AVI, a producer of fast-moving consumer goods (FMCG), stated this week that the second half of 2017 was difficult due to Eskom’s high levels of loadshedding.
AVI stated in a statement, “The trading environment was challenging, with record levels of loadshedding negatively impacting our manufacturing, distribution, and retail operations.”
AVI, a company listed on the Johannesburg Stock Exchange, focuses on the FMCG market with a portfolio of over 50 brands, including hot beverages, sweet and savory biscuits and snacks, frozen convenience foods, out-of-home ranges, personal care products, cosmetics, footwear, accessories, and fashion apparel.
Among the portfolio’s well-known brands are Five Roses, Ellis Brown, Bakers, Provita, I&J, and Yardley.
The substantial power outages were minimized by AVI’s use of backup power supplies, but the company incurred R22 million in indirect costs as a result. However, the company said that the indirect costs of chronic loadshedding were substantial and increased the complexity of its operations, supply chains, and logistics of distribution.
In addition, the company said that increasing currency and commodity volatility, as well as higher fuel prices, significantly boosted a number of its input expenses.
Our hedging methods mitigated the effects of this cost pressure, but price increases were required to safeguard gross margins in certain product categories.
The company faces a challenging economic climate in South Africa due to rising inflation, higher interest rates, and unemployment, all of which inhibit consumer purchasing.
“While we have strong and resilient brands, affordability is becoming an increasing barrier for customers, restricting their capacity to absorb rising pricing.
“Sales volumes were lower in some categories, which was exacerbated by discounting by competitors, and cost pressures were not always recovered through price increases,” AVI stated.
I&J, which provides Cape Hake and Cape Abalone, had a reduction in revenue during the first half of the year due to lower catch rates and Covid-19 lockdowns in China and Hong Kong, which negatively impacted the abalone sales mix for the semester.
“I&J’s gross margins were significantly constrained by significantly higher diesel costs for the fishing fleet that were not fully recovered through price increases and an unfavorable abalone sales mix,” the business explained.
During the first half of the year, the group’s consolidated gross profit margin increased modestly.
No repeat of the write-downs following the riots in July 2021, tight cost control, the benefits of the trademarks, including Exclamation and Gravity, that AVI acquired from Coty last year for R150 million, and improved footwear and apparel profitability contributed to the improvement in the company’s six-month gross margin.
»Consumer goods manufacturer AVI commits R22 million to combat Eskom’s power outages«