Consumer goods group AVI expects first-half profit to have risen as much as 18% despite many sector-wide challenges, including load-shedding and the costs that come with it to keep the businesses running.
Its shares jumped more than 8%, the most since September 2021, to trade at R84.84 by late Tuesday morning, giving it a market cap of R28.7bn. By market close, the share price had pulled back a bit to close 5% higher.
The owner of footwear retailer Spitz, Five Roses tea, Romany Creams and seafood company I&J said on Tuesday that its consolidated headline earnings per share (HEPS) would rise to R3.70-R3.76 in the six months ended December versus R3.19 in the prior matching period.
Its revenue is likely to rise 7% to R8.38bn year on year, supported primarily by its grocery businesses, while I&J fared poorly due to a combination of factors including poor catch rates and the loss of December’s export sales due to inefficiencies at Cape Town’s port.
“Entyce Beverages did not fully recover input cost pressures, but increased sales volumes in key categories and improved factory efficiencies protected margins and supported sound operating profit growth,” CEO Simon Crutchley said in statement.
AVI saw almost 10% growth in revenue in its Snackworks division, which includes the Willards label, Baker Street and Bakers, and Provita ranges, which are popular in the festive season. AVI’s biscuit brands attract consumer loyalty despite a higher price point than private label copycats, which allowed them to increase prices. This shows the power of the brands that include Tennis biscuits, Marie Biscuits and Snacktime crackers.
Crutchley said: “Snackworks recovered material input cost pressure, and this combined with factory efficiencies and cost control, improved gross margins, resulting in sound operating profit growth for both the biscuit and snacking categories.”
AVI and its peers have been facing higher costs arising from high international grain prices, which are aggravated by the volatile rand exchange rate, as well as load-shedding, which worsened to unprecedented levels in 2023.
However, world grain prices have been easing in recent months, implying potential relief for food producers in the future, barring additional shocks from the electricity supply.
AVI competes with Tiger Brands among other established players, as well as a host of private-label producers in the grocery market.
The company also has exposure to the apparel and footwear markets through Spitz, Kurt Geiger and Green Cross, which target middle-class to high-end consumers. Revenue for the shoe segment held up well during the reporting period, rising 7% despite the high interest-rate environment and the cost-of-living crisis.
However, clothing sales increased only 0.5% in the half-year and it is likely that when price increases are taken into account, the volumes of clothing sold dropped.
AVI is scheduled to release its interim results on March 4.
With Katharine Child
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