Distell dividend move pricks up ears

29 August 2021 - 05:00 By NICK WILSON



Shareholders in Distell, Africa's largest cider producer, will know by the end of September whether Dutch brewing giant Heineken will be buying the majority of the groupor not, said the JSE-listed company.If the cautionary announcement that accompanied Distell's annual results this week is anything to go by, there seems to be a good chance of it going ahead, as Distell told the market it was holding off paying a dividend for the year ended June 30 2021 as one of the conditions of a possible transaction.Distell owns brands such as Nederburg wines, Savanna cider and Amarula liqueur. Protea Capital Management analyst Richard Cheesman said the "indication that Distell is making, by not paying a dividend because of the corporate activity which is in progress, is not insignificant", adding that if "the corporate activity did not seem likely, Distell would not be doing this". "This is a commitment from Distell towards making this corporate activity take place," said Cheesman.He also said the wording of the cautionary announcements that Distell has issued would seem to indicate that the bid by Heineken will be for the majority, but not all of the assets, and that in his opinion it may exclude the wine assets, favouring the cider and spirits portfolio.Cheesman said potentially the wine assets, which may not suit Heineken's portfolio, could stay in what remains of Distell after the transaction.The latest cautionary announcement that referred to Heineken's "potential acquisition of the majority of Distell's business" said the discussions between Distell and Heineken were "progressing, but several aspects still need to be considered and ultimately agreed. The potential transaction, should it proceed, will be subject to several conditions, one of which relates to Distell not making any distributions, including a dividend declaration, to its shareholders in respect of the financial year ended 30 June 2021." And it was for this reason the board decided not to declare a dividend for the financial year ended June 30 2021.But Distell also said there was "no certainty that all the remaining aspects will be successfully resolved" and if the discussions between the two companies were "terminated", the board intends to declare a dividend for the financial year ended June 30 2021.Distell CEO Richard Rushton said during an investor presentation this week: "We've given ourselves collectively, that's Heineken and ourselves, 30 days, or effectively until the end of September, to deal with the remaining aspects that we need to deal with in this particular business combination or transaction that we are discussing."If we are unable to achieve a mutually acceptable outcome, well then by September 30, shareholders will be informed and you know our track record as a dividend paying company . you can expect us to resume, as we've always done in the past, a responsible approach to dividends."Asked in an interview after the results presentation if suitors other than Heineken had come calling since Heineken's overture was first announced in May, Rushton said: "I think that people understand that there will be lots of engagement between the two parties so it's almost pointless reaching out to us if they know we are busy engaged in other discussions." The violence and looting that erupted in SA in July and damaged one of Distell's distribution centres had not affected discussions with Heineken, said Rushton, who is an ex-SABMiller executive, but the events of last month had nonetheless been "unsettling".The unrest resulted in the loss of an estimated 300 or more lives and tens of billions of rands in damage to properties and businesses in KwaZulu-Natal and Gauteng."I can't speak on behalf of Heineken," said Rushton. "Obviously, having operated outside South Africa in other markets when I was at SABMiller, any event like this would be unsettling. "I would be surprised if they weren't unsettled by this development. "They also have their own operation in South Africa so they would have heard from their own team first hand what the implications of the unrest in KwaZulu-Natal and parts of Gauteng meant. "Lastly, they are well represented in Africa, so they also understand that Africa presents unique growth opportunities but also risk and volatility."They probably view the events much the same way we [Distell] did, which is this is unsettling and unwelcome, and not a good signal that this violence and looting occurred."Asked what he thought attracted Heineken to Distell, Rushton said there was "no question" that the group's "premium cider portfolio" would have been the major attraction."It is complementary to their own premium beer and cider portfolio."Rushton said another factor is that Heineken will have recognised that "categories are blurring beyond just beer" and that the breadth of Distell's portfolio and its route to market and its manufacturing platform were other draw cards.Distell said that since 2015 it has grown its customer base in SA and the rest of Africa 160%. "Putting a premium beer business on the Distell platform also can provide a unique offering. There are complementary synergies, coverage of outlets and customers."And if the deal with Heineken does not go ahead, Distell's future plans could include adding a premium beer brand to its portfolio, possibly through an acquisition or joint venture. "We've always gone on record saying that a premium beer addition would be a fantastic complementary fit to our portfolio. We were looking at all the alternatives regarding this particular development and of course this would go back very high on our radar screen."Rushton said the group will also "continue to pursue growth in Africa" and will look to bulk up its spirits operations globally.Meanwhile, group revenue for the year ended June 30 increased 26.3% to R28.3bn on 26.3% higher volumes, "increasing revenues nearly 8% above pre-Covid levels". Headline earnings and headline earnings per share increased by 227.3% to R1.7bn and by 227.1% to 769,6c respectively. "Domestic revenues increased by 29.4%, with volumes up by 28.7% despite 20% of trading days being lost due to the second and third sale-of-alcohol bans introduced by the South African government. "Market-share gains were recorded across all three categories, with ciders, RTDs [ready-to-drink beverages] and spirits surpassing pre-Covid-19 revenue levels. E-commerce revenues doubled in the period," Distell reported.

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