Advertise with

Distell says earnings fell in the year to end-June as it took a hit on operations in Angola and Zimbabwe.
Distell says earnings fell in the year to end-June as it took a hit on operations in Angola and Zimbabwe.

Angola and Zimbabwe operations sap Distell earnings


By Nick Hedley - Aug 7th, 13:07

Beverages company Distell, whose brands include Nederburg wines and Three Ships Whisky, says earnings fell in the year to end-June as it took a hit on operations in Angola and Zimbabwe. 

Soaring inflation and weak macroeconomic fundamentals in those markets have taken their toll on other SA companies with operations there, including packaging company Nampak.

Distell said it had written down the value of its investment in African spirits maker Best Global Brands (BGB) by R524m in response to the Angolan kwanza’s 50% decline and the weak economy.

“Although BGB has grown volumes and maintained market share since Distell’s investment, the group has decided it would be prudent to impair about two-thirds of the value of its 26% investment in BGB,” Distell said.

The group also set aside a credit-loss provision of R266.1m linked to a Zimbabwean associate, which had to settle trading debts owed to Distell in local currency due to foreign exchange shortages.

As a result, Distell said basic earnings per share for the year fell by between 44% and 49%, while headline earnings per share declined by up to 6%.

The group said normalised headline earnings per share adjusted for currency movements, as well as retrenchment and restructuring costs of R168.6m, rose by up to 9%.

This was thanks to “overall comparable revenue growth of more than 9% and margin enhancement”.

Investec analyst Anthony Geard said in a note to clients the write-downs in Angola and Zimbabwe were expected but were “painful nonetheless” and “highlight the cost of doing business in the rest of Africa”.

“Underlying business momentum is strong,” Geard said, citing better trading margins and organic sales growth that was ahead of major food producers.

“We stick with our view that alcoholic drinks are more resilient than food brands in tough times, and that premiumisation is a much more relevant theme for Distell than its food peers,” he said.

“We remain positive on this investment story on the basis that management is doing the right things, the SA business is more ‘recession-proof’ than much of SA Inc, and that other-Africa will deliver strong growth in the medium term.”

Investec sees Distell’s shares reaching R160.

The company’s stock was 2.4% down at R126.10 in early trade on Wednesday.

Distell Group CEO Richard Rushton said the write-downs in Angola and Zimbabwe “do not reflect our confidence and commitment to these assets, where we see future value as we build out a resilient and meaningful route-to-market in Africa”.

“BGB in Angola has increased volumes since our investment, which affirms our belief in the business as local structural reforms take effect,” Rushton said.Business Live  

Related News

Macy's cuts forecast again after gloomy quarter
22/11/2019 - 14:04
Macy’s cut its annual profit forecast for the second time in 2019, as the department store operator blamed weak international tourism and sluggish mall traffic for the first drop in same-store sales in two years.

Distell: no reward for shareholders patience
07/11/2019 - 10:23
It’s difficult to know what to make of Distell’s shareholders — they’re either a particularly forgiving bunch or they don’t see much connection between executive remuneration and profits.

Kraft Heinz reined in costs and increased prices — and it worked
05/11/2019 - 11:28
Kraft Heinz beat analyst expectations for third-quarter profit on Thursday as the packaged food company reined in costs and increased prices in the face of slowing demand for some of its key brands.

Dis-Chem warns of sharp decline in interim earnings
04/11/2019 - 09:50
Discount pharmaceutical retailer Dis-Chem expects a drop in half-year earnings due to one-off costs such as a change in bonus policy and a strike by employees.

Clicks eyes further market share amid double-digit sales growth
24/10/2019 - 10:00
Medicine and beauty products retailer Clicks said it was successfully weathering an increasingly tough environment for consumers and would spend R718m on its stores over the next financial year in order to pursue additional market share.