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DISTELL GROUP HOLDINGS LIMITED - Trading statement

Release Date: 07/08/2019 07:05
Code(s): DGH     PDF:  
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Trading statement

Distell Group Holdings Limited
Registration number 2016/394974/06
JSE share code: DGH ISIN: ZAE000248811
("Distell" or "the Group" or "the Company")

TRADING STATEMENT

Distell is currently finalising its financial results for the year
ended 30 June 2019, which are due be released on SENS on or about 28
August 2019.

In terms of the Listings Requirements of the JSE Limited, companies
are required to publish a trading statement as soon as they are
reasonably certain that the financial results for the period to be
reported on will differ by more than 20% from that of the previous
corresponding period.

During the period the Group’s results were negatively impacted by two
events:

  1. The significant devaluation of about 50% of the Angolan kwanza,
     as disclosed later, and its impact on the Angolan economy has
     negatively impacted the earnings of Best Global Brands Limited
     (BGB), the owner of the Best brand, in which Distell acquired a
     26% interest in 2017. Although BGB has grown volumes and
     maintained market share since Distell’s investment, the Group has
     decided it would be prudent to impair about two-thirds of the
     value of its 26% investment in BGB.
  2. Distell is a supplier to African Distillers Limited (Afdis) in
     Zimbabwe in which it owns an indirect 31% interest. Due to the
     shortage of foreign exchange in Zimbabwe, Afdis was unable to
     settle all of the trading debt owed to Distell. In the face of
     further currency devaluations and to protect the value of the
     trading debt owed to it, Distell accepted payment in local
     currency and invested the proceeds with the Reserve Bank of
     Zimbabwe in US dollar denominated savings bonds yielding 7% and
     maturing at the end of 2020. In light of the uncertainty and
     economic difficulties facing Zimbabwe, the Group has decided to
     recognise a credit loss provision of about 80% on the savings
     bond.

Shareholders are therefore advised that:
   - Reported Earnings per share (EPS) for the year ended 30 June 2019
     (current period) is expected to decrease between 44% and 49%
     (330,1 cents and 367,6 cents) over the prior year ended 30 June
     2018 (prior period) EPS of 750,3 cents, as a result of the
     impairment of R524,0 million of its equity accounted investment
     in BGB, as well as a credit loss provision of R266,1 million for
     the investment in the savings bonds of the Reserve Bank of
     Zimbabwe; and
   - Reported Headline earnings per share (HEPS) for the current
     period is expected to decrease between 1% and 6% (6,7 cents and
     40,1 cents) over the prior period HEPS of 668,2 cents.

Pro forma information
The results of the Group are 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.


Accordingly, shareholders are advised that:
  - Normalised HEPS is expected to increase by between 11% and 16%
    (79,5 cents and 115,6 cents) over that of 722,5 cents reported in
    the prior period, based on the adjustments detailed below;
  - Normalised HEPS adjusted for currency movements is expected to
    increase by between 4% and 9% (31,1 cents and 69,9 cents) over
    that of 777,0 cents in the prior period rebased for the current
    period’s foreign exchange rates, based on the adjustments
    detailed below; and
  - The above is a result of overall comparable revenue growth of
    more than 9% and margin enhancement.

Impact of abnormal and non-recurring transactions
Certain abnormal or non-recurring income and expenses are disclosed
separately and are added back in calculating Normalised Headline
earnings.

Normalised headline earnings excludes the after tax impact of the
following items:
                                                2019     2018
                                                 R m      R m
Headline earnings                                     1 466,2
 - retrenchment and restructuring costs        168,6     40,7
 - credit loss provision relating to Zimbabwe  191,4       -
 - losses and write-offs in an associate          -      78,5
Normalised headline earnings                          1 585,4

Effect of foreign currencies
The results of the Group are impacted by the change in foreign
exchange rates, mainly relating to the US dollar and Angolan kwanza
for both reporting periods. In the prior year comparative period the
income of foreign subsidiaries was converted at an average aggregated
daily ZAR/US dollar (USD) exchange rate of R12,87 compared to R14,19
in the current year, and the Angolan kwanza devalued from an average
aggregated daily kwanza/USD exchange rate of 203,5 to 305,7 in the
current year.

The following methodology was applied in calculating the pro forma
financial information:
- The income of foreign operations for the prior year was restated
  using the current year average exchange rates as mentioned above.
- Foreign exchange differences reported in the income statement (net
  of tax) were added back. The differences relate to realised foreign
  exchange gains and losses as well as the unrealised amounts on
  translation of monetary assets and liabilities denominated in foreign
  currencies to the reporting currency at year-end, including that of
  associates.

Normalised headline earnings also excludes the impact of the following
foreign currency adjustments:
                                                  2019      2018
                                                  R m        R m
Normalised headline earnings                             1 585,4
 - restatement of income of foreign operations
 to current year average exchange rates           -         17,0
 - foreign exchange differences in the income
 statement added back                             24,7     102,8
Normalised headline earnings adjusted for
     currency movements                                  1 705,2


These adjusted measures represent pro forma financial information and
is the responsibility of the board of directors 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 weighted average number of ordinary shares in issue on which the
calculations in this announcement is based are 219 542 815 (2018: 219
443 299).

Distell’s results for the current period are due to be released on
SENS on or about 28 August 2019 followed by a presentation at Van
Ryn’s Brandy Distillery, Van Ryn Road, Vlottenburg commencing at
12.00pm the same day as the results are released. Webcast and dial-in
details can be found on the IR section of its website at
https://www.distell.co.za/investor-centre/

The estimate financial information on which this trading statement is
based has not been reviewed and reported on by the Company’s external
auditors.

IR contacts:

Lucas Verwey (Group Chief Financial Officer)
Frank Ford (GM: Investor Relations)
investor.relations@distell.co.za
+27 (0)21 809 7000

Stellenbosch
7 August 2019

Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Date: 07/08/2019 07:05:00
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