Distell, waiting for regulatory approval for its sale to brewer Heineken, grew revenue more than a fifth in its 2022 year, benefiting from easing lockdown and improving demand for cider and wine in Africa.
SA’s largest liquor producer, with brands including JC Le Roux, Hunter’s and Klipdrift, reported revenue growth of 20.8% to R34.1bn to end-June, and volume rising 17.6% and profit 21.7% to R2.43bn.
The performance was a far cry from 2020 when the company faced alcohol sales and import bans in its core market of SA, resulting in no income and no idea how long prohibition would last.
During the worst of the bans, Distell was losing R400m-R500m a month and breached debt covenants, ratios banks use to determine if companies are earning enough to cover their debt.
The balance sheet was at risk at one point, said CEO Richard Rushton.
But “we are very proud of these results”, he said at the final public release of results before its delisting from the JSE and merger with Heineken that is listed in Amsterdam.
Its SA numbers increased by a quarter compared with the year-earlier period, with 47 more days of trade amid fewer alcohol sales bans. The growth was in spite of shortages of glass bottles, which resulted in it not coming close to meeting demand for its best seller, Savanna, Rushton said.
Distell says it expects glass and aluminium can shortages in SA to normalise in 12-18 months, while it has also slashed local debt by 86%, resulting in SA finance costs halving.
Distell’s mainstream wines, which include the 4th Street and Drostdy Hof brands, continue to outperform higher-end brands in SA, the group said. Boxed wine sells double the volumes of bottled wines in SA, according to marketing research foundation data.
Its Klipdrift brandy and affordable wines such as Tassenberg compete with beers produced by SAB, a subsidiary of the world’s largest brewer AB Inbev, which has been keeping prices low.
This means Distell has had to be very “prudent and cautious” about not pricing its brandy and wine “too aggressively” said Rushton. This was, however, placing pressure on profit margins.
Overall, the buoyant sales figures are in spite of global inflation, supply-chain constraints and lockdown sales bans in markets such as Taiwan, one of world’s largest single malt whisky markets.
These latest results could well be hard to swallow for those investors who felt the R180 per share offered by Heineken was too low.
Distell performed well in Botswana, Lesotho, Namibia and Eswatini, with revenue up 14.4% and volumes 16.3%.
While beer is still Africa’s biggest seller. Distell is making inroads with its cider and wine, especially with the increase in urbanisation.
Sales in African countries, including Kenya, Mozambique, Zambia, Tanzania and Nigeria, now account for almost a quarter of foreign revenue, with its contribution to overall group revenue coming in at 16.3%.
Cider and ready-to-drink brands, including Hunters and Savanna, grew volumes by more than a third in this market.
In Kenya the development of a new production facility in the Tatu City special economic zone is on track to be completed in 2023, and will assist in eliminating current constraints by doubling capacity in the near future, Distell said.
One of Distell's strategies that has made it successful in Africa is to produce as much as it can within the African country, buying and selling in the local currency.
It is also driving spirit and affordable wine growth in Africa, where its 4th Street, Tassenberg and Drostdy-Hof brands are popular, with nonalcoholic drinks being very popular in Nigeria, that has a large Muslim population.
In Mozambique, Zambia, Tanzania and Nigeria, investment in new sales outlets allowed to it grow its customer footprint by 48%.
Rushton said the results show that the tie-up with Heineken will create a “formidable, diverse beverage champion for Africa”.
He said Distell “will reap the benefits of being part of a much larger global organisation, reinforcing our joint local expertise and insights, our complementary skills ... to enable us to better serve our consumers across the region”. Regulatory approval is expected before the end of 2022, or soon thereafter.
Rushton said: “Both parties continue to engage with the government regulators on public interest and competition matters,” adding that the engagement was “constructive”.
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