Wrap Text
Unaudited interim results for the six months ended 30 September 2016
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
UNAUDITED INTERIM RESULTS for the six months ended 30 September
2016
COMMENTARY
INTRODUCTION
Dawn manufactures and distributes quality branded hardware,
sanitaryware, plumbing, kitchen, engineering and civil products
through a national branch network in South Africa, as well as in
selected countries in the rest of Africa and Mauritius. Dawn’s
business model is to be the master distributor in targeted
industry sectors.
The group has two main operating segments, building and
infrastructure, both supported by the solutions segment.
PERIOD UNDER REVIEW
On 14 July 2016 in its F2016 results presentation, Dawn informed
the market that a plan by the new management team to stem losses
and return the group to profitability had been approved by the
board at the end of June 2016. In an operational update issued on
31 August 2016, Dawn informed the market that revenue remained on
a downward trend, with marked declines in June and July.
The decline in sales was mainly attributable to:
– a continuing slowdown in government spend (and payments),
impacting the infrastructure segment of Dawn, mainly in the
trading businesses;
– low levels of building activity and consumers under financial
pressure, impacting the building segment of Dawn and its
equity-accounted investment, GDW (Grohe Dawn Watertech); and
– difficult trading conditions in the group’s rest of Africa
operations, including curtailed access to hard currency in
certain countries and currency losses due to the strengthening
Rand.
Accordingly, additional actions to align Dawn’s business to the
new sales reality were approved and once-off restructuring costs
of R255 million (after tax) have been accounted for in these
results for H1 F2017.
– The building trading business reduced its national stocking
points from eight to four, but retained its sales presence in
those locations. Three of the remaining four will be reduced
in size in due course.
– Incledon reduced its number of branches from 17 to ten, but
maintained its sales reach by partnering with regionally-based
independent businesses which will become Incledon agents.
– The infrastructure manufacturing businesses have been
restructured. The Sangio KwaZulu-Natal plant was closed and
profitable HDPE lines consolidated into the DPI factory. Two
lines of the Western Cape DPI factory were mothballed and the
Pipex factory in Botswana was closed.
– Dawn Africa and DPI International have withdrawn from Angola,
DRC, Mozambique and Tanzania and have scaled down their
presence in Zimbabwe. These territories will be served by
Dawn’s South African based businesses in future.
The group, after the above actions, is left with three large
wholly owned businesses, three sizeable partly owned businesses
and a few smaller businesses.
1. The three large wholly owned businesses comprise WHS,
Incledon and DPI. WHS is a low margin, high fixed cost
business with good market position. Negotiating power with
suppliers and customers is being strengthened and the business
is forecasting a small profit in the second half of the year.
Incledon is a relatively low margin business, which has lost
key skills and market share in the last two years. However,
the business still has a strong brand in the market and
actions taken have already started to bear fruit. DPI is
profitable with a good market position.
2. The three sizeable partly owned businesses include – GDW, Swan
Plastics and Heunis Steel. GDW (49% held) has stabilised with
strong intervention from Lixil Japan and should contribute to
earnings going forward. Swan Plastics (51% held) and Heunis
Steel (49% held) are both good profit earners.
3. The few smaller businesses – The restructured and combined
Dawn Africa and DPI International is expected to make a profit
in H2 F2017 whilst Kitchen, Hamilton’s and Ubuntu will benefit
from increased management focus.
Group operating performance for the current reporting period
amounted to a core operating loss for the six months to
September 2016 of R52,1 million compared to the core profit of
R90,9 million (restated) for the six months to September 2015.
These results exclude the once-off restructuring costs and write-
downs of R286 million (R255 million after tax). Core losses
exclude asset write-downs, identified by management and approved
by the board, which stems from the impairment tests performed on
the group’s various cash generating units but do not qualify for
headline earnings per share (HEPS) add-backs.
HEPS for H1 F2017 therefore amounted to a loss of 136,7 cents (H1
F2016 restated HEPS profit of 21,9 cents) and earnings per share
(EPS) for H1 F2017 amounted to a loss of 155,9 cents (H1 F2016
restated EPS profit of 22,7 cents).
