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DAW - Distribution and Warehousing Network Limited - Audited preliminary results
for the year ended 30 June 2010
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 PRELIMINARY RESULTS for the year ended 30 June 2010
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June
Audited Audited
% 2010 2009
change R`000 R`000
Revenue (9) 3 618 391 3 957 256
Gross profit 904 735 1 008 137
Net operating expenses (696 867) (727 670)
- Write-down of associate
held for sale - (34 832)
Operating profit (15) 207 868 245 635
- Finance income 27 332 27 395
- Finance expense (83 843) (153 271)
- Share of profit of
associates 5 211 30 666
Profit before income tax 4 156 568 150 425
Income tax expense (42 088) (34 780)
Profit for the year (1) 114 480 115 645
Attributable to:
Equity holders of the Company (3) 109 177 112 451
Non-controlling interest 5 303 3 194
114 480 115 645
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June
Audited Audited
% 2010 2009
change R`000 R`000
Profit for the year 114 480 115 645
Other comprehensive income
(net of taxation):
- Hedge accounting reserve (4 243) -
- Currency translation
differences (14 221) (45)
Total comprehensive income
for the year 96 016 115 600
Attributable to:
Equity holders of the Company 90 713 112 406
Non-controlling interest 5 303 3 194
96 016 115 600
Included above:
Depreciation and amortisation 59 295 57 337
Operating lease rentals 73 254 79 452
Determination of headline earnings
Attributable profit 109 177 112 451
Adjustment for the after-tax effect of:
- Net reversal of impairment of assets - (2 608)
- Write-down of associate
held for sale - 34 835
- Net gain on derecognition of
subsidiary (8 717) -
- Net profit on disposal of
property, plant and equipment (1 546) (977)
Headline earnings (31) 98 914 143 701
Statistics
Number of ordinary shares (`000)
- in issue 240 243 198 576
- held in treasury 8 257 7 726
- Share Incentive Trust - 12 967
Deferred ordinary shares
in issue (`000) 2 000 2 000
Weighted average number
of shares (`000)
- for earnings per share 202 235 175 975
- for diluted earnings
per share* 216 676 188 942
Headline earnings
per share (cents) (40) 48,9 81,7
Earnings per share (cents) (16) 54,0 63,9
Diluted earnings per
share (cents)* (15) 50,3 59,5
Diluted headline earnings
per share (cents) (40) 45,6 76,1
Operating profit (%) 5,7 7,1
* Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust and Share Option Scheme.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June
Audited Audited
2010 2009
R`000 R`000
ASSETS
Non-current assets 827 449 795 151
Property, plant and equipment 353 986 357 489
Intangible assets 271 253 277 373
Investment in associates 87 450 81 253
Deferred tax assets 77 934 49 104
Other receivables 36 826 29 932
Current assets 1 671 087 1 511 116
Inventory 746 636 769 834
Trade and other receivables 725 471 690 067
Derivative financial instruments - 193
Cash and cash equivalents 198 980 51 022
Investment in associate held for sale - 70 000
Total assets 2 498 536 2 376 267
EQUITY AND LIABILITIES
Capital and reserves 1 215 960 839 700
Equity attributable to equity
holders of the Company 1 197 163 821 868
Non-controlling interest 18 797 17 832
Non-current liabilities 398 886 224 244
Interest-bearing liabilities 252 022 93 368
Non-interest-bearing liabilities 16 563 20 543
Deferred profit 61 536 59 008
Derivative financial instrument 6 526 -
Deferred tax liabilities 62 239 51 325
Current liabilities 883 690 1 312 323
Trade and other payables 646 456 676 932
Derivative financial instruments - 932
Current portion of borrowings 56 634 283 365
Bank overdraft 159 078 328 771
Income tax liability 21 522 22 323
Total equity and liabilities 2 498 536 2 376 267
Capital commitments 63 179 105 528
Future commitments
Operating leases 419 292 437 503
Value per share
Asset value per share
- net asset value (cents) 512,1 456,9
- net tangible asset value (cents) 396,2 302,7
- market price (cents) 770 650
Market capitalisation (R`000) 1 849 870 1 290 745
