AVI has plans in place to continue building earnings in second half

Branded products group AVI lifted its interim dividend 17.4% to 202 cents in the six months to December after navigating the weak consumer environment, production sites impacted by wonky municipal infrastructure, port inefficiencies and load-shedding costs.

Group revenue increased 7.1%. Gross margins remained protected despite material input cost increases, I&J being impacted by poor catch rates and loss of export sales due to port inefficiencies.

With group sales volumes mixed due to the constrained environment, a combination of selling price increases, cost controls and an effective hedging programme protected margins, the board said yesterday.

As a result, group operating profit increased by 17.1%. Headline earnings a share was up 17.4% to 374.3c. Capital expenditure of R242 million was to upgrade facilities and improve efficiencies. Direct load-shedding costs came to R21.1m.

Revenue growth in Entyce was driven by better sales volumes and higher selling prices in response to input cost pressures.

Snackworks saw revenue growth in both biscuits and snacks due to higher selling prices and improved snacks volumes.

I&J had a difficult semester with revenue falling 5.1% due to poor catch rates, “aggressive competition” and the loss of export sales due to inefficiencies at Cape Town’s port.

Indigo’s personal care revenue performance fell 11.7% following the cessation of the Coty distribution agreement in July 2023. Indigo’s owned-brand categories performed soundly with growth in the aerosol, fragrance and roll-on categories lifting like-for-like revenue by 5.9%.

Spitz’s revenue was impacted by constrained demand, particularly for the apparel brands, but benefited from a strong December with good demand for core brands, albeit stronger for footwear than clothing

The board said the second semester’s profit growth may not mirror the first due to a strong prior year fourth quarter, but they were confident AVI “is well equipped to continue adapting to a complex and changing economic environment”.

Several new product innovations would be launched which, if successful, were expected to improve profitability in key categories.

“AVI International, supported by our South African manufacturing capabilities, remains focused on steadily building our brands’ shares in export markets whilst sustaining strong profit margins,” they said.

Savings from the restructuring of the Woodstock processing facility and the closure and outsourcing of I&J’s cold storage in the first half were also expected to support profitability in the second half.

“Should current catch rates not improve, I&J’s profitability may not exceed the prior year’s. Cost structures, including the simplification of I&J’s business model, will continue to receive focus,” AVI’s board said.

In the past six months I&J’s revenue of R1.15 billion was 5.1% lower than last year and operating profit fell to R31.6m from R72.2m, while the operating profit margin decreased from 5.9% to 2.8%.

The board said a large part of the group’s second semester’s import requirements had been covered at rates that supported sound profitability assuming reasonable sales volumes. Cost control would see a continued focus on improving factory efficiencies, procurement savings and a focus on fixed costs, they said.

BUSINESS REPORT