The table below summarises the impact of the restructuring,
impairments and write-downs on attributable earnings:
Restructuring, impairments and write-downs R’million
WHS
– closing four stocking points, onerous leases,
retrenchments, stock and debtor impairments 87
Incledon
– restructure, onerous leases, retrenchments,
closing seven branches, stock and debtor
impairments 43
Sangio
– closure, retrenchments, stock and debtor
impairments, DPI Cape Town part closure,
retrenchments, stock and debtor impairments 32
DAT and DPI International
– withdrawal from Africa, onerous leases,
retrenchments, stock and debtor impairments
Heunis Steel, Hamilton’s, Boutique Baths:
impairments of investments 28
GDW: roof repairs and general 32
Total before tax 286
Less: Tax (31)
Total after tax 255
INCOME STATEMENT
Revenue for the six months of R2,4 billion decreased by 10%
compared to the six months to 30 September 2015 of R2,7 billion.
Gross margins decreased to 21,0% (core) from the 23,4% achieved
during the six months to 30 September 2015.
Net operating expenses (core) increased by 2% to R556,7 million
(H1 F2016 R545,1 million).
Group core profit before interest and taxation (PBIT) amounted to
a loss of R52,1 million (H1 F2016 restated R90,9 million). After
the write-downs that do not qualify for headline earnings add-
backs, the operating loss amounted to R338,1 million.
Net finance costs decreased by 10% to R29,2 million (H1 F2016:
restated R32,7 million). Net finance costs include movement in
derivative instruments. Excluding these instruments, net finance
costs increased by 58% to R25,0 million (H1 F2016: R15,7
million).
Income from associates and joint ventures decreased to a loss of
R19,7 million (H1 F2016: profit of R24,2 million), mainly as a
result of a R26,7 million loss (for DAWN’s 49% share) at GDW.
As a result of the loss before tax, tax losses not raised,
impairments and write-downs, the group’s effective tax rate was
5,5%.
Non-controlling interests’ share of group earnings decreased from
R7,9 million to R2,3 million.
The group incurred a net loss after tax of R369,0 million after
impairments and write-downs (H1 F2016: restated profit of R52,4
million).
STATEMENT OF FINANCIAL POSITION
Net working capital reduced by R102,3 million during the six
months to 30 September 2016 and a further reduction is targeted
for the second half of the year.
The group reduced its stock and debtors by R103 million during
the period and net working capital has come down from a high of
62 days in March 2015 to 39 days in September 2016. The group’s
stated target for working capital is 45 days. The table below
summarises the group’s working capital movements in days,
calculated on a rolling 12-month basis.
Sep Mar Sep Mar
2016 2016 2015 2015 Comment on working
capital days
Net W.C. 39 59 57 62 Solid improvement
Debtors 38 45 51 49 R25 million improvement
in overdue debtors
Stock 54 71 69 82 R78 million reduction
in six months
Creditors 53 57 63 69 Creditor funding
reduced, objective is
for stock and creditor
days to contract
The group’s net asset value decreased to R698 million as at 30
September 2016 compared to R1 056 million at 31 March 2016
stemming mainly from the R255 million net impairments during the
period. The financial position deteriorated to a gearing ratio of
44,1% at 30 September 2016 (29,5% at 31 March 2016).
Short-term debt amounted to R356,0 million (R239,6 million net of
cash) with current facilities comprising mainly term loans.
However, negotiations are in progress to structure new facilities
that are better aligned with Dawn's requirements to finance
working capital.
STATEMENT OF CASH FLOWS
Cash generated from operating activities before working capital
changes was impacted by the losses incurred resulting in an
outflow of R19,7 million (H1 F2016: R130,5 million inflow) before
working capital movements. Actions taken, discussed above, are
evidenced by an inflow of R102,3 million (H1 F2016: inflow of
R43,6 million) from reduced working capital requirements. Net
finance and tax payments amounted to R32,9 million (H1 F2016:
R27,0 million).
Investing activities showed a R13,7 million outflow for the
period. Included in this number are:
– R22,6 million of additions to property, plant and equipment as
well as the financial costs associated with the new ERP system.
Financing activities amounted to a net outflow of R50,5 million
and included:
– R45,9 million in debt repayment; and a
– R4,6 million dividend payment by a subsidiary with non-
controlling shareholders.
The group closed with net cash of R50,4 million at 30 September
2016 compared to a net overdraft of R47,7 million at 30 September
2015.
