Tiger Sees South Africa Consumers Stressed as Costs Climb

Johannesburg, South Africa, Capital Markets in Africa: Tiger Brands Ltd. said the risk of higher inflation will place pressure on South African consumers as the nation’s biggest food producer is raising prices to try to offset costs following record corn prices. 

Headline earnings per share from continuing operations, which exclude one-time items, were 9.78 rand ($0.62) in the six months ended March 31 from 9.75 rand a year earlier, the Johannesburg-based company said in a statement Tuesday. Tiger sold its unprofitable Nigerian business to Dangote Industries Ltd. with effect from Feb. 25, treating this as a discontinued operation. The interim dividend rose 7 percent to 3.63 rand a share.

The weak rand and the worst drought in more than a century have boosted South African food costs and threaten to keep inflation outside the central bank’s 3 percent to 6 percent target range for an extended period. There are indications that the pass-through from the exchange rate to inflation is increasing and food-price growth is forecast to climb to about 12 percent in the third quarter of this year, the central bank said last week.

“The outlook for the balance of the year remains challenging, with downside risk to the macroeconomic environment, both in South Africa and in a number of African markets, likely to add further pressure on consumers,” Tiger said. “The key challenge will be to maintain volume momentum notwithstanding price increases that are currently being taken to partially offset the cost pressures.”

Tiger’s products include Purity baby foods, Koo canned goods, Jungle Oats and Albany bread. Operating income from its grains business, the company’s largest unit by turnover, fell 1 percent to 881.1 million rand because of inflation in raw-material inputs. Local corn and wheat prices climbed to a record in January because of the El Nino-induced drought.

South Africa is a net importer of wheat, which is trading near a 5 1/2-year low in Chicago. The country in April approved raising wheat-import duties by 34 percent to 1,224.31 rand, the highest on record, to protect local farmers.

“More than half of the wheat increase has been driven by an increase in the wheat tariff,” Chief Operating Officer Noel Doyle said at Tiger’s results presentation in Johannesburg. “As an industry we are engaging with relevant regulatory authorities to have them relook the tariff.”

Lawrence Mac Dougall, who previously headed Mondelez International Inc.’s eastern Europe, Middle East and Africa business, was appointed chief executive officer in March to replace Peter Matlare, who resigned last year after overseeing a 954 million-rand writedown related to the company’s Dangote Flour Mills unit in Nigeria that was bought for about $152 million in 2012.

The stock climbed 1.4 percent to 342.50 rand by 1:40 p.m. in Johannesburg Monday, giving the company a market value of 65.8 billion rand. 

Source: Bloomberg Business News