KWV PERFORMANCE IMPROVES

7 September 2010

KWV’s revenue increased by just more than 5% to R729,0 million in the first year following its unbundling – a challenging year characterised by a strong Rand, prolonged recessionary market pressures, industrial action at a service provider and extensive internal restructuring and transformation following the implementation of a new strategy. The business returned to profitability albeit not at sufficient return on equity.

Net profit from continuing operations attributable to shareholders amounted to R78,1 million while headline earnings amounted to R51,3 million. Headline earnings per share increased from a loss of 68,1 cents to a profit of 82,9 cents.

KWV’s best performing brands for the period under review were Roodeberg - which has been averaging double digit growth for the past 10 years - Café Culture and Cathedral Cellar, which both achieved growth in excess of 20%.

The group succeeded in improving its gross profit margin - from 36,6% for the prior year to 38,0%. This was driven by decisions to protect margins, rather than purely driving volume in markets where consumers are increasingly under economic pressure.

Three focus areas were driving performance at KWV this year: brand growth, cost and culture. The business did not deliver the growth that it was aiming for, but managed to protect margins. All costs were well managed during the year - operational and admin expenses in particular - resulting in significant savings. In terms of culture, there has been improvement in behaviour driving performance, teamwork,flexibility and urgency. Overall, there are some encouraging signs of improved performance, but more is needed to deliver on our strategy.

Highlights for the year include numerous awards for both KWV’s wines and brandies. The Laborie Alambic was crowned best brandy in the world at the International Wine and Spirits challenge, and the KWV The Mentors range excelled both locally and internationally, inter alia at the Concours Mondial de Bruxelles (two golds) and the Trophy Wine Show (trophy and gold medal). The World Cup also had a positive impact in some categories and markets, for example with the KWV 10 Year Old brandy in the local market and Golden Kaan in Germany, but all indications are that the effect will not be sustained.

The most challenging factors that impacted on the business during the past year included the effects of the recession, particularly in Europe and the UK (where KWV had to strategically reduce volumes), the strong Rand and the Transnet strike.

With the strategic repositioning of the business, KWV had the opportunity to buy the Golden Kaan brand – a brand that was returned to profitability very quickly. KWV also divested of several other non-core and surplus assets, which included the grape juice concentrate plant in Upington and properties in Vredendal and Robertson.

In positioning the business for growth, KWV acquired the cream liqueur brand, Wild Africa cream. This fits well into the spirits portfolio - a portfolio which performed much better during the past year. Packed volumes increased by more than 10% and bulk by more than 50%. In the local market, KWV showed very solid performance by managing to grow its market share in a declining brandy category.

During the second part of the year, in line with its growth strategy, KWV restructured its internal structures around four brand portfolios. With the successful recruitment and appointment of four new brand directors, the business is positioned to drive profitable brand growth and innovation. Investment going forward will be brand driven, and has already increased strategically over the period under review.

Considering cash flow from operating activities, the business generated R66,7 million over the year. The company’s net asset value per share was diluted due to the rights offer in 2009, which strengthened the new KWV Holdings’ balance sheet by R150 million. Without the rights offer, the net asset value per share would have increased by 7.2% (170,6 cents per share) for the year.

The board of directors declared a maiden ordinary dividend of 27 cents per share as well as a special dividend of 7 cents per share, based on the profit on sale of non-core assets.*

KWV’s business prospects for 2011 are still subject to economic recovery in most markets, the exchange rate and the performance of the brandy category in the local market. The brand positioning and restructuring in the business has created a strong platform for growth.

Since the unbundling in August 2009, KWV’s share price has increased from 623 cents at the time of the rights issue to 1050 cents with an annual high of 1200 cents.

KWV is one of the five leading wine and brandy producers in South Africa. Its head office is located in Paarl, in the Western Cape region – one of the country’s top wine producing regions. The company sources wines and grapes from the best and most sought after viticultural regions in South Africa. The company owns internationally recognised brands such as Roodeberg, KWV wines,Laborie, Cathedral Cellar, Golden Kaan, Café Culture, the range of KWV 3, 5, 10, 15 and 20 Year Old brandies, Imoya and Wild Africa Cream.

KWV is a founding member of the Industry Association for the Responsible use of alcohol (ARA) and encourages the responsible consumption of its products.

*An ordinary dividend (dividend number 1) of 27 cents per ordinary share as well as a special dividend (special dividend number 1) of 7 cents per ordinary share have been declared for the year under review. The special dividend stems from capital profits from the sale of non core assets.
Last day to trade cum dividend           Friday 01 October 2010
Trading ex dividend commences         Monday 04 October 2010
Record date                                      Friday 15 October 2010
Dividend payment date                      Monday 18 October 2010