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DAW - DAWN - Audited results for the year ended 30 June 2007
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 2007
Highlights
Revenue increased by 72%
Operating profit increased by 59%
Headline earnings increased by 51%
Earnings per share increased by 51%
CONDENSED GROUP INCOME STATEMENT
Audited Audited
12 months 12 months
30 June 30 June
% 2007 2006
change R`000 R`000
Revenue 72 3 002 544 1 740 917
Operating profit 59 323 946 203 370
- Finance income 10 476 2 876
- Finance costs (72 672) (25 681)
- Share of profit of associates 21 389 8 657
Profit before taxation 283 139 189 222
Income tax expense (74 663) (46 122)
Profit for the year 46 208 476 143 100
Attributable to:
Equity holders of the Company 55 199 210 128 364
Minority interest 9 266 14 736
208 476 143 100
Included above:
Depreciation 33 615 16 783
Operating lease charges 37 392 14 767
Determination of headline earnings
Attributable profit 199 210 128 364
Adjustment for the after-tax
effect of:
- Profit on disposal of property,
plant and equipment (426) (3 811)
- Gain on dilution of
shareholding in subsidiary (10 888) -
Headline earnings 51 187 896 124 553
Audited Audited
12 months 12 months
% 30 June 30 June
change 2007 2006
Statistics
Number of ordinary
shares (`000)
- in issue 189 464 174 689
- held in treasury 7 726 7 726
- Share Incentive Trust 12 967 5 160
Deferred ordinary shares
in issue (`000) 6 000 8 000
Weighted average number of
shares (`000)
- for earnings per share 170 070 165 860
- for diluted earnings per share* 183 037 183 607
Headline earnings per
share (cents) 47 110,5 75,1
Earnings per share (cents) 51 117,1 77,4
Diluted earnings per
share (cents)* 56 108,8 69,9
Operating profit (%) 10,8 11,7
* Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Audited Audited
12 months 12 months
30 June 30 June
2007 2006
R`000 R`000
Opening balance 337 791 198 247
Foreign currency translation reserve (1 313) (2 267)
Attributable profit 199 210 128 364
Capital distribution (28 391) (22 232)
Share Incentive Trust 1 717 1 895
Issue of ordinary shares 3 118 33 784
Share-based payment reserve 3 732 -
Balance at the end of the year 515 864 337 791
CONDENSED GROUP BALANCE SHEET
Audited Audited
30 June 30 June
2007 2006
R`000 R`000
Assets
Non-current assets 580 910 306 712
Property, plant and equipment 232 268 91 938
Intangible assets 223 960 119 682
Investment in associates 92 605 68 370
Deferred tax assets 32 077 26 722
Current assets 1 403 959 842 979
Inventory 538 510 312 834
Receivables and prepayments 591 694 421 678
Cash and cash equivalents 273 755 108 467
Total assets 1 984 869 1 149 691
Equity and liabilities
Capital and reserves 539 477 373 250
Ordinary shareholders` equity 515 864 337 791
Minority interest 23 613 35 459
Non-current liabilities 376 848 132 223
Interest-bearing liabilities 219 550 94 848
Non-interest-bearing liabilities 136 109 13 031
Deferred tax liabilities 21 189 24 344
Current liabilities 1 068 544 644 218
Trade and other payables 637 140 432 355
Current portion of borrowings 134 472 86 408
Tax liabilities 44 399 22 073
Bank overdraft 252 533 103 382
Total equity and liabilities 1 984 869 1 149 691
Capital commitments 266 962 115 329
Plant and equipment - contracted 10 611 -
- authorised 73 498 26 802
Land and buildings - contracted 35 000 35 000
- authorised 147 853 53 527
Future commitments
Operating leases 115 579 75 240
Value per share
Asset value per share
- net asset value (cents) 295,2 198,9
- net tangible asset value (cents) 167,0 128,5
- market price (cents) 1 720 850
Market capitalisation (R`000) 3 258 785 1 484 856
Net financial gearing ratio (%)* 52,0 38,5
Current asset ratio (times) 1,3 1,3
* Excludes vendor finance from acquisitions.
