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HWW
HWW
HWW - Hardware Warehouse Limited - Unaudited interim results for the six months
ended 31 December 2009
Hardware Warehouse Limited
Incorporated in the Republic of South Africa
(Registration number: 2007/004302/06)
Share code: HWW ISIN: ZAE000104253
("the group")
UNAUDITED INTERIM RESULTS For the six months ended 31 December 2009
Group revenue up 20,02%
Group HEPS down 11,19 cents
Group NTAV up 2,84%
Company operating profit down 60,37%
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
six months six 12 months
to months to
to
31 31 30
December December June
2009 % 2008 2009
R`000 change R`000 R`000
Revenue 198 894 20,02 165 711 317 067
Cost of sales (159 054) 24,70 (127 547) (243 204)
Gross profit 39 840 4,39 38 164 73 863
Other operating income 221 (40,43) 371 3
Depreciation (2 255) 66,42 (1 355) (3 432)
Operating leases (5 199) 50,22 (3 461) (8 845)
Employee benefits (17 237) 44,12 (11 960) (28 568)
Other expenses (12 115) 27,16 (9 527) (18 712)
Operating profit 3 255 (73,39) 12 232 14 309
Investment income 382 203,17 126 578
Finance costs (3 322) 214,58 (1 056) (3 262)
Profit before taxation 315 (97,21) 11 302 11 625
Taxation (150) (95,28) (3 180) (3 301)
Total comprehensive income
for the period 165 (97,97) 8 122 8 324
Profit attributable to:
Owners of the parent 165 (97,97) 8 122 8 324
Non-controlling interest - - - -
Total number of shares in
issue (`000) 77 900 - 77 900 77 900
Weighted average number of
shares in issue (`000) 70 217 - 71 150 70 217
Earnings per share (cents)
0,23 (97,98) 11,42 11,85
Headline earnings per
share (cents) 0,23 (97,98) 11,42 11,86
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited Audited
six six 12 months
months months to
to to
31 31 30 June
December December
2009 % 2008 2009
R`000 change R`000 R`000
Profit attributable to
owners of the parent 165 8 122 8 324
Re-measurements - - (3)
After tax profit on sale
of property, plant and - - (3)
equipment
Tax effect of re- - - 1
measurements
Headline earnings 165 8 122 8 322
Earnings per share (cents) 0,23 (97,98) 11,42 11,85
Headline earnings per
share(cents) 0,23 (97,98) 11,42 11,86
CONDENSED OPERATING SEGMENT INFORMATION
Unaudited Unaudited Audited
six six 12 months
months months to
to to
31 31 30
December December June
2009 % 2008 2009
R`000 change R`000 R`000
Revenue:
Hardware Warehouse Limited 164 329 0,28 163 878 292 131
On Tap
Border(Proprietary)Limited 35 135 1 816,80 1 833 26 475
Inter segment (570) 100,00 - (2 164)
Other operating segments - - - 625
198 894 20,02 165 711 317 067
Operating profit:
Hardware Warehouse Limited 4 850 (60,37) 12 239 15 766
On Tap
Border(Proprietary)Limited (2 293) 32 (7) (1 450)
657,14
Other operating segments 698 100,00 - (7)
3 255 (73,39) 12 232 14 309
CONDENSED GROUP STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Notes six months six months 12 months
to to to
31 December 31 December 30 June
2009 2008 2009
R`000 R`000 R`000
Cash generated by 6 586 14 474 11 936
operations
Operating profit 3 255 12 232 14 309
Non-cash items 2 576 1 135 3 754
1
Working capital changes 755 1 107 (6 127)
2
Finance costs (3 322) (1 056) (3 262)
Taxation paid (733) (2 941) (6 560)
Cash effect of operating
activities 2 531 10 477 2 114
Cash effect of investing
activities (2 041) (8 870) (24 079)
Purchase of property,
plant and equipment and
intangible assets (2 423) (8 996) (22 555)
Proceeds on disposal of
property, plant and - - 115
equipment
Acquisition of - - (2 217)
operations
Other investment 382 126 578
activities
Cash effect of financing
activities (4 771) 7 932 19 821
Share buy-back - (1 619) (1 691)
Other financing (4 771) 9 551 21 512
activities
Net cash change for (4 281) 9 539 (2 144)
period
