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DAWN - Audited results for the year ended 30 June 2006 and further cautionary
Distribution And Warehousing Network Limited
("Dawn" or "the Group" or "the company")
(Incorporated in the Republic of South Africa)
(Registration number 1984/008265/06)
Alpha code: DAW ISIN: ZAE000018834
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2006 AND FURTHER CAUTIONARY
ANNOUNCEMENT
Revenue increased by 33%
Operating profit increased by 51%
Headline earnings increased by 47%
CONDENSED GROUP INCOME STATEMENT
30 June 30 June
% 2006 2005
change R"000 R"000
Revenue 33 1 740 917 1 304 104*
Operating profit 51 203 370 134 409
- Interest income 2 876 2 960
- Finance costs (25 681) (20 144)
- Income from associates 8 657 3 460
Profit before taxation 57 189 222 120 685
Taxation (46 122) (32 163)
Profit for the year from continuing
operations 62 143 100 88 522
Discontinued operations
Profit for the year from discontinued
operations - 2 063
Profit for the year 143 100 90 585
Allocated as follows:
Equity shareholders of the company 128 364 85 915
Minority interest 14 736 4 670
143 100 90 585
Included above:
Depreciation 16 783 10 124
Operating lease charges 14 767 11 925
Reconciliation of headline earnings
Earnings for the year 128 364 85 915
Adjustment for the after tax effect of:
- Profit on disposal of property, plant
and equipment (3 811) (555)
- Profit on sale of business - (386)
Headline earnings 47 124 553 84 974
* The Group previously disclosed components highlighted in SAICA circular 9/2006
as part of cost of sales. Following the issue of this circular, revenue is now
disclosed at the fair value of the consideration received or receivable.
CONDENSED GROUP BALANCE SHEET
30 June 30 June
2006 2005
R"000 R"000
Assets
Non-current assets 298 330 157 917
Property, plant and equipment 91 938 89 418
Deferred tax assets 26 722 5 232
Investment in associates 68 370 25 213
Intangible assets 111 300 38 054
Current assets 842 979 515 724
Inventory 312 834 265 638
Receivables and prepayments 421 678 223 923
Cash and cash equivalents 108 467 26 163
Total assets 1 141 309 673 641
Equity and liabilities
Capital and reserves 373 250 205 383
Ordinary shareholders" equity 337 791 198 247
Minority interest 35 459 7 136
Non-current liabilities 123 839 112 124
Interest-bearing liabilities 94 848 75 162
Non-interest-bearing liabilities 13 031 25 841
Deferred tax liabilities 15 960 11 121
Current liabilities 644 220 356 134
Trade and other payables 432 357 247 188
Current portion of borrowings 86 408 56 365
Tax liabilities 22 073 34 014
Bank overdraft 103 382 18 567
Total equity and liabilities 1 141 309 673 641
Capital commitments 115 329 23 964
Plant and equipment - authorised 26 802 23 964
Land and buildings - contracted 35 000 -
- authorised 53 527 -
Future commitments 97 666 90 111
Finance leases 22 426 19 510
Operating leases 75 240 70 601
Value per share
Asset value per share
- net asset value (cents) 198,93 120,96
- net tangible asset value (cents) 133,38 97,74
- market price (cents) 850 600
Market capitalisation (R"000) 1 484 857 1 014 077
Net financial gearing ratio (%) 38,54 38,92
Current asset ratio (times) 1,31 1,45
CONDENSED GROUP CASH FLOW STATEMENT
30 June 30 June
2006 2005
R"000 R"000
Cash generated from operations 177 831 107 509
Net finance charges paid (21 293) (15 189)
Dividends received - associate 3 085 2 853
Taxation paid (56 459) (44 253)
Cash flow from operating activities 103 164 50 920
Cash flow from investing activities (93 830) (163 199)
Cash flow from financing activities 10 387 105 456
Capital distribution (22 232) (11 831)
Increase/(decrease) in cash resources (2 511) (18 654)
Cash resources at beginning of year 7 596 26 250
Cash resources at end of year (including
bank overdraft) 5 085 7 596
CONDENSED STATEMENT OF CHANGES IN EQUITY
30 June 30 June
2006 2005
R"000 R"000
Opening balance 198 247 121 889
Foreign currency translation reserve (2 267) -
Attributable earnings 128 364 85 915
Capital distribution (22 232) (11 831)
Share incentive scheme 1 895 2 174
Issue of ordinary shares 33 784 -
Issue of deferred ordinary shares - 100
Balance at end of the year 337 791 198 247
SEGMENTAL ANALYSIS
Deprecia-
tion
Capital and
Segment Liabili- expen- amorti-
