| Mon 11 Sep 2006, 7:30 | | AVI Limited - Audited Results for the year ended 3 |
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AVI
AVI
AVI Limited - Audited Results for the year ended 30 June 2006 and
dividend declaration
AVI Limited
(Incorporated in the Republic of South Africa)
(Registration number 1944/017201/06)
JSE Share Code: AVI
ISIN: ZAE000049433
("AVI" or "the Company)
Highlights
* First full year as a focused consumer brands company
* Spitz acquired effective July 2005
* Revenue from continuing operations up 14.2% to R5.4bn
* Operating profit from continuing operations up 10.3% to R517.3m
* Headline earnings per share from continuing operations 107.2 cents (2005:
108.2 cents)
* Cash generated by continuing operations up 4.5% to R660.2m
* Total dividend for year of 53 cents per share (2005: 51 cents per share)
Simon Crutchley, Chief executive officer said:
"We produced solid results at National Brands and Indigo Cosmetics and the
performance at Spitz was exceptional. Remedial action is underway to address the
performance of I&J and RBC and we are confident of an improved performance in
these businesses in 2007.
The recovery opportunities inherent in I&J and RBC, the focus on organic growth
and innovation and, with time, the benefits resulting from the operating
restructure of the group, underpin our confidence that the outlook for AVI both
in the year ahead and over the medium term is positive."
Enquiries:
AVI Limited Tel: 011 779 2700
Simon Crutchley, CEO
Owen Cressey, CFO
College Hill Tel: 011 447 3030
Louise Brugman Tel: 083 504 1186
Group overview
The year to 30 June 2006 was AVI"s first full period of operation as a focused
consumer brands company, following the sale of Vector Logistics (Pty) Limited
and the unbundling of Consol Limited in the previous financial year. The
acquisition of A&D Spitz (Pty) Limited ("Spitz") strengthened the company"s
fashion brand portfolio and underpins our commitment to access branded consumer
categories with strong branding intrinsics and growth potential.
Solid improvements from both National Brands Limited ("NBL") and Indigo
Cosmetics (Pty) Ltd ("Indigo") and an exceptional year from Spitz were offset by
a material decline in the operating performances of Irvin & Johnson Limited
("I&J") and to a lesser extent The Real Beverage Company (Pty) Ltd ("RBC") and
Denny (Pty) Ltd ("Denny"). Headline earnings per share declined by 0,9% to 107,2
cents while the total dividend for the year, including a final dividend of 33
cents per share, amounts to 53 cents per share (2005: 51 cents per share).
Consumer demand was strong throughout the year, however selling prices remained
at prior year levels for most of the year largely due to a strong and relatively
stable rand which supported import competition and a low inflation environment.
Despite low inflation there were escalations in raw material, packaging, energy
and wage costs that put pressure on margins. This was partly alleviated by the
leverage effect of increased sales volumes from the existing fixed cost base
which resulted in improved cost efficiency. Selling price increases were
achieved in the last quarter of the year to address the impact of cost pressure
on margins.
The Board has committed to a key restructuring initiative that will, over time,
change the operating structure of the Group. The revised structure is expected
to be a key enabler to increase the rate of revenue growth in future years by
enhancing the Group"s ability to innovate and lead trends and by unlocking
logical synergies.
Group financial results
Revenue from continuing operations rose by 14,2% from R4 734,8 million in 2005
to R5 406,6 million in 2006 as a result of the inclusion of Spitz and growth in
volumes of some 5% across the balance of the business.
Operating profit rose by 10,3%, from R469,1 million to R517,3 million. The
additional operating profit from Spitz and NBL was partially offset by declines
at I&J and RBC. The operating margin for the Group from continuing operations
was slightly lower than in 2005 at 9,6% (2005: 9,9%).
Net financing costs increased from R8,7 million in the prior year to R33,2
million mainly as a result of the financing costs arising from the Spitz
acquisition.
AVI"s interests in joint ventures realised a net loss of R12,3 million
principally because of restructuring costs at the Australian fish processing
joint venture, Simplot.
