Wrap Text
Unaudited Group results for the six months ended 31 December 2018 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")
Unaudited Group results for the six months ended
31 December 2018 and cash dividend declaration
SALIENT FEATURES
Comparable Group revenue up 9,1% on flat volumes (1)
- Solid domestic revenue growth in all three categories in tough trading conditions
- Revenue (net of excise) growth in 12 out of the top 15 largest brands
- Exceptional African performance led by Kenya, Mozambique and Zambia
- International growth benefiting from focus
EBITDA
- Reported up 5,7%
- Normalised and adjusted for forex up 6,1% (2,3)
Headline earnings
- Reported up 12,1%
- Normalised and adjusted for forex up 6,6% (3)
Interim dividend up 5,5%
Net cash generated from operating activities up 35,8%
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 condensed 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, and e) expected credit loss on Zimbabwe financial assets.
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 condensed financial statements.
OPERATING PERFORMANCE OF CONTINUING OPERATIONS
Comparable Group revenue grew by 9,1% to R14,4 billion on constant volumes. Revenue excluding excise duty grew by 9,3%. Reported revenue grew by 7,3%.
Comparable domestic market revenue increased by 7,8% with sales volumes down by 2,1% as declining disposable income impacted on peak-season sales and consumer
confidence. As previously guided, the Group took proactive pricing decisions in the period which had a positive effect on revenue. The cider and ready-to-drink (RTD)
portfolio continued to deliver overall revenue growth on marginally lower volumes, with Savanna, Extreme and Bernini achieving excellent volume and revenue growth.
The spirits category showed strong revenue growth led by exceptional gin and vodka growth. The whisky category showed resilience with excellent volume and
revenue growth with our blended whisky portfolio bucking international trends and capturing down-trading consumption. Bain's continues to outperform with double-digit
volume and revenue growth. Brandy volumes declined as consumers traded down to value offerings and to beer where price competition has been intense across channels and
occasions. The wine portfolio recorded muted revenue growth. The mainstream wine portfolio experienced single-digit revenue growth with standout performances from
Drostdy-Hof and Paarl Perle showing double-digit revenue growth in each brand in spite of higher pricing caused by higher cost inflation associated with the recent
drought. The premium wine portfolio recorded low revenue growth as aggressive pricing decisions were implemented across the brand portfolio. However, commendable
growth was seen in established brands like Durbanville Hills, Nederburg and Pongracz.
African markets, outside South Africa, delivered exceptional comparable revenue growth of 21,1% on sales volumes which were up by 12,7%. Focus markets on the
continent, outside the Southern African Customs Union (SACU), delivered excellent results with revenue and volume growth of 43,0% and 34,1% respectively, giving
impetus to our African growth objectives. Nigeria, Kenya, Zambia and Mozambique all recorded strong growth across all three categories as we continue to build our
local production and route-to-market (RTM) across the markets. All categories delivered overall double-digit volume and revenue growth. The RTD category growth came
from Hunter's and Savanna while spirits category growth was led by Kibao and Hunter's Choice in Kenya. Strong growth in wines was experienced across the portfolio with
J.C. Le Roux and Nederburg the standout premium brands delivering double-digit growth. 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 impacting on operating performance. We are confident in managing these risks by continuing to expand our local production and RTM platforms
whilst being less dependent on our historic export business. BLNS countries in SACU delivered low overall revenue growth. The Africa region contributed 62,4% to
foreign revenue and pleasingly its contribution to Group revenue rose to 15,6% in the period.
Volumes in international markets outside Africa declined by 6,5%, predominantly affected by trading conditions in Europe and North America where we have curtailed the
sales of lower margin wines. Comparable revenue increased by 3,7% as momentum built on a narrower and more profitable portfolio. Volume and revenue growth in our
spirits portfolio was led by excellent Scottish Leader growth in Taiwan and strong sales of single malts in all major markets. Wine volumes and revenue in the UK
delivered excellent growth.
Comparable operating costs rose by 9,4%, of which sales and marketing costs rose by 9,8%. Our underlying operating costs were well controlled and grew at 8,4%.
However, Group retrenchment, restructuring and other one-off costs of R68,0 million are included in operating costs. The Group invested USD21,7 million in savings
bonds of the Reserve Bank of Zimbabwe following severe currency restrictions that limited the ability of customers to repatriate funds to South Africa. Included in
operating costs are expected credit losses of R42,1 million related to this investment. More detail is provided in note 12(b) to the condensed consolidated interim
financial statements.
The Group has recently announced further initiatives to optimise and improve the efficiencies of our supply chain. It is also reviewing central support functions
throughout the Group to align to new ways of working which support a change in culture, operating model efficiencies and decision making.
Foreign currency translation gains amounted to R65,2 million (2017: R66,3 million in losses).
Net finance costs declined by 9,2% to R150,4 million.
Distell's share of equity-accounted earnings increased from R10,9 million to R18,7 million.
EBITDA grew by 5,7%. 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 11,2%. Normalised EBITDA, excluding foreign currency translation movements, increased by 6,1%.
The effective tax rate was 28,2% (2017: 27,7%).
Headline earnings and headline earnings per share, including discontinued operations of the prior year, increased by 12,1% to R1,3 billion and 570,7 cents
respectively. Excluding the currency conversion movements, the Group retrenchment and restructuring costs and the TDL losses referred to above, headline earnings
increased by 6,6%.
