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AVI - Audited Results For The Year Ended 30 June 2005
AVI Limited
(Registration number 1944/017201/06)
Share code: AVI
ISIN: ZAE000049433
(`AVI` or `the Group`)
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2005
HIGHLIGHTS
* Restructuring complete - focus on branded consumer products
* Strong performance from continuing operations
** Turnover up 9% to R4.8 billion
** Operating profit up 16% to R469 million
** Operating margin up from 9.3% to 9.8%
** Headline earnings per share up 26.0% to 108.2 cents
** Cash generated by operating activities up 27% to R679 million
* Dividend payout ratio improved to 2 times
Angus Band, Chief executive officer commented:
`We have had a successful year both in terms of corporate activity and
operational performance. Strategically, AVI is now a focused branded consumer
products group, following the disposal and unbundling of its logistics and
packaging segments respectively. The continuing operations have performed well,
lifting headline earnings per share by 26%, driven by strong growth from the
domestic business.
Solid growth is expected from the South African consumer markets and AVI, with
its portfolio of leading consumer brands, is well positioned to continue to
deliver sustained growth for shareholders.`
7 September 2005
Enquiries
Angus Band Tel: +(27) 11 779 2703
Chief executive officer
Rob Katzen Tel: +(27) 11 779 2704
Group financial director
Sam Denoon-Stevens Tel: +(27) 11 779 2721
Investor relations officer
GROUP OVERVIEW
Significant progress has been made strategically within the Group. AVI`s asset
base has been streamlined to include only branded consumer product businesses
following the disposal and unbundling, respectively, of our logistics and
packaging segments. This has enabled AVI to pursue its stated strategy of being
a leading branded consumer products group, focussed on food, beverage and semi-
durable brands.
The past financial year has been very positive for the Group in terms of
corporate activity and operationally a solid overall performance has been
generated by continuing operations. Buoyant local consumer markets have
contributed to increasing the Group`s turnover from continuing operations by 9%
to R4.8 billion, lifting operating margin from 9.3% to 9.8%. Diluted headline
earnings per share increased by a creditable 26% to 106.9 cents.
A very strong operating performance was achieved by National Brands Limited
(`NBL`)with solid contributions from the newly acquired Denny Mushrooms (Pty)
Limited (`Denny`), Indigo Cosmetics (Pty) Limited (`Indigo`) and Irvin & Johnson
Holdings (Pty) Limited (`I&J`) domestically. This performance was however eroded
by the decline in performance from I&J`s Argentine fishing subsidiary, Alpesca,
as well as the cost of Indigo`s Lentheric launch into Australasia.
The year has been characterised by strong levels of local consumer demand,
fuelled by the development of a strong emerging middle class and the impact of
the low interest and inflation rates currently prevailing. Selling price
increases have been constrained in virtually all of our categories and in some
cases, such as cosmetics, no increases have been taken since 2002. The strength
of the Rand has however contributed to lower raw material and packaging costs
which has assisted in the management of margins. In the second half of the year
local inflation has started to lift costs, for example fuel, and this will be
compounded by wage settlements well above inflation. The Rand`s strength has
also opened the way for a higher level of imports across virtually every
category and although the impact has been restricted, this has had some
influence on market share in the more price sensitive channels.
Good growth has been experienced, at solid margins, in respect of exports into
Africa by NBL. I&J has continued to experience strong demand both locally and
internationally but supply has been impacted by a combination of poor catch
rates and two prolonged strikes at Alpesca.
STRATEGIC UPDATE
AVI`s business rationale is to provide enjoyment to people through the supply of
branded, added-value products. Our strategic focus has been narrowed with the
exit from packaging and logistics as well as the removal of the services sector
as a target area. Conversely the footprint for branded consumer products has
been widened to include branded semi-durables. This broadening of our definition
of branded consumer products builds off our long established position in
cosmetics and will, we believe, provide growth opportunities in related
categories where our core competencies can be applied but which allow us to
remain true to our business rationale. Our key strategic objective remains to
build a portfolio of leading consumer brands, as it is our opinion that the
South African consumer is becoming increasingly brand-focussed and that brands
will be both the key differentiator and a source of growth.
