JSE-listed consumer packaged goods group Libstar has declared a final cash dividend of 25c a share for the year ended December 31, 2020.
This despite normalised operating profit having decreased by 13.1% year-on-year to R774-million at a margin of 7.5%, impacted on by Covid-19-related extraordinary expenses of R65-million and increased depreciation from the completion of capital projects in 2019 and 2020.
The group posted normalised earnings a share of 36.8c apiece for the year under review, compared with normalised earnings a share of 82.3c apiece posted in the year ended December 31, 2019.
Libstar did, however, record growth of 4% year-on-year in group revenue for the year, thanks to a solid performance from the food categories of the business. The food categories contribute 92% of the group’s revenue.
Revenue within the household and personal care category, which accounts for 8% of group revenue, also increased by 7.9% year-on-year.
The company explains that the Denny division within the perishables segment was significantly impacted on by a slowdown in food service channel activity during the year. Libstar recognised a R198-million impairment to goodwill attributable to Denny.
Total group goodwill declined from R2.5-billion to R2.3-billion.
In applying a conservative approach, a downward adjustment was applied to the division’s five-year growth forecasts following lower volume sales and below-inflation price realisation during the year under review.
Food service channel revenue declined by 23.8% year-on-year, while retail and wholesale channel revenue grew by 12.3% year-on-year.
As consumers frequented hospitality and restaurants less from the second quarter onwards owing to lockdown restrictions, retail channel demand for products used in home cooking significantly increased and remained strong for most of the year.
The shutdown of hospitality venues and restaurants, as well as subsequent continued lower occupancy rates in the wake of the pandemic, resulted in significantly less annual revenue from the food service channel.
Libstar recorded an increased export revenue of 6% year-on-year, since demand for private label condiments remained strong throughout the year. The company explains that shipment completion rates started improving in the second half of the year, following port delays experienced in June.
The company further notes that cash generated from operating activities increased from R579-million to R637-million. This was mainly owing to improved cash flow from operations, as well as reduced net interest and tax expenses.
Libstar’s categories and sales channels were each uniquely impacted by the effects of the pandemic and the related trading restrictions and challenges.
Despite these challenges, the group’s cash generation profile remained stable and the cash conversion ratio increased from 91% to 94%.
The group continued to invest in capacity enhancing projects in identified growth areas, with capital expenditure of R345-million in 2020, compared with capital expenditure of R401-million in 2019.
Libstar’s portfolio comprises more than 9 000 products, across five product categories and sold in four sales channels. The products including dairy, meat, fresh produce, convenience food, groceries, baking aids, snacks and confectionary.
The group’s focused category and multibrand strategy has played an instrumental role in Libstar’s pleasing retail and wholesale channel performance during the year under review, says CEO Andries van Rensburg.
He notes that the shift in consumer behaviour has been rapid, as shoppers reduced store visits, but increased their respective shopping basket sizes.
“Libstar has remained agile in responding to changing customer and shopper demands and will continue to work with our customers in delivering innovative and cost-effective brand solutions.
“The full impact of the Covid-19 pandemic remains unquantifiable. The weak macroeconomic climate is expected to persist and will continue to impact consumer’s disposable income,” Van Rensburg avers.
Libstar anticipates further cost inflation this year and muted volume growth as the impact of Covid-19 remains prevalent in the group’s sales channels.
However, these impacts are expected to be compensated, in part, by the increasing returns from capital projects completed since 2019, as well as the group’s diverse product capabilities.
The company has long benefited from its ability to capitalise on evolving consumer trends, including snacking, healthier food alternatives, cleaning products, gluten-free products and environment-friendly products.
These growing trends, as well as Libstar’s ability to grow market share in the fast-growing private label or dealer-owned brand market through targeted new product development and its focused category approach, is expected to ameliorate some headwinds.