THE SHARES in food producer AVI took a beating yesterday, sliding nearly 7 percent in intraday trade after it warned that it faced significant inflationary pressure ahead.
The firm flagged in results for the six months to end-December that it expected soaring input costs, and that its margins would be under pressure in the second half.
The AVI share price recovered somewhat by close on the JSE, but still down 3.11 percent at R65.40.
“Entyce and Snackworks face significant inflationary pressures from rapidly rising commodity prices with further selling price increases required to preserve gross margins. Russia’s recent invasion of Ukraine has sharply increased the cost of both fossil fuels and many soft commodities, some now trading at record levels.
“If sustained, the cost pressures will accelerate and the balancing of margin and volume will become especially challenging in 2022,” the group said.
Chief executive Simon Crutchley said it was a reasonable interim result given Covid-19 and the July unrest, amid the constrained revenue environment.
Headline earnings per share were up 6.6 percent to 316.9 cents, while earnings per share rose 6.7 percent to 316.5c.
Profit rose 6.9 percent to R1.04 billion, with its revenue up by 2.3 percent to R7.3bn. Gross profit increased by a marginal 2.1 percent to R2.9bn and operating profit was up 6.7 percent to R1.52bn, despite the challenging environment.
The group said Covid-19 had materially impacted its consumers and, together with rising inflation, would continue to place pressure on disposable incomes.
“Many of our categories face the prospect of low, or negative, growth rates in the absence of improving macroeconomic circumstances,” AVI said.
The civil unrest in July disrupted trading with all of AVI’s facilities and retail stores, resulting in lost sales and production.
Spitz store damage costs and stock losses, and raw material losses in Snackworks, amounted to R36.9 million. However, the asset and trading losses were insured with R64.4m included in the interim results. Cash from operations increased 7.1 percent to R1.72bn, while net debt increased to R1.54bn from R1.12bn, up 37 percent.
Justin O’Meara, the new financial officer of AVI, said in a webinar that the debt was higher due to the group paying a special dividend in April last year. The company yesterday declared an interim dividend, which was up 6.3 percent, to 170c per share.
Entyce Beverages, which houses AVI’s local tea, coffee and creamer brands, bought in revenue of R2bn, 2.3 percent higher than in the prior period.
Tea revenue fell 4.7 percent due to lower rooibos revenue partially offset by a better black tea performance.
Rooibos revenue was lower than last year, with reduced selling prices, underpinned by lower raw material input costs, not fully recovered through improved volumes.
Coffee revenue was 0.8 percent lower than last year due to continued pressure on mixed instant volumes from aggressive competitor activity, and reduced affordable brewed volumes.
Creamer revenue grew 17.6 percent due to a 6.7 percent increase in sales volumes and selling price increases.
AVI’s Snackworks division, which houses brands such as Bakers, Baumann’s, Pyotts and Provita, saw revenue leap 6.6 percent to R2.52bn.
Biscuit revenue increased 7.3 percent due to volume growth of 1.3 percent and higher selling prices, while its snacks revenue rose 4.5 percent due with higher selling prices and a tighter control of discount.
In AVI’s fishing division, revenue was 0.8 percent higher at R1.24bn.
“The improved result is due to the abalone operation, which recovered from poor export demand and low selling prices, due to Covid-19 lockdowns in key markets,” it said.
I&J’s hake long-term rights were now secure as it retained 25.8 percent (previously 27 percent) of total hake quota, satisfying continuity for the next 15 years.
I&J’s Black Staff Scheme matured in December 2021, resulting in a payment of R103.3m to black staff.
BUSINESS REPORT ONLINE