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Things are going fine – Distell

Tells shareholders that its focus on more expensive drinks negated the effects of disruptions.
Image: Moneyweb

The Distell Group’s annual general meeting was complete in around 18 minutes on Thursday morning, as management issued several announcements during the last few months to keep shareholders up to date with what is happening.

One of the announcements was a ‘voluntary’ trading update, meaning that Distell did not have to issue this trading update under JSE rules. These rules require listed companies to inform shareholders as soon as management can tell that earnings will increase (or decrease) by more than 20% in any reporting period.

Management says in its trading update that group revenue for the six months to end December 2021 increased by “mid-teens” alongside “low-teen” volume expansion compared with the prior period, despite a reduced trading period.

“Trading conditions across the group’s operating areas continue to be impacted in various ways by the Covid-19 pandemic. The group continues to perform well, despite having to contend with managing the challenges associated with the pandemic, rising commodity cost pressures, global supply chain disruptions, an increase in the cost of imported goods and glass shortages in its domestic market caused by rampant demand for Savanna and core spirit brands.

“South Africa, our largest market by revenue, has seen the government imposing restrictions on the trading of alcoholic beverages, which saw a reduction of the trading period by 25 days during the current period vs 38 days in the previous 6 months ended 31 December 2020.

“In addition, civil unrest in July in KwaZulu-Natal and parts of Gauteng caused approximately R100 million in damages to one of our distribution centres,” says management.

It noted that insurance has since covered most of the losses incurred.

Distell also benefited from its ongoing strategy to reduce exposure to less profitable product lines and continued investment in its supply chain, which helped it to recover quickly after government allowed alcohol sales following several lockdowns.

“The group’s agility and investments in route-to-market and optimisation of its production network have enabled it to capture growth and productivity opportunities as it navigates the current environment,” according to management.

Distell noted that export earnings took a hit due to several factors. “The international business recorded a single-digit revenue decline due to one of its largest revenue contributing regions, Taiwan, experiencing Covid-19 related on-site consumption closures for half of the trading period. South African port disruptions in July 2021 also had a material adverse effect on wine exports and performance in the period,” reads the statement.

Management notes that volumes declined as planned, given the cessation of sales of less profitable wine brands and the exit of the ready-to-drink business.

The share price is unlikely to react much to the news, or well to the actual results that will be announced towards the end of February. The share price is securely linked to the offer by Heineken to acquire control of Distell.

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