Tiger Brands hikes profit despite soaring input costs

South Africa's biggest food producer Tiger Brands said on Tuesday its four-month revenue to end January rose 17% year-on-year as it raised prices to manage soaring input costs.

Consumer goods producers globally have lifted prices to cope with surging costs for almost all raw materials, energy and packaging after Russia's invasion of Ukraine compounded pandemic-related supply chain logjams.

But they face a challenge in how much they can raise prices as increasingly cost-conscious consumers trade down.

The maker of Jungle Oats, Tastic rice and Purity baby products increased prices by 18% in the four months to Jan. 31. While price hikes boosted its revenue from continuing operations, overall volume dipped 1%.

The impact of this level of inflation, together with interest rate hikes, has forced consumers to be even more price-conscious, particularly within the basic food segment, the company said.

Tiger Brands said the price hikes were necessary to manage sustained raw material and cost increases, predominantly in its grains and home and personal care portfolios.

"Whilst we anticipate a significant reduction in inflation in our basket in the second half of our financial year, inflation in that period is expected at low double digits based on our expectations of commodity pricing," the company said.

It also faced costs related to running diesel generators as state power utility Eskom implemented crippling power outages lasting up to 10 hours a day.

Tiger Brands spent R27 million on back-up generators in the period and expects to spend an additional R15m in maintenance in the year to September.

Its contingency plans for when electricity is off for 10-14 hours a day indicate that it will require a further capital investment of about R120m for additional generating capacity, it added.

In its outlook it said while it anticipated a significant reduction in inflation in its basket in the second half of our financial year, inflation in that period is expected at low double digits based on our expectations of commodity pricing.

“In such an environment, there will be relentless focus on costs, price point management and ensuring that our communication with consumers remains relevant and compelling, in the context of our premium brand portfolio.

“Moreover, we need to respond with balance and agility to a demanding customer landscape,” it said.

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 was expected. This would be diluted at a headline earnings level by the non-recurrence of insurance proceeds received in financial ye r 2022 as well as higher financing costs as inflation impacts working capital levels and last year's share buyback program impacts cash levels.

REUTERS