Tiger Brands Limited (TBS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Tiger Brands' Year-end Results Presentation for the 12 months Ended September 2020. The agenda for today is the same as every other result cycle. We'll begin with Noel Doyle, CEO, who will provide an overview of the results. We'll then move on to CFO Deepa Sita, who was appointed to the Executive and the Board on the 1st of October, so pretty new to the role, and Deepa will provide a financial and operational review. We'll then hand over to Noel, who will end the presentation with a strategic update and outlook, after which we'll move to the Q&A. Before we begin, I'd draw your attention to the forward-looking statement. And with that, I'll hand over to Noel Doyle. Thanks, Noel.

Good morning, everybody, and thank you very much for taking the time to listen to us, take you through our results and some perspective, perhaps on the go forward. I would just like to welcome Deepa as my, sort of, right-hand woman as the CFO. Deepa's reward for being an extremely difficult person, which he was on the other side of the table is that we went and fetched to take the CFO role. And I'm sure she's going to be incredibly successful in that role and already in the short time that she's been here, she's making a great impact. So I'm just going to cover a couple of points before Deepa takes you through the detail of the results. I guess, first of all, in the context of what remains an extremely poor and disappointing set of results overall when we look at the full year, maybe to talk a little bit about what we've done over the last 6 months and to try and give you some sense that in terms of what we promised, that we at least are starting to hit some of those delivery metrics. So I think we spoke the last time about changing our operating model, getting structural realignment. And despite the challenges of doing a major exercise like that virtually or mostly virtually, we've managed to sort of change our operating model, very much focused on category, category profitabilities and giving the MDs of the categories much more control of those profitability levers and taking out some of the confusion around accountability that existed in the previous model. We've also done a significant refresh, if you like, in terms of key category leadership. I think since we last spoke, we've made some sort of key appointments at MD level. So we have a new MD running our Groceries business, new MD running Snacks, Treats & Beverages, Rice and Pasta and Baby. And for me, what's particularly pleasing is that all of those appointments were internal appointments. And therefore, I believe that with the model and with the changes that we've made in terms of people in the seats that we are well positioned to execute against the things that we commit to. Also, in the past 6 months, we've managed to successfully, and I suppose for many of you that's a relative term. But from our perspective, to be able to bring that transaction to a conclusion and ensure that we preserved all of the jobs at those processing sites represents a measure of success. And that transaction, as you're aware, reached all the regulatory approvals. And those sites are now firmly in the control of the purchaser. We also initiated a sale process for our Deciduous Fruit business. And at the moment, we're in the process of reviewing some non-binding offers that we have received. I think to set the expectations, we're still a long way from concluding a transaction, but the process is well underway. And also subsequent to year-end, we've managed to conclude a sale process of some of those tail-end brands in Personal Care. And that transaction has been concluded and will be effective in the -- early in the new calendar year, probably the middle of February. So if you look at our results, from a full year perspective, certainly, an extremely disappointing poor set of results. There's no way of describing it as anything other than that. The environment, I'm not going to dwell on. We've covered that in, sort of, previous communication. But certainly, the second half, an already challenging environment was exacerbated by the COVID challenges and the direct costs that came with COVID either in terms of absolute cash outflows or restraint or constraints on pricing as a consequence of the regulations. However, I think if you look at the second half and you take into account the challenges of COVID, whilst it's still disappointing that we weren't able to match or exceed last year's second half performance, we have put in a better relative performance in terms of the decline in profitability in the second half. When you look at the impact of COVID, almost a tale of 2 businesses, you can see the higher-margin businesses like Snacks, Treats & Beverages and Baby have certainly felt the significant impact of the lockdown and the changes in consumer behavior. We did see, particularly in the third quarter, some good growth coming out of, I suppose what you call, essential foods business and grains. But disappointingly, despite, for example, in rice, taking 20% price increase over the period as a consequence of commodity and currency moves, we still posted a significant loss in that period. Overall, our response to COVID, I think we're reasonably happy that we played our, sort of, role from a much broader perspective in terms of being able to ensure continuity of supply and ensure that there were, sort of, no panic responses in respect of product availability. And a lot of work has gone on to ensure that we can look after -- that we could look after our employees in the depth of the crisis. And I really want to say that our employees at all levels have come to the party in that initial lockdown period when the level of fear and uncertainty was at its highest. We managed to get 100% attendance at our essential plants. And I think that played a big role that was much broader than Tiger Brands. And of course, as the sort of largest food company in the country, as you'd expect, we significantly increased our food support to vulnerable communities during the crisis. So with that as introductory comments, I'll hand over to Deepa to take you through the detail of the numbers and some of the segmental operating performance.

