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DAW - DAWN - Audited Results For The Year Ended 30 June 2008
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 2008
HIGHLIGHTS
Revenue increased by 31% to R3,9 billion
Operating profit increased by 27% to R411 million
Headline earnings increased by 39% to R261 million
Earnings per share increased by 31% to 152,9 cents
Headline earnings per share 5-year CAGR - 52%
Capital distribution 5-year CAGR - 54%
Manufacturing division
The Manufacturing division increased revenue by 37% with operating profit
improving by 31% and a contribution of 50% to Group segmental operating profit.
Trading division
The Trading division increased revenue by 27% with operating profit improving by
22% and a contribution of 47% to Group segmental operating profit.
Support Services division
The Support Services division is reported as a stand-alone business for the
first time this year. It increased revenue by 37% with operating profit
improving by 543% and a contribution of 3% to Group segmental operating profit.
CONDENSED GROUP INCOME STATEMENT
for the year ended 30 June
Audited Audited
% 2008 2007
change R`000 R`000
Revenue 31 3 935 752 3 002 544
Operating profit 27 411 294 323 946
- Finance income 17 753 10 476
- Finance expense (112 110) (72 672)
- Share of profit of associates 35 461 21 389
Profit before taxation 352 398 283 139
Income tax expense (76 532) (74 663)
Profit for the year 32 275 866 208 476
Attributable to:
Equity holders of the Company 34 267 204 199 210
Minority interest 8 662 9 266
275 866 208 476
Included above:
Depreciation and amortisation 38 538 33 615
Operating lease charges 51 488 37 392
Determination of headline earnings
Attributable profit 267 204 199 210
Adjustment for the
after-tax effect of:
- Net reversal of impairment
of assets (5 795) -
- Gain on dilution of shareholding
in subsidiary - (10 888)
- Net profit on disposal of
property, plant and equipment (455) (426)
Headline earnings 39 260 954 187 896
Statistics
Number of ordinary shares (`000)
- in issue 191 464 189 464
- held in treasury 7 726 7 726
- Share Incentive Trust 12 967 12 967
Deferred ordinary shares
in issue (`000) 4 000 6 000
Weighted average number
of shares (`000)
- for earnings per share 174 771 170 070
- for diluted earnings per share* 187 738 183 037
Headline earnings per share (cents) 35 149,3 110,5
Earnings per share (cents) 31 152,9 117,1
Diluted earnings per share (cents)* 31 142,3 108,8
Operating profit(%) 10,5 10,8
* Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust.
CONDENSED GROUP BALANCE SHEET
as at 30 June
Audited Audited*
2008 2007
R`000 R`000
Assets
Non-current assets 749 010 606 602
Property, plant and equipment 307 592 232 268
Intangible assets 247 933 249 652
Investment in associates 157 839 92 605
Deferred tax assets 35 646 32 077
Current assets 1 922 190 1 397 105
Inventory 780 309 538 510
Receivables and prepayments*** 1 052 429 584 840
Cash and cash equivalents 89 452 273 755
Total assets 2 671 200 2 003 707
Equity and liabilities
Capital and reserves 769 002 539 477
Ordinary shareholders` equity 747 372 515 864
Minority interest 21 630 23 613
Non-current liabilities 201 599 394 948
Interest-bearing liabilities 110 405 219 550
Non-interest-bearing liabilities 44 320 136 109
Deferred tax liabilities 46 874 39 289
Current liabilities 1 700 599 1 069 282
Trade and other payables*** 1 019 589 637 878
Current portion of borrowings 344 587 134 472
Tax liabilities 44 636 44 399
Bank overdraft 291 787 252 533
Total equity and liabilities 2 671 200 2 003 707
Capital commitments 152 498 266 962
Plant and equipment
- contracted 17 667 10 611
- authorised 107 530 73 498
Land and building
- contracted 24 700 35 000
- authorised 2 601 147 853
Future commitments
Operating leases 112 578 115 579
Value per share
Asset value per share
- net asset value (cents) 427,6 295,2
- net tangible asset value (cents) 285,8 152,3
- market price (cents) 1 250 1 725
Market capitalisation (R`000) 2 393 303 3 268 258
Net financial gearing ratio (%)** 68,2 52,0
Current asset ratio (times) 1,1 1,3
* Adjusted for finalisation of prior year business combinations.
** Includes cash and cash equivalents and excludes vendor and related party
finance.
