Wrap Text
Unaudited interim results for the six months ended 31 December 2014
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1984/008265/06)
(“DAWN” or “the Group” or “the Company”)
Alpha code: DAW
ISIN: ZAE000018834
E-mail: info@dawnltd.co.za
www.dawnltd.co.za
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER
2014
COMMENTARY
INTRODUCTION
DAWN 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. The Group has two main operating segments,
namely Building and Infrastructure, both being supported by the
Solutions segment.
The Group expected the six months to 31 December 2014 to be
significantly down on the high base of the first half of F2014 as
outlined to the market in October 2014. This proved to be the
case, with the period under review very challenging and results
disappointing.
As announced on 24 October 2014, the successful acquisition of
51% of DAWN’s Watertech Companies by Grohe Luxemburg Four AG
(GROHE), Europe’s largest and the world’s leading single-brand
manufacturer and supplier of sanitary fittings, changed the Group
significantly and will grow the Group’s core distribution
competency, enhance volume throughput and the resulting
efficiencies, as well as ensure that DAWN becomes the leading
branded products trader in South Africa for both DAWN brands and
brands in which the Group has no investment.
The Group structure post the transaction is shown in the PDF file
on the DAWN website on www.dawnltd.co.za.
The initial engagement with GROHE has been very pleasing. An
important aspect of the deal was to ensure better utilisation of
DAWN Logistics’ existing capacity over time, which is starting to
be implemented. Increased sales will be driven by exporting
finished product through GROHE’s sales and distribution channel
and the supply of OEM components. The utilisation of DAWN
Logistics’ excess capacity is also starting to take place. Access
to global expertise, technology and leading research and
development, as well as improved purchasing power, has been
initiated.
PERIOD UNDER REVIEW
Although Group revenue increased and gross margins were
maintained as committed, the results were significantly impacted
by two key factors – a NUMSA strike in both the Building and
Infrastructure segments, as well as 37 power interruptions that
crippled manufacturing capacity.
In addition, there were severe delays in the implementation of
government work in the Infrastructure segment, despite strong
order books. Water-related spend was the largest category of
contract postponements in the South African civils market, with
18 water and sanitation projects postponed in the first half of
F2015 against nine in the first half of F2014. In addition,
government delayed the awarding of new tenders.
These factors, combined with once-off transaction costs and a net
gain relating to the GROHE transaction, resulted in earnings per
share (EPS) increasing by 461% to 231,9 cents per share whilst
headline earnings per share (HEPS) was down 168%, showing a loss
of 27,8 cents per share. Excluding the impact of these factors,
core HEPS was down 61% to 15,9 cents per share, mainly due to the
effects of the delays in government infrastructure spend.
INCOME STATEMENT
Revenue was up 9% to R2,4 billion (Dec 2013: R2,2 billion), with
the Building segment’s revenue up 16%, the Infrastructure segment
up 4% and the Solutions segment up 16%. Acquisitive revenue
growth was 11%.
As outlined above, once-off transaction costs and operating
disruptions due to the strike and power cuts of R117 million were
incurred, as well as a R611 million gain on derecognition
resulting from the GROHE transaction and a step-up from 51% to
90% in DAWN’s Africa expansion programme (AST). This resulted in
profit before interest and taxation (PBIT) increasing by 479% to
R540,6 million (Dec 2013: R93,4 million).
Excluding the abovementioned items, core PBIT decreased by 50% to
R47,0 million (Dec 2013: R93,4 million). The core margin was 1,9%
(Dec 2013: 4,2%). The core Building segment margin was maintained
at 2,0% (Dec 2013: 2.9%), while the core Infrastructure segment
margin was 0,4% (Dec 2013: 4,8%) and the Solutions segment margin
a loss of -1,0% (Dec 2013: 4,6%).
Operating expenses on a like-for-like basis were up 9,7%.
Net finance cost was up 32% to R26,3 million (Dec 2013: R19,9
million) due to R76 million of acquisitions and higher working
capital. The proceeds from the GROHE transaction eliminated debt
from November 2014, leaving the Group R150 million cash positive.
Significant interest savings are being realised.
Income from associates and joint ventures was up 25% to R11,3
million (Dec 2013: R9,1 million) due to strong recovery from
associates (Heunis and Fibrex) and some underperforming
investments (IPS, Simba). GROHE DAWN Watertech contributed from 1
November 2014 as an associate investment, as DAWN has a 49%
interest in the business.
EPS was up 461% to 231,9 cents per share (Dec 2013: 41,4 cents
per share) due to the net gain on the GROHE transaction, as well
as the step-up in shareholding in AST.
HEPS was down 168% to a loss of 27,8 cents per share (Dec 2013:
positive 41,1 cents) due to the strike, power disruptions and the
GROHE transaction costs and related IFRS adjustments.
The core HEPS, which excludes all once-off impacts, was down 61%
to 15,9 cents per share (Dec 2013: 41,1 cents per share).
STATEMENT OF FINANCIAL POSITION
The Group’s net working capital amounted to 65 days (F2014: June
2014 50 days), which exceeds the maximum threshold of 55 days.