The acquisition of A&D Spitz (Pty) Limited (`Spitz`) falls within our branded
semi-durables strategy and gives AVI an exciting opportunity to acquire direct
ownership of premium, international footwear brands coupled with the 36 year-old
pedigree of the Spitz brand itself. Spitz procures, markets and distributes a
portfolio of footwear brands through 25 A&D Spitz outlets across the country.
Spitz owns the Carvela and Kurt Geiger brands and is the master distributor for
Lacoste footwear in South Africa as well as being a licensee for other well
known shoe brands.
The Group has also increased its involvement in the fresh-to-market sector with
the acquisition of Denny, the country`s leading branded mushroom supplier for
R140 million, effective 1 August 2004. Sir Juice, which supplies fresh fruit
juice to the food service channel, was acquired in August 2004 for R19 million
and complements AVI`s existing position in short-life juice.
Through I&J the Group has expanded its involvement in high-value aquaculture
with the acquisition of the remaining 50% of our abalone farm in Chile and is
also expanding the farm at Danger Point near Cape Town to substantially increase
output. A number of fin fish aquaculture projects which look encouraging are
being pursued both locally and in Chile. A decision has been taken to exit the
pelagic fishing operation, as it does not fit with our added-value strategy. One
vessel has been sold and the other two are expected to be sold by the end of
2005.
The investment in our brands through both marketing support and innovation is a
critical aspect of AVI`s growth initiative. Turnover from new products, launched
over the past three years, now contributes 18% to overall Group turnover, above
our previously published target of 15%.
FINANCIAL HIGHLIGHTS
The financial results reported have been prepared in accordance with
International Financial Reporting Standards (`IFRS`). The impact of the
conversion on reported earnings is not material. The restructuring of the Group
and the reclassification of Consol Limited (`Consol`), Vector Logistics (Pty)
Limited (`Vector`) and I&J`s pelagic fishing operations as discontinued has
significantly affected the comparability of the information presented.
Accordingly, the commentary contained in this section of the announcement will
focus on continuing operations.
The performance of the Group`s continuing operations was boosted by strong
domestic volumes and the impact of acquisitions. Turnover grew by 9%
notwithstanding the impact of the Rand on export realisations and the low
inflationary environment in South Africa. While negatively affecting turnover,
the stronger Rand resulted in lower raw and wrap costs across the Group and,
together with the economies of scale from volume growth and good cost
management, enabled the Group to post an increase in operating profit from
continuing operations of 16%.
The effective tax rate applicable to the headline earnings from continuing
operations was 27% (2004: 33%). The movement in the tax rate was primarily as a
result of the change in the official rate of tax to 29% and a significant
reduction in the STC charge.
Cash flow remained strong with cash generated by continuing operations up 26%
largely as a result of the improvement in operating performance. The Group has
continued to support its continuing operations with R116 million spent on
maintenance capex (2004: R76 million) and R92 million invested in additional
capacity (2004: R97 million).
Working capital was well controlled with average working capital to turnover
remaining below 14%. The deterioration in the ratio to 13.8% from 13.6% in the
previous financial year is as a result of the decrease in turnover in I&J as
well as some inefficiencies in the year-end inventory positions of I&J and
Indigo. This will be addressed in the new financial year.
The improved operating performance from continuing operations and continued
focus on asset utilisation have resulted in a return on average capital employed
for the continuing Group of 15%, well ahead of the weighted average cost of
capital of 10%. The Group`s EVA consequently shows value created during the year
of R47 million.
SEGMENTAL REVIEW - CONTINUING OPERATIONS
Following the restructuring of the Group we believe it is relevant to classify
our businesses and brands into segments, which more appropriately reflect the
dynamics of those businesses. Starting with these financial results we have
amended our reporting categories as follows:
SEGMENTAL REVIEW
For the year ended 30 June
Turnover
2005 2004 %
Rm Rm change
Food brands
Groceries
NBL 2 482 2 346 6
Frozen foods
I&J * 1 379 1 437 (4)
Fresh-to-market
Denny 230 - -
RBC 217 155 40
Branded semi-durables
Indigo 466 447 4
Corporate 16 - -
4 790 4 385 9
Operating profit
2005 2004 %
Rm Rm change
Food brands
Groceries
NBL 301 233 30
Frozen foods
I&J * 84 122 (31)
Fresh-to-market
Denny 28 - -
RBC 0 (2) -
Branded semi-durables
Indigo 47 46 2
Corporate 9 7 29
469 406 16
* The results for I&J exclude its pelagic fishing operation
NBL
NBL has delivered a very strong performance, taking advantage of the buoyant
local consumer markets, which contributed to volume growth of 7%. Turnover
increased by 6% to R2.5 billion, with the low inflationary environment
continuing to constrain price increases. The volume growth together with the
benefit of lower commodity prices and general cost containment resulted in
operating profit increasing by 30% to R301 million. The operating profit margin
grew from 9.9% to 12.1%.
