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Avi - Audited Results For The Year Ended 30 June 2004
Release Date: 08/09/2004 07:30:01 Code(s): AVI
AVI - Audited results for the year ended 30 June 2004
AVI Limited
Registration number 1944/017201/06
Share code: AVI ISIN: ZAE000049433
(`AVI` or `the Group`)
Audited results for the year ended 30 June 2004
Key features
- Turnover up 7% to R7.0bn (2003: R6.6bn) - Volume growth of 8%
- Adverse impact of strong Rand
- Operating profit up 2% to R947m (2003: R933m)
- Headline earnings per share down 5% to 186.2 cents - higher tax rate and
lower net investment income
- Final dividend of 54 cents - total for year 80 cents (2003: 80 cents)
- Cashflow from operations remains strong at R1.3bn (2003: R1.3bn)
- Active acquisition programme - R193m spent during year
`We made significant progress last year positioning the Group for future
growth through an active acquisition programme, improved internal efficiencies
and product innovation. We have delivered a solid set of results despite the
negative impact of a strong Rand. The current strong consumer environment
bodes well for the Group and together with our continued focus on acquisitive
growth and operating efficiencies, we are confident of continued progress.`
Angus Band, Group Managing Director
Enquiries:
AVI Tel: +27 (11) 779 2700
Angus Band, Group Managing Director Tel: +27 (11) 779 2703
Rob 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
MANAGING DIRECTOR`S REVIEW
The year under review has seen strong operational performances by all business
units although Irvin & Johnson Limited (I&J) was faced with the impact of the
strong Rand and poor fishing which had a material impact on its operating
profit. Turnover increased by 7% to R7bn with operating profit at R947m, 2% up
on the prior year notwithstanding the performance of I&J and a significant
increase in depreciation across the Group. Volume growth was solid at 8%
driven by growth at National Brands Limited (NBL), Consol Limited (Consol) and
Vector Logistics (Pty) Limited (Vector) and a full year of the Real Beverage
Company (Pty) Limited (RBC) volumes. Headline earnings per share declined by
5% to 186.2 cents as the positive operating performance was offset by lower
investment income and a significant increase in the Group`s tax rate.
The year has been extremely challenging as our business has had to deal with
the strong and volatile Rand and its impact on selling prices, input costs,
export competitiveness and cheaper imports. A positive impact of the currency
strength has been the resultant decrease in interest rates and inflation which
have had a favourable effect on domestic consumer demand. Retail sales have
been buoyant, although the high levels of activity in durables and clothing
have not been as evident in food sales which have tended to track GDP growth
more closely. Currency linked input costs have declined which enabled the
Group to restrict price increases to a minimum and, in fact, reduce them in a
number of categories. Overall, domestic price increases were limited to low
single digit percentages. However, costs such as payroll have continued to
outstrip the CPIX rate of increase and restrict further price relief as well
as further narrow export margins.
Export volumes into Africa came under pressure as the Rand strength impacted
on affordability. Demand in other markets, primarily for seafood products,
remained solid, however Rand realisations were compromised by the currency
movements.
Good progress has been made in positioning the Group for further growth
through innovation, new opportunities developed internally and acquisitions.
Capacity has been increased at Consol and the steady upgrade of facilities has
continued across the Group.
STRATEGIC OVERVIEW
AVI`s strategic positioning remains as a Branded Consumer Products and
Services Group, providing enjoyment to people through the supply of branded,
added-value products and services. The year has seen a number of acquisitions
and new business opportunities implemented to further enhance this position.
At NBL, the House of Coffees, which was acquired in July 2003 for R81m, has
been successfully integrated into Ciro Alliances and has met its profit
projections for the year. It has also contributed to establishing Ciro as the
category leader in roast and ground coffee. Within the biscuit category a new
line has been installed in Westmead at a cost of R13m, which will enable a
range of filled biscuits to be manufactured and capacity has been expanded at
the Isando facility. The new automated baking line installed at Westmead last
year has provided the capability to produce a range of more affordable
biscuits which has proved successful in competing against cheaper imports.
Our entry into the short-life juice category, which commenced with the
acquisition of The Real Juice Company last year, has been consolidated with
the purchase of Quali Juice during the year and Sir Juice after year end.
These acquisitions provide a solid product, geographic and channel spread in
the juice market. The total cost of the entry into the juice category,
including Sir Juice, will be R62m.
The acquisition of Denny Mushrooms together with its subsidiary Dining-In for
R202m provides an exciting entry into the `fresh to market` segment as well as
delivering on our strategy of growing our range of branded consumer products.
I&J`s Argentine subsidiary, Alpesca, acquired three second hand shrimp vessels
with licenses for R74m doubling its shrimp capacity. I&J also acquired a 50%
interest in an abalone farm in Chile, which complements the existing farm at
Danger Point, near Cape Town. Following a sustained period of
underperformance, I&J disposed of its investment in Namibia for R17m, an
effective loss of R3m.
