Tiger Brands Limited (TBS) Earnings Call Transcript & Summary

Good morning everybody and welcome to Tiger Brands' Interim Results Presentation for the 6 Months ended March 2022. I'm Nikki Catrakilis-Wagner responsible for Investor Relations at Tiger Brands. We're going to -- the agenda this morning is similar to what we've always done. There's just a slight change in speakers. Noel Doyle, the CEO will provide an executive summary of the results, as well as an update on strategic progress; Deepa Sita, CFO, will give a financial review. The operational reviews will be presented by Yokesh Maharaj, Chief Growth Officer for Grains; as well as Thushen Govender, who's the Chief Growth Officer for Consumer Brands. We'll then hand back to Noel, who will give a strategic update and outlook and then we'll move to Q&A. Before we begin, I'd draw your attention to the forward-looking statement. With that, I hand over to Noel. Thanks, Noel.

Good morning, everybody and thank you for joining the team this morning. I'm going to have a fairly brief speaking role in this morning's presentation and you'll get the meat of the results from my 3 colleagues. I think when we look at these set of results, I think it is after 3 successive interim periods when we managed to show growth period-on-period, it's a bit disappointing for us that in this particular period, we appear to be showing some signs of regression. I think it's important that I give you some context to the first half performance really being a tale of 2 businesses and 2 quarters. So the 2 businesses where we were particularly challenged was the Snacks & Treats business, where we suffered significantly in terms of out of stocks as a result of the lengthy industrial action in the first quarter, that concluded right at the end of the year. And in that business, we're expecting to see a recovery of our service levels as we progress through the year. And then in our Bakery business, where we had a very significant deterioration in profitability driven by volume declines as we saw the market competitiveness from a pricing perspective increased significantly. We attempted to recover cost push at the beginning of the quarter and we found ourselves with the premium over expanded and suffered from volume losses. Yokesh will take you through a little bit more of that detail. So we're looking at a good recovery in the Snacks & Treats business going forward, but still some challenges in the Bakery business. When I talk about it being a tale of 2 quarters, in the first quarter, it's fair to say that the level of cost push that we had seen was significantly higher than what we would have anticipated when we fixed our pricing and promotional calendar for the first quarter. And therefore, we found it very difficult to catch up in that quarter with the level of cost escalations that we had seen. We made significant strides in that respect in the second quarter. And so notwithstanding the challenges in those 2 businesses, in the second quarter we saw -- if you look at the portfolio overall, we saw some growth year-on-year. But obviously, from the results, not sufficient to offset the challenges that we had in respect of the first quarter. I think what is important though is that you get a sense as we go through the presentation that whilst we dealt with those challenges in the past 6 months, we've stayed quite firmly focused on driving those key sort of strategic pillars that we believe have contributed to the performance that we've had over the preceding 3 interim reporting periods in which we think we'll deliver growth for us for the remainder of the year and create the sustainable platform for growth going forward. So in terms of meeting the needs of the consumer, it's the first time in many years that we've started to over-index when you look at our rate of innovation across the portfolio relative to the category and you'll see some examples of that as we go through. Our project focusing on general trade is meeting our targets and our expectations. We're getting deeper penetration and wider penetration, particularly in the Groceries, HPC and Baby business. And despite the challenges that we've seen, our brand health measures when you look at them holistically have been holding up very well over this period. When it comes to people, this is one of the issues that I highlighted as a challenge and we've continued to make progress in this regard. We're starting to see the people in the company emerge with a little bit more confidence, a little less of the risk aversion that I spoke about previously. So the cultural transformation is underway, but it's not one that happens over 1 or 2 or even 3 interim reporting periods, but we are making progress in that regard. When it comes to building the growth pipeline, I think one of the key things that we moved very quickly on is around our revenue management capabilities and we've made very great progress, which Deepa will no doubt cover a little bit later, in getting the right people on board and generating real rands out of the initiatives in that space. As well as that, we've been very much internally focused and focused on the businesses currently in the portfolio for the past number of years. And we've started now to build a pipeline of potential activities both locally and rest of Africa. We've been working very hard on building our networks and attempting to identify opportunities for growth. Of course, these are not short-term in nature, but the pipeline is certainly a lot fuller than it was this time last year. And I guess in terms of putting some actions to the good intent, you will have seen the announcement in terms of the VC Fund, which we initiated last year, making its first investment and we anticipate more to come in that space as we go forward. Our supply chain is one of the highlights, continues to be one of the highlights where we have made progress on top of the prior year, some really good progress in terms of managing material usage variances, significant progress in the sites that we've targeted for OEE improvement and in this inflationary environment, the fact that we're already gaining traction and momentum in this space where productivity and efficiency is going to be key is a positive for us. The focus on consumer quality is paying off. We saw a dramatic reduction in consumer complaints in the previous reporting period. And for this period, consumer complaints are down 12%. So we're quite pleased with that. The obsession around cost savings is critical in this environment, where we are managing almost unprecedented levels of inflation, which we'll take you through in a little bit more detail later. And we're happy that across our logistics, our supply chain side of the business that we've hit the targets that we've set for ourselves. We need more and we've got every target program accounts, which is headed up by Deepa, which kicked off in this period and we believe will augment some of the programs that we had put in place prior to the beginning of this period. In terms of the sustainability, we are obviously working very hard around the health and nutrition driver for us and here before represents one of the steps in that area. We're working on our recycling initiatives. We're working on alternative energy initiatives. We're about to do our first sort of solar projects in 4 of our sites with the intention to roll out progressively. And we were very pleased that we hit the target of getting to Level 2 from a BBB scorecard last year, ahead of the targets that we had committed to at Board level. So with that, I'm going to hand over to Deepa, Yokesh and Thushen to take you through the detail of the presentation. Thank you.

