Financial Mail and Business Day

Distell flags export logjam

Karl Gernetzky and Katharine Child

SA’s largest alcohol producer, Distell, has flagged another strong performance of its local business but warned that SA’s port issues and lockdowns in key markets hit international demand in its half-year to endDecember. The owner of Nederburg wines said group revenue rose about 15%, though international revenue fell.

SA’s largest alcohol producer, Distell, has marked another strong performance of its local business, but has warned that SA’s port issues and lockdowns in key markets hit international demand in its half-year to endDecember.

In a voluntary update ahead of its AGM later on Thursday, the owner of Nederburg wines and Amarula said group revenue rose about 15%, though international revenue fell.

The single-revenue decline was partly due to Covid-19 curbs in Taiwan that closed bars and hit whisky consumption, while SA port disruptions in July affected wine exports.

Distell has frequently highlighted port issues when issuing financial statements to the market. In 2020, Covid-19 caused delays at Cape Town harbour, which led to the company losing almost R200m in exports.

This week, Business Day reported that the Transnet National Ports Authority, which manages all eight SA commercial ports, is battling delays at the Cape Town harbour resulting in backlogs of nine days or more linked to heavy winds, power outages and holidays.

However, Distell CEO Richard Rushton told Business Day things are improving. “It is getting better at the ports and harbours, just to be clear and fair.”

He said that due to the large amounts of wine and Amarula exported by Distell, delays can have a substantial effect. Due to its scale, “any disruption in the available supply of containers and ships creates tremendous bottlenecks ... dampening our ability to meet demand”.

The problems are not just linked to SA ports but to global shipping chain delays and shipping container shortages. “At one point, we had significant challenges in the half-year with just getting ships and containers into East Africa. It’s not just an SA issue. It’s a structural challenge around the world.”

The riots and civil unrest in Durban led to disruptions at that city’s port, which also suffered cyberattacks.

Rushton said ships that are unable to enter the port simply continue on their route, resulting in delays taking months to rectify. “There’s a knock-on consequential effect that doesn’t take a day to resolve.”

Shipping delays and supply shortages have affected the glass bottling industry, with delays of raw materials and those needed to supply furnaces.

Asked about the high consumer demand for Savanna ciders, which Distell has been unable to meet for months due to the glass shortage, Rushton said he would like the issue to be resolved in weeks, but realistically shortages will still take months to resolve.

In the results, SA fared better, growing revenue more than 20%. SA, the group’s largest market, had its trading period reduced by 25 days due to stateimposed restrictions, from 38 in the prior matching period.

In addition, civil unrest in July in KwaZulu-Natal and parts of

Gauteng caused about R100m in damages but the majority of the insurance claim has since covered its losses, Distell said.

“The effect on sales was minimised and operations were quickly reinstated and normalised within six weeks of the incident,” the statement said.

Distell generated R15.4bn in revenue in the six months, with SA accounting for about 70% of sales, and its international division 10%.

The Africa business, about a fifth of group revenue, grew sales by low single digits, with Botswana losing almost a third of its trading period to restrictions, while supply issues in Namibia also had an effect.

Distell did not go into detail on its profit forecasts on Thursday, and the release of its interim results in February may mark its last as a publicly listed company. European brewing giant Heineken has made a R40.1bn offer for Distell that still requires approval from competition authorities as well as a majority shareholder vote, with the latter scheduled for February 15.

The Heineken offer of R180 a share is twofold: R165 a share for most of Distell’s businesses, including the cider brands, ready-to-drink, spirit and wine and Amarula brands. This will be housed in Heineken’s SA business and Namibian breweries, which will form a unit called NewCo.

Distell shareholders were offered another R15 a share for the producer’s international whisky brands, such as Scottish Leader, which will be housed in a separate unlisted entity called CapeVin.

Existing majority Distell shareholder Remgro will have a majority stake in CapeVin.

After the positive trading statement, some analysts again criticised the price Heineken has offered for the business.

Rushton said: “We’ll take all of those comments as a massive vote of confidence in just the strength of our brands.”

Investors can stay in the unlisted vehicle but this will make it difficult for them to sell shares.

Rushton, who believes the price is fair, said the sellers of the business have weighed up the price and the growth prospects of the business and the benefit of teaming up with Heineken, which wants to grow its footprint in Southern and East Africa and adjacent markets.

SHIPS THAT ARE UNABLE TO ENTER THE PORT SIMPLY CONTINUE ON THEIR ROUTE, RESULTING IN DELAYS TAKING MONTHS TO RECTIFY

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2022-01-21T08:00:00.0000000Z

2022-01-21T08:00:00.0000000Z

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