Thank you for that, Noel, and thank you very much for that welcome. I'm certainly looking forward to working with you, the Exco and the Board on what's an exciting strategy and turnaround plan for Tiger Brands. Good morning, everyone. In the interest of time this morning, I'll be focusing our attention on key items within each of the slides. And Noel obviously, me being new to the business, please feel free to jump in if I do miss any of the key items. So without further delay, ladies and gentlemen, as Noel mentioned, it is certainly a disappointing full year result with continued margin compression. The overall performance of the business was impacted by tough trading conditions, driven by reduced consumer spending, rising input costs as well as COVID-19-related costs, which were manifested both in pricing regulation restrictions as well as safety protocol related to operating expenditure. Revenue ended up 4%, and that was largely driven by a 6% price inflation. The total volume for the group ended 2% down, excluding VAMP, with nearly all categories reflecting negative volume growth. The price increases realized were insufficient to recover the cost push pressures that we were seeing, which is reflective in both the gross margin as well as the operating income performance. Supply chain efficiencies were also impacted by the implementation of various lockdown measures, while production was temporarily halted in 4 of our sites where several employees tested positive for COVID-19 as well as some disruption in the broader supply chain. In terms of the earnings per share from continuing operations, this decreased by 66% to ZAR 8.86 in comparison to last year's ZAR 26.17. This was principally due to the fact that earnings in the previous financial year benefited from the capital surplus of ZAR 2 billion relating to the fair value gain in relation to the unbundling of the company's interest in Oceana, including the capital profit realized on the disposal of the company's residual values in the Oceana business. Headline earnings per share from continuing operations declined by 23% to ZAR 11.96, and the lower rate of decline in HEPS relative to the decrease in earnings per share is mainly due to the exclusion in the prior year of the aforementioned ZAR 2 billion capital surplus as well as the cost of impairments after tax in both 2019, which amounted to ZAR 213 million and 2020 amounting to ZAR 547 million. Overall, EPS from total operations decreased by 74% to ZAR 6.12, while HEPS from total operations decreased by 29% to ZAR 9.4. So moving on to the next slide. As we noted in the previous slide, while the business benefited from being an essential service and from the increase in at-home consumption in some categories, a combination of regulatory and market pressures constrained our ability to recover costs, thereby impacting our gross margin performance. Despite tight operating cost management, there was still some deleverage at the operating income level. And this was mainly driven by a swing in the ForEx impact in the LAF business in essence, where we had a gain recognized in the prior year of ZAR 39 million in comparison to the ZAR 43 million total loss that we accounted for in the current year related to that business. We also had an impact in terms of the excise duty introduced in relation to the Chococam earlier on in the year. Furthermore, we were required to be prudent in our provisioning for the sum of our rest of Africa exposure and this was particularly in light of the withdrawal of the CGIC cover in Nigeria in particular. The reclassification of operating leases into short- and long-term lease liabilities in accordance with IFRS 16 resulted in an increase of ZAR 28 million in net interest paid, whilst higher average debt levels during the course of the year, predominantly in H1, had a further ZAR 31 million impact. This increase was partially offset by a favorable movement of ZAR 31 million in foreign exchange gains compared to last year as well as a marginal increase in investment income, which I'll talk to later. In terms of the income of associates, I'll talk to that in upcoming slides. Moving on to the effective tax rate for the business, before abnormal items, impairments and the income from associates, this increase from 29.5% to 31% in the current year, and this was largely due to lower pre-tax profits as well as reduced benefits that we recognized in terms of special investment allowances from SARs. Lastly, just by way of information. Deli Foods and VAMP have been treated as discontinuing operations with the comparative information also being restated accordingly. So the next slide, we look at is pretty much self-explanatory, where you will note that the abnormal items adversely impacted profitability in comparison to the prior year. The year-on-year movement is distorted by the fair value gain and unbundling of the investment in Oceana, as mentioned previously, as well as the sale of some residual shares. Moving onto the next slide, where we talk to the impairments. So most of you will recall that the impairments in respect of Personal Care and Davita businesses were reported at the half year. A decision was taken to further impair the investment in UAC by an amount of ZAR 43 million, in comparison to