Wrap Text
Further trading update and trading statement
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”)
Further trading update and trading statement
Introduction
Since the publication of the last market update on 9 June 2020, the Group has continued to work
in pursuit of the protection, safety, health and well-being of Libstar’s people, to preserve cash and
maintain the Group’s financial stability and to deliver superior service levels and product
availability to customers.
During the six-month reporting period ended 30 June 2020 (“reporting period”), Libstar incurred
extraordinary Covid-19 expenditure in the amount of R44 million to maintain a safe working
environment for its employees. These expenses included special transport benefits for
employees, incentives, food and sanitisation packs, donations and personal protective
equipment.
As an Essential Service provider, Libstar was able to operate for the entire duration of the national
lockdown. The Group implemented strict control procedures and worked closely with the
Departments of Labour and Health to respond swiftly to identified cases of Covid-19. These
procedures included on-site screening, employee track-and-trace protocols and rigorous
sanitisation programs designed to protect the Group’s people.
Despite the challenges faced and intermittent downtime caused by the adherence to best
practices, the Group managed to maintain high levels of staff attendance and production output.
Trading update
Performance by sales channel
While the Group continues to report its results by product category, the impact of Covid-19 is
more immediately apparent in the Group’s sales channels. This is particularly true of Q2 2020,
being the first full quarter in which the Group traded predominantly under levels 5 and 4 of
lockdown restrictions. The impact on the Group’s four sales channels is therefore reflected below
before providing the breakdown of revenue by category later in this announcement.
Group
As a result of an increased revenue weighting to retail customers and the resilient performance
within this channel, Libstar delivered revenue growth of 1.9% during the reporting period. The
Group’s gross profit margin improved by 0.2 percentage points, bolstered by increased service
revenue in relation to the outsourced manufacturing by Libstar of Pringles snacks and Kellogg’s
noodles.
Libstar’s gross revenue performance by Sales Channel (before allowances and rebates) and
Group Total Net Revenue (after allowances and rebates) for the reporting period can be
summarised as follows:
Contribution to Group
Group revenue growth / (decline)
revenue
Quarter Quarter Six months Six Six
ended ended 30 ended 30 June months months
Friday, 4 June 2020 2020 ended 30 ended 30
April 2020 June 2020 June 2019
vs Quarter
ended
Friday, 29
March 2019
GROSS REVENUE BY
CHANNEL
Retail and wholesale 7.3% 14.2% 10.7% 68% 61%
Food service -3.6% -63.2% -34.5% 12% 17%
Exports 12.3% -26.3% -8.0% 10% 11%
Industrial and contract
manufacturing 5.4% -10.4% -2.8% 10% 11%
TOTAL GROUP NET 9.7% -4.9% 1.9% 100% 100%
REVENUE
Retail and wholesale
The Group supplies products across its five product categories into the retail and wholesale
channel. Total revenue from this channel, the largest contributor to Group revenue, increased by
10.7% during the reporting period. The revenue growth was mainly attributable to robust retail
demand, which has continued since the publication of the Group’s previous market update.
Food service
The food service channel includes, amongst others, beef, chicken and related meat products, as
well as soft and hard cheeses and tortilla wraps to the quick-service restaurant sector. It also
includes food packaging, table sauces and other wet condiments.
The resumption of operations by the quick-service restaurant industry during lockdown level 3
since the last market update has resulted in an improved performance from the Group’s largest
food service channel-facing division, Finlar Fine Foods. The impact of reduced out-of-home dining
is still being experienced by the Group’s other food service-facing units, notably Lancewood,
Multi-Cup and Denny. Revenue from the food service channel decreased by 34.5% during the
reporting period.
Exports
The business unit responsible for the majority of the Group’s export revenue continues to be Cape
Herb & Spice. Demand for this division’s exported private label dry condiments remained strong
during the entire reporting period. However, operational delays at the Cape Town port adversely
impacted the Group’s ability to effect shipments during the month of June. These operational
delays erased the gains of Q1 2020 and resulted in a revenue decline of 8% in this channel during
the reporting period. Additional port crew resourcing has improved shipment completion rates
post the end of this reporting period.
