AVI increases earnings on food, fashion brands

AVI, which owns brands such as Five Roses, Bakers, Ellis Brown, Frisco and Willards, reported 5.7% growth in revenue from continuing operations to R7,69bn. Operating profit rose 25.4% to R1,12bn due to higher gross profit margins and volume leverage, the company said.

It attributed the increase to higher sales volumes, particularly in the footwear, personal care, creamer and coffee categories, as well as higher selling prices in the biscuit category.

"Commodity prices, including the benefit of the stronger rand, were in aggregate lower than last year, which offset increases in packaging and overhead costs. These factors resulted in a material improvement in the consolidated gross profit margin from 41.8% to 44.9%, with gross profit increasing by 13.6% to R3,45bn," the company said.

"Spitz did good volumes with the Carvela footwear brand doing particularly well," Crutchley said.

Revenue in the footwear and apparel category increased 21.9%, and operating profit increased 56.7% to R236,1m. The company gained market share in key categories in its personal care division and its food and beverage portfolio, he said.

Snackworks, its biscuit division, increased operating profit 12.5% to R261,8m due to higher biscuit selling prices, partially offset by lower sales volumes attributable to selling price increases and product rationalisation during the year, compounded by rising import competition.

While revenue in the chilled and frozen convenience brands decreased 0.9% to R1,37bn, operating profit rose 21.9% to R90,6m. "The stronger rand caused a material decline in export revenue, which was largely offset by an improved sales mix and slightly higher prices in some export markets. Domestic market prices were constrained by competitor activity," AVI said.

An analyst who declined to be named said there were some negatives in the results. "Snackworks and the beverage business have taken a knock in the second half, margins were down almost 300 basis points, which means the first half did all the heavy lifting.

"But there was a range of positives. The Spitz business continues to deliver. The personal care and fashion business exceeded expectation. The biggest surprise, however, came from I&J, which barely broke even in the first half but has made a big impact on profitability. It bodes well for full-year 2012. The company also disposed of Sir Juice, Denny Mushrooms and Alpesca. It shows they are ready to admit where they went wrong and correct mistakes. It's a great story all in all."

Source: Business Day