Avi Ltd Unsp/Adr

Good morning, everybody. Thank you for those of you who've come in person today. It's always nice to see real people. This is not an AI, I hope. And also welcome to those joining us online to our half year results. Seems somewhat passe to be presenting these results in a very volatile environment. So for those of you who stare at screens all day, a special thank you for coming. We've got a pretty traditional format. I'll take you through some of the key features. Justin will take you through the group financial results. I'll cover through divisional performance. Got some of my colleagues here as well who can answer any of the difficult questions. We'll talk about prospects, but we'll ask you what the oil price will be before we do that, and then we'll take some questions. I think the environment, as you all know, I guess if you look at other people's results, it's a tough consumer environment for those of us who sell to South African consumers. Top line growth fairly challenging across the portfolio. Nonetheless, I guess some at least decent volume growth in some of our key categories. Good to see some of our innovation working and hopefully at the year end we'll share some of that in goodie bags for those of you who come. Nice to see the Spitz business have a decent December, a very critical driver for their financial performance annually, and it was good to see growth in footwear volumes, we'll cover that in detail. Gross margins, absolutely fundamental to how we manage our portfolio, well protected in a very complex environment, lots of volatility, so that was something that we were pleased with. INJ has profits performed, fishing catch rates improving off a very low base. Pretty sporadic though, not as strong a recovery as we would have hoped for. And of course, another particularly tough period for the abalone business with obviously some accounting fair value adjustments significantly undermining at least the reported profitability, if not the cash flow. We are benefiting from a pretty severe restructuring initiative in the prior year, and about 40 million Rand came through obviously in this period. Group operating profit up just under 12%, headline earnings pretty much in the same area. Very strong cash generation, cash conversion, which I guess is very much a strong feature of this particular set of businesses. and strong return on capital employed being sustained. So that's also pleasing dividend pretty much in line with HEPS. That's the operating profit history. You know, I guess the COVID bump took a bit of momentum out of, I guess, the history, but still solid recovery and sustained growth and profitability across many of the underlying categories in each of the business units. And then of course, as I've said, decent return on capital employed and strong cash conversion, I guess all illustrated in the chart. dividend, obviously pretty much in line with earnings. And, you know, obviously, for those of you who will start crying out for a special dividend, you'll have to be a little more patient. But nonetheless, hopefully with strong cash flow generation, Sansa's being able to, you know, succeed at acquiring something or doing something else. I guess the performance historic and future looks pretty good. I won't say much more. I have kind of covered that. Let me give you to Justin to talk about the detail.

Thank you, Simon. I think overall a sound performance, as Simon has already alluded to, with sustained profit growth. I think if you have a look at our earning comparison against the first semester of our 2023 financial year, we've achieved a 12.5% compound annual growth post that COVID period. So a pleasing operating profit achievement in that regard. Revenue grew 4.9%, underpinned primarily by selling price increases, but also aggregated growth in volumes across the portfolio. Gross profit grew ahead of our revenue, with the gross profit margin improving from 42.9% to 43.5% over the semester. This was well supported by an improvement in INJ's earnings, albeit off a lower base, and then a sustained achievement across the rest of the business with margins largely protected. Selling and administrative expenses ended largely in line with last year. We have continued to focus quite heavily on cost management, benefits coming through in that number with regards to the restructuring initiatives that we implemented. Some savings in our distribution as a result of lower fuel prices and partly offset by some higher volumes and then also some savings coming through in the retail part of our business as a result of the closure of Green Cross stores. Operating profit grew 11.6% to just under 2.2 billion rand and the operating profit margin also improving from 23.2% to 24.7% over the semester. Net finance costs slightly lower, largely a function of the lower average interest rates that we've seen coming through in the semester. This is partly offset by higher average borrowing levels. You'll recall that in October 2024 we did pay a special dividend. We have been paying down that debt since then, but over the semester did have higher average debt levels. Capital items, nothing of significance coming through in the semester. Last year you'll recall that the 17.4 million includes a 12.6 million Rand profit on the disposal of the squid fishing business that's conducted by INJ's joint venture. The effective tax rates largely in line, slightly higher than the South African corporate tax rate of 27%, but aligns with our historical performance. Headline earnings growing 12.3% and then headline earnings per share by a slightly lower 11.7% as a result of the dilution of shares issued in respect of the group's various share incentive schemes. I think from an operating profit perspective, I think this table really demonstrates the growth that we've achieved across all parts of our business. Obviously most significant in INJ with the improvement coming off a weak base, an improvement in our fishing profits, which was well supported by additional capacity as a result of the additional freezer vessel that we acquired in February of 2025. This was, as Simon has already mentioned, partly offset by a weaker performance in our Avalone business, which continues to be pressurized by weak demand. Snackworks, pleasing