Wrap Text
HWW - Hardware Warehouse Limited - Provisional reviewed results for the
year ended 30 June 2011
Hardware Warehouse Limited
Incorporated in the Republic of South Africa
(Company registration no: 2007/004302/06)
Share code: HWW ISIN: ZAE000104253
("Hardware Warehouse" or "the group")
PROVISIONAL REVIEWED RESULTS for the year ended 30 June 2011
Revenue from continuing operations up 14.09%
Profit from operations from continuing operations up 45.80%
Headline and diluted headline earnings from continuing operations per share
in cents is 5.11 in 2011 (2010: 2.27)
Group net asset value per share in cents is 35.75 in 2011 (2010: 34.89)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
GROUP
Reviewed Audited
12 12
months months
ended ended
30 June 30 June
2011 2010
R`000 R`000
Continuing operations
Revenue 354 177 310 444
Cost of sales 282 363 250 626
Gross profit 71 814 59 818
Other income 906 223
Administration expenses 1 879 2 215
Personnel costs 30 055 24 815
Other expenses 30 628 26 044
Profit from operations 10 158 6 967
Investment income 167 258
Finance costs 5 592 5 319
Profit before taxation 4 733 1 906
Taxation (1 365) (583)
Profit for the year from continuing operations 3 368 1 323
Discontinued operations
Loss for the year from discontinued operations (2 775) (10 055)
Profit / (Loss) for the year 593 (8 732)
Attributable to:
Owners of parent
Profit for the year from continuing operations 3 369 1 323
Loss for the year from discontinued operations (2 775) (10 055)
Profit / (Loss) for the year attributable to
owners of the parent 594 (8 732)
Non-controlling interest
Loss for the year from continuing operations (1) -
Loss for the year attributable to non-controlling
interest (1) -
593 (8 732)
Earnings / (Loss) per share (expressed in cents
per share)
Total basic and diluted earnings / (loss) per
share 0.85 (12.58)
- basic and diluted earnings per share from
continuing operations 4.85 1.91
- basic and diluted loss per share from
discontinuing operations (4.00) (14.49)
Additional information
Headline and diluted headline earnings from
continuing operations per share in cents 5.11 2.27
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 June 2011
GROUP
Reviewed Audited
2011 2010
R`000 R`000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 34 220 29 857
Goodwill 9 807 11 663
Related party loans 3 544 -
Deferred tax 5 585 878
53 156 42 398
CURRENT ASSETS
Inventories 51 993 66 634
Trade and other receivables 8 567 13 829
Taxation receivable 668 -
Cash and cash equivalent 2 975 3 780
64 203 84 243
TOTAL ASSETS 117 359 126 641
EQUITY AND LIABILITIES
EQUITY
Share capital 14 14
Share premium 9 300 9 300
Non-controlling interest - -
Share based payment reserve 427 349
Retained earnings 18 108 17 514
27 849 27 177
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing borrowings 10 857 24 839
Related party loans 214 396
Deferred tax 836 84
11 907 25 319
CURRENT LIABILITIES
Related party loans 20 7
Interest bearing borrowings 19 884 3 339
Taxation payable 122 2 594
Operating lease accruals 1 068 1 297
Trade and other payables 40 641 46 868
Provisions 3 160 2 998
Bank overdraft 12 708 17 042
77 603 74 145
TOTAL LIABILITIES 89 510 99 464
TOTAL EQUITY AND LIABILITIES 117 359 126 641
NET ASSET VALUE PER SHARE (CENTS) 35.75 34.89
TOTAL NET ASSET VALUE 27 849 27 177
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2011
Treasur
Share y Share Treasury
capital share premium shares
capital
R`000 R`000 R`000 R`000
Balance at 1 July 2009 - (2) 17 798 (8 498)
Audited 16
Total comprehensive loss - - -
for the year -
Long term share - - -
incentives -
Total changes - - - -
Balance at 30 June 2010 - (2) 17 798 (8 498)
Audited 16
Total comprehensive - - -
profit for the year -
Long term share - - -
incentives -
Non-controlling interest - - -
acquired -
Total changes - - - -
Balance at 30 June 2011 - (2) 17 798 (8 498)
Reviewed 16
Share
Total based Equity
share Retaine payment attributable
capital d reserve to parent
earning
s
R`000 R`000 R`000 R`000
Balance at 1 July 2009 - 9 314 26 246 176
Audited 35 736
Total comprehensive loss - (8 732) -
for the year (8 732)
Long term share - - 173
incentives 173
Total changes - (8 732) 173 (8 559)
Balance at 30 June 2010 - 9 314 17 514 349
Audited 27 177
Total comprehensive - -
profit for the year 594 594
Long term share - - 78
incentives 78
Non-controlling interest - - -
acquired -
Total changes - 594 78 672
Balance at 30 June 2011 - 9 314 18 108 427
Reviewed 27 849
Non-controlling Total
interest equity
R`000 R`000
Balance at 1 July 2009 - -
Audited 35 736
