Wrap Text
Unaudited interim results for the six months ended
30 September 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
UNAUDITED INTERIM RESULTS for the six months ended
30 September 2017
RESULTS COMMENTARY for the six months ended 30 September 2017
NATURE OF BUSINESS
Distribution and Warehousing Network Limited, which is listed on
the JSE (“DAW”), manufactures and distributes quality branded
hardware, sanitaryware, plumbing, kitchen, engineering and civil
products throughout South Africa and to selected countries in the
rest of sub-Saharan Africa. The group operates through two
segments: trading and manufacturing. These segments leverage off
common pools of expertise, allowing each segment to focus on its
core market and areas of specialisation. The trading segment
markets a comprehensive range of products, sourced locally from
the group’s manufacturing segment as well as other local
manufacturers and imports. The manufacturing segment produces
mainly PVC and HDPE water reticulation and drainage pipe and
fitting systems. A large range of customers are served through a
national footprint of outlets under the names of WHS (trading as
WHD, Saffer and Stability), Incledon and DPI Plastics.
INTRODUCTION
Growth in the South and Southern African economies remained
subdued for the period. The South African growth rate for 2017
was adversely affected by downgrades in sovereign ratings and
political instability, which also impacted on business confidence
and made trading conditions extremely challenging. The effect of
the ongoing economic situation in the country has put pressure on
disposable income with consumers being more selective on how they
spend their hard-earned money.
The sustained adverse performance in F2016 and F2017 resulted in
DAWN having to approach shareholders for a rights issue of R358
million in April 2017, of which R200 million was required to
repay bridging finance, R75 million to reduce other debt and the
balance to fund operations. The overall focus remains on
returning the group to sustainable profitability.
FINANCIAL REVIEW
In line with the trading statement issued on 13 November 2017,
the group recorded an earnings per share (EPS) loss of 19,5 cents
per share compared to the EPS loss in the comparable period in
the previous financial year of 111,8 cents per share. Headline
earnings per share (HEPS) was a loss of 13,7 cents per share in
H1 2018 compared to a HEPS loss in H1 2017 of 98,1 cents per
share.
Revenue for the six months to September 2017 declined by 19,8%,
compared to the corresponding period in the previous financial
year. In monetary terms revenue is at R1,9 billion for H1 2018,
down from R2,4 billion for the first half of the previous fiscal
year and includes the effect of businesses closed and disposed
of. Cost of goods sold of R1,5 billion was down from the
comparative 2017 figure of R2,0 billion and reflects a reduction
in volumes offset by an increase in unit costs. The gross margin
percentage improved by six percentage points to 22,2%. The margin
includes the partial clean out of slow-moving and obsolete
inventory and the reversals of related provisions. It also
reflects the effect of the loss of the Gardena distributorship,
which ended in August 2017.
The trading segment revenue declined by 14% compared to the
corresponding annualised figure in the previous year. WHS and
Incledon revenues declined, attributable to the tougher trading
conditions, internal inefficiencies, the impact of lost market
share as a result of previous reputational damage with customers
and suppliers, as well as supplier underperformance on certain
key product categories. Revenue from the manufacturing segment,
which mainly comprises DPI and Swan Plastics, also declined, with
DPI Plastics contributing a double digit decline attributable to
a lack of government water infrastructure spend. Margin
deterioration in a very competitive market remains a concern.
Expenses decreased considerably and reflects the intense focus on
cost reduction and operational efficiencies. The main expense
drivers remain employment costs, vehicle transportation
expenditure and occupancy costs, which account for 87% of total
expenses.
Once-off restructuring costs amounted to a profit of R12,6
million and comprises the impairment of investments and property,
plant and equipment, offset by a profit on the disposal of Fibrex
in Angola, Aqualia in Mauritius and Boutique Baths in South
Africa.
