Published Date: 2021-07-28 | Source: INCE|Community | Author: The Finance Ghost
AVI is all about the brands.
The group operates a variety of food and beverage businesses including Five Roses, Freshpak, Bakers, Provita, Willards and I&J. In the clothing market, AVI operates Spitz footwear, which has over 70 stores countrywide and distributes well-known brands like Lacoste.
AVI's revenue for the year to June 2021 only increased by 0.5%, which means that volumes were down overall. The only business with positive volume growth was I&J which achieved solid results in both the fishing and abalone operations.
The second half of the year was supported by growth in the fashion brands vs. the comparable period which was severely impacted by lockdowns. Conversely, the snack brands in the food division did not do well compared to last year, as demand during lockdown for these brands was strong.
The group managed to maintain gross profit margins through strong focus on promotional activity, selling price increases where necessary and effective management of cost of sales.
A reduction in selling and administrative costs for the year resulted in growth in operating profit despite the drop in sales. Another benefit further down the income statement came from lower average debt levels and interest rates, which reduced net finance costs by a material amount.
However, attributable earnings dropped because the comparable period included a once-off capital gain of R374m net of tax, related to the disposal of I&J's 40% interest in the Simplot joint venture in Australia. This is why investors typically focus on the headline earnings number which strips out these impacts.
The guidance is that headline earnings per share (HEPS) will increase between 5% and 7% vs. the prior period. Reflecting this lethargic performance, the share price is flat year-to-date.
On the plus side, the damage from looting was limited, with four Spitz stores suffering total loss of stock and damage to fixtures and fittings. The bigger issue was lost sales and production, with the group's entire manufacturing and retail base closed for several days. However, demand in affected areas suggests that the net effect on sales may not be significant.