AVI Limited (AVI) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to AVI's results for the first 6 months. I can see that we've got a smaller audience. I don't know that's -- if we have more people listening in on the webcast. Apparently, the word these days is social distancing. I haven't taken my jacket off because I'm hot and sweaty and have got the coronavirus. So for those of you whose hands I've shaken, welcome and thank you. I promise you I'm not sick. We've got a pretty typical presentation. I'll take you through some of the highlights, some of you will have seen that. I know it's been an exciting morning this morning for those of you in equity, so you might not even have had a look. Hopefully, our results are not the reason why the market has tanked as it has this morning. Owen will take you through the financial detail, but I'll take you through some of the key highlights. I'm going to be quite brisk today, leave a little more time for Q&A if that's interesting. So essentially, they're all coming at you. I'm not going to read them off because, hopefully, you can all read. I think you know, I'm not telling you anything you don't know, tough environment, particularly for consumer-facing businesses where we are struggling to get volume growth across most of our businesses. In some categories, inevitably, I think we've said to you in the past, we've seen some fairly aggressive competition in pricing. I think on balance, we've managed that effectively. AVI is a portfolio of defensive and cyclical businesses, some obviously struggling a little more in this environment. And certainly, December, in particular, was a tough month. Those of you who can remember, a lot of rain in the first week, coupled to load shedding, didn't help our retail business' performance, particularly in Spitz, which is very December-dependent. We were really trying to work hard on managing volume and value in the business and I think that comes through when you see some of the detail that I'll unpack by category, I think, particularly, again, our colleagues manage that effectively in the national brands portfolio. And you can see that showing up in the gross margins, which, I think, on balance, despite the environment, is still well protected generally across the business. We keep working hard at S&A costs, something that we've tried to do for the last 3 or 4 years. And again, that was held in line with the prior year. So operating profit marginally up only at a group level with higher levels of debt, that's obviously come through in the headline earnings number. I think the important thing to say is EBITDA is still very strong. Very good cash conversion, obviously, from earnings into cash. We've continued to invest money in the business, some of it's a bit cyclical, a little bit more will come through in the second semester. Importantly, we've ended the Simplot asset, something that we felt wasn't strategically important to I&J. We didn't control it, so it was nice to get a decent price for that and get that cash back into I&J. Headline earnings numbers, I've already covered off. Obviously down, some of that's dilution and some of it's obviously because of the net debt position through the semester. And then earnings per share, obviously, coming through higher because of the sale of Simplot. Interim dividend, unchanged in terms of the policy. And I guess, just some highlights graphically. Frustrating for us, obviously, this environment, making it quite hard to grow both the top line and the bottom line. This is a leveraged business through the process environment. So I think, on balance, I guess, the portfolio effect dissipating some of the gearing. The growth rate is still good, obviously, not in the most recent times. But certainly, our operating margin, well defended despite all of those pressures. Capital employed, obviously, tracking back slightly, but still a very healthy return on capital employed across AVI. That can recover as the performance recovers. And then the cash conversion, as I've already said, still remains very, very solid in the business. Dividend yield, I guess, well, you've got to keep pushing that up as the share price goes down, but not a bad yield under the environment and that excludes share buybacks. Returns to shareholders. The dividend as I've already covered. I guess the red numbers are always the things that intrigue many investors. I think Owen's going to probably put a carrot in front of the donkey for a bit longer in this environment, but let him talk about the numbers in more detail.

