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DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
PRELIMINARY ANNOUNCEMENT
* EARNINGS PER SHARE 15,85 CENTS
* TURNOVER INCREASED BY 280%
* GEARING IMPROVED FROM 140% TO 8%
AUDITED GROUP FINANCIAL RESULTS FOR THE EIGHTEEN MONTHS ENDED 30 JUNE 1999
COMMENTS
THE DIRECTORS OF DAWN ARE PROUD TO PRESENT ANOTHER SET OF POSITIVE RESULTS,
WHICH IS A DIRECT CONSEQUENCE OF THE STRATEGIC REFOCUSING TO A SERVICE
ORIENTATED AND TRADING OPERATION. THESE RESULTS COVER AN EIGHTEEN MONTH PERIOD
FOLLOWING THE CHANGE IN YEAR-END TO JUNE 1999. THE ACQUISITION AND INTEGRATION
OF TWO NATIONAL WHOLESALE OPERATIONS, WHICH NOW REPRESENT MORE THAN 80% OF THE
GROUP'S BUSINESS, WAS CONCLUDED ON 1 JULY 1998.
THE RESULTS FOR THE EIGHTEEN MONTH PERIOD TO 30 JUNE 1999 REFLECT A
CONSIDERABLE TURNAROUND FROM THE LOSSES INCURRED DURING THE PRECEDING TWO
FINANCIAL YEARS. TRADING AND SERVICE RELATED ACTIVITIES CONTRIBUTED 83% OF
OPERATING INCOME WHICH RESULTED IN THE RECLASSIFICATION OF THE GROUP FROM THE
INDUSTRIAL - ENGINEERING TO THE RETAIL SUB-SECTOR OF THE JSE ON 19 MARCH 1999.
IT IS ANTICIPATED THAT THE NEW FOCUS WILL CONTRIBUTE TO A SUSTAINABLE INCOME
PATTERN WITH ACCEPTABLE GROWTH IN EARNINGS.
BUSINESS REVIEW
THE BOARD IS PLEASED WITH THE RESULTS ACHIEVED DURING THE FIRST TWELVE MONTHS'
TRADING OF THE WHOLESALE OPERATIONS. THIS WILL PROVIDE A STRATEGIC BASE THROUGH
WHICH SIGNIFICANT FUTURE GROWTH WILL BE REALISED, BOTH ORGANICALLY AND THROUGH
SYNERGISTIC ACQUISITIONS.
THE ACQUISITION OF THREE WHOLESALE DISTRIBUTORS DURING THE REPORTING PERIOD,
ESTABLISHED DAWN AS A SIGNIFICANT SOUTHERN AFRICAN FORCE WITH SPECIFIC FOCUS ON
PLUMBING, SANITARYWARE AND HARDWARE PRODUCTS.
THE GROUP IS COMMITTED TO CUSTOMER SATISFACTION THROUGH THE DELIVERY OF QUALITY
PRODUCTS AND SERVICE. THE BULK OF REVENUE IS DERIVED FROM THE WHOLESALE SUPPLY
OF WELL-KNOWN QUALITY BRAND PRODUCTS TO RETAIL CHAINS, HARDWARE STORES AND
OTHER MERCHANTS.
THE FOCUSED EFFORTS TO REDUCE THE COST BASE OF THE COMPANY ARE ON-GOING AND
CONSIDERABLE SUCCESS HAS BEEN ACHIEVED TO DATE. THIS HAS CONTRIBUTED TO
IMPROVEMENT IN THE NET MARGIN TO SALES RATIO OF 6,57% AND IT IS ANTICIPATED
THAT FURTHER IMPROVEMENT IN NET MARGINS WILL BE ACHIEVED OVER THE NEXT
FINANCIAL YEAR.
RESTRUCTURING AND RATIONALISATION ACTIVITIES HAD AN ADVERSE IMPACT ON OPERATING
RESULTS OVER THE REPORTING PERIOD. THESE ACTIVITIES INCLUDED:
- THE SELLING OFF OF THE GEYSER MANUFACTURING PLANT IN MAY 1998 AND THE
SUBSEQUENT CLOSURE OF THE REMAINING GEYSER DISTRIBUTION OPERATION IN JANUARY
1999;
- THE MERGING OF THE BUSINESSES OF WHS AND SAFFER, THEREBY REDUCING THE NUMBER
OF BUSINESS UNITS FROM TEN TO SEVEN UNDER THE COMMON TRADE NAME OF WHSAFFER;
- THE CREATION OF TWO SEPARATELY FOCUSED WHOLESALE TRADING DIVISIONS AFTER THE
ACQUISITION OF HARDWARE DISTRIBUTORS, IN MARCH 1999;
- THE COMBINING AND OPTIMISATION OF THE DISTRIBUTION INFRASTRUCTURE TO BE
OPERATED AS A FOCUSED BUSINESS; AND
- CONVERSION OF THE PREVIOUSLY PREDOMINANT MANUFACTURING ORIENTATED BUSINESS
OF SPRINGSET, TO A TRADING AND SERVICE ORIENTATED OPERATION.
