Distell Says South African Spirits Market Is Challenging

Distell Group Ltd. (DST), South Africa’s biggest wine and spirit producer, said the South African market is “challenging” because of competition from lower-cost drinks such as beer.

“The consumer in general continues to buy down,” Managing Director Jan Scannell said in a phone interview today from Stellenbosch, where the company is based. “The market is extremely competitive, which drives up the cost of doing business.”

Net income rose 23 percent to 776.9 million rand ($101 million) in the six months ended Dec. 31, from 630.7 billion rand a year earlier, Distell said in a stock exchange statement today. Sales gained 16 percent to 7.97 billion rand.

South Africa’s economy expanded 1.4 percent in the three months through September, close to a two-year low, even after the central bank held the benchmark lending rate at 5.5 percent for 18 months to spur growth.

The rand’s 17 percent decline against the dollar in the second half of 2011 boosted Distell’s profit from exports, while adding to the cost of its South African sales by boosting the prices of imported raw materials, Scannell said.

“The rand had a positive effect on our export business but a negative effect in South Africa,” he said. “We’ll have to work with our suppliers to become more efficient” to cut costs in the home market, he added.

Distell’s products include Klipdrift brandy, Tassenberg wines and Count Pushkin vodka. They compete for market share against SABMiller Plc (SAB)’s Castle, Hansa and Peroni beers, and Diageo Plc (DGE)’s Smirnoff vodka and Guinness stout brands.

Distell “will look for opportunities” to make acquisitions, using its 943 million rand in cash, though it doesn’t have any “immediate” targets, Scannell said.

Distell shares were unchanged at 77.50 rand in Johannesburg today. The shares have climbed 16 percent in the past six months.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net

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