Good afternoon, everyone. I'll take you through the financial results as usual. Just firstly is the overview of the core trading result. A little bit of revenue growth, unpack that in a lot more detail through the rest of the presentation. Cost of sales, very well contained. We did have weaker rand exchange rates in the semester that was largely offset by some better raw material prices. We had better performance in the biscuit factories. If you remember last year, that was something we highlighted and that helped offset inflation in the other cost lines. GP, largely protected. Selling and admin costs, very well controlled. We did have the benefit that we didn't have, some of the restructuring costs for Green Cross that we had last year and I&J's mark-to-market on fuel hedges, which lives in selling and admin costs was much lower in this period. So that helps, but overall, a very good performance. So operating profit slightly up, and operating profit margin very slightly down on last year. Below operating profit, we've had higher finance costs. I guess you should have expected that after a special divi that had some impact on our headline earnings per share, obviously, in the period. Worth noting, the finance costs have been trending down through the semester and are expected to be lower in H2 than last year, and for the full year should be down on last year as well. Joint ventures. Obviously, we sold Simplot. We only had 4 months earnings in this period compared to 6 last year, and it was trading below last year anyway for the first 4 months. The capital item, this is before tax, ZAR 434 million of that is the Simplot transaction and the balance is normal asset disposals and some insurance proceeds on replacement of an asset. The effective tax rate is down because we've paid less tax on the capital gain, the Simplot disposal pulling the average down. And then, overall, because of those items, the financing costs and lower JV income, headline earnings down 3,5% and a little bit of dilution bringing the HEPS to 3,8% down. On this slide, just wanted to highlight the food and beverage brands, quite a good performance in this market. Some of our categories, obviously, battle. Simon's going to unpack them all in detail just now. A couple of standout performances, but in aggregate, good performance from food and beverage brands. Lots of pressure on the fashion brands businesses. Footwear is mostly volumes. I&J -- I'm sorry, Indigo has had some margin pressure. And just to note, there is a slide later on in your presentation and information slides just helping you to understand what's happened with Indigo where we've got a different model with Coty, and obviously, creating some noise if you look at the revenue versus the operating profit line. We didn't need a lot of price increases in the semester to protect GP margins. The main price increases were in biscuits and snacks. And there was a strong focus on managing promotions and discount activity to make sure it was value accretive, which has also helped with price realization in the semester. Volume pressure is mostly in the footwear businesses, but you'll see later on by category where that's come through. GP margin. Just remember, we had the change in accounting standards beginning of last year, so we've had, if you want, a structural change in the percentage on a like-for-like basis, slightly down on last year. We're looking at where the change in operating profit came from. Standout performance in Snackworks. They benefited a lot from price increases implemented in April last year to help them with their margins. I&J obviously benefits from a weaker rand and a better wet fleet fishing performance in the period. Indigo had some once-off costs related to new product launches as well as some margin pressure. And Spitz is mostly volume pressure, that will be covered a bit later. Marketing expenditure pretty much maintained. We haven't gone to rob the piggy bank on this and extra expenditure in Indigo, which we've already covered. Looking at cash flows. So the cash from operations before working capital, slightly up, I guess, in line with operating profit. We've had some increase in working capital. The biggest item causing that is paying for the stock that we took over from Coty at the end of last year. So the stock was on the balance sheet, but it was still in creditors and we've paid for it in this semester. Capital expenditures, mostly timing you'll see the full year forecast is pretty much in line with last year. We had -- last year, we had this big cash outflow for the special dividend compared to a big inflow. That's the Simplot proceeds net of costs. And obviously, that leading to quite a nice reduction in the net debt, bringing our net debt back into our targeted range, which is, typically, we look to be around 25% net debt-to-capital employed. So with that in mind, we've kept the dividend the same and in line with earnings, ZAR 1.60. Just looking at the CapEx profile. There's different timing, first and second semesters this year. Depreciation climbing a little bit, but fairly stable at these levels of spend. Specific projects in the semester. The rooibos expansion project, pretty much done. Most of the cash flows happened. Final commissioning, I think, is happening now. I think the other point worth noting here is a reasonable amount of money still needs to go into I&J's fleet to make sure we maintain our catching capacity, particularly important, obviously, through the right allocation process. And total spend for the year, similar to last year, about ZAR 480 million. Hedges. We've been consistent. As usual, we've got our normal level of hedges. You'll see this is pretty similar to what we have shown you in June and December last year. The rates we've secured for imports are slightly higher than H1. But together with raw materials, we think we can manage the GP pressures as long as demand is reasonable. And obviously, I&J has got some exposure, some upside exposure, if the rand weakens. Just looking at I&J's mark-to-market items, which give us some variability in period-end reported earnings. So the fuel hedge last year, if you remember, was quite a big item. We've ended with a mark-to-market loss, but much lower than last year. So that's been a benefit in the selling and admin line. In cost of sales, we've had a drop in the amount of unrealized profit recognized on live abalone, which has impacted the results negatively for the period. At year-end, that market disruption was driven primarily by the Hong Kong protest. Subsequent to that, there's obviously more disruption from the coronavirus, and I think Simon will talk to that a little bit more in the prospects for I&J for H2. Thank you. I'll give it back to Simon.

