South African CPG heavyweight Libstar is to ring the changes and may sell off units amid the pressure from higher manufacturing costs and power cuts in the country.
Announcing its first-half financial results – which included a 45% drop in earnings – Libstar said the review had identified the need to “simplify” its portfolio and operating model.
The group also wants to “accelerate” its growth in the retail channel and develop its business in the “under-indexed” areas of foodservice, wholesale and export.
As a result, Libstar will look to “reduce exposure to under-performing business units” possibly through selling the assets or closing them.
The company’s household and personal care division has already been put on the block. Meanwhile, its three largest export-facing businesses – Cape Herb & Spice, Khoisan and Cape Foods – will be integrated early in the 2024 financial year.
Libstar also wants to simplify its operating model towards a “category-led and brand-driven approach which encompasses the group’s own-branded and private-label capabilities”.
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The company, which had issued a profit warning last month, recorded half-year revenues of R5.77bn ($305.8m), an increase of 4% year-on-year, but the company reported headline earnings per share (HEPS) from continuing operations – the main profit measure in the country – of R19.6m, down 44.9% on the prior year.
“Market conditions remained challenging during the period under review as persistent high levels of input cost and selling price inflation, interest rate increases and load-shedding increasingly constrained consumer demand,” it said.
Libstar, meanwhile, said its Denny mushrooms facility at Shongweni in KwaZulu-Natal, badly damaged by a fire last year, will not re-open.
South African manufacturers are facing a number of headwinds including persistent power cuts – or load shedding – as state power utility Eskom struggles to meet demand.
On the Shogweni decision, Cape Town-based Libstar said: “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 strategic review is also looking at the possibility of alternative energy options.
“Whilst the nature of Libstar’s production requirements will preclude the group from operating entirely off the grid, various solar and non-solar options have been and continue to be investigated. Additional sites have been earmarked for alternative energy viability studies by the end of the financial year,” the company said.
Libstar’s food product portfolio ranges from snacks and confectionery to spices and bakery products. It exports to more than 50 countries, including the US and Canada, Australia, destinations in Europe and South America.
Looking forward, Libstar said: “Challenging market conditions are expected to continue to impact consumer behaviour in H2, placing strain on particularly retail channel volumes. While food selling price inflation continues to normalise from recent highs, the cost of manufacturing is expected to remain elevated relative to prior periods.”
Its core brands include Lancewood, Denny, Goldcrest and Cook ’n Bake.