Good afternoon, everybody. It's Simon Crutchley and Justin O'Meara. Welcome to AVI's results presentation for the six months to December. We've got a normal format. I'll take you through some of the key features and the results history. Justin will take you through some of the detail around the group financial results. I'll take you through some business unit and performance, then a little about prospects, and then we'll take questions and answers. We'll try and be quick and efficient so that there's time for questions and answers. From a key features perspective, I think you all are aware that the trading environment for consumer goods businesses has been tough. Many of our customers have been affected by, I guess, a trio of inflation and rising interest rates. Unemployment levels have continued to go sideways and persist at very high levels.
Load shedding has been a very topical issue for many of us operating businesses that use electricity to produce things, and of course, it's affected everybody, both personally, directly, and indirectly. In our case, I think we've had continuous load shedding since September, minus a couple of days. Obviously, the direct costs in the semester were ZAR 22 million, but of course, a lot of disruption for many of our suppliers and on the system in general, and those indirect costs are difficult to quantify. I&J had a particularly tough semester. Fuel prices, obviously a reduced quota, an unfavorable abalone sales mix to the extension of the Chinese lockdown. We'll cover these all in a little more detail. It was pleasing to lift group revenue, albeit, revenue was largely lift by selling price increases, obviously to offset cost pressures, which were significant.
Obviously, this is on a hedged basis, but we'll go into some of the detail around hedging later. I guess one particularly pleasing facet of the six months performance was the recovery in the Spitz Group, where both price and volume gains gave us a significant improvement on the prior semester's performance for the fashion brand portfolio. We worked very hard in AVI to protect gross margins. These are the things that underpin the long-term promise of our cash flows. It was a very tough semester, but I think well executed in general. With operating profit, excluding I&J up 8.4%. Obviously, this constrained the headline earnings number. I think we told you when we last spoke that we were extremely worried.
COVID, I think, taught us this, that we needed to ensure that we had quite significantly an inventory to support service levels. Our engine room businesses continued, despite all the constraints and pressures to deliver reasonable operating profit growth. The operating margin outside of I&J was pretty much the same at around 22.3% for the semester, excluding I&J. In terms of return on capital employed, what we've done in this chart, if you go to the F2023 normalized, is to demonstrate, obviously, the short-term nature of the investment in inventory, and particularly in supplier payments affecting, obviously, the working capital. The return on capital employed remains very strong, as does in the next slide for the same reasons, I guess the cash conversion in the business. Dividend.
Obviously, this is the interim dividend stage, but the dividend yield in AVI continues to be good. Obviously, this excludes share buybacks, but special dividends have been a feature of the business, and you can see that, on the following slide. With the interim dividend, obviously, pretty much in line with the normal cover. I'm gonna give you to Justin, and he'll take you through some of the higher level features of the group's financial performance.
Thank you, Simon. Good afternoon, everyone. I think in aggregate, a credible performance in the context of an environment that has been significantly challenged by consumer demand and load shedding. Revenue up for this first semester, 7.2%, as Simon highlighted, primarily a function of selling price increases offset by the impact of lower volumes. The increase in gross profit was slightly better than revenue growth, with gross profit margins increasing at a group level. What will stand out here is the selling and administration expenses increase at 14.6%, a rate higher than inflation. There's a few factors that underpin this. The most material being the non-recognition or the non-repeat rather, of the recognition of insurance proceeds that we recognized last year as a result of July's unrest.
Excluding the impact of this, the increase would be 9.7%. The rest of the increase is primarily a function of fuel price escalations that have impacted our distribution and selling activities, as well as the mark to market of various group hedge positions at the end of December. Operating profit improved 1.7% to ZAR 1.54 billion for the semester, and the operating profit margin reduced slightly from 20.8% last year to 19.7%, primarily a function of the performance out of I&J.
