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Tiger Brands H1 earnings hit by cold meat recall costs

The country’s biggest food producer suspended production at its Polokwane, Germiston, Pretoria and Clayville sites in March.

Tiger Brands CEO Lawrence MacDougall answers questions during a media briefing on 5 March 2018. Picture: Sethembiso Zulu/EWN

JOHANNESBURG - South Africa’s Tiger Brands reported on Thursday a 16% drop in half-year earnings, weighed down by R365 million in costs due to a recall of cold meat products in response to a listeria outbreak.

The country’s biggest food producer suspended production at its Polokwane, Germiston, Pretoria and Clayville sites in March. The four sites produced polony and other cold meats that were linked to the listeria outbreak that has killed 200 people since early 2017.

Chief executive Lawrence MacDougall said the recall “impacted our headline earnings quite significantly”.

Headline earnings per share (EPS), the main profit measure in South Africa that strips out certain one-off items, for the six months ended 31 March dropped to 868 cents from 1,036 cents a year earlier.

Recall and related costs to date amounted to R365 million net of initial insurance claims. These costs excluded ongoing trading losses, the company said in a statement.

The facilities are likely to stay closed for a large part of the second half of the year as Tiger Brands completes remedial work and awaits guidance from the Department of Health.

Tiger Brands faces a combined class action lawsuit filed in March by Richard Spoor, a human rights advocate, on behalf of families affected by the listeria outbreak.

MacDougall told a conference call that the group did not yet have details on the total amount of the claim.

“The application for certification of the classes is in progress, while our legal representatives are in discussion to explore further collaboration,” he said.

Tiger Brands, which makes bread, breakfast cereals and energy drinks, is battling intense competition, pressure on pricing from consumers chasing value and deflation of 2.7%, which hit group revenue by 4% to R15.7 billion.

The closure of the cold meat facilities weighed on the business, with revenue falling by 9% and operating income plunging by 78% to R13 million.

Profit before tax from continuing operations decreased by 18% to R1.9 billion.

“The outlook for the balance of the year remains challenging, with intense competitor activity in the domestic market and no meaningful recovery expected in international markets,” Tiger Brands said in a statement.

The company declared an unchanged interim dividend of 378 cents per share.