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AVI posts rise in full-year profit but warns of possible price increases

Declares dividend despite underwhelming overall performance.
The group's footwear and apparel segment is still recovering from the harsh pandemic-induced trading conditions seen at the beginning of 2020. Image: Moneyweb

Food and beverage producer and fashion retailer AVI posted a 6.2% rise in full-year profit for the year to end-June 2021 on Monday, with headline earnings per share (Heps) at 499.9 cents, up from 470.8 cents in its previous financial year.

It saw a slight increase in group revenue of 0.5% to R13.3 billion and declared a final dividend of 275 cents per share.

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Group operating profit came in at R2.4 billion, 3.2% higher than 2020 but lower than the 2019 figure of R2.5 billion.

Although the group recorded an overall rise in profits, its segmental performance remains poorer than that seen pre-Covid-19.

Its food producer segment, which sells well-known snack, hot beverages and fresh foods brands like Bakers, Freshpak and I&J, saw a rise in sales in 2020 due to an increase in consumer stockpiling patterns at the onset of Covid-19. This trend however fizzled out in the 2021 reporting period as consumer buying habits normalised to pre-pandemic trends.

“Demand in Entyce and Snackworks has normalised as consumers return to normal spending patterns under lighter lockdown regulations and, absent unusual demand impacts driven by Covid-19, sales volumes in the next year will be a function of consumer demand, competitor activity and our management of selling prices in the context of higher input costs,” AVI said in a statement.

In the 2021 full-year reporting period, AVI saw a 10.5% lower operating profit of R814.6 million from R910.2 million for its Snackworks brand, which sells snacks and biscuits, decreasing the brand’s operating profit margin.

However, I&J, the company’s fresh foods brand, received credit for increasing segmental and overall revenue, aided by growth in fishing and abalone volumes in the second half of the financial year and higher selling prices.

I&J saw a 43.7% increase in operating profit and raked in R2.61 billion in revenue, an increase of 11.9% compared to the previous period.

The group’s footwear and apparel segment, which hosts brands such as Spitz, Green Cross and Gant, in comparison did not do well and is still recovering from the harsh pandemic-induced trading conditions seen at the beginning of 2020. Revenue for this segment decreased by 0.6% to R1.47 billion as a result of a decrease in sales volumes.

Product pricing

To protect profit margins, the group has warned of possible price increases across some categories as a response to the negative impact of Covid-19 and rising raw material costs.

“I’m reasonably satisfied that we can achieve price increases across the basket, which is necessary to ameliorate some of those cost pressures,” said AVI CEO Simon Crutchley during a results webcast.

“The degree to which any category might be affected will depend on what our competitors’ behaviour will be in the short term.

“We do sometimes see periods of aberrant behaviour which means that we may lose volumes, but in the end we’ve got a pretty defensive portfolio in AVI,” said Crutchley.

“These are staple categories [that] people tend to continue putting into their shopping baskets and we think that within the current circumstances, with the hedges that we have, we are in reasonable shape to be able to do that.”

Analyst’s view

Wayne McCurrie, portfolio manager at FNB Wealth and Investments, told Moneyweb that AVI cannot avoid price increases and consumers will have to carry their fair share of the load.

“They [AVI] have suffered quite a bit because food has gone up strongly, in all respects, especially their raw material costs. Food is up about 20% in rand terms over the last year, so obviously … the selling price increases will have to pass on [to the consumer],” McCurrie said.

“It might affect sales volumes, but more than likely over the next year, food input prices will drop so you could see food prices stabilising and possibly dropping over the next year.”

AVI share price

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