Tiger Brands, a South African packaged products manufacturer, claims stage 6 to stage 8 load shedding will cost R120 million in additional generating capacity to keep operations running.
In its trading statement for the four months ending 31 January 2023, the firm reported a steep increase in pricing, as well as growing expenditures attributable to the ongoing power crisis.
Consumers are being pushed to be more price-conscious, particularly in the basic food market, as a result of rising inflation and interest rate rises, according to the report.
“Group revenue from continuing operations for the four months ended 31 January 2023 was up 17% year-on-year, driven by overall price inflation of 18% offset by volume declines of 1%,” said Tiger Brands.
In total, the group raised prices by 18% over the course of four months.
According to the company, load shedding was much reduced due to significant earlier investment in backup generating capacity; nonetheless, it still incurred extra expenditures of up to R250,000 each stage of rolling blackouts.
“More specifically, one day at stage 6 load shedding costs approximately R1.5 million in incremental costs,” the company stated.
Backup generators are estimated to cost an extra R15 million in maintenance over the duration of the fiscal year 2023.
“Our contingency plans for stages 6-8 indicate that we will require a further capital investment of R120 million for additional generating capacity. However, the bulk of this investment will be on increasing diesel and water storage capacity to mitigate the adverse impact of load shedding at these levels on municipal water supply,” Tiger Brands said.
Future-proofing
Looking ahead, the company forecasts a considerable fall in inflation in its basket during the second half of 2023, when inflation is likely to be in the low double digits.
As a result, Tiger Brands expects a constant focus on cost and price point control.
“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 is expected.”
“This will be diluted at a headline earnings level by the non-recurrence of insurance proceeds received in FY22 as well as higher financing costs as inflation impacts working capital levels and last year’s share buyback program impacts cash levels,” the group added.