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COVID-19 update and trading statement
Distell Group Holdings Limited
Registration number: 2016/394974/06
JSE share code: DGH
ISIN: ZAE000248811
("Distell" or "the Group" or "the Company")
COVID-19 UPDATE AND TRADING STATEMENT
GENERAL
The Board and management of Distell wish to update the market on
various elements of its business since its last update on 26 March
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
over the past six weeks since the start of the lockdown on 26 March,
2020.
The Group is acting in accordance with a comprehensive plan of
action to mitigate the risks associated with the pandemic, alongside
a complementary team dedicated to medium term scenarios and
strategic actions to recession proof and position the business for
sustainable success post the crisis.
Distell’s key priority remains to protect the health and safety of
its employees by means of effective protocols and to ensure overall
well-being during this challenging time. The Company also continues
to do everything in its power to support its customers and suppliers
during the trading restrictions.
COVID-19 UPDATE
Industry and Government engagement
Distell is playing an integral part alongside other industry players
in engaging Government at every stage of the lockdown. It has
contributed in offering pragmatic solutions to responsibly trade
without adding further risks to public health and also aiming to
avoid dire economic consequences for the industry as a whole.
Positive infection at a Distribution Centre (DC)
Unfortunately, a security employee at one of the DC’s tested
positive for COVID-19 on Monday, 4 May, and was immediately placed
in quarantine and given the appropriate support. The employee was
asymptomatic and is recovering well. The distribution centre was
closed immediately and deep cleaning commenced within 12 hours of
the positive test. All prepared safety protocols were followed and
effective tracing implemented to gauge any further effect on staff
to receive assistance. Operations resumed on 7 May.
There has also been an additional infection with a contractor whose
services ended on 30 April. There was no impact on any site or
traced employees.
Donations and revenue generating opportunities by producing hand
sanitizers
- The Group has donated 105 000 litres of sanitizer to both
Government and NGO’s to support the need for responsible self-
isolation and good hygiene practices in vulnerable communities.
- It has also generated R8 million worth of revenue from the
sales of alcohol and sanitizer since the lockdown to a range of
businesses to support their own hygiene practices and/or for
resale. As a result of the short-term success and order
pipeline the Group is investigating this as a sustainable
business opportunity going forward.
Extended payment terms for vulnerable customers and suppliers
Throughout the lockdown the Group has supported its small and more
vulnerable customers with extended payment terms aligned with the
restrictive trading regulations. It has also honoured a payment
plan with its long-term suppliers in the wine-farming industry as
the largest procurer of grapes for wine.
TRADING STATEMENT AND PERFORMANCE
Due to the diverse geographical locations of the Group’s operations
the impact has been varied across the regions. While our South
African business has been unable to generate revenues since the
lockdown, there are parts of the business that are able to start
trading, albeit it at a reduced contribution.
As a result, the Group’s profit attributable to ordinary
shareholders for the 10 months ended April 2020 is expected to be
about 25% lower than the corresponding period of the previous year,
including approximately 6 weeks of no trading due to lockdown
regulations.
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, Distell shareholders are advised that 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 396,5 cents per share of the
corresponding period of the previous year. Headline earnings per
share ("HEPS") for the same period are expected to be between 60%
(391,7 cents per share) and 80% (522,3 cents per share) lower than
the 652,9 cents per share of the corresponding period of the
previous year. The quantum is based on currently available
information but could be impacted by the following up to 30 June
2020:
- Trading restrictions applicable to Level 3, and timing thereof;
- Potential credit loss provisions relating to customers, being
unable or restricted to trade dependent on specific channels
opening up during the various phases of the applicable lockdown
regulations;
- Potential impairment of stock dependent on the above-mentioned
restrictions and timings;
- Valuation of minority holdings in specific African countries
that may in turn be materially impacted by their own lockdown
measures and economic difficulties;
- The speed of export of products across the portfolio being sent
to international markets given the gradual opening up of ports
and surrounding borders; and
- The potential for a temporary short-term spike in demand
following the easing of lock down provisions in the larger
markets in which the Group trades.
