Tiger Brands Limited (TBS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, welcome to Tiger Brands' Year End Results Presentation for the year ended 30 September 2021. And I am Nikki Catrakilis-Wagner. In terms of the agenda this morning, Noel Doyle, CEO, will kick off the presentation with an executive summary and overview of the year under review as well as our progress against strategic objectives; CFO, Deepa Sita, will provide us with the financial and operational review, and Noel will conclude the presentation with a strategic update and outlook. We will then open it up to Q&A. [Operator Instructions] Before we begin, I draw your attention to the forward-looking statement. And with that, I hand over to CEO, Noel Doyle. Thanks. Noel?

Thanks very much, and thanks to all of you for taking the time out to join us and listen to Deepa and I this morning. We're presenting these results, and I'm not going to dwell on it. Nikki, sorry, which slide are we are now? I can't see what's -- Slide 5. Okay. We're presenting in an environment where the -- there have been plenty of challenges over the last 12 months, and I'm not going to dwell on those challenges, but I'll just sort of call them out. We saw particularly in the first half of the year the significant compression in terms of consumer demand. We've certainly seen -- as the lockdown has been released and the level of social interactions improved, we've seen an improvement in the levels of consumer demand, particularly over the last 3 months in terms of the market overall. We didn't see any great sort of upsurge in demand with the renewal of the SRD grant. And of course, what's very topical at the moment is the challenges around the post-COVID-19 global supply chain squeeze, both in terms of the inflation that is pumping into the system, as well as the challenges in terms of absolute supply and logistics. So if I move on to the other specific headwinds that the Tiger Brands have had. Quite clearly an event as significant as the product recall that we had in July was something that took quite a lot of management focus in terms of the lead-up to the decision to do that recall and managing the fallout and the logistics that came from it. We also had to deal with both the specific incident over a couple of days in July of the civil unrest, as well as the challenges of getting back into operations, particularly challenging for us with our Snacks & Treats and our Rice plant, where in terms of rice, we were basically completely and utterly cleaned out of stock for a period of time, and that obviously would have had an impact that isn't specifically captured in the numbers that we excluded or that we showed as being specific to those challenges. I think the other area where we would call out for us, very specific, target challenge was, whilst the rest of Africa did perform better than last year, it performed significantly below our expectations. That wasn't helped by industrial action that we had in March, April at our Davita manufacturing plant, but it does talk to the sort of longer, slower growth curve without any acquisitions in building a business on the continent. So if I go to looking at the kind of big strategic drivers that we've spoken about in the past, I've color-coded these in terms of our own internal, and I think we're fairly hard in marking ourselves, but our own internal performance against these. So meet the needs of the consumer, we still think there's lots of work to do there. But in the last 6 months, we've been pleased that we've actually started to execute against value, specifically value-orientated innovations, and we made some good progress there in our bakery business and our grocery business. If you look at our brand health, all of those metrics have been maintained with the exception of one of our business -- businesses, which was in Rice, where there's a little bit of a glitch in volume, and we talk about that going forward. In terms of our focus on delivering quality to the consumer, we're really pleased that our sort of external consumer complaints numbers are down 25%. And I think one of the things that we did get right this year was getting that price/volume mix a little bit more calibrated towards the middle of the scale. We managed for the first time in a number of years, as you'll see just now, to grow our volume share. It did come at the expense of value share. But in terms of our own performance, it didn't come at the expense of our gross margins, where you see that we managed to move our gross margins up marginally at the same time as we grew share. And that growth in share was despite some very specific challenges, particularly in the Grains business, some of which directly attributable to our own conscious decisions in the marketplace, and I'm talking there about Rice, and some of it related to the challenges of the specific categories. In terms of igniting our people, I think the process is that you'd expect in a company of our scale and with our aspirations are very much in place. We were pretty comfortable with how we managed through the third wave -- second and third waves from looking after our people perspective. I think the area where we still have work to do, and I'll talk about it a bit later, is in terms of developing that can-do culture of growth focus. And again, we'll talk a little bit about encouraging a little bit more risk-taking and a little bit more bravery in setting out our stall on a growth agenda. But in terms of building that growth pipeline, we've successfully embedded revenue growth management in our grocery businesses last year and expanded that into Snacks & Treats and Beverages this year. Showing good progress, and we're going to be rolling that out across the business. And that takes us close to our customers, takes us closer to our shoppers and maximizes value both for ourselves and consumers in the long run. Some very good momentum in our initiatives in the general trade, where across a pretty large universe of stores, we've managed to expand our SKU presence very significantly. The disposal of UAC Foods in Nigeria was an important transaction for us in terms of our long-term aspirations. What that really does now is free up our sort of unhindered participation in the Nigerian market and allows us to control our destiny entirely within our own hands. We're not obliged to go through any specific vehicle in terms of going to market there. We've done well, we think, in terms of the venture capital fund that we launched the last time, filtering through a massive array of opportunities that will be presented to us. We've made our first offer, still negotiating around that. And hopefully, by the time I come back to talk to you in April and May of next year, we'll have a lot more tangible things to talk about. And of course, we stay focused on the key consumer trends that will drive growth, where we think we've done well, and I suppose this is part of Tiger's DNA. Our obsession with cost savings and efficiencies and the work we've been doing in our supply chain, in particular, in the past year, has paid off for us. And it's allowed us to be a little bit more generous in terms of our pricing because you've seen our naked margins actually decline slightly, and it was the efficiencies that we were able to take out of conversion that allowed us to hold up the gross margin over that period of time. So our OEE is up 7%, and we're going to look for a similar improvement next year. And we've done that with a lot of focus as well on the quality and safety and actually embedding our processes so that it's not a once-off impact. And that's why we're quite confident in setting out our stall for next year that we will see some savings. The work that we've done in the latter part of last year and this year, on logistics, we've now got a very clear road map ahead of us for the next 2 to 3 years. And the plans that we had put in place in the course of the F '21 financial year, we're already seeing that we are executing against those both in terms of customer service and in terms of cost savings and efficiencies. And we've also hit all of our targets in respect of overall cost savings and, specifically, savings in our MUVs. And those, as I said, are quite critical in us being able, recognizing our premium position to get price points that are more appealing to our consumers. As I said, when you look across our ZAR 1 billion brands, in terms of the metrics, we only had relative to where we would have been 6 months ago. We've had a couple of brands which have improved some of their rankings on this one. The only brand where we've seen a slight movement was in the Tastic, where our volume ranks slipped in the short term from #1 to #2. And then what you really see is -- one of the things that we really worked hard on and struggled over the years is to try and get closer across our categories, and it is a challenge and it is a category-by-category story, but to try and get closer to that sweet spot where we can get volume growth without significant degradation of margin. So if you look here across the longer-term 12 months, the last quarter in a more recent months, you'll see that in our basket, we've been managing to grow share, not necessarily at the same rate as all of our competitors. But having said that, neither have we degraded value, the value-to-volume equation at the same rate as some of those competitors that have been growing volume. And the savings that we've been pulling out of the businesses have allowed us to do that without our gross margin going backwards. In fact, I'm sure Deepa will show you that we managed to marginally improve our gross margin, despite very significant competitive pressures and pricing pressures, particularly in the Grains and soft commodity businesses. So you'll see that in terms of the value share loss, you'll see marginal value share loss against the volume share gain. And relative to the competitors that we've highlighted there, generally speaking, our value-to-volume index has not deteriorated at the same rate as those have. So we've been able to get that calibration closer to a sweet spot than in the past. If I look at the sort of key strategic initiatives that we're driving of a long-term nature and, again, try and scorecard ourselves against that, I think when we look at meeting the needs of the consumers, what we can see in terms of global-based practice is a significant amount of benefit and differentiation being leveraged in that digital and direct marketing space. And that's an area where we are still playing catch-up. I think it's probably the most significant area this year in terms of our level of disappointment in terms of the progress that we've made. And we've got very specific plans to catch up in that space. It's not just about buying and tapping into tech. It's also about ensuring that you can find the right skill set, and we'll be making some progress in that. In terms of the health and nutrition, I think we have launched and have in the pipeline products that tap into that narrative. We've made limited progress, some progress in respect of DOB opportunities, not as much as we might have thought a year ago. And I think that's a combination of some hesitancy on the part of the retailers as well as it, in some ways, has been counter-culture within the organization. But we expect to make some smaller, more incremental progress in this space. It was never going to be a massive growth driver for us, but not as much progress as we originally anticipated. I think I've covered what's happened in the supply chain. The real challenge now is to inculcate the progress that we've had over the last couple of years and make sure that it's not a once-off. But we're certainly getting a very good sense as we move into this year that we are being successful in terms of that. We've [indiscernible] caught it ourselves in terms of the customer service and logistics. And that's really because we're still on the journey. I think we are where we would have expected to be at this stage and delivering against the targets that we achieved, but still some progress to go. And the same thing in terms of just getting that focus on execution, execution. There's still some work to do in parts of our portfolio. The cost savings still some progress, very good progress this year, but that still lags in that space, and we need that as we go into the kind of super inflation, if you like, that we've been experiencing in this post-COVID supply chain scenario. SKU rationalization has played a role in the optimization of our OEEs . It's going to play a more significant role going forward with good progress in the last year. And we have managed to take some growth -- some of our growth has come out of the value solutions actually executing against that. From a customer perspective, I think the real call out here is in terms of our rest of Africa strategy. The precision with which we work with our distributors, which we ensure that we have all the right distributors in place, that's an area where I think we're a little bit disappointed with our progress this year, much more about us and less about the choice of distributors. But we have invested heavily in terms of people in that space, and we expect further progress going forward. And then igniting our people, as I say, we have all of the processes in place. We were quite pleased with the results that came out of our [ Voice of Tiger ] internal climate survey, given the backdrop against which the survey was conducted. But we've got more work to do to make people really believe in that mindset shift that drives growth and that understands that you can't grow without taking some risk. So we'll talk about CapEx, no doubt, in question time. And in CapEx, we're seeing very good delivery against replacement efficiency-based CapEx, where we need more people to be a little bit more confident and more risk-taking, as in putting their names behind the growth opportunities that require significant CapEx. So with that brief summary, I'll hand over to Deepa.

