FOOD & BEVERAGES: Spirits Hamper KWV Performance
Recent Western Cape Business News
A significant decline in bulk spirit sales has put the performance of Paarl-based KWV's own operations under pressure for the first six months of the financial year.
The international financial crisis resulted in several bulk orders not materialising. In addition, consumers, especially in the local market, are trading down.
The fact that KWV competes predominantly in the premium categories for wines and brandies, means that the company experienced this trend negatively in several markets. Consumers are consistently going for cheaper options when buying liquor, resulting in a change in the product mix of KWV brands sold. Combined with a lower group turnover (1,2%), all of these issues resulted in the company's operating profit decreasing by 34%.
The group's profit on continuing operations, however, increased by 7.4%, due to the contribution from its investment in Distell.
KWV has reacted by further reviewing its costs and changing its marketing and sales approach appropriately in most markets. Inter alia, the company has successfully launched Roodeberg White - to partner with its red Roodeberg, which is turning 60 this year. Further developments included the sale of KWV's shareholding in its UK associate, Thierry's Wine Services, in line with KWV's revised distribution strategy which proved successful in Europe. Thierry's will continue to distribute KWV's portfolio of brands in the UK.
Going forward, the company will concentrate on maintaining volumes at reduced margins, which means that KWV will be operating in premium as well as lower categories.
CEO Thys Loubser described the financial results as concerning, but added that KWV has launched several initiatives over the past few months to improve its profitability and reduce risk. He expects market conditions to remain very challenging toward the end of the financial year. "KWV's performance since the half year results have shown some improvement", he added.
According to Loubser, KWV has furthermore taken a decision to focus on its own operations through a proposed restructuring. KWV's own operations relate to the purchasing and processing of grapes, wine, distilling wine and grape juice concentrate to be marketed, sold and distributed internationally.
A cautionary notice in this regard is being issued.
KWV is one of the five largest wine and brandy producers in South Africa. Its head office is located in Paarl, in the Western Cape region - one of the country's top wine producing regions. The company sources wines and grapes from the best and most sought after viticultural regions in South Africa.
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