The strong Rand, while enabling more cost effective procurement of raw and
wrapping materials, also provided for increasing competition from imported
product across most of NBL`s categories. In order to defend its market position,
NBL increased total marketing spend by 12% against the prior year. In addition,
over ten new products were introduced during the year.
The affordable coffee and creamer category enjoyed very strong growth. Turnover
grew by 12% following volume increases of 16%, with particularly high demand for
creamer. The growth in turnover was limited by lower selling prices and adverse
mix. Increasing raw coffee commodity and tin packaging costs together with an
increase in maintenance costs at the Isando factory limited operating profit
growth to 1%. Coffee selling prices were increased in the last quarter to cover
some of the increase in the raw material and packaging costs.
Ciro Alliances which manages NBL`s out-of-home channel as well as the premium
coffee brands was the only category not to record an improvement in turnover.
This was a result of the decision to exit the low margin independent catering
channel. On a comparable basis turnover was up 3%. Costs were well contained and
rationalisation benefits from the House of Coffees acquisition in the prior year
contributed to operating profit increasing by 15% for the year.
The convenience foods category grew turnover by 11% on the back of an 8%
increase in volumes with strong local demand boosted by good growth in export
markets. The benefit of these additional volumes together with overhead cost
containment and lower raw and wrap cost contributed to operating profit lifting
by 33%. Although this category experienced increased competition from cheaper
imports we believe that the marketing and innovation response has been
appropriate. Marketing spend was up 25% and there was significant investment in
new product development and launch costs. The introduction of the Topper range,
for example, which targets more affordable price points has seen excellent
demand from that sector of the market. In addition to this initiative a number
of exciting new products were launched and the pipeline for the new financial
year is very promising.
Turnover growth within the tea category was 3% on volume growth of 6% and our
market share reached an all time high. Black tea prices were decreased in the
second half of the prior year as the landed cost of raw tea declined. Strong
growth was seen in respect of black tea volumes but sales of Rooibos declined
due to the sharp increase in prices in the prior year which was driven by raw
material shortages. Some recovery in Rooibos was evident in the last quarter.
Operating profit was up 3% for the year after funding a 17% increase in
marketing spend. The upgrade of the Durban tea factory will drive both new
product development and efficiencies in the next financial year.
Willards continued to improve its operating performance and generated a small
operating profit for the year. Although turnover growth was constrained due to
an active programme of product rationalisation, a further reduction in the cost
base coupled with improved raw and wrap costs and lower discounting in the
market contributed to the improved results. Considerable time has been invested
in improving all aspects of product quality and marketing plans were
substantially revitalised which should contribute to further recovery in the
Willards brand in the coming year.
I&J
While the domestic performance of I&J improved during the financial year, poor
performance from its Argentine subsidiary resulted in the financial performance
of I&J falling well short of expectations and its potential. Turnover declined
by 4% to R1.4 billion and operating profit fell 31% to R84 million.
The focus on cost reduction and innovation particularly within the South African
operations has resulted in this division increasing operating profit by 30% as
these initiatives offset the impact of the poor hake size mix and catch rates
experienced throughout the year.
In April 2005, the Government issued its final fishing policy that will govern
the allocation of long-term rights, which take effect on 1 January 2006. A very
positive aspect of the draft policy is the reference to 15-year fishing rights
for the deep sea hake fishing sector as this will bring some stability to an
industry which requires long-term investment. We expect the allocation process
for deep sea hake to be completed by the end of December 2005.
While we are not able to assess I&J`s final position in respect of this quota
allocation, we believe that I&J`s exemplary record in the deep sea hake fishery,
its local value-adding strategy and its progress in promoting transformation
should mitigate the potential for any significant loss of quota.
