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Edited Transcript of TBS.J earnings conference call or presentation 22-Nov-19 8:00am GMT

Full Year 2019 Tiger Brands Ltd Earnings Call

Sandton Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Tiger Brands Ltd earnings conference call or presentation Friday, November 22, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lawrence Charles Mac Dougall

Tiger Brands Limited - CEO & Executive Director

* Nikki Catrakilis-Wagner

Tiger Brands Limited - IR Director

* Noel Patrick Doyle

Tiger Brands Limited - CFO & Executive Director

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Conference Call Participants

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* Anthony Geard

Investec Bank Limited (SA), Research Division - Consumer Staples Analyst

* Myuran Rajaratnam

Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager

* Shane Watkins

* Shaun Chauke

HSBC, Research Division - Analyst

* Sumil Seeraj

SBG Securities (Proprietary) Limited, Research Division - Equity Research Analyst

* Vikhyat Sharma

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Nikki Catrakilis-Wagner, Tiger Brands Limited - IR Director [1]

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Good morning, ladies and gentlemen. Welcome to Tiger Brands' Year-End Results Presentation for the Year Ended September 2019. My name is Nikki Catrakilis-Wagner and I'm responsible for Investor Relations.

The program for today is the same as every cycle. We'll begin with an overview by Lawrence MacDougall, CEO; Noel Doyle, the CFO, will provide a financial and operational performance overview; and Lawrence will conclude the presentation with some concluding remarks, after which we'll open up to Q&A.

Before we begin the presentation, I, as usual, draw your attention to the forward-looking statement.

With that, I'll hand over to Lawrence.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [2]

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Thanks, Nikki. Good morning, everybody. As we kick off, I think those of you that have read the results will see it's a disappointing set of results for 2019, I think one that reflects both the tough macroeconomic environment, the tough trading conditions, but also, I think, some own goals that we scored in some of the key categories.

What we will take you through today is also where there's been some significant once-offs in our results for the year, some restructuring, group restructuring; and also, significant losses that we have incurred in our Value Added Meats business, the Enterprise business, which we'll take you through in a bit of detail because that skews the results quite significantly.

So just as we move forward then, starting with the macro environment. I think everybody is aware that our economy had probably grew at about 0.5% this year. We've seen a significant amount of social unrest, particularly in the areas where our Grains business operates on a daily basis. Lack of municipal service delivery is becoming a bigger and bigger issue for us, and I'll sort of unpack that a little bit later in the presentation.

Consumer spending has been muted. There is still growth in our categories, which is positive for the future. However, we've performed slightly behind most of our categories in each of those that we do participate. The high unemployment has changed consumer behavior and clearly, that you can see coming through in the incidence of higher promotional activity and the shopping on that promotional activity.

General services, overall, have been a cost push that we've had to mitigate through our plans, and we've done fairly well in that area, and we'll unpack that later. The high unemployment is partly to blame for the social unrest, we believe, that we're dealing with at the moment. The numbers of people, we know that there's nearly 7 million people unemployed in South Africa at the moment and this is causing us significant problem in the low-income groups.

Our consumers have changed. Their behavior is changing, and it's changing rapidly. More consumers are shopping on promotion, as I said. Nearly 70% to 75% of the activity in the stores nowadays is on promotion. And therefore, the early weeks in the month, you'll get a slight uplift at the middle of the month and then month-end when all the promotional activity kicks in. Retailers have started rationalizing SKUs that they're trying to manage their inventory. Overall inventories in the industry are down. There's been a continued push towards private label. But I'll show you a little bit later that, that is actually paid off quite significantly in the shorter term as consumers are moving back to brands, but still shopping on price.

Growth opportunities still exist in the market. However, they have to be very, very well thought through. Modern trade, there is -- shoppers are shopping more in modern trade. The general trade, though, where we did see, if you remember, I spoke that through, a higher growth rate coming through has been impacted by the social unrest. The xenophobia was a big impact in our business, smaller stores getting shut down and generally, in those stores, the inventory levels dropping. You would have heard even some of our bigger retailers have been impacted in the neighboring states as well where their stores are being burnt or looted. So that whole social environment is very, very difficult to deal with at the moment.

Consumers are shopping more online. And while that is very small in South Africa at the moment, it's something we have to be prepared for, particularly in the consumer goods space, which is smaller than apparel and the white goods industry. But the trend is definitely there, and we have to prepare ourselves for that.

The social media, the interaction with social media, I'll talk about that later, is becoming bigger and bigger. So traditional media channels and the way the consumers hear about the activity and hear about their brands is also changing.

There's an emerging awareness of convenience. People are shopping smaller, they're shopping more often, and they want the convenience to come through. At the same time, snackification is becoming bigger and bigger. You would have seen the initial results in our Snacks & Treats business; you can start to see that growth coming through. But snacking on the go and general snackification in a health and wellness space is definitely something that has to be addressed for the future.

Input cost volatility has been a massive issue for us and the inability to actually translate that into price has been our biggest issue, and you'll see that coming through in our margins. Electricity outages, not only from load shedding, but we've also seen that municipalities are starting to get cut off from bulk supply from Eskom due to underpayment. So we have several of our bakeries that have now gone on to a load-shedding schedule, not because Eskom's not supplying the power, but because Eskom has cut off the power to those municipalities because they haven't paid and significant amounts of debt sitting in that space.

Commodity and exchange rate volatilities, I won't go through, Noel will talk through some of that. And clearly, in our most affected areas from rainfall, the crop yields have been less than we expected in the past. So the macro environment is very, very difficult. However, this is not the full cause of our results, and I don't want to use this as an excuse at all.

As I go through the numbers, the Oceana unbundling, which was completed in this year, had a significant impact on our revenue income and also on the results percentages. The impact of Value Added Meats, I'll just draw your attention to that again, it's big. It was over a ZAR 500 million loss in that business, which impacted our business significantly. And then we have announced more recently in the last few weeks that we have closed our Deli business in Nigeria, which, as you know, has been loss-making.

So when you look at the numbers, you can see how that plays out. And as we move through the numbers, between mine and Noel's presentation, you'll see that we talked through, excluding Oceana and excluding the Value Added Meats products, to give you some sense of what the base business is doing.

Performance is well below our expectations. And we're not happy with that, but we'll try and unpack where we have performed and where we have not performed to show you that the foundations and the basis of what we're saying has been laid is actually bearing fruit.

Revenue was up 3%, excluding the Value Added Meats business up 5%. And when you look at the domestic business, domestic business was actually up 7%. So our international business actually pulled our total performance down this year.

