Tiger Brands Limited (TBS) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the results presentation for our interim results. Welcome to all the analysts, shareholders. There's a lot of Tiger people, yes, and you'll see I'll talk about the new structure and the MDs, there's at least 3 of them here. There's one that's sick and one of them is on study leave. So there should be 4 here if we count. Welcome. I think the results starting at 10 and pick and pay started at half-past 8 this morning is messing up a few people's diary a little bit this morning. But be that as it may, so [Audio Gap] the structure are better down. Their teams are in place, and we're driving very hard as we're going forward to make sure that we get all the stuff into the categories or into the businesses that should be there, keep at the head office, but we should keep it head office and driving that process. So that's what we're busy with right now, and we're actually making very good progress in doing that. So if you look at the strategic review, where the big issues are? Sorry, if you can just wait a second, our chairperson is arriving. Good morning, Chair, and welcome to Geraldine. So if you look at the strategic review of the organization. If you look at the results that Thushen will share with you later on, you can see the 2 big areas where we are lacking in performance, it's in Bakeries and the Grains business. And I'll unpack that a little bit later. The second big area is in our Grocery business. And look, over the last number of years, those are the two areas where we need the biggest recovery in Tiger is to recover in the bakeries, mill-bake, particularly and in the rest of the Grains businesses and in our current business or our grocery business. The other business in Grocery is where we really -- we've done well, and we really need to sustain that. Our general trade recovery has got two legs to it. The one is in the bakeries, where we really need to get better in the general trade. And the second leg is the strategic process we started about 2 years ago is to get the rest of our basket into the general, and that's also going well. I'll come back to that. Operational review. So as I've said, the work of getting the businesses really empowered getting things in place, getting the categories or the MDs and their businesses to really be quick in decision-making and execution. That process is really going well. And it will take a while for people to settle down and really get good at that, but that process is on the way. We've identified ZAR 500 million of cost saving. And I know somewhere you'll ask, but you said lost ZAR 560 million. That number was defined as cost avoidance and cost numbers also is on the cost savings. We don't measure cost avoidance. And then we talk about streamlining the organization. And that's a big focus at the moment is really streamlining the organization in whatever we do. Some very good work we've done in the last 6 months is around capital allocation. And we do have a model now where we can really on a targeted basis, target, how we spend our money and how we invest our money. So CapEx projects must obtain certain return levels or certain return levels. And we've got a very clear model on how we drive that. We simplify the portfolio. And again, in that capital allocation model, if a business doesn't deliver the results that we need from that business over a period of time, we will look at exiting it. And then the optimal capital structure, which I'll come back later on, what do we do with our money, how do we invest it in capital, how we invest it in acquisitions? How did we invest it in returning to shareholders, whether it is dividend, special dividend, share buybacks, but I'll come back to that a bit later. So there's some -- the new operating model. It's not difficult to see the entrepreneur guy and the financial guy. And there you can see the 6 MDs, they're all in place. [indiscernible] is down sick this morning. Dumo, I haven't seen here. I think he's traveling somewhere, he loves the factories. He's there all the time, which is where we should be. Liezel [indiscernible] and Polycarp who look after the international business. And these guys are all in place. And we are obviously relocating these teams back to the businesses. The bakeries are out. They're sitting in Germiston Bakery, there's extra office space there. And the other guys are busy planning moves back to the operations. So the whole philosophy is, we want focused businesses, and we want to spend time in the trenches. We want to operate this business and really understand our customers, our consumers and understand our cost structures. So industry restructuring also that we said last time, we've eliminated our whole level of management, which results in a lot of cost savings, but we also created a lot of focus as a result of that. So they're aligned empowered, accountable agile and the winning culture, and I'll come back to the winning culture because that's probably the one thing that will make this whole journey that in Tiger will make it work is how we're developing a winning culture that can execute. We've spoken about this before, how do we restore our cost of leadership, and there's various things that we're doing. We're looking at process innovation and the guys have been busy with this for a while. This is not something that I've started. We're looking at innovation and automation. There's quite a few projects in place. And there will be a lot of projects identified as we go along. Procurement optimization. We've taken about half our procurement, call it, effort that put it back into the business where the focus should be. And then there you've got real corporate synergies, we kept those procurement activities at the center. SKU rationalization. I'll refer to it later. That's well on its way. Supply chain optimization, lots of work in logistics, lots of work in our factories, how we run them better. Value engineering is being more efficient, looking at unit cost, how do we drive unit cost down and then manufacturing footprint. That's all about where should our factories be? Can we combine some factories? Can we be more efficient to some of them and maybe reduce the importance of some of this. And this whole drive -- if you look at our capital allocation model as well, we're going to recover our performance in Tiger by fixing our margins. Our gross margin and our operating margin, we must improve those margins. They are too low. And that will obviously enhance your returns eventually going through to shareholders. So the two biggest turnaround areas that I referred to briefly a bit earlier is the bakeries and groceries. So in bakeries, there's quite a few things we're busy doing. That team is running -- is really running full steam. And there's two areas that's on the slide. The first is all around how do we get to where we want to go with our bread. So it's defined distribution footprint. At the moment, we've probably got too many depots, bakeries drive past each other areas that drive into each of these areas. So we've got a lot of work to do and busy doing it is to look at where do we drive and where do we go? Where do we open depots, where don't we open depots? And then we need a proper technology, which we're busy implementing to optimize those routes. Remember, we probably going about 38,000, 40,000 customers a day. It's probably -- every bakery probably runs about 120 routes a day. So it's extremely important and lots of opportunities to make that more efficient from a cost point of view and from a delivery point of view. And then we really have to incentivize our drivers. All those GT routes, it's a selling exercise. It's not a delivery, it's not order replenishment, it's a selling exercise, and your driver [indiscernible] so you need to incentivize him to do that in a good way. The second block there is all about our bakeries, how efficient our bakeries are. So we're really doing a lot of work about quality and consistency across all our bakeries. A big issue is maintenance. We're driving a lot of work into getting a blueprint for maintenance and doing the maintenance in an optimal way. And if we just look at our breakdowns that we've had in the first quarter versus the second quarter, there's already a huge improvement in that. And then we need to look at our footprint. How many bakeries do we need? Do we need big bakeries? Do we need a mega bakery? We do. We'll talk about it later. But we need to look at our bakery footprint around the country and where do we invest and how do we invest in that. If you look at our Groceries business, that's probably where the biggest opportunity lies around value engineering and around SKU rationalization. And if