Thank you very much, Noel. Good morning, everybody. So before we kick off into the actual numbers for the day, I'd like to take a moment to just talk a little bit around the highlights and headwinds that we've experienced in our H1, some of which Noel has already spoken to and I'll certainly cover a lot more of that in the presentation to follow. So in terms of the general highlights that we've experienced in our H1, we did see the successful rollout of our revenue management program across most segments in Tiger Brands. As Noel indicated, that program continues to gain traction, with some delivery in terms of actual tangible rands to our bottom line and I'll cover a lot of that in the actual presentation. Our productivity and efficiency initiatives continue to gain traction. You would have recall, we spoke about that in our FY '21 results, that continues to gain momentum in terms of improved factory performances. But FY '22 certainly sees more focus in the logistics space where we were able to deliver savings of ZAR 55 million to date in that particular space. On the OEEs and effective cost control side of things, we delivered ZAR 187 million year-to-date and that's tracking ahead of plan at an aggregate level. Also new to the presentation today is the capital structure optimization that we've embarked on. That program is still in progress and I will talk to the share repurchase program that we commenced during H1. In terms of the headwinds, as Noel mentioned, we continue to see the pressures come through around the global supplier and logistics constraints as most organizations are feeling in South Africa. This has impacted both the cost, as well as availability of both raw material and packaging. The unanticipated cost push pressures, as well as the timing of our price increases did result in gross margin compression and that's something that we continue to focus on in the H2. Working capital investment did increase in H1 in comparison to the prior year. This was actually resulting from our inventory balances going up, which was as a result of both a conscious decision to increase volume of raw material where those stocks were available, as well as the impact on inflation in terms of the values of raw materials and packaging alike. The category headwinds, you would note that we'll talk around the Bakeries, the volume decline that we're seeing in bakeries, as well as the impact of labor unrest that we saw in the Snacks & Treats business in quarter one. Just coming back to global supply constraints and the impact that it's having on the port, the port bottlenecks are certainly impacting our import of raw materials and packaging, but as well as our export business in particular the left organization. So if we just move on to some key highlights in terms of the actual numbers, we did see a slow start to the year following the industrial action that we saw in the Snacks & Treats division, as well as the significant volume decline that we saw in Bakery and this saw the business delivering a subdued performance in the first half of the financial year. This was exacerbated by the supply chain constraints in certain key ingredients, raw materials, as well as packaging, as well as our inability to fully recover those cost pressures and as a result, having an impact on our gross margin. Although the cost initiatives, cost-saving initiatives as well as the supply chain efficiencies have been accelerated and are delivering ahead of targets as I indicated previously, they were not enough unfortunately to counter the impact of the cost inflation that we're seeing and this did result in gross margin compression to 29.2% in terms of our reported H1. The group's effective tax rate decreased to 29.6% from 30% and that was largely due to the adjustments in the current period in respect of special investment allowances that we had previously claimed on capital projects. In terms of the income from associates, these increased by 3% to ZAR 182 million with Carozzi and National Foods delivering improved revenue performances, which were certainly assisted by rigid cost control. We saw Carozzi do particularly well in local currency. However, unfortunately, some of this impact was offset by the local currency translation into ZAR . National Foods performed exceptionally well and ahead of targets and this was driven by better sales mix, as well as the impact of price inflation. In terms of EPS, EPS from continuing operations decreased by 3% to 733 cents, while HEPS continuing operations decreased by 2% to 729 cents. With that being said, we are pleased to advise that the Board has declared an interim ordinary dividend of 320 cents, which is flat on the prior year. In terms of our price volume mix, the total revenue from continuing operations increased by 2% to ZAR 16.8 billion. This was driven by price inflation of 3%, which was partially offset by volume declines of 1%. Relative to the prior year, the exports revenue was driven primarily by improved performance from the [ left ] business, which benefited from elevated prices of fruit, as well as improved volumes in terms of international supply. The volume growth in exports and international was however offset by volume declines that we saw come through in the domestic business and this was primarily attributable by milling and baking, the impact of the Snacks & Treats unrest, as well as the performance in our Home and Personal Care. The volume declines in domestic were however offset by some strong performances coming through in out-of-home, as well as good performances in rice, beverages and groceries. And my colleagues will certainly talk more to that shortly. In terms of the domestic business, so domestic revenue increased by 2% to ZAR 14.8 billion and this was underpinned by price inflation of 3% less the impact of the overall volume decline of 1%. It is important to call out that the domestic business, as I said previously, was impacted by the grains business with primary drivers being bakeries, which experienced significant volume losses following the implementation of price increases to recover the category cost push that we had experienced. The Consumer Brands business recorded an increased revenue of 6%, notwithstanding the 12% decline that they saw in the Snacks & Treats business. If we excluded the impact of bakeries and Snacks & Treats, our total revenue from continuing operations actually increased by 5% and this was driven by price inflation of 2% and volume growth of 3%. So as Noel spoke about the revenue management project, we're pleased to advise that, that continues to gain some good traction in the FY '22 period. The focus remains on building a sustainable capability in terms of revenue management and this will be underpinned by 3 key enablers. The first one is the introduction of tool such as the profit waterfall tool, as well as other commercial decision-making tools, which allow timely analysis and analytics in terms of decision-making where we can base these decisions on actual facts. The second enabler will be the implementation of defined revenue management activities across the business and key categories and really embedding that in the way we do operations. And the last enabler, as Noel indicated previously is the appointment of appropriately skilled individuals in the revenue management space to act as effective business partners to the category leaders across Tiger Brands. In terms of the focus areas and objectives, we continue to focus on various item such as consumer price, pack-price architecture, as well as items such as commercial policies where we will see benefits being derived from reducing the selling discount dispersions within customer groups and on specific SKUs. The rollout of trading terms is predominantly completed. We have seen the shift from previous trading terms, which were based on unconditional rebate. We've now seen the rollout go through in terms of the new trading terms focusing on a pay-for-performance model. In terms of promo optimization, this comprises of promotion planning, as well as post-promotional evaluation with the intent of making sure that we're able to optimize the return on investment on all promotions. The benefits yielded to date amount to ZAR 100 million banked in FY '21. It is important to note that FY '21 numbers are purely based on a pilot and those were coming through in selected categories only. The FY '22 numbers have delivered an additional ZAR 22 million year-to-date as we focus on the rollout in terms of all categories within Tiger Brands. We're also pleased to advise that this rollout is on track and we anticipate that we will be completed by the end of the fiscal, where all categories will have the program embedded. If we shift into the actual income statement, so as I've mentioned previously, the group's improved top line performance as well as profitability in the second quarter were unfortunately insufficient to negate the poor start to the financial year. The group operating income