Working capital as a percentage of revenue was 16,9%, above the
Group’s upper threshold of 15%.
Debtors’ days were 46 days, below the Group’s 55 days target due
to strong recovery supported by lower revenue growth. Bad debts
still remain at less than 0,1% of revenue.
The Group’s objective is to have stock days covered by creditors’
days. The stock days increased to 74 days (June 2014: 67 days)
due to the full effect of the weaker exchange rate, as well as
overstocking at WHS and, in Incledon’s case, stocking up before
contracts were unexpectedly delayed.
Creditor funding normalised after slower stock turns to 55 days
(June 2014: 75 days). Inventory turns will be improved in line
with creditor funding during the next reporting period.
STATEMENT OF CASH FLOWS
Due to the once-off GROHE transaction costs and the strike, cash
generated before working capital changes was R72,3 million, down
from the R207,9 million in the comparative period.
As outlined in the Statement of Financial Position, the Group’s
working capital increased by R196,8 million (Dec 2013: R127,6
million).
Investing activities of R214,4 million included R76 million for
bolt-on acquisitions and start-ups, R61 million loans to
associates and joint ventures and R44 million capital expenditure
(R16 million maintenance and R28 million expansionary). Financing
activities of R199,1 million include R641 million net debt
repayment, R880 million proceeds from the GROHE transaction and
R40 million in dividend payments.
The closing cash balance was R17,8 million (Dec 2013: R382,2
million).
The Group’s policy is to pay dividends once per year at year-end,
on an approximately four times cover. The Group therefore did not
declare a dividend at interim results time.
OPERATIONAL OVERVIEW
Building – 47% of Group revenue
Following the GROHE transaction, the Building segment now
consists of Building Trading and associates. The Trading
businesses include WHS, AST, Hamilton’s, Pro-Max and WiiN, with
the associates including the 49% holding of the newly-created
business GROHE DAWN Watertech, as well as Heunis Steel.
Revenue for Building Trading was up 16% to R1,2 billion (Dec
2013: R1,1 billion), with the acquisitions of Hamilton’s, Pro-Max
and AST contributing 11% to the growth. Although a pleasing
improvement in gross margin was achieved, headline earnings for
this segment was down 58%. WHS traded well in a tight market and
with the closure of Nigeria, AST is now breaking even. Results in
the Building segment were impacted by R6,1 million development
costs in the start-up business of WiiN and indirect impacts from
the strike. This resulted in operating profit for Trading
declining by 20%.
Strong performances were seen from the associate companies, with
the like-for-like contribution from GROHE DAWN Watertech to the
Group up 9%. Heunis Steel doubled profits.
This resulted in the total Building segment headline earnings
declining by 4%. Excluding the impact from the strike, headline
earnings would have increased by 14%.
Infrastructure – 43% of Group revenue
This segment consists of the businesses of DPI, Swan, Ubuntu,
Sangio, Incledon and the associates/joint ventures IPS, Simba,
Fibrex and Aqualia. DAWN acquired 100% control of Sangio in June
2014 and it contributed 30% of revenue growth in this half.
As outlined earlier in the commentary, the Infrastructure segment
was severely affected by direct and indirect impacts of the NUMSA
strike and 37 power interruptions. The direct impact of the
strike was due to the loss in sales and factory under-recoveries,
whilst the indirect impact included the supply-chain and further
factory disruptions into August. This had a R47 million impact on
operating profit.
Against these factors, revenue increased by 3,8% to R1,2 billion
(Dec 2013: R1,1 billion) and operating profit declined by 92% to
R4,1 million (Dec 2013: R53,6 million). Headline earnings
decreased by 129% to a loss of R11,3 million.
The manufacturing companies in this division, DPI, Swan, Ubuntu
and Sangio, are all reliant on long uninterrupted production
runs. The power disruptions therefore led to further losses in
scrap and factory under-recoveries. These businesses clawed back
some of the strike losses in the latter part of the first half.
Despite Incledon’s strong order books, the performance was
disappointing. Although projects have been implemented in the
industry at the front end of the water and sanitation chain, the
implementation of government contracts already won in the second
tier where DAWN operates were postponed and new tenders awarded
in the industry slowed down by 26% year-on-year.
In terms of the Group’s associates, IPS’ losses continued and
profits in Simba in Tanzania declined due to donor funds being
temporarily withdrawn. Fibrex and Aqualia both made strong
recoveries off a soft base.
Solutions – 10% of Group revenue
Solutions consists of the Logistics businesses, DAWN Distribution
Centres and DAWN Cargo, as well as other services, such as
marketing, human resources and business systems.
Logistics, the largest element of the Solutions segment,
experienced two major impacts on its results:
1. Volumes were mainly affected by the reduced activity in the
Infrastructure segment. This was partially offset by income
from servicing new brands like Gardena, Pro-Max and
Hamilton’s.
2. A new warehouse management system is in the process of
implementation following the transport management system
implemented in 2011. Although the implementation is now
virtually complete, it resulted in some non-recurring costs
for the period.
The other services entities did well to maintain contribution
against reduced activity.
