Consumer goods specialist AVI has released results for the six months to December 2021. The company has struggled to find revenue growth in the past few years, relying instead on cost control and efficiencies to drive growth in headline earnings per share (HEPS).

The latest period is no different, with just 2.3% in revenue growth and a 2.5% decline in selling and administrative costs. The net result in a 6.7% increase in operating profit and a 7.1% increase in cash from operations, with the difference mainly attributable to movements in non-cash items. Notably, R103.3 million was paid out under the I&J Black Staff Scheme.

AVI achieved a 6.6% increase in HEPS. Almost in line with HEPS, the dividend per share has increased by 6.3% to 170 cents.

The failed deal with Mondelez for Snackworks was a costly affair, with expenses of R20 million incurred along the way. To put that into perspective, the civil unrest only resulted in R36.9 million in direct costs across Snackworks and Spitz.

At segmental level, Food and Beverage brands grew revenue 3.8% and operating profit by 4.8%, with the margin expansion driven by cost control. In Fashion Brands, revenue fell 2.9% but operating profit jumped by 14.4% thanks to considerable margin expansion in Footwear & Apparel.

Tea fans will find it interesting that the rooibos business suffered reduced selling prices, which negatively impacted revenue. Black tea revenue increased, as price increases more than offset the lower volumes in this period vs. the lockdown period where people were at home a lot more.

It wouldn’t be right to talk about tea and not coffee. In the latter, the Ciro out-of-home coffee business improved but is still not at historical levels. Customers include hospitality, leisure and corporate entities.

In Snackworks, biscuit revenue increased 7.3% (including volume growth of 1.3%) and snacks revenue increased 4.5% despite a drop in volumes.

I&J reported revenue growth of just 0.8%. Operating profit margin increased from 10.2% to 12.9%, with a favourable product mix and increased volumes in the abalone business.

I’ll touch on one more underlying business unit: Footwear and Apparel. Revenue fell just 1.1% despite an 11.5% drop in footwear volumes, which gives you a taste of inflation in this category. The volumes were hit by the civil unrest and other supply chain challenges.

AVI is in for a tough year unless the conflict in Ukraine is resolved quickly. Commodity prices are going through the roof, which is a major inflationary concern for the food businesses in AVI. Consumers will be under considerable pressure, which isn’t good news when trying to sell them biscuits (or upmarket shoes, for that matter).

Managing volumes, selling prices and ultimately gross margins will be the difference between success and failure this year. That’s no different to any other year; it’s just going to be much harder than usual in 2022.