before impairments and non-operational items decreased by 5% to ZAR 1.5 billion. It is important to call out that included in the sundry income for the current period, we have insurance proceeds amounting to ZAR 17 million relating to the insured portion of the cans recall that we reported in the prior year, as well as an amount of ZAR 144 million relating to SASRIA claims in respect of the KZN civil unrest, which occurred in July 2021. Both these payments represent tranche payments and we do anticipate further payments to come through in H2. The financing cost for the period amounted to ZAR 34 million compared to ZAR 29 million in the prior year. Included in the net financing cost line on the income statement in front of you is a net foreign exchange gain of ZAR 5 million, which resulted from the translation of foreign currency cash balances. And important to note, the prior year reflected a net foreign exchange loss of ZAR 56 million as a result of the strengthening of the rand against major currencies in the prior year. So if we just have a look at a very top level in terms of the performances by each of our categories and the detail will be covered by my colleagues shortly. So the solid consumer brands performance was certainly muted by the grains and export in international performance. We saw grains revenue decreased by 1.5% to ZAR 7.4 billion, reflecting average inflation of 1.5%. This was offset by overall volume declines of 3%. Our efforts to recover the inflation -- input cost inflation across milling and baking were negated by the price deflation that we saw come through in the rice category. The Grains portfolio recorded a 32% reduction in operating income to an amount of ZAR 423 million. The consumer business, while all segments except Snacks & Treats delivered top line -- strong top line growth, with a particularly strong performance in the out-of-home category, which recovered in the post-lockdown demand. Snacks & Treats, like I said, were impacted by the supply chain challenges due to the 8 week labor unrest, as well as some lag processes coming through following the civil unrest experience in KZN in July 2021. Overall, revenue in this segment increased by 6% comprising price inflation of 4% and 2% volume growth. The operating income increased by muted 2% to ZAR 654 million. HPC overall, the revenue was marginally up relative to prior year despite the lower volumes that we saw come through in home care, which was driven by the poor pesticide season that we experienced. Despite the significant cost push that was experienced in this category, in particular, the operating income declined by 16% to ZAR 212 million. And the export international business increased by 5% to ZAR 1.9 billion revenue. And this was, as I said, previously largely driven by the strong performance that we saw come through in the left business, with operating income declining by 25%. So just having a look at the group operating income, so consistent with the cost management that we delivered in line with guidance, the year-on-year group operating income benefited from area such as the continued improvements of factory performances, the logistics initiatives which I spoke to earlier, as well as the insurance proceeds that we saw come through in H1. The trading was, however, impacted amongst others by the impact of the S&T labor unrest, ongoing volume challenges as a result of the price inflation, raw material challenges coming through, as well as the significant price increases coming through in diesel cost overall. Just having a look at our cash flow performance, cash generated from operations declined significantly to ZAR 517 million compared to the ZAR 1.7 billion that we reported in the prior year. This was driven by the significant investment in working capital, as I indicated, through the increase in inventory balances, driven by both inflation, as well as volume. And it is important to note, though that the volume increase is in line with our strategy to carry higher stock level where possible in light of the global supply chain constraints that we are experiencing. The cash outflow in respect of dividends paid amounted to ZAR 859 million and this was partially offset by dividends received from the associated companies. Tax paid amounted to ZAR 477 million for the period under review, with capital expenditure amounting to ZAR 419 million in comparison to the ZAR 381 million for the same period last year. The cash position was impacted significantly following the initiation of our general share buyback program. In terms of our H1 purchases, we repurchased ZAR 4.1 million -- 4.1 million shares amounting to ZAR 676 million and this was at an average price of ZAR 161.76 per share. I'll also call out that these shares have been canceled from the issued share capital and have reverted to the authorized share status. The group ended the net cash position at ZAR 318 million compared to the ZAR 1.2 billion in the prior year. Just coming to CapEx. As I previously indicated, the total CapEx for the year is expected to end in the region of about ZAR 1.2 billion, with emphasis remaining as previously indicated on replacement CapEx automation, as well as efficiency-related items. The larger projects that we will look at for H1 are the potential relocation of the peanut butter plant, as well as improvements on the aerosol line in HPC. In terms of the IT and automation projects, of the 50 projects that we initiated, 14 have already been completed with 7 in the testing and deployment phase. A further 15 projects are expected to be initiated and completed during H2, with the balancing multiyear projects and those will see us run into the following FY '23 year. So we've been speaking quite extensively around the cost push pressures that we've seen. Like most companies, Tiger Brands is also impacted by the global supply chain squeeze. We've experienced challenges in managing availability, timely supply, as well as the significant cost increases coming through. The full impact of the supply chain constraints on commodities is, however, being buffered by the procurement positions that we currently hold in Tiger Brands. These positions are, however, being exhausted and I expect it to result in even greater cost push pressures coming through in the second half. The recent weakening of the rand is also further expected to impact the cost push pressures even further. We expect the challenging economic conditions to continue into H2 and this is going to likely have a significant impact on the consumer and the further pressure to intensify during the second half. While we will increase our efforts to reduce cost and drive further efficiencies where possible, we do call out that we expect significant price increases to come through and those will be inevitable in H2, with inflation in the second half expected to run into double digits. Mitigating strategies in the space, we'll focus on securing supply, broadening sources of supply, where possible, increasing frequency of price increases, close engagements with customers, as well as enhanced measures to contain the conversion costs and operational efficiencies overall. So just in terms of looking ahead, it is certainly going to be a fine balancing act between maintaining the appropriate margins, while protecting the volumes as best as possible. The current headwinds are likely to continue as I indicated, input cost pressures are expected to remain elevated for longer availability and supply is certainly a concern as the global supply chain squeeze continues, as well as the bakery profitability is expected to be sustained at current levels as volume recovery takes hold overall. In terms of our focus and mitigating factors to offset some of these challenges, the revenue management program will further be accelerated and we will continue to achieve momentum in that space. We will focus on category-specific initiatives to recover the cost push, recovery -- with recovery in Snacks & Treats expected to bolster the second half. Also important to call out our innovation rate continues to get focus and our current rate is running ahead of competitors in the space, progressive improvements in export and as well as focus on the resolution in terms of the Deciduous Fruit business overall. Focusing on where we are in terms of the trading update on H2, we're pleased to advise that April and May profitability ended ahead or anticipated in the -- ahead of prior year. The price increases have been successfully landed to date in most segments during the start of our H2. We've seen solid volumes come through in beverages, out-of-home, exports and international. We are seeing signs of improved profitability in selected segments. And like I said previously, cost saving and revenue management initiatives remain in track and will remain to get continued focus from the organization. So on that note, I'm going to hand over to Yokesh to cover the details around the grains category in particular. Yokesh?

