| Tue 10 Mar 2009, 7:30 | | DAW - Distribution and Warehousing Network Limited - Unaudited interim results |
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DAW
DAW
DAW - Distribution and Warehousing Network Limited - Unaudited interim results
for the six months ended 31 December 2008
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
("Dawn" or "the Group" or "the Company")
(Incorporated in the Republic of South Africa)
(Registration number 1984/008265/06)
Alpha code: DAW
ISIN: ZAE000018834
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
Revenue increased by 15%
Cash from operating activities increased by 74%
Headline earnings increased by 11%
CONDENSED GROUP INCOME STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 months
31 Dec 31 Dec 30 June
% 2008 2007 2008
change R`000 R`000 R`000
Revenue 15 2 219 025 1 930 408 3 935 752
Operating profit 6 235 100 222 503 411 294
Finance income 17 375 9 227 17 753
Finance expense (74 499) (44 814) (112 110)
Share of profit of
associates 26 913 9 061 35 461
Profit before
income tax 204 889 195 977 352 398
Income tax expense (48 147) (52 718) (76 532)
Profit for the
period 9 156 742 143 259 275 866
Attributable to:
Equity holders of
the Company 11 152 244 137 467 267 204
Minority interest 4 498 5 792 8 662
156 742 143 259 275 866
Included above:
Depreciation and
amortisation 23 430 21 525 38 538
Operating lease
charges 20 081 24 264 51 488
Determination of
headline earnings
Attributable profit 152 244 137 467 267 204
Adjustment for the
after-tax effect
of:
- Net reversal of
impairment of
assets - - (5 795)
- Net profit on
disposal of
property, plant
and equipment (95) (923) (455)
Headline earnings 11 152 149 136 544 260 954
STATISTICS
Number of ordinary
shares (`000)
- in issue 193 464 191 464 191 464
- held in treasury 7 726 7 726 7 726
- Share Incentive Trust 12 967 12 967 12 967
Deferred ordinary shares
in issue (`000) 2 000 4 000 4 000
Weighted average number
of shares (`000)
- for earnings per share 174 771 174 771 174 771
- for diluted earnings
per share* 187 738 187 738 187 738
Headline earnings per
share (cents) 11 87,1 78,1 149,3
Earnings per
share (cents) 11 87,1 78,7 152,9
Diluted earnings per
share (cents)* 11 81,1 73,2 142,3
Operating profit (%) 10,6 11,5 10,5
* Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
31 Dec 31 Dec 30 June
2008 2007 2008
R`000 R`000 R`000
Opening balance 747 372 515 864 515 864
Foreign currency
translation reserve (8 397) (4 740) 1 604
Attributable profit 152 244 137 467 267 204
Capital distribution - - (47 866)
Share Incentive Trust - (1 838) (2 254)
Share-based payments
reserve 6 246 6 410 12 820
Balance at end of period 897 465 653 163 747 372
CONDENSED GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 months
31 Dec 31 Dec 30 June
% 2008 2007 2008
change R`000 R`000 R`000
Cash generated
from operations 257 428 230 345 461 083
Working capital
changes 14 560 (66 678) (300 272)
Net finance
charges paid (55 992) (31 368) (89 781)
Dividends
received
- associate - - 11 123
Income tax paid (32 769) (26 979) (72 279)
Cash flow from
operating
activities 74 183 227 105 320 9 874
Cash flow from
investing
activities (115 879) (48 930) (399 982)
Cash flow from
financing
activities (69 439) (48 287) 214 417
Capital distribution - - (47 866)
(Decrease)/increase
in cash resources (2 091) 8 103 (223 557)
Cash resources at
beginning of
period (202 335) 21 222 21 222
Cash resources at
end of period (204 426) 29 325 (202 335)
CONDENSED GROUP BALANCE SHEET
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2008 2007 2008
R`000 R`000 R`000
Assets
Non-current assets 837 589 597 978 750 093
Property, plant
and equipment 340 462 261 862 307 592
Intangible assets* 272 523 233 458 249 016
Investment in associates 184 688 90 302 157 839
Deferred tax assets 39 916 12 356 35 646
Current assets 1 610 935 1 607 787 1 922 190
Inventory 750 872 712 017 780 309
Trade and other
receivables 761 210 626 865 1 052 429
Cash and cash equivalents 98 853 268 905 89 452
Total assets 2 448 524 2 205 765 2 672 283
Equity and liabilities
Capital and reserves 924 635 681 890 769 002
Ordinary shareholders`
equity 897 465 653 163 747 372
Minority interest in
equity 27 170 28 727 21 630
Non-current liabilities 232 472 261 757 202 682
Interest-bearing
liabilities 164 786 188 079 110 405
Non-interest-bearing
liabilities 18 316 43 812 44 320
Deferred tax liabilities* 49 370 29 866 47 957
Current liabilities 1 291 417 1 262 118 1 700 599
Trade and other payables 682 919 761 029 1 019 589
Current portion of
borrowings 256 737 214 058 344 587
Income tax liability 48 482 47 451 44 636
Bank overdraft 303 279 239 580 291 787
Total equity and
liabilities 2 448 524 2 205 765 2 672 283
Capital commitments 60 942 238 513 152 498
Future commitments
Operating leases 461 095 111 293 477 640
Value per share
Asset value per share
- net asset value (cents) 513,5 373,7 427,6
- net tangible asset
value (cents) 357,6 240,2 285,1
- market price (cents) 775 1 750 1 250
Market capitalisation
(R`000) 1 499 348 3 350 620 2 393 303
Net financial gearing
ratio (%)** 61,8 37,3 68,2
Current asset ratio
(times) 1,2 1,3 1,1
* Adjusted for finalisation of prior year business combinations.
