DISTELL GROUP HOLDINGS LIMITED - Trading update and pre-close investor call2020/06/30 09:39:00
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Trading update and pre-close investor call Distell Group Holdings Limited REGISTRATION NUMBER: 2016/394974/06 JSE share code: DGH ISIN: ZAE000248811 ('Distell' or 'the Group' or 'the Company') TRADING UPDATE AND PRE-CLOSE INVESTOR CALL TRADING UPDATE COVID-19 Update The board and management of Distell wish to update the market on various elements of the Company’s business before it enters into its financial closed period ahead of the publication of its 2019/20 full year results. As previously disclosed in the announcements released on the Stock Exchange News Service ('SENS') on 26 March 2020 and 15 May 2020, the COVID-19 pandemic (“the pandemic”) and, in particular, the South African government’s restrictions on the trading of alcoholic beverages, has had a significant impact on the trading of the Group since the start of the lockdown on 26 March 2020. The subsequent easing of export restrictions and lifting of the ban on alcohol sales on 1 June 2020 has provided a marked improvement to the financial health of the Company and its ability to protect jobs. The Group continues to be guided by a comprehensive plan of action to mitigate the risks associated with the pandemic, where its key priorities remain the health and safety of its employees, support of its customers and suppliers and the protection of shareholder value. Responsible trading and commitments to Government Distell continues to play an integral part within the industry to ensure safe and responsible trading post lifting of the ban on alcohol sales. Specific commitments are: - Strict workplace safety protocols; - Retailer and tavern safety protocols; - Marketing and promotion restrictions; - Donations of PPE to tavern customers to enable readiness to trade and inclusion into the economy; - Using brands to build awareness around COVID-19 through responsible consumption messaging; - Collaboration with law enforcement through hotline reporting run by the consumer goods council of South Africa; - Production of ethanol and sanitiser for commercial purposes, as well as donations to vulnerable communities in its key operations through the respective Government departments; - Gender based violence and drunk driving projects enhancement through AWARE.ORG; and - Safe management of initial demand. Distell believes that a stronger social compact with the South African Government and other key role players needs to be created. The pandemic has re-emphasised the need to activate a behavioural shift in mind-set towards ‘safer consumption’. As the only large South African manufacturer of alcoholic beverages, Distell sees itself as a key facilitator in helping to shift societal behaviour whilst, at the same time, protecting and creating jobs in the industry to offset inequality and poverty which the pandemic has exacerbated. In this, Distell is playing an active role within an industry collective to proactively monitor alcohol policy trends both in the public space and directly with government. We continue to engage decision makers where necessary through a formal task team on a regular basis to gain appropriate alignment. COVID-19 infection update As the spread of infections in the country continue to rise, Distell has unfortunately recorded a total of 58 infections across its South African operations. All affected individuals have been placed into quarantine and given the appropriate support. This has also resulted in the closure of 5 distribution sites during the month of June 2020, all of which have been re-opened and are currently operating at expected levels. As per Government protocol, sites are immediately closed and deep cleaned before any resumption of operations. All prepared safety protocols continue to be followed and effective tracing implemented in order to gauge any further effect on staff and families, who may then need to receive the necessary assistance. Donations and revenue-generating opportunities through the production of hand sanitisers The Group has, to date, donated a total of 176 500 litres of sanitiser to Government, NGO’s, taverns and their customers in order to support the need for good hygiene practices and responsible trading in vulnerable communities. Distell has also generated a total of R21 million in revenues from the sales of ethanol and sanitiser since the lockdown. Trading statement confirmation The Group affirms its trading statement published on SENS on 15 May 2020. Key metrics remain unchanged due to the effects of restrictive trading in South Africa and other markets within which the Group operates. In summary: - The Group's basic earnings per share (“EPS”) for the financial year ending 30 June 2020 is expected to be between 45% (178,4 cents per share) and 65% (257,7 cents per share) lower than the reported 396,5 cents per share of the corresponding period of the previous year. - Headline earnings per share (“HEPS”) for the same period is expected to be between 60% (391,7 cents per share) and 80% (522,3 cents per share) lower than the reported 652,9 cents per share of the corresponding period of the previous year. The previous trading statement was based on management’s outlining of various trading scenarios affected by lockdown restrictions, predominantly in South Africa. Whilst trading has commenced since 1 June 2020, a few elements remain uncertain: - Potential credit loss provisions; - Potential