the amount already recognized at half year amounting to ZAR 74.7 million in this regard. This was largely driven by the poor market outlook and of recent the social unrest and protest in Nigeria, in particular, exacerbated by the adverse impact of COVID. This, combined with the decline in earnings of UAC over the last 2 years, prompted management to further impair the investment at year-end. As mentioned, the income from associates declined by 5%. We saw a strong underlying performance from Carozzi and a reasonable performance from NFL, given the macroeconomic headwinds experienced. It is important to note that the NFL results were boosted by the impact of inflation, which was reported in line with IAS 29. And that would be the impact of hyperinflation in particular. UAC was impacted by COVID-19-related headwinds in Nigeria, overlaid onto an already weakened economy. Important to note that the previous year includes 3 months of earnings from Oceana, which was unbundled in the books in April 2020. Looking at the next slide, where we will talk specifically to the COVID lockdown. Here, we have a high level of performance overview across all major segments. You will note that there were definite winners in the portfolio as a consequence of the lockdown environment. However, these were largely in our low-margin categories, which were impacted by significantly higher raw material costs coming through. As Noel mentioned in his intro, one such example was rice, where despite taking significant price increases, we unfortunately still incurred a significant amount of losses in the year. Our higher-margin categories were negatively affected by a change in consumer behavior with reduced shopping occasions and the impact of lockdown on out-of-home consumption in particular. Moving on to the next slide. You'll note that the first half recorded marginal revenue growth, with all categories selling -- recording selling price inflation. H2 again saw results being driven by price with some recovery in volumes driven by increased at-home consumption. So broadly speaking, the level of price inflation reflects constrained consumer demand and the impact of pricing regulations across the basket. One obvious anomaly to note is in Grains, where we had the impact of both the currency and commodity pricing on wheat and in rice, in particular, and as noted in the previous slide, even with 20% inflation in rice, we still found ourselves incurring significant losses in the business. On to the next slide, we will discuss the profitability impacted in terms of most of the portfolio. So profitability was impacted across most of this portfolio with cost push ahead of inflation in the domestic businesses as well as export challenges further resulting in reduced profits. As noted previously, milling and other grains benefited from increased volumes, however, this was offset by inability to sufficiently recover pricing in terms of the cost push pressures we were experiencing. Sorghum was impacted by the closure of facilities in the early stages of lockdown, thereby impacting the recovery of our overheads. Categories such as Baby, Beverages and Snacks & Treats were impacted by reduced demand. Similarly, categories such as Personal Care saw reduced demand with consumers diverting spend to essential foods. The poor performance in our out-of-home category is certainly self-explanatory, with most of this channel being closed for the major part of the year. Deciduous Fruit was impacted in the latter part of H1 with the closure of export markets followed by the subsequent restrictions we experienced in the South African ports, further impacting the H2 results. Groceries and out-of-home sustained their performance and realized COVID benefits and I'll cover that in more detail in the upcoming slides. Exports was impacted by the issues in Nigeria, which are well-known and mentioned previously. So as previously indicated, the results in indirect costs of COVID were significant to the business with said costs shaving approximately 100 basis points off the operating margin. This was linked to pricing that was forfeited as a result of lockdown pricing regulations as well as costs associated with additional precautionary measures introduced to ensure the safety of our people and facilities overall. The impact of forgone price increases is estimated at ZAR 175 million for the 3 months ended June and a further ZAR 68 million for the 3 months ended September. This is significant when compared to the operating profit from continuing operations in the corresponding 6 months, which -- in the previous year, which amounted to ZAR 1.4 billion. So I'd like to now spend a little bit of time in each of the categories, and we'll go through some of that in further detail. So starting off with Grains. The revenue of Grains increased by 5%, reflecting a price inflation of 8% and overall volume decline of 3%. The price realization achieved, however, were insufficient to offset the impact of significantly higher raw material cost resulting in operating income declining by 14% and operating margin compressing by 200 basis points. Revenue from milling and baking increased by 5%, influenced by 8% price inflation across the segment and an overall volume decline of 3%. Operating income declined