** Includes cash and cash equivalents and excludes vendor and related party
finance.
SEGMENTAL ANALYSIS
Operating
profit
before Share of
finance profit of
Revenue charges associates Assets
R`000 R`000 R`000 R`000
Dec 2008 (Unaudited)
Manufacturing
division 942 740 119 055 25 789 1 217 304
Trading division 1 666 440 116 058 1 124 1 066 338
Support Services
division 97 399 15 850 - 56 529
Head office and other - (12 919) - 68 439
Consolidation and
unallocated (487 554) (2 944) - 39 914
2 219 025 235 100 26 913 2 448 524
Dec 2007 (Unaudited)
Manufacturing
division 908 900 120 421 9 061 1 039 882
Trading division 1 439 529 109 764 - 1 102 527
Support Services
division 75 576 7 202 - 35 614
Head office and other - 4 551 - 15 386
Consolidation and
unallocated (493 597) (19 435) - 12 356
1 930 408 222 503 9 061 2 205 765
June 2008 (Audited)
Manufacturing
division 1 769 318 221 775 35 461 1 145 482
Trading division 2 949 764 208 591 - 1 164 921
Support Services
division 153 375 12 759 - 36 500
Head office and other - 544 - 288 650
Consolidation and
unallocated (936 705) (32 375) - 35 647
3 935 752 411 294 35 461 2 671 200
Depreciation
Capital and
Liabilities expenditure amortisation
R`000 R`000 R`000
Dec 2008 (Unaudited)
Manufacturing
division 617 822 40 399 10 360
Trading division 440 580 9 103 5 696
Support Services
division 45 711 8 335 6 667
Head office and other 321 939 1 785 707
Consolidation and
unallocated 97 838 - -
1 523 890 59 622 23 430
Dec 2007 (Unaudited)
Manufacturing
division 737 758 33 160 15 218
Trading division 456 500 6 452 1 835
Support Services
division 25 831 8 128 4 347
Head office and other 226 469 52 125
Consolidation and
unallocated 77 317 - -
1 523 875 47 792 21 525
June 2008 (Audited)
Manufacturing
division 819 547 62 981 22 704
Trading division 457 794 11 445 5 978
Support Services
division 35 565 31 403 9 640
Other 497 779 17 216
Consolidation and
unallocated 91 513 - -
1 902 198 105 846 38 538
No secondary segmental information is disclosed as there are no separately
defined segments that will contribute more than 10% of revenue, results or
assets.
COMMENTARY
Group profile
Distribution and Warehousing Network Limited (Dawn) is listed in the
Construction and Materials - Building Materials & Fixtures sector of the JSE
Limited (JSE).
The strategy of the Group is centred on the manufacturing and wholesale
distribution of mainly local quality branded hardware, sanitaryware, plumbing,
kitchen, engineering and civil products through a national, strategically
positioned branch network in South Africa as well as in selected African
countries and Mauritius.
Dawn adds significant value to the distribution channel through its optimised
logistics services that reduce duplication and enhance efficiencies between the
production and distribution of the Group`s products.
Its subsidiary businesses complement each other`s product ranges and therefore
create significant cross-selling opportunities and a package offering. Service
functions such as warehousing, distribution and administration are shared,
allowing for maximum efficiency through economies of scale.
