Brait, the investment holding group, said the profit margins of leading food product maker Premier, which it intends to list, have proven resilient through cycles of rising soft commodities.
Brait’s latest annual report, released Friday, said the trend highlighted the effective “pass-through” of the higher commodity costs without affecting Premier’s volumes. Plans to list Premier have been put on ice until equity market conditions improve.
The report showed some interesting insights how these rising costs filter through to consumer prices.
Wheat, along with other globally traded grain prices, have risen sharply this year due to the Ukraine crisis, while fuel and energy prices have also trended substantially higher.
Premier is South Africa’s third-biggest maker of bread, and bread makes up 82 percent of the revenue of its Millbake division.
According to the annual report, wheat constitutes 50 percent of the cost of a loaf, while fuel comprises 6 percent.
So a R1 000 increase in the price of wheat added 55 cents to the cost of a loaf, while a R1 per litre increase in fuel costs added.3.5 cents to the cost of a loaf, the report said.
Brait said Premier had a strong start to its 2023 financial year across all divisions in the first two months to May 31, 2022.
Premier’s revenue and adjusted earnings before interest tax and depreciation allowances (Ebitda) were up more than 10 percent from the prior year.
Volume growth at Millbake in the first two months was .9 percent up from the prior year, despite significant input cost pressures - higher soft commodity and fuel price had resulted in average price growth of .10 percent.
“The Premier team is targeting continued strong growth, despite the impact of commodity price increases and cost inflation in the short-term,” Brait’s annual report said.
Weak consumer environments tend to strengthen demand for staple foods as consumers trade down and prioritise staples over other spend.
Brait said there would also be a continued focus at Premier on cost saving initiatives and synergies, as well as elimination of waste and delivery of material operational efficiencies across both manufacturing and the supply chain / logistics and distribution.
Premier had invested R5 billion on its asset base in the past 10 years on upgrading and building new plants.
“The recently commissioned Pretoria mill and bakery will lower the cost of servicing the inland region and improve bread quality. The impact of historic capex spend on its coastal facilities resulted in significantly higher margins and the investment in the new Pretoria bakery is expected to yield similar results,” the group said.
BUSINESS REPORT