| Tue 8 Sep 2009, 9:05 | | DAW - Distribution And Warehousing Network - Audit |
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DAW
DAW
DAW - Distribution And Warehousing Network - Audited Preliminary Results For The
Year Ended 30 June 2009 And Cautionary Announcement
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
AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2009 and cautionary
announcement
Condensed Group income statement
for the year ended 30 June
Audited Audited
% 2009 2008
Change R`000 R`000
Revenue 1 3 957 256 3 935 752
Gross profit 1 008 137 1 033 127
Net operating expenses (727 667) (621 833)
- Write-down of associate
held for sale (34 835) -
Operating profit (40) 245 635 411 294
- Finance income 27 395 17 753
- Finance expense (153 271) (112 110)
- Share of profit of
associates 30 666 35 461
Profit before income tax 150 425 352 398
Income tax expense (34 780) (76 532)
Profit for the year (58) 115 645 275 866
Attributable to:
Equity holders of the Company (58) 112 451 267 204
Minority interest 3 194 8 662
115 645 275 866
Included above:
Depreciation and amortisation 57 337 38 538
Operating lease charges 79 452 51 488
Determination of headline
earnings
Attributable profit 112 451 267 204
Adjustment for the after-tax
effect of:
- Reversal of impairment of
plant and equipment (2 608) (5 795)
- Net profit on disposal of
plant and equipment (977) (455)
- Write-down of associate
held for sale 34 835 -
Headline earnings (45) 143 701 260 954
Statistics
Number of ordinary shares (`000)
- in issue 198 576 191 464
- held in treasury 7 726 7 726
- Share Incentive Trust 12 967 12 967
Deferred ordinary shares
in issue (`000) 2 000 4 000
Weighted average number
of shares (`000)
- for earnings per share 175 975 174 771
- for diluted earnings
per share* 188 942 187 738
Headline earnings
per share (cents) (45) 81,7 149,3
Earnings per share (cents) (58) 63,9 152,9
Diluted earnings per
share (cents)* (58) 59,5 142,3
Operating profit before
write-down of associate
held for sale (%) 7,1 10,5
*Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust.
Condensed Group balance sheet
as at 30 June
Audited Audited
2009 2008
R`000 R`000
ASSETS
Non-current assets 795 151 796 763
- Property, plant and equipment 357 489 307 592
- Intangible assets* 277 373 250 686
- Investment in associates 81 253 157 839
- Deferred tax assets 49 104 35 646
- Other receivables* 29 932 45 000
Current assets 1 511 116 1 877 190
- Inventory 769 834 780 309
- Trade and other receivables* 690 260 1 007 429
- Cash and cash equivalents 51 022 89 452
Investment in associate
held for sale 70 000 -
Total assets 2 376 267 2 673 953
EQUITY AND LIABILITIES
Capital and reserves 839 700 769 002
- Ordinary shareholders` equity 821 868 747 372
- Minority interest in equity 17 832 21 630
Non-current liabilities 224 244 263 683
- Interest-bearing liabilities 93 368 110 405
- Non-interest-bearing liabilities 20 543 44 320
- Deferred profit* 59 008 61 000
- Deferred tax liabilities* 51 325 47 958
Current liabilities 1 312 323 1 641 268
- Trade and other payables* 677 864 960 258
- Current portion of borrowings 283 365 344 587
- Income tax liability 22 323 44 636
- Bank overdraft 328 771 291 787
Total equity and liabilities 2 376 267 2 673 953
Capital commitments 105 528 152 498
Future commitments
Operating leases 437 503 477 640
Value per share
Asset value per share
- net asset value (cents) 456,9 427,6
- net tangible asset value (cents) 302,7 284,2
- market price (cents) 650 1 250
Market capitalisation (R`000) 1 290 744 2 393 303
Net financial gearing ratio (%)** 71,4 68,2
Current asset ratio (times) 1,2 1,1
*Comparative figures have been adjusted to conform to changes in presentation
and classification in the current year as a result of the amendments to the
Germiston property sale and lease agreements and finalisation of prior year
business combinations.
**Includes cash and cash equivalents and excludes vendor and related party
finance.
