Wrap Text
Audited group results for the year ended 30 June 2019 and cash dividend declaration
Distell Group Holdings Limited
Registration number 2016/394974/06
JSE share code: DGH ISIN: ZAE000248811
("Distell" or "the Group" or "the Company")
AUDITED GROUP RESULTS
FOR THE YEAR ENDED 30 JUNE 2019 AND CASH DIVIDEND DECLARATION
SALIENT FEATURES
Comparable Group revenue up 9.4% on flat volumes (1)
- Solid domestic revenue growth in all three categories in subdued economic conditions and highly competitive market
- Exceptional and profitable growth in Africa
- International margin growth benefiting from premium focus
- Revenue (net of excise) growth in 12 out of the top 15 largest brands
EBITDA
- Reported down 22,8%
- Normalised and adjusted for forex up 7.5% (2,3)
Headline earnings
- Reported down 1,7%
- Normalised and adjusted for forex up 7,0% (3)
Total dividend for the year up 7,1%
Return on invested capital (ROIC) normalised and adjusted for forex up 34bps
1 The Group adopted the new accounting standard IFRS 15 Revenue from Contracts with Customers with effect from 1 July 2018. The Group makes payments or
provides products to customers which, under IFRS 15, are not regarded as payment for distinct goods and services and for which separate performance conditions
cannot be determined (see note 12 to the summary financial statements). From 1 July 2018, these costs are allocated against revenue as the Group has applied
the modified retrospective application option and comparative information has not been restated. For comparability purposes, pro forma restated figures were
calculated as disclosed in note 12.
2 Normalised earnings before interest, tax, depreciation and amortisation (EBITDA) refers to EBITDA adjusted for the: (a) prior year gain on the unbundling of Lusan
and the sale of Bisquit, (b) the prior year one-off losses and write-off in Tanzania Distilleries Limited (TDL), an associate company, following a sachet ban and excise
duty dispute, (c) profit on disposal and impairment of property, plant and equipment (PPE) and intangible assets, (d) Group restructuring, retrenchment and other
non-recurring costs, (e) expected credit loss on Zimbabwe financial assets, and (f) impairment of the investment in Best Global Brands Limited (BGB).
3 Foreign currencies and abnormal transactions affect the Group’s performance. Where relevant in this report, adjusted non-IFRS measures are presented. These
adjusted measures represent pro forma financial information. A reconciliation of the pro forma financial information to the equivalent IFRS metrics is provided in
note 3 to the summary financial statements.
This information is a summary only and does not contain full details of the financial results. Accordingly, any investment decisions should be based on information
contained in the full announcement which can be found on SENS, or on the company's website at http://www.distell.co.za. The full announcement is also available for inspection
at the registered office of the company and the sponsor (at the addresses set out below), at no charge, during normal business hours.
DIRECTORS’ STATEMENT
The directors, who take responsibility for the contents of this short-form announcement, present the audited summarised results of the Distell Group for the
year ended 30 June 2019. The summary consolidated results were prepared under supervision of the Group chief financial officer, LC Verwey CA(SA).
OPERATING PERFORMANCE OF CONTINUING OPERATIONS
Comparable Group revenue grew by 9,4% to R26,2 billion on constant volumes, with revenue at constant currency growing by 7,1%. Revenue excluding excise duty grew by
8,8%. Reported revenue grew by 8,0%.
Comparable domestic market revenue increased by 9,5% with sales volumes down by 0,9% as consumer confidence and disposable income remain subdued and with increased
value offerings by competitors, particularly in beer. The Group took tactical pricing decisions in the period which had a positive effect on revenue and margins.
The cider and ready-to-drink (RTD) portfolio delivered double-digit revenue growth, with Savanna, Extreme and Bernini maintaining their excellent growth momentum
as they stole share from beer.
