AVI faced a challenging operating environment in the year to June, with sales of its consumer goods for the quarter to June impacted by uncertainty related to anti-immigrant sentiment. However, the company was able to pay a special dividend of R3 per share on the back of strong cash generation.
After June-quarter sales were “materially impacted by the threat of unrest over the June 30 national protest action”, revenue growth across AVI’s food, fashion and beverage brands increased by a minimal 1.4% to R16.2 billion.
“The last quarter’s sales were substantially impacted by lower demand from distributors and wholesale customers who delayed purchases due to the threat of unrest surrounding the June 30 national protest action,” said Simon Crutchley, CEO of AVI.
Furthermore, the second half of the year under review had been “more challenging, with weaker consumer demand exacerbated by materially higher fuel prices, sustained high interest rates and a generally more competitive” environment.
Nonetheless, full-year operating profit rose 4.4% to R3.7bn, although competition in the creamer category intensified, “preventing a repeat of the prior year’s exceptional profit”.
The group’s I&J fishing operating profit improved by 47.5% to R395.6 million, while Abalone profit was impacted by the R84m non-cash biological-asset revaluation.
Revenue for footwear and apparel increased by 2.1% to R1.65bn. Growth in footwear volumes, continued demand for core brands and improved product availability, due to the earlier receipt of the summer seasonal ranges and fewer supply-chain disruptions, aided the segment’s performance.
However, tough trading conditions for footwear and apparel persisted, with subdued consumer demand, elevated promotional activity, particularly among apparel retailers, and strong competition. This resulted in the company instituting targeted price reductions on selected offerings.
After accruing R110.3m from ongoing cost-management and restructuring initiatives, headline earnings per share (HEPS) for the full year rose 5.3% to R7.67, against the backdrop of capital expenditure of R387.2m.
“Stronger I&J fishing earnings, fashion retail growth and cost savings supported results, while cream competition and the abalone revaluation weighed on performance,” said analysts at Cratos Asset Management.
AVI paid a final dividend of R4.18 per share, bringing total normal dividends for the period to R6.63, about 5.9% higher than the previous year. The company also paid a special dividend of R3 for the period under review.
Crutchley said in the outlook that the “operating environment remains uncertain, both domestically and internationally, and tough trading conditions” are expected to persist.
“Growth is likely to remain subdued until there is a meaningful improvement in the economy. In this environment, increased competition may affect the group’s ability to protect margins in some categories,” said Crutchley.
For the period under review, cash generation remained strong, with cash generated by operations before working-capital changes increasing by 5.9% to R4.47bn. This cash-generation capacity was strengthened by higher operating profit and increased adjustments for non-cash items.
Other material cash flows included ordinary dividends paid of R2.19bn, tax paid of R931m and interest paid of R196.1m.
Net debt for the period, excluding leases, was R1.14bn, compared with R1.71bn in the prior year. Lower interest rates, lower average borrowing levels and strong cash generation resulted in lower finance costs for the period.
AVI is focused on increasing its revenue and will respond to market conditions to achieve the appropriate balance between price, sales volumes and margins across its brands.
It has just implemented a revised operating structure for the Entyce and Snackworks businesses, with dedicated management teams expected to strengthen the two divisions’ ability to remain competitive in the current environment.
THE NATIONAL