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LIBSTAR HOLDINGS LIMITED - Trading statement and changes to the board of directors

Release Date: 12/08/2019 08:00
Code(s): LBR     PDF:  
 
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Trading statement and changes to the board of directors

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”)

ANNOUNCEMENT RELATING TO THE GROUP TRADING STATEMENT AND CHANGES TO THE BOARD

Shareholders are advised that Libstar expects to report the following results for the six months
ended 30 June 2019 (“period under review”) relative to the comparative period of the six months
ended 30 June 2018 (“comparative period”).

The group has adopted the IFRS 9 (hedge accounting) and IFRS 16 (leases) accounting
standards for the first time during the period under review (“new accounting standards”). The
financial impact of this is outlined below.

References in this announcement to “core categories” include the Perishables, Ambient Groceries
(inclusive of Khoisan Tea), Snacks and Confectionery and Baking and Baking Aids categories
(representing 88% of group revenue), whilst references to “non-core categories” include the Home
and Personal Care, Niche Beverages and Specialised Food Packaging categories (representing
12% of group revenue).


 Revenue (group)                                  +4.6%
 Organic revenue (group)                          +4.5%
 Organic revenue (core categories)                +5.3%
 Organic revenue (non-core categories)            -1.5%
 Volumes (group)                                  -1.0%
 Volumes (core categories)                        +5.4%
 Volumes (non-core categories)                    -19.1%
 Price/mix impact (group)                         +5.5%
 Gross profit margin (group)                      Improved from 20.9% to 23.2%
                                                   Anticipated results     Anticipated
                                                   before impact of        results after
                                                   new accounting          impact of new
                                                   standards               accounting
                                                                           standards
 Normalised EBITDA (group)                         +3.4% to +8.4%          +17.8% to +22.8%
 Normalised EBITDA (core categories^)              +6.0% to +11.0%         +16.5% to +21.5%
 Normalised EBITDA (non-core categories^)          -15.1% to -20.1%        +24.3% to +29.3%
 Total basic and diluted EPS                       -9.1% to +0.9%          -23.7% to -33.7%
 Total basic and diluted HEPS                      +68.4% to +78.4%        +45.0% to +55.0%
 Basic and diluted normalised EPS from
 continuing operations                             +10.7% to +15.7%        +5.2% to +10.2%
 Basic and diluted normalised HEPS from
 continuing operations                             +9.9% to +14.9%         +4.4% to +9.4%
^ before central office allocation

COMMENTARY

Against the backdrop of a weak retail and consumer environment, the group is reasonably
satisfied with its overall performance.

REVENUE

Group organic revenue growth is expected to be 4.5% higher than the comparative period (H1
2018: +3.7%).

Core categories, which represent 88% of group revenue, are expected to deliver mid to single-
digit revenue and volume growth. This was mainly due to strong performances in dry-condiments,
snacks and confectionery and baking and baking aids. The operations of Khoisan Tea are now
included in the Ambient Groceries category’s segmental disclosures for H1 2019 and the H1 2018
comparative disclosures have been amended accordingly.

Trading conditions in the non-core categories, which represent 12% of group revenue, remained
subject to significant competitive pressures. These product categories are expected to deliver a
1.5% decline in revenue and a 19.1% decline in volume.
GROSS PROFIT MARGINS

Gross profit margins are expected to show significant improvement on the comparative period,
mainly due to:

   •       Favourable changes in the sales mix of value-added dairy products following the
           launch of the taste-differentiated yoghurt products range during Q3 2018, and the full
           integration of the Sonnendal Dairies operations acquired in 2017;
   •       The group’s continued focus on procurement practices, production efficiencies and
           overall equipment effectiveness; and
   •       Lower dry condiment input costs.

NORMALISED EBITDA

Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) is adjusted for the
following items to calculate normalised EBITDA:

   •       the amortisation of customer relationships;
   •       unrealised foreign currency translation gains or losses;
   •       non-operating and non-recurring items; and
   •       the first-time adoption of IFRS 16 (leases).

Group normalised EBITDA is anticipated to show a like-for-like (before impact of new accounting
standards) 3.4% to 8.4% increase on the comparative period. The normalised EBITDA (before
central office allocation) of core categories is anticipated to show a like-for-like 6.0% to 11.0%
increase, whilst non-core categories are anticipated to show a 15.1% to 20.1% like-for-like decline
in normalised EBITDA (before central office allocation).

