SOUTH AFRICA – Distell, the second-biggest cider producer in the world, has reported a revenue rise of 13.6% with volume growth of 9.7% in South Africa in the six months through December after having 25 more trading days.
The Stellenbosch-based company had a revenue increase of 21.5% on 6.8% higher sales volume in African markets outside of South Africa, while revenue in international markets outside of Africa increased by 25.6% alongside volume growth of 39.2%, driven by the company’s branded Scotch whisky portfolio and sales of bulk spirits.
The group’s total revenue rose 15.9% on 10.3% higher volumes as its headline earnings rose 8.3% after they were normalized and adjusted for foreign exchange variations.
In the December earning call, the company said the “explosive growth” of its premium cider and ready-to-drink (RTD) portfolio, led by Savanna, was the main contributing factor to overall revenue growth “off the back of continued investment in the brands and in manufacturing capacity across key markets.”
However, the operating period suffered an increase in operating costs of 17.6% “driven by the current abnormal inflationary pressure in overall costs of goods sold of 20.4%, which led to an overall reduction in gross profit margins”.
The company explained that the costs are exacerbated by the need to import glass due to local shortages given the dependency on a non-returnable bottle operating model, alongside significant cost increases in apple juice concentrate for ciders.
Additionally, the direct cost of load shedding in the reporting period came to R12.5 million and was expected to “nearly quadruple should the current stage of load shedding in South Africa continue.”
Looking ahead, Distell issued a serious concern about the “global recession” as central banks try to balance curbing inflation and protecting economic growth.
It also highlighted several “headwinds to growth prospects in the medium term” that include longer-term load shedding as announced by Eskom”, high fuel prices, rising interest rates, consumer debt levels, and the high cost of living.
About its takeover by Dutch brewer, Heineken, Distell said the approvals from the tribunal were “considered substantive in nature, as conditions may be imposed by these regulators or the approvals may be withheld”.
While Heineken’s offer of about €2.3-billion for Distell has got support from local shareholders, the final steps to buy the wine, brandy, liqueur, and whisky maker are still dependent on the Competition Tribunal of South Africa’s ruling.
The tribunal held hearings into the proposed merger from 18 to 24 January but is yet to give a ruling on it.
During the hearing period, South African Breweries, a Johannesburg-based subsidiary of Anheuser-Busch InBev, reportedly objected the Heineken’s takeover of Distell, questioning the strength of Heineken’s Strongbow brand and would prefer to see Distell sell off cider brands like Hunter’s or Savanna as part of the deal.
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