In contrast to the increase in operating profit, headline earnings of R335,0
million were slightly lower than in 2005. This was largely attributable to the
increase in financing costs, the loss recorded by the Simplot joint venture and
higher Secondary Tax on Companies.
The capital items for continuing operations mainly comprise an impairment of the
shrimp fishing rights held by the Argentinian fishing operation, Alpesca.
Resolution of a provincial dispute that was outside of Alpesca"s control led to
the withdrawal of fishing rights from two of its vessels.
Discontinued operations reflect a profit of R8,0 million from I&J"s commodity
pelagic operation which was terminated in November 2005 after the sale of the
remaining vessels, reduced by an adjustment of R3,3 million to the profit on
sale of Vector arising from a potential warranty claim in terms of the sale
agreement.
Cash generated by continuing operations remained strong increasing to R660,2
million from R631,6 million in the prior year. Cash and cash equivalents
decreased by R120,1 million in 2006. The main cash outflows during the year were
the investment in Spitz of R238,2 million after deduction of cash acquired,
capital expenditure of R215,1 million, taxation of R186,4 million and dividends
which amounted to R179,2 million. The working capital increase of R36,5 million
is largely attributable to NBL, where receipt of raw materials close to year end
and strong sales in June increased inventories and trade debtors respectively.
NBL and I&J were responsible for the bulk of the capital expenditure with the
largest item being a capacity expansion at the Westmead biscuit factory at a
cost of R29,6 million. The majority of capital expenditure in 2006 was to
maintain operations.
Balance sheet gearing, after the Spitz acquisition, is still low and AVI is well
positioned to fund its acquisitive ambitions.
Segmental review (continuing operations)
Revenue Operating profit
2006 2005 % 2006 2005 %
Rm Rm chang Rm Rm change
e
Food & 4 502,9 4 257,4 5,8 344,0 413,0 (16,7)
beverage
brands
National 2 606,7 2 434,9 7,1 337,0 301,1 11,9
Brands
I&J 1 432,5 1 378,3 3,9 5,9 84,3 (93,0)
Denny 254,7 226,9 12,3 21,5 27,8 (22,7)
Real 209,0 217,3 (3,8) (20,4) (0,2)
Beverage
Fashion 871,4 461,9 88,7 165,6 47,0 252,3
brands
Indigo 479,6 461,9 3,8 50,5 47,0 7,4
Spitz 391,8 115,1
Corporate 32,3 15,5 108,4 7,7 9,1 (15,4)
Total 5 406,6 4 734,8 14,2 517,3 469,1 10,3
Food and beverage brands
NBL increased revenue by 7,1% in 2006 on the back of higher volumes in most
categories and particularly in biscuits which enjoyed volume growth of 11,2%.
Selling prices were, in general, constrained by the low inflationary environment
and the impact of a strong and relatively stable rand. The gearing effect of
higher volumes combined with improved cost efficiency led to operating profit
increasing by 11,9%, from R301,1 million to R337,0 million.
Although revenue from I&J increased by 3,9%, results were severely impacted by
the poor performance of the South African fishing operations which resulted in a
marginal operating profit of R5,9 million compared to R84,3 million in 2005.
Key factors giving rise to the poor performance of the South African fishing
operation were:
* Low hake catch rates that led to a significant increase in fishing effort, and
therefore cost, per ton of fish landed;
* An ongoing prevalence of small fish that reduced sales of premium margin
products;
* Rising fuel costs.
Prices in the South African market were on average 8% higher than in 2005, which
partly recovered the higher cost of fish without having a negative effect on
retail market share. Export prices were slightly higher than 2005, however, the
strength and relative stability of the rand prevented any material benefit
arising on export sales.
The Argentinian fishing operations, Alpesca, improved operating performance
relative to 2005 mainly because of good hake catch rates. However overall
operating performance was disappointing, with the impact of better fishing
offset to a large extent by increased fishing-related incentives, high fuel
costs and a difficult labour environment.
