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Tiger Brands R700m out of pocket on product recall and civil unrest

| Supplier news

Tiger Brands said yesterday that the recall of certain Koo and Hugo's products coupled with the civil unrest in KwaZulu-Natal and parts of Gauteng had cost the business more than R700 million.

Dineo Faku | IOL

Tiger Brands, the JSE-listed packaged goods company, said the write-off of assets plus stock losses related to the civil unrest had amounted to about R100m pre-tax, and the adverse financial impact of the recall totalled R647m pre-tax.

In July Tiger Brands recalled certain Koo and Hugo's products as a result of a side seam weld defect that might cause a leak. At the time the group estimated that the recall would cost between R500m and R650m when taking into account the cost of the potentially affected stock that might be written off, transport and storage costs, and the loss of margin on the returned stock.

Tiger Brands had announced previously that a number of its sites in KZN had been affected by acts of looting and vandalism, resulting in damage to the Rice and Snacks & Treats operations.

It said that the loss of stock was more than R150m.

The group said the after-tax impact of the stock losses, together with the impact of the recall, was estimated to be in the region of 318 cents per share.

“The write-off of stock related to the civil unrest as well as the recall will be accounted for through cost of sales.

“Refunds related to the recall will be accounted for as a reduction in revenue, while other recall-related costs will be accounted for through the relevant expense functions on the income statement,” the group said.

It said the once-off costs more than offset the group's improved underlying performance, despite a particularly challenging second half for the milling and baking operations as well as exports.

Tiger Brands expected headline earnings a share from continuing operations for the year ended September 30, 2021, to fall by between 5 and 15 percent lower than the 1 196c reported a year earlier. Headline earnings from total operations for the year ended September, 30, 2021, was expected to be between 15 and 25 percent higher than the 940c reported in the 2020 financial year.

Earnings per share from continuing operations for the year ended September 30, 2021, were forecast to be between 15 and 25 percent, or between 133c and 221c, higher than the 886c reported in 2020.

Earnings a share from total operations for the year ended September 30, 2021, were expected to be between 80 and 90 percent higher than the 612c reported in the previous year.

The shares plummeted to a low of R178 in morning trade on the JSE after the announcement, but recovered to close at R187.

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