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Audited summary consolidated financial results for the year ended 31 March 2017
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
AUDITED SUMMARY CONSOLIDATED FINANCIAL RESULTS for the year ended
31 March 2017
RESULTS COMMENTARY
for the year ended 31 March 2017
INTRODUCTION
DAWN manufactures, sources, distributes and wholesales selected
materials and hardware used in building and the creation of
infrastructure.
RESULTS SUMMARY
As committed to the market in F2016, the focus during F2017 was
on downsizing, closing and consolidating businesses in the group
to put DAWN on a stronger footing to turn its operations around
to profitability in the lower revenue reality imposed by the
deteriorating South African economy. The first part of the
turnaround plan has been executed.
The current results were significantly affected by these
rightsizing costs, as well as the continued challenging market
conditions, the impact of the widespread drought in South Africa
and poor operating performance of the group. The results to 31
March 2017 were therefore very disappointing. Although the loss
per share of 269,2 cents was a reduction from the loss of 318,3
cents in F2016, the headline loss per share was sharply higher at
240,5 cents (2016: headline loss per share of 65,6 cents).
The rightsizing of the group resulted in a number of write-downs
and impairments. After-tax write-downs and impairments of R352,2
million were recorded in F2017, which played a large role in the
total group attributable loss of R637,4 million.
Management and the board recognise that focused action must be
taken to reverse the declining trend in revenue. This action has
been given further momentum under the new management team, as
outlined in the prospects section of this report.
The group’s cash flow and statement of financial position were
also under severe pressure in F2017, resulting in the need for a
R358 million rights issue. The proceeds were received after year-
end on 12 April 2017.
SUMMARY OF RESULTS BASED ON THE HISTORIC REPORTING STRUCTURE (AS
AT 31 MARCH 2017)
BUILDING SEGMENT
Revenue from the building segment declined by 10,9% from R2,5
billion to R2,3 billion, mainly attributable to significantly
lower volumes in WHS.
The building segment delivered an operational loss of R54,5
million compared to an operational profit of R16,0 million in
F2016 and a loss before interest and taxation (LBIT) of R244,0
million, with an operating margin of -10,8%. This was
substantially worse than the loss of R464,5 million and margin of
-18,4% in F2016.
INFRASTRUCTURE SEGMENT
Revenue from the infrastructure segment declined by 18,5% from
R2,4 billion to R2,0 billion, mainly attributable to lower income
streams in Incledon and Sangio.
The infrastructure segment delivered an operational loss of R60,4
million compared to an operational profit of R33,7 million in
F2016, an LBIT of R124,5 million, with an operating margin of -
6,3% as a result of losses incurred in Sangio and DPI Plastics,
slightly offset by Swan Plastics’ profit. Although this was an
improvement from the loss of R158,5 million and the margin of -
6,5% in F2016, it was still too far below budget.
SOLUTIONS SEGMENT
The solutions segment’s revenue declined by 3,1% from R571,4
million to R553,7 million. An LBIT of R42,7 million (F2016: R61,2
million) was incurred.
NEW REPORTING STRUCTURE
DAWN’s reporting structure was simplified at the end of F2017 for
two reasons:
1. The integration of DAWN Solutions into the underlying
businesses to reduce the group’s permanent cost base.
2. To better reflect the group’s operations. Rather than
reporting on the contribution of the building, infrastructure
and solutions segments to group results, DAWN now reports on
the contributions of the trading and manufacturing segments.
The trading segment sells a comprehensive range of products,
primarily sourced in South Africa from the group’s manufacturing
segment and other manufacturers. The trading segment comprises
WHS, Incledon and the smaller businesses of DAWN Africa Trading
(DAT), Kitchen (Roco) and Hamilton’s.
The manufacturing segment manufactures mainly PVC and HDPE pipes
and fittings. The manufacturing segment comprises DPI Plastics,
Swan Plastics (51%-held), GDW (49%-held) and the smaller
businesses of Ubuntu Plastics (51%-held) and DPI International.
In the interests of full disclosure, like-for-like results are
available in the notes to the audited summary consolidated
financial statements under ‘Audited consolidated segmental
analysis’.
INCOME STATEMENT
Revenue in F2017 was impacted mainly by two occurrences. The
first was the steady decline in economic growth, culminating in
the negative gross domestic product (GDP) growth reported by
Stats SA for the first quarter of calendar 2017 and a smaller,
very competitive market. The second was DAWN’s temporary loss of
master distributor status due to underserviced clients and
unbalanced stock, which impacted volumes sold. Master distributor
status is crucial, as it ensures the volumes necessary for the
successful functioning of DAWN’s business model. One of the key
issues for F2018 will be to regain lost market share.
Group revenue decreased by 13,9% from R5,0 billion to R4,3
billion for the reasons outlined above. Revenue from the trading
segment declined by 18,6% from R3,9 billion to R3,1 billion,
mainly attributable to significantly lower volumes in WHS.
Revenue from the manufacturing segment declined by 10,3% from
R1,6 billion to R1,5 billion as a result of losses incurred in
Sangio and DPI Plastics, slightly offset by Swan Plastics’
profit.
Group headcount was reduced by 643 employees in F2017. Year-on-
year normalised operating expenses decreased by 5,0% (F2016: 0,4%
decrease), and reflect the group’s strong focus on expense
reduction. However, the group’s expense to revenue ratio
deteriorated from 21,5% in F2016 to 24,9% in F2017, affected by
lower revenue levels. The main expense drivers remain employment
costs, vehicle transportation expenditure and building occupancy
costs.
DAWN posted R119,8 million in operational losses (F2016:
operational profit of R58,1 million) and an LBIT of R468,8
million, representing an operating margin of -10,9%. Although
this result was an improvement on the LBIT of R661,4 million and
margin of -13,2% achieved in F2016, it is still unacceptable to
management and the board.
As outlined earlier, group results were reduced by non-operating
costs related to closures, rationalisations and the disposal of a
number of non-core operations and joint ventures. The group
operational result, excluding the R349,1 million downsizing and
restructuring costs, was an operational loss of R119,8 million
(F2016: profit of R58,1 million).
F2017
impact
Restructuring, impairments and write-downs R’million
Impairments of intangible and fixed assets 6,3
Associates carry-values derecognitions 52,1
Carry-value of assets – debtors 27,6
Carry-value of assets – inventory 108,3
Carry-value of assets (Africa) (including
deferred tax write-off of R3,1 million) 56,6
Retrenchment costs 19,7
Onerous leases 35,8
Other 45,8
Total (including deferred tax write-off) 352,2
The trading segment delivered an operational loss of R108,1
million compared to a loss of R11,7 million in F2016 and an LBIT
of R325,6 million, with an operating margin of -10,4%. This was
substantially worse than the loss of R209,4 million and margin of
-5,4% in F2016. This was largely attributable to the performances
of WHS and Incledon. WHS incurred a large operational loss on the
back of significantly lower volumes, but is currently at
breakeven. Incledon also incurred a large operational loss,
mainly due to the lack of government and municipal spend on water
infrastructure in the first half of F2017. Incledon has reached
breakeven post year-end.
