Libstar Holdings (LBR) Trading update summary

Trading environment and performance

• Consumer environment remained constrained, with retail basket value growth between 1% and 1.3% and intensified inflationary pressures, especially in petroleum-linked costs affecting packaging and distribution.

• Group revenue increased by 0.9%, with volume growth of 0.3% and price/mix contribution of 0.6%; excluding Dickon Hall Foods (DHF), revenue rose 3.5%.

• Underperformance was concentrated in DHF and Dry Condiments exports due to production disruptions, shipment timing, currency strength, and weaker demand in Australia, the U.S., and Asia.

• Food Service channel was the strongest performer, while retail growth was muted and exports underperformed; Dairy, Value-added Meats, and core Wet Condiments delivered resilient performances.

• Perishable products revenue increased by 1.6%, driven by core dairy and value-added meats, while ambient products grew 0.2%; excluding DHF, ambient products revenue rose 5.6%.

Operational challenges and mitigating actions

• Production disruptions and labor inefficiencies at DHF during its closure led to significant under-recovery of manufacturing expenses.

• Water shortages at the Johannesburg facility required trucking in water, increasing costs and impacting production.

• Pricing adjustments of 3%-5% were implemented to offset inflationary pressures.

• Focus on labor efficiency, ongoing site consolidations, and operational remediation to enhance competitiveness.

• Management is accelerating mitigating actions, including targeted pricing and enhanced cost control.

Financial and margin overview

• Gross profit margins declined by 1-1.5 percentage points, mainly due to under-recovery of fixed overheads in DHF and dried condiments, and inflationary pressures.

• Perishable category margins improved due to favorable dairy mix and production efficiencies.

• Operating expenses increased by less than 4% and below inflation, reflecting disciplined cost management.

• Gearing ratio improved from 1.6 to 1.3, and interest cover ratio rose from 5.9x to 7.9x.

• Share repurchase program continued, with 9.4 million shares repurchased for ZAR 43.3 million at an average price of R4.59 per share.