OUTLOOK
The departures of the previous CEO, CFO and M&A director were
very disruptive to the group. However, the introduction of new
management in key operational positions, including the CFO
position, are expected to bring greater stability. Stephen
Connelly was appointed as interim chief executive officer on 1
June 2016 and David Austin as chief financial officer on 1
November 2016.
It is anticipated that economic conditions in South Africa and
neighbouring countries will remain difficult for some time.
Loss-making businesses are being restructured to reduce costs
in line with lower sales levels which are expected to prevail
for some time.
The main focus in H2 will be on improving the operating
performance of all businesses in the group.
Duplicated activities will continue to be eliminated and central
services costs challenged. Securing supplier loyalty will be a
priority.
Non-core businesses, including joint venture arrangements, will be
disposed of and the proceeds will be used to lower the future
funding required for working capital.
Any forward-looking statement in this announcement has not been
reviewed nor reported on by the company’s auditors.
SUMMARY CONSOLIDATED INCOME STATEMENT
Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2016 2015 2016
R’000 R’000 R’000
Revenue 2 402 825 2 667 934 4 993 092
Cost of sales (2 013 296) (2 032 432) (3 897 870)
Gross profit 389 529 635 502 1 095 222
Net operating expenses
before de-recognition
and re-recognition of
investments and
impairments (681 572) (544 628) (1 119 170)
Operating (loss)/profit
before de-recognition
and re-recognition of
investments and
impairments (292 043) 90 874 (23 948)
Net loss on
derecognition of
subsidiaries and
associates (10 114) (693) (4 592)
Impairments (35 947) – (632 818)
Operating (loss)/profit (338 104) 90 181 (661 358)
Finance income 2 122 2 421 3 460
Finance expense (31 300) (35 156) (74 530)
(Loss)/profit after net
financing costs (367 282) 57 446 (732 428)
Share of (loss)/profit in
investments accounted for
using the equity method (19 699) 24 160 (5 891)
(Loss)/profit before
taxation (386 981) 81 606 (738 319)
Income tax income/
(expense) 20 186 (21 320) (19 613)
(Loss)/profit from
continuing operations (366 795) 60 286 (757 932)
(Loss)/profit for the
period (366 795) 60 286 (757 932)
Profit attributable to:
Owners of the parent (369 047) 52 416 (762 936)
Non-controlling interest 2 252 7 870 5 004
(Loss)/profit for the
period (366 795) 60 286 (757 932)
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2016 2015 2016
R’000 R’000 R’000
(Loss)/profit for the
period (366 795) 60 286 (757 932)
Other comprehensive income:
Items that will not be
reclassified to profit
or loss:
– Effects of retirement
benefit obligations – – 1 009
– Taxation related to
components – – (282)
– – 727
Items that may be
subsequently reclassified
to profit or loss:
– Exchange differences
recycled through
profit/loss 7 957 – (6 611)
– Exchange differences on
translating foreign
operations 2 874 (10 623) 626
– Cash flow hedging reserve 433 – (1 023)
– Tax-related components – – 286
11 264 (10 623) (6 722)
Total other comprehensive
income/(loss) 11 264 (10 623) (5 995)
Total comprehensive
(loss)/income (355 531) 49 663 (763 927)
Total comprehensive
(loss)/income
attributable to:
Owners of the parent (357 783) 41 792 (768 931)
Non-controlling interest 2 252 7 870 5 004
(355 531) 49 663 (763 927)
Included above:
Depreciation and
amortisation 30 887 32 455 69 412
Operating lease rentals 144 499 69 318 112 306
DETERMINATION OF HEADLINE
(LOSS)/EARNINGS
Attributable earnings (369 047) 52 416 (762 936)
Adjustment for the
after-tax and
non-controlling interest
effect of:
Net (profit)/loss on
disposal of property,