Net financial gearing ratio (%)* 21,1 71,4
Current asset ratio (times) 1,9 1,2
*Includes cash and cash equivalents and excludes vendor and related party
finance.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June
Audited Audited
2010 2009
R`000 R`000
Opening balance 839 700 769 002
Total comprehensive income for the year 96 016 115 600
Capital distribution released
from Share Incentive Trust 8 993 (643)
Capitalisation award - (34 966)
Capitalisation award elected - 34 966
Share-based payment reserve 6 340 (7 225)
Derecognition of subsidiary (10 627) -
Cash dividend paid - (30 042)
Treasury shares purchased (4 605) -
Transactions with non-controlling
equity holders (5 489) (6 992)
Issue of ordinary shares
towards rights issue 285 632 -
Balance at the end of the year 1 215 960 839 700
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June
Audited Audited
% 2010 2009
change R`000 R`000
Cash generated from
operations (22) 243 868 316 393
Working capital changes (24 660) 38 787
Net finance charges paid (62 308) (117 183)
Income tax paid (62 130) (71 854)
Cash flow from operating
activities (41) 94 770 166 143
Cash flow from investing
activities 32 151 (155 405)
Cash flow from financing
activities (94 104) (56 110)
Proceeds from rights issue 285 632 -
Cash dividend paid (798) (30 042)
Increase/(decrease) in
cash resources 317 651 (75 414)
Cash resources at
beginning of year (277 749) (202 335)
Cash resources at end of year 39 902 (277 749)
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
for the year ended 30 June
BUILDING AND INFRASTRUCTURE STRUCTURE
Share of
profit of
Segment asso-
Revenue results ciates Assets
R`000 R`000 R`000 R`000
2010
Building 2 434 015 246 851 3 810 1 848 536
Infrastructure 1 213 701 (33 514) 1 401 659 352
Support Services 213 755 8 269 - 184 606
Head office and
consolidation (243 080) (13 738) - (193 958)
3 618 391 207 868 5 211 2 498 536
Depre-
ciation
Capital and
expen- amorti-
Liabilities diture sation
R`000 R`000 R`000
Building 1 286 139 35 817 27 666
Infrastructure 431 662 13 208 17 018
Support Services 206 092 11 734 13 622
Head office and
consolidation (641 317) 2 759 990
1 282 576 63 518 59 296
Share of
profit of
Segment asso-
Revenue results ciates Assets
R`000 R`000 R`000 R`000
2009
Building 2 620 926 228 617 17 409 1 729 245
Infrastructure 1 444 634 58 045 13 257 510 207
Support Services 185 484 13 394 - 56 388
Head office and
consolidation (293 788) (54 421)* - 80 427
3 957 256 245 635 30 666 2 376 267
Depre-
ciation
Capital and
expen- amorti-
Liabilities diture sation
R`000 R`000 R`000
Building 832 475 62 446 24 443
Infrastructure 310 654 20 305 18 144
Support Services 42 459 10 603 13 234
Head office and
consolidation 350 979 1 944 1 516
1 536 567 s 95 298 57 337
MANUFACTURING AND TRADING STRUCTURE
Share of
profit of
Segment asso-
Revenue results ciates Assets
R`000 R`000 R`000 R`000
2010
Manufacturing 1 505 035 116 959 6 127 1 417 382
Trading 2 758 216 97 660 (916) 1 258 690
Support Services 213 755 8 269 - 184 606
Head office and
consolidation (858 615) (15 020) - (362 142)
3 618 391 207 868 5 211 2 498 536
Depre-
ciation
Capital and
expen- amorti-
Liabilities diture sation
R`000 R`000 R`000
Manufacturing 960 747 41 822 35 855
Trading 925 238 7 203 8 829
Support Services 206 092 11 734 13 622
Head office and
consolidation (809 501) 2 759 990
1 282 576 63 518 59 296
Share of
profit of
Segment asso-
Revenue results ciates Assets
R`000 R`000 R`000 R`000
2009
Manufacturing 1 744 240 147 943 30 577 1 148 796
Trading 2 995 766 138 178 89 1 090 656
Support Services 185 484 13 394 - 56 388
Head office and
consolidation (968 234) (53 880)* - 80 427
3 957 256 245 635 30 666 2 376 267
Depre-
ciation
Capital and
expen- amorti-
Liabilities diture sation
R`000 R`000 R`000
Manufacturing 672 645 66 363 30 435
Trading 470 484 16 388 12 153
Support Services 42 459 10 603 13 233
Head office and
consolidation 350 979 1 944 1 516
1 536 567 95 298 57 337
*Includes write-down of associate held for sale adjustment.
