AVI Limited (AVI) Earnings Call Transcript & Summary

Welcome to AVI's Financial Year end June 2024. Thank you for your attendance today, and thank you for those of you joining us on what I call, because it must be my age, the interweb. My colleagues are here as well from some of the business units. And we have obviously, some lunch afterwards for those of you who are attending. And just to start an old tradition again, we have some goody bags because we've invented quite a lot of interesting things this last financial year, and we thought it was worth sharing those with you. Today's presentation, if it changes, which it doesn't want to do is pretty much the normal format. I will just take you through some highlights, and then Justin will give you a little bit of the detail, there we go. And then I'll go back to the business unit performance and then talk a little bit about prospects and then hopefully take some questions. So, I'm going to dive straight in. I'll make no secret, obvious that AVI PowerPoint is not encouraged. So, I'm not going to read every one of the bullet points. I think it's worth highlighting the results were pleasing in a pretty challenging environment. If it was not without its challenges, I guess, for a consumer business, the most fundamental thing was consumer demand, which we continue to battle with. We have seen an increase in competition in some of our categories, particularly at the bottom end and we continue to struggle. It's easy to forget when you're struggling with load shedding or water in your homes, it certainly is a manifestly more material issue in manufacturing sites. And we've certainly worked hard this year to ameliorate some of those challenges, but certainly did impact a number of our manufacturing sites fairly significantly. Of the group's businesses, I&J had a very particularly challenging year with ongoing catch rate constraints, which I'll cover a little later and also poor demand in the abalone category for I&J. Permissive, rising costs for us affected by exchange rate and some spiking raw material costs, which we'll cover off as well, load-shedding certainly in the second half, materially lower, which was pleasing but for the year, some ZAR 33.2 million. And then, as I said, some good innovation, which helped revenue, particularly in the second half and also important was our persistent need to manage volume and value effectively in the group, which is something that we're very focused on protecting our gross margins. And we've managed to get, notwithstanding the constraints in I&J gross margins in our core categories back to pre-COVID levels, which we think has taken some years, but nonetheless pleasing to have got there again. A lot of focus in the year on cost and efficiencies, and I'll take you through some of those in each of the business unit performances. So, operating profit, up 21.7%, good operating leverage, particularly in the national brands portfolio. As you will see later, strong generation of cash, a reduction in net debt didn't mean we didn't invest in the businesses, and we go through some of the detail of what we invested in. So, special dividend as well as, and Justin will talk you through the dividend. And then, of course, an improvement in the return on capital employed, which is a very important metric in how we manage and allocate capital in the group with a strong dividend yield, obviously, based on the year-end closing share price. That graph gives you, I guess, some of the recovery post-COVID. Pleasing to see a sustained compounding rate of growth and, of course, a continuation in the improvement of the overall group operating profit margin over that long time series. I've talked a little bit about the capital return, which was pleasing. And then, of course, very strong cash conversion, which I guess translates into the dividend yield of around 9.2%, obviously, based on the year-end share price and that excludes share buybacks. So, I think a strong performance overall, a sustained performance that gives you the detail. And in 2024, just under ZAR 3 billion worth of cash returned to shareholders in the financial year. Let me give you to Justin.