Indigo Cosmetics (Pty) Limited (Indigo) acquired the global rights for the
Lentheric trademark for R35m. This will enable the launch of products,
successfully manufactured and marketed in South Africa, into first world
markets. A range of toiletries has been launched in Australia and early
responses are encouraging.
Consol added 50 000 tons of capacity during the year, at a cost of R308m, with
10 000 tons at the Wadeville factory and 40 000 tons at Clayville. Total
capacity at Consol is now 590 000 tons and it is our view that industry supply
and demand are now reasonably balanced for the foreseeable future.
Vector established a BEE joint venture, IsoVec, which will focus on mines and
government contracts. Vector Express, a wholesaling operation focussed on the
food service market, as well as Vector In-store Solutions, which delivers
channel management and merchandising services were established during the
year. Vector further consolidated its position in the bulk cold storage market
by establishing a second bulk cold storage facility at its Durban site.
Innovation is a key component in building further brand equity across the
Group and driving sales growth. Our continued focus on innovation has seen the
introduction of a number of new products across our various divisions. Within
the Branded Consumer Products segment new products have generated 18% of
turnover which compares favourably to our goal of 15%. This figure is higher
if the turnover from the new service initiatives launched by Vector are taken
into account.
Within the information systems arena we have continued to invest to further
improve our operating performance and the competitiveness of Group companies
as well as to prepare them for electronic collaboration with customers and
suppliers. The SAP implementation at Indigo is now fully operative and a major
SAP reimplementation project in Consol is on track for completion in July
2005.
Significant progress continues to be made in driving operational efficiencies
with turnover per employee growing by 5% to R598 000. Service levels reached
new highs and the Group received a number of awards recognising service and
innovation.
AVI has entered into discussions with Rainbow Chickens Limited regarding the
potential disposal of its logistics operation, Vector. The disposal will
increase AVI`s strategic focus on branded consumer products and it is our view
that Vector and its principals will benefit from being aligned with a
shareholder who has a long term interest in the frozen and chilled supply
chain.
FINANCIAL HIGHLIGHTS
All Group operations achieved both volume and turnover growth with the
exception of I&J, where turnover declined as a result of the stronger
currency. The growth in turnover translated into a 2% increase in operating
profit due to the decline at I&J and a 12% increase in depreciation to R315m
(2003: R281m) following the significant capital expansion and replacement
programme of the past two years. The operating profit margin consequently
declined from 14.2% to 13.5%.
The Branded Consumer Products segment reflected growth in turnover of 6% to
R4.5bn based on a 9% increase in NBL, a 20% increase in Indigo and the impact
of owning the RBC for a full year, offsetting a 7% decline at I&J. However,
the operating profit for the segment declined by 12% to R386m. Strong
performances from NBL and Indigo which lifted profits by 35% and 15%
respectively, were unable to offset the 54% decline from I&J to R110m. The RBC
achieved an operating loss of R2m, after incurring restructuring costs of R2m,
which compares to the R9m loss incurred in the prior year.
The Packaging segment continued to show good growth with total volumes up 5%
as a result of further growth in glass volumes. Turnover increased by 9% to
R2.1bn as product mix benefits and limited price increases complemented the
volume gains. The increased volumes, combined with further efficiency gains in
glass and an improved plastics performance, resulted in a 14% growth in
operating profit to R484m.
Revenue from the Logistics segment increased by 18% to R430m. Volume growth of
6% was driven by strong poultry and vegetable demand in the traditional
business and the strategy of diversifying into new distribution opportunities.
Costs were well contained resulting in growth in operating profit of 41% to
R69m.
Income from investments net of interest paid fell from R53m to R30m, after
benefiting from a reduction in the level of translation losses included in
investment income from R40m to R21m. This decline was mainly a result of the
decline in net cash on hand to R446m (2003: R884m) which is a result of the
cost of acquisitions, the capital expenditure programme, higher tax payments
and an increase in the level of the share buyback programme in the last
quarter. In total seven million shares were repurchased for R127m at an
average price of R17.68 per share. The impact of this reduction in cash was
compounded by the general reduction in the level of interest rates and the
impact of the redemption of preference shares following the sale of shares by
an empowerment investor in I&J in April 2003.
The Group`s tax rate has increased significantly from 24% to 33% with the tax
charge higher by R62m. This was mainly the result of the low base created in
the prior year following certain tax losses being raised as deferred tax
assets, and the significant increase in the current year of the Secondary Tax
on Companies charge (`STC`). The STC increase followed the Group substantially
exhausting its STC credit position and increasing its dividend payments
following the reduction in the dividend cover and the payment for the first
time of an interim dividend.
Although the Group has continued to show growth at the operating level, the
reduction in investment income and the higher tax charge has resulted in
headline earnings reducing by 6% to R588m (2003: R627m). Headline earnings per
share have reduced by only 5% to 186.2 cents (2003: 196.1 cents), benefiting
from the share buy back program. As a result of the movement in capital items,
the Group`s earnings declined by 14% to R567m (2003: R661m).
Capital items have reversed from a profit of R34m to a loss of R21m. The
profit recorded in the prior year was largely as a result of the profit on the
sale of the Cerebos salt property. Of the capital items reported in the
current year the most significant was the goodwill amortisation and impairment
of trademark of R18m (2003: R9m).
