Consumer goods group Libstar will dispose of a 70% equity interest in its household and personal care (HPC) business unit for a price of R174.6 million, the company said in a trading statement on Monday.
According to the group the disposal involves its Contactim and Chet Chemicals division – the household and personal hygiene arms of Libstar operations that manufacture household cleaning and detergent products and personal care products such as toiletries.
The business divisions will be purchased by PAPE Fund Managers, “a boutique private equity fund manager with a 13-year track record across multiple fund mandates investing in sub-Saharan Africa”, and Kanaka Chemicals, a manufacturer of cleaning products.
“The transaction serves to amplify Libstar’s strategic intent to focus and grow its existing food categories whilst transitioning its non-food division to a sustainable, transformed standalone business in partnership with the purchasers,” the group said in a statement.
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The group reported that it tackled a challenging operating environment with constrained consumer spending and rising input costs in the six months to June 2021 results, which resulted in a worse than expected performance at the profit level.
The group’s high exposure to high-income consumers gave the group support, however its HPC unit still underperformed. This led to Libstar looking at rationalising the unit as well as reducing the facilities its HPC operates in.
Small Talk Daily analyst Anthony Clark tells Moneyweb he has been anticipating the disposal since December, as he believes the company wanted to rid itself of the loss-making HPC division which was consuming a lot of management’s time.
Clark says the market was always commenting on HPC’s loss-making, its declining revenues, loss of market share and high input costs.
“By selling the division… I think it’s a commendable thing. Libstar had given the market communication that at some point this year the company would be disposed of. [They] sold the business [at] 70% with the option of a balance to be purchased [and] I think it is a good move,” h adds.
“It removes the destruction of that company. It allows the market to fully focus on the food service business that is within Libstar which is performing fairly well in constrained consumer environments. We got results coming out in the middle of March, so at least there’ll be positive news to discuss at the year-end results.”
Clark says that if HPC is stripped out from Libsar’s upcoming results, the market should be fairly pleased with the underlying performance.
“Libstar has major contracts into Woolworths and a very large growing business in Checkers. I would not be surprised if the company and the management would now have to direct its energies not to fixing up HPC… but towards new [and] specific incubatory projects and companies inside Libstar,” he notes.
“It is my belief that going forward, there will be far more innovation and new premium growth categories coming out of Libstar. It would not surprise me if they were to move into growth areas such as baby food market, the pet food market and more value-added ready meals, and of course plant-based alternatives which seem to be getting traction among certain segments of consumers in this country.”
Libstar’s product portfolio consists of more than 9 000 products and features many household essentials.
“Over 90% of group revenue is generated from food, which includes dairy and value-added meat products, fresh produce, convenience food, groceries, baking and baking aids, snacks and confectionery,” the group added.
Palesa Mofokeng is a Moneyweb intern.