Libstar to revamp divisions to improve returns, share

Food producer Libstar is simplifying its multiple business divisions, reducing seven structures to two units to improve returns and the share price.

The owner of the Montagu, Goldcrest, Lancewood and Cape Herb & Spice brands says in time the more focused business should improve returns on invested capital.

In 2023, the group — which produces baking aids, salad dressings, dairy, honey, vinegar, dried fruit, ready-made meals, children’s food and cleaning products — undertook a business review to reduce complexity in the business.

The simplification of the business is expected to drive an increase in gross profit margin, which was recorded as 20.8% for 2023. It should “unlock value for shareholders”, CEO Charl de Villiers said.

Libstar listed in 2018 with an opening share price of R12.50 but it has since consistently languished at R3-R4.

De Villiers said in an interview a share price reflected a firm’s output, and the team acknowledged the company’s output was not what it should be, but “the entire [food production] sector has underperformed for many years”.

The new structure had begun to produce results, he said. The second-half gross profit margin rose to 21.4%, compared with 20.0% in the first half and 19.6% in the comparable period.

“We are very encouraged by the improved result of the second half of last year,” he said.

Libstar reported volume declines in the year to end-December, but increased revenue as it lifted prices.

Most food producers and retailers such as Spar, Pick n Pay, Shoprite and Woolworths have reported lower volumes of food sold in 2023. Consumers cut back on spending as high interest rates and inflation ate into disposable income.

Libstar released its year-end results on Friday, noting that revenue rose 5.2% to R12.3bn and headline earnings per share (Heps) 6% to 47.7c.

Volumes dropped 4.8% on a decline in its retail, industrial and export divisions.

Libstar said it still wanted to sell its unprofitable household cleaning and soap business that makes products for Woolworths and Shoprite — it has been trying for at least two years.

After a sale fell through in 2022, it decided to improve the unit’s efficiency and it is ready to pursue a sale again. That a deal is expected to be concluded by September suggests there are interested parties.

In its year-end results release, Libstar included Denny mushrooms under the heading “divestments and closures”.

De Villiers said it would not be selling Denny in the next year but ultimately wanted to focus on value-added foods such as mushroom sauces or canned soup rather than mushroom farming. Denny’s contribution to earnings before interest, taxes, depreciation and amortisation (ebidta) decreased 10% compared with 2022.

Libstar only has two mushroom farms left after closing the Shongweni farm in KwaZulu-Natal, following a fire believed to have been arson in response to a 2022 workers’ strike. The group received insurance proceeds relating to the fire worth R120m, on top of the R37m it received in the prior year.

Its total profit for 2023 of R226.3m, up from a loss in 2022, includes the R120m insurance proceeds from the fire.

It also impaired its Denny mushroom business by R73m, less than the R98m impairment of that unit in the previous year.