Total comprehensive loss -
for the year (8 732)
Long term share -
incentives 173
Total changes - (8 559)
Balance at 30 June 2010 - -
Audited 27 177
Total comprehensive (1)
profit for the year 593
Long term share -
incentives 78
Non-controlling interest 1
acquired 1
Total changes - 672
Balance at 30 June 2011 - -
Reviewed 27 849
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
GROUP
Reviewed Audited
12 12
months months
ended ended
30 June 30 June
2011 2010
R`000 R`000
Profit before taxation from continuing
operations 4 733 1 906
Loss before taxation from discontinued
operations (8 309) (9 058)
Loss before taxation (3 576) (7 152)
Adjustments for:
Depreciation of property, plant and equipment 3 829 3 463
Impairment of goodwill 2 231 45
Realisation of deferred tax on sale of
subsidiary 424 -
Loss on disposal of property, plant and
equipment 248 1 068
Investment income (762) (635)
Finance costs 5 871 5 649
(Decrease) / Increase in operating lease
accruals (229) 403
Increase in share based payment reserve 78 173
Increase in provisions 162 261
Changes in working capital:
Decrease in inventories 14 641 6 239
Decrease / (Increase) in trade and other
receivables 5 262 (502)
Decrease in trade and other payables (6 227) (1 376)
Cash generated from operations 21 952 7 636
Investment income 762 635
Finance costs (5 871) (5 649)
Taxation paid (3 350) (655)
Net cash generated from operating activities 13 493 1 967
Cash flows absorbed by investing activities
Purchase of property, plant and equipment (10 198) (4 185)
Proceeds on disposal of property, plant and
equipment 1 758 465
Goodwill paid on acquisition of businesses (375) -
Net cash absorbed by investing activities (8 815) (3 720)
Cash flows absorbed by financing activities
Increase in interest bearing borrowings 2 563 943
Decrease in loans from related parties (169) (1 388)
Increase in loans to related parties (3 544) -
Increase in non-controlling interest 1 -
Net cash absorbed by financing activities (1 149) (445)
Net increase / (decrease) in cash and cash
equivalents 3 529 (2 198)
Cash and cash equivalents at the beginning of
the year (13 262) (11 064)
Cash and cash equivalents at the end of the year
(9 733) (13 262)
Current assets 2 975 3 780
Current liabilities (12 708) (17 042)
(9 733) (13 262)
NOTES TO THE CONDENSED CONSOLIDATED RESULTS
for the year ended 30 June 2011
1. BASIS OF PREPARATION
These condensed consolidated and company financial
statements have been prepared under the supervision
of L A Rhind in accordance with International
Financial Reporting Standards ("IFRS"), the
interpretations adopted by the International
Accounting Standards Board, South African
interpretations of Generally Accepted Accounting
Practice (the AC500 series) and include the
disclosures required by IAS34: Interim Financial
Reporting.
The financial statements have been prepared using
accounting policies that comply with IFRS and which
are consistent with those applied in the preparation
of the financial statements for the year ended 30
June 2010. The group has adopted the following new
and modified standards in response to changes in
IFRS:
IAS24- Related Party Disclosure
IAS32(revised)- Financial Instruments: Presentation
IAS39(revised)- Financial Instruments: Recognition
and Measurement
The adoption of the amended standards has had no
impact on the Group`s results.
2. REVIEW REPORT
The condensed consolidated financial statements have
been reviewed by BDO South Africa Inc. Their
unmodified review report is available for inspection
at the group`s registered office.
3. COMMENTARY ON RESULTS
NATURE OF BUSINESS
The Group is divided into two main businesses, the
building materials retail business ("Hardware
Warehouse Business") and the Plumbing and Sanitary
Ware Retailer ("Plumbing Business").
Hardware Warehouse Business
The Hardware Warehouse Business is expanding rapidly
as a geographically diversified retailer of quality
building and construction material, and operates in
the expanding rural and semi-rural cash customer
market. With a customer base that includes DIY
individuals, rural buying groups, bakkie builders,
small to medium contractors, and government, the
Hardware Warehouse Business model continues to prove
its resilience during the pro-longed down turn in the
industry.
Plumbing Business
During late 2008, the Group acquired the franchise
rights, covering a portion of the Eastern Cape, of a
plumbing and sanitary ware retailer. The Plumbing
Business, whose target market is the construction
industry, also extends credit to its customer base.
