The government’s approach to business has picked up in the past three months, says Jannie Durand, CEO of Remgro, one of the largest companies listed on the JSE.
Durand told shareholders at the annual general meeting of alcohol beverages group Distel that the government’s involvement was critical given the tens of thousands of jobs at risk in the two industries.
Both industries have been hit hard by increased international competition, rising input costs and sluggish local trading conditions.
Durand, chair of Distell, which is 32% owned by Remgro, told Business Day after the meeting that “for the first time” the department of trade & industry had agreed to co-operate with representatives of the sugar and poultry industries.
“We’ve now established working groups to address the challenges facing the sugar and poultry industries in this country,” said Durand.
Remgro has exposure to both industries through its controlling stakes in Rainbow Chicken and TSB Sugar.
Durand’s upbeat comment on the government was made in response to shareholder Anthony Clark who asked the Distell board if it had plans to develop operations in China.
Distell’s brands include Amarula, Klipdrift and Hunter’s Dry.
Distell CEO Richard Rushton described three factors about the Chinese market: “access to the right partners” was essential; SA has no distance advantage; and Australian drinks companies have made good inroads into the market because they have free-trade access.
“For that you need governments to sit down together,” said Rushton.
Durand did not believe the South African government was prepared to make that move at this stage.
Rushton told the meeting that Distell had achieved low single-digit volume declines in its first quarter to end-September, but thanks to price increases it was able to report a single-digit rise in revenue.
The group’s overall wine portfolio, which includes brands such as Nederburg and Two Oceans, reported flat revenue growth as increased grape and wine prices caused by the drought were passed through to consumers.
“However select mainstream and premium wine brands continued commendable revenue growth despite this,” said Rushton, who told shareholders that the outlook for economic growth remains mixed with varying levels of political and economic risks in many of the markets in which Distell trades.
Durand and Rushton defended the group’s performance after shareholder Chris Logan pointed out that by most measures Distell’s performance “has been in structural decline for at least a decade”.
Logan said return on equity, which had peaked at 21% in 2008, was now only 12%. Return on capital employed had also been declining since 2009 and cash flow return on investment had peaked in 2007.
Durand said the group had undertaken extensive investment in its asset base since 2012 to optimise production facilities and modernise its route to market. “Until about 2010 we probably neglected the assets, now we must leverage our investment to get margin increases,” said Durand.
Logan said the structural decline in returns was not surprising given the structure of the executive incentive scheme which was not aligned with economic value creation.
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