BEVERAGES: Distell's Diversity Provides Buffer
Recent Western Cape Business News
Distell’s diversity of product offering, price point, the markets in which it trades and its distribution partners, all served to provide the company with a measure of protection against the continued global economic turbulence.
Despite the widespread drop in real disposable income, rising unemployment and a tightening in credit availability amongst consumers globally, Distell succeeded in raising revenue by 15,5% to R10,9 billion for the 12 months to June 30, 2009. This was achieved on a year-on-year sales volume growth of 10,8% , as the company managed to strengthen its share in several important markets, according to MD Jan Scannell.
He did stress, however, that the strong sales performance of the first six months had been followed by significantly slower growth over the remaining period, which had impacted substantially on the full-year performance.
Growth in revenue saw operating profit rise 4,8%. Net operating margin declined though, from 14,3% to 13,0%. “Benefits derived from improved throughput and better operating efficiencies were negated by the substantial increases we experienced in material and distribution costs, as well as by the incremental costs of expanding sales and marketing representation in key markets.”
The Stellenbosch-based company trades on every continent and has been steadily stepping up its participation in sub-Saharan Africa and across Europe.
He added that the group’s performance had also been negatively affected by adverse exchange rates. “Towards the close of the financial year the rand strengthened substantially against most major currencies, giving rise to foreign currency translation losses of R46.6 million at year end, compared with last year’s gain of R57.3 million.”
Headline earnings grew 1,2% to R953,5 million and headline earnings per share improved by 0,9% to 475.2 cents, to achieve a compound annual growth rate of 23.2% over a seven-year period.
Cash generated from operations amounted to R1 030,4 million, compared with R890,8 million in 2008.
For the year, domestic sales volumes increased by 6,4% and revenue by 11,2% . Cider and RTD (ready-to-drink) brands continued their strong performance with impressive sales volume and market share growth from Hunter’s and Savanna ciders in particular. Spirits sales volumes dropped in line with the market, which experienced a 5% decline as consumers sought lower-priced alternatives in an acutely competitive trading environment. Nevertheless, Distell was able to grow sales of key brandy and whisky brands. Wine sales volumes showed marginal growth, thanks to solid performances from drive still and sparkling wine brands.
He confirmed that the company had maintained its 20% value share of the domestic market, which he attributed to “the depth and quality of its portfolio, timely innovation, and sustained and strong brand investment to further grow brand awareness for drive brands in particular.”
International sales volumes, including Africa, rose 26,7%, with the rate of increase in wine sales volumes outpacing that of the South African industry’s bottled wines exports for the comparable period. Spirits volumes also achieved satisfactory growth, he said. As a result, international revenue, grew 36,9%.
Africa, in particular had delivered exceptional growth, to contribute 52,0% to foreign revenue.
International business accounted for 23,5% of total revenue, up from 20,0% the previous year.
Scannell said two notable developments during the year had been Distell’s first international acquisition, when it purchased renowned cognac brand, Bisquit, in April, and the official licensed product status conferred on both Amarula Cream and Nederburg for the 2010 soccer World Cup .
He added that to avoid any disruption of Bisquit supply, the company was maintaining existing distribution agreements with previous agents in France, Switzerland and Belgium. “Our priority now is to expand Bisquit’s presence in Asia, North America, Eastern Europe and Africa.
“In terms of Distell’s agreement with FIFA, we are entitled to feature the 2010 emblem on Amarula and the three Nederburg wines being released to mark South Africa’s hosting of the tournament. These FIFA- branded products are being sold locally and in selected markets abroad.”
Total assets increased by 16,2% to R7,5 billion, while capital expenditure amounted to R382,1 million, of which R100,0 million was spent on replacing assets. A further R282,1 million was devoted to capacity expansion, mainly to increase production capability at the company’s cider and RTD facilities, its whisky production plants and sparkling wine cellars.
A dividend of 132 cents per share has been declared, maintaining the final dividend of the previous year. This represents a total dividend of 256 cents (2008: 236 cents) for the year and a dividend cover of 1,9 times (2008: 2,0 times) by headline earnings. The board has declared its intention to restore the full-year dividend cover to 2,0 times by headline earnings over time.
Scannell noted that since Distell’s formation, the group has delivered a total shareholder return of 27.7% per annum over a seven-year period, compared with the seven-year compound annual growth of 9.9% in the JSE Top 40 Index.
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