Thank you, Noel. Good morning, ladies and gentlemen. Thanks for joining us this morning. So I'll spend some time talking to you about the FY '21 financial results, and then we'll talk a little bit around where we are trading to date in terms of FY '22. So Nikki, if we maybe just start with the executive summary in terms of the highlights as well as the headwinds that we experienced in FY '21. So despite the significant cost push, the business did see solid naked margin performance in H2 in most of the categories. As Noel indicated, this was largely driven by the procurement as well as the MUV savings that we saw. The business delivered on its cost savings target, as previously communicated, and this was driven through multiple continuous improvement initiatives. Also very favorable was the cash generated from operations. That increased by 33% to ZAR 3.9 billion, while the group closed on a strong net cash position of ZAR 2.2 billion. This was largely driven by improved working capital management, and particularly in terms of debtors collection, which was improved on a year-on-year basis. In terms of the headwinds that we experienced, as Noel indicated, we did see limited volume growth driven off price increases, et cetera, that we've taken as well as a competitive environment in which we're operating in. The supply chain challenges that we experienced certainly were headwinds for the organization. Some examples of those would be currently following the recall, S&T and Rice following the civil unrest that we experienced in July this year. Bakery saw adverse industry category dynamics with deep discounting in the market remaining very prevalent. As Noel indicated also, the export performance was negatively impacted by muted demand as well as margin compression, with the LAF business, in particular, being impacted by the strengthening of the rand during the year. If we move to the next slide, please, Nikki. So just in terms of our underlying performance, you'll note that the core business has certainly improved year-on-year. However, this was offset by once-off costs related to the canned vegetable recall, as well as the civil unrest that we saw in July. The top line performance is primarily driven by price increases, with price inflation at 7.2%, which was partially offset by volume decline at 2.3%. The majority of the categories reflect price inflation to cover cost pushes, which resulted in volume decline, as Noel indicated earlier. And this vary depending on competitive pricing as well as just overall product elasticity. Despite the revenue challenges though, our focus on cost savings as well as improving production efficiencies resulted in positive operating leverage for the full year, and that was before the impact of the product recall and the civil unrest. The effective tax rate before impairments, nonoperational items and income from associates declined from 32% to 29.1%. And this was largely driven by an increased benefit in respect of a special investment allowance claimed on qualifying capital projects during the current year as well as lower nontax deductible expenditure in the year. In terms of the associate performance, while Carozzi performed well in terms of local currency, they were negatively impacted by the foreign exchange conversion. And also just to point out, the equity accounting for UAC ceased on the first of October, as previously reported, following the disposal earlier on in the year. In terms of earnings per share from continuing operations, that ended 21% ahead of prior year, with headline earnings from continuing operations ending 6% behind the prior year as a consequence of the product recall as well as the costs associated with the civil unrest remaining in the HEPS calculation. The relatively higher rates of increase in EPS compared to the year-on-year percentage changes in HEPS is primarily due to the significant impairment charges of ZAR 600 million recognized in the prior year. These impairment charges were excluded in the calculation of HEPS last year. The increase in HEPS from total operations were primarily due to the losses recorded in the VAMP business in FY '20 compared to a small profit recognized in the FY '21 year. Just for information purposes, VAMP has been treated as discontinued operation in the current year. In terms of the dividend, we are pleased to advise that the Board has declared a final ordinary dividend of ZAR 5.06 per year -- per share. And this brings the total dividend for the year to ZAR 8.26, which is 32% up from the prior year. Nikki, if we can move to the next slide, please. So this slide basically reflects the H1, H2 performance in terms of price volume. You'll note that the financial year can be characterized as a year of 2 halves. The business delivered a solid first half performance, which was driven by a very strong first quarter. This was offset in part by the slower top line growth that we noted in the second half. The volume decline in the second half was largely driven by bread, Groceries and Snacks & Treats, which will be covered in greater detail in the upcoming slides. Despite the slower revenue growth in H2, momentum was maintained in cost-saving initiatives and efficiencies, in turn contributing to improved margin performance in the second half. Next slide, please, Nikki. So as noted previously, Tiger Brands' results reflect steady progress against our strategic priorities with an improved underlying performance from the core business. This was, however, negated by the cost incurred as a result of the product recall as well as the civil unrest. These costs in total amounted to ZAR 732 million pretax and have been accounted for as follows: the customer refunds related to the product recall have been accounted for as a reduction in revenue, the write-off of stock related to the product recall, which amounted to ZAR 308 million as well as the civil unrest-related stock write-offs amounting to ZAR 85 million have been accounted for through cost of sales, and these have been disclosed separately on the face of the income statement. Other costs related to both the unrest as well as the product recall have been accounted for through the relevant expenses' functions in the respect -- in the income statement in the respective lines. In addition to these, the impairment charge in the current year amounting to ZAR 154 million relates primarily to the impairment of property, plant and equipment in the Deciduous Fruit business. Next slide, please, Nikki. So this slide is aimed at reflecting the true trading performance, excluding the impact of the stock write-off related to the recall as well as the unrest. It's important to note that the civil unrest adjustment included in the slide relates only to the stock-related costs. Increased repairs, maintenance and security-related costs, as well as lost sales, are estimated to be approximately ZAR 100 million. What you'll note in this particular slide is that the operating income with the adjustment of the recall as well as the unrest moves from ZAR 2.2 billion to an amount of ZAR 3 billion, with the operating margin percentage moving from 7.2% up to 9.5%, and both showing significant improvement on the prior year. Next slide, please, Nikki. So in terms of the operating margin, this was enhanced by ZAR 498 million, and that was specifically driven through OEE factory efficiencies, favorable MUVs, as well as procurement