Hedging policy helps AVI grow earnings

AVI CEO Simon Crutchley. Image source: BDlive

"The reality is we run our business for the long term," AVI CEO Simon Crutchley said on Monday, after delivering the group’s interim earnings report. After spending about R451m in the first half, which was mainly directed to replacing vessels for its fishing business I&J, AVI will spend a further R500m on improving the capacity of its biscuit line, rolling out new stores in its retail division, and on expanding its global operations in the rest of the continent.

Money will also be directed to installing back-up power systems, and the group said it would also look at finding alternatives to water supply. "Each project would have been tested for a medium-term scenario for efficiency and capacity reasons," Crutchley said.

In the six months to December, AVI increased headline earnings per share, the main measure of profit growth in SA, 11.3% to R28.16. The increase was driven mainly by the group’s hedging policy, which protected profits from currency movements and commodity prices, as well as higher selling prices across all product categories.

Operating profit at I&J soared 62.8% on the weak rand and low fuel price.

Ron Klipin, analyst at Cratos Wealth said the group’s return on capital of almost 30% justified the high levels of debt, which resulted in finance costs jumping 85% to R60.4m.

Chris Gilmour, analyst at Absa Wealth and Investments said the bank might buy AVI shares because of the defensive nature it derived from operating in all consumer segments.