AVI Limited presentation to shareholders & analysts for the six - PowerPoint PPT Presentation

AVI Limited presentation to shareholders & analysts for the six months ended 31 December 2017

AGENDA  Key features and results history  Group financial results  Performance and prospects  Questions and answers

KEY FEATURES  Sound profit growth in a challenging demand environment;  Well managed balance of value versus volume across key categories;  Revenue up 2,3% to R7,30 billion;  Gross profit margin recovery in line with easing of Rand driven cost pressures;  Operating profit up 8,7% to R1,53 billion;  Cash from operations up 12,1% to R1,87 billion;  Capital expenditure of R193,2 million to grow and sustain our businesses;  Return on capital employed of 28,5 %;  Headline earnings per share up 7,5% to 325,6 cents;  Interim dividend up 8,0% to 175 cents per share.

RESULTS HISTORY Operating profit history 1 530 1600 1 408 1400 342 1 302 310 1 152 1200 306 140 1 021 140 921 1000 309 R million 179 124 854 167 296 800 160 103 674 303 231 98 452 97 512 520 600 412 170 74 86 91 450 369 47 402 101 82 340 67 111 42 3 99 400 298 282 57 246 100 181 36 203 126 60 240 69 31 75 75 - 27 121 452 27 200 140 39 389 129 351 16 97 312 67 259 259 89 247 245 167 133 122 106 111 90 0 H1 F05 H1 F06 H1 F07 H1 F08 H1 F09 H1 F10 H1 F11 H1 F12 H1 F13 H1 F14 H1 F15 H1 F16 H1F17 H1F18 Entyce Snackworks I&J Personal Care Footwear and Apparel  Compound annual growth rate from H1 F05 to H1 F18 of 15,3%  Operating profit margin increased from 10,0% in H1 F05 to 21,0% in H1 F18

RESULTS HISTORY Return on capital employed 7 000 35% 6 000 30% 5 000 25% R million 4 000 20% 3 000 15% 2 000 10% 1 000 5% 0 0% F10 F11 F12 F13 F14 F15 F16 F17 F18* Net operating profit after tax Average capital employed ROCE (%) * F18 represents a rolling 12 month period to 31 December 2017  Sustained returns including increased capital expenditure to support long term growth and efficiency

RESULTS HISTORY Historical cash conversion 3 500 120% 3 000 100% 2 500 550.0 80% R million 2 000 60% 1 500 226.6 40% 1 000 230.6 201.8 20% 500 0 0% F10 F11 F12 F13 F14 F15 F16 F17 F18* EBITDA Cash generated by operations after working capital changes Cash to EBITDA * F18 represents 12 months to 31 December 2017  Sustained strong conversion of earnings into cash

RESULTS HISTORY Dividend yield (Year end) 14% 12.0% 12% 10% 7.7% 7.4% 8% 6.4% 6.5% 6.2% 5.2% 6% 4.9% 4.5% 4.5% 4.1% 4.3% 4.4% 3.8% 4.1% 4.0% 3.7% 4% 2.8% 2% 0% F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15 F16 F17* Normal dividend yield Total dividend yield *Based on share price of R95,00 at 30 June 2017  Based on share price at end of each year  Total dividend yield includes payments out of share premium and special dividends  Excludes share buy-backs

RESULTS HISTORY Returns to shareholders 1 800.0 1 703.3 1 600.0 1 359.7 1 400.0 1 322.0 638.8 1 197.4 1 200.0 550.0 953.5 R million 1 000.0 869.5 788.3 800.0 269.9 620.7 1 322.0 319.1 573.3 600.0 1 197.4 1 064.5 226.6 953.5 400.0 809.7 301.1 317.8 230.6 262.8 620.7 229.4 573.3 166.0 201.8 200.0 373.0 301.1 262.8 238.6 229.4 166.0 116.0 - F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15 F16 F17 F18 Normal dividend paid Interim dividend declared Special dividend paid Share Buyback  Effective payout ratio from F05 = 85,9% of headline earnings

Group Financial Results

GROUP FINANCIAL RESULTS Income statement H1 F18 H1 F17 %  Rm Rm Revenue 7 300,4 7 134,6 2,3 Cost of sales (4 018,4) (4 011,0) 0,2 Gross profit 3 282,0 3 123,6 5,1 Gross profit margin % 45,0 43,8 2,7 Selling and administrative expenses (1 751,8) (1 715,9) 2,1 Operating profit 1 530,2 1 407,7 8,7 Operating profit margin % 21,0 19,7 6,6 Net financing cost (71,9) (79,9) (10,0) Share of Joint Ventures 25,4 42,2 (39,8) Capital items 3,4 11,9 Effective tax rate % 28,5 28,5 Headline earnings 1 061,4 979,8 8,3 HEPS (cps) 325,6 302,9 7,5

GROUP FINANCIAL RESULTS Movement in group revenue 8 000 7 500 R million 7 000 6 500 6 000 7 135 340 -175 7 300 H1 H1 H1 FY17 Price Volume H1 FY18 F17 F18  Higher selling prices mainly reflect the benefit of price increases taken in F17  Volume pressure in Biscuits, Tea and Coffee in constrained and competitive environment  Spitz footwear volumes benefitted from stable selling prices and stock investment