INVESTMENT AND FUNDING
Total assets increased by 10,3% to R24,6 billion.
Investment in net working capital declined by 14,9% to R5,9 billion, benefiting from the Bisquit Dubouche et Cie (Bisquit) disposal in the previous year and improved
trade payable management. Inventory remained constant at R7,4 billion. Of this, bulk spirits in maturation, excluding that of Bisquit, planned in accordance with the
Group's longer-term view of consumer demand for its brands in this category, increased by 1,8% to R2,9 billion. Investment in bottled stock and packaging material
increased by 11,0%. Trade and other payables increased by 29,2% as the Group benefited from improvements realised in its shared service centre and centralised
procurement.
Capital expenditure for the period amounted to R553,8 million (2017: R543,4 million). Of this, R245,3 million was spent on the replacement of assets. A further R288,5
million was directed to the expansion of capacity, mainly in relation to the Group's manufacturing facilities for cider and spirits.
Net cash generated from operating activities increased by 35,8% to R2,4 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 16,2% (2017: 24,5%) and a debt-to-equity ratio of 19,3% (2017: 32,5%) 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 condensed financial statements.
PROSPECTS
Global expansion has weakened and growth forecasts for 2019 and 2020 have been revised downward. An escalation of trade tensions remain a key source of risk and
financial conditions have tightened internationally as debt levels remain high. On the contrary, growth in sub-Saharan Africa is expected to improve over the same
period with caution towards Angola and Nigeria due to softer oil prices alongside changes in government.
This year continues to be another challenging period for the South African economy as per capita GDP continues to decline together with high rates of unemployment.
Less favourable weather conditions in certain maize-production areas may also negatively impact on the country's growth outlook. However, inflation forecasts
indicate that subdued levels will continue and the overall economic growth momentum is expected to pick up from the second half of the calendar year.
The Group has secured sufficient grape and wine supply for the forthcoming cycle following early indications that this year's harvest will not produce an increase in
volumes compared to the previous year. The Group is maintaining its water management and reduction programme, especially in the Western Cape, as it extends
the programme nationally.
We will continue to defend and grow our South African business with a targeted annual 0,5% increase in market share across our portfolios. We will leverage off
improved market execution and revitalised and improved marketing investment behind key brands while we continue to restructure our portfolio for optimal returns.
Sub-Saharan Africa growth affirms our strategy to continue the expansion of our local production and RTM platform across selected African countries. We anticipate
further growth as we invest behind and leverage off opportunities in mainstream spirits and wine as well as cider and RTDs.
Conditions outside Africa affirm our refined international focus to grow our premium spirits portfolio while restructuring the wine portfolio to extract more scale and
profitability.
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 become an African drinks champion and benefit communities in which we operate
for the better.
DIRECTORATE
Mr PE Beyers will retire as independent non-executive director with effect from 30 June 2019. The Board thanks Mr Beyers for his extensive and valuable contribution to
the Group over a number of years and wishes him well.
CASH DIVIDEND DECLARATION
The directors have resolved to declare a gross cash dividend, number 2, of 174,0 cents (2017: 165,0 cents) per share for the interim period ended 31 December 2018.
The dividend has been declared from income reserves. The dividend withholding tax, levied at 20%, will amount to 34,8 cents per ordinary share. As a result, ordinary
shareholders who are liable to pay dividends tax will receive a net dividend amount of 139,2 cents per share. Shareholders exempt from paying dividends tax will receive
174,0 cents per share. The issued ordinary share capital as at 27 February 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, 22 March 2019, and will be paid on Monday, 25 March
2019. The last day to trade cum dividend will be on Monday, 18 March 2019, and shares commence trading ex dividend from Tuesday, 19 March 2019. Share certificates
may not be dematerialised or rematerialised between Tuesday, 19 March 2019, and Friday, 22 March 2019, both days inclusive.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
31 December 30 June
2018 2017 2018
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 6 620 987 6 011 804 6 290 094
Financial assets at amortised cost 292 940 - -
Loans and receivables - 28 597 20 391
Financial assets at fair value through other comprehensive income (FVOCI) 59 176 - -
Available-for-sale financial assets - 35 398 60 485
Investments in associates 889 395 834 607 862 364
Investments in joint ventures 88 750 122 150 141 165
Intangible assets 2 018 263 1 918 952 2 008 475
Retirement benefit assets 383 526 367 377 522 885
Deferred income tax assets 103 025 67 105 100 154
Total non-current assets 10 456 062 9 385 990 10 006 013
Current assets
Inventories 7 405 528 6 800 211 7 587 016
Trade and other receivables 4 575 446 4 194 041 3 413 036