by 10%. The stabilization of baking contributed towards a reasonable recovery in H2. Sorghum, however, as mentioned, was impacted by COVID-19, while adverse competition dynamics persisted in Maize. The challenged cost recovery in bread was offset by the market share gains experienced in that particular area. In terms of other gains, this experienced meaningful recovery in the second half, driven primarily by Jungle and Pasta. This recovery resulted in a year-on-year revenue for the overall segment increasing by 5%, comprising of price inflation of 7%, which was then partly offset by volume of 2%. Volume declines were largely driven by rice, which due to above inflationary price increases caused significant -- caused significantly by higher raw material costs, as previously mentioned. Pasta volumes, on the other hand, benefited in the second half from increased at-home consumption, supported by a marked improvement in our factory performance. Similarly, increased demand in the breakfast category resulted in an improved performance from Jungle. Moving on to the next category in Groceries. Groceries revenue increased by 9%, supported by volume growth of 4% and price inflation of 5%. Despite pricing constraints and supply chain challenges in the first half as well as packaging supply constraints in H2, profitability improved with operating profit increasing by 9% to ZAR 354 million. This performance was assisted by favorable product mix, optimal product promotional activity as well as rigid control cost of -- control of the costs coming through. Just in terms of looking ahead in this particular category, the plant is being prioritized in terms of operational efficiency improvement. And this will, in turn, be supported by planned CapEx projects of approximately ZAR 350 million in FY '21. The Snack & Treats category, despite marginal recovery in the second half, revenue decreased by 5%, largely driven by volume decline of 6%. Demand was adversely impacted across all segments due to the various lockdown stages and consumer spending being diverted to essential items as noted previously. Reduced shopping occasions also adversely impacted the impulse purchases overall. The fulfillment of demand spike in quarter 4, however, was negatively impacted by our lack of sprint capacity in the chocolate category in particular. Operating income declined by 46% to ZAR 171 million as a result of lower volumes, factory under recoveries and higher expenses due to COVID-19-related costs. This business also will be supported through CapEx projects of approximately ZAR 110 million in FY '21. So moving on to Beverages. The business was impacted by COVID-19 restrictions in the second half, with year-on-year revenue ending marginally up following reasonable growth in the first half. Operating income was adversely impacted by unprofitable product mix. The business saw a significant volume decline in Energade during lockdown, while volume growth from margin dilutive concentrates were strong during the same period. Operating income was further impacted by higher conversion and distribution costs overall. From a value perspective, the launch of the Brooks Crush brand into the general trade opened a price point for us with traders that allow us to better access the value customer going forward. The performance of this has delivered ahead of expectations, and we are certainly excited about the offering that we have brought into the market. In terms of Oros, the Oros flavor innovation also drove category growth, and we hope that it will continue to do so in future. As in the case of Groceries, the plant is being prioritized in terms of operational efficiencies improvement and will also be supported by planned CapEx projects amounting to approximately ZAR 200 million in the FY '21 year. So in terms of overall revenue in Home, Personal and Baby Care, this increased by 5% due to sustained strong performance from the Home Care category. The strong volume uplift in Home Care was attributable to increased demand as well as effective in-store execution. While revenue for the year increased by 12%, the business was adversely affected by trading restrictions, which were introduced in the early stages of lockdown, resulting in overall growth in operating income being depressed to an increase of only 5%. Personal Care enjoyed a strong overall recovery in the second half, driven by well-executed Ingram's winter campaign. Revenue for the full year increased by 3% on the back of 7% price inflation and a volume reduction of 4%. A weak first half, together with COVID-19-related cost pressures in the second half, resulted in lower profitability with operating income declining by 11%. Volumes across the Baby Care segment were affected by adverse demand dynamics during the various lockdown stages with revenue declining marginally by 1%. Operating income, however, fell sharply by 26% as a result of lower sales volume, combined with overhead under recoveries and -- as well as additional COVID-19-related costs. Strong innovation launches linked to brands such as Purity and Ingram's, amongst others, are expected to benefit this category in FY '21. Lastly, in terms of the detailed analysis, we move into the Exports and International section. So total revenue for Exports and