Volumes in the non-alcoholic beverage category were globally under pressure during the past year.
Ceres Beverages
PROFILE
The Ceres Beverages segment consists of the business of The Ceres Beverage Company with the main focus on three separate categories within the beverage sector, namely, fruit juices, fruit concentrate mixtures and carbonated soft drinks.
FINANCIAL PERFORMANCE
Revenue for this segment increased by 16% to R2 410 million and the operating profit increased by 27% to R99 million. The operating margin increased from 3.7% to 4.1% for the year under review.
BRANDS
Brands include Ceres, Liqui-Fruit, Fruitree, Wild Island, Daly’s, Pepsi, Mirinda, Mountain Dew and 7-Up amongst others.
The strategy of the business to increase the beverage offering to the consumer was further enhanced with the expansion of the offerings with new products, packaging formats and line extensions.
The economic downturn affected this category and a decline in consumer spending was evident, negatively impacting on sales volumes. Although the operating profit increased, the operating profit margins were under pressure from continuous cost increases in raw material and packaging.
The fruit juice category achieved volume growth on the back of double-digit growth in export volumes. The weaker rand in the first half of 2009 contributed to a good financial performance from the export business in this segment. This performance again confirmed the strategic importance of the drive to increase the international business in order to balance the fruit juice category. Sales volumes on the local market were largely maintained.
Capital expenditure was approved to develop a fruit juice factory in Wadeville. This expansion will enable capitalising on the opportunities in this category as well as substantial distribution savings between the current production facility in Ceres, Western Cape, and the Gauteng and KwaZulu-Natal markets.
In the fruit concentrate mixtures category profitability was restored in line with previous years. Sales volumes were slightly up against the previous year. However, the tough economic conditions did not result in consumers buying the cheaper beverage options in this category to the extent anticipated.
The carbonated soft drinks category was under pressure due to aggressive competitor activity and the difficult economic conditions. Industrial action at the Wadeville production facility contributed to lost sales. New line extensions of Pepsi products were launched during the year to further enhance the product range.
Several marketing initiatives with high exposure, such as the IPL and Champions Trophy Cricket tournaments, boosted brand awareness of the Pepsi range. Further progress was made to increase the distribution footprint and the cooler placement programme. Sales volumes under these difficult conditions were satisfactory. As predicted, this venture is not earnings enhancing yet, but with the anticipated volume growth and the marketing initiatives an improved performance should be achieved in the new financial year. There will be continued focus on increasing brand awareness through marketing spend.
The focus in 2010 will be on continuing to increase profit margins through efficiency gains. Increased focus on trade marketing as well as improved availability of the product basket, with better focus on sales and merchandising, should result in a further improvement in performance, in line with the growth strategy.
Since entering the beverage category, the strategy was to increase and expand the product basket to attain a business with substantial scale. This should ensure a sound base to support profitable growth in the future.