Despite rising food inflation and changing consumer demands, Libstar has seen growth in its results.
Libstar has recorded 10.5 percent growth in its interim results for the six months ended 30 June. According to CFO Charl de Villiers, the consumer goods group’s good categories contributed 93 percent of group revenue, despite a six percent food inflation rate in South Africa during this time.
Charl summarised the period as “one of resilience”, as the group experienced various headwinds during this time.
“As a food manufacturer, we saw rising input costs on all fronts, including the costs of labour, packaging and in particular raw materials,” Charl told Moneyweb. “They have been rising at quite a steady pace, but we’ve tried to anticipate that by focusing on our production efficiencies to be able to respond and maintain price competitiveness of these products on the shelves.”
As a result of these increasing input costs, the group reported a decline in its gross profit margin from 23.4 percent to 22 percent.
“In our health and beauty care category, which makes up seven percent of the business, we struggled with service-level issues, as well as the impact of the high base of the prior year,” Charl said, adding that this had an impact on Libstar’s consumer demand for household and personal care products during the period.
Coupled with these challenges was the food inflation of the country, which averaged at six percent during the reporting period. “The consumer is definitely under pressure, both at the upper-income and middle- and lower-income brackets. So we are seeing subdued demand in certain categories, like snacking.”
However, Charl explained that there are other categories that are benefiting from changing consumer behaviour, such as groceries, which are used in home cooking. “So the fact of life at the moment is that inflation is part of the system, and we need to manage it in conjunction with our trading partners.”
Despite the challenges it has faced, the group reported a 47.6 percent increase in cash generated from operating activities. “At the start of Covid-19, one of our key priorities was to protect the financial stability and cash flows of the business. So this year we saw some reduction in networking capital investment, which then paid back in cash flows,” Charl concluded.