Cash at beginning of (11 064) (8 920) (8 920)
period
Net cash at end of (15 345) 619 (11 064)
period
NOTES:
1.Non-cash items:
Depreciation of
property, plant and
equipment 2 255 1 355 3 432
Loss on disposals of
property, plant and
equipment - - 4
Movement in long-term
share 102 - 176
incentives
Movement in fixed
escalation operating
lease 219 (220) 142
accrual
2 576 1 135 3 754
2.Working capital
changes:
Inventories 4 549 (10 445) (17 388)
Trade and other (6 358) (3 435) (7 655)
receivables
Trade and other 2 564 14 987 18 916
payables
755 1 107 (6 127)
CASH AND CASH EQUIVALENTS INCLUDE THE FOLLOWING FOR THE PURPOSES OF THE
STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
six months six months 12 months
to to to
31 31 30 June
December December
2009 2008 2009
R`000 R`000 R`000
Cash and cash 151 3 741 2 197
equivalents
Bank overdraft (15 496) (3 122) (13 261)
(15 345) 619 (11 064)
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
at at at
31 31 30
December December June
2009 2008 2009
R`000 R`000 R`000
ASSETS
Non-current assets 45 310 28 792 43 350
Property, plant and 30 804 16 958 30 668
equipment
Intangible assets 11 740 11 834 11 708
Related entity loans 874 - -
Deferred tax 1 892 - 974
Current assets 88 160 78 779 88 397
Inventories 68 324 65 930 72 873
Trade and other 19 685 9 108 13 327
receivables
Cash and cash equivalents 151 3 741 2 197
Total assets 133 470 107 571 131 747
EQUITY AND LIABILITIES
Shareholders` equity 36 003 35 430 35 736
Capital and reserves
attributable 36 003 35 430 35 736
to equity holders
Non-controlling interest - - -
Non-current liabilities 22 867 15 091 26 242
Borrowings 21 754 12 452 23 557
Deferred taxation - 72 -
Related entity loans - 2 036 1 791
Fixed escalation operating
lease 1 113 531 894
accrual
Current liabilities 74 600 57 050 69 769
Trade and other payables 53 544 47 053 50 980
Other current liabilities 5 560 6 875 5 528
Bank overdraft 15 496 3 122 13 261
Total liabilities 97 467 72 141 96 011
Total equity and liabilities 133 470 107 571 131 747
Net asset value per share 46,22 45,48 45,87
(cents)
Net tangible asset value per
share (cents) 31,15 30,29 30,84
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited six Unaudited six Unaudited for the
months ended months ended year ended
31 December 2009 31 December 2008 30 June 2009
R`000 R`000 R`000
Balance at 35 736 28 927 28 927
beginning of July
Share buy-back - (1 619) (1 691)
Profit for the 165 8 122 8 324
period
Long term share 102 - 176
incentives
Balance at end of 36 003 35 430 35 736
December/June
CONDENSED COMPANY STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
six months six months 12 months
to to to
31 31 30
December December June
2009 % 2008 2009
R`000 change R`000 R`000
Revenue 164 329 0,28 163 878 292 131
Cost of sales (132 136) 4,77 (126 120) (223 631)
Gross profit 32 193 (14,74) 37 758 68 500
Other operating
income 14 (73,08) 52 3
Depreciation (2 020) 49,08 (1 355) (3 138)
Operating (4 791) 38,43 (3 461) (7 831)
leases
Employee (12 292) 2,78 (11 960) (25 354)
benefits
Other expenses (8 254) (6,15) (8 795) (16 414)
Operating 4 850 (60,37) 12 239 15 766
profit
Investment 1 549 1 159,35 123 1 592
income
Finance costs (2 712) 156,82 (1 056) (3 153)
Profit before
taxation 3 687 (67,39) 11 306 14 205
Taxation (1 044) (67,16) (3 179) (4 022)
Total
comprehensive
income for the 2 643 (67,48) 8 127 10 183
period
CONDENSED COMPANY STATEMENT OF CASH FLOWS
Notes Unaudited Unaudited Audited
six months six months 12 months
to to to
31 December 31 30
December June
2009 2008 2009
R`000 R`000 R`000
Cash generated by 9 885 5 543 26 129
operations
Operating profit 4 850 12 239 15 766
Non-cash items 2 263 1 135 3 460
1
Working capital changes 2 772 (7 831) 6 903
2
