AVI’s closure of its Green Cross factory ‘breaches commitments’

By Dineo Faku Time of article published May 28, 2019

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JOHANNESBURG – The SA Clothing and Textile Workers’ Union (Sactwu) has said that it believed that food and beverage company AVI Limited may have breached the commitments it made to the Competition Tribunal following its decision to close the Cape Town-based factory footwear brand Green Cross.

JSE-listed AVI said last week that it had stopped all manufacturing operations at the Green Cross facility after a review indicated that its operating model, which relies on a significant volume of local manufacture, was uncompetitive.

Etienne Vlok, Sactwu’s national industrial policy officer, said the closure would result in 320 job losses and would impact 1 500 employees and their dependants.

“The union has now asked the competition authorities to investigate this act of corporate sledge-hammering by AVI,” Vlok said.

AVI acquired Green Cross, the 40-year-old footwear brand, for R382.5 million in 2012 to bolster its premium-branded footwear and apparel portfolio, following the acquisition of Spitz in 2005.

“AVI has wrecked Green Cross since the merger occurred in 2012, and by embarking on this decision it has transgressed the job-protection commitments it made during the merger: that no job losses would occur as a result of the merger.

“If found guilty by the competition authorities, AVI and Green Cross could face the prospect of sanctions and remedies, including having their 2012 merger revoked, an act which is allowed by sections 15 and 16 of the Competition Act,” said Vlok.

Green Cross has bled cash after reporting an R18.8m operating loss in the six months to December 2018, compared with a R4.4m profit in 2017.

It also suffered a 20.4 percent revenue loss in the half-year to December, due to lower sales volumes.

Vlok said until 2012, Green Cross was an unusually robust and successful local footwear company.

“It had survived the chaos of strong import competition in the 2000s and had even elegantly weathered the storm of the 2008/9 global financial crisis. The success of Green Cross was so apparent and appealing that it eventually attracted the eye of AVI and, by 2012 an application was made to the Competition Commission to endorse the acquisition of the capable and strong Green Cross by AVI,” Vlok said.

However, AVI said last week that despite making a material investment in its manufacturing facility, production volumes had declined to sub-economic levels, resulting in significant under-recovery of costs that made it impossible for Green Cross to achieve a sustainable level of profitability.

“Green Cross trades in a highly competitive segment of the footwear market that is supplied mostly by imported product, and management believe that it is necessary to migrate to a fully-import operating model to protect the wholesale and retail businesses,” the company said.


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