Stage 8 load shedding will cost big businesses R120 million to keep the lights on

South African packaged goods company Tiger Brands says stage 6 to stage 8 load shedding will set it back R120 million for additional generating capacity to keep operations going.

In a trading statement for the four months to 31 January 2023, the group reported a sharp rise in prices over the period, along with mounting costs related to the ongoing power crisis.

In light of growing inflation, together with interest rate hikes, consumers are being forced to be more price-conscious, particularly within the basic food segment, it said.

“Group revenue from continuing operations for the four months ended 31 January 2023 was up 17% year-on-year, driven by overall price inflation of 18% offset by volume declines of 1%,” said Tiger Brands.

Summarily the group increased prices by 18% over the course of the four months.

Load shedding was largely mitigated due to substantial prior investment being made in backup generating capacity, it said; however, it still suffered incremental costs reaching R250,000 per stage of rolling blackouts.

“More specifically, one day at stage 6 load shedding costs approximately R1.5 million in incremental costs,” said the group.

Over the course of the 2023 financial year, backup generators are expected to cost an additional R15 million in maintenance.

“Our contingency plans for stages 6-8 indicate that we will require a further capital investment of R120 million for additional generating capacity. However, the bulk of this investment will be on increasing diesel and water storage capacity to mitigate the adverse impact of load shedding at these levels on municipal water supply,” Tiger Brands said.

Future-proofing

On the lookout for the future, the group anticipates a significant reduction in inflation in its basket over the second half of 2023, where inflation is expected at low double digits.

According to Tiger Brands, as a result, there will be a relentless focus on costs and price point management.

“Due to the base effect of once-off events in the prior year, as well as the focus set out above, solid operating income growth for the six months to end March 2023 is expected.”

“This will be diluted at a headline earnings level by the non-recurrence of insurance proceeds received in FY22 as well as higher financing costs as inflation impacts working capital levels and last year’s share buyback program impacts cash levels,” the group added.

Read: Power backups have become non-negotiable in South Africa