Distell reports volume increase of 5.7%

The South African-based Distell Group reports that it has raised revenue by 10.4% to 19.6 billion rand on a sales volume increase of 5.7% for the 12 months to June 30, 2015.

Normalised (removing non recurring expenses or revenue) operating profit grew by 6.5% to R2.1bn. Operating costs rose by 10.9% to R17.5bn for the period.

The company says it is “reaping the benefits of its revised corporate strategy under MD Richard Rushton, making impressive headway at home and encouraging progress in Africa to deliver volume and value growth ahead of many of its global peers”.

The country’s leading producer of wines, spirits, cider and other RTDs, says it has stepped up investment in skills, infrastructure, route-to-market and revenue management capabilities to enhance its competitiveness in key markets, particularly on the African continent.

The report says Distell's biggest gains since the implementation of its new corporate strategy have been in the domestic market, where revenue increased by 11.8%, and sales volumes, by 6.7%.

Despite these investments, the group's normalised EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 8.1% to R2.5bn. This figure excludes other gains, arising from the remeasurement and reversal of the contingent purchase consideration of R159m for Burn Stewart Distillers the previous year. Reported operating profit was 1.8% lower.

This was despite an environment of low economic growth and rising living costs that curtailed consumer spending.

Rushton said: “We are extending our reach and penetration of the domestic market and we have also implemented more rigorous pricing and promotion strategies across our brand portfolio. These factors, coupled with the growth of our core wines and ready-to-drink brands, have assisted our performance at home. What we are developing in South Africa can now be selectively applied in other priority markets."
Its sales force effectiveness programme also saw the company take on 120 additional employees.

He said the local achievement was in line with Distell's corporate strategy that focused on leading in selected geographies by targeting appropriate channels with its competitive portfolio of optimally positioned brands. Work was currently underway to integrate the supply chain to effectively support the new strategy, and enhance operational and cost efficiencies and asset optimisation.

The company says its wines proved to be its star performers in South Africa, outpacing local market growth to gain market share in an increasingly competitive environment. Volumes rose 13.6%, while value increased by 16.4%. Among the stand out performers were 4thStreet, Nederburg and Durbanville Hills.

It says its ciders (Hunter's and Savanna) continued their uninterrupted seven-year growth trajectory, although at a moderated pace.

Distell's spirits volumes in South Africa were flat, although revenue rose by 10.8%, as a result of its premium brand efforts and new pricing strategies, coupled with improved sales execution and increased market penetration. Rushton said an important achievement had been the company's ability to moderate the decline of its brandy sales.

Other spirits performed well. Bucking the global trend amongst Scotch whiskies, it was able to grow the sales of its blended and single malts in the Burn Stewart portfolio. Its local whiskies, Three Ships and Bain's Cape Mountain Whisky, also produced strong growth and Amarula continued to dominate as market leader in its category, despite intensified competition.

Bisquit cognacs delivered substantial growth, according to Rushton, with South Africa now an important market for the brand. Its volume increases were ahead of the double-digit growth of the cognac segment in South Africa.

Notwithstanding the commodity slump and economic and geopolitical volatility, sub-Saharan markets excluding South Africa produced revenue growth of 11.6%, with volumes up by 6.6%. The region contributed 51.4% to Distell's foreign revenue. Increases had come from Angola, Mozambique, Zambia and also Kenya, where Distell recently concluded the purchase of a 26% stake in KWA Holdings East Africa Limited (KHEAL), a major producer and distributor in the country.

The group had been hit negatively by the tough trading conditions across the broader international front, with revenue in other international markets growing by just 3.8% despite the benefit of the weaker rand, as volumes declined by 5.5%. Depressed conditions in the Eurozone, geopolitical instability in the Commonwealth of Independent States (Russia), as well as in Asia had outweighed the gains achieved by some of the wine and scotch whisky brands, as well as Amarula.

Rushton said among Distell's investments during the year had been the strengthening of its structures and capabilities to better serve its selected African, European, North American and Asian markets. "The impact of these investments will need time to take effect but it is essential that we are primed to capitalise on the longer-term opportunities in these markets."

He said challenging trading conditions were expected to continue in many of Distell's key markets. “The risks to top line growth momentum are higher in some markets. However, given our on-going geographic diversification, the progress we have made in optimising our attractive portfolio of strong, differentiated and price- and occasion-diverse brands and our improving routes to market, we are confident in being able to deliver continued growth to our stakeholders,” said Rushton.