The spirits category showed strong revenue growth led by premium white spirits. Cruz Vodka is maintaining double-digit revenue and volume growth following a successful
75% acquisition mid-2017. Count Pushkin doubled volumes and revenues off the back of white spirit trends and an expanded flavour range launched during the financial
year. Gin brands continue to deliver double-digit revenue and volume growth. The whisky category showed volume and revenue growth in both the premium and blended
portfolio following a refreshed strategy implementation last year. Award winning brands, Bain's and Scottish Leader, delivered double-digit revenue growth while
Three Ships showed commendable double-digit revenue growth in a competitive category. Brandy volumes declined as consumers traded down to competing value offerings.
However, the overall brandy portfolio showed revenue growth.
The wine portfolio recorded muted revenue growth as wine supply shortages resulted in above-inflation cost increases, which led us to pass on
pricing to consumers. This impacted some of our key accessible scale wine brands in particular. The premium wine portfolio, under a newly independent entity,
Libertas Vineyards and Estates (LV&E),recorded low revenue growth following a portfolio and route-to-market (RTM) restructure alongside pricing decisions implemented
across the brand portfolio. The renewed focus on core brands is yielding results with established brands achieving solid growth and overall margin improvement.
African markets, outside South Africa, delivered exceptional comparable revenue growth of 20,0% on sales volumes which were up by 10,3%. Focus markets on the
continent, outside the Southern African Customs Union (SACU), delivered excellent results with revenue and volume growth of 40,6% and 28,6% respectively, as we see the
benefits of establishing strong local partnerships, local production and end-to-end RTM platforms. All categories delivered overall double-digit volume and revenue
growth, led by Nigeria, Kenya, Zambia, Ghana and Mozambique. The RTD category growth came from Hunter's and Savanna while the spirits category growth was led by Kibao
and Hunter's Choice Whisky in Kenya. Strong growth in wines was experienced across the portfolio. Mainstream brands delivered overall double-digit volume and revenue
growth with 4th Street delivering triple-digit performance by volume and value.
Trading conditions in Angola and Zimbabwe remained challenging with currency devaluations and liquidity restrictions amidst tough economic conditions impacting
on operating performance, specifically in the second half of the financial year. As a result, the Group decided it would be prudent to impair about two-thirds of the
value of its 26% investment in BGB, with the majority of its operations in Angola, as well as recognise a credit loss provision of about 80% on its US dollar dominated
savings bond with the Zimbabwe Reserve Bank. We remain confident in the Angola business given that volumes and market share continue to improve since our original 26%
acquisition as structural reforms take effect. We will also continue to support the African Distillers Limited (Afdis) team in Zimbabwe, in which we own a 31% indirect
interest, throughout this period. We are confident in managing these risks by continuing to expand our local production and RTM platforms while being less dependent on
our historic export business.
BLNS countries in SACU delivered low overall revenue growth. The Africa region contributed 59,6% to foreign revenue growing its overall
contribution to Group revenue to 15,5% in the period.
Volumes in international markets, also under the venture business unit, outside Africa declined by 10,6% with comparable revenue remaining constant. This was in line
with expectations as our focus continued to shift from the lower-margin wine and RTD categories, toward our higher-margin premium wine and spirits portfolios. Various
markets and categories were exited, such as RTD's as well as distribution agreements being rationalised. As a result, the region grew EBITDA margins by 300 basis
points. Volume and revenue growth in our spirits portfolios was impacted by lower Scottish Leader sales in Taiwan despite the brand maintaining its market share.
Strong sales of single malts were recorded in all major markets.
Comparable operating costs rose by 10,9%. Our underlying operating costs, which exclude cost of goods sold and the costs referred to below, were well controlled and
grew at only 2,9%. Group retrenchment, restructuring and other one-off costs of R223,3 million are included in operating costs. These costs mainly relate to
initiatives, which were largely completed by 30 June 2019, to optimise and improve the efficiencies of our supply chain and a review of central support functions
throughout the Group. Included in operating costs is R266,1 million relating to the Zimbabwe bond credit loss provision referred to earlier.
Other gains and losses include the impairment of R524,0 million of our investment in BGB referred to above.
Foreign currency translation gains amounted to R25,4 million (2018: R53,1 million in losses).
Net finance costs declined by 8,3% to R270,9 million.
