Distell FY sales hit by South Africa alcohol ban

28th August, 2020 by Nicola Carruthers

South African drinks group Distell saw its fiscal 2020 revenue fall by 14.6% due to the alcohol ban in its home market.

Distell’s Bunnahabhain Scotch whisky performed well during the fiscal year

In the year ending 30 June 2020, the Amarula cream liqueur and Bunnahabhain Scotch whisky owner saw its revenue fall 14.6% to 22.37 billion rand (US$1.33bn).

Distell CEO Richard Rushton said: “The resilience of our business and culture was severely tested during the pandemic and I’m proud of the way we are responding. We acted fast in strengthening our balance sheet and placed the wellbeing and safety of our staff, key suppliers and customers first.”

The group was hit particularly hard by South Africa’s alcohol ban, which resulted in a loss of around 100 million litres in sale volumes and 4.3bn rand (US$255.4m) in revenue.

South Africa introduced a ban on alcohol sales on 27 March in response to the coronavirus pandemic, which was lifted on 1 June. However, the ban was reinstated on 12 July without warning. The second ban was lifted on 17 August.

Distell’s revenue in South Africa fell by 18.2% as a result of “tough operating conditions”. The group noted its spirits portfolio recorded some growth in South Africa following the lifting of the first ban. Distell said gin and vodka brands performed well despite a “competitive environment”.

In African markets outside of South Africa, revenue fell 3% due to a 19.1% decline in volume in Botswana, Lesotho, Namibia and Eswatini.

Global markets, excluding Africa, saw revenue fall by 8.8% as the firm “realigned” its focus on premium spirits.

Total whisky revenue grew by 8.4%, boosted by Bunnahabhain and Deanston in “challenging trading conditions”, the group said.

Rushton added: “Our measured investments into key African markets have provided a resilient performance alongside our focused whisky portfolio in international markets even in the midst of Covid-19 challenges. I’m especially pleased at the start of our execution around new innovations which will carry on throughout 2021.”

Distell noted that Amarula liqueur and its export wine brands were impacted by export restrictions and global travel retail as a result of the Covid-19 crisis.

Salary reduction

Ruston said the firm had decided not to make job cuts but to instead take a “painful, but necessary decision” to cut salaries, beginning with its executives and directors.

The firm noted it was in a “strong” financial position and had committed banking facilities of 7.5bn rand (US$447.2m) for its South African business, of which 4.8bn (US$286m) has already been used.

The group has also invested in helping to ensure the responsible consumption of alcohol in South Africa though a harm reduction programme.

Rushton said: “Distell is playing a partnership role with government, alongside key industry players, to address this through an effective social compact to minimise the long-term effect of alcohol abuse on society as a whole. Further prohibition or blunt instruments do not work – real partnerships, enforcement of current laws and targeted interventions do.”

Looking ahead, the firm expects a “tough domestic environment with falling disposable income and increasing unemployment” as the group’s key concerns.

Rushton said: “We are, however, confident of the way we are managing the business to remain flexible and recession-proof.

“Our more focused and diversified portfolio of brands along price points, occasions and innovation in response to consumer trends will enable us to position ourselves well for any recovery.

“Africa remains a priority for us to expand our local route to market on the continent with local brands in key mainstream occasions. The venture business will continue to grow its core premium spirits brands as it positions itself for partnerships outside of Africa.

“The board is confident in the long-term strength and resilience of the business in spite of the current headwinds and challenges, and resolved to temporarily suspend dividends as part of the measures introduced to improve the liquidity of the group following the impact of Covid-19.”

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