Current income tax assets 37 466 79 937 35 756
Cash and cash equivalents 2 104 244 977 990 1 084 215
14 122 684 12 052 179 12 120 023
Assets of disposal group classified as held for sale - 847 015 -
Total current assets 14 122 684 12 899 194 12 120 023
Total assets 24 578 746 22 285 184 22 126 036
EQUITY AND LIABILITIES
Capital and reserves
Capital and reserves 12 271 859 11 175 934 11 640 693
Non-controlling interest 330 382 306 277 314 944
Total equity 12 602 241 11 482 211 11 955 637
Non-current liabilities
Interest-bearing borrowings 3 335 462 4 374 574 4 432 840
Retirement benefit obligations 29 623 28 322 27 800
Deferred income tax liabilities 1 162 682 1 021 496 1 132 135
Total non-current liabilities 4 527 767 5 424 392 5 592 775
Current liabilities
Trade and other payables 5 977 135 4 607 834 4 257 093
Interest-bearing borrowings 1 205 096 70 332 113 788
Provisions 115 153 77 751 167 973
Current income tax liabilities 151 354 210 258 38 770
Liabilities of disposal group classified as held for sale - 412 406 -
Total current liabilities 7 448 738 5 378 581 4 577 624
Total equity and liabilities 24 578 746 22 285 184 22 126 036
CONDENSED CONSOLIDATED INCOME STATEMENT
Unaudited Audited
Six months ended Year ended
31 December 30 June
2018 2017 Change 2018
R'000 R'000 % R'000
Revenue 14 423 824 13 443 530 7,3 24 230 765
Operating costs (12 523 971) (11 680 926) 7,2 (21 836 072)
Costs of goods sold (9 749 409) (8 951 016) (16 442 193)
Sales and marketing costs (1 507 391) (1 542 347) (3 114 655)
Distribution costs (606 343) (676 374) (1 246 542)
Administration and other costs (597 271) (503 734) (1 024 719)
Net impairment losses on financial assets (63 557) (7 455) (7 963)
Other gains and losses 1 695 69 311 (6 520)
Operating profit 1 901 548 1 831 915 3,8 2 388 173
Dividend income 3 795 1 123 6 657
Finance income 21 020 11 903 46 927
Finance costs (171 381) (177 485) (342 494)
Share of equity-accounted earnings 18 663 10 860 31 358
Profit before taxation 1 773 645 1 678 316 5,7 2 130 621
Taxation (499 883) (465 118) (632 101)
Profit for the period from continuing operations 1 273 762 1 213 198 5,0 1 498 520
Discontinued operations - (2 729) 169 531
Profit for the period 1 273 762 1 210 469 5,2 1 668 051
Attributable to:
Equity holders of the company 1 254 093 1 201 970 4,3 1 646 384
Non-controlling interest 19 669 8 499 21 667
1 273 762 1 210 469 5,2 1 668 051
Per share performance:
Issued number of ordinary shares ('000) 222 382 222 382 222 382
Weighted number of ordinary shares ('000) 219 530 219 407 219 443
Earnings per ordinary share (cents)
Basic earnings basis
From continuing operations 571,3 549,0 4,1 673,0
From discontinued operations - (1,2) (100,0) 77,3
571,3 547,8 4,3 750,3
Diluted earnings basis
From continuing operations 571,1 548,6 4,1 672,3
From discontinued operations - (1,2) (100,0) 77,2
571,1 547,4 4,3 749,5
Headline basis
From continuing operations 570,7 510,4 11,8 669,9
From discontinued operations - (1,2) (100,0) (1,7)
570,7 509,2 12,1 668,2
Diluted headline basis
From continuing operations 570,5 510,0 11,9 669,3
From discontinued operations - (1,2) (100,0) (1,8)
570,5 508,8 12,1 667,5
Dividends per ordinary share (cents)
- Interim 174,0 165,0 5,5 165,0
- Final - - - 230,0
174,0 165,0 5,5 395,0
Reconciliation of headline earnings:
Net profit attributable to equity holders of the company 1 254 093 1 201 970 4,3 1 646 384
Adjusted for (net of taxation):
Profit on disposal and impairment of PPE and intangible
assets included in share of equity-accounted earnings - (16 025) (16 025)
Impairment of intangible assets - - 31 115
Impairment of property, plant and equipment (PPE) - 5 540 37 178
Gain on previously held equity interest and on sale of
investments and subsidiaries - (72 509) (217 338)
Profit on sale of PPE (1 220) (1 686) (15 086)
Headline earnings 1 252 873 1 117 290 12,1 1 466 228
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited
Six months ended Year ended
31 December 30 June
2018 2017 2018
R'000 R'000 R'000
Profit for the period 1 273 762 1 210 469 1 668 051
Other comprehensive income (net of taxation) (133 441) (119 596) 263 414
Items that may be reclassified subsequently to profit or loss:
Fair value adjustments
- available-for-sale financial assets - 5 524 7 662
Currency translation differences (8 588) (133 192) 144 157
Fair value adjustments of cash flow hedges - 9 115 9 115
Items that will not be reclassified to profit or loss:
Remeasurements of post-employment benefits (125 597) (1 043) 102 140
Fair value adjustments
- financial assets through other comprehensive income 744 - -
Share of other comprehensive income of associates - - 340
Total comprehensive income for the period 1 140 321 1 090 873 1 931 465
Attributable to:
Equity holders of the company 1 120 713 1 082 395 1 911 333
Non-controlling interest 19 608 8 478 20 132
1 140 321 1 090 873 1 931 465
Total comprehensive income attributable to equity shareholders arises from:
Continuing operations 1 120 713 1 095 433 1 741 802
Discontinued operations - (13 038) 169 531
1 120 713 1 082 395 1 911 333
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Audited
Six months ended Year ended
31 December 30 June
2018 2017 2018
R'000 R'000 R'000
Attributable to equity holders
Opening balance 11 640 693 10 542 126 10 542 126
Change in accounting policy (note 12(a)) (16 396) - -
Restated opening balance at the beginning of the financial year 11 624 297 10 542 126 10 542 126
Comprehensive income
Profit for the year 1 254 093 1 201 970 1 646 384
Other comprehensive income (net of taxation)
Fair value adjustments:
