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Premium products driving Delta's revenue growth

by Business reporter
16 May 2013 at 11:25hrs | Views
Driving the strategy of premiumisation: Gowero, right, with Valela
Delta's revenue and margins for the year ending 31 March 2013 were driven by premiumisation in lager beer and soft drinks and price correction in Chibuku, CEO Pearson Gowero told an analyst briefing yesterday.
"We have been driving the strategy of premiumisation and that's why our revenues have grown faster than our volumes.  Among lagers the contribution of premium brands has gone up from 15.6% to 18.4% and it can still get up to 20%...," he said.
He further noted that they need to maintain the balance between mainstream and premium categories to avoid cannibalisation. They also remain committed to the 'economy' segment which includes Eagle and Chibuku.
The group recorded a 14% growth in revenue to $631.3 million from $555 million as a result of an improved sales mix.
Gowero said the firm has completed all major capital programmes and they spent a total of $83 million last year.
"All the projects we had on paper were completed within the time frame…We have managed to successfully launch long shelf Chibuku product. We have also localised the production of Maheu, "he noted.
He further highlighted that the group managed to achieve an improved market supply position across all beverages and achieved significant improvement in productivity and cost management.
Commenting on the negative impact of excise Gowero said; "Government is very squeezed for resources and we had an unexpected rise in excise duty on lager beer which resulted in price increase." The excise duty went up from 40% to 45% in December 2012 and profit-seeking retailers took advantage of that to increase prices beyond those warranted by the tax increases.
Presenting the financial results, group finance director, Matts Valela noted that lager volumes went up 4% from 1.981 million hls to 2.060 million hls in the period under review and most of the slowdown happened in the last quarter where they registered negative growth.
"There was a lot of disruption after the excise duty was raised as some retailers pushed up the prices.
"You have seen us going out to the market campaigning to reverse that position. The campaigns are ongoing…" said Valela.
He also pointed out that the tightening liquidity situation have led to people "spending less on the tills" and has also resulted in the slowdown of their volumes.
Giving a volume review by beverage category, Gowero said the in the beverage mix lager contributed 30% versus 29%, sorghum contributed 46% versus 49% and SB's contributed 24% versus 22%
Valela said the mix issues in lager have been positive for the company and their premiumisation programme is going very well which has resulted in higher revenues growth than volume.
Gross sales for lager increased by 8% to $352 million. Meanwhile, SBs gross sales improved by 14% to $231 million and Chibuku went up 15% to $118 million. In comparison volumes of lager grew by 4%, for soft drinks the growth was 9% while Chibuku went down by 8% from 3.354 million hls affected by input cost induced pricing and the poor agricultural season.  Maheu went up by 42% form 93 000 hls to 132 000hls.
"Chibuku has got a more interesting story. Against the decline (in volumes) we've got a 15% increase in sales. We had to respond to the poor agricultural output and respond to maize cost…so it's largely a cost induced price increase," he said.
Maheu recorded a 50% increase in revenue to $11 million.
"Maheu that we localised in this financial year has been showing tremendous ability to grow.
"The restraining factor there has been packaging materials that were not available on time to be able to capture the opportunities that were available in terms of sales and that is being addressed," he said.
Under volume performance, Gowero said the Midlands and Mashonaland East were showing faster growth than other provinces due to vibrant mining and farming activities respectively.
Giving the financial highlights of F12, Valela noted that revenue went up 14% to $631.3 million from $555 million.
EBIT also went up 37% to $135.0 million from $98 million and commenting on this he said; "there was improved process and productivity issues. We are expanding our margins, our overheads are growing slower than revenue and therefore we've leveraged our volume situation."
Operating margins went up from 20.48% to 24.73%.
"Our long term ambition as we have always said is to be between 25% and 30%...most businesses that are largely into lager beer are seating at between 25% and 30% internationally. As a mixed beverage business we're getting into the range of those businesses," said Valela.
EBITDA improved by 36% to $161.5 million and attributable income also went up 39% to $102.5 million surpassing the $100 million target. EPS went up 36% to 8.49c.
Furthermore, he highlighted that total dividend for the year was up 63% to 3.4c as the interim dividend paid per share was 1.17c and the final dividend proposed per share is 2.23c.
PBT increased from $99.2 million in F12 to $136.9 million in F13. Cash flow from operations also improved from $121.3 million to $165.1 million.
The firm's associates, Afdis and Schweppes as stated by Valela "are coming through in terms of profitability."
Gowero also noted that profitability in Schweppes is trending up and Minute Maid production was successfully localised and product acceptability is encouraging.
He further noted that a recapitalisation programme is underway in Afdis.

Commenting on the future of the company, Gowero said consumer disposable incomes remain under pressure and volume performance will reflect this, and growth although a focus area, will be a challenge in the first half of the year.
He also noted that the group will focus on meeting the aspirations of their premium consumers and bringing new offerings to the market via a carefully managed innovation pipeline.

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Source - zfn