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Avi Limited - Interim Results: Six Months Ended 31 December 2003
Release Date: 04/03/2004 07:15:03 Code(s): AVI
AVI LIMITED - INTERIM RESULTS: SIX MONTHS ENDED 31 DECEMBER 2003
AVI LIMITED
("AVI" or "the Group")
Registration number: 1944/017201/06
Share code: AVI ISIN: ZAE000049433
Interim Results: Six months ended 31 December 2003
Turnover up 7% to R3,8bn (2002: R3,5bn) with volume growth of 7%
Operating margin growth across the Group, except at I&J - strong rand and
poor fishing
Operating profit down 2% to R482m (2002: R493m)
Headline earnings down 10% to R288m (2002: R320m) - lower net financing
income and higher tax rate
Diluted headline earnings per share down 9% to 90.5 cents (2002: 99.2
cents)
Strongly cash generative, with cash from operations up 3% to R671m
(2002: R654m)
Significant investment for future growth - House of Coffees, Quali Juice
and Lentheric trademark acquisitions concluded; capacity expansion at
Consol
Interim dividend declared for first time of 26 cents per share
Angus Band, Group Managing Director, commented:
"We are pleased with the progress achieved across the Group during the period
under review. Operational efficiencies have been enhanced and volume growth
achieved, despite volatile trading conditions. The strong rand has adversely
impacted our export volumes and realisations, particularly at I&J, but this does
not detract from the positive achievements within that business. We will
continue to focus on innovation, growth and driving cost efficiencies and are
anticipating a solid performance in the second half of our financial year."
3 March 2004
Enquiries:
AVI Tel: + 27 (11) 779 2700
Angus Band, Group Managing Director Tel: + 27 (11) 779 2703
Robert Katzen, Group Financial Director Tel: + 27 (11) 779 2704
College Hill Tel: + 27 (11) 447 3030
Nicholas Williams Tel: + 27 (83) 607 0761
Sam Denoon-Stevens Tel: + 27 (83) 450 7654
GROUP OVERVIEW
The Group has performed well in all of its operations in spite of volatile
currencies and a subdued local economy. Consumer demand within our domestic
markets has not responded to lower inflation and interest rates although trading
in the Christmas period was ahead of expectations. Export volumes and
realisations have been adversely affected by the rand"s strength. Within this
challenging environment volume growth was 7%, primarily driven by Packaging and
Logistics.
Turnover for the period increased by 7% to R3,8bn. This increase must be viewed
in the context of muted price increases in the local market, as well as the
currency impact on I&J"s export volumes and realisations which caused I&J to
report a decline in turnover.
Operating margins across the Group, with the exception of I&J, increased
primarily due to efficiencies and cost reductions. I&J"s operating profit
declined by 62% as a result of continued poor fishing in Southern Africa and the
significant reduction in export realisations because of the strong rand. The
Group"s operating profit declined by 2% to R482m with the improvement in the
overall performance offset by the decline in I&J.
Net financing income at R14m was 33% lower than the comparative period as a
result of the reduction in interest rates and reduced cash levels. The Group
continued to invest in its facilities, fund acquisitions and return cash to
shareholders through a higher dividend. The redemption of the preference share
funding structure following the repurchase by AVI of a 10% share of I&J from one
of its empowerment partners last year also reduced investment income. These
declines were partly offset by a reduction in translation losses on "Integrated
Foreign Operations" to R8m (2002: R21m).
The policy adopted last year to reduce the Group"s dividend cover increased the
dividend paid and resulted in a consequent increase in Secondary Tax on
Companies being incurred by the Group. This has contributed to the increase in
the Group"s effective tax rate to 34% (2002: 27%).
Headline earnings per share consequently declined by 10% to 90.5 cents. Diluted
headline earnings per share was also 90.5 cents (2002: 99.2 cents).
The Group has continued to invest in growth opportunities while maintaining and
expanding its current manufacturing base with total capital expenditure of R223m
(2002: R270m). During the period, the acquisitions of the House of Coffees and
Quali Juice were completed at a total cost of R105m and the Lentheric trademark
was acquired for R34m.
The Group remains strongly cash generative with cash flow from operations up to
R671m for the period (2002: R654m). Net cash after long term borrowings has
declined from R606m to R477m after funding capital expenditure and investments
which in total amounted to R362m. Working capital remained at acceptable levels
with the Group working capital to sales ratio at 19.8% (2002: 20.3%).
