Distell proves its resilience despite alcohol bans and civil unrest, says CFO Lucas Verwey
Not only does the group expect revenue growth, its debt levels have also improved beyond pre-Covid-19 levels.
Despite disruptions due to various alcohol sales bans over the last year, Distell is expecting a rise of 26.3 percent in revenue and 25.2 percent volume growth for the year ended 30 June 2021.
The group said in a trading statement that the most recent prohibition on the sale and distribution of alcohol in South Africa under the adjusted level 4 lockdown resulted in operating profit being negatively impacted by about R30 million.
“When your business is banned from trading, you need to conserve cash and watch costs closely, while also keeping an eye on when trade opens in order to maintain your competitive position,” says Distell CFO Lucas Verwey.
Added to this, he explains that, as a comfort, Distell ensured its lenders were onside and understood the company’s priorities to ensure that there was enough headroom should they need it, which ended up being the case.
“We made our people a priority and ensured everyone kept their jobs,” Lucas says. “We also ensured we stuck by our key customers and suppliers and supported them where we could, because we knew there would be a recovery opportunity eventually, and we need each other.”
These efforts to mitigate the impact of the alcohol sales bans certainly paid off as the group’s South African operations are expected to see a revenue and volume growth of 29.4 percent and 28.7 percent respectively. According to the company, this represents a 5.8 percent improvement in revenue and a 3.5 percent volume decline when compared to pre-Covid-19 levels in 2019.
“These numbers show how resilient and agile the company is and the strength of our brands, as well as the route-to-market (RTM) we have invested in over the last six years,” says Lucas.
He explains that the strength of the RTM in South Africa, alongside improved customer execution, innovations and brand strength, translated into further market share gains across all categories during the past year.
The group’s Africa business, led by Mozambique, Nigeria, Ghana and Zambia, has continued to perform “resiliently” as a result of RTM investments, with revenue and volumes expected to be up by 22.4 percent and 28.6 percent respectively.
The company reported that its operations in the Botswana, Lesotho, Namibia and Eswatini regions performed well despite also being affected by specific country bans on alcohol sales. Revenue and volumes improved by 23.6 percent and 22.2 percent respectively.
The group’s international operations were negatively affected early in the onset of the pandemic, given the adverse effect on global travel retail sales, combined with Amarula and wine export challenges to markets outside of South Africa. The business has subsequently recovered well in its focus on key markets, with an expected revenue increase of 10 percent.
“Our focus in international markets, particularly in Premium Spirits, has also contributed to a recovery in earnings and overall recovery to pre-Covid-19 levels.” he says, adding that this has contributed significantly to improving the health of Distell’s balance sheet, particularly its debt. “It was an effort which aligns to our motto inside, called ‘One Distell’.”
Given the resilient performance Distell has demonstrated over the past year, the company’s ability to generate cash across all geographies has had a positive effect on its liquidity and overall net debt position. The group’s net debt has improved to a stronger position compared to pre-Covid-19 levels and is expected to be less than R2.3 billion.
Lucas says that Distell needs to build on this success and momentum. “We now need to maintain this success and grow off this base. But we never get comfortable with this success and constantly need to innovate and maintain consumer loyalty while remaining relevant to preferences and occasions.”
He adds that, “No one really knows resilience until a crisis hits, and I can confidently say our teams turned up and showed character under this period.”
This agility was tested again during the recent civil unrest in South Africa and Lucas explains that the Distell teams showed the same agility and character. As a precaution during this time, Distell temporarily closed several of its operations in the affected areas, which have since gradually reopened.
One of its distribution centres in Pinetown, KwaZulu-Natal, was damaged during the looting. However none of its other sites in South Africa were affected. “We are deeply grateful to our supply chain and distribution teams, as well as our security personnel and partners at the South African National Taxi Association (Santaco), who have worked tirelessly to protect our business,” the company said in a statement.
“I think this period has been our finest hour, but we also look forward to things normalising and everyone being vaccinated and enjoying memorable occasions together again,” Lucas concludes.