savings. This, unfortunately, was negatively impacted by the cost related to the civil unrest and product recall, amounting to ZAR 732 million, as noted previously. What's also pleasing to note, as Noel indicated, is that the savings that we've achieved during the year are in line with the target that was previously communicated, and we're very confident that we'll see the same sort of delivery in the new financial year. Next slide, please, Nikki. So while the recovery was noted across a number of the categories, milling and baking as well as Exports did face some headwinds. The Grains revenue increased by 5% to ZAR 14.6 billion, reflecting price inflation of 10%, while overall volume declined by 5%. Our ability to pass through some input cost inflation, combined with cost savings, resulted in operating income increasing by 11% to ZAR 1.4 billion. As was in the case in the first half, the Baby category results are disclosed under the Consumer Brands segment. The results were previously reflected under Home, Personal Care and Baby, and the prior historical data has been restated for comparative purposes. The Consumer Brands portfolio delivered overall revenue growth of 4%, comprising price inflation of 7% and a reduction in volume of 3%. The flat revenue performance in Groceries was offset by year-on-year top line growth in Snacks & Treats, Beverages, Baby, as well as Out of Home. The price inflation and significantly improved manufacturing efficiencies that we've spoken about previously were the primary drivers for the operating income increasing 20% to ZAR 1.1 billion. Overall, in HPC increase by 6% to ZAR 1.9 billion, and this was driven by sustained category leadership in the pesticides category offset by a disappointing performance in the Personal Care category, which was reflective of the adverse consumer dynamics being faced in this particular category. Total revenue for the Exports and International business increased by 7% to ZAR 3.6 billion, and this was primarily driven by the strong start attributable to the resumed trade in Nigeria. Operating income for the year reduced by 7% to ZAR 96 million, mainly as a result of the increased losses in the Deciduous Fruit in this particular category. So if we move specifically into the Grain slide, Nikki, in terms of the Grains performance overall, milling and baking experienced a challenging second half, driven predominantly by bakeries and sorghum-based products. Maize enjoyed a strong recovery in the second half despite the year-on-year volume decline primarily due to the increased in-home consumption in the prior year. Margins did improve in the second half. The wheat-to-bread chain -- value chain continues to experience margin compression because of adverse category dynamics with deep discounting in the market remaining very prevalent. Higher selling prices were more than offset by the volume decline seen in this particular category. The sorghum-based products experienced a particularly difficult year as a result of higher conversion and distribution costs, which was compounded by lower sales volume as competition intensified. Despite the impact of the civil unrest on the Rice business, its timely return to normal operations helped to ensure the category sustained its strong first half performance. As a result, the Rice business delivered a strong year-on-year improvement underpinned by higher selling prices as well as on cost management. Following muted revenue growth in the first half, Pasta volumes benefited as consumers favored the category in the second. Improved demand, coupled with strong in-store execution, resulted in Fatti’s & Moni’s actually gaining market share during the year. Although growth in its core -- in the core oats offering was sustained in the second half due to successful winter campaign and adverse mix impacted Jungle's overall second half performance. However, despite this, Jungle did achieve a pleasing result for the full year performance. Looking ahead, the focus will be on delivering innovation as well as further manufacturing and supply chain efficiencies in this particular category. Moving on to the Groceries -- next slide please Nikki. Grocery sales were negatively impacted by a competitive trading environment, lower seasonal demand in the first half and unusually quiet trade over Easter. The supply chain challenges following the recall further impacted the performance during the financial year. The full year revenue remains flat at ZAR 5.5 billion, and this was underpinned by price inflation of 8% with a similar volume decline seen during the year. Consistent factory performances as well as expense management discipline resulted in operating income, excluding the impact of the recall, increasing by 12% to ZAR 397 million despite experiencing significant increases in raw material as well as packaging costs. The All Gold Tomato Sauce kid-friendly bottle as well as the Mrs Balls value bottle are examples of some of the successful renovations we've seen in this particular division. In terms of the product recall, as previously reported in Tiger -- previously reported, Tiger Brands' claim under the contract with third-party supplier is still being assessed. Looking forward, the focus will be on defending our market-leading positions through the marketing as well as innovation, as well as continuing to drive manufacturing and supply chain efficiencies. The improvement of service levels also remains a key priority following the impact that we saw of the product recall. Moving on to Snacks & Treats. Production volumes within Snacks & Treats were adversely impacted by the COVID-19-related absenteeism that we saw in the beginning of the calendar year, as well as the civil unrest experienced in the second half of the year. These factors resulted in supply chain constraints as a result of both lost product as well as raw and packaging material shortages as we saw a number of our suppliers also impacted by the same civil unrest in July. The adjusted lockdown measures implemented in July 2021 resulted in lower demand in respect of impulse purchases. Subdued shopping engagement relating to seasonal events such as Easter also further led to slower revenue growth in the second half. Despite these challenges, for -- revenue for the year increased by 7% to ZAR 22.3 billion, underpinned by price inflation of 8% and an overall volume decline of 1%. Operating income saw a significant increase of 37% to ZAR 234 million driven by higher realizations, together with the impact of ongoing cost improvement initiatives. As in the case of Groceries, the focus of this category will also be on improving service levels and to focus on continuous improvement aided by investment and a review in terms of supply chain solutions. The Beverages category revenue increased by 6% to ZAR 1.7 billion. This was supported by strong second half performance from ready-to-drink category as well as concentrates in the form of Oros. The operating income for this category increased by 9% to ZAR 261 million, benefiting from favorable product mix as well as improved factory efficiencies and sound cost management. Also looking ahead, Beverages has been identified as a high-growth category for the business. Our key focus will, therefore, be to expand our presence through strong innovation. In addition, as in the case with previous categories, there will be continued focus on cost savings as well as OEE improvements