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HWW
HWW
HWW - Hardware Warehouse Limited - Reviewed provisional results for the year
ended 30 June 2010
Hardware Warehouse Limited
Incorporated in the Republic of South Africa
(Company registration no: 2007/004302/06)
Share code: HWW ISIN: ZAE000104253
("Hardware Warehouse" or "the group")
REVIEWED PROVISIONAL RESULTS for the year ended 30 June 2010
Group revenue up 20.09%
Hardware Warehouse business revenue up 6.65%
Group gross margin is 19%
Headline loss per share is 10.16 cents
Hardware Warehouse business net asset value up to R50 million
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
COMPANY GROUP
Reviewed Audited Reviewed Audited
12 12 12 12
months months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2010 2009 2010 2009
R`000 R`000 R`000 R`000
Revenue 311 551 292 131 380 764 317 067
Cost of sales 252 081 223 631 308 652 243 204
Gross profit 59 470 68 500 72 112 73 863
Other operating income 311 3 479 3
Administration expenses 2 095 2 463 3 202 2 719
Personnel costs 24 815 25 354 34 659 28 392
Operating expenses 27 398 24 920 36 868 28 446
Profit / (loss) from operations
5 473 15 766 (2 138) 14 309
Investment income 4 405 1 592 635 578
Finance costs 4 793 3 153 5 649 3 262
Profit / (loss) before taxation
5 085 14 205 (7 152) 11 625
Taxation 1 387 4 022 1 580 3 301
Profit / (loss) for the year
attributable to equity holders
3 698 10 183 (8 732) 8 324
Other comprehensive income
173 176 173 176
Total comprehensive income /
(loss) for the year attributable
to equity holders
3 871 10 359 (8 559) 8 500
Earnings / (loss) per share
(expressed in cents per share)
- basic and diluted (loss) /
earnings per share
(11.21) 11.85
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 June 2010
COMPANY GROUP
Reviewed Audited Reviewed Audited
2010 2009 2010 2009
R`000 R`000 R`000 R`000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment
12 716 14 982 29 857 30 668
Goodwill 9 483 9 528 11 663 11 708
Related party loans 43 056 31 580 - -
Investments in subsidiaries
3 862 3 862 - -
Deferred tax 158 212 878 974
69 275 60 164 42 398 43 350
CURRENT ASSETS
Inventories 51 579 61 058 66 634 72 873
Trade and other receivables
7 039 5 642 13 829 13 327
Cash and cash equivalents 3 661 1 798 3 780 2 197
62 279 68 498 84 243 88 397
TOTAL ASSETS 131 554 128 662 126 641 131 747
EQUITY AND
LIABILITIES
EQUITY
Share capital 16 16 14 14
Share premium 17 798 17 798 9 300 9 300
Share based payment reserve
349 176 349 176
Retained earnings 31 802 28 104 17 514 26 246
49 965 46 094 27 177 35 736
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing borrowings
16 417 18 835 24 839 23 557
Related party loans 480 2 815 396 1 791
Deferred tax - - 84 -
16 897 21 650 25 319 25 348
CURRENT LIABILITIES
Interest bearing borrowings
2 630 3 376 3 339 3 678
Operating lease accruals
1 106 894 1 297 894
Taxation payable 2 507 1 780 2 594 1 849
Provisions 2 998 2 737 2 998 2 737
Related party loans - - 7 -
Trade and other payables
40 003 41 776 46 868 48 244
Bank overdraft 15 448 10 355 17 042 13 261
64 692 60 918 74 145 70 663
TOTAL LIABILITIES 81 589 82 568 99 464 96 011
TOTAL EQUITY AND LIABILITIES
131 554 128 662 126 641 131 747
NET ASSET VALUE PER SHARE (CENTS)
64.14 59.17 34.89 45.87
TOTAL NET ASSET VALUE 49 965 46 094 27 177 35 736
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
for the year ended 30 June 2010
Treasury
Share share Share Treasur
capital capital premium y
shares
R`000 R`000 R`000 R`000
Balance at 1 July 2008 - Audited (2) 19 489 (8 498)
16
Total comprehensive income for the - - -
year -
Share buyback - - (1 691) -
Total changes - - (1 691) -
Balance at 30 June 2009 - Audited (2) 17 798 (8 498)
16
Total comprehensive loss for the year - - -
-
Total changes - - - -
Balance at 30 June 2010 - Reviewed (2) 17 798 (8 498)
16
Total Retained Share
share earnings based Total
capital payment equity
reserve
R`000 R`000 R`000 R`000
Balance at 1 July 2008 - 11 005 17 922 -
Audited 28 927
Total comprehensive income for the - 8 324 176
year 8 500
Share buyback (1 691) - - (1 691)
Total changes (1 691) 8 324 176 6 809
Balance at 30 June 2009 - Audited 9 314 26 246 176
35 736
Total comprehensive loss for the year - (8 732) 173