The EBITDA loss of continuing operations amounted to R1,2 million
compared to R264,2 million in the comparable period in the
previous financial year. The operating loss for the year to
September 2017 was R18,5 million compared to a loss of R338,1
million for H1 F2017.
In the first half of F2018, the operational loss (after
impairments and restructure costs) improved from a loss in H1
F2017 of R52,1 million to a loss in H1 F2018 of R26,4 million.
Net finance charges amounted to R16,1 million, compared to R29,2
million in H1 F2017. This was attributable both to the proceeds
from the rights issue in April 2017 and a reduced usage of trade
finance.
Profit from associates amounted to R1,7 million and compares to a
loss of R8,1 million in F2017. Heunis Steel posted a pleasing
performance in H1 F2017, but was subsequently disposed of in
January 2017 to raise funding.
Discontinued operations refer to the GDW investment which is
accounted for as a disposal group held-for-sale.
CORPORATE ACTIVITY
During the period under review, the group disposed of Fibrex in
Angola for a cash consideration of R10,5 million at a profit of
R12,2 million, Aqualia in Mauritius and Boutique Baths in South
Africa and acquired the remaining 26% share in Hamilton’s for R6
million. The group announced the disposal of its remaining 49%
shareholding in GDW, including its loan account, for a
consideration of R324,5 million. Swan Plastics was disposed of
after the reporting period during October 2017 for R35 million,
of which R30 million was received in October 2017.
STATEMENT OF FINANCIAL POSITION
The statement of financial position reflected that the group was
solvent and was strengthened by the rights issue early in the
current financial year which also addressed the liquidity
constraint. It is essential that the group must return to
sustainable profitable operations to remain both solvent and
liquid.
Property, plant and equipment decreased from R225,5 million at
September 2016 to R215,4 million at the half year-end. Additions
on machinery in DPI and Swan Plastics, additions to the vehicle
fleet and leasehold improvements amounted to R21,6 million in H1
F2018.
Intangible assets comprise goodwill of R1,3 million, trademarks
of R2,5 million, software of R53,5 million and customer
relationships of R3,7 million, totalling R61 million.
Net working capital days at September 2017 were 60 days, and
comprised debtor days of 46 days and inventory days of 60 days,
offset by creditor days of 46 days. Due to the lower revenue,
inventory days increased despite a 13,1% decrease in monetary
terms. After a focused stock clean-up, which is still ongoing,
the inventory mix is healthier and more current than the
comparable period in F2017.
Accounts receivable collection period showed an increase of eight
days over that of the previous year, also despite a reduction in
monetary terms. Creditor funding in monetary terms and days
outstanding decreased considerably as a result of creditors now
being paid on terms and a reduction in purchases to align
inventory to the lower revenue levels.
As a result of trading losses, cash generated from operations was
negative by R9 million. Investment in working capital amounted to
R66 million. Net finance charges and taxation paid amounted to
outflows of R24 million and R9 million, respectively. Investing
and net finance activities resulted in an inflow of R7 million,
mainly comprising inflows from the rights issue offset by loan
and bridging and trade finance repayments and capital
expenditure.
Cash balances are managed on a daily basis and the management
committee meets at least weekly to review the cash flow
projections.
PROSPECTS
Most businesses are underperforming as a result of the tough
economic environment as well as the legacy issues still impacting
the businesses after the appointment of new management. The group
has commenced the implementation of a new plan to return all
operations to sustainable profitability. The implementation
commenced a few months ago and is expected to take longer than
initially envisaged. The disposal of GDW and Swan Plastics is
expected to result in cash inflows of approximately R360 million,
which will be utilised to repay the group’s debt and fund future
growth. The board anticipates a gradual recovery in the year
ahead that will remain challenging and competitive.
The cash inflow of R324,5 million from the disposal of the GDW
shares, still subject to approval, is expected to be received by
the end of December 2017. R30 million of the Swan Plastics
proceeds has been received in October 2017.
DAWN has irrevocable undertakings from 75% of shareholders.