The Solutions segment’s revenue was R253 million (Dec 2013:
R218 million) and an operating loss of R2,5 million (Dec
2013: Operating profit of R10,1 million) was incurred.
International
Having started the African and Indian Ocean Islands expansion
nine years ago, the Group is pleased with the strong progress
achieved. Revenue from this source has increased from less than
R150 million in F2005 to R1,6 billion for F2014. During H1 F2015,
exports from South Africa grew by 20%, the DPI factories in the
rest of Africa grew revenue by 10% and the AST Group continued to
entrench their African presence through their trading businesses,
showing 5% growth.
PROSPECTS
Building segment
Looking forward, the year-on-year residential buildings completed
was up 11%, with building plans passed up 28%. However, 50% of
these plans were not implemented in the last year.
The trading of traditional plumbing brands has shown double-digit
growth.
Core to DAWN’s strategy is securing additional volumes through
existing cost structures. This is being achieved by the addition
of well-known brands such as Gardena, Pro-Max and Hamilton’s and
by moving the WiiN volumes through the existing infrastructure.
The luxury market remains tough.
In terms of the associates, sales and margins continue to improve
at GROHE DAWN Watertech. Range alignment and rationalisation will
also have a beneficial effect on margins. Heunis Steel had a
record H1 F2015 and this trend is set to continue due to an
improving market environment.
The segment’s short-term target margin range remains 2% to 4%,
although it is likely to be below the lower end of the range to
the new year- end of March 2015.
Infrastructure segment
The segment has strong order books across the board and execution
of those projects has picked up over the last month. To counter
the threat of further power interruptions, internal power supply
is being installed over the next three months.
In terms of the manufacturing businesses, volume increases are
crucial and will be addressed as the delayed awards start to be
implemented. Swan is expected to experience the benefits from new
capital investment during the second half, as well as market
share growth from market consolidation in the pressure pipe
sector.
After commissioning new large bore extruders, scrap rates are
declining at Sangio, the HDPE business which is now consolidated.
Improving productivity will remain a strong focus in F2015.
The recently acquired fabrication business, Ubuntu, performed
well and consolidated its manufacturing onto one site in Gauteng.
Cost and productivity benefits will flow through in the second
half of F2015.
Incledon has gained market share and started delivering delayed
contracts again from January. This business has also opened two
new strategic branches in Upington and Rustenburg respectively,
which will both contribute to the second half profit.
The Infrastructure segment Associates are set to continue
improving, with DPI in Africa to increase off the slow start in
the first half. Fibrex in Angola is set to benefit from the
government’s move to ensure local manufacturing companies receive
priority in the allocation of government projects. The start-up
business IPS, which trades in the agricultural space, will start
to use the Incledon infrastructure to lower its cost and
breakeven point. Sales have developed positively during the last
year.
The segment’s margin target remains 3% to 5% in the short-term,
although this will not be achieved for the new year-end of March
2015 due to the difficult first half.
Solutions segment
The roll-out of the new business systems in Logistics will be
concluded over the next few months. The business expects to see
efficiency and cost benefits coming through in the next quarter
and into F2016.
The integration of the remaining DAWN Infrastructure segment
manufacturing operations (Swan, Ubuntu and Sangio) into DAWN
Cargo is being bedded down and has already brought revenue growth
to Logistics, whilst driving down distribution costs to those
businesses.
The other Solutions segment companies will continue to grow their
non-Group client bases, whilst developing their Africa footprint
in support of DAWN Africa Trading.
International
The Group’s target is to increase the contribution from business
in Africa to Group revenue from 22% to 33% over time, assisted by
the benefits of the GROHE transaction which creates a strong base
for expansion into surrounding regions.
Exports into Africa are a major focus and progress will be
enhanced by the GROHE transaction. DPI in Africa is looking at
increasing growth, including acquisitions. AST as the new
distribution arm of all DAWN and GROHE product in Africa is a
huge step change opportunity.
Conclusion
Management is taking firm action against the disappointing
performance, with three key areas of focus:
1. Driving additional volumes through the existing
infrastructure by aggressively improving stock turn and
volume throughput;
2. Further reducing overheads to expand net margins; and
3. Working capital improvement, with a strong focus on improved
stock management, cash extraction and interest cost savings.
Over the short-term, the Group should benefit from the non-
recurrence of once-off transaction and strike costs and further
cost reductions to counter sustained market weakness. The Group
has embarked on its third round of cost cutting since 2009.
Against this, a number of risks remain. Ongoing power disruptions
will negatively impact the Group until it finalises the roll-out
of internal energy sources by May 2015. Any possible future
delays in water and sanitation spend will also have a negative
impact. Pressure on economic growth from Eskom load-shedding
could reduce South Africa’s GDP by up to 1 basis point in 2015.
DAWN is changing its year-end to March as of 2015 in line with
GROHE DAWN Watertech’s year-end, as this forms a large portion of
the DAWN Group’s earnings. The next three months is therefore
expected to improve on the comparative period.
As published on SENS on 15 December 2014, the Group will be
pursuing the rebalancing of its capital structure during F2016.
