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KWV’S BRANDY WiNS AWARDS BUT NOT SALES

26 Jun KWV Holdings

FORTIFYING returns from its core brandy business is proving a tough task for Niveus-controlled liquor group KWV.

So much so that KWV’s market capitalisation — as inferred by unlisted share trade on an over-the-counter (OTC) platform — actually discounts the balance sheet value of the company’s liquor inventory.

This emerged at Wednesday’s annual general meeting, whe re shareholders noted KWV’s brandy stocks were worth about R11 a share compared with an unlisted share price of 815c.

KWV CEO Andre van der Veen said that in the past 10 years brandy sales had dropped from 55-million litres a year to 33-million litres, and were likely to drop to 30-million litres this year.

Shareholder Chris Logan, CEO of Opportune Investments, said KWV was in a painful predicament — able to produce international-award-winning brandies, but not to sell them at a profit.

But Mr van der Veen said KWV’s production infrastructure was set up to produce brandy, which required the company to have a plan to bolster brandy’s returns.

“We won’t hand the brandy category to our competitors. Although the brandy market is declining, we have managed to increase our market share from 8% to 13% in the medium term.”

He warned, though, that increasing excise duties had created an affordability problem.

“There’s R45 on excise duties on a R69 bottle of brandy. There’s not a lot left in the value chain….”

Mr van der Veen said winning market share through “premiumising” the brandy portfolio was the key to viable future returns.

“But we want KWV to be a price maker, and at the moment we don’t think our (strong) brand name and our market share are currently aligned. I think our market share should be much higher.”

Mr van der Veen said “premiumising” the brandy portfolio would not be a short-term fix, and that KWV did not have the marketing muscle of bigger competitors in the spirits sector. He discounted suggestions to bolster the marketing budget by selling off brandy stock. “We can’t lose our stock. Some of it takes 10 years to mature. Our brandy inventory is in line with our forecast sales … there’s no bubble building in our assets.”

He said that while “premiumising” brandy brands was a key initiative, KWV was still fighting in lower price points.

He estimated 70% of brandy sales took place at less than R100. “When we ‘premiumised’ before, we handed a lower (sales) category to a competitor. But at the moment our cheaper stuff is flying off the shelves.”

Awaiting FSB clarity

THE Financial Services Board (FSB) directive proposing a shutting down of over-the-counter trading platforms for unlisted shares is unlikely to trigger corporate action at KWV.

KWV CEO Andre van der Veen said the directive would not prompt the company to seek a JSE listing or contemplate offering Niveus shares in exchange for KWV.

The company was awaiting clarification from the FSB, but he suggested a worst-case scenario would see KWV’s unlisted shares traded through the company secretary.

Source: BDLive – Marc Hasensfuss