Libstar, whose brands include Lancewood dairy and Denny mushrooms, has announced that it wants to simplify its operating model and reduce product lines, a repeat of previous promises that it would fix its perennially underperforming business.
The consumer goods group reported a major drop in profit in its half year to end-June in a tough economic environment for businesses and consumers alike.
Smalltalk daily analyst Anthony Clark said the results of the group that sells wraps, hot-cross buns, salad dressing, honey, dried fruit and vinegar, were “awful” and the worst of the food producers. “Even they would admit the results were worse than they anticipated.”
The company listed on the JSE at R12.50 a share in 2018, but the share has dropped between R3 and R4 in recent years.
Valued at about R2.3bn on the JSE, Libstar said its normalised headline earnings per share (heps), a common profit measure in SA that excludes certain items, dropped 44.9% to 19.6c, while no interim dividend was declared.
While Libstar traditionally does better in the second half to December, the group warned that the market conditions, characterised by high inflation, interest rate hikes and load-shedding that lowered consumer demand, will continue to affect consumers in the second half of 2023 and particularly the retail side of the business.
“While food selling-price inflation continues to normalise from recent highs, the cost of manufacturing is expected to remain elevated relative to prior periods,” the company said.
As part of the change in the group’s strategy, it will seek to reduce its exposure to business units that are performing poorly by possibly exiting, closing or consolidating product lines and divisions that are not making a profit.
This includes its cleaning and household products division, which remains for sale, but Libstar said “market conditions may not be conducive to a short-term exit of the business” and as a result it is focusing on turning it around.
It is not keen to close the cleaning division as it will lose the group money. It will continue to improve its performance by discontinuing unprofitable lines before trying to sell it — something it has battled to do for past two years.
Another change is the possible closure of the unprofitable distribution channel of Denny Mushrooms in the Eastern Cape, which could cut operating costs by R9.6m a year.
It is not reopening it Shongweni mushroom farm in KwaZulu-Natal after a fire in September 2022 following a suspected arson attack during a workers’ strike.
Libstar received an insurance payout of R154.5m after the fire.
“Current market and operating conditions, most notably the dependency of farming operations on stable electricity supply, are not conducive to the reinstatement of the Shongweni facility,” the company said.
The company said that its portfolio is made up of five product categories, 18 business units, 12 sales, marketing and operational teams and 17 separate back-office teams, but that the top six divisions were the most valuable.
As a result, Libstar will look to “reduce reporting and operating complexity in a manner that leverages existing group resources”, suggesting there could be layoffs. It did not explain exactly what the simplification will look like.
CEO Charl de Villiers said it is undertaking a strategic review to get better insights on what to implement.
Clark said the company is “regurgitating its strategic intent to simplify and restructure”. He said the same sentiments have been presented in previous financial results and have still not been implemented.
De Villiers said he could not explain why the previous management did not implement previous recommendations.
He said the group produced “challenging results”. “I think I want to emphasise our focus is on the simplification of our portfolio and operating model.”
The group’s revenue grew 4% year on year, but higher prices meant that the volumes sold fell 7%. This was as a result of discontinued lines in its household cleaning portfolio.
Normalised core earnings (ebitda) fell 18.3% to R406.3m and the ebitda margin two percentage points to 9%, while total profit dropped 56.1% to R63.6m.
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