*** During the period under review the Group entered into a sale and leaseback
transaction over the Germiston property which resulted in an estimated deferred
profit of R61 million. The outstanding liability for the initial acquisition of
the property is R204 million and will be settled upon receipt of the outstanding
sale price of R265 million.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June
Audited Audited
2008 2007
R`000 R`000
Opening balance 515 864 337 791
Foreign currency translation reserve 1 604 (1 313)
Attributable profit 267 204 199 210
Capital distribution (47 866) (28 391)
Share Incentive Trust (2 254) 1 717
Issue of ordinary shares - 3 118
Share-based payment reserve 12 820 3 732
Balance at the end of the year 747 372 515 864
CONDENSED GROUP CASH FLOW STATEMENT
for the year ended 30 June
Audited Audited
2008 2007
R`000 R`000
Cash generated from operations 461 084 343 909
Working capital changes (300 270) (74 815)
Net finance charges paid (89 781) (57 327)
Dividends received - associate 11 123 15 680
Taxation paid (72 277) (42 975)
Cash flow from operating activities 9 879 184 472
Cash flow from investing activities (399 981) (177 187)
Cash flow from financing activities 214 411 37 243
Capital distribution (47 866) (28 391)
(Decrease)/increase in cash resources (223 557) 16 137
Cash resources at beginning of year 21 222 5 085
Cash resources at end of year (202 335) 21 222
SEGMENTAL ANALYSIS
for the year ended 30 June
Operating
profit
before Share of
finance profit of
Revenue charges associates Assets
R`000 R`000 R`000 R`000
2008
Manufacturing
division 1 769 318 221 775 35 461 1 145 482
Trading division 2 949 764 208 591 - 1 164 921
Support Services
division 153 375 12 759 - 36 500
Other - 544 - 288 650
Consolidation and
unallocated (936 705) (32 375) - 35 647
3 935 752 411 294 35 461 2 671 200
2007
Manufacturing
division 1 296 051 169 885 21 389 905 732
Trading division 2 320 894 171 369 - 1 020 889
Support Services
division 112 258 1 985 - 32 740
Other - (3 569) - 12 269
Consolidation and
unallocated (726 659) (15 724) - 32 077
3 002 544 323 946 21 389 2 003 707
Depreciation
Capital and
Liabilities expenditure amortisation
R`000 R`000 R`000
2008
Manufacturing
division 819 547 62 981 22 704
Trading division 457 794 11 445 5 978
Support Services
division 35 565 31 403 9 640
Other 497 779 17 216
Consolidation and
unallocated 91 513 - -
1 902 198 105 846 38 538
2007
Manufacturing
division 881 796 37 343 21 398
Trading division 378 122 4 385 4 232
Support Services
division 26 318 11 570 7 756
Other 112 405 76 229
Consolidation and
unallocated 65 589 - -
1 464 230 53 374 33 615
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
Commentary
Group profile
Distribution and Warehousing Network Limited (Dawn) is listed in the
Construction and Materials - Building Materials & Fixtures sector of the JSE
Limited (JSE).
The strategy of the Group is centred on the manufacturing and wholesale
distribution of mainly local quality branded hardware, sanitaryware, plumbing,
kitchen, engineering and civil products through a national, strategically
positioned branch network as well as in selected African countries and
Mauritius. Dawn adds significant value to the distribution channel through its
optimised logistics services and by acquiring leading brand manufacturers it is
able to reduce duplication and enhance efficiencies between the production and
distribution of the Group`s products. Through selective equity ownership, Dawn
is able to share in the value of the optimised supply-chain that is created.
Its subsidiary businesses complement each other`s product ranges and therefore
create significant cross-selling opportunities and a package offering. Service
functions such as warehousing, distribution and administration are shared
allowing for maximum efficiency.
Group overview
Growth in the residential sector was, and continues to be, adversely affected by
the rising level of interest rates and cautious industry sentiment. High
seasonal rainfall impacted on the building and construction sector as building
activity was hampered, causing notable delays in building schedules. The delay
in power allocations to new projects continues to have an impact on the sector.
Dawn, however, continued to enjoy strong earnings growth, due to the Group`s
robust business model. Continued momentum in the residential refurbishment and
upgrade market, as well as Dawn`s growing exposure to infrastructure-related
building activities, underpinned earnings and will continue to do so. Demand for
the Group`s products is further supported by consequential building activities
arising out of infrastructure development.