In the publication of the results for the previous financial year it was
announced that the Group would reduce its dividend cover from 3 times to 2.5
times and also introduce the payment of an interim dividend in order to improve
the quantum and frequency of distributions to shareholders. The first of these
interim dividends of 26 cents per share will be paid on Monday, 5 April 2004.
Segmental review
Turnover Operating profit
31 December 31 December
2003 2002 2003 2002
Rm Rm % Rm Rm %
Branded consumer
products 2,370 2,236 6 197 251 (22)
Packaging 1,195 1,061 13 254 214 19
Logistics 204 189 8 36 30 20
Corporate and
discontinued
operations - 31 - (5) (2) -
Total 3,769 3,517 7 482 493 (2)
BRANDED CONSUMER PRODUCTS
Although turnover increased by 6% to R2,4bn, operating profit fell by 22% to
R197m as a result of a lower contribution from I&J. Operating margin
consequently fell to 8.3% (2002: 11.2%).
Indigo Cosmetics
The first six months proved very successful for Indigo with turnover up 21% to
R247m largely attributable to volume growth as no price increases have been
implemented since October 2002. A significant portion of the volume growth
originated from innovation in the fragrance category, well supported by colour
cosmetics and skin care line extensions. The new fragrance introductions of
Isabella and Celine Dion have allowed the company to enter a more prestigious
fragrance category. In addition, the Barbie range for kids was successfully
launched during this period.
Operating profit grew by 19% to R27m, slightly lower than turnover growth,
primarily due to the investment in marketing and promotional activity for the
intensive launch programme undertaken during the period. Operating margin was
maintained at 11%.
During the period, the Lentheric trademark was purchased for R34m. This will
allow Indigo to expand the Lentheric franchise internationally, concentrating
initially on Australasia and the United Kingdom.
Irvin & Johnson (I&J)
The financial performance of I&J has been negatively affected by two major
factors, poor fishing, which is attributable to climatic conditions, and the
strong rand. While management is making progress in mitigating the impact of
these factors they were unable to offset them and there was a significant
decline in the results in the six months under review with operating profit
declining by 62% to R43m.
The rand has materially strengthened against the Euro and US$, the two major
trading currencies relevant to I&J. As a result, turnover for the six months
declined by 6% to R798m with volumes, excluding pelagic, remaining at prior year
levels. I&J managed to mitigate some of the impact of the weak US$ by converting
a number of international customers to Euros when the Euro/US$ rate was at
parity. Export demand remained strong although the smaller fish size mix added
complexity and cost to our ability to service the market.
A number of cost improvement initiatives at the Cape Town Trawling and
Processing operations were successfully implemented and the introduction of the
new deep-sea wet fish trawlers, the Foxglove and Forest Lily, as part of the
ongoing fleet upgrade process, contributed to improved efficiencies. I&J
improved its South African retail market share to 61.7% from 59.5% and continued
to focus on innovation with the launch of a variety of new products including
the Flame Grills seafood and poultry range.
Alpesca improved its performance largely as a result of good shrimp catches.
Further progress was made in improving the quality of the hake range with a
favourable impact on prices while the international prices achieved for
Argentine squid and shrimp remained high. However, the strength of both the rand
and the peso negatively impacted operating profit.
AVI will increase the share of I&J owned by black empowerment investors from 20%
to 25%. This restructuring of the black empowerment shareholding in I&J is
expected to be completed within the current financial year.
National Brands
National Brands achieved turnover growth of 6% to R1,3bn. The stronger rand put
food prices under pressure as it contributed to a general slowing in the rate of
inflation, but also allowed cheaper imports to undercut locally produced
products in the lower end of the market. Within this environment, National
Brands increased local volumes by 2%, primarily due to volume growth in
biscuits, tea and the acquisition of the House of Coffees. The rand strength in
the six months under review made it difficult for National Brands to compete in
international markets resulting in a 12% decline in export revenue.
Operating profit grew strongly by 14% to R129m as management continued to focus
successfully on achieving further efficiencies and input cost improvements and
as a result of the acquisition of the House of Coffees. The operating margin for
the period improved to 10.3% (2002: 9.6%).
Innovation continues to be a driving force in National Brands with several new
products, such as Sa Ka Ta rice crackers and Provita Oats & Brown Sugar being
launched during the six months. The integration of the remaining operations
relating to the House of Coffees acquisition will be completed in the second
half of the year and has proceeded in line with expectations.
The Real Juice Company
The Real Juice Company continues to show operational improvements which are
expected to accelerate following the acquisition of Quali Juice in September
2003. Turnover for the period was R73m and the operation incurred an operating
loss of R2m.
