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DAW - Distribution and Warehousing Network Limited - Unaudited interim results

Release Date: 10/03/2009 07:30
Code(s): DAW
Wrap Text

DAW - Distribution and Warehousing Network Limited - Unaudited interim results for the six months ended 31 December 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 UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008 Revenue increased by 15% Cash from operating activities increased by 74% Headline earnings increased by 11% CONDENSED GROUP INCOME STATEMENT Unaudited Unaudited Audited 6 months 6 months 12 months 31 Dec 31 Dec 30 June
% 2008 2007 2008 change R`000 R`000 R`000 Revenue 15 2 219 025 1 930 408 3 935 752 Operating profit 6 235 100 222 503 411 294 Finance income 17 375 9 227 17 753 Finance expense (74 499) (44 814) (112 110) Share of profit of associates 26 913 9 061 35 461 Profit before income tax 204 889 195 977 352 398 Income tax expense (48 147) (52 718) (76 532) Profit for the period 9 156 742 143 259 275 866 Attributable to: Equity holders of the Company 11 152 244 137 467 267 204 Minority interest 4 498 5 792 8 662 156 742 143 259 275 866 Included above: Depreciation and amortisation 23 430 21 525 38 538 Operating lease charges 20 081 24 264 51 488 Determination of headline earnings Attributable profit 152 244 137 467 267 204 Adjustment for the after-tax effect of: - Net reversal of impairment of assets - - (5 795) - Net profit on disposal of property, plant and equipment (95) (923) (455) Headline earnings 11 152 149 136 544 260 954 STATISTICS Number of ordinary shares (`000) - in issue 193 464 191 464 191 464 - held in treasury 7 726 7 726 7 726 - Share Incentive Trust 12 967 12 967 12 967 Deferred ordinary shares in issue (`000) 2 000 4 000 4 000 Weighted average number of shares (`000) - for earnings per share 174 771 174 771 174 771 - for diluted earnings per share* 187 738 187 738 187 738 Headline earnings per share (cents) 11 87,1 78,1 149,3 Earnings per share (cents) 11 87,1 78,7 152,9 Diluted earnings per share (cents)* 11 81,1 73,2 142,3 Operating profit (%) 10,6 11,5 10,5 * Dilutionary impact of shares to be issued in terms of the Share Incentive Trust. CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY Unaudited Unaudited Audited 6 months 6 months 12 months 31 Dec 31 Dec 30 June 2008 2007 2008
R`000 R`000 R`000 Opening balance 747 372 515 864 515 864 Foreign currency translation reserve (8 397) (4 740) 1 604 Attributable profit 152 244 137 467 267 204 Capital distribution - - (47 866) Share Incentive Trust - (1 838) (2 254) Share-based payments reserve 6 246 6 410 12 820 Balance at end of period 897 465 653 163 747 372 CONDENSED GROUP CASH FLOW STATEMENT Unaudited Unaudited Audited
6 months 6 months 12 months 31 Dec 31 Dec 30 June % 2008 2007 2008 change R`000 R`000 R`000
Cash generated from operations 257 428 230 345 461 083 Working capital changes 14 560 (66 678) (300 272) Net finance charges paid (55 992) (31 368) (89 781) Dividends received - associate - - 11 123 Income tax paid (32 769) (26 979) (72 279) Cash flow from operating activities 74 183 227 105 320 9 874 Cash flow from investing activities (115 879) (48 930) (399 982) Cash flow from financing activities (69 439) (48 287) 214 417 Capital distribution - - (47 866) (Decrease)/increase in cash resources (2 091) 8 103 (223 557) Cash resources at beginning of period (202 335) 21 222 21 222 Cash resources at end of period (204 426) 29 325 (202 335) CONDENSED GROUP BALANCE SHEET Unaudited Unaudited Audited 31 Dec 31 Dec 30 June 2008 2007 2008 R`000 R`000 R`000
Assets Non-current assets 837 589 597 978 750 093 Property, plant and equipment 340 462 261 862 307 592 Intangible assets* 272 523 233 458 249 016 Investment in associates 184 688 90 302 157 839 Deferred tax assets 39 916 12 356 35 646 Current assets 1 610 935 1 607 787 1 922 190 Inventory 750 872 712 017 780 309 Trade and other receivables 761 210 626 865 1 052 429 Cash and cash equivalents 98 853 268 905 89 452 Total assets 2 448 524 2 205 765 2 672 283 Equity and liabilities Capital and reserves 924 635 681 890 769 002 Ordinary shareholders` equity 897 465 653 163 747 372 Minority interest in equity 27 170 28 727 21 630 Non-current liabilities 232 472 261 757 202 682 Interest-bearing liabilities 164 786 188 079 110 405 Non-interest-bearing liabilities 18 316 43 812 44 320 Deferred tax liabilities* 49 370 29 866 47 957 Current