The Group continued to support its existing operations, invested in additional
capacity and completed a number of acquisitions as set out above. Maintenance
capex remained high at R339m (2003: R259m) while expansion capex increased to
R359m (2003: R322m). The most significant expansion projects were the furnace
at Consol`s Clayville operation and the acquisition of three second-hand
shrimp vessels by I&J`s Argentine subsidiary. The total cost of the
acquisitions completed during the year was R193m.
Working capital remained well controlled with a net additional investment,
excluding acquisitions, of only R30m which is in line with turnover growth.
The percentage of average net working capital to gross sales improved from
12.6% to 11.6%. This efficiency together with stable operating performance
resulted in cashflow generated from operations remaining strong at R1.3bn
(2003: R1.3bn).
Given the significant increase in capital employed following the investment
activities referred to above, together with the modest increase in operating
profit as a result of the I&J performance and the increase in depreciation,
the Group`s returns have declined. Return on average capital employed has
declined to 17.0% (2003: 19.7%), however this continues to beat the target of
13.6% being 1.2 times the Group`s weighted average cost of capital which is
currently measured at 11.3%. The EVA performance for the year consequently
shows a decline of R42m.
DIVIDEND
A final ordinary dividend of 54 cents per share for the year ended 30 June
2004 has been declared. The total dividend including the interim dividend,
introduced for the first time this year, will be 80 cents per share which is
unchanged from the prior year notwithstanding the reduction in headline
earnings.
OUTLOOK
Local consumer demand is expected to remain buoyant as a result of higher
levels of disposable income which are attributable to lower interest rates and
inflation as well as real salary and wage increases. However, within our
business mix, the strong Rand is a negative factor and a recovery in fishing
will be a prerequisite for a material improvement in I&J`s performance.
The acquisitions made during the course of the new financial year will
contribute positively to Group performance while our innovation pipeline
remains strong and consequently the Group has budgeted for real growth in
earnings.
APPRECIATION
The achievements this year could not have been made without the support of my
fellow executives and staff. Their ongoing commitment to the stated goals and
objectives of AVI are appreciated and I am proud to be associated with a group
of such professional and diligent individuals.
DIVISIONAL OVERVIEW
Segmental performance for the years ended 30 June
Operating profit
Turnover before capital
items
2004 2003 % 2004 2003 %
Rm Rm change Rm Rm change
Branded consumer 4 481.4 4 213.6 6 (12)
products 386.3 439.0
Packaging 2 117.1 1 936.9 9 483.5 422.3 14
Logistics 429.7 364.9 18 69.4 49.3 41
Corporate 0.2 0.2 - 7.8 19.9 (61)
7 028.4 6 515.6 8 947.0 930.5 2
Discontinued - -
operations 48.6 2.1
7 028.4 6 564.2 7 947.0 932.6 2
NATIONAL BRANDS (`NBL`)
Manufactures, markets and distributes leading food brands such as Five Roses,
Freshpak, Bakers, Pyotts, Frisco, Ciro, Koffiehuis, House of Coffees, Ellis
Brown, Willards and Baker Street. NBL has seven manufacturing operations in
Gauteng and KwaZulu-Natal and employs 2 150 people.
NBL`s contribution to Group turnover was in line with the prior year at 33%
and its contribution to the Group`s operating profit was 25% (2003: 18%).
NBL has continued to drive success by combining its commitment to innovation,
quality and service with a targeted acquisition strategy to leverage the
strong brands within its stable. Notwithstanding limited price increases and,
in fact, deflation in some product categories, turnover increased by 9% to
R2.3bn driven by strong domestic volume growth of 5% which includes the
acquisition of the House of Coffees (HOC). International volumes declined
marginally as the strength of the Rand limited exports into Africa.
The continued focus on efficiencies together with the impact of higher
volumes, improved procurement and the consolidation of the HOC have combined
to lift the operating profit by 35% to R232m, while the margin has increased
to 9.9% compared to 8.0% in the prior year.
The coffee category, which now comprises instant coffee and creamer following
the transfer of pure and ground coffee to Ciro Alliances, had a difficult
first half as a result of aggressive market pricing, which particularly
impacted our house brand sales. The introduction of a more competitive pricing
strategy in the second half of the financial year generated a lift in demand,
with the result that volumes for the full year were up by 2% and turnover by
3%. Sales of Frisco and Ellis Brown coffee creamer were strong but Koffiehuis
had a poor year as a result of insufficient brand support. A much better
factory performance and improved raw material procurement contributed to the
operating profit increasing by 14%.