you look at the culinary business, where we've got lots of seasonal products, which creates lots of working capital problems. That's where we've got a lot of opportunities. And the guys are really working hard on that. And then our distribution system, where we go with the cans, you've got a -- stops sometimes to pack seasonal products and how do you do that in the most efficient way. We also have in that business probably a big opportunity to change our pack sizes. So if you go into the general trade or into the wholesale trade, our pack sizes are probably too big. That's how many cans you've got in a wrap. We've got 12 mobile unit 6. So that's the challenge to the brand renovation. We really need to look at how do we renovate our brands, these lovely brands that we have and how do we look at the content of the brand, what it stands for and how we -- how do we put marketing money behind that brand. There's an opportunity for second-tier product under our major brands. And we're doing -- we've spoken about that when we opened the Black Cat factory, we set a variant coming that's more affordable, that's got less peanuts in it, but it's still a very good product. But it's more affordable and the consumer can make the choice, which one they want to buy, and there's lots of those opportunities coming. And we've done lots of work already in this business around process and labor optimization and that also goes with waste management. But what underscores all of this is our people. So we need -- it's very urgent now bakeries, but it's very relevant throughout our business. And I think it's very relevant throughout South Africa. It's engineering skills, and particularly at the low levels when you get to maintenance, our level of [indiscernible] that we have in the organization. We're putting a lot of work in that, and we're very aware that we'll have to train them ourselves. We're not going to get them anywhere in the country. We'll have to train them, and we're busy doing that. We need stable labor relations. We need to get along with our unions. We need to work together with our unions. And I think, by and large, we're doing that. And then we're developing core competencies around all levels in the organization. But I'll come back to it later. Our people is what's going to make the difference in this organization. So a bit on the bakeries turnaround plan. So there's -- there's lots of issues. We try to put it down into 5 bullets, but there's lots of issues in bakeries. We really lost our maintenance discipline. We've had [indiscernible] too much -- too many breakdowns and that results in your trucks leaving late and that result and you're delivering your bread late and bread is delivered every day and consumed and bought every day. So if you're late, you lose the sale for that day. We can't really track where we're going. We need to do that better. Our drivers are not really incentivized and motivated. Our cost is too high. Obviously, if you've got breakdowns, you don't deliver on time, you've got lots of returns, lots of damages, your cost just goes through the roof. And then we have lost our focus, and I've spoken about this last time as well. We have lost our focus to operate in general trade, and we have to restore that. So lots of initiatives, focus, a focused executive team that's on track, and that bakery team is really on track. They're in the field time. They're on top of the issues. I mean some issues will take some time to sort out, but we're already seeing a lot of good stuff happening in the bakeries. So the restoration plans. We go to every bakery, obviously start with the more important ones and they design a restoration plan around maintenance. This will cost money, but that's not what it is. It's about focused effort on how we do maintenance on the business like we have breakdowns. We also have to restore the discipline in the bakery business around discounts. Because obviously, when your drivers go into the field, they're not going to arrange an order from Pick n Pay only, they're selling, and they have got limits which they can give discounts, and that probably was out of control. The discount levels are just too high. And equipment and infrastructure review within the bakeries. I don't think we've got -- our technologies are not too bad. I think we've got all the right technologies, not maintained to the level where it should be. The big issue is around the infrastructure around the bakeries and where we should have bakeries and how big they should be. I've spoken earlier about the route optimization. We really have too many depots around the country, especially in [indiscernible] and in the northern parts of Limpopo. We've just got too many depots, and we need to look at how we do that efficiently. And the SKU rationalization, it's not a big issue in this business, although they've already cut about -- I think, about 20%, 30% of the SKUs. And certainly, your biggest challenge in the bakeries if you have to change pans and different sizes of bread. That really messes up a bakery pickup. So -- and they've already done that. So that's in place. So we -- our biggest bakery that was a problem with late deliveries was Germiston. And I think Germiston hasn't been late for the last 6 weeks, if I've got the number right. So really making great progress in that. Damages way down. And that's an indication of that your maintenance regimes and your discipline in the bakery is starting to pay off. Obviously, it saves a lot of money, obviously, because you've got 50% less of these things, which you just throw it away. But that's your biggest indicators damages, whether your maintenance regimes are working. The costs are coming right down. They are busy with the depot rationalization, and that small loaf has been paced out. So going forward, in the bakeries, it's a game measuring sense, and that's what you do in bakeries. If you look at -- if you -- we disclose it, but if you bake 500 million loaves of bread a year, which is what we should be doing, ZAR 75 million a year. So sending your cost, sending your discount to sending your selling price is ZAR 5 million. So it is a business that you manage in sense. That's how sense it is to costs and our sensitivity is to volumes and to selling price. And we need to manage the bakeries with a clear target for product availability, and they do that. They've got times in the morning from when trucks most leave and that's measured and that is disclosed or reported as a miss if trucks have left. The general trade pick start, it obviously starts with incentivizing the drivers properly, incentivizing, getting disciplined into our pricing structures and then improve your routing, then the long haul slog starts because that driver leaves the bakery and stops at 50, 60 points, we must do a selling job. And our competitors are there. They're not -- they also know this. So it's not going to -- it's not a 1-day game there, but it's something to start and they have started, and we must get the technology in place, which we're busy rolling out and then that will get better and better. We haven't taken a price increase in the bakeries, I think since last year, February or March, somewhere like that. And there are obviously inflationary pushes on the bus, getting that discipline back into the business to have price increases at the right time. We have the right level of discount at the right price points in the market, that's being restored in the business. And the territory reconfiguration and reallocation is we -- at one point, we would have the 1 day 2 trucks going from [indiscernible] there's been a breakdown on 2 days late, 2 trucks coming from that side this way because there's been breakdowns here. And that is really looking at where do you drive with bread and when do you say, okay, we'll just short deliver rather than taking bread there at a very, very unprofitable way. So that whole exercise was that in the routing and the fleet optimization, that's a big job. And those are big numbers. And as we get better and better at that, we will see the performance of the bakeries returning. And again, the employee part of the bakeries. You've got a bakery with the bakery manager and the team running that bakery. They must really be on top of it. You can't run that from head office. And then you've got those guys in the field with the trucks delivering selling bread. They must be empowered, they must be rewarded properly, they must be focused, they must be disciplined. And that's a process that starts right at the top of that organization and be driven through that. And are very comfortable with where the guys are by doing good work. So that's my initial talk. Over to you Thushen, the financial guy. Remember that.