Condensed Group Statement of changes in equity
for the year ended 30 June
Audited Audited
2009 2008
R`000 R`000
Balance at beginning of year 747 372 515 864
Foreign currency translation reserve (45) 1 604
Attributable profit 112 451 267 204
Capital distribution - (47 866)
Share Incentive Trust (643) (2 254)
Capitalisation award (34 966) -
Capitalisation award elected 34 966 -
Cash dividend paid (30 042) -
Share-based payment reserve (7 225) 12 820
Balance at the end of the year 821 868 747 372
Condensed Group cash flow statement
for the year ended 30 June
Audited Audited
2009 2008
R`000 R`000
Cash generated from operations before
working capital changes 316 393 461 083
Working capital changes 38 787 (300 272)
Net finance charges paid (117 183) (89 781)
Dividends received - associate - 11 123
Income tax paid (71 854) (72 279)
Cash flow from operating activities 166 143 9 874
Cash flow from investing activities (155 405) (399 982)
Cash flow from financing activities (56 110) 214 417
Cash dividend paid (30 042) -
Capital distribution - (47 866)
Decrease in cash resources (75 414) (223 557)
Cash resources at beginning of year (202 335) 21 222
Cash resources at end of year (277 749) (202 335)
SEGMENTAL ANALYSIS
for the year ended 30 June
Operating
profit
before Share of
finance profit of
Revenue charges associates Assets
R`000 R`000 R`000 R`000
2009
Manufacturing 1 744 240 147 943 30 577 1 148 796
Trading 2 995 766 138 178 89 1 090 656
Support Services 185 484 13 394 - 56 388
Head office and other - (47 115)* - 31 323
Consolidation and
unallocated (968 234) (6 765) - 49 104
3 957 256 245 635 30 666 2 376 267
2008
Manufacturing 1 769 318 221 775 35 461 1 145 482
Trading 2 949 764 208 591 - 1 167 675
Support Services
153 375 12 759 - 36 500
Head office and other - 544 - 288 650
Consolidation and
unallocated (936 705) (32 375) - 35 646
3 935 752 411 294 35 461 2 673 953
Depreciation
Capital and
Liabilities expenditure amortisation
R`000 R`000 R`000
2009
Manufacturing 672 645 66 363 30 435
Trading 470 484 16 388 12 153
Support Services 42 459 10 603 13 233
Head office and other 276 397 1 944 1 516
Consolidation and
unallocated 74 582 - -
1 536 567 95 298 57 337
2008
Manufacturing 819 547 62 981 22 704
Trading 460 547 11 445 5 978
Support Services 35 565 31 403 9 640
Head office and other 497 779 17 216
Consolidation and
unallocated 91 513 - -
1 904 951 105 846 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.
*Includes write-down adjustment
COMMENTARY
Group profile
Distribution and Warehousing Network Limited ("Dawn") manufactures and
distributes 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 logistics
services that reduce duplication and enhance efficiencies between the production
and distribution of the Group`s products. Through selective equity ownership,
Dawn is able to share in the value of the optimised supply-chain that is
created.
The Group`s 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
Market dynamics
Dawn experienced a tough year with the results strongly impacted by weak market
conditions, delays and cancellations of civil, municipal, industrial and mining
capital projects, as well as performance difficulties at one of its businesses,
Libra.
The industries in which Dawn operates have been affected by ongoing destocking
throughout most of the year, mainly due to a decline in resource prices and the
resultant deflationary impacts on revenue and margins of stockists. The prices
of copper, steel and PVC are however on the rise, which is expected to support
increased demand when restocking occurs in the industry supply-chain.
During the year, 53% of Group revenue came from the building sector. Despite a
sharp decline in South Africa`s recorded building activities, with building
plans approved the lowest in ten years, the Group`s performance in building was
supported by the refurbishment and upgrade market, both recorded and unrecorded.
In infrastructure, representing 47% of revenue, the Group experienced
significant pressure from delays in contracts and non-awarding of civil and
municipal tenders, specifically in terms of water and sewer-related projects.
This severely affected the performance of the Group`s major businesses of
Incledon and DPI, partially offset by growth in trading and engineering
products.
The downturn in demand from European markets impacted on the performance of the
predominantly export-based acrylic bathroom products division. This was
compounded by difficulties experienced with export quality and recovery.