Thank you, Deepa. Overall, the grains business was impacted by our bakery and our wheat milling business, with the segmentals under Undergreens showing profitable growth. This was driven really the revenue driven was as a result of price inflation, which was offset by overall volume declines. And this was an attempt to recover some of the cost pushes that we saw particularly in our milling and baking business. Operating income, which I'll show you in a bit more detail later on was offset with significant volume losses in our wheat milling and our bakeries business in particular. Value shares remained relatively stable for the overall grains business. However, we did see an impact in our bread business as we lost volumes in an attempt -- as we attempted to recover the cost pushes we saw from the commodities. Just looking at bread category in totality, what we did see over the last 3 years is muted growth, with a deceleration of at least 5% in the last fiscal across multiple LSM levels. From a year-to-date perspective in January, you saw 1% decline in the category in totality. So just looking at a bit more detail in terms of our milling and baking business, what we've seen is a revenue drop of 2% and this was mainly driven by offset of volumes, as we try to recover the cost pushes and operating margin down 390 basis points. Overall, the adverse dynamics within the overall category do persist. Our market pricing strategies or the total market pricing strategies are not reflective of the environment that we're seeing in relation to the soft commodity push that has occurred. And significantly, we have had strike actions and fuel cost impact in the bakery business. However, in quarter 2, we did see volume recovery in particularly in the top end as we started to improve our in-store promotional and activations. And our revenue in Maize was impacted by unfavorable product mix. Our Sorghum business was impacted by poor factory performance, which has been subsequently remedied. Looking ahead, we're going to be focusing on increasing support in our Maize business by focusing on secondary lines, increase consumer activity to drive demand and increasing in-store activity. We'll also be looking at our wheat business by driving our value-added packs. So a bit more detail in terms of Albany in terms of the highlights and the headwinds that we are facing. In terms of the highlights particularly in quarter 2, we did see market share gains driven by our white bread segment as we increased activations and in-store activity, particularly in the modern trade. Our cost-saving initiatives are on track and we -- I'm pleased to say that we have filled key bakery vacancies. And there are opportunities internally in the medium-term to improve profitability despite the category dynamics. Some of the headwinds that we are facing, we are seeing our quality advantage reduced as competitors catch up and introduce technology into their own facilities. We are seeing market share -- accelerated market share declines in the brown bread category, where the price dynamics are particularly challenging. The cost push over the coming months will be significant and passing this on to the consumer will be particularly challenging as our commodity positions do run out and the profitability we expect to remain at the current lower levels in the near or short term. In terms of our immediate priorities for our bakery business, we are going to continue to focus on quality, particularly in terms of our brown bread. We're going to be focusing on recovering the general trade, where we look to capitalize on white spaces where we're not very dominant, defend and grow our strongholds, particularly in KZN and halting and grow share in regions that we weren't active previously. We look to leverage our brand strength. We know that Albany is the most loved brand in the category. And we are looking at reducing some of the poor-performing SKUs as we look to reduce the tail of SKUs. We're also looking at our efficiencies through our depots and the routes that we service and optimizing our fleet and hoping to bring these cost improvements to the bottom line. The bakery leadership is now in place as I mentioned and we hope to embed them and get traction at a local and regional level, where the dynamics are very different. In terms of our other grains performance, as I mentioned, operating profit up 6% and margin up 40 basis points. This was driven predominantly in the rice category, where we did see an overall deflation in the category, but a 16% volume growth for ourselves. And we benefited from tighter cost control efficiencies and revenue growth management activities. We also had a pleasing performance in our Jungle category, where we had favorable product mix as consumers switch to ready-to-eat, but this was impacted by high raw material cost and distribution cost. We also saw a strong revenue growth in pasta driven through better volumes and improved realizations. However, our pasta business was impacted by higher maintenance costs in our factories, which resulted in under recoveries. So looking forward, we're going to be continually focusing on our cost savings and efficiencies and our promotional activity, particularly within rice and our Jungle categories. We've launched various shopper campaigns for H2 to drive the volume in these categories and the refurbishment of our pasta factory is currently underway. Thank you very much, I'll hand over to Thushen.

