AVI Limited (AVI) Earnings Call Transcript & Summary

Good morning or I think good afternoon, everybody. It's Simon Crutchley and Owen Cressey from AVI. We're sorry that we aren't able to do this in person this year. We hope you've all been keeping well, and we certainly look forward to seeing you, hopefully, in the future, more normally. Today's presentation is coming from AVI's boardroom. We don't have our colleagues from the BUs with us, so we'll try and answer any specific questions that you have, obviously, ourselves. We've got a normal format. The agenda, key features, as you see. Owen will take you through some of the group financial results, and I will then come back and take you through some of the BU things specifically. You've seen, I hope, the early announcement, clearly, like many businesses, our year has been affected by the COVID-19 pandemic in a meaningful way. Certainly, the second semester very specifically. Of course, it's easy to forget with the pandemic that the economy was certainly quite challenging for the period before COVID-19. And so that was reflected partially in the first semester, but some of that carried through into the second semester. I think on balance, we'll talk more specifically about COVID in a few slides to come. But certainly, I think on balance, AVI managed a very disruptive second half successfully. I think a measure of any organization's effectiveness is how it deals with a crisis. And I think Owen and I are on balance, we're pleased with our ability to sustain our operations where we were allowed to on a continuous basis. It was disruptive and not without its challenges. So the financial metrics, whilst they were not what we had hoped for, I think on balance reflects a very credible performance operationally from the business. I think it was pleasing to see our cash generation remains strong. Working capital, as Owen will cover, was well managed. We still had a reasonably significant, albeit lower than traditionally in numbers, capital projects, which were important and some essential replacements were necessary. And obviously, the headline earnings somewhat deleveraged by the decline in GPs, but that's not because operating costs weren't effectively managed. And finally, because of the strength of the balance sheet and the strength of the cash flows, we sustained the dividend the second payment to the same as last year, which I think gives you some insight into, hopefully, our confidence that our business is in good shape and will recover in F '21. This slide gives you a lot of detail with respect to our particular experience at a company level of COVID. We had 410 positive cases. Unfortunately, we were affected by 5 deaths, including in that number 2 contractors in our businesses. We worked extremely hard at prioritizing and complying with all of the COVID requirements laid out by the Department of Health and the Department of Labor. And certainly, I think our teams can be proud of the efforts that they made to keep people safe, whilst obviously, sustaining our process environment. What this slide does, obviously, highlight by category is those areas that were substantially disrupted by the regulations. And clearly, the operational disruption, although it's not in green for tea, coffee, creamer, biscuits and snacks and parts of the fishing fleet, nonetheless, the compliance requirements certainly were difficult to tackle. I&J, unfortunately, had the worst experience across the group, the Western Cape with cases coming early. And that's where significantly our ability to operate our land-based processing was affected, which then impacted on the fishing fleet and its operations. And our Personal Care, Spitz and Green Cross businesses, obviously, those were affected directly by regulations through that 5-week lockdown period, very specifically where we had no ability to make any sales. Then subsequently in May, we were in the process of ramping up our retail businesses. So in general, operationally, a strong period. We made some early decisions about raw materials. And so we were able largely to run all of the grocery portfolio for a long period of time, but did see because of harbor delays, as we got closer to June, some service level decline in some stock-keeping units in the grocery portfolio because of shipping delays. What this slide tries to capture is the experience of sales in the 9 months to March. Obviously, March had some of the effect of the early, I guess, anxieties around grocery purchasing. But you can see substantially with the change of people's living patterns in April to June, we were able to sustain much higher levels of demand in food and beverage brands as more and more people stayed at home and in-home consumption increased. I&J's volumes were significantly disrupted, as I've just said, operationally, and you can see the impact of that in April to June period. And obviously, that flowed