The combination of National Brands` pure roast coffee business with Ciro
Alliances following the acquisition of HOC has been very successful. The
integration has proceeded smoothly with no loss of market share and Ciro is
now the leading retail and food service pure coffee marketer. Volume growth
was 8%, excluding HOC, with strong demand for premium coffee in both retail
and food service and good growth in tea in food service. The dedication to
customer service, cost management and innovation has continued to provide a
platform for improved returns with operating profit increasing by 25%, before
the impact of HOC. The anticipated rationalisation benefits from the
acquisition are on track and are expected to contribute meaningfully to next
year`s operating margin. The out of home sales forces and business systems are
successfully merged and HOC production facility has been merged into the
Isando coffee site in June 2004, with the result that all coffee and creamer
is now produced on a single site. During the year, the Ciro Filter Bag was
launched, which offers consumers filter coffee but in the convenience of a bag
and good progress has been made in growing our vending business.
The stronger Rand resulted in lower tea input costs which led to price
declines in black tea products. The shortage of rooibos tea however saw
continued price push in this range. The more competitive pricing in black tea
stimulated demand causing local volumes to grow by 6% with local turnover up
by 5%. The strong volume growth, together with a drive to reduce raw and wrap
costs by sourcing from alternative countries, combined to generate an increase
in operating profit of 21%. The level of innovation in this category was high
with the repositioning of the Five Roses brand following the launch of an
indulgent tea range that includes dessert, fruit and English Breakfast teas.
In addition, Freshpak was also relaunched as a health and well-being range
with a number of rooibos variants as well as green tea. Trinco tea released
the baler bag packaging to meet the needs of the affordable market.
The biscuit category achieved local volume growth of 8% with turnover
increasing by 12% as the sustained innovation programme continued to lift the
market demand. The growth in volumes was driven by Bakers, Baumanns and
VitaSnack which has shown excellent growth as a baked snack product. The new
automated line installed at Westmead was successfully commissioned and an
affordable range targeted at cheaper imports achieved good growth. Operating
profit grew by only 10% as a result of higher overheads caused by capacity
constraints, which have now been rectified. During the year, a further R13m
was spent on a new production line at the Westmead plant which will enable a
range of filled biscuits to be manufactured. A number of new products were
launched this financial year, including the revamped Bakers Wafizz range, Choc-
O-Breaks, Pro-Vita Oats and Brown Sugar, and Pyotts Cream Cracker Light.
Pyotts also launched Pyotts Sa-Ka-Ta rice crackers, launched in collaboration
with the Australian Sa-Ka-Ta rice brand.
Within the snacks category, management continued to reduce costs with a
particular focus on restructuring the sales force. This unfortunately had a
negative impact on volumes, which declined by 10% primarily in low margin
products. The restructuring, together with the lower cost base reached in the
prior year, led to a decline in the operating loss to R24m from R32m after a
significant increase in the advertising spend. In addition, factory
retrenchment costs of R4m were incurred as a result of the downsizing of the
Rosslyn factory.
NBL`s international sales, which represented 10% of total turnover (2003:
11%), were mixed with the Rand strength impacting on affordability into
Africa. Consequently turnover was down 2%.
Capital expenditure amounted to R75m for the year of which the major items
were the two new biscuit lines at Westmead and a new packing line at the tea
plant in Durban.
INDIGO COSMETICS
Distributes leading mass market cosmetic and toiletry brands to the South
African market. Indigo has a manufacturing operation in Cape Town and owns the
African trademark for Yardley and global Lentheric trademarks as well as the
licence to manufacture, market and distribute Coty products in South Africa.
The division employs 403 people.
Indigo`s contribution to Group turnover was in line with the prior year at 6%
and its contribution to the Group`s operating profit was 5% (2003: 4%).
Indigo`s turnover was up 20% to R447m and operating income grew 15% to R46m.
This growth in turnover was achieved on the back of an extensive innovation
programme and largely reflects real growth, as prices have been constant since
October 2002. Exports into Africa continue to grow at an accelerated pace and
sales were boosted by initial orders from the Lentheric project into
Australasia.
Margins declined slightly to 10.3% from 10.8%. This was as a result of a 23%
increase in the marketing expenditure to support the innovation programme and
the costs associated with establishing the Lentheric export initiative in
Australasia.
Turnover from new products launched in the past three years exceeded 30%. The
year saw sixteen new launches in the fragrance category and line extensions in
colour cosmetics. Fragrances benefited from the new introductions in the
`bridge` and `mass` categories and the follow-on extension into toiletries.
The new Coty celebrity endorsed `bridge` brands, Celine Dion and Isabella
Rossellini, positioned between mass and fine fragrances, have been
particularly well received as has the East.West, Coty mass market fragrance.
Colour cosmetics experienced good volume growth in both Yardley and Rimmel.
The skin care category was consolidated into the two Yardley brands during the
period under review and has continued as a supporting category within the
business. The pipeline for new products remains robust and capacity has been
installed to enable higher toiletry production to meet the anticipated
increase in demand both locally and from exports.
The global rights to the Lentheric trademark were purchased for R35m during
the year. A range of toiletries were launched in Australia and New Zealand in
July which will be followed by a similar launch in the United Kingdom early
next year. These launches leverage off the success achieved by the Solo
Numbers and Kaleidoscope ranges in South Africa.
Capex amounted to R25m for the year of which the significant items were
merchandising equipment, computer equipment and a new toiletry filling line.
