Wrap Text
Audited Summary Consolidated Financial Results
for the year ended 31 March 2018
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 2018
GROUP STRUCTURE
Distribution and Warehousing Network Limited (“DAWN”), which is
listed on the JSE (as “DAW”), distributes quality branded
hardware, sanitaryware, plumbing, kitchen, engineering and civil
products throughout South Africa and to selected countries in the
sub-Saharan Africa. The group operates through two segments,
namely trading and manufacturing. The trading segment markets a
comprehensive range of products, sourced locally and from
imports. The manufacturing segment produces mainly PVC and HDPE
water reticulation, drainage pipe and fitting systems. A large
range of customers are served through a national footprint of
outlets under Wholesale Housing Supplies (“WHS”), (trading as
WHD, Saffer and Stability), Incledon, DAWN Africa, DAWN Kitchen
Fittings, Hamilton’s Brushware, DPI Plastics and Ubuntu Plastics.
The structure below summarises the components of the group at the
end of the 2018 financial year.
LETTER FROM EDWIN HEWITT TO ALL STAKEHOLDERS
This past financial year was a difficult year for the DAWN group,
plagued by a host of legacy issues and requiring executive
management focus on stabilising the financial position of the
company. In July 2017 I advised our shareholders that the 2018
financial year (F2018) would be the first year of a three-year
turnaround plan. This was delayed as F2018 became a year of
discovery, intense clean-up, introduction of new management
across the group and stabilisation of the business. Furthermore,
the macro environment in which we operate has continued to
deteriorate, which has obstructed efforts to restore
profitability. Our results, albeit considerably better than last
year, are worse than anticipated and disappointing, especially in
light of all the hard work that was done by my management teams
and every employee in the group over the year.
In our investor communications over the past 12 months, I
highlighted that the economy remained a significant risk to us
and that any further downturn or prolonged negative conditions
would restrict our ability to return to profitability within a
reasonable timeframe. This has been our reality. Wholesale trade
industry performance in construction materials, hardware,
plumbing and heating equipment and supplies, declined in F2018,
as did the revenue of our largest group company, Wholesale
Housing Supplies (WHS). This industry, which affects two thirds
of our business, continues to decline off an already low base and
highlights the ongoing difficult trading conditions under which
we operate. The manufacturing businesses have also continued to
struggle as a result of external factors. The BER FNB State of
the Civil Construction Industry Report for Q1 2018 reported that
the Civil Confidence Index lost seven points to register its
lowest ever level of 12.
The unmodified report of the independent auditor on the summary
consolidated financial statements contains an emphasis of matter
on material uncertainty relating to going concern. The going
concern assessment is discussed in more detail below.
The economic environment is not the only external factor that has
affected our performance. We continue to deal with challenges as
a result of changing industry dynamics. Our suppliers are
experiencing increasing competition from cheaper, good quality,
imported products. Furthermore, the loss of a key gardening
product agency in H1 and poor supply performance from a core
sanitaryware supplier in H2 significantly impeded DAWN’s
performance. We are pleased to announce that we have sourced and
introduced a new high-quality European-manufactured garden
product range, Cellfast, to South Africa. This was launched early
in F2019. We are proud to be the sole distributors of this
product range in southern Africa. We continue investigating
alternative agencies for the business to ensure our offering
remains market competitive going forward.
We knew at the beginning of the financial year that we needed to
restore liquidity to the group without delay. The R358 million
cash received from the rights offer in April 2017 was used to
reduce debt with the banks, but was not sufficient to fund the
turnaround and debt levels remained high. In H1, the executive
management team spent significant time on managing the liquidity
position, including an in-depth cash flow review and engagement
with our banks on covenant breaches and initiatives to retain our
working capital facilities and sustain operational requirements.
The sale of Grohe DAWN Watertech (GDW), Swan Plastics (as a
result of the costly put option agreed to historically) and other
smaller businesses generated R373,5 million. This allowed us to
settle our debt and provide liquidity towards funding the
turnaround. This progress is a highlight of the year as we were
able to decrease net debt to equity from 93% at the start of the
year to only 8% at year-end. In H2 the executive management of
DAWN focused on further understanding the issues in each business
at a detailed level. The deeper we delved, the more we understood
the extent of the complexities we faced. It became evident that
the turnaround required substantially more effort and that the
return to profitability would be delayed.
Attending to legacy issues relating to the ongoing Sangio Pipe
Competition Commission matter, the remediation of an employee tax
incentive claimed previously, the resolution of system/accounting
issues at Incledon, consistent management in terms of stock
obsolescence, assessment of valuation and competitiveness in
terms of outdated manufacturing equipment and dealing with
historical cost issues (for example, lease costs which arose from
a sale and lease back in previous years) continued to drain
management focus and significantly impacted the financial
performance of the group. Further details of these challenges are
provided in the results commentary. While some of the legacy
issues, such as the onerous leases and the need to invest in the
manufacturing business will continue to be a hangover in F2019, I
believe we have addressed the significant issues.
In addition to addressing the issues mentioned in this letter, we
have worked relentlessly to restore relationships with our
suppliers and customers. We have engaged with customers to
understand the market requirements, renegotiated supplier
agreements, removed unprofitable lines, undertaken a detailed
inventory and supply chain analysis and implemented remedial
improvements for our manufacturing and trading businesses. We
have vastly improved the processes and efficiencies, while
implementing further cost reductions.
We have also formed strategic partnerships with key suppliers,
introduced new in-house ranges such as iMara, increased our
proportion of imported product and increased our HDPE pipe
manufacturing plant capability.
During F2018 we identified that the group required very strong
leadership to take the business forward. To address this, new
managing directors were appointed at WHS, DPI, Incledon and
Hamilton’s Brushware. I now have a strong executive team, which
is relentlessly committed to the best outcome for all our
stakeholders.
Our focus in F2019 will be on the accelerated execution of the
turnaround plan and the refinement and implementation of the
longer-term strategy. This includes further re-engineering of the
cost base to align with the current sales reality, expanding the
product range to higher-margin products, implementing new sector
strategies and exploring new markets. The current market
conditions are expected to persist in F2019 and as a result we
anticipate another difficult financial year.
Cash flow and working capital management will be our top priority
in F2019 and we will actively manage our working capital to be
aligned to market levels. The ability to fund our short-term
liquidity requirements is dependent on the availability of
adequate funding facilities. We have made progress in securing
working capital facilities to continue to fund the operations of
the group in F2019.
As outlined throughout above, we are actively addressing the
group’s short-term challenges through appropriate actions.
I thank my management team and all our colleagues at DAWN for
their ongoing commitment and the sacrifice of their personal and
family time, with many long hours invested and resilience
displayed at every challenge we have faced. I thank our bank,
Absa, for their support over the past year and into the future. I
also thank the board and our shareholders for their rigorous
attention and continued support in securing our future.
Regards
Edwin Hewitt
Chief executive officer
12 July 2018
RESULTS COMMENTARY
for the year ended 31 March 2018
FINANCIAL REVIEW
INCOME STATEMENT
Revenue for F2018 declined by 19,1% to R3,5 billion (F2017: R4,3
billion). In H1 F2018 revenue declined by 19,8% and in H2 F2018
revenue declined by 18,3%. Volumes in F2018 declined by 19,1% and
price inflation remained flat.
