Consumer packaged goods group Libstar’s diverse category-led and multichannel operating model has, once again, proved its mettle with the company posting 14.1% year-on-year growth in normalised headline earnings per share (HEPS) for the six months ended June 30.

Normalised HEPS came to 35.6c, against normalised HEPS of 31.2c posted in the prior comparable interim period.

Libstar increased its normalised operating profit by 10% year-on-year to R346-million, and its normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) by 4.6% year-on-year to R493-million.

Profit after tax came to R149-million, which was a 21.9% increase on the profit of R122-million in the prior comparable six months.

Cash generated from operating activities decreased from R465-million in the prior comparable six months to R140-million in the reporting six months, owing to an increase in net working capital to 17.4% of group revenue.

Libstar made a R285-million investment in inventory in the reporting period, which influenced its net working capital; however, it expects a significant reduction in inventory holding by year-end.

The company mitigated the impact of global supply chain disruptions and input cost inflation experienced during the six months under review by protecting gross profit margins and limiting the increase in operating expenses.

Libstar outgoing CEO Andries van Rensburg says the company delivered sound earnings growth in an environment of high inflation and extreme customer pressure.

Despite these challenging conditions, Libstar launched 364 new and renovated products, compared with 316 new and renovated products launched in the prior interim period.

CFO and incoming CEO Charl de Villiers comments that the company’s diversified brand solutions, product mix and channel exposure will leave its structural growth drivers intact.

He mentions that Libstar will continue focusing on its value-added portfolio and explore high-growth opportunities, particularly through bolt-on acquisitions, such as that of Cape Foods and its value-added dry condiments, which the company acquired in August.

The Household and Personal Care divisions of Chet Chemicals and Contactim remain classified as for sale, as it was in the prior comparable six months.

Libstar has also classified its Glenmor Soap subsidiary as held for sale, after the group completed the exit from this investment shortly after the close of the first half of the year.

Van Rensburg says the company’s priorities for the first half of the year were to leverage front-end capabilities, improving yields from large capital expenditure projects, proactively managing its inventory and enhancing sales forecasting, as well as to successfully integrate the Cape Foods business.

He adds that its baby food manufacturing business Umatie, which was acquired through the Libstar Nova initiative in May this year, has grown its footprint from 72 stores to 100 stores in the period under review.

Some of the group’s major capital expenditure projects since 2019 include a pre-packed hard cheese packaging and manufacturing facility under the Lancewood brand, as well as a distribution centre.

Van Rensburg expects challenges in the global supply chain to prevail for the remainder of the year.

“The group continues to experience significant inflationary pressure relating to raw materials, packaging, labour and energy, which are not expected to subside in the second half of the year.

“Therefore, the group continues to leverage its systems, procurement expertise and trade relationships to balance cost-push inflation and selling prices,” adds De Villiers.

In line with its dividend policy, Libstar will only consider a dividend declaration at the end of the year.

OPERATIONS

Libstar reports that its sales volume grew by 6.9% in the six months under review, with improvements in all categories.

Brand Solutions, be it private brand solutions or Libstar’s own brands, still contribute the majority of group revenue, at 83%.

Libstar’s own brands, which includes Lancewood, Denny, Safari, Goldcrest and Robertson, recorded growth of 11% in the six months under review.

Libstar’s current value share is 11.4%, or R4-billion, in the R35-billion total fast-moving consumer goods defined market.

The group recorded a 9.6% year-on-year increase in revenue for the six months under review, to R5.1-billion.

De Villiers says all its categories remain under pressure owing to inflation and dampened customer spending. He says the categories’ normalised Ebitda margin performance remains below target for the meantime, but Libstar aims to increase these margins in the near term.

The Perishables category posted volume growth of 6.3% and normalised Ebitda growth of 27.8% to R254-million, compared with the first half of last year.

The Groceries category reported volume sales growth of 8.3% year-on-year; however, normalised Ebitda declined by 17.7% to R196-million.

The Snacks & Confectionary category had increased volume growth of 14%, and normalised Ebitda growth of 23.2% to R51-million, compared with the prior interim period.

The Baking & Baking Aids category posted volumes growth of 0.7%, and a normalised Ebitda decrease of 6.1% to R41-million in the six months under review.

De Villiers summarises that manufacturing cost pressure, timing delays in terms of costs versus price increases, supply chain disruption and consumer pressures remain; however, Libstar’s diversified product mix and channel participation offer resilience against these.

“The group’s brand solutions leave the group well positioned to benefit from supper-end food service growth, growing sub-categories in foods and strong own-branded offerings.”