Thank you, Simon, and good afternoon, everybody. I think overall, a solid set of numbers in the context of the environment and the challenges that Simon has spoken to, revenue growth of 6.3% to ZAR 5.9 billion in the year, largely underpinned by selling price increases taken during the previous financial year as well as the current financial year. This was required in order to recover some of the input cost pressures that we're experiencing over that period. That was partly offset by lower volumes. Gross profit grew ahead of our revenue growth with the gross profit margin improving from 39% to 41.7%, some strong benefit in that number from cost-saving initiatives as well as continued investment in our production capability and some automation investment there as well. Selling and administration expenses well managed, increased 6.4% on last year. That included some increased investment activity to support our brands as well as some of the innovation that Simon alluded to earlier. Operating profit grew 21.7% to ZAR 3.3 billion, largely a function of the operational leverage that we've seen through the group, which also supported the improvement in our operating profit margin growth from 18.2% to 20.8% in the year. Net finance costs reduced to ZAR 184.5 million for the year. The strong earnings growth and strong cash generation allowed us to pay down some of our debt, average debt levels across the year lower than last year. This was partly offset by some higher interest rates, but, overall, a pleasing debt performance and position at the end of the year. The effective tax rate reduced marginally, but largely in line with the South African corporate tax rate of 27% and headline earnings growing 24.2% with headline earnings per share at a slightly lower 24.1%, including some dilution as a result of shares issued in respect of our share option schemes. This graph contextualizes the first and second semester performances across the group. I think overall, growth in both the first and second halves of the year, well supported by a strong performance in our Entyce Beverages and Snackworks businesses. Entyce Beverages, a pleasing second half supported by improved margins and volume improvements across all of our categories in that segment. Snackworks, a strong first semester, slightly more challenged second semester with a constrained environment, slowing growth levels. But, overall, a pleasing result for that part of our business for the year. I&J eked out an improvement in earnings for the year off a low base, but well supported by a stronger second half where the fishing performance improved as a result of better catch rates compared to the first half as well as some benefit from selling price increases and a stronger rand. That was partly offset by a weaker performance from our abalone business. Personal Care, I think the core business and remaining business performed well. The cessation of the Coty agreement that we had from July 2023 negatively impacted that performance, the loss of some ZAR 50 million worth of contribution in the base. The information slide is at the back of the presentation do provide some context to that as well as the benefits that we have managed to realize through the unlocking of working capital in respect of that business. Footwear and apparel, I think a reasonable first semester with a strong peak December performance, but a challenged second half where competition and constrained consumer demand, particularly in the apparel part of our business constrain some of that performance. As highlighted, I think the food and beverage part of our business has underpinned a large portion of the operating profit growth, strong growth from Entyce Snack and Snackworks and smaller growth from I&J. The Fashion brands business for reasons I've outlined already, operating profits ended slightly lower. Operating profit margin, an important metric for us and one of the margin managements underpins a key part of our operating profit achievement. Food and beverage brands delivered a pleasing growth, particularly within the national brands part of our business, where operational leverage supported some growth in margins. I&J improved their margin, but I think that continues to be below historical levels. Overall, fashion brands margins in line with last year. Personal Care benefiting from the loss of the lower-margin, Coty business as well as some benefits from cost-saving initiatives implemented during the year as well as the rationalization of some noncritical SKUs, which managed to deliver some efficiencies within that part of the business. The footwear and apparel business margins ended slightly lower but remain healthy. This growth contextualizes and quantifies the impact that price and volume have had on our top-line performance over the year. I think, as mentioned before, price increases taken across the last 2 financial periods to ameliorate the impact of higher input costs. In addition, we've seen some benefit through the semester from the weaker Rand on I&J's export revenues. Volumes have been pressurized in a number of our categories as a result of the constrained competitive environment, but the overall impact was largest at the group level in I&J, where lower catch rates negatively impacted our volume performance as well as the impact of the loss of the Coty business and the rationalization of those noncritical SKUs that I spoke to. As mentioned before, managing margin is an important underpin to our financial performance and our long-term profitability and the protection of our long-term cash flows. A nice improvement back to pre-COVID levels, well supported by our focus and ongoing focus on cost control and efficiencies within our production facilities. In addition, it also includes some benefits from the cessation of the lower-margin Coty business. This graph, I guess, provides a waterfall of the growth at operating profit level. I'm not going to go through each of the bullet points here. They will be covered later on in the presentation. I think, again, to reiterate the importance of cost management and efficiencies within our business, which have been a large underpin to the improvements as well as the benefits in the Entyce and Snackworks businesses, is from operational leverage. Cash generation has remained strong. Cash generated by operations improved 22.7% to ZAR 3.8 billion and cash debt-to-EBITDA percentage improved to 98.1%. Working capital continues to be effectively managed in a disruptive environment. And with the year-end falling over weekend, this resulted in the deferment of some debtors’ payments to the first day in July of 2024, which is the new financial year. That's some circa ZAR 100 million worth of payments. If we adjust for that, the working capital to revenue percentage is largely in line with the previous financial year. Capital expenditure, we continue to invest in our business, obviously, continuing to carefully consider our investments and the allocation of capital spend overall, marginally lower than the previous financial year and largely focused around replacement of some key equipment as well as investment in production efficiencies and capacity in our creamer facility. Net debt reduced from ZAR 1.7 billion to ZAR 1.4 billion. Included in that number is the cash debt component, that reduced from ZAR 1.2 billion to ZAR 876 million with a net debt to capital employed reducing below our target range to 19.7%, in line with that and our continued focus on returning capital to shareholders and optimizing our balance sheet. The decision was taken to return capital to shareholders and as a result, we've approved a special dividend of ZAR 2.80. That is expected to return our net debt to capital employed levels to the upper limit of our target range. And our return on average capital employed remains very strong, improving to 34.2% and largely underpinned by the improved earnings. From a dividend perspective, a final dividend of ZAR 3.88 declared, taking the full-year dividend to ZAR 5.90, with the increase on last year, largely in line with the earnings growth, delivering a normal dividend yield of 6.2% based on the closing share price at the end of June of this year. As mentioned, a ZAR 2.80 special dividend and declared taking the total full-year dividend yield to 9.2%, which remains pleasing and very attractive. I'll hand you back to Simon, who will take you through the operational performances.

