Distell buoyed by growth in Africa

South African drinks producer Distell has announced a 11.9% increase in revenue for year to June 2013, driven by growth in Africa and weak rand.

The group’s headline earnings rose 12% to R1.1 billion, while operating profit increased 26.6% to R1.8bn. Taking into the money set aside for additional excise duty provision and the full impact of the Burn Stewart Distillers acquisition earnings and profits increased by 14% and 8.3% respectively.

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 once again delivered strong growth for the group across a number of African markets. Scannell 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.”

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.

Scannell added: “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.”

Scannell added that he expected “challenging trading conditions to persist” but insisted that the group was in a strong position to continue growing.

He said: “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.”