Distell’s FY2020 results show resilient performance in Africa despite impact of COVID-19, with the group well-positioned for recovery
27 August 2020
- Group revenue down 14,6% on 22,5% lower volumes
- Domestic revenue down 18,2% alongside non-alcoholic growth and innovations during restrictions
- Robust Africa revenue performance outside SACU up by 6,6%
- Strong international premium spirits performance
- Excise duty contribution down by 11,3%
- EBITDA: Reported down 23,0%
- Headline earnings: Reported down 63,9% (in line with guidance)
- Dividend payments temporarily suspended
Cape Town, 27 August 2020, Distell Group Holdings Limited (Distell), the South African-based global drinks company, today released its reviewed full year financial results for the 12 months ended 30 June 2020, which showed significant resilience in the operating performance and balance sheet despite unprecedented challenges which led to a fall in revenue, EBITDA and headline earnings as well as a temporary suspension of dividends.
Commenting on the results, Distell’s Group CEO, Richard Rushton, said:
“The resilience of our business and culture was severely tested during the pandemic and I’m proud of the way we are responding. We acted fast in strengthening our balance sheet and placed the well-being and safety of our staff, key suppliers and customers first. Rather than cut jobs, we took a painful but necessary decision to reduce salaries, starting with our executives and the Distell directorate. Our measured investments into key African markets have provided a resilient performance alongside our focused whisky portfolio in international markets even in the midst of COVID-19 challenges. I’m especially pleased at the start of our execution around new innovations which will carry on throughout 2021.”
Rushton said when consumed responsibly, alcohol can be part of a balanced lifestyle although it is clear there are consumers who have a problem with alcohol. This is something the industry is united in tackling and it is working towards an alcohol safe South Africa through harm reduction programmes and investment.
“Distell is playing a partnership role with Government, alongside key industry players, to address this through an effective social compact to minimise the long-term effect of alcohol abuse on society as a whole. Further prohibition or blunt instruments do not work – real partnerships, enforcement of current laws and targeted interventions do.”
As a demonstration of this commitment, Distell’s South African and International operations donated a total of 180, 000 litres of sanitiser, along with its Kenyan operations donating 105,000 litres of ethanol for the use of sanitisers to local Government, NGO’s, taverns and customers in order to support the need for good hygiene practices and responsible trading in vulnerable communities.
The restrictions imposed on the sale of alcohol in South Africa reduced the trading year by nearly 20%. As a result, the Group lost approximately 100 million litres in sales volumes and R4.3 billion in revenue due to the lock down restrictions which impacted not only South Africa, Distell’s largest market, but was felt across the various regions in which Distell operates.
Tough operating conditions resulted in domestic revenues decreasing by 18,2% while volumes declined by 25,0%. The spirits segment recorded some growth in South Africa after the lifting of the first prohibition of alcohol sales while gin and vodka brands performed well in a competitive environment in the period under review. The broader wine category was also impacted by restrictions although the category saw a resurgence in consumer purchases following the lifting of restrictions. Increased competition and discounting in a growing ready-to-drink (RTDs) category continued. However, Savanna continued its strong momentum against competitors, validating our focus on building brand equity over aggressive price discounting. New innovations in Esprit and Savanna Non-Alcoholic recorded strong performances in the period. The group also generated a total of R24,5 million in revenues from the sales of ethanol and sanitiser in the reported period.
In African markets, outside South Africa, revenue declined by 3,0% on lower sales volumes, which were down by 14,7%, mainly as a result of a 19.1% decline in volumes in BLNE countries (Botswana, Lesotho, Namibia and Eswatini). Focus markets on the continent, outside the Southern African Customs Union (SACU), grew revenue by 6.6%, underscoring the aim to expand operations in this region. Nigerian, Angolan, Kenyan and Mozambican expansion investments yielded comparable revenue growth of 21.2% on higher sales volumes of 1,7%. The spirits category grew double-digits in revenues, led by double-digit revenue and volume growth from Kibao and Hunter’s Choice. Commendable mainstream wine growth was led by 4th Street, Caprice and Drostdy-Hof brands across the continent.
Trading conditions in Angola and Zimbabwe remained challenging, with currency devaluations and liquidity restrictions amidst tough economic conditions impacting on operating performance. As a result, the Group impaired an additional R143,8 million of its 26% investment in BGB and also wrote down the full investment in the US (USD) dollar denominated savings bonds with the Zimbabwe Reserve Bank. Distell remains confident in the BGB Angola business given that volumes and market share continue to improve. The BGB group has also reduced to its Angolan foreign currency exposure by 86% down to $4 million. Whilst the environment in Angola continues to be challenging, the market remains attractive as much needed structural reforms take place. The Africa region contributed 61,0% to foreign revenue, with its contribution to Group revenue rising to 17,7% in the period.
Volumes in international markets outside Africa anticipated the decline of 13,1% and revenue by 8,8% as the business re-aligned to its premium spirits focus. Total whisky volumes and revenues increased by 22,3% and 8,4% respectively, led by Bunnahabhain and Deanston in challenging trading conditions. Amarula and export wine brands were affected by export restrictions and the COVID19 effect on the global travel retail sector.
Operating costs declined by 11,3% supported by optimisation initiatives announced in the previous period.
Reported EBITDA declined by 23.0%. Headline earnings per share decreased by 64.0% to 235.3 cents in line with previous guidance.
The Group is in a strong financial position with comfortable levels of gearing and a debt-to-equity ratio of 48.9% (2019: 32.6%) at the end of the reporting period, meeting the amended debt covenant ratios comfortably. The Group has access to committed banking facilities of R7.5 billion for its South African operations, of which R4.8 billion (net after cash and cash equivalents) was used as of 30 June 2020.
Rushton said: “Looking ahead, we anticipate a tough domestic environment with falling disposable income and increasing unemployment our key concerns. We are, however, confident of the way we are managing the business to remain flexible and recession-proof. Our more focused and diversified portfolio of brands along price points, occasions and innovation in response to consumer trends will enable us to position ourselves well for any recovery”.
“Africa remains a priority for us to expand our local route-to-market on the continent with local brands in key mainstream occasions. The Venture Business will continue to grow its core premium spirits brands as it positions itself for partnerships outside of Africa. This is underpinned by a team that embraces and is aligned to our four primary Sustainable Development Goals in all we do to sustainably deliver value across people, planet and profits,” concluded Rushton.
The board is confident in the long term strength and resilience of the business in spite of the current headwinds and challenges, and resolved to temporarily suspend dividends as part of the measures introduced to improve the liquidity of the Group following the impact of COVID-19.
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