Avi Limited Class Y · JSE:AVI

Avi Limited Class Y — FY2005 Earnings Presentation

40 slides from Avi Limited Class Y's earnings presentation, September 2005

  1. Slide 1: Audited Results for the year ended 30 June 2005

    AUDITED RESULTS for the year ended 30 June 2005 AVI is a branded consumer products group We provide enjoyment to people through the supply of branded, added-value products PRESENTATION TO ANALYSTS

  2. Slide 2: Strategic Focus

    STRATEGIC FOCUS „ Long-stated strategic focus achieved • Sale of Vector Logistics, profit R306m • Purchase of Consol minorities on favourable terms • Subsequent unbundling and successful listing of Consol „ Position in fresh-to-market brands strengthened • Denny acquired 1 August 04 – R140m • Sir Ju

  3. Slide 3: Group Structure

    GROUP STRUCTURE Food Brands Semi-Durable Brands Groceries Frozen Fresh-to-Market Cosmetics Footwear

  4. Slide 4: Financial Summary

    FINANCIAL SUMMARY „ Presentation based on continuing operations „ Turnover × 9% „ Operating margin 9.8% (2004: 9.3%) „ HEPS × 26% „ Working capital to sales – 13.8% (2004: 13.6%) „ Cash generated by operations × 27% „ FCF per share 113.5c (2004: 107.6c) „ ROCE 15.3% (2004: 14.2%)

  5. Slide 5: Key Features

    KEY FEATURES „ Strong operating performance from domestic businesses „ International operations • Adverse impact of Alpesca • Cost of Lenthéric Australasia launch „ Innovation target met – 18% of sales „ Disposal of I&J’s pelagic fishing operations „ Dividend cover reduced to 2x „ I&J BEE transactio

  6. Slide 6: Financials

    FINANCIALS PRESENTATION TO ANALYSTS

  7. Slide 7: Income Statement

    INCOME STATEMENT FY05 FY04 Rm Rm %Δ Turnover 4 790 4 385 9 EBITDA 617 539 15 Operating profit 469 406 16 Net financing cost (9) (11) 18 Effective taxation rate - % 27.1 32.5 - HEPS - cents 108.2 85.9 26 DHEPS - cents 106.9 84.9 26

  8. Slide 8: Restatement of FY04

    RESTATEMENT OF FY04 Previously Reported BEE IFRS FY04 Accounting Impact Restated Rm Rm Rm FY04 Operating profit 407 - (1) 406 Joint ventures 4 - - 4 Net finance income (13) (19) 21 (11) Capital items (21) - 14 (7) Taxation (115) - (15) (130) Minorities (6) 8 - 2 Profit after tax 256 (11) 19 263

  9. Slide 9: Disclosure Comments

    DISCLOSURE COMMENTS „ Discontinued operations • Consol, Vector, pelagic „ Accounting for I&J BEE transaction • FY04 impact R11m – Investment income vs minority share of earnings • IFRS 2 cost – BBP – R18m (IFRS1 exemption) – Staff – R3m (spread over 5 years) „ Straight-line operating leases • R16m i

  10. Slide 10: Taxation

    TAXATION Taxation „ Decrease in effective tax rate – 27.1% (2004: 32.5%) • Change in official tax rate • Reduction in STC charge • Prior year overprovision „ Status of contingent liability • 2003 assessment received • Total assessment R208m – Tax R49m – Interest and penalties R159m

  11. Slide 11: Dividend Cover Headline Earnings

    DIVIDEND COVER HEADLINE EARNINGS 4.0 3.5 3.0 3.0 3.0 2.5 2.5 2.5 2.0 2.0 1.5 1.0 FY01 FY02 FY03 FY04 FY05

  12. Slide 12: Cash Flow Drivers

    CASH FLOW DRIVERS FY05 FY04 Rm Rm Cash generated by operating activities 679 537 Capital expenditure 208 173 - Maintenance 116 76 - Expansion 92 97 Depreciation 148 133 Investment expenditure 194 98 Net cash 241 21

  13. Slide 13: Investment Plan FY06

    INVESTMENT PLAN FY06 Rm Capital expenditure Food brands 264 - Groceries 149 - Frozen food 68 - Fresh-to-market 47 Branded semi-durables 30 294 Committed investments 279 Total 573