Finance costs (2 712) (1 056) (3 153)
Taxation paid (593) (2 946) (6 589)
Cash effect of operating
activities 6 580 1 541 16 387
Cash effect of investing
activities 860 (3 852) (8 773)
Purchase of property, plant
and equipment and (776) (3 930) (6 574)
intangible assets
Proceeds on disposal of
property, plant and 87 - 115
equipment
Acquisition of operations - (45) (3 906)
Other investment activities 1 549 123 1 592
Cash effect of financing
activities (11 089) (800) (7 259)
Share buy-back - (1 673) (1 691)
Other financing activities (11 089) 873 (5 568)
Net cash change for period (3 649) (3 111) 355
Cash at beginning of period (8 557) (8 912) (8 912)
Net cash at end of period (12 206) (12 023) (8 557)
NOTES:
1 Non-cash items:
Depreciation of property,
plant and equipment 2 020 1 355 3 138
Loss on disposals of
property, - - 4
plant and equipment
Movement in long-term
share 102 - 176
incentives
Movement in fixed
escalation operating
lease 141 (220) 142
accrual
2 263 1 135 3 460
2 Changes in working
capital:
Inventories 6 559 (1 586) (5 573)
Trade and other
receivables (2 224) (1 519) 13
Trade and other payables (1 563) (4 726) 12 463
2 772 (7 831) 6 903
CASH AND CASH EQUIVALENTS INCLUDE THE FOLLOWING FOR THE PURPOSES OF THE
STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
six months six months 12 months
to to to
31 31 30 June
December December
2009 2008 2009
R`000 R`000 R`000
Cash and cash 151 3 717 1 798
equivalents
Bank overdraft (12 357) (15 740) (10 355)
(12 206) (12 023) (8 557)
CONDENSED COMPANY STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
at at at
31 31 30
December December June
2009 2008 2009
R`000 R`000 R`000
ASSETS
Non-current assets 65 724 38 075 60 164
Property, plant and 13 618 14 239 14 982
equipment
Available-for-sale 3 864 - 3 862
investments
Related entity loans 38 482 14 308 31 580
Deferred tax 200 - 212
Intangible assets 9 560 9 528 9 528
Current assets 62 516 67 963 68 498
Inventories 54 499 57 072 61 058
Trade and other 7 866 7 174 5 642
receivables
Cash and cash equivalents 151 3 717 1 798
Total assets 128 240 106 038 128 662
EQUITY AND LIABILITIES
Total equity 48 842 43 874 46 097
Capital and reserves
attributable 48 842 43 874 46 097
to equity holders
Non-current liabilities 18 522 14 798 22 544
Borrowings 17 487 14 195 18 835
Deferred taxation - 72 -
Related entity loans - - 2 815
Fixed escalation operating
lease 1 035 531 894
accrual
Current liabilities 60 876 47 366 60 021
Other current liabilities 5 569 4 297 5 156
Trade and other payables 42 950 27 329 44 510
Bank overdraft 12 357 15 740 10 355
Total liabilities 79 398 62 164 82 565
Total equity and liabilities 128 240 106 038 128 662
Net asset value per share 62,70 56,32 59,17
(cents)
Net tangible asset value per
share (cents) 50,43 44,09 46,94
CONDENSED COMPANY STATEMENT OF CHANGES IN EQUITY
Unaudited six Unaudited six Unaudited for the
months ended months ended31 year ended30 June
31 December 2009 December 2008 2009
R`000 R`000 R`000
Balance at 46 097 37 429 37 429
beginning of July
Share buy-back - (1 682) (1 691)
Profit for the 2 643 8 127 10 183
period
Long term share 102 - 176
incentives
Balance at end of 48 842 43 874 46 097
December/June
NOTES TO THE CONDENSED INTERIM RESULTS
For the six months ended 31 December 2009
1) BASIS OF PEPARATION
The condensed interim consolidated financial results ("interim results") have
been prepared in accordance with International Financial Reporting Standards
("IFRS"), the Companies Act, 1973 (Act 61 of 1973), as amended, ("the Act") and
the Listings Requirements of the JSE Limited ("Listings Requirements"). These
interim results contain the information required in terms of IAS 1 -
Presentation of Financial Statements and IAS 34 - Interim Financial Reporting.