Distell's share of equity-accounted earnings increased from R31,4 million to R61,5 million.
EBITDA declined by 22,8%. Normalised EBITDA, which excludes the impact of the impairments, the profit on sale of investments, the one-off losses in TDL in the prior
year, retrenchment and Group restructuring costs, increased by 12,4%. Normalised EBITDA, excluding foreign currency translation movements, increased by 7,5%.
The effective tax rate was 41,5% (2018: 29,7%). This is largely attributable to the R524,0 million impairment of BGB which is not tax deductible.
Headline earnings, including discontinued operations of the prior year, declined by 1,7% to R1,4 billion, and headline earnings per share by 1,8% to 656,4 cents.
Excluding the currency conversion movements, the Group retrenchment and restructuring costs, credit loss provision on Zimbabwe bonds and the TDL losses referred to
above, headline earnings increased by 7,0%. Earnings per share declined by 45,6% to 408,4 cents.
INVESTMENT AND FUNDING
Total assets increased by 6,4% to R23,5 billion.
Investment in net working capital increased by 2,1% to R6,7 billion, benefiting from improved trade payable management. Inventory, the main component, was up 9,6% to
R8,3 billion (2018: R7,6 billion). Bulk spirits in maturation remained unchanged at R2,9 billion. Investments in bottled stock and packaging material increased by
19,5% to ensure that the Group will be able to supply products to customers while we are busy optimising our production network configuration. Trade and other
receivables increased by 9,1%, while trade and other payables and provisions increased by 20,3% as the Group benefited from improvements realised in its shared
service centre and centralised procurement.
Capital expenditure for the period amounted to R1,3 billion (2018: R1,2 billion). Of this, R536,7 million was spent on the replacement of assets. A further
R722,3 million was directed to the expansion of capacity, mainly in relation to the Group's manufacturing and distribution facilities.
Net cash generated from operations was R2,9 billion (2018: R3,1 billion). The Group remains in a strong financial position with low levels of gearing, which is
demonstrated by a debt to debt-plus-equity ratio of 24,5% (2018: 22,5%) and a debt-to-equity ratio of 32,5% (2018: 29,0%) at the end of the reporting period.
DISCONTINUED OPERATIONS
The financial results of Bisquit, which was sold on 31 January 2018, have been excluded from the continuing operations of the Group and are disclosed separately as
'discontinued operations' in the comparative numbers in the summary financial statements.
PROSPECTS
The International Monetary Fund (IMF) predicts that global growth should return to 3,6% in 2020 after subdued growth this year of 3,2%. Although global growth is
still reasonable, the outlook for many countries is challenging, with considerable uncertainties in the short term. An escalation of trade tensions remain a key source
of risk and financial conditions have tightened internationally as debt levels remain high.
Growth in sub-Saharan Africa is expected to rebound to 2,8% in 2019, with countries such as Kenya, Ghana, Tanzania and Mozambique exceeding that. The outlook towards
Angola and Nigeria remains cautious.
The IMF has lowered South Africa's projected GDP growth rate for 2019 to 1,2%. We expect that high unemployment, inflationary pressure from rising input costs,
particularly fuel and energy costs, and a weaker rand will continue to cause low consumer confidence and constrained spend throughout the next fiscal year.
We will continue to defend and grow our South African business with a targeted increase in market share across our portfolio, while seeking to drive category
growth through innovation. These aspirations will be achieved through a combination of investment in our brands and continued improvement in market
service excellence. We will continue with our network optimisation programme to build a world-class local production footprint.
Sub-Saharan Africa's growth outlook affirms our strategic focus on this region. We aim to accelerate sustainable growth in select markets on the continent through
investment in local brands and the expansion of our local production and RTM platforms.
Going forward, our international operations will be split into three business units: international spirits, exports, and premium wine through Libertas Vineyards and
Estates. This will create three highly specialised businesses, focused on their respective strengths. We believe this gives us the best opportunity to grow premium
spirits and wines in key markets and drive brand premiumisation in line with consumer demand.
Distell will continue with a number of important changes to its operating model and investments behind its network optimisation alongside strategic future fit
capabilities in growth and innovation, shared services and digital transformation.