To this end management is pursuing a share buy-back. Details
pertaining to the share buy-back will be set out in a circular to
shareholders shortly and will be subject to shareholders’
approval.
Management is increasingly driving strong delivery in the group
linked to performance measures. It is therefore expected that the
full benefits of the GROHE transaction, cost cutting, an improved
Statement of Financial Position and internal restructuring
measures will flow through from the first half of F2016.
This specific forecast has not been reviewed nor reported on by
the Company’s auditors.
On behalf of the Board
RL Hiemstra DA Tod
Independent Non-Executive Chairman Chief Executive Officer
Johannesburg
16 February 2015
The presentation to investors is available on the DAWN website.
www.dawnltd.co.za
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter
Ext 3, Germiston, 1401
Directors: RL Hiemstra^ (Chairman), DA Tod (Chief Executive
Officer), LM Alberts^, M Akoojee*, OS Arbee^, JA Beukes, JAI
Ferreira, GD Kotzee, DM Mncube ^, VJ Mokoena*, RD Roos
* Non-executive ^ Independent non-executive
Company secretary: iThemba Governance and Statutory Solutions
(Pty) Ltd
Transfer secretaries: Computershare Investor Services (Pty) Ltd,
70 Marshall Street, Marshalltown, 2001 (PO Box 61051,
Marshalltown, 2107)
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd
www.dawnltd.co.za
SUMMARY CONSOLIDATED INCOME STATEMENT
Unaudited
Unaudited Restated Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2014 2013 2014
change R’000 R’000 R’000
Revenue 9 2 427 423 2 226 975 4 435 948
Cost of sales (1 841 804) (1 688 545) (3 413 417)
Gross profit 585 619 538 430 1 022 531
Net operating
expenses before
impairments and
derecognition and
re-recognition of
investments and
impairments (655 590) (445 034) (915 488)
Operating profit
before derecognition
and re-recognition
of investments
and impairments (175) (69 971) 93 396 107 043
Net gain/(loss)
on derecognition
and re-recognition
of previously
held interest 640 042 – 14 842
Impairment of
intangible assets (29 468) – (41 424)
Operating profit 540 603 93 396 80 461
Finance income 6 112 3 746 8 795
Finance expense (32 367) (23 633) (67 073)
Profit after net
financing costs 514 348 73 509 22 183
Share of profit/(loss)
in investments
accounted for using
the equity method 11 338 9 094 (18 763)
Profit before
taxation 525 686 82 603 3 420
Income tax expense (6 265) (21 681) (14 760)
Profit/(loss) from
continuing operations 519 421 60 922 (11 340)
Profit from
discontinued
operations
(attributable to
owners of the
parent) 27 438 38 338 92 859
Profit for
the period 451 546 859 99 260 81 519
Profit attributable
to:
Owners of the parent 545 255 96 953 74 135
Non-controlling
interest 1 604 2 307 7 384
Profit for the
period 546 859 99 260 81 519
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
Unaudited Restated Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2014 2013 2014
change R’000 R’000 R’000
Profit for the
period 546 859 99 260 81 519
Other comprehensive
income – to be
subsequently
reclassified
to profit or
loss:
Exchange
differences on
translating
foreign operations 1 378 3 966 3 686
Effects of cash
flow hedges – 2 536 4 095
Hedge movement
through equity – – –
Recycling of
hedge through
profit/(loss) – 2 536 4 095
Effects of
retirement benefit
obligation – – (280)
Taxation related
to components of
other comprehensive
income – (710) (1 191)
Other comprehensive
income for the
period net of
taxation 1 378 5 792 6 310
Total comprehensive
income for the
period 548 237 105 052 87 829
Total comprehensive
income attributable
to:
Owners of the parent 546 633 102 745 80 445
Non-controlling
interest 1 604 2 307 7 384
548 237 105 052 87 829
Included above:
Depreciation and
amortisation 31 111 22 220 111 576
Operating lease
rentals 63 828 49 789 93 517
DETERMINATION OF
HEADLINE
EARNINGS (R’000)
Attributable
earnings 545 255 96 953 74 135
Adjustment for the
after-tax and
non-controlling
interest effect of:
Net profit/(loss)
on disposal of
property, plant
and equipment (502) (685) (1 331)
Tax effect on
disposal of
property, plant
and equipment and
impairment of
intangible assets
(customer
relationships) 134 192 (367)
Non-controlling
interest on
disposal of
property, plant
and equipment 35 – –
Impairment of
intangible assets 29 468 – 41 424
Net gain on
derecognition and
re-recognition of
Watertech group (624 997) – –
Net gain on
derecognition and
re-recognition of
AST Group (15 045) – –
Net profit/(loss)
on derecognition
of previously
held interest – – (14 842)
Headline earnings
adjustments
relating to
associates and
joint ventures 302 (64) 19 043
Headline earnings
adjustments
relating to
disposal group (65) – (456)
