Strong performances by core businesses bolster Libstar’s interim results

4th September 2019 By: Tasneem Bulbulia - Creamer Media Reporter

JSE-listed consumer packaged goods producer and supplier Libstar recorded a 12.4% increase in headline earnings per share (HEPS) for the six months ended June 30.

Normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 5.9% and normalised earnings per share (EPS) increased by 13.2%.

Libstar uses normalised Ebitda, normalised EPS and normalised HEPS, which exclude nonrecurring, nontrading and noncash items, as key measures to indicate its true operating performance.

Speaking at a presentation of the company’s results, in Johannesburg, on Wednesday, CEO Andries van Rensburg said the results showcased the group’s resilience once more, especially in a weak retail and consumer market climate.

Market conditions continued to worsen during the period. Consumers remained under pressure amid a weak economy and there was a considerable decline in the performance of Libstar’s noncore businesses. The pricing environment was also weak.

However, key contributors to Libstar’s performance in this climate were the group’s core categories of perishables, ambient groceries, snacks and confectionery and baking and baking aids.

Group revenue for the period was up 4.6%.

Organic revenue growth from Libstar’s core categories, which constitute 88% of the group's revenue base, was 5.3%. This was mainly as a result of an increase in volume sales of baked goods, as well as a considerable increase in dry condiment exports.

Libstar highlighted a pleasing performance across all of the core categories.

A favourable change in the sales mix of dairy products and lower dry condiment input costs resulted in an improvement in core category gross profit margins from 21.5% to 23.9%.

Normalised operating profit margins increased from 9.2% to 9.4% and normalised Ebitda margins increased from 10.9% to 11.2%.

Revenue from the noncore categories, which represent 12% of overall revenue, however, declined by 1.5%. Despite the improvement in sales mix, significant volume declines in the outsourced and export markets negatively impacted on the results.

The performance from the group's noncore categories was highlighted as disappointing. Normalised operating profit declined by 19.5% to R12-million, mainly as a result of a weaker performance in niche beverages, off a high base achieved in the prior year’s corresponding period. Normalised Ebitda declined by 17.6% to R22-million.

During the period under review, the group had entered a binding sales agreement to exit the noncore dairy-blend and fruit concentrate beverage operations. This agreement is subject to customary conditions precedent, including approval by the Competition Commission of South Africa.

Gross profit margins improved from 20.9% to 23.2%, mainly owing to favourable changes in the sales mix of value-added dairy products and lower input costs of dry condiments.

The group’s continued focus on procurement practices and production efficiencies is also reflected in the improved gross profit margin.

Libstar indicated that the full benefits from the granola plant, health bar capacity and meat slicing plant projects that had been completed during 2018, were now being realised.

It further expects to start realising the benefits from the commissioning of its hard cheese manufacturing, par-bake frozen, tea and Pringles operations during the second half of this year and the 2020 financial year.

Commissioning of Kiri and Laughing Cow soft cheese operations is slated for the fourth quarter.

Van Rensburg highlighted that the private label food products constitute 46% of revenue and presented considerable opportunity for Libstar. The group continues to innovate and help these customers grow their market share.  

In terms of other key initiatives, the group will focus on environment-friendly packaging trends and finding new customers and marketing channels.