Good morning, everyone. Tjaart called me the financial guy. I'm sure most of you remember me from marketing. So it's my best shot at it. Tjaart covered the restructuring initiatives as well as the leadership changes and some of the strategic focus areas as well as the deep dive into groceries and bakeries. It's important to appreciate that while all these balls were in the air, these results are within that context and back end as well as what was a very tough market and continues to be a tough market. The volume regression that you see there rolls down to about 2 or 3 things, which I will cover later on. Some operational challenges. I'll cover that in the coming slides. The other issues were supply chain challenges due to extreme weather patterns, and we'll talk a bit more about that a little later. And the third one is, as I mentioned, the tough operating environment, where we continue to have a constrained consumer. Having said that, the revenue that you see was a reflection of probably 2 divisions where the consumer, home personal care and international, we're really delivering stellar sets of results in the first half, and you'll see that coming through in the coming slides. And then the Grains underperformance due to the various challenges that Tjaart called out and how we're addressing that as well as some supply chain challenges around the weather pattern, et cetera. The income from associates was an excellent first half. The Zimbabwean operations, National Foods due to their strong balance sheet, managed to hold long positions and operate throughout the drought and keep the mills running whilst most of the regional players weren't able to hold on to stock for that longer position and essentially, were out of the market. The Carozzi business had an excellent set of results as well. Strong performance out of pet food, deciduous fruit, their pulp operations, which you'll see reflected in our LAF business as well, given that global fruit pricing held as well as their biscuit operations in Peru where they've seen a nice turnaround. So another stellar set of results from our associates. EPS benefited from our portfolio honing exercise. We disposed of our noncore brand status. And you'll see more of that to come when Tjaart talked to the capital allocation model and the work we're going to do around the portfolio. When I get to the operational slides, I'll talk to groceries, the home personal care and the other divisions where we had an excellent first half and I'll also cover some of the challenges in grains. The two things I really want to touch on here is working capital management as well as portfolio optimization. Given the complexity of Tiger, various channels, various customers, various products and categories, debtors management as well as stock management is quite complex. Therefore, we're fast-tracking our technology platforms to assist us in this regard. Historically, we had to manually reconcile documents that our logistics service providers with suppliers with delivery notes that our customers would supply us with. And ultimately, it took some time to address some of the queries that our customers raised under our debtors. With the technology that we're fast track in that will be in place before the end of the fiscal, we'll be able to address query sooner and manage our debtors balance a lot tighter. The other tool that we install in or implementing is the integrated business planning tool that will really assist us with demand management, stock management as well as predicting supply chain challenges. If you consider the number of SKUs we have, there's well over 15,000 components that we have to have at any one of our facilities in order to produce a product. So with this technology, it will allow us to bring a lot more focus to our inventory management. Portfolio optimization. You'll see continued focus around that. Tjaart will take you through our thinking around a capital allocation model and the returns we anticipate from our portfolios. But it's important to bear in mind that as we move forward and assess our various portfolios, we aren't going to dispose of businesses at all costs. If we don't find a fair value, we will hang on to these businesses, turn it around, drive profit enhancement and only sell at the appropriate time when we believe we receive fair value. As you can see, inflation started speeding up in the first half for various factors. I'll touch on some of those. We've had the El Nino impact on our maize pricing, as well as small white beans. The intake for the Groceries business was about 10% to 15% less than anticipated on small white beans, which goes into the manufacture of our baked beans product. And it was actually a month late as well. We had to, therefore, process beans that we procured from Ethiopia. And here again, we're very cognizant about the brand equity of Ku and decided not to put this bean in the Ku -- under the Ku label because it didn't meet the required specifications and we manufactured it under the HUGOS label just to keep the factories going as we experience the shortages. And those -- and that HUGOS is being sold into the independent and wholesale channel as it is. Sorghum was another challenge due to the El Nino factor. Wheat luckily held, that's a winter crop, and we'll see what that harvest looks like in the coming months. We've also had to increase our imports of oats and also imported sorghum due to the local shortages. The other challenge we faced was on orange concentrate that goes into the Oros product in particular. Brazil had extreme weather patterns. They are big exporter of oranges that impacted supply and global pricing. Florida as well had a citrus greened -- experienced the citrus greening disease and they've had the worst crop since the 1940s. So all of these challenges culminated into quite extreme conditions around supply chain, agri supply chain, in particular as well as resulting in high prices. And then you all know about the Indian rice ban that we highlighted in December last year, which impacted global pricing. Moving on to the P&L. We spoke about the exceptional results from home personal care, groceries. Groceries, there were some marginal declines in revenue due to some supply chain challenges, which I'll give you a perspective on just now. And really, it was the Grains division impacting the revenue regression that you see. Our gross margins held up for 2 or 3 reasons, and I'll spend some time discussing that. The first you'll remember is the time and motion study that we went through in the prior year, where we reduced about 320 heads from our various facilities. So that helped quite a bit around the production efficiencies and now mitigate the impact of the volume regression. The second was the load shedding, which was essentially half of the prior year, and that helped hold up margins as well. And the third element is the change in estimate, which you will see in our results announcement. Historically, we released in September, our growth hurdles and it created a bit of a skew in the results because this -- the first half wasn't really a true reflection of operating performance. So any customer that didn't achieve their growth was only released in