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HWW
HWW
HWW - Hardware Warehouse - Abridged Audited Results for the year ended 30 June
2010 and Notice of Annual General Meeting
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")
ABRIDGED AUDITED RESULTS for the year ended 30 June 2010 and Notice of Annual
General Meeting
Group revenue up 20.09%
Hardware Warehouse business revenue up 6.65%
Group gross margin is 19%
Headline loss per share is 11.41 cents
Hardware Warehouse business net asset value up to R41 million
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
COMPANY GROUP
Audited Audited Audited 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 (12.58) 11.85
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 June 2010
COMPANY GROUP
Restated
Audited Audited Audited 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 34 556 23 080 - -
Investments in
subsidiaries 3 862 3 862 - -
Deferred tax 158 212 878 974
60 775 51 664 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 3 661 1 798 3 780 2 197
equivalents
62 279 68 498 84 243 88 397
TOTAL ASSETS 123 054 120 162 126 641 131 747
EQUITY AND LIABILITIES
EQUITY
Share capital 14 14 14 14
Share premium 9 300 9 300 9 300 9 300
Share based payment
reserve 349 176 349 176
Retained earnings 31 802 28 104 17 514 26 246
41 465 37 594 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 123 054 120 162 126 641 131 747
NET ASSET VALUE PER
SHARE (CENTS) 53.23 48.26 34.89 45.87
TOTAL NET ASSET VALUE 41 465 37 594 27 177 35 736
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2010
Treasury
Share share Share Treasury
capital capital premium shares
R`000 R`000 R`000 R`000
Balance at 1 July 2008 - (2) 19 489 (8 498)
Audited 16
Total comprehensive - - -
income for the year -
Share buyback - - (1 691) -
Total changes - - (1 691) -
Balance at 30 June 2009 - (2) 17 798 (8 498)
Audited 16
Total comprehensive loss - - -
for the year -
Total changes - - - -
Balance at 30 June 2010 - (2) 17 798 (8 498)
Audited 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 - 8 324 176
income for the year 8 500
Share buyback (1 691) - - (1 691)
Total changes (1 691) 8 324 176 6 809
Balance at 30 June 2009 - 9 314 26 246 176
Audited 35 736
Total comprehensive loss - (8 732) 173
for the year (8 559)
Total changes - (8 732) 173 (8 559)
Balance at 30 June 2010 - 9 314 17 514 349
Audited 27 177
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
COMPANY GROUP
Audited Audited Audited 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 following interpretations and amendments became effective during the year
but have no effect on measurement or presentation in the financial statements of
the company: IFRS 2, Share Based Payments, the amendment that dealt with vesting
conditions and cancellations as well as the amendment that clarified the scope
of the revised IFRS 2 and IFRS 3; IFRS 3, Business Combinations; IFRS 7,
Financial Instruments: Disclosures; IAS 7, Statement of Cash Flows, the
amendment that dealt with cash flows from assets held for rental being
classified as operating activities; IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors; IAS 10, Events after the Reporting Period; IAS
16, Property, Plant and Equipment; IAS 18, Revenue; IAS 19, Employee Benefits;
IAS 23, Borrowing Costs; IAS 27, Consolidated and Separate Financial Statements;
IAS 32, Financial Statements: Presentation; IAS 34, Interim Financial Reporting;
IAS 36, Impairments of Assets, the amendment that dealt with the disclosure of
estimates used to determine recoverable amount; IAS 38, Intangible Assets; IAS
39, Financial Instruments: Recognition and Measurement, the amendments that
dealt with reclassification of derivatives as well as the clarification of
inflation in a financial hedged item and a one-sided risk in a hedged item in
hedge accounting; IAS 40, Investment Property; IFRIC 13, Customer Loyalty
Programmes; IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their interaction; IFRIC 15, Agreements for the
Construction of Real Estate; IFRIC 16, Hedges of a Net Investment in a Foreign
Operation; IFRIC 17, Distribution of Non-cash assets to Owners and IFRIC 18,
Transfers of Assets from Customers.