International businesses increased by 4%. This was driven by improved second half from our Cameroon business as well as better second half performance in Exports. Operating income, however, declined by 51%. The performance of the Exports segment was negatively affected by the ongoing trademark dispute with a former distributor in Nigeria. The subsequent resolution of this has resulted in the resumption of sales into Nigeria, which has provided positive momentum growing into the new financial year. In addition, a rebound of our exports volume into Mozambique is evident after several years of underperformance as the new distribution model also gains traction. Chococam's performance during the year was muted in relation to its historically strong performances. A 7% decline in revenue in local currency was a consequence of lower volumes in a challenging macro environment, compounded by the effect of the COVID-19 pandemic. Revenue in rand terms increased by 4%, while operating income decreased by 14%, again due to significantly raw material cost pressure. The effect of lower volume throughput through the factory resulting in over -- in under-recovery of overheads and a 5% excise duty, as I mentioned earlier, in terms of gross sales, which was introduced earlier on in the year. Revenue in the Deciduous Fruit business was largely unchanged due to an improved second half performance. Despite the recovery in revenue, the business recorded an operating loss of ZAR 78 million in comparison to the ZAR 8 million recognized in the prior year. And this was due to the negative effects of lockdown restrictions on certain export markets and Asia, in particular, as well as adverse foreign exchange movements in the current year. So moving our focus now to the balance sheet, and in particular, our working capital. So despite the tough trading conditions, the business delivered a strong working capital performance, with improvements coming through in debtors days through focus of strong collections. Creditors days also benefited as a result of reduced raw material and packaging purchases, which were linked to the lower demands in selected categories. The reduction in inventory days further contributed towards the strong working capital performance, albeit not necessarily by design. In effect, we exited the year a little lower than we would have liked as a consequence of some of the COVID challenges experienced by both ourselves as well as some of our vendors. So in terms of the dividend, despite overarching challenges that we faced in terms of profit, the balance sheet remains resilient and cash generation was relatively sound. To this end, the dividend was resumed with an ordinary final dividend of ZAR 5.37 per share being declared for the year ended 30th September, 2020. This is in line with the group's dividend policy of 1.75 cover based on HEPS. In addition to this, given the company's healthy balance sheet and there been no imminent acquisition opportunities or exceptional CapEx requirements, the company has also declared a special dividend of ZAR 1.33 per share as a result of the once-off proceeds received from the disposal of its VAMP business. On capital expenditure side, while COVID-19 has certainly affected the CapEx execution in some areas, disbursement still amounted to approximately ZAR 1 billion with material portion of this relating to replacement CapEx. So in conclusion, as the incoming CFO, my key focus areas and priorities will certainly be centered around medium- to long-term drivers of growth and efficiencies. Given the operating environment as well as our ability to compete, basically, our ability to compete will be determined by our cost profile. To this end, a systemic and continuous focus on costs, while managing our working capital, will best position us to achieve price points that are competitive as well as compelling to the consumer. To this end, I will, therefore, be looking to transition the systemic focus from short term to more sustainable cost management going forward. While our net working capital is well managed, I will seek to drive continued working capital optimization over the medium term. As previously mentioned by Noel in prior announcements, there are certainly opportunities in creditors, albeit they're more difficult to achieve. As well as further reduction opportunities in raw material and packaging stock levels as our demand management process improves going forward. So while Tiger's exposure to foreign exchange is significant, our hedging policy is very simple wherein we secure cover as soon as the liability is incurred. To this end, I've noticed an opportunity to introduce more flexibility to ForEx exposure management through the use of items such as options, et cetera, within the ambit of clearly defined risk parameters. As is well known, CapEx disbursement always comes in lower than guided. And in this light, we have already initiated an improved CapEx approval process as well as execution process with the aim of expediting approvals and improving overall project delivery. So finally, I will work closely with my Exco colleagues to drive the continuous assessment of category portfolio fit in the business. So on that note, I'll then hand over back to Noel to talk to the way forward. Thank you, Noel.

