Shoppers walk past a Spitz shoe shop, which is part of AVI, in Sandton City, Johannesburg. AVI reported a 3.8% fall in headline earnings per share for its half-year ended December 2019. Picture: ARNOLD PRONTO
Shoppers walk past a Spitz shoe shop, which is part of AVI, in Sandton City, Johannesburg. AVI reported a 3.8% fall in headline earnings per share for its half-year ended December 2019. Picture: ARNOLD PRONTO

The outbreak of the coronavirus has affected fishing company Irvin and Johnson’s (I&J’s) sales volumes in China, consumer goods group AVI said on Monday.

The coronavirus is wreaking havoc across the world, posing a serious risk to some industries. China is the biggest market for I&J’s abalone products, says parent company AVI CEO Simon Crutchley.

“(The outbreak of the coronavirus) is really a challenge in the short term.  But we have absolutely no certainty of how it will play out. We have our volumes affected in the short term,” he said.

Crutchley said a number of factories I&J dealt with in China had since been reopened. “But we flag that as an issue and a risk in the second half of the financial year.”

Commenting on supply chain problems as a result of the coronavirus, Crutchley said the company, which sourced products out of Asia, was “more anxious about getting those boxes across the sea on time. There are bottlenecks at some harbours. At the moment, it looks like two weeks of delay but it could extend to four weeks.”

AVI, which also owns footwear retailer Spitz, reported a 3.8% fall in headline earnings per share for its half-year ended-December 2019, saying on Monday that December trading was weaker than anticipated, with many of its competitors aggressively cutting prices to maintain market share.

Graphic: DOROTHY KGOSI
Graphic: DOROTHY KGOSI

Headline earnings is a widely used profit measure in SA, stripping out one-off items, such as impairments.

The AVI group said it was hedging its foreign currency exposures and raw materials, and had secured these at levels that will ensure sound profitability. The group also expects lower financing costs to help improve profitability.

During the half-year, I&J sold its interest in a joint venture with Simplot in Australia, realising proceeds of R633m and a capital gain, after tax, of R374m. Net debt fell to R1.65bn, from R2.51bn, and operating profit increased by a marginal 0.1%. The company said it was pinning its hopes on cost controls as it battles aggressive competition in SA’s weak economic environment.

“It is a tough environment, particularly for consumer-facing businesses. We are struggling to get volume growth across most of our businesses. In some categories we have seen some fairly aggressive competition in pricing.

“AVI is a portfolio of defensive and cyclical businesses. Some are struggling a little more in this environment. December, in particular, was a tough month. A lot of rain in the first week (of December) and load-shedding did not help our retail business’s performance, especially Spitz, which is December-dependent,” said Crutchley. He said the Spitz business experienced a decline in volumes in a low-demand environment. He said power outages in the first week of December 2019 lowered Spitz’s sales.

“We lost a lot of trading hours and we did not really recover from that,” said Crutchley.

AVI cut its interim dividend 3% to 160c per share, saying efforts to manage costs are ongoing and it is still considering acquisition opportunities.

“Anticipated sales volumes remain key to achieving this growth and we will continue to react quickly to market changes as we pursue the most appropriate balance of price, sales volume and profit margins for each of our brands,” AVI said.

Crutchley said current market events were creating significantly more volatility in long-term costs, especially in terms of the exchange rate.

In afternoon trade on Monday, AVI’s share price was down 0.67%  to R74.32.

With Karl Gernetzky

njobenis@businesslive.co.za

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