Consumer goods group Libstar is accelerating efforts to diversify its customer base, after the loss of a major supplier contract led to a sharp decline in earnings for the 2024 financial year.
The group reported a 6.5% drop in headline earnings per share (HEPS) to 53.4c, it said on Tuesday. The biggest contributor to the HEPS decline were impairment charges totalling R508.7m across several business units.
Libstar declared a cash dividend of 15c per share.
The Finlar Fine Foods division suffered a R400m impairment following supplier diversification by a major customer, which affected beef volumes in the food service channel. The group said a R98.2m impairment was added in Denny Mushrooms to align the division with its recoverable value.
These impairments, combined with higher consulting costs and salary increases, led to a 7% rise in operating expenses, increasing Libstar’s expense margin to 17.2% from 16.5% in 2023.
Libstar received insurance proceeds of R120m in the prior year relating to the Denny Mushrooms Shongweni plant fire.
The group said the customer, with which it had built a solid relationship since the dawn of democracy, acted in alignment with global procurement trends.
While the shift was a setback, Libstar said it was now prioritising revenue diversification across the retail, wholesale and export markets to reduce dependence on any single customer or channel.
“This particular customer has been serviced by the group since 1994, so I think that certainly speaks to the strength of our long-term relationships. Post-Covid-19 and even before then, multinationals have implemented strategies that ensure that they do not have a single supplier concentration risk within their portfolios, and that’s exactly what happened here,” the group said.
“Nonetheless, we are focusing on maintaining the strong relationship that we have with the customer, but also diversifying our revenue streams in the retail, wholesale and export channels going forward.”
The group’s products include Lancewood, Denny Mushrooms, Goldcrest and Cape Herb & Spice.
Libstar recorded total revenue growth of 3.1% to R11.77bn, driven by a 6.3% increase in selling price inflation and mix changes, though volumes were down 3.2% due to weaker demand in the retail and food service channels.
The ambient products category posted revenue growth of 5.4% and normalised earnings before interest, taxe, depreciation and amortisation growth of 12.2%, offsetting some of the headwinds faced in the perishable products category.
The group said gross profit margin declined slightly to 21%, affected by margin pressures in dairy, dry condiments, and value-added meats division. Meanwhile, cash conversion and interest cover improved, supported by proceeds from the sale of Chet Chemicals, helping Libstar achieve its 2024 leverage target.
Libstar remains optimistic about long-term growth prospects. The group said it will continue executing its portfolio and operating model simplification, including integrating Rialto, Ambassador Foods and Cape Coastal Honey into a single ambient products sub-category to drive efficiency and market alignment.
“Our initial progress from simplification and growth initiatives, particularly within the ambient products category, was encouraging. This, together with the strengthening of our balance sheet in 2024, are a testament to the potential of our business,” said CEO Charl de Villiers.
“We remain fully committed to delivering on the goals we outlined when our strategy was first developed in 2023 — enhancing cost-competitiveness, improving earnings quality and driving higher returns on invested capital. The new year has started off positively and we are focused on maintaining this momentum throughout the year.”
At 2.20pm Libstar’s share price was flat at R3.55. It is down more than 11% over the past year, giving it a market cap of R2.42bn now. The share price hit a record high of R12.70 in 2018, the year it was listed.
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