Thanks very much, Deepa. So I'll spend a few minutes focusing less on what's happened over the last year and the last 6 months and a bit more on how we see the future. I'm not going to go into a huge amount of detail around the challenging environment and the new normal, except, again, to reemphasize that in an economy where the consumer is under more pressure than ever before, we see that reflected in retailer strategies as well as consumer behaviors. And that the absolute table stakes for us to perform in this environment is a ruthless attention to detail around our efficiency metrics. And those efficiency metrics don't just relate to supply chain metrics, but also to the effectiveness with which we use promotional money to drive the -- both the top line and the bottom line of the business. I know that shareholders and observers are incredibly skeptical and with fair reason of our ability to turn the business around. And we recognize as a management team, that Tiger Brands is at a critical inflection point. So we know, and I think we are very clear. The message is very clear to us that a much improved performance in the current financial year, F '21, is a non-negotiable. And by performing in this period, we hope that we will restore some investor confidence in our ability to grow the business beyond the bounce back from a pretty dismal set of results and that we would receive the support required for a further longer-term investment in creating a sustainable future for the business. I believe that what we've put in place over the past 6 months in terms of both the change in focus in terms of the operating structure as well as the people that we've put into key positions, together with our recent appointment of a growth officer dedicated to growing our business outside of South Africa. A guy called Anthony Mulinge, who has a great experience in FMCG in East and Western Africa and who will be based in Nairobi to drive that business. That internally from a management perspective, we put in place almost all of the key building blocks that we require going forward. And I also think that if you look at the changes that we've made to the Board, that in terms of the Board refresh, we've brought some real hard-core FMCG experience onto the board. We are very focused on managing this tightrope between short- and long-term performance. And so we are going to resist the temptation in this period to just cut, cut, cut, deliver 1 or 1.5 years worth of good results and then find that we've run out of the growth trajectories. So the business is going to continue in the next 12 months to invest in IT. We are going to put more money behind our brands. We are working on site-optimization projects. And in the recent sort of reorganization and restructuring, we've been very focused on ensuring that we haven't cut in our research and development and innovation spend. Apologies, but my iPad has just frozen. Thank you. So really, we've got a dual-pronged approach for the next 12 months to stabilize the operational performance. And we believe that if you take into account the impact of COVID, that there were signs that we've been successful in stabilizing the performance, albeit off a low base in the second half of the year by making sure that we respond to the consumer and that we enhance our supply chain. We've identified 5 or 6 key sites that we've been very focused on for the last 6 months, and we've made significant progress on that. Going forward, within the supply chain, the next big piece of work on our agenda, will be to review our logistics model going forward. At the same time, as I've said, we aren't going to save ourselves to growth in the long term. And therefore, we're going to be very focused on trying to take the focus of the organization as we get confidence and traction. In the short-term delivery, that we try and start to focus much more looking outwards at growth opportunities, both organic and inorganic following a clear line of sight of the emerging consumer trends. So that focus on the improved performance in the short term is really going to be built on. We need to communicate more effectively the benefits of our current brands so that our consumers can understand the rationale behind paying a premium. We'll continue with all those table stakes in terms of innovation and renovation of those brands. We are pursuing, as we said previously, some private label opportunities. I don't think those are going to step-change the profile of the organization. If we look at what we're currently pursuing, it probably amounts to an annualized ZAR 300 million worth of turnover, but it can still make a significant contribution if we can land those opportunities to the efficiencies in the business. And as I said, we'll continue to work on investing behind our brands and looking at other channel opportunities, particularly in the e-commerce space and enhancing our presence in general trade, where we've run some pilots over the last few months, and we're now refining the model in that space. And so out of the supply chain, we expect to deliver efficiencies, both from procurement and operational efficiencies, of ZAR 500 million in the next 12 months. We're being deliberate in terms of the capital expenditure. And whilst there were some COVID-related delays in rolling out some CapEx this year, we're quite confident with the processes we put in place of spending significantly more next year. And as part of that, we're making sure that we enhance the use of digital technologies in our factories for real-time decision making. Responding to the consumer, we've spoken a lot over the last couple of years about some of these issues. And I hope that, particularly as we have more detailed interactions with you that we can go through some of the detail that will give you some sense that we're actually getting some of these issues done. On our Personal Care business, we're seeing strong growth from Ingram's as we've expanded the range. And going after the value-orientated consumer, we've launched Brooks Crush brand playing in the dairy fruit blend into the general trade, and that's had a very successful launch. And we're very clear and deliberate now around our strategy with the major e-tailers. Still some work to do on how we can find the best economic model to allow us to break bulk in terms of that channel. Within the supply chain, we've -- we're being very clear and deliberate around which plants are going to get the most level of attention. There's, sort of, a lot more intense short-term interval management over a relatively short period and notwithstanding the challenges of COVID. In those sites that we've