(8 559)
Total changes - (8 732) 173 (8 559)
Balance at 30 June 2010 - Reviewed 9 314 17 514 349
27 177
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
COMPANY GROUP
Reviewed Audited Reviewed Audited
12 12 12 12
months months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2010 2009 2010 2009
R`000 R`000 R`000 R`000
Profit / (loss) before taxation
5 085 14 205 (7 152) 11 625
Adjustments for:
Depreciation of property, plant
and equipment
2 832 3 138 3 463 3 432
Impairment of goodwill
45 - 45 -
Loss on disposal of property,
plant and equipment
283 4 1 068 4
Investment income (4 405) (1 592) (635) (578)
Finance costs 4 793 3 153 5 649 3 262
Increase in operating lease
accruals 212 142 403 142
Increase in share based payment
reserve 173 176 173 176
Increase in provisions
261 957 261 957
Changes in working capital:
Decrease / (increase) in
inventories 9 479 (5 573) 6 239 (17 388)
(Increase) / decrease in trade
and other receivables
(1 397) 13 (502) (7 655)
(Decrease) / increase in trade
and other payables
(1 773) 11 506 (1 376) 17 959
Cash generated from operations
15 588 26 129 7 636 11 936
Investment income 4 405 1 592 635 578
Finance costs (4 793) (3 153) (5 649) (3 262)
Taxation paid (606) (6 589) (655) (6 560)
Net cash generated from
operating activities
14 594 17 979 1 967 2 692
Cash flows absorbed by
investing activities
Purchase of property, plant and
equipment (1 231) (6 574) (4 185) (22 555)
Proceeds on disposal of
property, plant and equipment
382 115 465 115
Acquisition through business
combinations - (3 861) - -
Goodwill paid on acquisition of
businesses
- (45) - (2 217)
Net cash absorbed by investing
activities (849) (10 365) (3 720) (24 657)
Cash flows absorbed by
financing activities
(Decrease) / increase in
interest bearing borrowings
(3 164) 16 252 943 21 276
(Decrease) / increase in loans
from related parties
(2 335) 2 815 (1 388) 236
Increase in loans to related
parties (11 476) (24 635) - -
Share buyback - (1 691) - (1 691)
Net cash (absorbed by) / from
financing activities
(16 975) (7 259) (445) 19 821
Net (decrease) / increase in
cash and cash equivalent
(3 230) 355 (2 198) (2 144)
Cash and cash equivalents at
the beginning of the year
(8 557) (8 912) (11 064) (8 920)
Cash and cash equivalents at
the end of the year
(11 787) (8 557) (13 262) (11 064)
Current assets 3 661 1 798 3 780 2 197
Current liabilities (15 448) (10 355) (17 042) (13 261)
(11 787) (8 557) (13 262) (11 064)
NOTES TO THE CONDENSED CONSOLIDATED RESULTS
for the year ended 30 June 2010
1. BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in
accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS"),
Schedule 4 of the Companies Act, Act 61 of 1973, South Africa, as amended,
the Listings Requirements of the JSE Limited and the AC 500 standards issued
by the Accounting Practices Board. These condensed consolidated financial
statements contain the information required in terms of IAS 34-Interim
Financial Reporting.
The consolidated financial statements incorporate accounting policies which
have been consistently applied, except for the following:
IAS 1, which is effective for annual periods beginning on or after 1 January
2009, was applied for the first time during the current year. This has no
effect on measurement but has resulted in a change in presentation and
disclosures as required by the revised IAS1 - Presentation of Financial
Statements.
The board acknowledges its responsibility for the preparation of the
consolidated and company financial statements in accordance with the
framework concepts and the measurement and recognition requirements of IFRS,
Schedule 4 of the Companies Act, Act 61 of 1973, South Africa, as amended,
the Listings Requirements of the JSE Limited and the AC 500 standards issued
by the Accounting Practices Board.
2. REVIEW REPORT
The consolidated financial statements have been reviewed by BDO South Africa
Inc. Their unmodified review report is available for inspection at the
group`s registered office.
3. COMMENTARY ON RESULTS
NATURE OF BUSINESS
Hardware Warehouse business
Hardware Warehouse business, as a retailer of low cost building materials,
operates mainly in the cash paying rural market.