Net finance costs, as Simon has highlighted, a function of the increased investment in working capital, which resulted in higher average debt levels through the semester, as well as higher interest costs as interest rates have normalized back to pre-COVID levels. There's no significant capital items to speak of during the semester. The effective tax rate has reduced in line with the reduction in the corporate tax rate to 27%. Headline earnings through the semester increased 0.7%. Headline earnings per share improved at a slightly lower 0.6%, which includes the dilution of shares issued in terms of the group's share incentive schemes. Operating profit growth was achieved across all segments, with the only exception really being I&J. I think excluding the impact of I&J, as Simon has highlighted, operating profit would have increased 8.4%.
The operating profit margins across the group remain healthy. Food and beverage brands managed their margins effectively through the semester, particularly in Snackworks, with the decline at the food and beverage brands level, primarily a result of I&J. Fashion brands benefited from improved performances in both Personal Care and the Footwear and Apparel business. Personal Care benefited from the acquisition of the Exclamation and Gravity trademarks from that we acquired in the second half of last year from Coty as well. Footwear and Apparel benefited from better pricing as well as better volumes through the semester. I think worth noting in the Footwear and Apparel business is that last year included some benefits from the acquisition. Oh, sorry, it's not the acquisition, but benefits from the recognition of proceeds from the July unrest.
This graph contextualizes the role that volume and price have played on the top line. As we highlighted earlier, price, a significant driver, and largely offsetting the decline in volume. We've had to take significant price increases across most parts of the group to recover input cost inflation. I&J has been materially impacted by fuel prices, and unfortunately, the level of increases or price increases have not recovered that. Fish volumes have been lower, and from an abalone perspective, the sales mix has been unfavorable, which has further negatively impacted on price. Retail fish fashion brands have benefited, as I've mentioned, from better selling prices as well as better volumes through the semester. The high level of inflation has obviously been something that we've had to carefully manage through the semester.
Our focus on managing price and volume has continued to be an important underpin to managing margin and overall profitability, and I think that sort of plays out in the margin achievement for the semester. As highlighted earlier, the gross profit margin at the group level improved slightly. The nonrecurrence of the stock write-offs of ZAR 51 million have provided a 0.7%, or sorry, 0.4% improvement to the margin relative to last year. Snackworks have largely protected their margins despite the significant impact of input cost pressures. I&J has been materially impacted by higher diesel prices, which affected the fishing fleet's costs, as well as the unfavorable impact of abalone sales mix and the fair value adjustments for the biological revaluations that took place at the end of December.
As mentioned before, our fashion brands business has performed well, and the selling price increases within our retail business, as well as the benefit of the Coty trademark acquisitions, have supported an improvement in our gross profit margins at this level. The key drivers that are captured in the bullets in this slide, I'm not gonna go through them. They are covered later on in the presentation in a bit more detail. I think important to note is that the performances across all of our businesses have been underpinned by strong cost control, which continues to be a focus for us as a business, and an important underpin to efficiencies in managing margin. Cash generated by operations before working capital decreased slightly by 0.8%. I think our cash conversion remains strong and in line with expectations.
The increase in working capital has slightly or has detracted a bit from that, with cash generating generated by operations declining by 38.6%. I am going to unpack the increase in working capital on the next slide in more detail. I think important to note is that we are starting to see an improvement in supply chains through the semester. We will look to try and normalize inventory levels through the second half, although an important underpin to that will be the impact that load shedding has on our supplier base and our need to carry higher levels of inventory in order to mitigate that. The graph here shows sort of waterfall graph, shows the movement and the comparison between the December 2021 and December 2022 net working capital positions.
I think inflation has been a key driver and a significant driver of cost increases, which has resulted from higher commodity costs, as well as a weaker rand through the semester. As Simon highlighted, the timing of customer payments resulted in an incremental ZAR 249 million being received on the first working day of the calendar year. We've invested ZAR 252 million of additional inventory, cost in inventory, in order to mitigate supply risks that we foresaw through the semester. As communicated in the previous interim results, the base was negatively impacted by some delay in receipting of inventories, and that's further impacted the increase by some ZAR 71 million. Capital expenditure continues to be carefully considered in the context of a constrained environment.