The interim results incorporate accounting policies which have been consistently
applied with those in the annual financial statements of the group for the year
ended 30 June 2009.
The board of directors ("the Board") acknowledges its responsibility for the
preparation of the interim results in accordance with IFRS, the Act, and the
Listings Requirements.
The interim results have not been audited or reviewed by the group`s auditors.
2) COMMENTARY ON RESULTS
The group is divided into two main businesses being, Hardware Warehouse Limited
("the company") and On-Tap Border (Proprietary) Limited ("On-Tap Border"). The
recession and the economic climate under which the businesses traded during the
six months to December 2009 had a severe negative impact on the results of the
group. Even though the number of stores in the group did not increase during the
period under review, no stores were closed during this difficult recessionary
period either.
a) Hardware Warehouse Limited
The company is a retailer of low cost building materials and associated
products. Notwithstanding the fact that the company caters to predominantly cash
paying customers, the depth of the recession has impacted severely on its
earnings.
The effect on earnings is attributed to the following factors -
Revenue
Revenue increased marginally to R164.3 million in the reporting period from
R163.9 million in the previous corresponding period. However, the recession has
affected employment to the extent that remittances of earnings in the rural
markets within which the company operates have been negatively impacted. In
addition, the political instability in the Eastern Cape during this period led
to a negative decline in government and municipal tendering around service
delivery areas.
Gross profit margin
The sector within the building material industry under which the company
operates experienced approximately 0.5% product inflation during the six months
to December 2009, thereby having a substantial effect on gross profit margin.
This inflationary impact accounted for 1% of the comparable drop in the gross
profit margin from 23% to 19.6%. A further 1.5% of this negative adjustment in
gross profit margin was due to a dramatic increase in the cement content of
sales versus other products. Cement has very little or no gross profit margin
and large changes in the mix of sales therefore affects the overall gross profit
margin substantially. The current period`s mix of sales is more representative
of the normal position. The increase in the sales mix of cement was as a result
of cement producers` capacity problems during the last half of the 2008 calendar
year. The balance of the decline is attributed to lower margins required to
retain sales in a highly competitive market, especially during a recessionary
period.
Overheads
The company has, since its listing in 2007, adhered to its objectives as a
growth company, operating in what will remain a rewarding market segment. Group
revenue of R102 million for the six months to 31 December 2007 has increased to
R199 million for the six months to 31 December 2009.
Prior to the commencement of the economic downturn, the company strategically
increased management, infrastructure and capacity in anticipation of
substantiate store growth in the two new provinces, Kwa-Zulu Natal and
Mpumalanga, where it had established single branch footholds. The resultant
additional expenditure was mainly in personnel, specifically internal auditing,
purchasing, central ordering, IT and accounting departments. A senior operations
manager and store development team were also appointed. These services
departments are now well positioned and have the appropriate capacities for the
company`s next phase of expansion which is anticipated to occur during the
course of the following twelve months.
