Consumer packaged goods group Libstar has reported year-on-year declines in its normalised earnings, headline earnings and operating profit for the year ended December 31.

Normalised headline earnings per share (HEPS) decreased by 11.2% to 58c, owing to an increase in net borrowing costs of R58-million, compared with normalised HEPS of 65.3c in the prior year.

Normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) declined by 3.3% year-on-year to R998-million, while normalised operating profit decreased by 1.7% year-on-year to R678-million.

Libstar nonetheless declared a cash dividend of 15c apiece for the reporting period, despite impairment charges of R116-million and a direct operating cost of R77-million owing to loadshedding and having to operate generators.

The group generated cash from operating activities of R754-million, which marked a R23-million increase on the prior year, while it also recorded revenue growth of 5.2% year-on-year to R12.3-billion.

In the year under review, Libstar spent R85-million on capacity-enhancing projects, including R16-million to finalise a flatbread line at Amaro Foods, R23-million on yoghurt plant capacities at Lancewood, R17-million on hard cheese packing facility upgrades at Lancewood, and R17-million in machinery and line upgrades at Finlar Fine Foods’ value-added chicken facilities.

Seven of the group’s operating facilities have been earmarked for solar energy generation installations, which should save the group R40-million in electricity costs over the next ten years.

Libstar reports that its revenue benefitted from strong retail channel sales and double-digit growth in the Baking and Baking Aids category in the second half of the year.

The group also managed to recover its margin to 21.4% in the second half of the year, compared with a margin of 20% in the first half of the year and 19.6% in the second half of the prior year, which is owing to improved capacity utilisation, production efficiencies, pricing and cost management.

Libstar received insurance proceeds of R120-million in the year relating to a fire at the Denny Mushrooms Shongweni plant, which, after considering the reduced total mushroom production from its two remaining mushroom farms, the group recognised an impairment charge of R73-million net of tax in the 2023 financial year.

Additionally, an impairment charge of R43-million was recognised in the Khoisan Gourmet business unit owing to prolonged weak international demand for bulk tea.

Libstar says its trading performance and cash generation improved during the second half of the year in particular, owing to implementation of a comprehensive new strategic direction.

The group has been focused on simplifying its categories and improving its cost competitiveness, earnings quality and return on invested capital.

Libstar targets a return on invested capital of 15.5% by 2027. In the year under review, return on invested capital amounted to 9.8%.

The category simplification exercise involved organising Libstar’s food brands into two super categories – Perishable products and Ambient products. Under Perishable products are the Lancewood and Finlar divisions, while the Cape Herb & Spice, Koisan Gourmet and other private label dry condiment production lines (now under Cape Foods) comprise the Ambient category.

The Ambient category will also soon comprise the consolidation of wet condiment businesses Montagu Foods, Dickon Hall Foods and Cecil Vinegar.

These changes will take effect this year, with the 2023 financial year’s reporting still comprising the historic five product categories – Perishables, Groceries, Snacks and Confectionary, Baking and Baking Aids and Household and Personal Care (HPC).

In the year under review, the Perishables category recorded a 9.2% year-on-year decrease in normalised Ebitda to R452-million, while the Groceries category recorded a 4.2% decrease in normalised Ebitda to R423-million.

The Snacks and Confectionary category’s normalised Ebitda declined by 31% year-on-year to R72-million. Positively, the HPC and Baking categories recorded normalised Ebitda increases of 284% and 13.9%, respectively, to R47-million and R94-million, respectively.

The company comments that market conditions were challenging in the reporting year, with muted customer demand, elevated manufacturing input cost inflation and indirect impacts of loadshedding and port congestion.

However, there is a clear action plan in place to improve capacity utilisation, production efficiencies, pricing and cost management, says Libstar CEO Charl de Villiers.

He adds that dedicated projects are being implemented this year to expand the group’s food service channel offering beyond the current Rialto food service and packaging offering.

The group will also pursue more export opportunities for dry and wet condiment products this year, as well as expand market penetration of its own-branded offerings.

Market conditions are expected to remain challenging this year as the weak macroeconomic climate continues to adversely impact on consumer demand.

Libstar aims to deliver a sustained improvement in margins through the execution of strategic interventions and focused capital allocation. It is confident that the simplified portfolio composition this year will drive an improvement in cost competitiveness and earnings quality.