through into the full year. And that was also true of the abalone business, and we'll talk in more detail about some of those specifics later. Same in Personal Care. And then obviously, in the Spitz and Green Cross footwear and Kurt Geiger businesses with all of those stores closed through the hard lockdown that certainly impacted the full year's volumes. I guess this slide also quite a lot of detail. I don't want to dwell on it, but I think it shows you through March through -- to August in Entyce and Snackworks, excluding Ciro, which obviously has a large proportion of its businesses obviously significantly disrupted by COVID with restaurant, leisure and the food service industries all closed. But you can see the strength of the demand in the grocery portfolio. That's continued through into August, which is pleasing. And we're in the early days of September, and the rate of demand is still credible. Ciro is taking time to recover. Still a lot of offices and restaurants and food service activities not back to normal. And that's probably going to take a little longer to recover. I&J. I think we've flagged this. One of the big challenges for I&J was the ability to load containers. Cape Town harbor became quite difficult, and we missed a number of material shipments into our European markets for I&J. You see some of that recovery in July as those containers were eventually able to get onto vessels. The I&J monthly sales number is normally reasonably cyclical because it does depend on when we would land a freezer vessel. So there's nothing in the August number to be concerned about, but nonetheless, certainly, the F '20 period for I&J was materially impacted by our inability to export some of our product that was processed. Personal Care. This is an interesting set of slides. Obviously, the ability to sell all of Indigo's products was constrained by the COVID regulations. And we were really only able to sell the Personal Care products, not the Beauty portfolio of color and fragrance. And what's also interesting is that it's taking longer to recover, certainly not so much Personal Care. But a lot of people are not back at work. A lot of people not going out to the same extent. So I guess, the market for fragrance and color cosmetics will continue to be lower until such time as there's more normalcy in how people shop and what people do. We are seeing a slow but steady recovery in the footwear and apparel business, and you can see that rising trend slightly stronger again in August, then in July. One of the challenges we have is that we're still seeing quite low footfalls in major metropolitan malls. People seemingly continue to shop smaller shopping centers. And that trend, I think, will continue as, obviously, people slowly readjust to a more open society as the lockdown continues to mature, we hope, in the months ahead. Clearly, we had some direct costs of ZAR 58 million, which this table sets out in as clear way as we can. We had to respond quickly to both logistics and the importance of trying to manage within the lockdown protocols in terms of when vehicles were able to travel. Many of our operations run continuous shifts. And for a period of time, we had to run 24 -- 2 times 24-hour shifts. This meant that we had to respond and provide transport in a number of cases to try and ensure that everybody could get to work on time. And so there was a reasonably significant cost in parts of the business to achieve that. We also donated ZAR 10 million to the Solidarity Fund. And most importantly, for our direct line people who were coming to work in the hard lockdown, we resolved to provide everybody in the factory environment, in field marketing and in our logistics and supply chain structures, an extra ZAR 200 per shift worked allowance for that 5-week period in recognition of their contribution and the importance that they were playing in sustaining our process environments. In terms of the results history, obviously, this is not the graph we would like to be showing. But I think on balance, it reflects the diversity of the portfolio and the strength of the portfolio, even under the most unusual of circumstances. And again, albeit that there's a decline in the return on capital employed, it's still very strong. And I think still a credible return, notwithstanding the difficulty of both the macro environment and also, I guess, the impact of COVID. Cash conversion was very strong. Good management of working capital in this period. So a strong conversion of profitability to cash. And of course, with the dividend set at ZAR 2.50 for the second final dividend, which is the same as the prior year. I guess, with the lower share price, the dividend yield looks attractive under the circumstances. And that very much, I guess, provides the history. I'm going to give you to Owen now, who's going to take you through some of the group financial results in more detail.

