Food producer Tiger Brands forced to sharply increase its product prices
TIGER Brands, South Africa’s biggest food producer, yesterday provided some indication of just how sharply food prices have risen after it pegged its overall basket inflation at a whopping 15% in the five months to August 31, from only 3% at March 31.
“High levels of inflation are anticipated to persist across our basket well into the next financial year, which will require ongoing agility and judicious price/volume management in the face of a challenged consumer,” Tiger’s directors said in an otherwise upbeat trading statement.
“Extraordinary cost pressures on soft commodities, ingredients, packaging and logistics” had made pricing realignment necessary in the group. Its many brands include Oros, Crosse & Blackwell, Ace and Beacon.
The high food prices are also reflected in the latest general inflation data – Statistics SA said food prices continued to rise in August, with food and non-alcoholic beverages 11.3% higher than in the same month a year before. The figure also outpaces the annual inflation of 9.7% in July.
Tiger’s director also warned the group’s prospects in the future will depend on a consistent diesel supply – heavy investments had been made in electricity generators although the cost of operating them was four times the Eskom electricity tariff, Tiger’s director said.
“The effect of prolonged electricity outages on inbound supply is being closely monitored,” they said, adding there had not been a big impact on production so far from load shedding, due to the use of the generators.
Despite the glum news for consumers, Tiger’s share price nonetheless increased more than 9% to R175.77 on the JSE yesterday morning.
Positive investor sentiment may have arisen from Tiger forecasting headline earnings per share to increase between 38% and 45% in the year to September 30, 2022, following an improved underlying performance.
The share price closed 10.43% higher at R177.81 on the JSE yesterday. Headline earnings per share from total operations were expected to be 394 cents and 507c higher than the 1 127c reported at the same time in the 2021 financial year.
Earnings per share from continuing operations were expected to be between 45% and 55% higher, or between 482c and 589c higher than 1 070c reported last year.
But the results were positively impacted by R157 million, or 96c per share, of insurance recoveries from claims arising from a canned vegetable product recall and civil unrest included in the second six months of last year, which impacted the year-on-year comparative performance.
A precautionary recall of certain baby powder products were estimated to have resulted in once-off costs between R20m and R25m, and largely comprised the cost of affected stock to be written off, as well as the logistics’ costs of the recall.
The group said its earnings improvement was driven by recoveries in snacks and treats, wheat millbake and their export divisions.
The results are expected to be released on December 2, this year.