Tiger Brands load shedding bill shoots up by more than 500%
Compared to the previous period, Tiger Brands’ load-shedding costs increased by over 500% in the six months ended 31 March 2023.
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.
However, the load shedding predicament also benefited the group – although not to any extent that it could ignore the adverse effects on the company’s operations.
According to the report, Tiger Brands’ “Out of Home” segment has benefited from the solid recovery in the hospitality industry and increased demand at quick-service restaurants as load shedding adversely impacted at-home consumption.
These factors saw the division’s revenue grow by 39% to R429 million, with volumes increasing by 20%.
Looking forward, the company said operating costs are expected to rise significantly due to higher load shedding levels during the winter season.
Additionally, although a significant reduction in certain internationally priced commodities is anticipated, this is currently being offset by rand weakness, the group said.
“In a low to no growth environment, our efforts will prioritise efficiency improvements and cost reduction initiatives to meet the consumers’ affordability needs.
“Improving the performance of the Groceries, Bakeries and Rice segments will be prioritised in the short term. Nevertheless, should current operating conditions persist, maintaining full-year operating income in line with last year will be challenging,” it added.
However, Tiger Brands noted that despite the immediate headwinds, it would continue to balance short-term impact with long-term growth without compromising the future sustainability of the business.
Tiger Brands saw a marginal improvement of 2% in its earnings per share, and its interim dividend remained unchanged at 320 cents per share.
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