Plumbing business
During late 2008 the group acquired the franchise rights to a portion of the
Eastern Cape for a plumbing and sanitary ware retailer ("plumbing
business"). The target market of this plumbing business is the construction
industry and includes the extension of credit to the customer base. However,
the construction industry has faced challenges within the past 18 months.
FINANCIAL PERFORMANCE
These are the group`s third set of annual results since listing on AltX.
Consolidated group revenue increased by 20.09% (2009: 44.49%) for the year,
with the GP margin down by 4.3% (2009: up 0.9%). Despite the extremely tough
conditions within the building materials supply industry, the group is
pleased with the performance of its core operations; the Hardware Warehouse
business, whilst it is continuing with turnaround initiatives in the
plumbing business.
As a growth company the focus on growing top line sales will continue.
SEGMENTAL SUMMARY 2010 2009
Revenue:
Total R380.8m R317.1m
Hardware Warehouse business R311.5m R292.1m
Plumbing business R 71.4m R 26.5m
Other segments R 2.1m R 0.6m
Inter segment sales (R 4.2m) (R 2.2m)
EBIT:
Total (R 2.1m) R14.3m
Hardware Warehouse business R 5.5m R15.8m
Plumbing business (R 9.2m) (R 1.5m)
Other segments R 1.6m -
Hardware Warehouse business
Hardware Warehouse business revenue improved by 6.65% (2009: 32.48%) on the
back of flat growth for the first two quarters and good growth in the 3rd
and 4th quarters of this financial year. On a store-for-store basis, the
revenue improvement was a notable 8.2% (2009: 17.6%) and the number of
customer transactions improved by 16.1% (2009: down 3.2%).
The GP margin showed a substantial decline moving from 23.45% to 19.09%
(2009: increase from 22.52% to 23.45%). This was indicative of the
competitive environment coupled with the downturn in the industry, in
addition to the deflationary environment, specifically relating to steel
products. A substantial increase in cement sales, which carries a very low
margin, also contributed to the dilution of the gross margin.
Overheads and expenses were managed within a tight range. However, the
focus was not on cutting capacity overheads, in anticipation of planned
growth during the financial year ending 2011. During this financial year
three new branches will open with a fourth under finalisation.
Plumbing Business
This business suffered as the building and construction industry experienced
its worst economic phase in many years. This period evidenced a sharp
downturn in sales, a resultant competitive fall of the gross profit margin
and a concerning increase in bad debts.
Senior Management, at the end of quarter three of the reporting period,
assessed that an economic turn-around within this market segment was not
likely in the short to medium term. Hence, a decision was made to close two
of the four branches, and the remaining branches saw further overhead cuts.
This resulted in a dramatic reduction in the operating losses during the
last quarter. The resultant negative effect of this operation on the
group`s performance during the financial year ended 2010, Management
believes, will be turned around to contributing to overall profit during the
financial year ended 2011.
CASH FLOW
The poor financial performance of the plumbing business placed large
pressure on cash flows during the reporting year. Inventory levels were
well managed, and thus assisted in relieving this cash flow pressure.
NOTEWORTHY COMMENTARY
Attention must be drawn to the significant loss in the plumbing business of
R12 620 670 which resulted in the group consolidated loss in the current
year of R8 731 671 from the consolidated profit in the prior year of R8 324
000.
PROSPECTS AND FUTURE PERFORMANCE
Hardware Warehouse business
In terms of growth, this business continues to expand strategically and
plans during 2011 and 2012 to have an operationally critical number of
branches in two more provinces. This will result in a substantial amount
of revenue being derived from outside of the Eastern Cape.
Plumbing Business
The original benefits of purchasing this business are now coming to the
fore, and will benefit the group going forward.
The current overhead reduction and sales improvement strategy of the
plumbing business will be complete by September 2010 and management is
confident that all measures taken to return this operation to generating
profits will result in a substantial turn-around of this business.
Government Tendering Business
The group is still well positioned to take advantage of this section of the
market, when Government/Municipalities eventually do award long awaited
tenders.
