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Investing in the AVI Group

By Danielle van Wyk

Previously known as the Anglo Vaal Industries Group, rebranded, AVI Limited, is home to many of the nation’s best-loved brands. Listed on the Johannesburg Stock Exchange in the Food Products sector, and centred on the Fast Moving Consumer Goods (FMCG) market, AVI’s extensive brand portfolio includes more than 50 brands.

“Our brands span a range of categories including: hot beverages, sweet and savoury biscuits and snacks, frozen convenience foods, out-of-home ranges, personal care products, cosmetics, shoes, accessories, and fashion apparel,” stated AVI.

Which brands does AVI house?

Their portfolio spans from Five Roses, Freshpak, House of Coffees, Frisco, Koffiehuis and Ellis Brown in the beverages category to Bakers, Pyotts, Provita, Willards and Baumann’s in the biscuits and snacks category.

They also boast with acclaimed brand, I & J in the frozen foods category, while their out of home category carries brands like Lavazza, Ciro, Douwe Egberts and Cafitesse.

While they are well known for their edible product brands, their portfolio also includes beauty and personal care brands such as Yardley, Lentheric and Coty. And fashion brands like Spitz, Kurt Geiger, Lacoste, Gant, Carvela and Green Cross Shoes.

“We have a well-developed shared services structure spanning: international, IT, finance, logistics, marketing, procurement and field marketing that allows us to take advantage of our scale. With a turnover of R12.19 Billion in this last financial year, AVI’s brands are a household name in South Africa and growing every day,” stated AVI.

AVI’s financial results 2016

The financial results for the year 2015/2016 were affected by and reflected the impact that the weaker rand has had on the consumer demand environment.

“Revenue for the year grew 8.4% to R12.2 billion (R11.2 billion) whilst gross profit was 8.6% higher at R5.3 billion (R4.9 billion). Operating profit before capital items jumped 12.4% to R2.2 billion (R1.9 billion). Profit attributable to owners shot up 11.2% to R1.5 billion (R1.3 billion). Furthermore, headline earnings per share rose 10.6% to 464.1 cents per share (419.7 cents per share).

“Most category growth rates have slowed and in some cases volumes are declining. It is exceptionally difficult to anticipate consumer demand with high confidence and we will continue to focus on reacting quickly to changes as we pursue the most appropriate balance of price, sales volumes and profit margins for each of our brands,” reported Share net.  

The year’s results did however show significant protection from rising spot prices for key commodities and rand weaknesses. This ‘because of the hedge positions maintained in terms of our hedging policies. Proactive and tactile selling price management has anticipated the pressure on gross profit margin from rising input costs and most of our categories are well positioned to protect gross profit margin in the first half of the next financial year, with selling prices aligned to hedge positions,’ stated AVI’s communication team, reportedly.

Other brands such as I & J are in line to benefit from weaker rand on export revenues, as it, according to the AVI group, has secured more than half of its export currency for the next financial year at rates better than those realised in the 2016 financial year.

“As always, catch rates have a material impact on volumes and efficiency, and need to remain at acceptable levels for I&J to sustain its current level of profitability,” reported.  

Investing in AVI

With the range of brands within the AVI group stable, and the steady growth in the headline earnings over the last consecutive years, this portfolio is an investor favourite.

Market competition is stiff with the likes of Tiger Brands Ltd, Pioneer Food Group Ltd, Oceana Group Ltd, RCL Foods Ltd and Rhodes Food Group Holdings Ltd. All of which are well established companies.

With a market cap of R26.8 billion, a PE of 18.47 and a dividend yield of 4.28%, it has been a great performer over the years and presents as a fairly rounded portfolio.

“AVI is a tighter more diversified portfolio than most within this market sector, since bringing in luxury brands five years ago. And with an economic environment like this, this is exactly where you want to see that diversification come through. The higher end of the market is still going to be buying their Carvela, their Gant shoes, and that’s done well. This has also insulated them from some of the market sell off at the moment,” reportedly stated Devin Shutte CEO, MyWealth Investments.

Their brands also don’t make use of grains, which has been affected by the ongoing drought, like some of the competitors’ products do which have the drive-up of internal inflation.

“In terms of the company’s dividend policy, a final dividend of 220 cents per share has been declared. This brings the total normal dividend for the year to 370 cents, an increase of 11,5% over the prior year,” stated Simon Crutchley, AVI’s CEO.

The company continues to invest heavily in their own business with a capital expenditure for the year of R881, 8 million.

“This included replacements of and improvements to existing facilities and operations, and expansion of our capacity in a number of important areas.

“The returns on the investments to date have been satisfactory and we will continue to invest in areas of the business where we believe that additional capacity will be important, where new opportunities exist or where we can drive efficiencies and cost savings,” stated Crutchley.

The South African consumer remains under considerable financial pressure.

“While wage settlements generally exceed inflation, the lack of any meaningful economic growth in an environment of population growth has meant that unemployment levels remain high and the number of welfare recipients increases steadily. In addition, there is a norm that administered price increases exceed the consumer price index and cost pressures arising from the weaker Rand often result in price increases that substantially exceed the inflation rate,” stated Crutchley.

The group are positive that they are well positioned to compete in the current difficult trading environment.

“We will continue to pursue growth opportunities from the current brand portfolio, prudently manage fixed and variable costs and recognising the challenging environment, be alert for appropriate acquisition opportunities both domestically and regionally. We have worked hard over a number of years to drive efficiencies in the business and to position the group for success in the difficult economic environment we are likely to face for some time. We have a number of projects in the pipeline for 2017 that should add to our ability to remain competitive in the evolving South African environment,” highlighted Crutchley.

 Handy tip: If you’re not ready to invest in the stock market, start small with a Unit trust. You can apply through Justmoney.

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