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DISTELL GROUP HOLDINGS LIMITED - Trading update and pre-close investor call

2020/06/30 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
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