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Distell Group, the South African-based global drinks company, recently released its unaudited interim financial results for the 6 months ended 31 December 2019, declaring a gross cash dividend of 174 cents per share, maintained from the previous period.
Distell delivered domestic revenue growth in spirits and RTDs and continued growing African revenues by double-digits as it executes its route-to-market (RTM) strategy on the continent and grow its contribution by 120bps to 16.8% to overall Group revenue.
Group revenue grew by 2.7% to R14.8 billion on 6.6% lower volumes due mainly to a muted South Africa, Namibia and Zimbabwean performance. Revenue excluding excise duty grew by 1.4%.
Reported EBITDA grew by 3.8% whilst Normalised EBITDA, excluding foreign currency translation movements, declined by 3.3%. Headline earnings and headline earnings per share decreased by 4.7% to R1.2 billion and by 4.8% to 548.6 cents respectively.
Distell group CEO Richard Rushton says the resilience of its domestic business is being tested amidst a challenging economic and competitive environment.
"Our Cider/RTD & Spirits performance reflects the positive changes we have been making in our operating model and ability to adapt, innovate and grow in a new normal. As we complete our supply chain optimisation and flexibility improvement, as well as focus our wine business, we will further recession-proof the business to defend and grow in key categories," says Rushton.
"I'm particularly pleased that our Africa strategy continues to deliver as we continue to expand our route-to-market capability and local production."
The domestic market was characterised by deep discounting by beer competitors and increased competition in the ready-to-drink (RTD) and wine segments. These factors combined with shrinking disposable incomes among consumers resulted in a 1.7% revenue growth with sales volumes down by 7.8%.
African markets
African markets, outside South Africa, delivered strong revenue growth of 10.5% on sales volumes, which were marginally lower as a result of a comparable decline in Namibian and Zimbabwean performances affected by challenging economies. Focus markets on the continent, outside the Southern African Customs Union (SACU), grew revenue by 12.0%.
Mozambique, Nigeria, Kenya and Zambia all recorded strong double-digit volume and revenue growth as investments in route-to-market (RTM) and in-country production continue to deliver on strategic ambitions for the continent.
Trading conditions in Angola remained challenging, but structural VAT and excise policy implementation showed an improved performance by associate company Best Global Brands (BGB), resulting in a positive swing in earnings. Commissioning of local manufacturing plants in Nigeria and Angola has delivered encouraging volume momentum during the period.
Botswana, Lesotho, Namibia and Swaziland (BLNS) countries in SACU delivered single-digit overall revenue growth as a result of challenging drought conditions in Namibia.
Volumes in international markets outside Africa declined by 6.5% and revenue remained flat. The start of the financial year saw the implementation of the Venture Business division to reorganise its international business into an export unit to focus on export trading business; and a premium spirits business unit to building out key premium spirits brands including its Scotch Whisky portfolio. The unit intentionally reduced the portfolio of export trading brands in order to improve the quality and sustainability of the business.
Strong international premium spirits growth was led by double digit single malt growth in all major markets. A decline in wine exports and Premium Wine business were reflective of the portfolio strategy to refocus the wine portfolio on higher margin products. The strategy is starting to pay dividends as revenue per litre in premium wine improved by 6% despite challenging industry dynamics and consumer sentiment.
Venture Business
The Venture Business division will continue to evolve and focus on key brands and markets, strategically positioned for partnerships and to unlock value where appropriate in line with the Group’s wider strategy.
The initiatives announced during 2019 to further optimise and improve the efficiencies of its supply chain progressed well and are expected to be largely completed by June 2020. As a result, operating costs were well contained and rose by 3.6%. Cost of goods sold increased by 6,0% and other operating costs declined by 5,1% as optimisation benefits assisted in overall margin protection.
The group has also completed the implementation of its new operating model and ways of working, and is continuing its substantial investment in its digital transformation process.
Rushton says that, looking ahead, Distell anticipates the current tough domestic environment to continue and economic growth to remain subdued until meaningful structural changes take effect.
"We are, however, confident that the changes we are making to the business give us a platform for growth, innovation and flexibility. Our more focused and diversified portfolio of brands along price points, occasions and innovation in response to consumer trends will enable us to capture select growth opportunities," he adds.
"Africa continues to deliver and 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 our four primary Sustainable Development Goals in all we do to sustainably deliver value across people, planet & profits."
The board stated its confidence in the long term strength and resilience of the business in spite of the short term headwinds and challenges by resolving to maintain the dividend for the interim period. It will assess the final dividend at year-end.