The main reason for the decline in the overall financial performance of I&J was
the R25 million operating loss reported by Alpesca, compared to an operating
profit of R20 million reported in the prior year. The performance of the company
was materially impacted by two industry-wide strikes, the first closing
operations completely and the second preventing any secondary processing in its
major factory for 37 days. Wage settlements were higher than inflation and will
have a negative impact in the short-term. No further industrial action is
anticipated during the new financial year.
In addition to the cost of the strikes, shrimp fishing deteriorated sharply as
poor catch rates led to the closure of the national fishing areas. This was
compounded by a disagreement between two provincial governments which prevented
Alpesca fishing in certain provincial waters. While the shrimp catch is expected
to improve as environmental conditions become more favourable, access to the
shrimp fishing grounds remains limited and only a marginal increase in the
performance of the fishery is expected in the next financial year. Hake catch
rates are currently very good and the Total Allowable Catch has been increased
further from 370 000 tons to 390 000 tons.
FFI Trading, which is I&J`s international sales operation based in Europe,
generated a 7% increase in operating profit, notwithstanding the strong Rand.
Good progress has been made in developing third party agency business in high-
value seafood products.
The black empowerment shareholding in I&J was restructured during the year. In
terms of this restructuring the direct empowerment shareholding has been
increased to 25%. Of this shareholding, 20% is owned jointly by Ntshona
Enterprises and Mast Fishing, two broad-based empowerment organisations with
strong commitment to the South African fishing industry. The remaining 5% has
been transferred to the South African black staff of the I&J group. AVI has
continued to fund the acquisition of the I&J shares and in respect of the staff
ownership structure, donated 20% of the shares transferred.
Denny
AVI`s position within the fresh-to-market arena was bolstered with the
acquisition of Denny at the beginning of the financial year. Denny, South
Africa`s leading mushroom producer, sells a wide range of fresh and processed
mushroom brands including Denny, Silverstream, Gable and Moonlight Mushrooms. It
also has a wholly owned subsidiary, Dining-In, which has two food processing
plants and manufactures a range of niche, value-added, convenience food
products.
Turnover for the 11-month period since acquisition was R230 million with volumes
of fresh mushrooms up 5% on the comparable period in the prior year. This level
of activity was below expectation as imported product from China on the back of
the stronger Rand had a negative impact on processed product realisations.
Operating profit for the year, which reached R28 million, was partially
constrained by production problems in the Gauteng plant during peak season.
An extensive review of the Denny brand has been undertaken. A new marketing
strategy has been formulated that has identified new opportunities for the
business, and will have a positive impact on the performance in the new
financial year.
Real Beverage Company (Pty) Limited (`RBC`)
RBC`s financial year was dominated by the Sir Juice acquisition and
restructuring. The acquisition of Sir Juice, a premium pure juice product, was
finalised in August 2004 and strengthens RBC`s position in the short-life juice
market with a strong product intrinsic and access to out-of-home consumers.
While turnover on a comparable basis was up 19%, overall turnover of R217
million was up 40% from the previous year. The ongoing integration programme and
a change in senior management impeded the implementation of marketing plans and
this together with difficulties in commissioning a new filling line resulted in
an unsatisfactory national launch for the Quali Juice brand. Consequently sales
growth was below expectations and together with the under-recovered overhead
from the line commissioning resulted in a disappointing break even operating
profit result.
Good progress has been made during the second half of the year in resolving the
production problems and service levels were restored which, coupled with deeper
distribution, will enhance operating performance in the coming year.
Indigo
Indigo grew turnover by 4% to R466 million and operating profit increased by 2%
to R47 million. Indigo`s results for the year were impacted by the investment in
the development of a position in the Australian market for our global brand,
Lentheric. The domestic business however reflected profit growth of 40% with a
combination of lower input costs, due to the strength of the Rand and strong
toiletry demand contributing to lifting profitability. The local pricing
environment remained constrained with no price increases taken during the year.
Domestic volume growth of 4% was below expectations as a result of a material
decline in sales to the pharmacy channel due to the general confusion about the
future of that industry. In addition, a number of customers have introduced
sophisticated inventory management systems, which have resulted in lower sales
as they have re-balanced their inventory levels.
The introduction last year of a `bridge` category of fragrances has been well
received by the market, and is expected to continue growing at an accelerated
pace. The growth in the fragrance categories over this financial year was
stimulated by a high level of celebrity-endorsed product launches.
