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Tiger Brands outlines impacts of Covid-19 on its operations

8th April 2020

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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Although most of JSE-listed Tiger Brands’ manufacturing and distribution sites have been identified as essential services and have continued to operate through the national lockdown period, certain facilities and offices have been closed based on the current regulatory requirements or demand dynamics.

The affected facilities are Grains, Consumer Brands, Home and Personal Care, and Exports and International.

On an investor call, the company indicated that this was done both in accordance with the regulations of the lockdown, and based on stock levels and capacity.

The company emphasises that all necessary steps to ensure security of food and other essential supplies as well as the safety of its employees and consumers are being taken.

Tiger Brands reported attendance of virtually 100% at all of its manufacturing and distribution sites and almost 90% attendance of its outsourced merchandising provider Tiger Brands Field Services. 

This has enabled the company, for the most part (rice and pasta being notable exceptions), to meet all customers orders for key stock items.

Tiger Brands indicates that unless it experiences site closures owing to staffing constraints or revised regulations, it anticipates 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 the company’s categories.

Tiger Brands has also taken several additional measures to safeguard staff and ensure full alignment with the objectives of the lockdown and national disaster period.

Firstly, arrangements have been made to ensure maximisation of remote working where possible.

Physical distancing measures have been enhanced and reinforced where on-site attendance is required. The company has increased security and health screening for all staff and contractors at its sites.

It has implemented more extensive and stringent deep-cleaning protocols across all sites, over and above the normal rigorous hygiene and safety protocols already in place.

The company has also brought on additional support through its wellness service provider to provide advice and assistance to staff across the organisation.

Tiger Brands has also amplified and enhanced its health and safety awareness around coronavirus as well as entrenched the need for absolute compliance with government regulations and guidelines during this period.

The company has put in place dedicated and regulated staff transport arrangements where required; and lastly, it has implemented an incentive scheme for the initial lockdown period to reward those employees at site level who are ensuring continuity of supply and production.

CONSUMER PROTECTION AND NATIONAL DISASTER REGULATIONS

Pursuant to the National Disaster declaration by government, the Department of Trade, Industry and Competition (DTIC) published regulations on March 19 with the broad objectives of preventing excessive or unconscionable, unfair and unreasonable prices; ensuring equitable distribution to all customers; and requiring stakeholders to take all reasonable measures to  maintain adequate supply of essential goods.

While the regulations allow for price increases 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 February 29. 

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 yearly or semi-yearly, says Tiger Brands.

The three-month measurement period also includes two of the lowest demand months in the company’s yearly calendar, it indicates.

Tiger Brands has made submissions to DTIC on the regulations, mostly to obtain clarity on interpretation, it states. However, it notes that the purpose and objectives of the regulations are fully supported by the company. 

The company has committed not to increase the prices of any of its products during the period of the lockdown until April 20, 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 financial and operating performance cannot be reasonably estimated at this time, the company said.

However, Tiger Brands advises shareholders to be cognisant of the impact of the temporary closure of operations; additional costs being incurred in respect of the incentives and staff transport arrangements, estimated to be about R60-million for the period of the lockdown; and the constraints on pricing in terms of the government regulations.

Moreover, it has taken note of 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.

There is also the potential recessionary impact of the lockdown and other measures required as a consequence of the declaration of a National Disaster.

CLASS ACTION UPDATE

In February, Tiger Brands reported that the High Court was 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 May 13 to 15.

DISPOSAL

As announced in February, the company had started a formal due diligence process in respect of certain bidders for its Value Added Meats Products (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.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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