The acquisition provided an opportunity to upgrade the company"s manufacturing
facilities and to eliminate duplicated manufacturing costs in the Western Cape.
This was achieved with the closure of the Paarden Eiland manufacturing site
which was integrated into the Quali Juice facility in Cape Town in December.
Capital expenditure is focused on improving infrastructure to support volume
growth and cost reduction.
PACKAGING
Consol continued to show strong growth with turnover up 13% to R1,2bn, lifted by
volume growth of 6% and an improved product mix. Operating profit increased by
19% to R254m.
The glass manufacturing facilities were fully loaded, operating at maximum
capacity during the period and a further 1.4% gain in glass manufacturing
efficiencies was realised. Margins were maintained at the levels achieved for
the full prior year, in spite of the investments made in additional glass
capacity to service the market and a program of passing cost benefits of the
stronger rand and manufacturing efficiency gains back to the market.
The alcohol beverage category grew by 8% with declines in alcoholic fruit
beverages and returnable beer more than offset by strong growth in non-
returnable beer, spirits and wine. Non-alcohol beverage category growth was 4%
with pack share gains in both fruit juice and mineral water.
During the six months approximately 100,000 tons of glass containers were
imported by the industry, of which approximately 50,000 tons were to meet
sustainable demand above local manufacturing capacity. Consol has implemented
plans to expand capacity to meet this excess demand. These include the expansion
of the Clayville plant (40,000 tons) to be commissioned in early June 2004 and
plans to expand capacity in the Western Cape in line with the anticipated medium
term requirements to service the export wine market.
The plastics division continued to show an improved performance resulting from
the restructuring exercise initiated last year and its focus on eliminating non-
profitable production, which saw overall plastic volumes marginally lower.
LOGISTICS
Vector Logistics recorded a sound performance for the period, increasing
turnover by 8% to R204m on the back of a 4% growth in volume, mostly in poultry
and vegetables, and the implementation of Vector Express, a new channel targeted
at the foodservice market.
Management"s focus on risk control and continuous efficiency improvements
resulted in additional cost savings, helping to lift operating profit by 20% to
R36m.
The Multi-Temperature Contract Distribution division grew its revenue by 8%,
while an increased focus on service levels at Vector Express has contributed to
better access into the restaurant and hotel industry in major centres.
OUTLOOK
Trading conditions in the second half of our financial year are expected to be
better than the comparative period, as a result of an increase in consumers"
disposable income. The operational improvements implemented over the past year
will continue to impact favourably. Although currencies and fishing conditions
remain volatile we are anticipating a solid performance in the second half.
DIVIDEND DECLARATION
Notice is hereby given that an interim ordinary dividend no. 60 of 26 cents per
share for the year ending 30 June 2004 has today been declared payable to
holders of ordinary shares. The salient dates relating to the payment of the
dividend are as follows:
* Last day to trade cum dividend on the JSE
Securities Exchange South Africa ("JSE") Friday, 26 March 2004
* First trading day ex dividend on the JSE Monday, 29 March 2004
* Record date Friday, 2 April 2004
* Payment date Monday, 5 April 2004
In accordance with the requirements of STRATE, no share certificates may be
dematerialised or rematerialised between Monday, 29 March 2004 and Friday, 2
April 2004, both days inclusive.
Where applicable, dividends in respect of certificated shareholders will be
transferred electronically to shareholders" bank accounts on payment date. In
the absence of specific mandates, dividend cheques will be posted to
shareholders. Shareholders who hold dematerialised shares will have their
accounts at their Central Securities Depository Participant (CSDP) or broker
credited on Monday, 5 April 2004.
Group income statements
Note Unaudited Audited
Half-year ended Year ended
31 December Increase / 30 June
2003 2002 (decrease) 2003
Rm Rm % Rm
Turnover 3 3,768.9 3,517.3 7 6,564.2
Operating profit 4 481.5 493.3 (2) 932.6
Net financing income 13.7 20.6 52.7
495.2 513.9 (4) 985.3
Capital items (6.0) 21.6 37.2
Profit before taxation 489.2 535.5 (9) 1,022.5
Taxation 167.8 145.9 250.2
Profit after taxation 321.4 389.6 (18) 772.3
Share of equity
accounted earnings/
(losses) of associates
and joint ventures 4 0.1 6.7 (5.3)
321.5 396.3 767.0
Minority interests 40.4 55.5 105.9
Earnings 281.1 340.8 (18) 661.1
Determination of
headline earnings
Earnings 281.1 340.8 (18) 661.1
Adjustments
Capital items, net of
taxationand minority
interests 6.6 (20.5) (33.9)
Headline earnings 287.7 320.3 (10) 627.2
Headline earnings per
ordinary share (cents) 1 90.5 100.0 (10) 196.1
Diluted headline
earnings per
ordinary share (cents) 2 90.5 99.2 (9) 195.2
Earnings per
ordinary share (cents) 1 88.4 106.4 (17) 206.6
Notes:
1 Earnings and headline earnings per ordinary share are calculated on a
weighted average of 317,963,269 (2002: 320,425,172) ordinary shares in
issue.
