Johannesburg - AVI, the local maker of popular brands like Five Roses and I&J, will pay an interim dividend of R1.50 a share after reporting an increase of 13 percent in operating profit to R1.3 billion for the six months to the end of 2015.
The company said its consistent hedging policy deferred much of the impact of the weaker rand into the second half of the financial year, allowing selling prices to be managed pro-actively and profit margins to be maintained.
Read: Weaker rand a mixed bag for AVI
“Hedging helps us to predict cost pressures and work out how best to manage selling prices and sales volumes to protect profit margins,” chief executive Simon Crutchley said.
The food and beverage division was the star performer with a 17.3 percent profit rise compared with the fashion brands’ division of 4.4 percent increase in operating profit.
The group also managed to up its overall revenue by 6.5 percent to R6.39bn from R6bn from last year.
In the food and beverage division, the tea unit increased its revenue by 10.9 percent and Crutchley attributed this to price inflation in response to cost pressures, particularly on Rooibos. “Tea category volumes were slightly lower than last year – we think partly weather related, and partly because of higher price points,” Crutchley said.
I&J’s revenue increased by 1.9 percent from R980 million to R1bn while operating profit increased from R98.1m to R159.7m. The operating profit margin increased from 10 percent to 16 percent.
The group’s headline earnings per share were up 11.3 percent to 281.6c. The share price closed at R80.53, up 0.76 percent higher at the JSE.
Crutchley said the Snackworks division, which recorded an 8.6 percent rise in operating profit, also performed better due to growth in market share.
He said there were good volumes in sweet biscuits because of the growth in market share and innovation. “Gross profit margin was protected with selling price increases and currency hedges.”
Crutchley said going forward the consumer demand environment would become increasingly constrained and the full impact of the weaker rand on prices had yet to be felt.
He said rising staple food prices and higher interest rates would reduce disposable incomes during the second semester of the financial year. “Most category growth rates have slowed and in some cases volumes are declining. We expect this environment to persist into the next financial year.”
Jean-Pierre Verster, an analyst at 36One Asset Management, said the AVI results were consistent with the country’s sluggish economic growth.
“The company has done reasonably well considering the pressure on the consumer and slow economic growth. They have managed their margins very well,” he said.
Verster said the weaker rand was beneficial for exports as I&J had shown in the results.
“AVI will continue to benefit from the weaker rand in the second half of their financial year, especially I&J which generates significant revenue from exports. However, the 2017 financial year will provide a challenge for the company because of the expiry of hedging contracts and tough trading conditions caused by a slowing economy.”
BUSINESS REPORT