Dawn`s revenue split now comprises a 51% contribution from building activities
and 49% from infrastructure projects.
During the review year, the Group benefited from:
- the higher interest rate environment as merchants displayed a
greater dependence on just-in-time delivery;
- the weakening of the exchange rate which affected import
competition and increased export competitiveness; and
- the increased demand from infrastructure spending, mainly from
water, sewer and mining projects.
Despite the disruption caused by the move to the central distribution centre in
Germiston, where the warehouses of the Gauteng businesses were consolidated, the
Group was able to maintain service levels and exceed performance targets.
The Group`s expanded presence and product package offerings in the high growth
infrastructure development market, as well as in agriculture and mining, are
increasingly being recognised.
The acquisition of Waterlinx, a distributor of a comprehensive range of pumps,
irrigation systems, compression fittings, valves and pipes, brings key technical
knowledge, project management skills and design capability to the Group for both
commercial and residential water-supply developments as well as for the
continuous maintenance and upgrading of these facilities.
The acquisition of a 49% interest in Heunis Steel, a manufacturer of high-
quality galvanised rainwater goods and roof sheeting products for the plumbing
and building industry, offers Dawn access to a heavyweight bulk distribution
network and better negotiating power on core input products.
Backward integration remains a key strategy as it provides Dawn with a number of
key benefits: ownership of premium brands and strategic suppliers; optimisation
of the supply-chain; diversification of sources of revenue and a defensive
capability against imports.
Financial results
The Group once again achieved a significant improvement in results for the year
under review. Revenue increased by 31% to R3,936 billion (2007: R3,003 billion)
and operating profit increased by 27% to R411 million (2007: R324 million).
Dawn`s strong performance is largely attributable to organic revenue growth of
24% (2007: 20%), resulting in organic operating profit growth of 30% (2007:
39%). A substantial portion of the revenue of the Manufacturing division is
intergroup and is eliminated on consolidation.
Attributable profit to equity holders of the Company of R267 million (2007: R199
million) is 34% higher, whereas headline earnings per share of 149,3 cents
(2007: 110,5 cents) increased by 35%. The operating margin reduced slightly to
10,5% (2007: 10,8%).
Net asset value of 427,6 cents (2007: 295,2 cents) per share was 45% higher.
Cash generated from operations, excluding working capital changes, increased by
34% to R461 million.
The financial gearing ratio increased from 37% recorded at the end of December
2007 to 68,2% at 30 June 2008 (30 June 2007: 52%). Management is, however,
aiming to restore the Group`s financial gearing ratio to between the 30% and 40%
levels through improved working capital management. Acquisitions made during the
year (R72 million) also impacted on gearing.
Working capital expansion absorbed R300 million, largely due to an investment
into inventory required to service customers on a just-in-time break-bulk basis,
as well as high levels of inflation during the second half.
Additions to property, plant and equipment amounted to R106 million, largely
attributable to the investment in additional capacity at the centralised
Germiston warehouse and upgrading of facilities at some of the manufacturing
operations.
The performance based on the average capital employed remained strong with a
return generated of 43%. Interest cover remains a satisfactory 4,4 times.
Accounting policies
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.
Accounting policies
These consolidated condensed annual financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS) and in
compliance with the Listings Requirements of the JSE Limited and the South
African Companies Act. The condensed consolidated annual financial statements do
not include all the information required by IFRS for full financial statements.
The accounting policies are consistent with those used in the prior year other
than as set out below:
The adoption of IFRS 7: Financial Instruments Disclosures, which is effective
for annual reporting periods beginning on or after 1 January 2007 and the
consequential amendments to IAS 1: Presentation of Financial Statements, was not
required as these statements expand the disclosure requirements regarding the
Group`s financial instruments and management of capital.
These results have been audited by the Group`s auditors, PricewaterhouseCoopers
Inc, Registered Auditors, and their unqualified report is available for
inspection at the Company`s registered office.
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
2008. No impairment loss has occurred.
Goodwill (including those recognised as part of associates) arising from
business combinations during the year amounted to R31,9 million. These goodwill
balances will have to be tested for impairment annually.
Business combinations
The financial impact of business combinations for acquisitions done during the
prior financial year has been finalised and has resulted in the provisional
goodwill of R100,4 million being adjusted as follows: R33,2 million to
trademarks and brand names, R29,2 million to customer relationships, a resulting
deferred tax liability of R18,1 million, a decrease in initial net tangible
assets of R7,6 million and final goodwill of R63,7 million.
