AVI presented another typically predictable resilient performance in the year to end-June. The foundations on which the group is built — the snacks and tea and coffee businesses — remain on growth paths while the performances of the other businesses remain patchy.
Having said that, the general trend in the other businesses has been upwards in the past two difficult years. There was a large special dividend in 2021 but nothing in the way of a repeat in 2022 while the group continues to buy back its shares. Against a background characterised by both local and global supply chain disruptions, this was a good result under the circumstances.
Group revenue rose 4.3% to R13.8bn, while operating profit rose 5.4% to R2.5bn. If I&J’s performance is excluded from the calculation, operating profit grew a somewhat higher 8%. I&J is a biological resource and as such is subject to the vagaries of the elements, which makes it a difficult enough business to manage at the best of times. But in 2021 it also had the disadvantage of having to contend with a strong rand exchange rate and much higher fuel prices for its fishing fleet. On a brighter note, there was a strong post-pandemic recovery in I&J’s perlemoen (abalone) business, emanating mainly from improved demand from the Far East.
There was a R15.3m benefit from the lower tax rate and headline earnings per share rose 6.1% to 530.6c. A final dividend of 292c per share was declared, making 462c for the year. Using a year-end price of R65.72 results in a year-end dividend yield of 7%, which is relatively high by AVI’s historical standards. The balance sheet is clean, with a net debt-to-equity of 35%. This is a high returns business; return on average capital employed rose from 27.6% in 2021 to 29.1% in the 2022 year.
Within Entyce, the tea and coffee business, revenue rose 5.4% but operating profit was virtually static at R881m. Coffee was noticeably better due to the Ciro out-of-home business recovering post-lockdowns. There was, however, pressure in the mixed instant coffee segment due to competitor discounting. The gross profit margin was negatively affected by significantly higher raw material costs not being fully recovered by selling price increases.
The snacks business, Snackworks, enjoyed a 10.2% revenue increase and an 8.2% operating profit rise. Biscuits saw higher profits due to improved volumes and higher selling prices. However, potato and other snacks were affected by input cost pressures not fully recovered by price increases. These included higher fuel prices and a shortage of potatoes earlier in the year.
I&J’s revenue fell 5.1% and operating profit fell by 10.4% to R306m. The recovery in perlemoen was more than offset by a lower performance from fishing. There was a reduction in the Fishing Rights Allocation Process (FRAP) and the Total Allowable Catch (TAC) from the department of forestry, fisheries and the environment. The TAC was cut 5% in calendar 2022.
Revenue at Indigo Brands, the personal-care business, rose 2% while operating profit was up 13.5% at R193m. There was improved demand in the second half of the year as lockdown restrictions were eased. Operating profit margin rose from 14.8% to 16.4% due to higher selling prices and a restructuring initiative.
Although revenue at the footwear and apparel business was relatively subdued at only +3%, operating profit soared 31% to R303m, helped by higher selling prices, effective cost management and insurance recoveries after the unrest in July 2021. Green Cross, which has been a serial underperformer for many years, returned to profitability in its 2022 year.
The background economy will remain challenging for AVI this year and next. I&J’s fortunes will depend on the direction of the rand ultimately; while a weaker rand will aid exports, it will also make fuel more expensive.
In my opinion, this is the best-run food-related business in SA, due mainly to its long-term growth record. It deserves its premium rating in the market.
• Gilmour is an investment analyst.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.