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Send  Share  RSS  Twitter  24 Aug 2011

BEVERAGES: Distell's Diversity Gives Protection


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Even in the face of extremely difficult trading conditions in many of its key markets and the impact of the strong rand against all major currencies, Distell was able to hold its own for the 12 months to June 2011.  Revenue grew 4,4% year-on-year, to reach R12,3bn, on a sales volume increase of 2,4%. However, with operating expenses increasing by 4,6%, operating profit increased by 3,1%, while the net operating margin dropped marginally to 11,7% (2010: 11,8%).

Headline earnings per share increased 1,6% to 476,8c, to achieve compound annual growth of 14,6% over a seven-year period.

MD Jan Scannell said margins in certain product categories had improved, mainly as a result of the successful execution of business improvement initiatives but performance had been hampered by pedestrian economic growth in most of Distell’s markets, particularly the developed economies, compounded by the adverse exchange rate.

“We have been buffered from the severity of trading conditions to some extent by our diversity of portfolio and pricing, as well as the wide range of markets in which we trade. While the developed markets, notably Europe and North America proved particularly tough, we showed very encouraging growth in emerging economies, notably Africa, Latin America and parts of Asia Pacific.”

Domestic revenue increased by 7,6% on a sales volume rise of 4,0%.  This was broadly in line with the industry growth of wine, spirits and flavoured alcoholic beverages, including ciders, that increased value by 7,4% and volume, by 4,2%. “The growth in revenue reflects improved margins, albeit with a less favourable overall sales mix,” explained Scannell.

Amongst the company’s star performers locally were Amarula and Hunter’s, as well as sparkling wine brand, JC le Roux and other wines, Paarl Perlé and Autumn Harvest Crackling. “The spirit pre-mix and ready to serve (RTS) category also showed renewed growth, driven by significant innovation activity with our recently launched Mainstay RTS cocktails good examples of this trend.” 

He said South Africa’s spirits industry had been able to sustain its market share of total alcoholic beverages sold in off-consumption channels. “Brands which showed good growth in these categories were Bisquit Cognac, as well as the whiskies Scottish Leader, Harrier and Three Ships, all of which posted double-digit revenue growth. As South Africa’s major whisky producer, we are benefitting from the growing popularity of this segment of the spirits market.

“Although brandy consumption dropped, it still remains South Africa’s most popular spirit and our top performers were Klipdrift, Richelieu, Olof Bergh and Viceroy. We have also increased our focus and investment in key brands to accelerate future growth.  At the same time we are giving close attention to our fine brandy brands so we can build their share of the premium and super-premium spirits sector.”

Revenue derived outside South Africa, on a non-duty paid basis, comprised 26,4% of total revenue (2010: 28,4%).

Distell’s international business, excluding the travel retail market, saw volumes drop by 1,9% and revenue, by 2,6%.

There were, however, some encouraging developments, said Scannell. “Amarula has continued its growth trajectory and more than two thirds of its total volumes are now sold internationally. As the second largest drink of its kind worldwide and one of the fastest-growing spirits brands, it continues to advance its market share and is outpacing the growth of its direct competitors.

“We are also seeing the merits of our investment in Bisquit, with double-digit revenue growth and new markets opening up in many emerging economies.

“As the world’s third largest cider producer, we are entrenching our position, expanding the footprint of our cider business as we capitalise on the global growth of this segment.”

He said while Distell’s wine portfolio experienced some volume decline, the company had succeeded in growing its share of South Africa’s bottled wine exports to 22,4%. “We also remain the lead exporter of South African wines into Africa. It must be stressed that our international wine sales have been dependent mostly on the developed markets of the UK and Western Europe, which have been severely affected by the economic downturn. Our sales volumes in North America and Asia remained relatively stable, while strong growth occurred in sub-Saharan Africa.”

He did stress that established markets remained important to the company, as evidenced by its recent investment in wine distributors BrandPhoenix in the UK, which was strengthening its route to the important retail channel. The company was also continually reviewing its networks to see how these could be enhanced. It had for example, recently engaged Cuervo to represent Amarula in Mexico, a country highly receptive to cream liqueurs.

A dividend of 132c (2010: 132c) per share has been declared. This represents a total dividend of 256c (2010: 256c) for the year and a dividend cover of 1,9 times (2010: 1,8 times) by headline earnings.

Scannell said the company was financially strong, with interest-bearing debt, net of cash and cash equivalents, at R194,4m by year-end, and a debt equity ratio of 3,4%. “We are therefore well placed to take advantage of opportunities as they arise.”

He expected fragile economic conditions to persist. “We believe challenging trading conditions, especially in developed countries, will continue in the year ahead, with unemployment and limited disposable income still adversely impacting consumer spending. We anticipate that future growth will continue to be led by emerging markets.”

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