In line with the seasonality trends of the group during previous reporting periods, Libstar
anticipates an approximate 40:60 ratio between its first and second half normalised EBITDA
performance.


ADOPTION OF NEW ACCOUNTING STANDARDS

The likely impacts of the first-time adoption of IFRS 16 on the statement of comprehensive income
for the period under review are:

   •       reduction in rental expense of approximately R58 million and a similar increase to
           EBITDA (before normalisation adjustments);
   •       increase in depreciation expense of approximately R46 million;
   •       increase in interest expense of approximately R25 million; and
   •       reduction in profit before taxation of approximately R13 million.

The implementation of hedge accounting (IFRS 9) is expected to result in the recognition of a
hedge accounting reserve in the amount of R12 million (pre-tax) or R8.8 million (post-tax), and a
concomitant reduction in unrealised foreign currency translation gains recorded in the statement
of comprehensive income.

MATTERS AFFECTING EPS, HEPS AND TRADING STATEMENT

  •     Interest

        Investors are reminded that the group’s net interest expense excluding the impact of
        the first-time adoption of IFRS 16 has, as anticipated, declined considerably relative
        to the comparative period. This follows the reduction in net debt levels after Libstar’s
        JSE listing in May 2018 and the renegotiation of group debt facilities on more
        favourable terms.

  •     Hedge accounting

        As a result of the first-time adoption of hedge accounting (IFRS 9), unrealised foreign
        currency translation gains and losses arising from hedging contracts entered into, on
        or after 1 January 2019, have been recognised in other comprehensive income. The
        group is expected to record a small, unrealised foreign currency translation gain in
        relation to hedging contracts entered into before 1 January 2019, compared to a
        significant loss in the comparative period. This was due to lower exchange rate
        volatility (compared to the hedging contract rates) over the period under review.

  •     Exit and impairment of dairy-blend and fruit concentrate non-core operations

        Shareholders are reminded that a restructuring exercise was undertaken during H2
        2018, resulting in the decision to relocate the production, marketing and sales
        functions of non-beverage products into certain of the group’s wet condiments
        facilities. This will yield future cost rationalisation benefits for the group. An impairment
        loss in the amount of R42 million (pre-tax) or R30 million (post-tax) was recorded in
        respect of the residual dairy blend and fruit concentrate beverage operations during
        H2 2018. During H1 2019, the group entered into a binding agreement to exit the non-
        core dairy-blend and fruit concentrate beverage operations. This agreement is subject
        to customary conditions precedent, including approval by The Competition
        Commission of South Africa. The transaction is not categorised in terms of the JSE
        Listings Requirements. As a consequence of the transaction, a further impairment loss
        of R72 million (pre-tax) or R59 million (post-tax) has been recognised during H1 2019
        in respect of the dairy-blend and beverage operations of the group to align the carrying
        value of the assets being sold to the estimated net realisable value in terms of the
        transaction.

REPORTED EPS AND HEPS

Shareholders are therefore advised that a reasonable degree of certainty exists that Libstar’s
results for the six months ended 30 June 2019, including the impact of the implementation of the
new accounting standards, will be within the following ranges:




                                                                 Expected 6           Reported 6
                                                              months ended         months ended
                                               Percentage      30 June 2019         30 June 2018
                                                   change            (cents)              (cents)


  Total basic and diluted EPS             -23.7% to -33.7%           8.1 to 9.3               12.2


  Total basic and diluted HEPS           +45.0% to +55.0%         18.0 to 19.2                12.4




The weighted average number of shares in issue (“WANOS”), for the purposes of calculating
basic and diluted EPS and HEPS for the six months ended 30 June 2019, will be 599,254,689,
which represents an increase of 75,907,933 shares or 14.5% on the comparative period.

The impairment of the dairy-blend and fruit concentrate non-core operations, as well as the
increase in WANOS, were the main contributors to the reduction in total basic and diluted EPS.


REPORTED NORMALISED EPS AND HEPS FROM CONTINUING OPERATIONS

The group adopted an accounting policy pertaining to the disclosure of normalised EPS and
normalised HEPS from continuing operations during the year ended 31 December 2018 and
reported these measures for the first time in relation to the 2018 full-year results.

