Five Roses-owner warns of higher food prices

South Africa’s struggling consumer environment weighed heavily on AVI’s operations in the first half of its 2025 financial year, but higher prices, cost-cutting measures and once-off gains gave the food producer a much-needed boost.

If South Africa’s economic situation does not improve, the company warned it may need to increase its prices to keep up with rising costs.

AVI owns several well-known South African brands, including Five Roses, Freshpak, House of Coffees, Bakers, Willards, ProVita, Yardley, Frisco, and Green Cross.

The company released its results for the six months through December 2024 on Monday, 10 March 2025.

In these results, AVI explained that South Africa’s macro environment remains constrained, and optimism created by the GNU has yet to deliver growth.

“High interest rates, unemployment and inflation have continued to erode disposable incomes, creating volatile monthly trading patterns and limiting our ability to increase sales volumes,” the company said.

This is reflected in the company’s results, with revenue growing by a meagre 1.1% to R8.47 billion.

The company also reported that most of its businesses struggled in the six-month period.

AVI’s Entyce Beverages business, which houses brands like Freshpak and Five Roses, reported significant input cost pressures.

However, revenue in this segment grew by over 8%, while its operating profit jumped by 43.9%, making it the company’s best-performing segment in this period.

The company explained that revenue growth in this segment was underpinned by price increases required to ameliorate the input cost pressures. 

AVI’s Snackworks business, which represents brands like Bakers, Willards, and ProVita, reported a revenue drop of 1.0%. The company attributed this to a strong prior-year base. 

The I&J segment, which is AVI’s leading fishing company and manufacturer of chilled and frozen foods revenue, grew revenue by 3.9%.

The company explained that this was due to the benefit of selling price increases in the fishing business and a weaker exchange rate partially offset by lower fish sales volumes driven by a poorer catch mix and catch performance. 

In particular, the abalone category was impacted by lower selling prices and weaker demand in key Asian markets. 

AVI’s Personal Care segment also saw its revenue decline, with growth in roll-on and colour cosmetics not sufficient to offset lower demand in the aerosol and fragrance categories. 

Its fashion retail brand portfolio also had a challenging interim period, with supplier and global supply chain issues impacting sales. 

AVI explained that December retail sales fell short of a strong prior-year base and were impacted by stock shortages in some key brands and styles.

Despite its lacklustre segmental performance, AVI’s total profit was R1.36 billion, up 10.2% from the previous year.

In addition, its basic earnings per share skyrocketed by 9.9% to 411.3 cents per share.

This was largely due to a once-off gain from the sale of I&J’s squid fishing operation, a joint venture in which I&J holds a 50% interest.

The disposal of this operation led to a capital profit of R12.6 million.

The company’s results were also boosted by margin improvements that benefitted from higher prices and tightly controlled expenses.

Despite the positive outcome in its income statement, AVI’s balance sheet took a hit in this six-month period.

The company’s net debt, which includes current borrowings and long-term lease liabilities, less cash and cash equivalents, increased by 41.21% to R2.55 billion.

However, the company’s tax liabilities declined significantly in the period, down around 71% to R40.7 million compared to R140 million the year prior.

AVI’s cash generation was also strong in this six-month period, with its cash generated by operations up 16.4% to R2.16 billion.

Looking forward, AVI’s outlook remains cautious, as the company is concerned about South Africa’s ongoing economic challenges.

It highlighted weak consumer demand, high interest rates and geopolitical uncertainties as ongoing concerns.

The company warned that its revenue growth may decelerate in the next six months if the country’s economic environment does not improve, which would necessitate further cost-driven price increases.

“While it appears the group is moving into a period of softening input cost inflation, aside from coffee, the constrained and competitive consumer environment will continue to put pressure on our ability to protect margins,” it said.

“Capital projects that enhance our manufacturing capabilities, reduce production costs, improve product quality and support improved customer service levels will continue to be supported.”

“Failing municipal infrastructure poses a challenge to our manufacturing sites with respect to power and water supply and has necessitated considerable investment, with further investment expected to protect operations.”

AVI declared an interim dividend of 220 cents per share, 8.9% higher than the previous year.