The segments reported are:
- Building and Infrastructure; and
- Manufacturing and Trading.
Refer to commentary below.
COMMENTARY
INTRODUCTION
The Group manufactures and distributes 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
countries in the rest of Africa and Mauritius.
During the year, the Group amended its operating structure from that of Trading
and Manufacturing to that of Building and Infrastructure segments. This was
necessitated by the evolution of market dynamics over the last few years, which
has made it important to manage the businesses and report according to the
markets they serve.
The Building segment has five clusters, being the Wholesale, Watertech,
Sanitaryware, Kitchen and International divisions, with two associates. The
Infrastructure segment has two clusters, DPI and Incledon, and two associates.
This focused cluster approach allows for the extraction of synergies and cost
reduction, while capacity is enhanced at cluster operations. The Group`s Support
Services segment continued to provide a crucial competitive advantage, enabling
distribution costs which are half the logistics industry average. It also
assists the Group to contain costs across all businesses and to significantly
reduce stock losses.
Results overview
Market dynamics
During the first half of this financial year, the Group started to show a
significant improvement from the second half of F2009 when Dawn experienced its
worst trading conditions since inception. However, although the second half of
this year was much stronger than the second half of last year, the impact of the
recession continued to sharpen its bite during the second six months of F2010.
Although the majority of the Group`s businesses contained within the Building
segment (representing 63% of revenue) posted a strong performance, with
operating profit in this segment increasing by 8%, the severe slowdown in
infrastructure spend in South Africa had a significant impact on the rest of
Dawn`s businesses.
Worst hit in the Infrastructure segment was DPI Plastics, Incledon and Sangio
Pipe, due to their particular focus on water and sanitation infrastructure
spend, where government spending was significantly reduced.
Cross-border currencies also depreciated, which resulted in a net foreign
exchange loss of R5,3 million (2009: loss of R6 million).
Building segment
The Building segment`s operating profit and margin outperformed a very weak
building market, assisted by market share gains due to the strength of its
brands and customer reliance on Dawn`s just-in-time value-added service and
branded product offering. There was also some restocking by merchants in the
latter part of the year, as well as an increase in consequential housing
activity. The Dawn Watertech Division, comprising Cobra and Isca, delivered
record earnings. Despite the strong Rand in the second half of the year, the
Group saw volumes from imported competition declining significantly due to a
lack of market visibility and access to funding.
Buildings completed - a key indicator for the Group - showed a further 17%
decline over the period under review. Rural demand started to show the impact of
retrenchments on consumer spending. Credit conditions eased slightly, but
mortgage loans granted remained tight. However, Dawn`s Building business model
has proven to be sustainable in a recessionary environment, with market share
gains compensating for the declining market.