Thank you, Yokesh. Good morning, everyone. We're quite pleased with the consumer division's performance despite some of the macro challenges that my colleagues referred to, as well as the more specific divisional challenges. Within Snacks & Treats, we've had the industrial action, which I'll talk to a little later. And then within our Home and Personal Care business, we were impacted by a very poor pest season. What's pleasing to note, however, the groceries business and the baby business delivered a stellar set of results and I'll cover that in more detail a little later. Our value shares held up and in Beverages and Home Care, despite the tough category dynamics, we managed to grow share and I'll cover that as well in the coming slides. Moving on to the Groceries business. As you can see, it was a notable top line performance, where we had a good balance of inflation, as well as volume. That volume leverage benefited our canned veg category and our chutney category, where we saw some good improvement in the profit. However, on mayonnaise and tomato source, some of the cost push that Deepa referred to earlier, when we saw global logistics costs running, imports out of China slowing down, as well as general inflation across raw materials and packaging, we did see some profit regression in some of our other categories. However, all in all, it was an excellent set of results with good leverage being generated. The Mrs Balls business delivered some good results based on the last year's innovation. You would see on the screen, we've introduced some new price pack architecture strategies by increasing the number of SKUs in PET. This allowed us to offer our consumers a more, shall we say, affordable proposition, as well as potentially recruit new consumers to the category. If one looks at the category as defined by IRI, in the last 3 months, you saw some recovery from the historic volume regression with Tiger leading on that. However, we anticipate that to be short-lived considering the significant cost push our consumers are going to experience. The other point I'd like to talk about is revenue management, Deepa touched on that earlier. But at a category level, we're managing to bed down these principles and best practice. We're investing in deep analytics across some of our KVIs, trying to understand our relative elasticities versus our competitors on shelf and at the same time making sure we optimize promotional activity, the length of promotional activity, the depth of discounting, all of that has deep analytics supporting it, so that we can maximize on our initiatives. The other critical aspect of the business is making sure the supply chain is optimized and in this particular environment, we want to drive as much efficiencies as possible through the facilities and pass that on to our consumer, so we remain competitive. We have stringent KPIs in place, waste management, ensuring we reduce consumption of electricity and water, labor productivity and we're also looking for opportunities where we can strategically reduce our manufacturing footprint. And in some cases, outsource if it makes a lot more sense and allows us to reduce our overheads and our labor cost. More recently, we've shut down one of our [ Masina ] facilities and are looking at outsourcing this to local as well as international suppliers. I'd like to also call out that this business in particular did not have Managing Director for the first half of the year and I was pleased that the balance of the leadership team in the category managed to step up to the mark and deliver this stellar set of results. I thought it may be worthwhile spending some time on innovation and how we as a leadership team are thinking about this and bringing focused innovation, as well as ensuring we commercialize our innovation timeously. We're investing deeper into consumer insights and trying to leverage these insights to increase consumption opportunities across all mill occasions in the culinary business. There are 2 critical themes that we are driving here, product tiering or sub brands where we can offer value proposition to our consumer on screen, you'll see an example of a reduced oil menace that we were going to introduce under our Kasi magic, which is a sub-brand to our Crosse & Blackwell product. At the end of the day, it's important for us to have a multitiered product offering, so as the premium producer in this market, we're still able to capture the middle to lower LSMs in the category. The other key theme is product engineering, where we're looking at opportunities to reduce our recipe cost, while making sure the product intrinsics and the taste are not impacted in any way. All the way at the top level of leadership, innovation has become a critical focus to us to ensure that in this value economy, we're making sure we're offering relevant products to our consumers. Moving on to the Snacks & Treats division. As mentioned, the performance was significantly impacted by the industrial action and it came at the worst possible time. We had just recovered from the civil unrest in Natal. We were starting to build our stock for Christmas and Easter and we were impacted by this industrial action and the strike. We did point out some key things to us as a leadership team. We need to improve employee engagements on site and we've embarked on a strategy on that account. And more importantly, we need to also have those tough discussions around labor productivity, making so shift patterns are optimized and relevant to the demand patterns that we see in the marketplace. Looking ahead, there are 2 or 3 key items we're going to focus on as a leadership team, restore the core, improve our service levels and our production run strategies are reflective of that where we're first focusing on our KVIs and building our buffer stocks in that regard. And then as part of stabilizing the core, we do have a very old facility. We've brought in the original equipment manufacturers to help us go through end-to-end older lines to ensure we have the right maintenance programs, as well as the right critical spares on hand to reduce downtime. The other discussions we've embarked upon in parallel is reaching out to global strategic partners to help us with product innovation, as well as product quality and some of these discussions are well underway. On the beverage business, in the first half, we invested quite a bit beyond promotional activity and pricing to hold shares and in the dilutables category we managed to actually grow share. We were impacted as well by significant inflation cost push, as well as supply challenges on some of our closures for the Energade and OROS ready-to-drink product. With that being said, it impacted our mix, as well as the cost push phase resulted in us experiencing flat year-on-year profit growth. Looking ahead on this particular category, we want to continue to increase our contribution from the ready-to-drink portfolio, at the same time investing cold availability to enable that portfolio and we in the process of rolling out fridges to some key retail points. The other areas we are looking at here again is in innovation and spending more time and effort on trying to commercialize our projects by moving our brands into adjacent categories, be it energy, water or ready-to-drink propositions. Innovation is going to be critical in this particular category. The baby category delivered an excellent set of results, driven by nutrition inflation. We saw some good bottom line benefit. However, the toiletries category does remain constrained and is facing significant cost inflation. We've seen our consumers limit purchases and focus on more basic products and items. In the first half, we did experience some supply challenges in our pouch business and as a consequence, we refocused our investment beyond the Jars format and it was pleasing to note that, that format delivered some good performance. What it does tell us is that, that format still remains relevant for our shoppers. As the -- one of the leaders in this nutrition category, we're the only player that can offer both a pouch and a jar format. And in our marketing strategy and communications, we are now communicating the benefit of these 2 formats and that complementary nature thereof. Jars offer a more solid main meal proposition, whereas pouches offer an interim snacking solution. And no other player in the category can offer that product set. As mentioned, the Home and Personal Care business was impacted significantly by heavy rainfall during the summer season. So the pesticide business felt that pressure and there was lower demands, as well as significant inflation that this category experienced, 20% plus on raw materials and packaging. On Personal Care, despite the significant cost push, we've managed to hold our position, but the category does remain challenging given what our consumers are facing in terms of inflation. What is clear to us in this category, we need to fast track our innovation and reduce our dependency via organic and inorganic means on the aerosol pesticide business. I'll hand over to Noel at this point.