Okay. Sorry, just get -- so we're going to start, obviously, with Entyce, the beverage portfolio, and I think a pretty strong performance. And I think the thing that I'm going to say now generally, which I think is important across the grocery brands, is that in this environment we've got a good portfolio of brands. I think we fundamentally believe in still doing a really good job for consumers. And I guess, on balance, the operating profitability, notwithstanding some of the volume issues, which comes up in a slide or two, we've still been able to deliver a strong tea result. Some of it's to do, obviously, with, as Owen has already said, lower raw material prices. Not a lot of price increases needed to drive this. We've got some good volume growth out of Five Roses, some volume growth out of the affordable brands. We still continue to see a pretty stable ratio between our premium brand prices and our affordable brand prices in the category. Rooibos raw material pricing, as you know, has been a real challenge for the category with the raw material price over the last 3 or 4 years going up very significantly, took the basket of selling prices high. We've seen some of that start coming back, although what we have seen is some fairly aggressive discounting in the category. As Owen has said, I'm going to repeat these things, we work very hard to manage costs in all of the businesses and it's come through, obviously, in Entyce as well. We're still putting money into innovation. We've put rooibos into -- as part of the new CapEx that is being commissioned, a new innovative packaging format for Freshpak, which I think is very exciting, which will anchor our position as market leader. Real challenge for us, we've talked to you about this before, is the coffee category, particularly mixed instant. But it was a permissive challenge across all parts of our coffee business. Some of the pricing, obviously, relieved by the sustained price of arabica prices remaining low, not, of course, I guess accounting for the impact of the exchange rate, which is still an issue for us. But on balance, notwithstanding the challenges in coffee, still made a contribution. Creamer profits. I think if you remember a year ago, we were doing, I guess, really well because of our major competitor's inability to supply the market. We did flag that as an issue on balance. We've kept quite a lot of that volume, notwithstanding, obviously, our competitor coming back into the market. We've seen another degramming of the major format and we follow that in order to make sure that our price points remain competitive. I guess, in this category, it's extremely important to manage our discounting well. I think that was done effectively by the team. So on balance, the other major category and Entyce performing, I think, very credibly under the circumstances. What you can see, of course, are the challenges in volumes in all 3 of the categories, creamer, in particular, with better on-shelf availability from our major competitor. But when you look at the market shares that come through, on balance, nothing particular. I mean the creamer market share is a bit flatter because it's a 12-month number that we'll be tracking back a little bit as their service levels improve. But in general, a pretty sound performance across all of our major brands. Owen's already tackled that. You can see, of course, the benefit coming through in the reduction in rooibos and in black tea input cost prices net of the exchange rate, which will help us, I guess, hold prices at sensible levels. As Owen has said, the Snackworks portfolio, a particularly strong semester, some of it flattered by the improvement in our manufacturing capability compared to the prior year, but in general, really underpinned by the price increase that we were able to bring to the market. It had been at least 18 months without a price increase. Quite a lot of accumulated cost pressures, which eventually, we do need to put back into pricing if we were to protect our GPs. We know that it's always challenging to do that in a difficult market, but I think on balance, that pricing has come through. And again, you will see it in the slide that comes up now. Nice to have the improved factory performance, especially in Isando. And as I've already said, solid performance from S&A cost management. Strong performance from the snack portfolio. This business continues to, I guess, drive reasonable profitability growth. We also had to lift selling prices for the same reasons and the portfolio did well. And again, S&A costs doing well. So the operating profit margin expanding in the Snackworks portfolio because of an improvement in both biscuits and in snack products. You can see again, though, notwithstanding the volume challenges, obviously the selling price is coming through, which I've talked about, which was really important to try and drive the top line and convert that top line into a high level of operating profit in the categories. Pretty benign raw material environment coming through. Obviously, some relief in butter. But on balance, those accumulated cost pressures largely being ameliorated by the price increases, which we've talked about. Market shares. One of the characteristics of having high market shares in categories are some of the pressure we see in low price points, not too serious, but nonetheless, obviously relevant. We can't price to those price points and hold our GPs, so we have to remain sensible. Nice performance and recovery in the savory portfolio, which was pleasing. And then although a slight decline in the Willards market shares, nothing serious in the constrained environment. We don't chase market share. I think the thing that we try and manage in this business is a balance between volume, value and market share. I&J, obviously constrained by some of the things that Owen talked about. Revenue flat. We had some challenges, obviously, notwithstanding, obviously, a higher TAC. We had some, I guess, noncore volume pressures in Europe converting into lower selling prices. We did obviously have better exchange rates. So the revenue is flat through the period because of those, I guess, directional changes and we think that some of that will wash out in H2. We caught a little more in the wet fleet, which was important given the mix opportunities for us. In terms of process and production, a good performance in the semester. Nothing problematic across either the fleet or the factory environment. The abalone issue, I'll talk about more in the forecast environment, but one of the challenges here is that we've got a big biological asset. We've got about ZAR 250 million worth of creatures in tanks. And obviously, that valuation, obviously, can move with respect to the prices that we're seeing in the market. It's not a cash movement, but it does come through the income statement. And the fuel hedge Owen touched on, so I'm not going to repeat it. You can see, obviously, the breakout, so ForEx doing its thing, export pricing, as I said, holding back some of that improvement. Nothing massive in terms of the fuel. Hedge, obviously, better than the prior year. The real issue in the semester was this abalone issue in December with respect to the Hong Kong impact on market prices going through, obviously, the stock valuation. I think -- I won't