Libstar performs well in the first half but the outlook is clouded with concern about slow consumer spending

Libstar Holdings’ reported strong results for the six months to June 30, but it may struggle with the continuing lacklustre consumer environment that is unlikely to improve much before December, a leading analyst said yesterday.

Libstar CEO Charl de Villiers said in an online presentation yesterday their interventions to simplify their portfolio and fine tune the operating model strategy was expected to drive an improvement in cost competitiveness of the group’s sustainable food products, earnings quality and return on invested capital in the second half.

Speaking in an online presentation on the results for the six months to June 30, he admitted they expect consumers to remain under pressure, although the possibility of interest rate relief and introduction of the two-pot pension system might stimulate demand.

Group revenue increased 5.2% to R5.81 billion in the interim period and pre-tax profit was up 46.2% to R111.4 million. Taxed profit increased to R83.4m from R63.6m. Normalised headline earnings a share increased 11.4% to 20.5 cents per share. The revenue growth comprised a 0.2% overall volume decline and 5.4% on price mix gains.

Smalltalkdaily Research analyst Anthony Clark said he believed the “easy money has been made” on Libstar’s share price, which had gained some 37% since the start of the year. While LIbstar may be targeting efficiency improvements, export growth and growth in contract manufacturing of meat products, retail demand was likely to remain subdued.

Clark said he had searched “high and low” for indications across the JSE and economy of an uptick in consumer patterns, but had found none.

De Villiers said port efficiency also continued to impact shipments, particularly, most recently, in the Western Cape where bad weather had affected port operations.

De Villiers said post-period trading had been subdued across retail and food service channels, which resulted in revenue growth “moderation” during the 8-week period post reporting date.

However, on the opportunities front, the portfolio and operating structure simplification programme was expected to be completed by year-end. The group was also on track to further lower gearing.

He said there was sufficient inventory to participate in second half promotional activity. The group also planned to benefit from a “strong export order pipeline,” in dry condiments in particular.

There would also be new product launches, notably in dairy, while new contract manufacturing customers would be signed in the value-added meat category, said De Villiers.

Strategic priorities also included the divestment from the remaining HPC division, exploring value unlock initiatives in Fresh Mushrooms, the operation of which was currently margin dilutive, and the implementation of the simplified Perishable Category operating model.

There remained scope for further simplification of Ambient Product category operating model, retail growth would be supported with “innovation and promotional activity”, while investments would be made in food service front-end capabilities, said De Villiers.

Historically, the group reported on five categories: Perishables, Groceries, Baking & Baking Aids, Snacks & Confectionery, and Household & Personal Care. The food brands were now organised into two categories, Perishable Products and Ambient Products (previously Groceries, Baking & Baking Aids and Snacks & Confectionery), with Household & Personal Care remaining the third category, while the efforts to reduce exposure to non-food categories continued.

In the six month period Ambient Product revenue was up 9.1% to R2.78bn, Perishable Product revenue increased 2% to R2.73bn, while Household & Personal Care revenue increased 1.3% to R304.03m.

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