Investment holding company Libstar Holdings expects its interim earnings to decline by up to 34percent hit by new accounting standards adopted during the financial period.
The group said that it had adopted the IFRS 9 (hedge accounting) and IFRS 16 (leases) accounting standards for the first time during the period under review. As a result, basic and diluted earnings per share (Eps) would decline by at least 33.7 percent for the six months to end June and basic and diluted Eps would decline by between 23.7 and 33.7 percent, to be between 8.1 cents a share and 9.3c, down from last year’s 12.2c.
The impact of adoption of IFRS 16 will result in the reduction in rental expense of R58 million and would lead to an increase in depreciation expense of R46m.
The group, which owns brands such as Denny Mushrooms and Lancewood, would also see an increase in interest expense of R25m and a reduction in profit before taxation of R13m.
However, despite a weak retail and consumer environment, the group expects to report organic revenue growth of 4.5 percent compared to last year of 3.7 percent.
It also expects normalised earnings before interest, taxation, depreciation and amortisation for the six-months to the end of June to rise between 17.8 to 22.8 percent when the impact of IFRS 9 and 16 is included. “Core categories, which represent 88 percent 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 group said.
It said trading conditions in the non-core categories, which represent 12 percent of group revenue, remained subject to significant competitive pressures. “These product categories are expected to deliver a 1.5 percent decline in revenue and a 19.1 percent decline in volume,” the group said.
In March, the group delivered a maiden cash dividend.
Libstar was involved in a restructuring exercise in the second half of 2018, which resulted in the relocation of the production, marketing and sales functions of non-beverage products into certain of the group’s wet condiments facilities.
The group said the relocation would yield future cost rationalisation benefits for the group in the long run, but it would report an impairment loss in the amount of R42m before tax or R30m after tax.
In the first half of 2019, Libstar entered into a binding agreement to exit the non-core dairy-blend and fruit concentrate beverage operations.
“This agreement is subject to customary conditions including approval by the Competition Commission. The transaction is not categorised in terms of the JSE listings requirements. As a consequence of the transaction, a further impairment loss of R72m pre-tax or R59m post-tax has been recognised during the first half of 2019 to align the carrying value of the assets being sold to the estimated net realisable value in terms of the transaction,” the group said.
Libstar last year increased capacity and entered high-growth categories after buying Sonnendal Dairies, ready-to-eat food manufacturer Millennium Foods and Khoisan Tea.
Libstar is due to release first half results on September 4.