| Thu 10 Mar 2011, 8:00 | | 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 2010 condensed consolidated income
statement
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 2010
CONDENSED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2010 2009 2010
change R`000 R`000 R`000
Revenue (1) 1 845 875 1 871 856 3 618 391
Gross profit 459 679 491 864 904 735
Net operating expenses (397 004) (370 784) (696 867)
Operating profit (48) 62 675 121 080 207 868
Finance income 11 420 7 111 27 332
Finance expense (32 549) (48 392) (83 843)
Share of profit
of associates 2 989 5 540 5 211
Profit before income
tax (48) 44 535 85 339 156 568
Income tax expense (12 390) (23 161) (42 088)
Profit for the period (48) 32 145 62 178 114 480
Attributable to:
Equity holders of
the Company (47) 31 963 59 968 109 177
Non-controlling
interest 182 2 210 5 303
32 145 62 178 114 480
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2010 2009 2010
change R`000 R`000 R`000
Profit for the period 32 145 62 178 114 480
Other comprehensive
income
- Exchange differences
on translating
foreign operations (3 484) (7 989) (14 221)
- Effects of cash flow
hedges (1 232) - (4 243)
- Share-based payment
movements - 2 145 -
Other comprehensive income
for the period
(net of taxation) (4 716) - (18 464)
Total comprehensive income
for the period 27 429 56 334 96 016
Attributable to:
Equity holders of the
Company 27 247 54 124 90 713
Non-controlling interest 182 2 210 5 303
27 429 56 334 96 016
Included above:
Depreciation and
amortisation 29 813 27 332 59 295
Operating lease rentals 33 645 31 015 73 254
Determination of
headline earnings
Attributable profit 31 963 59 968 109 177
Adjustment for the
after-tax effect of:
- Profit on disposal of
property, plant
and equipment (111) (1 288) (1 546)
- Impairment of property,
plant and equipment 3 637 - -
- Gain on derecognition
of a subsidiary - - (8 717)
Headline earnings (40) 35 489 58 680 98 914
Statistics
Number of ordinary
shares (`000)
- in issue 240 243 240 242 240 243
- held in treasury (8 347) (7 726) (8 257)
- Share Incentive Trust - 12 967 -
Deferred ordinary shares
in issue (`000) 2 000 2 000 2 000
Weighted average number
of shares (`000)
- for earnings per share 233 896 183 732 202 235
- for diluted earnings
per share* 234 517 196 699 216 676
Earnings per
share (cents) (58) 13,7 32,6 54,0
Headline earnings
per share (cents) (52) 15,2 31,9 48,9
Diluted earnings
per share (cents)* (55) 13,7 30,5 50,3
Diluted headline
earnings per
share (cents) (49) 15,1 29,8 45,6
Operating profit (%) 3,4 6,5 5,7
*Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Assets
Non-current assets 863 567 795 367 827 449
Property, plant and equipment 379 418 353 468 353 986
Intangible assets 268 174 271 986 271 253
Investment in associates 87 919 86 074 87 450
Deferred tax assets 88 324 52 538 77 934
Other receivables 39 732 31 301 36 826
Current assets 1 536 469 1 414 560 1 671 087
Inventory 730 502 686 264 746 636
Trade and other receivables 672 823 667 634 725 471
Cash and cash equivalents 133 144 60 662 198 980
Total assets 2 400 036 2 209 927 2 498 536
Equity and liabilities
Capital and reserves 1 206 658 1 183 495 1 215 960
Equity attributable to
equity holders of
the Company 1 206 148 1 164 741 1 197 163
Non-controlling interest 510 18 754 18 797
Non-current liabilities 383 434 214 735 398 886
Interest-bearing liabilities 242 297 97 662 252 022
Non-interest-bearing
liabilities 14 470 12 142 16 563
Deferred profit 51 329 52 873 61 536
Derivative financial
instruments 10 292 - 6 526
Deferred tax liabilities 65 046 52 058 62 239
Current liabilities 809 944 811 697 883 690
Trade and other payables 533 884 542 489 646 456
Derivative financial
instruments 1 087 - -
Current portion of borrowings 262 129 255 453 215 712
Income tax liabilities 12 844 13 755 21 522
Total equity and liabilities 2 400 036 2 209 927 2 498 536
Capital commitments 38 403 55 150 63 179
Future commitments
Operating leases 486 447 219 286 419 292