September, and you had a bit of a hockey stick effect. Now we truing up that. We're looking at it every quarter, assessing what customers perform and accordingly truing up our operating income. The big difference here is it allows management to have a better perspective on what their true performance is and then decide in a very considered manner, whether they reinvest behind volume-driving activities or customer recovery. So that's really what held up gross margin. You would see there was ZAR 169 million change in the estimate impact. About ZAR 140 million of that relates to above the gross margin line. Moving on to other operating expenses. The delta there is as a consequence of the IFRS 2 charges. Last year, there was an inflow of about ZAR 12-odd million due to 4 features. And this year, it swung the other way around to just under ZAR 40 million expense. And you also find our retrenchment cost sitting in that line. The nonoperational items refers to the status disposal, which I spoke about earlier. Your net finance costs are increasing as a consequence of the average debt moving by about ZAR 1 billion. Last year, it was about ZAR 1.7 billion. It's now moved to ZAR 2.7 billion. The foreign exchange losses as a consequence of the UAC and deli foods proceeds that we couldn't repatriate from Nigeria. And due to the weakening in Naira, we were impacted by these foreign exchange losses. We continuously engage with our local bankers to try and find some liquidity in the market. And between March and April, we managed to repatriate all of those funds. So we have taken a big knock. However, we won't see that going forward because those funds have been repatriated. We spoke about the income from associates. The other thing to probably call out there is the ZAR 102 million. The proceeds from -- the profit from discontinued operations. What we have been doing is bringing a lot more focus to historic claims, insurance claims, negotiating harder with our insurers to try to settle old disputes. This was a result of products that was unsalable during the listeriosis crisis. We had a claim in place for many years and we finally managed to settle that. So that's the benefit you see coming through. You'll see there's a reduction in working capital, the delta year-on-year. That's helped us by approximately ZAR 320 million, improving your cash generated from operations. As mentioned, with the technology focus and the focus driven out of my office, we plan to reduce our working capital requirements even further. But please bear in mind, we are still seeing a high inflation cycle on agri products and commodities. The net financing costs I referred to earlier, the increased debt position and the cash outflow from investing activities is essentially our fixed asset investment netted by the proceeds of the status disposal. Other is essentially the share movements, the translation impact of our foreign balances -- foreign bank balances as well as the lease liability that sits in that number. What's also pleasing to note, our cash conversion has almost doubled year-on-year. And obviously, given our low gearing, we're well within our covenants. Moving on to CapEx. Tjaart will take you through our capital allocation framework and the increased focus around efficiencies and margin. And therefore, moving forward with capital investment, we're going to be a lot more considered around which capital or in which division we should invest behind relative to our return on invested capital ambition. As you'd see in the current year, we've had some big projects, the 2 aerosol lines commissioned in Isando, the new peanut butter facility that we've commissioned that gives us great capability to pack in PET and a blended peanut product as well, as well as some maintenance CapEx in the bakeries that's helped us improve our product quality and efficiencies. So we anticipate that the spend this year will be around ZAR 1.1 billion. Moving into the operational review. As mentioned earlier, ladies and gentlemen, the Grains performance wasn't in keeping with the expectation, and it's -- and it's not -- we're certainly not leaving it as is. Tjaart took you through all the initiatives focusing around the operational turnaround as well as the strategic elements we're going to focus on within Bakeries. The Consumer Brands business had a great turnaround in particular, from Groceries. I'll give some perspectives on that. And as I said, Home and Personal Care and the Exports and International divisions had a very good performance. These are all market shares, which -- in Grains, which is reflective really of the performance that I speak to. It's -- the other thing we'd be looking at going forward with this business and prioritizing is margin recovery. So we're not going to chase share at all costs. There's going to be renewed and intensive focus around margin recovery. And once we believe we've reached a sustainable level, we will consider fast-tracking reinvestment behind our brands as well as innovation. But in the early stages, it's going to be tactical. The focus is going to be around margin recovery, and we will not chase market share at all costs. The Bakeries performance had 3 real issues impacting it in the first half that ultimately impacted the volume regression that you've seen. Firstly, we had a tough first quarter with some breakdowns. In the second quarter, the teams -- the new teams in place as well as our engineering teams with assistance from our center, the manufacturing office, we revisited our maintenance regimes. We focused on product quality, and we saw that coming through in the second quarter, increased availability as well as a better quality of product with less damages and less returns. The other impact to volumes was target deliberately walking away from margin-dilutive deals. As I said, there's an intensive focus on margin recovery, and we will not chase volumes at all cost and market share. So we walked away from these margin dilutive deals in order to protect naked margin, but we're well aware that it's a fair balancing act to make sure that you hold gross margin as well. The team is doing a really stellar piece of work, the new leadership team in place, they're using dashboards, they're monitoring sensible low first Tjaart mentioned, whether it's route discounting, where it's route profitability, depot profitability, there are daily, weekly dashboards in place assessing the recovery in Bakeries as well as ensuring that we expect naked margins. I spoke about the El Nino challenge impacting maize, which increased the maize prices, and we also continue to see deep discounting from private label as well as regional players who are closer to market and that impacted performance there. Sorghum, we had to import in the current year, and you saw consumers trading out of this category purely because it became too expensive, and that was also as a consequence of the El Nino impact on the supply chain. On other grains, the rice challenge, you're well aware of the closing of the Indian borders, the impact to tie prices and that created significant inflation in the category. And you've seen many of the private label, cheaper brands with lower quality in this current environment, growing