RESULTS OF OPERATIONS
THE GROUP RECORDED HEADLINE EARNINGS OF R37 MILLION ON A TURNOVER OF R799
MILLION FOR THE EIGHTEEN MONTHS TO 30 JUNE 1999, WHICH REPRESENTS HEADLINE
EARNINGS PER SHARE OF 15,85 CENTS COMPARED TO A LOSS OF 8,95 CENTS FOR THE
TWELVE MONTHS ENDED 31 DECEMBER 1997.
OPERATING PROFIT INCREASED BY R23,1 MILLION OVER THE LAST SIX MONTHS OF THE
REPORTING PERIOD, WHICH REPRESENTS AN ANNUALISED GROWTH OF 28,3% ON THE
PREVIOUS SIX MONTHS DESPITE AN ANNUALISED DROP OF 8,4% IN TURNOVER OVER THE
SAME PERIOD. THIS IS CONFIRMED BY THE INCREASE IN OPERATING MARGIN FROM 6% TO
7,2% OVER THE ABOVEMENTIONED PERIODS. THESE RESULTS WERE ACHIEVED DURING A MOST
CHALLENGING PERIOD AND ARE EVEN MORE REMARKABLE IF THE TRADITIONAL SEASONALITY
OF THE INCOME PATTERN OF THE GROUP IS TAKEN INTO ACCOUNT.
DESPITE THE DECREASE IN INTEREST RATES OVER THE LAST SIX MONTHS, NET INTEREST
PAID STILL AMOUNTED TO R3,57 MILLION COMPARED TO R3,7 MILLION OVER THE PREVIOUS
SIX MONTHS. NET FINANCING COST IS HOWEVER EXPECTED TO DECREASE SIGNIFICANTLY
OVER THE NEXT FINANCIAL YEAR IN THE LIGHT OF THE SIGNIFICANT DECREASE IN DEBT
LEVELS TOWARDS THE LATTER PART OF THE FINANCIAL YEAR.
BALANCE SHEET
THE GROUP BALANCE SHEET WAS STRENGTHENED SIGNIFICANTLY DURING THE PERIOD UNDER
REVIEW THROUGH THE FOLLOWING:
- ATTRIBUTABLE EARNINGS OF R28,3 MILLION
- ACQUISITION OF NET ASSETS TO THE VALUE OF R43,9 MILLION
- RIGHTS ISSUE TOTALLING R7,5 MILLION
THE GROUP ACHIEVED A POSITIVE BANK BALANCE OF R1,1 MILLION AT 30 JUNE 1999 WITH
ASSET BASED FINANCE OF R6,9 MILLION, RESULTING IN A GEARING RATIO OF 7,74%.
THIS COMPARED FAVOURABLY WITH A GEARING OF 44,2% AT 30 JUNE 1998 AND REPRESENTS
AN IMPROVEMENT OF 82,5% OVER THE LAST TWELVE MONTHS.
IT IS ANTICIPATED THAT OPERATING ACTIVITIES WILL GENERATE A SIGNIFICANT AMOUNT
OF CASH FLOW OVER THE NEXT FINANCIAL YEAR. THE DISPOSAL OF REMAINING NON-CORE
OPERATIONS CAN ALSO CONTRIBUTE TO A HEALTHY CASH BALANCE TOWARDS THE END OF THE
NEXT FINANCIAL YEAR.
GOODWILL OF R95,68 MILLION WAS WRITTEN OFF AGAINST SHARE PREMIUM. THE EFFECT OF
THIS WRITE-OFF WAS A REDUCTION IN NET ASSET VALUE PER SHARE FROM 31,08 CENTS TO
26,87 CENTS.
PROSPECTS
MANAGEMENT BELIEVES THAT THE INTEGRATION PROCESS OF THE NEWLY ACQUIRED
BUSINESSES HAS BEEN SUCCESSFULLY IMPLEMENTED. THE BENEFITS FROM THE NOW
SEPARATELY FOCUSED TRADING DIVISIONS, ALONG WITH THE ADDITIONAL CAPACITY
CREATED, COMBINED DISTRIBUTION AND CRITICAL MASS, WILL ONLY BECOME EVIDENT IN
THE NEXT FINANCIAL YEAR. IN ADDITION, THE CRITICAL MASS ACHIEVED THROUGH THE
NEW COMBINED OPERATION, CONTRIBUTES TO AN IMPROVEMENT IN THE COST EFFECTIVENESS
AND EFFICIENCY OF THE GROUP'S DISTRIBUTION CAPABILITY, THEREBY CREATING A
COMPETITIVE EDGE IN THE SUPPLY OF PRODUCTS AND SERVICE ACROSS THE VAST
GEOGRAPHICAL SPREAD OF THE SOUTHERN AFRICAN REGION.