The manufacturing segment delivered an operational loss of R10,5
million compared to a profit of R52,9 million in F2016, an LBIT
of R89 million, with an operating margin of -6,1%. Although this
was a strong improvement from the loss of R436,2 million and the
margin of -26,8% in F2016, it was still too far below budget.
Although Swan Plastics continued to produce a pleasing profit,
the large loss at Sangio and DPI Plastics took this segment into
the red. DPI Plastics has moved back into a breakeven position
post year-end. Notwithstanding strong factory intervention from
Lixil Japan, GDW made a large loss for the year. GDW is also now
back at breakeven. Post year-end, the group entered into a non-
binding memorandum of understanding with GDW’s controlling
shareholders to dispose of DAWN’s 49% shareholding in GDW to
Lixil. Refer to the ‘Events after the reporting date’ for further
information.
Net finance charges amounted to R58,6 million, compared to R71,1
million in F2016, mainly due to the R34,0 million raised on the
Swan Plastics put option in F2016 not repeating to the same
extent in F2017. Transaction costs relating to bridging finance
and deal costs amounted to R11,4 million, classified as finance
expenses. Interest paid to financiers of R46,0 million increased
by 24%. This was attributable both to increased borrowing and an
increase in interest rates.
The effective tax rate was 9,8% (F2016: 2,6%). This was mainly
due to a prudent approach adopted in terms of the raising of
deferred tax assets, assessed tax losses and impairments.
DAWN therefore reduced its loss per share for F2017 to 269,2
cents compared to the loss of 318,3 cents for F2016. However, the
headline loss per share increased to 240,5 cents compared to a
loss of 65,6 cents for the comparable period.
CASH FLOW STATEMENT
As earnings before interest, taxation, depreciation and
amortisation (EBITDA) came under increasing pressure in F2017,
the group’s cash flow position deteriorated accordingly.
The group absorbed R371,6 million (F2016: R49,0 million
generated) cash from operations before working capital
enhancements of R416,1 million (H1 F2016: R25,3 million).
Pleasingly, gross working capital (before impairments) showed a
net inflow of R93,9 million (F2016: R43,2 million), despite a
smaller improvement in the second half compared to the first.
Although creditor payments deteriorated by R196,3 million, they
are now back up to date. Debtors saw a R70 million reduction in
overdues for the period under review and, most importantly, stock
before impairments and write-downs showed a sound improvement,
improving by R156,9 million.
This resulted in a net cash outflow of R29,2 million (F2016:
R15,5 million net inflow) after settlement of taxation
liabilities of R22,3 million (F2016: R21,0 million) and net
interest of R51,4 million (F2016: R37,9 million).
Investing activities and remaining cash movements generated R68,0
million (F2016: R53,0 million utilised).
Net investing activities generated R29,7 million (F2016: R29,6
million outflow), with a net contribution from property, plant
and equipment on disposals of R21,9 million and proceeds from the
Heunis Steel disposal of R50 million. Although Heunis Steel
continued to perform strongly, the need for liquidity
necessitated a decision to sell the business. DAWN’s 49% was sold
for R50 million in January 2017. Investment in capital
expenditure on enterprise resource planning (ERP) software,
generators, fleet, plant and equipment amounted to R51,5 million
(F2016: R45,4 million invested).
Financing activities and remaining cash movements generated R38,2
million (F2016: R82,6 million). This consisted of a net debt
inflow of R175,0 million (including a R200 million new bridging
facility, less a R25 million repayment to Absa Bank Limited)
(F2016: R120,8 million) net debt flows consisting of a R206,7
million inflow and an outflow of R85,9 million. A dividend
payment of R22,0 million (F2016: R7,3 million) was made,
representing dividend payments to non-controlling interests,
partly to manage the group’s cash flow facilities.
This resulted in a net closing cash balance of R108,7 million
(F2016: R69,9 million).
STATEMENT OF FINANCIAL POSITION
The group’s statement of financial position for F2017 was
concerning, with 86,8% net gearing ratio (F2016: 29,5%) and a net
cash balance of R108,7 million (F2016: R69,9 million).
It became clear that the sustained poor operating performance due
to tough markets, combined with debt repayment obligations, would
render the group unable to conduct its business. This resulted in
DAWN approaching shareholders for a rights issue of R358 million,
the proceeds of which were received post year-end on 12 April
2017. R200 million was used to repay bridging finance, R75
million to repay Absa Bank Limited and the balance to fund future
operations.
PROSPECTS
The second part of the turnaround plan focuses on restoring
fundamentals from both a strategic and an operational
perspective.
Operational focus areas include:
– The focus in the manufacturing segment will be on actively
improving efficiencies, to re-engineer the operations for
lower factory breakeven points and to significantly
rationalise the product spread.
– In the trading segment, it will be crucial to reclaim the
master distributor status. Customers and suppliers require
DAWN to fulfil the master distributor role. The team will also
focus on addressing its on-time-in-full delivery, just-in-time
delivery, re-energising staff, restoring supplier and customer
relationships and actively manage volume-related term
agreements.
Strategic focus areas include:
– Implementing the decentralisation of the business structure,
with an emphasis on authority and accountability.
– Driving cross-selling to regain market share.
– Transforming the business and implementing further rightsizing
to operate successfully in a tough economy.
The management team is mindful that they have to meet the bank
covenants on EBITDA and working capital, with these areas
receiving particular attention.
The restructuring and improvements already made, together with
the key strategic and operating initiatives, have ensured that
the group is doing all it can to return the business to
sustainable profitability. Care has been taken to retain the
group footprint to ensure that, when growth returns to the
group’s markets, it is well positioned to capitalise on the
opportunities which will arise.
DAWN is not anticipating any meaningful improvement in the
economy in F2018. This will result in the group continuing to
experience difficult trading conditions in a very competitive
environment. As a management team, the focus is firmly on
delivering on the short-term action plan and to complete the
turnaround and achieve at least a breakeven position in F2018,
provided there will be no further significant weakening of the
economy. The second half is also seasonally weaker. Wage
negotiations have started in July which, at times in the past,
have led to strike action if not successfully concluded.
As outlined in the trading update published on SENS on 12 July
2017, although the board believes the group is solvent and liquid
for the 12 months following the date of the auditors signing of
this year’s results on 14 July 2017, certain potential events and
conditions give rise to a material uncertainty that may cast
significant doubt on the group’s ability to continue as a going
concern based on cash flow forecasts prepared against the
backdrop of available facilities. Refer to note 1 ‘Basis of
preparation’ for the section on ‘Going concern assessment’.
Management is actively addressing the group’s short-term
challenges, with actions including corporate restructuring
activities and alternative funding options.
Over the medium-term, the group will focus on achieving
profitability in F2019 and meeting profit before interest and tax
target margins in F2020 of 5% in the trading segment and 12% in
the manufacturing segment.
Any forward-looking statement has not been reviewed or reported
on by the company’s auditors.
