Consumer packaged goods manufacturer Libstar says the year ended December 31, 2021, marked one with unprecedented supply chain disruptions, input cost inflation and economic pressure, but its ‘protection’ strategy has proven fruitful notwithstanding.

In the year under review, Libstar successfully repositioned its portfolio toward four value-added, higher-margin food categories, with the exit from its household and personal care (HPC) businesses allowing the group to focus more on these core businesses. 

CEO Andries van Rensburg explains that the food categories have consistently outperformed non-food categories.

The remaining business in Libstar’s HPC category, Glenmor Soap, in which it holds a 70% equity interest, has been reported as a continuing operation for 2021. The group intends to exit its investment in Glenmor during the current financial year, depending on market conditions.

The four food categories comprise Perishables, Groceries, Snacks and Confectionary, and Baking and Baking Aids, each comprising of private label brands, own brands of the group and others.

Libstar also last year launched its own incubator, called Libstar Nova, to discover new businesses that are ripe for investment and that will cater to the changing landscape of the industry. The first acquisition in this regard, for a frozen baby food manufacturer called Umatie, was concluded in January.

The company says more acquisitions will follow in the health and pet food space.

Meanwhile, the group posted total profit for the year of R154-million, compared with total profit of R73-million reported in 2020.

The company explains that its gross profit margin declined from 24.4% in the prior year to 23% in the reporting year, mainly owing to reduced export margins and the effects of rapidly rising costs of critical raw materials and packaging – this stemmed from prevailing international supply chain volatility.

Strong cash generation from operating activities, at R1.03-billion, was an increase of almost 14% compared with the R908-million cash generated in 2020.

Cash and cash equivalents stood at R592-million at the end of the year.

Normalised basic earnings a share amounted to 70.4c in the year under review, compared with normalised basic earnings of 33.2c apiece reported for the prior year.

Libstar declared a dividend of 25c apiece, on par with that of 2020. Van Rensburg says growing market volatility necessitated that Libstar continue protecting its cash position.

CATEGORY PERFORMANCE

The Perishables category saw higher demand for value-added meat products and cheese in 2021, which Van Rensburg attributes to fewer lockdown restrictions than the prior year.

The category posted revenue growth of 12.1% year-on-year, but a 0.5% decline in volumes.

The Perishables category’s profitability was, however, impacted by low production yields from its Denny Mushrooms brand, and pressure on margins impacted by rising input costs.

Revenue from the Groceries category remained in line with that of 2020, while volumes increased by 2.8%. Despite the volume growth, Van Rensburg says export sales margins were adversely impacted by lower average spot rates in 2021.

The Snacks and Confectionary category posted 6% lower revenue and 22% lower volumes, owing to subdued retail demand for premium nuts and nut mixes, granolas and snack bars, which is largely an inherited issue from 2020.

Revenue from Baking and Baking Aids increased by 7.2% year-on-year and volumes increased by 4.1%, owing to strong retail channel demand for rolls, speciality breads and gluten-free lines at Amaro Foods.

Libstar notes that food service channel demand by quick-service restaurants improved, as many Covid-19-related restrictions had subsided.

Libstar says demand for these products was impacted by changing consumer behaviour and basket composition as shoppers shift towards smaller packet sizes and more affordable product alternatives.

The group spent R305-million in capital expenditure in the reporting year, representing 3.1% of net revenue. Delayed capital projects were completed in 2021 and the majority of projects are performing at expected revenue levels.

Some of the capital projects included an additional R94-million investment in respect of hard cheese packing facility upgrades at the Lancewood brand and a R19-million investment at the Finlar division to improve production levels at its beef plant.

Van Rensburg says the market is currently characterised by constrained consumers that seek value for money, rising input costs, which puts strain on margin management, and supply chain volatility, which impacts on inventory planning and customer service levels, to which end Libstar tries to increase stock levels.

He adds that the Ukraine conflict is creating a risk of further cost inflation.

Libstar, therefore, continues to respond to business conditions in a ‘protective’ manner, focusing on margin control at all levels of the business.

The repositioning of the company’s portfolio and the growth of its food categories is expected to gain traction this year as Libstar continues to identify and invest in high-growth food categories, particularly through the incubator Libstar Nova.