Increases were in line with our investments in key projects to support our capabilities and efficiencies and continued investment in our, in our factories. A high-level summary has been provided in the information slides. I think the largest areas of spend have related to I&J's processing, storage and vessels, our retail store environment, as well as deposits that have had to be paid in respect of projects that cover the Entice and Snackworks businesses that we anticipate coming online at the back end of the financial year and into the first half of the next financial year.
Net debt levels rose from ZAR 1.5 billion to ZAR 2.4 billion, with the increase gearing largely attributable to the capital investment as well as the higher levels of working capital at December, as well as some higher lease liabilities in line with renewals of those lease contracts through the semester. Our net debt to capital employed remains in line with our target levels, but on a normalized basis, does reduce to sort of 28.5% from the 33.4% that we are reflecting in this slide. As highlighted by Simon earlier, the return on capital employed on a normalized basis is marginally lower than the 29% that we reflected. An interim normal dividend of ZAR 1.72 per share has been declared in line with the growth in headline earnings for the semester.
I'll hand you back to Simon now to take you through the category performances.
Okay. I think it's probably worth saying what I'm gonna say once rather than in every category. As Justin has highlighted, it's been an extremely challenging environment because of the rampant inflation and raw material costs. Of course, the inflationary effect for consumers who consume our categories, you know, has been more widespread than just our own input cost pressures. In many instances, in FMCG categories, for those of you who look at detail, in some instances, some categories, not, you know, AVI's share of those categories, but the categories themselves declined in volumes, and our tea happens to be one of those categories where the total amount of tea consumed in South Africa has actually declined across the entire system.
What, of course, our own philosophy in AVI is that we try and sell really special products to consumers, we focus on quality and product delivery, and we try and do that at different price points. We've had to lift our selling prices significantly in order to preserve the long-term gross margins that we believe are fundamental to our business model. Of course, we have to do that against competitor behavior and also, I guess, accept that higher selling prices does constrain, obviously, the consumer's ability to consume. It's been one of those semesters where it's required a very careful and ongoing care and attention to how we manage both price and volume. I think it was done effectively in the tea category. We saw a slight gross margin improvement, obviously, that, you know, to some extent is merely timing.
I think in general, pleasing. Entice Coffee improved, largely driven by the recovery or the ongoing recovery of our out-of-home solutions, coffee solutions business. It was pleasing to see the improvement, I guess, post-COVID continuing, and that business is getting slowly back to the original pre-2019 performance levels. It's taken a fair amount of time to see that recovery come through. You might not be aware, but coffee prices at a raw material level almost doubled over an 18-month period. It has ameliorated in the last three to four months, nonetheless, that pushed significant cost pressures into our production facilities, and we had to lift selling prices very significantly. The performance in this category is pleasing given those cost pressures.
We've seen some recovery in the instant coffee business off a low base, albeit, but that is pleasing. Obviously, demand here, like tea, is constrained by higher selling prices. This is not just a South African issue. If you go and look at coffee companies around the world, they've also had to push through very significant price increases. If you have a look at the performance of European coffee businesses, their own demands have declined in line with the increased selling prices required. I've touched on the CIRO performance.
Crema, which has been a good growth vector for us, had to face a significant price pressure from palm oil, which is one of its main constituent ingredients. That significantly required us to push prices in the semester net of hedges, and to some extent, as I said earlier, your ability to price is always a function of what your competitor chooses to do. We had some volume pressure. We always feel fundamentally that we have to play the long game, and here we really had to work hard to balance volume and value, and we lost a little bit of gross margin in this category because we underrecovered some of the price required in order to protect margins to deal with the competitive environment that I've just mentioned.
If we turn to, I guess, these charts, these give you some indication of the movement between volume and value at a category level. As I said, tea declined. Selling prices obviously offset some of that, but the 14% volume decline was fairly significant. The same is true of coffee, with a very significant price increase on average of 17%. The same then true of creamer, which required a 22.7% increase in order to not even fully recover the inflationary pressures in this category. Market shares, no significant change here. I think a pretty good performance. Having said what I've just said with respect to both the category issues and then the price and volume requirements, the balance that was necessary.