CHANGES TO THE BOARD
CHANGES AT EXECUTIVE LEVEL
During the period under review, Derek Tod retired as CEO,
effective 31 May 2016, and Stephen Connelly was appointed as the
interim CEO on 1 June 2016. With the appointment of a permanent
CEO on 1 April 2017, Stephen was appointed as the executive
deputy chairman of the group until December 2017. The board would
like to thank him for the significant role he has played in his
interim CEO capacity in starting to bring the group back to
stability and in managing relationships with key stakeholder
groups. His continued involvement with the group is greatly
valued.
Post year-end, Edwin Hewitt was appointed as permanent CEO of
DAWN on 1 April 2017. Edwin brings valuable skills to this role.
He has a wealth of experience in senior executive roles in listed
environments. He also has a proven track record of successful
turnarounds of a number of companies. Most recently, he was
appointed by PPC, working with four major banks, as chief
restructuring officer. DAWN appointed him in February 2017 as
chief restructuring officer, working with a major bank, where he
again played a significant role in finalising a recapitalisation
programme. Previously, Edwin was CEO of Capital Africa Steel
(Pty) Ltd and of the fabrication and the manufacturing division
of the Murray & Roberts group.
During the period under review, the previous CFO, Dries Ferreira,
and risk and compliance officer, Jan Beukes, both resigned on 14
July 2016, effective 31 October 2016. David Austin was appointed
as CFO on 18 November 2016. David resigned on 17 March 2017,
effective 30 June 2017. Chris Booyens was appointed post year-end
as the new chief financial officer and financial director of the
company on 1 May 2017, following David’s resignation. Chris is a
qualified Chartered Accountant South Africa (CA(SA)) and a member
of the South African Institute of Chartered Accountants. Chris
has enjoyed several years’ experience in the building and
materials supply industry as group financial director of Iliad
Africa Limited. He also served as financial executive and
executive director at various Tiger Brands subsidiaries.
The board is confident that the new CEO and his executive team,
which has also been bolstered with strong new appointments at
executive committee level, will be successful in leading DAWN
back to a growth path and regaining the confidence of all
stakeholders.
NON-EXECUTIVE DIRECTOR CHANGES
Saleh Mayet resigned as an independent non-executive director and
chairman of the audit and risk committee on 20 February 2017.
On 28 March 2017, the board welcomed the appointment of Akhter
Moosa as an independent non-executive director and chairman of
the audit and risk committee. Akhter completed his BComm at the
University of Durban, Westville, and qualified as a chartered
accountant in 1978. He has extensive experience at board level
and is currently a member of the disciplinary committee of the
Independent Regulatory Board of Auditors. He acts as advisor to
the audit committee of SANRAL Limited and is a member of the
audit and risk committee of the Competition Tribunal.
CHANGES TO THE DUTIES OF DIRECTORS
In compliance with the JSE Limited Listings Requirements,
shareholders are advised of the following changes to the duties
of the following directors on the DAWN board of directors:
– Akhter Moosa, an independent non-executive director and
chairman of the audit and risk committee, has also been
appointed as a member of the remuneration and nomination
committees, effective 14 July 2017;
– Edwin Hewitt, chief executive director, has been appointed as
a member of the social, ethics and transformation committee,
effective 14 July 2017; and
– Lou Alberts, an independent non-executive director, has been
appointed as lead independent director on the board, effective
14 July 2017.
OTHER MATTERS
During the year reportable irregularities were reported by the
external auditors to the Independent Regulatory Board of Auditors
with respect to the transactions relating to an operating lease
liability and the Swan Plastics written put. The external
auditors have confirmed to the Independent Regulatory Board of
Auditors that these irregularities are not continuing. Full
disclosure on the matter was made in the 2016 annual financial
statements.
DIVIDEND
No dividend has been proposed or declared. Resumption of dividend
payments is dependent on the board’s future views of when the
majority of DAWN’s underlying businesses will be firmly in
profit.
For and on behalf of the board of directors
Diederik Fouché Edwin Hewitt
Independent non-executive chairman Chief executive officer
Chris Booyens
Chief financial officer
Germiston
14 July 2017
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2017
GROUP
2017 2016
R’000 R’000
Revenue 4 300 864 4 993 092
Cost of sales (3 523 327) (3 897 870)
Gross profit 777 537 1 095 222
Operating expenses (1 205 786) (1 153 046)
Administrative and selling expenses (790 030) (649 620)
Distribution and warehousing expenses (328 396) (490 801)
Other operating expenses (87 360) (12 625)
Other operating income 32 625 43 473
Operating loss before impairments and
derecognitions of previously held
interests (395 624) (14 351)
Net gain/(loss) on derecognition
of subsidiaries 1 202 (4 592)
Impairments (74 396) (642 415)
Operating loss (468 818) (661 358)
Finance income 3 316 3 460
Finance expenses (61 904) (74 530)
Loss after net financing costs (527 406) (732 428)
Share of loss in investments accounted
for using the equity method (41 042) (5 891)
Loss before taxation (568 448) (738 319)
Income tax expense (51 608) (19 613)
Loss for the year (620 056) (757 932)
Profit attributable to:
Owners of the parent (637 371) (762 936)
Non-controlling interests 17 315 5 004
Loss for the year (620 056) (757 932)
Earnings per share (cents) (269,22) (318,31)
Diluted earnings per share (cents) (269,22) (317,34)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2017
GROUP
2017 2016
R’000 R’000
Loss for the year (620 056) (757 932)
Other comprehensive income
Items that will not be reclassified to
profit or loss:
Effects of retirement benefit obligations 91 1 009
Tax-related components (25) (282)
66 727
Items that may be subsequently
reclassified to profit or loss:
Exchange differences recycled through
profit/loss 7 164 (6 611)
Exchange differences on translating
foreign operations (1 423) 626
Cash flow hedging reserve 858 (1 023)
Tax-related components (240) 286
6 359 (6 722)
Total other comprehensive income/(loss) 6 425 (5 995)
Total comprehensive loss (613 631) (763 927)
Total comprehensive (loss)/income
attributable to:
Owners of the parent (630 946) (768 931)
Non-controlling interests 17 315 5 004
(613 631) (763 927)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2017
GROUP
2017 2016
R’000 R’000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 225 794 236 278
Intangible assets 65 126 66 433
Investments in associates and