Good afternoon, everyone. As usual, I'll start off just with a quick overview of the consolidated group results, and then we unpack that in a little bit more detail. So at the top line, a little bit of revenue growth, driven mostly by Entyce and Snackworks and particularly with very strong demand during the fourth quarter. If you look at the gross profit for the year, notwithstanding very strong performance from Entyce and Snackworks, they couldn't quite offset all the pressure coming from footwear and apparel businesses. And Indigo, particularly affected by the lockdown as well as already being under pressure from a constrained environment. And then our out-of-home coffee business, Ciro, also added to that and I&J's operational disruption. So on a net basis, we had a reduction in gross profit with some pressure on the gross profit margin. Selling and admin expenses very well controlled, just 1% up on last year. Obviously, we manage those as tightly as we could and pull back as much as possible during the lockdown period. We did get some rent relief included in the retail businesses. But ultimately saw some underlying cost pressures and particularly where there were volumes in Entyce and Snackworks helping drive things like distribution costs. So the operating profit, 7.5% down, with some decrease in operating profit margin. Net financing costs came down a lot during the second half of the year. I did flag that at the interim results presentation, and obviously expected to continue on that trajectory through FY '21. Joint ventures lower mostly because we sold the Simplot JV in November 2019. So only a portion of the year's profit included there compared to full year last year. And then the capital items before tax is mostly the ZAR 433 million gain before tax on the disposal of Simplot, which has also impacted the effective tax rate being taxed at a lower average rate, obviously, than our normal taxable income. And headline earnings, 8.6% down and a little bit of dilution from shares going into the market from our share schemes, giving us headline earnings, 8.9% down at ZAR $4.78 per share. Just looking at the change in profit by semester. Just to recap the first half, so in the first half, a very constrained environment. Food and beverage business is managing to make some progress and offset the pressure on footwear, apparel and Personal Care and a small gain in operating profit. Then obviously, in the second half, we can see very diverging performances with the different impact that COVID-19 had on our businesses. So Snackworks performing very strongly. Entyce also performed strongly. What -- you've got quite a big reduction in our Ciro out-of-home business, netting often there, but tea and creamer certainly performed pretty well. And then our high-margin retail businesses lost a lot of contribution with the lost volumes. And I&J with its operational disruption to both abalone and hake, I guess, was the big variable for the second half that we weren't expecting as we went into COVID, not knowing how it would affect the businesses operationally. Just looking at the subtotals there, again food and beverage brands proving to be very resilient overall, even with the decline in I&J, still managing to post some growth. And then most of the pressure in this year reflecting under the Fashion brands. Just showing what happened at the top line, not a lot of price increase during the year. Most of that was sitting in annual price increases that we took in biscuits and snacks. And the volume movement, there's obviously some very big movements offsetting each other. So we had a material loss of revenue during the fourth quarter in the retail businesses, particularly in Spitz and Green Cross. Indigo lost about half of its revenue, the Ciro out-of-home business and then I&J as well. So we're all down, and that -- a lot of that was offset by the extra volumes regained in Entyce and Snackworks. Gross profit margins were pretty well protected overall. If you look at the net decrease for the year, it's really driven by the low profit in the second half at I&J and also change in our business model with Coty in Indigo, which had a -- if you want, a cosmetic drop. But if you look at the underlying businesses, for the most part, the GPs were pretty well protected. That does reflect a basket of raw materials that was pretty well priced during the year in its underlying foreign currencies. There's quite a lot of exchange rate pressure during the year. So although our achieved exchange rates were below what you would have seen in spot rates, they were still higher than last year. And that on costs across the group was about ZAR 90 million. So a lot of that was offset by good raw material prices, helping us to manage raw material or cost of sales inflation without needing too much price. Just a breakdown of the decrease in operating profit and the main contributors. I think we've covered a lot of this already, but Snackworks really the standout performer, very good operational performance to meet good demand levels over a short period of time, better yields in the factories. If you remember, last year, we had some issues at the Isando factory, which performed much better this year. And Entyce is also performing well in this environment. I think the other factors are quite well covered under the bullet points, and Simon's going to unpack all the business units in detail a bit later on. Looking at cash flows. So cash from operations after working capital up 13%. So obviously, we had some bigger noncash items to add back this year, things like the write-down in abalone fair value. And then we've also had the decrease in working capital, which was primarily due to lower debtors, which, as expected, with year-end falling on a weekday, meant we got payments from some of our bigger customers a bit earlier than we did at the end of last year, and helped us with the cash flows and dropping the working capital ratio down to 23.2%. Capital expenditure was restricted during the lockdown. There was limited execution capability to get people on-site and to spend the money. I think from a net debt point of view, worth remembering that we paid a special dividend in 2019. And then we received the proceeds from the disposal of Simplot in F '20. So that -- those have assisted with the normal cash generated by operations to bring the gearing down quite steeply, ending the period at 20.8% net debt-to-capital employed. So that's in our normal ranges again. Return on capital employed, as Simon said, healthy. It has come down a bit. And again, we expect that should recover a little bit with lower debt levels. And if we can make some progress in F '21 at the profit line. Dividends. So final dividend in line with last year, so that converts to a slightly lower normal dividend cover ratio. But at this stage, we want to see how the economy settles down and what the real impacts of COVID-19 are before we commit to other returns of capital, but our underlying philosophy remains the same, and we will continue to consider extra returns on a regular basis. So looking at capital projects. We've closed out this year the rooibos upgrade. The chocolate lines at the Westmead biscuit factory is also being completed, and quite a lot of work at the Rosslyn snacks factory. I&J's fleet requires quite a lot of money to keep it operational. And you'll see that coming through this year and next year. And continued investment across the rest of the business. We're committed to sustaining the group's capabilities. You'll see that represented in next year where a similar level of CapEx is planned. Together with some specific projects again at the biscuit factories and I&J, I guess, would be the focus of the bigger projects for next year. Just to summarize, last year, this was quite a feature in terms of the unrealized fuel hedges. Just to note the year-on-year impact of the unrealized fuel hedges is pretty similar. So no real driver of the variance at an I&J or group level there. And just to highlight the impact of the write-down in abalone fair value, which is driven by market prices at the end of the period. And so we had a write-down in H1 and then again at the end of the year compared to a write-up last year, which has had quite a big impact. And we go into F '21, I guess, with quite a lot of uncertainty, which I'm sure Simon will talk to as to where abalone demand and market prices will go in F '21 and the possibility, I guess, of some further pressure on that part of our business. Thank you. I'll give you back to Simon to go through the business units.

