Libstar feels the heat of Denny Mushrooms fire

Food maker Libstar expects a 106% decrease in total earnings per share (EPS), partly due to the fire that destroyed a Denny Mushrooms facility last year.

Denny Mushrooms is a subsidiary of Libstar, a food manufacturer with a market cap of R4.08 billion.

A fire ravaged buildings at a Denny Mushrooms farm in Shongweni in September 2022. The police suspect that arson was behind the fire.

Libstar recognised impairments of R277 million, net of tax, in the 2022 financial year.

The factors below were listed as causing the significant loss:

• The loss of production volume stemming from the fire that destroyed the Denny Mushrooms’ Shongweni facility on 9 September 2022;
• Current and future trading margin scenarios; and
• The impact of rising interest rates on segmental business plans and discount rates.

The Denny fresh mushroom unit was responsible for R98 million in impairments of intangible assets. 

The result of the significant loss is that Libstar expects its total EPS to be between -1.6 and -0.3 cents per share.

It represents a 101% to 106% decrease in the company’s EPS, and is “mainly attributable to the impairments discussed above”.

The company also had to contend with continued load-shedding, which impacted its operational costs.

“The Group continued to mitigate the effects of reduced electricity availability, investing a further R13.1 million in generator capacity during the year,” it said.

While this investment significantly increased Libstar’s generation capacity, the ongoing operation of generators added R39 million in direct operating costs. 

As a result, Libstar’s gross profit margin declined in the second half of 2022, which resulted in the company’s revenue growth of 10.7% translating to gross profit growth of only 3.9%.

Investors did not like the news, and Libstar’s share price took a beating following the SENS announcement.