- available-for-sale financial assets - 5 524 7 662
- financial assets at FVOCI 744 - -
Cash flow hedge of foreign exchange transactions - 9 115 9 115
Currency translation differences (8 527) (133 171) 145 692
Remeasurements of post-employment benefits (125 597) (1 043) 102 140
Share of other comprehensive income of associates - - 340
Total other comprehensive losses (133 380) (119 575) 264 949
Total comprehensive income for the period 1 120 713 1 082 395 1 911 333
Transactions with owners
Employee share scheme:
- shares paid and delivered 1 1 1
- value of employee services 36 770 21 635 49 926
Capital reorganisation - - 13 832
Share issue costs (2 098) - (45 066)
Dividends paid (505 380) (470 223) (832 778)
Transactions with non-controlling interests (2 444) - 1 319
Total transactions with owners (473 151) (448 587) (812 766)
Attributable to equity holders 12 271 859 11 175 934 11 640 693
Non-controlling interest
Opening balance 314 944 301 124 301 124
Profit for the year 19 669 8 499 21 667
Dividends paid - (3 325) (4 466)
Currency translation differences (61) (21) (1 535)
Contribution by non-controlling interests 4 - -
Transactions with non-controlling interests (4 174) - (1 846)
Total non-controlling interest 330 382 306 277 314 944
Total equity at the end of the period 12 602 241 11 482 211 11 955 637
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Audited
Six months ended Year ended
31 December 30 June
2018 2017 2018
R'000 R'000 R'000
Cash flows from operating activities
Operating profit 1 901 548 1 758 547 2 559 330
Non-cash flow items 500 849 355 508 693 155
Working capital changes 497 532 60 532 (173 321)
Inventories 193 568 347 743 (245 024)
Trade and other receivables (1 216 944) (1 104 460) (208 022)
Trade payables and provisions 1 520 908 817 249 279 725
Cash generated from operations 2 899 929 2 174 587 3 079 164
Net financing costs (144 836) (106 234) (231 935)
Taxation paid (361 102) (305 464) (580 575)
Net cash generated from operating activities 2 393 991 1 762 889 2 266 654
Net cash outflow from investment activities (853 588) (1 349 025) (1 144 635)
Net cash inflow from financing activities 83 646 827 805 378 988
Dividends paid (505 380) (470 223) (837 244)
Increase in net cash, cash equivalents and bank overdrafts 1 118 669 771 446 663 763
Net cash, cash equivalents and bank overdrafts at the
beginning of the period 970 427 302 876 302 876
Exchange gains on cash and cash equivalents and bank overdrafts 10 052 (41 676) 3 788
Net cash, cash equivalents and bank overdrafts at the end of the period 2 099 148 1 032 646 970 427
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 31 December 2018
1.BASIS OF PREPARATION, ACCOUNTING POLICY AND COMPARATIVE FIGURES
The condensed consolidated interim financial statements have been prepared in accordance with the Listings Requirements of the JSE Limited (JSE) for summary financial
statements and the requirements of the Companies Act (No 71 of 2008), as amended, applicable to summary financial statements. The JSE requires summary financial
statements to be prepared in accordance with the framework concepts, the measurement and recognition requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting
Standards Council and also to, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The directors are responsible for the preparation
of the condensed consolidated interim financial statements, prepared under supervision of the Group chief financial officer, LC Verwey CA(SA).
The accounting policies applied in the preparation of the condensed consolidated interim financial statements are in terms of IFRS and are consistent with the
accounting policies applied in the preparation of the previous consolidated annual financial statements.
The Group has adopted all new as well as amended accounting pronouncements issued by the International Accounting Standards Board (IASB) that are effective for
financial years commencing 1 July 2018. The impact of the new or amended accounting pronouncements that are effective for the financial year commencing 1 July 2018
is disclosed in note 12. 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.
Unaudited
31 December
2018 2017 Change
R'000 R'000 %
2. Sales volumes (litres '000) 402 250 403 279 (0,3)
3. Pro forma information
The results of the Group are significantly impacted by abnormal or non-recurring transactions and the change in foreign exchange rates.
The Group therefore also discloses adjusted measures in order to indicate the Group's businesses' performance excluding the effect of abnormal transactions
and foreign currency fluctuations. These adjusted measures constitute pro forma financial information.
The adjustments below represents abnormal or non-recurring items which significantly impacted the financial results of the Group:
Headline earnings 1 252 873 1 117 290 12,1
Adjusted for (net of taxation):
Expected credit losses on financial assets 30 102 -
One-off losses and write-offs in associate following
sachet ban and excise dispute - 78 461
Retrenchment, restructuring and other one-off costs 56 725 1 945
Normalised headline earnings 1 339 699 1 197 696 11,9
The results of the Group are also significantly impacted by the change in foreign exchange rates, mainly relating to the UK pound, euro, US dollar and Angola kwanza
for both reporting periods, as a result of:
a) the translation of foreign operations to the reporting currency, and
b) the translation of South African monetary assets and liabilities denominated in foreign currency to the reporting currency at period-end.