AVI believes that there is significant opportunity to address and improve
controllable aspects of I&J"s operating model. Much good work has already been
done in a short space of time, however the complete process of review and
improvement is likely to continue into 2008.
The announcement of the allocation of Long Term Rights ("LTR") for the South
African fishery was made in January 2006, and finalised in August 2006 after an
appeal process. In percentage terms, I&J retained 94% of its 2005 hake quota,
however a 5% reduction in the 2006 hake Total Allowable Catch brings the total
reduction for the 2006 calendar year to 11%. Whilst these final allocations
remain open to legal challenge, the possibility of any further material decline
in I&J"s quota appears low. The certainty of the LTR substantially improves our
ability to make confident decisions regarding the securing of enhanced
profitability for I&J.
Denny increased sales volumes by 5,6%. Profitability was constrained by planned
investments in sales and marketing to support the long-term strength of the
Denny brand and to a lesser extent by lower fresh mushroom selling prices.
Operating profit amounted to R21,5 million compared to R27,8 million
attributable to AVI in the prior year.
RBC had a disappointing year, with revenues slightly down on the prior year and
an operating loss of R20,4 million. The performance was primarily the result of
poor management decisions with regard to brand positioning and distribution
which reduced market share, dropped service levels and materially increased
distribution and other costs.
Corrective action has been taken with new management appointed who are
implementing a revised distribution strategy which should improve service levels
and the brand positioning is being remedied. While 2006 has borne an abnormal
level of costs, little of the benefits arising from corrective actions had
accrued by the end of the period. The main benefits of an improved cost base and
increased volumes are expected to build steadily during 2007 and contribute to a
material improvement in operating performance.
Fashion brands
Indigo grew revenues by 3,8%, principally on the back of increased domestic
volumes. Marketing investment in the Lentheric Australian venture was curtailed
in line with mediocre sales. Following a difficult first half with pressure on
selling prices and volumes, operating profit accelerated in the second semester
with a good Christmas sell-through. Operating profit for the full year increased
by 7,4% to R50,5 million.
Spitz recorded an impressive performance in 2006, with revenue increasing by 52%
and operating profit by 49% compared to the equivalent period (pre-acquisition)
in 2005. Revenue growth was all volume related, with same store sales growth of
30% and eight new stores opened during the year.
Dividends
In accordance with the Group"s dividend policy of 2 times cover, a final
dividend of 33 cents per share has been declared, bringing the total dividend
for the year to 53 cents per share (2005: 51 cents per share).
Black Economic Empowerment
AVI recognises the social imperative to embrace and support transformation in
South Africa. Having considered various Black Economic Empowerment opportunities
in the past financial year, the AVI Board has resolved to pursue a broad-based
ownership opportunity for all black employees throughout the Group. Details of
the proposed scheme will be distributed with the annual report later this month,
and the scheme will be presented to shareholders for approval at the annual
general meeting on 18 October 2006.
Outlook
Notwithstanding the hazards of predicting economic prospects, it is anticipated
that consumer spending will continue to reflect South Africa"s generally healthy
economic outlook. This, coupled to AVI"s strong brand portfolio, the recovery
opportunities inherent in I&J and RBC, the focus on organic growth and
innovation and with time the benefits resulting from the restructuring of the
Group, underpin confidence that the outlook for AVI both in the year ahead and
over the medium term is positive.