Any forward-looking statement has not been reviewed or reported
on by the company’s auditors.
CHANGES TO THE BOARD
With effect from 20 July 2017, Charles Boles has been appointed
as an independent non-executive director and Theunis de Bruyn as
a non-executive director of the board.
Charles is a qualified Chartered Accountant and holds an MBA
degree. Charles has extensive experience in corporate finance and
asset management. He founded his own investment firm in 1999 and,
through his holdings in various small to mid-cap listed entities,
he has had exposure to the industries and markets where DAWN is
positioned. Charles currently serves as a non-executive director
of Hulamin Ltd and Interwaste Holdings Ltd.
Theunis is also a qualified Chartered Accountant and has many
years of financial and investment experience. He currently serves
as non-executive director on several boards across a wide range
of industries, including RECM and Calibre Ltd, ELB Group Ltd and
Sentula Mining Ltd.
The board is confident that these appointments will add
significant knowledge and new points of view going forward.
Veli Mokoena, a non-executive director of DAWN, has tendered his
resignation, to pursue personal interests, with effect from 16
November 2017.
The chairman and board would like to express sincere gratitude to
Veli for his input and contribution over the period of his tenure
as a director.
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
20 November 2017
SUMMARY CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2017 2016 2017
R’000 R’000 R’000
Continued operations
Revenue 1 927 625 2 402 825 4 300 864
Cost of sales (1 498 978) (2 013 296) (3 523 327)
Gross profit 428 647 389 529 777 537
Net operating expenses
before derecognition and
re-recognition of
investments and
impairments (455 081) (681 572) (1 176 393)
Operating loss before
derecognition and
re-recognition of
investments and
impairments (26 434) (292 043) (398 856)
Net gain/(loss) on
derecognition of
subsidiaries and
associates 12 615 (10 114) 1 202
Impairments (4 719) (35 947) (63 309)
Operating loss (18 538) (338 104) (460 963)
Finance income 1 372 2 118 989
Finance expense (17 461) (31 300) (61 904)
Loss after net financing
costs (34 627) (367 286) (521 878)
Share of profit in
investments accounted
for using the equity
method 1 669 8 117 14 731
Loss before taxation (32 958) (359 169) (507 147)
Income tax (expense)/income (9 847) 19 872 (51 272)
Loss from continuing
operations (42 805) (339 297) (558 419)
Loss from discontinued
operations (62 175) (27 498) (61 637)
Loss for the period (104 980) (366 795) (620 056)
Loss attributable to:
Owners of the parent (111 386) (369 047) (637 371)
Non-controlling interest 6 406 2 252 17 315
Loss for the period (104 980) (366 795) (620 056)
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
% 2017 2016 2017
change R’000 R’000 R’000
Loss for
the period (104 980) (366 795) (620 056)
Other compre-
hensive income:
Items that will
not be
reclassified to
profit or loss:
– Effects of
retirement
benefit
obligations – – 91
– Taxation related
to components – – (25)
– – 66
Items that may
be subsequently
reclassified
to profit or
loss:
– Exchange
differences
recycled
through
the income
statement (2 479) 7 957 7 164
– Exchange
differences on
translating
foreign
operations (1 299) 2 874 (1 423)
– Cash flow hedging
reserve 165 433 858
– Tax-related
components (46) – (240)
(3 659) 11 264 6 359
Total other
comprehensive
(loss)/income (3 659) 11 264 6 425
Total
comprehensive
loss (108 639) (355 531) (613 631)
Total
comprehensive
loss attri-
butable to:
Owners of
the parent (115 045) (357 783) (630 946)
Non-controlling
interest 6 406 2 252 17 315
(108 639) (355 531) (613 631)
Included above:
Depreciation and
amortisation 25 256 30 887 54 939
Operating lease
rentals 42 849 48 279 90 012
DETERMINATION OF
HEADLINE EARNINGS
Attributable
earnings (111 386) (369 047) (637 371)