Gross margins, about 200 basis, 230 basis points below where they were last year. And that flows through right down into the operating income number as well. The biggest impact on Oceana, you can see in our HEPS number, we're down 17%. Excluding Oceana, however, is down 4%. So you can see it has material impact on our overall trading performance.

Total dividends, a final dividend of ZAR 4.34 added to the ZAR 3.21 and the special dividend of ZAR 3.06 that was declared earlier in the year, brings our total dividend to ZAR 10.61.

So let's briefly unpack what is happening in the business. Tigers has really strong positions in all of our categories. And the brand equity of our brands is still very, very strong. And this is going to protect us through these tough economic times. 54% of our brands are #1 in their category, and 29% are #2 in their category. And you can see on the right-hand side, when the Sunday Times Top Brand awards came through, the consumers not only vote with their money, but they're also voting when they're putting these surveys together to say, yes, these are our brands, I'm quite public about that. Equity is measured across the industry in a very similar way. And therefore, these numbers are very powerful indication that the consumers are still voting for our brands in their categories.

A new perspective that I haven't shared before is we have 9 ZAR 1 billion brands. So each of these brands in their -- on their own, exceed ZAR 1 billion in turnover. So they are very, very big brands. And what I've tried to indicate to you is the #2 in each of the category and the shares that they have. And you can see in each of these categories that we have significant and meaningful leadership positions. Some of them we have to watch closely. Albany is split in 3 ways, basically in the market. Cross & Blackwell, our mayonnaise business has started a recovery in the last year after some share losses in the previous years. But even on Purity, where you've seen some competitors have really good gains over the last few years, they only have a 7% share and our share in both pouches and homogenized jars is very, very strong.

So just to give you a perspective, these are 9 ZAR 1 billion brands. So we've got really, really powerful brands in our portfolio. And when some of you talk about complexity, you can see how we're starting to segment the business in terms of where we need to put our focus. And this is very, very important for us going forward.

How do we look? And how's the customers voting for us? Again, I don't think we've shared this with you before. We have about 25% share of our customers' food basket, 25% share of our customers' food basket, about 33% in the general trade. So we have 1/3 of the basket in the general trade. We're getting good support, great support from our retailers, our forward share is about 40%. So our brands are strong when you look at them on the shelf and when the consumer makes their decisions and point of purchase. And in general trade, you can see we have almost 45% forward share in the space. So our brands are available and they are very well positioned in the stores where we trade.

Now looking at the consumer specifically, consumers continue to increase their move towards shopping on promotion. So as they are stressed for cash, they more and more shop in on promotion. Not only are they shopping more on promotion, but they're also becoming more promiscuous in terms of which retailer they choose, so not choosing a KVI and then doing their monthly basket shop there, they're actually shopping for brands across retailers. So generally, on a visit, they do 4 or 5 retailers to fill their basket when they do their shop, which is a new trend that we haven't seen before. They also buy in bulk. So when stuff is on promotion, they will stock up the pantry, which gives us these huge fluctuations in what really appears to be demand, but it's not consumption. And at the same time, they are looking, as I said, for the cheaper supermarket.

However, you can see here the changing to cheaper brands is actually pared back in the information that we see. So firstly, they will shop the brand. They will make a choice on which supermarket to shop by choosing their preferred brand as a start. 75% of them are brand loyal. And only 33% are making choices then on price. So this is a positive, even in these tough economic times, there's some very positive consumer data that is coming through.

We continue to ramp up our innovation. We made about 100 basis points improvement in this year en route to our ambition of getting our innovation rate up to 10% of our turnover. You can see the key tracks that we're actually monitoring, health and nutrition, value, convenience and then all other. So trying to track or access those key consumer trends that I mentioned earlier, and we're making very good progress in this space. I think I mentioned in the last presentation that it was slower than I expected, but we've definitely ramped up our position here and our funnel for the future actually is very, very positive.

We've made some significant changes on our packs. You would have seen those in the supermarkets, when you do your shopping. Our Beacon slabs, you can see we branded it Heavenly now. So Beacon chocolate brand is now called Heavenly. And you can see the upgrade significantly on the packaging. At the same time, Fatti's & Moni's, for instance, we've upgraded the packaging, but at the same time launched a premium offer, which offers the more wealthy consumer an offering for al dente type pasta that has got a better taste or crunch to it when you eat it. So looking at both the upper end and the affordable side in our innovation funnel.

Now this is very important: as we understand, more consumers are shopping on promotions. So understanding how we manage our activity and manage our promotional money is very, very critical to us. We've put measures in place now to optimize our promotional activity by tracking over 7,000 promotions using new and traditional measures and platforms more effectively than we ever have before.

We've introduced technology, artificial intelligence to help us do this. So we enter these promotions into the system, we show what we've spent, we show what we've sold and what the trader has sold out, and that gives us a return on our investment. So over time, as their database builds, we'll be able to very clearly track which promotions are working for us and which not, to be able to better allocate our spend for the best return going forward.

We're also using more of a digital platform, even the broadsheets, now you would -- the consumers are starting to get on their telephones. So they won't only have to get it through the press or through TV. So we're starting to access consumers directly through the social media. At the same time, that gives you an opportunity to send them promotional offers. So as they're making those choices not only do they see the price through the retail advertising, but they're also getting prompted from us on our key brands.

At the same time, you would have seen your newspapers are filled with promotional offers every day when you get them. At the same time, we're using that as an opportunity to communicate our brand message, not only pricing, so adding to the communication that we do with them.

And then lastly, BuySmart, which is a very, very exciting development for us. This is the launch of our tailor-made loyalty program. It is called BuySmart. Some of you would have seen it on TV already. It was launched in October, and it's an industry first. It allows us to access the consumers directly, give them promotional offers and then reward them for being loyal to our brands. It has been set up through WhatsApp. So it's available to most consumers, and it allows us to engage those consumers directly. Over time, we'll build our database of who these consumers are and be able to communicate them -- communicate to them on a regular basis. We're targeting over 500,000 users by the end of the 2020 year. So we're really excited about the opportunity that offers for us for the future to actually communicate with our shoppers and consumers directly.

So in summary there, what's working? I think you would have seen the execution of the group strategy starting to take good momentum. The portfolio optimization, Oceana, Deli, the Value Added Meats that we've announced is also in a sale process at the moment.

We've made great progress on our capability internally, the culture and the values that are the foundation of who we are as a company. Our cost management is being well controlled. You will see our expenses and the ability to use our central procurement to drive our costs down, have also been well managed. And our CapEx, particularly in the areas where we were spending big money, ZAR 1.1 billion last year, is starting to ramp up. You know that would have been a disappointment for us in the previous years. We haven't got to the levels that we wanted to spend. We're now at where we think we need to be.