Infrastructure segment
The Infrastructure segment contributed 31% to Group revenue. Overall, volumes in
the Infrastructure segment were down 17,8% year-on-year due to the severe
downturn in infrastructure-related demand. This slowdown led to under-recoveries
and an operating loss in DPI Plastics and in Sangio Pipe, which had a knock-on
effect on Group results. The Group took a strategic decision to limit the volume
decline and consequent effects, although this resulted in lower margins. The 12%
decline in PVC input prices also had a deflationary impact on this business
segment.
Operating profit therefore reduced by R92 million from a profit of R58 million
to a loss of R34 million, as earnings declined in each business.
The cross-border operations were also hard hit during the period, as the impact
of the recession increased north of South Africa`s borders.
Financial results
Revenue decreased by 8,6% to R3,6 billion (2009: R4,0 billion). The Group
experienced a 9% decrease in volumes while prices on average remained flat. A
substantial portion of the revenue of the manufacturing entities is inter-group
and is eliminated on consolidation. In the year, a total of R858 million (2009:
R968 million) was eliminated.
Group operating profit declined by 15,5% to R208 million (2009: R246 million).
Excluding the impact of DPI and Incledon, the two divisions worst impacted by
infrastructure delays, operating profit would have been up 16%.
Earnings per share of 54,0 cents (2009: 63,9 cents per share) was 15,5% lower,
with headline earnings per share of 48,9 cents (2009: 81,7 cents) decreasing by
40,1%.
Although it was a very disappointing performance, the Group`s operating margin
of 5,7% (2009: 6,2%) was an improvement from the low of 2,6% during the second
half of the 2009 financial year.
The Group`s financial gearing is now at its lowest level in the past eight years
at 21,1% and total net debt at 30 June 2010 amounted to R282 million.
Continued close management of collections and strict credit policies, together
with the Group`s policy of credit insurance, assisted management in maintaining
bad debt levels below 0,1% of revenue.
Net finance costs decreased by 55% to R56,5 million (2009: R125,9 million). This
resulted mainly from the improved interest rates negotiated as part of the debt
restructuring, supported further by the lower average debt levels of R280
million compared to R600 million during the prior period following a capital
raising through a rights issue of R300 million during December 2009.
Net asset value of 512,1 cents (2009: 456,9 cents) per share was 12,1% higher.
Working capital received strong focus from management and inventory reduced by a
further R23 million during the year. Overall working capital days increased to a
net 56 days at 30 June 2010. This was primarily due to creditor funding dropping
off its high of 77 days at 30 June 2009 to 65 days funding at 30 June 2010,
where the Group experienced erratic buying patterns causing creditor funding to
be less evenly spread. Management is satisfied with the current level of
investment in working capital.
Business combinations
The Group acquired the business of Plexicor (Pty) Limited on 1 January 2010, and
Plexicor was integrated with Libra from this date to further enhance synergies
and cost savings. The business was acquired for a total net cash purchase
consideration of R8,0 million (excluding debt). The fair value of net assets
acquired amounted to R6,5 million, which resulted in goodwill of R1,5 million.
Plexicor contributed revenue of R31,4 million and an operating profit of R0,4
million for the period ended 30 June 2010.
The above excludes the purchase of the manufacturing factories` premises for a
total consideration of R12 million.
Internal actions
As committed, the Group saved R57 million in the second half of the year through
rightsizing, which included cost cutting in areas such as operating expenses,
capital expenditure and labour. The Group`s headcount was reduced by 763 since
June 2009. However, the Group has been conscious of leaving enough capacity to
take advantage when the market turns.
Also as committed, during the year, the statement of financial position was
significantly strengthened through a debt reduction and a debt restructuring
process. The Group completed a R400 million debt reduction programme during the
second half of F2010, which mainly consisted of a R300 million rights issue and
the R70 million from the sale of Lasher.
The Group concluded its debt restructuring on 29 January 2010. The total debt in
the Group was structured into appropriate term funding to secure alignment
between the Group`s cash flows and debt repayment requirements, leaving
sufficient headroom to fund anticipated growth in the short- and medium-term.