Balance sheet
as at 30 June
2006 2005
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 1 182,4 1 143,2
Intangible assets and goodwill 1 041,7 420,8
Joint ventures 167,6 162,8
Other investments 95,4 89,8
Deferred taxation 100,8 102,0
2 587,9 1 918,6
Current assets
Non-current assets held for sale 26,3 24,5
Inventories 578,2 500,0
Trade and other receivables 883,2 786,8
Cash and cash equivalents 335,8 448,7
1 823,5 1 760,0
Total assets 4 411,4 3 678,6
EQUITY AND LIABILITIES
Capital and reserves
Share capital 15,8 15,9
Share premium 4,7 -
Treasury shares (40,8) (51,7)
Premium on minority equity transactions (2,7) (2,7)
Reserves (13,2) (22,3)
Retained earnings 2 376,1 2 227,2
Minority interests (8,5) (2,9)
Total equity 2 331,4 2 163,5
Non-current liabilities
Interest-bearing borrowings 192,8 112,4
Deferred taxation 130,1 134,3
Provisions 277,7 268,4
600,6 515,1
Current liabilities
Trade and other payables 1 011,7 885,8
Corporate taxation 56,2 35,7
Current borrowings 71,5 78,5
Deferred purchase consideration - Spitz 340,0 -
1 479,4 1 000,0
Total equity and liabilities 4 411,4 3 678,6
Income statement
for the year ended 30 June
2006 2005
Rm Rm
CONTINUING OPERATIONS
Revenue 5 406,6 4 734,8
Cost of sales 3 263,5 2 869,7
Gross profit 2 143,1 1 865,1
Selling and administrative expenses 1 625,8 1 396,0
Operating profit before capital items 517,3 469,1
Income from investments 16,5 30,9
Finance costs (49,7) (39,6)
Share of equity accounted (12,3) 1,2
(loss)/earnings of joint ventures
Capital items (10,9) (21,8)
Profit before taxation 460,9 439,8
Taxation 143,1 124,7
Profit from continuing operations 317,8 315,1
DISCONTINUED OPERATIONS
Revenue 13,9 1 794,9
Cost of sales 15,0 1 062,9
Gross (loss)/profit (1,1) 732,0
Selling and administrative expenses 1,0 360,6
Operating (loss)/profit before capital (2,1) 371,4
items
Income from investments - 10,8
Finance costs - (4,2)
Capital items 6,8 18,5
Profit before taxation 4,7 396,5
Taxation - 120,8
Profit from discontinued operations 4,7 275,7
Profit before net gain on disposal of 322,5 590,8
discontinued operations
Gain on disposal of discontinued - 306,9
operation
Costs relating to the unbundling of a - (6,4)
discontinued operation
Profit for the year 322,5 891,3
Attributable to:
Equity holders of AVI 327,6 873,5
Minority interests (5,1) 17,8
322,5 891,3
Statistics for continuing operations
Earnings per share (cents per share) 103,4 198,6
Diluted earnings per share (cents per 102,7 196,1
share)
Headline earnings per share (cents per 107,2 108,2
share)
Diluted headline earnings per share 106,6 106,9
(cents per share)
Notes:
1 Basic earnings and headline earnings per share are calculated on a weighted
average of 312 373 484 (2005: 311 590 025) ordinary shares in issue
2 Diluted earnings and headline earnings per share are calculated on a weighted
average of 314 331 670 (2005: 315 536 786) ordinary shares in issue, after
taking into account the relevant number of incentive scheme shares and options
in issue.
