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Trading statement for the year ended 30 June 2021 and impact of civil unrest in South Africa
Distell Group Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 2016/394974/06
JSE share code: DGH
ISIN: ZAE000248811
("Distell" or "the Group" or "the Company")
TRADING STATEMENT FOR THE YEAR ENDED 30 JUNE 2021 AND IMPACT OF
CIVIL UNREST IN SOUTH AFRICA
In terms of paragraph 3.4(b) of the Listings Requirements of the JSE
Limited, companies are required to publish a trading statement as
soon as a reasonable degree of certainty exists that the financial
results for the period to be reported on next will differ by at
least 20% from those for the previous corresponding period.
Accordingly, a review by management of the financial results for the
twelve months ended 30 June 2021 (FY21 or the current reporting
period) has indicated the following:
Expected Reported Change Reported Change
Financial Financial % Financial %
year ended year ended FY21 v year FY21 v
30 June 30 June FY20 ended FY19
2021 2020 30 June 2019
(cents) (cents) (cents) (cents)
Earnings
per share 838,1 – 489,4% - 111.4% -
(EPS) 866,5 142,2 509,4% 396,5 118,5%
Headline
earnings
per share 735,6 – 212,6% - 12,7% -
(HEPS) 782,7 235,3 232,6% 652,9 19,9%
The announcement on Sunday, 27 June 2021 by the South African
Government (Government) relating to the prohibition on the sale and
distribution of alcohol in the current adjusted Level 4 lockdown,
resulted in operating profit being negatively impacted by about
R30,0 million (9,8 cents per share after tax).
The expected results are based on currently available information
but could be further impacted by the following for the current
reporting period:
- Potential credit loss provisions relating to customers, being
unable or restricted to trade;
- Potential impairment of stock dependent on the effect of the
above-mentioned restrictions and timings; and
- Valuation of minority holdings in specific African countries
that may in turn be impacted by their own lockdown measures and
challenging economic situations.
In comparing the expected results for FY21 to that of the reported
results of financial year ended 30 June 2020 (FY20 or the prior
period) and the reported results of financial year ended 30 June
2019 (FY19), consideration should be given to the following items,
disclosed net of taxation, included in the reported results of the
prior years:
Impacting 30 June 2020 30 June 2019
Cents per Cents per
share share
Impairment of investments in EPS 92,2 238,7
associates and joint ventures
Credit loss provision on USD EPS and 35,2 86,7
denominated savings bonds with HEPS
the Zimbabwe Reserve Bank
TRADING ENVIRONMENT
The Group is able to provide a provisional update on year-to-date
trading performance for the period 1 July 2020 up to and including
30 June 2021 as follows:
• Despite disruptions due to various alcohol sales bans during
the current reporting period, the strength of the route-to-
market (RTM) in South Africa alongside improved customer
execution, innovations and brand strength translated into
further market share gains across all categories in the period.
This has resulted in the South African business achieving
revenue and volume growth of 29,4% and 28,7% respectively when
compared to the prior period. This represents a 5,8%
improvement in revenue and a 3,5% volume decline when compared
to pre-COVID levels in FY19 despite a 20% reduction in trading
days in the current reporting period.
• Operations in the BLNE (Botswana, Lesotho, Namibia & Eswatini)
regions performed admirably notwithstanding being adversely
affected by specific country bans on alcohol sales. Revenue and
volumes improved by 23,6% and 22,2% respectively when compared
to the prior period. This represents a 6,7% revenue improvement
with near flat volumes when compared to FY19.
• The Group’s Africa business outside of BLNE has continued to
perform resiliently during the current reporting period, led by
Mozambique, Nigeria, Ghana and Zambia as a result of continued
RTM investments. Comparative revenue and volumes are expected
to be up by 22,4% and 38,6% respectively when compared to the
prior period. Compared to FY19, revenue is expected to increase
by 30,5% and volumes by 24,5%.
• Our international operations were negatively affected early in
the onset of the global pandemic given the adverse effect on
global travel retail sales, combined with Amarula and wine
export challenges to markets outside of South Africa. The
business has subsequently recovered well in its focus on key
markets, premium spirits and increased digital channel
execution. As a result, a 10,0% revenue increase is expected
compared to the prior period, with a flat revenue but
meaningful margin improvement compared to FY19 levels.
• Overall, as a result of the above, the Group is expecting a
rise of 26,3% in revenue and 26,2% volume growth compared to
the prior period. This represents a 7,7% revenue increase and a
2,1% volume decline when compared to FY19.
• Group earnings before interest and taxation (EBIT) has
recovered considerably, and EBIT margin is expected to improve
to near pre-COVID-19 levels.
The Group’s agility to respond in the face of major business
disruption enabled by strategic investments in RTM, brand
development, innovation, true supplier partnerships and supply chain
optimization supports our confidence in our ability to fully recover
and compete effectively in the long-term.