impairment of stock; and - Valuation of minority holdings in specific African countries. The Group is able to provide an update on year-to-date trading performance for the period 1 July 2019 up to and including 19 June 2020, as follows: - The easing of export regulations related to agricultural products in Level 4 of the lockdown meant that open orders to the value of approximately R440 million could be processed. The Group managed to fulfil only 54% of the value of these orders due to the fact that local ports were operating at a reduced capacity and customer cancellations were experienced due to the delay caused by the restrictions. - Resumed trading in South Africa has seen an initial spike in demand from customers which are anticipated to normalise in the coming months. This activity has surpassed conservative estimates but not at levels equal to the previous financial year period. To date, revenues and volumes are cumulatively down by 18,3% and 25,6% respectively. - Operations in the BLNE (Botswana, Lesotho, Namibia & Eswatini) regions were adversely affected by specific country bans on alcohol sales. More than 50% of revenues are generated from Namibia where there was a protracted ban. Revenues and volumes were adversely affected by 14,9% and 20,4% respectively. - The Group’s Africa business outside of BLNE has proved resilient during the period, led by Kenya Wine Agencies Limited (KWAL). Comparative revenues are up 2,3% whilst volumes declined by 12,0%. - Given the pandemic’s effect on global travel and subsequent reduction in airport passengers, our international operations, specifically travel retail sales, were negatively impacted earlier in the period. The restricted export of Amarula from South Africa also contributed to overall revenues and volumes declining by 10,3% & 15,4% respectively. Distell’s International Spirits business proved buoyant, with positive volumes and revenues recorded in the fiscal period. - Overall, as a result of the above, Group revenues to date contracted by 15,4%, alongside reduced volumes of 23,3%. Production and supply chain The Group has resumed operations in line with Level 3 lockdown regulations. Production facilities involved in alcohol production and blending for sanitiser purposes remain operational in line with lockdown guidelines and classification as an essential item. The early spike in local demand initially put pressure on certain lines of inventory, but is set to normalise within weeks as more production sites come on line. The Group remains confident that it will be able to satisfy both export and domestic retail channels in the next three to six months. However, container processing constraints from local ports present a short-term risk to our export business. As previously stated, the Group has sufficient supply of raw materials to comfortably meet customer demand beyond the end of the current financial year. Liquidity position and balance sheet management A combination of: - the resumption of trading; - subsequent cash generation, - sufficient liquidity headroom; and - management’s proactive approach to prudently protecting the Group’s balance sheet gives more comfort to the Group’s ability to manage the short-term challenges facing the business. These measures have been put in place to position the Group for a full recovery, once trading patterns begin to normalise. Covenant obligations - Following further engagement with its lenders, the Group can confirm that it has secured approval for the temporary relaxation of its covenant obligations for the current measurement period. - Using incentives for debtors, cash generation has surpassed conservative estimates which have also allowed us to pay key suppliers. The Group will aim to have no creditors exceeding their payment terms by 30 June 2020. - We continue to support vulnerable customers and suppliers with customised payments dependent on size and their own liquidity restrictions. - All discretionary spend has been reduced to a minimum to only business critical spend. - The Group will announce the results of asset sales of two of its premium wine farms by the FY20 results presentation, on or around 27 August 2020. Whilst this period has been challenging, the pandemic has also presented a significant opportunity for the Group to re-align its business model to shifts in consumer behaviour and economic impact. Distell has proven itself to be a resilient African business with a strong and diverse portfolio to thrive in the long-term. We will share more about this at our FY20 results presentation, on or around 27 August 2020. Regardless, we remain committed to protecting the lives of our staff, livelihoods within our industry and to serving our customers efficiently and creating shareholder value over the long-term. PRE-CLOSE INVESTOR CONFERENCE CALL Management will be holding a pre-close conference call today at 14.00 (CAT) hosted by RMB Morgan Stanley. The management team will use this opportunity to discuss the trading update contained in this announcement and will be available to answer any questions related to the above. Participants are requested to register in advance by navigating to: https://www.diamondpass.net/7036012 Any forecast financial information contained herein has not been reviewed or reported on by the Group’s external auditors. Stellenbosch 30 June 2020 Sponsor and Corporate Broker RAND MERCHANT BANK (A division of FirstRand Bank Limited) Date: 30-06-2020 09:39:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.