performance, improvement in profits as well as an improvement in margins, well supported by innovation, top line volume growth, as well as a favorable mix within our snacking business, which supported some of that margin improvement. Personal care, I think from a margin perspective, saw some improvement, primarily a function of cost saving initiatives across that part of our business. And then footwear and apparel recovered some of the margin loss that we saw last year, returning to levels achieved in H124. As a result of improved demand through our peak season as well as improved availability with a non-repeat of last year's supply chain issues as well as a conscious decision taken by the business to bring in stock earlier to support that. This graph contextualizes the impact that price and volume have had on our top line. You'll see that price increases have been taken across most of our categories over the last 12 months, but important to note that we have been seeing some moderation in the extent to which we've needed to take price as a result of a softening of commodity prices over that period. We do cover some of the detail around the volume improvements or movements, rather, in parts later in the presentation. But that number primarily driven by improvements in creamer biscuits, INJ hake sales, as well as improved footwear volumes in our spitz business. We also saw good volume support and incremental improvements as a result of innovation launched in many parts of our business. Historically, we've always highlighted the importance of balancing price and volume. It's an important part of how we also manage our margins and protect the long-term profitability of our categories. I think in a challenging environment such as the one that we've been experiencing, we've had to carefully navigate this. And in some categories, we've had to reduce selling prices in order to protect volumes and profitability in those categories. From a gross margin perspective, I've obviously highlighted the improvement already underpinned by INJ, but also the ongoing management of margins across our business and focus on cost control and efficiency in our production facilities. I think also our discipline hedging has continued to provide the much needed certainty across our businesses in order to manage those margins. We have provided some information later on in the information section of this deck covering a comparison of our realized pricing against average market pricing over the semester as well as Our current hedge positions, I think that's obviously quite important in the context of the uncertainty that we face but we are well hedged for the next semester. From a restructuring perspective, you'll recall at year end we did highlight some of the restructuring initiatives that we'd undertaken in the second semester of last year. Simon's already spoken to and alluded to the R39.4 million saving that we've realized through the first semester that's primarily a function of headcount savings. None of that number relates to the non-repeat of implementation costs that we incurred last year. The 42 million that we reported last year primarily related to the second semester, so that's not yet benefiting our costs. But overall, I think the achievement in line with the expectations and the annualized benefit of 76.1 million Rand that we were expecting. I'm not going to go through the detail of each of these bullets, it will be covered later on in the presentation, but I think overall the improved performance well supported by INJ Snackworks and then also Entice and continued focus on cost control across the business. From a cash flow perspective, cash generated by operations improving 9.8%, slightly lower than our growth in operating profits. This is largely as a result of an increase in working capital investment through the semester. I think if you recall, last year we did have a reduction in working capital. But working capital continues to be effectively managed, notwithstanding the increase in the working capital to revenue percentage to 25.3%. This increase was primarily a function of a decision to bring in inventory earlier, as I've already mentioned. This resulted in a lower level of trade payables at the end of December. We also had a strong last two months of the semester from a sales perspective, and that resulted in higher trade receivables. We've had no structural change in any credit terms or payment terms across any part of our business. And if we adjust for the trade receivables impact, that would reduce the working capital to revenue percentage to 24.1%, so an improvement on last year. Capital expenditure reduced off last year's R425 million base, obviously a non-repeat of the acquisition of the freezer vessel in INJ, which was a large contributor to the high base. We continue to invest in our facilities, particularly projects that underpin efficiencies, quality, as well as our innovation initiatives. And for several years we've also invested quite heavily in power and water infrastructure and backup capabilities across each of our sites. We continue to see municipal infrastructure deterioration and that's become an important part of protecting our facilities. Net debt reduced from $2.55 billion to $2.1 billion over the semester. That number includes our lease liabilities. So excluding our lease liabilities, cash debt reduced from $2 billion to $1.6 billion, with our net debt to capital employed also improving to 27.8%, largely in line with our target steering levels. From a return on capital employed, You already would have seen this number, an improvement on last year, largely a result of the improved earnings. I think in previous presentations, Simon has highlighted the fact that that is a number that is based off the book value of assets carried on our balance sheet, and as a result is determined on a historical cost basis. We do evaluate that number based on replacement cost, and it continues to be Well above our weighted average cost of capital. Normal dividends, dividend cover has been held in line with historical practices at interim and our normal dividend has increased in line with the growth in headline earnings to two Rand 45 per share. I'll hand you back to Simon who's going to take you through the individual performances.

