South Africa’s Libstar expects elevated cost of manufacturing after profit decline

JOHANNESBURG (Reuters) – South African food producer Libstar said on Tuesday while food selling price inflation continued to normalise from recent highs, the cost of manufacturing was expected to remain elevated relative to prior periods after its half-year earnings fell 44.9%.

Consumer goods companies globally have lifted prices in the past two years to cope with surging costs for almost all raw materials, energy and packaging after Russia’s invasion of Ukraine compounded COVID-19 pandemic-related supply chain logjams.

South African companies are also grappling with persistent power cuts as state power utility Eskom fails to keep the lights on. Libstar incurred 45 million rand ($2.38 million) in diesel costs to power generators in the first six months of 2023.

“Challenging market conditions are expected to continue to impact consumer behaviour in (the second half), placing strain on particularly retail channel volumes,” Libstar said.

This is despite July data released in August showing food inflation dropped to 9.9% year on year from 11%, continuing to ease from 14% in March, the largest annual increase in 14 years.

The Denny Mushrooms and Lancewood dairy products maker’s normalised headline earnings per share from continuing operations fell to 19.6 cents.

It recorded revenue growth of 4% at 5.7 billion rand ($301.17 million), with selling price inflation and product mix changes contributing 11% to sales growth.

Sales volume however declined by 7% due to weaker consumer and customer demand in the group’s retail, export and industrial channels, as well as the discontinuation of unprofitable lines in the household and personal care portfolio.

“Pricing and mix changes could only partly mitigate the impact of significant raw material, packaging material and production cost inflation”, Libstar said.

These inflationary pressures were exacerbated by lower volume production, resulting in weaker gross profit and operating margins, it added.

($1 = 18.9265 rand)

(Reporting by Nqobile Dludla; Editing by Christopher Cushing and David Evans)