Thanks, Justin. Okay. So, let's get to Entyce, which we show here in aggregate, a very, very strong performance in both semesters for Entyce, coffee, tea, and creamer categories. The slide that comes a little later shows you both volume and value. We've had a lot of cost pressure in all of these categories. So, there was, as Justin alluded to, a need to lift selling prices. In all of these, we did well, both in black tea and in rooibos tea to lift prices in by and large, hold on to volume. We had a good performance from Five Roses and Trinco and black tea volumes, and slightly less strong in rooibos, but nonetheless, in aggregate, strong performance from the tea business. Coffee, slightly a better year, somewhat of a recovery from the prior year, also an enormous amount of cost inflation in rose, which has persisted into obviously, this financial year. Arabica prices up some 60% so far. Robusta prices have nearly doubled in the 12-month period. So, there's been lots of need to lift selling prices here. The out of home coffee category also performed reasonably well. But certainly, we continue to see quite a lot of competition at the bottom end in both forecourts and hospitality. Affordability is an issue for this category with these increased selling prices. But nonetheless, from a competitive point of view, overall, a pleasing performance, and you'll see that when we look at the volume and value charts by category. Creamer performance, especially strong, we've continued to invest in this business, good market share gains in this financial year, but certainly very efficient. Our new robotic packing line performing well and giving us an opportunity to extract additional margin and extra capacity, and we've seen margin recoveries back to historical levels, which was pleasing. And this shows you some of what I just said with revenue growth up 16, 14, 17-odd for coffee and then 26 for creamer. And again, in each instance, strong volume growth. So, we've competed effectively. We've had a little bit, we think, coming our way because of supply issues in creamer from our major competitor. And some of you might recall that Unilever sold their tea business to private equity, and we think that there's been a little bit of an advantage that we've had as they worked out how this particular market functions and operates. But nonetheless, overall, very strong performance, some market share gains. Keep in mind that this is retail only and the wholesale piece, which is very important to many of our brands is not well read and so, it doesn't show up here. We continue to see our best growth in non-modern retail, which I think bodes well for the future. The impact Justin talked about, the red bars are, as you can see, plenty of cost pressure, hence, the selling price increases that were required. Going to Snackworks, biscuits and snacking. As Justin said, very strong first semester for biscuits less so in the second semester, lots of price pressure here as well, both commodity and cost pressures. Some of it protected by hedging. But nonetheless, we were able, I guess, to lift prices and protect margins, which is always important to us in AVI is managing our long-term gross margin is something that we focus on more substantially than volume. But costs, again, very effectively managed and controlled, good control in our factories and manufacturing environments. And, as I said earlier, lots of investment to support innovation and marketing monies put behind that, particularly in the second half. Snacks profitability. The extrudes business did reasonably well. Volume growth was not substantial, but we did manage to eke out some improvements in gross margins. We've seen very aggressive competition in PC. And we've had potato supply issues, which is sustained through the year and again, with the late frost, which will affect the first half of this financial year. But here, you can see some of the volume constraints and obviously, the lifting in selling price is 11.4% in biscuits, some 7% in snacks. Market shares, again, this is also not the whole market doesn't include, obviously, wholesale. But, again, as Justin alluded, trying to find a happy balance between volume and value. Cost pressures a little bit more benign in some categories, but obviously substantial in others. And, again, this is net of hedging, which continues to be a very important part of how we manage margins. Turning to I&J. As I said already and Justin alluded to, a very tough financial year. We've seen some of the worst catch rates in 20 years, improved slightly to the back end of the second semester, but certainly not enough to make a material difference. It kept us out of the market in some of our most important categories and affected volumes and obviously then revenues. Lots of focus on this business in cost control, fuel operating costs, we had to invest some ZAR 20 million in restructuring for our land-based processing, it's easy to forget that we had a pretty torrid strike in H1, which affected some of our ability to