AVI delivers steady H1 performance, trading challenges remain

Declares interim dividend of 170 cents per share.
The group expects challenging operating conditions to continue as consumers deal with the fallout of the pandemic and rising inflation. Image: Supplied

South African food producer and fashion retailer AVI reported a 6.9% climb in half-year profit for the six months ended December 31, 2021 on Monday, with headline earnings per share (Heps) at 316.9 cents, up 6.6% from the previous period.

The group saw a 2.3% increase in revenue to R7.3 billion (2020: R7.1 billion) and declared an interim dividend of 170 cents per share, a 6.3% surge compared with the previous year.

AVI earned R1.5 billion in operating profit, a 6.7% increase compared with 2020 figures.

Despite delivering a good performance, the group suffered from tight trading conditions across its divisions on the back of pandemic-related market disruptions, the July unrest, and rising inflationary pressure that impacts consumer spending.

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AVI suffered direct costs of R36.9 million in its snacks and biscuit division Snackworks and its fashion division Spitz due to lower consumer footfalls, compromised supply networks, and the severe levels of damage to looted malls.

Supply chain disruptions led to an overall spike in the group’s selling prices to balance out expensive supply chain and raw material costs.

Despite the challenges, the group’s overall segmental performance improved.

Recovery

It also benefitted from the recovery of its key retail brands throughout the festive season, with malls trading longer and shopping trends returning to some form of normality.

The group posted 3.8% growth to R5.8 billion in revenue and a 4.8% rise to R1.6 billion in operating profit in its Food and Beverages division, which includes tea and coffee producer Entyce beverages, biscuit and snack maker Snackworks and wholefish provider I&J.

“Revenue growth in Entyce and Snackworks was underpinned by selling price increases taken in response to pressure from rising commodity input costs. Volumes grew marginally compared to the prior year, which had benefitted from lockdown-related demand in the first quarter,” AVI said in a statement.

‘Robust’ biscuit demand

“Encouragingly, Snackworks’ biscuit demand was robust through the second quarter. I&J’s revenue grew marginally with difficulties in the fishing business offset by a sustained recovery in the abalone business following a myriad of Covid-related market disruptions during the last 24 months.”

The group also earned R20 million in interest from the proposed but unsuccessful disposal of its Snackworks division to Mondelēz International. This follows the announcement in November that it was in talks with the Oreo cookie maker to sell the business unit.

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AVI’s Snackworks division houses biscuit maker Bakers and chip brands Willards and Baker Street Snacks, which make Cheese Curls chips, Jumpin Jack flavoured popcorn and Tennis biscuits.

Revenue in its fashion division, entailing personal care and footwear and apparel brands, declined 2.9% to R1.5 billion (2020: R1.6 billion). However it recorded a 14.4% climb to R364 million in operating profit.

“Revenue [of R923.9 million] from the footwear and apparel business was 1.1% lower with the lost sales as a result of the July unrest, stock availability challenges and the effects of load-shedding, not fully recovered by pleasing growth in December sales over the same period last year,” the group said.

“Indigo’s beauty and personal care categories remain challenged by Covid-related demand shifts, particularly segments of the beauty portfolio where demand is well below pre-Covid levels.”

Biting down

Simon Brown of JustOneLap says AVI can however expect some gains in its beauty portfolio as more people return to offices.

He says the results aren’t bad, that there’s a lot beyond the group’s control-input cost increases and costs related to the Snackworks deal, and that the bigger issue is the year ahead, with consumers under increasing pressure and input costs rising further. It’s going to be “a very tough 2022 for them”, he says.

The group says it anticipates challenging operating conditions to continue as the “long-term damage wrought by the pandemic” has impacted consumers, in addition to rising inflation which will continue to place pressure on disposable incomes.

“Many of our categories face the prospect of low, or negative growth rates in the absence of improving macroeconomic circumstances,” it said.

AVI share price

Palesa Mofokeng is a Moneyweb intern.

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