4. SEGMENT INFORMATION
Hardware Plumbing Other Inter
Warehouse business segments segment Group
business transact
ions
Reviewed Reviewed Reviewed Reviewed Reviewed
12 12 12 12 12
months months months months months
ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June
2010 2010 2010 2010 2010
R`000 R`000 R`000 R`000 R`000
Statement of
comprehensive
income
Revenue 311 551 71 357 2 109 (4 253) 380 764
Profit /
(loss) from
operations 5 473 (9 193) 1 582 - (2 138)
Statement of
financial
position
Segment
assets 131 554 28 221 16 739 (49 873) 126 641
Segment
liabilities 81 589 42 699 20 763 (45 587) 99 464
Other
segment
items
Depreciation 2 832 621 10 - 3 463
Capital
expenditure 1 231 925 1 946 - 4 102
Inter
Hardware segment
Warehouse Plumbing Other transact
business business segments ions Group
Audited Audited Audited Audited Audited
12 7 12 12 12
months months months months months
ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June
2009 2009 2009 2009 2009
R`000 R`000 R`000 R`000 R`000
Statement of
comprehensive
income
Revenue 292 131 26 475 625 (2 164) 317 067
Profit /
(loss) from
operations 15 766 (1 450) (7) - 14 309
Statement of
financial
position
Segment
assets 128 662 23 777 17 284 (37 976) 131 747
Segment
liabilities 82 568 25 634 19 458 (31 649) 96 011
Other
segment
items
Depreciation 3 138 294 - - 3 432
Capital
expenditure 10 460 1 989 - 12 259 24 708
5. BASIC AND DILUTED EARNINGS AND
HEADLINE EARNINGS PER SHARE
The earnings and weighted average number of ordinary shares used in the
calculation of basic and diluted earnings and headline earnings per share
are as follows:
Reconciliation of total earnings to
headline earnings attributable to equity
holders of the parent:
2010 2009
R`000 R`000
Total (loss) / earnings attributable to equity holders (8 732) 8 324
Non-headline earnings
Impairment of goodwill 45 -
Add/(less) loss/(profit) on disposal of property,
plant and equipment 1 068 (4)
Taxation effect of adjustments (299) 2
Headline (loss) / earnings (7 918) 8 322
Weighted average number of ordinary shares in issue
(`000) 77 900 70 217
Total number of shares in issue (`000) 77 900 77 900
Headline and diluted headline (loss) / earnings per (10.16) 11.86
share
6. CHANGES IN SHARE CAPITAL AND SHARE
PREMIUM
2010 2009
R`000 R`000
Issued and fully paid:
77 900 000 Ordinary shares of 0.02 cents each
(2009:77 900 000 Ordinary shares of 0.02 cents each) 16 16
Treasury share capital (2) (2)
14 14
Share premium 21 496 21 496
Share costs written off against share premium (2 (2 007)
007)
Treasury shares at cost (8 500 000 shares at a Premium
of 99.98) (8 (8 498)
498)
Share buyback (1 (1 691)
691)
9 300 9 300
9 314 9 314
Reconciliation of shares issued:
Reported at incorporation 10 10
Issue of shares - rights issue 2 2
Issue of shares - Hardware Warehouse Empowerment Trust 1 1
Issue of shares - private placement 3 3
Balance as at 30 June 2010 16 16
Between 17 and 19 November 2008 the company
bought back 2 100 000 shares at an average
price of 80c per share.
7. RELATED PARTY TRANSACTIONS
There has been no significant changes in the related party relationships
since the previous year or significant transactions during the year other
than those in the normal course of business.
8. EVENTS AFTER THE END OF THE REPORTING PERIOD
No significant transactions which require disclosure have occurred since the
end of the year.
9. CHANGES TO THE COMPOSITION OF THE BOARD
Independent Non-executive director, HA Long resigned during the year under
review. A suitable candidate to fill this position has not yet been appointed
as this replacement process is still in progress.
10. DIVIDENDS
No dividend will be declared for the financial year ended 30 June 2010 (2009:
Nil).
11. APPRECIATION
During this very difficult year I would like to thank our staff for their hard
work and dedication. For the support and advice received I would like to
acknowledge the Board and our Advisors.
23 September 2010
12. CORPORATE INFORMATION
Hardware Warehouse Limited
Country of incorporation and domicile: South Africa
Registration number: 2007/004302/06
Share code: HWW
ISIN: ZAE000104253
Registered office
17 Vincent Road, Vincent, East London, 5247
Postal address
PO Box 19728, Tecoma, East London, 5214
Directors
IMJ Senar, Chairman; SC Miller, Chief Executive Officer; LA Rhind, Financial
Director; NE Woollgar, Independent Non-executive Director.
Contact details
Tel: +27 43 704 2200
Fax: +27 43 704 2210
Web: www.hwwh.co.za
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
Auditors
BDO South Africa Inc
Designated Advisor
Merchantec Capital
Date: 23/09/2010 14:00:01 Produced by the JSE SENS Department.
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