Results overview
The results for the six-month review period saw two distinct quarters. The first
quarter was solid, with the second quarter strongly impacted by the knock-on
effects of the global economic downturn and credit crunch, as well as delays and
cancellations in selected civil, municipal infrastructure, industrial and mining
capital projects.
Dawn`s robust business model has proven to be sustainable during these adverse
economic conditions. Whilst the Group`s trading volumes were affected, the Group
maintained positive growth in revenue, mainly supported by growth in both
building sector revenue and in infrastructure revenue. Dawn`s revenue split
comprised an estimated 52% contribution from building activities and 48% from
infrastructure projects during H1 F2009.
In building, there was sustained demand from residential refurbishment and
upgrades, rural demand growth, government low-cost housing, as well as
accommodation around new infrastructure. In infrastructure, the Group
experienced significant pressure from delays in the awarding of civil and
municipal tenders. Although this was partially offset by the growth in
engineering products, trading volumes and margins came under pressure.
During the period, the Group benefited from:
- a greater dependence on just-in-time and break-bulk delivery by merchants in
an attempt to maintain service levels against reduced levels of working capital
as well as the higher interest rate environment and tightened market liquidity;
- the weakening of the exchange rate which created import substitution
opportunities and increased export
competitiveness; and
- relatively high levels of renovation, refurbishment and upgrades in the
building industry.
Dawn`s central distribution centre in Germiston, where the warehouses of the
Gauteng businesses are consolidated, enabled the businesses to combine services
through the sharing of resources with resultant cost-saving benefits.
Financial results
Despite the impact of the downturn in the economy, Dawn delivered satisfactory
results and continued to show growth, albeit at lower levels. Revenue increased
by 15% to R2,219 billion (2007: R1,930 billion) and operating profit increased
by 6% to R235 million (2007: R223 million). A substantial portion of the revenue
of the Manufacturing division is intergroup and is eliminated on consolidation.
Attributable profit to equity holders of the Company of R152 million (2007: R137
million) was 11% higher, whereas headline earnings and earnings per share of
87,1 cents (2007: 78,1 cents) increased by 11%. The operating margin reduced to
10,6% (2007: 11,5%) due to the impact on volumes of a weaker economy and delayed
contracts, as well as Dawn and industry de-stocking in a slowing market. The
margin impact of de-stocking is not anticipated in H2.
Cash generated from operating activities, after servicing interest, increased by
74% to R183 million (2007: R105 million). This improvement was driven mainly by
improved working capital management of the Group.
In line with commitments to the market to reduce gearing, the financial gearing
ratio reduced from 68,2% recorded at 30 June 2008 to 61,8% at 31 December 2008
(31 December 2007: 37,3%). Management is focusing on restoring the Group`s
financial gearing ratio and it is therefore anticipated to moderate closer to
the target band of between 30%-40% levels by year-end.
The acquisition of the business of Roco Fittings (Pty) Limited in August 2008
(R54,9 million) as well as the settlement of the vendor financed loans of DPI
(R87 million) through funding raised from financial institutions, also impacted
gearing. Interest cover at 4,1 times reflects adequate debt service capacity.
The Group`s historic cash generative nature will also continue to assist in
reducing gearing.
Effective working capital management resulted in a total reduction in the
investment in working capital of R15 million following a working capital
absorption of R300 million to 30 June 2008. This was achieved mainly through
improved inventory management.
Accounting policies
Basis of preparation
The Board acknowledges its responsibility for the preparation of the condensed
consolidated interim financial statements. The condensed consolidated interim
financial statements for the six months ended 31 December 2008 have been
prepared in accordance with International Financial Reporting Standards (IFRS),
the interpretations adopted by the International Accounting Standards Board
(IASB), the JSE Listings Requirements and the South African Companies Act and
are presented and disclosed in compliance with International Accounting Standard
34 (IAS 34).
These condensed consolidated interim financial statements have not been reviewed
or audited by the Group`s auditors, PricewaterhouseCoopers Inc.
Accounting policies
The accounting policies adopted in the preparation of the condensed consolidated
interim financial statements are consistent with those applied in the
preparation of the annual financial statements for the year ended 30 June 2008.
The condensed consolidated interim financial statements do not include all the
information required by IFRS for full financial statements.
Goodwill and intangible assets
A latest annual impairment test on the balance of goodwill and indefinite life
trademarks has been performed at 30 June 2008. No impairment loss has occurred.
Goodwill (including those recognised as part of associates) arising from
business combinations during the review period amounted to R30,5 million. These
goodwill balances will be tested for impairment annually.