Industrial and contract manufacturing
The Group manufactures wet condiments for various brand owners in the retail and food service
markets. During the lockdown period, orders for food service wet condiments reduced
significantly. Orders for these products improved somewhat since the commencement of level 3
lockdown restrictions and the revenue decline was limited to 2.8%.
Whilst demand for retail wet condiments remained subdued for most of H1 2020, orders increased
from the start of H2 2020. The H1 2020 underperformance of wet condiments manufactured for
this channel is expected to be ameliorated in H2 by cost-saving restructuring and the introduction
of new products as well as contract manufacturing for new customers.
The industrial and contract manufacturing channel benefited from the full period inclusion of
service revenue from the manufacturing of Pringles snacks.
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
Quarter Quarter Six months Six Six
ended ended 30 ended 30 June months months
Friday 4 June 2020 2020 ended 30 ended 30
April 2020 June 2020 June 2019
vs Quarter
ended
Friday 29
March 2019
NET REVENUE BY
CATEGORY
Perishables 14.0% -15.2% -1.7% 46% 48%
Groceries 3.9% -7.6% -2.1% 31% 32%
Snacks and Confectionery 27.3% 10.2% 18.1% 6% 5%
Baking and Baking Aids 17.7% 27.1% 22.9% 8% 7%
Household and Personal -8.6% 30.0% 11.5% 9% 8%
Care
TOTAL GROUP NET
REVENUE 9.7% -4.9% 1.9% 100% 100%
Perishables
Revenue from the sale of dairy products increased relative to the comparative period as a result
of strong retail channel demand growth. However, the closure of quick-service restaurants due to
lockdown restrictions weighed on the performance of meat products sold in the food service
channel, resulting in a category revenue decline of 1.7%.
Groceries
This category benefited from increased sales of pasta, meal ingredients, vinegar, honey, private
label and branded sauces and soups in the retail channel. As mentioned above, order completion
delays in the shipment of exported dry condiments erased strong Q1 2020 gains. However,
shipment fulfillment rates have improved post the end of this reporting period.
As mentioned above, the demand for wet condiments manufactured for brand owners remained
subdued.
As the Group’s specialised packaging products, supplied by the Multi-Cup division, are mainly
sold in the hospitality and restaurant industries, sales of these products were significantly lower
than the comparative 2019 period.
As a result of the above, revenue from Groceries declined by 2.1%.
Snacks and Confectionery
Category revenue increased by 18.1%, mainly as a result of the full period inclusion of revenue
from the contract manufacturing of Pringles snacks by Libstar. This plant commenced production
in June 2019.
Baking and Baking Aids
Category revenue increased 22.9%, mainly due to the strong retail and wholesale channel
demand for baked goods, rusks and baking aids.
Household and Personal Care (HPC)
This category benefited from significant cost rationalisation brought about by the integration of
Libstar’s HPC divisions into one market-facing business during H2 2019 as well as the launch of
a number of innovative sanitisation and environmentally-friendly household and personal care
product ranges within the retail channel.
Normalised EBITDA
The Group’s cost of operation has increased significantly as a result of direct extraordinary Covid-
19 related expenses in the amount of R44 million. This included donations in the amount of R3.5
million to needy communities, personnel-related benefits of R18.5 million and R22.0 million in
direct operating expenses. Personnel-related expenses mainly comprised staff transport benefits.
Direct operating expenses were attributed mainly to the cost of personal protective equipment.
Normalised Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) for the
six-month period ended 30 June 2020 has been affected by these extraordinary expenses and is
expected to be reported within the following ranges:
Expected for the six Reported for the
Percentage months ended 30 six months ended
change June 2020 30 June 2019
'000 '000
Normalised EBITDA* -3.9% to -6.9% R449,704 to R464,190 R482,857
* Normalised EBITDA shown after the effect of IFRS 16 (leases) in H1 2020 and H1 2019
If the extraordinary expenses of R44 million are excluded from the ranges above, Normalised
EBITDA would have increased by between 2.2% and 5.2%.
Balance sheet and cash flows
The Group’s investment in working capital increased to 14.8% of revenue (H1 2019: 13.8%). This
is mainly as a result of holding higher inventory of imported meal ingredients to ensure product
availability during Covid-19. A higher inventory holding of nuts used in the production of snacks
and confectionery also contributed to the increase in Group net working capital.