So when it comes to the exports and international business effectively, despite better top line from the Deciduous Fruit business, we're really seeing a stagnant and ongoing loss-making performance relative to the prior year. We are seeing better pricing into the second half and provided that we are able to overcome the logistical challenges around shipping. We expect to see an improvement in this segment. In terms of our other exports business, a very slow start to the first quarter in Nigeria, had an impact which is now reversing and we expect to see some solid growth in that business going forward. And our Chococam business continues to demonstrate the ability to manage for the long-term, whilst generating very good short-term results, considering the complexity and the challenges of operating in Cameroon at the moment. So I'm going to switch now to sort of the concluding slide and the strategic update. I think the point that I would really like to bring out is that with the management team that we now have in place, I think we are starting to demonstrate the capability of managing both for the long and the shorter-term. I think it is quite easy to understate and underestimate the complexity of dealing with the current short-term challenges in terms of significant take it or leave at price increases and the real challenges around physical availability of raw material, the extent to which operational management are involved on a daily basis in making sure that we're able to streamline the supply chain. And as an example, we have a significant number of people tied up every day currently in meetings where we are getting into quite a lot of detail on the allocation of available sugar due to the challenges in supply that we're experiencing out of the local sugar industry. So whilst the team is managing all of those challenges, I think that what you're seeing in some of the results that we're presenting are the results of initiatives that have a long-term benefit and then that were initiated some time before. You will see that bakeries where has been a real drag on our earnings for a number of years now, but we do see signs of stabilization, we expect a recovery in the future. We're going to continue our focus and our investment around the things that will drive sustainable growth, while focusing very aggressively on costs in this environment. When we look at the outlook, the level of inflation that Deepa spoke about for the first 6 months in the low single digit is likely to represent a very significant challenge to managing demand in the second 6 months, which we are confident that we have got plans in place, but we're going to see inflation in our basket move into double digit as a full impact of what we've seen globally starts to flow through our supply chain, particularly as some positions that we had begun to unwind. Our focus on sort of our own operations is not allowing us to dilute some increased focus that we're making on growing both domestically and internationally through potential M&A activity. Again, a much healthier pipeline than we've had before, although there are no particular transactions that are imminent. But I think we're starting to gather the level of intelligence and build the relationships that will be important in developing our business, particularly in the rest of Africa in the medium term. And as that pipeline is not likely to [indiscernible] a lot of the cash that the company has on its balance sheet and has typically been able to generate from its continuing operations. We have responded by addressing the issue of gearing with the commencement of a share buyback program that Deepa has recognized. I hope that the presentation leaves you with some sense that despite a really challenging first quarter that the team has got to grips with those challenges, whilst focusing on the long term. And it is our intention despite that high level of inflation that I spoke to and it is our expectation that we will second half on second half deliver growth on the prior year. With that, I thank you for your attention to us and I think Nikki will moderate the questions. Thank you.