Measures are being taken to reposition this business for the local market.
Internal dynamics
Against tough market conditions, Dawn focused on efficiencies, corrective action
where needed, as well as strict cost management. The Group experienced a R22
million loss in one of its manufacturing businesses, Libra, which had a negative
impact on Group results. The business` management team was restructured and
corrective action has been taken.
The creation of the Support Services division allowed the Group to implement
significant cost savings across the board. The Group`s management reporting
structure was also flattened during the year to ensure increased control and
quicker decision making. The Group`s headcount was reduced by around 10% and
capital expenditure was limited to essential spend.
Financial results
As outlined above, the downturn in the economy had a material impact on Dawn`s
results. Although revenue was maintained, with a 1% increase to R4 billion
(2008: R3,9 billion), operating profit decreased by 32% to R280 million (before
the write-down adjustment, discussed below) (2008: R411 million). A substantial
portion of the revenue of the Manufacturing division is inter-group and is
eliminated on consolidation. The Group eliminated a total of R968 million (2008:
R937 million) of inter-group revenue.
Earnings per share of 63,9 cents per share (2008: 152,9 cents per share) was 58%
lower, with headline earnings per share of 81,7 cents (2008: 149,3 cents)
decreasing by 45%. The main difference between earnings per share and headline
earnings per share related to the R35 million write-down adjustment.
The Group operating margin reduced to 7,1% (2008: 10,5%), mainly due to the
negative impact of lower volumes in a weaker economy and delayed infrastructure
contracts, compounded by the resultant destocking by Dawn and the industry. The
Trading margin was down from 7,1% to 4,6% and the Manufacturing margin decreased
from 12,5% to 8,5%.
Balance sheet management remained a priority in these tough times, with bad
debts remaining below 0,1% of revenue and cash generated from operations after
working capital increasing from R161 million to R355 million.
Net asset value of 456,9 cents (2008: 427,6 cents) per share was 6,8% higher.
Increased net finance costs of R126 million (2008: R94 million) were driven by
increased average debt of R231 million and higher average rates of funding
during the year.
The gearing ratio increased from 68,2% to 71,4%, mainly as a result of the
acquisition of the business of Roco Fittings (Pty) Limited in August 2008 (R55
million), as well as the settlement of the vendor financed loans of DPI (R87
million) through funding raised from financial institutions. This was compounded
by a negative impact on equity from write-down adjustments of R35 million and a
cash dividend of R30 million.
Management is focusing on restoring the Group`s financial gearing ratio to below
the Group`s target of 40%. In line with this commitment, management has embarked
on a programme to restructure short-term debt and reduce total interest-bearing
debt by R400 million. The Group`s historic cash generative nature will also
continue to further assist in reducing gearing.
Furthermore, during June 2009 the Board decided to dispose of the Group`s 49%
equity interest in Lasher for a cash consideration of R70 million. This resulted
in a write-down adjustment of R35 million, as the equity accounted investment of
R105 million was reclassified to "held for sale". The proceeds of this disposal,
which will flow on 30 September 2009, will be applied in settling a significant
portion of the Group`s interest-bearing debt.
Interest cover at 2,2 times and a debt service (including total capital and
interest repayments) covered by free cash flow generated by the Group in the
financial year of 1,4 times reflect adequate debt service capacity. This is
expected to improve strongly in the short-term as the Group is in the process of
a total debt restructure programme.
Effective working capital management resulted in a total reduction in the
investment in working capital of R39 million following a working capital
absorption of R300 million to 30 June 2008. This was achieved mainly through
improved inventory management and a strong focus on credit control.
Basis of preparation
The Board acknowledges its responsibility for the preparation of the condensed
consolidated financial statements for the year ended 30 June 2009 in accordance
with IAS 34: Interim Financial Reporting, JSE Limited Listings Requirements and
the South African Companies Act.
The Group financial results from which these condensed financial statements were
derived have been prepared on the historical cost basis excluding financial
instruments which are fair valued and conform to International Financial
Reporting Standards (IFRS).
The accounting policies are consistent with those applied in the prior year. The
condensed consolidated financial statements do not include all the information
required by IFRS for full financial statements.
