Libstar, the owner of the Denny, Lancewood and Goldcrest brands, is considering recycling water to reduce waste and ensure a steady supply amid sustained load-shedding.
Sustained lengthy power cuts by Eskom are affecting water pumping systems, which have disrupted supplies and prompted intensive consumers such as food producers to invest in storage facilities.
Tiger Brands, which counts Koo, Jungle Oats, Beacon and All Gold among its brands, said it is also increasing storage at its manufacturing sites due to load-shedding.
“We do have storage capacity on most of our sites [that allow for] between one and three days of production,” CEO Charl de Villiers said. “But we are investigating within our larger businesses off-grid purification solutions ... this has a lead time of nine to 12 months.”
De Villiers was speaking at the food producer’s annual results presentation, where it where it reported an 11.8% drop in full-year earnings as price increases failed to offset higher costs, constrained consumer spending and unprecedented levels of load-shedding.
Normalised headline earnings per share, the company’s preferred measure of profitability that strips out one-off and exceptional items, fell 11.8% to 65.3c, while the gross profit margin dropped to 20.7% from 22.2%, prompting the group to cut its dividend by 3c to 22c.
The group reported that the overall operating margin improved, but remained low at 1.7%.
Libstar also impaired about R277m of assets in the year to end-December, including a R98m write-off of a mushroom facility in KwaZulu-Natal in September after suspected arson.
Business Day reported in January that the fire led to the retrenchment of 315 employees, including artisans, pickers, office workers and managers.
Libstar is able to operate its factories during stage 6 power cuts after rolling out substantial generator capacity in previous years. It is also looking to increase its use of solar panels to reduce the cost of operating the generators. The company said it spent R39m to minimise the impact of the record levels of load-shedding in 2022 while generator costs more than doubled to R13.1m.
The group failed to find a buyer for its personal-care business, which makes hand creams and soaps, dish-washing liquids, sponges and air spray for retailers' private labels.
De Villiers said the group it is investigating all options for the business no longer fits its focus on food production.
“I think all options really does mean all options at this point,” he said.
Asked if that could include shutting down the operation, De Villiers said: “Closing it down is probably one of the least viable options” since it would lead to job losses.
Libstar shares ended the day 11.4% higher at R5.20, having earlier added as much as 16.5%. That’s still less than half its price of R12, which Gryphon analyst Casparus Treurnicht was partly due to its holding structure.
“This company was built on acquisitions and when you have a holding company structure, you also deal with a discount to net asset value,” he said.
“Libstar’s almost always disappointed with their results, meaning dividend expectations keep getting adjusted lower and further out,” Treurnicht said, adding that the impairments announced are now also a factor.
Treurnicht said food companies generally were under pressure in the present environment of cash-strapped consumers, high inflation and input costs, and load-shedding.
“I don’t think the manufacturing sector is going to improve any time soon,” he added.
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