Tiger Brands puts costs of listeria precautions at hundreds of millions of rands

Tiger Brands has put the expected costs of recalling products by its subsidiary Enterprise Foods as a result of fears over the listeriosis outbreak at a minimum of R380m.

Earlier in the month Enterprise Foods had to close its meat processing facilities in Polokwane and have its polony and russian sausage products recalled from supermarket shelves across the country, after Minister of Health Aaron Motsoaledi traced the ST6 strain of Listeria to its Polokwane facility.

Tiger Brands [JSE:TBS] has, however, rejected claims that its products were directly linked to the 183 deaths and 1000 cases of listeriosis which have occurred in the country since October 2017.

The group’s shares were trading at R348.58, down 2.08%, at 11:05 on the JSE.

In a shareholder announcement on Monday morning, Tiger Brands said the suspension of operations at four of its sites, and the destruction of products produced there, did not come cheap.

Its value added meat product business is estimated to already have lost between R28m and R33m before interest and taxation.

The recall and the suspension of production at its Polokwane, Germiston, Pretoria and Clayville sites, plus the destruction of the affected products and raw materials, would cost between R337 and R377.

”These costs include the national and regional costs of recalling all of the VAMP (value added meat) products produced at the Polokwane, Germiston and Pretoria sites, with the exception of canned products which are produced at a separate plant on the Polokwane site,” said the company.

Class action 

Tiger Brands also gave an update on two class action cases it is facing.

One comprises all persons who fell ill after consuming the company’s meat products and from eating food products that were contaminated with Listeria between 1 May 2017 and the time at which the summons for class action was issued.

The company said that the second class action comprised the dependents of persons who consumed processed meat products manufactured by the company and died as a result of such food product being contaminated with Listeria between 1 May 2017 to the date of issue of summons.

“The applicant proposes that the class action be run on an opt-out basis. The total amount claimed against Tiger Brands and Enterprise Foods (Pty) Ltd is estimated at R425m,” read the statement.

The company also said it had intensified its precautionary measures even further after Listeria monocytogenes were detected at its facility.

Tiger Brands said it sent the results for whole genome sequencing to determine whether ST6 is present at it’s Pretoria facility, where operations have been suspended, for testing. The results would be available in due course.

“As a further precautionary measure, the decision has now been taken to extend the recall to include all products manufactured at VAMP’s Pretoria facility. As a consequence of this, production at the plant, which produces the Company’s SNAX brand, will also be suspended.”

Insurance

The company said that its insurers have been advised of the intention to lodge a claim in respect of the recall costs.

“No claim has been lodged as yet as the recall is still ongoing. It is anticipated that the maximum potential insurance recovery in respect of these costs will amount to R94m,” the company said.

“As further guidance to shareholders, a 10% volume reduction in the total VAMP business has an estimated negative impact of R5m per month at an earnings before interest and tax level on the existing earnings base, assuming no restructuring of its current cost base.”

“For clarity, the monthly impact of a complete cessation in production is an adverse movement of approximately R50m at an earnings before interest and tax level relative to the existing earnings base.”

It maintained that the question of whether the presence of LST6 at its production facility could be said to have caused any illness or death remained unclear. It added it would continue intensifying its efforts to understand the origins of the ST6 type in its total value chain.

 

Source: Fin24 – Khulekani Magubane