JSE-listed Distell, whose takeover by Dutch brewing giant Heineken is imminent, expects a tougher 2023, saying government, business and labour had to work together for economic structural reforms to be implemented as fast as possible.
In an interview after the release of what was likely Distell’s last annual results as a listed company, CEO Richard Rushton said it was “difficult to say how tough 2023 will be but I don’t think we have seen the full effect of inflation play out on household incomes”.
He said SA’s unemployment and poverty levels would bring pressure on economic growth and he was expecting a tough environment for a year to 18 months.
Hence it was essential for SA to have “macroeconomic stability, policy certainty and the big infrastructure and energy initiatives gathering momentum”.
“As South Africans, we have to put our shoulders to the wheel and get down in the trenches together and start to deal with some of these underlying structural issues. The three major actors, government, business and labour, have got to get their heads around the underlying structural obstacles in this economy,” said Rushton.
Critical were municipal delivery, energy security and the rollout of key water and road infrastructure.
It is difficult to say how tough 2023 will be but I don’t think we have seen the full effect of inflation play out on household incomes
— Distell CEO Richard Rushton
Distell, which owns brands such as Savanna, Hunter’s Dry, Three Ships Whisky and Amarula, will likely delist by the end of the year once competition authority approval for the Heineken deal is received.
The group also produces low-alcohol and alcohol-free products, which account for 4% of the company's SA gross profit. This includes Mash Tun, a “low-alcohol content whisky” that has “received an outstanding response”.
Rushton said that more than R3bn was invested in black-owned SMEs, with nearly 30% of Distell’s procurement spend coming from this market.
“We need to individually as companies and collectively as a nation start to address the fault lines around unequal society and poverty levels being so high.”
For the year ended June group revenue rose 20.8% on 17.6% higher volumes to R34.1bn with headline earnings growth of 36.8%. Domestic revenue and volumes were up 24.4% and 18.7% respectively, driven by premium ready-to-drink (RTD) beverages and spirits growth.
The company said the “strong domestic performance” saw the group’s market share reaching its highest levels in five years, alongside “outstanding performances from cider and RTDs in Africa, and Amarula and single malts in international markets”.
FNB portfolio manager Wayne McCurrie said Distell had delivered good results which were “by and large academic” as they were about to be delisted. “They are doing well, it’s a pity the JSE is losing them. It’s a pity to lose any listed company especially one that is doing well.”
Asked about the prospects for more competition in SA and the rest of Africa between an enlarged Heineken after the Distell merger and AB InBev, Rushton said there “was no doubt there would be increasing competition”.
“Our task each and every day is to wake up and ensure our brands and service programmes are delivering to the needs of our consumers. It’s part of our DNA and I expect the competitive forces to increase as a result of the business combination. Being part of an enlarged business will definitely increase competition and it will be good for the consumer,” Rushton said.
As for whether he and other senior Distell executives planned to stay on at the enlarged Heineken, Rushton said the group was “busy with the regulatory processes” around obtaining competition approval for the transaction.
“Once that is done we can start planning much more intensively around people and organisation and who is going to be doing what in the business. There are loads of really good people in Distell and in Heineken. I think it will play out once we have certainty on the regulatory front.”
Rushton said the combination of Heineken and Distell would also act as a catalyst for major growth in the rest of Africa.
“Once you put these two businesses together because the portfolios are complementary it acts as a catalyst to get to more consumers and scale than ever before … I would anticipate that there would be a strong focus on growth in Africa.”
In terms of the nearly R40bn tie up with Heineken announced in May last year, Distell will be split into two unlisted entities, NewCo and Capevin.
NewCo will combine Distell’s wine, spirits and cider business with 100% of Heineken SA — and Heineken’s export markets in Kenya, Tanzania, Uganda, Botswana, Zambia, Zimbabwe, Eswatini, Lesotho and South Sudan — plus 59.4% of Namibia Breweries.
Distell shareholders will have the opportunity to reinvest in the unlisted group, take a R165 per share payout or accept a combination of cash and shares. Heineken will hold a minimum of 65% in NewCo.
Capevin will include all of Distell's Scotch whisky brands, such as Scottish Leader and Bunnahabhain, with Remgro holding a majority stake of more than 50%. An option to take cash or reinvest applies to this part of the deal. Shareholders who elect to take cash will be paid R15 a share.
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