Headline earnings 8 (65 415) 96 396 117 606
Statistics
Number of ordinary
shares (’000)
– in issue 242 243 241 843 241 843
– held in treasury – (8 793) (7 726)
Deferred ordinary
shares in
issue (’000) – 400 400
Weighted average
number of
shares (’000)
– for earnings
per share 235 152 234 455 234 517
– for diluted
earnings per
share 235 152 241 029 241 497
Earnings per
share (cents) 461 231,87 41,35 31,62
Headline earnings
per share (cents) (168) (27,82) 41,11 50,15
Diluted earnings
per share (cents) 477 231,87 40,22 30,70
Diluted headline
earnings per
share (cents) (170) (27,82) 39,99 48,70
Operating profit (%) 22,3 4,2 1,8
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 December 31 December 30 June
% 2014 2013 2014
change R’000 R’000 R’000
ASSETS
Non-current
assets 1 419 836 1 000 444 565 390
Property, plant
and equipment 251 833 473 882 208 621
Intangible assets 215 147 306 265 175 326
Investments in
associates 871 788 94 766 91 526
Investments in
joint ventures 30 479 81 386 50 357
Deferred tax assets 50 589 44 145 39 560
Current assets 1 994 218 2 419 293 1 835 172
Inventories 841 893 1 068 621 665 107
Trade and other
receivables 1 081 337 946 876 1 007 731
Cash and cash
equivalents 65 776 395 029 154 123
Derivative financial
instruments 4 355 1 704 223
Current tax assets 857 7 063 7 988
Assets of disposal
group classified
as held-for-sale – – 1 212 274
Total assets 3 414 054 3 419 737 3 612 836
EQUITY AND
LIABILITIES
Capital and
reserves 2 073 663 1 547 708 1 522 986
Equity attributable
to equity holders
of the Company 2 038 723 1 523 435 1 487 230
Non-controlling
interest 34 940 24 273 35 756
Non-current
liabilities 110 579 511 110 494 139
Borrowings 59 214 454 254 447 090
Deferred profit 17 462 23 254 18 425
Deferred tax
liabilities 28 329 26 552 22 804
Retirement benefit
obligation 5 574 5 340 5 820
Derivative financial
instruments – 1 710 –
Current liabilities 1 229 812 1 360 919 1 298 805
Trade and other
payables 949 023 1 074 276 986 574
Borrowings 259 891 257 672 303 943
Derivative
financial instruments 13 420 23
Deferred profit 5 793 5 793 5 393
Current tax
liabilities 15 092 22 758 2 872
Liabilities of
disposal group
classified as
held-for-sale – – 296 906
Total equity
and liabilities 3 414 054 3 419 737 3 612 836
Future commitments
Capital commitments 11 364 87 087 36 046
Operating leases 439 244 464 513 464 142
Net cash 17 750 382 157 121 765
Net debt 66 365 280 480 494 310
Value per share
Asset value
per share
– net asset
value (cents) 32 853,78 648,50 649,41
– net tangible
asset value
(cents) 48 766,82 518,13 574,65
– market price
(cents) 700 950 1 090
Market
capitalisation (R’000) 1 695 700 2 297 508 2 636 088
Financial gearing
ratio (%)* 3,2 18,1 32,5
Current asset
ratio (times) 1,6 1,8 1,4
* Includes cash and cash equivalents.
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
2014 2013 2014
R’000 R’000 R’000
Balance at
beginning of period 1 522 986 1 467 177 1 467 177
Total comprehensive
income for the
period – continuing
operations 519 421 60 922 (11 340)
Total comprehensive
income for the
period – discontinued
operations 27 438 38 338 92 859
Total comprehensive
income for the
period – discontinued
operations
(non-controlling
interest) 15 345 1 085
Other comprehensive
income 1 378 5 792 6 310
Changes in ownership
interest – control
not lost (2 507) – (903)
Changes in ownership
interest – derecognition 17 789 – –
Non-controlling interest
acquired in business
combinations 6 262 10 220 18 918
Transactions with
non-controlling interest (8 504) – –
Share-based payment charge 28 540 16 141 3 351
Share-based payment
vesting of options – – (12 688)
Treasury shares acquired (7 984) (10 142) –
Treasury shares delivered 8 800 – –
Dividends paid to
non-controlling
interest – (2 333) (3 031)
Dividends paid (39 970) (38 752) (38 752)
Balance at end of period 2 073 663 1 547 708 1 522 986
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2014 2013 2014
change R’000 R’000 R’000
Cash generated
from operations
before working
capital changes (65) 72 283 207 877 334 094
Working capital
changes (196 792) (127 650) (218 332)
Net finance
costs paid (31 063) (35 953) (84 229)
Net income tax paid (9 274) (28 787) (69 975)
Net cash
(utilised in)/
generated from
operating
activities (1 164) (164 846) 15 487 (38 442)
Net cash utilised
in investing
activities (214 431) (122 807) (258 408)
Net cash generated
from financing
activities 199 054 371 120 381 876
(Decrease)/increase
in cash resources (180 223) 263 800 85 026
Cash resources at
beginning of period
of disposal group
held-for-sale 80 063 – –
Cash resources at
beginning of period
of continuing
operations 121 765 116 225 116 225
Exchange gains on
cash and cash
equivalents 340 2 132 577