joint ventures 296 261 453 496
Derivative financial instruments 19 115 34 380
Deferred tax assets 68 298 98 400
674 594 888 987
CURRENT ASSETS
Inventories 519 378 800 082
Trade and other receivables 660 325 910 020
Cash and cash equivalents 108 741 80 006
Derivative financial instruments 632 249
Current tax assets 8 107 6 300
1 297 183 1 796 657
Assets classified as held-for-sale 6 652 –
TOTAL ASSETS 1 978 429 2 685 644
EQUITY AND LIABILITIES
EQUITY
Capital and reserves attributable to
equity holders of the company
Share capital and share premium 376 170 376 170
Retained income 8 851 646 222
Other reserves (9 874) (5 844)
Share capital and reserves 375 147 1 016 548
Non-controlling interests 47 975 39 664
TOTAL EQUITY 423 122 1 056 212
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings 58 275 75 859
Derivative financial instruments 78 217 89 454
Deferred profit 28 749 34 076
Deferred tax liabilities 25 762 22 185
Retirement benefit obligation 5 066 5 100
Share-based payment liabilities 5 329 4 883
Operating lease liabilities 101 597 110 363
Trade and other payables – 7 114
302 995 349 034
CURRENT LIABILITIES
Trade and other payables 785 735 890 581
Borrowings 448 176 357 381
Operating lease liabilities 5 204 2 776
Derivative financial instruments 588 8 664
Deferred profit 5 327 5 327
Current tax liabilities 5 694 7 728
Share-based payment liabilities – 7 941
1 250 724 1 280 398
Liabilities directly associated with
assets held-for-sale 1 588 –
TOTAL LIABILITIES 1 555 307 1 629 432
TOTAL EQUITY AND LIABILITIES 1 978 429 2 685 644
Net asset value per share (cents) 158,46 440,66
Net tangible asset value per share (cents) 130,95 412,95
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2017
Share Equity
capital attribu-
and share Other Retained table to
premium reserves earnings company
R’000 R’000 R’000 R’000
Balance at
1 April 2015
as reported 376 170 57 022 1 417 371 1 850 563
Total comprehensive
(loss)/income for
the year – (5 995) (762 936) (768 931)
(Loss)/profit for
the year – – (762 936) (762 936)
Other comprehensive
loss for the year – (5 995) – (5 995)
Dividends paid – – (7 260) (7 260)
Total contributions
by and distributions
to owners of the
company recognised
directly in equity – (56 871) (953) (57 824)
Share-based payment
– charge/(reversal)
for the year – 27 (953) (926)
Treasury shares
acquired – (30 875) – (30 875)
Transfer to liability – (26 381) – (26 381)
Transactions with
non-controlling
interests – 358 – 358
Business combinations – – – –
Balance at
31 March 2016 376 170 (5 844) 646 222 1 016 548
Balance at
1 April 2016
as reported 376 170 (5 844) 646 222 1 016 548
Total comprehensive
income/(loss) for
the year – 6 425 (637 371) (630 946)
(Loss)/profit
for the year – – (637 371) (637 371)
Other comprehensive
income for the year – 6 425 – 6 425
Dividends paid – – – –
Total contributions
by and distributions
to owners of the
company recognised
directly in equity – (10 455) – (10 455)
Share-based payment
– charge for the year – 2 700 – 2 700
Transactions with
non-controlling
interests – (13 155) – (13 155)
Balance at
31 March 2017 376 170 (9 874) 8 851 375 147
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
for the year ended 31 March 2017
Non-
control-
ling
interests Total
R’000 R’000
Balance at 1 April 2015 as reported 33 974 1 884 537
Total comprehensive (loss)/income
for the year 4 589 (764 342)
(Loss)/profit for the year 5 004 (757 932)
Other comprehensive loss for the year (415) (6 410)
Dividends paid – (7 260)
Total contributions by and distributions
to owners of the company recognised
directly in equity 1 101 (56 723)
Share-based payment – charge/(reversal)
for the year – (926)
Treasury shares acquired – (30 875)
Transfer to liability – (26 381)
Transactions with non-controlling interests (823) (465)
Business combinations 1 924 1 924
Balance at 31 March 2016 39 664 1 056 212
Balance at 1 April 2016 as reported 39 664 1 056 212
Total comprehensive income/(loss)
for the year 17 475 (613 471)
(Loss)/profit for the year 17 315 (520 056)
Other comprehensive income for the year 160 6 585
Dividends paid (21 969) (21 969)
Total contributions by and distributions
to owners of the company recognised
directly in equity 12 805 2 350
Share-based payment – charge for the year – 2 700
Transactions with non-controlling interests 12 805 (350)
Balance at 31 March 2017 47 975 423 122
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2017
GROUP
2017 2016
R’000 R’000
Cash flows from operating activities
Cash generated from operations 44 507 74 306
Finance income received 3 316 3 460
Finance expense paid (54 751) (41 318)
Income tax paid (22 268) (20 950)
Net cash generated from/(utilised in)
operating activities (29 196) 15 498
Cash flows from investing activities
Additions to property, plant
and equipment (38 421) (41 534)
Additions and development of
intangible assets (13 066) (3 847)
Proceeds on disposals of property,
plant and equipment 21 876 6 245
Proceeds on disposals of interest
in associate 27 000 –
Dividends received from
associates/joint ventures 24 699 567
Loan proceeds from joint ventures
and associates 7 592 119 487
Disposal of held-for-sale asset – 16 000
Acquisition of businesses through
business combinations – (7 003)
Net cash generated by investing
activities 29 680 89 915
Cash flows from financing activities
Proceeds from borrowings 964 10 408
Proceeds from Absa Bank Limited facility – 198 770
Proceeds from bridging finance facility 250 000 –
Repayment of bridging finance facility (50 000) –
Repayment of borrowings (9 642) (38 672)
Repayment of Absa Bank Limited facility (25 000) –
Repayment of trade finance facilities (54 270) (140 457)
Instalment sale payments (28 742) (15 342)
Finance lease payments (18 568) (12 525)
Dividends paid to non-controlling
interest holders (21 969) (7 260)
Treasury shares acquired – (30 875)
Acquisition of non-controlling interest (350) (465)
Net cash generated from/(utilised in)
financing activities 42 423 (36 418)
Total cash movement for the year 42 907 68 995
Translation effects on foreign cash and
cash equivalents balances (1 344) (531)
Cash and cash equivalents derecognised
with subsidiaries disposed of (2 755) –
Cash and cash equivalents derecognised
of held-for-sale group (7) –
Cash and cash equivalents at beginning
of the year 69 892 1 428
Cash and cash equivalents at
end of the year 108 693 69 892
AUDITED CONSOLIDATED SEGMENTAL ANALYSIS
for the year ended 31 March 2017
The operating segments are based on reports reviewed by the
executive committee who makes the strategic decisions of the
group, and who is therefore the chief operating decision-making
body of the group.
REPORTABLE SEGMENTS
The executive committee assesses the performance of these
operating segments based on operating profit. Head office and
other reconciling items mainly comprise head office and other
operating segments not meeting the quantitative thresholds
required by IFRS 8.