The IASB issued amendments to IFRS 1, IFRS 5, IAS 20, IAS 28, IAS 29, IAS 31 and
IAS 41 which are not applicable to the company.
Loans to participants in the staff share scheme have been reclassified from
related party loans to equity to be consistent with the accounting for the
underlying shares as treasury shares. The prior year has been restated
accordingly.
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. AUDIT REPORT
The consolidated financial statements have been audited by BDO South Africa Inc.
Their unmodified audit 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 2.1m)
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
Audited Audited Audited Audited Audited
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 123 054 28 221 16 739 (41 373) 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 1 008 1 946 - 4 185
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 120 162 23 777 17 284 (29 476) 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
Due to the restatement referred to in note 7, the segment assets in Hardware
Warehouse business have decreased from R131 554 293 to R123 054 293 (2009:
decreased from R128 662 253 to R120 162 253) and the inter segment transactions
column for segment assets have decreased from R49 874 472 to R41 374 472 (2009:
decreased from R37 974 501 to R29 474 501).
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 (8 732) 8 324
holders
Non-headline earnings
Impairment of goodwill 45 -
Add/(less) loss/(profit) on disposal of
property, 1 068 (4)
plant and equipment
Taxation effect of adjustments (299) 2
Headline (loss) / earnings (7 918) 8 322
Weighted average number of ordinary shares in
issue (Excluding treasury shares) (`000) 69 400 70 217
Total number of shares in issue (`000) 77 900 77 900
Headline and diluted headline (loss) / earnings (11.41) 11.86
per share
The current year basic and diluted loss per share has been changed to 12.58
cents per share (previously reported as 11.21 cents per share) as the previous
calculation incorrectly included treasury shares in the weighted average number
of shares.
The current year headline and diluted headline loss per share has also been
changed to 11.41 cents per share from 10.16 cents per share due to the above
reason.
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 16 16
cents each)
Treasury shares (2) (2)
14 14
Share premium 21 496 21 496
Share costs written off against share premium (2 007) (2 007)
Treasury shares (8 500 000 shares at a
Premium of 99.98) (8 498) (8 498)
Share buyback (1 691) (1 691)
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 1 1
Empowerment Trust
Issue of shares - private placement 3 3
Treasury shares (2) (2)
Balance as at 30 June 2010 14 14
Between 17 and 19 November 2008 the company bought back 2 100 000 shares at an
average price of 80c per share.
7. RESTATEMENT OF THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY
Loans to participants in the staff share scheme have been reclassified from
related party loans to equity to be consistent with the accounting for the
underlying shares as treasury shares. The prior year has been restated
accordingly. The quantitative effect of this restatement is as follows:
Related party loans decreased from R43 056 249 to R34 556 249 (2009: decreased
from R31 578 606 to R23 078 606). Total assets decreased from R131 554 293 to
R123 054 293 (2009: decreased from R128 662 253 to R120 162 253). Share capital
decreased in the current and prior years from R15 580 to R13 580 and share
premium decreased in the current and prior years from R17 798 258 to R9 300 258.
8. 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.
9. EVENTS AFTER THE END OF THE REPORTING PERIOD
No significant transactions which require disclosure have occurred since the end
of the year.
10. 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.
11 DIVIDENDS
No dividend will be declared for the financial year ended 30 June 2010 (2009:
Nil).
12. NOTICE OF ANNUAL GENERAL MEETING
The Annual General Meeting will be held at Charteris & Barnes, 17 Vincent Road,
Vincent, East London at 11h00 on Friday, 19 November 2010 to transact the
business stated in the notice of the Annual General Meeting, which is stated in
the Annual Report.
Shareholders are advised that the Annual Report for the year ended 30 June 2010
was dispatched today.
13. 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.
28 October 2010
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: 28/10/2010 12:00:03 Produced by the JSE SENS Department.
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