If we go to the next slide, these are obviously the impact of the costs, but these are net of hedging. Hedging strategies for both physical and for currency would have protected, I guess, the worst of this, but nonetheless, this is the impact in the semester, the only category that didn't have on average. That's a mix between obviously rooibos and black tea, with black tea obviously coming into South Africa. It's not a domestically produced ingredient. We turn to Snackworks. I think a very pleasing performance. Slightly different performance between the sweet and savory biscuit portfolio and the snacking portfolio. Again, selling price increases to recover a whole bouquet of cost pressures into biscuits in particular. Volumes were lower, and but supported by higher selling prices.
I think a feature of the biscuit sales for the semester was very strong demand in our lower-priced formats, which I think is probably inevitable in such a constrained environment with lots of inflationary pressure. Having said that, we had very strong demand for the Bakers Choice Assorted range through the festive season, which was very pleasing. I think Justin focused and paid some attention to selling and admin costs. This is something that we continue to work hard at. Of course, fuel and energy costs in the baking business, you know, were significant. The non-repeat of insurance proceeds, Justin touched on. In general, a good performance from biscuits. Snacking's slightly different. Lots of cost pressures here. Frying costs with palm oil and other oils obviously accelerating in cost, pretty much like the creamer category.
We had some good innovation and improved potato supply that helped. We did have quite a lot of competitive pricing and aggressive pricing in this category in the six months, so we had to manage our own value and volume, and we didn't fully recover all the cost pressures. It's easy to forget, but potato crisps, a bag of potato crisp is largely air and lots of volume. From a fuel and distribution cost, more affected by the increase in fuel and increased distribution cost. If we turn to the value and volume, you can see in biscuits, not a large volume decline, but a material increase in selling prices to recover and protect gross margins. The 2 price increases that would have affected the semester's performance.
Turning to what I said earlier about snacks, low volume, dealing with some competitive activity, and obviously a higher selling price to deal with the cost pressures. Market shares, again, not materially changed under the circumstances, which I think was quite pleasing. Certainly, we had good demand in the informal channels for some of our affordable formats, particularly in the biscuit portfolio. Very much like the tea business, the cost pressures very significant, with those pricing increases that you see, very necessary to ameliorate a raft of cost pressures. Again, you know, these are net of hedged positions, both in physicals and in currency. It's certainly a challenging environment from a price point of view. If we then turn to I&J. I&J's had a very, very tough six months. Very little went its way.
The exogenous issues of both fuel, declines in the quota, fishing performance, materially higher diesel cost for the fleet, significant disruption from load shedding. In this business, we both cook things and then freeze things. Load shedding is very disruptive to this particular business. China's lockdowns or sustenance of their lockdowns affected our selling into both our key markets, China and Hong Kong, particularly from a mix perspective, which Justin touched on. The abalone business, a significant user of electricity because we pump about 7 million L of water an hour to keep our animals in healthy condition. There was a significant cost in the semester to do that.
A substantial decline in profitability, which unfortunately affected the group's performance as we've touched on. If we look at the waterfall chart, you can see in more detail. I won't go through this. You can read it at your own leisure, but you can see we did lift selling prices, obviously, to some extent domestically, that affected demand. We had a very significant, I guess, cost push because of fuel, which was both for catching and for production. Catch rates slightly lower, the chart that comes will show you that. Justin mentioned the fair value adjustment impact on the biological asset, then of course, load shedding. The other is obviously the inflationary effect across much of our cost base. The performance, the history here includes obviously the Simplot assets, which we vended in F2020 .
You can see the significant contraction both in the fishing business and in the abalone performance. I'll talk a little bit about prospects in H two, but it was a very tough semester, as you can see, for I&J. If we go to catch rates, obviously the pressure from fishing performance, not overwhelming, but, you know, in a business that's highly leveraged as I&J is, any decline in catch rates does affect profitability, largely in the wet fleet, not in the freezer vessels. If we talk to market share and revenue growth for I&J, I'm sorry. You can see the impact of the decline in volumes domestically, the price pressures that I referred to. We haven't actually, in the domestic business, recovered adequately the cost pressures, but of course, here we have to try and work with competition and value and volume.
