• AVI, the producer of food, snacks and beverages, as well as footwear, apparel and personal care items, reported results for the year ended 30 June 2021 earlier this week. Group revenue increased by a lower-than-expected 0.5% to R13.27 bn due mainly to higher sales volumes at I&J and higher selling prices generally. Selling price increases were taken to offset the impact of higher raw material prices. These price increases across the group were supported by a tighter management of discounts, which was offset by volume declines in most of the business. Export sales in I&J did however benefit from the impact of the weaker Rand. As a result group gross margins came under pressure, falling 90 basis points to 39%. 

  • Group operating profits rose 3.2% to R2.41 bn, higher than in the 2020 period but below the 2019 levels before the pandemic. Selling and administrative expenses fell 5.4% in the period, and as a result operating profit margins jumped 50 basis points to 18.2%.

  • This set of results did not reflect the recovery many other companies experienced over last year when the pandemic hit. However, AVI did have a higher base, and these results cement its track record of resilience throughout the Covid-19 disruptions.

  • The group recorded an overall increase in earnings, although the segmental performance remains behind the pre-Covid numbers. Part of this dip in sales experienced in the recent period was a normalisation from the very high demand seen in the initial lockdown period for food stuffs and beverages.

  • Food and beverages, which includes Entyce Beverages, Snackworks, and I&J saw revenue rise 1% to R10.65 bn y-o-y for 2021. Operating profit was up 1.7% to R2.03 bn. Fashion Brands, comprised of personal care and apparel, had revenues fall 1.8% to R2.62 bn. Meanwhile operating profit for that segment jumped 13.7% to R400.8 million as lockdown restrictions eased verus the year-ago period.

  • The pandemic continues to have a material impact on demand for Ciro’s out of home coffee solutions business, and some of Indigo’s personal care categories, however the impact of the third wave on operations has not been significant, and AVI said it hopes to sustain operations without material disruption in the year ahead. Ciro is recovering gradually, in line with the opening up of the hospitality, leisure and tourism sectors. I&J experienced fewer operational disruptions from COVID-19, and therefore better fishing vessel availability in the period.

  • Net finance costs for the group fell 40% which helped push HEPS higher. HEPS were up 6.2% to 499.9 cents, the midpoint of guidance. A final dividend of 275 cents per share was declared, up 6.1% - as was a surprise special dividend of 280 cents per share, bringing total dividends for the year to 715 cents, ahead of consensus expectations. This highlights the remarkable cash conversion (of 100%) during the past five years, which has allowed the company to maintain a dividend policy with an almost 100% payout ratio.

  • AVI is a high quality company and an exceptionally well run business. It did provide a cautious outlook necessitated by higher raw material costs, with gross profit margin pressure being a concern. But despite the tepid results, and below par guidance, AVI is likely to attain high single-digit earnings growth and maintain its dividend. The company also has a healthy balance sheet in spite of the special dividend, and is a share I am comfortable adding into weakness for local portfolios.