In a letter to farmers dated 30 March 2020, Lancewood announced that, with effect from 1 April 2020, the price paid for milk would be reduced by 45 cents per litre in the form of a levy deduction. Farmers were also informed that in addition to the levy, Lancewood might need to temporarily adjust payment terms.

The Milk Producers’ Organisation (MPO) finds the announcement regrettable and frowns upon the process followed, in which no notice period was given regarding either the price change or the adjustment to payment terms.

Background on Lancewood as part of Libstar

Lancewood is a division of Libstar Holdings Proprietary Limited. Information is based on the group’s 2019 financial statements and an interview with Moneyweb on 18 March 2020 by Libstar CEO, Andries van Rensburg.

Each company that operates within the Libstar group has a unique set of products and world-class manufacturing capabilities, which makes for a diverse and robust portfolio of businesses. In light of this, Libstar should be able to absorb the demands of the current situation for at least some time.

The consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2019 indicates that Libstar’s turnover increased by 2,4% to R9,9 billion with a headline earnings growth of 14,1% in 2019. The audited 2019 statements show a gross profit of R2,4 billion and an operating profit of R700 million – up by 13%.

Information on reportable segments

Revenue from contracts with customers is as follows:

  • Perishables: R4,7 billion (47% of total turnover).
  • Groceries: R3,2 billion (32% of total turnover).
  • Snacks and confectionery: R538 million (5% of total turnover).
  • Baking and baking aids: R700 million (8% of total turnover).
  • Household and personal care: R789 million (8% of total turnover).

During the Moneyweb interview, Van Rensburg was asked what the effect of panic buying was on the group, to which he replied that they were out of stock. He went on to say that they have no problems regarding their supply or supply of products.

He was also asked about expectations for the year in financial terms. Van Rensburg responded that in the current situation they have no idea what the total effect will be.

In view of the above, the MPO urges Libstar Holdings and the Lancewood division to reconsider their announcement and instead communicate with the farmers who supply them, asking them to put the brakes on milk production, and parallel to that use the demand elasticity present in dairy products to increase sales at retail level.

This would empower consumers to bulk up on dairy to boost immunity and enhance the intake of essential nutrients, including vitamins and minerals. – Press release, MPO