The Group`s management reporting structure was enhanced during the year through
the appointment of Collin Bishop as Chief Operating Officer and Jan Beukes as
Risk and Internal Audit Officer.
Basis of preparation
The Board acknowledges its responsibility for the preparation of the condensed
consolidated financial statements for the year ended 30 June 2010 in accordance
with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS) and the AC500 standards, as
issued by the Accounting Standards Board and its successor, IAS 34: Interim
Financial Reporting, JSE Limited Listings Requirements and the South African
Companies Act.
The Group financial results from which these condensed financial statements were
derived have been prepared on the historical cost basis, excluding financial
instruments which are fair valued, and conform to IFRS. The accounting policies
are consistent with those applied in the annual financial statements for the
year ended 30 June 2009, with the exception of the adoption of IAS 1 Revised -
Presentation of Financial Statements. The condensed consolidated financial
statements do not include all the information required by IFRS for full
financial statements. Full disclosure will be made in the Group`s annual report,
due out by November 2010.
These results have been audited by the Group`s auditors, PricewaterhouseCoopers
Inc, and their unmodified audit opinion is available for inspection at the
Company`s registered offices.
Events after the reporting period
A cautionary announcement was published on SENS on 6 September 2010 and in the
press on 7 September 2010. Other than this, management is not aware of any
material events that occurred subsequent to the end of the reporting period.
There has been no material change in the Group`s contingent liabilities since
the year-end.
Prospects
The benefits from the actions taken during the past financial year will flow
through in the new financial year. These include a stringent focus on cost
management and the full impact of interest savings through reduced debt and
better borrowing rates, as outlined above.
As a result of the rightsizing of the businesses, the Group`s operating expense
base will be maintained on this lower platform. This is expected to result in
the annualisation of the R57 million costs saved to date in this calendar year
through a further R50 million saving to December 2010.
On an operational level, an improvement is expected at DPI Plastics and Incledon
through internal action taken. Although the short-term outlook for government
infrastructure projects remains bleak after the 2010 World Cup-related spend,
the Infrastructure segment focuses on priority spend in critical areas, such as
water infrastructure projects, which are likely to turn up first. However, the
timing of the awarding of contracts and tenders remains uncertain.
On the Building side, the Group anticipates some volume improvements as the
market slowly starts to recover, particularly in the second half of the new
financial year. The Consumer Protection Act should assist in containing sub-
standard imports, with Dawn`s leading brands and comprehensive after-sales
service and warranties, set to capitalise on this. The Group`s business model
has already demonstrated its robustness during the current financial year.
Key management focus areas will remain sales growth, margin maintenance,
productivity improvement and cash and working capital management. The benefits
of the optimal utilisation of assets are anticipated to contribute to the
results for the year ahead. Provided that market demand does not deteriorate
further, the Board anticipates better prospects mainly from the second half of
the 2011 financial year. This general forecast has not been reviewed nor audited
by the Company`s auditors.
Dividend
The Board considers it prudent to conserve cash until market visibility becomes
clearer. It therefore does not propose a dividend in respect of the 2010
financial year.
On behalf of the Board
LM Alberts DA Tod
Chairman Chief Executive Officer
Johannesburg
13 September 2010
The presentation to investors is available on the Dawn website.
www.dawnltd.co.za
E-mail: info@dawnltd.co.za
Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3,
Germiston, 1401
Directors: LM Alberts* (Chairman), DA Tod (Chief Executive Officer), OS Arbee*,
JA Beukes, JAI Ferreira, RL Hiemstra*,
VJ Mokoena*, S Mthembi-Mahanyele*, RD Roos
*Non-executive
Company secretary: JAI Ferreira
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Marshalltown, 2001.
PO Box 61051, Marshalltown, 2107.
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 13/09/2010 07:30:01 Supplied by www.sharenet.co.za
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