Distell : SENS Announcement

UNAUDITED

GROUP

RESULTS

for the six months ended 31 December 2020

SALIENT FEATURES

GROUP REVENUE

3,8%

on 0,8% higher volumes

EXCISE DUTY INCREASED

7,1%

to R4,4 billion

EBITDA

Reported

11,2%

HEADLINE EARNINGS

Reported

11,5%

• Flat domestic revenue performance driven by spirits and wine despite 22% reduction of trading days
• Robust Africa revenue growth of 19,9% outside BLNE
• Strong International performance with 15,4% revenue growth

EBITDA

Normalised and adjusted for forex1, 2

16,8%

HEADLINE EARNINGS

Normalised and adjusted for forex2

24,0%

DIVIDEND PAYMENTS

REMAIN SUSPENDED

DUE TO SALE OF ALCOHOL BAN UNCERTAINTY

1

2

Normalised earnings before interest, tax, depreciation and amortisation (EBITDA) refers to EBITDA adjusted for the: (a) profit or loss on disposal and impairment of property, plant and equipment (PPE) and intangible assets; and (b) Group restructuring, retrenchment and other non-recurring costs.

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.

(Distell or the Group or the Company)

CONTENTS	02	COMMENTARY
		CONDENSED CONSOLIDATED
		INTERIM FINANCIAL STATEMENTS
	05	Condensed consolidated statement of financial position
	06	Condensed consolidated income statement
	07	Condensed consolidated statement of comprehensive income
	08	Condensed consolidated statement of changes in equity
	09	Condensed consolidated statement of cash flows
	10	Notes to the condensed consolidated
		interim financial statements

1	www.distell.co.za

CHANGE · EVOLUTION · IMPACT

COMMENTARY

OPERATING PERFORMANCE

In a period of uncertainty and disruption, the Group commendably grew revenue by 3,8% to R15,4 billion on 0,8% higher volumes. Revenue excluding excise duty grew by 2,5%.

In the domestic market, while 41 trading days were lost during the reporting period due to the second and third sale of alcohol bans introduced by government, domestic revenue declined by only 0,5% with sales volumes down by 1,4%. This was achieved through a combination of Distell's diverse product portfolio with strong brands alongside improved customer execution when allowed to trade. Category performance continues to reflect preferences towards spirits and mainstream wine, driven by in-home consumption of trusted brands and products with longer shelf-life, evidenced by stockpiling in fear of unexpected sale of alcohol bans in South Africa. Pressure on consumer disposable income also resulted in consumers seeking more value options which played well to parts of the Group's mainstream portfolio. Market share gains were made across all three categories. Following a successful implementation of its digital Business-to-Business (B2B) sales platform earlier in the year, the Group saw a high rate of customer adoption which is growing revenues and volumes at a faster pace than non-platform customers. Growth in e-commerce business for the six-month period has already reached what was achieved in the previous reported full financial year.

The wine portfolio recorded overall volume increases driven by 4th Street, while revenue remained flat as consumers traded down in the period. The spirits category grew overall volumes and revenues, led by Gordon's Gin, Bain's, Olof Bergh and Count Pushkin. Savanna was the stand-out performer in the ready-to-drink (RTD) segment with Distell gaining share of the segment. Importantly, the Group retained its premium price positioning of the category and ramped up its rate of innovation amid an overall incremental category revenue and volume decline due to a shift in consumption habits.

African markets, outside South Africa, delivered strong revenue growth of 12,7% on sales volumes which increased by 11,7%. Focus markets on the continent, outside the Botswana, Lesotho, Namibia and eSwatini (BLNE) countries, grew revenue by 19,9% and volumes by 20,3% with strong revenue and volume growth across all three categories. Kenya, Nigeria and Mozambique all recorded strong double-digit growth as our investments in people, systems and skills to continue the route-to-market (RTM) roll-out and in-country production delivered on our strategic intent to grow the business across the continent. This initiative has seen the customer footprint grow to 37 500 sales outlets in Africa (excluding BLNE) from 9 000 two years ago. Growth in cider and RTDs was led by Savanna and Hunter's with key affordable wine brands such as Nederburg, Drostdy-Hof and 4th Street growing in select focus markets. The

overall spirits category growth was led by Kibao and Hunter's Choice in Kenya and Amarula across key markets. BLNE countries were negatively impacted by the pandemic due to border closures and sale of alcohol bans, but still delivered commendable revenue growth of 4,0% alongside 2,7% growth in volumes. The Africa region contributed 64,2% to foreign revenue with its contribution to Group revenue rising by 1,4% to 18,2% in the period.

Revenue in international markets outside Africa increased by 15,4% on volumes which, as anticipated, declined by 9,1% given the cessation of sales of less profitable wine brands, bulk whisky and the exit of the RTD business. Strong international premium spirits growth was again led by single malts in all major markets and Scottish Leader in Taiwan. Key premium brands such as Bunnahabhain and Deanston grew revenues by 72,4% and 84,6% respectively. Amarula delivered 34,9% revenue growth despite the current pressure on the global travel retail market due to international travel restrictions. Revenue from wine exports grew 19,9%, led by Nederburg, Drostdy-Hof and Two Oceans. The overall performance led to earnings before interest and taxation (EBIT) margins almost doubling as the business capitalised on its strategy to focus on premium whisky brands, a step-up in digital sales channels and the benefit from historical investments in aged stock. Revenue from e-commerce channels quadrupled in the reported period.

