As Libstar makes headway in simplifying into an organisation consisting of two super-categories from seven, the food producer says it will expand its export market in the rest of Africa, the United Arab Emirates (UAE) and Saudi Arabia, amid a weak growth environment in SA.
The group expects most of the macroeconomic challenges to persist for the better part of 2024, according to its recently published annual report. This comes amid intensified competitor activity in the food service channel which is expected to result in further moderation of revenue growth in Libstar’s perishables category.
Charl de Villiers, CEO of the JSE-listed food producer, said that against the backdrop of its optimisation plans advancing, Libstar was also targeting growth of its export market as a natural hedge, pursuing the rest of Africa and the Middle East.
He said the perishable category with its halaal-certified facilities would pursue growth where such goods were in demand, while the ambient products division would target export opportunities in 2024 for dry and wet condiment products.
“Focusing on tangible opportunities, our export-facing business unit consolidation is complete. This creates a base from which to convert significant opportunities currently being pursued in the value-added meat and dry and wet condiment categories, with some assistance from a weaker rand,” the CEO said.
“We are targeting significant export opportunities to compensate for reduced local beef volumes,” he said, with the group expecting continued strong local demand for value-added chicken products.
Value-added chicken products account for 60% of its Finlar Fine Foods business and beef the rest. The business faced considerable competition last year after an additional beef supplier was approved to service a key quick-service restaurant customer, which resulted in the loss of 30% of its beef volumes in the fourth quarter.
The export scale-up comes as the group’s Lancewood and Finlar consolidation — to be completed by the end of 2024 — aims to accelerate the group’s ability to drive export channel development, particularly in the Middle Eastern region.
Libstar said Finlar had in the year continued to expand its chicken offering across all formats of fresh, frozen and fully cooked. With Finlar having received export approval status from Saudi Arabia, Libstar said this would enable value-added beef exports, shoring up overall volumes.
Halaal and kosher certifications confirm that its processes and products meet certain religious and cultural requirements.
Cape Town-based Libstar exports its wide range of food products to more than 50 countries with total exports growing to R1.3bn in 2023. This was despite global supply chain disruptions affecting sourcing decisions by international customers and the deterioration in rail and port logistics in SA which led to delays of import and export shipments.
It said in the year the retail channel also experienced a change in sales mix as constrained consumers shifted towards value offerings of nuts and nut mixes, granolas and snack bars. Part of its export drive includes increasing bar and granola plant capacity to ensure sufficient stock to supply to its targeted export markets.
“Certain of our bars and granolas are very price competitive in the export market,” the group said.
Meanwhile, the firm said its strategic interventions in the Denny Mushrooms business aimed at improving earnings stability and refocus the group’s portfolio on value-added food products were ongoing.
As part of its simplification plans, management said plans to dispose of its household & personal care segment were progressing with management targeting a complete divestment this year.
Meanwhile, a host of other moving parts are being assembled in the business structure as it works towards reducing costs and improving operational efficiency to increase operating profit.
Libstar experienced improved trading performance, operating margins and cash generation in the second half of the year to end-December amid challenging market conditions and muted customer demand, signalling that its strategy was beginning to take effect.
In the fourth quarter it completed the consolidation of the Cape Herb & Spice and Khoisan Gourmet’s sales, marketing, human resources and administrative functions.
Its private label dry condiment production lines, previously housed in the group’s retailer brands’ division, were also consolidated into Cape Foods at the start of 2024.
Libstar said the consolidation leveraged Cape Foods’ existing procurement and manufacturing capabilities to provide a more cost-competitive product to its customers and improve future earnings quality.
During the first half of this year, Libstar is poised to finalise its operational consolidation of the Montagu Foods, Dickon Hall Foods, Cecil Vinegar and retailer brands business units in a bid to improve longer-term cost competitiveness and earnings stability.
“We have already delivered market-beating revenue growth from Montagu Foods and Cecil Vinegar during the year despite the earnings volatility from reduced demand for contract manufactured wet condiments at Dickon Hall Foods,” the company said.
“We will significantly reduce our operating structure complexity by the end of 2024, with fewer individually managed business units, sales and marketing and back-office administration teams.”
Libstar’s share price was unchanged at R4 on Monday.
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