Libstar expects drop in annual earnings amid impairment charges

Libstar Holdings, a South African consumer packaged goods firm known for brands like Lancewood, Denny, and Cape Herb & Spice, has forecast a drop in annual earnings largely tied to  R508.7m in impairment charges recorded in 2024.

The company said the annual results reflect both promising, sustainable successes achieved from the execution of the group’s simplification, growth and sustainability strategy, as well as the material impact of limited, yet notable, challenges.

It expects to post headline earnings per share of between 40.9 and 43.3 cents for the year ended December 31, 2024 - a decline of 9.2% to 14.3% from the 47.7c reported in 2023, according to the company’s trading statement released on Friday ahead of its full results on March 18.

Total earnings per share is projected to fall sharply to a loss of between -53.0 and -55.0c, compared to 38.0c in 2023, a decline exceeding 100%, driven by the impairment charges. Normalised Heps from continuing operations, excluding insurance proceeds, is forecast at 52.5 to 54.3c, a decrease of 4.9% to 8.1% from 57.1c in 2023. Normalised Earnings Before Interest, Taxation, Depreciation and Amortisation (Ebitda), stripping out non-recurring items like impairments and insurance proceeds, is expected to range between R964.4m and R983.9m, a change of -1.0% to +1.0% from R974.2 million in 2023. 

Operationally, Libstar reduced debt levels, hitting its 2024 leverage target. Cash conversion and interest cover ratios improved, aided by R53m raised from the disposal of its Chet Chemicals business to Mithratech SA, a subsidiary of the Morvest Group, on December 30, 2024.

"This exit raised proceeds of R53 million that were utilised to further strengthen the Group’s balance sheet," Libstar explained, adding that the Chet Chemicals business is disclosed as a Discontinued Operation in the results and the prior period’s statement of comprehensive income has been re-presented to provide a like-for-like comparison.

Looking at non-recurring items, during the prior year, Libstar said it had re-evaluated the estimated useful lives of assets with zero book value, resulting in a decline in prior year depreciation of plant and equipment of 6.3%, or R14m. As the re-evaluation only impacted the 2023 financial results, the 2024 year-to-date depreciation expense has increased by 22.9%, or R44m, relative to the prior corresponding period.

In addition, Libstar received insurance proceeds of R120m in the prior year relating to the Denny Mushrooms' Shongweni plant fire.

Impairments weighed heavily on the year. A R400 million (net of tax) charge was booked against the Finlar Fine Foods unit due to supplier diversification by a major customer, slashing beef volumes in the Food Service channel. The Denny Mushrooms division took a R98.2m (net of tax) hit to reflect its recoverable value, while a R10.5m (net of tax) impairment was recorded on customer relationships in the Ambient Products category. Depreciation costs also rose, with 2024 expenses up 22.9%, or R44m, compared to 2023, following a one-off R14m reduction in the prior year from re-evaluating asset lives.

"The group has made strong progress in executing in each of the three focus areas of its strategy, supported by a strong performance of the Ambient Products category. However, this positive trajectory has been tempered by the impact of the loss of significant production volumes related to a Food Service customer in its Perishable Products category. While material, this challenge does not detract from the overall strategic progress and resilience demonstrated by the group," Libstar said.

Analyts will be examining which Food Service customer triggered the volume loss in Libstar’s Perishable Products category and why Finlar Fine Foods’ beef supply faced a significant shake-up, leading to the R400 million impairment in the upcoming results.

BUSINESS REPORT