In the prior year comparative period, the income of foreign subsidiaries was converted at an average aggregated daily South African rand (ZAR)/US dollar (USD) exchange
rate of R13,43 compared to R14,18 in the current year, and the Angola kwanza devaluated from 250 Kwanza: USD1 on 30 June 2018 to 307 Kwanza: USD1 on 31 December 2018.
The adjustments below thus represents a restatement of the 2017 foreign income using the current year aggregated daily average exchange rates.
Normalised headline earnings 1 339 699 1 197 696 11,9
Adjusted for (net of taxation):
Prior year restatement to current year aggregated daily
average exchange rates - 937
Exclusion of effect of conversion of foreign currency monetary assets
and liabilities to the reporting currency
- Other major currencies (47 214) 55 550
- Kwanza (in associate) 45 794 675
Normalised headline earnings adjusted for foreign exchange movements 1 338 279 1 254 858 6,6
Earnings before interest, taxation, depreciation and amortisation (EBITDA) 2 196 066 2 077 392 5,7
Adjusted for:
impairment and profit on disposal of PPE, intangible assets, investments
and gain on previously held interest and subsidiaries disposed (1 695) (85 336)
One-off losses and write-offs in associate following sachet ban
and excise dispute - 78 461
Expected credit losses on financial assets 42 100 -
Retrenchment, restructuring and other one-off costs 68 060 2 720
Normalised EBITDA 2 304 531 2 073 237 11,2
The adjustments below represents a restatement of the 2017 foreign income
using the current year aggregated daily average exchange rates
as explained above.
Normalised EBITDA 2 304 531 2 073 238 11,2
Adjusted for:
Prior year restatement to current year aggregated daily average
exchange rates - 3 221
Exclusion of effect of conversion of foreign currency monetary assets
and liabilities to the reporting currency
- Other major currencies (65 800) 76 736
- Kwanza (in associate) 45 794 675
Normalised EBITDA adjusted for currency movements 2 284 525 2 153 870 6,1
The pro forma financial information is the responsibility of the board of directors of the Company and is presented for illustrative purposes only. Because of its
nature, the pro forma financial information may not fairly present the Group's financial position, changes in equity, results of operations or cash flows.
The Pro Forma financial information has not been reviewed and reported on by the Group's auditors.
Unaudited Audited
31 December 30 June
2018 2017 2018
R'000 R'000 R'000
4. Net interest-bearing borrowings
Interest-bearing borrowings
Non-current 3 335 462 4 374 574 4 432 840
Current 1 205 096 70 332 113 788
4 540 558 4 444 906 4 546 628
Cash and cash equivalents (2 104 244) (977 990) (1 084 215)
2 436 314 3 466 916 3 462 413
5. Cash outflow from investment activities
Purchases of property, plant and equipment (PPE) to maintain operations (245 273) (158 744) (464 731)
Purchases of PPE to expand operations (288 510) (384 675) (709 958)
Proceeds from sale of PPE 6 440 9 203 126 356
Purchases of financial assets, associates and joint ventures (313 080) (726 786) (752 722)
Proceeds from financial assets 3 441 282 17 514
Purchases of intangible assets (16 606) (33 548) (66 706)
Proceeds from intangible assets - - 5 400
Proceeds from disposal of interest in subsidiaries, net of cash - - 757 114
Acquisition of subsidiaries, net of cash - (54 757) (56 902)
(853 588) (1 349 025) (1 144 635)
6. Cash inflow from financing activities
Proceeds from ordinary shares issued and share issue costs (2 097) 1 (45 065)
Proceeds from interest-bearing borrowings 86 344 828 007 828 099
Repayment of interest-bearing borrowings (601) (203) (404 046)
83 646 827 805 378 988
7. Capital commitments
Contracted 735 040 1 002 108 467 327
Authorised, but not contracted 1 272 320 1 575 808 1 991 198
2 007 360 2 577 916 2 458 525
8. Depreciation of property, plant and equipment 231 359 212 005 432 434
9. Net asset value per share (cents) 5 667 5 163 5 376
10. Segmental and revenue analysis
Operating segments were identified based on financial information reviewed regularly by management for the purpose of assessing performance and allocating resources to
these segments. Revenue includes excise duty. Segment information, including the comparative figures and volume information, have been restated to align with the
current year segmentation as reported to management.
