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Not so rosy year ahead for Five Roses owner AVI

Growth in the group’s food business offset by the poor performance of its footwear businesses Green Cross and Spitz.

If South Africa’s economic environment does not “materially improve” over the next year, 2020 is set to be another tough financial year for AVI, the consumer goods group that owns big brands such as Five Roses tea, I&J frozen fish, Willards chips and the Spitz shoe chain.

This was the message from AVI Group CEO Simon Crutchley, speaking during the company’s 2019 full-year results presentation at the JSE on Monday.

“It’s a tough consumer environment in SA and you can see this in our results,” he said. “AVI is a business that depends on volume sales, and like-for-like volume sales are down compared to 2018. We expect the tough trading environment to continue with constrained consumer spending.” 

Read: RCL Foods bruised by tariffs and taxes 

AVI reported operating profit for the year down R34 million to R2.5 billion, however this was also impacted by R27 million in restructuring costs at its Green Cross shoe unit. The further write-down was related to the closing down of its Green Cross shoe factory in Epping, Cape Town, and contributed to the R36 million loss suffered by the division.

Fuel hedge hit

Another hit to operating profit was a R29 million loss related to fuel hedges in the I&J division.

AVI’s overall operating profit for the year to June 30 was down 3%. Headline earnings for the year were down 4.4% to R1.7 billion, while headline earnings per share decreased 4.9% to 516.6 cents.

AVI’s Spitz shoe chain came under pressure in the year to June 30. Image: Moneyweb

Besides the woes in its Green Cross unit, AVI’s Spitz shoe chain also came under significant pressure, with operating profit down R50 million to R320 million. However, the poor performance of its footwear business was offset by growth in its food divisions, Entyce Beverages and Snackworks.

Read: Footgear buys Edgars Active as Edcon downscaling continues

Crutchley says around 80% of the group’s profits come from its foods business. “AVI’s strong grocery business performed well, notwithstanding the tough economic and consumer environment. 

“We have strong brands that are supported by relevant innovation and remain appealing to many consumers.”

He notes that the beverages division stands to benefit in the 2020 financial year from lower rooibos prices following good rains in the Western Cape. Lower butter prices are also expected to benefit its Snackworks division, which makes Bakers biscuits.

Read: Rising Cape Town dam levels to buoy agriculture and tourism

Crutchley says the group plans to invest R472 million in expansion projects. Most of this will be pumped into its foods business, while the focus on its footwear chains will not be on the opening of new stores but on the refurbishment of existing stores.

Commenting on AVI’s full-year results, independent analyst Anthony Clark says its performance shows how tough things are in the domestic economy.

‘Unheard of’ Heps decline

“If a bellwether company like AVI with strong consumer brands only shows a year-on-year increase in revenue of 1.2%, leading to a 3% decline in operating profit and an unheard of 4.9% decline in Heps [headline earnings per share], it is indicative of the consumer buying less and the dire straits of the FMCG [fast-moving consumer goods] economy in general.”

Clark notes the once-off costs at Green Cross and I&J, which negatively affected AVI’s performance. However, overall, the group’s personal care and shoe chains “went backwards”.

“This shows that in a tough economic environment the consumer is quite happy, due to necessity, to buy food or the occasional treat. However, they will put off buying shoes or perfumes,” he says.

AVI’s share price was up 3.5% to R87.46 at close of market on Monday, however the stock is trading more than 15% down year to date.

Challenging period for AVI

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To succeed in tough times demand a tough manager – not someone throwing in the towel even before trying. Shocking. Perhaps he should resign now – oh….of course his lucrative contract will then end. So—–hang in there and take a salary for as long as you can….

Illpill – I don’t see any indication of Crutchley throwing in the towel, not sure where you gleaned this mis- information from- rather buy the company than the person

Very dissapointed in the way AVI has treated Greencross.

https://www.businessinsider.co.za/green-cross-shoes-gx-brand-experiment-by-avi-local-manufacture-ended-2019-9

I am not one to give SA trade unions much credit, but they did call this one “When AVI moved to buy Green Cross from the Zeppel family in 2012, the South African Clothing and Textile Workers’ Union (Sactwu) warned competition authorities that the listed company “lacked commitment regarding local manufacturing”, and could end up “curtailing” local manufacturing.”

Now before the gung ho ardents of extreme laissez faire capitalism that dominates MW attacks me, to point out that this is just the naturual cause of things and that a business that does not turn a profit has no right to exist, cvonsider this: Before AVI took over Green Cross it made an operating margin of 25% in 2013, last year it eked out 2%…

Where is the value add that AVI brings? Continued concentration where large businesses acquires small operators will be the death of capitalism. Make no mistake capitalism has proved itself to be the best way to uplift people, as we have seen in Asia and Eastern Europe over the past two or three decades. But in my time I have seen various takeovers of profitable, well run businesses by big conglomerates over the years and in very few instances have that been succesful. More often than not it just results in job losses and the destruction of the acquired business.

If we want capitalism to survive we need to speak up when it is beiung perverted, like in this instance.

Nearly 500 people are now without a job for no real reason.

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