To arrive at normalised EPS, the after-tax earnings from continuing operations (as disclosed in
the financial statements), is adjusted for the after-tax impact of the group’s normalised EBIT
adjustments, excluding the after-tax impact of separately identifiable re-measurements as defined
in accordance with IAS 33 Earnings Per Share read with circular 4 of 2018 Headline Earnings
("Headline Earnings Re-measurements").

To arrive at normalised HEPS, the normalised EPS is adjusted for the after-tax impact of the
Headline Earnings Re-measurements, the most common examples of which are (i) impairment
losses on property, plant and equipment, goodwill and intangible assets and (ii) gains and losses
on disposal of property, plant and equipment.

Shareholders are advised that a reasonable degree of certainty exists that Libstar’s normalised
EPS and normalised HEPS for the six months ended 30 June 2019, including the impact of the
implementation of the new accounting standards, will be within the following ranges:
                                                                  Expected 6
                                                               months ended       6 months ended
                                                Percentage      30 June 2019         30 June 2018
                                                    change            (cents)              (cents)

  Basic and diluted normalised EPS
  from continuing operations               +5.2% to +10.2%         28.7 to 30.1                27.3

  Basic and diluted normalised HEPS
  from continuing operations                +4.4% to +9.4%         28.7 to 30.1                27.5


As the half-year comparative period normalised EPS and normalised HEPS has not been
previously reported, this information constitutes pro-forma financial information in terms of the
JSE Listings Requirements.


EPS, HEPS, NORMALISED EPS AND NORMALISED HEPS ON A LIKE-FOR-LIKE BASIS

On a like-for-like basis, excluding the implementation of the new accounting standards, there is a
reasonable degree of certainty that Libstar’s results for the six months ended 30 June 2019 will
be within the following ranges:

                                                                  Expected 6           Reported 6
                                                               months ended         months ended
                                                                30 June 2019         30 June 2018
                                       Percentage change              (cents)              (cents)


  Total basic and diluted EPS                -9.1% to +0.9%        11.1 to 12.3                12.2


  Total basic and diluted HEPS          +68.4.0% to +78.4%         20.9 to 22.1                12.4

  Basic and diluted normalised
  EPS from continuing operations         +10.7% to +15.7%          30.2 to 31.6                27.3

  Basic and diluted normalised
  from continuing operations HEPS          +9.9% to +14.9%         30.2 to 31.6                27.5


The like-for-like financial performance shown above constitutes pro forma financial information in
terms of the JSE Listings Requirements.
PRO FORMA FINANCIAL INFORMATION

The pro forma financial information presented in this announcement, which is the responsibility of
the group's directors, has been prepared for illustrative purposes only, and may not fairly present
the group's financial position, changes in equity, cash flows or results of operations.

SHAREHOLDER UPDATE

Shareholders are referred to an Actis media release dated 15 July 2019 wherein Actis advised
that it has assumed management rights on Abraaj Private Equity Fund IV (APEF IV), a global
buyout fund, and Abraaj Africa Fund III (AAF III), a fund for investment in sub-Saharan Africa.

Libstar is a portfolio investment of APEF Pacific Mauritius Ltd (APEF Mauritius) which in turn is a
portfolio investment of, inter alia, APEF IV and AAF III. APEF Mauritius holds 252,463,077 Libstar
shares or 37.02% of the total voting rights of the company.


Actis is a leading investor in growth markets across Africa, Asia and Latin America. Founded in
2004, Actis has raised US$15bn since inception and employs over 200 people, including a team
of c.120 investment professionals, working across 16 offices globally.

CHANGES TO THE BOARD

In the context of the change of management rights on APEF IV and AAF III, shareholders are
advised that Mr Wahid Hamid has resigned as a non-executive director of Libstar, chairman of
the Remuneration Committee and member of the Investment Committee with effect from 12
August 2019.

The Board wishes to thank Mr Hamid for his contributions to Libstar and wishes him well in his
future endeavours.

In accordance with its mandate, the Nomination Committee will commence an assessment of the
structure and composition of the Board and its committees and advise shareholders of the
outcome of this assessment in due course.

QUERIES

Investor queries should be directed to Heidi Rolfe Poole at heidi@hrstrategies.co.za.

The information included in this announcement has not been reviewed or reported on by the
group's auditors.

The results for the period under review are anticipated to be published on or about Wednesday,
4 September 2019.


Johannesburg
12 August 2019

Sponsor
The Standard Bank of South Africa Limited

Date: 12/08/2019 08:00:00
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