The Lentheric launch into Australasia involved an investment of R15 million
Which was primarily in marketing support costs in order to establish the brand.
Although listings have been secured in some 2 600 outlets, sales have been
slower than anticipated, particularly in the male toiletry range. It is not
expected that this project will generate a positive contribution in the new
financial year.
DISCONTINUED OPERATIONS
Vector Logistics was sold on 2 December 2004 and in the five-month period
generated sales of R200 million which compared to R430 million for the full year
to 30 June 2004. The operating profit for the five-month period amounted to R33
million in comparison with the R69 million earned for the 2004 financial year.
Consol was unbundled on 28 February 2005 and in the eight-month period had sales
of R1.5 billion which compared to R2.1 billion for the full prior year and
generated an operating profit of R350 million compared to R481 million for the
2004 financial year.
Following the decision to exit the pelagic fishing operation and to dispose of
the pelagic vessels, the results of this operation for the full year have been
disclosed as discontinued. In the financial year to June 2005 this operation
incurred an operating loss of R12 million compared to a loss of R13 million in
the prior year.
DIVIDEND
The Board has determined that, given the strong cash generating capability of
our Group and the change in the risk profile following the unbundling of Consol
and sale of Vector Logistics, it would be appropriate to reduce the dividend
cover from 2.5 to 2.0 times, based on headline earnings. This revised policy
will apply to the final dividend in respect of the 2005 financial year but will
exclude the earnings of Consol and Vector.
A final dividend of 37 cents per share for the year ended 30 June 2005 has been
declared.
OUTLOOK
AVI, with its portfolio of leading consumer brands, is well positioned to take
advantage of the structural consumption shift occurring in the South African
market, in particular within the growing middle income consumer sector. The
acquisitions that we have made are also expected to contribute positively and we
do not anticipate a recurrence of the industrial unrest in Argentina. Taking
these factors into account the Board anticipates that a real increase in
earnings will be achieved in the next financial year and that the Group will
continue to deliver superior returns for shareholders.
BALANCE SHEETS
AT 30 JUNE
2005 2004
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 1 143,2 2 287,0
Intangible assets 420,8 262,5
Joint ventures 162,8 143,6
Other investments 89,8 78,5
Subsidiary companies
Deferred taxation 102,0 104,2
1 918,6 2 875,8
Current assets
Non-current assets
held for resale 24,5 -
Inventories 500,0 890,2
Trade and other receivables 786,8 1 375,2
Cash and cash equivalents 448,7 674,5
1 760,0 2 939,9
Total assets 3 678,6 5 815,7
EQUITY AND LIABILITIES
Capital and reserves
Share capital 15,9 17,2
Share premium - 300,7
Treasury shares (51,7) (342,4)
Premium on minority
equity transactions (2,7) -
Reserves (22,3) (11,0)
Retained earnings 2 227,2 3 163,4
Minority interests (2,9) 309,8
Total equity 2 163,5 3 437,7
Non-current liabilities
Interest bearing borrowings 112,4 155,8
Deferred taxation 134,3 194,9
Provisions 268,4 339,2
515,1 689,9
Current liabilities
Trade and other payables 885,8 1 536,1
Corporate taxation 35,7 79,6
Short-term borrowings 78,5 72,4
1 000,0 1 688,1
Total equity and liabilities 3 678,6 5 815,7
BALANCE SHEET - continuing operations
AT 30 JUNE
The presentation formats prescribed by IFRS do not allow for comparability of
continuing operations on the face of the balance sheet. The balance sheet for
the comparative period, restated to remove the assets, liabilities and equity of
discontinued operations is set out below:
2005 2004
Rm Rm
Assets
Non-current assets
Property, plant and equipment 1 143,2 1 012,4
Intangible assets 420,8 262,5
Investments 252,6 221,9
Deferred taxation 102,0 88,9
1 918,6 1 585,7
Current assets
Inventories 488,0 398,2
Trade and other receivables 781,9 911,6
Cash and cash equivalents 432,0 248,9