Revenue report Assets ties diture sation
R"000 R"000 R"000 R"000 R"000 R"000
2006
Manufac-
turing
Division 279 484 85 852 369 518 231 557 10 533 7 770
Trading
Division 1 461 293 119 886 741 565 334 086 13 722 8 953
Other 140 (2 367) 3 504 164 382 229 60
1 740 917 203 370 1 114 587 730 025 24 484 16 783
2005
Manufac-
turing
Division 116 018 42 180 251 718 175 411 4 564 2 334
Trading
Division 1 188 086 89 511 411 570 237 797 17 996 7 696
Discon-
tinued
Operations 16 682 2 360 347 486 172 42
Other - 2 719 4 775 9 429 649 52
1 320 786 136 770 668 410 423 123 23 381 10 124
30 June 30 June
% 2006 2005
change R"000 R"000
STATISTICS
Number of ordinary shares ("000)
- in issue 174 689 169 013
- held in treasury 7 726 7 726
- share incentive scheme 5 160 7 397
Deferred ordinary shares in issue ("000) 8 000 10 000
Earnings per share (cents) 77,39 53,33
Headline earnings per share (cents) 42 75,10 52,75
Weighted average number of shares ("000)
- for earnings per share 165 861 161 100
- for fully diluted earnings per share* 185 607 180 633
Fully diluted earnings per share (cents)* 69,91 47,56
Operating profit (%) 11,7 10,3
* Dilutionary impact of shares to be issued in terms of the Share Incentive
Scheme.
RECONCILIATION OF PREVIOUS SA GAAP to IFRS
IFRS 12 months
transition ended
1 July 30 June
2004 2005
Note R"000 R"000
Reconciliation of equity
Equity previously reported under SA GAAP 118 730 193 413
Property, plant and equipment 1 4 450 6 809
Deferred tax on PPE adjustment (1 291) (1 975)
Equity restated under IFRS 121 889 198 247
Reconciliation of attributable earnings
Attributable earnings as
previously reported 45 013 84 240
Property, plant and equipment 1 4 450 2 359
Deferred tax on PPE adjustment (1 291) (684)
Attributable earnings restated under IFRS 48 172 85 915
Reconciliation of assets
As previously reported under SA GAAP 371 122 666 832
Property, plant and equipment 1 4 450 6 809
Assets restated under IFRS 375 572 673 641
Reconciliation of non-current liabilities
As previously reported under SA GAAP 35 067 104 917
Deferred tax on PPE adjustment 1 1 291 1 975
Non-current liabilities restated under IFRS 36 358 106 892
NOTES
ACCOUNTING POLICIES
The condensed financial statements for the year ended 30 June 2006 were prepared
in accordance with International Financial Reporting Standards ("IFRS") and in
compliance with the Listings Requirements of the JSE Limited. These are the
Group"s first IFRS condensed financial statements for year prepared under IFRS.
IFRS 1 - First-time Adoption of International Financial Reporting Standards, has
been applied and for detail of the adjustments, refer to the Transitional
Report. The condensed consolidated annual financial statements do not include
all the information required by IFRS for full financial statements. The
comparative period in the previous financial year and for the year ended 30 June
2005 have been restated.
The principal policies used in the preparation of the results for the year ended
30 June 2006 are consistent with those applied for the restated year ended 30
June 2005 in terms of IFRS.
BASIS OF PREPARATION
The board acknowledges its responsibility for the preparation of the condensed
consolidated annual financial statements in accordance with International
Accounting Standard 34 (IAS34) and JSE Limited Listings Requirements. The
Group"s first published full set of financial statements under IFRS is for the
year ended 30 June 2006.
In order to explain how Dawn"s reported performance and financial position are
impacted by IFRS, the Group has restated information previously published under
SA GAAP to the equivalent basis under IFRS.
GOODWILL AND INTANGIBLE ASSETS
An annual impairment test on the balance of goodwill and indefinite life
trademarks at the beginning of the reporting year has been performed at 30 June
2006. No impairment loss has occurred.
Intangible assets (including those recognised as part of associates) arising
from business combinations during the year amounted to R87,8 million, of which
R69,1 million are considered to have an indefinite useful life and will
therefore not be amortised, but tested for impairment annually. These intangible
assets relate to leading brand and highly recognised manufacturers and suppliers
which form a core of Dawn"s long-term strategic focus.