The group’s strong focus on cost control has resulted in a
pleasing 21% (R258,7 million) decline in operating expenses
(administrative and selling expenses; distribution and
warehousing expenses; other operating expense), before other
operating income, impairments and derecognition, from R1 209,2
million in F2017 to R950,6 million in F2018. Expenses as a
proportion of revenue, however, increased from 23,7% in F2017 to
24,9% in F2018, due to the reduction in revenue levels. These
amounts have been adjusted for once-off costs, including
restructuring costs, impairments and write-downs. DAWN continues
to focus on cost reduction as a critical element in ensuring the
sustainability of the group.
Impairments and derecognitions amounted to R107,2 million,
comprising impairments of R132,4 million and derecognitions of
R25,2 million. Impairments consist of intangible software of
R50,5 million across the group and plant and equipment of R81,9
million in the manufacturing segment. Derecognitions consist of
the profit on disposal of Swan Plastics and Fibrex.
The reported loss before interest and tax reduced by 31,6% to
R329,8 million (F2017: R482,3 million) as the group curtailed
unprofitable business as well as unprofitable suppliers and
products.
In the first half of the year the operational loss (before
impairments and derecognitions) improved by 49,3% to R26,4
million compared to H1 2017. In the second half, however, the
loss worsened considerably to R222,6 million for F2018 compared
to R420,2 for F2017. In H2 F2018, Swan Plastics’ positive
contribution was no longer in the base. The market was also far
more competitive than in F2017 as suppliers and competitors
fought for margin in a market that turned down sharply. The
business was also negatively affected by supply disruptions.
Income from associates and joint ventures reduced from a profit
of R14,7 million in F2017 to a profit of R5,5 million in F2018.
Most businesses are not in a tax expense position. The group’s
effective tax rate, therefore, moved from 9,7% in F2017 to 2,2%
in F2018.
The loss from discontinued operations, relating to GDW, amounted
to R62,0 million in F2018 compared to R61,7 million in F2017.
Non-controlling interest expense included Swan Plastics, Ubuntu
Plastics and Hamilton’s Brushware of R5,5 million in F2018
compared to R17,3 million in F2017. The group acquired the non-
controlling interest in Hamilton’s Brushware for R6 million.
As a result of all the factors outlined above, the group’s
attributable loss improved by 34,4% to R432,0 million compared to
R658,7 million in F2017.
Due to the rights issue in April 2017, the group has 600 million
shares in issue (242 million in F2017). The average weighted
number of shares from which earnings per share and headline
earnings per share are derived is 579,7 million shares for F2018
and 330,0 million shares for F2017 (236,7 million shares plus
bonus rights issue shares). This has resulted in a loss per share
of 74,5 cents per share compared to a loss of 199,6 cents per
share in F2017. The headline loss is 49,7 cents per share for
F2018 compared to a loss of 179,0 cents per share for F2017.
STATEMENT OF FINANCIAL POSITION
Management and the board are pleased to report that the group’s
net debt declined from R367,4 million to R25,7 million at the
year-end F2018. The rights offer raised R358 million and
businesses disposed of contributed a further R373,5 million in
cash. Against this, the group repaid bridging finance of R200
million and term debt of R175 million, after paying bridging
finance and rights offer fees of R27 million. The net result was
a R28,7 million change from a R60,9 million net interest expense
in F2017 to a net interest expense of R32,2 million in F2018.
Net gearing improved from 86,8% at the end of F2017 to 8,2% at
the end of F2018. The assets disposed of in F2018 included Fibrex
(R11 million), Boutique Baths (R3 million) in H1 F2018 and Swan
Plastics (R35 million) and the remaining 49% of GDW for R324,5
million to Lixil in H2 F2018.
Property, plant and equipment decreased from R225,8 million in
F2017 to R79,1 million at year-end. Additions to plant in DPI
Plastics and Swan Plastics, as well as the vehicle fleet and
leasehold improvements, amounted to R28,7 million in F2018.
Intangible assets, mainly comprising software, amounting to R65,1
million at F2017 was impaired in full during F2018. Net working
capital days at year-end were 60 and comprised debtor days of 40
and inventory days of 59, offset by creditor days of 40. Due to
the lower revenue, inventory days increased despite an 8,0%
decrease in monetary terms. After a focused inventory clean-up,
which is still ongoing, the inventory composition is healthier
and more current than in F2017.
Accounts receivable days remained at 40 days despite a tough
economy. Creditor funding in monetary terms and days outstanding
decreased considerably as a result of creditors being paid within
terms and a reduction in purchases to align inventory to the
lower revenue levels.
The group’s net asset value decreased by 50% to 52,9 cents per
share at 31 March 2018 compared to 105,1 cents per share at 31
March 2017. Tangible net asset value decreased by 38% to 52,9
cents per share at 31 March 2018 compared to 85,3 cents per share
at 31 March 2017.
CASH FLOW STATEMENT
The proceeds of the rights offer and asset disposals enabled the
group to settle outstanding creditors and secure adequate working
capital funding in the second half of F2018.
As a result of trading losses, cash utilised in operating
activities before working capital changes was R199,6 million.
Investment in working capital amounted to R65,7 million. Net
finance charges and taxation paid amounted to outflows of R40,2
million and R15,3 million respectively, giving rise to a cash
utilisation from operating activities of R320,9 million.
Investing and net finance activities resulted in an inflow of
R248,5 million, mainly comprising inflows from the rights issue,
offset by loan, bridging and trade finance repayments as well as
the proceeds from the disposal of businesses and outflow from
capital expenditure.
Cash balances are managed on a daily basis and the management
committee meets at least bi-weekly to review the cash flow
projections.
COMPETITION COMMISSION MATTER
DAWN appealed the Competition Tribunal’s decision handed down in
respect of an allegation of market allocation arrangement
affecting DAWN Consolidated Holdings, DPI Plastics and Sangio
Pipe. On 4 May 2018, judgement was handed down in the Competition
Appeal Court. The court upheld DAWN’s appeal and set aside the
decision of the Tribunal, dismissing the complaint with costs. On
25 May 2018, DAWN received notification that the Competition
Commission had applied to the Constitutional Court for leave to
appeal against the decision of the Competition Appeal Court.
TAX MATTER
An income tax liability manifested in F2017 as a result of the
incorrect application of Employee’s Tax Incentive. DAWN used the
Voluntarily Disclosure Programme to disclose this to the South
African Revenue Service (“SARS”). Of the R45 million to be repaid
to SARS, R36 million was provided for in F2017. The matter
therefore only had a R9 million impact on the F2018 results.
RESTATEMENT
Restatements were required to correct unreconciled accounting
balances at Incledon. Further details of the errors are included
in the note relating to restatements, note 9.
PROSPECTS
Prospects have been detailed in the letter from Edwin Hewitt to
all stakeholders in the aforementioned.
The going concern assessment is included in this audited summary
consolidated financial results.
Any forward-looking statement has not been reviewed or reported
on by the company’s auditors, PricewaterhouseCoopers Inc.
CHANGES TO THE BOARD OF DIRECTORS
During the year under review:
– Edwin Hewitt was appointed as chief executive officer on
1 April 2017;
– Chris Booyens was appointed as chief financial officer on
1 May 2017;
– David Austin, chief financial officer, resigned with effect
from 30 June 2017;
– Charles Boles, independent non-executive director, and Theunis
de Bruyn, non-executive director, were appointed to the board
with effect from 20 July 2017;
– Veli Mokoena, independent non-executive director, resigned
with effect from 16 November 2017;
– Stephen Connelly, deputy executive chairman, resigned with
effect from 31 January 2018;
– Diederik Fouché, independent non-executive director and
chairman, resigned with effect from 1 March 2018; and
– following Diederik Fouche’s resignation, Theunis de Bruyn was
appointed as acting non-executive chairman, supported by Lou
Alberts as the lead independent director.