IRVIN & JOHNSON (`I&J`)
I&J is headquartered in Cape Town, with operations in South Africa, Argentina,
Australia and Chile. I&J has a sales organisation in Europe as well as
representation in Australia, the Pacific Rim, the United States, Europe and
Africa. The company employs 4 858 people.
I&J contributed 22% (2003: 25%) to Group turnover and its contribution to the
Group`s operating profit was 12% (2003: 25%).
Turnover for the year was 7% down at R1.5bn, notwithstanding core sales
volumes increasing by 6% largely driven by hake sales from Alpesca. The
stronger rand, with average R/$ exchange rates at R6.88 compared to R9.00 in
the prior year, had a material unfavourable impact on South African export
realisations and international sales.
Operating profits fell 53% to R110m due to the impact of the strong Rand
combined with lower catch rates which resulted in a higher landed cost of
fish, as well as the negative impact of a smaller fish size mix on processing
costs and selling prices.
The adverse fishing experienced in South African waters in the previous
financial year continued. Based on the latest scientific data management
believe that the resource is healthy and that the current negative conditions
being experienced are cyclical. The cost per ton of landing fish has risen by
33% over the past two years as a result of lower tons caught per day and the
consequent impact on costs. The movement in exchange rates and the costs
associated with the poor fishing conditions resulted in a decline in operating
profit from South African operations of 54%.
I&J experienced a 6% growth in export volumes out of South Africa to Europe,
led by retail products in the high value processed fish category. Strong
international demand for sea-frozen fillets continues, although catch rates
and the size mix in the South African resource made it challenging to service
this demand.
Domestic South African volumes were down 1% on the prior year as a result of
increased competition in the food services channels. Prices were under
pressure as a result of the surplus of small fish. On a positive note, I&J`s
retail value market share grew from 56.5% to 59.4% on a comparable basis,
largely on the back of the very successful launch of the I&J Flame Grill Fish
range which achieved a market share of over 20% in its category within six
months. Chicken and beef product sales increased volumes by 5%.
In May, the South African hake fishery was the first hake fishery to receive
accreditation as a well managed, sustainable fishery by the international
Marine Stewardship Council (MSC). This will strengthen access for South
Africa`s hake products into international markets as major retailers move
towards limiting supply to sustainable fisheries only. Concurrently, I&J
received `Chain of Custody` certification by the MSC, a prerequisite for
companies to be allowed to use the MSC logo.
Alpesca had a difficult year with lower shrimp catches and prices,
particularly in the second half of the year. Although good progress continued
to be made in the optimisation of value added hake products, the hake
operation experienced lower catch rates and unfavourable fish size mix which
were compounded by the impact of a stronger Peso. This resulted in higher
production costs and lower sales values. The shrimp operations were
interrupted by the closure of the fishing grounds for two months as part of a
resource management decision. Operating profits were 17% down in Dollars and
36% down in Rands. Alpesca acquired three second-hand shrimp vessels in April
together with shrimp licenses which has doubled its shrimp fishing rights and
catching capacity.
The acquisition of 50% of an abalone farm in Chile will add to I&J`s position
in the higher value species and increase its capacity for exports primarily to
markets in the Far East. This acquisition complements the operations already
established at Danger Point in the Cape which are currently being expanded.
The commodity Pelagic operations incurred an operating loss as a result of
prices being severely depressed. This situation was aggravated by a break-down
of one vessel which necessitated a long dry dock. Our continued participation
in this fishery is being reviewed.
Simplot, I&J`s Australian joint venture, improved its operating performance
with operating profit up 31%. The factory problems experienced in the prior
year were overcome and good cost management enabled the margin to increase to
9.3%.
I&J disposed of its Namibian associate Hangana Seafoods, in January 2004 for a
consideration of R17m which represented an effective loss of R3m. I&J`s share
of Hangana`s loss in the period prior to its disposal was R3m (2003: loss of
R7m). I&J has retained the marketing rights to the products from Hangana for
Southern Africa, Australia and Italy until 2008.
During the year, R116m was spent on assets including fishing rights. The major
items were the shrimp vessels in Alpesca (R74m) and the final payment on the
fourth wet fish trawler built for the South African operation, as part of the
strategy of replacing the South African hake fleet.
REAL BEVERAGE COMPANY (`RBC`)
RBC manufactures and markets short-life fruit juices and iced teas under the
brands of Real Juice, Quali Juice and Sir Juice. It operates three factories
in Gauteng and the Cape and employs 333 people.
RBC`s contribution to Group turnover is 2% (2003: 0.5%) and the operating loss
declined to R2m (2003: R9m).
RBC completed a year dominated by acquisitions, brand development and
restructuring. The focus was on building a position as South Africa`s cold
beverage innovator, offering healthier beverage alternatives to consumers.
While this operation is in a development stage, we are confident that, with
the major product launch taking place early in the new financial year and with
the revision of packaging and branding, it is well positioned to achieve
profitability.
