Distell hit by Angola, Zimbabwe write-downs
Beverages maker is the latest SA company to be affected by Angola's currency devaluation
Distell, the maker of Amarula, Savanna and Hunter’s Dry brands, has written down its investments in Angola by R524m. The group has also made credit loss provision of R266.1m in Zimbabwe.
The beverages firm said on Wednesday the devaluation of about 50% of the Angolan kwanza and its impact on the Angolan economy had negatively affected the earnings of Best Global Brands Limited (BGB), the owner of the Best brand, in which Distell acquired a 26% interest in 2017.
Distell has become the latest SA company to be hit by the currency devaluation in Angola. Grocer Shoprite and packaging firm Nampak have previously cited the kwanza's devaluation for their woes in that market.
“Although BGB has grown volumes and maintained market share since Distell’s investment, the group has decided it would be prudent to impair about two-thirds of the value of its 26% investment in BGB,” Distell said.
The company has set aside R266.1m as a credit loss provision linked to its Zimbabwean associate, African Distillers Limited (Afdis), in which Distell owns an indirect 31% interest. Distell is also a supplier to Afdis.
“Due to the shortage of foreign exchange in Zimbabwe, Afdis was unable to settle all of the trading debt owed to Distell. In the face of further currency devaluations and to protect the value of the trading debt owed to it, Distell accepted payment in local currency and invested the proceeds with the Reserve bank of Zimbabwe in US dollar-denominated savings bonds yielding 7% and maturing at the end of 2020,” Distell said.
But, in light of the recent currency uncertainty and economic conditions facing Zimbabwe, the company decided to make the credit loss provision. As a result of the developments in Angola and Zimbabwe, Distell said basic earnings per share for the year fell by 44%-49%, while headline earnings per share declined by up to 6%.
Investec analyst Anthony Geard said in a note to clients the write-downs in Angola and Zimbabwe were expected but were “painful nonetheless” and “highlight the cost of doing business in the rest of Africa”.
“Underlying business momentum is strong,” Geard said, citing better trading margins and organic sales growth that was ahead of major food producers.
“We stick with our view that alcoholic drinks are more resilient than food brands in tough times, and that premiumisation is a much more relevant theme for Distell than its food peers,” he said.
“We remain positive on this investment story on the basis that management is doing the right things, the SA business is more ‘recession proof’ than much of SA Inc, and that other-Africa will deliver strong growth in the medium term.”
Independent analyst Anthony Clark of Small Talk Daily said the developments in Angola and Zimbabwe were understandable.
“Given the collapse in the currencies, there has been an understandable write-down in the assets of those countries. Angola is tied to oil and the economic destruction in Zimbabwe is there (for all to see),” Clark said.
Following the downward trend in Angola, Distell had shifted to east Africa, operating out of the Kenya hub where there were strong prospects for significant growth, he said.
Distell Group CEO Richard Rushton said the write-downs in Angola and Zimbabwe “do not reflect our confidence and commitment to these assets, where we see future value as we build out a resilient and meaningful route-to-market in Africa”.
“BGB in Angola has increased volumes since our investment, which affirms our belief in the business as local structural reforms take effect,” Rushton said.