And then you can see the business performance, although overall disappointing, there's been some standout performances. Snacks & Treats, Beverages, Home Care, Personal Care as well had a good year, Baby nutrition and breakfast.

Challenging, though, however, I'm not going to go through it again, is these headwinds we got from the macroeconomic environment. We also need to ramp up our inorganic growth. We've now appointed an M&A Director that will fit into our strategy department. So we've now -- that was the last bit of the capability plan that I mentioned in the previous presentations.

Our biggest challenges last year were Grains overall, particularly in maize, where we had a torrid time. Groceries is still not performing and we had some once-off hits in international. That was disappointing for us and Noel will unpack those in some detail.

So as we move forward, managing our margins, being able to take sufficient costs out and the balance of those costs that we can't take out, being able to push through in inflation is the measure we need to manage.

Clearly, the consumers are stressed. So having affordable offers in the right pack size is going to be critical for us. And we're going to have to ramp up in that space.

And lastly, labor is becoming more and more militant. You would know labor increases or wage increases over the last year and in the recent few months has been anything between 6.5% and 7.5%, which is nearly double inflation. So that's a further cost push that we have to deal with. And the only way we can deal with that is by getting more efficient in all of our facilities in our units and then building in automation for the future.

So you can see a pretty balanced approach in terms of what we've done, but definitely not a balanced approach in the overall results that we delivered in 2019, so a disappointing performance for us.

As I said to you, there are some big changes in the numbers from a strategic perspective. But we'll come back and talk about that after Noel has been through the detailed segmentals.

Okay. Thank you.

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [3]

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Thanks, Lawrence. Good morning, everybody. I'm going to run you quite quickly sort of through the financial and operational performance of the businesses. I think Lawrence has given pretty good context and given you a pretty good overview so far.

Just to call out, and we have done this in the announcement, but just to call out the sort of specific impact of Oceana. So removing Oceana for the full year or virtually the full year has quite a significant impact. The headline earnings number of '17 decline would fall to a decline of 4. If however, you adjust backwards for the impact of VAMP, where we had very significant recall costs last year, the like-with-like, excluding both the impact of Oceana and VAMP is that headline earnings fell some 8%. And I think the other key thing to call out is when you look at the sort of core EBIT earnings, the poor performance of the VAMP business throughout the year relative to last year's performance means that, that sort of -- the business excluding VAMP, the operating profit decline was 11% rather than the 20% that you see on the face of the income statement.

When we turn to the income statement, I think Lawrence has called out the pressure on gross profit. And the relatively good performance when we look at the expense management below the gross profit line. Within the gross profit line, the biggest challenge by far has been sort of getting pricing to reflect the level of input costs. We think we've done a reasonably good job in procurement. We don't think we were out of the market by any significant measure across the sort of broader Grains portfolio from a procurement perspective. But within that gross profit number, one of the areas where we still struggle to bring the cost down below our level of inflation is in our conversion costs. And there, we sort of feel the headwinds of very high wage settlements relative to sort of our portfolio pricing inflation as well as that cost push that comes from administrative costs.

If you look at our selling and distribution costs, one of the phenomenons probably over the last 18 months has been the challenge of accurate forecasting in a very volatile demand environment. So within our distribution costs, we've made very significant savings in the cost per ton moved. Some of the challenges are that we're moving a product more than once as a result of sort of a lack of predictability in terms of consumer demand and customer demand. So we often get orders from customers. And then we find that sitting on a pallet because their pull-through hasn't been at the level that they expected. So that is a factor that explains why selling and distribution looks a little bit out of line relative to inflation, even with the volume growth.

On the impairment line, that really reflects sort of the quite challenging outlook that we see, particularly in Mozambique, for our Davita, Benny and Jolly Jus business on a sort of 5-year view forward as well as but we think we've taken sort of a fairly prudent view around the valuation of the PP&E in the Value Added Meat business. That bigger normal profit is the notional profit that flows from the unbundling of Oceana.

There's the impairments, those intangible assets impairment, 99% of that relates to that Davita export business and the impairment of property, plant and equipment, again, 99% of that relates to the VAMP business.

The income from associates, I think given the challenging environment sort of globally, I think our associates have performed quite well. You can see the dramatic impact on the top of that slide, of the loss of the Oceana associate earnings. But even in Zimbabwe and even using a conservative exchange rate and accounting for inflation as we've had to do, the National Foods business has performed very well in real currency in a very challenging environment and UAC has also shown sort of stabilization of its earnings after a couple of years of challenges.

The big impact in our HEPS, just to try and call them out within our group trading, the number that sticks out is quite clearly our Grains number. But even within exports, you'll see a very good recovery coming out of the LAF business. We didn't quite get to the breakeven that we were anticipating, but we got pretty close, but that was offset by the challenges in the TBI and the Davita business. And there you could see the impact on earnings per share, which was quite significant of VAMP in both directions in terms of the operating performance this year and the recall costs that we had in the prior year and the associate number that I've called out before.

As Lawrence said, when you look at our business, sort of from a domestic performance, some volume growth, good volume growth in HPC although there is a base effect that we acknowledge in that; very strong growth in our Consumer Brands businesses, but challenge is getting the right level of inflation in those categories. Where we really took a serious hit, as you could see, is in the exports business, where our total volume was down some 16%.

Across both components, some of the carryforward from the drought impact had reduced the level of carryforward stock available for sale in the deciduous fruit business. And the challenges, which I'll talk to you in a little bit more detail on Mozambique and Nigeria.

So the trend of our numbers is because of that gross margin sort of dilution, you see a deleverage across the income statement. But quite clearly, the most dramatic impact for us and relative to historical performance has been in that Grains business, down some 24% on operating profit. And when we look at exports and international, you can see also a significant number contributing to the negative performance.

So when we go to the Grains business, it really was probably sort of the most torrid year that we've experienced in Grains across every single segment of the Grains business, probably with the exception of the Jungle business where the strength of that brand allowed us to sort of pass through the right level of inflation and the innovation that's been building there gave us a good performance in that business.

In the other Grains portion of the business, rice and pasta really sort of sweated the year around promotional pricing. And for the pasta category in particular, over the last 2 years, we've seen massive challenges in terms of being able to either source from our own imports and put it through our system cost effectively or in our manufacturing to be able to compete with the level of imports that are coming in no name brands and into the house brands, all the growth in that pasta category is coming sort of at that sort of sub ZAR 10 price point that we found it really challenging to get to profitably.

