Tiger Brands says margins are being squeezed

Tiger Brands, like its competitors in the food-producer arena, says it has not been able to fully pass on higher input costs to consumers in the depressed trading environment.

“With the exception of sorghum-based products, pasta, maize and rice, all categories recorded selling price inflation, although price increases were not sufficient to fully recover cost increases, resulting in gross margin compression,” the group said in a trading update for the four months to end-January.

Tiger Brands makes Oros juices, Tastic rice and Albany breads.

Last week, rival firm Pioneer Food Group said its sales growth over the same period had been negated by “major cost inflation”.

Consumer spending is not expected to improve any time soon, meaning pressure on margins will continue, Pioneer Foods said.

Tiger Brands, which has been reeling from the backlash over listeriosis found in some of its meat products, said group revenue from continuing operations was up 1% in the four-month period compared to the year before, aided by three extra trading days this time around.

Excluding the value-added meat products unit, which was ground to a halt by the food contamination scandal, group revenue from continuing operations was 8% higher, thanks to price inflation of 2% and volume growth of 6%.

Tiger Brands said it has encountered difficulties with the re-launch of the value-added meat products business.

“Challenges in managing the factory start-ups have resulted in the inability to fully meet demand in this period, which has had a significant negative impact on [that unit’s] operating performance … Good progress is being made to resolve these challenges.”

In December, the high court in Johannesburg gave the green light to class-action lawsuits against Tiger Brands in respect of the listeriosis outbreak.

The group said it has still not received the summons from the class-action lawyers, but that it had product liability insurance cover “appropriate for a business of its scale”.

Coverage has been confirmed by the group’s insurers and the policy will respond to the claim if the company is held liable.

Echoing its competitors, Tiger Brands said the trading environment is expected to remain difficult for the remainder of the financial year, with ongoing pressure on consumer spending.

It also said the unbundling of its stake in Oceana Group is expected to be completed by the end of April.

The stock was trading 2.1% up at R271.25 on Wednesday morning.

hedleyn@businesslive.co.za