identified, we've managed to push our OEEs up 5%, and we're ahead of the internal targets that we've set ourselves. When you work with better OEEs, OEE is a function, amongst other things, of lower breakdowns. Breakdowns cost you a lot in terms of material usage variances. So we expect to have significant savings in material usages. And in fact, we made some significant savings this year relative to the performance in the prior year. And our CapEx investment is not just going to be in our factories, but as I say, it's going to be in our IT platforms that will help us both in our interactions with our customers, through our customer services, logistics center as well as real-time monitoring of our OEEs in our factories. So beyond the short term, we're working hard. The past year, I would say that the focus within the category has very much been on the short term, which wouldn't surprise you, given the scale of the challenge that are the results Deepa has taken you through represent. So we've already started asking the MDs of the categories to kind of lift their heads beyond the short term as we are developing a much higher level of confidence that we are driving those efficiencies and the performance that one would expect in the short term. And so we'll be focused both on organic and inorganic growth. As I say, on the inorganic growth side of things, we recognize that our performance next year is going to be a performance that hopefully will give us a license to look beyond the current portfolio and beyond the current geographies in terms of growth opportunities. And whilst we get our house in order, we're going to make sure that we don't reach a point where we're ruthlessly efficient with what we've got and we've run out of growth. And so we're going to start to build a pipeline in the inorganic growth space, prepared to look at models around joint venture, around a venture capital model, where we take smaller stakes in more exciting, high growth opportunities. We'll also look at the potential to earn revenue streams from licensing our brands. And all of those inorganic growth vectors are underpinned by the need for value, a response to health and nutrition, the snacking occasion that we see growing, the growth in niche brands as well as as a broader channel through which our products are sold. The -- whilst the immediate priority is quite clearly to deliver a better result in 2021, again, the long term is something that's very much in the focus of this management team. We're about to go into our second century as a company. And we hope to lead the company well into the second century in terms of a growth agenda. And so within the ESG pillar of our business, we remain focused on health and nutrition. We've updated all of our nutritional standards. And we're introducing clear and simple health claims. In terms of looking at livelihoods all the way in our value chain, we've been working hard on our supplier and farmer development programs, aggressively driving our preferential procurement agenda. And to date, we've invested against a target of ZAR 100 million by 2025. We've invested over ZAR 40 million in our Dipuno Enterprise and Supplier Development Fund. And with some of the expertise that we've brought on board in terms of driving environmental stewardship, both from the perspective of doing what's right, but it's quite clear to us that doing what's right is also good for business. And so you'll expect to see us continue to report progress in this space. There's a lot of work being done to make sure that we set ourselves targets that are both achievable and represents a real stretch for an organization of our size. I hope that in the discussions that we've had now and the discussions going forward that you'll get some sense at least of positive momentum, perhaps not enough, and you'll be waiting for the evidence when we talk to you again on a set of results next year. But from the perspective of the Tiger Brands' Board and the Exco team, we believe that in the last few months, we've completed a lot of the groundwork. We have reorganized the business. We have put, we believe, most of the right people in place. There's still 1 or 2 key vacancies outstanding, the Grains Growth Officer, for example. There is a focus on cost and efficiency and short-term interval management to make sure that, that doesn't run away with us. And what we've also done is we've been very careful and deliberate in terms of the projects that we've taken on board to ensure that those are prioritized with the right balance between long and short term. But for now, the focus is very much a 70% short-term delivery, 30% long term. Hopefully, as we evolve over the next 3 years from an executive perspective, we can change that ratio to the inverse. But for now, we really need to be in a position where we've got the credibility to be believed when we talk about growth and sustainable growth going forward. So in the very short term, if we look at the year ahead, we're only 7 weeks into the new financial year. So far, so good. We're showing sort of a positive momentum, although it really is very early days, and we've got the peak of Black Friday and what happens post the festive season to come. So -- but the signs are positive so far. There are some signs of recovery in Rice and Pasta, in particular, where they were quite challenging. Maize remains a challenge, but no longer likely to be a significant loss maker in the portfolio. And we're working really hard in the Groceries, the Snacks, Treats and Beverages. And those are areas where we focus very hard on the back end of the business and those are the areas where we really need to get our brand premium to sustainable levels to drive volume growth. We did see a very good performance of Groceries in the second half. There's good momentum now in Exports and the rest of Africa after the hiccups of the dispute with the distributor in Nigeria, and the short-term shutdown of continental trade that came with the initial COVID lockdowns. We've made progress, although I would caution you that there's a long road to go in terms of concluding any transaction on the Deciduous Fruit business. And as I say, I hope as we progress through the year and the team gets confidence and starts to deliver in the short term, that we start to see the organization from the top all the way through to MD level, start to lift their heads and focus beyond the short-term horizons of the business. So ladies and gentlemen, that's my perspective on where we are, and I look forward with Deepa and some of my other executive colleagues who are on the call to taking any specific questions that you might like me to address.