Not sure if that's a time for tea. So enticed beverages, obviously our tea, coffee and creamer business, strong performance from tea, which was pleasing. Nice to see some volume growth in our core brands. Obviously price increases necessary to deal with input cost pressure. That slide will come up a bit later, but decent performance from our most important two brands, Fresh Pack and Five Roses. Good product mix, which is also very important in this business. I'm not going to go through every piece of detail. This is something that you can digest, I guess, when you've got more time. Unsp-Adr A complicated period with very strong increases in input costs, trying to navigate obviously a very competitive environment. Obviously, we were reasonably well hedged going into this, but nonetheless, it has been a complicated environment, particularly with Arabica prices rising as quickly and aggressively as they have, has abated more recently, but certainly not in this particular period. Some innovation underpinning the growth and performance and some of our value added categories are going to mug. Mixed instant remains a tough category with competition and still a material issue and affordability in that category obviously affecting demand. Margin improvement though again as Justin said largely from a favorable product mix. Crema, we had an extremely strong prior year semester. If you remember, obviously, the change of ownership of Cremora, the brand that we compete with from Nestle to Lactalis, finding its way, I guess, into the semester. And we needed to do some discounting here to protect our share of the category. We also benefited, obviously, in this category from the cost initiatives. This chart takes you through some of the volume and value and you can see obviously the impact on demand in the coffee category offset by materially higher selling prices and then in Crema obviously a discounting requirement to sustain our share of that category was necessary. But overall as Justin said in all of these categories we do our very best to try and find the best balance between volume and value. market shares. You know, I always warn you, you know, this is formal retail only, it's very difficult to read some of the informal channels, which are very significant to our entire portfolio. But that's, you know, the best read that we can get from the formal system. And nothing alarming here for us. Obviously, the Ellis Brown decline in share in formal retail a function of what I said about, you know, I guess, a slightly different competitive environment. Impact, as you can see, the robust chicory blends, obviously the most affected in the period. And this is net of hedging. Okay, so this would be that portion, you know, that we didn't manage to control the cost of. The Snackworks portfolio, as Justin said, a very pleasing performance from Biscuits, underpinned by good innovation, something that we've been working hard on. Certainly, choices sorted in December, or the festive season in general, was pleasing to see, good growth, innovation underpinning, I guess, 3.5% of the total volume, which we were pleased with. More of that to come, an area that was certainly benefited from some of the restructuring initiatives, obviously putting a significant amount of money relative to the prior year into marketing support and into innovation. Innovation comes at the expense of trial costs, so it's not without some fixed costs. Snacks profit. We obviously here had a very competitive environment. This is an environment that has seen an enormous amount of bottom end competition intensity. It continues to grow unabated, certainly in maize extrudes and potato chips, the most significant. We did a lot of, I guess, useful innovation and flavor extensions across the portfolio. We saw benefits from that. Also, again, our cost initiatives found their way into this part of the business and selling and admin costs in Snackworks well managed. You can see the volume growth in biscuits coming through, which was pleasing underpinned obviously by some pricing necessary to deal with some of the cost increases. And then I guess in line with what I said about The snacking portfolio, decline in volume and lifting of selling prices. Again, underpinning, I guess, the overall performance. Market shares, same comment about formal retail playing out here. A fair amount of contribution and growth from the wholesale channels important to us in this portfolio as well. And again, you can see the cost pressures that, I guess, continue to Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Unsp-Adr Competition in that market still constrains the performance of this business. Not a lot of structural change yet coming through in the oversupply, but I think in this current semester we'll see some of that, but nearly R38 million being expensed obviously through the fair value adjustment of the biological asset. Well managed site, no problems operationally and you can see the impact obviously on the operating profit and that waterfall chart coming through with abalone obviously being the most material. And you can see it really shows up obviously when