touch on the fact that not a lot of earnings, obviously, from Simplot, and one, because it was tracking back; and, two, because we sold it. But a strong performance from the fishing business, which was pleasing. So I think that bodes well through the second semester. Catch rates are pretty much in line with, obviously, the mix between catch rates on the freezer fleet and then the fresh fleet. So I mean, by and large, nothing too problematic. Slightly smaller fish than we would have liked for the semester, but again, nothing critical. You can see there the volume and value issues in the domestic market and that's largely because of some of the product that we put into the local market coming off the wet fleet. And then you can see some of the issues coming through in selling prices in the international market, which I've just talked about. Indigo. Indigo is a bit complicated. We have an arrangement with Coty, which we converted from the previous model, which was largely agency-led, to now having their stock on our balance sheet and obviously taking the revenue into the top line. So you have a numerator-denominator impact and I'm going to unpack that in the next slide. I guess the key thing is our own brand revenue was up. We've put a lot of money into innovation in this business. You do get cyclical highs where you do have quite a lot of new product development. We've got to support that with NPD and with marketing, which has certainly been asymmetric in the semester. Aerosol volumes, which is a key underpin to this business, a little up. Having said that, there's quite a lot of aggressive pricing in this category. One of the categories where we've seen quite a lot of aggressive competitor pricing, which we've just got to sit out when it happens. Those costs obviously come through a little better in the waterfall graph. And you can see the impact of, obviously, the, I guess, new model. NPD marketing costs coming through, obviously, in the semester. Some of that is very asymmetric. The gross margin pressure is significant, particularly in the body spray business. Obviously, the new model driving the Coty contribution up, but obviously not enough to offset those 2 other moving parts. Volume growth, coming through with the innovation, but obviously, the costs, at the same time. That will mature through in the second semester and I'll talk a bit about that in the prospects section. And one of the challenges here is lifting selling prices against input cost pressures because of that discounting. Nothing really material changing in market share. So our brand remains healthy. It's not that consumers are deselecting us, it's just that it's becoming hard to hold on to pricing against cost pressures. Spitz. A tough semester for Spitz, largely in volumes. I mean we have some pretty interesting things that we saw coming through. We're certainly having Black Friday extend into November for a week. It's on the -- some black week now, not Black Friday. We saw quite a lot of money shift. We then had that dreadful week in the first week of December and certainly made -- we lost a lot of trading hours and we didn't really recover from that. Spitz's December is massively important to it. We had good growth in the clothing business, which was pleasing. And I mean, I guess, inevitably, with some of our pricing -- we haven't priced up since 2016 in some of our core lines. You're seeing some gross profit pressure in line with the weaker currency notwithstanding some of the hedges. I mean the core business is in good shape. It's just extremely difficult to get growth. And of course, because it's a cyclical business, there's more leverage in this business. And certainly, we saw that not a lot of space change in the semester. And this is where you see, obviously, the real issues coming through. Now what we saw in our December was very particularly a decline in sales to women and to children. I mean by and large, the sales to men didn't change materially, which was quite surprising. And we can see what that's doing is driving different behavior in households. Obviously, we have materially more constrained budgets. A reasonable growth, as I said in the clothing business. Green Cross is very much in the transition phase. We aggressively are converting from the old Green Cross stores to GX&Co, which is multi-brand, added a lot of retail space down in the 6 months. As you know, we're building a new international supply chain to support that. Summer arrived a little late. It's a big task. It's well underway now, but certainly have impacted the semester. We are seeing the improved gross margin because of the new strategy. Costs are well managed. But of course, we're still seeing a lot of aggressive discounting. I think if you go into most shopping malls, certainly, it was like that in that semester, 50% sales, 70% sales even now as I speak. I mean quite remarkable to see how aggressively the retail environment is still discounting. International had a good semester, which was pleasing. We're still getting good growth in many of our key regional markets where we keep working hard to build our brands and build leadership. So that was pleasing to see. We had good growth in Botswana. We had good growth in some of our distributor-led markets and also good cost control, which is, I guess, pleasing. A slight uptick in the contribution of international to the grocery portfolio, which is also pleasing because it's an area where we continue to believe we can harvest higher rates of growth and decent operating profit maintained. I guess the challenges for H2, I think, are self-effacing, I mean, the massively important challenges to sustain rates of volume growth or at leasehold the current volumes. We are targeting growth in the Entyce and Snackworks portfolio for the second half. Of course, we run our brands with a very, very dedicated view that they have to deliver value to consumers. So whether it's pricing, whether it's format. We sustain a medium-term approach, notwithstanding the constraints. That's definitely not going to change. We do need to manage, obviously, our competitive position in the markets, but equally, understand that the long-term cash flow value of our business is actually only protected by the quality of our gross margins, and that's something that we have to be prepared to take a medium-term approach on should things get tougher in some categories as I've already shown you they did in H1. We are going to see some benefits from the basket of raw materials. They're well hedged, Owen has covered that. We do have improving rooibos raw material pricing and obviously, volumes, which is an opportunity for us, particularly with our new facility. Creamer volumes, we think there's still opportunity for creamer. I mean, I guess, the critical thing is how aggressive is our competitor with respect to market share gains that we've made in the last 18 months. And we think on balance, we've still got good opportunity in creamer. We've got some innovation that's coming through, always important, and it will play its role. It's not overwhelming, but it's important and it's relevant, we think. And we'll keep working on our costs and our efficiencies and our productivity. They remain important levers in this low-growth environment. We're well hedged against power risk in most of