2 Diluted headline earnings per ordinary share are calculated on a
weighted average of 318,044,402 (2002: 322,948,105) ordinary shares,
after taking account of the relevant number of incentive scheme shares
and options currently in issue.
3 Turnover in the comparable period has been restated to reflect a
reduction of R68.7m as a result of the re-allocation of certain
rebates and discounts within the branded consumer products segment that
were previously charged as an expense. This restatement was given
effect to in the audited results for the year ended 30 June 2003.
4 Operating profit and share of equity accounted earnings in the
comparable period have both been restated by R4.7m to reflect the
inclusion in operating profit of the receipt of royalty income for the
use of a subsidiary"s trademarks by a joint venture.
Group balance sheets
Unaudited Audited
31 December 30 June
2003 2002 2003
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 2,006.1 1,813.4 1,950.5
Intangible assets 167.7 107.9 93.5
Investments 354.9 433.8 375.3
Deferred taxation 100.8 78.7 92.6
2,629.5 2,433.8 2,511.9
Current assets
Inventories 859.9 759.0 860.0
Trade and other receivables 1,538.1 1,481.5 1,231.8
Cash and cash equivalents 579.8 694.6 986.9
2,977.8 2,935.1 3,078.7
TOTAL ASSETS 5,607.3 5,368.9 5,590.6
EQUITY AND LIABILITIES
Ordinary shareholders" funds
Share capital and reserves 3,056.2 2,849.2 3,057.3
Minority interests 396.5 521.7 397.9
Non-current liabilities
Interest-bearing borrowings 67.7 53.6 71.8
Deferred taxation 131.0 86.5 107.7
Post retirement medical aid provision 326.0 304.9 313.2
Other provisions - 21.0 -
524.7 466.0 492.7
Current liabilities
Trade and other payables 1,508.4 1,380.8 1,435.5
Corporate taxation 86.7 116.3 175.9
Short-term borrowings 34.8 34.9 31.3
1,629.9 1,532.0 1,642.7
TOTAL EQUITY AND LIABILITIES 5,607.3 5,368.9 5,590.6
Group cash flow statements
Unaudited Audited
Half-year ended Year ended
31 December 30 June
2003 2002 2003
Rm Rm Rm
Operating activities
Cash generated by operations 671.2 654.4* 1,271.3
Cash flow from investments 33.1 56.5 103.3
Increase in working capital (219.4) (140.6)* (15.4)
484.9 570.3 1,359.2
Interest paid (12.5) (17.5) (25.5)
Taxation paid (244.3) (182.2) (222.1)
Dividends paid (290.3) (208.3) (257.1)
Cash (utilised in)/retained from
operating activities (62.2) 162.3 854.5
Investing activities
Property, plant and equipment
- acquisitions (222.5) (269.3) (581.2)
- disposals 4.4 41.4 58.0
Net investment in property,
plant and equipment (218.1) (227.9) (523.2)
Trademark acquired (34.4) - -
Investment acquisitions, net of
disposals
- subsidiaries (100.9) (28.3) (144.9)
- other investments 15.4 5.5 74.2
(338.0) (250.7) (593.9)
Financing activities
Net shareholder funding 9.7 8.3 (59.0)
Repayment to minority shareholder (0.6) (0.6) (0.6)
Long-term borrowings - net movement (5.6) (4.9) 16.9
3.5 2.8 (42.7)
Net (decrease)/increase in cash
and cash equivalents (396.7) (85.6) 217.9
Net cash and cash equivalents at
beginning of period 955.6 785.6 785.6
558.9 700.0 1,003.5
Translation of the cash equivalents
of foreign subsidiaries at beginning
of period (13.9) (40.3)* (47.9)
Net cash and cash equivalents at
end of period 545.0 659.7 955.6
* The figures for the comparable period have been restated in order to
identify the movement relating to the cash and cash equivalents balance.