RBC`s turnover increased to R155m as a result of the acquisition of Quali
Juice in October 2003. The acquisition of Sir Juice was approved by the
Competition Authorities and management control transferred to AVI in August
2004. The acquisition of Sir Juice enhances the short-life juice portfolio
and provides increased access to food service customers. Its manufacturing
competencies in the 100% pure fruit juice product range further enhance RBC`s
market leadership in short-life juices.
An operating loss of R2m was incurred which includes costs of R2m resulting
from the integration and re-structuring of Quali Juice and the Real Juice
Company. On a strictly operating basis, the company achieved the break-even
target for the financial year.
During the year, R14m was spent on capex. The majority of this was utilised on
the implementation of an ERP computer system within the division and the
capacity upgrade of the Gauteng factory.
CONSOL
Consol is the leading South African manufacturer and marketer of glass
containers and also manufactures niche plastic packaging. Consol has seven
manufacturing operations in Gauteng and the Western Cape and employs 2 276
people.
Consol`s contribution to Group turnover was in line with the prior year at 30%
and its contribution to the Group`s operating profit was 51% (2003: 45%).
Although market conditions during the year were distorted by imports and short
term industry capacity shortages, Consol reported volume growth of 5% in
glass, while plastics volumes were flat. Selling price increases for the year
averaged 3% and a favourable product mix led to an increase of 9% in turnover
to R2.1bn. The increase in volumes, glass manufacturing efficiency gains and
the continued improvement in the plastics division, as a result of our
strategy of focusing on higher added value, more profitable product niches,
resulted in operating profits of R484m, up 14% over the prior year. The
operating margin improved from 21.8% to 22.8%.
During the first half of the financial year, approximately 108 000 tons of
glass containers were imported into South Africa by customers and
manufacturers to satisfy short term supply constraints. Of this, Consol
imported 15 000 tons to support customers at a net cost of R5m. In order to be
in a position to service the market Consol added a total of 50 000 tons of
capacity, 10 000 tons of which was added to the Wadeville factory at a cost of
R28m in October 2003. In addition the Clayville furnace rebuild and upgrade
was commissioned in June 2004 at a cost of R280m which increased capacity by a
further 40 000 tons per annum and was completed ahead of schedule and below
budget.
Within the alcoholic beverages category, alcohol fruit beverages (AFB`s)
volumes declined by 16%, entirely as a result of significant imports by
bottlers at the beginning of the period to ameliorate supply risk and not
because of a decline in demand for the category. This decline was compensated
for by growth in volumes in the non-returnable beer, returnable beer and
spirits segments of 11%, 20% and 6% respectively. The wine category continued
to be driven by exports and volumes grew by 15%.
Non alcoholic beverages volume declined by 10%, of which the returnable
carbonated soft drinks (RCSD) business was down by 16% as a result of
competition from imports. Fruit juice and mineral water volume growth was 13%
due to market and pack share gains. Food volumes were 3% higher compared to
the prior year.
Operating efficiency remains a major contributor to the success of the glass
division. The key pack-to-melt production efficiency ratio continues to
improve and was at 89% compared to 86% in the prior year. This is of
particular importance in ensuring our international cost competitiveness as a
major supplier to the South African beverage and food industry for both local
and export consumption.
Speciality Glass, which focuses on short run production, had a good year
recording strong volume growth after increasing capacity last year. The growth
in sales was driven by wine and food. Consol XPRS, which is a break bulk,
warehousing and distribution service operating in Stellenbosch and
Johannesburg targeting the small customer continues to grow and enables Consol
to reach new and growing customers.
Plastics increased its operating profit by 13% with solid performances from
Plastform and Rigids more than compensating for a difficult year for Flexibles
which suffered from competition from imports.
Capital expenditure for the year was R499m, of which R246m was used to
maintain operations and R253m was in respect of the expansion of the
operations at Wadeville and Clayville.
During the year, Consol received recognition for its collaborative innovation
in the packaging of a number of client products including Castle Light,
Smirnoff Red, Ceres, So!Go and the Stelvin Wine screw cap. Management
attention will continue to focus on efficiencies, manufacturing and product
innovation, and input costs, in order to lower the overall cost base.
Significant progress has been made toward a proposed restructuring of the
glass recycling industry with all major stakeholders signing a Memorandum of
Understanding, subject to Competition Authority approval, with the objective
of driving up the percentage of glass recycled. Consol has invested R15m in a
processing plant which will enable it to sort returned glass more effectively
through automation and infra red optical technology. Consol has also invested
R38m in an electrostatic precipitator at its Belville site which will limit
emissions.
VECTOR LOGISTICS
Vector is a national logistics service provider focused primarily on the
frozen and chilled foods supply chain. Head quartered in Durban, Vector
operates 19 distribution outlets nationally running a fleet of 174 vehicles
and employing 1 610 people.
Vector`s contribution to Group turnover was in line with the prior year at 6%
and its contribution to the Group`s operating profit was 7% (2003: 5%).
On the back of a 6% increase in volumes, Vector delivered a well rounded
performance with turnover growth of 18% to R430m. The key drivers of this
growth have been the launch of a number of new initiatives to build on the
core competencies and leverage the infrastructure and IT investments to date.