Okay. So let's start. Oopsie, I think we've lost our presentation. So we are, unfortunately -- just we'll try and get the presentation back up. Hopefully, it won't be a problem. Here we go. Entyce. Apologies for that. So as Owen has said, the grocery businesses all sustained their ability to operate effectively through the COVID period. And the COVID period did because of, I guess, what I've said earlier, the change in how people who are consuming and where people were, I guess, spending their workdays did give us in all of the grocery portfolio good demand. In tea, particularly, we saw good volume demand through the COVID period. We also saw, I guess, a slow but steady, I guess, reversion of some of the extremely high prices that we've seen for rooibos raw material in the period, and that gave us more product, but it did obviously increase, I guess, the rate of discounting that we saw from some competitors. And so we saw an improvement in margin, but also a small decline in some of our volumes because we weren't willing, I guess, to participate in what we thought was unnecessary discounting. Obviously, black tea prices, as you see in the slide to come, when we get to the raw material waterfall, were weaker, but obviously offset by, as Owen said earlier, weaker basket of exchange rates, notwithstanding the cover that we had. I think in general, I mean, the Entyce portfolio did well. Tea certainly carried its day. It's pleasing to have got the rooibos upgrade behind us. It was pretty challenging to do in the second half, where we had no access to our OEMs out of Europe, but the tea managed to get the upgrade complete and working effectively. We're pleased with the packaging upgrade for rooibos. And certainly, we're holding thumbs that the benefit of that will come through in the years to come. Coffee. Again, some benefits from the lockdown, but also a decline for the Ciro business, which obviously shares the production facilities. And so the impact came through for coffee. We still have in the mixed instant category sustained discounting, particularly and this obviously wasn't a massive feature of the lockdown quarter, but nonetheless, impacted on the performance of the coffee category through, I guess, the financial year. Selling and admin costs, notwithstanding the COVID challenges, were well managed. So in general, the coffee portfolio, although mixed instant continues to be a challenge for us on balance, the profitability remains reasonable even under the circumstances. Creamer. This is a category that truly benefited from the COVID quarter. We had extremely high levels of demand, particularly in the last 3 months. We were able to meet those in general with, I guess, sufficient raw material available to us. The procurement team worked very hard to sustain that. We have seen cost pressure in the basket of raw materials for creamer and so there was obviously some erosion of the gross profit margin, partially offset, obviously, by the increased volumes. And we're still seeing the degramming taking place, and we followed, obviously, our major competitor to smaller format and discounts in this environment continue to be well managed. If you take a look at the basket of categories for Entyce, what you will see is the impact of improved tea volumes. Obviously, no selling price changes, as Owen said. Those were largely restricted to the biscuit and snacking portfolio in the year. Coffee, of course, feeling the impact of the discounting and the impact on Ciro in terms of volumes. And then you can see that very strong creamer growth and the price realization, obviously, benefit of the smaller formats. So in general, a credible performance from Entyce. You can see shares. No material or meaningful share changes. Ellis Brown, the creamer category, I think some of you will remember that there were major service level issues for our major competitor in the prior year. Although we both shared, I guess, very strong demand in the last quarter, the market shares have, I guess, normalized. So I think on balance, what's always critical for us is -- and we focus heavily on brand is to ensure that we find the right balance between price and volume. And I think under the circumstances, Gaynor and her team have done a good job in Entyce in the last 12 months. This just gives you some sense of the price changes. And of course, the notable one we've had, I guess, for at least 36 months, a very constrained rooibos supply environment, drove prices very high. With improved weather in Western Cape and rainfall, we're seeing a slow return to more normal levels of supply of the raw material. And with that, obviously, an opportunity to see raw material prices come down. Snackworks, as Owen has said, a very, very strong performance from the portfolio, both the biscuit business and the snacking business. We benefited right through the year with some volume improvements, but obviously that accelerated in the COVID quarter. And it certainly helped that our efficiencies in both factories were improved, particularly in Isando, where we had some challenges in the prior year as we commissioned new equipment. And the benefit of that came through underlined of course by the improvement in selling prices necessary to ameliorate some of the cost pressures across the basket, coupled to, of course, the weaker exchange rate. Snacks continues to make good progress. Our operating profit for the snacks business is getting closer to the target that we set many years ago, which is pleasing. And we, as Owen said, have continued to invest to improve capacity and quality in that facility at Rosslyn. You can see the impact on revenue, obviously, underpinned by the volume growth. As I've said already specifically coming through most substantially in the last 3 or 4 months of the financial year, but then also strengthened by the selling price increase to deal with cost pressures and a very similar situation that you see in the snacks revenue line at 11.7% increase. Just to break out some of those cost pressures coming through mostly in raw material, not in packaging, we're getting some relief eventually from very, very high butter prices compared to history, which is obviously helping, but they, in absolute terms, still remain higher than the long-term average. And certainly, we'll continue to have pressure, given that the exchange rate is weaker looking ahead. Market shares, good performance. Again, as I said about Entyce, very important for us is to try and find a balance between price and volume. And it's easy to forget because of the slightly stronger demand in the last quarter. We are still, I guess, selling into a constrained consumer environment. The macroeconomic picture was poor before COVID. And I guess when we get to talk about things ahead, I guess, those challenges persist. I&J. Certainly, we never anticipated the performance that I&J experienced in F '20. I mean, largely, this is a story of the H2 number. If you remember, H1, we were slightly up on the prior year. I&J took a very, very, I guess, early hit in our business with respect to cases. And we had at the peak at least 300 to 400 people in quarantine on the land-based processing side, which simply put enormous pressure on the whole manufacturing system because, obviously, it starts at sea, and we had then fewer vessels fishing. We had obviously lower recoveries, both on those vessels and then in the factories. And that certainly impacted the fishing side of I&J very substantially. And then, of course, the abalone facility