Cash flow statement
for the year ended 30 June
2006 2005
Rm Rm
CONTINUING OPERATIONS
Operating activities
Cash retained from operating activities 245,4 301,3
Cash generated by operations 660,2 631,6
Cash flow from investments 17,0 30,9
(Increase)/decrease in working capital (36,5) 16,3
Cash generated by operating activities 640,7 678,8
Interest paid (29,7) (39,6)
Taxation paid (186,4) (170,0)
Cash available from operating 424,6 469,2
activities
Dividends paid (179,2) (167,9)
Investing activities (460,0) (394,5)
Property, plant and equipment - (215,1) (207,1)
additions
Proceeds from disposals 4,9 6,6
Net investment in property, plant and (210,2) (200,5)
equipment
Intangible assets purchased (19,2) (0,1)
Investments (230,6) (193,9)
- acquisitions of subsidiaries and (238,2) (174,1)
businesses
- associated companies, joint ventures 7,6 (19,8)
and other investments
Financing activities 57,2 (308,8)
Net increase/(decrease) in shareholder 10,1 (213,5)
funding
Non-current borrowings 54,2 (101,4)
- raised 72,8 -
- repaid (18,6) (101,4)
Current funding - net (7,1) 6,1
(decrease)/increase
- overdrafts and current borrowings (7,1) 6,1
(decrease)/increase
DISCONTINUED OPERATIONS 37,3 203,9
Cash flows from operating activities 4,2 335,0
Cash flows from investing activities 33,1 (131,1)
Acquisition of minority equity interest - (526,4)
in discontinued operation
Cash flow from disposal of discontinued - 505,8
operation
Decrease in cash and cash equivalents (120,1) (218,7)
Cash and cash equivalents at beginning 448,7 674,5
of year
328,6 455,8
Net decrease as a result of the 7,2 (7,1)
translation of the cash equivalents of
foreign subsidiaries at beginning of
year
Cash and cash equivalents at end of 335,8 448,7
year
Statement of changes in equity
Year ended 30 June
Share
capital
and Treasury Retained
premium shares Reserves earnings
2006 Rm Rm Rm Rm
Group
Balance at beginning 15,9 (51,7) (22,3) 2 227,2
of year
Recognised income and
expense
Profit for the year - - - 327,6
Foreign currency - - 32,6 -
translation
differences
Cash flow hedging - - (28,0) -
reserve
Share-based payments - - 4,5 -
Transactions with
shareholders
Dividends paid - - - (178,7)
Issue of ordinary 4,7 (4,7) - -
shares
Disposal of own - 15,6 - -
ordinary shares by
Company"s Share
Trusts (net)
Redemption of (0,1) - - -
convertible
redeemable preference
shares
Balance at end of 20,5 (40,8) (13,2) 2 376,1
year
Statement of changes in equity (continued)
Year ended 30 June
Premium
on
minority
equity
trans- Minority Total
actions Total interests equity
2006 Rm Rm Rm Rm
Group
Balance at beginning (2,7) 2 166,4 (2,9) 2 163,5
of year
Recognised income and
expense
Profit for the year - 327,6 (5,1) 322,5
Foreign currency - 32,6 - 32,6
translation
differences
Cash flow hedging - (28,0) - (28,0)
reserve
Share-based payments - 4,5 - 4,5
Transactions with
shareholders
Dividends paid - (178,7) (0,5) (179,2)
Issue of ordinary - - - -
shares
Disposal of own - 15,6 - 15,6
ordinary shares by
Company"s Share
Trusts (net)
Redemption of - (0,1) - (0,1)
convertible
redeemable preference
shares
Balance at end of (2,7) 2 339,9 (8,5) 2 331,4
year
Supplementary notes to financial statements
Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and the interpretations
adopted by the International Accounting Standards Board ("IASB") and the
requirements of the South African Companies Act.
Basis of preparation
The annual financial statements are prepared in millions of South African Rands
("Rm") on the historical cost basis, except for the following assets and
liabilities which are stated at their fair value: derivative financial
instruments and biological assets.
Non-current assets and disposal groups held for sale are stated at the lower of
carrying amount and fair value less costs to sell.
The accounting policies of the group have been applied consistently to the
periods presented in the consolidated financial statements.
The group has adopted Circular 9/2006 - Transactions giving rise to adjustments
to revenue/purchases. Settlement discounts, rebates and other forms of discounts
allowed/received are estimated at the time of sale/purchase and presented as a
reduction in revenues or increase in the cost of inventories or services
acquired.
Previously settlement discounts were estimated at the time of sale but were
presented as an operating expense of the group on the basis that prompt payment
by customers generated the discount and not the sale of goods.
In accordance with Circular 9/2006 settlement discounts granted to customers
have been reclassified from selling and administrative expenses to revenue. The
adjustment has been made in accordance with IAS 8 - Accounting Policies, changes
in accounting estimates and errors, with the necessary restatement of
comparative figures. The effect of the change was to reduce revenue and selling
and administrative expenses by R61,1 million (2005: R55,6 million).