you look at the 44 million rand that's brought down INJ's fishing performance fairly substantially in this semester. Fishing performance, albeit a slow recovery in fishing performance, sporadic in the semester and of course catch loads taking longer to recover than we had hoped. It's helpful to have the extra freezer vessel in that its activity and contribution is asymmetrically more valuable, so that did help. Domestic volume gains obviously in line with improved fishing performance and international 8.8% material improvement in volumes overall and selling price increases obviously. We didn't have, I guess, the weakest exchange rates experience because of the Rand strength net of hedging. Indigo remains a business dealing with, I guess, two things. One is the sustained pressure and competitiveness in the core deodorant body spray category. Lots of multinational competition, lots of discounting taking place, affecting demand in this weak discretionary income environment. We're working very hard. To build a portfolio of lower priced products and we're seeing some of the benefits early on in this semester, but hopefully the momentum will build you know through this calendar year and we're seeing good demand for this innovation activity. I mean we did protect margins. And admin costs and restructuring benefits have come through. So overall we protected the operating margin 20.3% versus last year's 18.3%, which I think was credible under the circumstances. You can see the significance of the decline in the body spray business. We come through into market shares though, not all even, mostly a function of female body sprays. Male body spray market share, at least in the formal channels, well protected. And certainly, you know, we see that as being sustainable into the second semester. As Justin said and summarized, a pretty decent December overall, a better performance. Nonetheless, a very challenging environment for clothing. Kurt Geiger trades in an environment characterized by significant and ongoing discounting through the semester, obviously carried through into this semester, but a pleasing performance from the course bits business. As we've said, with decent volume growth, very pleasing volume growth for Spritz for the core footwear business in the period. Obviously some discounting necessary and that came through obviously in the average selling price. And as I've said, obviously the decline in KG revenue in line with the comments that I've made about apparel generally and SA. AB International, you know, ongoing growth and performance, obviously two challenging environments. Botswana in particular affected by the decline in the mining industry, a very material contributor to the economy in Botswana affecting demand and then of course Mozambique with currency shortages making it difficult for Our agents in Mozambique to, you know, make payments to us. But aside from that, you know, basically overall, as we show in this slide, strong profit growth, which is also very important and very, very pleasing profit performance, notwithstanding some of the comments about the impact of Botswana and Mozambique. Talking about prospects, I don't know where to start. I guess so much will depend on the impact of the current state of play. Fuel prices in particular for consumers in South Africa are significantly impactful if prices stay at these levels. A lot of people I think are on fairly thin ice as consumers in South Africa and I think notwithstanding I guess that we're used to this, we're disciplined, it does make it very difficult to trade with any I guess fresh air in an environment where consumers are battling every month. It may put pressure on our margins depending on how we have to manage price and volume. We do have a pretty good hedges as Justin alluded to and you can see that at the back end of the presentation and there might still be some moderation obviously net of The RAND, and we don't know what the trajectory of the RAND will be, I guess, through the second semester. But the second semester is pretty well protected. I guess it's the period, you know, that comes after that. We're going to have to manage volume and price, I guess, in a slightly different environment than we might have anticipated, I suspect, given, you know, the last two weeks and what it may mean to consumption and to obviously the fundamental cost Unsp-Adr Unsp-Adr Unsp-Adr Business model that we can you know we're becoming absolutely committed to the idea that each business model needs to support itself where you know basically its efficiency and focus is very materially focused at the affordability levels that consumers can support. Are we taking a hard look at any costs that come from any of our central structures that we think might be inefficient? And that work is very much underway. I guess perhaps at the year end we'll have a little more to talk about. We're certainly working hard on innovation, and that's not just innovation that supports obviously premium price points. is to try and ensure that we can show up in affordable price forms. We've got lots of work. Not all of it, unfortunately, will come through