plant and equipment 605 (96) (1 623)
Impairment of intangible
assets – – 127 480
Impairment of property,
plant and equipment 4 956 – 47 729
Impairment of assets
held-for-sale – 3 500 –
Impairment of other assets
(mainly associates and
joint ventures) 30 992 – 453 715
Tax effect on disposal of
property, plant and
equipment and impairment
of intangible assets (1 316) 24 (20 545)
Non-controlling interest – 6 (949)
Net loss/(profit) on
derecognition of previously
held interest 10 114 (2 807) 4 592
Headline earnings adjustments
relating to associates and
joint ventures (10) (18) (4 579)
Headline earnings adjustments
relating to disposal group – – –
Headline (loss)/earnings (323 706) 53 025 (157 116)
Statistics
Number of ordinary
shares (’000)
– in issue 242 243 242 243 242 243
– held in treasury (5 499) – –
Weighted average number
of shares (’000)
– for earnings per share 236 744 242 041 239 686
– for diluted earnings
per share 245 465 246 009 240 417
(Loss)/earnings per
share (cents) (155,88) 21,66 (318,31)
Headline (loss)/earnings
per share (cents) (136,73) 21,91 (65,55)
Diluted (loss)/earnings
per share (cents) (150,35) 21,31 (317,34)
Diluted headline (loss)/
earnings per share (cents) (131,87) 21,55 (65,35)
Operating profit (%) (14,1) 3,4 (13,2)
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Restated
Unaudited Unaudited Audited
30 September 30 September 31 March
% 2016 2015 2016
change R’000 R’000 R’000
ASSETS
Non-current
assets 854 839 1 486 321 888 987
Property, plant
and equipment 225 493 256 315 236 278
Intangible assets 67 632 162 167 66 433
Investments in
associates and
joint ventures 403 646 936 345 453 496
Derivative
financial assets 34 380 29 890 34 380
Deferred tax assets 123 688 101 604 98 400
Current assets 1 435 988 1 948 312 1 796 657
Inventories 597 001 788 968 800 085
Trade and other
receivables 748 321 1 059 416 910 020
Cash and cash
equivalents 85 872 89 645 80 003
Derivative financial
instruments 535 1 878 249
Current tax assets 4 259 8 405 6 300
Assets of disposal
group classified
as held-for-sale 29 561 16 000 –
Total assets 2 320 388 3 450 633 2 685 644
EQUITY AND LIABILITIES
Capital and reserves 697 657 1 905 934 1 056 212
Equity attributable
to equity holders
of the company 655 143 1 862 749 1 016 548
Non-controlling
interest 42 514 43 185 39 664
Non-current
liabilities 329 566 309 315 349 034
Borrowings 68 327 62 974 75 859
Derivative financial
instruments 93 554 72 972 89 454
Deferred profit 31 414 36 740 34 076
Deferred tax
liabilities 17 626 18 280 22 185
Retirement benefit
obligation 5 100 6 035 5 100
Share-based payment
liabilities 4 883 – 4 883
Operating lease
liabilities 108 662 108 976 110 363
Trade and other
payables – 3 338 7 114
Current liabilities 1 282 008 1 235 384 1 280 398
Trade and other
payables 898 785 988 230 890 581
Borrowings 358 285 212 379 357 381
Operating lease
liabilities 5 100 2 015 2 776
Derivative financial
instruments 3 960 20 8 664
Deferred profit 5 327 5 327 5 327
Current tax
liabilities 6 366 27 413 7 728
Share-based payment
liabilities 4 185 – 7 941
Liabilities directly
associated with
assets held-for-sale 11 157 – –
Total equity and
liabilities 2 320 388 3 450 633 2 685 644
Future commitments
Capital commitments 18 171 10 655 9 690
Operating leases 613 236 632 508 658 606
Net (overdraft)/cash 50 393 (47 735) 69 892
Net debt 307 971 89 338 311 934
Value per share
Asset value per share
– net asset
value (cents) (64) 276,73 769,60 440,66
– net tangible
asset value
(cents) (65) 248,16 702,60 412,95
– market price
(cents) 253 540 400
Market
capitalisation
(R’000) 612 875 1 308 112 968 972
Financial gearing
ratio (%)* 44,1 4,7 29,5
Current asset
ratio (times) 1,1 1,6 1,4
* Includes cash and cash equivalents.
