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Coronavirus: South African Distell trying to curb hit from pandemic

In depth
This article is part of the dossier: Corona Chronicles: 18 May – 22 May

By Xolisa Phillip, in Johannesburg
Posted on Friday, 22 May 2020 11:50

Virus Outbreak South Africa Daily Life
Police on horseback patrol along the promenade in Sea Point Cape Town, South Africa, Wednesday. May 20, 2020 (AP Photo/Nardus Engelbrecht)

Distell has toasted the performance of its Kenyan operations, while it is mulling the sale of two premium wine farms and other cost-reduction measures in South Africa as it grapples with COVID-19 restrictions.    

Distell, which is headquartered in the Cape winelands and listed on the Johannesburg Stock Exchange, is the continent’s foremost maker and marketer of wines and ciders.

Angola, Botswana, Ghana, Kenya, Mozambique, Namibia, Nigeria and Tanzania are its key markets on the rest of the continent, while South Africa is its main base. Globally, Distell’s wines are sold on every continent.

Kenya Wine Agencies Limited (KWAL), Distell’s largest revenue contributor on the continent outside of Southern Africa, continues to perform well even as the Kenyan government has instituted a lockdown.

Furthermore, “KWAL can now start to receive product from our South African operations with immediate effect due to the lifting of the ban on exports,” the company has told the market.

This follows the South African government’s lifting restrictions on the export of certain goods.

“The easing of export regulations related to agricultural products in Level 4 meant … R440m worth of open orders can now be processed for delivery to customers and operations in geographies with open ports and no restrictions on the sale of alcohol.”

READ MORE South Africa Rand to pick up soon as central banks create new money

In Namibia, Distell is preparing customer orders in anticipation of an ease in lockdown restrictions at the beginning of June.

South Africa conundrum

However, in South Africa Distell is scrambling to contain the fallout from the national lockdown that has entered into its sixth week. The country is presently on level 4 lockdown, and there is a possibility of some regions in South Africa being placed on level 3 at the start of June.

READ MORE Coronavirus: South Africa to ease lockdown to level 4 as of 1 May says Ramaphosa

But the Western Cape, where most of Distell’s distillery operations and farms are located, is the epicentre of the country’s coronavirus outbreak with more than 5,000 confirmed cases. That carries the possibility of the Western Cape remaining on level 4 lockdown.

Overall, the South African business has been unable to generate revenue since the lockdown began on 26 March. But there are parts of Distell’s business that are able to start trading at a reduced contribution, says the company.

In response to the crisis, Distell says: “The group has made progress to unlock value through the potential sale of two of its premium wine farms and anticipates being in a position to announce an outcome … on or around 27 August 2020.”

But the company did not provide further details. In its 2019 integrated annual report, Distell lists its farms as Papkuilsfontein, Nederburg, Plaisir de Merle, Groenhof and J.C. Le Roux – all are situated in the Western Cape.

READ MORE Why South Africa’s competition authorities rejected Distell’s AB InBev complaint

Distell’s board and executive management have taken a 30% cut in fees and remuneration for three months as of 1 April 2020. “The money will be donated to the Solidarity Fund,” according to the company. The alcohol producer has also stopped all discretionary spending.

Alcohol and sanitiser revenue relief

An unlikely positive development for Distell is the fact the company has made R8m in revenue from the sale of alcohol and sanitiser. “As a result of the short-term success and order pipeline, the group is investigating this as a sustainable business opportunity going forward,” it said.

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