Adjustment for
the after-tax and
non-controlling
interest effect of:
Net (profit)/loss
on disposal of
property, plant
and equipment (3 399) 605 (7 256)
Impairment of
intangible assets – – 290
Impairment of
property, plant
and equipment 3 349 4 956 6 455
Impairment of
available-for-sale
assets 43 961 – –
Impairment of
other assets 1 377 30 992 67 651
Tax effect on
disposal of
property, plant
and equipment and
impairment of
intangible assets
(customer
relationships) 64 (1 316) 332
Non-controlling
interest 34 – 1 747
Net (profit)/loss
on derecognition
of previously
held interest (12 615) 10 114 (1 202)
Headline earnings
adjustments
relating to
associates and
joint ventures – (10) –
Headline earnings (78 615) (323 706) (569 354)
STATISTICS
Number of
ordinary shares
(’000)
– in issue 600 372 242 243 242 243
– held in treasury (13 629) (5 499) (5 499)
Number of shares for
net asset value
calculation (’000) 586 744 236 744 236 744
Weighted average
number of shares
(’000)
– for earnings
per share 572 713 329 984* 329 984*
– for diluted
earnings per share 572 713 329 984* 329 984*
Earnings per
share (cents) 83 (19,45) (111,84)* (193,15)*
Headline earnings
per share (cents) 86 (13,73) (98,10)* (172,54)*
Diluted earnings
per share (cents) 83 (19,45) (111,84)* (193,15)*
Diluted headline
earnings per
share (cents) 86 (13,73) (98,10)* (172,54)*
Operating
profit (%) (0,96) (14,07)** (10,72)**
* Recalculated due to rights issue
** Recalculation due to disclosure of discontinued operation
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
30 September 30 September 31 March
% 2017 2016 2017
change R’000 R’000 R’000
ASSETS
Non-current
assets 346 054 854 839 674 594
Property, plant
and equipment 215 368 225 493 225 794
Intangible assets 60 952 67 632 65 126
Investments in
associates and
joint ventures 5 982 403 646 296 261
Derivative
financial assets – 34 380 19 115
Deferred tax assets 63 752 123 688 68 298
Current assets 1 282 292 1 435 988 1 297 183
Inventories 518 805 597 001 519 378
Trade and other
receivables 656 998 748 321 660 325
Cash and cash
equivalents 98 335 85 872 108 741
Derivative
financial
instruments 1 472 535 632
Current tax
assets 6 682 4 259 8 107
Assets of
disposal group
classified as
held-for-sale 271 328 29 561 6 652
TOTAL ASSETS 1 899 674 2 320 388 1 978 429
EQUITY AND LIABILITIES
Equity
Capital and
reserves 638 609 697 657 423 122
Equity attributable
to equity holders
of the company 588 344 655 143 375 147
Non-controlling
interest 50 265 42 514 47 975
Non-current
liabilities 282 898 329 566 302 995
Borrowings 53 976 68 327 58 275
Derivative financial
instruments 72 217 93 554 78 217
Deferred profit 26 087 31 414 28 749
Deferred tax
liabilities 19 803 17 626 25 762
Retirement benefit
obligation 5 066 5 100 5 066
Share-based
payment
liabilities 6 298 4 883 5 329
Operating lease
liabilities 99 451 108 662 101 597
Current liabilities 978 167 1 282 008 1 250 724
Trade and other
payables 739 762 898 785 785 735
Borrowings 218 534 358 285 448 176
Operating lease
liabilities 7 503 5 100 5 204
Derivative financial
instruments 192 3 960 588
Deferred profit 5 327 5 327 5 327
Current tax
liabilities 6 849 6 366 5 694
Share-based
payment liabilities – 4 185 –
Liabilities of
disposal group
classified as
held-for-sale – 11 157 1 588
Total liabilities 1 261 065 1 622 731 1 555 307
TOTAL EQUITY
AND LIABILITIES 1 899 674 2 320 388 1 978 429
FUTURE COMMITMENTS
Capital commitments 6 940 18 171 9 998
Operating leases 543 766 613 236 576 023
Net cash 8 014 50 393 108 693
Net debt 169 335 307 971 367 453
Value per share
Asset value per
share
– net asset value
(cents) (64) 100,27 276,73 158,46
– net tangible
asset value
(cents) (64) 89,88 248,16 130,95
– market price
(cents) 112 253 101
Market capitalisation
(R’000) 672 417 612 875 244 665
Financial gearing
ratio (%)* 26,5 44,1 86,8
Current asset ratio
(times) 1,3 1,1 1,0
* Includes cash and cash equivalents.
