AVI expects a subdued trading environment

LISTED food and beverages company AVI yesterday said that it expected the trading environment to remain subdued, despite the improved political climate in the country.

AVI said that the recent political developments were positive, but unlikely to materially change consumer spending in the short term.

It said the increase in VAT next month would further dampen spending.

“Our expectation is that many of our categories are likely to have low or even negative growth rates until there is a meaningful improvement in the economy,” the group said.

AVI is home to well-known local brands, including Five Roses, Bakers, Freshpak and House of Coffees. It holds the licences for international brands such as Rimmel, Kurt Geiger, Yardley and Lavazza.

The group reported a 2.3 percent increase in revenue to R7.30 billion, from R7.13bn for the six months to December, with volume growth achieved in the Spitz business as customers responded positively to stable prices.

However, AVI said sales volumes declined in some key food and beverage categories following several years of above inflation price increases to offset severe cost pressures from a weakening rand and higher raw material prices.

Operating profit increased 8.7 percent to R1.53bn, from AVI says volumes grew in its Spitz business over the six months to the end of December as consumers responded positively to stable prices.

R1.41bn, and operating profit margin improved from 19.7 percent to 21 percent.

Headline earnings increased by 8.3 percent to R1.06bn, from R980 million compared with last year with the growth in operating profit and lower

finance costs partially offset by a decline in earnings from I&J’s Australian joint venture.

Headline earnings a share increased 7.5 percent to 325.6 cents a share, with a 0.8 percent increase in the weighted average number

of shares in issue due to the vesting of employee share options, including the AVI black staff empowerment scheme.

The group declared an interim dividend of 175c a share, an increase of 8 percent on last year’s interim dividend.

AVI said its brands remain healthy and appealing to many consumers and the exchange rates secured for the second semester are at better levels than for the same period in the prior financial year, which will support stable selling prices and improved demand without sacrificing profitability.

The group said the overall performance from Entyce and Snackworks was sound, with good growth in operating profit despite pressure on sales volumes in the biscuit, tea and coffee categories, while I&J benefited from the non-recurrence of the unprotected strike at its fishing operations in August 2016.

“We will continue to react quickly to market changes as we pursue the most appropriate balance of price, sales volumes and profit margins for each of our brands,” the group said.

AVI shares declined 5.51 percent on the JSE yesterday to close at R109.61.