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TIGER BRANDS LIMITED - Impact of Covid-19 and other matters

Release Date: 08/04/2020 11:27
Code(s): TBS     PDF:  
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Impact of Covid-19 and other matters

TIGER BRANDS LIMITED
(“Tiger Brands” or “the Company”)
(Incorporated in the Republic of South Africa)
(Registration number 1944/017881/06)
Share code: TBS
ISIN: ZAE000071080

Impact of Covid-19 and other matters

Shareholders are referred to Government’s announcement on 23
March 2020, declaring a 21-day nationwide Lockdown to help bring
the COVID-19 pandemic under control and flatten the curve of the
infection rate.

Although most of Tiger Brands’ manufacturing and distribution
sites have been identified as essential services and have
continued to operate through the Lockdown period, certain
facilities and offices have been closed based on the current
regulatory requirements or demand dynamics.     The affected
facilities are:

   •   Grains
         o Sorghum-based beverages

   •   Consumer Brands – Food
         o Snacks & Treats
         o Beverages – only liquid concentrates, sports drinks
            and super concentrates will be produced during the
            Lockdown period.

   •   Home and Personal Care
         o All activities

   •   Exports and International
         o Davita (powdered soft drinks and seasoning)


Mindful of our privileged and pivotal role in nurturing and
nourishing the Nation during this Disaster period, all necessary
steps to ensure security of food and other essential supplies
as well as the safety of our employees and consumers are being
taken.

Our people have responded to the challenge and we are therefore
able to report attendance of virtually 100% at all of our
manufacturing and distribution sites and almost 90% attendance
of our outsourced merchandising provider Tiger Brands Field
Services. This has allowed us to ensure that for the most part
(rice and pasta being notable exceptions), we have been able to
meet all customers orders for key stock items. Unless we
experience site closures due to staffing constraints or revised
regulations, we anticipate being in a position to maintain
consistent supply for the period of the Lockdown as well as
through the months of April and May. Beyond this timeframe,
global developments with regard to raw material availability
will be a key factor in determining finished product supply
levels in some of our categories.

The following additional measures to safeguard staff and ensure
full alignment with the objectives of the Lockdown and National
Disaster period have been taken:

  •   Arrangements have been made to ensure maximisation of
      remote working where possible. Social distancing measures
      have been enhanced and reinforced where on-site attendance
      is required.
  •   Increased security and health screening for all staff and
      contractors at our sites.
  •   Implementation of more extensive and stringent deep-
      cleaning protocols across all sites over and above the
      normal rigorous hygiene and safety protocols which are in
      place.
  •   We have brought on additional support through our wellness
      service provider to provide advice and assistance to staff
      across the organisation.
  •   We have amplified and enhanced health and safety awareness
      around Coronavirus as well as entrenched the need for
      absolute compliance with Government Regulations and
      guidelines during this period.
  •   We have put in place dedicated and regulated staff
      transport arrangements where required.
  •   We have implemented an incentive scheme for the initial
      Lockdown period to reward those employees at site level who
      are bravely ensuring continuity of supply and production
      during this period.

Consumer Protection and National Disaster Regulations

Pursuant to the National Disaster declaration by Government, the
Department of Trade Industry & Competition (DTIC) published
regulations on 19 March 2020 with the broad objectives of:

1) Preventing what was described as excessive or unconscionable,
   unfair and unreasonable prices;
2) Ensuring equitable distribution to all customers;
3) Requiring stakeholders to take all reasonable measures to
   maintain adequate supply of essential goods.

Whilst the regulations allow for price increases to be taken
which are supported by valid input cost increases, such price
increases may not enhance profit margins beyond those prevailing
for the three-month period up to 29 February 2020. This does
have the effect of reducing the Company’s ability to recover
cost increases preceding this three-month period, where such
price increases were deferred, or to fully recover year on year
cost increases where price increases are normally scheduled to
be taken annually or semi-annually. The three-month measurement
period also includes two of the lowest demand months in the
Company’s annual calendar.

The Company has made submissions to DTIC on the regulations,
mostly to obtain clarity on interpretation, however the purpose
and objectives of the regulations are fully supported by the
Company as being wholly appropriate in these times of crisis.
The Company has committed not to increase the prices of any of
its products during the period of the Lockdown until 20 April
2020, notwithstanding its ability to do so under the
regulations.

Commercial and Financial Impact

Given the speed with which the COVID-19 situation is developing,
there is uncertainty around its ultimate impact. Consequently,
the overall impact on our financial and operating performance
cannot be reasonably estimated at this time.

However, shareholders should be cognizant of the impact of:

i) The temporary closure of operations referred to above.
ii) Additional costs being incurred in respect of the
   incentives and staff transport arrangement referred to above,
   estimated to be approximately R60m for the period of the
   Lockdown.
iii) The constraints on pricing in terms of the Government
   regulations referred to above.
iv) The impact of the significant depreciation of the rand over
   the past two months on both directly imported raw materials
   and packaging and those input costs driven by import/export
   parity dynamics. Whilst these costs may be recovered through
   price increases, the impact on consumer demand needs to be
   fully understood. The annualised impact on costs of a 5%
   depreciation of the rand against the rates originally
   budgeted (R/$ 15,5) is in excess of R600m.
v) The potential recessionary impact of the National Lockdown
   and other measures required as a consequence of the
   declaration of a National Disaster.

Legal Dispute in Nigeria

The legal dispute with the former distributor of the Company in
Nigeria remains pending, following a further Court adjournment
on 16 March to allow for further time for the parties to consider
an amicable resolution of the dispute.

Class Action Update

Shareholders are referred to our previous update of 12 February
2020 in which we reported that the High Court is scheduled to
hear applications of those third parties who declined to
disclose information in their possession in terms of previously
issued subpoenas. Following this process, the Court will either
enforce or set aside these subpoenas. The set down dates are
13 – 15 May.

Interim Dividend Payment

The Company’s strong balance sheet ensures that there are no
pressing liquidity challenges currently.      At a later date,
taking into account the prevailing circumstances, the Board will
consider the appropriateness and/or quantum of any interim
dividend declaration for the six-month period ended 31 March
2020.

Value Added Meat Products (VAMP) disposal process

As announced on SENS on 12 February 2020, the Company had
commenced a formal due diligence process in respect of certain
bidders for its VAMP business. The due diligence process has now
been completed.

The Company has received offers from a consortium for the
acquisition of the VAMP business on a going concern basis,
including   the   Polokwane,   Olifantsfontein    and   Germiston
operations. The offers remain subject to the conclusion of the
respective Sale and Purchase agreements which are intended to
be completed by the end of April, at which point a further update
will be provided incorporating the financial impact of the
disposal as well as the key conditions precedent to the
successful conclusion of the transaction.

Corporate Social Investment

As part of its Social Investment programme, Tiger Brands
provides food everyday to 77,000 children through the Tiger
Brands Foundation, to 30,000 community beneficiaries through our
NGO partners and to 4,500 university students. These programmes
will continue, although reshaped by the limitations imposed by
the current Lockdown restrictions. The Company is currently
engaging with the appropriate Government agencies and our
network of NGO’s to increase its social investment over the
coming weeks.
Outlook

Having established a good operating rhythm in the past 10 days,
Management’s focus will now be on ensuring the ongoing wellbeing
of our people, securing procurement of key raw materials in the
medium term and ultimately preparing the business for an even
more challenging operating environment post the Covid-19 crisis.

Shareholders will be updated as and when it is considered
appropriate to do so.



Bryanston
8 April 2020

Sponsor
JP Morgan Equities South Africa Proprietary Limited

Date: 08-04-2020 11:27:00
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