V&S profits ahead of sell off

By Neil Merrett

- Last updated on GMT

Related tags Cent Sales Profit United states dollar

Spirits producer V&S hopes it can improve on its previous full
year profitability ahead of the sale of its operations.

"It is my hope that we will see even better results for the group this year than last year,"​ stated company chief executive officer Bengt Baron. "I base this on continued good sales development for Absolut Vodka, while we are also increasing efficiency throughout the Group."​ Yesterday's comments come just two months after the Swedish government revealed it would move to sell the state-owned company, and its flagship Absolut brand, putting one of the world's biggest Vodka labels up for grabs. Although the Swedish government has begun preparatory steps over selling off its assets, there were as yet no decision made on a timeline or the form of the sale, the group stated in its half year results. Aside from the sale, V&S posted a four per cent organic increase in sales during the first half of the fiscal year, to reach €489m. Operating profit was also up by four per cent on an organic basis to €93.3m. However, operating profit fell by 19 per cent for the sixth month period ending 30 June, reflecting an unfavorable exchange rate with the US dollar. Margins for the period fell as a result by 3.3 percentage points to 18.7 per cent. Internationally, V&S' operations were dominated by the burgeoning spirits market in the US, which accounted for 44 per cent of its total sales. Emerging markets like the Asia Pacific region and Central and South America each accounted for two per cent of the group's revenue. The company's native Swedish operations were responsible for 14 per cent of its sales, while its operations in the Baltic States and other European markets, represented 20 per cent and 18 per cent of its profits respectively. The group's operations continued to be led by its global spirits division, which included new product launches such as the premium absolute 100 label in March. A four per cent increase in sales volumes for the segment was matched by a four per cent organic rise in operating profit to €287m for the half year. This performance was driven in part by sales of the group's Cruzan Rum brand, which posted strong international sales and profit growth, the company said. With North America representing the majority of the group's sales for the half year, improving sales of V&S' brands managed to offset the negative effects of exchange rates for the US dollar. Operating margins for the segment remained unchanged at 33 per cent, as a result of organic growth in its markets and improved operational efficiency. The group has also made moves to boost its hold in the Chinese spirit market, announcing in June the formation of a joint venture with local group JianNanChun, to produce a range of baijiu drinks, a type of white spirit. Through its V&S distillers division, which produces sprits ranges in Northern Europe, net sales were up six per cent to €97m, on the back of seven per cent increase in sales volumes for the period. This was driven primarily by a strong increase in vodka sales in Poland, the company said. However, operating profit for the segment fell 8 per cent to €9.9m, while margins were also down by 1.5 percentage points to 10.1 per cent. The decline was attributed partly to an increase in marketing costs related to new product launches in the division. These launches included Malteser Bitter on the German market and Aalborg Nordguld Aquavit. The newly formed V&S wine division, which is also focused on markets in Northern Europe, posted a five per cent comparable sales increase to €104m, despite a three per cent fall in sales volumes over the period. The declines came from reduced amounts of subcontracted bottling in Denmark and the termination of brewery product sales in Estonia. The group's markets in Sweden, Norway, and Finland all posted improved net sales. Operating profit reached €1m with margins declining two percentage points to one per cent. The group also made gains from its restructuring strategy, making €20m worth of income from divested operations during the period. This strategy has resulted in the sale of Florida Distillers finalised on 1 April this year, along with V&S' industrial alcohol production.

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