BEVERAGES: Distell Grows Despite Tough Times
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Stellenbosch-based Distell has managed to hold its own in the reporting period for the six months to December 2010 despite battling a strong local currency and the persistent curb on spending brought on by the global downturn. Thanks to the diversity of both its portfolio and trading destinations, the country’s leading producer of wines, spirits, ciders and ready-to-drinks (RTDs) was still able to show an increase in revenue. Growing by 3,6% on the previous reporting period, revenue rose to R6,9 billion on a sales volume increase of 2,8%.
Group MD Jan Scannell said, however, that the impact of the reasonable sales gains achieved had been undermined by adverse exchange rates and, to a lesser extent, a less profitable sales mix. “The strength of the rand also negated many of the benefits we would have derived from improved throughput and better operating efficiencies. As a result, profitability and margins were affected.”
Operating profit declined marginally by 0,1%, while the net operating margin was slightly lower at 13,8% (2009: 14,3%).
Headline earnings rose 1,2% to R630,6 million compared with a drop of 1,9% in the previous half-year reporting period. Headline earnings per share increased by 0,9%.
An interim cash dividend of 124c per share has been declared, equal to the previous year’s interim payment.
In the domestic market, sales volumes increased by 3,2% and revenue by 6,2%. “Trading conditions remained exceptionally challenging with all players intensifying their competitive initiatives to attract consumer spend. The strong currency also made the country an increasingly attractive proposition for foreign brands, whose owners were able to market very aggressively on price.”
Local sales growth in cider and RTD (ready-to-drink) brands had offset the marginal decline in wine sales and had helped to compensate for the drop experienced across the company’s spirits portfolio.
International sales volumes, including Africa, increased by 1,6%, reflecting a more favourable sales mix. Most of the growth had come from ciders and RTDs, Scannell said, with spirits volumes showing marginal growth. “Nevertheless we were very encouraged by the performances of Amarula and Bisquit, the cognac brand we acquired in 2009. Amarula’s growth has come in the wake of the increased visibility brought about by the brand’s association with the FIFA World Cup last year. Identified as one of the fastest-growing liqueur brands internationally, it also received a strong vote of confidence from the on-trade. In an international industry poll involving some 700 respondents from 60 countries, Amarula was ranked one of the most popular bar brands, demonstrating its capacity to play both on and off-consumption.”
He added that the solid performance of Bisquit underscored the company’s ability to take on a foreign brand, tap its global potential, and build its profile in key markets.
Although wine export volumes had declined, mostly as a result of Europe’s slow recovery from the recession, the company had managed to improve its share of South Africa’s total bottled wine exports for the period. “Our share is strengthening in the packaged sector, which is where we believe the long-term sustainability of the industry lies.”
He pointed out that, while wine sales had been under pressure in Europe, volumes had remained relatively stable in North American and Asia. “They also picked up in Latin America, proving once again the merit of the company’s investment in raised exposure through last year’s soccer tournament.”
The stronger rand against all major currencies had been the reason for the marginal decline in revenue derived from international markets. “This is a problem South Africa shares with other New World players such as Australia and Chile, where producers have all been hurt by currencies that have strengthened considerably against those of our trading partners in Europe and North America.”
Africa, however, had continued to deliver strong growth, contributing 64,1% to foreign revenue.
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