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2016 2015 2016
R’000 R’000 R’000
Balance at 1 April 2015
as reported – 2 004 123 2 004 123
Restatements – (119 586) (119 586)
Restatement 1 to 3 –
Prior year impact – (109 688) (109 688)
Restatement 1 – Operating
lease liabilities and
deferred profit – (3 976) (3 976)
Restatement 2 – Written put – (2 142) (2 142)
Restatement 3 – Acquisition
vendor – (3 780) (3 780)
Balance at beginning
of the period 1 056 212 1 884 537 1 884 537
(Loss)/profit for
the period (366 795) 60 286 (757 932)
Other comprehensive
income 11 264 (10 623) (6 410)
Changes in ownership
interest – control
not lost – 241 358
Transactions with
non-controlling interest 605 (583) (823)
Non-controlling interest
acquired in business
combinations – 1 924 1 924
Share-based payment charge 5 866 (5 992) (926)
Share-based payment
transferred to liability
and to be settled in cash – – (26 381)
Treasury shares acquired
and delivered – (20 052) (30 875)
Dividends paid to
non-controlling interest – (3 804) –
Dividends paid (9 495) – (7 260)
Balance at end of period 697 657 1 905 934 1 056 212
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2016 2015 2016
R’000 R’000 R’000
Cash generated from
operations before
working capital changes (19 728) 130 471 49 016
Working capital changes 102 334 43 561 25 290
Net finance costs paid (23 460) (17 242) (37 858)
Net income tax paid (9 468) (9 818) (20 950)
Net cash generated from
operating activities 49 678 146 972 15 497
Net cash (utilised in)/
generated by investing
activities (13 711) 54 683 89 915
Net cash (utilised in)/
generated from financing
activities (50 530) (250 454) (36 418)
(Decrease)/increase in
cash resources (14 563) (48 799) 68 995
Cash resources at
beginning of the period
of continuing operations 69 891 1 427 1 428
Translation effects on
foreign cash and cash
equivalents balances (837) (363) (531)
Cash and cash equivalents
of disposal group
held-for-sale at end
of period (4 098) – –
Cash resources at end
of period 50 393 (47 735) 69 892
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS
Infra- DAWN
Building structure Solutions
R’000 R’000 R’000
6 months ended
30 September 2016
(Unaudited)
Revenue 1 239 976 1 139 238 304 005
Depreciation and
amortisation (3 564) (13 879) (13 166)
Operating profit before
impairments and
derecognition and
re-recognition of
investments (134 302) (102 989) (10 371)
Impairments and
derecognition (39 262) (6 492) –
Operating profit after
impairments and
derecognitions and
re-recognition of
investments (173 564) (109 481) (10 371)
Net finance (expense)/
income (15 667) (18 887) (3 042)
Share of profit from
associates and joint
ventures (including
impairment of associate) (20 997) 971 327
Tax expense 15 584 (1 707) 3 891
Net profit after tax from
continuing operations (194 644) (129 103) (9 195)
Assets 683 109 739 904 242 842
Liabilities 886 834 674 825 399 595
Capital expenditure(2) 1 475 15 936 14 529
6 months ended
30 September 2015
(Unaudited) – Restated
Revenue 1 295 134 1 349 965 282 234
Depreciation and
amortisation (5 754) (16 399) (10 167)
Operating profit before
impairments and
derecognition and
re-recognition of
investments 28 805 57 919 6 212
Impairments and
derecognition – – –
Operating profit after
impairments and
derecognitions and
re-recognition of
investments 28 805 57 919 6 212
Net finance (expense)/
income (13 490) (15 215) 225
Share of profit from
associates and joint
ventures (including
impairment of associate) 17 459 5 570 1 131
Tax expense (6 704) (12 187) (1 569)
Net profit after tax from
continuing operations 26 070 36 087 5 999
Assets 1 608 409 1 215 783 611 931
Liabilities 1 338 641 734 452 627 605
Capital expenditure(2) 3 703 15 201 18 176
12 months ended
31 March 2016 (Audited)
Revenue 2 530 920 2 420 004 571 360
Depreciation and
amortisation (11 974) (34 017) (23 053)
Operating profit/(loss)
before impairments and
derecognition and
re-recognition of
investments (54 128) (1 871) 4 586
Impairments and
derecognitions (410 406) (156 583) (65 829)
Operating profit/(loss)
after impairments and
derecognitions and
re-recognition of
investments (464 534) (158 454) (61 243)
Net finance income/
(expense) (25 766) (32 981) (1 885)
Share of profit/(losses)
from associates and
joint ventures
(including impairment
of associate) (12 171) 4 304 1 976