Distell's diversified portfolio of well-known brands, which trades across taste profiles, mixed-gender occasions and repertoires, underscores our ability to capture
growth opportunities as they arise. This is driven by a purpose-led ambition to create memorable moments, while building a better future. We aim to become an African
drinks champion and benefit communities in which we operate.
CASH DIVIDEND DECLARATION
The directors have resolved to declare a gross cash dividend, number 3, of 249,0 cents (2018: 230,0 cents) per share for the year ended 30 June 2019.
This represents a total dividend of 423,0 cents (2018: 395,0 cents) for the year and a dividend cover of 1,9 times (2018: 1,9 times) normalised headline earnings.
The dividend has been declared from income reserves. The dividend withholding tax, levied at 20%, will amount to 49,8 cents per ordinary share. As a result, ordinary
shareholders who are liable to pay dividends tax will receive a net dividend amount of 199,2 cents per share. Shareholders exempt from paying dividends tax will receive
249,0 cents per share. The issued ordinary share capital as at 27 August 2019 is 222 382 356 (2018: 222 382 356) ordinary shares. The company's income tax reference
number is 9759621163.
The dividend will be payable to shareholders who are recorded as such on the register on the record date on Friday, 13 September 2019, and will be paid on
Monday, 16 September 2019. The last day to trade cum dividend will be on Tuesday, 10 September 2019, and shares commence trading ex dividend from
Wednesday, 11 September 2019.
Share certificates may not be dematerialised or rematerialised between Wednesday, 11 September 2019, and Friday, 13 September 2019, both days inclusive.
BASIS OF PREPARATION, ACCOUNTING POLICY AND COMPARATIVE FIGURES
These results have been prepared in accordance with section 3.46 of the Listings Requirements of the JSE Limited (JSE) and have been applied consistently to all
the periods presented and the previous reporting periods, with the exception of the adoption and implementation of the following new accounting standards and
interpretations: IFRS 9 Financial Instruments, and IFRS 15 Revenue from Contracts with Customers.
The impact of the adoption of these standards is disclosed in note 12 to the summary consolidated annual financial statements which are available as indicated below.
None of the other new or amended accounting pronouncements that are effective for the financial year commencing 1 July 2018 which is not disclosed in note 12 have a
material impact on the consolidated results of the Group.
Signed on behalf of the board:
JJ Durand RM Rushton
Chairman Group chief executive officer
Stellenbosch
28 August 2019
DIRECTORS: JJ Durand (chairman), GP Dingaan, DP du Plessis, T Kruythoff, PR Louw (alternate), MJ Madungandaba, EG Matenge-Sebesho, CA Otto, AC Parker,
RM Rushton (Group chief executive officer), CE Sevillano-Barredo, LC Verwey (Group chief financial officer)
COMPANY SECRETARY: L Malan
REGISTERED OFFICE: Aan-de-Wagenweg, Stellenbosch 7600
TRANSFER SECRETARIES: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank 2196
SPONSOR: Rand Merchant Bank (A division of FirstRand Bank Limited), 1 Merchant Place, c/o Rivonia Road and Fredman Drive, Sandton 2196
REGISTRATION NUMBER: 2016/394974/06
JSE SHARE CODE: DGH ISIN: ZAE000248811
ACCESS TO INFORMATION
The full financial results:
- can be viewed on SENS;
- can be viewed online at http://www.distell.co.za (Investor Centre); https://www.distell.co.za/investor-centre/financial-results/DGHFY19.pdf
- can be viewed online at JSE; https://senspdf.jse.co.za/documents/2019/JSE/ISSE/DGHE/DGHFY19.pdf
- are available for inspection at the company's registered offices and the offices of the sponsor at no charge, during normal business hours from 28 August 2019; or
- may be requested in printed format from the company secretary, tel: +27 21 809 7000.
VIEW THESE RESULTS ONLINE: http://WWW.DISTELL.CO.ZA
Date: 28/08/2019 07:05:00
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.
Sharenet Sites 