In milling and baking, this is the first year probably that maize has had a significant impact, not as significant as bread, which I'll talk to you just now. But the maize market over the last couple of years becoming increasingly fragmented and from a consumer perspective, sort of the recognition of differentiation for brands in terms of that value equation between sort of the difference in the product quality versus the difference in the price has definitely narrowed. And so normally, we have some ups and downs in maize, but within a very narrow band. Sort of in this particular year, we saw a dramatic decline in the maize operating profit number that we reported. However, that doesn't take away from the fact that within that mill bake category, our real challenge has remained probably now for the third successive year in the bread category, where the level of inflation that we've been able to achieve in the areas in which we have operated has been insufficient to recover the sort of cost push that we've seen on raw materials and costs. And as we sit here now, it still remains quite a challenging category from that perspective.

So in this environment, we think we've done a pretty good job in terms of holding on to volume, you'll see on one of the succeeding slides, the market share decline has been quite low and a reasonable job in terms of holding on to that premium. But the price in the market as a whole has not moved sufficiently to allow us to hold on to the margins that we've had historically, and that certainly remains a challenge for us going forward. We do see some opportunities around sort of the other categories, particularly rice and pasta for some recovery from the margins of 2019.

And here, you can see sort of that sort of difficult dance around margin and volume. So for the most part, you can see we've had some pressure on market shares and where the market shares have grown, those aren't categories where they move the needle in terms of the absolute rands of operating profit.

If we turn into the Consumer Brands portfolio, some of the good work that's been done sort of in the past is really starting to flow through. We're seeing the benefits of the CapEx that was spent in terms of our ability both to supply the demand in the Beverage business, but also to supply that demand at cost-effective pricing. So we're quite pleased with the performance of the Beverage business and very pleased with the ongoing momentum in that.

Snacks & Treats, highly discretionary category in a very challenged consumer environment. And I think given the level of revenue growth that we've got and the work that's been done around reengineering, particularly in smoothies and the hard candy space, the sort of profitability of that category. So there, again, some positive momentum that's been flowing through also from the previous year.

And you can see that reflected in the market shares of that business as we've been able to take a really good brand proposition, backed up by a more efficient supply chain to the market at the right price points. And you can also see that with Oros and Energade and as we've expanded, I saw some of the offerings outside as we've been able to -- because we've now got capacity, and we've got more sprint capacity for a summer season, we're able to expand the range and start to compete across the entire market than just in narrow flavor of variant segments.

The Groceries business, often sort of taken by the market as a bellwether for sort of Tigers' sort of underlying health, very challenging for us. Very good levels of volume growth or reasonable levels of volume growth, still not at the rate of market growth, and we did lose some share here. But challenges to push through and to recover the level of cost push that we've seen as well as the impact that we had in the first quarter of the strike that we had towards the end of last year and in the beginning of the first quarter of last year. If you lose that Christmas quarter, then you never make that up.

But having said that, if you look at the second half segmentals, second half-on-second half, it remains quite a challenging space in terms of the level of intensity of competition, the level of buy-in on promotion that's taking place, pantry loading with the consumers.

So here, I think for the go-forward for us, we've got some more CapEx projects to take in to sort of drive down our costs, and we're to just keep working on the basics of running an FMCG business in terms of our sort of marketing sort of above the level of our competitors in terms of the quality of how we talk to our consumers. And here, you can see that we have some work to do to recover last year relative to the previous years.

The Home, Personal and Baby Care segments, there was probably a degree of skepticism about sort of you have -- how we had expressed that we fully expected a significant recovery in that category, particularly Home and Personal Care after a very disappointing performance in the previous year. I think we've really seen sort of the resilience of our brands.

We've also seen again, the work that was done and the CapEx that was spent at [Ascenda] in previous years starting to flow through in terms of our ability to compete cost effectively. And on Baby Care, getting that pouch line up and running has really driven share growth for us in the Baby Nutrition category. And you can see that here in that pouch performance.

So exports and international, I see Anthony in front row seat. And I'm sure you'll be pleased to see that we've responded to Deli Foods having cut the losses. We just didn't cut them by enough, wasn't going to be possible for us to make money in Deli Foods, and therefore, that business has been effectively shut down.

The deciduous fruit business within the portfolio, very good return, a bounce back from the previous year. We were boosted to an extent by some favorable positions on currency. But that remains still a challenging category, the level and intensity of competition sort of in our profitable markets that comes either from subsidized sort of Greek producers or alternatively from constantly improving, but low-cost sort of Chinese manufacturing and horticulture sector remains a very challenging area for us.

Chococam, I'm sure many of you will have an understanding of some of the challenges that the Cameroon has been facing in terms of its own sort of civil strife. And again, I think it's probably the 9th or the 10th consecutive year that we've managed to grow profitability in that business.

But where we really struggled, which sort of wiped out all the benefits of the deciduous fruit business, was in both Mozambique and Nigeria. Nigeria is really about the transitioning from a distributor who had a relatively narrow reach, trying to move that into a distributor with a broader reach within that market. And in that transition, there were some challenges. There remain some challenges in terms of just getting momentum around that with some litigation that's been taken by the previous distributor.

And in Mozambique, the second half of Mozambique was really poor. It was a combination of effects. I think, one, the fairly dramatic impact of what you saw in terms of weather events on that consumer, but also the fact that our distributor had probably overstocked throughout the first half of the year, and we're now seeing a much better performance as we sit here now, and we're expecting a good first quarter out of Mozambique and some stabilization.

And Zimbabwe has been really challenging. What's happened to the exchange rate and the availability of ForEx has had a pretty dramatic impact on that market from an export perspective.

When we come to the Value Added Meats business, as you know, it's currently undergoing a due diligence from several parties. And the results of that, we would obviously communicate in due course.

I think what we've seen in that business is a couple of dynamics, some of which were carried forward from the first half of the year, some ongoing sort of

operational challenges, in terms of getting sort of factory sort of efficiencies when you're running with sort of lower levels of volume. What we have seen is a progressive every month we are taking back share. We're seeing a very strong sort of positive response from customers and from consumers. But we're also seeing sort of principal competitors, one in particular, where they were the biggest beneficiaries of us being out of the market, and they're certainly fighting tooth and nail to hold on to as much market share for as long as possible off a pricing platform. So that category's results were very disappointing for the second half of the year.

Cash generation, I think we've probably done a reasonably sort of good job on that. Probably carried a little bit more stock into the first quarter than we would have liked to, after a difficult fourth quarter from a sales perspective, but that shouldn't mean that I'm not going to be back here in April telling you that we couldn't supply-demand for reason A, B, or C.

And the CapEx spend, we've started to sort of unblock sort of some of the sort of process issues around getting CapEx to approval and execution stage. And the momentum that you see in terms of the CapEx spend can be expected to continue into the current year.

