Spitz store at Rosebank Mall. When AVI bought part of Spitz more than 10 years ago, analysts slammed the deal, saying the shoe did not fit. Picture: SUNDAY TIMES/MASI LOSI
Spitz store at Rosebank Mall. When AVI bought part of Spitz more than 10 years ago, analysts slammed the deal, saying the shoe did not fit. Picture: SUNDAY TIMES/MASI LOSI

Consumer goods group AVI, the owner of Five Roses, Bakers and I&J, was bracing itself for a tough financial year, with many of its businesses likely to experience low or negative growth rates until the economy recovered, the company said on Monday.

This follows SA’s plunge into a recession for the first time since the global financial crisis with a contraction in the second quarter. Finance minister Nhlanhla Nene on Monday said the recession is likely to result in the Treasury missing its tax revenue targets, and it would revise growth forecasts down.

Added to this, dim business confidence, weak activity in the supply side of the economy and constraints on household spending “will hinder a robust recovery in growth”, Nene said.

AVI, which has just come out of what CEO Simon Crutchley said was “not an easy” 2018 financial year, said conditions in the SA market would remain difficult. The cumulative effect of job losses in the private and public sectors would compound the pressure on consumer spending, it said.

“Our expectation is that many of our categories are likely to have low or even negative growth rates until there is a meaningful improvement in the economy,” AVI said.

Consumers had taken strain from inflation, the VAT increase and higher fuel prices, it said.

Notwithstanding the gloomy outlook, AVI rewarded its shareholders with a special dividend of R2.50 per share, as lower costs in the year to end-June meant earnings growth outstripped slow revenue growth. The company last paid a special dividend in 2015.

Crutchley said the company was comfortable with the strength of its balance sheet and the 16% gearing, which is the ratio of a company’s debt to the value of its ordinary shares.

“It is not an easy environment, but things are not going to get worse because we have paid a special dividend. Most of our business is in good shape,” he said. The special dividend was in line with the company’s commitment to return excess cash to shareholders.

In the year ended June 30, AVI’s operating profit grew 7% to R2.55bn and net profit increased 8% to R1.67bn. Revenue was up 2% to R13.44bn.

AVI said it had increased selling prices in select product categories only, to minimise high input cost pressures. But “in most cases, selling prices were maintained throughout the year to support sales volumes”, the company said. AVI’s biggest division, food and beverages — made up of Entyce Beverages, Snackworks, and I&J — grew revenue 2% to R10.2bn and operating profit 7.4% to R1.9bn.

The fashion brands division, which encompasses personal care, and footwear and apparel, grew its revenue 1.5% to R3.1bn, and operating profit 6.2% to R645m.

The company said in its results statement that efficiencies and a relatively stronger rand had helped its margins during the review period.

“Despite lower price inflation and limited gains in sales volumes, the ongoing efforts to reduce procurement costs and improve factory efficiencies supported an improvement in the consolidated gross profit margin for the year,” it said.

“Improved exchange rates compared with last year and benign inflation in our basket of key raw materials priced in foreign currencies contributed further to this improvement.”

But it cautioned that the difficult trading environment was likely to persist in the current financial year, citing constrained consumer spending and the recent weakness in the rand.

In addition to the special dividend, AVI declared an ordinary final dividend of R2.60 per share, bringing the total for the year to R4.35, which was up 7.4% on the year-ago period.

AVI’s shares were up 1.33% to R113.14.

With Sunita Menon