Value per share
Asset value per share
- net asset value (cents) 522,6 525,7 512,1
- net tangible asset
value (cents) 408,0 403,0 396,2
- market price (cents) 875,0 720,0 770,0
Market capitalisation (R`000) 2 105 625 1 729 742 1 849 870
Net financial gearing
ratio (%)* 28,7 25,5 21,1
Current asset ratio (times) 1,9 1,7 1,9
* Includes cash and cash equivalents and excludes vendor and related party
finance.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
2010 2009 2010
R`000 R`000 R`000
Opening balance 1 215 960 839 700 839 700
Total comprehensive income
for the period 27 429 56 334 96 016
Capital distribution
released from Share
Incentive Trust - - 8 993
Share-based payment reserve 511 - 6 340
Derecognition of subsidiary - - (10 627)
Treasury shares purchased (2 248) - (4 605)
Transactions with
non-controlling equity
holders (34 994) (1 288) (5 489)
Issue of ordinary shares - 288 749 285 632
Balance at end of period 1 206 658 1 183 495 1 215 960
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2010 2009 2010
change R`000 R`000 R`000
Cash generated from
operations (28) 98 730 137 597 243 868
Working capital changes (60 225) (47 194) (24 660)
Net finance charges paid (24 416) (42 650) (62 308)
Income tax paid (27 744) (35 113) (62 130)
Cash flow from operating
activities (208) (13 655) 12 640 94 770
Cash flow from investing
activities (55 702) 44 482 16 047
Cash flow from financing
activities (51 466) (179 408) (78 000)
Proceeds from rights offer - 288 749 285 632
Cash dividend paid - - (798)
Increase/(decrease) in
cash resources (120 823) 166 463 317 651
Cash resources at beginning
of period 39 902 (277 749) (277 749)
Cash resources at end
of period (80 921) (111 286) (39 902)
SEGMENTAL ANALYSIS
Share of
profit of
Segment asso-
Revenue results ciates Assets
R`000 R`000 R`000 R`000
December 2010
(Unaudited)
Building 1 247 401 91 045 84 1 752 174
Infrastructure 607 417 (25 351) 2 905 626 559
Support Services 116 364 (2 136) - 292 522
Head office and
consolidation (125 307) (883) - (266 787)
1 845 875 62 675 2 989 2 404 468
December 2009
(Unaudited)
Building 1 266 081 133 799 3 424 1 602 412
Infrastructure 623 787 (11 286) 2 116 436 196
Support Services 92 780 9 423 - 74 726
Head office and
consolidation (110 792) (10 856) - 96 593
1 871 856 121 080 5 540 2 209 927
June 2010
(Audited)
Building 2 434 015 246 851 3 810 1 848 536
Infrastructure 1 213 701 (33 514) 1 401 659 352
Support Services 213 755 8 269 - 184 606
Head office and
consolidation (243 080) (13 738) - (193 958)
3 618 391 207 868 5 211 2 498 536
Depre-
ciation
Capital and
expen- amorti-
Liabilities diture sation
R`000 R`000 R`000
December 2010
(Unaudited)
Building 1 105 933 36 616 15 522
Infrastructure 418 015 15 209 8 578
Support Services 294 093 8 088 7 813
Head office and
consolidation (620 231) 465 920
1 197 810 60 378 32 833
December 2009
(Unaudited)
Building 558 739 22 291 17 433
Infrastructure 290 213 7 982 7 699
Support Services 70 230 424 1 395
Head office and
consolidation 107 250 1 157 805
1 026 432 31 854 27 332
June 2010
(Audited)
Building 1 286 139 35 817 27 666
Infrastructure 431 662 13 208 17 018
Support Services 206 092 11 734 13 622
Head office and
consolidation (641 317) 2 759 990
1 282 576 63 518 59 296
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
INTRODUCTION
The Group manufactures and distributes 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
countries in the rest of Africa and Mauritius.
The Building cluster has five divisions - the Wholesale, Watertech,
Sanitaryware, Kitchen and International divisions, with two associates. The
Infrastructure cluster has two divisions, DPI Plastics and Incledon, as well as
two associates.
RESULTS OVERVIEW
Market dynamics
The Group experienced its fourth successive reporting period with volumes and
prices declining in the majority of its businesses. The first half of F2011 was
particularly tough, with a continued decline in volumes and very competitive
pricing.
