Distell skips dividend
SA’s largest alcohol producer, Distell, has bounced back to above prepandemic revenue levels in SA despite lockdowns and two alcohol bans, but it is holding on to dividends for its 2021 year, which is a condition of a potential takeover from Heineken.
SA’s largest liquor producer Distell has bounced back to above prepandemic revenue levels in SA despite lockdowns and two sales bans, but it is holding on to dividends for its 2021 year as this is a condition of a potential takeover by Heineken.
The producer of Savanna cider and Klipdrift brandy said on Thursday that headline earnings, a measure of profit, tripled to R1.7bn in its year to end-June, with SA revenue 5.8% higher than 2019’s and 29.4% higher than 2020’s.
Distell majority owner Remgro and the European brewer are locked in merger talks.
“Shareholders should take note that although discussions have progressed, there is no certainty that the remaining aspects will be successfully resolved and agreed,” Distell said in a statement. If the deal goes ahead, it will combine Heineken, the world’s largest cider producer, with Distell, the second-largest, as the SA group sees growth in parts of Africa. In Kenya, cider is becoming popular with women, and this is seen as a new market opening up.
The group said one condition of the potential takeover by Heineken, Europe’s largest brewer, is that it will not make dividend payouts, but it will if the deal falls through.
Distell Group CEO Richard Rushton said the outcome of the talks should be announced by the end of September. “We are just asking shareholders to be more patient for 30 more days while we deal with the remaining elements conditional for a potential transaction.”
The group, previously a dividend payer, also did not pay a final dividend in June 2020 due to Covid-19 lockdowns and the resultant cash crunch which forced it to review its debt covenants with banks. Lenders use ratios to gauge the ability of a company to repay debt.
In a turn of fortunes in 2021 Distell recorded a vast improvement in cash generated. Its debt to earnings before interest, taxation, depreciation and amortisation (ebitda) ratio fell to 0.53 from 3.1 in 2020, well below the upper limit permitted by lenders. With a reduction in debt finance costs fell 23.6% to R291.1m. Rushton said the company’s success in SA was due partly to its portfolio of spirit drinks, popular for drinking at home, and a spike in Savanna sales with the availability of new flavours.
Rushton said that Savanna “has reported breakout growth and continues to show very strong momentum”. This was the result of marketing efforts and innovation.
The company was experiencing rising commodity costs, foreign currency headwinds and global supply chain disruptions, all of which are likely to weaken profit margins, he said.
Global supply chain disruptions were reducing the availability of glass and other raw materials. Some shipping lines now avoid SA’s ports due to delays that were worsened during the KwaZulu-Natal rioting and looting. Bottlenecks also form during alcohol lockdowns.
The shortages means Distell is not meeting every customer order in time, “which is not the situation we want to be in”, Rushton said.
“We are running continuous shifts and running like mad in an attempt to meet the demand that we have.”
Rushton thanked his employees for the robust results, and said the company was able to avoid retrenchments despite tough times.
“The commitment, resilience and agility shown by Distell’s people throughout the pandemic is testament to the progress of the culture transformation at Distell,” he said.