was very materially impacted by our inability to airfreight product into Asian markets. Many of which then had restaurants closed, which is a strong channel. The food service channel very important for abalone with Hong Kong obviously closed as well, and that impacted on both selling prices and then sales in absolute terms. We also struggled with the finished product that we were able to produce in I&J, to put this onto vessels and move it into the international markets that we sell to. And then we also lost, I guess, time on the freezer vessel. We ended up with one of our major vessels in dry dock during COVID, and it was difficult to extract the vessel out of the dry dock to bring it alongside to complete work and to get it back out into, I guess, the fishing grounds. So on balance, the COVID-19 pandemic was extremely disruptive of all the businesses, at least operationally. I&J was the one that took most of the, I guess, challenges. We still have a decent demand. I mean the interesting thing with both globally -- well, in the markets critical to I&J and domestically, we had good demand for our retail formats in the same way as we had good demand for our grocery portfolio with people not eating out and eating in, which was pleasing. It would have been helpful if we could have put more of that product onto vessels and got it to market in F '20. The catch rate experience slightly down on the prior year. That's really a vessel mix change with slightly fewer freezer vessel sea days in, I guess, the fishing experience of F '20. And then, of course, Owen has touched on the capital expenditure. This gives you, I guess, a more granular view of the impact of the operating profit decline from ZAR 408 million to ZAR 238 million. And you can see the real damage done to the abalone business with the concomitant consequences of both the write-down in the biological asset and then the disruption in terms of sales and marketing into our key markets. The fishing impact again is really under recovery because of the disruption I've just talked about. The freezer vessel very much just as I've explained. And then, of course, we disposed of Simplot in the prior year, so the impact of that, obviously, coming through because we had far fewer months with the Simplot royalty in the financial year. And then, of course, you've got this busy amalgam of the exchange rate and other, obviously, coming through making a contribution. And this, I guess, settles, I guess, over a longer history, and you can really see the impact, the abalone business and then, of course, the impact on the fishing business. Simplot obviously speaks for itself in that we've now disposed that business. And in the same way as the royalty, the contribution is lower in the financial period. That's just essentially, I guess, what I said around fishing, not a material change. You can see some of the domestic volume growth that reflects a stronger retail performance and a meaningful change in selling prices in the 12 months. But what's critical to I&J is its international markets and how you can see the material inability to sell the product and to catch the product and the impact that that had on revenue with that volume decline, notwithstanding, of course, some improvement in the realization value of our exports because of the weaker exchange rate. Indigo. Indigo is one of the businesses that's certainly had a very disrupted COVID quarter because we were not allowed to sell a significant portion of what we traditionally would sell in the beauty portfolio of cosmetics and fragrance. As Owen said earlier, of course, we were already in a tough macro environment. So some of those challenges were obviously exacerbated substantially by the COVID lockdown. And notwithstanding that once we were able to sell our product basket, again, you could see that the lockdown or the continued lockdown, albeit with different regulations still meant that some of the core categories for Indigo were very, very slow to recover and continue to be slow to recover, albeit, there is a gradual improvement. And that's largely, we think, a function of how people continue to live and work in the COVID environment. We did have some good innovation. They didn't get a full opportunity to deliver, obviously, because of the disruption in the second half, but they are making a good contribution. And hopefully, that will improve in the year ahead. Because of the sales mix and because of the COVID pressures, our gross margins are under pressure. There's also obviously a fundamental shift in the financial year with the revenue number flattered, of course, by the inclusion now of revenue in the business model. So the numerator, denominator for, obviously, Indigo has shifted because of that. And in the information slides at the back you will see that's broken out in more detail, so that at least on a year-on-year basis, you've got a good appreciation of how that will look under normal circumstances. I guess, good cost management, as Owen said, in this business. Certainly, everything we could do to manage, I guess, costs under the circumstances was done and done well in Indigo. But you can see the impact in the volume numbers that I've talked about. And certainly, the innovation was nowhere near enough to deal with the wholesale closure of the whole beauty and color portfolio during COVID. No material change to selling prices and a slight improvement in body spray market share is really underpinned by some of the great work the team are continuing to do with the Yardley portfolio. Spitz. Well, anybody, I guess, who covers retail stocks knows how difficult this period was for anyone retailing. And we were certainly, as Owen touched on in the broad group results, not obviously experiencing a strong macroeconomic environment prior to COVID. But certainly, this period exacerbated that very substantially, and we had that 5-week hard lockdown, which closed all of our Spitz, Kurt Geiger and Green Cross stores. And the impact of that was very substantial. I think the important thing for me to say is we continue to pay all our staff through this period of time. Owen has touched on some of the rental relief that we were given, which was helpful and appreciated. But certainly, the gross profit margin pressure from a weaker exchange rate also found its way into this business. And we certainly didn't think it was an environment. We had anticipated putting up selling prices in H2, and we felt that under the circumstances, we would defer that to try and better understand the longer-term impact of the COVID period on how consumers were looking and feeling. Not a lot of change in the trading space in the financial year. And certainly, we, because of our inability to look at refurbishments during the COVID period, have deferred a lot of -- although it's not a substantial sum of money of the work that was planned for H2 in the Spitz business, obviously, into F '21, and much of that will depend on how we read the macro performance, I guess, in the months to come. You can see the impact, obviously, of that very tough COVID period on volumes. And as I've said, not a lot of change in price, and that came through both in Spitz and Kurt Geiger. And then certainly substantially also into the clothing business with that decline. It was disappointing because the run rate by February for Kurt Geiger was, in fact, positive on the prior year. Green Cross. We are in the final throes of this restructure. Green Cross substantially affected in the same way as the