as a consequence of that supply chain challenge. On oats, we had to increase our imports yet again and we had some challenges in our pasta business around product mix and plant efficiency, which has now been addressed. I'm sure most of you have seen the launch of our Jungle flakes and our Jungle oat drink has been a really good launch, well received by the trade and consumers. In the first quarter and the first half for that matter, we invested behind it driving availability, driving activation. The team delivered an excellent set of results with a solid through-the-line campaign as well as a good presence in social media. Consumer Brands. Maybe the 2 call-outs here is Groceries. I'll talk you through the challenges we've experienced in our mayonnaise business as well as the peanut butter supply challenges and then Beverages. And I spoke about the fact that we had a global shortage of orange concentrate, and that impacted our ability to supply all orders, and we had to go on allocation, in particular, with the 5-liter spec because we prioritize the 2-liter KVI. Groceries business delivered an excellent turnaround, great management of price points, promotional activity. And when we ran short of the eggs and as a subsequence, there was a shortage of mayonnaise, we were quick to pull back on promotional support. We are quick to allocate stock fairly across the trade. And my pulling back on that promotional support, it helped hold our margins. As you know, we commissioned the new peanut butter facility and during that commissioning, we did run short of supply because the commissioning took a lot longer than anticipated. And here again, we pulled back from broad sheet activity, managed our promotional strategy and allocated stock in the trade. So you saw the volume regression, the revenue regression, but profitability held because of that promotional management. You will also recall in the prior year, there were some supply chain challenges around vinegar, small white beans, yet again, tomato paste, and we had a softer base, but important to bear in mind, these challenges didn't go away in the current year. I spoke about the El Nino impact on small white beans, the late deliveries. The fact that we were 10% less than the prior year, and we're having to import. Also spoke about the eggs -- global eggs supply challenges due to the avian flu. But this business really managed to deliver during tough circumstances. And as mentioned earlier as well, the value engineering initiatives are well on track with the investment behind our peanut butter facility would be able to launch those tiered products and affordable solutions that we referred to over the last 18 months. Snacks & Treats. The cocoa -- global cocoa pricing has increased by about 60%. Sugar is up by about 20%. So we're quite pleased with this result, considering those high -- that high input inflation. And the category is in decline. We've also had to pull back on stock levels in certain areas, which impacted our recoveries. But the team has done a stellar piece of work. We're looking at value engineering initiatives, whether it's price pack architecture or de grammage in order to hold price points and still offer a competitive solution for our consumers. And the other area of focus is where we have loss-making KVIs in our chocolate business. We've reformulated that, looked at the cocoa content, went into intense consumer research and we will be on track in the second half with this business again. Beverages. Really stellar set of results out of the Oros portfolio, the 2-liter in particular, 5-liter, there were supply constraints. Energade & balance of the cordial business delivered an excellent result in the first half. Home and Personal Care, I'll quickly touch on the performance here. The Home Care business was impacted once more by a late per season. I'm sure you're quite accustomed to your in the weather report from me every 6 months, so I'll hold off on any further comment there. The other aspect was we commissioned 2 new aerosol lines, which did impact our recoveries, but those lines are now completed and they're on track. Personal Care delivered a stellar set of results, good product mix, good focus on promotional management. Historically, over the summer period, we did see volume regression because of the skew of Ingrams towards the camphor product, which is a winter SKU. And then historically, what we did was try to drive promotional activity hard against it. Not appreciating the inelasticity of this product outside of the season. What we did in the current year was redirect our promotional activity to the summer SKUs that we launched to deseasonalize the business, which is the triple glycerine as well as the vitamin enriched range. And that received our support during the summer and was obviously appropriate given the product positioning. Baby. You would recall me also mentioning to you in the past, one of the few companies that can offer our consumer a combo deal across nutrition, so we managed to execute across that quite well. We managed our pricing and promotional activity, and this business also went through a time and motion study in the prior year, and you've seen those production efficiencies coming through. So it was a really great improvement from the Baby business. My last slide, ladies and gentlemen, is on exports and international. Exports continues to deliver under the leadership of Polycarp and you would recall him referring to his key distributor model in the prior year. And in essence, that's starting to deliver results. What it really means is focusing our resources behind markets where we believe we should be focusing on consumption, market development, category development and brand development. So rather than using a shotgun approach to continent, we're identifying our core markets where we have good levels of market penetration. We're working closely with our distributors to understand the local consumer and manage the brand via category insights. The balance of the markets is really going to be around distributor management via joint business planning as opposed to market management, where we will be going a lot deeper. LAF had an excellent first half as well. We had good carry in stock from the prior year. And as I mentioned, global pricing has been holding on both pures and canned fruit. Looking forward, there will be some challenges. The intake in the current year was about 20% to 30% less on apricots and peaches as a consequence of the rains in the Western Cape in November, December last year, which impacted the deciduous fruit trees during the flowering season and the intake was much lower across South Africa. Chococam, excellent set of results. [indiscernible] continues to understand his market, local consumers well and he was quick off the mark with his de grammage and price pack architecture strategy in order to ensure we offer local consumers affordable solutions, and he has also started value engineering initiatives around recipe formulations, given the backdrop of the high global cocoa pricing. So that business is also well on the way to delivering a solid second half. Thank you, ladies and gentlemen. I'll hand back to Tjaart at this stage.