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2017 2016 2017
R’000 R’000 R’000
Balance at beginning
of the period 423 122 1 056 212 1 056 212
Total loss for
the period (104 980) (366 795) (620 056)
Other comprehensive
(loss)/income (3 659) 11 264 6 585
Rights Issue proceeds 338 615 – –
Changes in ownership
interest – control not
lost (3 455) – –
Transactions with
non-controlling interest (4 672) 605 (350)
Share-based payment
charge and vesting
of options 1 786 5 866 2 700
Treasury shares acquired
and delivered (8 148) – –
Dividends paid to
non-controlling interest
holders – (9 495) (21 969)
Balance at end of period 638 609 697 657 423 122
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2017 2016 2017
R’000 R’000 R’000
Cash utilised in
operations before
working capital changes (8 679) (19 728) (89 735)
Working capital changes (66 711) 102 334 134 242
Net finance costs paid (23 876) (23 460) (51 435)
Net taxation paid (8 694) (9 468) (22 268)
Net cash (utilised in)/
generated from operating
activities (107 960) 49 678 (29 196)
Net cash generated by/
(utilised in) investing
activities 12 174 (13 711) 29 680
Net cash (utilised in)/
generated from financing
activities (3 933) (50 530) 42 423
(Decrease)/increase in
cash resources (99 719) (14 563) 42 907
Cash resources at
beginning of the period 108 693 69 892 69 892
Translation effects on
cash and cash
equivalents balances (960) (838) (1 344)
Cash and cash equivalents
of disposal group
held-for-sale at end
of period – (4 098) (2 762)
Cash resources at
end of period 8 014 50 393 108 693
Cash resources
comprise of: 8 014 50 393 108 693
Cash and cash equivalents 98 335 85 872 108 741
Bank overdraft included
in borrowings (90 321) (35 479) (48)
SUMMARY CONSOLIDATED SEGMENTAL ANALYSIS
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.
Head
office
and other
recon-
Manu- ciling
Trading facturing items(1) Total
R’000 R’000 R’000 R’000
6 months –
30 September
2017
(Unaudited)
Revenue 1 507 938 622 179 (202 492) 1 927 625
Depreciation
and amorti-
sation (8 408) (12 758) (4 090) (25 256)
Operating
(loss)/profit
before
impairments
and derecog-
nition
and re-recog-
nition of
investments (5 640) (2 683) (18 111) (26 434)
Impairments and
derecognition – 8 216 (320) 7 896
Operating loss
after impairments
and derecog-
nitions and
re-recognition
of investments (5 640) 5 533 (18 431) (18 538)
Net finance
(expense)/
income (23 958) (13 834) 21 703 (16 089)
Share of
profit from
associates and
joint ventures – 1 376 293 1 669
Tax expense/
(income) (2 259) (3 855) (3 733) (9 847)
Net loss after
tax from
continuing
operations (31 857) (10 780) (168) (42 805)
Net loss after
tax from
discontinued
operations – (62 175) – (62 175)
Assets 1 159 551 88 771 651 352 1 899 674
Liabilities 1 214 727 569 279 (522 941) 1 261 065
Capital expen-
diture(2) 8 372 13 100 157 21 629
6 months –
30 September
2016
(Unaudited)
– Restated
Revenue 1 751 969 841 112 (190 256) 2 402 825
Depreciation
and amorti-
sation (10 105) (12 842) (7 941) (30 887)
Operating
loss before
impairments
and derecog-
nition and
re-recog-
nition of
investments (215 638) (34 296) (42 109) (292 043)
Impairments
and derecog-
nition (12 294) (33 461) (306) (46 061)
Operating
loss after
impairments
and derecog-
nitions and
re-recog-
nition of
investments (227 932) (67 757) (42 415) (338 104)
Net finance
(expense)/
income (24 924) (12 899) 8 641 (29 182)
Share of