Thanks, Noel. Thanks, Deepa. We will now move to any questions on the call.

At this stage, we have no questions on the line.

Okay. Then I'll move to the questions that were posted. Rowan Williams of Nitrogen Fund Managers. Will there be any stranded head office costs as a result of the sale of VAMP that will need to be absorbed by the rest of the business?

So there are 2 parts to that question, 2 parts to the answer. Losing VAMP has definitely resulted in the loss of a contribution towards the overhead costs. However, in anticipation of that in looking at our center costs, we have removed in the region of ZAR 130 million worth of costs in the center. And that has resulted in us being able to budget on a 0 cost increase in the center cost allocations to the other businesses.

[ Carl Ganetsky ] from The Business Day, 2 questions. First for clarity, inability to pass on costs due to price regulations is estimated at ZAR 243 million. If so, is this included within the ZAR 450 million direct and indirect cost? Yes, it is. In addition, given the constrained environment, even as these regulations ease, can you provide any general comment on your ability to pass on these costs given the constrained environment in the current year?

Thank you. So first of all, just to say that we're not necessarily anticipating any short-term easing of the regulations, but we have had a lot of clarity in our discussions with both the regulators around that. We do anticipate the state of the consumer will mean that we are going to have to become more efficient. And that's why you're looking at that ZAR 500 million target. It represents about 1%, 1.5% of our anticipated turnover for next year. And that's going to be invested mostly back into price to ensure that we remain relevant with the consumer. I think your comment is valid. I think the greater constraint around passing through pricing will come from the consumer environment and not from the regulatory environment.

Paul Steegers, Bank of America. Please can you talk to the outlook for your Grains margin? Do you see improvement in operating margin in FY '21 or raw material headwinds remain a drag?

Look, at this stage, it's difficult to give any specific guidance. What I would say in respect of the Grains business, there certainly is pressure in terms of raw material costs. But we do anticipate that we will make a recovery in our Rice business. And we would also hope that our Sorghum beverage business, which was negatively impacted by actual shutdown, forced shutdowns of the sites that those will be positive. And there are good indications at this stage that the Bread margins have probably bottomed out. So overall, we would be hopeful that we can move the Grains margins upwards over the next 12 months.

Danesh Ranchhod, Franklin Templeton. Do you have any update on the private label potential you mentioned some time ago? I think we provided an update in the presentation in terms of the categories that we're targeting. Any progress on the Africa portfolio review?

So in terms of the portfolio review for rest of Africa, we have managed to exit Deli Foods, and we're on the verge of selling the site and the assets of that business. Hopefully, we'll close off that transaction before Christmas. And that really leaves us with Chococam, which has performed successfully over the years and UAC Foods in Nigeria. UAC Foods has some big decisions to make. The next time we talk to you, we'll probably be in a position to provide clarity around the future of UAC Foods. I think if you look at what our Africa strategy has been, and we are going to continue pursuing it. We spent the last couple of years consolidating, working off an export-based model, trying to build a better network of distributors, which we've done successfully, we think, in terms of route to market, very good recovery in the past year in Mozambique. We expect a good set of results out of Nigeria next year. And having now appointed that dedicated resource based in Nairobi, sitting on the Tiger Exco and reporting to myself, we expect to make further good progress in terms of our existing model and potentially cautiously identifying other opportunities for growth and other opportunities for sourcing within the various free-trade agreement areas that exist on the continent.

Shaun Bruyns, Mazi Asset Management. Please, can you elaborate on the logistics model review? Does this mean you are looking at in-sourcing all or part?