our facilities, so that's not likely to be a real issue for us. Obviously, it cost us a lot more money to run generators than obviously pay for electricity. In Indigo, we're targeting H2 recovery. I mean, obviously, hoping that the innovations deliver their value. We will also have to work hard here on maintaining gross margins and that means having a sensible view on selling prices in the core categories. We can't afford to be reckless. And we will look at structure and costs inevitably as we continue to find smarter ways of doing the same thing. And hopefully, we'll see some performance improvements out of Coty given that we now have more leverage over the brands in this market. One of the reasons for the structural change was to allow us to have the responsibility for marketing because the performance of that portfolio in the last couple of years has deteriorated. In I&J, as always, the great unknowns. The catch rates are obviously relevant. We don't think that we're in for any undue surprises. We are catching more small fish than we would like to still, which is frustrating, but nothing critical. Obviously, the exchange rates today is even more exotic. I guess it will help underpin the performance of the semester for the unhedged portion, although there's not too much of it. Well, the fuel cost effectively hedged, but you can buy fuel for a lot less today, so who knows where the volatility will take us by the end, obviously, of June. And there will be a material impact or not depending on the exchange rate and the fuel price on the day. We're not, obviously, up against the declining quota. In the second semester, it's unchanged. I mean there is some competition clearly in the filler market in Europe for some of our product. Whether that translates into lower selling prices, I know Jonty's just come back from a long trip in Europe, so for those of you not scared of catching the coronavirus from him, you can ask him what that looks like. But we do see some opportunity. The abalone issue was obviously Hong Kong first. And -- but the biggest market for I&J's abalone is into China and that's certainly a real challenge in the short term. We've got, obviously, the ability to mitigate the impact of that by canning some of the product in the very foreseeable future. But quite clearly, in order to get a better view of what the impact in I&J will be, we need a better view of the impact of the coronavirus and then finally our ability to access that market. We have absolutely no certainty yet how it will play out. We certainly have our volumes affected in the short term. A lot of the factories that we do business with in China have gone back to work. So I think net of supply chain, the opportunity to sustain reasonable rates of sale are probably likely to come back. But we do flag that as an issue and a risk, obviously, in the second half. Long-term rights have been formally extended to adjudication in 2021, so there's no impact at least in the short term. Spitz, massively important. We've got a price increase that's gone through in February, and that's to protect GPs given the ongoing pressure. Obviously, the currency pressure will add to that, although, obviously, in the short term, pretty well hedged. The impact of supply chains, obviously, for the group, we do source some product out of Asia. We know our factories are working. What we're more anxious about is will we be able to get those boxes across the sea on time. Got some harbors with bottlenecks at the moment. So at the moment, it's looking like 2-weeks delay. But it could extend out to 4-weeks delay. It's a pretty unknowable thing in the short term. We have a lot of product that comes out of Italy. We're not impacted at this point in time because none of the issues are in the south as we speak. Most of our factory production is obviously in Tuscany area. And so we don't believe that, that's any more than a week or 2 at this stage, but that could change. So there are obviously some uncertainties with respect to product and inventory. We continue to work on the basics in this business. Our real challenge is affordability amongst, obviously, the impact on consumers that we have seen, I guess, affecting many consumer businesses in SA. We do a very specific thing. We continue to work hard to do that well. We know that our product is highly designed still and the reality is just finding enough consumers to support this business, and we continue to work hard on making ourselves relevant and exciting. The Green Cross business, obviously, we're still in the rollout of GX&Co. It's going to play its hand in the second half as well where we've had, in the last couple of weeks, a lot of stores down for the upgrades. We're seeing, obviously, improvements in trading densities with better product range, but it's a maturing opportunity, not a lot of change. We're not expecting a lot of change in H2. I mean we're in a very different macro environment. I mean we're not overwhelmingly surprised by this, at least the broad theme, the more recent themes around the coronavirus, obviously, creating more volatility in, I guess, the long-term costs because of the exchange rate. We keep running this business as thriftily as we can. We also know that it's massively important to improve how we engage with consumers. We care enormously about the quality of our products, the consumer experience. So we're not shortchanging any of those fundamentals in the business. What we do know, though, is that we've got to keep finding, I guess, smarter ways of delivering the same product experience with lower costs. It's getting harder for us to do it because this is something we continue to work hard on. But we're not scared of being innovative and looking at how many people we need to do very specific things in the business. And those will continue, I hope, to at least give us less variability in our profit performance notwithstanding the challenges in the top line. So we are targeting real earnings growth despite the macro environment. We will continue to generate lots of cash. I think you've seen that in H1. That will come through again in H2, which I think, obviously, is important to say. We keep looking at finding smart ways of spending money to improve our profitability. But we're certainly having to, I guess, in some instances, I guess, lower our investment time line because of some of the uncertainties that we simply can't, I guess, anticipate. Our regional and international market opportunity at this week exchange rate continues to grow, net, of course, of the cost of the basket of products that we need to acquire to, in fact, convert product for sale outside of SA, which I think remains important. We're making good progress in dominating some categories regionally with, I think, products that are relevant and useful. We've got some innovation and size formats have continued to help drive that in AVI International. And if, I guess, that continues to be an opportunity, we'll spend more money to do that. I guess in this environment, we might eventually find an acquisition that's attractive. We're not going to say any more about that. So thank you for listening. Thank you for coming today. I know that it's been a difficult morning to leave your desks. But we appreciate your attendance. I'm very happy to take any questions.