On the international business, we did lift selling prices significantly, and of course, volume declines pretty much in line, you know, with the previous semester. Indigo's performance, I think credible under the circumstances, the same demand pressures that exist in the food business, quite permissive in personal care as well. I think on balance, the performance from the aerosol and fragrance business was significantly decent under the circumstances. There is a little bit of a non-annualized ability to compare like for like here because we did acquire certain aerosol brands from Coty in the prior year. That to some extent, we do try and show a slightly more normalized view a little in a slide or two.
We have been working hard at Indigo to rationalize a very complex range of production. There are some costs associated in this income statement with that work. There's a little bit more of that to be done in the second half. We did benefit from the acquisition of Exclamation and the Gravity brands from Coty. Again, here, there is the significance of higher distribution costs. Of course, we did invest more significantly to support some of our brand and innovation efforts with respect to marketing investment in the semester. If we go to volume and value, I think here pleasingly, we have made good progress. Volume underpinned by the acquisition of some of the Coty brands. Selling prices necessary here too to recover cost pressures. That comes through. We look at market shares.
Now these have been normalized to try and compare on a like-for-like basis. I think very credible performance in the body spray, female, and in male brands. I think in general, Indigo's core business, which is its body spray business across all of its brands and both in male and female, a good performance in the semester. If we go to footwear and apparel brands, I think a strong performance. Some of this a function of, I guess, comparatives that were impacted by the July events in the prior semester. Nonetheless, I think ongoing good performance. We invested here in working capital to ensure that we had stock availability. I think some of the work that's been done over the last two years underpinned a very strong December, and December is very important to this business.
We did invest quite significantly to ensure that our shops could trade through load shedding. We made that decision some time ago. I think we benefited significantly in some centers where we were able to continue trading, notwithstanding, I guess, the impact of load shedding, you know, on centers itself and in high streets where some of our stores are. Margin and mix played a good role. Non-repeat of stock write-offs as well played an important role in this performance. Of course, we did benefit from the recovery of the Green Cross business, which is profitable, albeit still on the road to a fuller and better performance. I think Justin covered on the insurance proceeds. If we break that out, you can see, I guess, the individual business units' performances.
I think the only one I'll highlight on this is obviously the recovery of the Green Cross business, which is, albeit smaller, at least profitable, with strong revenue gains supported by both price and volumes. If we go to volume and value, I think here you see good volume growth in the Spitz and Kurt Geiger business. Selling prices obviously had to be raised in order to deal with the inflationary pressures, particularly as most of our product is sourced either out of Asian markets or European markets. Those price increases were necessary to protect gross margins. Similarly in Green Cross, where the volume gain here is low, but that's largely to do with us selecting the best stores and the closure of obviously underperforming doors, which we've been doing for the last 18 months. We look at AVI International.
This is the distribution of our main brands in regional markets, principally. Sustained performance here. Quite a lot of challenges in some markets because of currency and inflation. In general, I think a credible performance, notwithstanding some of the distribution costs that are necessary to move product cross-border. On balance, we were pleased with that performance. You can see very much a sustained performance of the international business relative to our grocery and personal care brands. I won't, you know, deal with that. That's something you can read. H2, I guess a big subject is load shedding. We've had not a single day this calendar year of no load shedding. Obviously, this has a material impact on the country, on consumers, and certainly on manufacturing.
Manufacturing without the sustainable and credible power utility is a significant challenge. I think to some extent, the full brunt of this current predicament is going to play out more significantly than most people anticipate. There are lots of systems costs attached to people using backup power solutions, and particularly the use of generators which are necessary in some circumstances. This is a system cost that's gotta find its way all the way through to consumers. How this plays out, I think, is something that hasn't yet been fully digested because whether you're a retailer or manufacturer, you know, there are significant costs that are necessarily hard to recover in selling prices in a constrained environment. This is something that, you know, we continue to focus and work on. We are pretty well protected across all facilities.
