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.”