(losses)/
profit from
associates
and joint
ventures 26 738 (18 949) 328 8 117
Tax expense/
(income) 21 784 868 (2 780) 19 872
Net loss
after tax
from
continuing
operations (204 334) (98 737) (36 226) (339 297)
Net loss
after tax
from
discontinued
operations – (27 498) – (27 498)
Assets 1 286 676 216 428 817 284 2 320 388
Liabilities 1 239 437 562 813 (179 517) 1 622 731
Capital
expen-
diture(2) 5 648 15 582 10 726 31 957
12 months
ended
31 March
2017 (Audited)
– Restated
Revenue 3 142 060 1 461 433 (302 629) 4 300 864
Depreciation
and amorti-
sation (17 196) (27 705) (10 038) (54 939)
Operating
loss before
impairments
and derecog-
nition and
re-recog-
nition of
investments (328 066) (17 699) (53 091) (398 856)
Impairments
and derecog-
nition 10 371 (71 909) (569) (62 107)
Operating
loss after
impairments
and derecog-
nitions and
re-recog-
nition of
investments (317 695) (89 608) (53 660) (460 963)
Net finance
(expense)/
income (45 337) (31 640) 16 061 (60 916)
Share of
(losses)/
profit from
associates
and joint
ventures 54 732 (39 970) (31) 14 731
Tax expense/
(income) 61 430 (9 782) (102 919) (51 272)
Net loss
after tax
from
continuing
operations (246 870) (171 000) (140 549) (558 419)
Net loss
after tax from
discontinued
operations – (61 637) – (61 637)
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
(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 interim summary consolidated financial
statements for the 6 months ended 30 September 2017 was
approved by the board on 16 November 2017.
The interim summary consolidated financial statements are
prepared in accordance with the requirements of the JSE
Limited’s (JSE) 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 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 interim
summary consolidated 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 2017.
The preparation of the interim summary consolidated financial
statements by Tintswalo Mohlakoana (CA(SA)), 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 interim summary consolidated financial statements.
GOING CONCERN ASSESSMENT
In determining the appropriate basis of preparation of the
half year financial statements, the directors are required to
consider whether the group can continue to operate as a going
concern for the foreseeable future.
DAWN posted significant losses in F2016 and F2017, mainly
because of the costs of the necessary restructuring of the
group to allow it to cope with the difficult economic
environment. The results for the first half of F2018, whilst
still unsatisfactory, represent a considerable improvement
over the corresponding period in the previous financial year.
After the rights issue which was concluded in April 2017,
from which the group received R358 million, the group had
banking facilities available amounting to R200 million,
comprising a revolving credit facility and general banking
facility of R100 million each.
Management has proceeded with the implementation of a
turnaround plan, which was approved by the board. It is,
however, still in its early stages of implementation and
there is a considerable gap between current levels of revenue
and profitability and those targeted in the turnaround plan.
The plan is being executed in an increasingly challenging
economic, socio-political and competitive environment and,
consequently, the turnaround is expected to take longer than
initially expected.
