Release Date: May 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tiger Brands Ltd (JSE:TBS, Financial) has identified ZAR500 million in cost savings, focusing on streamlining the organization and improving efficiency.
- The company has implemented a new operating model with six MDs in place, driving decision-making and execution.
- Significant progress has been made in capital allocation, targeting specific return levels for CapEx projects.
- The company has a strong focus on innovation and automation, with several projects already in place.
- Tiger Brands Ltd (JSE:TBS) has a clear strategy for portfolio optimization, including potential exits for underperforming businesses.
Negative Points
- The bakeries and grains businesses are underperforming and require significant recovery efforts.
- The company faces supply chain challenges due to extreme weather patterns, impacting raw material availability and pricing.
- There are ongoing issues with maintenance and efficiency in the bakeries, leading to breakdowns and late deliveries.
- The company has not taken a price increase in the bakeries since last year, impacting margins.
- High inflation in agricultural products and commodities continues to pressure costs, with limited relief from packaging and other ingredients.
Q & A Highlights
Q: Can you explain how sales mix to the general trade discriminates pricing versus the modern trade? Are there any breaches in terms of competition commission as a result of different pricing to the different channels?
A: The competition in the market is strong enough to prevent price discrimination. We have more expensive and less expensive routes to market, but the competition ensures that pricing remains consistent across channels. The cost considerations between different channels are significant, and we must ensure that our costs are managed efficiently.
Q: Can you provide some context on your operating cost structure in Bakeries, particularly where it was, where it is, and where you would like to see it in the future?
A: Mega bakeries offer significant cost benefits due to better throughput and automation. Our immediate opportunity is to improve routing and order systems, motivate drivers, and reduce costs per kilometer sold and truck utilization. This will help lower our cost base significantly.
Q: How fundamentally different is Carozzi compared to your grocery business, given its higher margins?
A: Carozzi operates as a decentralized organization with focused MDs for each business unit. The categories and market dynamics in LatAm differ from South Africa. For our Groceries business, we need to focus on conversion cost efficiency, value engineering, and managing the seasonal nature of the business to improve margins.
Q: What can we expect from associate income in H2?
A: We expect a solid set of results from our associates. However, the translation benefit from National Foods in the second half of last year will not repeat, which may impact the overall income.
Q: Will you keep to the current dividend policy going forward?
A: We review the dividend policy regularly. As the business becomes more cash generative, there might be an opportunity to reduce the cover. We will also consider share buybacks and special dividends with surplus cash.
Q: How long do you think it will take to change the people and culture at Tiger Brands?
A: We have talented people within Tiger Brands. The key is to overlay a leadership culture that works well. Our focus is on creating a high-performance environment where people want to work because it's a great place to be, not just for the pay.
Q: What is the time plan for the execution and results of the turnaround initiatives?
A: Many initiatives are already in progress, such as SKU reduction and product architecture changes. The turnaround is an ongoing process, and we aim to see significant improvements within the next two years.
Q: What is the CapEx profile for the Bakeries segment?
A: Each bakery has capital needs for maintenance and potential upgrades. We are considering building a new large bakery, but we are still in the planning stages and have not made final decisions.
Q: What are the annual cost savings from the headcount reduction at head office?
A: We approximate the savings to be just under ZAR100 million. We are cautious about calling out specific numbers until we can reconcile them back to the P&L.
Q: Do you think a 26-month contract is long enough to execute your plans? Are there any plans to extend your contract beyond the initial period?
A: The 26-month period is not a fixed timeline for the turnaround. The focus is on building an organization that does not depend on individuals. I am not fixated on the 26 months and am committed to the long-term success of Tiger Brands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