overall. In terms of the Baby category, the Baby category delivered a very strong performance, driven by recovery in volumes across most of the segments. Revenue increased by 12% to ZAR 1.1 billion, with equal price and volume growth. The operating income increased by 29% to ZAR 143 million, benefiting from a favorable product mix, waste reduction as well as lower distribution costs. Looking ahead in this particular category, the focus will be, amongst others, the consolidation of the Purity brand as the master brand. Sustaining favorable product mix supported by clear strategies for the segment as well as driving toddler snacking as a growth opportunity. In terms of Home and Personal Care, certainly a mixed bag performance. Home Care saw a solid volume uplift, but which was underpinned by strong summer campaign at the start of the year, which included benefits of effective in-store execution as well as innovation. The performance was sustained in the second half with revenue growth ending 11% up. The operating income increased by 20%, driven by improved efficiencies, better material usage variances as well as tight operating cost controls. Personal Care, however, although they enjoyed a recovery in operating income in the second half, it was not enough to offset the weak start to the year. The volatile category demand, together with the retailers prioritizing essential categories during the civil unrest and thereafter, resulted in a volume reduction of 6% for the year. Despite selling price inflation of 3%, the lower volumes resulted in revenue declining by 3% to ZAR 643 million. Operating income declined to ZAR 47 million from ZAR 79 million in the previous year. Looking ahead, the category will look to invest in CapEx to achieve continuous improvement in this particular site as well as successfully drive various innovations during the year. In terms of our Export and International performance, the second half of the -- second half performance was negatively impacted, for Exports in particular, by low levels of demand, compounded by pack size and price misalignment to market expectations. The border congestions, which impacted the sales to Mozambique also affected the results. The revenue in the Deciduous Fruit business declined by 6% due to a challenging second half performance as demand in key export markets remain subdued. The business recorded an increased operating loss of ZAR 147 million, primarily due to the strengthening of the rand, as noted previously as well as higher global shipping costs. Despite significant external headwinds, Chococam recorded an exceptional milestone this year with revenue exceeding ZAR 1 billion. This was primarily driven by strong volume growth across all segments, underpinned by successful innovation, optimal pricing and improved distribution to neighboring countries. The operating income increased by 16% in rand terms to ZAR 172 million, which was an increase of 10% in local currency. This was assisted by improved efficiencies as well as lower conversion costs. The focus for Exports and International will be to optimize product and country mix going forward as well as to continue delivering on innovation opportunities in the particular space. Moving on to the balance sheet metrics. So in terms of our working capital dynamics, cash generated from operations, as I indicated, increased by 33% to ZAR 3.9 billion, thereby allowing the group to close on a strong net cash position of ZAR 2.2 billion. In terms of working capital, while management continued to focus on managing inventory days, total stock did end ZAR 580 million higher than the prior year. It is, however, important to note that the inventory balances in FY '20 did end particularly low due to the COVID-related factors that we experienced. The business also took a very conscious decision in FY '21 to increase inventory levels across the portfolio in anticipation of COVID as well as wage negotiation-related supply chain disruptions. The debtors collection remained well controlled, and creditors continue to remain a focus area in terms of optimizing supplier payments. In terms of the return metrics, the improved ROIC and ROE was driven by the increase in earnings in the current year compared to the past. The ROIC, excluding the recall and unrest, is 15.3% for FY '21. Despite improvements in the earnings year-on-year, RONA did see a dilution as a result of the increased capital expenditure noted in the current year. Moving on to the next slide. As Noel indicated, in terms of total capital expenditure, this increased by 8% to amount of ZAR 1 billion in FY '21 with the focus being replacement CapEx amounting to ZAR 762 million in comparison to the ZAR 659 million in the prior year and the balance relating to multiple expansionary projects. As previously noted, the business took a conscious decision to increase spend on IT as well as automation projects in the year. Of the 46 projects initiated, 20 have been completed and 15 of the remaining 26 are already in test or deployment phase. Examples of some of these projects have been the Oracle EBS upgrade, improvement in terms of cybersecurity, financial consolidation tools, profit waterfall tools for the revenue management initiatives that Noel mentioned earlier, as well as a solution into a mobile solution in terms of our Albany bread business. The emphasis for FY '21 CapEx remains on replacement as well as automation. The larger projects include the relocation of the peanut butter plant as well as improvements in the -- on the aerosol line in our HPC business. So that brings me to a close in terms of our FY '21 results. I thought I'd take a minute to just maybe talk a little bit about what we're seeing in FY '22 to date. So in terms of FY '22, at a macro level, we continue to see many challenges impacting consumer behavior and demand. The competition has intensified with PPI running ahead of food CPI. The current environment is certainly here to stay, and that has certainly been something that we've noted in the quarter 1 performance to date. And this will require us to remain consumer-focused, continue to optimize our supply chain and be relentless on our cost. The first quarter of FY '22 has certainly been challenging. With the business experiencing significant cost push pressures, post-COVID supply chain squeeze impacting areas such as shipping and packaging costs as well as general shipping delays being experienced overall. We've also seen impact of the labor unrest. And ultimately, the bread market also continues to remain challenging overall in a very competitive environment. With that being said, our drivers for the [ FY '22 ] improvement will be hinged on reasonable revenue growth expectations at the core. This will be driven by volume growth underpinned by multiple planned innovations as well as the Export market improvement in terms of product and country mix. We also will continue to focus on our cost-saving initiatives as well as factory performances, and we've now put down another target of ZAR 480 million for the financial year in terms of driving these particular initiatives through strong continuous improvement measures. In terms of the way forward, we also would seek to conclude the way forward in terms of the LAF business, and that will also set us up in terms of success for the primary drivers of FY '22. So on that note, I'll hand over back to Noel to do the conclusion. Thank you, Noel.

