Distell Bottling

Grape harvesting

Jan Scannell, Distell MD

Merwe Botha, Distell FD

Three Ships Premium Select 5YO bottle

Distell delivers strong first-half results

BRAND ACTIVITY

Feb 15th, 14:35

Good global sales growth and a more favourable exchange rate served to boost Distell’s year-on-year operating profit by 22,4% for the six months to December 31, 2011. Revenue for the period grew 15,9% to R8,0 billion on a total sales volume increase of 10,2%.

Commenting on the results, Jan Scannell, group MD of South Africa’s leading wines, spirits, cider and RTD producer, said: “Foreign currency conversion gains helped to offset significant increases in certain raw materials, the higher excise duties in some of the markets where we trade, as well as rising sales and marketing expenses. With operating expenses up by 14,9% but revenue growth up 15,9%, operating profit could grow comfortably. Our net operating margin also improved to 14,6% from 13,8% the year before.”

Headline earnings increased 23,2% to R777,2 million and headline earnings per share rose 23,0%.

An interim cash dividend of 143 cents has been declared (2010:124 cents).

Domestic revenue rose 14,8%, with sales volumes up 10,1%, he said, powered mainly by top-selling cider brand, Hunter’s, as well as by Amarula, a selection of wine brands, and Three Ships whiskies.

Scannell highlighted the strong performances of Nederburg and Two Oceans, as well as the company’s perlé and fortified wines, notably Sedgwick’s Old Brown sherry. These brands had more than held their own in a tough and demanding market marked by aggressive discounting by both local and international competitors. Despite the public’s ongoing appetite for lower-priced options, consumer spend across Distell’s spirits portfolio had remained on a par with the previous year.

International sales volumes grew 10,5%, while revenue rose 21,6%. This was the result of a weaker rand, the benefits flowing from improved routes to market and stepped-up marketing, and the more profitable sales mix, he said.

Africa had once again delivered outstanding growth, contributing 63,3% to foreign revenue. “We have also been very encouraged by buoyant demand in developing markets in the Asia Pacific region as well as in the traditional markets of Europe and North America.”

Amarula had shown double-digit growth, with sales particularly robust in Latin America, where the brand was now also selling in Mexico. Gains by cognac brand Bisquit in a range of markets had also positively impacted performance.

“We saw good export growth across all our product segments and we are particularly proud of our increased share of South Africa’s total bottled wine exports for the period.” Distell’s wine segment had delivered double-digit export growth thanks to the growing demand for in-house branded offerings successfully developed for a range of supermarket chains, as well as the strong performances of brands such as Drostdy-Hof in Scandinavia and the UK, and Nederburg and Two Oceans in North America.

Reacting to a recent report by Dutch-based agri-business researchers Rabobank that showed that worldwide bulk wine sales now accounted for almost half of total wine export volumes globally, Scannell said: “This trend is being driven by ever-increasing pressures to cut costs and to protect producers from the volatility of fluctuating exchange rates but there is still room for well-supported brands that offer good value and a distinctive positioning. Now, more than ever, with such a multiplicity of choices facing consumers, they want the option of brands they know and trust.”

Net financing costs had dropped from R27,7 million to R22,0 million, because of lower average borrowings, he added.

Total assets increased by 18,2% to R10,0 billion.

Capital expenditure amounted to R191,0 million, with R74,8 million spent on the replacement of assets. A further R116,2 million had been spent mainly to expand cider production capacity to keep pace with ongoing demand.

Scannell said the company foresees that challenging trading conditions will continue in the short-term and that foreign currency volatility could impact revenue and earnings. “Nevertheless, we are well positioned to take advantage of any improvement in economic conditions. Our diversity of product offerings, price points and trading destinations gives us the flexibility to do so.”Click here for more information on Distell