AVI’s Tightrope: Navigating a Two-Half Year, Protecting Margins While Funding the Future
South African consumer giant delivers resilient FY26 but flags wholesale disruption, abalone write-down and a strategic pivot toward new channels and international growth.
AVI.JO · Earnings Call · 2026-09-07
A Tale of Two Halves
The fiscal year ended 30 June 2026 was, as CEO Simon Crutchley put it, "a tale of 2 halves." The first semester delivered strong momentum, but the second was "much more challenging," with steep energy costs and a Q4 demand slowdown that hit wholesale and distribution channels. Despite this, AVI managed to grow revenue by 1.4% and operating profit by 4.4%, with operating margins expanding to 22.9%. That resilience was earned through disciplined pricing and cost control, but also reflects the uneven nature of the consumer environment. CFO Justin O’Meara explained that revenue growth was “largely underpinned by selling price increases... to recover the impact of higher input costs,” while volumes suffered. The company’s tricky balancing act was visible across categories: cost pressure was pervasive, but in coffee and other soft commodities, hedging provided some protection. “The hedging profile has provided us with some protection against what we’ve been seeing more recently from a commodity cost perspective,” said O’Meara. “It's certainly a tale of 2 halves. The first semester was much stronger. Second was much more challenging. Certainly, from February onwards, steep price increases in energy -- and certainly, quarter 4 of the second semester was particularly challenging from a sales point of view where we saw a market slowdown with respect to anxieties with our wholesale and distribution channel.” — Simon Crutchley, CEO · 2026-09-07The Squeeze on Consumers and the Informal Channel
The consumer pocketbook is under strain, and AVI is having to meet shoppers at accessible price points without diluting brand equity. Competition is intense, particularly in snacks, where “lots of competition has entered into the portfolio,” but the company’s ability to innovate and adjust formats has kept gross margins stable. A notable feature of the year was the disruption in the wholesale channel ahead of planned protests at the end of June, which caused lost sales of ZAR 91 million in the last quarter. That dislocation has since eased. “We've seen a recovery in the last 3 months. July was a bit slow for us. But certainly, in August, we saw basically a replenishment taking place into that system.” — Simon Crutchley, CEO · 2026-09-07 Management is also watching the rise of informal trade and online gambling, which are siphoning discretionary spending. Still, the group’s diversified portfolio—from premium footwear to mass-market coffee—offers some insulation.Restructuring, Cash Generation, and Strategic Ambitions
Restructuring efforts continued to pay off, delivering ZAR 68.3 million in incremental benefits this year, with another ZAR 40 million expected next year. Cash conversion remains a hallmark: cash generated by operations improved 10.6% to ZAR 4.4 billion, and net debt was cut from ZAR 2.2 billion to ZAR 1.7 billion, enabling a special dividend. The company’s ability to fund innovation and international expansion while returning excess capital is a differentiator in a sector where many peers are struggling. Simon Crutchley is optimistic about the future, despite a tough macro environment: “I don't think AVI has ever been fitter and more resilient and more able to deliver... financial recovery or improvements in our financial performance if the broader macro environment continues to improve.” He also highlighted new initiatives, including an online move for Spitz and a more aggressive push to internationalize select brands, leveraging its field-marketing and logistics capabilities.One of the more contentious items was the write-down of abalone biological assets, which hit I&J’s profitability by ZAR 84 million. CEO Simon Crutchley defended the conservative approach: “our calculations saw us write down the abalone asset.” — Simon Crutchley, CEO · 2026-09-07 The fishery business itself recovered strongly, helped by better catch rates and pricing, but biological asset volatility remains a swing factor.I don't think AVI anticipates an easy financial year under current circumstances, but one can never be certain. It is a volatile world. But I don't think AVI has ever been fitter and more resilient and more able to deliver, I guess, financial recovery or improvements in our financial performance if the broader macro environment continues to, I guess, improve.