Thank you, Deepa. So in looking at the numbers and a portfolio as broad as Tiger's, there will often be areas to -- where we need significant improvement. I would guess that where I would draw your attention to the kind of underlying work that's been going on and the performance that's coming from it is to take a look at the performance of our Groceries business, where not only did we show some growth this year on the prior year, but there's also significant growth if you go back to 2019, which is an indication of the work that's been done both in terms of supply chain within that business and also the work that's been done on the front-facing consumer and shopper perspective with innovations and real execution against price point architecture. So in many ways, that's a bellwether. It's where we keep our brands. And whilst we can't wish away the very significant impact of the KOO cans' recall, the performance of that business, notwithstanding that event talks to the power of the brands that we are custodians of. So if I look forward for us, it's been pleasing that we managed to grow profitability double digit, almost double-digit in the second half. Even if you go back to 2019, the second half of the year reflects growth on the current year. The current year reflects growth in the second half of 2019, notwithstanding some of the specific category challenges that Deepa has called out that intensified in the second half of the year. So for us, we're going to continue with our focus on the strategic themes. We know that we have to sort of up our game in the areas that really talk about the growth in the top line of the business. But I think in the kind of higher inflationary environment that we're getting into and an environment where precise management of supply chain, precise management on inbound logistics is going to be quite important. I think the heavy lifting that's been done over a number of years is going to pay off for us in terms of our ability to perform in a very challenging market. So lots more focus you will see from us in accelerating innovation, in driving revenue management so that we can have a win-win for customer, consumer and shopper in terms of the effectiveness of our promotional spend. We're going to make sure that it's not one swallow in the summer making the summer in terms of the supply chain. The team that have delivered that performance over the last couple of years are very committed to continuing the momentum in that space. But in a business as large as Tiger's, we've got 41 manufacturing sites, there are always a few that need extra special attention, and we're calling out very specifically our Snacks & Treats facility, where we are putting in a significant amount of CapEx to resolve some almost criminal supply chain issues. When I say supply chain issues, to have a poor service levels is criminal in an environment like this with pressurized consumers. So we know there's demand for our brands and demand for our products in that space. We just have to get our act together to deliver against those. When it comes to our sorghum-based products plant, that's really about management disciplines and efficiency in that plant. And at Davita, we've made good progress. We just need to carry it forward into the new year. We will continue to drive the cost savings and efficiencies hard. We will need every cent to repeat the kind of performance that we've had this year. And holding on to our gross margins because we can expect to see some naked margin compression. You can expect to see pricing pressure. The wave of inflation has come at a time when it's not always easy to pass on those to customers, particularly in the run-up to Christmas when pricing and promotional activity has been fixed for a period of time. We're going to look at growth, both organic and inorganic. I think the performance of our Chococam business is a real call out that it is possible to operate in a really challenging environment. Chococam, as Deepa said, had lots of challenges, both in the domestic market and in the key export markets. And I think with the right brands and the right management team, it is possible to build a business, and hitting the ZAR 1 billion was a major milestone for us. I guess the key thing is to keep working on the DNA of the organization such that we have people who really are hungry for top line growth, hungry for success and who are prepared to put themselves and their own reputations on the line in stretching out of their safety zones so that we can actually build off a reasonably solid set of results, the abnormal items notwithstanding, and get on a serious growth trajectory going forward. So with that, I'll hand over to Nikki to take any questions.