Some of the second-order realities of an inadequate power utility is the impact that it has on the supply of water. Many of our production facilities, we took a decision several years ago to significantly add backup water to each site. Most of those projects are either underway or complete, they come at a significant capital cost and only add to the burden of costs that load shedding brings to manufacturers. The direct costs of running generators, which are important assets, I think people tend to think that manufacturing facilities can use solar and other forms of electricity to sustain high inductive loads. That's not that simple, particularly when your sites do not have the sort of space necessary on roofs or the space, I guess, generally industrial sites to invest in alternative energy solutions.
These are all subjects that need obviously much more time and care, and depend ultimately on what solutions are made available with respect to Eskom and its own recovery. We continue to have to invest in inventory to protect ourselves because many of our suppliers are facing the same realities around load shedding and the impact of load shedding on their own capacity and capability. The other thing that makes it challenging is how we manage our shift system. In some instances, obviously the inefficiency of load shedding with respect to timing does place a different burden on how we plan our shifts, and these are things that we continue to look at because we need to optimize our shift patterns. It's quite difficult to do this when the level of load shedding, you know, changes on a daily basis. We will look at alternative energy solutions.
These come at significant and meaningful costs. For some of our sites, because of space constraints, there are not obvious alternative energy solutions in some cases. Load shedding will have a material impact on our cost base in the semester. We have obviously the ability to run our sites from a continuity basis. That's not in question. The reality is to what extent load shedding brings costs as they have in the first semester to the second semester, and that's quite difficult to predict at this time. In terms of hedging and commodity costs, as you know, we spend quite a lot of time looking at hedging strategies. We try to hedge on a continuous basis. We know that our second half is reasonably well protected.
This will obviously run out. So much will depend on, I guess, finally, where commodity prices land and where the exchange rate lands. At this stage, we're pretty well protected for H2. You can see from this chart, at least from H1's perspective, that had we not been hedged, we would have paid a materially higher price for raw materials across the business, and that's partially true for H2 under the current circumstances. We think the demand environment remains obviously challenged by load shedding, inflation, unemployment. The macro environment for South Africa remains complex, volatile. Certainly from a consumer point of view, we don't think the marketplace gets any easier in the second semester. We will have to continue focusing on price and volume. Certainly one of the most challenging environments that I can ever remember.
We will continue to run the business with respect to long-term profitability. We are, I guess, confident that ultimately South Africa will find solutions to some of these near-term challenges, and it's important that we protect our cash flows through a very particularly volatile period. The degree to which we have to lift selling prices, I guess, is a function of the rand's volatility, net of our hedges. I think I'm reasonably optimistic—that for the second semester, we will be in reasonable shape, but of course, that becomes more of a challenge for the next financial year, the second semester of this calendar year. In general, I think the businesses are in good shape. I think we have a very hard grip on costs. I think our factory performance under the circumstances, notwithstanding load shedding, are good.
We continue to work on building our brands presence in regional markets as an adjunct to the performance domestically that we can see. We think CIRO will improve, and we have a reasonable pipeline of innovation. We're hoping that Indigo's profitability, you know, now that we have the Coty trademarks in our business, we can gain market share and improve the market penetration for that portfolio. We accept that consumers in the Indigo business are also affected by inflation, but I think we have enough efficiency focus and enough work done in the last six to 12 months to deliver some improvements in Indigo's profitability. If we go to I&J, this is the hard one to call. None of the near-term pressures have gone away. The fishing performance remains pretty much in line with the first semester.
Fuel prices, obviously, with the exchange rate having weakened again, are stubbornly high and certainly will continue to drag the performance of this business in the near term. We will need further price increases if we are to ameliorate that cost, and of course, that might affect demand. We do have a 5% calendar increase, which is a benefit which will come through obviously in this semester because our financial year doesn't run with the total allowable catch quota increase. We have here, I guess, the contra benefit of weakening rand, and that certainly should help us net of hedges in the second semester. The load shedding, I guess, if it's more of the same, I think you've seen some of that impact already in H1. Hopefully it won't be more significant in H2.