Tax expense 7 880 (31 965) 16 216
Net profit/(loss) after
tax from continuing
operations (494 591) (219 096) (44 936)
Assets 1 157 172 961 776 582 561
Liabilities 1 394 930 747 848 649 354
Capital expenditure(2) 6 379 55 049 82 508
CONDENSED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
Head office
and other
reconciling
items(1) Total
R’000 R’000
6 months ended 30 September 2016
(Unaudited)
Revenue (280 394) 2 402 825
Depreciation and amortisation (278) (30 887)
Operating profit before impairments
and derecognition and re-recognition
of investments (44 381) (292 043)
Impairments and derecognition (307) (46 061)
Operating profit after impairments and
derecognitions and re-recognition
of investments (44 688) (338 104)
Net finance (expense)/income 8 418 (29 178)
Share of profit from associates and
joint ventures (including impairment
of associate) – (19 699)
Tax expense 2 418 20 186
Net profit after tax from continuing
operations (33 853) (366 795)
Assets 654 533 2 320 388
Liabilities (338 523) 1 622 731
Capital expenditure(2) 17 31 957
6 months ended 30 September 2015
(Unaudited) – Restated
Revenue (259 399) 2 667 934
Depreciation and amortisation (135) (32 455)
Operating profit before impairments
and derecognition and re-recognition
of investments (2 062) 90 874
Impairments and derecognition (693) (693)
Operating profit after impairments
and derecognitions and re-recognition
of investments (2 755) 90 181
Net finance (expense)/income (4 255) (32 735)
Share of profit from associates and
joint ventures (including impairment
of associate) – 24 160
Tax expense (860) (21 320)
Net profit after tax from continuing
operations (7 870) 60 286
Assets 14 510 3 450 633
Liabilities (1 155 999) 1 544 699
Capital expenditure(2) 458 37 538
12 months ended 31 March 2016
(Audited)
Revenue (529 192) 4 993 092
Depreciation and amortization (368) (69 412)
Operating profit/(loss) before
impairments and derecognition and
re-recognition of investments 27 465 (23 948)
Impairments and derecognitions (4 592) (637 410)
Operating profit/(loss) after
impairments and derecognitions and
re-recognition of investments 22 873 (661 358)
Net finance income/(expense) (10 438) (71 070)
Share of profit/(losses) from
associates and joint ventures
(including impairment of associate) – (5 891)
Tax expense (11 744) (19 613)
Net profit/(loss) after tax from
continuing operations 691 (757 932)
Assets (15 865) 2 685 644
Liabilities (1 162 700) 1 629 432
Capital expenditure(2) (3 997) 139 939
(1) Other reconciling items consist of corporate and
consolidation adjustments. These predominantly include
elimination of intergroup sales, profits, 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.
(2) Includes expenditure on property, plant and equipment and
intangibles. Government grants received are deducted from the
capital expenditure amount.
NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
These unaudited summary consolidated interim financial
statements for the six months ended 30 September 2016 was
approved by the board on 14 November 2016.
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 31 March 2016.
The preparation of the interim summary consolidated financial
statements has been supervised by the acting financial
director, Hanré Bester.
The directors take full responsibility for the preparation of
the summary interim consolidated financial statements.
2. RESTATEMENT, RECLASSIFICATION AND CONSISTENCY OF PRESENTATION
RESTATEMENTS (NOTES 1 TO 2)
1. Restatement 1 – Operating lease liability and deferred
profit
An operating lease liability is required for leases with
escalation clauses. An addendum to the existing lease
agreement on the Germiston Distribution Centre in 2009
was not disclosed to the board. As a result, the lease
operating liability and related deferred tax had to be
restated based on a minimum 15-year lease period at an
escalation of 8% per annum, ending in December 2023. To
improve disclosure, the operating lease liability has
been disclosed as a separate item on the face of the
statement of financial position.
Deferred profit relating to the initial sale of the
Germiston Distribution Centre had to be restated based on
a 15-year amortising profile instead of 10 years as
previously reported. This is in line with the operating
lease liability. Deferred profit and the relating
deferred tax were restated.