produce. So, that certainly was one of the challenges that we had in addition to the catch rate issues. There are some insurance proceeds, but this is best broken out when we look at a waterfall slide that comes later. Abalone continued to have a challenging year. We've seen sustained competition in Asian markets and also constraints in demand, both in China and in Hong Kong. The weaker rand did provide some offset, but not enough to deal with the decline. We also had a serious can recall from a domestic can supply, which affected not only I&J but the entire industry, which didn't help on top of all the other challenges. And there, you can see essentially the breakout of operating profit, certainly, currency and fuel helped but then the balance of the catch rates, the biggest of all, 61 million, the restructuring costs, and then $50 million for Abalone. So, a very challenging financial year for I&J overall. And that's some of the profit history. You could digest it at your leisure, but you can see essentially some recovery in fishing in this financial year, but abalone, obviously, giving back a lot of the ground of last year. Fishing performance. This is the worst I've seen it. At the moment, it's improving. But certainly, in this financial year, that was very challenging for us. And certainly, in a business like I&J with a lot of fixed costs, this is a significant deleveraging on the P&L. And you can see the impact, particularly on the export revenue growth, which our frozen at sea files, which are so fundamental to I&J's profitability impacted by catch rates, particularly in the first semester. Indigo, as we've said, the cessation of the Coty agreement left us with ZAR 50 million worth of costs to manage, and I think a very effective job done overall with the improvement in our own brands through both the first and the second half. A lot of range rationalization necessary how to manage the costs in Indigo, and that's certainly come through when you look at the market share numbers, but these are very deliberate. But the cost-saving initiatives were strong, effective and have delivered our ability to sustain profitability and gross margins at the level that we feel are important to this business as we go forward. You can see the impact of the volume declines from that activity. We have seen, of course, in this category sustained aggressive competition pretty much in line with the constraints we've seen across many of the categories in this constrained consumer environment. And you can see some of the market share changes here, largely as a result, obviously, of those constraints, but also our deliberate range rationalization across the portfolio. Footwear and apparel, very, very strong first semester, very tough second semester. My own view is, I've never seen so much sustained discounting from apparel and footwear retailers as I saw in the second half, started early. Winter stock was on sale very aggressively in the last quarter of our financial year. And certainly, in closing, in particular, we had a very tough H2 stabilizing but nonetheless, we think there's lots of inventory that sits in these systems, and how that plays out in the first half will obviously be something I talk about in the prospects section. Lots of restructuring initiatives, which we did undertake in this business to try and tackle what we think is a slightly more deleveraged environment going into, I guess, F '25. You can see the volume value impact here, particularly affected was Kurt Geiger, where we had obviously a significant decline in revenue as a consequence of the need for us to join in some of the discounting to manage our inventories in H2. International, a solid performance, not an overwhelmingly easy environment around us in most of our main markets but nonetheless, sustained profit performance. Our Zambia subsidiary impacted by the depreciation of the quota, fairly aggressive depreciation through the year. Costs were well managed. This slide gives you some indication of how big this is in the grocery portfolio. I think what's pleasing is to see the strength of the operating margin management in the year with a very strong domestic performance in revenue. Obviously, the ratio of international sales slightly lower than the prior year. So, to talk about the year ahead, I guess, we're all hopeful that political dispensation will continue to see things improve and create some improvement in consumer spending. It's early days. I think a lot of it's leveraged on what happens to interest rates. We're anticipating a sustained tough environment. We haven't seen enough yet to persuade us that there's any obvious reason for consumption to increase off the current base. We can see that there is continued competition in a thinning pot, particularly at the bottom end, where we don't materially contest categories. But nonetheless, we see some of our consumers finding it difficult to stay with us. Of course, managing volume and value in this environment is a very important thing for us to continue being focused