The Board decided to limit cost cutting of these additional expenses in favour
of the ability to take advantage of growth opportunities once the recession
recedes.
The store growth in the provinces of Kwa-Zulu Natal and Mpumalanga will feed
positively into the 2011 financial year.
b) On-Tap Border
The subsidiary, On-Tap Border, that operates under the Hardware Warehouse Group
of companies, is a Franchisee of the National Franchisor "On-Tap". These
reported financial results are for the four branches in the Border area of the
Eastern Cape only, and do not represent financial results of the National
Franchisor or any of the other 36 franchisees nationally.
The operating loss of R2.3 million by On-Tap Border for the period under review
has negatively affected the group`s interim results. This financial position is
largely due to the costs associated with the turnaround measures identified at
the time of the acquisition of On-Tap Border franchised area. However, the
recessionary period clearly amplifies the negative effects of a turnaround
strategy subsequent to an acquisition.
Management has now completed the restructuring of the plumbing retail business
and all indicators for the first ten weeks of the second half of the financial
year are that the changes are producing positive results, both in revenue and
earnings.
3) PROSPECTS FOR THE FUTURE
Notwithstanding the effects of the recession on earnings, the Board is satisfied
with the group`s progress in continuing with its growth strategy. Whilst the
Board is cognisant of the effects on earnings of growing a business through a
recession, the Board is also cognisant that "staying the course" will result in
benefits in the short to medium term.
The group is now well poised to substantially increase store count and store
geographic spread, and to bring to book the synergies of the On-Tap Border
acquisition. The group believes this growth will be well supported by the
additional personnel, capacities and infrastructure acquired prior to, and
retained during, the recession.
The group remains optimistic about the future performance of new and expanded
departments such as Importing and Government Tendering.
4) CASH FLOW
The cash flow position during the period under review was under pressure due to
sales being flat and increased overheads.
However, the effect of low group profits on cash flow was compensated by a large
reduction in stock levels that were higher during past inflationary periods.
Correct stock level management, which remains a strong focus of the business,
enabled the group to continue paying suppliers on time to ensure discounts and
rebates were not affected.
Re-gearing of fixed property in the new year, which was previously impossible
due to turmoil in the banking industry, will ensure that growth prospects can be
funded. This is expected to inject cash into the system by the end of April
2010.
5) DIVIDENDS
The Board has made a decision that no dividend will be declared for the period
under review.
6) DIRECTORATE
There have been no changes to the Board during the period under review.
7) SUBSEQUENT EVENTS
The Board is not aware of any material matters or circumstances arising since
the end of the interim period and up to the date of this report.
8) APPRECIATION
The commitment and dedication of our management team and staff, coupled with
numerous service providers, have ensured that our results remained in a
profitable position during relatively hard times. We would also like to thank
the group`s board members and advisers for guidance over the past year and look
forward to the year ahead with enthusiasm.
IMJ Senar
Executive Chairman
SC Miller
Chief Executive Officer
26 March 2010
REGISTERED OFFICE:
17 Vincent Road
Vincent
East London
5247
Telephone: +27-43-726 6341
Fax: +27-43-726 8131
Website: www.hwwh.co.za
Email: finance@hwwh.co.za
DIRECTORS:
Ivan Merrick John Senar (Executive Chairman), Shaun Craig Miller (Chief
Executive Officer), Lesley Ann Rhind (Financial Director), Neville Errol
Woollgar (Non-Executive Director), Hamilton Anthony Long (Non-Executive
Director)
COMPANY SECRETARY:
Charteris & Barnes Administrative Services cc
DESIGNATED ADVISER:
Merchantec Capital
For further information, please contact Shaun Miller on +27-43-726
6341
Date: 26/03/2010 11:00:01 Produced by the JSE SENS Department.
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