Avi Limited Class Y · JSE:AVI
Avi Limited Class Y — H1 2006 Earnings Presentation
34 slides from Avi Limited Class Y's earnings presentation, Mar 13, 2006
Slide 1: Interim Results for the six months ended 31 December 2005
INTERIM RESULTS for the six months ended 31 December 2005 PRESENTATION TO ANALYSTS
Slide 2: Financial Summary Continuing Operations
FINANCIAL SUMMARY CONTINUING OPERATIONS 1H06 1H05 Rm Rm % Revenue 2 8912 501 16 Operating profit 290250 16 Operating margin - % 10.010.0 - Net financing cost (15.3)(8.4) (82) Effective tax rate - % 33.334.6 (4) HEPS - cents 60.851.1 19 DPS - cents 2016* 25 *Pro-forma
Slide 3: Financial Summary Continuing Operations
FINANCIAL SUMMARY CONTINUING OPERATIONS 1H06 1H05 Rm Rm Net working capital 928 867 Capital expenditure 97 89 - Maintenance 50 41 - Expansion 47 48 Cash generated by operations 371 364 Net debt (430) (52)
Slide 4: Accounting Issues
ACCOUNTING ISSUES Restatement of prior year results • Reclassification of pelagic operations as discontinued • Change in accounting policy on BEE transactions (I&J) • Straight lining of operating leases Accounting treatment of Spitz acquisition • Acquired 100% effective 2 July 2005 • 60% settled
Slide 5: Accounting Issues
ACCOUNTING ISSUES Share based payments • AVI share scheme charge of R2.9m (2004: R0.6m) • Impact of phantom share incentive schemes R19.3m (2004: R14.6m) • I&J BEE charge of R0.4m Update on I&J tax contingency • “Official” grounds of assessment still outstanding • No change in management / advis
Slide 6: Segmental Overview
SEGMENTAL OVERVIEW PRESENTATION TO ANALYSTS
Slide 7: Segmental Contributions
SEGMENTAL) CONTRIBUTIONS 100% > 80% 0% 5% 60% 40% 20% 24% —=3%—> 0 9% 9% 1% 2% ‘0 Turnover Operating Turnover Operating Turnover Operating Profit Profit Profit -20% + Food Brands Semi-Durable Brands Corporate Legend Groceries | Zz Foods Fresh-to-market Beauty Footwear |
Slide 8: Food Brands
FOOD BRANDS 1H06 1H05 Rm Rm % Revenue 1 391 1 313 6 Operating profit 187 172 9 Operating profit - % 13.4 13.1 2 Capex 34 40 (15) Working capital to revenue - % 14 14 -
Slide 9: Food Brands performance commentary
FOOD BRANDS Revenue growth of 6% driven by volumes • Strong biscuit and creamer performance (volumes up 9% / 12%) • Further recovery in Snacks (volumes up 4%) • Pricing remains constrained Operating profit increase of 9% compounded by benefit of cost management • Improved procurement and stronge
Slide 10: Food Brands strategy and expansion
FOOD BRANDS Expansion of management structure to support development and growth • Continued effective operational management • Drive to develop Africa / international expansion • OOH strategy Access to the “affordability” market continues to show progress with successful launch of new biscuit pa
Slide 11: Food Brands Market Shares
FOOD BRANDS 1H06 1H05 Market Shares % % Tea* 44.5 42.6 Affordable instant coffee* 36.0 34.9 Creamer* 27.5 27.9 Premium brewed coffee* 67.2 69.0 Biscuits* 58.7 58.6 Snacks†‡ 15.0 *Source AC Nielsen †Estimated ‡ PC and hard/soft extrudes
Slide 12: Food Brands Continuing Operations
FOOD BRANDS 1H06 1H05 Continuing Operations Rm Rm % Revenue 775 709 9 Operating profit 16 39 (59) Operating profit - % 2.1 5.5 (62) Capex 32 22 45 Working capital to revenue - % 21 17 24
Slide 13: Currency Table Continuing Operations
CURRENCY TABLE 1H06 1H05 % total Ave rate* % total Ave rate* Continuing of sales of sales Operations Rand 36.8 39.6 US$ 17.1 6.49 26.6 6.20 €uro 36.8 7.82 28.9 8.27 Aus$ 6.1 4.90 3.2 4.54 Other 3.2 1.7 *Effective rate achieved, including FECs
Slide 14: Food Brands Continuing Operations
FOOD BRANDS 1H06 1H05 Continuing Operations Rm Rm % Revenue RSA Operations 546 510 7 Alpesca 150 107 40 Other 79 92 (14) 775 709 9 Operating profit RSA Operations (9) 18 (150) Alpesca (6) (6) - Other 31 27 15 16 39 (59)
Slide 15: RSA operations
FOOD BRANDS RSA operations • Revenue up 7% led by increase in selling prices • Operating profit performance continues to be constrained by – Rand strength – Increase in cost – Lower catch rates – Fuel and other inflationary factors – Loss of premium products due to size mix • Cost reduction progra
Slide 16: Alpesca
FOOD BRANDS Alpesca • Improved fishing from increased TAC and increased access to quota • Disappointing performance despite fishing improvements – Program of increasing value add relatively slower given additional volume – Revised salary structures eroded short term returns – increased variable po
Slide 17: Simplot and Pelagic operations
