Distell registers double digit growth in half year earnings despite international sales slip

SOUTH AFRICA – Despite a torrid year, with the challenge of bans on the sale of alcohol and trade restrictions, South African alcohol beverage company Distell has raised a glass to its expected buoyant interim earnings.

In a trading update for the six months to end-December 2021, the owner of Nederburg wines and Amarula, highlighted that group revenue increased by mid-teens, referring to about 15%, alongside low-teen volume expansion compared to the prior period.

In its home market, South Africa, revenue grew in the low twenties i.e., more than 20%, alongside mid-teen volume growth, thanks to exceptional growth in sales of its cider brands Savanna and Hunter’s and ready-to-drink products, including Bernini, Esprit and Klipdrift & Cola.

The strong revenue growth came despite alcohol sales bans, which caused the loss of 25 trading days in South Africa over the past six months, compared to 38 in the same period in the previous year.

In addition, civil unrest in July in KwaZulu-Natal and parts of Gauteng caused approximately R100 million (US$6.5m) in damages to one of the company’s Distribution Centres (DC), where the majority of the insurance claim has since covered the losses incurred.

“The effect on sales was minimised and operations were quickly re-instated and normalised within 6 weeks of the incident.

“Notwithstanding these challenges, the Group’s agility and investments in route-to-market (RTM) and optimisation of its production network have enabled it to capture growth and productivity opportunities as it navigates the current environment,” highlighted Distell.

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Meanwhile, in the rest of Africa, excluding BLNE countries (Botswana, Lesotho, Namibia and Eswatini), the group recorded mid-single-digit revenue growth alongside volumes growing in the low-teens compared to the prior period.

This was largely driven by Mozambique, Nigeria, Zambia and Tanzania as a result of its accelerated RTM investments.

Kenya posted a resilient performance, particularly over the peak season, despite prolonged domestic channel closures due to government-imposed restrictions for the majority of the trading period, which account for 15% of domestic revenues.

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The Africa business, including BLNE countries saw revenues and volumes increase by low and high-single digits respectively.

This was driven by Botswana losing almost a third of its trading period due to extended restrictions, and stock supply issues in Namibia, which are being addressed and trading has been normalised.

Despite the positive performance across all the markets, the international base recorded a single-digit revenue decline due to one of its largest revenue contributing regions, Taiwan, experiencing COVID-19 related on-consumption channel closures for half of the trading period.

South African port disruptions in July 2021 also had a material adverse effect on wine exports and performance in the period.

Premium spirits continued to perform strongly across key markets particularly with single malt brands and Amarula.

The release of the company’s interim results in February could mark its last as a publicly listed company.

According to Distell, its shares will be suspended on the Johannesburg Stock Exchange (JSE) on July 20 and delisted on September 6 upon the conclusion of a scheme to enable international brewer Heineken International to make a €2.2 billion (US$2.5 billion) offer for the local liquor group.

European brewing giant made the acquisition offer in November 2021, that still requires competition authorities’ approval and a majority shareholder vote, the latter scheduled for February 15.

Spicing up the deal, Heineken intends to acquire control of Namibia Breweries Limited (NBL), the beer market leader in Namibia.

Upon completion, the two businesses, Distell and NBL will be combined with Heineken South Africa into a new majority owned business.

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