Unaudited six months ended
31 December 2018
Rest of
South Rest of Inter-
Africa BLNS Africa Europe national Corporate Total Change
R'000 R'000 R'000 R'000 R'000 R'000 R'000 %
Revenue 10 830 139 1 043 302 1 210 269 691 537 668 160 (19 583) 14 423 824 7,3
Costs of goods sold (7 560 868) (709 830) (796 993) (428 326) (341 925) 88 533 (9 749 409) 8,9
Material costs and overheads (7 560 868) (709 830) (796 993) (428 326) (341 925) 23 318 (9 814 624) 10,5
Currency conversion gains and losses - - - - - 65 215 65 215
Gross profit 3 269 271 333 472 413 276 263 211 326 235 68 950 4 674 415 4,0
Operating costs (1 150 763) (114 440) (212 828) (209 780) (240 086) (846 665) (2 774 562) 1,6
Operating profit before allocations 2 118 508 219 032 200 448 53 431 86 149 (777 715) 1 899 853 7,8
Equity-accounted earnings and dividend income - - 19 833 - (1 339) 3 964 22 458
EBIT before allocations 2 118 508 219 032 220 281 53 431 84 810 (773 751) 1 922 311 8,3
Allocations (111 735) (9 166) (6 243) (12 866) 3 968 136 042 -
EBIT after allocations 2 006 773 209 866 214 038 40 565 88 778 (637 709) 1 922 311 8,3
Other gains and losses - - - - - 1 695 1 695
Equity-accounted earnings and dividend income - - (19 833) - 1 339 (3 964) (22 458) 87,4
Operating profit from continuing operations 2 006 773 209 866 194 205 40 565 90 117 (639 978) 1 901 548 3,8
EBIT before allocations attributable to:
Equity holders of the company 2 119 300 218 240 201 753 53 431 84 810 (774 892) 1 902 642
Non-controlling interest (792) 792 18 528 - - 1 141 19 669
2 118 508 219 032 220 281 53 431 84 810 (773 751) 1 922 311
Non-current assets 7 851 102 103 688 1 579 658 914 084 7 530 - 10 456 062
Unaudited six months ended
31 December 2017
Rest of
South Rest of Inter-
Africa BLNS Africa Europe national Corporate Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Revenue 10 243 068 1 023 040 847 368 660 002 668 285 1 767 13 443 530
Costs of goods sold (7 057 370) (695 429) (560 721) (418 715) (330 568) 111 787 (8 951 016)
Material costs and overheads (7 057 370) (695 429) (560 721) (418 715) (330 568) 178 111 (8 884 692)
Currency conversion gains and losses - - - - - (66 324) (66 324)
Gross profit 3 185 698 327 611 286 647 241 287 337 717 113 554 4 492 514
Operating costs (1 281 909) (118 228) (193 372) (211 853) (268 304) (656 244) (2 729 910)
Operating profit before allocations 1 903 789 209 383 93 275 29 434 69 413 (542 690) 1 762 604
Equity-accounted earnings and dividend income - - (13 263) - 1 764 23 482 11 983
EBIT before allocations 1 903 789 209 383 80 012 29 434 71 177 (519 208) 1 774 587
Allocations (30 432) (4 051) (952) (7 100) 1 327 41 208 -
EBIT after allocations 1 873 357 205 332 79 060 22 334 72 504 (478 000) 1 774 587
Other gains and losses - - - - - 69 311 69 311
Equity-accounted earnings and dividend income - - 13 263 - (1 764) (23 482) (11 983)
Operating profit from continuing operations 1 873 357 205 332 92 323 22 334 70 740 (432 171) 1 831 915
EBIT before allocations attributable to:
Equity holders of the company 1 904 550 208 652 66 998 29 434 80 750 (524 296) 1 766 088
Non-controlling interest (761) 731 13 014 - (9 573) 5 088 8 499
1 903 789 209 383 80 012 29 434 71 177 (519 208) 1 774 587
Non-current assets 5 691 343 93 100 765 247 2 891 312 37 282 - 9 478 284
Note: BLNS = Botswana, Lesotho, Namibia and Swaziland
EBIT = Earnings before interest and tax
Included in "Corporate" are production variances from standard as production facilities service various regions, currency conversion gains and losses, performance
bonusses for the majority of personnel in the Group, and certain centralised functions including ICT, human resources, corporate finance and governance, quality
management, innovation and corporate affairs.
The Group also report on a measure of revenue per category, which is detailed below:
Unaudited
Six months ended
31 December
2018 2017 Change
R'000 R'000 %
Category
Spirits 5 142 984 4 481 754 14,8
Wine 4 031 178 3 844 087 4,9
Cider and RTDs 5 508 420 5 113 110 7,7
Other 13 704 6 863 99,7
Non-distinct and other costs not allocated to categories (272 462) (2 284) 11 829,2
Total revenue 14 423 824 13 443 530 7,3
Also refer to note 12(c) for the impact of the adoption of IFRS 15. If IFRS 15 was adopted retrospectively, total revenue would have increased by 9,1% and 'Non-distinct
and other costs not allocated to categories' with 17,5%.
11. Financial risk management and financial instruments
Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and
price risk), credit risk and liquidity risk.
There have been no material changes in the Group's credit, liquidity and market risk or key inputs in measuring fair value since 30 June 2018. The condensed
consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be
read in conjunction with the Group's annual financial statements as at 30 June 2018.
Fair value estimation
Items carried at fair value are classified according to the fair value hierarchy, by valuation method. The different levels have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices)
Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
Financial assets at fair value through other comprehensive income are classified as level 1, 2 or 3 and derivative financial assets and liabilities are
classified as level 2.
There have been no transfers between level 1, 2 or 3 during the period, nor were there any significant changes to the valuation techniques and inputs used
to determine fair values.
The fair values of all other financial assets and liabilities approximate their carrying amounts.