balance of the portfolio with all of the stores closed. We've continued to see in this particular format ongoing discounting across comfort footwear. And that, I suspect, will persist as many of our competitors are carrying inventory that they were also unable to sell in the COVID period. We also had a very busy year converting, if you remember, in the first half, which we reported about in H1 was our conversion to Green Cross and Co multi-brand formats. We had 10 or 11 stores closed in the first half. So to some extent, the revenue number is also affected by those loss of sales in the first half. We got an improved gross profit margin, as we've shifted from our domestic production to our import model. Costs were well-managed here following the restructuring. And we also managed and this was more to do with, I guess, the period up until the end of February, refurbishing the stores that I've just talked about with respect to Green Cross and Co. International. Our core markets regionally were also affected by COVID-19, notwithstanding some of the challenges of getting across border. We managed to, I guess, operate effectively through the COVID period, and we saw reasonable demand on a sustained basis through the financial year and in some markets, slightly stronger demand in the COVID quarter, which was very pleasing, but this is a performance underpinned by, I guess, demand strength across all of the portfolio and all of the core markets to us. It got logistically tricky at stages. But in general, we were able to, I guess, keep service levels as high as we practically could. And that includes, obviously, meeting most of the demand domestically in South Africa. So we were pleased with this result. Good cost control in the international team, which I think is encouraging, and we continue to be confident and enthusiastic about our ability to expand our brand presence in the markets that we're targeting in AVI International. So prospects for F '21. I'm sure all of you, like Owen and me, are thoughtful about the macro environment, I guess, the sustained impact of COVID. We are entering into our third month financially in F '21. I mean, we're seeing reasonable demand in our core grocery portfolio, which is pleasing. There's a slide, as you saw in the beginning, that breaks out, I guess, month-by-month sales. So I can, I guess, say with some confidence that so far so good for the grocery portfolio. We're seeing an improvement in Ciro sales volumes. It's taking time. And I guess it's going to take longer probably than we anticipate for people to, I guess, go back to the way of life that predated COVID. And that may, in fact, include, in some instances, some changes that are more permanent, but we don't think overwhelmingly so. I guess it just depends on the time frame you look at. Absolutely critical, given the cost pressures that we have coming at us because of a weaker exchange rate to manage price and volume in the year ahead, that that discipline remains very important to us, particularly given the importance of how we view brand and value. The first half is well protected, as Owen said, with, I guess, well-hedged raw material prices and exchange rates. The second half less so. And so much will depend, I guess, on where exchange rates finally settle. There is always the risk in a tight environment for discounting by competitors. And that's something we're used to, and we're very thoughtful about how we deal with that. But nonetheless, it can have an impact. This is something we can't ignore. But we try and manage that as effectively as we can. That's something we've talked often about. Interestingly enough, if the rand remains weak, it may actually provide some opportunity for us because of the cost of imported product competing against the efficiency of what we can produce domestically, and that might provide some silver lining to demand in some of our categories. Creamer volumes. Although they are very strong and have been strong, and the category remains very strong. I mean, there's always the risk that our volumes may decline. If our competitor sustains their service levels, and they've certainly had a better period for that. But we don't think that in any way ameliorates the opportunity for us in creamer, but we're just flagging that as a potential issue. As I've said, just in concluding the international slide, we remain, I guess, determined to build and grow our presence of our branded products in key markets, and we see that as an opportunity in the grocery portfolio in the year ahead just as it was in F '20. We worked hard in F '20 to, I guess, revitalize and improve the premium nature of our product on shelf to ensure that we are properly differentiated from our competitors and from, I guess, the categories that we compete against, and we think that process has gone well. And I think if you visit stores, you will see many of our products looking fresh and strong and carrying the premium pedigree we think our brands deserve and that process will continue in 1 or 2 of the areas where we haven't quite finished that work in F '21. But we certainly can see higher rates of sale and improved demand as a response to some of that work, which is obviously pleasing. As ever, cost management is critical and so is obviously the importance of ensuring on a 5-year cycle we have the capacity to sustain, I guess, our best view of forecasted demand. So we do have some projects that Owen highlighted, which will underpin the ZAR 400 million-odd that is forecast to be spent in F '21. And in general, in this very heightened load-shedding risk environment, nearly all of our facilities are properly protected, and we can sustain production, notwithstanding, obviously, the risks of electrical failure from the power utility. Insofar as Indigo is concerned, F '20 was very tough, I guess, to the extent that people return to normal workplace environments and then want to buy beauty and color cosmetics and fragrances, this is an essential need for this particular business. We have a balanced portfolio, and obviously that's important for us to try and recover some of the lost revenue in the prior year. We do believe we're seeing some of that normalcy return. We're noticing, I guess, slightly higher rates of sale and better demand from some of our retail partners in these categories, which isn't covered, which is encouraging. What's critical is that we try and manage our cost base here. We have -- a lot of our input materials are imported, and the exchange rate obviously is putting pressure on GPs. We need to try and manage our selling price points here and look at selling prices to ensure that we protect the GP and recover some of the GP that we've lost in the prior year. We've got a good pipeline of marketing and product launches to support F '21. I guess, again, in a tough environment because the macro environment obviously remains very, very constrained, it's always the risk of discounting in core categories. And we're just flagging that, obviously, as a risk. We're hoping that it's not a material risk. We continue looking at Indigo’s structure to try and find, I guess, ways of reducing the overall fixed cost of how we do business in this business, and there's some project work underway. Hopefully, we can deliver some of that in F '21. Working hard with Coty to try and refine and improve some of the effectiveness of their product in the market because certainly the COVID period was not a strong period for Coty, specifically in some of our core business categories