Thanks, Noel. Thanks, Deepa. Let's kick off with some margin questions deeper. Please can you talk to your outlook for margins and profitability in the coming year? Are you confident of sustaining growth and operating margin improvement at the group level on the FY '21 base, excluding the impact of the product recall and social unrest? Which divisions will drive improvement, if any?

Thanks for that, Nikki. So yes, look, as I indicated previously, the quarter 1 FY '22 performance to date is certainly proving to be challenging. We are seeing significant pressure coming through from increased cost pushes, both in raw material as well as packaging. With that being said, though, as indicated both in my section as well as Noel's, we continue to focus on cost saving and efficiency opportunities and initiatives in order to try and mitigate the impact of these increased cost pushes. And also what we believe is that these benefits will allow us to be optimally priced, which in turn will certainly drive the volume delivery of each of the categories. Another thing I'd like to call out is we also are at the mercy of the foreign exchange fluctuation, particularly in the Deciduous Fruit business to give the market an indication, a 10% change in the USD in respect of that business results in a [ ZAR ] 5.3 million fluctuation overall. Also, some of the areas that we'll be focusing on is the rollout of the revenue management project throughout the organization. We've completed the rollout in both the Culinary as well as the Snack & Treats and Beverages business. And our focus during FY '22 will be to run that out through the remainder of the categories, which we also believe will contribute towards our margin performance as well as our overall profitability. Areas that we'll be focusing on from a strategic point of view will certainly be our innovation pipeline. That will also allow us to drive the appropriate consumer needs in terms -- or meeting the consumer needs at the appropriate price points, et cetera, and we believe that will also contribute to our overall performance. In terms of categories that we remain concerned on, as Noel indicated, the bread industry -- the bread market certainly remains challenging in a very competitive discounting pricing market. So that is one that we'll keep a close eye on, and we anticipate to be -- to remain challenging in the current year. And the focus areas in addition to the items that I've already spoken to will certainly be exports in the rest of Africa. We'll be focusing on our product mix. We'll be focusing on our country mix and ensuring that we are meeting the needs of the consumer and are appropriately priced at the market level, as well as making sure, from an innovation point of view, appropriate pack sizes, et cetera. So we believe that overall, all of those items will certainly help in terms of margin management as well as overall profitability. In terms of the focus, it will be throughout all categories. But like I said, we remain concerned in terms of the bread one, particularly. I'm going to look to Noel to see if there's anything he'd like to maybe add on that.