on. And we know that it's not going to be any easier in this environment. There's still inflation in the system, notwithstanding I guess, hopes of interest rate cuts and inflation deceleration. We do see some declines in some of our soft commodities, although some remain very high, particularly coffee. We do have a good hedge position, though, which certainly gives us confidence that our margins in H1 at current pricing look good. But to predict the volatility of this environment is to forget how volatile it's been for the last 12 months, and we think there's some risk of that still. We continue to work on cost management across the group, looking to leverage our manufacturing capabilities, and we will invest money wherever we feel that we can extract a good return to ensure that we have the most robust production environments. We are having to invest money to give us the confidence that we can operate our sites with poor electricity and poor water supply, which we think is systemic and unlikely to be fixed in the short term. Of course, these capital projects are not insignificant, but don't provide us an exceptional return. I&J, as ever, will depend on catch rates substantially fuel prices, which is encouraging to see some reduction in energy costs, which, if the Rand remains at these levels, will certainly assist if we can see a little more of the catch rates we've been seeing in the last couple of weeks persist through the next 12 months, that certainly would be significant to I&J's profitability. We have reasonable currency hedges, which should help, and we continue to focus on this business. Abalone again, materially dependent on Asian demand, difficult to call that at this stage. But the farm itself is in good shape. We have had good growth rates and we've sold in our attempts to resolve the complexity of I&J, our small squid operation to Oceana. Our footwear and apparel business is always leveraged to H1. It's difficult to call at this stage. We accept that the consumer environment is showing weakness more than strength at this stage, but it's always interesting to see how our customers show up for us, particularly in the last quarter. We've got good stock. We've made good decisions to ensure that we have inventory on time, so the supply chain risks are not significant, but they are still complex and freight costs are still high. We're well hedged in this business as well. So, the current selling prices, margins should be good as in all the other parts of AVI. We continue to focus on operating metrics and hope that, that gives us some leverage. Looking at capital projects for the year, you're going to notice the significant investment in I&J, particularly a secondhand freezer vessel. We are favoring a freezer strategy in I&J. With these catch rates, we need additional fishing capacity. We've managed to locate what we think is an effect of freeze, and we're hoping to have that on the water in fishing by November. We'll make its journey across from Scandinavia in the next few weeks. But we are catching up some of the I&J CapEx for that period of time where we had no certainty on quota. We've now needed to invest money in some of the land-based processing and, of course, apparently in dry docks to ensure the safety, security and efficiency of the boats. It's a challenging environment. My colleagues, I salute you. We continue to adapt aggressively to a very difficult environment, simplifying our business model, simplifying our processes, delayering. AVI is a very flat organization with lots of very hard-working senior executives. We're working very hard at innovation. We appreciate the importance of competing. Increasingly, we realized the importance of competing at lower price points. You'll see in your bags, for those of you who are here. Some of the innovation that we've launched, which we think is innovative, effective and certainly in the early part of the last few months we're succeeding, which is pleasing. We have a unique brand portfolio, how we manage it so that we manage it for the long term is always important to us. It's so important that we don't make decisions that affect the long-term gross margin capability of these brands. We will continue to have a strong focus on return to shareholders. And, again, capital allocation, absolutely critical for us. We have some interesting projects. We're interested in trying to expand our presence in international markets, not only the ones that we currently talk about in AVI International, and we've got quite a lot of work focused on finding markets for what we think are some unique brands and some unique products. And we continue to expand and develop in regional markets, which is also important because we do have the diaspora that knows the portfolio that we sell in SA. We've looked at quite a lot of acquisitions in the last 12 months, nothing that has come past us that's been interesting yet, but we continue to look. And so, thank you very much for your attendance and very happy to take questions as are my colleagues.