The group expresses its great appreciation for the sage advice,
time and effort contributed by the departing board members.
Events after the reporting date
Refer to note 10.
DIVIDEND
No dividend has been proposed or declared.
For and on behalf of the board of directors
Theunis de Bruyn Edwin Hewitt
Acting non-executive chairman CEO
Chris Booyens
CFO
Germiston
12 July 2018
INDEPENDENT AUDITOR’S REPORT ON THE SUMMARY CONSOLIDATED
FINANCIAL STATEMENTS
To the Shareholders of Distribution and Warehousing Network
Limited
OPINION
The summary consolidated financial statements of Distribution and
Warehousing Network Limited, set out on pages 8 to 27 of the
summary consolidated financial results, which comprise the
summary consolidated statement of financial position as at 31
March 2018, the summary consolidated income statements, the
summary consolidated statement of comprehensive income, changes
in equity and cash flows for the year then ended, and related
notes, are derived from the audited consolidated financial
statements of Distribution and Warehousing Network Limited for
the year ended 31 March 2018.
In our opinion, the accompanying summary consolidated financial
statements are consistent, in all material respects, with the
audited consolidated financial statements, in accordance with the
JSE Limited’s (JSE) requirements for summary financial
statements, as set out in note 1 to the summary consolidated
financial statements, and the requirements of the Companies Act
of South Africa as applicable to summary financial statements.
SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
The summary consolidated financial statements do not contain all
the disclosures required by International Financial Reporting
Standards and the requirements of the Companies Act of South
Africa as applicable to annual financial statements. Reading the
summary consolidated financial statements and the auditor’s
report thereon, therefore, is not a substitute for reading the
audited consolidated financial statements and the auditor’s
report thereon.
THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OUR REPORT
THEREON
We expressed an unmodified audit opinion on the audited
consolidated financial statements in our report dated 12 July
2018. That report also includes:
– A Material Uncertainty Related to Going Concern section that
draws attention to Note 1 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 R426.5m during the year ended
31 March 2018. These events or conditions, along with other
matters as set forth in Note 1 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 in
Note 1 of the summary consolidated financial statements.
– That report also includes communication of other key audit
matters. Key audit matters are those matters that, in our
professional judgement, were of most significance in our audit
of the consolidated financial statements of the current
period.
DIRECTORS’ RESPONSIBILITY FOR THE SUMMARY CONSOLIDATED FINANCIAL
STATEMENTS
The directors are responsible for the preparation of the summary
consolidated financial statements in accordance with the
requirements of the JSE’s requirements for summary financial
statements, set out in note 1 to the summary consolidated
financial statements, and the requirements of the Companies Act
of South Africa as applicable to summary financial statements.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on whether the
summary consolidated financial statements are consistent, in all
material respects, with the audited consolidated financial
statements based on our procedures, which were conducted in
accordance with International Standard on Auditing (ISA) 810
(Revised), Engagements to Report on Summary Financial Statements.
PricewaterhouseCoopers Inc.
Director: I Buys
Registered Auditor
Johannesburg
12 July 2018
PricewaterhouseCoopers Inc., 4 Lisbon Lane, Waterfall City,
Jukskei View, 2090 Private Bag X36, Sunninghill, 2157, South
Africa
SUMMARY CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2018
GROUP
Restated*
2018 2017
R’000 R’000
Revenue 3 478 626 4 300 864
Cost of sales (2 780 514) (3 541 225)
Gross profit 698 112 759 639
Operating expenses (950 592) (1 209 246)
Administrative and selling expenses (660 588) (792 639)
Distribution and warehousing
expenses (243 671) (328 396)
Other operating expenses (46 333) (88 211)
Other operating income/expense 29 923 29 393
Operating loss before impairments
and derecognitions of previously
held interests (222 557) (420 214)
Net gain on derecognition of
subsidiaries 25 178 1 202
Impairments (132 418) (63 309)
Operating loss (329 797) (482 321)
Finance income 3 230 989
Finance expenses (35 482) (61 904)
Loss after net financing costs (362 049) (543 236)
Share of profit in investments
accounted using the equity method 5 488 14 731
Loss before taxation (356 561) (528 505)
Income tax expense (7 864) (51 272)
Loss from continuing operations (364 425) (579 777)
Loss from discontinued operations (62 037) (61 637)
Loss for the year (426 462) (641 414)
(Loss)/profit attributable to:
Owners of the parent (431 967) (658 729)
Non-controlling interests 5 505 17 315
Loss for the year (426 462) (641 414)
Loss per share (cents) (74,51) (199,62)
Loss per share from continuing
operations (63,81) (180,94)
Loss per share from discontinued
operations (10,70) (18,68)
Diluted loss per share (cents) (74,51) (199,62)
Diluted loss per share from
continuing operations (63,81) (180,94)
Diluted loss per share from
discontinued operations (10,70) (18,68)
* Restatement amounts relate to the Grohe DAWN Watertech disposal
group and to accounting errors in a major subsidiary (refer
note 9).
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2018
GROUP
Restated*
2018 2017
R’000 R’000
Loss for the year (426 462) (641 414)
Other comprehensive income
Items that will not be reclassified
to profit or loss:
Effects of retirement benefit
obligations 82 91
Tax-related components (23) (25)
59 66
Items that may be subsequently
reclassified to profit or loss:
Exchange differences recycled through
profit/loss (2 479) 7 164
Exchange differences on translating
foreign operations (1 229) (1 423)
Cash flow hedging reserve (1 084) 858
Tax-related components 320 (240)
(4 472) 6 359
Total other comprehensive
(loss)/income (4 413) 6 425
Total comprehensive loss (430 875) (634 989)
Total comprehensive (loss)/income
attributable to:
Owners of the parent (436 380) (652 304)
Non-controlling interests 5 505 17 315
(430 875) (634 989)
Total comprehensive loss attributable
to equity shareholders arising from:
Continuing operations (368 838) (573 352)
Discontinued operations (62 037) (61 637)
(430 875) (634 989)
* Restatement amounts relate to accounting errors in a major
subsidiary (refer note 9).
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2018
GROUP
Restated* Restated*
2018 2017 2016
R’000 R’000 R’000
ASSETS
NON-CURRENT ASSETS
Property, plant and
equipment 79 103 225 794 236 278
Intangible assets – 65 126 66 433
Investments in associates
and joint ventures 5 756 296 261 453 496
Derivative financial
instruments – 19 115 34 380
Deferred tax assets 1 093 68 298 98 400
85 952 674 594 888 987
CURRENT ASSETS
Inventories 478 040 519 378 800 082
Trade and other
receivables 515 145 631 879 910 020
Cash and cash
equivalents 113 960 108 741 80 006
Derivative financial
instruments – 632 249
Current tax assets 788 8 107 6 300
1 107 933 1 268 737 1 796 657
Assets classified as
held-for-sale 28 380 6 652 –
Total assets 1 222 265 1 949 983 2 685 644
EQUITY AND LIABILITIES
EQUITY
Capital and reserves
attributable to equity
holders of the company
Share capital and
share premium 714 785 376 170 376 170
(Accumulated loss)/retained
income (379 345) (19 595) 639 134
Other reserves (28 884) (9 874) (5 844)
Share capital and reserves 306 556 346 701 1 009 460
Non-controlling interests 6 509 47 975 39 664
Total equity 313 065 394 676 1 049 124
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings 23 768 58 275 75 859
Derivative financial
instruments – 78 217 89 454
Deferred profit 23 422 28 749 34 076
Deferred tax liabilities 2 543 25 762 22 185
Retirement benefit obligation 4 895 5 066 5 100
Share-based payment
liabilities – 5 329 4 883
Operating lease liabilities 94 322 101 597 110 363
Trade and other payables – – 7 114
148 950 302 995 349 034
CURRENT LIABILITIES
Trade and other payables 608 403 785 735 897 669
Borrowings 25 010 448 128 357 381
Operating lease liabilities 9 606 5 204 2 776
Derivative financial
instruments 4 223 588 8 664
Bank overdraft 94 342 48 ^ –
Deferred profit 5 327 5 327 5 327
Current tax liabilities 7 643 5 694 7 728
Share-based payment
liabilities – – 7 941
754 554 1 250 724 1 287 486
Liabilities directly
associated with assets
classified as
held-for-sale 5 696 1 588 –
Total liabilities 909 200 1 555 307 1 636 520
Total equity and
liabilities 1 222 265 1 949 983 2 685 644
^ Reclassification of bank overdraft from borrowings to improve
on disclosure.