As part of the turnaround plan, during F2018, DAWN disposed
of its shareholdings in Swan Plastics and GDW. Of the R35
million proceeds from the disposal of Swan, R30 million has
already been received and the remaining R5 million will be
paid in April 2018. The R325 million proceeds from the
disposal of GDW is forecast to be received in December 2017,
once the transaction becomes unconditional. R100 million of
the proceeds have been ceded to ABSA in settlement of their
revolving credit facility.
Although the board has approved cash flow forecasts which it
believes to be both rational and reasonable, the ability of
the underlying businesses to meet the forecasts in the
current economic, socio-political and competitive environment
inevitably gives rise to uncertainty. If the forecasts are
not achieved, there will be a risk regarding the group’s
ability to continue as a going concern.
Having considered all the above, the board concluded, based
on the forecasts for the next 12 months and on the cash
inflows resulting from the disposal of the Swan and GDW
shares, that DAWN will be solvent and liquid for the 12
months to November 2018.
2. DISPOSAL GROUP AND OTHER ASSETS HELD-FOR-SALE
The group has taken a decision to dispose of its 49%
shareholding in Grohe DAWN Watertech. It is the group’s
intention to dispose of this investment in the near future.
30 September 30 September 31 March
2017 2016 2017
R’000 R’000 R’000
Grohe DAWN Watertech (GDW)
(a) Loss from
discontinued operations
Profits in stock – (1 125) (1 125)
Effects of call and
put options – – 3 232
Share of losses (18 352) (26 690) (54 648)
Held-for-sale
impairment (43 961) – –
Impairment – – (11 087)
Interest 191 3 2 328
Tax expense (53) 314 (337)
Total (62 175) (27 498) (61 637)
GDW Boutique
Baths
Boutique Baths was
a held-for-sale
asset in March 2017,
that was subsequently
disposed of in April 2017.
GDW was classified as
held-for-sale in
June 2017.
(a) Assets of disposal
group classified as
held-for-sale 271 327 – 6 652
(b) Liabilities of
disposal group
classified as
held-for-sale – – 1 558
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
Investment in
associates 272 220 – –
Derivative
non-current asset
financial
instrument 19 113 – –
Derivative
non-current
liability financial
instrument (6 000) – –
Loan receivable 29 953 – –
Held-for-sale
impairment (43 961) – –
Inventory – – 2 056
Cash and cash
equivalents – – 7
Other current assets – – 821
Total 271 327 – 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
3. NET GAIN ON DERECOGNITION OF INVESTMENT IN ASSOCIATES AND
SUBSIDIARIES
30 September
Date of 2017
derecognition R’000
Carrying amount of
net asset value 841
Gain on the
derecognition of
associates and
subsidiaries 12 615
Net loss on
derecognition of
investment in
Boutique Baths
Proprietary
Limited Subsidiary 28 April 2017 (320)
Net gain on sale
of shares in
Fibrex Angola
– Fabrica
deArt.De.F.b.
Sinteticas,
S.A.R.L. Associate 15 June 2017 12 248
Net gain on sale
of shares in
Aqualia DPI
Proprietary
Limited Associate 30 May 2017 687
4. 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.
COMPETITION TRIBUNAL
On 23 March 2017, the Competition Tribunal (the Tribunal)
handed down a decision in which it determined that DAWN
Consolidated Holdings Proprietary Limited (DCH), a subsidiary
of DAWN, through the wholly-owned subsidiary DPI Plastics
Proprietary Limited of DCH, engaged in a market allocation
arrangement with Sangio Pipe Proprietary Limited (Sangio), in
which DCH had a 49% interest at the time.
On 9 October 2017, DAWN formally notified the Competition
Appeal Court of its intention to appeal the Tribunal’s
decision. The Group believes, supported by legal advice that
the appeal will be successful.
5. EVENTS AFTER THE REPORTING DATE
GROHE DAWN WATERTECH (GDW)
Shareholders are referred to the announcements released on
SENS on 14 September 2017 and 18 September 2017,
respectively, wherein they were advised that DAWN had
concluded a share purchase agreement and ancillary
transaction agreements with LIXIL Corporation, the 51%
controlling shareholder of GDW.