FOOD BRANDS Simplot • Significant improvement in operating performance – Increase in realisations – Operating efficiencies in plant • Factory rationalisation – Retrenchment charges expected in 2H06 – Progressing well Pelagic operations • Final vessel sales completed in November
Slide 18: Food Brands
FOOD BRANDS 1H06 1H05 Rm Rm % Revenue 127 106 20 Operating profit 8 11 (27) Operating profit - % 6.3 10.4 (39) Capex 8 5 60 Working capital to revenue - % 14 15 (7) Denny and Dining-In consolidated
Slide 19: Denny performance commentary
FOOD BRANDS Previous production problems resolved Significant price deflation offset strong volume growth in the fresh category • Poor fresh price/volume strategy execution in Gauteng Operating profit impacted by • Price pressure on canned product from Chinese imports • Selling price deflation
Slide 20: Food Brands
FOOD BRANDS 1H06 1H05 Rm Rm % Revenue 102 109 (6) Operating profit (9) 1 Operating profit - % (8.8) 0.9 Capex 1 8 (88) Working capital to revenue - % 10 13 (23)
Slide 21: RBC results below expectation
FOOD BRANDS Results below expectation • Poor management – change made • Decline in sales – unsuccessful brand repositioning • Inappropriate outsourcing of key services • Significant increase in distribution costs Despite setbacks, AVI remains positive about RBC • Category continues to deliver at
Slide 22: Branded Semi-Durables
BRANDED SEMI-DURABLES 1H06 1H05 Rm Rm % Revenue 262 264 (1) Operating profit 27 27 - Operating profit - % 10.3 10.3 - Capex 10 8 25 Working capital to revenue - % 36 29 24
Slide 23: Branded Semi-Durables commentary
BRANDED SEMI-DURABLES Revenue in line with the prior year • 2% effective price increase on toiletries • Growth rates in SA business disappointing • Impact of decline in Australia Operating profit levels sustained • Benefit from reduction in brand development costs in Australia • Price increases
Slide 24: Branded Semi-Durables
BRANDED SEMI-DURABLES 1H06 1H05* Rm Rm % Revenue 217 142 53 Operating profit 69 44 57 Operating profit - % 31.8 31.0 3 Capex 6 Working capital to revenue - % 4 *Pro-forma – acquired July 2005
Slide 25: Branded Semi-Durables store expansion
BRANDED SEMI-DURABLES Performance YTD, exceeding prior year and budget Owned brands performing well (Carvela / Kurt Geiger) New store expansion • The number of new openings ahead of plan • All new stores profitable Business remains a strong cash generator ending the period with net cash of R
Slide 26: Prospects
PROSPECTS PRESENTATION TO ANALYSTS
Slide 27: Prospects: NBL and I&J
PROSPECTS NBL • Re-aligning structure and management instincts to drive the top-line • Heightened commitment to productivity and cost • Align effort to scale of opportunity • Maintain profit momentum I&J • Management transition • Diagnose and treat structural performance barriers in RSA and Alpes
Slide 28: Prospects: Denny and RBC
PROSPECTS Denny • Securing the brand and widening the relevance of Denny • De-commoditising the cannery • Margin recovery, profit recovery RBC • Management and organisational stability • Exploiting brand equity • Sales – leverage national footprint • Road to profit
Slide 29: Prospects: Indigo and Spitz
PROSPECTS Indigo • Regaining top and bottom-line momentum • Beauty acquisition top priority – leverage scale and skill of management Spitz • Adding to our insight • Strengthening “owned brand” equity • New stores / new brand pipeline • Sustaining sales momentum and profit growth
Slide 30: Everybody wants growth. Nobody wants change.
PROSPECTS “Everybody wants growth. Nobody wants change.” Paul Romer
Slide 31: Making AVI's structure pay
PROSPECTS Making AVI’s structure pay – evolve the conglomerate • Ability to influence, insight for our broad strategy • Portfolio mentality fuels complacency and cross-subsidy • Ability to act in times of need strengthened • No longer can afford to be parochial about costs and efficacy – use the g
Slide 32: A change in cadence – top-line fitness
PROSPECTS A change in cadence – top-line fitness • Out-performance can only come though the top-line over the medium term • Need to adapt our reward structures • Not all our categories have top-line saliency – focus on the winners
Slide 33: Marrying the consumer
PROSPECTS Marrying the consumer • It doesn’t matter how strong your brands are – they must remain relevant • “Unnatural” evolution in FMCG has arrived • Incredible choice • Lifestyle change driving growth in convenience • Fickle young consumers
Slide 34: Thank You
THANK YOU www.avi.co.za