THE IMPACT OF THE IMPROVEMENT IN THE ECONOMY, THE RESTORED BUSINESS CONFIDENCE
AND THE SMOOTH COMPLETION OF THE RECENT ELECTION ARE ALREADY EVIDENT IN THE
GROUP'S OPERATIONS AND IT IS EXPECTED TO CONTINUE TO CONTRIBUTE TO IMPROVED
TRADING PERFORMANCE, MORE SPECIFICALLY AS A RESULT OF:
- INCREASE IN CONSUMER DEMAND RESULTING FROM THE CUTS IN THE PRIME LENDING
RATE;
- RESTOCKING OF THE SUPPLY CHAIN FOLLOWING DESTOCKING DURING THE PERIOD OF
HIGH INTEREST RATES; AND
- EXPECTED INFRASTRUCTURAL DEVELOPMENT.
CASH RESOURCES WILL BE UTILISED TO ACQUIRE BUSINESSES WITH THE SPECIFIC
OBJECTIVE OF EXPANDING THE EXISTING CUSTOMER BASE AND PRODUCT RANGE AND THEREBY
SIMULTANEOUSLY BROADENING THE FUTURE SOURCES OF REVENUE.
MANAGEMENT RECOGNISES THE GROWTH OPPORTUNITIES THAT EXIST THROUGH EXPANSION OF
TRADING OPERATIONS INTO COUNTRIES NORTH OF THE SOUTH AFRICAN BORDERS.
WHILE CONTINUED GROWTH IN LOCAL TRADING WITH THESE COUNTRIES IS BEING
EXPERIENCED, THE ESTABLISHMENT OF RELIABLE DISTRIBUTION INFRASTRUCTURES IS
ACTIVELY BEING PURSUED WHICH WILL FORM A PLATFORM FOR EXPANSION INTO THE REST
OF AFRICA.
MANAGEMENT BELIEVES THAT THE SERVICE FOCUS SHOULD BE EXPANDED TO INCLUDE A FREE
STANDING DISTRIBUTION/LOGISTICS OPERATION IN ORDER TO EFFECTIVELY FULFIL
INTERNAL REQUIREMENTS AS WELL AS TO EXPLORE EXTERNAL OPPORTUNITIES AT THE
APPROPRIATE TIME. IN ADDITION THE FUNDAMENTALS OF AN E-COMMERCE STRATEGY ARE
BEING FINALISED TO TAKE ADVANTAGE OF FUTURE OPPORTUNITIES AS THEY DEVELOP.
THE OUTLOOK FOR THE CURRENT FINANCIAL YEAR IS PROMISING AND MANAGEMENT IS
OPTIMISTIC THAT THE GROUP WILL CONTINUE TO DELIVER ACCEPTABLE LEVELS OF GROWTH
IN EARNINGS.
DIVIDENDS
THE BOARD HAS NOT RECOMMENDED A DIVIDEND FOR THE PERIOD UNDER REVIEW AS IT WAS
DECIDED TO RETAIN FUNDS GENERATED WITHIN THE GROUP FOR THE FUNDING OF GROWTH
AND FUTURE ACQUISITION OPPORTUNITIES.
YEAR 2000 COMPLIANCE
THE GROUP IMPLEMENTED AN INTERNAL PROCESS TO ENSURE THAT YEAR 2000 COMPLIANCE
IS ACHIEVED IN THE GROUP. THE COST INCURRED TO DATE AND THE ESTIMATED FUTURE
EXPENDITURE ARE CONSIDERED IMMATERIAL TO THE GROUP. IT IS ANTICIPATED THAT THE
GROUP WILL SUBSTANTIALLY ACHIEVE YEAR 2000 COMPLIANCE THROUGHOUT ALL ITS
SUBSIDIARIES BY OCTOBER 1999, AND THERE ARE NO INDICATIONS THAT THE GROUP WILL
BE AFFECTED BY YEAR 2000 ISSUES.
THE BOARD WISHES TO EXTEND ITS SINCERE APPRECIATION TO ALL STAFF FOR THEIR
EFFORTS, COMMITMENT AND LOYALTY DURING THIS CHALLENGING PERIOD OF RECOVERY.