Assets of discontinued operations 58,1 2 673,8
1 760,0 4 232,5
Total assets 3 678,6 5 818,2
Equity and liabilities
Total equity 2 163,5 3 437,7
Non-current liabilities
Interest bearing borrowings 112,4 155,8
Deferred taxation 134,3 68,4
Provisions 268,4 249,3
515,1 473,5
Current liabilities
Trade and other payables 873,2 820,2
Corporate taxation 35,7 77,0
Short-term borrowings 78,5 72,4
Liabilities of discontinued operations 12,6 937,4
1 000,0 1 907,0
Total equity and liabilities 3 678,6 5 818,2
INCOME STATEMENT
FOR THE YEARS ENDED 30 JUNE
2005 2004
Rm Rm
Continuing operations
Revenue 4 790,4 4 385,1
Cost of sales 2 869,7 2 648,8
Gross profit 1 920,7 1 736,3
Selling and
administrative expenses 1 451,6 1 330,5
Operating profit before capital items 469,1 405,8
Income from investments 30,9 41,6
Finance costs (39,6) (52,9)
Share of equity accounted
earnings of joint ventures 1,2 3,8
Capital items (21,8) (7,0)
Profit before taxation 439,8 391,3
Taxation 124,7 130,0
Profit from
continuing operations 315,1 261,3
Discontinued operations
Revenue 1 794,9 2 643,3
Cost of sales 1 062,9 1 483,6
Gross profit 732,0 1 159,7
Selling and
administrative expenses 360,6 622,2
Operating profit
before capital items 371,4 537,5
Income from investments 10,8 45,7
Finance costs (4,2) (1,7)
Capital items 18,5 (0,7)
Profit before taxation 396,5 580,8
Taxation 120,8 195,5
Profit from
discontinued operations 275,7 385,3
Profit before net gain
on disposal of
discontinued operations 590,8 646,6
Gain on disposal
of discontinued operation 306,9 -
Costs relating to
the unbundling of a
discontinued operation (6,4) -
Profit for the year 891,3 646,6
Attributable to:
Equity holders of AVI 873,5 577,3
Minority interests 17,8 69,3
STATISTICS FOR CONTINUING OPERATIONS:
2005 2004
cps cps
Earnings per share (Note 1) 198.6 83.5
Headline earnings per share (Note 1) 108.2 85.9
Diluted headline earnings per share (Note 2) 106.9 84.9
Note 1: Earnings and headline earnings per share are calculated on a weighted
average of 311 590 025 (2004: 315 809 761) ordinary shares in issue.
Note 2: Diluted headline earnings per share is calculated on a weighted average
of 315 536 786 (2004: 319 375 150) ordinary shares in issue, after taking
account of the relevant number of incentive scheme shares and options currently
in issue.
CASH FLOW STATEMENT
FOR THE YEARS ENDED 30 JUNE
2005 2004
Rm Rm
Continuing operations
Operating activities
Cash retained from operating activities 301,3 74,3
Cash generated by operations 631,6 549,6
Cash flow from investments 30,9 42,6
Decrease/(increase) in working capital 16,3 (55,7)
Cash generated by operating activities 678,8 536,5
Interest paid (39,6) (52,9)
Taxation paid (170,0) (72,4)
Cash available from operating activities 469,2 411,2
Dividends paid (167,9) (336,9)
Investing activities (394,5) (351,0)
Property, plant and equipment
- to maintain operations (115,5) (75,8)
- to expand operations (91,6) (97,1)
(207,1) (172,9)
Proceeds from disposals 6,6 8,6
Net investment in
property, plant and equipment (200,5) (164,3)
Intangible assets purchased (0,1) (88,8)
Investments - net
(acquisitions)/disposals (193,9) (97,9)
- subsidiaries and businesses (174,1) (104,5)
- associated companies, joint
ventures and other investments (19,8) 6,6
Financing activities (314,9) (21,8)
Net decrease in shareholder funding (213,5) (114,2)
Long-term borrowings (101,4) 92,4
- raised - 99,4
- repaid (101,4) (7,0)
Discontinued operations 203,9 (38,3)
Cash flows from operating activities 335,0 483,8
Cash flows from investing activities (131,1) (522,1)
Cash flows from financing activities - -
Acquisition of minority
equity interest in
discontinued operation (526,4) -
Cash flow from disposal
of discontinued operation 505,8 -
Decrease in net cash
and cash equivalents (224,8) (336,8)
Net cash and cash equivalents
at beginning of year 602,1 955,6
377,3 618,8
Net decrease as a result of
the translation of
the cash equivalents
of foreign subsidiaries
at beginning of year (7,1) (16,7)
Net cash and cash
equivalents at end of year 370,2 602,1
Short-term borrowings 78,5 72,4
Cash and cash equivalents 448,7 674,5