I'm [ Fundo Jamini ]. I come from [ Tycoon Investments ]. I want to know in terms of cappuccino, Hug In A Mug, I saw one of your competitors. They were charging half the price of what they're charging. And when I looked at the box, it was almost expired. So is it tough -- is the consumer not pay -- doesn't want to pay that price? Or you're not facing those hardships? Or maybe is it consumer preferences?

No. We're all facing -- I mean, I can't speak specifically for the Hug In A Mug cappuccino and the price on shelf. I mean, as you know, a Kia is a lot cheaper than a Mercedes-Benz, but it depends what you're prepared to buy. I mean the reality is that there's a plethora of products. I mean clearly, there are lots of different price points. And we have seen aggressive discounting of people in some categories where people will take the opportunity to put a very low price point on. But that's very common. I mean there's hardly a product in our portfolio that someone doesn't sell for half our price, whether it's a Marie biscuit or a Hug In A Mug, the reality is that what we're still trying to do is to give consumers exceptional products. We can't speak for discounting and some of the aggressive discounting that some people will bring to a category for a period of time. And those are pressures that I think everybody in the branded environment in South Africa deals with on an ongoing basis. But I don't think -- otherwise, we wouldn't have the numbers that we've had. We had a pretty strong performance, notwithstanding the constraints. Lots of consumers still want our products even though they are often 50% more expensive. And that's something that, I guess, we continue to try and work hard at is to make our products worth it. It's very easy to discount in this environment. The very interesting thing is that there are a lot of people who are discounting, and it's not improving their rate of sale. You still got to have something that's relevant to consumers and it's still got to be good. The question is we know that in the end there will be a constituent part of South African consumers who simply cannot afford to pay perhaps our price. But fortunately, enough can. Any other questions? Yes, Ian.