Business combinations
The financial impact of business combinations relating to Wholesale Housing
Supplies (East London) (Pty) Limited, Waterlinx Industrial and Irrigation (Pty)
Limited and Exportrade (Angola) Comercio Internacional Limitada during the prior
financial year has been finalised and has resulted in the provisional goodwill
of R5,7 million being adjusted as follows: R1,2 million to trademarks and brand
names, R2,7 million to customer relationships, a resulting deferred tax
liability of R1,1 million, an increase in initial net tangible assets and direct
cost relating to the acquisitions of R1,7 million and final goodwill of R4,6
million.
The financial impact of the business combinations during the period under review
was determined provisionally. In accordance with IFRS 3 the valuation has to be
finalised within twelve months of the respective acquisition dates.
Heunis Steel (Pty) Limited
The Group acquired a 49% interest in Heunis Steel (Pty) Limited on 1 April 2008
for a consideration of R52,7 million (including acquisition costs), resulting in
provisional goodwill of R26,5 million. This acquisition has been funded through
debt.
Roco Fittings (Pty) Limited
The Group acquired the business of Roco Fittings, a supplier of fittings to the
kitchen and furniture industries, for a purchase consideration of R54,9 million
(including acquisition costs) with effect from 7 August 2008, resulting in
provisional goodwill of R26,1 million.
The acquisition was partially settled in cash with the remaining balance of R26
million financed through the vendor.
The acquired business contributed revenue of R36,3 million and an operating
profit of R5,9 million for the five months ended 31 December 2008, and its
assets and liabilities at 31 December 2008 were R43 million and R11 million,
respectively. If the acquisition had occurred on 1 July 2008, the Group revenue
would have been R7,3 million more, and operating profit would have been R0,4
million more.
Castle King Investments 1013 (Pty) Limited
The Group acquired a 49% interest in Castle King Investments 1013 (Pty) Limited,
trading as Electroline, a pre-packaging and assembling of electrical components
business, for a consideration of R5,9 million with effect from 1 November 2008,
resulting in provisional goodwill of R4,4 million.
This acquisition will be settled in cash and the purchase consideration is
subject to the business meeting certain profit warranties.
Related party transactions
The Group companies entered into various related party transactions. These
transactions are no less favourable than those entered into with third parties
and occur on an arm`s length and commercial basis.
Events after balance sheet date
Management is not aware of any material events which occurred subsequent to the
period ended 31 December 2008. There has been no material change in the Group`s
contingent liabilities since the last financial year-end.
Prospects
The tough economic conditions are likely to continue as the consequences of the
global economic crisis take effect. However, the Group remains in good shape to
weather the storm. The Group is committed to its key strategy of backward
integration, underpinned by its integrated supply-chain model with premium
brands and balanced exposure across different industries, to counter the risks
associated with the worldwide economic climate and to sustain profit growth.
The Board remains positive about Dawn`s long-term growth prospects as:
- The Group is well positioned to have significant participation in the
infrastructure programme. Dawn`s volume growth should be further supported by
the acceleration of consequential building activity from large infrastructural
projects.
- An increased export drive on the back of the depreciating rand will result in
a broadened geographical footprint.
- Import substitution on the back of the continued currency weakness, together
with improved customer service levels, will increase the Group`s local markets.
Margin improvement will be driven through increased internal efficiencies and
optimised factory loadings and production.
Whilst the Group is cognisant of factors beyond its control, and having due
regard to the challenging global economic environment, it is management`s
objective to continue growing the business into the future.
Distribution to shareholders
As it is the Group`s policy to declare a distribution to shareholders at the
financial year-end, no interim distribution has been declared.
On behalf of the Board
LM Alberts DA Tod
Chairman Chief Executive Officer
Johannesburg
10 March 2009
The presentation to investors will be available on the Dawn website from 08:00
on 11 March 2009.
www.dawnltd.co.za
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3, Germiston
Transfer secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall
Street, Marshalltown, 2001
PO Box 61051, Marshalltown, 2107
Directors: LM Alberts* (Chairman), DA Tod (Chief Executive Officer), OS Arbee*,
JA Beukes, AS Boynton-Lee*, JAI Ferreira, GL Geldenhuis, RL Hiemstra*, AN
Kendal*, VJ Mokoena*
*Non-executive
Company secretary: JAI Ferreira
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
E-mail: info@dawnltd.co.za
www.dawnltd.co.za
Date: 10/03/2009 07:30:01 Produced by the JSE SENS Department.
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