Revenue Growth: 1.1% increase, primarily driven by selling price increases. Gross Profit Margin: Improved from 41.5% to 42.9%. Operating Profit: Grew by 8.9% to just under ZAR2 billion. Operating Profit Margin: Increased to 23.2%. Net Finance Costs: Increased to ZAR107.5 million. Headline Earnings: Grew by 9.1% to ZAR1.35 billion. Cash Generated by Operations: Increased by 16.4% to ZAR2.1 billion. Net Debt: Increased from ZAR1.8 billion to ZAR2.55 billion. Return on Capital Employed: Ended at 34.2%. Dividend: Normal dividend of 2 rand 20, an 8.9% increase. Capital Expenditure: ZAR158 million spent on acquiring a secondhand freezer vessel for I&J business. Snackworks Operating Profit: Reduced by 3.3%. I&J Operating Profit: Improved from ZAR31 million to ZAR36 million. Personal Care Margins: Reduced from 21% to 18%. Cash Conversion: Strong, in line with the prior year.

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Release Date: March 10, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

AVI Ltd (FRA:IZ6) achieved an operating profit growth of 8.9% to just under ZAR2 billion for the semester, with an operating profit margin reaching 23.2%. The company maintained strong cash generation, with cash generated by operations increasing by 16.4% to ZAR2.1 billion. AVI Ltd (FRA:IZ6) successfully protected its gross margins despite challenging market conditions, with a gross profit margin improvement from 41.5% to 42.9%. The company demonstrated effective cost control and factory efficiencies, contributing to improved profitability. AVI Ltd (FRA:IZ6) maintained a strong return on capital employed at 34.2%, supported by improved earnings over the last 12 months.

Negative Points

Group revenue growth was limited to 1.1%, primarily due to lower sales volumes despite price increases. The Carvela brand faced supply chain issues in December, impacting sales during a crucial period. The abalone business continued to struggle with oversupply and weak demand in core Asian markets, affecting profitability. Snackworks experienced a reduction in operating profit by 3.3% due to lower volumes and increased competition. The fashion brands business faced challenges, with personal care margins reducing from 21% to 18% due to increased competition.

Q & A Highlights

Q: How much of the margin expansion in ice beverages was driven by cost control versus a shift to more profitable wholesale customers, and is this margin sustainable? A: Simon Crutchley, CEO, explained that AVI does not target specific margins but rather operates based on the opportunities presented by cost sets, competitor behavior, and customer mix. The sustainability of these margins depends on how these variables play out in the future.

Story Continues

Q: If you could change or add something to AVI's business, what would it be? A: Simon Crutchley, CEO, expressed a desire for a business with a strong portfolio of brands to better handle South Africa's volatility and competitive environment. He noted the difficulty in acquiring such brands, both locally and internationally, due to competition with multinationals.

Q: Were the supply chain issues in the footwear and apparel business related to ports or suppliers? A: Simon Crutchley, CEO, clarified that the issues were with one Italian supplier and not related to port delays. AVI has adapted to port delays by ordering earlier, but the specific issue was a manufacturing supply chain problem with the supplier.

Q: Does AVI have a strategy for e-commerce? A: Simon Crutchley, CEO, stated that AVI is exploring e-commerce, particularly in the retail portfolio, and is working with retail partners on their e-commerce platforms. They are experimenting with some brands and will expand based on results.

Q: Can you explain the price-volume dynamic and whether the margin upside was intended? A: Simon Crutchley, CEO, emphasized that AVI manages gross margins with a long-term philosophy, considering uncertainty and volatility. Price increases are made with a view to be enduring for a 12-month period, and the outcome is a function of volumes sold and operating leverage.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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