FOOD & BEVERAGES: Distell Powers Ahead Strongly
Recent Western Cape Business News
The agility provided by a basket of exceptional brands with strong consumer franchise offering real value for money across the pricing continuum, representation in a range of markets worldwide and an even better performance from operating units throughout the business, all helped Distell to deliver impressive growth under harsh trading conditions.
At a time when many of its international competitors are reporting losses, Distell was able to raise revenue by 21,6% to R6,1 bn on a sales volume increase of 15,9%, for the six months to December 31, 2008.
Headline earnings grew 19,9% to R650,2m, while headline earnings per share improved by 19,3%.
A dividend of 124 cents per share has been declared, an increase of 19,2 % on the previous year’s interim payment of 104 cents per share.
Trading income rose by 21,3%, thanks largely to continued revenue growth. Net operating margin remained virtually unchanged at 15,7%.
Distell MD, Jan Scannell reported that domestic sales volumes had increased by 10,7%, and revenue by 14,8%. Growth had been powered mainly by the rising popularity of the company’s cider and RTD (ready-to-drink) brands which continued to build market share. However, the spirits market had remained under pressure and although the company had been able to increase its share of this category, its volumes had declined slightly.
Scannell was pleased by Distell’s profitable wine volume growth. “By protecting brand equity in a highly price-sensitive market as opposed to chasing volumes, we still succeeded in expanding sales.”
The capacity to respond flexibly to changed trading conditions abroad, saw Distell lift international sales volumes in all off-shore markets by 37,1%, with revenue up by 54,3%. While spirits had shown satisfactory growth, the increase in wine sales volumes had outpaced the 23% rise in South African industry bottled wine exports for the comparable period. “We achieved very encouraging growth in wine export volumes in Europe and Africa. Asia Pacific is now also assuming greater significance.”
Africa, in particular, delivered exceptional growth across the portfolio, to contribute 54,0% to foreign revenue.
He stressed that benefits derived from improved throughput and efficiencies had been largely offset by steep increases in material costs and distribution expenses. This was further compounded by the additional investment required to expand sales and marketing representation in important markets.
Cash retained from operating activities amounted to R462,4m.
Total assets increased 10,5% to R7,1bn.
Capital expenditure amounted to R102,9m, of which R48,6m had been spent on the replacement of assets and the remaining R54,3m on the expansion of the company’s cider, wine and spirit production capacity.
Investment in net working capital had increased 19,6% to R2,8bn, comparing favourably to an increase of 21,3% in trading income.
He said the company remained in a strong financial position, as shown by the positive cash and cash equivalent balance of R344,4m at the end of the reporting period.
Scannell emphasised that South Africa’s economy and its consumers were continuing to adjust to the unfavourable impact of a highly troubled global economy and a moderation in real disposable income. “Moreover, the deterioration in the global economy is expected to continue with major economies now in recession and it is unlikely that we shall see an early end to these depressed conditions.
“Even though we anticipate that global trading conditions should become increasingly difficult, we do believe we are appropriately structured to compete effectively under these circumstances. Our portfolio gives us the flexibility to adjust to changes in consumer spending and to capture opportunities in key established and newer markets. A broad network of trading alliances across a diversity of markets, some less adversely affected by the global credit crunch than others, should also provide us with a measure of resilience."
He added that while it was extremely difficult to make any forecasts under the current volatile conditions, Distell was expecting to deliver lower growth in revenue and earnings for the financial year.
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