FOR AND ON BEHALF OF THE BOARD
DA TOD CPJ VAN DER MERWE
CHIEF EXECUTIVE OFFICER CHAIRMAN
26 AUGUST 1999
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA REG NO 84/08265/06
(FORMERLY CITY INVESTMENT HOLDINGS LIMITED)
REGISTERED OFFICE
2 KEEROM ROAD HERIOTDALE EXT 10 CLEVELAND JOHANNESBURG
DIRECTORS
DA TOD (CHIEF EXECUTIVE OFFICER) CPJ VAN DER MERWE* (CHAIRMAN) LM ALBERTS* JA
BEUKES RL HIEMSTRA* NM INGLEDEW*
*NON-EXECUTIVE
GROUP INCOME STATEMENT
AUDITED REVIEWED AUDITED
18 MONTHS 12 MONTHS 12 MONTHS
30 JUNE 30 JUNE 31 DEC
R000 1999 1999 1997
TURNOVER 799 107 659 138 209 845
TRADING PROFIT 52 261 43 331 223
NET FINANCE COSTS (10 360) (7 285) (8 031)
PROFIT/(LOSS) BEFORE
EXCEPTIONAL ITEMS 41 901 36 046 (7 808)
EXCEPTIONAL ITEMS (8 789) (6 954) (5 763)
PROFIT/(LOSS) BEFORE TAXATION 33 112 29 092 (13 571)
TAXATION (4 835) (4 539) 48
EARNINGS/(LOSS) FOR THE YEAR 28 277 24 553 (13 523)
ADJUSTMENT FOR EXCEPTIONAL ITEMS 8 789 6 954 5 763
HEADLINE EARNINGS/(LOSS) 37 066 31 507 (7 760)
INCLUDED ABOVE:
DEPRECIATION 6 267 4 471 3 681
OPERATING LEASE CHARGES 12 700 11 099 3 134
EXCEPTIONAL ITEMS
- LOSS ON DISCONTINUED OPERATIONS 8 669 6 543 1 076
- INCOME FROM INVESTMENT (692) 411 -
- RATIONALISATION EXPENDITURE 812 - -
- LOSS ON SALE OF SUBSIDIARIES - - 4 183
- GOODWILL ON ACQUISITION WRITTEN
OFF - - 504
8 789 6 954 5 763
STATISTICS
NUMBER OF SHARES (000)
- IN ISSUE 276 702 276 702 90 283
- WEIGHTED AVERAGE 233 891 276 702 86 704
HEADLINE EARNINGS/(LOSS)
PER SHARE (CENTS) 15,85 11,39 (8,95)
ATTRIBUTABLE EARNINGS/(LOSS)
PER SHARE (CENTS) 12,09 8,87 (15,60)
OPERATING PROFIT (%) 6,54 6,57 0,11
GROUP BALANCE SHEET
AUDITED AUDITED
30 JUNE 31 DEC
R000 1999 1997
CAPITAL EMPLOYED
CAPITAL AND RESERVES 64 412 17 231
CONVERTIBLE DEBENTURES 9 931 9 931
SHAREHOLDERS' LOANS - 180
OUTSIDE SHAREHOLDERS' INTEREST 129 271
TOTAL SHAREHOLDERS' FUNDS 74 472 27 613
LONG-TERM LIABILITIES - INTEREST-BEARING 4 590 9 071
DEFERRED TAXATION 5 557 470
84 619 37 154
EMPLOYMENT OF CAPITAL
FIXED ASSETS 21 663 30 417
- TANGIBLE 21 663 21 575
- INTANGIBLE - 8 842
INVESTMENTS AND LOANS 524 2 316
NET CURRENT ASSETS 62 432 4 421
CURRENT ASSETS 216 591 64 500
CURRENT LIABILITIES 154 159 60 079
- INTEREST-BEARING 1 176 29 638
- OTHER 152 983 30 441
84 619 37 154
LEASE COMMITMENTS
FINANCE LEASES 5 509 2 862
OPERATING LEASES 39 192 9 462
44 701 12 324
VALUE PER SHARE
ASSET VALUE PER SHARE
- NET ASSET VALUE (CENTS) 26,87 30,09
- NET TANGIBLE ASSET VALUE (CENTS) 26,87 20,29
MARKET PRICE (CENTS) 50 24
FINANCIAL GEARING RATIO (%) 7,74 140,18
CURRENT ASSETS RATIO (TIMES) 1,40 1,07
TOTAL ASSETS (000) 238 778 97 233
SUMMARISED GROUP CASH FLOW STATEMENT
1999 1997
18 MONTHS 12 MONTHS
R000 R000
CASH FLOW FROM OPERATING ACTIVITIES 28 744 (15 606)
CASH GENERATED FROM OPERATIONS 39 182 (6 313)
NET FINANCING COST (10 360) (8 031)
TAXATION PAID (78) (1 262)
CASH FLOW FROM INVESTING ACTIVITIES 1 090 (4 129)
CASH FLOW FROM FINANCING ACTIVITIES (9 247) 13 677
INCREASE/(DECREASE) IN CASH RESOURCES 20 587 (6 058)
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED