Low sales volumes at Spitz and Green Cross drag AVI down
Footwear and apparel divisions weighed down by subdued economy while I&J remains afloat and Five Roses and Freshpak tea-maker Entyce Beverages records increased sales
Low sales volumes look set to continue to hurt AVI Limited’s footwear and apparel businesses as the group expects the negative trading environment to persist.
The two businesses — Spitz and Green Cross — performed poorly in the 2019 financial year amid the slump in consumer spending, resulting in a drop in full-year revenue.
AVI, which has a market capitalisation of R29.3bn, acquired Green Cross for R382.5m in 2012. But the business has struggled as it and other consumer-facing businesses could not pass on higher costs to cash-strapped consumers.
In July, AVI said it had written down the value of Green Cross by R87m, following its restructuring. The restructuring cost R27m. The company also closed its manufacturing facility in Epping, Cape Town.
AVI chairman Gavin Tipper and CEO Simon Crutchley on Monday said the company expected the trading environment to remain difficult.
The owner of tea brand Five Roses and fishing company I&J said aggressive competitor prices had put pressure on weak sales volumes in some of its categories in the year to end-June.
“Our expectation is that many of our categories will continue to have low, or even negative, growth rates until there is a meaningful improvement in the economy,” they said.
December’s sales volumes were lower than last year, particularly for Spitz, which was unable to repeat record December 2017 sales volumes.
“Selling prices were maintained throughout the year in most categories and were only increased where there was a need to ameliorate accumulated cost pressures,” the company said.
AVI reported a 4.7% drop in Spitz, mainly due to a 6.9% fall in footwear sales volumes. As a result of the lower sales volumes and a decline in gross profit, Spitz’s operating profit fell by 14.1% to R333.9m.
The lower sales volumes during the year also dragged Green Cross’s revenue down — it fell 19.4%.
“Sales volumes were impacted by soft demand and widespread discounting in the mid-price comfort footwear segment, exacerbated by poor performance of the summer and winter ranges in retail doors,” AVI said.
AVI’s headline earnings per share fell 4.9% to 516.6c per share and operating profit was down 3%. The company declared a final dividend of 250c per share, bringing the full-year dividend to 415c per share.
Net debt at the end of June 2019 was R2.44bn compared to R1.27bn at the end of June 2018.
I&J’s operating profit fell from R425m to R395.2m while the Entyce Beverages business, which includes tea brands Five Roses and Freshpack, increased revenue by 3.8% to R3.98bn. Its operating profit was up 5.5% to R835.8m.
AVI shares were up 3.53% to R87.46 on Monday.