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Libstar faces tough conditions for the year to 31 December 2022

As a management team, we focused on cost management, adding generation capacity to ensure ongoing delivery of quality product, and the protection and growth of our own-branded and private brand market shares

Three key factors impacted the group:

  • Unprecedented levels of load shedding – added R39 million to operating costs.
    (a) A 13 million capital investment in generators during the year.
    (b) An additional R6.3 million spent on generator capacity since January 2023
  • Inflationary impact of sharply rising input costs
  • Export and supply constraints

In these conditions:

  • Revenue grew by 10.7% (a) Volumes up 3.0% and price mix up 7.7% (b) Volumes increased in the largest categories of Perishables and Groceries
  • Strong performance in food service and industrial and contract manufacturing
  • Operating expense increases contained to 6.3%
  • Normalised EBIT and Normalised EBITDA declined by 4.1%
  • Normalised HEPS declined by 11.8

“Conditions remained extremely challenging. We had to contend with ongoing global and local supply chain challenges, substantial input cost inflation, constrained consumer spending and unprecedented levels of load shedding. Shipment delays and weak demand in key markets also contributed to the under-recovery of overhead costs in the main export-facing divisions.”

“As a management team, we focused on cost management, adding generation capacity to ensure ongoing delivery of quality product, and the protection and growth of our own-branded and private brand market shares. Our entrenched category-led and multi-channel operating model contributed to the achievement of positive sales growth in all categories and we limited operating expense increases to 6.3%. This is a very pleasing achievement against the onslaught of significant cost pressures. Load shedding alone added R39 million to our cost base.”

Commenting on the results, Libstar CEO Charl de Villiers said:

Looking forward, De Villiers added:

“Amidst the slew of challenges faced by the food producer sector, it has become increasingly important to assess our portfolio. We have reviewed our strategy and portfolio carefully to ensure a robust group going forward. Our evaluation found that six divisions* drive 80% of the current and projected intrinsic value of the group.”

“Our refined strategy will focus on delivering increasing returns on invested capital. This will be achieved through simplifying the portfolio and developing opportunities within the top six divisions, whilst building necessary scale in the remainder of the portfolio.”

*The six divisions are Lancewood, Rialto, Cape Herb & Spice, Ambassador Foods, Finlar Fine Foods and Amaro Foods.

Appointment of CFO

The group announced today that Ms Terri Ladbrooke, the interim CFO, has been appointed as permanent CFO, and executive director with effect from 15 March 2023.

Terri is a Chartered Accountant who has held various financial and leadership roles within Libstar since joining the group in 2015, including that of Group Financial Controller and Internal Audit Manager at Libstar Operations, and Management Accountant and Finance Executive at Rialto.

Financial summary

The Group remains committed to the repositioning of its portfolio towards value-added food categories.

The strategic intent to dispose of the Household & Personal Care (HPC) division remains unchanged. However, in line with IFRS 5 criteria, the criteria to disclose the HPC division as a Held for Sale and Discontinued Operation was not met at 31 December 2022. This division has been reclassified as a continuing operation in the current period and included in the results.

The prior period’s statement of comprehensive income has been re-presented to provide a like-for-like comparison.

Group revenue increased by 10.7%.

  • Sales volumes were up 3.0%, whilst pricing and mix changes contributed 7.7% to sales growth.
  • This result was achieved against significantly lower volume sales in the export channel due to continued shipment delays and weak demand for dry condiments
    and tea in key markets

Gross profit margin declined from 22.2% to 20.7%

  • Under-recovery of overhead costs in main export-facing divisions and continued raw material, packaging and manufacturing cost inflation in the balance of the portfolio.
  • Unprecedented levels of load shedding directly added R39 million in operating costs, of which 70% related to three divisions – Lancewood, Denny Mushrooms and Finlar Fine Foods.

Foreign currency translation gains decreased to R1.0 million compared to R11.3 million.

  • Unrealised foreign currency translation losses increased by R33.7 million from a profit in the prior year of R20.4 million to a loss of R13.3 million in the current year.
  • Group Normalised operating profit decreased by 4.1% at a margin of 5.9% (2021: 6.8%), impacted by the gross margin decline.

Group Normalised EBITDA* decreased by 4.1% at a margin of 8.8% (2021: 10.1%).

Total diluted earnings per share (EPS) decreased by 103.4% to a loss of 0.9 cps (2021: 26.5 cps).

  • Due to impairments in four divisions

Total diluted HEPS decreased by 12.1% to 45.0 cps (2021: 51.2 cps).

Normalised EPS*, which excludes unrealised foreign currency movements and other non- recurring, non-trading and non-cash items, decreased by 68.2% from 59.1 cps to 18.8 cps.

Normalised HEPS, which also excludes these items, decreased by 11.8% from 74.0 cps to 65.3 cps.

Cash generated from operating activities decreased by R304.0 million from R1035.0 million to R731.0 million.

  • Mainly due to an increase in Group net working capital to 16.0% of Group revenue (2021: 15.4%) following an R185 million investment in inventory and lower trade and other payable days compared to the prior reporting period. The increase in inventory partly mitigated the risk of supply chain disruptions in the import- and export-facing divisions.

*The Group uses revenue, Normalised EBITDA, Normalised earnings per share (EPS) and Normalised headline earnings per share (HEPS) from continuing operations, which exclude non-recurring, non-trading and non-cash items, as the key measures to indicate its true operating performance.

Operational Overview

Perishables (50.6% of Group revenue and 43.8% of Group normalised EBITDA)

  • Revenue increased by 14.4%. (a)8.7% was due to positive price/mix changes and volumes grew by 5.7%
  • Gross profit margin decreased to 18.7% (2021: 19.1%).
  • Normalised EBITDA increased by 8.5% at a margin of 8.4% (2021 margin: 8.8%).

Groceries (30.6% of Group revenue and 38.7% of Group normalised EBITDA)

  • Revenue increased by 8.0%.
  • Volume sales increased by 4.2% and price mix by 3.8%.
  • Gross profit margin declined to 23.4% (2021: 26.1%).
  • Normalised EBITDA decreased by 13.5% at a margin of 12.2% (2021: 15.3%)

Snacks and Confectionery (4.8% of Group revenue and 9.2% of Group normalised EBITDA)

  • Revenue increased by 4.7% (a)Negative price/mix effects of 1.3% and 6.0% volume growth
  • Gross profit margin decreased to 30.5% (2021: 35.8%).
  • Normalised EBITDA decreased by 5.4%, at a lower margin of 18.5% (2021: 20.4%).

Baking and Baking Aids (7.9% of Group revenue and 7.2% of Group normalised EBITDA)

  • Revenue increased by 7.6%
  • 8.9% increase in price/mix and a 1.3% decline in volumes
  • Gross profit margin decreased to 25.2% (2021: 26.0%) due to input cost inflation (raw materials and packaging)
  • Normalised EBITDA decreased by 14.1% at an EBITDA margin of 8.9% (2021: 11.2%)

Household and Personal Care (6.1% of Group revenue and 1.1% of Group normalised EBITDA)

  • Revenue increased by 5.0%
  • Volumes declined by 4.9% and price/mix increased by 9.9%
  • Normalised EBITDA increased by 380.6% to R12.4 million at a margin of 1.7% (2021: 0.4%)

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