Ian Cruickshanks, Institute of Race Relations. You have mentioned twice this morning the size of the individual fish, that they were smaller. Is this going to have an impact on the number of fish you have to catch, the operating efficiency of that and the future catch because if you're catching the smaller ones now, then even this in the future. We have been through stages in South Africa where we had that sort of problem.

No. I mean I think when we highlighted, these are -- I guess, I should give you statistics. I'm not going to let Jonty answer because he's going to keep you for 15 minutes. But the reality is that this is a marginal change. A lot of it is to do with the fact that we are in El Niño/La Nina balance. And this is something that we've seen historically where we're not either on one or the other. And so generally, it means that the small fish persists for longer. The important thing is that there are small fish, which means that there's been good recruitment, so there are lots of babies and those babies become bigger fish. So actually, in the end, it is a very positive sign for the resource. Less positive for us because we'd prefer, obviously, to have a better size mix to process. Any other questions?

Rishay from EPPF. Just 2 questions. The first one is how big is Coty as a part of the Indigo performance because obviously this is not the first time that we've had it, change in this business model of Coty and the AVI relationships. How big is Coty in your life?

Well, in revenue or profit?

Both.

I'm not going to give you those unfortunately because we don't -- the reality, it's meaningful. I mean, and by that, you can take it at 25%, I guess. But I'm not going to give you any more detail in revenue.