The easing of export regulations related to agricultural products in
Level 4 meant that approximately R440 million worth of open orders
can now be processed for delivery to customers and operations in
geographies with open ports and no restrictions on the sale of
alcohol. Production in relation to our export business has also
begun at a reduced capacity. The Group will leverage this
opportunity to generate revenues notwithstanding the bottlenecks
that are being encountered at the ports and with current transport
regulations in South Africa.
Namibia, a key market within the BLNE (Botswana, Lesotho, Namibia &
Eswatini) business, will be relaxing restrictions on the trading of
alcohol from 2 June 2020. We will endeavor to fulfill orders to all
our customers in the country thereafter.
The Group’s largest Africa revenue contributor outside of BLNE,
Kenya Wine Agencies Limited (KWAL) has to date, delivered a
commendable performance in the midst of the Kenyan Government
lockdown regulations. KWAL can now start to receive product from our
South African operations with immediate effect due to the lifting of
the ban on exports.
PRODUCTION AND SUPPLY CHAIN
The Group has resumed limited operations in certain locations
related to the production and transport for export purposes only, in
line with Level 4 regulations. Production facilities involved in
alcohol production and blending for sanitizer purposes remain
operational in line with lockdown guidelines and classification of
essential items. Current inventory levels are sufficient to satisfy
both export and domestic retail channels upon further relaxation of
regulations. As previously stated, the Group has sufficient supply
of raw materials to comfortably meet customer demand beyond the end
of the current financial year should the lockdown be lifted or
restrictions eased further.
LIQUIDITY POSITION & BALANCE SHEET MANAGEMENT
We continue to focus on minimising the financial impact of COVID-19
on the business and are working with our stakeholders to maximise
all levers within our control. These actions give us confidence to
manage the short-term challenges in order to position ourselves for
a recovery once trading environments normalise:
- Notwithstanding the current impact, the Group has been engaging
with its lenders and can confirm that it has secured in
principle approval to increase its rand denominated banking
facilities by an additional R2,85 billion to manage its cash-
flow requirements during the next 12 months. This is a
combination of both short- and medium-term funding.
- The Group was granted an extension on excise duty payments for
90 days, delaying an approximate R970 million of a total of an
estimated R1,9 billion excise bill until after the end of the
financial year.
- Payments of most creditors, except farmers with whom we have
long-term supply arrangements and business critical suppliers,
have been delayed by 21 days. Supplier payments are approved on
a case-by-case basis with resulting communication.
- We have negotiated extended payment terms with most of our
customers dependent on size and their own liquidity
restrictions and we are working closely with those who are able
to pay, offering early payment discounts to incentivise
payments.
- Interventions to defer and reprioritise parts of the Groups’
capex program have been made with approximately R300 million
already deferred, which does not materially affect growth
prospects or our compliance obligations.
- All discretionary spend has been stopped, with only business
critical spend allowed.
- The Group has made progress to unlock value through the
potential sale of two of its premium wine farms and anticipates
being in a position to announce an outcome by the FY20 results
presentation on or around 27 August 2020.
The Board and executive management took a collective decision to
sacrifice up to 30% of their respective fees and remuneration for
three months effective 1 April 2020. The money will be donated to
the Solidarity Fund for the duration of the three months.
We continue to focus on how we respond to the pandemic and the
significant impact the lockdown has had on our business and how we
can create long term shareholder value post the crisis.
To this end, we will continue to update all shareholders and
stakeholders on our strategy as well as any material changes that
are required to manage our business in order to mitigate the impact
of the pandemic.
We anticipate hosting an investor conference call prior to entering
our closed period before 30 June 2020. We will use this opportunity
to update the market on the quantifiable effects of the pandemic
given the uncertainty and volatility of the situation with which we
are dealing. In the interim, we will continue to update investors
via the Stock Exchange News Service ("SENS") platform and our
website – www.distell.co.za.
Any forecast financial information contained herein has not been
reviewed or reported on by the Group’s external auditors.
Stellenbosch
15 May 2020
Sponsor and Corporate Broker
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 15-05-2020 09:00:00
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