Western Cape Business News

Send  Share  RSS  Twitter  23 Feb 2011

BEVERAGES: KWV's Financial Hangover


Recent Western Cape Business News

Business results at Paarl-based KWV for the first six months (to 31 December) of the financial year were below expectations, with the core wine and brandy operations showing a loss of R7.2 million. A strategic decision to increase selling prices on nonprofitable product lines in the United Kingdom had a major impact - and the slow recovery of the global economy and the strong rand put further pressure on volumes and margins. Encouragingly, there are successes in markets such as the Far East, where KWV’s brandies and wines are performing above expectations, the company says.

The lower volumes and exchange rate impact challenged margins, and despite the fact that expenses were well contained over the period, the company experienced a R29.5 million decline in operating profit from continuing operations. Growth in spirits sales have been slow (up 1.1%), with the stagnating brandy category in South Africa remaining a concern.

Headline earnings amounted to R5.8 million (8.4 cents per share), an 80% decline from the R28.5 million profit of the comparative six months. The small profit was mainly derived from the profit on the sale of smaller assets, interest earned on the company’s significant cash balance, as well as rental and dividend income.

KWV’s strong balance sheet, which includes a cash balance of R180 million, provides adequate support for the company’s future plans. Business targets are being driven by the team of brand directors appointed eight months ago – with brands such as KWV’s Roodeberg, Cathedral Cellar, Café Culture, Wild Africa Cream and the KWV brandy brands receiving attention.

CEO Thys Loubser welcomed the end of the corporate action of the past few months, saying: “We need to be able to focus fully on our business and performance improvement now. We welcome our new shareholder of reference, HCI, on board, and look forward to their support. KWV is well positioned to improve its performance and grow its footprint in developing markets over the next few years.”

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