Cash and cash
equivalents of
disposal group
held-for-sale at
year-end – – (80 063)
Cash and cash
equivalents of
disposal group
held-for-sale
derecognised (4 195) – –
Cash resources at
end of period 17 750 382 157 121 765
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
BUILDING
Discon-
Continuing tinued *
operations operations Total
R’000 R’000 R’000
6 months ended
31 December 2014
(Unaudited)
Revenue 1 247 794 334 681 1 582 475
Depreciation and
amortisation (5 289) (9 660) (14 949)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments 24 871 37 521 62 392
Impairments and
derecognition – – –
Net finance expense (11 199) (3 077) (14 276)
Share of profit from
associates and joint
ventures 12 378 1 214 13 592
Tax expense (7 218) (9 731) (16 949)
Net profit/(loss) after
tax from continuing
operations 18 832 – 18 832
Net profit after tax from
discontinued operations – 25 913 25 913
Assets 1 553 538 – 1 553 538
Liabilities 1 284 617 – 1 284 617
Capital expenditure *** 4 890 – 4 890
Head Office**
and other
Infra- DAWN reconciling
structure Solutions items
R’000 R’000 R’000
6 months ended
31 December 2014
(Unaudited)
Revenue 1 151 244 253 187 (224 802)
Depreciation and
amortisation (17 066) (8 633) (123)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments 4 101 (2 483) (94 343)
Impairments and
derecognition – – 610 575
Net finance expense (13 040) (1 371) (645)
Share of profit from
associates and joint
ventures (1 040) – –
Tax expense 2 215 1 125 (2 980)
Net profit/(loss) after
tax from continuing
operations (7 764) (2 727) 511 080
Net profit after tax from
discontinued operations – – 1 525
Assets 1 117 895 585 121 157 499
Liabilities 655 133 598 897 (1 198 256)
Capital expenditure *** 29 073 20 890 18 500
Discon-
tinued
operations Total
R’000 R’000
6 months ended
31 December 2014
(Unaudited)
Revenue (334 681) 2 427 423
Depreciation and
amortisation 9 660 (31 111)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments (39 638) (69 971)
Impairments and
derecognition – 610 575
Net finance expense 3 077 (26 255)
Share of profit from
associates and joint
ventures (1 214) 11 338
Tax expense 10 324 (6 265)
Net profit/(loss) after
tax from continuing
operations – 519 421
Net profit after tax from
discontinued operations – 27 438
Assets – 3 414 053
Liabilities – 1 340 391
Capital expenditure *** – 73 353
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
(continued)
BUILDING
Discon-
Continuing tinued *
operations operations Total
R’000 R’000 R’000
6 months ended
31 December 2013
(Unaudited Restated)
Revenue 1 077 433 391 206 1 468 639
Depreciation and
amortisation (2 182) (13 442) (15 624)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments 31 724 56 010 87 734
Net finance expense (4 755) (17 569) (22 324)
Share of profit from
associates and
joint ventures 2 002 – 2 002
Tax expense (7 524) (15 045) (22 569)
Net profit/(loss) after
tax from continuing
operations 21 447 – 21 447
Net profit after tax from
discontinued operations – 27 332 27 332
Assets **** 2 401 271 – 2 401 271
Liabilities **** 1 635 363 – 1 635 363
Capital expenditure *** 35 678 – 35 678
Head Office**
and other
Infra- DAWN reconciling
structure Solutions items
R’000 R’000 R’000
6 months ended
31 December 2013
(Unaudited Restated)
Revenue 1 108 985 218 326 (177 769)
Depreciation and
amortisation (11 273) (8 580) (185)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments 53 556 10 073 7 517
Net finance expense (8 022) (1 552) 253
Share of profit from
associates and
joint ventures 7 092 – –
Tax expense (12 634) (2 477) (2 243)
Net profit/(loss) after
tax from continuing
operations 39 992 6 044 (6 562)
Net profit after tax from
discontinued operations – – 11 006
Assets **** 944 129 530 085 (455 748)
Liabilities **** 535 208 532 898 (831 440)
Capital expenditure *** 27 233 38 146 27
Discon-
tinued
operations Total
R’000 R’000
6 months ended
31 December 2013
(Unaudited Restated)
Revenue (391 206) 2 226 975
Depreciation and
amortisation 13 442 (22 220)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments (65 484) 93 396
Net finance expense 11 756 (19 887)
Share of profit from
associates and
joint ventures – 9 094
Tax expense 18 242 (21 681)
Net profit/(loss) after
tax from continuing
operations – 60 921
Net profit after tax from
discontinued operations – 38 338
Assets **** – 3 419 737
Liabilities **** – 1 872 029
Capital expenditure *** – 101 084
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
(continued)
BUILDING
Discon-
Continuing tinued *
operations operations Total
R’000 R’000 R’000
12 months ended
30 June 2014
(Audited)
Revenue 2 129 568 756 280 2 885 848
Depreciation and
amortisation (4 979) (26 733) (31 712)
Operating profit/(loss)
