Libstar is facing a “severely constrained” consumer backdrop and inflation pressures as the South African CPG group reported subdued volume growth.
In a trading update for the 21 weeks to 31 May, the publicly listed food and drinks business said volumes grew just 0.3% in the period, along with a 0.9% muted increase in revenue.
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For the corresponding period a year earlier, Libstar’s volumes were up 5.2% and revenues 10.1%.
The price/mix contribution also deteriorated, coming in at 0.6% versus 4.9% in the same period last year, the company said ahead of its half-year results due on 8 September.
Libstar added today (19 June) the “consumer environment remains severely constrained”, while “inflationary pressure on manufacturing expenses has intensified”, led by “sharp increases in petroleum-linked input costs”.
In particular, it noted energy-linked cost strains on packaging and distribution.
Libstar’s latest figures, described as “below original expectations”, exclude the fresh mushrooms business, the disposal of which was announced and completed in December to an undisclosed buyer, although the Denny brand was retained.
That transaction included the sale of factories in Gauteng and KwaZulu-Natal.
Today, the company revealed another disposal connected with the mushroom business having reached an agreement for the sale of its Phesantekraal “property” in the Western Cape.
Just Food has asked Libstar for clarification of the activities conducted at Phesantekraal as it seeks to complete the deal “early” in the second half.
Plans are taking place to deal with the headwinds. “Management has accelerated mitigating actions, including targeted pricing adjustments, further enhanced cost control of labour and manufacturing costs, and focused remediation within underperforming operations,” the company said in its outlook for the rest of the year.
“Although the inflationary outlook remains elevated, the group expects H2 performance to improve relative to H1, supported by Libstar’s traditional trading seasonality, the non-recurrence of capital project-related disruptions experienced in the current period, and continued progress on integration and operational initiatives.”
The private label and branded manufacturer is in the midst of a restructuring and portfolio simplification strategy under CEO Charl de Villiers, who did not provide any commentary in the trading update.
Libstar added the group’s “underperformance” was largely driven by its Dickon Hall Foods (DHF) contract manufacturing business for spreads and sauces, as well as exports of its dry condiments.
“In the DHF division, labour challenges and water shortages led to production disruptions and a significant under-recovery of manufacturing costs during the current period,” the company explained.
“Dry condiments export revenue was below expectations, affected by shipment timing, the sustained strengthening of the rand against major currencies, and weaker demand in Australia and Asia.”
Libstar’s gross margins were also lower for the 21 weeks – by 1-1.5 percentage points from a year earlier – “driven predominantly by weak cost recovery in DHF and dry condiments, together with inflationary pressures from petroleum-linked cost increases across the group”.
