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Libstar Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2014/032444/06)
(JSE share code: LBR)
(ISIN: ZAE000250239)
("Libstar" or the 'Group')
Third quarter trading update
Introduction
During the third quarter of the 2020 financial year, the Group continued to prioritise the following:
' the protection, safety, health and well-being of Libstar's people;
' the preservation of cash and maintenance of the Group's financial stability; and
' the delivery of superior service levels and product availability to customers.
As anticipated, Libstar has incurred further extraordinary Covid-19 expenditure of R16 million since the release of its interim financial
results. The Group has therefore incurred R60 million direct Covid-19 expenses during the nine months ended 2 October 2020. Libstar
expects additional Covid-19-related expenses of c. R5 million for the last three months to 31 December 2020 as the rate of expenditure
normalises in line with reduced new Covid-19 infection rates nationally.
Balance sheet and cash flows
Cash preservation remains a key strategic priority. Following the successful payment in September of the Group's dividend in relation
to the year ended 31 December 2019, cash generation has remained stable in the third quarter.
Although the Group's investment in net working capital remains higher than last year (2019: 14.4% of revenue), it is not expected to
exceed the upper limit target of 15% of revenue. The current working capital levels are mainly attributable to increased inventory levels
as the Group enters the festive season. Inventory holdings are expected to reduce towards the end of the financial year. However, the
total investment in net working capital is still expected to exceed that of the prior year.
Trading update
Performance by sales channel
As reported previously, the effect of Covid-19 has been most apparent in the Group's sales channels. The impact on Libstar's four
sales channels is reflected below. The Group's standard reporting disclosures pertaining to category performance are provided later in
this announcement.
Group
Year-on-year revenue growth for the third quarter accelerated to 14.4%, mainly due to strong retail channel performance across multiple
categories, increased food service sales and improved export shipment completion rates. This follows a revenue increase of 9.7% in
the first quarter and a 4.9% decline in the second quarter, resulting in a 6.2% year-on-year increase for the nine months ended 2
October 2020.
Whilst the Group has been able to protect gross profit margins, general and administrative expenses for the year ended 31 December
2020 are likely to remain significantly higher relative to the prior year. This is predominantly due to:
' The Covid-19 related expenses mentioned above; and
' A lower comparative base in Q4 2019 when the Group achieved c. R52 million cost recoveries relating to the restructuring of
the Group's logistics arrangements.
Several cost-rationalisation projects are underway throughout the Group, most notably within the Dickon Hall Foods, Lancewood and
Libstar HPC divisions. These projects are expected to start yielding meaningful benefits from H1 2021.
Libstar's gross revenue performance by sales channel (before allowances and rebates) and Group total net revenue (after allowances
and rebates) for the nine-month period ended 2 October 2020 are summarised as follows:
Contribution to Group
Group revenue growth / (decline)
revenue
Nine Nine
Six months Nine months months months
Q1 2020 Q2 2020 ended 30 June Q3 2020 ended 2 ended 2 ended 27
2020 October 2020 October September
2020 2019
GROSS REVENUE BY
CHANNEL
Retail and wholesale 7.3% 14.2% 10.7% 26.6% 15.5% 65.8% 59.8%
Food service -3.6% -63.2% -34.5% -13.6% -27.9% 12.1% 17.6%
Exports 12.3% -26.3% -8.0% 13.1% 2.6% 11.4% 11.6%
Industrial and contract
5.4% -10.4% -2.8% 10.0% 1.8% 10.7% 11.0%
manufacturing
TOTAL GROUP NET REVENUE 9.7% -4.9% 1.9% 14.4% 6.2% 100.0% 100.0%
Retail and wholesale
The Group supplies products in its five categories to the retail and wholesale channel. Total revenue from this channel increased by
26.6% during the third quarter and by 15.5% for the nine months ended 2 October 2020. The third quarter revenue growth was mainly
attributable to continued robust retail demand, driven by increased at-home consumption. In addition, channel revenue benefited from
a timing impact, as orders for imported value-added meal ingredients were completed in July after significant port delays in June.
Food service
The food service channel includes a range of meat and cheese products, tortilla wraps and condiments, as well as food packaging.
Food service channel revenue reflected the easing of lockdown conditions, ending the third quarter 13.6% lower than the comparative
period of the 2019 financial year. This was a significant improvement compared to the 63.2% year-on-year decline in the second
quarter, and in line with the guidance previously provided to the market. The Group expects trading at 80% to 85% of prior year levels
for the remainder of the financial year, as the quick-service restaurant and other hospitality industries slowly recover from the impact
of Covid-19 lockdown restrictions.
Exports
Cape Herb & Spice continues to lead Group export volumes, with solid growth in the retail sector. As expected, the export channel
recovered strongly from the start of H2, recording revenue growth of 13.1% during the third quarter. The improved performance was
mainly attributable to ongoing strong demand for exported private label dry condiments, as well as significantly improved shipment
fulfillment rates from July onwards. As a result, export channel revenue grew by 2.6% for the nine months ended 2 October 2020.