before impairments and
derecognition of
investments 36 210 124 444 160 654
Impairments and
derecognition (41 424) – (41 424)
Net finance expense (12 907) (41 608) (54 515)
Share of profit from
associates and
joint ventures (21 599) 384 (21 215)
Tax expense (5 793) (16 983) (22 776)
Net profit/(loss) after
tax from continuing
operations (45 515) – (45 515)
Net profit after tax from
discontinued operations – 65 150 65 150
Assets 1 110 968 1 212 274 2 323 242
Liabilities 1 026 514 296 906 1 323 420
Capital expenditure *** 9 762 107 494 117 256
Head Office**
and other
Infra- DAWN reconciling
structure Solutions items
R’000 R’000 R’000
12 months ended
30 June 2014
(Audited)
Revenue 2 248 705 432 996 (375 321)
Depreciation and
amortisation (25 370) (18 447) (521)
Operating profit/(loss)
before impairments and
derecognition of
investments 99 343 9 616 (19 178)
Impairments and
derecognition – – 14 842
Net finance expense (24 632) (4 136) 2 932
Share of profit from
associates and
joint ventures 2 836 – –
Tax expense (21 046) (1 722) 3 025
Net profit/(loss) after
tax from continuing
operations 56 502 3 758 (26 085)
Net profit after tax from
discontinued operations – – 27 709
Assets 1 183 195 571 925 (465 526)
Liabilities 726 457 583 472 (543 499)
Capital expenditure *** 32 821 39 331 –
Discon-
tinued
operations Total
R’000 R’000
12 months ended
30 June 2014
(Audited)
Revenue (756 280) 4 435 948
Depreciation and
amortisation 26 733 (49 317)
Operating profit/(loss)
before impairments and
derecognition of
investments (143 392) 107 043
Impairments and
derecognition – (26 582)
Net finance expense 22 073 (58 278)
Share of profit from
associates and
joint ventures (384) (18 763)
Tax expense 27 759 (14 760)
Net profit/(loss) after
tax from continuing
operations – (11 340)
Net profit after tax from
discontinued operations – 92 859
Assets – 3 612 836
Liabilities – 2 089 850
Capital expenditure *** (107 494) 81 914
* Results from discontinued operations in respect of H1 2015
only includes results for 4 months ending 31 October 2014.
On 31 October 2014 the discontinued operations were
disposed of and from 1 November 2014 the Watertech groups
results are reported using the equity method.
** Other reconciling items consist of corporate and
consolidation adjustments. These predominantly include
elimination of intergroup sales, profits and losses and
intergroup receivables and payables and other unallocated
assets and liabilities contained within the vertically
integrated Group. Head office and other reconciling items
is not considered to be an operating segment.
*** Includes expenditure on intangibles.
**** Not restated.
NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
These unaudited summary consolidated interim financial
statements for the six months ended 31 December 2014 was
approved by the Board on 11 February 2015.
The summary consolidated interim financial statements are
prepared in accordance with the requirements of the JSE
Limited’s (JSE) Listings Requirements for interim financial
statements and the requirements of the Companies Act
applicable to interim financial statements. The JSE requires
interim financial statements to be prepared in accordance
with the framework concepts, the measurement and recognition
requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and must also, as a minimum,
contain the information required by IAS 34 Interim Financial
Reporting. The accounting policies applied in the preparation
of the summary consolidated interim financial statements are
in terms of IFRS and are consistent with the accounting
policies applied in the preparation of the consolidated
annual financial statements for the year ended 30 June 2014,
except for the effects of IFRS 5 as outlined in note 2 below.
The preparation of the interim summary consolidated financial
statements has been supervised by the Chief Financial
Officer, JAI Ferreira CA(SA).
The directors take full responsibility for the preparation of
the summary interim consolidated financial statements.
2. RESTATEMENT – ADOPTION OF IFRS 5
In line with the requirements of IFRS 5 par 38, the
Consolidated Income Statement for December 2013 has been
restated to account for the Watertech Group of companies as a
disposal group held-for-sale. In terms of IFRS 5 par 40, the
Consolidated Statement of Financial position for December
2013 was not restated. The Statement of Cash Flows reflects
both the continuing operations and the disposal group’s cash
flows consolidated. Cash flows from discontinued operations
in respect of H1 2015 are only included for four months
ending 31 October 2014. On 31 October 2014 the discontinued
operations were disposed of to GROHE and the cash balance
derecognised.