Thank you, everybody. I'll start with some divisional questions and then move to group questions. Thushen, this is for you related to Snacks & Treats. Snacks & Treats has been a perennial problem, actions being taken just sound like more of the same. Maybe you can elaborate on that?

Thank you for that, Nikki. I think it's fair to say we have had challenges for some time at the site and within the category and a big part of that is the leadership changes that we've had. We've now managed to bid down the leadership structure. And at the same time, we're going deeper into the issues, be it from a consumer-facing perspective or from a supply chain perspective. I did mention that the service levels have been an issue for a long time. We've invited our original equipment manufacturers into the site. We went through that line -- those lines thoroughly with our engineers and make sure we have the appropriate maintenance programs in place to ensure that we reduce downtime. And at the same time, what's different is, we're reaching out to global partners with a little bit more intensity where we want to focus on improving our product quality, our rate of innovation. With the new leadership, we're also looking at this category with a fresh pair of eyes, investing in consumer research, understanding the role of Beacon as the mother brand and historically, we haven't leveraged that sufficiently and we're starting to find those opportunities and gaps and address it. So I'd like to think there's renewed focus all the way from the supply chain through to product innovation and consumer understanding and we're committed to turning it around. We believe we're on top of the issues. Thank you, Nikki.

Thanks, Thushen. There is a question on -- could you please quantify the impact of the labor and restaurant Snacks & Treats business, which I can take? It was ZAR 100 million at the EBIT level. Then moving on to Bread, Yokesh. What is the volume outlook for Bread? Any volume stabilization being seen yet as you invest in price? And then more specifically on the challenges witnessed? What are some of the key reasons behind the challenges witnessed in general trade for bakeries?

Thanks, Nikki. What we've done over the last quarter effectively is look at improving our volume performance as we took price or inflation in the first quarter. We've seen a good stabilization in terms of our white bread volumes. We're still picking up some challenges in terms of our brown bread. And these are -- the brown really is an area that we look to address in the forthcoming months. So I expect an improvement in our volume performance, but there will be some deleveraging of our inflation as we try and recover some of the volumes, particularly in brown bread, given the price differential that we are seeing, which is not reflective of the commodity pushes that we've seen in totality. Sorry, what is the second part of the question?

What are some of the key reasons behind the challenges witnessed in the general trade?

I think that as we took price, particularly into quarter one, it is very difficult to deal and get promotional activities on a wide scale in the general trade. It's much easier to get it done on a modern trade basis given that it's centrally controlled and you deal with a set of 3 or 4 group accounts. Given the dispersed nature of our delivery and the number of outlets that we do track in the general trade, it makes it very difficult to bring those promotional mechanics to be. As a result, if the competitors do not take pricing at the level you take or take much later, you start to see a swing in volumes, which makes the general trade particularly difficult to navigate when you see these hyperinflationary cost pushes come through.

Thanks, Yokesh. Just some questions around procurement. Can you please elaborate on current inventory positions relative to last year? Have you bought raw materials already for the next 6 to 12 months?

So in terms of our inventory balances, as I said, we are holding higher inventory balances on our balance sheet and that is a result of twofold, like I said, the impact of the inflation on the cost inflation coming through, as well as increased inventory holdings in specific areas. I think what's important to note is that there is a global shortage of selected material. So thereby, we're not necessarily able to hold high levels of stock even if our days cover would require it. So what we are doing is where stock is available, we are trying to secure those in advance. And what we're looking at is on a category-by-category basis, we're reviewing the inventory days holdings, both in finished goods as well as raw materials and we are ordering stock in advance to take into account the longer lead times for shipping, as well as just general availability. In terms of H2, we don't have full cover for the full period of H2, but it is also dependent on a category-by-category and ingredients in particular and also in terms of our hedging, it's not necessarily something that we cover in detail in this form.

Okay. We can stay with you.

If I could just add to that, just to say that consistent with past practices, you're not likely to see us take any massive bits in terms of particularly long positions. Philosophically, we've historically and it's worked for us over time, preferred to if we are to be slightly shorter in a rising market than very long in a falling market. So no extreme bet being placed but obviously watching and reacting on a very regular basis to what we see happening in the market.

Thanks. Deepa, on insurance proceeds, there is a question, are insurance proceeds taxable? Yes, they are. And how much are you still anticipating to receive in terms of set insurance payments in H2?

Thanks for that, Nikki. So basically, where we are, we've received 2 tranches on the SASRIA payment and they equate to between 75% to 80% of the claim. We're just waiting for the remaining 20-odd percent. Also I spoke about the ZAR 17 million received in respect of the cans insurance recall. That amount we anticipate -- that the claim that we've put in for the insurable portion amounts to about ZAR 60 million. So we're waiting for the balance of that payment to also come through in H2.

Okay. Then some general questions on performance going forward. What gives you confidence that you can grow operating income year-on-year pre abnormal recall costs last year in H2?

I think what gives us that confidence is the fact that after the shaky first quarter, we've navigated quite a few operational procurement-related supply, pricing challenges and successfully grew operating income in quarter 2, as well as, as Deepa has highlighted so far, April and May are ahead of the prior year. And on that basis and the momentum that we're seeing in the business is we believe it will be possible to grow operating profit for the second 6 months.