CONDENSED GROUP CASH FLOW STATEMENT
Audited Audited
12 months 12 months
30 June 30 June
2007 2006
R`000 R`000
Cash generated from
operations 269 094 177 830
Net finance charges paid (57 327) (21 293)
Dividends received - associate 15 680 3 085
Taxation paid (42 975) (56 457)
Cash flow from operating activities 184 472 103 165
Cash flow from investing activities (177 187) (93 830)
Cash flow from financing activities 37 243 10 386
Capital distribution (28 391) (22 232)
Increase/(decrease) in cash resources 16 137 (2 511)
Cash resources at beginning of year 5 085 7 596
Cash resources at end of year 21 222 5 085
SEGMENTAL ANALYSIS
for the twelve months ended 30 June
Segment
Revenue result Assets
R`000 R`000 R`000
2007
Manufacturing division 1 206 051 148 216 886 894
Trading division 2 410 894 196 182 1 052 832
Other 6 434 (4 729) 13 066
Consolidation and
unallocated (620 835) (15 724) 32 077
3 002 544 323 946 1 984 869
2006
Manufacturing division 482 802 85 852 377 899
Trading division 1 461 293 119 885 741 566
Other 1 146 (2 367) 3 504
Consolidation and
unallocated (204 324) - 26 722
1 740 917 203 370 1 149 691
Deprecia-
tion and
Capital amortisa-
Liabilities expenditure tion
R`000 R`000 R`000
2007
Manufacturing division 862 958 37 343 21 398
Trading division 401 761 15 646 11 789
Other 115 084 385 428
Consolidation and
unallocated 65 589 - -
1 445 392 53 374 33 615
2006
Manufacturing division 231 557 10 533 7 770
Trading division 334 086 13 722 8 953
Other 164 381 229 60
Consolidation and
unallocated 46 416 - -
776 440 24 484 16 783
No secondary segmental information is disclosed as there are no separately
defined segments that will contribute more than 10% of revenue, results or
assets.
COMMENTARY
Group profile
The Dawn Group is a manufacturer and distributor of local and international
quality branded hardware, sanitaryware, plumbing, kitchen, engineering and
civil products through a national, strategically positioned branch network,
as well as in select African countries and Mauritius. The Group supplies
products and services to the infrastructure and building sectors, as well
as related products to the industrial, agricultural and mining sectors of
the market.
The Group has two main operating divisions, Manufacturing (33% of revenue)
and Trading (67% of revenue), assisted by the Support Services division
that provides central services such as warehousing, distribution and
marketing.
Dawn adds significant value to the distribution channel through its
optimised logistics services, as well as through its leading brand
manufacturers which reduce duplication and enhance efficiencies between the
production and distribution of products.
Industry overview
Building activity continues to show strength in both the residential and
non-residential sectors of the market. Latest statistics of building plans
passed and completed indicate growth on a three-month moving average basis,
albeit at lower levels off the peaks of 2006/2007. This can be attributed
to the increase in interest rates as well as the shortage of skills and
materials. However, building development is still at relatively high levels
by historic standards and is mainly driven by increased black middle-class
demand for homeownership.
Research indicates that the black middle-class component of South Africa
increased by 30% over the last year to 2,6 million people. There is also a
significant increase in the number of blacks who prefer homeownership to
rental. The result is an ever-increasing demand for homes in the middle-end
of the market.
Although consumer confidence dropped marginally in the second quarter of
2007, it remains at near record levels.
In addition, home refurbishment also keeps growing as the average price of
a new or existing home continues to increase. It now stands at over R900
000. Additions and alterations are also utilised as a means to enhance the
value of homeowners` existing property investments.
Strategic overview
Dawn`s strong performance is attributable to organic revenue growth of 20%
with organic operating profit increasing by 38%.
The results include the benefits derived from the Group`s expanded
and well-branded product ranges, supply-chain capabilities and unique
just-in-time break-bulk distribution capacity.
Low cost imported products, particularly from China and India, increased
pressure on margins, especially at the commodity end of the market. These
imported products have, however, increased quality awareness and product
support in the minds of consumers and increased the demand for the Group`s
locally manufactured premium-brand products.
