Fast-moving consumer goods (FMCG) group AVI said this week it found the second half of last year challenging due to Eskom’s record levels of loadshedding.
“The trading environment was challenging with record levels of loadshedding negatively affecting our manufacturing, distribution and retail operations,” AVI said in a statement.
JSE-listed AVI focuses on the FMCG market with a portfolio of over 50 brands, including hot beverages, sweets and savoury biscuits and snacks, frozen convenience foods, out-of-home ranges, personal care products, cosmetics, footwear, accessories and fashion apparel.
Some well-known brands in AVI’s portfolio include Five Roses, Ellis Brown, Bakers, Provita, I&J and Yardley.
AVI said it mitigated the significant power cuts by using backup power solutions, but the disruptions cost the company R22-million indirect costs. However, the company said the indirect costs of chronic loadshedding were significant and exacerbated the complexity of its operations, supply chains and distribution logistics.
In addition, the company said heightened currency and commodity volatility and fuel prices substantially increased many of its input costs.
“Our hedging practices reduced the impact of this cost pressure, but price increases were necessary to protect gross margins in some categories.”
The company is finding the South African economic environment tough due to rising inflation, higher interest rates and unemployment, which all constrain consumer spending.
“While we have strong and resilient brands, affordability is a growing constraint for consumers, limiting their ability to digest higher prices.
“Sales volumes were lower in some categories, exacerbated by competitor discounting, with cost pressures not always recovered through higher prices,” AVI said.
Revenue at I&J, which supplies Cape Hake and Cape Abalone, declined during the half year due to lower catch rates and Covid-19 lockdowns in China and Hong Kong that hurt the abalone sales mix for the semester.
“I&J’s gross margins were substantially constrained by materially higher diesel costs for the fishing fleet that were not fully recovered through selling price increases and the unfavourable abalone sales mix,” the company added.
The group’s consolidated gross profit margin improved marginally during the half year.
No repeat of the write-downs following the July 2021 riots, tight cost control, the benefits of the trademarks, including Exclamation and Gravity that AVI acquired from Coty for R150- million last year, and improved footwear and apparel profitability contributed to the improvement in the company’s gross margin for the six months.
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