All right. And then you said that, obviously, part of this new process is you will now take over the responsibility of marketing. So how much additional marketing spend are we looking at?

There's no change in the marketing spend. It's just going to change how it gets reported. We used to do what we stopped doing because we've been in these renewal phases. So Coty decided a number of years ago when they listed on the New York Stock Exchange that they wanted to own all their turnover. So we had the same relationship. They took responsibility and that changed our income statement then, and it's not been very effective. So we've renegotiated the agreement and now we're going back to the same old model. The economics are not going to change except in the way that we report them in the short term. And one has to, whether one was doing it in the past, I mean, the way the agreement is structured, I mean, net-net, the income statement benefit will be identical, say, for the economic leverage that we can get out of improving the rate of sale essentially. So we will now pay essentially a more fixed cost to them and this gives us the opportunity to improve the top line and therefore get leverage on the cost.

And then just the last one regarding your oil hedges because, I mean, given where oil prices are currently. What would the average price be of what oil is currently being hedged at for the existing ones?

In terms of the average price, well it's hedged. So I think there's a slide that gives you some of these. I can't give you a number. I mean the reality is -- I asked Owen this question, let's assume that we had perfect, I guess, vision, and today's oil price persisted and the current hedges existed. We've probably got a ZAR 20 million mark-to-market against what the book looks like now. But who knows? I mean there's a long way between now and today's hysteria. Any other questions? Yes? Sorry.

Tinashe from Afrifocus Securities. Just a question on Spitz. I mean you guys are talking about implementing price increases in February and then also the fact that there was a change in household consumer preferences. So can you just try -- I'm just trying to marry the two because it seems like the change in the consumer, what you call the preferences, particularly women and children's shoe categories and then also the point that you guys are intending to be implementing price increments, they don't seem to be -- they seem to be contradictory, to a certain extent, from my perspective. So maybe I'm missing something, but I'm just trying to understand how confident are you guys that those price increments are actually going to stick given that -- the unfavorable movements in consumer preferences?

Well, the reality is that like everything in South Africa, you're going to pay more for lots of things if this exchange rate persists whether you can afford them or not. It's interesting. I mean the thing that we saw in December, I'm not an anthropologist, but what I can see is there is an asymmetry in how households are dealing with the constraints that are coming into SA. And largely, in our own little, I guess, business in Spitz, what we saw was, against last December, materially bigger decline in rates of sale to female customers and to children. And we think that means that most households -- our male shoppers continue to shop. And I guess, the balance of the basket is being made up and you can have your own, I guess, view of that. So that's just an observation that we saw which was interesting, which we translate as being clearly family units that support Spitz in December, there was a noticeable shift between male and female customers. Now we are mostly a male business. So it's not that in the end, we're very dependent. And we clearly have female shoppers, so that was a notable thing. We're not pricing against that. We're pricing against input cost pressures in order to preserve GPs, which is something that we need to do because we don't manage the macro environment. We certainly don't control the exchange rate. And there comes a point where those prices need to go up in order to preserve the economic value of our product. Now remember, every other person who brings product into SA, and we do a very specific thing in Spitz, has the same pressure. So I don't see the issue of what we saw in December, meaning that we can't lift selling prices. I think that although you could argue they may be correlated in some way, at least across AVI, that's how we behave. We know that we're losing some people to Marie biscuits because there are 17 different kind of Marie biscuits you can buy in South Africa. But Gaynor and her team know that what we try and do in our product basically is particular, and therefore, when it needs a price increase, we raise prices, even though we know it probably creates a different elasticity of demand for some shoppers. And this is the art of managing your brand portfolio in a very complex South Africa. And so whilst I understand it looks like an anomaly, from our own experience, the one's an observation about household constraints, the other one is the economic reality of trying to preserve our business and its GPs, which we are confident that we can do. These are small price increases relative to, I guess, our inflationary pressures. We've worked very hard on the procurement side to try and manage the physical cost of those products out of Europe, too. So there's more than one lever here. Any other questions? If not, thank you very much, and good luck. There's some lunch outside.