UNLISTED liquor group KWV Holdings, already a large exporter of wine to Europe, will target new markets in the US and Russia in a bid to build sustainable long-term profit growth.

Speaking at the annual general meeting (AGM) on Friday, Niveus-held KWV CEO Andre van der Veen stressed the push into new markets formed part of the company’s ambitions to become a global, diversified alcoholic beverages group.

He noted the US wine market was the largest and most profitable in the world, but warned that KWV was likely to make losses in this market initially.

Mr van der Veen said Russia would be a more profitable thrust for KWV than delving into the Chinese market.

“We have a way to go in Russia, but the country has a great affinity for South African products … and is less inclined to European and US product.”

For the most part, KWV’s AGM, which was chaired by former Hosken Consolidated Investments chairman Marcel Golding, was again mainly a skirmish between directors and minority shareholders, who took the executives to task over the destruction of shareholder value. Mr Golding reiterated the holding of a long-term vision in tough trading conditions.

This year the AGM tensions were somewhat intensified by the fact that KWV’s (over-the-counter) share price had dribbled down to 550c — less than 30% of the company’s conservatively stated tangible net asset value (NAV) of R18.63 a share. If the unofficial R25 a share NAV, cited at the meeting by Mr van der Veen, is used then the shares are trading at a discount of more than 75%.

Former stockbroker Greg Blank said the big discount “tells me something is wrong”.

Chris Logan of Opportune Investments, a long time KWV shareholder, pointed out that the company’s listed rival Distell traded at a premium to its NAV. “If KWV enjoyed the same (market) rating as Distell the company’s share price would be R72,” he said.

Mr van der Veen argued that Distell could not be used as a proxy to gauge KWV’s performance as the businesses were very different machines. He pointed out that the major difference was that Distell had a sizeable cider and ready-to-drinks (RTD) business.

Mr Logan suggested KWV’s efforts to move into the RTD market had been a costly failure. But Mr van der Veen countered that it was prudent for KWV to prioritise its wine and brandy brands, adding that the RTD ventures “had not cost us more than R20m”.

Mr van der Veen noted KWV had managed to grow its market share of the competitive local brandy market to 13.8%. “We are the only producer that has grown volume.”

But he cautioned that the brandy market was dominated by Distell. “If Distell lowers its brandy prices we’ve had to lower ours too. But we can’t sell brandy for under R100; we can’t keep taking on Distell.”

Mr van der Veen said about R700m of KWV’s R1bn inventory, representing a huge chunk of NAV, was brandy stock.

Source: BDLive – Marc Hasenfuss