During the year under review however, the Group`s
ownership in the Plumbing Business was reduced to
that of a minority interest, and overall management
control was also relinquished.
FINANCIAL PERFORMANCE
During the year, the group undertook an extensive
rationalisation of the plumbing business which
resulted in the subsequent sale thereof. On 30 June
2011, 51% of the shares in the subsidiary were
disposed of for the initial cost of R51. A 49%
minority interest has been retained with limited
exposure to risk. The inter-company loan account form
the Hardware Warehouse Business to the Plumbing
business was written down to the recoverable portion.
The business is treated as a discontinued operation.
This has had a profound effect on the financial
results.
The remaining commentary therefore focuses on the
core building material retail business ("Hardware
Warehouse Business").
Consolidated Results
The year under review has been a positive one for the
Hardware Warehouse Business, being the Group`s core
business. Notwithstanding the continued poor
performance within the construction and allied
industries, the Group has delivered a vastly improved
set of results compared to the year ended 30th June
2010. Furthermore, management took the opportunity
afforded by the slower period to stem the Plumbing
Business losses so as to reduce any further negative
effects to a negligible level going forward. In
addition to the extensive rationalisation of the
Plumbing Business, management continued to focus on
store roll outs of the core building materials
business, adding two new stores to the Mpumalanga
province. For the Group, the growth story continues.
FINANCIAL HIGHLIGHTS
Hardware Warehouse Continuing Operations
For the year under review revenue from continuing
operations increased by 14.09%, of which Hardware
Warehouse Business contributed 13.81%. This was
achieved in addition to a corresponding 1.01%
increase in the gross profit margin from continuing
operations, despite a very competitive market. On a
store-for-store basis, the revenue improvement was
5.2% (2010: 8.2%).
Profits and earnings per share improved which was
indicative of management`s abilities to continue with
its growth strategy, and the costs attended there to,
whilst placing the Hardware Warehouse Business in a
substantially more resilient position during the
continued down turn.
Notwithstanding the high interest and depreciation
costs attendant to a growing company, the Board of
Directors is well pleased with the increase in
profitability. With the aforementioned in mind the
continuing profit from operations improved by a solid
45.80%. Despite this increase, the board is looking
to improve the profitability of the business. Further
substantial improvement is required and expected
going forward, specifically once the current economic
conditions change for the better.
The continuing operating expenses increased by 17.88%
(excluding the impairment of the loan). This is 3.79%
higher than the continuing sales growth, and is as a
result of four main strategies aligned to growth:
firstly, the opening of two new stores; secondly, the
introduction of additional personnel and capacities
in anticipation of a greater emphasis on store
rollouts planned to take place during the 2012
calendar year: thirdly, once-off expenses due to the
rollout of a new IT system (Kerridge): and finally,
an expansion of the Internal Audit department to meet
the expected risk management requirements of current
and expected growth during 2012.
Management regularly assesses the impact of such an
increase in expenses. However, as part of its sound
business strategy, Hardware Warehouse continues to
create capacity prior to growth.
Plumbing Business
As indicated in 2010, substantial management work
would be required to rationalise the Plumbing
Business as a result of the continued down turn in
the top end of the building materials industry. This
rationalisation was achieved as this four store
Plumbing Business was reduced to one profitable store
towards the tail end of 2011 and then 51% of the
business was sold to an owner operator. Further
losses during the ensuing financial year are not
expected from the Plumbing Business. In fact the
first two months of the new financial year have
yielded positive results from the remaining primary
store.
Goodwill impairment - R2 million. Goodwill was paid
on acquisition of the original store, which is the
same store that now remains. This has now been
written off.
STORE OPENINGS
During the year under review, Hardware Warehouse
opened two new stores in Mpumalanga, which have
proven very successful. The store opening count was
limited to two stores due to management`s attention
on the rationalisation of the Plumbing Business, as
well as the implementation of the new IT system.
However, management has assessed the market and has
lined up opportunities to open an additional store in
the Eastern Cape, an additional store in Mpumalanga
and at least two new stores in KwaZulu Natal during
2012. The Board is confident that these store roll
out plans can be achieved, thereby giving the Group a
total of 21 stores throughout three provinces, which
is a 23% increase in store count.
CASH FLOW
Hardware Warehouse Business
The Group generated a positive cash flow during the
year under review, which was generated mainly from
the Hardware Warehouse Business: from net cash
profit, inventory reductions, as well as from
collection of trade receivables (mainly from slow
paying government organisations). These were
allocated to the investment into inventory and
property, plant and equipment for the two new stores.