These include Vector Express, a specialist division targeted at the
independent foodservice channel. Vector Express turnover is accounted for at
sales value as opposed to the net commission basis applicable to the rest of
the business. On a comparable basis the increase in turnover would have been
8%.
The capacity of Vector Cold Storage, the bulk cold storage business unit, was
increased through the addition of a second operation in Durban. The Vector In-
store Solutions operation was successfully launched, providing a specialist
field marketing and merchandising service to Vector`s principals within the
retail and wholesale channels. These key growth initiatives were supported by
strong demand for poultry and frozen vegetables which were both up 9% in
volume. Pricing was marginally down on the prior year, but was far less
volatile, contributing to more consistent demand patterns.
Operating profit improved by 41% from R49m to R69m as a result of the improved
revenues and successful containment of costs, particularly in respect of fleet
utilisation and stock management. Improved volume smoothing and more efficient
distribution performance was achieved though the management of delivery
frequencies and extended delivery time windows in agreement with customers in
the latter part of the year.
Stock losses for the year halved when compared to the prior year and working
capital management was sound. During the last quarter of the year, the
targeted 50% reduction in slow moving lines was achieved. The high volume of
credit notes and the associated costs remain a constant challenge, although
good progress was made in most regions.
A further highlight for the year was the achievement of HACCP accreditation
for the Peninsula distribution facility in Bellville. Other than the obvious
benefits of food safety assurance and competitive advantage relative to our
peers, it also puts Vector in a favourable position to handle exports. HACCP
accreditation in the new financial year is planned for Thekwini (Durban) and
Roodepoort.
YUM! Restaurants International (KFC) has awarded the contract for managing
their inbound supply chain to KFC stores to a competitor of Vector. Although
The bulk of the volume loss will only be experienced in the 2006 financial
year and we are confident that the combination of new business initiatives, as
well as potential incremental volumes from existing principals, will offset
this impact. On a positive note, Vector has successfully concluded a new five
year agreement with McCain Foods South Africa on terms which will positively
re-define the working relationship.
The first BEE initiative within Vector was concluded with the establishment of
IsoVec, which is well positioned to focus on sales, marketing and distribution
within the food industry, servicing predominantly the State, institutional
tenders and mines.
Capex amounted to R22m for the year of which the significant items were in
respect of the additional bulk cold store and vehicles.
AUDITED RESULTS AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2004
Group income statements
Increase/
2004 2003 (decrease)
Rm Rm %
Turnover 7 028.4 6 564.2 7
Cost of sales 4 132.3 3 777.1
Gross profit 2 896.1 2 787.1
Selling and administrative expenses 1 949.1 1 854.5
Operating profit before capital items 947.0 932.6 2
Income from investments 49.9 78.2 (36)
Profit before interest paid 996.9 1 010.8
Interest paid 19.5 25.5 (24)
Profit before capital items 977.4 985.3 (1)
Capital items (21.4) 37.2
Profit before taxation 956.0 1 022.5 (7)
Taxation 311.8 250.2
Profit after taxation 644.2 772.3 (17)
Share of equity accounted earnings / (losses) of
associated
companies and joint ventures 3.8 (5.3)
648.0 767.0
Minority interests 81.0 105.9
Earnings attributable to ordinary 567.0 661.1 (14)
shareholders
Determination of headline earnings
Earnings 567.0 661.1
Capital items, net of taxation and minority 20.9 (33.9)
interests
Headline earnings 587.9 627.2 (6)
Headline earnings per ordinary share - cents 1 186.2 196.1 (5)
Diluted headline earnings per ordinary share 2 184.1 195.2 (6)
- cents
Earnings per ordinary share - cents 1 179.5 206.6 (13)
Dividends per ordinary share - cents 80.0
Notes:
1 Earnings and headline earnings per ordinary share are calculated on a
weighted average of 315 809 761 (2003: 319 917 815) ordinary shares in
issue.
2 Diluted headline earnings per ordinary share are calculated on a weighted
average of 319 375 150 (2003: 321 317 727) ordinary shares, after taking
account of the relevant number of share options currently in issue.
