Household goods, beverages and foodstuffs investment company Libstar soared above South Africa’s persistent load shedding, supply chain bottlenecks and suppressed consumer spending power, saying yesterday that it expected to raise headline earnings per share (Heps) for the 2023 full year to December to between 55.6 cents 57.8c.
This compares with 45c in Heps recorded for the 2022 comparative full-year period. The company’s higher HEPS performance was recorded despite a decrease of at least 2.2% in the company’s earnings before interest, tax, depreciation and amortisation (Ebitda), which is expected to be between R988 million and R1 billion.
In September, Libstar said it had anticipated “challenging market conditions to continue to impact consumer behaviour (in the second half to December 2023), placing strain on particularly retail channel” volumes. Libstar owns Lancewood Cheese and other foodstuffs, dairy and home products brands.
Its shares on the JSE rose 6% to R3.62 in afternoon trade yesterday.
The improvement in Ebitda for the full-year period has been attributed to “the receipt of insurance proceeds in the current year”, although the company had also incurred “increased borrowing costs” for the period under review.
Libstar received insurance proceeds amounting to R120m compared to R37m in 2022. The 2023 payout related to the Denny Mushrooms Shongweni fire incident.
“Following consideration of the reduced total mushroom production from its two remaining mushroom farms, the group recognised an impairment charge of R73m net of tax in the 2023 financial year as part of its annual impairment assessment of this business unit,” Libstar said.
It added that an additional impairment charge of R43m net of tax was recognised in relation to the Khoisan Gourmet business unit. This had been necessitated by “prolonged weak international demand” for bulk tea. Although Libstar contained operating expenses, excluding impairment charges, to a below-inflationary 1.9% increase, the company was impacted by intensified costs related to load shedding.
“Due to intensified load shedding in H1 2023, the Group incurred full-year diesel costs of R77m to operate generators compared to R39m in the prior year.”
JSE analyst Dave Hazelwood (@hazelwood_dave) said on social media platform X that Libstar had recorded a “much improved performance in H2 2023, although some of it is merely seasonal”. He added that Libstar usually generated 60% of its earnings in the July to December second half year period.
Independent analyst Anthony Clark (@smalltalkdaily) said on X: “Not as horrific as many in the market were expecting. It’s better that my bouncy expectation, so I’m happy.”
Libstar’s net finance cost on interest-bearing debt increased by R58.5m due to the impact of the higher Johannesburg interbank average lending rate (JIBAR) compared to the prior year. This represents an increase of 53.3% in the company’s net finance costs for the full year.
The company cited “continued disruptions in supply chain, persistent load shedding and low consumer confidence driven by high inflation and interest rates” as the major headwinds for the full year period under review.
Although revenue growth accelerated to 7.3% in the second half of the year, driven by improved demand in the retail and food service channels, sales volumes for the second half to December were 2.7% lower against the backdrop of a weak consumer environment.
“Improved capacity utilisation, production efficiencies, pricing and cost management assisted Libstar in delivering improved H2 2023 gross profit margins relative to H1 2023 and the comparative H2 prior year period. The Group expects to report an H2 2023 gross profit margin of 21.2%, representing a 1.2 percentage point increase on the H1 2023 gross profit margin of 20%,” Libstar said.
Other analysts said Libstar, despite facing “challenges from a weak consumer environment and higher finance costs”, had recorded improved performance in the second half of the year, with better revenue, margins, and cash generation.
“The underlying normalised earnings reflected the impact of increased borrowing costs. Focus on operational efficiencies, cost management, and capital allocation enabled the Group to maintain a healthy gearing position within its optimal range,” said one market watcher.
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