Forecast cash profits from operations will be
utilised to fund planned store growth in the ensuing
financial year.
The R15 million loan from AAA Investments (Pty)
Limited is due for repayment on 29 May 2012. The
group sold one of its three fixed properties
subsequent to the year under review, generating R6.1
million. The Board believes that the sale of the
second fixed property will generate a further R2.5
million. With the assistance of the new IT system,
better inventory management is expected to further
reduce inventory, thereby generating cash flow in the
new financial year. The flow of funds from these two
aforementioned areas will be utilised to fund the
loan repayment.Funding of R5 million, to replace one
third of the loan, is currently being negotiated with
various parties. This will be put in place as
additional funding, should this be required.
Plumbing Business
The positive cash flow generated from the
rationalisation of the Plumbing Business, was
utilised to set off the cash losses incurred during
the year under review, resulting in a nil cash flow
effect.
PROSPECTS
The Board continues to pursue its growth strategy and
should, in the absence of the now resolved challenges
of the Plumbing Business, resume a stronger emphasis
on its core focus, being the building materials
retail business, and the subsequent store roll out
thereof. Once critical mass of store roll out in
Mpumalanga and KwaZulu Natal has been achieved in
2012, plans for store roll outs in Limpopo and
Gauteng will get underway for 2013.
Management continues to improve on the brand, store
openings, shop lay-outs, staff training and other
relevant aspects related to "improving whilst
growing".
Senior management continues to assess strategic
alliances with allied companies to facilitate the
group`s growth strategy.
GOVERNMENT TENDERING
This aspect of the business continued to perform
poorly, as a result of less than successful service
delivery and the attendant paucity of tenders
available.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The accounting policies applied in the preparation of
these provisional consolidated annual results are
based on reasonable judgments and estimates, are in
accordance with International Financial Reporting
Standards ("IFRS") and are consistent with those
applied in the annual financial statements for the
year ended 30 June 2010. These provisional
consolidated annual results as set out in this report
have been prepared in terms of IAS 34 - Interim
Financial Reporting, the Companies Act, 2008 (Act 71
of 2008), and the Listings Requirements of JSE
Limited.
4. SEGMENT INFORMATION
Plumbing
business -
Hardware Discontinued
Warehouse Group operations Group
Reviewed Reviewed Reviewed
12 12 12
months months months
ended ended ended
30 June 30 June 30 June
2011 2011 2011
R`000 R`000 R`000
Revenue 354 177 47 278 401 455
Profit /
(Loss) from 10 158 (8 309) 1 849
operations
Investment
income 167 594 761
Finance
charges 5 592 279 5 871
Fair value
loss on
discontinued
operation - 315 315
Profit /
(Loss) before 4 733 (8 309) (3 579)
taxation
Taxation 1 365 5 534 6 899
Profit /
(Loss) for the 3 368 (2 775) 593
year
Plumbing
business -
Hardware Discontinued
Warehouse Group operations Group
Audited Audited Audited
12 12 12
months months months
ended ended ended
30 June 30 June 30 June
2010 2010 2010
R`000 R`000 R`000
Revenue 310 445 70 319 380 764
Profit /
(Loss) from 6 967 (9 105) (2 138)
operations
Investment
income 258 377 635
Finance
charges 5 319 330 5 649
Profit /
(Loss) before 1 906 (9 058) (7 152)
taxation
Taxation 583 (997) (414)
Profit / (8 732)
(Loss) for the 1 323 (10 055)
year
5. CHANGES IN COMPOSITION OF THE GROUP
On Tap Border
R`000
Assets
Property, plant and equipment (432)
Deferred tax asset (424)
Inventories (2 914)
Trade and other receivables (4 390)
Cash and cash equivalents (10)
Liabilities
Related party loans 3 631
Interest bearing borrowings 302
Tax payables 73
Trade and other payables 3 229
Bank overdrafts 1 250
315
Consideration -
Fair value loss on discontinued operations (315)
At 30 June 2011 On Tap Border was identified as a disposal
group. All associated assets and liabilities have been
classified as discontinued operations. The prior year`s
income statement and segment report has been reclassified
for discontinued operations.
The fair value loss on discontinued operations is
disclosed as part of discontinued operations in the
condensed consolidated statement of comprehensive income.
The disposal was a strategic decision allowing the group
to focus on its core business.
6. DISCONTINUED OPERATIONS
On 30 June 2011 Hardware Warehouse Business disposed
of 51% of its share in On Tap Border. On Tap Border
meets the definition of a discontinued operation.