No. You covered pretty well. Thanks.

There were actually quite a few pointed questions around the wheat-to-bread value chain, which I think you've covered off, Deepa, but just to be sure, do you foresee deep discounting in the mill bake value chain given industry capacity utilization? Can you please -- there was a question -- what is TBS's view of premium spend of ZAR 400 million on its [indiscernible] bakery? Could it be said that wheat-to-bread value chain will remain pressured for a while?

Yes, I think I can take that. I think undoubtedly, the most challenged sort of part of our business, and it has been for a number of years, is the wheat-to-bread value chain, and I think that challenge in the short term is certainly accentuated by the massive increase in wheat prices, bringing sort of new capacity on stream and looking aggressively to fill it is definitely coming at the cost of margin. We are seeing an intensification. I think we saw for the first sort of 3 or 4 months of the past financial year an amount of -- a degree of stability in the marketplace. But the element to which we're seeing very aggressive price competition is intensifying. And we've sort of been quite cautious in terms of not overreacting to that, but the kind of volume losses that Deepa referred to at the beginning of our presentation are not sustainable. And so it's the business with the greatest risk for us in terms of profitability and margin going forward. No doubt about it.

Okay. Thank you. On the SKU rationalization, how many are there currently? And what target are you working towards? Apart from lowering prices to drive volumes, what are the main growth initiatives and specific product innovations for FY '22? And what do you see as a sustainable margin in bread assuming current market dynamics? I think that was answered. Do you expect all of the cost savings to be absorbed into prices? And have you identified further opportunities beyond FY '22? Deepa, maybe you can talk to the cost saving?

Yes, I'll take the last one. Noel, do you want to take the first few?

Yes, you can.

Okay. So let me maybe start with the last one. In terms of our cost-saving initiatives beyond FY '22, we're pleased to advise that we commenced an intensive program towards the back end of FY '21, which allows us to ensure that we have a continuous pipeline full of ideas that come through in terms of cost-saving initiatives. We're launching a program called Every Tiger Counts throughout the organization, which really embeds a culture of cost sensitivity and really trying to drive from the top down a cost-conscious culture, where we are able to come up with different ideas and continuously build this pipeline of ideas in terms of cost saving in a very systematic way in order to ensure that we have this done on a sustainable basis going forward. While we've set the target to ZAR 480 million for FY '22, we'll certainly be looking to increase those numbers going forward, not only from direct spend, but certainly from an indirect perspective as well. And we think holistically, if the entire organization gets behind this, rallies behind this from a cultural point of view, cost culture point of view, we believe that we'll be in a good space to deliver.

[ Nick ], I can get back to you on the SKU rationalization. In terms of the second question, apart from lower prices to drive volumes, what are the main growth initiatives and specific product innovations for FY '22?

So without wanting to sort of telegraph some of what we're planning to do in the marketplace to our competitors, and we can launch prospects, I think if you look across our portfolio, we've launched some nice innovations in the bread space this year. We expect to see some good growth coming out of our Snacks & Treats business once we get our service levels to the level that we want to, good innovation coming out of our Personal Care business, our Home Care business, and our Beverage business. I think those will be big drivers for us in terms of new things coming to market. And also, we're expecting some recovery. We really had a very poor internal performance in our sorghum-based products business. So we're expecting a better performance out of there. And I think as we get towards the second half of the coming fiscal year, we should start to see some momentum in our Exports business, particularly in Nigeria. We're very happy with the performance in Mozambique and think we can build on our offering in Mozambique. But Nigeria, we're still doing a lot of the legwork, but I think by the time we get to the second half, we should grow in that space.

Can you please elaborate on some of the labor challenges? It seems the frequency of strikes are increasing given the most recent strikes at your Snacks and Albany factories. Is this a higher risk than in previous years? And a similar question, how damaging will the current wage protests in KZN be the business performance?

So I think if you look again, you've got to take in mind that we operate with 40-odd individual sites. And we don't deal with 1, 2 or 3 trade unions. I think we deal with a number of trade unions that's probably closer to 13 or 14 across our business. So the annual round of wage negotiations is quite complex and quite challenging. So we had 1 specific wage-related strike in the past year, which was at Davita. So far, we have 1 at the Snacks & Treats business. I mean it's really coming from very excessive expectations from our perspective in terms of double-digit price increases, not the 7% that I saw reported in the press at Snacks & Treats and our desire to sort of balance up our labor costs in terms of output and productivity. And it is a tough environment. You can see that sort of inflation differs in each individual's basket. But with the kind of pressure that we're seeing on the CPI and particularly in the food space, we can understand that we're having some challenges. The strike in KZN has been going on now for just over a week. We do have a meeting scheduled for Monday. So the impact of it, if it goes on much longer, it could be quite significant if it terminates at early next week. But there, unfortunately, is no way that we can either at that site, given our performance -- it's one of the businesses that has performed poorly relative to the 2019 year, nor in terms of setting the precedent that we can even have a constructive conversation around wage settlement that's double digit. So I don't think the environment is radically different from what we've dealt with over the years. What has been disappointing is the legal work stoppages that we've had at 2 of our bakeries. And we must recognize that those are a reflection on management broadly when something like that happens and also a reflection on a trade union movement that doesn't necessarily have complete control over its membership. What was pleasing is that the one industrial action that took place at Pietermaritzburg. We've reached a very amicable settlement in terms of the annual negotiations well within the parameters and the guidelines that we've set for that. So I anticipate we still have some sites, where we haven't settled wages. There will be some tough bargaining, and it probably is a little bit tougher than in previous years, but not radically so.

Thank you. Just maybe a little bit of color on the venture capital fund. Please could you provide color on the business you're acquiring and the 9 new businesses you're pursuing within the venture capital fund? Are these within South Africa or in Africa? Will the founders of these firms join the Tiger family?

So I'm going to ask Deepa to take that, but I just want to make the point that from a VC fund, it's not businesses that we would acquire. It's businesses that we would co-invest in to grow. And I think that's an important differentiator of a VC fund.

Thanks for that, Noel. Thanks, Nikki. So yes, the VC fund has certainly been well received. We've received thousands of applications in terms of interested parties wanting to engage with Tiger Brands. So certainly, we're really pleased to see how well it's been received in the market. I'm sure you can appreciate, it takes quite a bit of time to work through each of the proposals and submissions that have come through. In terms of our commitment, we've just recently appointed a head to head up the VC fund initiatives, et cetera, within our organization, and we look forward to her contribution going forward. In terms of the investment that we're currently looking at, it is in the food industry. It is a product that we are not necessarily currently trading in. And I'm sure you'll appreciate that at this point in time, we'd prefer to rather keep that confidential in terms of the exact entity that we're engaging in. But in essence, we were quite excited about the discussions. It allows us to enter into a space that Tiger Brands is not currently playing in. But it certainly provides great opportunities for us to work with the entity going forward in order to really grow something sustainably.

