The maker of Klipdrift and Amarula just took a half-a-billion rand hit in Angola – and another R266 million hit in Zimbabwe

Business Insider SA
  • Attempts to expand into the rest of Africa will hit South African booze maker Distell hard in its upcoming set of annual financial results.
  • On Wednesday Distell warned shareholders that its earnings would plummet by around half because of write-downs on investments in Angola and Zimbabwe.
  • In Angola the company has written down a recent investment by more than half a billion rand, and in Zimbabwe it no longer expects to get back R266 million it gave to that country's central bank.
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South African drinks maker Distell will be reflecting combined write-downs of R790.1 million on investments in Angola and Zimbabwe when it reports annual results at the end of the month, it warned shareholders on Wednesday.

In Angola the company is impairing a minority investment in a market-leading spirits company, Best Global Brands, after the kwanza collapsed by more than half. That will represent a hit of more than half a billion rand on Distell's books.

In Zimbabwe, the company said, it is no longer expecting to get back a little over R266 million it gave to the Reserve Bank of Zimbabwe.

The combined impact, said the maker of long-standing South African favourites such as Klipdrift and Amarula, will be a decline of around half in its earnings per share for the year to the end of June.

See also: Woolworths has now lost nearly R12 billion in 5 years trying to go big in Australia

Headline earnings, which exclude once-off and abnormal events, will be down at most 6%, Distell said.

Distell distributes alcoholic beverages in Zimbabwe via African Distillers Limited (Afdis), in which it holds an indirect shareholding. In its last financial year, Distell said, Afdis could not pay it because of the shortage of foreign currency in Zimbabwe. So Distell accepted payment in local currency instead, and invested that money into savings bonds denominated in US dollars – supposed to yield 7% a year without currency risk – issued by the Reserve Bank of Zimbabwe.

The central bank was supposed to hand back that investment at the end of 2020. 

"In light of the uncertainty and economic difficulties facing Zimbabwe, the Group has decided to recognise a credit loss provision of about 80% on the savings bond," Distell said.

See also: Steers and Wimpy's parent company is writing off up to R449 million because its fancy-schmancy UK burger joint is bleeding it dry

In Angola Distell in 2017 paid $54.6 million for 26% of Best Global Brands (BGB), with an option to buy the rest of the company from 2020. Distell said the acquisition would immediately start adding to its headline earnings, while also advancing its ambition to become "the leading spirits, wine and RTD [read-to-drink] group across Africa."

At the time Distell estimated that BGB's previous year profits had been around $33 million 

BGB is a newly established group following a restructuring of the business. BGB's pro forma profit after tax for the period ended 31 March 2016 is estimated at USD33 million.

"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," the South African group told shareholders on Wednesday.

That equates to a R524 million impairment in the value of BGB on Distell's books.

Over the course of Distell's financial year the Angolan kwanza lost 33% of its value against the South African rand.

Reducing the "current interim value" of its investments in Zimbabwe and Angola reflects current risks in those countries, said Distell’s Group CEO Richard Rushton in a statement, but "does 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."

This article was updated to include comment from Distell's CEO.

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