On Tap Border
Reviewed Audited
12 months 12 months
ended ended
30 June 30 June
2011 2010
R`000 R`000
Revenue 47 278 70 319
Other income 248 256
Administration expenses 687 987
Personnel costs 6 534 9 844
Other expenses (7 829) 11 147
Loss from operations (8 309) (9 105)
Investment income 594 377
Finance costs 279 330
Fair value loss on discontinued
operations (315) -
Loss before taxation (8 309) (9 058)
Taxation 5 534 (997)
Loss for the period from
discontinued operations (2 775) (10 055)
The net cash flows attributable to the operating,
investing and financing activities of discontinued
operations are as follows:
On Tap Border
Net cash from operating
activities 1 499
Net cash from investing
activities 291
Net cash used in
financing activities (1 621)
Net increase in cash and
cash equivalent 169
7. HEADLINE AND DILUTED HEADLINE EARNINGS / (LOSS) PER
SHARE
The earnings and weighted average number of ordinary shares used in
the calculation of headline and diluted earnings per share are as
follows:
Reconciliation of total earnings to headline earnings
attributable to equity holders of the parent:
2011 2010
R`000 R`000
Total earnings / (loss) for the year 593 (8 732)
Adjustments:
Add impairment of goodwill 2 231 45
Add loss on disposal of property,
plant and equipment 248 1 068
Taxation effect of adjustments (69) (299)
Fair value loss on discontinued operations 315 -
Headline earnings / (loss) 3 318 (7 918)
Weighted average number of ordinary shares in
issue (Excluding treasury shares) (`000) 69 400 69 400
Total number of shares in issue (`000) 77 900 77 900
Headline and diluted headline earnings /
(loss) per share in cents 4.78 (11.41)
Headline and diluted headline earnings from
continuing operations per share in cents 5.11 2.27
Headline and diluted headline loss from
discontinued operations per share in cents (0.33) (13.67)
8. CHANGES IN SHARE CAPITAL AND SHARE PREMIUM
There were no changes in share capital and share
premium during the financial year ended 30 June 2011.
9. RELATED PARTY TRANSACTIONS
The loan to On Tap Border from Hardware Warehouse Business was
impaired during the current year. The amount of the impairment was
R26,582,530 which has been eliminated on consolidation.
The reason for the abovementioned impairment was due to the
inability of On Tap Border to repay the loan and cash flow
projections indicated that repayments in the future were unlikely.
Other than the impairment of the loan owed by On Tap Border and
Hardware Warehouse Business` disposing of 51% of its share in On Tap
Border there have been no further significant changes in the related
party relationships since the previous year or significant
transactions during the year other than those in the normal course
of business.
On 30 June 2011 Hardware Warehouse Business commenced three lease
improvement agreements with related parties. The value of these
lease improvements were R1 484 944.
10. ACQUISITION OF BUSINESS
Mpumalanga Branch
Net asset value -
Goodwill 375
Consideration 375
On 13 August 2010 the acquisition of an existing
hardware retailer in Mpumalanga became effective. The
acquisition was paid for in cash. It was a material
acquisition.
The above acquisition was made for strategic growth
reasons.
11. EVENTS AFTER THE END OF THE REPORTING PERIOD
No significant transactions which require disclosure
have occurred since the end of the year to the date
of this announcement.
12. CHANGES TO THE COMPOSITION OF THE BOARD
Independent non-executive director, HA Long resigned
during the year under review.
On 16 September 2011, Mrs. EL Mason was appointed to
the Board to fill the vacancy created by the
resignation of an Independent Non-executive Director.
13. DIVIDENDS
No dividend will be declared for the financial year
ended 30 June 2011 (2010: Nil).
14. APPRECIATION
My appreciation is extended to our suppliers, all
management and staff, and fellow directors, who have
seen our growing company through three tough years,
possibly the toughest the industry has experienced in
many decades.
Ivan Senar
Chairman
30 September 2011
15. CORPORATE INFORMATION
Hardware Warehouse Limited
Country of incorporation and domicile: South Africa
Registration number: 2007/004302/06
Share code: HWW
ISIN: ZAE000104253
Registered office
17 Vincent Road, Vincent, East London, 5247
Postal address
PO Box 19728, Tecoma, East London, 5214
Directors
IMJ Senar, Chairman; SC Miller, Chief Executive Officer; LA
Rhind, Financial Director; NE Woollgar, Independent Non-
executive Director; EL Mason, Independent Non-executive
Director.
Contact details
Tel: +27 43 704 2200
Fax: +27 43 704 2210
Web: www.hwwh.co.za
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
Auditors
BDO South Africa Inc
Designated Advisor
Merchantec Capital
Date: 30/09/2011 12:39:01 Supplied by www.sharenet.co.za
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