Load shedding Level 6 are a real burden on I&J as a business. If we can, you know, stay closer to Level 3 or Level 4, it will certainly assist in the second semester. We have to look at this business model in the context of energy security. This is our business that has the most significant, I guess, electricity risk in that both abalone and the manufacturing value-added plants of Woodstock and Blackheath, both heat and freeze product. Of course, the energy requirement in this particular business is quite different to the balance of AVI's businesses. Abalone demand, we think it will improve in the second half.
We are obviously emerging now finally from the post-COVID lockdowns in China. We look forward to an improving H2. We think it will take a few months for markets to normalize for I&J with respect to abalone. The Footwear and Apparel business, again, affected by consumer demand. I think we've got a lot right in this business. We do see obviously, I guess, the potential for rental renewals, in particular with respect to rental renewals, how landlords will deal with the permanent cost of providing electricity in shopping centers. This is a new cost pressure for both of us as partners in the retail environment. That undoubtedly is going to have to be recovered. That's certainly going to put, I think, a cost back into the system that needs to be, I guess, recovered from consumers.
The degree to which that can be done, I think isn't quite clear yet. We don't have a lot of capital in the second half, but we are hoping that in the second half, the Footwear and Apparel businesses can annualize against the prior semester and provide some growth. We do have a more significant capital project program in F2023 than we did in F2022. Some of that was timing. I think we did tell you that some of our projects were delayed. Some of it was to do with COVID and supply chain issues, and those are coming through.
There are some significant investments that are necessary in the I&J business, which are systemic and are timing based in order to keep facilities in the condition that we are required to, and certainly with respect to the safety on board vessels and the upgrades that are necessary in I&J. That's fairly challenging given obviously the I&J performance in the near term, but on balance, a fairly good number of projects that both improve capacity and efficiency in the food and beverage businesses as well. In an environment like this, what's the AVI investor proposition? I think we run an effective business with a high return on capital. We focus on that as a very strong and fundamental long-term focus on cash conversion. We continue to invest in projects. We know that the domestic market is tough.
We continue to try and work with our domestic manufacturing capability to grow export markets, particularly with the weaker rand. The problem that we have, of course, is that as the rand weakens, we re-import inflation into South Africa because South Africa tends still to be an import parity priced economy. We will continue to focus on returning excess cash to shareholders. All of these things are not different. One thing that is fundamentally important is that we continue to examine and work out how we simplify our business model, accepting that our realities domestically remain very challenging. This gets lots of attention. We focused on costs for a significant number of years.
The degree to which the current model can continue to provide cost savings is obviously constrained. That challenges us to look at how we might do things differently, depending on what we perceive the outlook to be over the medium term. We continue to innovate where appropriate and applicable. We've got any number of initiatives which will continue to focus on margin management, so critical in a time like this on procurement cost savings and obviously running our factories as efficiently as we can. Load shedding is obviously making that more difficult. We continue to run the business for the long term. That is the real challenge for myself and our teams. We've talked about our expansion into regional markets.
This is something that gets more and more attention because it's important that we find growth that we might not find in SA in the short term. Thank you very much. I appreciate your time and very happy to take questions.
Thank you, Simon. We have a number of questions from the listeners. Just a reminder to please post your questions in the Q&A tab. The first question comes from Tarryn Ginsburg of Umthombo Wealth. She says, "I noticed that the dividend paid is greater than initially indicated. Will the difference be paid through a working capital unwind in the next six months or temporary debt?
Sorry, I didn't really understand the question. The dividend is?
Higher than initially indicated.
Relative to the cash flows generated.
Well, I think the dividend cover philosophy, and we're not in any way uncertain of our ability to sustain the dividend. You know, the dividend cover, it's just very marginal. I mean, it's just been rounded up in terms of our policy. I mean, finally, the final dividend is what will come through at the year-end. Not really sure. Perhaps I've misunderstood her question.
