In continuing the simplification of its portfolio and positioning the group for the best growth opportunities, JSE-listed consumer packaged goods company Libstar Holdings has announced the disposal of its interest in Chet Chemicals.

The business, which forms part of the household and personal category, will be sold to investment holding company Morvest Group subsidiary Mithratech South Africa.

Libstar’s portfolio now predominantly comprises perishable products such as dairy, value-added meat and convenience meals, as well as ambient products that include dry and wet condiments, meal ingredients, baked goods, snacks and spreads.

The company expects the disposal of Chet Chemicals to close in mid-November, pending necessary approvals.

Libstar also resolved to exit its current beverage manufacturing operation by closing the Franschoek-based Chamonix Spring Water plant at the end of August. 

Meanwhile, Libstar’s results for the six months ended June 30 reflect a challenging market landscape that has been exacerbated by adverse economic conditions.

The group nonetheless increased normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) by 13.4% year-on-year to R448-million, with normalised headline earnings per share (HEPS) having increased by 11.4% year-on-year to 20.5c.

This compares with normalised Ebitda and normalised HEPS of R396-million and 18.4c, respectively, reported for the six months ended June 30, 2023.

Diluted earnings per share amounted to 14c apiece, marking a 30.8% year-on-year improvement from 10.7c in the prior comparable six months.

Libstar also reports an increase to 21.5% in its gross profit margin in the six months under review, compared with a gross profit margin of 21.2% in the prior comparable six months, as well as a 9.6% improvement in its adjusted return on invested capital.

The group managed to reduce its net interest-bearing debt to normalised Ebitda ratio from 2.1x in the prior comparable six months to 1.6x in the reporting period.

Libstar invested 35% less capital in plant and equipment at R80-million in the six months under review, compared with R125-million having been spent in the prior corresponding period.

Some of the company’s investments in the period include additional contract manufacturing volumes in the value-added meats subcategory and a new natural cheese slicing line to grow its Lancewood brand share in the dairy subcategory.

The Cape Foods business assumed production of dry condiment products that were previously produced by the Retailer Brands business unit, while the Cape Herb & Spice and Khoisan Gourmet divisions were integrated to yield rationalisation benefits.

The company also completed a solar installation at the Amaro Foods plant, in Cape Town.

The company notes an increase in its operating expenses of 8.2% year-on-year in the reporting period, driven by higher insurance costs as the group expanded its riot wrap cover and as industry risk rates increased.

Cash flow generated from operating businesses increased by R2.1-million from R279-million in the prior half-year to R281-million, while the group’s net working capital increased to 17.6% of group revenue following an investment of R114-million in inventory and lower creditor days.

Some of the group’s main challenges include persistent retail channel volume pressure and food service channel volumes being impacted by weak consumer demand.

CEO Charl de Villiers confirms that while there has been an improved performance of fresh mushroom production, it is still detracting from the group’s performance, while operational challenges remain for snacks, which caused production inefficiencies and product launch delays.

There has already been an improvement in this regard, De Villiers adds.

Libstar remains on track to finalise the simplification of its operating structures within the perishables and ambient product categories by the end of the year.

“Notwithstanding the recent moderation in food inflation, consumers remain financially constrained, evidenced by a moderation in retail and food service channel group sales growth in the eight-week period after the reporting date,” De Villiers comments.   

In the ambient products category, the group will remain focused on executing on its strong pipeline of export orders and growing its food service product range both locally and internationally.

“Enhancing customer service and achieving cost efficiencies through targeted initiatives will continue to be a key priority for driving sustainable improvements in operational performance and margins,” De Villiers adds.

In line with its policy, Libstar will declare a yearly dividend at the end of the year, with no interim dividend having been declared.