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- Distell delivered double-digit revenue growth across its divisions
- This occurred against a backdrop of rampant inflation and supply chain disruptions
- The company is still waiting for competition authorities to approve its potential tie up with Heineken
- For more financial news, go to the News24 Business front page.
Distell on Thursday delivered double-digit interim revenue growth across its divisions, despite a high inflationary environment and supply chain disruptions.
But the JSE-listed liquor group, which reported half-year results to end-December 2022, struck a cautionary note about future prospects as it braced itself for a possible global recession while dealing with mounting costs and rampant load shedding at home.
At the same Distell - which owns brands such as Savanna, Hunter's Dry and Amarula - is still waiting for the Competition Tribunal to give its R40 billion tie-up with Dutch brewing giant Heineken the green light more than a year after shareholders approved the deal. The tribunal held hearings into the proposed merger from 18 to 24 January, but is yet to give a ruling on it.
Reporting results for the six months to end-December, Distell said the approvals from the tribunal were "considered substantive in nature, as conditions may be imposed by these regulators or the approvals may be withheld".
Distell CEO Richard Rushton, who was due to retire in March, has had to extend his employment contract with the Heineken transaction still pending.
Distell, which is the second-biggest cider producer in the world, said that group revenue rose 15.9% on 10.3% higher volumes, while headline earnings rose 8.3% after they were normalised and adjusted for foreign exchange variations.
It said the "explosive growth" of its premium cider and ready-to-drink (RTD) portfolio, led by Savanna, was the main contributing factor to overall revenue growth "off the back of continued investment in the brands and in manufacturing capacity across key markets".
Domestically, revenue rose 13.6% with volume growth up 9.7%, while in African markets, outside of South Africa, revenue increased by 21.5% on 6.8% higher sales volume. Revenue in international markets outside of Africa increased by 25.6% alongside volume growth of 39.2%, driven by the company's branded Scotch whisky portfolio and sales of bulk spirits. Dividend payments remain suspended because of the Heineken transaction.
Distell said operating costs, however, rose 17.6% "driven by the current abnormal inflationary pressure in overall costs of goods sold of 20.4%, which led to an overall reduction in gross profit margins".
"These costs are exacerbated by the need to import glass due to local shortages given the dependency on a non-returnable bottle operating model, alongside significant cost increases in apple juice concentrate for ciders."
The company also said the direct cost of load shedding in the reporting period came to R12.5 million and was expected to "nearly quadruple should the current stage of load shedding in South Africa continue".
Looking ahead, Distell said a "global recession remains a serious concerns" as central banks try to balance curbing inflation and protecting economic growth.
It said the rise in interest rates and inflation had placed significant pressure on global spending systems, warning "this process is not yet over".
One positive was that global supply chains were improving and slowly normalising.
In SA, which is Distell's biggest market, the group expected "several domestic constraints including longer-term load shedding as announced by Eskom", high fuel prices, rising interest rates, consumer debt levels and the high cost of living.
These were all "headwinds to growth prospects in the medium term".
Makwe Masilela, who heads up Makwe Fund Managers, said Distell's results were "very good", adding they were not surprising given that the period under review did not have any Covid-19-related interruptions.
He said the only real issue was the higher costs the group was facing, but added that if Distell continued with "these ready-to-drink products, they will continue to do wonders for them".
"It's not surprising to see domestic revenues and volumes were mainly driven by the premium cider and ready to drink growth."
For Masilela the only negative was that the Distell-Heineken deal was "still dragging", saying it was negative for shareholders who were effectively prevented from benefitting from an "important leg" of being an investor in a listed company, including share price movement and dividends.
If the deal was finalised quickly it would mean shareholders could either be paid out and then go and invest elsewhere or they could decide to remain in the merged entity. "In the meantime while I'm waiting for that to happen, I'm missing out on an important element of investing, that of seeing the share price go up and the stock paying you out dividends."