The return on equity, or our runners, as I'm illustrating here, obviously, with the level of decline in profitability and some additional CapEx spend sort of dropping quite significantly and dramatically now down to just under 22%.

On the dividend, we stated pretty clearly last year that our dividend policy would be 1.75x, and the final dividend declaration reflects that. So the dividend, interim and final, based on that 1.75x cover, we've obviously paid the special dividend linked to the Oceana unbundling and the sale of some of the shares that we did around that. So the dividend of [$10.61], if one takes into account the dividends that a shareholder who has elected to hold on to the unbundled Oceana shares, then the total dividend would have been up by about 7% from [$10.80] last year to [$11.55] this year.

CapEx, we've -- I've sort of covered that. It's been a sort of a recurring question, and we've consistently underspent against expectations. But in the second half of the year, I think we saw some sort of pretty good momentum. And the guidance for the year ahead is that we can probably move that ZAR 1.1 billion to ZAR 1.5 billion. I think the other point to make, though, is just to constantly reinforce it, is that the sort of balance sheet position, first of all, is certainly not burning a hole in our pockets to rush out and spend it sort of recklessly on something that might even give us very short-term accretion. But it is something that we are conscious of, and I think over the next 12 months, you'll see some further moves to look at sort of returning cash in some form to shareholders, if we're not able to find a more effective use for it.

Continuous improvement, a lot of the low-hanging fruit over the past few years has been harvested. It's not something that we've given up on. There's some key sort of next sort of levels of interaction required. But for the past year, it still was not an insignificant contributor to trying to offset some of those above inflationary cost pushes that we spoke about.

That's it, ladies and gentlemen. Just hand over to Lawrence.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [4]

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Okay. So as you unpack it you could see there was a -- an overall disappointing result with some very good movement in areas where we said we're going to focus for -- in our past presentations.

I think as we look forward, what's important for us to understand is that as management and leadership of this business, despite the tough trading conditions, we need to start -- and continue, should I say, building the foundation for a stronger future. And we believe we're doing that. I think the overall group strategy execution is well on its way now. There's a few items that we need to push through in the next 12 months, and those will be executed on time.

But you can see, we need to make sure that we are driving for growth, but at the same time, being very, very vigilant on our costs within the business. I don't think the environment is going to allow us to push any further inflation through. And you would have seen the latest stats that came through, the consumer price inflation is the lowest in 11 years. And I don't think that's going to change dramatically in the months going forward.

So the way we manage our business and the way we go after growth is going to be critical for us in finding that balance between volume and profitability. But at the same time, making sure that our facilities had the flexibility to be able to absorb the lower volumes, if they indeed are lower, but without impacting our margins. And you saw that in some of the categories already where we've invested our CapEx behind those facilities.

So I'm not going to go through the detail, you can see the -- there's some short-term stuff we have to do. We clearly have to drive performance, particularly in our Grains business and our Groceries business. And those were 2 key underperformers. We think the basis for our Africa performance has been well laid down. We had some short-term issues that we needed to deal with, and we have those out of the way now, and that should be able to deliver going forward. But the Grains business, getting its profitability and market share back, and at the same time, addressing the grocery issues which have been with us for a while now, are 2 key priorities as we move forward.

We believe we've laid good foundations in terms of our brands, making sure that our brand equity is stronger. Our innovation pipeline is strong. The culture and the capability and the way we are structured is working for us right now. The cost savings, central procurement, all those things we promised you that are going to start delivering benefits have delivered.

So it's a balanced approach. Short term, we need to get the performance up in terms of getting our margins. But as leadership, making sure that despite the tough trading environment, we are building for the future, that if the economy does kick, we are best positioned to be able to take care of that going forward.

And that's what we're applying our minds to, and that's what you should be expecting of us in the months to come. But the outlook is going to remain very, very difficult and muted until there is some significant moves in our economy.

Okay. Noel and I will now take some questions.

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Questions and Answers

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Anthony Geard, Investec Bank Limited (SA), Research Division - Consumer Staples Analyst [1]

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It's Anthony Geard from Investec. Lawrence, I only have one question. I think it is the burning issue. It really seems over the last 4 years that Tiger has imploded. Do you think that you're the right person to take Tiger forward?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [2]

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Yes, Anthony, I think I've tried to put a balanced position forward. I think our strategic outlook is secure and strong. I think our strategy is well-articulated, I think we continue to work away at the issues that have plagued us and plagued the business for a while. As you can see -- you can see the group strategy execution happening. And I think I try to demonstrate to you through the presentation that we're laying the foundations in the areas where we believe we needed to invest and put capability on the ground.

It's disappointing, I fully agree with you, that the performance hasn't kicked in the last 2 years. I think 2018 where it had its own particular nuances, this year has been a big disappointment for us, particularly in Grains, which was a major impact. And if you look at the impact of Mozambique and Zimbabwe it had on us, it was dramatic.

So you add those 2 things together, and you have to offset that against the other stuff that is performing and where we've invested, and we're starting to get the results, which should give you confidence that we do all know what we're doing. It's taken us longer than we expected. We've had no winds at our back to give us any momentum. It's been a very, very difficult economy to trade in. We took a strike in Groceries. We mentioned that at the half year, and we had strikes in our Pretoria bakeries in the last quarter of the year as well, which, as management and leadership, we should be able to deal with. But they had particular impact on our performance in the year.

Whether I'm the right person or not is something the Board needs to deliberate, and please feel free to give them a call if you feel that you've got something to add in that space. But yes, I'm feeling good. We've got the capability. We've got the wherewithal. Our balance sheet is strong. We're investing behind our brands, we're investing behind our facilities, and our strategy execution is starting to happen. It took us a little bit longer than we expected. And I think I explained that at the end of last year. 2018 was a really desperate year for us. We didn't make the progress we needed.

So we got set back by at least 12 to 18 months in terms of where we needed to be. But I feel we're getting that momentum here. And I've got a strong management team and strong brands. And I don't think anybody else could ask for much more. So now it's about delivering performance in the short term.

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Myuran Rajaratnam, Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager [3]

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Myuran from Metal Industries. Can we just talk a little bit more about bread. So the A.C. Nielsen stats that you put up there, you lost market share, I remember, that's presumably drop in growth, right? Just focusing on how (inaudible) right? And between formal and informal trade was, where was the bigger profit loss, I mean, compared to the previous second half? Or is the -- or am I looking at this wrong way?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [4]

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I don't think you're looking at it the wrong way. I think if one looks at the volume performance, there hasn't been a significant difference between the volume performance in either of those categories. And the pressure remains -- sort of the pricing pressure from the competitors goes across the sort of entire spectrum. So I don't think there's a disproportionate sort of negative profit impact from one channel relative to the other.