Product innovation remains a key priority, with the Group releasing several key innovations across its markets during the period. The low- and no alcohol category is a key segment of importance with both Savanna and Hunter's non-alcoholic premium ciders collectively growing market share and revenues during the period, which also embedded their positions during bans on alcohol sales in South Africa. Lower alcohol by volume (ABV) vodka under the Count Pushkin brand also grew during the period alongside early positive signs off the back of the launch of a lower ABV brandy from Viceroy.

Operating costs were well contained and rose by 3,2%, in line with inflation. Costs of goods sold increased by 6,2%. Excluding excise duty, which increased by 7,1%, and the impact of foreign currency losses, costs of goods sold increased by only 2,7% realising benefits made to optimise and modernise the domestic manufacturing footprint. Other operating costs declined by 8,6% as the Group implemented measures to contain operational expenditure without compromising service delivery to customers and by adjusting its marketing spend during the periods of the alcohol sales ban.

Other gains and losses include the profit on the sale of the Alto wine farm which was concluded in the reporting period.

2 DISTELL

Unaudited Group results for the six months ended 31 December 2020

Foreign currency translation losses amounted to R173,0 million (2019: R5,3 million gain) driven by the strengthening of the rand in the period.

Net finance costs declined from R187,8 million to R170,8 million as the Group's cash position improved with less reliance on liquidity facilities.

Distell's share of equity-accounted earnings increased from R66,8 million to R85,0 million, driven by improved performance from Tanzania Distilleries Limited.

Reported EBITDA grew by 11,2%. Normalised EBITDA, which excludes the impact of the profit on the sale of PPE, the Group restructuring, retrenchment and other non-recurring costs increased by 10,0%. Normalised EBITDA excluding foreign currency translation movements increased by 16,8%.

The effective tax rate was 28,3% (2019: 27,6%).

Headline earnings and headline earnings per share increased by 11,5% to R1,3 billion and by 11,6% to 612,0 cents respectively. Excluding the currency conversion movements, the Group restructuring, retrenchment and other non-recurring costs referred to above, headline earnings increased by 24,0%.

INVESTMENT AND FUNDING

Total assets increased by 6,7% to R27,9 billion.

Investment in net working capital, including assets held for sale, decreased by 22,5% to R5,6 billion as the Group further tightened its working capital management practices. Inventory increased by 5,3% to R8,3 billion. Of this, bulk spirits in maturation, planned in accordance with the Group's longer-term view of consumer demand for its brands in this category, increased by 3,8% to R3,0 billion. Investment in bottled stock and packaging material increased by 2,9%. Trade and other receivables decreased by 15,6% following improved cash receipts from customers. Trade and other payables increased by 17,6% due to increased production and purchases in the last two months of the reporting period to meet customer demand for our products.

Capital expenditure for the period amounted to R417,7 million (2019: R892,2 million). Of this, R191,7 million was spent on the replacement of assets. A further R226,0 million was directed to the expansion of capacity, mainly in relation to the Group's manufacturing facilities.

Net cash generated from operating activities increased to R3,3 billion (2019: R1,1 billion). This was mainly due to benefits realised on improved inventory management and the increase in trade and other payables referred to above coupled with the timing of excise payables.

3

Net debt at the end of the reporting period amounted to R2,7 billion (2019: R4,7 billion). The Group was able to comfortably meet its debt covenants relating to its South African medium-term debt. 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 23,4% (2019: 26,9%) and a debt-to-equity ratio of 30,5% (2019: 36,8%) at the end of the reporting period.

PROSPECTS

Global economic activity is steadily recovering from the COVID-19 economic shock, although expectations are that any recovery will be muted compared to historical trends due to the persistent risk of further waves of COVID-19 infections and the related impact on economic growth and consumer spending. The growth outlook therefore remains uncertain. As the spread of the virus and the roll-out of the massive vaccination efforts play out differently in various economies, some will continue to gradually reopen while others may implement further social distancing measures and restrictions.

While these challenges persist in all the regions that Distell operates in, the business has proven to find growth opportunities with its diverse portfolio of brands, RTM and agility being tested in the current environment. Our culture shift is also being driven by purpose and shared value in everything we do, evidenced by integrating ourfive selectedSustainable DevelopmentGoals (SDGs) as a measurement of positive societal contribution. These goals are all on track to being achieved for the full financial year, and also form a substantive part of short-term incentives to drive positive behaviour. As a part of this journey, the Group also continues to play a positive role within the alcohol industry to ensure safe and responsible trading by investing significantly behind a number of responsible alcohol initiatives and compliance in partnership with various government departments and provincial liquor boards. As the only large South African manufacturer of alcoholic beverages, Distell sees itself as a trusted partner in helping to shift societal behaviour while protecting and creating jobs in the industry to offset inequality and poverty, exacerbated by the pandemic and related bans on alcohol sales.

The Group remains measured but confident of its ability to navigate disruption as it trades into the second half of the current financial year; with already a full month's trading being lost due to the alcohol sales ban in January. Building on a South African business which has proven resilient in uncertain times, Distell's African and international markets are performing well following previous investments and focused market execution. The Group will continue its measured investments in key markets and brands in pursuit of diversification and long-term growth opportunities.

www.distell.co.za

CHANGE · EVOLUTION · IMPACT