DISTELL BEDDING DOWN FOR FOCUSED GROWTH
Distell's ongoing investment to enhance its product range, improve distribution networks and strengthen operations in Africa in particular, was crucial in priming the company for focused global growth, said Richard Rushton, the group's MD.
He was commenting on the performance of the company for the six months to December 2013, that saw year-on-year revenue rise by 15,1% to R9, 9 billion. The sales growth of 5,5% reflected the muted global consumer spending associated with the protracted economic uncertainty, he said.
Operating expenses increased by 15,3%, resulting in the operating profit margin dropping slightly from 14,0% to 13,8% on a normalised basis. While greater efficiencies in procurement and throughput had improved the gross margin, it was the impact of higher marketing, business development and operating expenses that resulted in the marginal drop.
Operating profit, normalised to exclude the company's acquisition of Burn Stewart Distillers (BSD) last April, rose by 13,4%, while normalised headline earnings per share were up by 8,5%.
An interim cash dividend of 154 cents has been declared (2013:152 cents).
The domestic market had proved extremely challenging with consumer disposable income further constrained by rising inflation, increased fuel prices and high levels of personal debt. In this environment, domestic revenue had increased by 5,2%, with sales volumes up by 3,1%.
Rushton said the company's cider portfolio of Hunter's and Savanna, had continued to deliver strong growth in South Africa. Turning to its spirits division, he said the impressive growth of the whisky portfolio, driven by Bain's Mountain Whisky and the ongoing momentum of the Three Ships range, had not been sufficient to offset the decline in brandy sales.
The company had been investing in a range of marketing initiatives and packaging upgrades which had impacted positively on its more premium and specialty brandies, he said. These were also helping to build the aspirational appeal of brandies but this was a long-term project that would take several years to translate into improved sales for the category as a whole.
The wine portfolio had managed to hold its own in the domestic market with notably good performances from brands such as 4thStreet, Durbanville Hills and Zonnebloem.
International sales volumes, including those in Africa, rose by 12,7%. Revenue increased by 48,9%. This was due mainly to the weaker rand and the inclusion of the whiskies in the BSD portfolio. Ciders and RTDs had continued to perform strongly, while spirits saw volumes rise by 54,0%, thanks to the enlarged whisky portfolio and the demand for Amarula. Wine export volumes grew by 6,4%.
Sub-Saharan African markets, excluding South Africa, had delivered strong growth across all product categories, he said, contributing 55,1% to foreign revenue.
He confirmed that to continue to capitalise on Distell's competitive advantage on the continent, the company was investing significantly to enhance management, operational and in-market capabilities, and expanding a well-resourced business unit devoted to unlocking opportunities in Africa.
It had recently commissioned a new bottling facility in Accra in Ghana and announced its investment in a green fields project in Nigeria's state of Anumbra, in Ozubulu.
"We continue to partner in joint ventures with local players in appropriate markets as far as possible to capitalise untapped market demand across the continent.
"These ventures are being structured not only to build and expand well-established brands but also to explore the viability of producing local product ranges to suit market preferences at relevant price points,” he said.
In addition to developments in Nigeria and Ghana, the company had made good progress in the key markets of Zimbabwe and Angola.
Net financing costs increased from R23,9 million to R110,2 million due to increased borrowings during the period.
Total assets increased by 46,9% to R16,1 billion but, excluding new business acquisitions, grew 15,4% to R12,7 billion. Capital expenditure for the six months amounted to R387,2 million, of which R144,3 million was spent on the replacement of assets. A further R242,9 million was spent on expanding the capacity of mainly cider and whisky manufacturing facilities.
Cash retained for the six months amounted to R143,7 million (2012: R241,1 million).
Rushton said the group remained in a strong financial position, reflected by a debt to debt plus equity ratio of 25,1% and a debt equity ratio of 33,6% at the end of the reporting period.
He expected trading conditions to remain extremely tough. “However, with the company's diversified portfolio of strong brands, the recent acquisition of BSD, coupled with our investment in Africa, we are confident of delivering long-term growth to all our stakeholders.”