AVI results a mixed bag across units

AVI CEO Simon Crutchley.

Picture: Martin Rhodes

The surge in lay-by orders, which is when payment for a product is recouped over several instalments, came as the group loosened payment terms to stem declining sales volumes.

AVI CEO Simon Crutchley said the group had increased the redemption period on lay-by goods at Spitz by a month to four months, and cut the deposit required in half to 10%.

Lay-bys made up 24% of sales at Spitz in 2016, up from 16% a year ago. The trend was expected to continue.

At the company’s annual results presentation on Monday, analysts raised concerns over the credit risk lay-by sales posed to the group, as well as concern over the order cycle.

But Crutchley said the credit risk was low, as lay-bys represented cash sales, and because almost all consumers made good on their commitment.

"The only challenge that may arise [should the trend continue] is the complexity around keeping new stock and lay-by orders at the same time," he said.

Declining sales volumes from AVI’s footware and apparel division were more than offset by solid earnings growth across the group’s other units.

Entyce Beverages, through which AVI sells teas, coffees and creamers across the consumer income chain, grew revenue 12.5% and operating profit 21.4%. Snackworks, which includes Bakers biscuits and Willards chips, raised sales 7.1%, while operating profit rose 14.2%. Operating profit from AVI’s fishing business, I&J, was improved by lower fuel costs and the weaker rand, which increased export sales.

In the personal care category, Indigo, through which the group manufactures Coty products, revenue grew 6.1%.

The improved performance across the various divisions came despite the effects of the worst drought on record, which resulted in increased costs; and the volatile rand, which led to several interest rate increases.

Although AVI implemented increases greater than inflation across all product categories, not all costs had been recovered, the company said.

Crutchley said the group expected the tough consumer environment to persist into the year ahead. AVI knew that it would have to manage price increases to ensure it remained accessible to consumers without eroding its margins.

Due to AVI’s constant hedging policy, the group is well protected from foreign exchange volatility in the first half of the year, but to a lesser extent in the second half, as the group’s hedge book operates on a 12-month rolling basis. The outlook for the second half will depend on the exchange rate.

Cratos Wealth portfolio manager Ron Klipin said AVI had delivered another solid set of results. "The company has often been described by some analysts as boring because of its predictable earnings stream, yet it remains an attractive long-term investment," said Klipin.

"Cash conversion from operations is again another strong feature, increasing by 15.3%."

That return on equity had shown a sturdy return of 27.9% and was a reflection of management’s skills, he said.

AVI’s share price fell 0.77% to R92 on the JSE yesterday, in line with declines across the bourse.