A weaker rand is expected to place cost pressures on Tiger Brands, particularly when it comes to rice imports - while stricter hygiene and safety standards may result in delayed distribution of staple foods.
Speaking on an investor call on Wednesday afternoon, Tiger Brands CEO Noel Doyle discussed the impact of the coronavirus pandemic on the food and beverage company, whose brands include Tastic rice and Fatti's & Moni's pasta.
To abide with government regulations during the lockdown, the group has temporarily halted its non-essential businesses – including its beverages segment, which makes Oros and Halls drinks, and Beacon and Maynard snacks. Doyle assured investors that there were sufficient supplies of these products and they continue to be sold.
Doyle said that the company's procurement of pasta and rice was also in "good shape" and in general, procurement is expected to remain without significant challenges until the end of May.
To date, distribution had largely gone smoothly despite high demand. "We are living hand to mouth in terms of rice supply to customers currently. But other than that our procurement position across the business is pretty good," he said.
A changing picture
Beyond May, however, the export picture is less predictable, said Doyle. So far Russia has placed a restriction on its wheat exports and Vietnam has also clamped down on its rice exports he said. "Those dynamics are unseen. Some categories may be presented with challenges," he said.
While Tiger Brands imports rice from Thailand, time delays are expected in being able to distribute the product, as the Department of Health has put in place additional safety measures to handle cargo. Referencing the spike in pasta sales, Doyle said that "few" supply chains have the capacity to respond to such spikes in a short period.
The weakening rand will present another challenge for the company, in terms of cost pressures. The procurement cost of rice is substantially higher, in rand terms, since 1 March. The previous shipment of rice which came in last week was higher than the cost in March, and the next shipment in six week time is expected to be even higher, he said. A big portion of the costs are attribute to the rand-dollar exchange rate, Doyle explained.
The rand has weakened nearly 40% in the past year and last week breached the R19/$ mark for the first time after ratings agency Fitch downgraded it further into junk status. It has been hovering at the R18/$ since Moody's downgraded the country's credit rating to junk status, two weeks ago.
So far Tiger Brands has also seen a 10% rise in wheat costs, which will have an impact on input costs for bread, Doyle added.
Regulations have also prevented businesses from raising prices on several products including maize meal, pasta and rice, up until the middle of June. Businesses are also not allowed to hike up profit margins, to above the average mark-ups for the three months ending 1 March 2020.
Doyle commented that January and February are Tiger Brands' lowest demand months – and that they were hardly a good base to work with in terms of margins.
The group has not yet ruled out paying an interim dividend. Doyle said that in six-weeks time, when more information on the developing situation has come to light, the group will be in a better position to make a call on dividends.
Tiger Brands' share price opened at R180.32 on wednesday and was trading 1.73% weaker at R176.73 just before markets closed.