Investors not tempted by safe haven that is Distell

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Investors didn’t appear to be overly impressed with Distell’s solid earnings performance in the six months to December. Sales volumes were up 5.5 percent, headline earnings advanced 8.5 percent and the interim dividend was virtually unchanged at 154c a share. As one shareholder remarked the results were “resilient under the circumstances”. The share price closed one cent down at R139.

Considering it was a day in which retail companies were revealing just how tough it is for consumers in South Africa, it was surprising that the potential safe haven presented by alcohol was not more of an enticement for investors.

For Distell investors there is the additional attraction of its exposure to markets outside South Africa. While revenue and operation profit from domestic sales showed pedestrian performance, the revenue and profit performance achieved outside of the country was strong.

Management referred to the challenging economic environment at home where cider and ready-to-drink (RTD) products managed to make up for a slump in the spirits portfolio.

The decline in spirits was mainly due to the “depressed performance of the brandy category”.

Industry figures reveal that brandy’s share of the alcohol market has steadily declined from 10.1 percent in 1996 to 5.8 percent in 2012. Over the same period RTDs, including cider, has increased its share to 8.1 percent from 2.4 percent.

Sub-Saharan Africa continued to deliver “exceptional results” and now accounts for 55.1 percent of foreign revenue.

Management expects the “challenging trading conditions” evident in many of its markets to continue for the remainder of the year. But it notes “the strength, appeal and diversity of our brands, our enhanced capacity to trade across a spectrum of markets and the security of our financial position will allow us to continue pursuing our strategic course successfully”.

Contingency Fees Act

Personal injury law firm Ronald Bobroff and Partners and the SA Association of Personal Injury Lawyers (Saapil) were quick to put up a feeble defence for their ambulance chasing tactics hours after the Constitutional Court threw out their application for leave to appeal in a matter regarding the no-win, no-fees cases.

They issued a statement in which they said the court “accepted that the matter is of great public interest” and, with respect, that was precisely the view taken by the Law Society of the Northern Provinces and Saapil, given that law society surveys indicated the vast majority of personal injury clients have insisted their attorneys enter into straight percentage-based “no-win, no-fee” agreements.

What the statement does not say is that most of these clients are not pointed to the contents of the Contingency Fees Act before they are contracted by the lawyers.

The statement points to the National Potato Co-operative case where the Supreme Court of Appeal confirmed that lay persons, who are totally unregulated, may contract with litigants to receive any percentage of damages recovered in return for the lay person or company funding the litigation.

It says a recent example of this is the damages claim against Vodacom by its former employee, who is being funded by lay persons in return for them receiving 50 percent of the damages to be recovered.

Bobroff and Saapil said that according to the ConCourt’s decision attorneys were, however, not permitted to contract with clients on a straight “no-win, no-fees” basis or on any “no-win, no-fee” basis save in terms of the act.

They hope government will regard this anomalous situation and effect appropriate legislation, enabling adult litigants to freely contract with their attorneys as they choose, without being confined within the straitjacket of the act. Which is: “Bring back our bread.” page 22

Call termination rates

Interesting times lie in store for cellphone users and the companies that offer these services. The controversial call termination regulation amendments, which the industry regulator is seeking to introduce, is shaking the industry to its core.

The fact that MTN has approached the courts to review and set aside the termination rate cut proposals by the Independent Communications Authority of SA (Icasa) seeks to further underscore how significant the implementation is likely to be on the future of the telecoms landscape.

It cannot be business as usual and it will not be business as usual as Icasa seems to suggest in how it is handling the fallout since it published the regulation amendments on February 4.

It is also challenging MTN’s motion and has said it will halve the call termination rates sooner than it planned to. In effect, it is sending the signal that the authority is unphased by MTN’s aggressive tactics.

It remains to be seen whether Vodacom, the largest of the wireless operators in South Africa by subscriber numbers, will move on its threat to review its options. But perhaps the public rebuke by Minister of Communications Yunus Carrim of MTN’s lawsuit, while he was addressing Parliament this week, may deter Vodacom.

If anything, Vodacom and MTN have been paying lip service to their threats against the lowering of call termination rates over the successive years, since the regulatory intervention was introduced in 2010 with the ultimate aim of lowering retail prices for end consumers and introducing competition.

The operators do derive a healthy revenue from the tariffs they charge to terminate calls on each others’ networks.

But now the rates will be skewed to favour smaller rivals who will pay less to their larger counterparts, but can charge more with the aid of asymmetry.

The drama is as rivetting as an American soapie, but how it benefits the consumer should be the real focus.

Edited by Peter DeIonno. With contributions from Ann Crotty, Wiseman Khuzwayo and Asha Speckman.


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