Western Cape Business News

Send  Share  RSS  Twitter  06 May 2012

FOOD & BEVERAGES: Fizz For Cape Bottlers


Recent Western Cape Business News

NICHE beverage companies in the Cape appear to be seeing some fizz at top line, but bottom line unfortunately looks a little flat.

Initiatives in Gauteng by both local companies could put some bubble back at bottom line – albeit in the longer term.

Recent results from Ceres Beverages and Quality Beverages, the two soft-drink bottling operations that form part of consumer brands conglomerate Pioneer Foods and plastics packager Bowler Metcalf respectively, suggest both operations are reassuringly still growing market share.

Ceres – which holds brands like Ceres, Liqui-Fruit, Fruitree, Wild Island, Daly’s, Pepsi, Mirinda, Mountain Dew, 7-Up and Lipton – managed to push revenue up 3% to R2.76 billion in the year to end September 2011.

The top line growth is a continuation of a five year trend that has seen the business consistently grow revenue – starting at R1.8 billion in 2007, R2 billion in 2008, R2.6 billion in 2009 and R2.69 billion in 2010.

Unfortunately for Ceres profitability has been mixed over those years – peaking at R165 million in 2010 and scuttling as low as R78 million in 2008. Ceres’ profits in 2011 were down some 320% to R132 million with the operating margin pushed down to 5.1%.

Pioneer MD Andre Hanekom reports that Ceres Beverages’ carbonated soft drinks and fruit juices businesses achieved good volume growth but overall profit was muted by the pressure experienced in the fruits concentrate mixture business due to aggressive competition in the local market.

In the financial year ahead Ceres will be relocating product lines from its Ceres-based factory to Wadeville in Gauteng. In addition, the capacity of the warehouse in Wadeville will be increased.

Hanekom reckons these capacity improvements will be completed in the second half of the 2012 financial year. “We anticipate that the improvement in service levels and cost savings on transport from moving production closer to our market will largely mitigate the anticipated start-up costs.”

But Hanekom advises that the benefits are likely to be fully realised only in the 2013 financial year. Most encouraging for Pioneer is that carbonated soft drink sales volumes (ie Pepsi) grew despite the cold and wet summer conditions.

Hanekom notes that while fierce competition continued profitability improved and the increase in volumes necessitated further capital investment. “Therefore, new equipment will be installed at the Ceres factory in the space created by relocating the juice lines to Wadeville.”

This will be commissioned in the second half of the new financial year with the increased capacity ensuring a more efficient value chain and enhancing profitability.

Hanekom says the continuous growth in the Pepsi range of products is key to the future growth anticipated for the Ceres Beverages segment.

Much like Ceres, Quality Beverages – which bottles the increasingly popular Jive carbonated soft-drink range – saw its revenue line shoot up to record levels of R196 million for the half-year to end December 2011. But profits dropped to R1.9 million from R7.7 million in the corresponding interim period in 2010.

Bowcalf directors reported that aggressive marketing expenses, a R3.2 million incentive bonus payout based on the previous year’s (record) earnings, a CO2 shortage, commissioning and pre-production costs for the new Gauteng plant and changes in distribution logistic models all contributed to the lower earnings.

Breaking down Quality’s performance, Bowcalf’s directors report the core Western Cape operation is performing satisfactorily. But long term viability requires Quality to build a national presence.

In this regard, the new filling plant in Gauteng was commissioned in January this year. But the directors caution the new business will not meaningfully contribute to Quality’s bottom-line for the following two to three seasons as resources are focused on developing the brand in Gauteng.

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