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Myuran Rajaratnam, Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager [5]

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But you specifically mentioned unfavorable channel mix. So what do you mean by that then?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [6]

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So, I don't think I've used the term unfavorable channel mix.

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Nikki Catrakilis-Wagner, Tiger Brands Limited - IR Director [7]

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I can pick it up, it's on the slide. So what often happens is that the promotional activity will be rolled out in the top end grocers because it's easier to effect. And that channel is a least favorable margin channel as we try to defend our position in the top end grocers. So that's the channel mix that we refer to there.

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Myuran Rajaratnam, Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager [8]

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So you do actually say it's worse -- unfavorable channel, regional and channel mix is there, right?

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Nikki Catrakilis-Wagner, Tiger Brands Limited - IR Director [9]

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Yes, yes.

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Myuran Rajaratnam, Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager [10]

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Okay. So my second question is given this sort of outcome, and it remains challenging. To me, it feels like the milling and baking long-term guidance, I hate to use the word, so I think it's a bit frivolous. It doesn't seem like something that you can hit and hold. It's more like something you can hope for. I just wondered what you think about that.

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [11]

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I think in all the guidance that's been given, we're not a dominant player in the market. We've always said it depends on how competitors play, particularly new capacity expansion. So I think it is fair to say that, to an extent, we're able to hold our bare brand premium. But the price of which that premium has taken is dependent on how other participants in the market decide to price from their own internal strategies. And if you look at sort of margin dilution across those competitors that you have some degree of see-through, you can see that, that margin dilution has been on a similar level. So people have gone very deep on pricing, got some volume but very little operating profit.

So I would hate to be accused of being frivolous in terms of any set of margin expectations. And I think we have been quite clear that it is challenging, and it was dependent on how the competitive set plays out. We spoke extensively about rationality and irrationality and I think that what we've seen is an intense price-focused response to a very challenging market. And what that has done is reduce the entire profit pool in the category.

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Myuran Rajaratnam, Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager [12]

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So your take, do you think that's structural, is that here to stay for a while or not really, on this price competition?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [13]

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I'm not able to read the minds of competitors.

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Myuran Rajaratnam, Metal Industries Benefit Funds Administrators - Analyst & Portfolio Manager [14]

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Sure. But you have -- you, nevertheless, they're happy to provide us with a long-term margin guidance. So that's dependent on what the competitive environment is. And it sounds like that's going to -- that's going to be around for a while.

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [15]

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Then certainly, it's been around now for probably the last 3 years, and there's no indication that's going to change.

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Shaun Chauke, HSBC, Research Division - Analyst [16]

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Shaun Chauke from HSBC. I've got a couple of questions on my side. And the first one is, you mentioned that there's a continued focus on private label participation. Now given the persistent weak economic environment, if you were given no choice other than to be involved in private label participation by the industry, in which categories would you participate in and why?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [17]

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So the question is, if I had no choice, which categories would I?

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Shaun Chauke, HSBC, Research Division - Analyst [18]

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Yes.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [19]

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Probably every one I could, if I had no choice. But I think you would find you'd look at categories with the lowest differentiation and the lowest consumer brand loyalty. Those are the areas you would probably win quickest. Where you had large-scale operations that were underutilized would probably be another decision that you would use. And I think the other is then being very choiceful about where you participate with which retailers, understanding that the obscurity that they do have in terms of where they're sourced from, whether that gave you long-term reliability of that demand.

So those are sort of the things, I think, as a business leader, you would have to consider if you ever went into private label. That would be my answer. Not -- we do some, but we're not beginners all, and we don't intend to be.

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Shaun Chauke, HSBC, Research Division - Analyst [20]

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And the second question is on your higher market shares, particularly in Purity, All Gold and KOO. Now the gap to a key competitor in those products seems to be high. I mean, there's 2 parts to my question. Is it a case of brand loyalty legacy? Or given that you're most vulnerable to competitors, what is it that they're doing right, that has allowed them to gain some share? And how are you looking to combat that going forward?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [21]

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I think it's a various -- these various factors, as I mentioned in the presentation. I think we need to make sure that our brands remain relevant to the consumers that the price value relationship is still strong and that the innovation that we bring to each of those categories is targeted at the new consumer trends.

So if we stay where we are, clearly, you're going to marginalize your brand as consumers' expectation change. So that's the full basket really of the brand mix we need to bring to those portfolios to keep them successful for the future.

Baked beans in a can might, in the future, be baked beans in a pouch or in a cup for on-the-go consumption. And those are the types of things that you need to say, well, what are the frequent future consumption trends that we need to look at and how would we keep our brands relevant with those consumers?

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Shaun Chauke, HSBC, Research Division - Analyst [22]

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And just the last 2 on my side. I mean, overall, it looks like the business saw most of the growth in general trade versus more than trade. And is the increased penetration of Boxer and USave having any impact in terms of your business?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [23]

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Yes, there is some, depending on the category. Boxer had a good year. I think they are gaining share. I mean we don't see that flowing through in the retail presentations in terms of total, but when we look at our retailer market shares that we get, they are gaining share in the segments where they participate. And we participated in some of that. Not everywhere. We don't -- we haven't got a full basket in those stores, but we did benefit from their growth as well.

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [24]

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And just to add to that, coming back to the initial question on bread. In a category like bread, in particular, where you've got a significant rollout of those stores into areas where they previously weren't, and you've got a lot of deep cut promotions, it does have an impact on either volume or pricing in sort of more traditional trade around that -- those stores.

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Shaun Chauke, HSBC, Research Division - Analyst [25]

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And maybe just the last question on my side. What was the impact of your -- the industrial action on profits in grains and groceries, given the significant decline in margins?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [26]

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Yes. For the groceries impact in quarter 1 was probably in the region of ZAR 25 million. And the impact of bakeries, very difficult to give you an absolutely accurate assessment, but I would say it cost at least ZAR 20 million.

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Shane Watkins, [27]

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Shane Watkins, All Weather Capital. So as part of your strategic review, you've indicated parts of the business that makes a lot of sense to exit value-added meats or dairy foods and so on. And so you are carving away things that don't necessarily belong in the core target portfolio.

