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Coronavirus: Distell boost from South Africa’s thirst for alcohol

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 1 July 2020 14:00

FILE PHOTO: The coronavirus disease (COVID-19) outbreak, in Soweto
People wearing protective face masks walk with a trolley full of alcohol in front of a liquor store as South Africa lifts a lockdown. Soweto, South Africa June 1, 2020. REUTERS/Siphiwe Sibeko

Distell has only been able to realise slightly more than 50% of orders worth R440m because of reduced port capacity and cancellations.

The listed beverages producer, which has an extensive footprint across Southern Africa and a presence in East and West Africa, made the announcement in an update to the market published early on Tuesday.

The wave of lockdowns across the continent, the disruptions to exports, restrictions on the sale of alcohol and travel bans have affected the group’s revenue generation.

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“Group revenues to date contracted 15.4%, alongside reduced volumes of 23.3%,” said the company.

“Given the pandemic’s effect on global travel and subsequent reduction in airport passengers, our international operations, specifically travel retail sales, were negatively impacted,” according to Distell.

The company has identified container processing backlogs at South African ports as a short-term risk to its export business.

State-owned logistics company Transnet said on Tuesday it has a plan to deal with operational backlogs at its port in Cape Town.

Transnet Port Terminals acting chief operations officer Velile Dube cited the COVID-19 pandemic in the region as the cause of the delays.

Cape Town port’s container and multi-purpose terminals “have been operating at a reduced capacity since the introduction of the lockdown regulations. However, with the easing of the lockdown, port activities have increased,” according to Transnet.

Balancing the books

In its updated estimation for group performance, Distell expects:

  • Basic earnings per share for the financial year ending 30 June 2020 to be between 45% (178,4c per share) and 65% (257,7c per share) lower than the reported 396,5c per share of the corresponding period of the previous year.
  • Headline earnings per share to be between 60% (391,7c per share) and 80% (522,3c per share) lower than the reported 652,9c per share of the corresponding period of the previous year.

In South Africa, Distell resumed trading on 1 June 2020, when the government moved the country to level 3 lockdown, under which the sale of alcohol is permitted.

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

Despite that, the company remains uncertain about “potential credit loss provisions, potential impairment of stock and valuation of minority holdings in specific African countries.”

Managing COVID-19 risks

The company expects the upsurge in alcohol demand from South African customers to “normalise in the coming months.”

“This activity has surpassed conservative estimates but not at levels equal to the previous financial year period. To date, revenues and volumes are cumulatively down 18.3% and 25.6% respectively,” according to Distell.

READ MORE Coronavirus: South African Distell trying to curb hit from pandemic

The company has recorded 58 COVID-19 infections across its South African operations.

  • “[Affected] individuals have been placed into quarantine and given support. This has resulted in the closure of five distribution sites during June 2020, all of which have been re-opened and are operating at expected levels.”
  • “As per government protocol, sites are immediately closed and deep cleaned before any resumption of operations,” the company assured.

As a sign of the times, Distell has generated R21m from the sale of ethanol and sanitiser. Furthermore, the alcohol producer has donated 176,500 litres of sanitiser to the government, non-governmental organisations and customers.

Resilience in tough times

In Southern Africa, where Distell operates in Botswana, Lesotho, Namibia and Eswatini, which the company collectively refers to as the BLNE regions, its revenue generation was adversely affected by restrictions on alcohol sales.

“More than 50% of revenues are generated from Namibia, where there was a protracted ban. Revenues and volumes were adversely affected 14.9% and 20.4% respectively.”

Outside of BLNE, Distell says the rest rest of Africa operations have proved resilient led by Kenya Wine Agencies Limited. “Comparative revenues are up 2.3%, volumes declined 12.0%.”

Distell does note, though, that “[the] … easing of export restrictions and lifting of the ban on alcohol sales on 1 June 2020 has provided a marked improvement to the financial health of the company and its ability to protect jobs.”