Determination of headline earnings
2006 2005
Rm Rm
Profit for the period attributable to 327,6 873,5
equity holders of AVI
Total capital items included in (5,3) 300,2
earnings
Net gain on disposal of discontinued - 300,5
operations
Net surplus on disposal of
investments,
properties, vessels and plant and 2,2 15,2
equipment
Impairment of goodwill - (18,5)
Impairment of fishing rights (6,3) -
Impairment of equipment (7,5) -
Taxation attributable to capital items 6,3 0,2
Minority interest in capital items - 2,8
Headline earnings 332,9 573,3
Attributable to:
Continued operations 335,0 337,2
Discontinued operations (2,1) 236,1
332,9 573,3
Corporate activity
Effective 2 July 2005, AVI Limited acquired 60% of the shares in A&D Spitz (Pty)
Limited, an owner and retailer of leading footwear brands. Incorporated into the
initial purchase agreement AVI acquired a call option and the vendors a put
option to acquire and sell respectively the remaining 40% equity interest.
In terms of IFRS 3 - Business Combinations, there is a deferred purchase
consideration for the remaining 40%, and a liability is raised in terms of IAS
32 - Financial Instruments. The business was thus considered a wholly owned
subsidiary from 2 July 2005 and no minorities were recognised.
There was no other significant change to investments, except for I&J exiting the
pelagic fishing business.
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 R49,4 million. The total amount in terms of the assessments
including penalties and interest, is R208,2 million.
Were assessments to be issued for the 2004 to 2006 tax years on the same basis
applied in the assessments received, the total amount of tax payable in respect
of these years would be R26,2 million, excluding penalties and interest.
The Company filed a notice of appeal against the 1998 to 2003 assessments on 11
April 2005 and SARS provided the statement of grounds of assessment on 10 August
2006. The company has commenced preparation of its statement of grounds of
objection. The issues in dispute are of a complex nature and it is anticipated
that the matter will remain unresolved for an extended period.
Post-balance sheet events
Apart from the following transaction, no significant events have occurred since
the balance sheet date.
In June 2006 it was agreed with the minority shareholders in A&D Spitz (Pty)
Limited to accelerate the timing of the call options, which were planned to
become exerciseable from 30 June 2007 in terms of the original purchase
agreement. Accordingly, the Company acquired the remaining 40% of equity shares
of A&D Spitz (Pty) Limited it did not already own with effect from July 2006.
The final payment of R340,6 million (including interest of R0,6 million) was
made on 10 July 2006.
At the forthcoming annual general meeting, shareholders will be asked to approve
a broad-based black economic empowerment initiative.
Dividend declaration
Notice is hereby given that a final ordinary dividend No. 64 of 33 cents per
share for the year ended 30 June 2006 has been declared payable to holders of
ordinary shares. The salient dates relating to the payment of the dividend are
as follows:
2006
Last day to trade cum dividend on the Friday, 29 September
JSE Limited ("JSE")
First trading day ex dividend on the Monday, 2 October
JSE
Record date Friday, 6 October
Payment date Monday, 9 October
In accordance with the requirements of STRATE, no share certificates may be
dematerialised or rematerialised between Monday, 2 October 2006 and Friday, 6
October 2006, both days inclusive.
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, 9
October 2006.
Report of the independent auditors
The unmodified opinion of KPMG Inc., the independent auditors, on the financial
statements for the year ended 30 June 2006, dated 8 September 2006, is available
for inspection at the registered office of the Company.
Annual report
The annual report for the year ended 30 June 2006 will be posted to shareholders
on or about Wednesday, 27 September 2006. The financial statements will include
the notice of the annual general meeting of shareholders to be convened on
Wednesday, 18 October 2006.
Angus Band Simon Crutchley
Non-Executive Chairman CEO
11 September 2006
Sponsor: Standard Corporate and Merchant Bank
Date: 11/09/2006 07:30:31 AM Produced by the JSE SENS Department
