Constrained consumer demand weighs on Libstar’s earnings

South African food group Libstar has reported a 44 per cent decline in headline earnings per share for the six-month period ended 30 June. The CEO, Charl de Villiers, attributes this performance to challenging market conditions such as rising inflation, interest rates, and the impact of load shedding on consumer demand. Despite delivering a four per cent revenue growth, the company faced significant margin pressure due to the under-recovery of manufacturing costs. The group's margin contracted by 2.1 percentage points to 20 per cent, leading the management team and the board to refocus on strategic initiatives to drive shareholder value going forward. One of the main strategies employed by Libstar to protect its margin has been to focus on producing efficiently while absorbing some inflationary pressures. The company aims to balance production volumes with pricing changes to mitigate the impact on consumer demand. Lower volumes and inflationary pressures have contributed to an 11% increase in pricing and mix changes, coupled with a 7% volume decline in the first few months. Libstar is also looking to grow its export basket, with the goal of doubling its export revenue in the next three to five years. Currently, exports account for around 10% of the group's total revenue, with a focus on expanding into markets like the UAE, the US, Canada, Europe, and Japan. The company sees potential in leveraging the weakening South African rand to increase hard currency revenue and compete internationally. In response to the challenging market conditions, Libstar is considering discontinuing unprofitable product lines to streamline its portfolio. Within the HBC segment, the company has already discontinued several unprofitable lines and plans to continue this process in the coming months. Looking ahead, Charl de Villiers emphasizes the importance of remaining agile in the face of ongoing market challenges. While the South African market continues to pose difficulties, the company sees opportunities in expanding its export market presence and diversifying its product offerings to capitalize on global demand.