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Update on Product Recall and Suspension of Operations
TIGER BRANDS LIMITED
“Tiger Brands” or “the Company”
Incorporated in the Republic of South Africa)
Registration number 1944/017881/06)
Share code: TBS
ISIN: ZAE000071080
Financial Impact of Product Recall and Suspension of
Operations at the Polokwane, Germiston, Pretoria and Clayville
Processing facilities of Value Added Meat Products (“VAMP”);
Institution of Class Action; and Results of Independent Tests
carried out in respect of the presence of Listeria
monocytogenes ST6 type (“LST6”)
On 5 March 2018, Tiger Brands announced that in response to a
communication from the National Consumer Commission and the
results of tests conducted by the Department of Health (DoH)
at its VAMP site in Polokwane, it undertook a national recall
and suspended operations at both its Polokwane and Germiston
sites. 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. This decision was taken as
a result of the detection of Listeria monocytogenes at the
facility, following heightened testing protocols which have
been introduced. These results have been sent for whole genome
sequencing to determine whether ST6 is present or not at the
facility. The results will only become available in due
course.
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.
The purpose of this announcement is to update shareholders on
the financial impact of the recall and the suspension of
operations at the four sites, as well as on the results of the
independent laboratory testing carried out in respect of the
presence of LST6.
Product Recall and Associated Costs
In respect of the separately identifiable costs associated
directly with the recall and the suspension of production at
its Polokwane, Germiston, Pretoria and Clayville sites, it is
estimated that these costs, including the cost of destruction
of the affected products, raw materials and work in progress,
will range between R337m and R377m on a pre-tax basis (before
accounting for any insurance recoveries). These costs include
the national and regional costs of recalling all of the VAMP
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. This
estimate includes:
- The value of finished goods, raw materials and work in
progress at the affected sites that require destruction
- The sales value of products sold to VAMP’s customers and
the sales value of products on-sold by these customers
relating to stock being returned
- Logistics costs associated with the transporting of the
affected recalled products as well as the transporting of
finished goods, raw materials and work in progress to a
dedicated storage facility
- The costs of the dedicated storage facility for all
recalled products, including finished goods, raw
materials and work in progress pending their destruction
- The destruction and associated logistics costs of the
recalled products, as well as the finished goods, raw
materials and work in progress
- The costs associated with communication of the product
recall
The 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.
Impact of Suspension of Operations
The estimated impact on the profitability of the VAMP business
as a consequence of the suspension of operations at the
Polokwane, Germiston, Pretoria and Clayville sites is
significant. The VAMP business is estimated to record a loss
before interest and taxation of between R28m and R33m for the
March trading period which runs from 25 February to 31 March
2018. This includes the normal trading activities which took
place between 25 February and 4 March 2018. This excludes the
Product Recall and Associated Costs.
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.
The information above in respect of product recall and
associated costs, as well as the impact of suspension of
operations has not been reviewed or reported on by the
Company´s auditors.
At this point in time, no guidance is available as to when the
Polokwane, Germiston, Pretoria or Clayville facilities will
resume operations.
Class Action
On 16 March 2018, the Company was served with an application,
for an order declaring the constitution of two classes for
claims. 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 dependants 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 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. The applicant is represented
by LHL Attorneys.
Results of the Company’s independent laboratory tests carried
out in respect of the presence of LST6
On 15 March 2018, Tiger Brands received confirmation from
independent laboratory tests corroborating the DoH’s findings
of the presence of LST6 in the environment at its Polokwane
Enterprise Foods manufacturing facility. In addition, there
was a positive detection of LST6 on the outer casing of two
samples. Whether this presence of LST6 can be said to have
caused any illness or death remains unclear at present and
testing in that regard is an ongoing process likely to take
time.
Listeriosis is a complex and global challenge caused by a wide
variety of foods. To this end, the Company is intensifying its
efforts to understand the origins of the ST6 type in its total
value chain. A sustainable national solution for South Africa
can only be achieved through a collaborative multi-sectoral
approach involving industry, government, regulators,
scientific experts and civil society groupings. The Company
intends to be at the forefront of seeking this solution.
Bryanston
19 March 2018
Sponsor
J.P. Morgan Equities South Africa Proprietary Limited
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