But when I look at the rest of your presentation, I wonder whether part of the problem is not that actually your core business is just too complicated. You're selling beverages and home and personal care and maize products and groceries. And it's very disparate products that actually, in a lot of instances, have nothing to do with each other. And it just looks like a business that is enormously complex, unwieldy and difficult to manage. And so my question is, have you given some thought not to disposing of things that are self-evident to get rid of but have you looked at breaking up this group into a more manageable proposition? And I ask this question specifically in the context that this time next year, we could have PepsiCo as a fairly able competitor. And so anyone that wants to face perhaps some market share onslaught by them is going to have to be fairly nimble, and it just feels like strategically the way this group is positioned at the moment, it's not very nimble.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [28]

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Yes. Look, I think we mentioned and we review that regularly. And I think that's what's indicated, some of the portfolio choices we have already made. I think there are some segments within categories that will help us simplify our business as well that we could look at in the future. But the way we structure, it is important to understand the complexity because we have business units, we have management that are particularly focused on their business. That is not diluted.

So when we go forward, you're 100% right. We have to make sure that we are nimble, we think we're improving on that from where we were in the past. And we'll continue to review our portfolio to add on to it in new consumer segments, where we believe there's growth opportunities. And if we believe something is not adding value, is too complex, and there are still some of those that we need to review now, we'll make those decisions. We are not weighted to anything just because it's been there for legacy sake.

So we continue to review it, and it's a continuous discussion at the Board as well.

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Shaun Chauke, HSBC, Research Division - Analyst [29]

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Once again, Shaun Chauke. One final question on my side. Now that you've seen a recovery in terms of the personal care portfolio, will you look into reviewing that as well before we see another hit in terms of what competitors might do in that space?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [30]

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Yes. So just to be clear, I think the competitors were less of the issue. I think we've tried to explain that in some detail in the last 18 months. Our personal care business is still not a great business. It's fragmented, and it has got small market shares in each of the segments. We have a few really good, big brands. But we've seen a good recovery. So we've improved it. We've got the efficiencies up. We've improved our exposure in the market. It's still a fragmented category.

What we have done is we've separated the home and personal care business out and it now reports into strategy to give it the focus that -- and attention I think you were talking about. How can we get focus in a particular segment where it doesn't particularly fit with food.

So the rest of our business is now core food, and we have somebody particularly focused now on your home, personal care side of it. So we think we're managing it fine. But there are brands in there that are dilutive and probably too small. So it still needs a lot of work in that space. But it's underway now. So we position it well. The review is busy with, and we should be able to explain some of that direction in the next few sessions when we meet.

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Sumil Seeraj, SBG Securities (Proprietary) Limited, Research Division - Equity Research Analyst [31]

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It's Sumil Seeraj from Standard Bank Securities. I was just wondering, there's huge margin compression across your key categories. And you did mention it, but just maybe more detail, which categories do you think in the year ahead would be able to recover margin quickly, effectively or the most and which do you think will struggle?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [32]

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Okay. Yes, I think we would be hopeful. I've got to be careful not to be frivolous in my response here. But I think the extent of the compression that we saw in pasta and rice is something that we think it could be possible to recover from. Obviously, in the export side with Mozambique, having picked up significantly, we would expect to have some recovery there, and we're going to be working very hard in Groceries.

I think maize, it's been about as bad as I've ever seen it. So there could be some marginal improvement in maize. I think the categories where we have the biggest sort of challenges really is in that sort of wheat to bread value chain category. It's probably the one with the biggest challenge, and it is the biggest portion of our business. So that remains challenging.

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Sumil Seeraj, SBG Securities (Proprietary) Limited, Research Division - Equity Research Analyst [33]

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So just on the milling and baking side of the business. [CapEx] wheat price is expected to be, if just look at the forecast, flat year-on-year. So do you expect input cost pressures to be as high as FY '19 going into FY '20, would that assist in any?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [34]

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Yes. I mean, if the wheat pricing sort of remains static relative to last year, that's, by far, the biggest input cost. But we still have sort of a large portion of costs in fuel pricing. So it depends on what happens there. And our labor costs have increased significantly. Our average weight settlements are running between sort of 6.5%, 7.5%. So there's no relief relative to pricing inflation on labor. And we've seen with Pretoria with Boksburg that people are prepared to go out on strike for an extra 0.5% on an offer that's already well above CPI.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [35]

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Obviously, fuel for the ovens and fuel for the vehicles.

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Unidentified Analyst, [36]

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It's [Nashi] from Afrifocus Securities. Just 2 main questions from my side. First one, just with regards to Slide 10, where you -- I think you're telling us about consumer preferences and price sensitivity.

So I'm just wondering, given that, obviously, we know about the weak consumer climate right now and given that approximately you have 50% of your sales going to the informal market. So maybe if you don't mind shedding more light. For instance, when you tell us that what you call the consumers are buying more in bulk, can you maybe shed more like there, formal versus informal? And when you tell us about brand loyalty, I'm just wondering if you can give us more insights across the different LSM groups because I'm sure those dynamics would be quite different in that respect.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [37]

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Yes. So it's an interesting dynamic. I mean consumers are shopping more often when they run out of money, and then they're buying smaller pack sizes. But when they get to the end of the month, they are looking for these big value offers, and we've also seen them forming groupings. Not similar to a stockpile, but not a stockpile, where they'll actually buy and split up the products between them. So value-added bigger bags are also selling well at the end of the month. But then as you move through the other 3 weeks of the month, the smaller pack sizes, the more affordable offers then come back into play. So those are the 2 things, the big buying bulk on promotion is still there. And multiple offers at the same time. You would have seen in the broadsheets that you get, they take up 3/4 of the newspapers nowadays, you would see those offers. And I think everybody is testing different models, putting different brands together, putting different pack sizes together, bulk offers, value-added products. I think everybody is trying to find some way that will entice the consumer other than just price. And making sure that they choose your brand, some form of differentiation. That's really what it's about. It's a very, very fluid and dynamic situation that we have to check and track on a regular basis right now.

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Unidentified Analyst, [38]

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Maybe just to follow-on on that, because I think you mentioned at some point that approximately 70% of products with retailers is on promotion. I think there was something that you mentioned along those lines.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [39]

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Yes.

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Unidentified Analyst, [40]

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So I'm just wondering, then to what extent are you guys now working with the retailers in some categories to promote some of your products? And maybe, for instance, if we can talk to pasta, for instance, because I think retailers have been, what you call, it's importing quite a bit of that and putting that on their shelves, by themselves. So now I'm just wondering in terms of, first of all, the promotional activity that you guys are working with the retailers and in which categories. And then where that seems to be going against you in the categories such as pasta?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [41]

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Okay. 2 questions. I think, firstly, the information that retailers have nowadays about their shoppers is very, very powerful. And I think we've seen, particularly 2 of them, using information to really target consumers and understand what their needs are and what their shopping behaviors are.