The financial impact in the affected periods are as
follows:
30 September 31 March
2015 2015
R’000 R’000
Statement of changes
in equity (2 175) (3 976)
2. RESTATEMENT 2 – WRITTEN PUT
A written put relating to Swan Plastics Proprietary
Limited (Swan) had to be accounted for. In August 2013, a
subsidiary of DAWN gave the remaining 49% shareholders in
Swan the right to put their shares at a 5 price earnings
ratio based on the average of the prior two years’
earnings. After six years there will be a deemed offer
and a deemed acceptance of the remaining 49%. This
written put was not disclosed to the board. At inception
the valuation is accounted for in retained earnings as
part of equity and the profit and loss impact is
accounted for as a finance expense and an employment
expense. The written put is disclosed in derivatives and
an employment liability in trade and other payables –
non-current.
The financial impact in the affected periods are as
follows:
30 September 31 March
2015 2015
R’000 R’000
Statement of changes
in equity (16 992) (2 143)
RECLASSIFICATION (NOTES 3 TO 5)
3. GROHE PUT
During 2015 the Grohe put valuation was calculated based
on a Black Scholes valuation model. A more appropriate
valuation model namely, Monte Carlo valuation method, was
used. During the prior year a net put asset was
disclosed. To enhance disclosure, the put was disclosed
as an asset and the call as a liability in the current
year. The valuation was re-performed for the comparative
period and a call option disclosed under assets and a put
option disclosed under liabilities was recognised. The
net amount remained unchanged with no profit and loss
impact.
4. ACQUISITION AND DELIVERY OF TREASURY SHARES (SOCIE)
Historically DAWN disclosed the movement in treasury
shares between acquisition and delivery of shares and in
the SOCIE they were set-off against each other. IAS 1.15
however, requires fair presentation through faithful
representation of the effects of transactions, other
events and conditions that occurred during a financial
period. IAS 1.106(d) specifically requires the SOCIE to
reflect a reconciliation separately disclosing the
changes between the equity position at the beginning and
end of the year. The restatement separates the disclosure
in the SOCIE. This incorrect treatment was highlighted by
the JSE proactive monitoring process.
5. TREASURY SHARES PURCHASED (CASH FLOW)
Treasury shares were historically incorrectly included in
investing activities and have been reclassified to
financing activities. This incorrect treatment was
highlighted by the JSE proactive monitoring process.
CONSISTENCY OF PRESENTATION (NOTE 6)
6. TAX IMPACT IN EQUITY (SOCIE)
The tax impact in equity relating to treasury shares and
share-based payment have been identified separately and
aligned with the applicable category instead of a
separate line item where it was offset. Capital Gains Tax
(CGT) relating to the disposal of treasury shares is
accounted for in equity on the basis that at a group
level shares are disclosed at cost and delivered at cost.
There is therefore no resultant CGT charge at group
level. DAWN has disclosed the CGT difference against the
share-based payment – vesting of options line in SOCIE.
The tax impact relating to the difference in tax
treatment between group (equity-settled) and company
(cash-settled) is accounted for in equity. DAWN has
disclosed the equity/cash-settled difference against the
share-based payment – charge for the period line in
SOCIE. This incorrect treatment was highlighted by the
JSE proactive monitoring process.
OTHER MATTERS
The transactions described above in 1 and 2 were initiated
and executed at the time by certain executive directors and
senior management, respectively. Both transactions were
executed without the knowledge and approval of the board. A
reportable irregularity has therefore been reported by the
external auditors to the Independent Regulatory Board of
Auditors with respect to these transactions. The external
auditors have also confirmed to the Independent Regulatory
Board of Auditors that these irregularities are not
continuing. After considering the circumstances of these
transactions, as a matter of good governance, the board has
instituted the following corrective actions:
– engaged with external legal counsel to clarify DAWN’s
legal position with respect to these matters and its
relationship with the individuals in question, including
DAWN’s right of recourse against any relevant individuals;
– engaged with parties involved in the above matters to
ensure the board acts in the best interests of DAWN;
– accounted for and restated the comparative results in the
annual financial statements for these transactions; and
– the internal audit department launched detailed
investigations into these transactions.
The board is confident that it has taken and continues to
take all the necessary steps to execute its responsibilities
in terms of the Companies Act of South Africa and the
principles of good governance as contemplated by the King
Code on Corporate Governance.
