Tiger Brands reports fivefold increase in load shedding costs

Rolling blackouts and higher input inflation is making business costs control for JSE-listed Tiger Brands more challenging, with the group informing investors that it has spent over five times more on load shedding expenses in the six months ended 31 March 2023 compared to the comparable 2022 period.

During the period, Tiger Brands’s load shedding costs peaked at R76 million, compared to R12 million in the same period last year.

Further, the firm has noted an incremental energy cost of R48 million, which has resulted in a gross margin decline to 27% from 29.2% in the last period.

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Group operating income also slid by 9% to R1.4 billion, coming off a higher base in the last period which was primarily supported by higher insurance proceeds of R161 million. Insurance proceeds for this period came in at only R20 million.

To lower the impact of load shedding on the group’s operations, Tiger Brands plans to invest R120 million in additional capital to beef up existing generation capacity, fuel and water storage facilities, and water treatment and pressure improvement solutions. According to the group, these improvements will provide an operational shield for load shedding as intense as Stage 10.

“In this challenging environment, we will prioritise our efforts to improve efficiencies and further reduce costs to meet consumers’ need for affordability,” CEO Noel Doyle said in a statement.

“We will also continue to balance short-term impact with long-term growth and make considered investments for the future in our facilities, our brands, our innovation capability and our people to ensure we deliver sustainable long-term returns and build societal value.”

Market reaction

Investors seemed less than pleased with the group’s half-year performance as the stock registered a 12.72% decline in value during early morning trade on Tuesday, leaving the stock at a 2.19% six months low of R165.40.

Inflation boost

However, the owner of brands such as Beacon sweets, Albany bread, Tastic rice, and Doom benefited from the high-price environment fuelled by elevated inflation.

According to the group, price inflation of 17% and relatively stable volumes across its categories boosted total revenues by 16% to R19.4 billion during the period.

“Volumes held steady in the Domestic Business, driven by a strong volume recovery in Bakeries, Snacks & Treats and Personal Care and good performances in Sorghum Breakfast, Rice, Beverages, and Out of Home,” Tiger Brands said.

“However, volume declines were recorded in Flour [and] retail and wholesale customers, Sorghum Beverages, Groceries and Baby with a marginal decline in Home Care. A significant decline in Deciduous Fruit volumes offset the firm recovery in Export volumes.”

Flat dividend

Muted profits for the period have led to Tiger Brands keeping its interim dividend flat at 320 cents per share.

The fast-moving consumer goods (FMCG) manufacturer reported a negligible increase in headline earnings per share (Heps) to 731 cents, up from 729 cents, while earnings per share (EPS) rose 2% to 749 cents.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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