SAVANNA WITH
LEMON PACK
The Distell Group
succeeded in raising revenue 11,9% to R15,9bn on a sales volume increase
of 7,2% for the year to June 2013. This was despite exceptionally tough trading
conditions, marked by a global slowdown in economic growth, contracted
disposable income and reduced consumer spending in many of the regions where it
markets its range of spirits, wines and ciders and RTDs.
Headline earnings rose
12,0% to R1,1bn, while operating profit increased 26,6% to R1,8bn. Normalised
headline earnings and operating profit, excluding the impact of an additional
excise duty provision of the previous year, as well as the interest provision
and the full impact of the Burn Stewart Distillers Limited acquisition in the
current year, increased by 14,0% and 8,3% respectively.
Distell had provided
R297,8m for additional excise duty on wine aperitifs stemming from tariff
reclassifications the previous year. This year, a further R171,7m was allocated for
interest payable on the duty. The company acquired Burn Stewart Distillers
Limited in April for £160m. The strategic purchase of a range of scotch whisky
brands, several distilleries and stocks in maturation to service over 60
markets globally, was made to strengthen its product portfolio, extend its
global reach and advance its Southern African leadership of the spirits
industry.
Commenting on the
results, Group MD Jan Scannell said the results had been favourably impacted
both by good sales and the weaker rand. "Steep increases in excise duties
and marketing expenses were partially offset by foreign currency conversion
gains. However, we also saw the benefits of improved efficiencies in the
business and the normalisation of certain raw material input costs. "
He said operating
expenses had increased by 10,3%. Excluding the previous year's provision for
additional excise duty, operating expenses had risen 13,1%, compared to revenue
growth of 11,9%. Consequently, net operating margin contracted to 11,2% from
12,1%.
RTDs and ciders in
particular had once again delivered excellent growth, not only domestically,
but across a number of African markets. He added that new distribution partners
for Savanna had been appointed in the UK, enhancing its route to market.
"We have also recently outsourced Savanna production off-shore to Belgium
to better service the UK, an important market for us."
The ongoing appetite
for whiskies; the growth of Bisquit cognacs, acquired by Distell in 2009; and
Amarula Cream's continued good performance had all helped to offset the decline
of the brandy segment. As a result, Distell's global spirits business had been
able to show reasonable value growth. The wine portfolio had also delivered
solid value growth.
Stressing that while
bulk wine exports accounted for 64,8% of South Africa's wine export for the
period under review, which was broadly in line with global trends, Distell's
focus had remained on packaged wines. "Despite the more competitive
environment, we increased our share of South Africa's packaged wine exports to
27,3%. This is a most encouraging development, as not only do packaged
wines offer bigger and more stable margins, they are also critical in
protecting brand equity. We have maintained pricing across all our drive
brands, despite the fact that some competitor producers have used the declining
value of the rand to lower prices."
Sales outside South
Africa rose by 10,2% with revenue rising 23,1%. Sub-Saharan African markets,
excluding South Africa, driven primarily by strong cider growth, had
contributed 55,6% to foreign revenue.
He said the company
was building a well-resourced business unit in Africa to further unlock
opportunities on the continent. "We also continue to partner in joint ventures
with local players in appropriate markets as far as possible to enhance our
price-competitiveness, at the same time countering high import costs and
government tariffs. To this end, we have made good progress in the key markets
of Angola, Ghana and Kenya."
Domestic revenue
increased by 8,6% and sales volumes by 6,1% with ciders recording the strongest
increases. While volumes for wine sales were largely flat, good profit gains
had been achieved, all the more noteworthy, he said, given the highly contested
nature of the local market, characterised by aggressive discounting.
The performance of the
spirits portfolio had been hampered by the disappointing sales of brandy that
had been most vulnerable to excise duty hikes but investment in the category to
reverse the decline was beginning to show encouraging results.
"As the market
leader, we continue our long-term commitment to revive the entire
category. We are doing so by developing leading offers that are
continually rewarded with accolades for excellence on international competitive
platforms. We support the Brandy Fusion showcases in Johannesburg and Cape Town
and we continue to access new consumers through celebrity endorsements and
sports sponsorships."
At the super-premium
level, brandy, cognac and whisky brands had grown by almost 50% in volume,
helped by a growing awareness of quality credentials, as well as by successful
consumer engagement initiatives and innovative gifting solutions, he confirmed.
A dividend of 183
cents (2012: 152 cents) per share has been declared. This represents a total
dividend of 335 cents (2012: 295 cents) for the year and a dividend cover of
1,6 times (2012: 1,6 times) by headline earnings.
Capital expenditure
amounted to R742,1m, of which R277,5m was spent on the replacement of
assets. An additional R464,6m was dedicated to the expansion of mainly
whisky and cider capacity.
Scannell said
challenging trading conditions were expected to persist. "There have been
some tentative signs of economic recovery in the US, but the countries in the
eurozone remain in recession. Emerging and developing countries, hit by
the sluggish economies of their developed trading partners and lower commodity
prices, are also growing at a slower rate than in the past. Domestically, high
unemployment and limited disposable income continue to curtail consumer spending.
"Nevertheless, we
have a strong and diverse portfolio of appealing brands. We continue to enhance
our route to market across a spectrum of markets and, with a debt to debt plus
equity ratio of 28,4% and a debt equity ratio of 39,7%, we are in a secure
financial position to continue the pursuit of our strategic course."
Scannell, who has been
at the helm of the Distell Group since its inception in 2001 following the
merger of Distillers Corporation with Stellenbosch Farmers' Winery, retires at the
end of this year. Richard Rushton, currently president of SABMiller's Colombian
operations, has been appointed to the board from November and is expected to
succeed him. He comes with extensive experience in Latin America and India.