IMPACT ON INCOME STATEMENT
Restated Reported
30 September 30 September
2015 2015 Difference
R’000 R’000 R’000
Net operating
expenses before
de-recognition of
investments and
impairments (544 628) (541 606) (3 022)
Operating profit/
(loss) before
impairments and
de-recognition of
previously held
interest 90 874 93 896 (3 022)
Operating profit/(loss) 90 181 93 203 (3 022)
Finance expense (35 156) (18 163) (16 993)
Profit/(loss) after
net finance costs 57 446 77 461 (20 015)
Profit/(loss) before
taxation 81 606 101 621 (20 015)
Income tax (expense)/
income (21 320) (22 167) 847
Profit/(loss) from
continuing operations 60 286 79 454 (19 168)
Profit attributable to:
Owners of the parent 52 416 71 584 (19 168)
Profit/(loss) for
the period
CONSOLIDATED AND SEPARATE STATEMENT OF COMPREHENSIVE INCOME
Restated Reported
30 September 30 September
2015 2015 Difference
R’000 R’000 R’000
Profit for the
period 60 286 79 454 (19 168)
Total comprehensive
income 49 663 68 831 (19 168)
Total comprehensive
income attributable
to:
Owners of the parent 41 793 60 961 (19 168)
41 793 60 961 (19 168)
Total comprehensive
income attributable to
equity shareholders
arising from:
Continuing operations 49 663 68 831 (19 168)
49 663 68 831 (19 168)
IMPACT ON STATEMENT OF FINANCIAL POSITION
Restated Reported
30 September 30 September
2015 2015 Difference
R’000 R’000 R’000
Non-current assets
Derivative financial
instruments 29 890 3 950 25 940
Deferred tax assets 101 604 68 703 32 901
1 486 321 1 427 480 58 841
Total assets 3 450 633 3 391 792 58 841
Equity attributable to
equity holders of
the company 1 862 749 2 001 505 (138 756)
Total equity 1 905 934 2 044 690 (138 756)
Non-current
liabilities
Derivative financial
instruments 72 972 – 72 972
Deferred profit 36 740 13 117 23 623
Operating lease
liability 108 976 – 108 976
Trade and other
payables 3 338 – 3 338
309 315 100 406 208 909
Current liabilities
Trade and other
payables 988 230 1 004 871 (16 641)
Borrowings 212 379 208 599 3 780
Operating lease
liability 2 015 – 2 015
Deferred profit 5 327 5 793 (466)
1 235 384 1 246 696 (11 312)
Total liabilities
Total equity and
liabilities 3 450 633 3 391 792 58 841
IMPACT ON STATEMENT OF CASH FLOWS
Restated Reported
30 September 30 September
2015 2015 Difference
R’000 R’000 R’000
Cash flows from
investing activities – – –
Net cash generated by
investing activities 54 683 80 678 (25 995)
Cash flows from financing
activities – – –
Net cash utilised in
financing activities (250 454) (276 449) 25 995
3. DISPOSAL GROUP CLASSIFIED AS HELD-FOR-SALE
The group has taken a decision to dispose of its 74% share in
Hamilton’s Brushware SA Proprietary Limited. It is the
group’s intention to dispose of this investment in the near
future.
SUMMARY
2016
R’000
Hamilton’s Brushware
(a) Assets of disposal group classified as
held-for-sale
Property, plant and equipment 2 534
Other non-current assets 113
Inventory 10 308
Cash and cash equivalents 4 107
Other current assets 12 499
Total 29 561
(b) Liabilities of disposal group classified
as held-for-sale
Trade and other payables 8 970
Other current liabilities 2 187
Total 11 157
4. EVENTS AFTER THE REPORTING DATE
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 year-end.
5. DIVIDENDS
The group has a policy not to pay a dividend at the interim
stage.
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
REGISTERED OFFICE:
Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3, Germiston,
1401
DIRECTORS:
Diederik Fouché* (chairman), Stephen Connelly (interim chief
executive officer), David Austin (chief financial officer –
effective 1 November 2016), Lou Alberts ^, George Nakos*, Hanré
Bester, Saleh Mayet ^, Dinga Mncube ^, Veli Mokoena*, René Roos
* Non-executive ^ Independent non-executive
PREPARER:
Prepared by Yolandi van den Berg (CA(SA)), senior group financial
accountant, under the supervision of Hanré Bester (CA(SA)),
acting financial director
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
Date: 16/11/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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