because of the impact of the restrictions on the rate of sale of both beauty and fragrance-based products. I&J. We're certainly very hopeful that the H2 of F '21 will be substantially stronger than the H2 of F '20. We don't believe that the COVID-19 impact will persist into that semester. We're certainly getting back to a more normal processing environment. Number of cases, interestingly, in the AVI group in the last 10 days, we've had no cases for 10 days now and no cases at I&J. The number of people quarantined at I&J has come down very dramatically. And that's certainly helping us manage the process environment to more normal levels. We do have a reasonable exchange rate, which, obviously, we're optimistic about, particularly if we can get back to normal production levels. The fuel hedges are secured at lower than F '20. The quota, obviously, calendar year financial year is slightly asymmetric. We don't yet know what the second half's quota implications will be in terms of any cuts or not, but it's unlikely to be substantial. We're seeing some recovery now in food service markets, which is obviously encouraging, and the retail demand environment remains stable, both domestically and internationally. Continue to focus on costs in this business. I mean, critical, of course, is our ability to have a, I guess, stable fishing experience, so much depends on these drivers for the, I guess, available product for processing and then for sale. Abalone, as Owen flagged earlier, is obviously trickier for us to forecast the market recovery. Hong Kong remains in lockdown, and not only in lockdown, it also is in an awkward position politically, which is also being disruptive and changing the way people consume. Obviously, we're hoping the Chinese New Year will give some recovery to the abalone market. And that as airline traffic and markets open up again, our ability to move product into Asian markets improves. As Owen said, there's money going into the fleet, which is important. We need to finish those projects on time. And then, of course, most importantly, we've had an extension to the long-term rights allocation process to the end of F 2021. We just finished our accreditation, our BEE scorecard, we remain level one. So we believe we're in a strong position to contest those long-term rights effectively in I&J. Spitz. What's fundamental, I guess, is return to normalcy in consumption habits and people's willingness to return to shopping malls. We don't obviously anticipate a change in the macroeconomic environment. We know that it is very, very tough. But certainly, I guess, some of the limitation and restriction on H2 will not have the same impact as it did in F '20 and F '21. We've got reasonable exchange rates. We're managing our inventory effectively. We will have some margin pressure in H2, unless we put selling prices up at current exchange rates, but we're taking that, I guess, month-by-month at present and looking at what decisions are necessary. Critical for the Spitz business is the performance of December, which is always material to this business. It's encouraging to see, I guess, improving lay-by sales. Our lay-by sales are higher than they were in the prior year, which is encouraging. And we're certainly seeing where we've done good innovation, the benefit of that and the product mix at present. So people are showing up and purchasing our product, which I guess is encouraging. But certainly, until such time as we see normalcy in how consumers shop, particularly in malls, our High Street stores are pretty much doing what they did in the prior year, which is encouraging because it tells us that we have consumers who want to buy product and are shopping, but we need that full basket to come and play for us to try and annualize against H1 of F '20. In Green Cross, we're still seeing lots of discounting in this particular category. Obviously, it's a small part of our business. We're working hard to manage the stock buildup as a result, obviously, of the COVID period where sales were materially lower, and sales have remained lower because of, I guess, the constraints in the macro environment. We are reducing the store footprint in line with our long-term plan to work with GX&Co, and that process is underway. And this business now is fully integrated into Spitz, and we hope to get the synergies that come from that integration in F '21. I guess in environments like this, what's important is a willingness to examine how things are changing. I don't think the past is going to be as useful as it might have been as predeterminant to what one needs to do to be successful, which means that we are looking at our business model and we know wherever we can it's important to simplify what we do because simplification provides us the ability to manage our cost base, and the ability to manage our cost base, I guess, sustain some of the operating leverage that's important to any turnover and volume growth that we can get in our core categories. And we keep focusing on the basics in this environment, margin management and procurement remain vital. Efficiencies in our process environments remain really important. We know that it's all about brands, and we've seen that interestingly enough in this lockdown period where our market shares grew and consumers came out in numbers to buy many of our products, and we think that's because they're unique and special. And so it's important for us to continue doing that work because that's our best defense against a tough macroeconomic environment. And certainly, that continues to get attention. And we put a little bit more money aside in F '21 to support marketing and marketing initiatives. We'd like to get earnings growth. I guess, lots of things have got to go right for us. We certainly would be disrupted if there was another round of COVID disruption in the next couple of months. We're hoping that that's not the case as we go into summer. And we are holding thumbs that there will be a slow and gradual return to normal shopping habits and normal consumer consumption, I guess, in some of the categories that are being the most affected because of the lockdown. We will continue to look at projects that have good returns. That's not going to change. As I've said already, we continue to look hard at how we can take our domestic capacity and export the products that we sell. And we think there's opportunity in the year ahead. Owen has touched on, I guess, any excess cash that we generate. We're hoping to have a strong financial cash performance in F '21. And yes, we continue to work hard at trying to dominate regionally, whether we can acquire any interesting brands because of the tough environment is certainly on our radar, and we'll continue to think hard about that. But I guess, in general, the most important thing is our business is in good shape. We've come through a very difficult COVID period. We sustained all our operations, and I have to complement all my colleagues who worked extremely hard. We haven't really, as a management team, had much of a lockdown. But it was very pleasing to see the business sustain its ability to deliver, I guess, product to our retail partners through a very difficult period. And we're hoping that F '21 and all the work that is being done will give us the opportunity to deliver a better financial performance in the year ahead. So thanks very much, and we're very happy to take questions. I know the questions are coming in digitally, and we're here to take them as they come in.

