Economic hardships swing South Africa’s Distell into US$52.15m write downs

SOUTH AFRICA – Distell, a South African based beverage manufacturer, has said that economic challenges in Angola and Zimbabwe have pushed the company into combined write-downs of US$ 52.15 million (R790.1m).

The maker of Amarula, Savanna and Hunter’s Dry brands, has written down its investments in Angola by US$34.59 million (R524m) in addition to a credit loss provision of US$17.57 million (R266.1m) in Zimbabwe.

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The beverages firm noted that the devaluation of about 50% of the Angolan kwanza and its impact on the Angolan economy had negatively affected the earnings of Best Global Brands Limited (BGB), reports Business Live.

In 2017, Distell acquired 26% stake in BGB with an option to buy the rest of the company – which owns the Best brand – from 2020.

“Although BGB has grown volumes and maintained market share since Distell’s investment, the group has decided it would be prudent to impair about two-thirds of the value of its 26% investment in BGB,” Distell has said.

The company has set aside US$17.57 million as a credit loss provision linked to its Zimbabwean associate, African Distillers Limited (Afdis), in which Distell owns an indirect 31% interest. Distell is also a supplier to Afdis.

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“Due to the shortage of foreign exchange in Zimbabwe, Afdis was unable to settle all of the trading debt owed to Distell.

“In the face of further currency devaluations and to protect the value of the trading debt owed to it, Distell accepted payment in local currency and invested the proceeds with the Reserve bank of Zimbabwe in US dollar-denominated savings bonds yielding 7% and maturing at the end of 2020,” Distell said.

But, in light of the recent currency uncertainty and economic conditions facing Zimbabwe, the company decided to make the credit loss provision.

As a result of the developments in Angola and Zimbabwe, Distell said basic earnings per share for the year fell by 44%-49%, while headline earnings per share declined by up to 6%.

Distell Group Chief Executive, Richard Rushton said the write-downs in Angola and Zimbabwe “do not reflect our confidence and commitment to these assets, where we see future value as we build out a resilient and meaningful route-to-market in Africa”.

“BGB in Angola has increased volumes since our investment, which affirms our belief in the business as local structural reforms take effect,” Rushton said.

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