LIQUIDITY POSITION
Given the resilient performance demonstrated at the interim period,
and further highlighted in the nine-month Performance Update
published on 20 April 2021, Distell’s strong ability to generate
cash across all geographies has had a positive effect on its
liquidity and overall net debt position of the Group.
The Group has improved its net debt to a stronger position compared
to pre-COVID-19 levels due to management’s proactive approach to
prudently protect the balance sheet during the last 12 months. The
Group’s net debt position at 30 June 2021 is expected to be less
than R2,3 billion, compared to R5,9 billion at the end of the prior
period, and R3,9 billion at end of FY2019. It is therefore well
within its debt covenant levels relating to its South African
medium-term debt.
IMPACT OF CIVIL UNREST IN SOUTH AFRICA
We have been deeply disturbed by the recent civil unrest and
incidents of violence and looting affecting KwaZulu-Natal and parts
of Gauteng.
The safety of our staff remains our priority. As a precaution, we
temporarily closed several operations in the affected areas which
have now gradually re-opened. We are relieved that no staff members
were harmed but are extremely concerned at the loss of life and the
devastating impact on livelihoods due to this unrest.
One of our Distribution Centres (DC) in KwaZulu-Natal was damaged
and our operations disrupted. Initial assessments placed the damage
at approximately R100 million. All other sites in South Africa are
secure and without damage, and we have put additional security in
place until the situation calms.
The affected DC is insured and we are in the process of lodging
insurance claims to recover losses incurred.
We are deeply grateful to our supply chain and distribution teams,
as well as our security personnel and partners at the South African
National Taxi Association (Santaco), who have worked tirelessly to
protect our business.
We will continue to assist all our customers, as we did throughout
previous bans, who are now further affected by the unrest to help
rebuild their businesses and support them as trade resumes. The
Group currently has sufficient stock cover to support customers when
sales resume.
LEADING AMIDST THE THIRD WAVE AND UNJUSTIFIABLE ALCOHOL BAN
The industry has repeatedly warned and demonstrated via research
that bans fuel illegal activity, particularly amongst crime
syndicates who are significantly strengthened during prohibition. It
is becoming increasingly difficult to reverse this as syndicates
become entrenched.
The recent unrest demonstrates the unfortunate effect syndicates
have in an environment where poverty and unemployment have been
exacerbated from the pandemic.
Recent research shows that bans on alcohol sales have increased and
fueled the illicit trade. This has now reached an unacceptable 22%
(nearly a quarter) of total market volumes in South Africa, worth
R20,5 billion in sales value. This has cost the fiscus R11,3
billion in tax revenues, at a time when the country can least afford
it.
We estimate that 332 of our direct and indirect customers have been
adversely affected by looting during the recent unrest. This has
added to the quantity in illicit hands, over and above robbing
future sales from licensed Small-to-Medium-Enterprise (SME) business
owners.
The fourth ban on alcohol sales was announced on 27 June 2021 with
no warning, no consultation with the industry, and poor empirical
justification. As an industry collective we are consistently and
constructively in dialogue with decision makers to consider
alternative solutions to prohibition. This is to ensure the
continued health of an industry that positively affects more than
1,000,000 livelihoods in South Africa.
The alcohol industry reaches and supports vital sectors of the
economy. These include agriculture, tourism, hospitality,
manufacturing, and importantly, hundreds of thousands of SMEs.
Cumulatively, these sectors would normally contribute approximately
R1,3 billion in taxes per week – every rand of which is lost while
the ban is in effect. Distell itself contributes 60 cents of every
R1 it generates to Government in collective taxes. These taxes -
and related employment - are vital to the country’s recovery, not
only from the pandemic but also the recent unrest. Recovery –and the
role our industry must play - is now critical.
We will continue to engage with Government to find a more
collaborative and transparent method to finding pragmatic and
effective solutions, including a strong focus on promoting
responsible consumption.
Our focus is also on implementing effective solutions to curb the
spread of the virus and supporting those most impacted by the ban.
One of our most important interventions is to support the taverner
community and work with our partners in the taxi industry to invest
in and encourage adherence to COVID-19 safety protocols and drive
responsible alcohol consumption within our country.
Practical support for the country’s vaccination drive to create
population immunity and enable a return to full economic activity is
also underway. We have started converting some of our sites into
vaccination centres for employees and will make them available to
the public should Government approve our application to do so.
INVESTOR CONFERENCE CALL
The Group’s financial results for the twelve months ended 30 June
2021 will be released on the Stock Exchange News Service on or about
Thursday, 26 August 2021. Management will be hosting a conference
call post the release of the Group’s year-end results.
Registration will be made available shortly via the Group’s investor
relations website www.distell.co.za/Investor -Centre.
Any forecast or estimate financial information contained herein has
not been reviewed and reported on by the Group’s external auditors.
Stellenbosch
23 July 2021
Sponsor and Corporate Broker
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 23-07-2021 07:30:00
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