So I think a very tough first half of the year, and pockets where it went very well and pockets where it didn't go so well, but we understand exactly what's going on in those pockets, and we're working on that. So yes, the key focus areas for our business going forward. Leadership in place and team is fully operational, and I've spoken about that a few times, but that is the core of our operating model is having, call it, decentralized teams that's fully empowered to make business decisions and be accountable for those. I think the streamlining of our operating model into the 6 business units. We've driven cost savings by removing layers, duplication and that obviously creates clarity. And obviously, headcount reduction as a result of that was these at a very senior level, so it was a huge cost savings. Deployed category-specific services back to the business. We've done that, but that's an ongoing process. What do you decentralize into the businesses because we still at Tiger brands with a wide portfolio of businesses that would want to have the synergies where there are synergies. So the whole drive in this is to really understand what should be decentralized and what be centralized. But what it does mean is a much smaller head office, a much more focused organization and business units that really focus on those realities in their businesses. Cost leadership, we've spoken about a couple of things. We've targeted ZAR 500 million in the next 2, I think. That process is ongoing. We need to be a low-cost organization. We need to drive our cost down on a daily basis. We need to get focus in our product offerings, and that work is on the go. We need to focus on the big stuff where the deliverables are big where we can focus and drive throughputs and efficiencies and scale, including marketing spend. So I've said earlier that we've identified 20% SKU reduction over the next 3 years. And obviously, we've identified those numbers. But obviously, the -- you've got stock, you've got raw material, you've got packaging material and in all different ways, these will be rolled out or worked out over the next year or 2. So the general trade, there's 2 general trade, I spoke about the one in the Bakeries before. The -- and that's very specific business driven in the Bakeries. The general trade we're talking about here we launched about 2 years ago with a very focused model where we've got many distributors with people in the field, taking orders, placing on the distributors and this treat as delivery. We're ahead of our pockets that we set ourselves. So that is -- work-in-progress, but it's going very well. what we need to get to is that we need to really get to a point where we can really scale this up because we need -- this doesn't need to be ZAR 1 billion or ZAR 2 billion, it must be ZAR 10 billion, ZAR 15 billion. But that's the goal that we drive to. But so far, so good. And I think the teams in place, they really understand what they need to do. We've visited I've been in the field with them. They really understand what needs to be done. But it is -- it does include cost. It's people we put out in the field and we must roll it out very carefully not to sit with a huge overhead in a few years' time that we struggle with. So that openness of restoring our full tension on the organization, cost leadership. And we cannot talk about it enough. It's all about value engineering, overhead reduction on a continuous basis, not a one-off, it's a continuous basis. SKU rationalization, a big job upfront and then continuously looking at, if you innovate something, you must take something out. We can't sit 4, 5 years down line, again, with too many SKUs. And in logistics, we've got lots of opportunities in all the logistics. If you look at groceries, if you look at bakeries, the particular logistics, we've got huge opportunities to just become better and better. Consumer obsession. We obviously, whatever we do is driven by the consumer. We will not innovate anything if the consumer doesn't like it and the consumer doesn't tell us to do that. But we do need to get more relevant. And I've spoken about this often. Relevant value proposition for our consumers. We've got lovely products, in some cases, they're too expensive, the consumer can't afford them. We have to react to that, and we have to give the consumer a product they want and a product that they can afford. And there's lots of things going to hit the market in the next 6 months, 12 months, that we'll do that. If we look at the focused marketing and innovation. We are a branded consumer-driven business. We've got the best brands in the country, and it would just be irresponsible of us not to look after those brands. But you also look after the brands to create that, so we must have a focused approach, and we must look at return for our bucks and how we invest behind these brands, and that's what we will do. And the channel development and availability. If you can't -- you can market everything, you can make everything, but it's not on the shelf for the consumer to take then you've wasted your time. So things must be available. And we must get them into the right channels, the right pack sizes into the right channels, the right format into the right channels and that work is -- I think we've got the knowledge in the business as well. It's how do we execute that in a focused way. Portfolio optimization and capital allocation. I'll talk about that a bit on the next slide, but we need to really be focused on our capital allocation and how we drive shareholder returns. I'll talk about that on the next slide. Portfolio of the future, part of that capital allocation model as well. But portfolio of the future is to really be focused. I think the first criteria is we must be in profitable businesses that generates the right returns. And that's not only margin -- profit margin, that is return on invested capital as well. It's an effective balance sheet. So that's the one thing. And then secondly, we want to be in big businesses, where we could drive scale, where we can drive property investment. And then focus on cash conversion, we cannot overestimate the focus that we are putting on working capital. Our working capital is too high. We must get it structurally at the lower level, and that includes better management, but I think it includes a bit of structural efforts that we have to put into managing our working capital to a lower level. And then obviously, we can't do any of this if it's not sustainable. We have to invest into a sustainable future, health nutrition for our consumers, livelihoods of the population. If we don't have consumers, we've got nothing. And then obviously, the environment, lots of work that we do in the environment. We use lots of electricity. We use lots of water. And we have to do that in ways that makes the business sustainable and make our environment sustainable. If we now enable us, ignite our people culture. I'll talk about that a bit later, but it's all about heading our people really motivated and really full of energy to go and do these things. So you can only do that if you've got a conducive culture. We have got a strong balance sheet. We do believe we've got a very efficient operating model now and as that matures, it will get better and better. We've got the best brands in the business. And we've probably got a bit of a road to travel on digitalizing the business better, but we will do that in an efficient way when it's relevant. We're probably a little bit off. We probably will later this year, early next year, start with real activities around digitalizing. I think we first have a job to do to make our IT spend very efficient and very productive. So if you look at the capital allocation model that we're talking about. So we really looking at targeting a return on invested capital ahead of weighted average cost of capital. It's not that at the moment. So we really need to get the business to a point where we deliver a ROIC that's ahead of what it cost us to get that capital. And there's a few principles that we're looking at. So we're looking at target for ROIC and ROE above work and cost of equity, as I've just said, and that is -- that's a hard price in the short term. We target group gross and operating margins. That's the first way to get there is to get our margins right and then drive the right margins with the right mix and the right volume. We need scale. We need efficiencies. And I think if you listen to what I've said about the bigger businesses, the efficient debt offers, the focused businesses that will drive leverage from a scale and efficiencies point of view. Need to optimize our gearing that goes with the operating model and then our working capital, big job that we have in making our working capital or cash conversion better and the ultimate investment in working capital at a level where it's more palatable. If we talk about our portfolio optimization and the use of cash and returns to shareholders. So portfolio optimization, Thushen referred to a little bit, we really have to get rid of the businesses that's not performing, these requirements to these requirements in the next couple of years, we will exit those. So if we -- I think there's a few of our businesses, we will fix and the Bakeries is one. The Bakeries is not performing close to these targets, but that's a core business. It should be super performer, and we will fix that. And so we will treat all the businesses in Tiger where we'll look at what are the ROIC requirements? Can we get them? If we can't, we will have to make those decisions. We've reduced the SKUs. We've made the decisions and now it's rolling those out. And then we will deploy capital to strategic areas where we have the right to win and this is investing beyond brands where we've got proper market shares, invest in those businesses where we've got market share. So it's sustainable, we were the market leader or in some of our businesses, we might not be the market leader, but we are a strong #2 or 3 player, generating huge returns and generating ROIC that's really acceptable to the organization. And then we will -- and this includes all our investment. This includes our investments into our associates, which we will look at what returns, how do they generate, how do they improve the capital allocation model. So how do we use cash? Prioritize CapEx to drive organic growth. So that's the first thing. We look at our base business and how do we make the base business better and better, how do we mechanize it, how would we make it more efficient, and that's where we'll put the capital, obviously, within this model of generating the right returns. We will have minimal reliance on M&A in the next while. But obviously, if there's a unique opportunity arriving, we will look at it. And then if you've used your cash through this whole model, then what's left, dividends, we've got a consistent dividend curve of 1.75. We review that all the time whether we can reduce it. And then share buybacks and special dividends. We will look at those as the time arrives and we'll be highly disciplined on how we use our cash across the business. So my last slide, our competitive advantage that we will drive into the business. So operating model that's very efficient, that's agile, that response, that executes, that's quick and that's also not -- that's not the structure or an activity. That's the way of living. So I think we're on the track -- on track. Our businesses are all in place. The guys are highly focused, and it's all about executing. But that's probably the key 2 words. It's highly focused and the ability to execute. Our strategic imperatives around simplification, driving costs down, driving margins, driving gross profit margin. We really have to look at our gross profit margin. You can't just cut costs and make the returns, but we must make our products more affordable at the gross profit level and then the capital allocation model, which must be highly disciplined, and be driven by very clear targets, which we've got. So all of that, we will be able to deliver if we've got a culture in the business that's conducive to that. So empowering people, driving execution, we will not be able to do any of this if we don't have the right people in the organization, and I believe we do. Our challenge now is to lead those people to be able to do what they should be doing. So we must get people to turn around from the organization and face that way and not face the head office. Head office is a very unimportant place. It's only me and Thushen sitting there. Okay. That's our story. Thank you very much for attending. Nikki will now just take the chair to take some questions and answers. And Thushen and I will try and answer them. Thank you. Nikki. You've only got 1 slide,Nikki.