Under the terms of the share purchase agreement, LIXIL will
acquire the remaining 49% of the issued ordinary shares in
GDW held by DAWN and GDW will repay DAWN’s shareholder loan
claim against GDW, pursuant to which DAWN will receive an
aggregate consideration of R324,5 million.
The transaction is a category 1 transaction in accordance
with the JSE Listings Requirements of the JSE therefore a
general meeting of Shareholders will be convened to propose
the requisite resolutions to implement the transaction.
Written undertakings have been procured from five
shareholders holding 72,5% of the total DAWN shares in issue
to vote the shares held by them, as of the general meeting
record date, in favour of the transaction. It is, therefore,
anticipated that the resolutions necessary to implement the
transaction will be passed at the general meeting.
Further details in respect of these written undertakings will
be included in the circular to shareholders containing the
full details of the transaction, and incorporating a notice
convening the general meeting, which will be posted to
shareholders in due course.
SWAN PLASTICS
Shareholders are referred to the announcements released on
SENS on 5 October 2017 and 20 October 2017, respectively,
whereby they were advised that DAWN Consolidated Holdings
Proprietary Limited (DCH), a wholly-owned subsidiary of DAWN,
entered into a sale of shares and claims in Swan Plastics
agreement with Michael Swanson, Phillip Cotterill and Desmond
Robins, being the minority shareholders in Swan Plastics, for
the disposal of DCH’s 51% equity shareholding in Swan
Plastics, which disposal became effective on 19 October 2017.
The purchase price for the shares and claims is R35 million,
payable in cash as follows:
– R30 million within 7 days of signature date of the sale
agreement which amount was received on 25 October 2017; and
– R5 million by 3 April 2018, which amount will bear interest
at the prime rate and will be calculated from the signature
date of the sale agreement until the date of payment.
Title to the shares and claims passed upon payment of the R30
million. Payment of the R5 million is to be secured to DAWN’s
satisfaction.
DAWN intends to use the sale proceeds towards working
capital, thereby reducing the company’s interest burden and
associated gearing levels.
As at 30 September 2017, DCH’s investment in Swan Plastics
reflected a carrying amount of R20 million.
The total profit after tax of Swan Plastics for the six
months ended 30 September 2017 amounted to R11,4 million, and
the net asset value of Swan Plastics as at 30 September 2017
amounted to R59 million.
CONDONATION OF BANK COVENANT BREACH
As announced on SENS on 27 October 2017, DAWN advised
shareholders that, as necessitated by the JSE Listings
Requirements and further to the related announcement of
2 August 2017, the group had received formal condonation from
Absa Bank Ltd (Absa) regarding a breach at the September 2017
measurement date of one of the financial covenants contained
in the group’s banking facilities.
The condonation obtained from Absa is conditional upon a
cession of R100 million of the GDW disposal proceeds in
favour of Absa and forms part of the R200 million debt
repayment envisaged from the GDW proceeds to make the group
debt free.
The circular relating to the GDW transaction announced on
14 September 2017 is expected to be distributed to
shareholders in due course and subject to the required
approvals, funds are expected to flow late in December 2017.
In addition, R30 million has been received on the disposal of
the Group’s 51% shareholding in Swan Plastics, as announced
on 5 and 20 October 2017, respectively. This cash will be
re-invested in DAWN for future growth and working capital
purposes.
6. DIVIDENDS
The Group has a policy not to pay a dividend at the interim
stage.
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), Charles Boles ^,
Theunis de Bruyn*, Dinga Mncube ^, Akhter Moosa ^, George Nakos*,
René Roos
* Non-executive ^ Independent non-executive
PREPARER: Prepared by Tintswalo Mohlakoana (CA(SA)), 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: 20/11/2017 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,
information disseminated through SENS.
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