30 August 2014 11:41

Distell Strengthens Business to Accelerate Growth

The Distell Group is strengthening its capabilities to compete effectively in a rapidly changing global trading environment, and is growing its profile in Africa and other key regions with enhanced routes to market and an optimised portfolio of well-differentiated brands, according to MD Richard Rushton. He has been at the helm of the company, Africa's largest producer of wines, spirits and ciders and RTDs, since last November.

Announcing the company's results for the 12 months to June 30, 2014, Rushton said year-on-year revenue had risen 12.8% to R17.7 billion, with sales volumes up by 3.1% in a climate of persistently tough trading conditions at home and in many of its international markets. As operating costs increased by 12.7% to R15.7 billion, trading profit increased 13.8% to R2.0 billion and trading margins improved from 11.1% to 11.2%.

Richard Rushton, Distell MD

With the inclusion of Burn Stewart Distillers (BSD), acquired in April 2013, as well as the remeasurement and reversal of a contingent purchase consideration, reported headline earnings rose 40.4% to R1.5 billion, and operating profit, by 22.9% to R2.2 billion. However, normalised headline earnings and operating profit grew by 1.7% and 8.1% respectively.

Rushton explained that both the domestic and international markets had contributed to the 12.8% revenue increase, which had also been impacted to an extent by the weaker rand and the incorporation of the BSD Scotch whisky business. "Efficiencies gained in procurement, production, distribution and support services, coupled with the foreign currency gains and a more balanced sales mix, helped to offset the impact of steep increases in excise duties and the greater investment in marketing and sales resources."

In South Africa, the company had managed to maintain its 21% value share of the total liquor market, even with the entry of additional players and competitor products. Revenue rose 5.2%, with sales volumes up 2.6% in the face of declining disposable income and excise duty hikes that were ahead of inflation.

"Our decision to exercise price restraint, together with our broad portfolio offering of both premium and accessible brands enabled us to compete and grow effectively in the market, despite mixed results in some segments."

The Hunter's brand had proved a star performer within the cider and RTD portfolio, which had continued to deliver good growth, albeit at a slower tempo than in previous years.
While the performance of the spirits category had been hampered by the ongoing decline in South Africa's brandy market, encouraging headway had been made in refocusing Distell's own brandy offerings.

Rushton said the impact of the drop in brandy sales on the spirits portfolio had been countered to some extent by healthy sales of the Bisquit cognac range, as well as the growth delivered by local whisky brands Bain's Cape Mountain Whisky and Three Ships, demonstrating the demand for top-quality whiskies of South African provenance.

Amarula had also enhanced its relevance with the launch of Amarula Gold as a companion to Amarula Cream. Launched in March, the new 30% alcohol by volume clear, golden spirit had been very well received, with demand dramatically exceeding even what he described as the company's very ambitious expectations. "This new brand extension is heightening Amarula's visibility and strengthening brand equity at a time of intensified competition in the cream liqueur category."

 

He added that Distell had maintained its volume share of South Africa's natural wine category and its leadership of the country's sparkling wine segment. It also recorded excellent gains amongst brands such as Durbanville Hills, Zonnebloem and Fleur du Cap, as well as estate brands Neethlingshof, Allesverloren and Uitkyk.

Sub-Saharan African markets, excluding South Africa, continued to deliver strong results with volume growth across all categories. The region contributed 49.6% to foreign revenue. "We achieved revenue growth of 20.0% on the continent, while sales volumes rose by 9.4%. This was despite several disruptions to trade, intensified competition from the major global players and a stepped-up presence of cheap Indian imports, as well as the imposition of high import duties in several countries."

He confirmed that good progress was being made to raise the company's in-market production in key markets to address vulnerabilities to import duties and to improve product availability at competitive pricing. A bottling line had been commissioned in Ghana and land had been purchased in Nigeria and Angola with plants scheduled to come into operation in 2015 or shortly thereafter. In addition, after year-end, the purchase of a 26% stake had been confirmed in the formerly government-owned KWA Holding East Africa Limited (KHEAL), following the passing of legislation in July 2014 to permit its privatisation.

International business outside Africa produced subdued revenue growth, as market conditions proved extremely difficult. Overall, sales revenue, excluding BSD, rose 6.9%, mostly on the back of rand depreciation.

"We were, however, able to achieve notable gains in wine in key strategic markets such as the US and once again, Amarula was the only South African representative on the Impact Databank World's Top 100 Premium Spirits Brands for 2013."

A final dividend of 183.0 cents (2013: 183.0 cents) per share has been declared. This represents a total dividend of 337.0 cents (2013: 335.0 cents) for the year and a dividend cover of 2.1 times (2013: 1,6 times) by headline earnings.

Capital expenditure for the year amounted to R691.8 million, of which R276.3 million was spent on the replacement of assets. The balance was directed to expanding production capacity of mainly ciders and whisky, as well as to growing the group's operations in sub-Saharan Africa.

Rushton said the company was expecting a modest improvement in trading conditions led by the recovery in advanced economies, which was driving emerging economy exports. "We are confident of unlocking real value for all our stakeholders with our strong, diverse and appealing brands."

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