Libstar, the the food manufacturer with brands including Lancewood, Denny, Goldcrest and Cook 'n Bake, yesterday reported that its profits were eroded amid inflation, load shedding and a drop in consumer demand.
Management is now undertaking a review of its portfolio, among other strategies, as the company scrambles to find its running shoes to right its fortunes.
For the six-month period ended June 30, 2023, Libstar said market conditions remained challenging as persistent high levels of input cost and selling price inflation, interest rate increases and load shedding increasingly constrained consumer demand.
It reported headline earnings per share (Heps) of R19.6 million, down 44.9% on the previous year, while normalised earnings per share dropped 44.4% to R19.8m.
Its revenue rose 4% to R5.7 billion from the previous comparable period.
“Pricing and mix changes, contributing 11% to group revenue, could only partly mitigate the impact of significant raw material, packaging material and production cost inflation. These inflationary pressures were exacerbated by lower volume production, resulting in weaker gross profit and operating margins,” the company said.
Volume sales declined by 7%, attributable to weaker consumer and customer demand in the group’s retail, export and industrial channels, as well as the discontinuation of unprofitable lines in the HPC portfolio.
Its operating expenses were contained to a 1.4% increase from the comparative period, well below inflation.
However, elevated levels of load shedding continued to have a significant impact on operational costs and the group’s gross profit margin. Libstar incurred R45m in diesel costs to operate generators compared to R8m in first half of 2022, and R31m in the second half of 2022.
The group’s cash conversion ratio showed a significant improvement from 15% in the first half of 2022 to 58% in the first half of 2023. This was due to a substantial improvement in net working capital investment.
The board said it had undertaken a comprehensive review of Libstar’s portfolio composition and operating model, as well as its category and channel participation.
The board now plans to simplify of the Libstar’s portfolio composition; reduce exposure to underperforming business units, either through the formalisation of divestment mandates or consideration of other strategic alternatives, including the exit or closure of non-profitable product lines and divisions; and pursue functional and/or operational consolidation of appropriate product lines and divisions.
Libstar’s portfolio currently comprises five product categories, 18 business units, 12 separate sales, marketing and operational teams and 17 separate back-office teams. The top six divisions of the Group, based on economic profit, contribute more than 80% of the group’s intrinsic value.
These are Lancewood, Cape Herb & Spice, Finlar Fine Foods, Rialto, Amaro Foods and Ambassador Foods.
Export-facing businesses – Cape Herb & Spice, Khoisan and Cape Foods – will be integrated early in the 2024 financial year.
Libstar said it was progressing with value-unlocking initiatives in the Denny Mushrooms business, including the closure of the business’s unprofitable Eastern Cape distribution channel from the second half of 2023.
Looking ahead, Libstar said challenging market conditions were expected to continue to impact on consumer behaviour in the second half, placing strain on particularly retail channel volumes.
In line with the Group’s policy, of one dividend per annum declared at year-end, no interim dividend was declared.
Anthony Clark, an independent analyst at Small Talk Daily posted on X, “Attended the $JSELBR Libstar H1 2023 results presentation. Panel looked like someone had told them Santa didn't exist. Results were shocking, more so than many competitors. A plan for recovery seems to be in place by mag't but market will need to see execution before any rally.”
The Finance Ghost, a market commentator, posted on X, “Volumes drop 7% at Libstar as consumers cut back. But revenue is 4% higher thanks to pricing and mix changes. There aren't many winners in this inflationary environment, especially not in the consumer-facing industries like grocery retail…”
The share price closed 0.3% higher at R3.35 yesterday.
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