SA’s largest alcohol producer Distell grew revenue in SA by more than 30% from July to September, even though more than a third of the trading days during the period were lost to alcohol bans.
This suggests consumers have changed buying habits in response to the frequent Covid-19 lockdown restrictions.`The maker of brands such as Hunter’s Dry, Savanna, JC Le Roux and Klipdrift brandy reported the volume of alcohol sold in SA grow by double digits compared with the same period in 2020, during which 39% of normal trading days were lost.
As alcohol sales usually increase over Christmas and holiday period, the company could see further improvements in sales.
Many companies have compared their recent financial results with 2019, which often gives a better indication of how they performed as 2020 was severely affected by the coronavirus and changing consumer behaviour.
Distell spokesperson Frank Ford said revenue in SA was up 6% compared with 2019.
Opportune Investments analyst Chris Logan, who been a critical voice at the company’s past two annual general meetings, described the trading update and more recent annual results as evidence of an “increasingly effective and value-orientated company”.
He puts the improved performance down to Distell’s new senior management incentive structure and the fact executive management now owns significant shares in the company, which he says has led to it working in a much more “high-performance manner”.
The executive directors’ shareholding went up from 100 shares in financial year 2020 to 70,961 shares in the 2021 financial year, he said.
Distell used the voluntary trading update to highlight how civil unrest in KwaZulu-Natal in July led to delays at the Durban port, which led to a decline in its exports to African and international markets.
The situation was made worse by supply chain disruptions worldwide, rising shipping rates and global container shortages. Additionally, the Durban port was hit by a cyber attack in July.
About two-thirds of Distell’s Amarula, which is produced here, is sold outside SA in markets such as the UK.
Distell previously highlighted port issues during the first hard lockdown after it experienced a loss of about R200m in exports in May 2020. The most recent quarter saw a double-digit decline in revenue and volumes sold in Africa in part because of supply chain delays and because Kenya, one of its largest markets, also instituted bans on the sale of alcohol at bars and restaurants in response to the pandemic.
“Given the region’s dependence on exports from SA, port IT issues and social unrest in KwaZulu-Natal negatively affected the supply of key brands to the region during July 2021,” Distell said.
Sales in Africa from October “look promising, albeit within the constraints of continued supply chain disruptions across key markets”.
Distell is also struggling with shortages of glass amid high demand for its cider, Savanna.
Distell is among a number of companies that have flagged the damage caused by civil unrest in their results, including retailers Pick n Pay and Clicks, as well as restaurant group Famous Brands.
Distell has been in talks with European brewer Heineken and was expected to update the market on September 30 on progress with the deal. Concern and speculation are mounting as the talks appear to be dragging on. Distell made no mention of the deal in its trading update.
Logan said better returns and a reduced headcount at the firm meant in the “unlikely event” that the deal fell through, shareholders could console themselves with a far better performance which could see improvements for many years to come.
The company has reduced employees from 4,936 to 4,440 in its most recent financial year.
“After rising dramatically for many years, employee costs are finally no longer outstripping sales and reducing operating margins,” he said.
The sale of low-return wine farms would also have boosted returns, he said, referring to Distell’s sale of Plaisir de Merle and Alto wine farms and its decision to focus on mainstream wine brands such as Nederburg, Durbanville Hills and 4th Street wines.
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