There has been further growth in the retail sector with an increase in the
number of smaller independent businesses, creating a larger footprint and
bigger markets for the Group.
In line with the Group`s strategy to expand its manufacturing capacity and
increase its export market into Africa, Dawn concluded an agreement for the
formation of an export company and acquired manufacturing companies during
the year under review.
In February 2007, an agreement was signed between Dawn and Franke Holding
AG ("Franke") for the formation of a South African company, Africa Swiss
Trading (Proprietary) Limited ("AST"), of which Franke will own 49% and
Dawn 51%. AST offers warehouse and distribution facilities for branded
product ranges in Africa and the adjacent Indian Ocean islands, as well as
showroom and office facilities.
On 1 May 2007, Dawn acquired 49% of Sangio Pipe (Proprietary) Limited for a
consideration of R5,5 million settled in cash post year-end. The company
manufactures high density polyethylene pipes for the building, mining and
agricultural markets.
Financial results
The year under review saw the bedding down of the Isca, DPI Plastics and
Vaal Sanitaryware acquisitions. The results of Isca are only included for
the last ten months of the year and DPI Plastics and Vaal Sanitaryware for
the last nine months of the year. Libra, Incledon and Lasher experienced
their first full financial year within the Group.
The Group once again achieved a significant improvement in results for the
year under review. Revenue increased by 72% to R3,003 billion (2006: R1,741
billion). A significant portion of the revenue of the Manufacturing
division is intergroup and is eliminated on consolidation.
Operating profit increased by 59% to R324 million (2006: R203 million).
Attributable profit to equity holders of the Company of R199 million (2006:
R128 million) is 55% higher, whereas earnings per share of 117,1 cents
(2006: 77,4 cents) increased by 51%.
The debt ratio decreased from the 79% recorded at the end of December 2006,
due to the recent acquisitions, to 52% at 30 June 2007 (30 June 2006:
38,5%), reflecting strong cash flows. It is anticipated that the debt ratio
will decrease to pre-acquisition levels over the next six months.
Accounting policies
The condensed financial statements for the year ended 30 June 2007 were
prepared in accordance with International Financial Reporting Standards
("IFRS") and in compliance with the Listing Requirements of the JSE
Limited. The condensed consolidated annual financial statements do not
include all the information required by IFRS for full financial statements.
The principal policies used in the preparation of the results for the year
ended 30 June 2007 are consistent with those applied for the year ended 30
June 2006 in terms of IFRS.
These financial statements have been audited by the Group`s auditors,
PricewaterhouseCoopers Inc, and their unqualified report is available for
inspection at the Company`s registered office.
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 (IAS 34) and the JSE Limited Listings
Requirements.
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 2007. No impairment loss has occurred.
Goodwill (including those recognised as part of associates) arising from
business combinations during the year amounted to R104,3 million. These
goodwill balances will have to be tested for impairment annually.
Business combinations
The financial impact of business combinations during the year under review
was 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 current status of
the valuation process and is of the view that allocations from goodwill to
intangible assets will not materially affect the results of the business
combinations as reported. Reallocation from goodwill to other intangible
assets is however likely.
The Group acquired Isca on 1 September 2006 and Vaal Sanitaryware and DPI
Holdings on 1 October 2006 for a combined total purchase price of R170,6
million. These acquisitions have been funded through debt. This resulted in
a substantial increase in interest-bearing and non-interest-bearing debt
payable at various intervals during the next five years.
Isca Proprietary Limited ("Isca")
The acquired business contributed revenue of R112,9 million and operating
profit of R29,7 million to the year ended 30 June 2007, and its assets and
liabilities at 30 June 2007 were R132,1 million and R118,7 million,
respectively. If the acquisition had occurred on 1 July 2006, Group revenue
would have been R24 million more, and profit for the period would have been
R8,8 million more.
Vaal Sanitaryware (Proprietary) Limited ("Vaal")
The acquired business contributed revenue of R83,5 million and operating
profit of R10,6 million to the year ended 30 June 2007, and its assets and
liabilities at 30 June 2007 were R104,3 million and R100,8 million,
respectively. If the acquisition had occurred on 1 July 2006, Group revenue
would have been R32,4 million more, and profit for the period would have
been R0,5 million less.