GROUP FINANCIAL RESULTS Gross profit margin history 50% 45.9% 45.3% 45.0% 44.5% 44.3% 43.8% 40% 30% 20% H1 F13 H1 F14 H1 F15 H1 F16 H1 F17 H1 F18  Stronger Rand and lower commodity prices provided relief from accumulated cost pressure  Few price increases in F18  Ongoing focus on cost and efficiencies to protect gross profit margin  Increased flexibility to respond to constrained environment

GROUP FINANCIAL RESULTS Marketing expenditure 18% 15.5% 16% 14.4% 14% 12% 10% 8.2% 7.8% 7.8% 7.4% 7.3% 7.3% 8% 7.1% 6.7% 6.2% 6% 4.9% 4.7% 4.1% 4% 1.7% 1.4% 2% 0% Tea Coffee Creamer Biscuits Snacks I&J retail Personal Care * Footwear * Excludes Coty H1 F17 H1 F18  Includes advertising and promotions, co-operative expenditure with customers and marketing department costs  Total expenditure for H1 F18 of R415,0m compared to R388,1m in H1 F17

GROUP FINANCIAL RESULTS Operating profit 8,7% up 1 570 1 520 1 470 1 420 R million 1 370 1 320 1 270 1 220 1 408 35 40 11 0 44 -14 6 1 530 H1 Entyce Snackworks I&J Personal Spitz Green Cross Other H1 F17 Care F18  Entyce: Margin recovery and cost savings offset by tea and coffee volume decline  Snackworks: Margin recovery and cost savings offset by biscuit volume decline  I&J: Export price increases and non-repeat of unprotected strike in August 2016, offset by stronger Rand on exports  Personal Care: Market share gains by owned brands and lower input costs from the stronger Rand offset by lower export volumes  Spitz: Higher sales volumes, margin recovery from the stronger Rand and savings from restructuring  Green Cross: Poor performance of summer 2017 range in highly competitive mid-priced footwear market

GROUP FINANCIAL RESULTS Cash generation and utilisation H1 F18 H1 F17 %  Rm Rm Cash generated by operations 1 870,5 1 669,3 12,1 Working capital to revenue % 24,6 21,8 12,8 Capital expenditure 193,2 284,0 (32,0) Depreciation and amortisation 207,5 195,7 6,0 Net debt 1 208,7 1 489,2 Net debt / capital employed % 19,1 23,7 Interim dividend – cps 175 162 8,0  Strong conversion of earnings to cash  Working capital increase due to R230 million increase in debtors payments on first business day in January

GROUP FINANCIAL RESULTS Capital expenditure and depreciation F12 F13 F14 F15 F16 F17 F18 1 000 822 900 849 800 322 700 578 567 600 546 541 532 623 R million 500 428 257 394 250 262 400 385 347 332 308 283 222 300 200 257 560 181 218 158 146 200 130 113 310 291 284 226 206 100 200 194 193 166 150 137 127 105 - F12 F13 F14 F15 F16 F17 F18 Capital expenditure H1 Capital expenditure H2 Depreciation charge H1 Depreciation charge H2 Forecast capital expenditure H2 Forecast depreciation charge H2  Continued investment in manufacturing capacity, efficiency and retail stores  Expenditure in respect of new I&J vessels included in F14, F15 and F16

GROUP FINANCIAL RESULTS Key capital projects spend summary H1 F18 H2 F18 F18 Total Actual Planned Planned Rm Rm Rm Biscuit line capacity and process improvements 45 91 136 I&J vessel dry-docks and upgrades 14 25 39 I&J processing plant replacements and upgrades 8 34 42 Abalone farm expansion and upgrades 7 23 30 Indigo distribution centre upgrade 8 20 28 Logistics vehicle fleet replacement - 11 11 Retail store additions and refurbishments 17 40 57 Alternative water supply 8 16 24 107 260 367 Total capital expenditure 192 386 578

GROUP FINANCIAL RESULTS Foreign exchange hedges March 2018 to July 2018 to January 2019 to June 2018 December 2018 June 2019 % Cover % Cover % Cover USD imports 95% 67% 3% EUR imports 100% 66% 3% EUR exports 76% 62% 9%  Consistent hedging philosophy provides stability to manage gross margins  Benefit to I&J’s export earnings diminishing in line with Rand strengthening  Recent Rand strength will provide further relief on import costs into F19

Performance and Prospects

Income statement H1 18 H1 17 %  Rm Rm Revenue 2 039,0 1 987,8 2,6 Operating profit 424,3 389,0 9,1 Operating profit margin % 20,8 19,6 6,1  Good growth in tea operating profit despite lower volumes  Price inflation from increases implemented in F17 in response to accumulated cost pressure  Raw material cost pressure ameliorated by stronger Rand  Volumes under pressure  Higher price points  Competitor discounting  Premium Five Roses and Freshpak brands performed well  Savings from restructuring completed in F17