* Restatement amounts relate to accounting errors in a major
subsidiary (refer note 9).
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2018
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 2016
as reported 376 170 (5 844) 646 222 1 016 548
Restatement 1
– Incledon * – – (7 088) (7 088)
Balance at
1 April 2016
as restated 376 170 (5 844) 639 134 1 009 460
Total comprehensive
income/(loss)
for the year – 6 425 (658 729) (652 304)
(Loss)/profit for
the year – – (658 729) (658 729)
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
1 April 2017
as restated 376 170 (9 874) (19 595) 346 701
Total comprehensive
(loss)/income
for the year – (4 413) (431 967) (436 380)
(Loss)/profit for
the year – – (431 967) (431 967)
Other comprehensive
loss for the year – (4 413) – (4 413)
Dividends paid – – – –
Total contributions
by and distributions
to owners of the
company recognised
directly in equity 338 615 (14 597) 72 217 396 235
Share-based payment
– charge for
the year – (2 994) – (2 994)
Rights offer
proceeds 338 615 – – 338 615
Put option
released on sale
of Swan Plastics – – 72 217 72 217
Treasury shares
acquired through
rights offer – (8 148) – (8 148)
Derecognition through
disposal of
subsidiaries – – – –
Transactions with
non-controlling
interests – (3 455) – (3 455)
Balance at
31 March 2018 714 785 (28 884) (379 345) 306 556
Note 4
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
for the year ended 31 March 2018
Non-
control-
ling
interests Total
R’000 R’000
Balance at 1 April 2016 as reported 39 664 1 056 212
Restatement 1 – Incledon * – (7 088)
Balance at 1 April 2016 as restated 39 664 1 049 124
Total comprehensive income/(loss)
for the year 17 475 (634 829)
(Loss)/profit for the year 17 315 (641 414)
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 1 April 2017 as restated 47 975 394 676
Total comprehensive (loss)/income
for the year 5 505 (430 875)
(Loss)/profit for the year 5 505 (426 462)
Other comprehensive loss for the year – (4 413)
Dividends paid (6) (6)
Total contributions by and distributions
to owners of the company recognised
directly in equity (46 965) 349 270
Share-based payment – charge for the year – (2 994)
Rights offer proceeds – 338 615
Put option released on sale of
Swan Plastics – 72 217
Treasury shares acquired through
rights offer – (8 148)
Derecognition through disposal of
subsidiaries (44 420) (44 420)
Transactions with non-controlling
interests (2 545) (6 000)
Balance at 31 March 2018 6 509 313 065
* Restatement amounts relate to accounting errors in a major
subsidiary (refer note 9).
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2018
GROUP
2018 2017
R’000 R’000
Cash flows from operating activities
Cash (utilised in)/generated from
operations (265 361) 44 507
Finance income received 3 230 3 316
Finance expense paid (43 461) (54 751)
Income tax paid (15 393) (22 268)
Net cash generated from operating
activities (320 985) (29 196)
Cash flows from investing activities
Additions to property, plant and
equipment (20 736) (38 421)
Additions and development of
intangible assets (2 975) (13 066)
Proceeds on disposal of property,
plant and equipment 11 429 21 876
Proceeds on disposal of interest in
associate – Fibrex 10 456 27 000
Dividends received from
associates/joint ventures – College
of Production Technology 600 24 699
Loan proceeds from joint ventures
and associates – 7 592
Proceeds from disposal of investment
in Boutique Baths 3 000 –
Proceeds from disposal of investment
in Swan Plastics 35 000 –
Proceeds from disposal of Grohe DAWN
Watertech 324 500 –
Net cash generated by investing
activities 361 274 29 680
Cash flows from financing activities
Proceeds from borrowings – 964
Proceeds from bridging
finance facility – 250 000
Proceeds from rights offer 358 130 –
Costs associated with rights offer (19 514) –
Repayment of bridging finance
facility – Investec (200 000) –
Repayment of bridging finance
facility – Absa – (50 000)
Repayment of borrowings (4 578) (9 642)
Repayment of Absa facility (175 000) (25 000)
Repayment of trade finance facilities (31 958) (54 270)
Instalment sale payments (10 469) (28 742)
Finance lease payments (15 163) (18 568)
Dividends paid to non-controlling
interest holders (6) (21 969)
Treasury shares acquired (8 148) –
Acquisition of non-controlling interest (6 000) (350)
Net cash (utilised in)/generated from
financing activities (112 706) 42 423
Total cash movement for the year (72 417) 42 907
Translation effects on foreign cash
and cash equivalents balances (195) (1 344)
Cash and cash equivalents derecognised
on disposal of subsidiaries (16 463) (2 755)
Cash and cash equivalents derecognised
in held-for-sale group – (7)
Cash and cash equivalents at
beginning of the year 108 693 69 892
Cash and cash equivalents at
end of the year 19 618 108 693
SUMMARY AUDITED CONSOLIDATED SEGMENTAL ANALYSIS
for the year ended 31 March 2018
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
Head
office(1)
and other
Manufac- reconciling
Trading turing items Total
R’000 R’000 R’000 R’000
2018
Revenue 2 799 482 977 163 (298 019) 3 478 626
Depreciation
and
amortisation (16 060) (22 693) (8 196) (46 949)
Operating
(loss)/profit
before impair-
ments and
derecognition
and re-recog-
nition of
investments (97 417) (88 071) (37 069) (222 557)
Impairments and
derecognition (2 720) (70 333) (34 187) (107 240)
Operating loss
after
impairments and
derecognitions
and re-recog-
nition of
investments (100 137) (158 405) (71 255) (329 797)
Finance income 918 660 1 652 3 230
Finance expense (51 576) (27 105) 43 199 (35 482)
Share of
profit from
associates
and joint
ventures – 4 822 666 5 488
Tax expense/
(income) (69 524) (1 398) 63 058 (7 864)
Net loss after
tax from
continuing
operations (220 319) (181 426) 37 320 (364 425)
Net loss
after tax
from dis-
continued
operations – (18 352) (43 685) (62 037)
Net loss
after tax (220 319) (199 777) (6 366) (426 462)
Assets 809 371 292 701 120 194 1 222 265
Liabilities 733 119 251 037 (74 957) 909 200
Capital
expenditure(2) 10 135 21 165 326 31 627
SUMMARY AUDITED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
for the year ended 31 March 2018
Head
office
Manufac- and other Discon-
turing reconciling tinued
adjust- adjust- opera-
ments ments tions Total
R’000 R’000 R’000 R’000
2018
Revenue – – – 3 478 626
Depreciation
and amortisation – – – (46 949)
Operating
(loss)/profit
before
impairments and
derecognition
and re-recog-
nition of
investments – (20 234) 20 234 (222 557)
Impairments and
derecognition – – – (107 240)
Operating loss
after impairments
and derecog-
nitions and
re-recognition
of investments – – – (329 797)
Finance income – – – 3 230
Finance expense – (1 693) 1 693 (35 482)
Share of profit
from associates
and joint
ventures – – – 5 488
Tax expense/
(income) – 65 612 (65 612) (7 864)
Net loss after
tax from
continuing
operations – – – (364 425)
Net loss after
tax from
discontinued
operations 18 352 43 685 (62 037) (62 037)
Net loss
after tax – – – (426 462)
Assets – – – 1 222 265
Liabilities – – – 909 200
Capital
expenditure(2) – – – 31 627
SUMMARY AUDITED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
for the year ended 31 March 2018
GROUP
Head
office(1)
and other
Manufac- reconciling