GROUP
Infra- DAWN
Building structure Solutions
R’000 R’000 R’000
2017
Revenue 2 281 638 1 972 066 553 676
Depreciation and
amortisation (6 617) (29 606) (18 146)
Operating loss before
impairments and
derecognitions of
previously held interests (182 028) (113 801) (42 577)
Impairments and
derecognitions of
previously held interests (61 956) (10 669) (132)
Operating loss after
impairments and
derecognitions of
previously held interests (243 984) (124 470) (42 709)
Net finance (expense)/income (22 226) (46 065) (4 449)
Share of (loss)/profit
from associates and
joint ventures (42 881) 1 870 (31)
Tax (expense)/income 38 289 (5 406) 12 222
Net loss after tax (270 802) (174 071) (34 967)
Assets 1 340 651 692 127 218 292
Liabilities 879 312 692 998 420 382
Capital expenditure (2) 2 185 45 653 21 757
2016
Revenue 2 530 920 2 420 004 571 360
Depreciation and
amortisation (11 974) (34 017) (23 053)
Operating (loss)/profit
before impairments and
derecognitions of
previously held interests (54 128) (1 871) 4 586
Impairments and
derecognitions of
previously held interests (410 406) (156 583) (65 829)
Operating (loss)/profit
after impairments and
derecognitions of previously
held interests (464 534) (158 454) (61 243)
Net finance expense (25 766) (32 981) (1 885)
Share of (loss)/profit
from associates and
joint ventures (12 171) 4 304 1 976
Tax income/(expense) 7 880 (31 965) 16 216
Net (loss)/profit after tax (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
REPORTABLE SEGMENTS (continued)
GROUP
Head office (1)
and other
reconciling
items Total
R’000 R’000
2017
Revenue (506 516) 4 300 864
Depreciation and amortisation (570) (54 939)
Operating loss before impairments and
derecognitions of previously held
interests (57 218) (395 624)
Impairments and derecognitions of
previously held interests (437) (73 194)
Operating loss after impairments and
derecognitions of previously
held interests (57 655) (468 818)
Net finance (expense)/income 14 152 (58 588)
Share of (loss)/profit from associates
and joint ventures – (41 042)
Tax (expense)/income (96 713) (51 608)
Net loss after tax (140 216) (620 056)
Assets (272 641) 1 978 429
Liabilities (437 385) 1 555 307
Capital expenditure (2) 347 69 942
2016
Revenue (529 192) 4 993 092
Depreciation and amortisation (368) (69 412)
Operating (loss)/profit before
impairments and derecognitions of
previously held interests 37 062 (14 351)
Impairments and derecognitions of
previously held interests (14 189) (647 007)
Operating (loss)/profit after
impairments and derecognitions of
previously held interests 22 873 (661 358)
Net finance expense (10 438) (71 070)
Share of (loss)/profit from
associates and joint ventures – (5 891)
Tax income/(expense) (11 744) (19 613)
Net (loss)/profit after tax 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.
FUTURE DISCLOSURE
The executive committee, being the chief operating decision-
making body of the group, assessed the reportable segments of the
group and determined that reporting from a trading and
manufacturing perspective would be more meaningful. These
segments are therefore also reported this year, as it constitutes
the future disclosure.
GROUP
Head
office (1)
and other
recon-
Manu- ciling
Trading facturing items Total
R’000 R’000 R’000 R’000
2017
Revenue 3 142 060 1 461 433 (302 629) 4 300 864
Depreciation
and
amortisation (17 196) (27 705) (10 038) (54 939)
Operating loss
before impair-
ments and
derecognitions
of previously
held interests (324 834) (17 699) (53 091) (395 624)
Impairments and
derecognitions
of previously
held interests (716) (71 909) (569) (73 194)
Operating loss
after impairments
and
derecognitions
of previously
held interests (325 550) (89 608) (53 660) (468 818)
Net finance
(expense)/
income (43 009) (31 640) 16 061 (58 588)
Share of loss
from associates
and joint
ventures (1 041) (39 970) (31) (41 042)
Tax income/
(expense) 61 093 (9 782) (102 919) (51 608)
Net loss
after tax (308 507) (171 000) (140 549) (620 056)
Assets 1 230 640 802 630 (54 841) 1 978 429
Liabilities 1 255 378 525 380 (225 451) 1 555 307
Capital
expendi-
ture (2) 13 079 45 076 11 787 69 942
2016
Revenue 3 860 068 1 629 838 (496 814) 4 993 092
Depreciation
and
amortisation (31 385) (30 639) (7 388) (69 412)
Operating
(loss)/profit
before impair-
ments and
derecognitions
of previously
held interests (106 604) 48 454 43 799 (14 351)
Impairments and
derecognitions
of previously
held interests (102 803) (484 654) (59 550) (647 007)
Operating loss
after
impairments
and derecog-
nitions of
previously
held interests (209 407) (436 200) (15 751) (661 358)
Net finance
expense (38 576) (22 686) (9 808) (71 070)
Share of
profit/(loss)
from associates
and joint
ventures 646 (8 513) 1 976 (5 891)
Tax income/
(expense) 3 601 (22 057) (1 157) (19 613)
Net loss
after tax (243 736) (489 455) (24 741) (757 932)
Assets 1 700 509 301 081 684 054 2 685 644
Liabilities 1 546 179 537 410 (454 157) 1 629 432
Capital
expendi-
ture (2) 35 495 55 464 48 980 139 939
(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 AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 March 2017
1. BASIS OF PREPARATION
These consolidated annual financial statements comprise a
summary of the audited consolidated financial statements of
the group for 12 months ended 31 March 2017 that was approved
by the board on 12 July 2017.
The summary consolidated financial statements are prepared in
accordance with the requirements of the JSE Limited’s (JSE)
Listings Requirements for summary financial statements and
the requirements of the Companies Act applicable to summary
financial statements. The JSE requires summary 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 Financial Reporting Pronouncements as
issued by the Financial Reporting Standards Council 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 consolidated financial
statements from which the summary consolidated financial
statements were derived are in terms of IFRS and are
consistent with the accounting policies applied in the
preparation of the previous consolidated annual financial
statements, with the exception of derivative financial
instruments, available-for-sale assets and retirement benefit
obligations.
The preparation of the summary consolidated annual financial
statements by Yolandi van den Berg (CA(SA)), senior group
financial accountant, has been supervised by the group
financial manager, Hanré Bester (CA(SA)) and the chief
financial officer and financial director, Chris Booyens
CA(SA)).
The directors take full responsibility for the preparation of
the provisional report and that the financial information has
been correctly extracted from the underlying annual financial
statements.
GOING CONCERN ASSESSMENT
DAWN posted losses for both the years ended 31 March 2016 and
2017 of R762,9 million and R637,4 million, respectively. In
determining the appropriate basis of preparation of the
annual financial statements, the directors are required to
consider whether the group can continue to operate as a going
concern for the foreseeable future, to 14 July 2018.
After the rights issue in April 2017, DAWN had banking
facilities available of R200 million, comprising a R100
million revolving credit and a R100 million general banking
facility. To determine if the group will be a going concern
for the next financial year and up to 14 July 2018,
management prepared cash flow forecasts for each of the
material subsidiaries. These forecasts were subjected to
further sensitivity tests and included the estimated intra-
month peak funding requirements. Management also considered
the businesses’ ability to meet its financial obligations for
the 12 months following approval of the annual financial
statements. The analysis considered the current challenging
market conditions, which negatively affects the performance
of the group and management’s turnaround plan being executed
including a return to sustainable profitability, further cost
reductions and optimisation of working capital. The resulting
cash flow projections were compared to available funding
facilities. The forecast profitability and the ability of the
underlying business to meet the forecasts is an area of
uncertainty.
The effect of a further deterioration in the economic outlook
and its potential impact on the group’s cash flow and funding
facilities were also considered as an uncertainty.
The group’s ability to fund its short-term liquidity
requirements is dependent on adequate funding facilities. The
forecasts indicate that the covenants on the facilities are
expected to be breached. Management is seeking clarification
from their bankers in this regard. Breaching covenants
creates a risk for the group of losing its facilities.
