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Tiger Brand’s shares plunge 19% as its interims were below market expectations

Boxes of Jungle Oats, one of South Africa's Tiger Brands original products, sit on a shelf in a Cape Town convenience store. Photo: Reuters

Boxes of Jungle Oats, one of South Africa's Tiger Brands original products, sit on a shelf in a Cape Town convenience store. Photo: Reuters

Published May 31, 2023

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Shares in Tiger Brands, which owns brands including All Gold, Black Cat and Koo, nosedived 19% after it delivered interim earnings, which were below market expectations, and flagged load shedding cost and operational headwinds.

In its six months ended March 31, 2023, South Africa's biggest food producer said despite strong revenue growth, its performance for the reported period was impacted by a challenging operating environment due to prolonged periods of load shedding, while high levels of inflation and lower disposable income adversely impacted consumer behaviour in terms of volumes and basket mix.

The shares yesterday hit an intraday low of R153.88.

However, they have increased by 33.47% in the past year.

During the reporting period, its load shedding costs increased to R76 million, compared to R12m in the same period last year, resulting in incremental energy costs of R48m.

This led to gross margins declining to 27% from 29.2% last year.

Tiger Brands said as part of business continuity plans to mitigate load shedding up to Stage 10, it would invest around R120m in the capital on additional backup generators for current generators, fuel and water storage facilities, water treatment and pressure improvement solutions.

“Total earnings were impacted by lower insurance proceeds received relative to the prior year, as well as higher financing costs,” the group said.

Despite this, Tiger Brands flagged an increase in headline earnings per share to 731 cents, up from 729c, while earnings per share (EPS) rose 2% to 749 cents.

It declared an ordinary dividend of 320 cents per share for the reported period, which was in line with the interim dividend declared last year.

Tiger Brands chief financial officer Deepa Sita said: “It is a disappointing set of results coming off the back of a challenging first-half environment.“

She said the firm was particularly disappointed in two categories, firstly, the rice category, following the poor price volume management and secondly, a poor performance in grocery due to the effects of a challenging environment for the consumer.

“We’re seeing high levels of inflation play out. We’re seeing the impact on low disposable income as well as high interest rates. We’ve gone from single-digit interest rates to double-digit - all of that is certainly playing out in terms of the end consumer. Consumers are shifting to more affordable value offerings,“ Sita said.

Operating income slid by 9% to R1.4 billion, while total revenue increased by 16% to R19.4bn.

Tiger Brands CEO Noel Doyle said: “In this challenging environment, we will prioritise our efforts to improve efficiencies and further reduce costs to meet consumers’ need for affordability.

“We will also continue to balance short-term impact with long-term growth and make considered investments for the future in our facilities, our brands, our innovation capability, and our people to ensure we deliver sustainable long-term returns and build societal value,” Doyle said.

Looking ahead, Tiger Brands said with consumer confidence continuing to decline, stubbornly high levels of food inflation and a significant increase in interest rates, consumers were becoming more value-conscious and price elasticities are rising.

“In addition, although a significant reduction in certain internationally priced commodities is anticipated, this is currently being offset by rand weakness, whilst operating costs are expected to rise significantly as a consequence of higher levels of load shedding during the winter season,” it said.

Anchor Capital equity analyst Zinhle Mayekiso said Tiger Brands’ interim operational performance on a segmental basis was mixed.

“However, operational headwinds in the form of inflationary input cost pressures, load shedding-related costs, and volume declines in some categories adversely impacted profitability during this reporting period. As a result, Tiger Brands’ earnings result was below market expectations,” she said.

BUSINESS REPORT