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Libstar group revenue rises despite consumers feeling financially constrained

Food categories, representing 93% of revenues, showed resilience; but HBC, representing about 7%, did struggle: CFO Charl de Villiers.

DUDU RAMELA: Consumer goods group Libstar has announced interim results for the six months ended June 30. The group recorded 10.5% growth, with earnings before interest taxes, depreciation, and amortisation rising by 10.1%. Food categories, which contribute 93% of group revenue, delivered a strong performance, keeping in mind that the country’s food inflation averaged 6% during the period. Libstar is the owner of brands like Denny and Cartwrights.

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We speak now to Charl de Villiers, CFO of Libstar. Charl, thank you very much for your time this evening. How would you characterise your results?

CHARL DE VILLIERS: Thank you, Dudu, for your time and for that introduction. I think if one was to summarise the results for the six months, it would be one of resilience, particularly in the food categories which represent 93% of revenue, as you’ve mentioned. We’ve grown revenue and Ebitda by more than 10%.

In the HBC (health and beauty care) category, which is about 7% of the business, we did struggle with service-level issues and also the impact of the high base of the prior year, which impacted on consumer demand for household and personal care products during the period under review.

DUDU RAMELA: The gross profit margin declined from 23.4% to 22%. Are you worried?

CHARL DE VILLIERS: Dudu, I think we flagged the concern that we had at the start of this financial year that as a food manufacturer we saw rising input costs on all fronts – the costs of labour, packaging and in particular raw materials. They have been rising at quite a steady pace. What we’ve tried to do to anticipate that is to focus on our production efficiencies to be able to respond and maintain price competitiveness of these products on the shelves.

DUDU RAMELA: The food inflation of the country averaged 6% during your reporting period. What impact did that have?

CHARL DE VILLIERS: Dudu, I think the consumer is definitely under pressure, both at the upper-income and middle- and lower-income brackets. And so we are seeing subdued demand in certain categories.

We mentioned in our presentation today that the snacking category is particularly under pressure. But then there are other categories as well that are benefiting from changing consumer behaviour, such as groceries which are used in home cooking.

So the fact of life at the moment is that inflation is part of the system and we need to manage it in conjunction with our trading partners.

DUDU RAMELA: Cash generated from operating activities increased by 47.6%. Are you satisfied there?

CHARL DE VILLIERS: Dudu, yes, I would say we are. At the start of the pandemic we made this one of our key priorities. Beyond our first priority – which was to protect the well-being of our workforce – it was to protect the financial stability and the cash flows of the business. So this year we saw some reduction in networking capital investment, which then paid back in cash flows during the year.

DUDU RAMELA: I’m curious to find out what (impact the) foreign-exchange hedging policies the group applied have had … on your results.

CHARL DE VILLIERS: That’s quite topical, particularly in this set of results. We are an importer and exporter of various products and each one of our divisions has a particular hedging strategy, which is dedicated to those particular products that they may import or export. We saw the currency, particularly the rand, strengthen against the USD by just over 12% relative to the prior period. And that resulted in lower average selling prices in rand terms relative to the price yield, and that just impacts on the margin.

DUDU RAMELA: The outlook for the group? We are said to be heading for some reprieve in terms of Covid-19 only in 2022.

CHARL DE VILLIERS: Dudu, I think we are cautious about our statement on the outlook. There seems to be talk of a movement towards Level 2 lockdown restrictions, which bodes well for our food-service channel – our second-largest channel in the group. And we think that with the increased economic activity so too we should see a bit of a strengthened demand in some core categories.

DUDU RAMELA: Charl, thank you very much for your time this evening. Charl de Villiers is chief financial officer at Libstar Group.

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Part of the Libstar makeup are many Private Label brands. In times of economical hardship, consumers often lean towards Private Label brands as they often represent good value for money. Libstar may therefore be benefitting from consumer brand preferences and changes as well.

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