Food, beverages story continues

The sector is dominated by brewing giant SABMiller, whose net profit is almost 10 times that of its nearest rival in the sector, Tiger Brands.

SABMiller fully demonstrated its defensive qualities in the past couple of years, battling against ambient factors such as huge currency swings (especially in emerging economies) and huge rises in both raw materials and packaging materials.

The group's widespread geographical footprint held it in good stead during the past few years as the effects of the global financial crisis took hold. The diversified portfolio managed to even out the group's fortunes. Europe, for example, had been growing strongly until last year. But in Africa, with a few exceptions, volume and profit growth remained strong. South America, too, remained strong, even in the face of intense competition from Ambev.

Much attention has been focused on SAB in SA, where the group is facing organised international competition for the first time since the 1970s in the form of Heineken/Amstel. SAB has responded in a variety of ways, but notably by initiating a clever BBBEE transaction that includes not only SAB employees but also beverage retailers. It has also established a formidable line-up of local and international premium beers to face the onslaught from Heineken and Amstel, including Hansa Marzen Gold, Pilsner Urquell, Grolsch, Dreher and Peroni.

SABMiller management reckons that consumer confidence across the portfolio range will return only later this year.

Tiger Brands has clawed its way back to respectability in the past couple of years after the revelations about bread price fixing. New CEO Peter Matlare has picked up the baton and has demonstrated that Tiger is not about to lie down and die. Recent interim results were encouraging, though the market seemed mildly disappointed.

Distell is a well-managed company that has produced solid if uninspiring results over the years. It has managed to successfully export many of its products into foreign jurisdictions, but the continuing strength of the rand has negatively affected profitability. Often neglected by investors because of its poor shareholder spread, Distell's holding company structure looks as if it may involve more than a name change in the not-too-distant future.

Pioneer, unlike Tiger Brands, decided not to come clean about its involvement in bread price fixing. This strategy backfired badly when it was found guilty and a hefty penalty was imposed.

It is a pity that this company's reputation has been sullied by its involvement in collusive practices. And this is not the end of the story, as it has been fingered in maize milling price fixing activities as well.

Illovo Sugar's strategy of expanding its operations into surrounding countries has paid off handsomely. Today, SA is only the third-largest contributor to operating profit after Malawi and Zambia. The group has also been able to take advantage of increased sugar sales into the EU. Recently, the group successfully concluded a R3bn rights issue, the proceeds of which will be used to expand further internationally.

Source: Financial Mail