liabilities 1 291 417 1 262 118 1 700 599 Trade and other payables 682 919 761 029 1 019 589 Current portion of borrowings 256 737 214 058 344 587 Income tax liability 48 482 47 451 44 636 Bank overdraft 303 279 239 580 291 787 Total equity and liabilities 2 448 524 2 205 765 2 672 283 Capital commitments 60 942 238 513 152 498 Future commitments Operating leases 461 095 111 293 477 640 Value per share Asset value per share - net asset value (cents) 513,5 373,7 427,6 - net tangible asset value (cents) 357,6 240,2 285,1 - market price (cents) 775 1 750 1 250 Market capitalisation (R`000) 1 499 348 3 350 620 2 393 303 Net financial gearing ratio (%)** 61,8 37,3 68,2 Current asset ratio (times) 1,2 1,3 1,1 * Adjusted for finalisation of prior year business combinations. ** Includes cash and cash equivalents and excludes vendor and related party finance. SEGMENTAL ANALYSIS Operating profit before Share of finance profit of
Revenue charges associates Assets R`000 R`000 R`000 R`000 Dec 2008 (Unaudited) Manufacturing division 942 740 119 055 25 789 1 217 304 Trading division 1 666 440 116 058 1 124 1 066 338 Support Services division 97 399 15 850 - 56 529 Head office and other - (12 919) - 68 439 Consolidation and unallocated (487 554) (2 944) - 39 914 2 219 025 235 100 26 913 2 448 524
Dec 2007 (Unaudited) Manufacturing division 908 900 120 421 9 061 1 039 882 Trading division 1 439 529 109 764 - 1 102 527 Support Services division 75 576 7 202 - 35 614 Head office and other - 4 551 - 15 386 Consolidation and unallocated (493 597) (19 435) - 12 356 1 930 408 222 503 9 061 2 205 765 June 2008 (Audited) 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 Head office and other - 544 - 288 650 Consolidation and unallocated (936 705) (32 375) - 35 647 3 935 752 411 294 35 461 2 671 200
Depreciation Capital and Liabilities expenditure amortisation R`000 R`000 R`000
Dec 2008 (Unaudited) Manufacturing division 617 822 40 399 10 360 Trading division 440 580 9 103 5 696 Support Services division 45 711 8 335 6 667 Head office and other 321 939 1 785 707 Consolidation and unallocated 97 838 - - 1 523 890 59 622 23 430 Dec 2007 (Unaudited) Manufacturing division 737 758 33 160 15 218 Trading division 456 500 6 452 1 835 Support Services division 25 831 8 128 4 347 Head office and other 226 469 52 125 Consolidation and unallocated 77 317 - - 1 523 875 47 792 21 525
June 2008 (Audited) 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 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 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 in South Africa as well as in selected African countries and Mauritius. Dawn adds significant value to the distribution channel through its optimised logistics services that reduce duplication and enhance efficiencies between the production and distribution of the Group`s products. 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 through economies of scale. Results overview The results for the six-month review period saw two distinct quarters. The first quarter was solid, with the second quarter strongly impacted by the knock-on effects of the global economic downturn and credit crunch, as well as delays and cancellations in selected civil, municipal infrastructure, industrial and mining capital projects. Dawn`s robust business model has proven to be sustainable during these adverse economic conditions. Whilst the Group`s trading volumes were affected, the Group maintained positive growth in revenue, mainly supported by growth in both building sector revenue and in infrastructure revenue. Dawn`s revenue split comprised an estimated 52% contribution from building activities and 48% from infrastructure projects during H1 F2009. In building, there was sustained demand from residential refurbishment and upgrades, rural demand growth, government low-cost housing, as well as accommodation around new infrastructure. In infrastructure, the Group experienced significant pressure from delays in the awarding of civil and municipal tenders. Although this was partially offset by the growth in engineering products, trading volumes and margins came under pressure. During the period, the Group benefited from: - a greater dependence on just-in-time and break-bulk delivery by merchants in an attempt to maintain service levels against reduced levels of working capital as well as the higher interest rate environment and tightened market liquidity; - the