Trading turing 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 amorti-
sation (17 196) (27 705) (10 038) (54 939)
Operating
(loss)/profit
before
impairments
and dere-
cognition and
re-recognition
of
investments (346 192) (20 931) (53 091) (420 214)
Impairments
and derecog-
nition (716) (60 822) (569) (62 107)
Operating loss
after
impairments and
derecognitions
and re-recog-
nition of
investments (346 908)# (81 753) (53 660) (482 321)#
Net finance
(expense)/
income (43 009) (33 967) 16 061 (60 915)
Share of
profit from
associates and
joint ventures (1 041)# 15 803 (31) 14 731#
Tax expense/
(income) 61 093 (9 446) (102 919) (51 272)
Net loss after
tax from
continuing
operations (268 228)# (171 000) (140 549) (579 777)#
Net loss after
tax from
discontinuing
operations – (61 637) – (61 637)
Net loss after
tax (268 228)# (232 637) (140 549) (641 414)#
Assets 1 202 194# 802 630 (54 841) 1 949 983#
Liabilities 1 255 378 525 380 (225 451) 1 555 307
Capital
expenditure(2) 13 079 45 076 11 787 69 942
SUMMARY AUDITED CONSOLIDATED SEGMENTAL ANALYSIS (continued)
for the year ended 31 March 2018
Head
office
Manufac- and other Discon-
turing reconciling tinued
adjust- adjust- opera-
ments ments tions Total
R’000 R’000 R’000 R’000
2017
Revenue – – – 4 300 864
Depreciation
and amorti-
sation – – – (54 939)
Operating
(loss)/profit
before
impairments and
derecognition
and re-recog-
nition of
investments (3 232) – 3 232 (420 214)
Impairments
and derecog-
nition 11 087 – (11 087) (62 107)
Operating loss
after
impairments and
derecognitions
and re-recog-
nition of
investments 7 855 – (7 855) (482 321)#
Net finance
(expense)/
income (2 327) – 2 327 (60 915)
Share of profit
from associates
and joint
ventures 55 773 – (55 773) 14 731#
Tax expense/
(income) 336 – (336) (51 272)
Net loss after
tax from
continuing
operations – – – (579 777)#
Net loss after
tax from
discontinuing
operations 61 637 – (61 637) (61 637)
Net loss
after tax – – – (641 414)#
Assets – – – 1 949 983#
Liabilities – – – 1 555 307
Capital
expenditure(2) – – – 69 942
# Restatement amounts relate to accounting errors in a major
subsidiary (refer note 9).
(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.
REPORTABLE SEGMENTS
The group is organised into two reportable segments:
– The trading segment consists of wholesale trading of hardware,
sanitaryware, bathroomware, plumbing, kitchen and other
building materials.
TRADING
– Wholesale Housing Supplies (trading as Saffer Bathroom and
Plumbing; WHDsa focusing on hardware; Stability, focusing
mainly on import products; and DAWN Kitchen Fittings
(trading as AFF and Roco)
– Incledon
– Distribution and Warehousing Network Africa (DAT) (formerly
Africa Saffer Trading (AST))
– Hamilton’s Brushware SA
– The manufacturing segment consists of manufacturing of
engineering, civil products, piping systems, valves and
related accessories.
MANUFACTURING
– DPI (trading as DPI Plastics)
– DPI International (Namibia Plastic Converters (NPC), a
major subsidiary, disclosed as held-for-sale at year-end)
– Swan Plastics (disposed of on 31 October 2017)
Management has determined that the operating segments are
sufficiently aggregated.
GENERAL
Intersegment transactions are entered into under the normal
commercial terms and conditions. The revenue from external
parties is measured in a manner consistent with that in the
income statement.
Segment assets consist primarily of property, plant and
equipment, intangible assets, investments in associates, deferred
tax assets, inventories, trade and other receivables and cash and
cash equivalents.
Segment liabilities comprise borrowings, deferred profit,
deferred tax liabilities, derivative instruments, trade and other
payables and income tax liabilities.
Capital expenditure comprises additions to property, plant and
equipment and intangibles.
The group’s reporting currency is in South African Rand. The
majority of group companies are domiciled in South Africa and
mainly serve the South African market. The result of revenue from
external customers in South Africa is R3,3 billion (2017: R4,1
billion) and the total revenue from external customers from other
countries is R160 million (2017: R243 million).
The total of non-current assets, other than financial instruments
and deferred tax assets located in South Africa, is R81,7 million
(2017: R573 million).
NOTES TO THE AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
These consolidated financial statements comprise a summary of
the audited consolidated financial statements of the group
for the 12 months ended 31 March 2018 that was approved by
the board on 12 July 2018.
The summary consolidated financial statements are prepared in
accordance with the requirements of the JSE Limited’s (JSE)
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 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, except for the adoption of new or revised
accounting standards and interpretations that became
applicable during the current period. None of these have had
a significant impact on the group’s accounting policies and
methods of computation, nor have they resulted in a
restatement or presentation of the 31 March 2017 statement
of financial position and related notes.
The preparation of the 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 provisional report and that the financial information has
been correctly extracted from the underlying annual financial
statements. The unmodified audit report by
PricewaterhouseCoopers Inc. on the underlying financial
statements is available for inspection at the company’s
registered office.
GOING CONCERN ASSESSMENT
In determining the appropriate basis of preparation of the
annual financial statements, the directors are required to
consider whether the group can continue as a going concern
for the foreseeable future, which is for the 12 months
following the date on which the annual financial statements
are signed.
DAWN posted losses for the years ended 31 March 2016 and 2017
of R770,0 million and R658,7 million, respectively, and for
the year ended 31 March 2018 reported an attributable loss of
R432,0 million.
Following the rights issue in April 2017 in which the group
raised R358 million and the subsequent disposals including
Swan Plastics and Grohe DAWN Watertech (GDW) and other
smaller businesses for a further R373,5 million, the group
repaid all its bank debt in December 2017 and is currently
not financially distressed.
To determine if the group will be a going concern for the
next 12 months, management prepared cash flows for each of
the subsidiaries and the corporate head office. These
forecasts were subjected to sensitivity tests and also
included the estimated intra-month peak funding requirements.
It was compared to available facilities to determine the
available headroom.
Management also considered the business’ ability to meet its
financial obligations for the 12 months following the
approval of the annual financial statements. The analysis
considered the current challenging market conditions, which
is negatively affecting the performance of the group, and
management’s turnaround plan being executed, including
further cost reduction and optimisation of working capital.
The resulting cash flow projections were compared to
available funding facilities.