Other intangible assets to the value of R20,9 million are considered to have a
limited lifespan and will therefore be amortised over its estimated useful life
of ten years. The appropriate charge has been expensed during the year under
review.
BUSINESS COMBINATIONS
The financial impact of business combinations during the year under review were
determined provisionally by independent valuation experts. In accordance with
IFRS 3 these will be finalised within twelve months of the respective
acquisition dates. The board considered the preliminary report from the
valuation experts and is of the view that any adjustments that may be required
upon finalisation thereof will not materially affect the results of business
combinations as reported.
ESTIMATES
There are no changes to estimates made under previous SA GAAP for transition to
IFRS, except as disclosed under the Transitional Report. Where estimates have
previously been made under SA GAAP, consistent estimates (after adjustments to
reflect any difference in accounting policies) have been made for the same date.
TRANSITIONAL REPORT
TRANSITIONAL ARRANGEMENTS
The date of transition to IFRS for the Group is 1 July 2004. The key principle
of IFRS is full retrospective application of these standards. Accordingly the
classification of items may have changed from that reported in the past. IFRS 1
however provides exemptions from retrospective application in certain instances
due to cost and practical considerations. The Group"s transitional elections are
set out below:
Business combinations: The Group adopted IFRS 3 - Business Combinations, from
31 March 2004 and therefore no adjustments are required. The exemptions
available allows the Group not to apply the principles of IFRS 3
retrospectively. This exemption was exercised.
Property, plant and equipment: A first time adopter may elect to use the fair
value of individual property, plant and equipment at transition date as the
deemed cost. The Group is not making use of this transitional exemption and
elects to measure individual items of property, plant and equipment at original
cost.
Share-based payments: The Group is electing not to apply IFRS 2 - Share-based
payments to equity settled transactions prior to 7 November 2002 or to the same
granted after that date but which had vested prior to 1 January 2005 and has
therefore taken the available exemption.
ADJUSTMENTS IMPLEMENTED WITH EFFECT FROM 1 JULY 2004
Note 1: IAS16 - Revision of estimated useful lives of property, plant and
equipment
Previously property, plant and equipment were depreciated on a straight-line
basis to their estimated residual values. These residual values were fixed at
the time of acquisition and not reassessed annually.
Under IFRS significant parts of property, plant and equipment are identified
separately and residual values of these components are now redetermined on each
balance sheet date. Depreciation ceases when the carrying value of the assets
equal its residual values.
This more robust assessment has resulted in an increase in estimated useful
lives of property, plant and equipment. The depreciation previously recognised
in the income statement has accordingly been reduced.
COMMENTARY
GROUP PROFILE
The Dawn Group is a focused manufacturer and distributor of leading brand
plumbing, hardware and related materials to the residential and non-residential
sectors of the building and construction industries. In addition, the Group also
supplies related products into the petrochemical, agricultural and mining
sectors of the market, as well as into infrastructural development, both locally
and in selected African countries.
STRATEGIC OVERVIEW
The Group"s results include the benefits derived from a favourable trading
environment, as well as from recent acquisitions. The Group acquired Libra
Bathroomware (Proprietary) Limited and Amanzi Bath Works (Proprietary) Limited
at a combined cash cost of R21 million for 79% shareholding, effective from 1
February 2006. The Group also acquired a 49% interest in Halsted Investments
(Proprietary) Limited at a cash cost of R60,86 million with effect from 1 March
2006. These acquisitions have been funded from external sources. It also
acquired the remaining 69,57% interest in Incledon (Proprietary) Limited at a
cost of R33,8 million, which was settled through the issue of 3 676 000 shares
at market price, with effect from 1 April 2006.
Halsted and Libra are leading brand manufacturers of hardware, tools and
bathroom equipment to the building and construction sectors and are important
additions to the Cobra brand in the Group"s portfolio. The closer ties and
cooperation with manufacturers reduce duplication of resources and enhance
efficiencies.
Further opportunities in this regard have been pursued and are discussed under
post-balance sheet events.
FINANCIAL RESULTS
The Group once again achieved a significant improvement in results for the year
under review. Turnover increased to R1,741 billion, resulting in a 33% increase
on continuing operations. The organic increase in turnover from continuing
operations, excluding the latest acquisitions, is 22%. A significant portion of
the turnover of the manufacturing division is inter group and is eliminated on
consolidation.