The Building sector showed a further decline in activity levels in the last six
months, with total decline in buildings completed now 37% off the peak levels of
2008. During the last six months, the Group`s core markets of residential
building activity declined by 21% and additions and alterations by 12%. This was
the first time the additions and alterations market declined since 2004, which
had a particular impact on the Group`s Building cluster. The non-residential
market, to which DAWN has less exposure, declined by 29%.
The Infrastructure market experienced much lower volumes, with the value of
civil contract awards down 40% from its peak in June 2009.
These difficult market conditions translated into a Group headline earnings per
share decline of 52% on the first half of F2010. However, it is worth noting
that headline earnings per share were only 11% down on the second half of F2010,
indicating that the rate of the decline slowed in the last six months.
Building cluster - 63% of Group revenue
While the buildings completed declined by 21% during the last six months, the
Building cluster revenue declined by only 1%, which shows a solid gain of market
share, albeit of a smaller pie. For instance, the Cobra business unit saw a 6%
market gain share, Isca 9% and Vaal 3%. This was achieved due to the Group`s
just-in-time business model providing a particularly strong competitive
advantage as clients had to keep lower stockholdings in tough markets.
Markets remained extremely competitive and imports increased due to the stronger
Rand. The Group also had to absorb the effect of two salary increases during
this period following a delay in increases by 18 months leading up to the first
half of F2010. These factors contributed to the 32% reduction in operating
profit from R134 million to R91 million and margins from 9,3% to 7,4%.
Infrastructure cluster - 31% of Group revenue
The Infrastructure cluster continued to disappoint in the period, with losses
widening from R11 million in the comparative period to R25 million.
The majority of the loss came from DPI Civil Pipes as a result of the impact of
lower volume throughput on efficiencies, with the rest due to the decline in the
building fittings business in DPI. The corrective market strategy in DPI also
took longer to implement. Against these challenges, DPI achieved R11 million in
cost reductions through focusing on improving the efficiency of raw material
consumption, reducing headcount and reducing transport costs.
In the largest business in this cluster, Incledon, the Group saw the largest
volume decline of any of its businesses. Furthermore, we uncovered accounting
errors in our Incledon numbers for the financial year ended 30 June 2010 -
deliberately concealed from both head office and from our auditors. This had a
R6 million impact on Infrastructure`s first half F2011 operating result (which
is R4 million after tax). Without this Incledon would have broken even. We have
taken very strong action against the individuals concerned to ensure that such
errors will not recur.
Support Services - 6% of Group revenue
Support Services posted a R2,1 million loss due to difficult market conditions
where volumes declined over a largely fixed cost base, as well as the impact of
higher fuel and electricity costs. During this cycle, management focused on
maintaining the correct level of capacity to service the medium to long term
growth requirements of the DAWN Group.
Logistics continues to form a core part of the Group`s competitive advantage and
the costs of this division still is only half that of the industry average.
DAWN International - 16% of revenue, included in Building and Infrastructure
clusters
Although operating performance of the cross-border businesses were down as a
result of exchange rate conversions, it is important to note that revenue
activity was maintained at R431 million for the first half of F2011 and
increased in localised currencies.
FINANCIAL RESULTS
The Group`s revenue decreased by 1,4% to R1,8 billion (H1 2010: R1,9 billion)
against a 6% decrease in volumes and average price increases of 4%. A
substantial portion of the revenue of the manufacturing entities is inter-group
and is eliminated on consolidation. In the period, a total of R470 million (H1
2010: R423 million) was eliminated as inter-group sales.
Manufacturing and operating costs remained a main focus area from a financial
management perspective and resulted in the containment of costs, as committed. A
further cost saving of R50 million over and above the R57 million achieved in
the second half of F2010 was achieved. This forms the new lower cost base going
forward. The cost savings included right-sizing and cost-cutting in areas such
as operating expenses, capital expenditure and labour. Unfortunately, the drop-
off in volumes in the majority of businesses negated these savings.
At operating profit level the Group`s performance was disappointing, with a 48%
decline to R63 million (H1 2010: R121 million). The Infrastructure cluster (DPI
Plastics and Incledon) reported a loss of R25 million (H1 2010: R11 million).
The Building cluster recorded an operating profit of R91 million (H1 2010: R134
million).
Earnings per share of 13,7 cents (H1 2010: 32,6 cents per share) was 58,0%
lower, with headline earnings per share of 15,2 cents (H1 2010: 31,9 cents)
decreasing by 52,4%.