Which divisions are behind the profit improvement seen in April and May, naturally Snacks & Treats recovery post industrial action and a better performance from some of the export divisions drove that, not sure if management wants to add to that answer? Okay. With regards to double-digit inflation you referred to in H2, which categories are likely to see more increases? Are your customers likely to be receptive to these increases?

I'll kick off with that. So HPC, in particular as a category is experiencing significant cost push, both across raw materials and packaging. Across all of our categories, generally there's high inflation, whether it's tin can, whether it's oil, which is impacting culinary. There are quite a -- it's an abnormal inflation that we have not experienced previously. We are taking price increases across the range going into H2 and yes we have had some tough discussions with our retailers. However, I think there's an understanding that this is not a specific issue to Tiger, this is an industry and a global issue. So at the end of the day, it is unfortunate that we have to push through to our consumers. We are, however, as we said, looking for those opportunities where we can reduce recipe costs, introduce value propositions and for us, that will be critical because this we believe is going to be a protracted period of where we're in a value-based economy.

I think in terms of the grains business, as Noel said, we're typically shorter and longer in this type of period. And as always, commodity positions run out, we are going to see prices come through, which will have to pass on through to the trade and our customers. We've just announced a bread increase at the beginning of this month, together with wheat increase. And if the price continues to climb commodity, soft commodity prices, as it has been over the last 3 or 4 months, we will unfortunately have to pass on pricing across a number of our categories. The only category that we are seeing some level of stabilization, certainly not growth in terms of inflation was the rice category where we expect that to be slightly muted.

What areas of food or other would M&A focus on?

So I mean, our M&A is focused on condiment sources, ingredients, the seasoning space, beverages space, baked goods, particularly outside of South Africa and insecticides and home care, but specifically on insecticides. And we're also exploring without wishing to go into the detail now some potential category expansions outside of the existing portfolio.

Okay. Deepa back to you in terms of cost savings, do you still expect the ZAR 480 million in cost savings for FY '22 as guided? And an additional question is, has it become harder to execute these cost savings?

Thanks for that, Nikki. Yes, look, so we remain on track in terms of delivery of that commitment. However, with that being said, the shift in terms of how we'll achieve that target has certainly been moderated. We continue to see benefits come through in terms of efficiencies, in terms of the factory performance. And as I alluded to in the presentation, a big component of the savings are going to come through in supply chain efficiencies, logistics efficiencies in particular. As Noel indicated, we launched the every tag accounts campaign this year. We're pleased to advise that we have a pipeline of identified savings opportunities that will also kick off into H2, but a number of those will also run into a sustainable platform into FY '23. Yes, it is becoming more challenging, particularly with the cost push pressures that we see. Some of the target was actually related to procurement-related savings and obviously, those are coming under pressure with double-digit price increases, cost push pressures that we're seeing. But we are focusing what is within our control in terms of operating expenses, factory performances, efficiencies, et cetera. The other impact that is affecting the business is the increase in diesel cost, the shift in exchange rates. So those all do contribute to the overall performance. But we're comfortable that we will certainly deliver albeit in a different mix for the year.

Thanks. In what areas are you seeing challenges in availability in terms of procurement?

So just as an example, there are products that we are importing. The Snacks & Treats business was particularly impacted in quarter 2 by agility and shortage. There are other items that we are experiencing shortages on in our DaVita business as an example, MSG is another product that we're finding challenging in terms of securing stock on a timely basis. Some of this has resulted in us having to airfreight material as soon as they become available. But as you can imagine, that does come with a cost implication to the business. But we remain vigilant, particularly with lockdowns in places like China, they have an impact in terms of supply as well. But we continue to look for alternative sourcing arrangements. Noel also mentioned the current situation in South Africa in terms of sugar shortage given the case in flooding that took place a couple of weeks ago. So we were certainly impacted by that as well. So those are just some of the examples of the shortages that we're experiencing.

Okay. Yokesh, back to you. You mentioned competitors closing the gap on bread technology. How do you then justify your price premium to competitors?

As I mentioned earlier on, the brand held score show that Albany is the most loved brand. And therefore we believe that our consumers are prepared to pay a premium for this brand. Having said that, I don't think the premiums will be at the historic highs, but we do believe that we will be able to command a premium in the market.

I think it's also important to underscore in terms of bread that competitors also peg their prices through Tiger Brands. So the expectation is that Tiger Brands will be the premium offering. Just H2 in 2021 was a weak base for comparative purposes, how do you think you will perform compared to H2 of prior years?

I'll take it -- take it.

Yes, look, we have looked at our most recent forecast and we are confident that we'll deliver over and above the H2 performance of the prior year. And that's on an adjusted basis, so adding back the impact of the cans recall, as well as the case at an unrest at this point in time, we're forecasted to end ahead of the H2.

Are you looking to dispose of any businesses? There are a few questions around Deciduous Fruit in terms of what is next, given that the disposal process has been terminated. We did give an update in the earnings announcement that we will update shareholders once we've had engagement with stakeholders. No, I don't know if you want to...

No, there's nothing further to add to that, Nikki. Thank you.

Okay. I think most of the questions posted on the platform have been answered. I'll follow up with analysts who had very specific questions. Are there any questions on the conference call?

There are no questions from the telephone lines at this stage.

Would you like to make some closing remarks, Noel?

No, no. Thank you.

Thank you, everybody for attending. I will be available if you have any follow-up questions. Thanks very much. Bye-bye.

Thank you.