Certain comparative items relating to the June 2008 balance sheet have been re-
classified to conform with amendments to the Germiston property sale and lease
agreements and finalisation of prior year business combinations in the current
year.
These results have been audited by PricewaterhouseCoopers Inc. Their unqualified
audit report is available for inspection at the Company`s registered office.
Business combinations
The financial impact of business combinations relating to Wholesale Housing
Supplies (East London) (Pty) Limited, Waterlinx Industrial and Irrigation (Pty)
Limited and Africa Swiss Trading Limitada (formerly Exportrade (Angola) Comercio
Internacional Limitada) during the prior financial year was finalised and
resulted in the provisional goodwill of R5,7 million being adjusted as follows:
R1,2 million to trademarks, R2,7 million to customer relationships, a deferred
tax liability of R1,1 million, an increase in initial net tangible assets and
direct costs relating to the acquisitions of R1,7 million and final goodwill of
R4,6 million.
Acquisition of the business of Roco Fittings
The Group acquired the business of Roco Fittings on the effective date of 7
August 2008 and was integrated with Amalgamated Fasteners and Fittings Group
(Pty) Limited from date of acquisition to further enhance synergies and cost
savings. These two entities were combined to form the Dawn Kitchen Division. The
business was acquired for a total purchase consideration of R55,1 million. The
fair value of assets and liabilities acquired amounted to R35,1 million and
resulted in goodwill of R20 million.
Roco Fittings contributed revenue of R68,4 million and an operating profit of
R7,9 million for the period ended 30 June 2009. Its assets and liabilities at
year-end were R39,9 million and R15,3 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 R0,8 million (including acquisition costs) on 1
November 2008.
Events after balance sheet date
Mr G Geldenhuis resigned as an executive director of the Company with effect
from 1 August 2009.
The Group entered into an agreement to dispose of its interest in Halsted
Investments (Lasher) with effect from 1 August 2009, as stated above.
Management is not aware of any material events that occurred subsequent to the
year-end, other than as outlined above. There has been no material change in the
Group`s contingent liabilities since the financial year-end.
Prospects
Whilst no meaningful recovery is expected from building-related activities
before the start of the new calendar year, the lower interest rate environment
should contribute to an improvement in consumer confidence and the general
trading environment. With the successful conclusion of the election and settling
down and positioning of central and local government decision-making powers, it
is anticipated that government spend on water and sewer, as well as housing
projects will support increased demand in this sector over the next financial
year.
The Board expects market conditions to remain under pressure over the short- to
medium-term, but is confident that underlying fundamentals will continue to
improve as a result of:
- more accessible funding for customers due to the relaxing of
lending criteria by financial institutions;
- speculative restocking by merchants to take advantage of
anticipated inflationary pricing, driven by price increases of
raw materials;
- an improvement in investor confidence from significantly
reduced interest rates; and
- increased pressure on government to deliver on infrastructure
and housing requirements.
The Group therefore continues to be well positioned to benefit from gradual
improvement in market conditions. The Board remains cautiously optimistic about
earnings for the first half of the new financial year, with better prospects
expected mainly from the second half of the new financial year.
Dividend
The Board considers it prudent to conserve cash and does not propose a dividend
in respect of the 2009 financial year.
On behalf of the Board
LM Alberts DA Tod
Chairman Chief Executive Officer
Johannesburg
8 September 2009
The presentation to investors will be available on the Dawn website from 08:00
on 9 September 2009.
www.dawnltd.co.za
CAUTIONARY ANNOUNCEMENT
Shareholders are advised that Dawn has entered into negotiations for the raising
of a R250 million convertible debt instrument as part of the Group`s debt
reduction programme, the conclusion of which is imminent. If successfully
concluded, this may have an effect on the price of the Company`s securities.
Accordingly, shareholders are advised to exercise caution when dealing in the
Company`s securities until a detailed announcement is made.
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3,
Germiston, 1401
Transfer secretaries: Computershare Investor Services (Proprietary) 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,
RL Hiemstra*, AN Kendal*, VJ Mokoena*
*Non-executive
E-mail: info@dawnltd.co.za
Company secretary: JAI Ferreira
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
Date: 08/09/2009 07:48:51 Produced by the JSE SENS Department.
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