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Libstar reports earnings loss owing to Covid-related costs

‘Our cash resources are firm, our balance sheet is strong.’ – CEO Andries van Rensburg.

NOMPU SIZIBA: Consumer goods holding company Libstar, which has the likes of Lancewood, Montagu Foods and Ambassador Foods under its umbrella, released its half-year results. For the six months ended June 2020, the company reported revenue coming in at R4.7 billion, up 1.9% on the year before. The gross profit margin edged up 0.2%, indicative that the company was able to keep a handle on costs while reporting diluted headline earnings per share at 16.90 cents, down 14.2% on the year prior. The board has declared a 25 cent dividend, which was held over from the six months ended December 2019.

To take us through the results I’m joined on the line by Andries van Rensburg, the CEO at Libstar. Thanks very much, Andries, for joining us. You indicate that revenue from your food categories, which account for the lion’s share of your business, rose only by at 1.1%, while in your household and personal-care cluster you were able to achieve a revenue increase of 11.5%. Just expand on those numbers for us.

ANDRIES VAN RENSBURG: We did nothing out of the ordinary, with ordinary price increases, with low inflation in the environment, as you know. It’s more that we’ve grown our household and personal-care business quite considerably in the period. As you will expect, hygiene is number one. We launched hand sanitisers. We launched a number of innovative cleaning products, and demand for those products has been firm and, I think, will remain firm for the foreseeable future. So we are encouraged.

We rationalised the business a little bit, put a few things together, and we are encouraged by the performance of the household and personal care categories.

NOMPU SIZIBA: There’s a note in your report where you say that the group managed to achieve other income of R80.9 million, which is not small change at all, as opposed to R14.3 million in the comparative period. What does that category actually speak to?

ANDRIES VAN RENSBURG: “Other income” relates to the new Pringles processing plant that we launched, and a few smaller other things that occurred.

NOMPU SIZIBA: So how would you describe the state of your balance sheet? I see that in the period under review you were able to bring down your debt by about 13%.

ANDRIES VAN RENSBURG: Yes. I think at the outset we said in this period, and with this uncertainty in the market, that we need to protect our people, we need to protect our cash, and we need to predict our consumer customer out there. We are managing our cash with a very, very tight hand and, as you correctly pointed out, our cash resources are firm, our balance sheet is strong. The interest repayments have also helped us a little bit, coming down. So yes, that will be the scene going forward.

NOMPU SIZIBA: So how long were your various food manufacturing operations disrupted by the national lockdown, and what about the import side? Have things seemingly normalised since?

ANDRIES VAN RENSBURG: The disruption that we’ve seen – we were rated and are rated as an essential industry – we were not really disrupted, other than with transport patient delays, the hygiene issues, cleaning, deep cleaning. So it’s more operational than anything else. As we pointed out, in the second quarter you will see a serious setback on our food-service business which in the first half came from a participation of around 17, 18% in our revenue down to 12%, with an uptick on the retail side, up from 61, 62 to 68% in the business. And that was the real effect that we felt on the business, the food-service business, and that we had to close down through the lockdown period.

The imports were affected by increased demand that we’ve seen. So timing had an effect, but not such a big effect as the Cape Town harbour situation, where we struggled in the months of May and specifically June, to both export and dock vessels, a situation you are aware of.

NOMPU SIZIBA: So while you’ve made it your discipline to really handle the cost side of things, just tell us about the costs that you had to incur as a result of all the health and safety protocols in the business.

ANDRIES VAN RENSBURG: In the period under review we saw around R45 million spent mainly on transportation benefits that we had to push through to the staff. That’s paid off well. We’ve had attendance rates up to 97, 98% in that period – actually better than we usually see. We do have any number of operating plants around the country, the better part of about 15 or 20 operating plants, where in this period that we provided, and in some cases we carry on providing, transportation for our workers on shift, to protect them, to bring them to work safely and to ensure that the business operates seamlessly. So that was the main cost of transportation and, of course, the PPE that we supplied to our staff and our staff members. We foresee R700, R800, R1000 a week for the foreseeable future, which will hopefully taper down as the pandemic hopefully fizzles out.

NOMPU SIZIBA: Andries, we’ve now gone to Stage 4 load shedding today, and it’s likely to be going on for quite some time. How does this affect your business?

ANDRIES VAN RENSBURG: Good question. I actually said today that I think we are well placed. We’ve spent considerable capital in upgrading our generating capacity. The business we upgraded recently, since our bakery ovens, as you would expect, are quite power-hungry, and that causes disruptions in the business area. Just a short while ago we still used generators, and we are well placed to continue operations with our own generation capacity. In one or two places we’ve gone with solar power. Those partnerships invested in solar power, which is paying off nicely, so we are we’ll placed, and we we’ve seen there is pressure on the system, and it’s like at home – if you’ve got a generator, you can’t run everything off that generator. It becomes a bit tough. So yes, we are coping, and yes, we considered our options in terms of this, it will be disrupting the business.

NOMPU SIZIBA: And then lastly, Andries, given the state of the economy and the consumer, what’s the outlook for the rest of the year?

ANDRIES VAN RENSBURG: You should ask a smarter person than me. I’m not qualified to answer that question. But, of course, we are still seeing firm consumer demand for our products in the market. How long it will last, I do not know. It remains, as we say, unquantifiable. But for now we are hanging in there. Food service is coming back nicely, and the activity on the wholesale and retail markets remains strong, and we’ve seen two fairly good months in July and August.

NOMPU SIZIBA: That was Andries van Rensburg, the CEO at Libstar.

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