  14. Slide 14: Segmental Overview

    SEGMENTAL OVERVIEW PRESENTATION TO ANALYSTS

  15. Slide 15: Contribution to Turnover Growth

    CONTRIBUTION TO TURNOVER GROWTH 4900 4800 15 4 790 19 62 4700 230 4600 Rm 136 (58) 4500 4400 4 385 4300 J BL BC ny 04 05 go e I& at di en N FY FY R r po In D or C

  16. Slide 16: Contribution to Operating Profit Growth

    CONTRIBUTION TO OPERATING PROFIT GROWTH 480 69 (38) 0.8 2 469 470 28 2 460 450 440 430 Rm 420 410 406 400 390 380 J BL BC ny 04 05 go e I& at di en N FY FY R r po In D or C

  17. Slide 17: Food Brands

    FOOD BRANDS FY05 FY04 Rm Rm %Δ Turnover 4 356 4 034 8 Operating profit 401 339 19 Operating profit - % 9.2 8.4 - Capex 193 148 - Working capital to sales - % 12.3 12.3 -

  18. Slide 18: Food Brands

    FOOD BRANDS FY05 FY04 Rm Rm %Δ Turnover 2 482 2 346 6 Operating profit 301 232 30 Operating profit - % 12.1 9.9 - Capex 86 75 - Working capital to sales - % 9.0 10.5 -

  19. Slide 19: Food Brands operations commentary

    FOOD BRANDS „ Volume growth • Domestic × 7% • International × 16% „ Improved performance – all categories • Convenience food – operating profit × 33% • Willards – small operating profit (2004: loss R24m) • Ciro – operating profit × 15% „ Deflation in most categories „ Raw and wrap costs positively a

  20. Slide 20: Willards turnaround and innovation

    FOOD BRANDS „ Willards turnaround achieved • Quality enhanced, range rationalisation • Reduction in operating costs • Lower discounting „ Innovation • 15% of sales • Marketing spend × 12% „ Affordability drive – plant automation and pack sizes „ Opportunistic importing „ Good progress in regional di

  21. Slide 21: Food Brands

    FOOD BRANDS FY05 FY04 Rm Rm %Δ Turnover 1 379 1 437 (4) Operating profit 84 122 (31) Operating profit - % 6.1 8.5 - Capex 85 61 - Working capital to sales - % 20 16 -

  22. Slide 22: RSA operations and Alpesca

    FOOD BRANDS „ RSA operations • Operating profit × 30% • Process and product innovation, impact of small fish • Cost management a key focus • Growth in high-value abalone sales • Strong growth in beef and poultry brands „ Alpesca • Loss R25m (2004: profit R20m) • Hake – Industry-wide strike action –

  23. Slide 23: FFI, Simplot and pelagic operations

    FOOD BRANDS „ FFI • Operating profit × 7% • I&J volume decline due to poor catch rates and strikes • Growth in high-value 3rd party sales „ Simplot • Improved sales – recovery of lost market share • Operating profit, constrained by poor performance from processing factory „ Pelagic operations • Clas

  24. Slide 24: Food Brands

    FOOD BRANDS FY05* Rm Turnover 230 Operating profit 28 Operating profit - % 12.1 Capex 12 Working capital to sales - % 17 * For the eleven months from 1 August 2004

  25. Slide 25: Denny fresh volumes and brand review

    FOOD BRANDS „ Fresh volumes × 5% • Denny remains market leader > 50% market share • Gauteng region fresh sales constrained by production problems in peak season • Increased imports from China impact on processed product realisations „ Brand review • Consumer survey validates brand strength • Market

  26. Slide 26: Food Brands

    FOOD BRANDS FY05 FY04 Rm Rm %Δ Turnover 217 155 40 Operating profit 0 (2) - Operating profit - % 0 (1.5) - Capex 11 14 - Working capital to sales - % 6 2 -

  27. Slide 27: Sir Juice acquisition

    FOOD BRANDS „ Sir Juice acquisition strengthened position in short-life juice, out-of-home channel „ Like-for-like turnover × 18%, volumes flat – mix impact „ Break-even for year • Ongoing integration programme • Senior management changes • Difficulty in commissioning new filling line – service leve