in H2 that tries to bring some of our products, our premium products, to consumers in smaller pack formats, an initiative that's well underway across the business and, in fact, in the first semester, did underpin some of the volume growth that we saw. IronJet as ever, unfortunately, will materially be leveraged by the three big variables, catch rates, the exchange rate and fuel prices. Obviously, we're pretty well hedged for H2 and IronJet's fuel, but they're afterwards obviously less certain given the current exchange rate and obviously the current spot prices of oil and material cost on cost in IronJet if fuel prices stay at these levels. Short-term catch rates, they're still lower than where they need to be. Obviously, we're hoping to see an improvement into the second semester on a more sustained basis back to historical levels. There is a TAC cut, obviously, in the calendar year. It's not going to be material to the second semester. And Abalone, we're still dealing with obviously sustained levels of lower demand, oversupply, and pricing obviously at levels that aren't where they used to be historically. We've seen a little bit of a lift in the last two months, which I guess is somewhat of a bellwether to hopefully an improved performance. The key thing here is to set this out. There is, in SA at least, some restructuring taking place. We've had two small farms close, which will hopefully, I guess, limit some of the supply or the oversupply, I guess, in a lower demand environment. Footwear and apparel. This is a tough environment. You've all seen from, I guess, some of the results, not of our direct competitors, but I guess as a proxy for consumer spend. You know, this is certainly a very intensely competitive space in SA. Lots of sales still going on post Christmas. And all of that, you know, I guess puts pressure on the demand environment, notwithstanding that we're not direct competitors of many of these listed businesses. We won't have the repeat of the greencloth closure costs which will help but again in this business we are looking at all of the metrics that help us drive efficiency and profitability notwithstanding the demand environment. taking some of our brands online where appropriate, because it is important to try and get to every consumer that we can. It takes time to build this capability. It's not overwhelmingly important to the way our consumers shop, but nonetheless, it's something that we're doing. From a CapEx point of view, that's what we'll be spending money on in the second half. So just under 500 million rand is budgeted to be spent. There are a couple of Other projects that are in the mix that we're looking at, they're not going to probably get done in this period, but we certainly continue to look at any project that allows us to get a return on capital if we can improve efficiencies in the process environment. As Justin said, we're having a torrid time, not so much with the failure of electricity, although that continues to be a sporadic issue, but it's the quality of power that is fed into the grid through local authorities. This weekend, I think we had three major disruptions. At three of our factories, you know, which take our processes down, require us to restart. We lose, you know, both manufacturing time and then there's a lot of waste as it comes as a consequence. And so it's a very frustrating thing. This is one of the hardest things to deal with. We can deal with it, but the economic cost of dealing with it is very significant. I guess the critical thing for our business is to continue adapting and changing. We know that the past is not the future. And as I've said already, our alignment across the business of our business model continues unabated. We're not afraid to disrupt ourselves to try and work with Our businesses, our colleagues to try and find smarter ways of doing the same thing to improve our margins, manage our costs, improve any aspect of our business but equally focus on innovation that's both relevant and affordable for our consumers in this changing environment. We do take a long view, which means that sometimes we have to accept, I guess, the reality of the immediacy of both competition and cost. And Justin mentioned that we are, as ever, thoughtful about spending money without making a return, something that I think we'll continue to focus on across the business. And again, leveraging our domestic manufacturing ability. We've got a couple of projects on the go at the moment, looking at international markets for some of our product capability, which we think might turn out to be interesting. It's early days. As ever, we're thoughtful about how we spend money. And so if we have any surplus money, we'll find an efficient way to get it back to our shareholder community. And we are looking, as we always do, at acquisitions. Have to be high quality, very competitive world, very competitive environment in South Africa. But, you know, one day hopefully we will find something that we can make sense of. So thanks very much for coming and very happy to take any questions. Mr. Chalky, you don't ever disappoint. You're always the first.