Distell to offload struggling wine farms as it shifts focus
• Company is simplifying structure
Distell, the only SA-owned and operated alcoholic beverages company, said on Thursday it planned to put more struggling wine farms on sale in a bid to improve financial performance.
In the six months ended December 31 2019, Distell’s wine sales came under pressure from huge discounts by beer competitors, according to CEO Richard Rushton. The wine business reported a 7% decline in interim revenues to R3.7bn.
The looming sale of Alto and Plaisir de Merle estates is part of the company’s ongoing strategy to sell wine farms to simplify its structure.
Through its subsidiaries, Distell produces, distributes and markets wines, spirits, ciders and other ready-to-drink beverages. Its brands include Amarula, Savanna, Hunter’s Dry, Durbanville Hills and Nederburg.
In 2017, the company, which aims to double revenue growth by 2022, sold the La Bonheur and Stellenzicht wine farms.
The company said in a statement on Thursday that its board decided to sell the Alto and Plaisir de Merle estates along with brands, trademarks and stock. It said that move was in line with Distell’s strategy to enhance returns and reduce complexity. The company has not divulged the value of the wine farms.
Chris Logan of Opportune Investments on Thursday said the move was consistent with Distell’s new incentive structure, which he said put emphasis on returns on invested capital. The company’s executives were also expected to improve metrics such as revenue, headline earnings and free cash flow, he said.
“Distell has recently made a very commendable move to align its executive incentives with shareholder value, in particular return on invested capital. This is despite a 99% vote for the old misaligned incentives,” Logan said.
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He said the wine farms and brands earmarked for sale earned low returns “and as such this would fit in with the thrust to earn higher returns and shareholder value”.
The company also said that the premium wine unit of Libertas Vineyards and Estates would be reintegrated into the business. In January 2019, Distell launched Libertas Vineyards and Estates to drive global sale of its premium wines.
Meanwhile, Distell said the 21-day lockdown starting on Friday until mid-April, which aims to curb coronavirus infections, would affect its exports.
The Botswana, Lesotho, Namibia and Eswatini operations were fully reliant on product produced and transported from SA, Distell said.
The company’s largest Africa revenue contributor, Kenya Wine Agencies, was, however, reliant on imports for only 30% of its revenue. “The full effect on revenues and profitability will be more accurately quantified after the lockdown is completed,” Distell said.
Distell has committed to the production of 100,000 litres of alcohol for sanitisers for both commercial and societal purposes. It said it would close the majority of its production facilities not involved in alcohol production for sanitiser purposes in line with lockdown guidelines and classification of essential items.
Current inventory levels are at about 41 days’ cover. “The group has sufficient supply of raw materials to comfortably meet customer demand beyond the end of the current financial year once the lockdown has been completed.
“A special task team convenes daily to give guidance on existing operational policies affecting employee wellbeing, our supply chain and customer supply,” it said.
Distell also said comprehensive response plans have been in place since the outbreak and are implemented to cover contingencies including supply chain disruption, product sourcing, logistics, hygiene and cleansing procedures, and education on prevention.