Good morning, everybody. I think we can start in the room. There are quite a few questions online, but since you might therefore to be here. We'll give you that advantage.

[Audio Gap] Optimizations, et cetera. But obviously, challenges lie ahead with regards to competition. If you had to apply a waiting to this piece of the pie, what's very much more important within those dynamics? What do you foresee as the challenging? And what do you think are the easy win? A bit of a long question, but that's the first question.

I'm not so sure I got -- I've got the first question. The second one was about the mix between our volume and margin.

No. The second one was more on route optimizations in terms of your sales channels, similar to that general trade. What are the challenges that you foresee? What could we be missing in terms of the success of that strategy as well.

Okay. Let me try. So your first question is all around the price discrimination between different challenges. The competition in this country and competition between the channels is just too strong for you to be able to discriminate on pricing. So we can't discriminate on pricing because the market will prevent us from doing that. So what you do is we've got more expensive routes to market and less expensive routes to market. What tends to happen at the moment was the general trade, Bread is a bit different. Bread is bought by most consumers every day and consumed every day. So that's on the go purchase quite often. So the general trade, the Sparse store as such, sells a lot of bread. If you look at other products, it tends to move -- look, all these retailers are in the townships now. So you can't -- you won't get 1 township that hasn't got a box, who hasn't got a ShopRite in. So it tends to happen that consumers would do -- weekend do bulk shopping at the Boxer or at the ShopRite or whatever, and they do the top-up shopping at Sparse. So that's where the formats that we're talking about becomes more important, the size -- the pack sizes. So for us to go, obviously, for us, it's cheaper to go to market in certain ways in bread, it's for us cheap to go to the -- from a pricing point of view to go directly to the Sparse store because there's not a lot of people in the chain, but it also cost us money to the Sparse store. It's much cheaper to deliver to 600 loaves to ShopRite than to deliver 12 loaves to 40 stores. So -- but the competition in the market is strong enough. There can't be price discrimination. The second question around the -- I think I probably answered both questions in what I've said. So your cost considerations between the different channels. That's why I made the comment with this project we've got a little trade is we must really watch the costs and make sure that it's got to pay back. Is there so far, but that's something to now.

And the second one, maybe if we touch on -- if you could provide us some context in terms of your operating cost structure, particularly in Bakeries, with 2 -- with regards to where it was, where it is and where you would like to see that cost base in the future? Examples could help in this ideally as the bulk of the cost sitting, what are you not happy about? What are the consequences of not having mega bakeries and so on?

Yes. The -- I'll start at the end of your question. So the mega bakeries is huge. It's a huge area for having a lower cost because -- and it's all about throughput. A big factory has got much lower unit cost than a small factory because your dilution of overage is much better. So that's the first thing on mega bakery. The second thing is you can afford better technologies in the mega bakery and more automation in the mega bakery because you dilute those when you utilize those assets much better. And it's got to big impact on your unit cost coming out. So it is a big benefit to have mega bakeries. If you look at our bakeries, and I don't know where the word mega bakeries actually came from, but it's similar to a big bakery and a small bakery. But if you look at our bakeries, we've got Cape Town, Maritzburg, Germiston, Pretoria. Those are not mega bakeries, those are big bakeries. They've -- all those bakeries have got 2 plants in them. Most of them are 6,000 hour plants and mega bakery would probably have 8,000. I don't think you can go bigger than that because your mixes don't match it. So it's not that we've got nothing like a mega bakery. I think we've got those bakeries I've mentioned, if we get our maintenance regimes really sorted out because we struggled with breakdowns, we haven't got old equipment, maybe here and there, there's bit old equipment, Pretoria bakeries got a little bit old equipment. But the one plant in Cape Town is new, it's about 7 years old. The Germiston plant is older, but they're still the same technologies. So it's not that we've got nothing. We do have a couple of other solar bakeries, which is not overly efficient, but if they run well, that's not because that is a bit of a medium, longer-term opportunity where you can get your cost base down, your immediate -- our immediate opportunity is to get our cost base down, is to get our routing in our older [indiscernible] system worked out properly because they drive across each other, they drive into each other areas. So if you get your discipline there in place, you motivate your drivers that you get your lost per kilometer sold and your truck utilization sorted out, that's huge low-hanging fruit immediately going forward.

And maybe the last question for now. If you look at associates, I mean, it's getting close to 1/3 in terms of group operating profits. How fundamentally different is Carozzi if you had to compare it to your grocery business because Carozzi, I think it's doing double your margin in groceries. What's driving that? Is it a function of market dynamics in that country? Is it a margin efficiency? And what can you pick up from that business to replicate into your grocery business?

Let me give the first half, you can add to that, Thushen. I can give you the first answer. It's a decentralized organization, and that's how it's managed. They've got MDs running each one -- they've got a pet food business that's run by MD. They've got a puree business or they call it the agri business that's run by MD and they've got MDs in Africa, and they only operate in Chile, really in Peru and Argentina, and they've got MDs with highly focused approaches and how they run the businesses. So that's the top answer I think. It's a well-run business. It's family owned. It's second, third generation groups are running the business, high levels of experience and a highly focused family run business. So that's the easy number. You can talk about the numbers, if you want, Thushen?