Thank you, Simon. The next question comes from Muneer Ahmed from Denker Capital. "The 14% volume losses in black tea seems aggressive. Are you concerned that the extent of the decline indicates declining brand equity? It seems private label are the ones discounting aggressively on shelf.
The private label is not big in tea, fundamentally. As I said, this is a category issue, and there's always some timing in this. If you look at the market share slide, you will see that the market shares are not materially different. You know, the cost pressures that we needed to ameliorate had to be managed through certain price increases. The near-term performance of the category is improving. I think it's just a systemic issue through the semester. There's no question, of course, that affordability generally is something that's affecting the consumption in some categories more substantially than in others. Tea is one of those in the near term that has been affected by that. We're not losing a substantial amount of share, as the slides demonstrate.
Thank you, Simon. The next question comes from Mary Moore of Aylward & Co. "Where is, CIRO versus pre-COVID?
Sorry, where is?
CIRO.
CIRO.
CIRO, sorry.
Justin, do you want to answer that?
I'm happy to. I think we've delivered quite a lot of benefit with regards to the restructuring that we undertook when the lockdown hit. I think profitability is looking a lot better. We have benefited from an opening up of the sort of hospitality and leisure space. The top line is probably a little bit short, but I think the profitability metrics are looking a lot stronger.
Thank you, Justin. The next question, also from Murray Moore of Aylett & Co. "Any major changes that Spitz, Kurt Geiger or Green Cross to put up a result like that?
No. I mean, I think fundamentally, we continue to work hard on product and product provenance. Our engagement with consumers, you know, our marketing strategies, I think, you know, give us the confidence that both a combination of product innovation and availability, you know, were substantially improved in the semester. I think that's what delivered the number.
Thank you, Simon. The next question comes from Hannes Prinsloo of Norman Ian Trust. "Do you expect a major benefit both for running generators and for I&J from the lower fuel levies announced by the Minister of Finance?
Well, they are very insignificant. I think Justin can give you the number.
Yeah. I think we quantified for the first semester, we would probably receive between ZAR 500,000 and ZAR 1 million benefit in relative to a ZAR 22 million cost. That's not material at all.
Thank you, Justin. Question from Ryan Diedericks . "I see I&J as a drag on the group. Any prospects on selling the business?
I'm not gonna answer that. You know, certainly a very poor performance, you know, with lots of, I think, the things we've explained, you know, as an underpin. We are still, unfortunately, despite the fact that the FRAP process was concluded, we're waiting for the appeals process to be finalized. The appeals process, once it's finalized, and we're now 2.5 years late in this process, which means that we don't yet have 100% certainty over what our final quotas may be. We're hoping there will be no change. We believe there shouldn't be any change. In terms of our own overall strategy for I&J, the one thing that we have to have is certainty. We're hoping to have that certainty.
The ministers give us a commitment that we'll have certainty, certainly by the middle of this calendar year.
Thank you, Simon. The next question from Thapelo Mokonyane of HSBC. "Timing-wise, when will you execute on the new hedges for FY 2024 and beyond? How do you plan around the given current levels? Do you wait for better levels on a day-to-day, or is there a set time of executing on them?
We have a very sophisticated, I guess, but simple, philosophy. We're not speculating. We hedge on a continuous basis. Every month or every week of every month, you know, we will be taking rolling hedges. Of course, we do have views as to whether we think a commodity or even the exchange rate might be oversold, you know, or underbought, and that might mean that we will run range bound. We have, on our risk strategy, a range bound view of what we will be exposed to or not exposed to, and that's something that we manage with respect to our risk and audit committee, and we run the book through that lens on a continuous basis.
If we are going to go outside of that lens, you know, we would have to obviously engage with our board on the basis that we would be taking a different perspective than we have historically. That's how we do it, and we do that on a continuous and a daily basis.
Thank you, Simon. There don't appear to be any further questions.
Well, thanks very much, everybody. Have a good day.