This restatement was given effect to in the audited results for the year
ended 30 June 2003.
Statements of changes in equity
Non-
Half-year Share capital distributable Distributable
ended and premium reserves reserves Total
31 December 2003 Rm Rm Rm Rm
At 30 June 2003
- audited 121.2 47.4 2,888.7 3,057.3
Revaluation of
agricultural
inventory in
accordance with
AC 137 - Agriculture 7.9 7.9
121.2 47.4 2,896.6 3,065.2
Movements recognised
through the income
statement: 26.0 26.0
Earnings 281.1 281.1
Dividends paid (255.1) (255.1)
Movements not
recognised through
the income
statement: 9.7 (44.7) (35.0)
Issue of ordinary
shares 12.1 12.1
Own ordinary
shares acquired (2.4) (2.4)
Foreign currency
translation
differences (28.2) (28.2)
Cash flow hedging
reserve (16.5) (16.5)
At 31 December 2003
- unaudited 130.9 2.7 2,922.6 3,056.2
Non-
Half-year Share capital distributable Distributable
ended and premium reserves reserves Total
31 December 2002 Rm Rm Rm Rm
At 30 June 2002
- audited 180.2 168.7 2,397.8 2,746.7
Movements recognised
through the income
statement: 170.6 170.6
Earnings 340.8 340.8
Dividends paid (170.2) (170.2)
Movements not
recognised through
the income statement: 8.3 (76.4) (68.1)
Issue of ordinary
shares 8.3 8.3
Foreign currency
translation
differences (76.4) (76.4)
At 31 December 2002
- unaudited 188.5 92.3 2,568.4 2,849.2
Capital items
Unaudited Audited
Half-year ended Year ended
31 December 30 June
2003 2002 2003
Rm Rm Rm
Net surplus on disposal and write-down
of investments, properties, vessels and
plant and equipment 0.3 28.4 44.1
Goodwill amortisation (6.3) (6.8) (8.5)
Surplus on disposal of mineral rights - - 1.6
(6.0) 21.6 37.2
Attributable taxation (0.8) (1.1) (2.0)
Attributable to minority interests 0.2 - (1.3)
Net (debit)/credit (6.6) 20.5 33.9
Interim results
The interim results have been prepared in accordance with South African
Statement of Generally Accepted Accounting Practice AC 127 - Interim financial
reporting. There have been no changes effected to any accounting policies
during the six-month period covered by the interim results other than as
detailed below.
Change in accounting policy
In accordance with the requirements of South African Statement of Generally
Accepted Accounting Practice AC 137 - Agriculture, the Group is required to
recognise its biological assets, comprising abalone, in its financial statements
and measure these biological assets at initial recognition and at each
subsequent reporting date at fair value. Biological assets were previously
recognised at cost. The adoption of AC 137 has resulted in the Group adjusting
the value of inventories at 1 July 2003 by R12.5m and the opening balance of
distributable reserves at 1 July 2003 by R7.9m after deferred taxation of R3.7m
and accounting for minority interests of R0.9m. Prior year comparatives have not
been restated as it was not considered practicable.
Investments
The principal changes during the period were as follows:
- National Brands Limited purchased 100 percent of the issued shares in the
House of Coffees (Pty) Limited, thereby increasing its presence in the
premium coffee market. The effective date of this transaction was
23 July 2003.
- With effect from 1 October 2003, The Real Juice Company Holdings (Pty)
Limited acquired 100 percent of Du Plessis Quality Juices (Pty) Limited (Quali
Juice), a short-life fruit juice manufacturing and marketing company.
- The cosmetics business which had operated as a division of National
Brands Limited was incorporated as a subsidiary of the Company with
effect from 1 July 2003 and renamed Indigo Cosmetics (Pty) Limited.
- Indigo Cosmetics (Pty) Limited purchased the international Lentheric
trademark in October 2003 for R34m.
Commitments and contingent liabilities
The capital expenditure commitments at 31 December 2003 are set out below:
Unaudited Audited
31 December 30 June
2003 2002 2003
Rm Rm Rm
Contracted for 404.2 205.5 244.3
Authorised, but not contracted for 49.4 74.7 357.6
453.6 280.2 601.9
The Group has sufficient available resources to fund this expenditure. There
were no other commitments entered into other than in the normal course of
business.
Contingent liabilities amounted to R36.7m (2002: R37.9m) in respect of
guarantees.
Certain Group companies have entered into forward exchange contracts in the
normal course of business.
Anthony Ardington Angus Band
Chairman Managing Director
3 March 2004