Despite the increased investment in net working capital, the Group has remained highly liquid,
improving its cash flow conversion ratio from 62% in the comparative period to 64% during the
reporting period, mainly as a result of reduced capital expenditure relative to the comparative
period. Libstar also remains fully compliant with lender financial covenants. The Group’s net
interest-bearing debt on term loans to EBITDA ratio improved from 1.4 times to 1.3 times due to
the improved cash flow conversion.
The Group’s interest charge on banking facilities reduced by 13.0% from R78.4 million to R68.2
million, mainly due to a reduction in the Johannesburg interbank average lending rate (JIBAR).
Trading statement
Shareholders are advised that the Group expects to report Earnings Per Share (EPS), Headline
Earnings Per Share (HEPS), Normalised EPS and Normalised HEPS, all after the effects of IFRS
16 (leases), within the ranges reflected in the table below:
Expected six Reported six
months ended 30 months ended 30
June 2020 June 2019
Percentage
(cents) (cents)
change
Diluted EPS (from all
+87.1% to +92.2% 16.3 to 16.7 8.7
operations)
Diluted HEPS (from
-6.7% to -11.8% 16.4 to 17.4 18.6
all operations)
Diluted EPS (from
continuing -13.8% to -18.7% 16.0 to 17.0 19.7
operations)
Diluted HEPS (from
continuing -11.7% to -16.7% 16.4 to 17.4 19.7
operations)
Normalised EPS
(from continuing -16.5% to -21.5% 23.1 to 24.5 29.4
operations)
Normalised HEPS
(from continuing -15.2% to -20.2% 23.5 to 24.9 29.4
operations)
The diluted weighted average number of shares in issue at the end of the reporting period was
599,538,009 (H1 2019: 599,254,689).
The following significant items (relative to the 2019 comparative period) were considered in
arriving at:
• Diluted EPS (from all operations)
o The comparative period EPS was reduced by:
- an after-taxation loss of R65.8 million in relation to the discontinued dairy and
fruit concentrate business that was subsequently disposed of during H2 2019.
The loss did not recur in 2020.
o The current reporting period EPS was decreased by:
- a pre-taxation increase in depreciation of property, plant and equipment and
amortisation of software relative to the comparative period in the amount of
R31.6 million (24% increase). The increased expense comprises a R14.1
million pre-taxation charge in relation to the application of IFRS 16 (leases)
and a R17.5 million charge mainly in relation to depreciation incurred as a
result of capital expenditure incurred in 2019;
- after-taxation extraordinary and direct Covid-19 related expenses in the
amount of R31.7 million; and
- a R6.6 million after-taxation provision for long-term incentives awarded during
the reporting period, (H1 2019: Rnil).
o The current reporting period EPS was increased by:
- a R22.1 million after-taxation unrealised foreign currency translation gain on
the revaluation of inventory, foreign currency denominated debtors, creditors
and cash balances at 30 June 2020 (H1 2019: R0.6 million loss); and
- a R19.7 million after-taxation gain on the write-back of a minority shareholder
loan.
• Diluted HEPS (from all operations), in addition to the aforementioned:
o The comparative period HEPS was increased by the add-back of an after-taxation
impairment loss of R59.4 million in relation to the discontinued dairy and fruit
concentrate business which was subsequently disposed of during H2 2019.
• Normalised EPS (from continuing operations), in addition to the aforementioned:
o Normalised for the unrealised foreign currency translation gain described above in
the after-taxation amount of R22.1 million; and
o Normalised for the after-taxation R6.6 million expense mentioned above in relation to
long-term incentives awarded during the reporting period.
• Normalised HEPS (from continuing operations), in addition to the aforementioned:
o Normalised for a R2.2 million loss on disposal of property, plant and equipment (H1
2019: R0.2 million gain).
Concluding remarks
During July 2020 trading (the first month of H2 2020), retail and export channel demand was
strong with a marked improvement in export shipment completion rates. The demand for food
service and industrial/contract manufacturing channel products strengthened relative to H1
2020, although the recovery to pre-Covid levels of performance is expected to materialise over
a longer period.
Next reporting
The Group expects to publish its detailed interim financial results on or around 2 September 2020.
The financial information in this announcement has not been reviewed or reported on by Libstar’s
external auditors.
17 August 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: 17-08-2020 08:00:00
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