So we've got a thing called joint business planning, where we sit down with the retailer, we start forecasting, we do promotional activity by category, by brand. So that's very, very detailed. And our sales teams work through those activities with them.

While manufacturers and retailers, I think, will never be good bed friends, the relationships are very, very strong. I think everybody is struggling at the moment to find that balance between volume and profit. And if we don't work together, we'll never ever succeed. And particularly with us having such a big portion of the food basket, it's important that we not only come with new ideas and innovative offers, but that we also listen to what they're saying and use the information to our benefit.

So it's a very, very tense but good relationship that I feel we have with retailers in South Africa at the moment. They're forward-looking, I think there's good investment behind their own brands, behind the new consumer trends. So I think it's a healthy environment that we actually operate in at the moment.

On pasta is -- it's pure, the fact is you can import pasta at the moment at the same price or cheaper than you can actually manufacture it locally, and that's a dynamic that's a problem. So we've got -- actually got an industry issue in pasta. And European, as Noel said, European's subsidized and North African subsidized wheat is the problem. And we have duties. So that's the issue at -- won't have the same pricing protection on finished products that you do on raw materials.

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Unidentified Analyst, [42]

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Is there some kind of an industry, I don't know, some industry movement around that? Because that seems like a structural issue that might be persistent, so?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [43]

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Yes, there are discussions happening at the moment.

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Unidentified Analyst, [44]

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Okay. Just the last question on my side. You mentioned that National Foods in Zim did relatively well. And I'm just trying to understand if you can shed more light on that, given some of the challenges that obviously are facing that country. So just maybe if you can shed more light on how you're actually operating and doing very well in Zim, given the challenges in that country right now.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [45]

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Yes, they're a good business. But I mean, Noel deals with them more than I do.

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [46]

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I think Shane here often uses a term of, when the tide goes out, people get exposed. And I think what we've seen in Zimbabwe is the positive side of that. I think we've had assets that have been sort of well maintained, good brands, a good management team. And a strong balance sheet. And I think having the balance sheet that they've had has allowed them to sort of weather the storm to take the right level of positions. It's allowed them to access what foreign exchange there is. And the National Foods team themselves are supported by our partners there in store, who've been through and seen the movie of hyperinflation several times over and I think it's a combination of all of those factors. We think they've done an outstanding job.

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Vikhyat Sharma, Morgan Stanley, Research Division - Equity Analyst [47]

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Vik Sharma from RMB Morgan Stanley. I mean, just looking at the results presentation. I mean, it seems like, yes, there was pricing, yes, there was volume growth, and it almost seems like a cost issue, right? So I'm just trying to understand, obviously, conversion costs are difficult to pass on. Is there a cost reset that you guys can do. Right? Because now -- right now, the margins in the most branded categories seem to be more equivalent to the private labels across the globe, right? And with the environment not looking like, I would say, that pricing can be recovered much better. I mean I think, is there some way to reset the cost base, let's call it, lower those conversion costs down. I mean, were there any goals in there? Because, I mean I think ZAR 20 million and ZAR 25 million strike doesn't really explain the big reset in the margin that has happened. So can there be a cost reset to, let's call it, a much lower level?

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [48]

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Yes, those are the things we need to address, and I mentioned some of them. I think, the efficiencies and automation and more flexible facilities that can respond to these fluctuating volumes is what we have to prepare ourselves for. And that's what we have to address in some of the facilities, as we mentioned in beverages in home and personal care, we've already made those moves. And you can see that we benefited from that.

So yes, that's what we have to do now, unfortunately. The days when South Africa had large volumes and passed through all the inflation and in fact, consumer price inflation was running ahead of core inflation, are not there anymore. So our facilities need to be flexible. And they need to be able to be adaptive to the responding volumes.

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Vikhyat Sharma, Morgan Stanley, Research Division - Equity Analyst [49]

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Just another question. I mean I think somebody highlighted the complication of the portfolio; you yourself have reviewed it. And you're still looking at organic -- inorganic growth. I mean I think, A, which areas would you be interested in? And I mean, I think what's the rationale of that when you know the core is actually -- needs a little more attention?

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [50]

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Yes, look, I think in our core markets, there's obviously segments where we would want to go into. There's global health trends and segments within our core categories that we see expanding in the future. And if there were ever opportunities for us to expand inorganically there, we'd look at them. So we won't be restrictive in that space. But mainly, what we're talking about is expanding into Africa as a geography overall. We would look right now, we've said we want to take our current brands with key distributors, get our capabilities developed on the ground and utilize our current capacity. But if there was a market where we believe there was a target that offered value for the future in the segments where we believe is core to our business, then we'd obviously have a look at it.

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Vikhyat Sharma, Morgan Stanley, Research Division - Equity Analyst [51]

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And I think just one final question on bread, I think to Noel. Noel, I mean, it looks like there is a big margin reset that has happened. And essentially, the pricing you're saying is the lever which will obviously help solve the problem out because competitors are pricing much lower, although you are at a premium. I mean -- and that reset is not happening, let's call it, anytime soon because competitors still will go for volume growth, consumers not in a good shape. So is there something on the cost front that can still be done, especially in that bread category? Because I mean those margins seems more commoditized than they have ever been. So is it fair to assume that category has been commoditized and only pricing can save them? Or is there something else that you can do? Because I mean you've made better margins than even your branded goods there.

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Noel Patrick Doyle, Tiger Brands Limited - CFO & Executive Director [52]

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So there's always something on costs in every business. But if you look at our bakery business, we've benchmarked it extensively because it's been such a big portion of our business, several times. And on a benchmark basis, we're still very, very cost competitive.

But [Peter] and the team are busy with a sort of ongoing sort of work in that cost space. But it is a challenging sort of category for us. If you look at the makeup of the costs, we know we're quite productive. We run at very high OEEs in the factory. You take routes off or you over-economize on routes, you can end up sort of with a net adverse result. So we'll work on it, but I don't think it's going to be a significant savior of margins in that space.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [53]

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Do we have any questions on the conference call?

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Operator [54]

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We do not have any questions on the conference at the moment.

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Lawrence Charles Mac Dougall, Tiger Brands Limited - CEO & Executive Director [55]

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It's over to you, Nikki.

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Nikki Catrakilis-Wagner, Tiger Brands Limited - IR Director [56]

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Well, most of the questions on the webcast have been answered, and I'll get back to some that were perhaps a little bit unclear.

I think we can wrap it up. Management will be around for a few minutes after the presentation if you'd like to engage them. There are some refreshments outside, and there is a display of our innovation products on the table outside that I'd like to draw your attention to. Thank you.