Rooibos helps AVI brew up solid results
By Colleen Goko - Mar 7th 2017, 08:29
Groceries fare well but Green Cross is still struggling
AVI says rooibos input costs and selling prices are at record highs. In the first half of the group’s financial year, raw material costs increased by R61m or about 70%, and selling prices in the category spiked 40% as a result.
Rooibos can be cultivated only in the Cederberg in the Western Cape and the drought has resulted in many plantations dying. Industry players estimate there is a supply shortage of between 25% and 30%, so producer prices have soared.
AVI CEO Simon Crutchley said there had been some volume pressure in the tea category as a whole.
"The important thing is that our brands performed well. Overall demand has been resilient," said Crutchley.
"We are seeing a little bit of drifting by some consumers who are under pressure and some of them are buying down to Trinco from Five Roses … so there’s nothing obviously alarming, but I guess [it is] inevitable in this environment."
He said the outlook for input costs for the rest of the year was not promising."Once the raw material costs start tracking backwards, it will allow us to track down prices as well."
In the period under review, AVI reported a 7.6% rise in headline earnings per share to 302.9c. Revenue increased 11.6% to R7.13bn. Operating profit climbed 8.1% to R1.41bn and AVI declared an interim dividend of 162c, which was up 8% from the year-earlier period.
In the food and beverage unit, the operating profit margin fell to 18.2% from 18.8%. This unit houses Entyce Beverages, Snackworks and I&J.
Brands at Entyce include Five Roses, Trinco, Freshpak, Frisco, Koffiehuis, Ellis Brown and Douwe Egberts. Snackworks brands include Bakers, Willards, Provita and Baumann’s.
In the fashion brands unit, Spitz’s operating margin fell to 29.9% from 30.6%.
Sales volumes declined 13.9%. Average selling prices increased 17.5%.
Electus Fund Managers equity analyst Damon Buss said AVI’s results were in line with expectations. However, the performance of footwear maker and retailer Green Cross remained concerning.
"Green Cross wholesale continues to underperform, despite the numerous efforts to turn this business around," said Buss.
In the period under review, the footwear retailer’s operating profit margin fell to 9.6%, from 10.2%. Wholesale revenue declined 1.9%.
"Good volume growth in the groceries division shows the strength of the AVI brands, while the quality of the management is evident by the fact they restricted operating cost growth to 7.9%, which is an excellent result for a company that is so efficiently run and has minimal fat to cut," said Buss.
He said consumer sentiment and disposable income would remain challenges for AVI in the second half of its year, given the discretionary nature of the group’s products.
"However, the falling soft commodity prices and stronger rand should allow AVI to enter the 2018 financial year with significantly lower input cost inflation and hence they will be able to recoup the margin lost in the first half of 2017," said Buss.
© BusinessLIVE MMXVII
AVI earnings slip as consumer spending remains constrained
09/09/2019 - 09:33
Consumer goods group AVI, whose brands include footwear retailer Spitz and Five Roses tea, trimmed its final dividend 4% in the year to end-June as it continued to feel the pinch from a constrained consumer environment.
Rooibos breaks into the $103-bn global chocolate market
12/04/2019 - 11:19
Master chocolatiers and candy-makers the world-over have been hard at work for months experimenting with new flavours and textures, trying to outdo one another in an effort to capture the lion’s share of the sales this Easter.
AVI hit by constrained consumer spending
13/03/2019 - 12:42
Food and beverage company AVI Limited felt the pinch of constrained consumer spending as income from its shoe brands Green Cross and Spitz slid in the half year to December, resulting in revenue in the footwear and apparel category declining by 9.2 percent to R1.14billion.
Spitz owner AVI says footwear sales walked all over its results
12/03/2019 - 10:27
AVI, whose brands include Bakers biscuits and seafood business I&J, said on its footwear businesses struggled the most in the six months ended December.
Sugar tax didn't sweeten the deal for Clover
05/03/2019 - 11:02
The sugar tax may be aimed at reducing consumption, but it ate its way into Clover's profits, the group said on Tuesday.