JSE-listed consumer brands group Tiger Brands has told shareholders that the costs associated with the recall of products linked to the listeriosis outbreak will reach between R337 million and R377 million rand – with millions of rands in monthly losses also needing to be factored in.

Earlier this month, the group announced that production would be suspended at its factories in Polokwane and Germiston, which the department of health linked to the listeriosis outbreak which has claimed over 180 lives in South Africa so far, and infected over 1,000 others.

Tiger Brands also announced a recall on all Enterprise products across the country. As a further precautionary measure, the decision has now been taken to extend the recall to include all products manufactured at the group’s Pretoria facility, where production will now also be suspended, the group said.

“Given the suspension of operations at the Polokwane and Germiston sites, which are the primary recipients of the production of the Company’s Clayville abattoir, operations at the Clayville abattoir are being wound down with the objective of suspending operations completely by 31 March 2018,” it said.

The cost to recall

The suspension of production at the Polokwane, Germiston, Pretoria and Clayville sites, including the cost of destruction of the affected products, raw materials and work in progress, will range between R337 million and R377 million on a pre-tax basis (before accounting for any insurance recoveries), Tiger brands said.

These costs include the national and regional costs of recalling all of the 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.

The group said it has advised its insurers that it will be making a claim (though it has not done so as yet), through which it believes it will be able to recover R94 million.

Other costs incoming

Aside from the recall costs, Tiger Brands said that there are other associated costs with suspending production at its facilities.

It’s value-added meat business is expected to incur a loss (before interest and taxation) of between R28 million and R33 million for the February-March period as a result of the suspension, despite other normal business operations.

Meanwhile, a 10% volume reduction in the total value-added meat product business has an estimated negative impact of R5 million 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 R50 million at an earnings before interest and tax level relative to the existing earnings base,” it said.

At this point in time, no guidance is available as to when the Polokwane, Germiston, Pretoria or Clayville facilities will resume operations.

Class action

One final cost to take into account are the two class action lawsuits that have been served against the group for the listeriosis outbreak.

The first class comprises all persons who consumed a processed meat product manufactured by the company and who became ill as a result of such food product being contaminated with listeria at any time between 1 May 2017 to the date of issue of summons in a class action to be brought.

The second class comprises the dependents of persons who consumed a processed meat product manufactured by the company and who died as a result of such food product being contaminated with listeria at any time between 1 May 2017 to the date of issue of summons in a class action to be brought.

The total amount claimed against Tiger Brands and Enterprise Foods is estimated at R425 million.

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