  28. Slide 28: Branded Semi-Durables

    BRANDED SEMI-DURABLES FY05 FY04 Rm Rm %Δ Turnover 466 447 4 Operating profit 47 46 2 Operating profit - % 10.1 10.3 - Capex 15 25 - Working capital to sales - % 28 26 -

  29. Slide 29: Branded Semi-Durables

    BRANDED SEMI-DURABLES „ Domestic business – strong performance • Profit growth of 40% • Volume growth of 4% – Strong toiletry demand – Bridge fragrance category performing well, impacted by pharmacy decline and stock rebalancing • Reduced input costs – currency • Innovation contributed 33% to sales

  30. Slide 30: Prospects

    PROSPECTS PRESENTATION TO ANALYSTS

  31. Slide 31: National Brands, Denny and RBC prospects

    FOOD BRANDS National Brands „ Affordability remains a key strategy „ Innovation pipeline strong in all categories „ Willards brand revitalisation „ Plant automation programme „ Regional diversification continues Denny „ Production problems rectified „ New marketing opportunities identified RBC „ Rev

  32. Slide 32: I&J recovery plan update: RSA operations

    FOOD BRANDS I&J recovery plan update „ RSA operations • Long-term rights positive for industry • Ongoing focus on cost reduction – Processing efficiencies – Fleet optimisation – Shared services initiative • Value enhancement – Innovation in processing of small fish – contribution opportunity R6 000

  33. Slide 33: I&J recovery plan update: Alpesca

    FOOD BRANDS I&J recovery plan update „ Alpesca • Hake – TAC × 5% – 390 000 tons (2004: 370 000) – Additional license for 3 000 tons, US$2m – Transfer two surplus vessels from I&J – Total quota 34 000 tons – Industrial action settled, short-term cost impact – Catch rates improved – Innovation to impr

  34. Slide 34: I&J recovery plan update: Abalone, International, Simplot

    FOOD BRANDS I&J recovery plan update „ Abalone • Investment to double capacity at Danger Point • Remaining 50% of Chilean farm acquired „ International • Growth in high-value, 3rd party agency business „ Simplot • Major factory restructuring – Head count reduction of 157 – 54% of total workforce – R

  35. Slide 35: Branded Semi-Durables prospects

    BRANDED SEMI-DURABLES „ Innovation remains key „ Bridge fragrances expected to continue strong performance „ Toiletries – growth in middle market consumers „ Lower cost of investment for Lenthéric in Australasia • New Zealand performing well • Australia – medium-term opportunity

  36. Slide 36: Spitz: Rationale for acquisition

    BRANDED SEMI-DURABLES Rationale for acquisition „ AVI core strategy – grow portfolio of leading consumer brands • Differentiated brands for middle/upper income consumers • Target higher rates of growth • Access to brand-conscious, emerging middle-market consumers

  37. Slide 37: Spitz business overview

    BRANDED SEMI-DURABLES Spitz – business overview „ Opportunity to acquire direct ownership of premium international footwear brands • 60% of sales, owned brands – Kurt Geiger, Carvela • Master distributor for Lacoste footwear in South Africa • Licensee for a range of other international footwear bran

  38. Slide 38: Spitz financial details

    BRANDED SEMI-DURABLES Financial details „ Financial performance FY05 • Turnover – R258m • Operating profit margin – 30% • NOPAT – R55m „ Purchase price – R258m (60%) • Multiple of 7.8x NOPAT • Estimate that similar multiple will apply to acquisition of remaining 40%, formula-driven „ Accounting stan

  39. Slide 39: Summary

    SUMMARY „ Focus achieved as a branded consumer products group • SA consumer increasingly brand focused • Brands will be key differentiator and source of growth „ Key strategic objective remains • Build a portfolio of leading consumer brands „ Domestic consumer market remains buoyant „ Investment in

  40. Slide 40: Thank You

    & co a ie THANK YOU Ss lee BO} AV | WWW.avi.co.za

AVI — FY2005 Earnings Presentation on 6ix