The financial impact of business combinations during the period under review was
determined provisionally. In accordance with IFRS 3 these valuations have to be
finalised within twelve months of the respective acquisition dates.
Wholesale Housing Supplies (East London) (Pty) Limited
The Group acquired a 76% shareholding in Wholesale Housing Supplies (East
London) (Pty) Limited on 1 July 2007 for R5,0 million resulting in provisional
goodwill of R1,2 million.
The acquired business contributed revenue of R56,8 million and operating profit
of R1,8 million for the year ended 30 June 2008, and its assets and liabilities
at 30 June 2008 were R20,7 million and R19,3 million, respectively.
Waterlinx Industrial and Irrigation (Pty) Limited
On 1 August 2007 Dawn acquired the assets and liabilities of Waterlinx
Industrial and Irrigation (Pty) Limited for a total purchase consideration equal
to its net asset value of R16 million.
The acquired business contributed revenue of R74,8 million and an operating
profit of R5,2 million for the year ended 30 June 2008, and its assets and
liabilities at 30 June 2008 were R25,6 million and R12,5 million, respectively.
If the acquisition had occurred on 1 July 2007, the Group revenue would have
been R7 million more, and operating profit would have been R0,4 million more.
Exportrade (Angola) Comercio Internacional Limitada
The Group acquired Exportrade (Angola) Comercio Internacional Limitada on 1
January 2008 for R0,8 million resulting in provisional goodwill of R4,5 million.
The acquired business contributed revenue of R4,7 million and an operating loss
of R2,4 million for the year ended 30 June 2008, and its assets and liabilities
at 30 June 2008 were R22,7 million and R25,2 million, respectively. If the
acquisition had occurred on 1 July 2007, the Group revenue would have been R2,4
million more, and operating profit would have decreased by R2,2 million.
Heunis Steel (Pty) Limited
The Group also acquired a 49% interest in Heunis Steel (Pty) Limited on 1 April
2008 for a consideration of R52,2 million resulting in provisional goodwill of
R26,2 million.
These acquisitions have been funded through debt.
Events after balance sheet date
The Group acquired the business of Roco Fittings, a supplier of fittings to the
kitchen and furniture industries, for a purchase consideration of R52 million
with effect from 7 August 2008 partially settled in cash with R26 million
financed through the vendor. Roco Fittings is a distributor for Franke, FGV and
EGOKI and have branches in Johannesburg, Cape Town, Durban, Port Elizabeth and
Pretoria as well as distributorships in Namibia and Zimbabwe.
Management is not aware of any material events which occurred subsequent to the
year-end, other than outlined above.
Prospects
It is anticipated that future growth in the construction and infrastructure
markets would be driven by projects which include power generation, road
infrastructure and water-related investments by the public sector and from
private sector investments relating to industrial and mining projects.
The Board remains positive about Dawn`s long-term growth prospects as:
- The Group is well positioned to have significant participation
in the infrastructure programme.
- Benefits derived from the Group`s backward integration
strategy will, once gearing has moderated to acceptable
levels, be further enhanced through selective acquisitions and
with the diversification into related target markets.
- An increased export drive on the back of the depreciating rand
as well as new product offerings will result in a broadened
geographical footprint.
The directors remain confident about achieving earnings growth which is above
the industry average as Dawn`s integrated supply model with premium brands and
balanced exposure across different industries provide the Group with a
competitive advantage.
Whilst the Group is cognisant of factors beyond its control, our internal
objective for earnings growth remains at the 30% to 40% level.
Distribution to shareholders
The Board has recommended a capital distribution of 35 cents (2007: 25 cents)
per share, subject to shareholders` approval, which approval will be sought at
the next annual general meeting.
On behalf of the Board
LM Alberts DA Tod
Chairman Chief Executive Officer
Johannesburg
26 August 2008
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 (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*, JAI Ferreira;
GL Geldenhuis; RL Hiemstra*, AN Kendal*, VJ Mokoena*
*Non-executive
E-mail: info@dawnltd.co.za
Alpha code: DAW
ISIN: ZAE000018834
Company secretary: JAI Ferreira
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
www.dawnltd.co.za
Date: 26/08/2008 07:30:01 Supplied by www.sharenet.co.za
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