weakening of the exchange rate which created import substitution opportunities and increased export competitiveness; and - relatively high levels of renovation, refurbishment and upgrades in the building industry. Dawn`s central distribution centre in Germiston, where the warehouses of the Gauteng businesses are consolidated, enabled the businesses to combine services through the sharing of resources with resultant cost-saving benefits. Financial results Despite the impact of the downturn in the economy, Dawn delivered satisfactory results and continued to show growth, albeit at lower levels. Revenue increased by 15% to R2,219 billion (2007: R1,930 billion) and operating profit increased by 6% to R235 million (2007: R223 million). 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 R152 million (2007: R137 million) was 11% higher, whereas headline earnings and earnings per share of 87,1 cents (2007: 78,1 cents) increased by 11%. The operating margin reduced to 10,6% (2007: 11,5%) due to the impact on volumes of a weaker economy and delayed contracts, as well as Dawn and industry de-stocking in a slowing market. The margin impact of de-stocking is not anticipated in H2. Cash generated from operating activities, after servicing interest, increased by 74% to R183 million (2007: R105 million). This improvement was driven mainly by improved working capital management of the Group. In line with commitments to the market to reduce gearing, the financial gearing ratio reduced from 68,2% recorded at 30 June 2008 to 61,8% at 31 December 2008 (31 December 2007: 37,3%). Management is focusing on restoring the Group`s financial gearing ratio and it is therefore anticipated to moderate closer to the target band of between 30%-40% levels by year-end. The acquisition of the business of Roco Fittings (Pty) Limited in August 2008 (R54,9 million) as well as the settlement of the vendor financed loans of DPI (R87 million) through funding raised from financial institutions, also impacted gearing. Interest cover at 4,1 times reflects adequate debt service capacity. The Group`s historic cash generative nature will also continue to assist in reducing gearing. Effective working capital management resulted in a total reduction in the investment in working capital of R15 million following a working capital absorption of R300 million to 30 June 2008. This was achieved mainly through improved inventory management. Accounting policies Basis of preparation The Board acknowledges its responsibility for the preparation of the condensed consolidated interim financial statements. The condensed consolidated interim financial statements for the six months ended 31 December 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS), the interpretations adopted by the International Accounting Standards Board (IASB), the JSE Listings Requirements and the South African Companies Act and are presented and disclosed in compliance with International Accounting Standard 34 (IAS 34). These condensed consolidated interim financial statements have not been reviewed or audited by the Group`s auditors, PricewaterhouseCoopers Inc. Accounting policies The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those applied in the preparation of the annual financial statements for the year ended 30 June 2008. The condensed consolidated interim financial statements do not include all the information required by IFRS for full financial statements. Goodwill and intangible assets A latest annual impairment test on the balance of goodwill and indefinite life trademarks 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 review period amounted to R30,5 million. These goodwill balances will be tested for impairment annually. Business combinations The financial impact of business combinations relating to Wholesale Housing Supplies (East London) (Pty) Limited, Waterlinx Industrial and Irrigation (Pty) Limited and Exportrade (Angola) Comercio Internacional Limitada during the prior financial year has been finalised and has resulted in the provisional goodwill of R5,7 million being adjusted as follows: R1,2 million to trademarks and brand names, R2,7 million to customer relationships, a resulting deferred tax liability of R1,1 million, an increase in initial net tangible assets and direct cost relating to the acquisitions of R1,7 million and final goodwill of R4,6 million. The financial impact of the business combinations during