The ability of the businesses to meet the forecasts in the
current market is an area of uncertainty. The effect of a
slow economic recovery or a further deterioration in the
economic outlook of South Africa and its potential impact
were also considered as an uncertainty.
The group’s ability to fund its short-term liquidity
requirements is dependent on the availability of adequate
funding facilities. DAWN secured an Invoice Discounting
Facility, subject to standard terms, to the value of R140
million. This facility is secured mainly by a cession of book
debtors and a general notarial bond over inventory.
Whilst the turnaround plan has been extensively actioned by
management, adverse trading conditions in the first quarter
of F2019 have resulted in operating losses. Management is
expecting continued subdued performance and is focussed on
effecting the required remedial actions and is planning to
right-size the group commensurate to activity levels. The
latter is also expected to release working capital.
Management is taking proactive steps to stem the current
losses and also has the option to dispose of further non-core
assets. These disposals have not been included in the current
forecast as no decisions have been taken to date in this
regard.
If the economy of South Africa and, as a result, the
performance of DAWN, continue to deteriorate, and/or
management is unable to stem the losses and optimise the
working capital levels, each of these present a material risk
to DAWN remaining as a going concern.
At 31 March 2018, DAWN’s assets, fairly valued, exceeded its
liabilities, fairly valued. The forecast to July 2019 also
projects that the group will be solvent. Based on the
assumptions used in the forecasts, which include no further
deterioration in the economy, and that the forecast
performance does not deteriorate, and cash is released from
working capital whilst the funding facilities remain intact,
the directors reasonably believe that the group will have
adequate resources available to continue in operation for the
following 12 months.
These matters indicate that there is a material uncertainty
related to events or conditions 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.
2. DISPOSAL GROUP
DAWN disposed of its investment in Grohe DAWN Watertech (GDW)
as at 19 December 2017 for a consideration of R324,5 million,
which consisted of R293,1 million of investment and R31,4
million of loans.
The GDW group has been treated as an asset held-for-sale
since July 2017, and has subsequently, on 21 December 2017,
been derecognised as such. The GDW group made up a
significant portion of the DAWN group’s assets and,
accordingly, the income statement results were reclassified
to discontinued operations in terms of IFRS 5.
31 March 31 March
2018 2017
R’000 R’000
Grohe DAWN Watertech (GDW)
Loss from discontinued operations
Net proceeds from disposal 293 062 –
Investment in associate derecognised
as at 1 July 2017 (272 220) –
Tax expense (65 048) –
Loss from disposal of
discontinued operation (44 206) –
Tax expense (564) (337)
Profits in stock derecognised 12 507 (1 125)
Effects of call and put options
derecognised (13 115) 3 232
Impairment – (11 087)
Interest 1 693 2 328
Share of losses for the year (18 352) (54 648)
(17 831) (61 637)
Total (62 037) (61 637)
The disposal of Grohe DAWN Watertech resulted in a
restatement of the 2017 income statement with no impact on
the statement of financial position. Refer to note 9.
3. EARNINGS PER ORDINARY SHARE
BASIC
Basic earnings per ordinary share is calculated by dividing
the profit attributable to equity holders of the company by
the weighted average number of ordinary shares in issue
during the year, excluding ordinary shares acquired by the
company, incentive shares and treasury shares.
DILUTED
Diluted earnings per ordinary share is calculated by
adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential
ordinary shares.
GROUP
2018 2017
Headline earnings (R’000)
Attributable earnings (431 967) (658 729)
Adjustment for the after-tax and
non-controlling interest
effects of: 144 037 68 017
Net profit on disposal of property,
plant and equipment (7 433) (7 256)
Impairment of intangible assets 50 527 290
Impairment of property, plant and
equipment 81 891 6 455
Impairment of other assets – 67 651
Loss from disposal of discontinued
operation 44 206 –
Tax effect on disposal of property,
plant and equipment and impairment
of intangible assets (trademarks) (34) 332
Non-controlling interest 58 1 747
Net profit on derecognition of
previously held interest (25 178) (1 202)
Headline earnings (287 930) (590 712)
Headline earnings per share (cents) (49,67) (179,01)
From continuing operations (cents) (46,59) (160,33)
Headline earnings (R’000) (270 099) (529 075)
Weighted average number of shares
in issue (’000) 579 709 329 984
From discontinued operations (cents) (3,08) (18,68)
Headline earnings (R’000) (17 831) (61 637)
Weighted average number of shares
in issue (’000) 579 709 329 984
4. SHARE CAPITAL AND SHARE PREMIUM
GROUP
2018 2017
R’000 R’000
Authorised
725 893 603 ordinary shares of
1 cent each 7 259 7 259
10 000 000 deferred ordinary shares
of 1 cent each 100 100
Balance at the end of the year 7 359 7 359
The authorised share capital of the company consists of
725 893 603 ordinary shares of 1 cent each and 10 000 000
deferred ordinary shares of 1 cent each.
Number
Number of Total
of deferred number
ordinary ordinary of
Issued shares shares shares
2018 600 372 480 – 600 372 480
2017 242 242 904 – 242 242 904
Deferred
Ordinary ordinary Share
shares shares premium Total
Issued R’000 R’000 R’000 R’000
2018 2 422 – 712 363 714 785
2017 2 422 – 373 748 376 170
DAWN concluded a renounceable rights offer for up to R358
million 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, being
7 April 2017, 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.
Rights issue costs of R19,5 million have been charged to
equity.
In terms of IAS 33 paragraph 26, an adjustment to the
weighted average number of shares in issue for the
comparative period is required as the shares were issued at a
discount to the DAWN share price on the last day to trade
(being R1,90 per share). Consequently, the comparable
comparative weighted number of shares in issue was adjusted
by 93 239 669 shares to account for the deemed dilutive
effect of the rights issue.
Shares repurchased by a subsidiary and held in treasury
through the rights offer amounted to 8 148 043 shares (2017:
Nil shares) at R1 per share, which are disclosed as a
reduction of equity in the statement of changes in equity.
During the 2015 and 2016 financial years 1 137 174 and
5 498 937 shares, respectively, were acquired in order to
cover the group’s future obligations in terms of the share
incentive schemes at a total cost of R7,02 (2015) and R5,61
(2016) per share.
The remaining unissued shares are under the control of the
directors until the next annual general meeting, subject to
the Listings Requirements of the JSE Limited.
5. 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
Level 2018 2017
R’000 R’000
ASSETS
Non-current assets
Put option – Grohe
DAWN Watertech 3 – 19 115
Current assets
Forward foreign exchange
contracts – valued at fair
value through profit/loss 2 – 632
Total assets – 19 747
LIABILITIES
Non-current liabilities
Call option – Grohe
DAWN Watertech 3 – 6 000
Written put – Swan Plastics
– financial liability 3 – 72 217
Total non-current liabilities – 78 217
Current liabilities
Forward foreign exchange
contracts – valued at fair
value through profit/loss 2 2 996 364
Forward foreign exchange
contracts – designated as
cash flow hedges 2 1 227 224
Total current liabilities 4 223 588
Total liabilities 4 223 78 805
During October 2017, Swan Plastics was disposed of for a
consideration of R35 million. The financial liability of
R72,2 million was derecognised through retained earnings in
equity.
DAWN disposed of its investment in Grohe DAWN Watertech in
December 2017 for a consideration of R324,5 million, which
consisted of R293,1 million of investment and R31,4 million
of loans. The put option and call option were derecognised
through profit and loss as the rights created with the put
and call were extinguished.