Thank you, Simon. We do have some questions already. First one from Paul Steegers from Bank of America, around Ciro. How much of -- was Ciro of Entyce revenue for FY '20?

Maybe I'll let Owen answer that.

So the percentage of Entyce revenue for F '20 was about 12%. F '19 was about 16%. There was a drop of about ZAR 120 million worth in revenue for the year, and that was pretty much all in the second half and COVID related.

A follow-up question from Paul, he is asking for more color on the sales performance for the fashion brand since lockdown ended between Indigo, Spitz and Green Cross.

So if you take a look at the slide, you can see the month buckets of sales. I don't know what number slide it is. It's, I think, slide on Page 6, if you've got it, but effectively, the Personal Care business, if we take the months of July and August, 91% of prior year in July and 89% of August on the prior year for Personal Care. And then footwear and apparel, it's risen from 77% in July to 88% in August. And I guess that gives you some sense of the trajectory of the recovery. The low, of course, was 0 for footwear and apparel, and Owen already touched on the fact that in the worst of the lockdown, we lost 50% of Indigo sales.

A follow-on question on Ciro from Dino Constantinou from JPMorgan. If you can give a sense of Ciro's normalized revenue and operating profit contribution to Entyce?

No, we don't break that out.

Next question from Peter Cromberge from Mergermarket. Does AVI intend to continue deleveraging? Or is it comfortable at the current level? And is there more in the current market, what is really the appetite for acquisitions?

Well, the appetite for acquisitions has always been high. The question is, can we acquire brands that are credible and that we can add value to and what price would we need to pay to make the acquisition? And I guess that's something that might improve in this environment. So we've got the ability to transact. We've certainly got a balance sheet that could support it. It's really a question of whether we can find something that is useful and credible for us to acquire. And so far as our balance sheet philosophy is concerned, nothing is changing. I mean, I think, as Owen said, we continue to have the philosophy that says if we can't find useful things to do with surplus cash, we'll find the right way to get it back to consumers -- I mean to investors.

Next question is from [ Nick Richter ] from Signal Asset Management, who wants to dive a little deeper into the personal care, and there is a couple of questions here. What is your exposure to Edgars? And how do you expect the competitive landscape to shift as the demise of Edgars been a drag on sales? Or did volume shift to other retailers? That's the first question.

Well, we, like everybody, have exposure to Edgars. It's small. It was insured, and we have received our insurance claim for a small portion of our book with Edgars that was not covered by our own provisions. So there's no financial impact. Obviously, we're not selling to the old Edgars and so much depends on what we see in the development of the acquisitions that have taken place with some of their categories. And those relationships, I'm sure, are being developed. I mean, so far as the impact on the landscape is, yes, in some instances, competitors have taken share from, I guess, the old Edgars business, whether that reverts back to the new owners of those parts of Edgars that have been disposed of, I guess, time will tell.

The follow-on question is regarding discussion with landlords and recent trading updates, indicate that the pharmacy retailers are growing sales double digit. And so it's surprised that the August AVI Personal Care sales are not stronger. Is this divergence in sales growth because of mix?

Well, the beauty portfolio is not only underpinned by, I guess, the businesses that he's referring to, and those categories themselves are not necessarily growing in those businesses either. I mean, so you need to -- they're a very complicated portfolio of products that are going into those 2 channels. And because we sell strongly into those channels, their experience in those categories still remains constrained as well.

Next question is from Karl Gernetzky from Business Day. With regards to CapEx, as COVID-19 shifted any plans, for example, with the biscuit line. In addition, is AVI considering -- no, you've already answered that, it was around acquisitions?

So we run a very disciplined 5-year rolling CapEx program. So some of the money that is on the table for F '21 does include, obviously, expansions parts of our biscuit facilities. And that's something we review on a continuous basis because every product has a very specific manufacturing protocol in a different line, potentially. So we manage our capital plan on a 5-year rolling basis, looking at what we believe forecast demand to be. And so in nearly every financial year, there will be some investment as there is an F '21 into the biscuit capacity.