And the categories do defer to an extent. It's important to bear that in mind and market dynamics, obviously, in LatAm versus South Africa are very different in terms of disposable incomes and consumption. But having said that, if you ask me, where should the focus areas be in Groceries to target those sort of double-digit operating margins and it's really things we've been speaking about previously. Efficiency around conversion. We spoke to the time and motion study last year. We're in the midst of moving our labeling line, which should help with automation and further headcount reduction. So conversion cost efficiency, absolutely critical. We spoke previously about value engineering, getting the best recipe cost for our core products and then also offering affordable Tier 2 products like the Black Cat reduced peanut inclusion to our consumers, so that we continue to remain relevant across all LSM profiles. And I think the last thing that we need to apply our mind to, those are big buckets is the seasonal nature of the Groceries business and the drag on working capital. So many of the canned vegetable products, we buy the vegetables upfront during the season. We process it, and we keep it for up to 14 or 15 months in Bright Stock and label it thereafter. That's certainly a drag on our return on invested capital. There has been a move to try and de-seasonalize the business. We've discontinued peas and there's other opportunities where we can either look at import models or dehydrated and rehydrated in South Africa or rationalize the SKUs, and that's a journey we've already commenced to it there as well.

Can I just add to that. I think if you look at some of the categories in Carozzi that they are on a very high seasonal peak on a very high cyclical peak. So we see margins in the [indiscernible] business, which is not sustainable. It's not going to last forever.

There's a question on the platform related to associates which we can close the loop on. They want to know what can they expect from associate income in H2?

So we still believe there will be a solid set of results coming out of our associates. The one thing to bear in mind, though, in the second half of last year, we had the translation benefit in net foods when they move dollarized and moved to the Victorian Stock Exchange. So that was ZAR 100-odd million benefit that hit the P&L, which won't be repeated in operating performance, of course. So all in all, if you look at the operating income of both businesses on track, but you do have that benefit which won't repeat itself in the second half.

Okay. Any further questions? Otherwise, I'll move to the online version. Okay. Going forward, will you keep to the current dividend policy?

Yes, we reviewed all the time. And obviously, as the business becomes more cash generative, which I think it will, as we put all these things in place. There might be an opportunity to reduce that cover. But that's all part of the capital allocation model where we look at these things all the time. And depending on the big CapEx projects, if there's an acquisition, which is not a focus area, but if something arises. And then after that, we look at our dividend cover, look at share buybacks and look at special dividends with surplus cash.

Johan Base wants to know if the CEO still holds shares in Premier?

Me? Yes, I do. I've had for 15 years. Do you want me to sell them?

Now would be the right time.

It is the right time.

Okay. You're right when you said that people make the difference, but changing people, culture and competencies takes time. In the meantime, your competitors are not standing still and arguably already have the right people and culture, for example, Premier. You said this is not a 1-day game. How long do you think it takes to change your people and culture.

Look what we've got in Tiger -- if you look at this whole restructuring that we've done, we've moved a lot of people around. We've changed the structure of the business completely. We didn't bring [indiscernible] in from outside. All the people were in Tiger. At lower levels, I think we brought in 1 financial person or 2 financial people at lower levels, but I think we brought them in even before the restructuring. So we've got people in Tiger. We really do. We've got wonderful programs in Tiger for development, for succession of talent management, wonderful processes. What you need to overlay on that is a leadership culture where it actually works well. And I think that's what we're doing in that. That starts with our behavior as a senior leaders in the business, and that's already in place. So I'm not -- I'm really not -- I'm more concerned that -- we are the biggest food company in Africa probably. We certainly have got the best opportunity to give people great experiences and get people to have experience the level that other companies can't do. And from that point of view, I think our people are actually vulnerable from losing our people, being adopted by our competitors. That, I think, is our bigger risk. And our mitigation of that risk is not to pay people more. I think we pay our people well. What we want to do is we want people to earn more variable pay rather than fixed pay. But those structures in Tiger is good. There's no problem with that. But the real way you keep people in the business is, I must say, I'm working here because I want to work here. Not because I get paid a lot of money. I work because it's a nice place to work. I can perform here. I can deliver. I can lift a high-performance life and be recognized for that and we can also have a bit of fun. So that's my bigger concern. It's not whether we've got talent? We've got talent. My bigger concern is as we turn the place and the results start showing, I think we are, as an organization, we're at risk of our people being adopted.

Okay. Related to the turnaround. [indiscernible] wants to say a lot of good things have been outlined. What is the time plan for the execution and results of these initiatives?

I think it's all busy happening. So if you look at the SKU stuff, that's all in place. If you look at the product -- the architecture of our products, the recipes. There's -- peanut butter will be launched in 2, 3 months' time. New Crosse & Blackwell will be launched, I think, in 2, 3 months' time. Peanut butter is already well moved into PET. We've just got contracts in glass to work out. We're busy with designing the line for PET in mayonnaise, that will need a bit of CapEx. So that will probably happen early next year sometime. If you look at portfolio analysis, we've got lots of stuff happening, which is obviously confidential that we can't talk about now, but there's quite a few things busy happening that will hit the news in the next couple of months. It's all happening. It's all in progress. And how long will it take? It will take forever. Because these things you don't do it and it's done. You do it all the time. So when will we have the business at the level where it's -- where we've turned it with these returns to be at an acceptable level. We're certainly in the 5-year plan context, we would certainly want to be there towards the last 2 years of the 5-year plan.

Anthony talks quite interested in the Bakery business. Can I ask, one, you stated your plan to restructure the segment, possibly close bakeries and maybe build a new mega bakery. What is the CapEx you foresee to get the bakeries to where you want them to? You know your bread given your time at Premier. Bread prices have not risen in a year in a wider market. What prices -- wheat prices are up 10% year-to-date? And from mid-February, they're up 13%. How is margin being recovered? And then there's a question around gas, which I'll direct to Thushen, maybe you can answer that in the meantime.

Question about using gas in the bakeries. So in the bakeries, it's obviously -- wheat is about 30%, 35% of your cost base. Distribution is a massive part of your cost base and people is a big part of your cost base. And how do you make -- how do you get costs to come down is to really manage the business efficiently. So we must get throughput there. We must -- our efficiency in terms of breakdowns, returns, our routing the stuff that I spoke about. And we must have the ability. We've put a price increase through, not a very big one. We've put a price increase through last month, effective at the beginning of June. And that's also the reason why the volumes took a bit of a lot, but we must get better at that. So we must have the ability in the business to pass through inflation, but we must also get to price points where we are extremely competitive and with our scale and our brands, we will get to situations in all our businesses, not only bread, where we can get the price points where our brands will just pull our products through to the consumer at the price point, it's very competitive. So that's where we're going.