Operating profit increased by 51%, from R134 million to R203 million, whilst
profit after tax of R143 million is 62% higher. The increase in operating profit
from continuing operations, excluding the latest acquisitions, was 32%.
Attributable profit of R128 million was achieved, an increase of 49%, whereas
headline earnings per share of 75,1 cents (2005:52,8 cents) increased by 42%.
Net asset value of 199 cents per share is 64% higher, whilst net cash at hand
stood at R5 million (2005: R7,6 million).
The debt ratio decreased slightly from 38,9% to 38,5% at 30 June 2006, which
reflects strong cash flow generation in the light of the acquisitions made by
the Group.
ACCOUNTING POLICIES
In terms of the JSE Listings Requirements, compliance with International
Financial Reporting Standards ("IFRS") is required for financial years beginning
on or after 1 January 2005. Accordingly, the Group"s results are IFRS compliant
for the year ended 30 June 2006, as well as for the restated comparatives. The
impact of these requirements on the Group"s results was not significant.
The results have been prepared in accordance with IFRS. The accounting policies
used are consistent with those used in the restated comparative period for the
twelve months ended June 2005.
These financial statements have been audited by the Group"s auditors,
PricewaterhouseCoopers Inc and their unqualified report is available for
inspection at the Group"s registered office.
POST-BALANCE SHEET EVENTS
The Group has acquired the business of Isca (Proprietary) Limited, a leading tap
and mixer supplier, at a cash cost of R95 million with effect from 1 September
2006.
Dawn has also reached agreement to acquire the business of Vaal Sanitaryware
from Everite (Proprietary) Limited and a 40% economic interest in DPI Holdings
(Proprietary) Limited at a net cash cost of R55,6 million of which R32,6 million
will be payable on 1 July 2008.
DPI is an important supplier of PVC pipes and fittings to the building and
infrastructural sectors of the market. This acquisition is still subject to
Competition Commission approval.
Dawn is currently in negotiations with Sasol Chemical Industries Limited for the
acquisition of the remaining 60% economic interest in DPI Holdings (Proprietary)
Limited.
PROSPECTS
The slightly more stringent monetary policy of the South African Reserve Bank,
as well as higher fuel prices are expected to moderate consumer spending.
However, the Group remains optimistic about the demand in the building industry
and expects to see further growth in this market, albeit at a more moderate and
sustainable rate. This will be evidenced by increased activity in the commercial
property sector, infrastructural development, the demand for lower and middle
income housing, as well as spending on refurbishment of homes.
In addition, expansion in the mining sector as a result of the higher price of
resources will also be of benefit.
As the Group is mainly committed to locally produced products, it will benefit
from the depreciation of the currency.
The recent acquisitions will further enhance future results. The directors
therefore remain positive about Dawn"s future earnings growth.
DISTRIBUTION TO SHAREHOLDERS
In order to conserve the Group"s cash resources for future growth opportunities,
the board has decided to increase the dividend cover from four times to five
times. Accordingly the board has recommended a capital distribution of 15 cents
per share, subject to shareholders" approval.
FURTHER CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcement dated 11 July 2006, shareholders are
advised that Dawn is still in negotiations with Sasol Chemical Industries
Limited for the acquisition of a 60% economic interest in DPI Holdings
(Proprietary) Limited which, if successfully concluded, may have an effect on
the company"s securities. Accordingly shareholders are advised to continue
exercising caution when dealing in the company"s securities until a full
announcement is made.
On behalf of the Board
LM Alberts DA Tod Johannesburg
Chairman Chief Executive 23 August 2006
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
("Dawn" or "the Group" or "the company") * (Incorporated in the Republic of
South Africa)
(Registration number 1984/008265/06)
Registered office: 2 Eton Road, Parktown 2193, Johannesburg
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Marshalltown 2001 * (PO Box 61051, Marshalltown 2107)
Directors: LM Alberts* (Chairman), DA Tod (Chief executive officer), OS Arbee*,
JA Beukes, AS Boynton-Lee*, RL Hiemstra*, VJ Mokoena*
*Non-executive
E-mail: info@dawnltd.co.za * Alpha code: DAW * ISIN: ZAE000018834
Website: www.dawnltd.co.za
Date: 23/08/2006 04:07:12 PM Supplied by www.sharenet.co.za
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