the period under review was determined provisionally. In accordance with IFRS 3 the valuation has to be finalised within twelve months of the respective acquisition dates. Heunis Steel (Pty) Limited The Group acquired a 49% interest in Heunis Steel (Pty) Limited on 1 April 2008 for a consideration of R52,7 million (including acquisition costs), resulting in provisional goodwill of R26,5 million. This acquisition has been funded through debt. Roco Fittings (Pty) Limited The Group acquired the business of Roco Fittings, a supplier of fittings to the kitchen and furniture industries, for a purchase consideration of R54,9 million (including acquisition costs) with effect from 7 August 2008, resulting in provisional goodwill of R26,1 million. The acquisition was partially settled in cash with the remaining balance of R26 million financed through the vendor. The acquired business contributed revenue of R36,3 million and an operating profit of R5,9 million for the five months ended 31 December 2008, and its assets and liabilities at 31 December 2008 were R43 million and R11 million, respectively. If the acquisition had occurred on 1 July 2008, the Group revenue would have been R7,3 million more, and operating profit would have been R0,4 million more. Castle King Investments 1013 (Pty) Limited The Group acquired a 49% interest in Castle King Investments 1013 (Pty) Limited, trading as Electroline, a pre-packaging and assembling of electrical components business, for a consideration of R5,9 million with effect from 1 November 2008, resulting in provisional goodwill of R4,4 million. This acquisition will be settled in cash and the purchase consideration is subject to the business meeting certain profit warranties. Related party transactions The Group companies entered into various related party transactions. These transactions are no less favourable than those entered into with third parties and occur on an arm`s length and commercial basis. Events after balance sheet date Management is not aware of any material events which occurred subsequent to the period ended 31 December 2008. There has been no material change in the Group`s contingent liabilities since the last financial year-end. Prospects The tough economic conditions are likely to continue as the consequences of the global economic crisis take effect. However, the Group remains in good shape to weather the storm. The Group is committed to its key strategy of backward integration, underpinned by its integrated supply-chain model with premium brands and balanced exposure across different industries, to counter the risks associated with the worldwide economic climate and to sustain profit growth. 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. Dawn`s volume growth should be further supported by the acceleration of consequential building activity from large infrastructural projects. - An increased export drive on the back of the depreciating rand will result in a broadened geographical footprint. - Import substitution on the back of the continued currency weakness, together with improved customer service levels, will increase the Group`s local markets. Margin improvement will be driven through increased internal efficiencies and optimised factory loadings and production. Whilst the Group is cognisant of factors beyond its control, and having due regard to the challenging global economic environment, it is management`s objective to continue growing the business into the future. Distribution to shareholders As it is the Group`s policy to declare a distribution to shareholders at the financial year-end, no interim distribution has been declared. On behalf of the Board LM Alberts DA Tod Chairman Chief Executive Officer Johannesburg 10 March 2009 The presentation to investors will be available on the Dawn website from 08:00 on 11 March 2009. www.dawnltd.co.za DISTRIBUTION AND WAREHOUSING NETWORK LIMITED Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3, Germiston Transfer secretaries: Computershare Investor Services (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*, JAI Ferreira, GL Geldenhuis, RL Hiemstra*, AN Kendal*, VJ Mokoena* *Non-executive Company secretary: JAI Ferreira Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited E-mail: info@dawnltd.co.za www.dawnltd.co.za Date: 10/03/2009 07:30:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). 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