Part of management’s plans to address this include the
corporate restructuring activities and alternative funding
options, which are being considered.
These events and conditions give rise to a material
uncertainty that may cast significant doubt about the group’s
ability to continue as a going concern and, therefore, that
it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
AUDIT OPINION
These summary consolidated financial statements for the year
ended 31 March 2017 have been audited by
PricewaterhouseCoopers Inc., who expressed an unmodified
opinion thereon. The auditor also expressed an unmodified
opinion on the annual financial statements from which these
summary consolidated financial statements were derived.
The report on the consolidated financial statements also
include:
“A Material Uncertainty Related to Going Concern section that
draws attention to Note 44 in the audited consolidated
financial statements, which indicated that Distribution and
Warehousing Network Limited and its subsidiaries, together
the group, incurred a net loss of R637,4 million during the
year ended 31 March 2017. These events or conditions, along
with other matters as set forth in Note 44 of the audited
consolidated financial statements, indicate that a material
uncertainty exists that may cast significant doubt on the
group’s ability to continue as a going concern.”
These matters are addressed above in the ‘Going concern
assessment’ of the summary consolidated financial statements.
A copy of the auditor’s report on the summary consolidated
financial statements and of the auditor’s report on the
annual consolidated financial statements are available for
inspection at the at the company’s registered office,
together with the financial statements identified in the
respective auditor’s reports.
2. RECONCILIATION OF HEADLINE EARNINGS PER SHARE
GROUP
2017 2016
R’000 R’000
Headline earnings
Attributable earnings (637 371) (762 936)
Adjustment for the after-tax and
non-controlling interest effects of:
Net profit on disposal of property,
plant and equipment (7 256) (1 623)
Impairment of intangible assets 290 127 480
Impairment of property, plant
and equipment 6 455 47 729
Impairment of other assets 67 651 453 715
Tax effect on disposal of property,
plant and equipment and impairment of
intangible assets (trademarks) 332 (20 545)
Non-controlling interest 1 747 (949)
Net (profit)/loss on derecognition of
previously held interest (1 202) 4 592
Headline earnings adjustments related
to associates and joint ventures – (4 579)
Headline earnings (569 354) (157 116)
Headline earnings per share (cents) (240,49) (65,55)
Headline earnings (R’000) (569 354) (157 116)
Weighted average number of shares
in issue (’000) 236 744 239 686
3. DERIVATIVE FINANCIAL INSTRUMENTS
FAIR VALUE ESTIMATION
The fair value of forward foreign exchange contracts is
determined using quoted forward exchange rates to terminate
the contracts at the statement of financial position date.
DERIVATIVE FINANCIAL INSTRUMENTS
The table below analyses financial instruments carried at
fair value, by valuation method. The different levels have
been defined as follows:
– Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1).
– Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is,
derived from prices) (level 2).
– Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs)
(level 3).
GROUP
2017 2016
Level R’000 R’000
ASSETS
Non-current assets
Put option –
Grohe DAWN Watertech 3 19 115 34 380
Current assets
Forward foreign exchange
contracts – valued at fair
value through profit/loss 2 632 249
Total assets 19 747 34 629
LIABILITIES
Non-current liabilities
Call option –
Grohe DAWN Watertech 3 6 000 25 430
Written put – Swan Plastics 3 72 217 64 024
Total non-current liabilities 78 217 89 454
Current liabilities
Forward foreign exchange
contracts – valued at fair
value through profit/loss 2 364 7 272
Forward foreign exchange
contracts – designated as cash
flow hedges 2 224 1 392
Total current liabilities 588 8 664
Total liabilities 78 805 98 118
The fair value of financial instruments traded in active
markets is based on quoted market prices at the statement of
financial position date. A market is regarded as active if
quoted prices are readily and regularly available from an
exchange, dealer, broker, industry group, pricing service, or
regulatory agency, and those prices represent actual and
regularly occurring market transactions on an arm’s length
basis. The quoted market price used for financial assets held
by the group is the current bid price. These types of
instruments are included in level 1. DAWN carries no level 1
financial instruments.
The fair value of financial instruments that are not traded
in an active market (for example, over-the-counter
derivatives) is determined by using valuation techniques.
These valuation techniques maximise the use of observable
market data where it is available and rely as little as
possible on entity specific estimates. If all significant
inputs required to fair value an instrument are observable,
the instrument is included in level 2. If one or more of the
significant inputs is not based on observable market data,
the instrument is included in level 3.
Specific valuation techniques used to value financial
instruments include:
– Quoted market prices or dealer quotes for similar
instruments.
– The fair value of interest rate swaps is calculated as the
present value of the estimated future cash flows based on
observable yield curves.
– The fair value of forward foreign exchange contracts is
determined using forward exchange rates at the statement
of financial position date, with the resulting value
discounted back to present value.
– Other techniques, such as discounted cash flow analysis,
are used to determine fair value for the remaining
financial instruments.
All of the resulting fair value estimates are included in
level 2.
FORWARD EXCHANGE CONTRACTS
The foreign exchange contracts in the above are shown at the
year-end values for similar contracts maturing at the same
date.
Open forward exchange contracts (at contracted rates) can be
analysed as follows:
Weighted
average
Rand Foreign forward
amount amount exchange
R’000 R’000 rate
2017
US Dollar – buy 44 552 3 308 13,5
US Dollar – sell 328 24 13,5
Euro – buy 3 222 223 14,4
Euro – sell 85 6 14,5
2016
US Dollar – buy 86 857 5 275 16,5
US Dollar – sell 28 901 1 810 15,9
Euro – buy 13 562 752 18,0
2017
The settlement dates on open forward exchanges contracts
range between one and seven months from 31 March 2017.
2016
The settlement dates on open forward exchanges contracts
range between one and six months from 31 March 2016.
HEDGE RESERVE
2017
At 31 March 2017, the group held one derivative financial
instrument that was designated as a cash flow hedge of a
future forecast transaction. This was hedging of:
– future capital expenditure payment by forward foreign
exchange contract.
The effective portion of the cumulative net change in the
fair value of the derivative financial instrument designated
as a cash flow hedge is included in the hedge reserve. The
periods in which the related cash flows are expected to occur
are summarised below:
2017
Less than
one year Total
R’000 R’000
Future capital expenditure payments 119 119
Total net loss (net of tax) included
within hedge reserve 119 119
Tax on cash flow hedge 46 46
Total loss included within
hedge reserve 165 165
MOVEMENT IN THE CASH FLOW HEDGE RESERVE
Cash flow
hedge
reserve
R’000
At 31 March 2016 – gross 1 023
Deferred tax (286)
Closing balance net of deferred tax –
31 March 2016 737
Opening balance net of deferred tax –
1 April 2017 737
Gross movement (before deferred tax) (858)
Revaluation gross 957
Reclassification to profit and loss – gross (711)
Transfer to property, plant and equipment – gross (1 104)
Deferred tax 240
Closing balance net of deferred tax –
31 March 2017 119
2016
At 31 March 2016, the group held various derivative financial
instruments that were designated as cash flow hedges of
future forecast transactions. These were hedging of:
– future capital expenditure payments by forward foreign
exchange contracts; and
– future inventory payments by forward foreign exchange
contracts.
