BEVERAGES: Distell Undeterred By Current Market
Recent Western Cape Business News
Distell has posted year-on-year revenue growth of 8,7% to R11,8 billion on a sales volume increase of 7,3% for the 12 months to June 30, 2010.
Although headline earnings were down 1,0% to R943,6 million, MD Jan Scannell said the results were satisfactory given the protracted recession that came with curtailed consumer spend, coupled with the impact of adverse exchange rates. “The reality is that not even the benefits derived from the ongoing improvement in operating efficiencies or the improved throughput could protect margins and profitability. As a result, operating profit declined 1,2% and net operating margin narrowed to 11,8% from last year’s 13,0%.”
He stressed that rather than focusing on short-term market gains, the company had maintained its long-range view of building brand equity and eschewing discounting, despite the current appetite for low-priced beverages. It had not veered from its course of continued investment in strengthening brand presence and building marketing, sales and distribution infrastructure in the key markets in which it operates.
The company, which produces a diverse range of spirits, wines, ciders and ready-to-drinks (RTDs) across the pricing spectrum, operates on every continent and has made significant inroads in African markets, while firming its presence in Europe and North America. It is also extending its footprint in Latin America and south-east Asia.
Scannell confirmed that the company had been investing substantially to expand production capacity, particularly in ciders and RTDs, whisky and sparkling wine in a bid to ensure its fitness for the future. “By sticking to our game plan, we are preparing ourselves for an improvement in global trading whenever it does occur.”
Turning to the domestic market, he said sales volumes had increased by 4,6% and revenue by 9,2%. “In an environment of ongoing job losses, slower growth in social grants, still high levels of household debt and diminished disposable income, consumers favoured lower-priced options. Even so, we were able to maintain our value share of the local market in most key categories.”
He confirmed that ciders and RTDs had continued to flourish. However, the spirits portfolio, in line with the international trend, had remained under pressure and volumes did drop, although the value decline was marginal. Amarula, he said, had had an excellent year and recorded sound growth. Volumes across the wine portfolio showed a decline but the company had been able to gain market share amongst some of its higher-priced offerings.
International sales volumes, including Africa, had increased 15,8% but the stronger rand against all major currencies had limited revenue growth to 15,2%. Africa, in particular, delivered exceptional growth, to contribute 57,1% to foreign revenue. “What is particularly pleasing is that international volume growth was achieved across all important categories with spirits and wine sales volumes growing by 14,4% and 6,8% respectively. The growth in wine exports was significant and far outpaced that of the industry. Exported RTD volumes increased by 42,0%, albeit off a smaller base.”
Looking ahead, he said the company did not anticipate a marked improvement in trading conditions either locally or further afield. “Unemployment and limited disposable income are likely to continue to impact adversely on consumer spending. We expect the trading environment to remain extremely competitive, both domestically and internationally. Nevertheless, we are confident that our business is appropriately structured with a diversified and exciting range of well-priced, quality brands in spirits, RTDs and wines, to equip us to compete effectively and to continue to maximise trading opportunities.”
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