12. Changes in accounting policies
The Group adopted the new accounting standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers with effect from 1 July 2018. The impact
of the adoption of these new accounting standards on the Group's financial statements are as follows:
12(a) Impact on the financial statements
IFRS 9 was generally adopted without restating comparative information in accordance with the transitional provisions in IFRS 9 (7.2.15) and (7.2.26). The
reclassifications and the adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 30 June 2018, but are
recognised in the opening balance sheet on 1 July 2018.
In accordance with the transitional provisions in IFRS 15, the Group has applied the modified retrospective application option, and certain adjustments are
therefore not reflected in the restated balance sheet as at 30 June 2018, but are recognised in the opening balance sheet on 1 July 2018.
The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a
result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided. The adjustments are explained in more detail per standard below.
30 June 2018
As originally 1 July 2018
Statement of financial position (extract) presented IFRS 9 IFRS 15 Restated
R'000 R'000 R'000 R'000
Non-current assets
Financial assets at amortised cost - 20 391 - 20 391
Loans and receivables 20 391 (20 391) - -
Financial assets at fair value through other comprehensive income (FVOCI) - 60 485 - 60 485
Available-for-sale financial assets 60 485 (60 485) - -
Current assets
Trade and other receivables 3 413 036 (15 875) 12 260 3 409 421
Capital and reserves
Retained earnings 9 287 547 (11 430) (4 966) 9 271 151
Non-current liabilities
Deferred income tax liabilities 1 132 135 (4 445) (1 931) 1 125 759
Current liabilities
Trade and other payables 4 257 093 - 19 157 4 276 250
12(b) IFRS 9 Financial Instruments - Impact of adoption
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of
financial instruments, impairment of financial assets and hedge accounting.
The total financial impact on the Group's retained earnings and other line items as at 1 July 2018 is disclosed in note 12(a) above.
(i) Classification and measurement
a) Reclassification from loans and receivables to financial assets at amortised cost
Loans and receivables were reclassified to financial assets at amortised cost (R20,4 million as at 1 July 2018). It is the Group's business model to hold these
investments for collection of cash flows, and the cash flows represent solely payments of principal and interest on the principal amount. The fair value as at 1 July
2018 was equivalent to the amortised cost for these assets and there was no impact on retained earnings.
b) Equity investments previously classified as available-for-sale
The Group elected to present changes in the fair value of all its equity investments previously classified as available-for-sale in other comprehensive income (OCI) as
these investments have been held as long-term investments and are not expected to be sold in the short to medium term. As a result, assets with a fair value of R60,5
million were reclassified from available-for-sale financial assets to financial assets at FVOCI on 1 July 2018. Any subsequent remeasurements or profit and loss on
disposal of these instruments will be reflected in OCI and no portion will be transferred to the income statement.
c) Borrowings
No retrospective adjustments were required in relation to the adoption of IFRS 9 as none of the borrowings outstanding on 1 July 2018 had been refinanced in prior
periods, or for which gains or losses have not been recognised.
(ii) Derivatives and hedging activities
The Group enters into forward foreign exchange contracts to cover export proceeds not yet receivable or import commitments not yet payable, as well as held-for-trading
commodity hedges on gasoil and aluminium used in the business. The adoption of IFRS 9 had no impact on the recognition of these items.
(iii) Impairment of financial assets
The Group has two types of financial assets that are subject to IFRS 9's new expected credit loss model:
- trade receivables, and
- debt investments carried at amortised cost.
The Group revised its impairment methodology under IFRS 9 for these financial assets as required under IFRS 9. The impact of the change in impairment methodology on
the Group's financial statements is disclosed below.
The calculated impairment loss on cash and cash equivalents, which are also subject to the impairment requirements of IFRS 9, was immaterial.
(a) Trade receivables
The Group applies the simplified approach under IFRS 9 to measure expected credit losses which uses a lifetime expected loss allowance for all trade receivables.
To measure the expected credit losses, trade receivables were grouped in categories which recognises similar credit risk characteristics, the days past due and by
taking forward looking information into account.
The loss allowance as at 1 July 2018 was determined as follows:
Up to 60 More than 60
Current days past due days past due Total
Gross carrying amount (R '000) 2 848 596 129 432 160 380 3 138 408
Expected loss rate 0,4% 8,7% 37,7%
Loss allowance (R '000) 11 961 11 312 60 527 83 800
The loss allowances for trade receivables as at 30 June 2018 reconcile to the opening loss allowances on 1 July 2018 as follows:
R '000
At 30 June 2018 (IAS 39) 67 925
Amounts restated through opening retained earnings 15 875
Opening loss allowance as at 1 July 2018 (IFRS 9) 83 800
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst
others, debtor absconded or is not traceable, business closed down, the failure of a debtor to agree to a repayment plan with the Group, and a failure to make
contractual payments for a period of greater than 180 days past due.
(b) Debt investments
The amortised cost debt investments at 30 June 2018 are considered to have low credit risk and the loss allowance calculated for those were therefore limited to 12
months expected losses and it was immaterial. The debt instruments are considered to be low credit risk when they have a low risk of default and the issuer has a
strong capacity to meet its contractual cash flow obligations in the near term.