The effective portion of the cumulative net change in the
fair value of derivative financial instruments designated as
a cash flow hedge is included in the hedge reserve. The
periods in which the related cash flows are expected to occur
are summarised below:
2016
Less than
one year Total
R’000 R’000
Contracts to hedge
Future capital expenditure payments 465 465
Future inventory payments 272 272
Total net loss (net of tax) included
within hedge reserve 737 737
Tax on cash flow hedge 286 286
Total loss included within hedge
reserve 1 023 1 023
HEDGE ACCOUNTING
2017
Derivative instrument at year-end:
Change
in value
of the
hedging
instru-
ment
Nominal used for
amount of Carrying calcu-
hedging amount lating
instrument of the hedge
and hedging ineffec-
hedged instru- tiveness
item Hedge ment* for 2017
R’000 rates R’000 R’000
Cash flow hedges
Capital expenditure
(up to three
months) 1 333 ZAR/EUR 224 (224)
17,43
Change
Change in value
in value of the
of the hedging Hedge
hedge item instru- ineffec-
used for ment tiveness
calcu- recog- recog-
lating nised nised
hedge in other in
ineffec- compre- profit
tiveness hensive or
for 2017 income*** loss**
R’000 R’000 R’000
Cash flow hedges
Capital expenditure
(up to three
months) (165) 165 (58)
* Hedging instruments are located within the derivative
financial instruments caption on the statement of
financial position.
** Hedge ineffectiveness is recognised in the other
operating income (net foreign exchange loss/gain - note
5) caption in the income statement.
*** Including deferred tax effect.
Carrying amount of the hedged item equals the nominal value
of the hedging instrument.
2016
Change
in value
of the
hedging
instru-
ment
Nominal used for
amount of Carrying calcu-
hedging amount lating
instrument of the hedge
and hedging ineffec-
hedged instru- tiveness
item Hedge ment* for 2016
R’000 rates R’000 R’000
Cash flow hedges
Capital expenditure
(up to three
months) 8 652 ZAR/EUR 730 (730)
17,46 –
19,34
Inventory (up to
three months) 3 484 ZAR/EUR 99 (99)
17,40
Inventory (up to
five months) 5 010 ZAR/USD 563 (563)
16,84 –
17,37
Change
Change in value
in value of the
of the hedging Hedge
hedge item instru- ineffec-
used for ment tiveness
calcu- recog- recog-
lating nised nised
hedge in other in
ineffec- compre- profit
tiveness hensive or
for 2016 income*** loss**
R’000 R’000 R’000
Cash flow hedges
Capital expenditure
(up to three months) 646 (646) (84)
Inventory (up to three
months) 71 (71) (28)
Inventory (up to
five months) 306 (306) (257)
* Hedging instruments are located within the derivative
financial instruments caption on the statement of
financial position.
** Hedge ineffectiveness is recognised in the other
operating income (net foreign exchange loss/gain – note
5) caption in the income statement.
*** Including deferred tax effect.
Carrying amount of the hedged item equals the nominal value
of the hedging instrument.
CALL AND PUT OPTION – GROHE DAWN WATERTECH
The Watertech transaction included a call option in favour of
Grohe to acquire an additional 24,1% indirect shareholding in
the Watertech companies from DAWN after a ten-year period
and, if such option is exercised by Grohe, or if Grohe’s
shareholding has otherwise increased to 75,1%, the option for
DAWN to put its remaining 24,9% indirect interest in the
Watertech companies to Grohe.
The put option of R19,1 million (2016: R34,4 million) and a
call option of R6,0 million (2016: R25,4 million) were
recognised at their fair values. A 50%/50% probability was
assumed and the consideration in future will be determined as
an earning multiple. The Monte Carlo valuation method was
used and the assumptions are set out below.
INPUTS AND ASSUMPTIONS
Mate-
riality 2017 2016
Spot equity (100% holding)
(R’000) Low 830 000 1 645 000
Spot EBITDA (100% holding)
(R’000) Low (20 000) 200 000
Spot value of P/EBITDA (%) Low (41,50) 8,2
Spot DAWN shareholding (%) High 49,0 49,0
Spot Acqui Co shareholding (%) High 51,0 51,0
Control premium (%) Medium 15,0 15,0
Case 2 probability High Unspeci- Unspeci-
fied fied
Long-term mean: P/EBITDA High 9,0 9,0
Reversion factor (%) High 40,0 40,0
Equity volatility (%) Medium 35,0 35,0
Probability: Growth in EBITDA
per annum (%) Implied 73,0 40,0
Probability: Decline in
EBIDTA per annum (%) Implied 27,0 40,0
Risk-free rate Low BESA BESA
Swap Swap
Curve Curve
Dividend yield (%) Low 0,0 0,0
Debt in cash High Section Section
5.10 5.10
WRITTEN PUT OPTION – SWAN PLASTICS
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%. 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
disclosed in derivatives and the employment liability
disclosed in trade and other payables – non-current in the
prior year were reclassified to derivatives in the prior year
as part of the conditions of the agreement were attained.
4. DISPOSAL GROUP AND OTHER ASSETS/LIABILITIES HELD-FOR-SALE
2017
BOUTIQUE BATHS PROPRIETARY LIMITED
DAWN entered into an agreement to dispose of its 76%
shareholding in Boutique Baths Proprietary Limited for a
consideration of R3 million, effective 28 April 2017.
As a result, Boutique Baths has been derecognised and
classified as held-for-sale and a loss on derecognition of
R0,34 million was realised at year-end.
2016
The group had no disposal group or other assets/liabilities
held-for-sale.
GROUP
2017 2016
R’000 R’000
SUMMARY
Total assets of disposal group
classified as held-for-sale 6 652 –
Total liabilities of disposal group
classified as held-for-sale 1 588 –
Equity of disposal group classified
as held-for-sale 2 064 –
BOUTIQUE BATHS
(a) Assets of disposal group
classified as held-for-sale 6 652 –
(b) Liabilities of disposal group
classified as held-for-sale 1 588 –
(c) Equity of disposal group
classified as held-for-sale 2 064 –
BOUTIQUE BATHS
The cash flows as well as the income
statement results have been included
in the group results
(a) Assets of disposal group
classified as held-for-sale
Property, plant and equipment 3 768 –
Inventory 2 056 –
Cash and cash equivalents 7 –
Other current assets 821 –
Total 6 652 –
(b) Liabilities of disposal group
classified as held-for-sale
Non-current liabilities – –
Trade and other payables 802 –
Other current liabilities 786 –
Total 1 588 –
(c) Equity of disposal group
classified as held-for-sale
Non-controlling interest 2 064 –
Total 2 064 –
5. OPERATING LEASE LIABILITIES AND COMMITMENTS
GROUP
2017 2016
R’000 R’000
Capital commitments
Capital expenditure contracted for at
the reporting date but not yet incurred
and recognised in the financial
statements is as follows:
Plant and equipment 9 998 –
Motor vehicles – 4 178
Intangible assets – software – 5 512
Total capital commitments 9 998 9 690
It is intended to finance capital expenditure from funds
generated within the group and available finance facilities.
