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Coty opts out of exclusive AVI distribution agreement
Consumer brands giant AVI has banked a R150m compensatory payment after cosmetics group Coty opted out of a 13-year-old exclusive distribution agreement.
© Andrey Burmakin - Fotolia.com
On Thursday‚ 7 November 2013, AVI confirmed it was no longer the exclusive licensee of Coty in South Africa‚ with the cosmetics company wanting to control and own its brand in South Africa.
AVI executive director Michael Koursaris said the R150m payment related to the goodwill created by AVI for Coty during the period of the original contract.
AVI would now revert to a transitional agreement as manufacturer‚ importer and distributor of the cosmetics brand in South Africa and 13 other African countries.
While the chunky once-off payment will boost AVI's fortunes in the interim period to end December‚ Imara SP Reid analyst Warwick Lucas said the development asked some difficult longer-term questions. "The nature of 'agency' agreements is such that when agreements come to an end the brand owner can hook their brand‚" he said.
"There is always a longer-term risk of Coty being lost."
AVI said the initial terms of the transitional agreement would expire in June 2014 - although there was an intention for the companies to conclude a further for another five years.
Koursaris stressed there was every intention of extending the new agreement until 2019.
The R150m payment from Coty is not significant in terms of AVI‚ which has annual turnover of close to R9.5bn.
But the once-off payment is significant in relation to AVI's personal care interests held under Indigo Brands.
These brands - including Yardley Lentharic and Rimmel - turned over less than R1bn last year and generated around R170m in operating profits.
A trading statement released shortly after the Coty announcement on Thursday confirmed the R150m payment would be banked for the half-year to end December‚ pushing up AVI's earnings by more than 20%.
AVI did not detail the effects of the altered licence agreement.
But AVI's Stock Exchange News Service announcement stated that the transitional agreement would see the same operating profit earned in Indigo as it did when the original licence agreement was in place.
Source: I-Net Bridge
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