By Lehlohonolo Lehana.
The JSE share price of food producer Tiger Brands fell by nearly 16% on May 30, following the release of its financial results for the six months ended March 31.
Tiger Brands is a South African packaged goods company and the parent of several well-known food brands such as Tastic, Jungle, Albany Bakeries, Beacon, All Gold, and Oros.
In its latest interim results, Tiger Brands reported a strong revenue increase of 16% to R19.4 billion. However, the significant costs in combating load-shedding affected the company’s operating income and margin
“Although cost-saving initiatives and supply chain efficiencies are delivering ahead of plan, these were not enough to counter the high level of input cost inflation, further impacted by the cost of operating in a constrained electricity environment,” the company said.
The total cost of load shedding amounted to R76 million for the period relative to R12 million in the corresponding period last year, resulting in incremental energy costs of R48 million – representing an increase of around 533%.
This significant increase saw gross margins decline to 27.0% from 29.2% in 2022. Before impairments and non-operational items, group operating income decreased by 9% to R1.4 billion.
Group operating income in the prior period benefited from insurance proceeds amounting to R161 million related to a product recall and civil unrest in July 2021. In the current period, insurance proceeds amounted to R20 million (an 87.58% decrease).
As a result, excluding the impact of these proceeds, group operating income declined by 2%, and group operating margins decreased to 6.9% from 7.9%.
Compounding the group’s challenges is that net financing costs for the period amounted to R94 million compared to R34 million last year due to higher financing costs due to higher average debt levels and higher interest rates.
Looking forward, the company said operating costs are expected to rise significantly due to higher load shedding levels during the winter season.
“Operating costs are expected to rise significantly as a consequence of higher levels of loadshedding (rolling blackouts) during the winter season,” the company said.
State-owned utility Eskom has warned that increased demand during the winter months might force it to implement a 16-hour power cut in a 32-hour cycle in June and July.