Industrial and contract manufacturing
The Group manufactures wet condiments for various brand owners in the retail and food service markets.
As guided previously, orders increased from the start of H2, following subdued demand for retail wet condiments during most of H1
2020, particularly in the food service market. As a result, revenue from this channel grew by 10.0% during the third quarter and by
1.8% for the nine months ended 2 October 2020.
Performance by product category
The Group's net revenue (after allowances and rebates) by category is summarised as follows:
Contribution to Group
Group revenue growth / (decline)
revenue
Nine
Nine months
Six months Nine months months
ended 27
Q1 2020 Q2 2020 ended 30 June Q3 2020 ended 2 ended 2
September
2020 October 2020 October
2019
2020
NET REVENUE BY CATEGORY
Perishables 14.0% -15.2% -1.7% 6.6% 1.0% 45.1% 47.4%
Groceries 3.9% -7.6% -2.1% 22.4% 6.6% 33.2% 33.0%
Snacks and Confectionery 27.3% 10.2% 18.1% 16.3% 17.5% 5.9% 5.4%
Baking and Baking Aids 17.7% 27.1% 22.9% 18.7% 21.5% 7.6% 6.6%
Household and Personal Care -8.6% 30.0% 11.5% 22.7% 14.8% 8.2% 7.6%
TOTAL GROUP NET REVENUE 9.7% -4.9% 1.9% 14.4% 6.2% 100.0% 100.0%
Perishables
Revenue growth from dairy and meat products bolstered the Perishables category performance during the third quarter, with retail
demand remaining strong and food service recovering to 80% to 85% of the prior year. Category revenue increased by 6.6% during
the third quarter following a 1.7% decline in H1 2020, resulting in 1.0% year-on-year revenue growth for the nine months ended 2
October 2020.
Groceries
This category continued to benefit from increased sales of pasta, meal ingredients, vinegar, honey, private label and branded sauces
and soups in the retail channel in the third quarter. As shipment fulfilment rates improved from July onwards, the export channel was
able to deliver exceptional revenue growth. Revenue from Groceries thus increased by 22.4% in the third quarter following a 2.1%
decline in H1 2020, resulting in 6.6% year-on-year revenue growth for the nine months ended 2 October 2020.
Snacks and Confectionery
Category revenue increased by 16.3% in the third quarter following an 18.1% increase in H1 2020. The third quarter performance was
mainly attributable to stronger revenue growth of assorted nuts and nut mixes within the retail channel. As a result, year-to-date
revenue was 17.5% higher than the comparative period.
Baking and Baking Aids
Category revenue increased by 22.9% in H1 2020 due to increased in-home baking during lockdown levels 5 and 4. Demand in the
retail and wholesale channels for baked goods, rusks and baking aids has remained strong and, as a result, an 18.7% increase in
revenue was achieved in the third quarter, resulting in year-to-date revenue growth of 21.5%.
Household and Personal Care (HPC)
This category continued to benefit from significant cost rationalisation brought about by the integration of Libstar's HPC divisions into
a single market-facing business during H2 2019, as well as the launch of a number of innovative sanitation and environmentally friendly
household and personal care product ranges in the retail channel. Revenue grew by 22.7% in the third quarter following a 11.5%
increase in H1 2020, resulting in year-to-date revenue growth of 14.8%.
Outlook
The fourth quarter traditionally contributes significantly to Libstar's full-year profitability. In this regard, the Group remains cautious as
the full impact of Covid-19, particularly in relation to consumer spending trends, remains unquantifiable. However, Libstar continues to
execute its key strategic priorities listed above and remains well placed to meet customer needs in the rapidly changing consumer
environment.
The financial information in this announcement has not been reviewed or reported on by Libstar's external auditors.
21 October 2020
Sponsor
The Standard Bank of South Africa Limited
Forward-looking statements
This announcement contains certain forward-looking statements. These include statements regarding our intentions, beliefs or current
expectations concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies
and the economic and business circumstances occurring from time to time in the markets in which Libstar operates, including the
projected future financial and operating impacts of the Covid-19 pandemic.
All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that
could cause actual future financial condition, performance and results to differ materially from the plans, goals, expectations and results
expressed in the forward-looking statements and other financial and/or statistical data within this announcement.
It is believed that the expectations reflected in this announcement are reasonable, but they may be affected by a wide range of variables
that could cause actual results to differ materially from those currently anticipated. Past performance is no guide to future performance
and persons needing advice should consult an independent financial adviser. The forward-looking statements reflect knowledge and
information available at the date of preparation of this announcement and the Group undertakes no obligation to update or revise these
forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place
undue reliance on such forward-looking statements. No statement in this communication is intended to be a profit forecast.
Date: 21-10-2020 11:00:00
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