The settlement dates on open forward exchange contracts,
denominated in US Dollar (buy) and Euro (buy), range between
one and four months from 31 March 2018 (F2017: between one
and seven months from 31 March 2017).
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.
6. OPERATING LEASE LIABILITIES AND COMMITMENTS
GROUP
2018 2017
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 15 468 9 998
Total capital commitments 15 468 9 998
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
2018 2017
R’000 R’000
OPERATING LEASE LIABILITIES
Non-current 94 322 101 597
Current 9 606 5 204
103 928 106 801
The future aggregate minimum lease
payments under non-cancellable
operating leases are as follows:
No later than one year 109 583 104 981
Later than one year and not later
than five years 355 796 338 355
Later than five years 74 196 132 687
539 575 576 023
7. CONTINGENCIES
GROUP
2018 2017
R’000 R’000
Bank guarantees issued 1 745 4 898
Suretyships – 5 500
Contingent liabilities – 8 000
1 745 18 398
2018
Further to the disclosure below in 2017, DAWN appealed the
Competition Tribunal’s decision handed down in respect of an
allegation of market allocation arrangement affecting DAWN
Consolidated Holdings, DPI Plastics and Sangio Pipe. On 4 May
2018, judgment was handed down in the Competition Appeal
Court. The court upheld DAWN’s appeal and set aside the
decision of the Tribunal, dismissing the complaint with
costs. On 25 May 2018, DAWN received notification that the
Competition Commission had applied to the Constitutional
Court for leave to appeal against the decision of the
Competition Appeal Court.
2017
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.
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.
8. RELATED PARTIES
The group entered into transactions and has balances with
related parties as listed below. These include associates,
joint ventures and directors. Transactions that are
eliminated on consolidation are not included. Transactions
with related parties are effected on a commercial basis and
related party debts are repayable on a commercial basis.
The following significant transactions were carried out with
related parties:
GROUP
2018 2017
R’000 R’000
a) Sales of goods and services
Associates
Grohe DAWN Watertech 18 443 104 033
b) Purchases of goods
Associates
Grohe DAWN Watertech 311 277 529 747
c) Dividends received
Associates
Heunis Steel – 23 000
d) Discounts received
Associates
Grohe DAWN Watertech – 48 132
Year-end balances arising from
sales/purchases of goods/services
e) Trade and other receivables
Associates
Grohe DAWN Watertech – 17 762
f) Loans to other related parties
and non-controlling shareholders
Associates
Grohe DAWN Watertech * – 29 762
* Loan repaid as part of disposal
of Grohe DAWN Watertech.
g) Trade and other payables
Associates
Grohe DAWN Watertech 3 987 86 598
9. RESTATEMENT, RECLASSIFICATION AND ADDITIONAL DISCLOSURE
RESTATEMENT – INCLEDON
Restatements in the 2016 and 2017 financial years relate to
material accounting errors which occurred at a major
subsidiary of DAWN, Incledon Proprietary Limited.
During the 2016 financial year, Incledon implemented a new
Enterprise Resource Planning system. There were certain
challenges with the system implementation, including most
noteworthy the cashbook module not working properly. Due to
the limited functionality over the period, a number of staff
changes since implementation and compromised financial review
capability as a result, a number of accounting differences
occurred, which were identified in the current period, and
now required adjustment in the annual financial statements.
Errors included:
– A system processing error where certain operating expenses
were not accounted for in the income statement but
remained on the statement of financial position
– Certain expenses originating from the bank statement were
not processed to expenses in the income statement
– Inventory adjustments made correctly in 2016 was, due to
limited system functionality, not released in the income
statement in 2017 when the inventory was sold
An extensive exercise was launched to address, in particular,
the deficiencies in financial controls, system configuration
and staff continuity and knowledge. These include:
– Staff and departmental changes
– Ongoing system training for relevant staff to increase
their knowledge of the system and required applications
– Daily monitoring of processing progress and exceptions
– Amendment of the system configuration related to affected
transactions
– Implementation of various additional system-related
controls
– Implementation of a stricter delegation of authority
framework
The financial impact in the affected periods are R7,1 million
in F2016 and R21,4 million in F2017, as is shown in the
income statement, statement of financial position and
statement of changes in equity below.
RECLASSIFICATION – GROHE DAWN WATERTECH
DAWN disposed of its investment in Grohe DAWN Watertech (GDW)
as at 19 December 2017 for a consideration of R324,5 million,
which consisted of R293,1 million of investment and R31,4
million of loans.
GDW group has been treated as an asset held-for-sale since
July 2017, and has subsequently, on 21 December 2017, been
derecognised as such. The GDW group made up a significant
portion of the DAWN group’s assets and, accordingly, the
income statement results were reclassified to discontinued
operations in terms of IFRS 5.
The disposal of GDW resulted in a restatement of the 2017
income statement with no impact on the statement of financial
position.
ADDITIONAL DISCLOSURE – RIGHTS ISSUE
During April 2017, DAWN completed a rights issue whereby
358 129 576 ordinary shares were issued for a total
consideration of R358 million.
Further details, as well as the bonus element of the rights
issue, are disclosed in earnings per share (note 3) and in
share capital and premium (note 4) with the impact on
earnings per share, headline earnings per share and diluted
earnings per share being shown in the income statement below.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The effect on the statement of financial position is as
follows:
Restate-
ment
Incledon
adjust-
Reported Reported ment
2017 2016 2017
R’000 R’000 R’000
ASSETS
Current assets
Trade and other
receivables 660 325 910 020 (28 446)
1 297 183 1 796 657 (28 446)
Total assets 1 978 429 2 685 644 (28 446)
EQUITY AND LIABILITIES
Equity
Capital and reserves
attributable to equity
holders of the company
Retained income 8 851 646 222 (28 446)
Share capital and
reserves 375 147 1 016 548 (28 446)
Non-controlling
interests 47 975 39 664 –
Total equity 423 122 1 056 212 (28 446)
Current liabilities
Trade and other payables 785 735 890 581 –
1 250 724 1 280 398 –
Total liabilities 1 555 307 1 629 432 –
Total equity and
liabilities 1 978 429 2 685 644 (28 446)
Restate-
ment
Incledon
adjust-
ment Restated Restated
2016 2017 2016
R’000 R’000 R’000
ASSETS
Current assets
Trade and other
receivables – 631 879 910 020
– 1 268 737 1 796 657
Total assets – 1 949 983 2 685 644
EQUITY AND LIABILITIES
Equity
Capital and reserves
attributable to equity
holders of the company
Retained income (7 088) (19 595) 639 134
Share capital and reserves (7 088) 346 701 1 009 460
Non-controlling interests – 47 975 39 664
Total equity (7 088) 394 676 1 049 124
Current liabilities
Trade and other payables 7 088 785 735 897 669
7 088 1 250 724 1 287 486
Total liabilities 7 088 1 555 307 1 636 520
Total equity and liabilities – 1 949 983 2 685 644
CONSOLIDATED INCOME STATEMENT
The effect on the income statement is as follows:
Restate- Disposal
ment group
Incledon GDW
Reported adjust- adjust-
2017 ment ment
R’000 R’000 R’000
Cost of sales (3 523 327) (17 898) –
Gross profit 777 537 (17 898) –
Operating expenses (1 205 786) (3 460) –
Administrative and
selling expenses (790 030) (2 609) –
Other operating expenses (87 360) (851) –
Other operating
income/expense 32 625 – (3 232)
