Constrained consumer demand will persist says AVI

Consumer spending has come under pressure in SA due to high levels of unemployment and indebtedness‚ rising soft commodity input costs and inflation.

"The cost pressure attributable to the weaker rand‚ rising energy costs and sustained high prices for some of our raw materials will result in margin pressure in many of our categories‚" AVI said.

The consumer goods company reported a 7% rise in diluted headline earnings per share (HEPS) from continuing operations to 326.5c for the year to June‚ from 305.2c a year ago. HEPS from continuing operations were 6.6% higher at 341.2c.

The company says revenue from continuing operations grew 11% to R9.22bn‚ with mostly cost-driven selling price increases and volume growth in most categories. Operating profit from continuing operations was up 11% to R1.53bn.

In May‚ SA's largest food company‚ Tiger Brands‚ said that with consumer spending still strained it would put R1bn into its domestic business‚ as it sought to improve efficiency to compete more effectively in the cut-throat environment.

Difficult trading environment

Tiger Brands' chief executive Peter Matlare joined the growing list of retail companies highlighting SA's difficult trading climate.

"Consumers remain under significant constraints‚" he said.

On Monday‚ AVI said it remained optimistic that its brand portfolio would continue to deliver growth in key categories‚ despite the difficult trading environment.

"This will be supplemented by a detailed review of our procurement activity and ongoing capital investment to improve quality‚ capacity and efficiency‚" it said.

The group said its results for the year reflected a solid overall performance‚ despite a difficult first semester for I&J and a challenging trading environment characterised by constrained consumer spending‚ increased competition in some categories and increased pressure on input costs stemming from the weaker rand.

I&J had an improved second semester‚ recovering much of the decline in first half results. Snackworks saw strong volume growth‚ supported by improved factory performance.

Spitz also achieved high volume growth from new trading space and continued strong demand for its core brands‚ resulting in leverage and profit growth despite the material negative effect of a weaker rand on gross profit margins.

Entyce had a more difficult year‚ with operating profit dipping amid increases in tea input costs and increased competition in all of its categories.

Green Cross was included from July last year and made a contribution to the group result in line with what was expected when it was taken over.

The board approved a reduction in AVI's annual dividend payout ratio from 1.5 to 1.25 times covered by diluted headline earnings from continuing operations. AVI said this was intended to return cash to shareholders more evenly‚ noting the frequent special dividends and share buybacks over the past few years.

The change recognised the group's strong cash-generating ability and capacity for further gearing should attractive purchases arise‚ it said.