FOOD & BEVERAGES: Spirits Lift At KWV
Recent Western Cape Business News
The first six months’ performance by KWV since its unbundling shows growth of 12.3% in sales volumes, with the South African market being the strongest performer at 14.1% revenue growth. KWV is now for the first time reporting purely on its own wine and brandy operations, without any additional income from its historic investment (now Capevin Holdings).
Roodeberg has once again been KWV’s best performing brand, with volumes up 15% compared to the same period the previous year. It performed well in the local market, together with Café Culture, of which consumers here consumed 50% more than the previous period. The Golden Kaan brand, which KWV bought in August last year, also performed beyond expectation globally.
The strengthening of the Rand has proved a challenge, impacting negatively on wine exports – which still constitutes about 90% of KWV’s wine sales. As a result, revenue increased at a lower rate than volumes by only 10.3% to R395.3 million.
Margins have also been under pressure, mainly due to lower than expected bulk spirits sales as well as overall sales mix. The former confirms a trend that has been gaining momentum since the previous financial year, and is closely related to global recessionary impact. Consequently, the gross profit margin has declined from 43% to 37.8% for the six month period.
Costs have been well managed over the period under review, resulting in lower operating expenses and a 55.8% increase in operating profit.
KWV has also experienced a strong, positive cash flow for the period, mainly from improved operating profit, a significant reduction in inventory levels and lower finance cost.
These efforts at optimising the business is expected to continue over the remaining period towards year end, and is supported by a dedicated internal transformation programme at KWV.
Focussed efforts to mitigate the impact of the global recession are driving KWV’s short term strategy. South African consumers in particular, are facing increasing inflationary pressures, which will affect their expenditure on alcoholic beverages.
CEO Thys Loubser explains: “KWV is maintaining and growing its position in a declining brandy category in the local market, but we can clearly see that consumers are still trading down.”
The contributions from KWV’s recent brand acquisitions, namely the 100% acquisition of wine brand Golden Kaan and the cream liqueur brand, Wild Africa, are expected to have a positive impact on KWV’s business going forward. “We are facing up to the economic challenges of being in the wine and spirits business of today, but are confident that KWV will grow its footprint, brands and deliver on consumer and investor expectations.”
KWV has sold its property in Robertson as well as some land in Worcester recently, and will be evaluating all its assets in order to determine utilisation potential.
Although the results for the six month period are positive, Loubser is cautious about the full year prospects for KWV. “We are growing, but have more ambitious targets to meet to ensure that perform in line with the expectations of our shareholders. We also expect the next six months to be particularly challenging.”
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