Group balance sheets
2004 2003
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 2 301.6 1 950.5
Intangible assets 201.5 93.5
Associated companies - 17.9
Joint venture companies 143.6 170.3
Other investments 215.5 187.1
Deferred taxation 101.8 92.6
2 964.0 2 511.9
Current assets
Inventories 890.2 860.0
Trade and other receivables 1 375.2 1 231.8
Cash and cash equivalents 674.5 986.9
2 939.9 3 078.7
TOTAL ASSETS 5 903.9 5 590.6
EQUITY AND LIABILITIES
Capital and reserves
Share capital 17.2 16.9
Share premium 300.7 287.1
Treasury shares (342.4) (182.8)
Non-distributable reserves 17.9 47.4
Distributable reserves 3 129.3 2 888.7
Total shareholders` funds 3 122.7 3 057.3
Minority interests 432.6 397.9
Non-current liabilities
Interest-bearing borrowings 155.8 71.8
Deferred taxation 182.8 107.7
Provisions 322.6 313.2
661.2 492.7
Current liabilities
Trade and other payables 1 535.4 1 435.5
Corporate taxation 79.6 175.9
Short-term borrowings 72.4 31.3
1 687.4 1 642.7
TOTAL EQUITY AND LIABILITIES 5 903.9 5 590.6
Group cash flow statements
2004 2003
Rm Rm
Cash retained from operating activities 558.1 854.5
Cash generated by operations 1 279.6 1 271.3
Cash flow from investments 61.7 103.3
Increase in working capital (30.4) (15.4)
Cash generated by operating activities 1 310.9 1 359.2
Interest paid (19.5) (25.5)
Taxation paid (349.9) (222.1)
Cash available from operating activities 941.5 1 111.6
Dividends paid (383.4) (257.1)
Investing activities (873.1) (593.9)
Property, plant and equipment purchased
- to maintain operations (339.0) (259.2)
- to expand operations (358.7) (322.0)
(697.7) (581.2)
Proceeds from disposals 11.7 58.0
Net investment in property, plant and equipment (686.0) (523.2)
Intangible assets purchased (88.8) -
Investments - net (acquisitions)/disposals (98.3) (70.7)
- subsidiaries and businesses (104.5) (144.9)
- associated companies and other investments 6.2 74.2
Financing activities (21.8) (42.7)
Net decrease in shareholder funding (114.2) (59.6)
Own ordinary shares acquired (127.5) (69.5)
Proceeds from the issue of shares and other 13.3 9.9
Long-term borrowings - net 92.4 16.9
- raised 99.4 28.0
- repaid (7.0) (11.1)
(Decrease)/ increase in net cash and cash (336.8) 217.9
equivalents
Net cash and cash equivalents at beginning of 955.6 785.6
year
Net decrease as a result of the translation of
the
cash equivalents of foreign subsidiaries at (16.7) (47.9)
beginning of year
Net cash and cash equivalents at end of year 602.1 955.6
Short-term borrowings 72.4 31.3
Cash and cash equivalents 674.5 986.9
Group statements of changes in equity for the years ended 30 June
Year ended 30
June 2004
Share Non-
capital Treasury distribu Distribu
and table table
premium shares reserves reserves Total
Rm Rm Rm Rm Rm
Balance at beginning of year 304.0 (182.8) 47.4 2 888.7 3 057.3
Revaluation of agricultural 7.9 7.9
inventory in accordance with
AC137 - Agriculture
304.0 (182.8) 47.4 2 896.6 3 065.2
Earnings for the year 567.0 567.0
Dividends paid during the year (336.9) (336.9)
Dividend adjustment in respect of
the consolidation of the 2.6 2.6
Company`s Share Trusts at 30 June
2004
232.7 232.7
Own ordinary shares acquired by (127.5) (127.5)
wholly owned subsidiary
Net own ordinary shares acquired (32.1) (32.1)
by the Company`s Share Trusts
Issue of ordinary shares
13.6 13.6
Issue of convertible redeemable
preference shares 0.3 0.3
Foreign currency translation (50.8) (50.8)
differences
Cash flow hedging reserve 21.3 21.3
13.9 (159.6) (29.5) (175.2)
Balance at end of year 317.9 (342.4) 17.9 3 129.3 3 122.7
Year ended 30
June 2003
Share Non-
capital Treasury distribu Distribu
and table table
premium shares reserves reserves Total
Rm Rm Rm Rm Rm
Balance at beginning of year 293.5 (113.3) 168.7 2 397.8 2 746.7
Earnings for the year 661.1 661.1
Dividends paid during the year (170.2) (170.2)
490.9 490.9
Own ordinary shares acquired by (69.5) (69.5)
wholly owned subsidiary
Issue of ordinary shares
10.0 10.0
Issue of convertible redeemable
preference shares 0.5 0.5
Foreign currency translation (103.7) (103.7)
differences
Cash flow hedging reserve (17.6) (17.6)
10.5 (69.5) (121.3) (180.3)
Balance at end of year 304.0 (182.8) 47.4 2 888.7 3 057.3
Changes in accounting policies
The results have been prepared in accordance with South African Statements of
Generally Accepted Accounting Practice. Other than as stated below, there
have been no changes effected to any accounting policies during the year.
* 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 increasing 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.
Capital items for the years ended 30 June
2004 2003
Rm Rm
Net (deficit) / surplus on disposal and write-down of (2.2)
subsidiaries, other investments, properties, vessels, 45.7
plant and equipment and mineral rights
Goodwill amortisation and impairment of trademark (18.2) (8.5)
Impairment of property, plant and equipment of a (1.0) -
subsidiary company
(21.4) 37.2
Attributable taxation (0.2) (2.0)
Attributable to minority (1.3)
interests 0.7
Net (charge) / credit (20.9) 33.9
Contingent liability
The South African Revenue Service (SARS) has issued
revised assessments on a foreign subsidiary for taxes
plus penalties and interest in respect of the tax years
previously assessed, 1998 through 2002.