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2005
Share
capital
and Treasury Retained
premium shares Reserves earnings
Rm Rm Rm Rm
Balance at beginning
of year 317,9 (342,4) (11,0) 3 163,4
Earnings for the year - - - 873,5
Dividends paid - - - (167,5)
Issue of ordinary shares 8,0 (8,0) - -
Acquisition of
minority interest
in Consol Limited - - - -
Irvin & Johnson Holding
Company (Pty) Limited:
- acquisition of
minority interest - - - -
Unbundling of subsidiary
company, Consol Limited (106,7) - (4,3) (1 384,5)
Capital repayment
of 64 cents
per ordinary share (201,8) - - -
Acquisition of
own ordinary
shares by Company`s
Share Trusts (net) - (11,6) - -
Own ordinary
shares acquired
from wholly-owned
subsidiary
company and
subsequently
cancelled (1,4) 310,3 - (308,9)
Redemption of convertible
redeemable
preference shares (0,1) - - -
Foreign currency
translation
differences - - 33,2 -
Cash flow
hedging reserve - - 9,7 -
Share-based payments - - 1,3 -
Transfer between
reserves - - (51,2) 51,2
Other movements - - - -
Balance at end
of year 15,9 (51,7) (22,3) 2 227,2
Premium
on
minority
equity
trans- Minority Total
actions Total interests equity
Rm Rm Rm Rm
Balance at beginning
of year - 3 127,9 309,8 3 437,7
Earnings for the year - 873,5 17,8 891,3
Dividends paid - (167,5) (3,2) (170,7)
Issue of ordinary shares - - - -
Acquisition of
minority interest
in Consol Limited (213,5) (213,5) (312,9) (526,4)
Irvin & Johnson Holding
Company (Pty) Limited:
- acquisition of
minority interest (2,7) (2,7) - (2,7)
Unbundling of subsidiary
company, Consol Limited 213,5 (1 282,0) (20,9) (1 302,9)
Capital repayment
of 64 cents
per ordinary share - (201,8) - (201,8)
Acquisition of
own ordinary
shares by Company`s
Share Trusts (net) - (11,6) - (11,6)
Own ordinary
shares acquired
from wholly-owned
subsidiary
company and
subsequently
cancelled - - - -
Redemption of convertible
redeemable
preference shares - (0,1) - (0,1)
Foreign currency
translation
differences - 33,2 - 33,2
Cash flow
hedging reserve - 9,7 0,1 9,8
Share-based payments - 1,3 - 1,3
Transfer between
reserves - - - -
Other movements - - 6,4 6,4
Balance at end
of year (2,7) 2 166,4 (2,9) 2 163,5
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2004
Share
capital
and Treasury Retained
premium shares Reserves earnings
Rm Rm Rm Rm
Balance at beginning of year 304,0 (182,8) 42,2 2 935,8
Adjustments to account for the:
- Straight-lining of
operating leases - - - (11,3)
- Derecognition of
BEE transactions - - - (4,1)
Balance at beginning of year
as restated 304,0 (182,8) 42,2 2 920,4
Earnings for the year - - - 577,3
Dividends paid - - - (336,9)
Dividend adjustment in
respect
of the consolidation of the
Company`s Share Trusts - - - 2,6
Issue of ordinary shares 13,6 - - -
Issue of convertible
redeemable
preference shares 0,3 - - -
Own ordinary shares acquired
- by wholly-owned subsidiary - (127,5) - -
- by Company`s Share Trusts
(net) - (32,1) - -
Foreign currency translation
differences - - (77,3) -
Cash flow hedging reserve - - 22,3 -
Share-based payments - - 1,8 -
Balance at end of year 317,9 (342,4) (11,0) 3 163,4
Minority Total
Total interests equity
Rm Rm Rm
Balance at beginning of year 3 099,2 398,3 3 497,5
Adjustment to account of the:
- Straight-lining of
operating leases (11,3) (0,2) (11,5)
- Derecognition of
BEE transactions (4,1) (123,2) (127,3)
Balance at beginning of year
as restated 3 083,8 274,9 3 358,7
Earnings for the year 577,3 69,3 646,6
Dividends paid (336,9) (37,7) (374,6)
Dividend adjustment in respect
of the consolidation of the
Company`s Share Trusts 2,6 - 2,6
Issue of ordinary shares 13,6 - 13,6
Issue of convertible redeemable
preference shares 0,3 - 0,3
Own ordinary shares acquired
- by wholly-owned subsidiary (127,5) - (127,5)
- by Company`s Share Trusts (net) (32,1) - (32,1)
Foreign currency translation
differences (77,3) - (77,3)
Cash flow hedging reserve 22,3 3,3 25,6
Share-based payments 1,8 - 1,8
Balance at end of year 3 127,9 309,8 3 437,7
NOTES TO FINANCIAL STATEMENTS
1. Basis of preparation
The Group has elected to adopt International Financial Reporting Standards
(`IFRS`) for the year ended 30 June 2005.