Operating (loss)/profit
before impairments and
derecognitions of
previously held
interests (395 624) (21 358) (3 232)
Impairments (74 396) – 11 087
Operating loss (468 818) (21 358) 7 855
Finance income 3 316 – (2 327)
Loss after net
financing costs (527 406) (21 358) 5 528
Share of profit in
investments accounted
using equity method (41 042) – 55 773
Loss before taxation (568 448) (21 358) 61 301
Income tax expense (51 608) – 336
Loss from continuing
operations (620 056) (21 358) 61 637
Loss from discontinued
operations – – (61 637)
Loss for the year (620 056) (21 358) –
Profit attributable to:
Owners of the parent (637 371) (21 358) –
Loss for the year (620 056) (21 358) –
Restated
2017
R’000
Cost of sales (3 541 225)
Gross profit 759 639
Operating expenses (1 209 246)
Administrative and selling expenses (792 639)
Other operating expenses (88 211)
Other operating income/expense 29 393
Operating (loss)/profit before
impairments and derecognitions of
previously held interests (420 214)
Impairments (63 309)
Operating loss (482 321)
Finance income 989
Loss after net financing costs (543 236)
Share of profit in investments
accounted using equity method 14 731
Loss before taxation (528 505)
Income tax expense (51 272)
Loss from continuing operations (579 777)
Loss from discontinued operations (61 637)
Loss for the year (641 414)
Profit attributable to:
Owners of the parent (658 729)
Loss for the year (641 414)
IMPACT ON EARNINGS AND HEADLINE EARNINGS PER SHARE
Restate- Disposal
ment group
Incledon GDW
Reported adjust- adjust-
2017 ment ment
R’000 R’000 R’000
Weighted average number of
ordinary shares in
issue (’000) 236 744 – –
Earnings per share (cents) (269,22) (6,47) –
Earnings per share from
continuing operations (269,22) (6,47) 18,68
Earnings per share from
discontinued operations – – (18,68)
Diluted earnings per
share (cents) (269,22) (6,47) –
Diluted earnings per share
from continuing
operations (269,22) (6,47) 18,68
Diluted earnings per share
from discontinued
operations – – (18,68)
Headline earnings per
share (cents) (240,49) (6,47) –
Headline earnings per
share from continuing
operations (240,49) (6,47) 18,68
Headline earnings per
share from discontinued
operations – – (18,68)
Rights
issue
bonus Restated
impact 2017
R’000 R’000
Weighted average number of ordinary
shares in issue (’000) 93 240 329 984
Earnings per share (cents) 76,07 (199,62)
Earnings per share from continuing
operations 76,07 (180,94)
Earnings per share from discontinued
operations – (18,68)
Diluted earnings per share (cents) 76,07 (199,62)
Diluted earnings per share from
continuing operations 76,07 (180,94)
Diluted earnings per share from
discontinued operations – (18,68)
Headline earnings per share (cents) 67,95 (179,01)
Headline earnings per share from
continuing operations 67,95 (160,33)
Headline earnings per share from
discontinued operations – (18,68)
CONSOLLIDATED STATEMENT OF COMPREHENSIVE INCOME
The effect on the consolidated statement of comprehensive
income is as follows:
Incledon
Reported adjust- Restated
2017 ment 2017
R’000 R’000 R’000
Loss for the year (620 056) (21 358) (641 414)
Total comprehensive loss (613 631) (21 358) (634 989)
Total comprehensive loss
attributable to:
Owners of the parent (630 946) (21 358) (652 304)
CONSOLIDATED STATEMENT OF CASH FLOWS
There is no impact on the 2017 statement of cash flows.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
The effect on the statement of changes in equity is as
follows:
Equity
attribu-
Retained table to
earnings company Total
R’000 R’000 R’000
Balance at 1 April 2016
as reported 646 222 1 016 548 1 056 212
Total comprehensive loss
for the year (637 371) (630 946) (613 471)
Loss for the year (637 371) (637 371) (620 056)
Balance at 31 March 2017
as reported 8 851 375 147 423 122
2016 – Restatement 1
Total comprehensive loss
for the year (7 088) (7 088) (7 088)
Total loss for the year (7 088) (7 088) (7 088)
2017 – Restatement 2
Total comprehensive loss
for the year (21 358) (21 358) (21 358)
Total loss for the year (21 358) (21 358) (21 358)
Balance at 1 April 2016
as restated 639 134 1 009 460 1 049 124
Total comprehensive loss
for the year (658 729) (652 304) (634 829)
Loss for the year (658 729) (658 729) (641 414)
Balance at 31 March 2017
as restated (19 595) 346 701 394 676
10. EVENTS AFTER THE REPORTING DATE
CHANGES TO THE BOARD AND DIRECTOR RESPONSIBILITIES
Shareholders are advised of the following changes to the
board and in director responsibilities in terms of paragraph
3.59 of the JSE Listings Requirements:
Lou Alberts, non-executive and lead independent director of
the company, retires from the board in his capacity as
director effective 31 July 2018. The board wishes to express
its appreciation to Lou for his long-term commitment and
valuable contribution to the company over the last 20 years,
especially in his role as lead independent director, chair of
the remuneration committee and member of the nomination
committee as well as the audit and risk committee.
Akhter Moosa, non-executive, independent director and
chairman of the audit and risk committee, resigns from the
board in his capacity as director effective 31 July 2018.
The board wishes to extend its gratitude to Akhter for his
commitment and valuable contribution to the company,
especially in his role as the chairman of the audit and risk
committee.
Effective 1 August 2018, Theunis de Bruyn’s designation will
change from acting non-executive chairman to non-executive
chairman and, as the chairman is not independent, Charles
Boles (independent non-executive director) has been appointed
as lead independent director with effect from 1 August 2018.
Charles has also been appointed as chairman of the audit and
risk committee with effect from 1 August 2018.
Dinga Mncube (independent non-executive director) has been
appointed as a trustee on the Dawn Share Trust effective
1 August 2018.
The board has commenced with the process of identifying and
appointing a third independent non-executive director to the
board and as member of the audit and risk committee.
Shareholders will be advised as soon as the appointment has
been made.
BORROWINGS
DEBTORS FACILITY
DAWN secured an Invoice Discounting Facility, subject to
standard terms, to the value of R140 million. This facility
is secured mainly by a cession of book debtors and a general
notarial bond over inventory. There are no financial
covenants applicable.
Namibia Plastic Converters Proprietary Limited (NPC)
DAWN entered into an agreement to dispose of Namibia Plastic
Converters Proprietary Limited (NPC) assets (mainly plant and
equipment) and its wholly-owned subsidiary, Franmore
Investments Proprietary Limited, for a consideration of R22,0
million, effective May 2018. The Namibian Competition
Commission approved the proposed transaction on 17 April
2018. As a result, NPC has been derecognised and classified
as held-for-sale.
DPI SIMBA LIMITED
DAWN has furthermore entered into negotiations to dispose of
its 50% interest in DPI Simba Limited for USD800 000. As a
result DPI Simba Limited has been derecognised and classified
as held-for-sale. The transaction is expected to be concluded
by September 2018.
12 July 2018
Germiston
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
REGISTERED OFFICE: Cnr Barlow Road and Cavaleros Drive, Jupiter
Ext 3, Germiston, 1401
DIRECTORS: Theunis de Bruyn (interim chairman)*, Lou Alberts ^
(lead independent director) , Charles Boles ^, Edwin Hewitt
(chief executive officer), Chris Booyens (chief financial
officer), Akhter Moosa ^, Dinga Mncube ^, 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 until 31 March 2018, with Vanessa White (chief
governance officer) being appointed as company secretary with
effect from 1 April 2018
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: 12/07/2018 05:37:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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