Thanks, Deepa. Also the opportunities that we are pursuing in the venture capital fund are strongly aligned to emerging trends such as snacking, health and nutrition and value. So they will be strongly aligned with the consumer trends that are coming out of our insights. Are you considering a special dividend? Net cash is growing as cash generation is strong and also maybe some guidance on leverage?

So I'll take that one. Look, I think the -- you will see that the dividend declaration is based on an adjusted HEPS. So we've moved outside of the dividend -- normal dividend cover calculation and that in itself is sort of an indication of a recognition of the gearing or lack of gearing. I think that you will see further progress as we progress through the year in terms of balance sheet optimization. That's really as much as we could say at this stage.

Thanks. Can you comment on how the sale of LAF is progressing?

It's quite a difficult transaction. As you can imagine, you've seen the level of reported losses and the significant amount of working capital that's required by any acquirer. So whilst we're still in negotiations, I would say the progress has been less than what we would have hoped, but we do understand that it is an entity that has challenges from a commercial perspective. And so we will be continuing to make our best efforts to conclude a transaction in that respect. And if we're not able to conclude one, then we'll be back at the Board to talk about the future of that business.

Private label and brand interplay expectations in current tough environment, is this potentially an additional challenge for Tiger?

It is a challenge that you will see in certain categories, but it is quite interesting when we look at the market. I think as we've seen, the branded manufacturers react to the constrained consumer environment, sort of one of the losers in terms of the share data that we shared earlier is the private label space. So I do think that, that, however, is just a hiccup. In terms of our scenario planning, we see that as an ongoing incremental challenge, and that's why we have to focus, if you like, in 2 directions. We have to try and bring products that cannot be commoditized or copied, that presents some barrier to entry that provide differentiation. And at the same time, we're still a mass market portfolio by and large, and we need to make sure that we can make our brands within reach of our consumers as opposed to having them take DOBs. So it remains a serious threat to all branded offerings in the market. And we hopefully have got plans to respond to that. I think this year is not the beginning of a trend. We've seen it 2 or 3 years ago, we also saw fairly static, in fact, slightly declining private label market. And I think this year is an anomaly, and the trend will continue going forward.

Okay. A couple of last questions. What mitigating initiatives is Tiger undertaking, [ re-energy ] disruptions and input costs? Please explain what steps Tiger is undertaking to procure cans from more reliable sources.

Okay. So as far as energy is concerned, virtually all of our sites have the ability to operate through the kind of disruption that we've been seeing from Eskom. We've invested in the region of [ 300 ] million, it's probably slightly higher than that over this period since we started to experience load shedding some years ago. And so our sites are in a good position. It's very difficult to mitigate the cost. Running our own generators comes at a massive on cost. And it's not something that we can move away from. We're also doing a large pilot solar project. So we're going to see how that works for us in terms of operational effectiveness, not just from a savings perspective, going forward. So right now, we're not calling out Eskom for a significant disruption to our business, but it is a fairly heavy burden in terms of on cost and in terms of managing the infrastructure. That means that we're able to cater for power surges and that we don't end up with a disruptive production process if, for some reason, the switchover doesn't occur seamlessly. In terms of our cans procurement, we have a contract that's in place with our existing supplier, which [ spoke ] of our intentions to honor, and that held space is something that is under constant review.

I think in terms of that question, it's important to underscore that there are not many can suppliers in the country and also given our volumes, it's a specific consideration. No specific questions for management, but just to close the loop on a few other questions for everybody's benefit. Would TBS consider divestitures of pre-performing product lines, as we indicated in the presentation? SKU rationalization is a strategic objective. And although a number of SKUs will be discontinued in order to improve efficiencies in the factories, those are sometimes offset by innovations that are introduced. But if you...

Nikki, if I could just add to that, we are certainly prepared to review our portfolio. And not just in terms of SKU rationalizations, but we have indicated in the past, certain segments where we don't see high growth potential or where the returns on capital are not at the levels that we'd like. But it's not as if there's a long queue of prospective buyers coming to assess those assets. So there's nothing in the portfolio that we're bound to forever. And we've spoken before about our Maize business, for example, it's operationally intricately linked with the entire mill bake business, but you have -- Maize certainly remains a category where we will drive that business very hard. But if we had a good commercial proposition to exit, we would. So I think it goes beyond the SKU rationalization.

Thanks, Noel. And then just quickly, any feedback on the hedging pilot program in the Grains business? I think the active management of exposures through stock losses proved beneficial, and we did improve our rate relative to the benchmark. But in terms of accessing derivative products such as [ options ], those proved a little bit expensive as a result of the volatility. But certainly, the active management through stock losses proved beneficial. I don't know if you want to add to that?

Yes. And we have used some options in the course of this past financial year.

Thank you, everybody, for your attendance. I think we covered off most of the questions, but I remain available to you should you want to update your model or need a little bit more detail.

And perhaps just one last comment from me, just in closing, to thank people for their time and just in terms of our future engagements, I think we've heard specifically from shareholders around access -- broader access to management. So we will, in this round of shareholder interactions -- we will be providing access to some of the key executives, both functional and growth offices in response to that feedback that we've had.

Thank you. Before we go off, is there a question perhaps on the call?

There are no questions on the telephone line.

Thank you so much, everybody. Bye.