| Wed 14 Feb 2007, 14:35 | | DST - Distell Group Limited - Distell toughs it ou |
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DST - Distell Group Limited - Distell toughs it out with top results
Distell Group Limited
Registration number 1988/005808/06
JSE share code: DST
ISIN: ZAE000028668
("Distell" or "the company")
DISTELL TOUGHS IT OUT WITH TOP RESULTS
Responsible pricing and marketing, as well as improved efficiencies enabled
Distell to more than meet the demands of a tough market, comfortably growing
revenue ahead of higher volumes. For the six months to December 31, 2006, the
company succeeded in lifting revenue 16,6% to R4,3bn on a sales volume increase
of 11,0%.
Other salient features of the company`s interim performance were that basic
earnings were raised by 69,7%. Headline earnings increased 60,8%, while headline
earnings, adjusted to accommodate last year`s BEE expense, were up 30,2%.
An increase of 30,5% in trading income was driven largely by higher revenue, he
said, as well as from benefits flowing from improved throughput and improved
operations, particularly production. The operating margin improved from 14,0% to
15,7%.
Scannell said the company was able to deliver a sound performance on all fronts
with distribution networks working well locally and in export markets. "We
significantly stepped up our marketing investment and the allocation of the
resources required to improve our market presence and positioning of our
trademarks."
Domestically, sales volumes rose 11,9% (2005: 4,8%). Spirit sales volumes
increased 3,7% (2005: 2,8%) with premium products showing sound growth. Cider
brand leaders Hunter`s and Savanna, played a key role in boosting the sales
volumes of RTDs, that grew an impressive 25,5% on the same reporting period last
year (2005: 11,7%). At the same time, wine sales volumes grew 4,6% (2005: 0,9%),
which Scannell described as a remarkable achievement in an industry hampered by
a global oversupply, and with many local wine producers struggling to survive.
"Those who have yielded to discounting pressures are, in many instances,
floundering. However, producers who have been able to adopt a longer-term
strategy in preserving the integrity of their trademarks are holding out
better."
He said international sales volumes, excluding Africa, increased 3,3%, with
Amarula, in particular delivering an exceptional performance, advancing volumes
33,4%. Although natural wines showed a sales volume decline of 3,7%, mainly as a
result of the oversupply affecting some European markets, promising gains were
made in North America and Asia Pacific. Consequently, total international
revenue rose 27,5%.
He stressed that Distell`s wine export volumes, specifically bottled wine
exports, were still trending well ahead of the South African category abroad.
"Our focus is exclusively on bottled wines, whereas the local industry has been
moving increasingly into bulk exports as a way of curtailing supply chain
costs."
Revenue derived from African countries increased 16,3% on a sales volume growth
of 10,5%. African countries outside the BLNS region (Botswana, Lesotho, Namibia
and Swaziland) recorded growth of 20,2%, although off a relatively small base.
"What is pleasing is that on a global basis, profits from wine showed solid
growth in spite of difficult market circumstances." Scannell said this was the
result of responsible, consumer-focused brand building conducted over many years
in an environment where most producers had elected to focus on price to achieve
volume. He stressed that grape wine growers who were long-term supply partners
of Distell, had also benefited from the company`s brand protection strategy.
"Although prices of red grapes are under pressure, we are nevertheless providing
a stable market for their grapes."
Total assets increased 8,5% to R5,9bn. Capital expenditure, focused mainly on
replacement of assets, amounted to R69,8m. Investment in working capital was
10,5% higher at R1,9bn.
Cash generated by operating activities amounted to R877,7m (2005: R724,6m), and
net interest-bearing borrowings decreased R367,6m (2005: R414,7m), with the
company remaining in a net investment position.
A dividend of 87 cents per share has been declared, an increase of 27,9% on the
previous year`s interim payment of 68 cents per share.
Scannell said Distell was confident of a continued growth in sales volumes
during the second half of the year. "All indications point to a stabilisation in
interest rates. Without further hikes, consumer spending patterns are unlikely
to dampen materially and this should impact positively on all segments of the
alcoholic beverage industry."
He said prospects for the world economy were expected to remain favourable,
notwithstanding a short-term moderation in global GDP growth. "We anticipate
that the effects of the global oversupply in wine will continue to be felt in
the market for some time, even though there are predictions of a better balance
in supply and demand within the next two years. Consequently, pricing pressure
will continue in major markets. However, we hope this will be offset by growth
in newer markets."
He said the company was, for example, looking forward to the benefits of its
recently concluded agreement with the Altia Corporation, an international multi-
beverage company operating in the Nordic states, where it was the market leader,
as well as in the emergent Baltic markets. Distell was now its exclusive
supplier of South African wines.
Noting that according to a recent study commissioned by Vinexpo, worldwide
consumption was expected to grow by 2010 from its present levels by just under
5%, while the value of sales would rise by more than 9% over this period, he
said the outlook for global wine markets was definitely improving.
He added that since Distell participated across a broad geographical front,
exposure to volatility in any single market was reduced. Moreover, a wide
spectrum of products across a range of categories and price points meant the
company was well placed to capitalise on any changes in consumption patterns.
Continued growth in revenue and in adjusted headline earnings was expected for
the full year, he said.
DATE FEBRUARY 14, 2007
FOR DISTELL GROUP LIMITED
ISSUED BY DKC (DE KOCK COMMUNICATIONS)
QUERIES JAN SCANNELL, MD (021) 809 7000 or (021) 809 8102 (direct)
MERWE BOTHA, FINANCIAL DIRECTOR
(021) 809 7000 or (021) 809 8100 (direct)
SONIA JAMOULLE, COMMUNICATIONS MANAGER,
021) 809 8005 or 076 474 0715
TESSA DE KOCK/PIPPA PRINGLE, DKC (021) 422 2690
Date: 14/02/2007 14:35:01 Produced by the JSE SENS Department.