Shaun Chauke from Nedbank. I've got about 2 questions. I'll start with the first one. So, the first question is, there used to be a nice chart in the presentation where you'd show the soft commodity achieved relative to a particular point in terms of the market data. I know you spoke about a good hedging position coming to H1. Is there a reason in that slide sort of that chart was taken out? And if you could please provide some color between the different positions across the different soft commodities?

Yes, we did take it out in the interest of brevity, but I think it showed a good hedge position overall. I think every single one of our current positions is below or at market levels, which is why I said we were well hedged. So, we verbally said it without, obviously, all the detail.

And then the second one is around, if you look at your operating leverage in this year that you've achieved, it's kind of a story of 2 halves where you saw a strong performance in H1 from Snackworks and there was some good performance in H2 relative to Entyce and I know you mentioned that it was sold to our private equity businesses, given the nature of private equity businesses. It sounds like there seems to be more runway, provided they underinvest in some of those brands for you. So, that's the first part of it. And then the second part is, how are you thinking about, now that we look at Indigo, I think the base is pretty much stabilized and there's some tailwinds with I&J. And God knows what happens in December with regards to Spitz. Just a summary of your thinking around if one had to think about the different moving parts within your business based on base effects and based on the tailwinds that are coming across the different businesses.

So, you're looking for a profit forecast in a very complicated way. My analogy often is, it's easy to look at a semester and make a summary but we wake up on AVI every day, and we're up against a marketplace. We're up against competitors in the marketplace. And it's like driving a car on a windy road on a rainy day, and you need some break and accelerator. And we don't set out to have a particular operating leverage in a semester. We set out to manage the market conditions, what competitors are doing. And ultimately, we are able to deliver the numbers that you see. Now, how will that play out in H1 and H2 of this year will depend on so many different variables. But I guess I can say in summary, we're well positioned, I think, to drive the car fast if we can. What may get in the way of that? I can't predict. But every day, my colleagues wake up with a clear view that we have strong manufacturing capabilities. We have a very lean and effective cost base. And we care about costs, and we care about margins. And so, whatever is, I guess, delivered up as an opportunity given the constraints, which I think are more constraints until we see some macroeconomic tailwinds, we'll take advantage of. And I think F '24 was very much a year where a lot of hard work and some opportunities delivered the operating leverage that you saw in H1 and H2. It's never the same in each of the categories. They're always different. And you also have to remember, we are giving you a summary of a summary here. Indigo has many categories, there's 3 main businesses, so does Snackworks, so does Entyce, they all have different competitors, they're different competitive dynamics. So, it's an amalgam effect and so difficult to sit here and say that it will play out in any particular way. But we're optimistic about our capability, and we're optimistic about our ability to deliver leverage should that opportunity prevail. I don't know if that helps.

Well done on the results. My name is a Sa'ad Chothia from Citi. Just 2 questions from me. First, as you said, there was stronger growth in the non-modern retail, can you maybe just elaborate on that? Who are your customers in that space? I would imagine that it's the lower end. And how are you gaining growth? Is it volumes, pricing, more store expansion by these cash and carries? Or are they just working better with you to grow the products that you supply into them? So, that's the first question.

Yes. Look, it's very complicated because there's an intersection between modern and informal, which is quite big, and products move through these systems differently. And it's just not well read as much as some of it's actually quite modern. It's just not well-read. We've got products that are relevant to those consumers, and we've always had a strong business with that part of the distribution. We've done some innovations like Trinco Roy, where that would be aimed at a rooibos version. It would be like Trinco. We have quite some of our snacking SKUs that go into that system, a lot of our tea goes into that system, our creamer goes into that system. So, whilst AVI has quite a lot of premium price points, we also have quite a lot of value price points. And it's that part of the market that I guess that has shown more resilience in terms of rate of growth, at least in our portfolio. It's not to do with any specific initiatives that we've taken. It's really at the end of the day, it's a part of the market that we can effectively serve and have been able to service those parts that have expanded.