Impact on Consolidated Income Statement
Previously Increase/
Restated reported (decrease)
31 December 31 December 31 December
2013 2013 2013
R’000 R’000 R’000
Revenue 2 226 975 2 620 503 (393 528)
Cost of sales (1 688 545) (1 937 051) 248 506
Gross profit 538 430 683 452 (145 022)
Net operating expenses (445 034) (524 572) 79 538
Operating profit 93 396 158 880 (65 484)
Finance income 3 746 2 265 1 481
Finance expense (23 633) (33 908) 10 275
Profit after net
financing costs 73 509 127 237 (53 728)
Share of profit from
associates and joint
ventures 9 094 9 094 –
Profit before taxation 82 603 136 331 (53 728)
Income tax expense (21 681) (36 726) 15 045
(Loss)/profit from
continuing operations 60 922 99 605 (38 683)
Profit from discontinued
operations 38 338 – 38 338
Profit for the period 99 260 99 605 (345)
Profit attributable to:
Owners of the parent 96 953 96 953 –
Non-controlling interest 2 307 2 652 (345)
Profit for the period 99 260 99 605 (345)
3. DISPOSAL GROUP HELD-FOR-SALE DISCLOSED AS DISCONTINUED
OPERATIONS
WATERTECH COMPANIES
Shareholders are referred to a notice of general meeting
announcement dated 18 August 2014 in relation to a category 1
acquisition of a 51% indirect interest in the building
manufacturing companies of DAWN (“the Watertech Companies”)
by Grohe Luxembourg Four S.A. (“Grohe”), together with a call
option in favour of Grohe to acquire an additional 24,1%
indirect shareholding in the Watertech Companies from DAWN
after a 10-year period, and if such option is exercised by
Grohe, or if Grohe’s indirect shareholding has otherwise
increased to 75,1%, the option for DAWN to sell its remaining
24,9% indirect interest in the Watertech Companies to Grohe.
The general meeting of DAWN shareholders was held on Monday,
15 September 2014. The special resolution and the ordinary
resolution, as set out in the notice of general meeting to
shareholders, dated 18 August 2014, were unanimously approved
by shareholders present or represented and voting at the
meeting.
On 23 October 2014 Competition Commission approval for the
transaction was granted without any conditions. As all
conditions precedent as set out in the circular to
shareholders dated 18 August 2014, have been fulfilled, the
agreement relating to the transaction has become
unconditional in accordance with its terms. The effective
date of the transaction was 31 October 2014.
The Group realised a net gain of R625 million with the
derecognition of a 100% of the DAWN Watertech Group and a
re-recognition of a 49% interest as an investment in
associate.
4. BUSINESS COMBINATIONS
PRO-MAX WELDING CONSUMABLES PROPRIETARY LIMITED
A 60% share was acquired in Pro-Max Welding Consumables
Proprietary Limited (Pro-Max) for a provisional cash
consideration of R8,4 million. The cash consideration to be
paid is dependent on Pro-Max meeting certain targets as set
out in the sale of shares agreement between the Group and
Pro-Max. Pro-Max specialises in the manufacturing and
distribution of welding equipment and consumables. The
effective date of the transaction was 1 July 2014.
Pro-Max contributed operating profit of R3,5 million and
revenue of R85,1 million since the acquisition date.
The provisional amount of net assets acquired amounted to
R3,0 million and non-controlling interests of R4,8 million
was recognised. The total fair value of identified
intangible assets is R8,8 million. Goodwill recognised on
this acquisition amounts to R10,4 million.
HAMILTON’S BRUSHWARE SA PROPRIETARY LIMITED
On 1 December 2014 the Group acquired a 69% share in
Hamilton’s Brushware SA Proprietary Limited (Hamilton’s) for
a cash consideration of R10 million.
Hamilton’s specialises in the manufacturing and retail
distribution of brushware.
Hamilton’s contributed operating profit of R0,5 million and
revenue of R5,3 million since the acquisition date.
If the acquisition had occurred on 1 July 2014, Group revenue
would have been R28,1 million more, and operating profit for
the period would have increased by R1,4 million.
The amount of net assets acquired amounted to R0,9 million
and non-controlling interests of R3,9 million was recognised.
Total fair value of intangibles recognised are R6,6 million
comprising customer relationships and tradenames. The total
goodwill attributed to this transaction amounts to R8,2
million.
APEX VALVES (SOUTH AFRICA) PROPRIETARY LIMITED
An additional 39,53% shareholding was acquired in Apex Valves
(South Africa) Proprietary Limited (Apex Valves) on 30 July
2014 in addition to the 60,47% previously owned. This
resulted in the Group obtaining 100% control over Apex
Valves. A cash consideration of R6 million was paid on 31
October 2014.
AFRICA SAFFER TRADING PROPRIETARY LIMITED (AST)
The Group acquired an additional 39% shareholding in AST as
at 31 October 2014 for a cash consideration of R17,7 million.
The 51% interest disclosed as an Investment in Joint Venture
was de-recognised. Subsequently, AST was re-recognised as a
subsidiary.
The Group realised a net gain of R15,0 million on this
transaction consisting of a R5,0 million loss on
derecognition of the joint venture and a R20,0 million gain
on re-recognition as a subsidiary.
The total goodwill attributed to this transaction amounts to
R29,5 million and was impaired.
The AST group contributed operating profit of R2,2 million
and revenue of R29,8 million since the acquisition date.
If the acquisition had occurred on 1 July 2014, Group revenue
would have been R62,4 million more, and operating profit for
the period would have decreased by R1,0 million.
5. EVENTS AFTER THE REPORTING DATE
Management is not aware of any other 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 period-end.
6. DIVIDEND
The Group has a policy not to pay a dividend at the interim
stage.
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