OPERATING LEASE COMMITMENTS
The group leases various premises as well as equipment and
plant and machinery under non-cancellable operating lease
agreements.
The leases have varying terms and escalation clauses.
Leases have varying terms between current and December 2023.
The leases with determinable escalations are charged to the
income statement on a straight-line basis and liabilities are
raised for the difference between the lease payment and the
charge recognised in the income statement. The liabilities
are classified based on the timing of the reversal which will
occur between short-term and long-term.
GROUP
2017 2016
R’000 R’000
Operating lease liabilities
Non-current 101 597 110 363
Current 5 204 2 776
106 801 113 139
The future aggregate minimum lease
payments under non-cancellable
operating leases are as follows:
No later than one year 104 981 103 550
Later than one year and not later
than five years 338 355 484 556
Later than five years 132 687 70 500
576 023 658 606
6. CONTINGENCIES
The group has contingent liabilities in respect of bank and
other guarantees and other matters arising in the ordinary
course of business. It is not anticipated that any material
liabilities will arise from the contingent liabilities.
GROUP
2017 2016
R’000 R’000
Bank guarantees issued 4 898 4 053
Suretyships 5 500 5 500
Contingent liabilities 8 000 –
18 398 9 553
2017
On 23 March 2017, the Competition Tribunal (“the Tribunal”)
handed down a decision in which it determined that DAWN
Consolidated Holdings(Pty) Ltd (“DCH”), a subsidiary of DAWN,
through the wholly-owned subsidiary DPI Plastics(Pty) Ltd of
DCH, engaged in a market allocation arrangement with Sangio
Pipe (Pty) Ltd (“Sangio”), in which DCH had a 49% interest at
the time.
In such cases penalties are usually determined as a
percentage of affected turnover and affected turnover is
usually that related to the market allocation arrangement in
question. The ultimate penalty will be judged across a number
of variables and parameters that are in the judgment of the
Tribunal.
The legal process to determine the penalty quantum is
currently underway, however, the group believes, supported by
legal advice, that an appeal will be successful.
2016
The Competition Commission of South Africa referred a
complaint to the Competition Commission Tribunal regarding
allegations of market allocation between DPI Plastics
Proprietary Limited and Sangio Pipe Proprietary Limited.
Based on legal advice, the matter will be defended and the
group expects that the matter will be favourably concluded.
7. EVENTS AFTER THE REPORTING DATE
RIGHTS OFFER
DAWN shareholders are referred to the circular dated Monday,
20 March 2017 regarding the renounceable rights offer for up
to R358 million, which concluded on 12 April 2017.
The rights offer consisted of an offer of 358 129 576 million
ordinary shares in the ratio of 147,8 rights offer shares for
every 100 ordinary shares held by shareholders on the record
date of the rights offer, at a subscription price of R1,00
per rights offer share.
Following the conclusion of the rights offer, the total
issued share capital of the company increased to 600 372 480
shares.
BORROWINGS
REVOLVING CREDIT FACILITY
On 15 October 2015, Absa Bank Limited granted the group a
revolving credit facility of R200 million. This facility
ended on 7 October 2016 and was re-negotiated to 7 October
2017. The new facility had similar characteristics, but had a
quarterly step-down of R25 million per quarter in respect of
the revolving credit facility, which started on 7 October
2016 and would have concluded on 7 July 2017. This agreement
was re-negotiated and signed in December 2016 for a reduced
facility of R175 million after a R25 million repayment was
made in October 2016. A further repayment of R75 million was
made on 12 April 2017 to reduce the facility to R100 million.
The facility extends until 31 March 2018. Accounts receivable
have been ceded and a general notarial bond has been
registered over inventory.
BRIDGING FINANCE FACILITY
On 23 December 2016, DAWN received R50 million bridging
finance from Absa Bank Limited, which amount was repaid on 31
January 2017, after obtaining the proceeds from the sale of
Heunis Steel Proprietary Limited.
DAWN received R200 million funding from Investec as bridging
finance through an unsecured facility. Two R100 million
tranches were received on 24 February 2017 and 6 March 2017,
respectively. The full R200 million was repaid on 18 April
2017 from the proceeds of the rights offer.
DISPOSALS
BOUTIQUE BATHS PROPRIETARY LIMITED
DAWN entered into an agreement to dispose of its 76%
shareholding in Boutique Baths Proprietary Limited for a
consideration of R3 million, effective 28 April 2017.
As a result, Boutique Baths Proprietary Limited has been
derecognised and classified as held-for-sale and a loss on
derecognition of R0,34 million was realised at year-end.
AQUALIA DPI PROPRIETARY LIMITED
DAWN entered into an agreement to dispose of its 50% interest
in the joint venture with Aqualia DPI Proprietary Limited,
incorporating Aqua Science Proprietary Limited, for a
consideration of 1 Mauritian Rupee, effective 30 June 2017.
FIBREX – FABRICA DEART.DE.F.B. SINTETICAS, S.A.R.L. (FIBREX)
On 1 April 2017, the group entered into an agreement for the
acquisition of the remaining 51% shareholding from the
majority shareholder in Plastic Investments International
Limited, of which Fibrex is a wholly-owned subsidiary, under
obligation. Defalcation on the part of the majority
shareholder enabled DAWN to acquire the shareholding for a
consideration of Rnil, as the shareholder surrendered his
shares to DAWN. The provisional amount of net assets acquired
amounted to R10,0 million.
On 15 June 2017, the board of directors of DAWN resolved to
dispose of Fibrex in its entirety during F2018 in an effort
to recover the losses incurred by the business.
GROHE DAWN WATERTECH (GDW)
As announced on SENS on 11 July 2017, the group has concluded
a non-binding memorandum of understanding with the
controlling shareholders of GDW for the potential disposal of
DAWN’s 49% holding in the company to that shareholder. No
price has been agreed for the transaction as yet. There is no
certainty that the negotiations will lead to definitive and
binding agreements and therefore no certainty that the
transaction will ultimately be concluded and implemented.
The intention of both parties is that DAWN remains the long-
term master distributor for the GDW product range in southern
Africa. It is the view of the DAWN board that this
transaction would be a positive step in the turnaround
process of the group.
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
Registered office:
Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3, Germiston,
1401
Directors:
Diederik Fouché (chairman), Stephen Connelly (deputy executive
chairman), Lou Alberts ^ (lead independent director), Edwin
Hewitt (chief executive officer), Chris Booyens (chief financial
officer and financial director), Akhter Moosa ^, Dinga Mncube ^,
Veli Mokoena*, George Nakos*, 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)),
group financial manager, and Chris Booyens (CA(SA)), chief
financial officer and financial director
Company secretary:
iThemba Governance and Statutory Solutions (Pty) Ltd
Transfer secretaries:
Computershare Investor Services (Pty) Ltd, Rosebank Towers, 15
Biermann Avenue, Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
Sponsor:
Deloitte & Touche Sponsor Services (Pty) Ltd
www.dawnltd.co.za
Date: 14/07/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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