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Soaring costs, labour disputes, a global supply challenge, increased price competition and the decline of international prices hampered Tiger Brands’ operations in recent months, resulting in a quarterly revenue drop of 1%, the group said on  Wednesday.

“The poor start to the financial year makes it imperative that the ongoing focus on cost-saving initiatives and supply chain efficiencies be accelerated,” the food producer said in a statement.

“The inability to pass through unanticipated cost-push resulted in margin compression in the first quarter.”

In its voluntary trading update for the four months to January 31, the company valued at R33.5bn on the JSE said it faced headwinds in three of its segments, namely bakeries, snacks and treats, as well as its rice division.

It said excluding these three categories, the balance of the portfolio delivered revenue growth of 3%, comprising 1% volume growth and price inflation of 2%.

Bakeries, which include the Albany and Tinkies brands, experienced volume losses as a result of intense price competition, compounded by rising cost pressures and illegal work stoppages in October and November, the manufacturer said.

Tiger competes with players such as Pioneer and Premier.

In October, operations at Tiger Brands’ Albany Bakery in Germiston were interrupted after a wildcat strike that resulted in bread shortages across Johannesburg. The company later approached the labour court, which declared the strike illegal.

With regards to bread, the immediate priority is to recover the significant market share losses, facilitated by optimal pricing and effective promotional activity. However, profitability in this category is likely to remain under pressure for the remainder of the year,” it said.

Supply challenges due to an eight-week labour disruption in November and December, compounded by low opening stocks after the civil unrest in July 2021, affected its snacks and treats division that is championed by its Beacon brand.

The owner of brands like All Gold, Black Cat and Jungle Oats was among businesses affected by the violent unrest in Gauteng and KwaZulu-Natal last July, forcing the food producer to temporarily close all operations in KwaZulu-Natal.

Meanwhile, the pay strike at Tiger Brands’ snacks and treats business disrupted its operations so severely the company had to continue operations through the festive period to claw back production.

Tiger said the impact of the industrial action at an operating income level amounted to R120m for the three months to December 2021. But the treats business has made progress in restoring supply and it is anticipated that full supply will only be achieved in July 2022.

“We were not too surprised with the trading update given the prevailing trading environment,” Equity analyst Tinashe Kambadza said.

In a report by Afrifocus, Kambadza notes that the main threat to growth and profitability is the weakness on consumer demand in a persistently challenging macroeconomic environment. Furthermore, high input costs and competitive forces will, in all likelihood, restrict margin growth.

“Based on these factors, we believe volumes will remain subdued in most categories within grains and consumer brands,” Kambadza said, forecasting a recovery in supply into the market and slightly better sales given reduced Covid-19 restrictions.

Though weak demand persisted for its insecticides volumes due to unfavourable weather conditions, the food producer saw a solid performance in its groceries, beverages, baby and Chococam segments.

With regard to its weak performing rice business, it explained that rice prices had deflated significantly driven by the decline in international prices.

Tiger said improvements in revenue management are being accelerated across the portfolio, adding that distribution gains on product innovations were gaining traction.

The group advised shareholders the insurance claim related to the recall of canned vegetable products in the latter part of the previous financial year was being assessed.

In the meantime, Tiger has received confirmation of an interim payment of R17m, relating to the operational and logistics costs of implementing the recall, which represents about 30% of the total amount claimed. This would bring the total insurance claim to about R57m.

Last year, Tiger announced the recall of about 20-million Koo and Hugo’s canned vegetable products that were produced from May 1 2019 to May 5 2021, over safety concerns due to potentially defective cans. SA’s largest food producer said it is claiming money back from the can supplier.

Tiger Brands’ share price dropped 2.75% to R171.72 after falling 10.85% over the past 90 days of trade.

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