DPI Holdings (Proprietary) Limited ("DPI")
The acquired business contributed revenue of R769,2 million and an
operating profit of R55 million to the year ended 30 June 2007, and its
assets and liabilities at 30 June 2007 were R486,8 million and R412
million, respectively. If the acquisition had occurred on 1 July 2006,
Group revenue would have been R244,9 million more. Group operating profit
would have been R2 million less.
The Group has a 100% voting interest in the above companies.
Details of net assets acquired and goodwill are as follows:*
Isca Vaal DPI Total
R`000 R`000 R`000 R`000
Purchase consideration 97 154 23 000 50 480 170 634
Cash paid 54 000 74 000 8 000 136 000
Vendor finance raised 41 000 - 83 600 124 600
Less: Shareholders` loan
account included in
long-term liabilities - (51 000) (35 000) (86 000)
Less: Fair value
adjustment on future
payments - - (9 705) (9 705)
Add: Direct costs
related to the
acquisition 2 154 - 3 585 5 739
Less: Fair value of
net assets and
liabilities acquired 59 326 (19 230) 30 317 70 413
Non-current assets 21 835 23 966 80 002 125 803
Current assets 41 198 12 954 76 922 131 074
Non-current liabilities (3 707) (56 150) (126 607) (186 464)
Remaining unallocated
goodwill 37 828 42 230 20 163 100 221
*Based on provisionally determined values.
Estimates
The Board of directors has completed the purchase price allocation process
as required by IFRS 3 as it applies to the business combinations made
during the prior year. This resulted in an adjustment between deferred tax
liabilities and goodwill amounting to an increase in deferred tax
liabilities and goodwill of R8,4 million in total.
Further disclosures
Effective 1 January 2007 the Group entered into a transaction with Franke
Holding AG whereby its existing interests in its African operations were
transferred to AST. This resulted in a gain on dilution of R15,3 million
which has been accounted for as part of the Group`s operating profit for
the current year. This has been adjusted as part of headline earnings for
the year. As part of this transaction the Group delivered certain
guarantees amounting to R4,16 million. The Group also issued a short-term
guarantee in favour of one of its suppliers over year-end, which amounted
to R17 million.
On 6 December 2006 shareholders approved various share incentive schemes
for the Group. Some of these share incentive schemes were implemented,
which resulted in a charge to operating profit amounting to R3,8 million.
Events after balance sheet date
Management is not aware of any material events which occurred subsequent to
the year-end.
Prospects
The Group remains positive about its future prospects, as it has a balanced
exposure across different industries and sectors.
As the growth in home building may slow, the slack will be taken up by
increased non-residential as well as infrastructural development. The R410
billion infrastructural investment programme over the next three years
includes, for example, water, sanitation, housing, schools and electricity,
in which the Group will participate through its DPI Plastics, Incledon and
Sangio acquisitions along with other operations.
The formation of the company, AST, augurs well for increased exports of the
Group`s product package into the African continent. One of the Group`s
objectives is to grow its export market, both into Africa and into first
world countries.
The Group`s future organic growth will also be enhanced through increased
efficiencies and outputs which are already being achieved in the recently
acquired manufacturing operations. Product ranges will continue to be
expanded to enable the Group to render a complete solution, in line with
its strategic objective.
The directors therefore remain confident about Dawn`s future earnings
growth and prospects.
Distribution to shareholders
The Board has recommended a capital distribution of 25 cents (2006: 15
cents) per share, subject to shareholders` approval.
On behalf of the Board
Lm Alberts DA Tod
Chairman Chief Executive Officer
Johannesburg
20 August 2007
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
Registered office: 2 Eton Road, Parktown 2193, Johannesburg
Transfer secretaries: Computershare Investor Services 2004 (Proprietary)
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*,
AN Kendal*, VJ Mokoena*
*Non-executive
E-mail: info@dawnltd.co.za
Company secretary: JAI Ferreira
www.dawnltd.co.za
Date: 20/08/2007 08:26:01 Supplied by www.sharenet.co.za
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