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Voluntary announcement relating to impact of the coronavirus pandemic
Distell Group Holdings Limited
REGISTRATION NUMBER: 2016/394974/06
JSE share code: DGH
ISIN: ZAE000248811
("Distell" or "the Group" or "the Company")
VOLUNTARY ANNOUNCEMENT RELATING TO IMPACT OF THE CORONAVIRUS
PANDEMIC
OVERVIEW
The Coronavirus (COVID-19) pandemic continues to impact all
aspects of global society with serious ramifications for the
global economy. As South Africa prepares as best it can to
minimise the impact of the pandemic, the board of directors and
management of Distell are working collaboratively with
government, retailers, suppliers, customers and most importantly
staff to ensure that they are as best prepared as they can to
address the potential long and short term effects COVID-19 will
have on our business. Distell’s key priority is to protect the
health and safety of its employees and furthermore to do
everything in its power to support its customers.
COLLABORATION WITH HEALTH AUTHORITIES, LOCAL GOVERNMENT,
EMPLOYEES AND CUSTOMERS
Distell is following the guidelines of the World Health
Organisation (WHO), the National Institute of Communicable
Diseases and advice announced by the local governments in the
markets in which it operates to ensure required actions are
taken in relation to the effect of COVID-19 on its customers,
employees, suppliers and operations.
A special task team convenes daily to give guidance on existing
operational policies affecting employee well-being, our supply
chain and customer supply. Comprehensive response plans have
been in place since the outbreak and are implemented to cover
contingencies including supply chain disruption, product
sourcing, logistics, hygiene and cleansing procedures, and
education on prevention.
The Group notes the imminent 21 day lockdown recently announced
by the South African government which includes the ban of all
alcohol sales during this period, and this is being incorporated
into all its contingency planning. Whilst the situation is
extremely challenging and dynamic, and some effects are
difficult to quantify at this stage, the Group would like to
confirm the following at the date of this announcement:
- No cases of COVID-19 have been reported in any of its
operations.
- Voluntary changes have been implemented to its marketing
code of conduct to promote moderate and responsible in-
home consumption of alcoholic beverages.
- Given the large volumes of alcohol production, the Group
has committed to the production of 100 000 liters of
alcohol for sanitisers for both commercial and societal
purposes. The Group will work with Government to make
available its distribution platforms to support the need
for responsible self-isolation and good hygiene practices
in vulnerable communities.
- The Group is committed to finding ways to support its small
and more vulnerable customers, as well as its long-term
suppliers in the wine farming industry as the largest
procurer of grapes for wine. We will continue to work with
Government and financial institutions to ensure as best we
can, the financial health of our long-term partners during
this challenging time, and ensure the long-term
sustainability of the industry.
PERFORMANCE
The Group has seen an expected early negative effect on its
revenue and volumes across most geographies.
Export activity will also be affected by the lockdown.
Approximately 70% of Africa revenue (excluding BLNS) is exported
from South Africa to local operations. BLNE (Botswana, Lesotho,
Namibia & Eswatini) operations are fully reliant on product
produced and transported from South Africa.
The Group’s largest Africa revenue contributor, Kenya Wine
Agencies Limited (KWAL) is however only reliant on imports for
30% of its revenue.
The full effect on revenues and profitability will be more
accurately quantified after the lockdown is completed.
PRODUCTION AND SUPPLY CHAIN
The Group will be closing the majority of its production
facilities not involved in alcohol production for sanitizer
purposes in line with lockdown guidelines and classification of
essential items. Current inventory levels are at approximately
41 days cover. The Group has sufficient supply of raw materials
to comfortably meet customer demand beyond the end of the
current financial year once the lockdown has been completed.
POTENTIAL FINANCIAL IMPACT
The Group anticipates that its cash generation will be affected,
but that its balance sheet remains strong, which is demonstrated
by a debt to debt-plus-equity ratio of 26,9% at the December
2019 reporting period. The Group’s borrowings are secured by
mortgages over immovable property, general notarial bonds over
movable assets and a cession over trade and other receivables of
specific Group subsidiaries.
The Group’s foreign debt amounting to GBP65 million is ring-
fenced to Distell International Limited and secured against in-
country stock. Angolan and Nigerian foreign exchange exposure
is at a minimum as a result of appropriate planning given recent
currency volatility.
The Group can confirm it has not breached any debt covenants and
currently has sufficient headroom, also dependent on crucial
cash preservation actions, to navigate the uncertainty over the
next few months. In addition, it is also actively engaged with
its lenders to create an additional margin of safety in order to
operate out of this period should it be prolonged.
CASH PRESERVATION AND BALANCE SHEET MANAGEMENT
In these uncertain and dynamic times, the Group’s focus is to
conserve cash resources by limiting all unnecessary operational
expenses, reprioritising initiatives and deferring non-critical
capital projects. Customers remain one of our key priorities and
will be ready to work alongside them to meet customer demand for
our products once the lockdown finishes.
The Group is also continuing its process to unlock value and
lighten its balance sheet as consistent with previous actions.
The Premium wine unit of Libertas Vineyards & Estates will be
reintegrated back into the business. The Board has decided that
in line with Distell’s strategy to enhance returns and reduce
complexity in the organisation the Alto and Plaisir de Merle
estates along with its brands, trademarks, and stock will be put
on the market to be sold.
POST LOCKDOWN
Distell is suitably positioned to support its customers and
demand post lockdown:
- Working with our key retail customers to ensure their
online deliveries can be fulfilled by allocating a
significant sales effort and logistical support for its
stock to be moved to their distribution centers to
safeguard supply when allowed.
- Consistent with its digital transformation capability
shift, the decentralised business units have stepped up
their e-commerce efforts to have product representation
across all key online platforms of the market once sales
are permitted.
- Successful launch of a B2B online storefront pilot for
customers and scaling it up throughout the remainder of the
year.
Distell is very aware of the dynamic situation COVID-19 presents
for our business, our country and all of our stakeholders. We
will continue to update you on our business and strategy and the
impacts this pandemic will have on our business via the Stock
Exchange News Service (“SENS”) platform in terms of the JSE
Listings Requirements and our website – www.distell.co.za.
A detailed Q&A from a recent broker conference call can be
accessed via our website www.distell.co.za/investor-centre/ and
will look to hold another at the appropriate time.
Any forecast financial information contained herein has not been
reviewed or reported on by the Group’s external auditors.
Stellenbosch
26 March 2020
Sponsor and Corporate Broker
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 26-03-2020 12:16:00
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