And then just secondly, on factory efficiencies, you mentioned twice, I think, in Snackworks, Entyce. Can you maybe elaborate on what those exactly? And how are you thinking about those going forward? Will that be occurring next year and the year after? Or is it just a one-off?

Well, certainly, the creamer factory automation is a once-off project. So, we're not going to repeat the level of savings there. That was done very deliberately, obviously, capital in savings and therefore, return. But we wake up every day and try and do this a little better. It's always on the margin, but the margin has a lot of leverage in it. I can't give you a view as to how that plays out. A lot of it will depend on what rate of demand we have because to have efficiencies means that you have to run at higher OEMs. I don't want to bore you with manufacturing technicalities. But in the end, as I've said, we're well positioned to keep extracting efficiencies. It will depend, I guess, on the mix we sell and the rate of sale that we have. We don't wake up and forecast, say, for specific projects, which we continue to look at to try and eke out savings across all of our complex manufacturing facilities.

Simon, while we wait for further questions from the floor, we have a couple of questions on the webcast. The first one from Warren Riley of Bateleur Capital. He has asked how you think about managing AVI if the South African economy grows sustainably at 2% plus?

That would be fun. What should I say? We've been eking out living in a shrinking -- we must be, I guess, how many years have we had real income growth per capita in the last 16, probably 2 or 3. So, I think AVI would do extremely well if that was possible, we'd love that.

The next question from Myuran Rajaratnam of [indiscernible]. He has said great results, re I&J. Without your proposed CapEx in the new year, what would be your current utilization in your fishing vessels and fish processing plans?

Well, he needs a lesson in fishing. I mean it depends on catch rates. So, I mean, ideally, you would want to have a certainty of a rate of catch and therefore, have a vessel configuration and fleet that was married to that. I mean, clearly, at the moment, we don't have enough vessels. So, that's why we've added one. So, we'd be unfortunately underutilized, but still not catching our quota. So, that's unfortunately the reality is that we're sending boats to see, and we simply aren't catching enough tonnes per SEDAR in order to. So, we're 100% utilized but not utilized effectively.

The next question comes from Olajumoke Okeowo of All Africa Partners. Losing market share in some Indigo brands and Snackworks categories, what's the path to recovery or regaining market share?

Well, as I said, we don't know whether we've lost market share because there's a retail read. And lots of people we compete against don't get read at all in parts of the informal system. We never run AVI for market share as a philosophy. I know multinationals do, much to my chagrin often because it means that they often pursue pricing strategies that we think make little sense. We compete determinedly at everything we do. That's our philosophy. But we don't use market share. It's not that we ignore market share. We're certainly conscious of it. But our philosophy is to remain competitive. And I think as Justin alluded, managed volume and value as effectively as we can. If we see a more permissive market environment like the 2% growth, that would probably make us slightly more aggressive, and we would then chase that. But in a declining environment, it's too easy to give up selling price for volumes that you're unlikely to get. So, your return on market share is something that we tend to be quite thoughtful about. I don't know, Mike, do you want to add anything to that?

The last question from the webcast for now is from Siphelele Mdudu of Matrix Fund Managers. He's asked if you've got any views on the 2-part system and how it could benefit AVI?

I've got no views. No, I mean, it's impossible for us to suggest whether it will unwind.

Sam from RMB. You made mention of potentially expanding into international markets. I was wondering if you would share if you already eyeing certain markets and why those specifically?

We are in quite a lot of markets, but in ways that are not meaningful enough. Everybody in the world needs a zoo biscuit surely, you will agree. The reality is, we make some unique things, and it's easy to forget. I mean, I'll shout out for our retail partners and our competitors and manufacturers are not our competitors. South Africans have probably the most interesting and highest quality FMCG products in the world, sold in modern retail, retailers that are exceptional. I challenge anyone to go around the world and not see intrinsically how products are sold and made. And, in our case, we have some of those. And we would like to try and take some of those products to markets that we think will appreciate not only our originality but also our product provenance and that's what we're working on. It's early days, but it's interesting to be looking at this a little differently. We are in a lot of those markets already, but we sell to Saad South African, I suspect more than we sell to international participants.

