Johannesburg - Despite lower consumer demand and higher input costs, AVI had been able to weather the storm due to strong volume growth in the Snackworks and I&J businesses, the listed food, personal care and fashion manufacturer said yesterday.
AVI, which owns Bakers biscuits and Kurt Geiger shoes, increased revenue by 10 percent to R5.4 billion in the six months to December last year from a year earlier. Input cost pressure from the weaker rand resulted in the gross profit margin declining from 45.9 percent to 44.3 percent.
Headline earnings a share gained 10 percent to R2.306.
“In the domestic grocery business, the stars were biscuits and snacks, but I&J performed well because of the translation value,” chief executive Simon Crutchley said.
The Snackworks division increased revenue by 13.3 percent to R1.6bn. Biscuit revenue grew 14.1 percent with a 10.4 percent increase in sales volumes. “Volumes benefited from strong category growth as well as increased market share.”
Crutchley said cost pressures were experienced as a lot of the group’s input costs were imported. He said as much as AVI had, in some instances, absorbed some of the cost pressure, some would have to be passed to consumers.
He added that AVI had no choice but to manage price increases to deal with input cost inflation. “It is important that our products remain affordable but it is also important to shareholders that we manage our margins. Trying to manage pricing and volume demand is one of the important parts of our business.”
He expected the current constrained consumer demand environment to persist and possibly worsen if interest rates continued to rise and the rand’s weakness was sustained.
“Notwithstanding expectation of a difficult trading environment, we are confident our unique portfolio can continue to deliver growth in key categories. This will be supported by ongoing improvements in manufacturing capability and procurement activity.”
The I&J division was boosted by the weaker rand on export sales. Sales volumes lifted by 2.6 percent, with improved fishing fleet availability and freezer vessel catch rates resulting in an increase in overall tons caught. Operational costs were affected by higher fuel prices, planned maintenance costs as well as unusually bad weather.
Sales volumes in apparel and footwear, which trades through Green Cross, Spitz and Kurt Geiger, came under pressure. The Spitz business grew revenue by 7.5 percent as a result of higher selling prices and trading space offset by lower footwear demand with consumer spending under pressure.
Crutchley said products in the fashion category were sourced from Italy and the company was experiencing the same input cost pressures with the weaker currency.
Revenue in Green Cross decreased by 4.6 percent due to declining wholesale performance attributable to lower demand, increased competition and non-recurrence of bulk orders in the previous year.
Daniel Isaacs, an analyst at 36One Asset Management, said: “AVI has strong brands. Market share in biscuits, tea, coffee and creamer. Excellent profitability was due to this and efficiencies in manufacturing.”
He said slow growth in its fashion side showed consumer pressure coming through and was similar to what other clothing retailers were experiencing. He said margin pressure was a result of a currency that affected imported items, the cost of which AVI had to absorb to some degree. The shares gained 0.68 percent to R51.80.