Distell awash in cash after rest-of-Africa sales lift spirits
● Distell’s strong cash position and low gearing have placed Africa’s biggest wine, cider and spirits producer in the enviable position of being able to keep its powder dry for any future investments — and ride out any market volatility.
The JSE-listed owner of brands such as Nederburg wines, Savanna cider, Klipdrift brandy and Amarula liqueur said on Thursday that net cash generated from operating activities tripled to R3.3bn in the six months ended December 31, compared with R1.1bn in the same period the previous year. Net debt at the end of the reporting period was R2.7bn, down from R4.7bn in the corresponding period in 2019.
Stephán Engelbrecht, head of research at Anchor Group, said this gives Distell “optionality”. “There might be a few brewers that are in financial need after all these lockdowns in South Africa, and willing to sell. So they can go the acquisitive route or even distribute dividends more aggressively to shareholders,” said Engelbrecht.
Patsy David, head of research at All Weather Capital, concurred that there would be “acquisition opportunities” with Distell’s strong balance sheet.
Distell head of investor relations Frank
Ford said it “constantly reviews its strategic options and talks to many industry players about these opportunities”, adding that it will “continue to evaluate all opportunities that allow us to expand our presence on the African continent”. But Distell would also exercise caution and not rush into any acquisitions, he said. It wants to be prudent “as more volatility may play out” in the market.
It is also keen to reinstate its dividend “when it can and return cash to shareholders”. A decision on dividends will be reviewed at the June year-end, but dividends at the moment remain suspended due to uncertainty about the sale of alcohol.
Distell reported “robust” rest-of-Africa revenue growth of 19.9%, excluding the common customs union countries of Botswana, Lesotho, Namibia and Eswatini. Its other international operations, which include Europe and Asia, delivered a 15.4% increase in revenue. Its overall headline earnings increased 11%.
Engelbrecht said Distell had “delivered very good results” and that “kudos had to be given to the South African management team”.
“In general, management teams in South Africa have handled the pandemic well and Distell is just another brilliant example.”
He said the way Distell was able to manage its working capital in a “once-in-a-lifetime event” such as Covid-19 is “incredible”.
David said Distell’s “strong operational performance” had “translated into strong cash flows”.
“We like the company. The revenue growth was supported by the trend of growing into spirits and wine. It’s a better mix they are getting. There was ebitda [earnings before interest, taxes, depreciation and amortisation] of plus-10% on good cost containment and the balance sheet is strong with management cognisance of value creation for shareholders,” she said.
In an interview after the release of results, Distell CEO Richard Rushton said the group is “really proud” of its “broadbased performance”, which was strongly underpinned by the rest of Africa and countries beyond. SA, he said, was “resilient”, delivering flat interim growth even though it lost 41 trading days.
The three alcohol bans in SA negatively affected the full 2020 financial year with an 18% revenue decline in SA overall.
Rushton said the 2021 financial year’s strong first-half results were driven by Distell’s investments in key countries, with Kenya “in particular being a shining star”.
“We have just announced a further investment in a greenfield facility just outside Nairobi, Kenya. We are busy sod-turning as we speak. We hope that investment will act as a forerunner to further investments into Kenya, which … is as large as South Africa in population, with more policy stability.”
Rushton said Kenya is a potentially strong platform for an “East Africa expansion”. He said Distell’s Nigerian businesses also deliv ered strong growth, as did Zambia, Zimbabwe and Mozambique.
“Mozambique in particular we are watching closely because we believe there is potential for investment in a measured way.”
Rushton said one of the group’s “aspirations” is to more than double its earnings before interest and tax in the rest of Africa to as much as R1bn over the next five years.
Right now, the group’s ebit in the rest of Africa is sitting at around R400m.
Distell is proud of its broad-based performance which was underpinned by the rest of Africa