The financial statements for the year ended 30 June 2005 are the Group`s first
consolidated IFRS-compliant financial statements and hence IFRS 1 - First time
adoption of IFRS has been applied in preparing the annual report for the year
ended 30 June 2005, the comparative information presented in this report for the
year ended 30 June 2004 and in the preparation of the opening IFRS balance sheet
at 1 July 2003 (the Group`s date of transition).
The transition to IFRS has not had a material impact on the previously reported
equity position and financial performance of the Group. A summary of the
significant changes to the Group`s accounting policies as a result of the
adoption of IFRS as well as a detailed explanation of how the transition to IFRS
has affected the previously reported financial position and performance of the
Group will be provided in the annual report.
2. Changes in accounting policies
2.1 Accounting recognition of disposal of shares in subsidiary companies The
Group has changed its accounting policy where shares in a subsidiary company are
disposed of and serve as security for the funding of the proceeds receivable in
accordance with revised accounting recognition requirements. In these
circumstances the accounting recognition of the disposal of the shares is
deferred in the consolidated financial statements until the funding subject to
the security of the shares has been fully repaid. Previously, such transactions
were recognised from the effective date of the underlying agreements of sale.
The change in accounting policy resulted in a reduction in net earnings
attributable to AVI shareholders of R5 million in the previous year and a
decrease in retained earnings at 1 July 2003 of R4 million.
2.2 Operating leases
The Group has adopted the interpretation of IAS 17: Leases detailed in SAICA
Circular 7/2005 - Operating leases, whereby the Group is obliged to apply the
straight-line basis of accounting for all fixed escalation payments over the
entire lease period. The adoption of the interpretation resulted in the
recognition of a non-current liability of R16 million at 1 July 2003
(R11 million after deferred taxation and minorities). The change in accounting
policy has no impact on earnings in the current and previous financial year.
3. 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 2003. The additional taxes assessed by
SARS amount to R49 million. The total amount in terms of the assessments
including penalties and interest, is R208 million.
The 2004 and 2005 tax years have not yet been assessed. Were assessments to be
issued on the same basis applied in the assessments received, the total amount
of tax payable in respect of these years would be R11 million, excluding
penalties and interest.
The Company has filed a notice of appeal against the 1998 to 2003 assessments.
However, as the issues in dispute are of a complex nature it is anticipated that
the matter will remain unresolved for an extended period.
4. Determination of headline earnings
2005 2004
Rm Rm
Earnings 873,5 577,3
Attributable to:
Continuing operations 619,0 263,7
Discontinued operations 254,5 313,6
Adjustments for net gain on disposal of
discontinued operations (300,5) -
Adjustment for capital items, net of
attributable taxation credit & minority interests 0,3 7,5
Headline earnings 573,3 584,8
Attributable to:
Continuing operations 337,2 271,1
Discontinued operations 236,1 313,7
573,3 584,8
DIVIDEND DECLARATION
Notice is hereby given that a final ordinary dividend No. 62 of 37 cents per
share for the year ended 30 June 2005 has today been declared payable to holders
of ordinary shares. The salient dates relating to the payment of the dividend
are as follows:
2005
Last day to trade cum dividend on the JSE
Limited (`JSE`) Friday, 14 October
First trading day ex dividend on the JSE Monday, 17 October
Record date Friday, 21 October
Payment date Monday, 24 October
In accordance with the requirements of STRATE, no share certificates may be
dematerialised or rematerialised between Monday, 17 October 2005 and Friday,
21 October 2005.
