowdown in H2 on -- for the category, can you give some more color on what does it look like for the year ahead?

Yes, Johan, it's like Andries said as well is, I mean, we had a quite interesting year as well. So the first half of the year as well, we had quite -- we traded a lot higher than the year before. I think it was more stocking up in a channel replenishment on the consumer side and the retail side as well. What actually happened is, well, the smaller snack buys is like -- honestly, the smallest snack sizes [ and the bar ] business completely died away. I mean that's been gone since the beginning of COVID because, I mean, the lunch box has just completely disappeared. Since then, as well, the second half of trade in terms of second half of the year, there was quite a -- it looks like a lot of -- a huge constraint in terms of the spending power within the consumer as well. So we saw that almost like the basket is changing. It kind of swapped over to other items as well. It's been particularly bad the first part of this year as well. And within that basket, we saw them trading down to other commodities and other price points as well. And I think specifically when we actually had a look at the first half of this year, first 2 months of the year was particularly bad. Having said that as well, the forecast looks like it's starting picking up a little bit in terms of schools starting back and offices opening and so forth as well. I think for us, the fortunate thing as well is that Ambassador Foods is quite diversified. So -- I mean we supply our Groceries even so far as some of the meat alternative, cheese alternative, plant-based cheeses as well, so we're quite diversified. And I think as a business, we're quite agile as well to actually live into those opportunities and swap from one side to the other side, yes, but it's going to be -- it's like Paul said, no one knows. And it's going to be a question that we can -- need to be agile and just adapt to whatever [ gets away ].

Great. Thank you. [ Jennifer Flandrin ] has got another question to you, Cornel. Can you speak to the progress made in the yogurt category within Lancewood? Market share progression? What trends are you seeing with regards to retail cheeses, both hard and soft in terms of pricing volumes and competitive behavior? And what categories are most excited for Lancewood?

It's a half-an-hour question.

Good luck, Cornel.

[ Went off in ] a later date.

Okay. So my cheese and yogurt categories is performing well, with double-digit growth. And if you look at market growth, it's double digit. Lancewood performed better than the market and gained share. If I only look at yogurt, we're now at 6% market share. If you look at single-eating yogurts, Lancewood doubled our share in the last 18 months, still very good demand in that category for various reasons, I mean health reasons, convenience. So we -- every month, we stand by the growth of the Lancewood yogurts. And the feedback from the consumers is very positive. On our cheese, obviously, in the beginning of lockdown, consumers fell back to your, call it, dairy basics, prepacked cheeses or cheese and UHT milk. There was an increase of close to 60% in volume on our cheese. So the fact you had to adapt from manufacturing bulk products suddenly to your smaller pack sizes. And that is the reason for our CapEx investments this year, which is obviously the -- light due to COVID. And those investments was to increase our capacity and production efficiencies, to remove bottlenecks in our business, primarily in our cheese packing and production. However, capacity has always been doubled. That project has been commissioned. And our cheese packing, which will change our lives in the factory, we're very excited about that project, will be commissioned by the end of June.

Great. Thanks, Cornel. We've got a question from [ Bruce Anderson ]. Charl, this is for you. Of the COVID-related expenses that was disclosed, is there an element that is now a permanent element to the cost base? Alternatively, can you indicate any potential improvements to margins as conditions start to normalize?

Thanks, Johan. So we saw a significant drop in our average COVID spend per month in the final quarter of last year. I'm talking about numbers below ZAR 500,000 in the entire group in that quarter. But with the second wave and the lockdown that occurred in Q4, all of a sudden, the number spiked again. And that's why we've been quite cautious in saying that we think that the number will likely be lower than last year, but it will stay around the ZAR 1 million mark per month for the remainder of the year. We'll keep updating the market on that as it goes. It's quite difficult to stick one's neck out and make a commitment as to margin impact because as I said in the presentation, we'll need to see how the COVID pandemic pans out in terms of further lockdowns, which will have a direct impact on the amount of cost.

Great. Maybe I can just come in here and it's not -- it's related but not directly related. I just looked at our numbers for yesterday, we had 2 positives and 12 people in isolation in the group of, what's it, 5,000, 6,000, 7,000 people stretching from Mpumalanga to East London to George to Cape Town. How many production sites? 20 production sites. So I believe that our protocols have paid off, and we've seen a huge improvement in infection rates as the protocols kicked in through this pandemic, and maybe that will pay off for us going forward. And those things we're keeping in place. The 0.5 million a month is important, but it's more important to look after our people and to protect our people as we've indicated. And I think we're quite proud of it.

Great. Thanks, Andries. We've probably got time for 2 more questions. So Andries, this one's for you from Shaun Chauke. Does the decline in convenience meal solutions have an impact on the rollout of innovation? Are you redirecting production to in-home solutions? How does -- how much does cost savings benefits do you expect to realize in financial year '21 as a result of the consolidation? So it's 2 questions. One is, what kind of cost savings that we have due to the consolidations? And the other one, are we redirecting innovation more to in-home solutions rather than meal solutions?

If we look at our convenience meals, convenience meals were -- or convenience meals are focused on in-home consumption, so yes, convenience in home. What we've seen and I hear the Shoprite guys talk about quite a dramatic growth in fresh and prepared meals, so we do provide them with prepared meals. But what we've seen with the pandemic, it seems that the demand was down. Our demand is still down. And we say it's got a lot to do with home cooking from fresh. So you've got to see that in context, we're only in the convenient meals and we're not in fresh. We have -- that business unit has been taken on by Lancewood, and by the different skill sets in terms of sales, innovation, channel development, et cetera. We have rolled out ranges of frozen meals to retailers and to food service. We are growing that side of the business, which was never a focus area of that business. We're working very hard on new ranges of products to increase the shelf life of the product and also to reduce the cost. And the Lancewood team has taken that on with the different departments of development sales and so forth, and they've taken up that challenge. Cornel, I don't know whether you want to comment on this.

Millennium Foods is a business that I'm very excited about. I mean the Lancewood team will add a lot of value to this business. Obviously, last year wasn't a very good year for convenience, prepared meals. Millennium used to focus only in the [ recent cap ]. Lancewood, with its national footprint, will take the product range nationally as well as export market with -- obviously, with focus on retail, but also we see a huge opportunity in the food services market, especially on fresh products, yes -- oh, sorry, frozen products.

Frozen came on late -- on line late because it was an add-on. So it came on line late in the past year, [ speaking of it in time ].

So we've got time for one last question. Andries, this is also for you. Can you expand on your outlook for food inflation for your products? When do you expect food inflation to peak and at what level? This is from [ Andrew Bishop ].

No idea. We all know about commodity prices and commodity inflation, that knocks through to us, knocks through to the chicken, the chicken producers, et cetera, the beef. Beef prices have gone up considerably. We've just heard this morning that some of our packaging cost inflation is very high [ pool ] with some of the inflationary increases that you are seeing. I, personally, am worried about inflation, worried about interest rates going forward and the ability to recover in the market. As we've said before, we work very closely with our trading partners, and gone are the days that it's a fight. It's a collaboration, and we -- I have to say that we're getting very good cooperation and understanding from their side. And we will do this together, and we will beat this one together. I, unfortunately, do not have an idea, although I just see some serious inflation pressure coming through both on utilities, on commodity prices all around, so I'm worried about it.

So on that depressing note, I think we're going to wrap up the panel discussions. Thank you so much for your time. Thank you for coming down, and I hope you have a good day. Take care.