Simon, once again, Sa'ad Chothia. One final question from my side. If you had to sort of analyze and excluding the macro environment here, analyze the competitive landscape from an effect that your peers are much more international, and we are seeing some pullback on that. What market dynamics from that landscape have evolved? So, if you go 10 years ago relative to now, is it a function of the macro environment pushing them or it's a function of you would say the advantage is staying to the cost in terms of discipline for your business in terms of how you manage costs?

Well, I think there's a duality. I mean, it's a big subject. So, I don't want to say more than I need to. But I mean, our multinational competitors who fundamentally, we compete against, have obviously their own strategies and their own way of looking at things. And that's obviously what all businesses are entitled to do. I think the reality of competition is increasingly emerging, and that is obviously competition at the bottom end, competition from private label because in some categories, that's grown significantly. And you've got this duality in South Africa of a very sophisticated market and market offering and a retail offering. And then, of course, you've got the piece that we talked about earlier, the non-modern retail format. And there are lots of people supplying into that. So, I think at AVI, we recognize that we've actually got two competitive constituencies, not one. We know we think how our multinational competitors play the game. I can't speak for their own long-term strategies in SA at all but certainly, we know that there is a vital and a vibrant community of people who wake up every day, albeit small who competes in some of our categories at the bottom end. And we need to be cognizant of that, and we certainly think about that, and we'll continue to work hard at that as well. But it's, again, difficult to predict how each of those competitive segments will conduct their own investment strategies and whether they would pull back or not pull back. I guess a lot of it is a function of how they perceive the macroeconomic environment for those who are more sophisticated perhaps. And then for those who simply are providing a confined label brand to a retail or a private label brand, that would be something that no doubt they would negotiate with that retailer. So, as I said earlier, it's a beautifully competitive and vibrant environment. South Africans have an extraordinary amount of choice. And we compete in that environment, and we try and compete effectively and credibly, but we certainly know that it's competitive and challenging. And that's good. That's how it should be.

It's [indiscernible] from Benguela Global Fund Managers. No, no problem. With regards to marketing expenditures, maybe please provide some color with regards to the outlook and how you're looking to continue with the marketing expenditure as well?

Well, we spend what we need to on our brands. So, you have a revolving requirement to do master brand work and that often costs a lot more in a year, but it won't be sustained at that level. Innovation and supporting innovation requires money and, as I said, in H2, in Snackworks, in particular, we put some money into that. And it's important to support any campaign or any product initiative with proper marketing. We don't wake up and have a very firm view as to a ratio that we're trying to achieve. It's very materially built around what's necessary and what's needed.

[Technical Difficulty] additional an investment capacity would it be okay in terms of your current capacity utilization?

Yes. In general, we would be certainly in the short term, very, very capable of delivering any moderate level of growth for certainly a few years. And there are lots of things we can do by managing shifts differently. So, there's a lot of flex in our system generally. Obviously, there are certain months of the year in some categories where it would get a bit more difficult. But fundamentally, there's lots of flex in AVI in the current environment for any reasonable amount of growth.

We have 2 further questions from the webcast, Simon, if we can address those. So, the first one from Paul Bosman of Granate Asset Management. At Entyce and Snackworks, has the market become more competitive over the last 10 years? If so, what would be the main reasons for this?

Yes, it's definitely become more competitive. You just have to visit a supermarket and see the diversity. I mean, we still have very strong positions in all of our categories, but there's no shortage of competition. And, as I said earlier, the competitive intensity at prices well below where we sell has changed things fundamentally. So, I would say SA is intensely competitive in nearly all categories, nearly all FMCG categories.

The next question from Warren Riley of Battle Capital. As food inflation comes down, are you expecting to see volume improvement? Recent comments from Shoprite suggest that volumes have been improving in recent months?

Well, we would hope that's a combination of maturing inflation, but more substantially an improved macro environment is going to be the big driver. I mean, I don't think pricing is going to be the biggest lever. I mean, it might be in commodities or commodity categories, but definitely in our categories, it's going to be macro.

Thank you, Simon. There are no further questions from the webcast.

Well, thank you for your attendance. And please don't forget to take some goodies home with you and see if you like them. Thanks for coming, and thanks for listening on the webcast.