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LIBSTAR HOLDINGS LIMITED - Business update on the impact of COVID-19

Release Date: 09/06/2020 14:00
Code(s): LBR     PDF:  
Wrap Text
Business update on the impact of COVID-19

Libstar Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2014/032444/06)
(JSE share code: LBR)
(ISIN: ZAE000250239)
("Libstar" or the “Group”)

Business update on the impact of COVID-19


As the Group enters the eleventh week of operation since the institution of a state of disaster to
curb the spread of COVID-19, the safety, health and wellbeing of all people within the Libstar
Group remains our single most important priority.

In accordance with the measures announced by the President, all divisions within Libstar were
designated as Essential Service providers in their capacity as producers of food and household
and personal care products. As such, most of Libstar’s facilities have remained operational during
the lockdown period.

Further to the Group’s existing stringent food safety and hygiene practices, additional rigorous
safety measures have been implemented in all areas of the business, taking guidance from the
World Health Organisation (WHO), the National Institute for Communicable Diseases (NICD), the
Department of Health (DOH) and the Department of Labour (DOL).

Since the outbreak of COVID-19, the cost of doing business has increased dramatically, with the
Group incurring extraordinary expenditure of nearly R35 million to date.

This has enabled Libstar to not simply comply with regulations during this pandemic, but to do all
it can to continue to keep its people safe and operations viable, including the provision of special
transport benefits, incentives, food and sanitisation packs, donations and personal protective

The protection of Libstar’s people will remain a priority focus area in the coming months as the
Group navigates challenging and uncertain operational circumstances.

Voluntary trading update

It is not yet possible to fully quantify or predict the business impact of COVID-19, nor can we
determine the exact impact of the government and societal responses to it. Given the rapidly
evolving situation and volatile market conditions, Libstar continues to assess the impact, respond
to the latest guidelines issued by relevant authorities and adapt its activities accordingly.

Retail sales demand has been stronger since the Group’s market update of 2 April 2020, driven
by pre-lockdown grocery stockpiling and increased in-home dining. As such, retail sales channel
revenue growth of 24.3% was recorded during the two-month period ended 31 May 2020. The
Group remains well placed to capitalise on changing consumer behaviour by offering a range of
branded, dealer-own brand and private label products within the retail and other sales channels.
The significant operational restrictions placed on out-of-home dining, particularly quick-service
restaurants (QSRs), has however weighed on the Group’s performance as revenue within the
food service channel declined 80.1% during the two-month period ended 31 May 2020. Whilst
many Libstar divisions supply the restaurant and QSR industries, the Finlar Fine Foods,
Lancewood and Multicup divisions were impacted most during the level 5 and level 4 lockdown

The broader impact of COVID-19 on the North American and European continents, as well as
shipment timing and logistical challenges associated therewith, adversely impacted the export
channel during the months of April and May.

In the context of these challenges and opportunities, Group revenue for the two-month period
ended 31 May 2020 was 9.8% lower than the comparative period, resulting in Group revenue for
the five-month year-to-date period ended 31 May closing 2.1% higher than the comparative

The table below summarises the gross revenue trends, before allowances and rebates, by
channel for the two-month and five-month periods ended 31 May 2020 relative to the equivalent
comparative periods respectively:

                                          Contribution to       Revenue for      Revenue for the
                                       Group revenue for       the 2 months            5 months
                                          the year ended              ended               ended
                                       31 December 2019         31 May 2020         31 May 2020
 Gross revenue by sales channel
  - Retail and wholesale                               60%            +24.3%              +13.4%
  - Food service                                       18%            -80.1%              -33.6%
  - Industrial                                         10%            -19.7%              -11.7%
  - Exports                                            12%            -31.8%               -6.1%
 Total Group revenue                                                   -9.8%               +2.1%

Normalised Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) has
been positively impacted by a stable margin performance across the Group’s major categories.
However, extraordinary COVID-19 related operating costs, the likes of which are mentioned in
the introduction section of this announcement, have detracted therefrom. The Group’s net interest
charge has been in line with the comparative year.

Liquidity and Balance Sheet

Libstar has continued to protect its cash position through working capital planning, collaboration
with its trading partners and the deferment of non-critical capital and other expenditure. Through
implementation of the above initiatives, the Group has remained highly solvent and liquid,
operating well within the facility covenants established by its lenders.

Maintaining a cautious approach, the Board previously resolved to postpone the payment of the
dividend declared in relation to the year ended 31 December 2019. This will be subject to further
review at the time of the release of Libstar’s interim financial results on or around 2 September

The longer-term impact of COVID-19 on Libstar and the markets within which it operates, remains

As government restrictions continue to be eased under lockdown level 3, most notably within the
quick-service restaurant industry, so too the Group expects an improvement in the performance
of its non-retail sales channels. However, the improvement is expected to be gradual and

Despite continuing logistical challenges, export channel revenue is expected to firm as shipment
timing normalises over the coming months.

Responding to constantly changing circumstances, operating costs are being managed through
human capital planning, negotiations with trading partners and careful monitoring of production

Libstar’s branded, dealer-own brand and private label product and sales channel diversity,
underpinned by a culture of innovation and agility, will continue to serve as a strong base from
which to weather the storm.

Next reporting

Much has changed since the Group reported its year-end results in March 2020 and the current
environment remains volatile. The Group expects to provide another, more detailed trading
update during the course of August 2020 ahead of the publication of the Group’s interim financial
results on or around 2 September 2020.


Management’s focus will remain on:

   •   Protecting the safety, health and wellbeing of Libstar’s people as its single most important
   •   Preserving the financial stability of the Group through working capital management and
       cost-saving plans; and
   •   Maintaining high service levels and product availability to our customers.

We are ensuring that the Group remains operationally sound by maintaining stringent health and
food safety standards in partnership with our stakeholders.

In closing, we extend our sincere gratitude to our people and trading partners who have continued
to work tirelessly in trying conditions.

The financial information in this announcement has not been reviewed or reported on by Libstar’s
external auditors.

9 June 2020
The Standard Bank of South Africa Limited

Forward-looking statements

This announcement contains certain forward-looking statements. These include statements
regarding our intentions, beliefs or current expectations concerning, amongst other things, our
results of operations, financial condition, liquidity, prospects, growth, strategies and the economic
and business circumstances occurring from time to time in the markets in which Libstar operates,
including the projected future financial and operating impacts of the COVID-19 pandemic.

All such forward-looking statements involve estimates and assumptions that are subject to risks,
uncertainties and other factors that could cause actual future financial condition, performance and
results to differ materially from the plans, goals, expectations and results expressed in the
forward-looking statements and other financial and/or statistical data within this announcement.

It is believed that the expectations reflected in this announcement are reasonable but they may
be affected by a wide range of variables that could cause actual results to differ materially from
those currently anticipated. Past performance is no guide to future performance and persons
needing advice should consult an independent financial adviser. The forward-looking statements
reflect knowledge and information available at the date of preparation of this announcement and
the Group undertakes no obligation to update or revise these forward-looking statements, whether
as a result of new information, future events or otherwise. Readers are cautioned not to place
undue reliance on such forward-looking statements. No statement in this communication is
intended to be a profit forecast.

Date: 09-06-2020 02:00:00
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