During the current reporting period the Group invested in savings bonds of the Reserve Bank of Zimbabwe to the value of USD21,6 million following foreign currency
restrictions which severely limited the ability of a major customer in Zimbabwe to repatriate funds to South Africa. The bonds have a tenure of two years and carry
interest at a rate of 7%. The investment is classified as a financial asset at amortised cost as it is the Group's intention to collect the principal and interest. The
Group recognised a loss allowance of R42,1 million based on an expected credit loss ratio of 17,7% which factors in a probability of default of 31,6%, based on
adjusted measure of an expected S&P Global Corporate Default rate for CCC-rated corporates, and a loss given default of 56,0%.
The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions
and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end
of each reporting period. Details of the key assumptions and inputs used are disclosed above.
12(c) IFRS 15 Revenue from Contracts with Customers - Impact of adoption
The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 July 2018 which resulted in changes in accounting policies. In accordance with the
transitional provisions in IFRS 15, the Group has adopted the modified retrospective application option and certain adjustments were made to the amounts recognised
in the balance sheet at the date of initial application (1 July 2018).
The new accounting policies are set out below.
(i) Accounting for refunds
When the customer has a right to return the product within a given period, the Group is obliged to refund the purchase price. The Group recognises revenue when the
goods has been formally accepted by the customer or the goods had been delivered and the time period for rejection had expired as there is uncertainty about the
possibility of return. When goods are returned, revenue is reversed and the customer credited with value of the goods originally delivered.
Under IFRS 15, a refund liability for the estimated expected refunds of R19,2 million outstanding to customers was recognised as an adjustment to trade and other
payables on 1 July 2018. At the same time, the Group has a right to recover the product from the customer where the customer exercises his right of return and
recognised a current asset, included in trade and other receivables (due to it being not material), of R12,3 million at 1 July 2018. The asset is measured by
reference to the former carrying value of the product. The costs to recover the products are not material as the products are usually returned during the normal
distribution process.
(ii) Accounting for payments to customers for non-distinct goods and services
The Group makes payments or provides products to customers linked to a loyalty programme and distribution or sales and marketing related functions carried out by them.
These costs have previously been disclosed as part of 'Distribution costs' or 'Sales and marketing costs' in the income statement.
Under IFRS 15 the costs associated with certain of these types of functions are not regarded as payment for distinct goods and services and for which separate
performance conditions can not be determined. The Group has applied the modified retrospective application option and the costs related to these items are classified
as part of 'Revenue' from 1 July 2018. The 30 June 2018 comparative figures have therefore not been restated. Pro forma restated income statements have been prepared,
as disclosed below, to indicate the impact if these changes were applied retrospectively. Amounts of R312,2 million and R106,4 million would have been reclassified
from 'Sales and marketing costs' and 'Distribution costs' respectively to 'Revenue'. Similarly, for the six months ended 31 December 2017, amounts of R168,9 million
and R59,8 million would have been reclassified from 'Sales and marketing costs' and 'Distribution costs' to 'Revenue'. These changes had no impact on the statement of
financial position.
31 December 2017 31 December 2017
31 December 2018 As originally Pro forma
Income statement (extract) As presented presented IFRS 15 restated Change
R'000 R'000 R'000 R'000 %
Revenue 14 423 824 13 443 530 (228 717) 13 214 813 9,1
Operating costs (12 523 971) (11 680 926) 228 717 (11 452 209) 9,4
Costs of goods sold (9 749 409) (8 951 016) - (8 951 016) 8,9
Sales and marketing costs (1 507 391) (1 542 347) 168 874 (1 373 473) 9,8
Distribution costs (606 343) (676 374) 59 843 (616 531) (1,7)
Administration costs and net impairment losses on financial assets (660 828) (511 189) - (511 189) 29,3
Other gains and losses 1 695 69 311 - 69 311
Operating Profit 1 901 548 1 831 915 - 1 831 915 3,8
Profit before taxation 1 773 645 1 678 316 - 1 678 316 5,7
Taxation (499 883) (465 118) - (465 118)
Profit for the period from continuing operations 1 273 762 1 213 198 - 1 213 198 5,0
30 June 2018 30 June 2018
As originally Pro forma
Income statement (extract) presented IFRS 15 Restated
R'000 R'000 R'000
Revenue 24 230 765 (418 549) 23 812 216
Operating costs (21 836 072) 418 549 (21 417 523)
Costs of goods sold (16 442 193) - (16 442 193)
Sales and marketing costs (3 114 655) 312 180 (2 802 475)
Distribution costs (1 246 542) 106 369 (1 140 173)
Administration costs and net impairment losses on financial assets (1 032 682) - (1 032 682)
Other gains and losses (6 520) - (6 520)
Operating Profit 2 388 173 - 2 388 173
Profit before taxation 2 130 621 - 2 130 621
Taxation (632 101) - (632 101)
Profit for the period from continuing operations 1 498 520 - 1 498 520
13. Related party transactions
The Group's most significant related party transactions for the period was with FirstRand Bank Limited for interest paid on interest-bearing borrowings which amounted
to R79,8 million (2017: R78,7 million). The Group also paid dividends on ordinary shares of R160,7 million to subsidiaries of Remgro Limited.
Signed on behalf of the Board
JJ Durand RM Rushton
Chairman Group chief executive officer
Stellenbosch
1 March 2019
Directors: JJ Durand (Chairman), PE Beyers, GP Dingaan, DP du Plessis, 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
http://www.distell.co.za
Date: 01/03/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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