The Group`s operating margin of 3,4% (H1 2010: 6,5%) reflects the adverse market
conditions and intense competition.
The Group`s financial gearing of 29% was maintained below the lower target
bracket of 30% to 50% set by management. Net debt amounted to R346 million.
Continued close management of collections and strict credit policies, together
with the Group`s policy of credit insurance, assisted management in maintaining
bad debt levels below 0,1% of revenue.
Net finance costs decreased by 49% to R21,1 million (H1 2010: R41,2 million).
This resulted mainly from the improved interest rates supported further by the
lower average debt levels following a capital raising through a rights issue of
R300 million during December 2009.
Net asset value of 523 cents (H1 2010: 526 cents) per share was 1% lower, mainly
as a result of a transaction with minorities in which DAWN increased its
investment in Cobra Watertech.
Working capital continued to receive strong focus from management and inventory
reduced by a further R16 million during the period. However, overall working
capital increased by R60 million when compared to 30 June 2010. This was mainly
as a result of a drop-off in creditor funding, which resulted from the decline
in volumes on commodity products where good creditor terms are prevalent, as
well as erratic buying patterns which caused creditor funding to be less evenly
spread. Net working capital amounted to an investment of 23,6% in relation to
revenue, still well within the Group`s maximum limit of 25%.
BASIS OF PREPARATION
The Board acknowledges its responsibility for the preparation of the condensed
consolidated interim financial statements for the six months ended 31 December
2010 in accordance with the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards (IFRS)
and the AC500 standards, as issued by the Accounting Standards Board, IAS 34:
Interim Financial Reporting, JSE Limited Listings Requirements and the South
African Companies Act.
The Group condensed interim financial statements have been prepared on the
historical cost basis.
The accounting policies are consistent with those applied in the annual
financial statements for the year ended 30 June 2010.
These results have not been audited or reviewed by the Group`s auditors,
PricewaterhouseCoopers Inc.
EVENTS AFTER THE REPORTING PERIOD
Management is not aware of any material events that occurred subsequent to the
end of the reporting period. There has been no material change in the Group`s
contingent liabilities since the period-end.
PROSPECTS
DAWN is progressing from a period of cost-cutting and right-sizing of the
businesses to proactive market strategies. Future market visibility remains
limited, but management remains focused on market share growth through
aggressively improving service delivery and optimisation of the benefits of its
business model by rendering the largest consolidated product offering in the
industry.
On the Building side, building plans passed in 2010 indicate an improvement in
DAWN`s key markets, with residential plans passed increasing by 4% and additions
and alterations increasing by 9%, albeit off a very low base. DAWN is less
exposed to the non-residential market, which showed a marked decline of 34%.
Improved volumes will be a necessity to assist factory recoveries through
maximising competitive advantages. The challenge remains to align stockholding
with erratic demand patterns. The Group`s sophisticated stock systems are being
further improved through the enhancement of customer sales history analysis to
strengthen stock availability. The Group`s just-in-time stock availability
offering to merchants will remain a key focus area to maximise its logistics
advantage. Benefits should flow through from the development of new products,
especially at Vaal, where new product launches are planned for April and June
2011.
The Infrastructure cluster does not anticipate any substantial improvement until
the awarding of contracts on infrastructure-related projects, particularly water
and sanitation, materialise. However, there has been a marked reduction in
surplus market capacity since December 2010 and this will benefit the division
in PVC and hosing, although mainly in HDPE where Sangio Pipe now has a fully
loaded factory attributable to market share gains.
Pleasingly, the Group has already seen volume throughput in both Building and
Infrastructure starting to increase slowly from December 2010. There has been a
solid increase in loadings at the Infrastructure businesses, DPI Plastics and
Incledon, with Sangio Pipe also having already secured the next six months`
revenue. On the Building side, Vaal is now well loaded and Cobra`s order book is
at an all time high. If the Group is able to sustain even small volume
improvements, they will impact the bottom line positively.
This general forecast has not been reviewed nor audited by the Company`s
auditors.
CHANGE IN CHAIRMANSHIP
During the past 18 months, Mr Lou Alberts has expressed the desire to relinquish
the Chairmanship of DAWN when he reaches the age of 70. The timing of this
change was dependent on finding a suitable replacement candidate. We wish to
advise that Mr Tak Hiemstra will take over the Chairmanship from 1 July 2011. Mr
Lou Alberts will remain a non-executive director of the DAWN board. Mr Hiemstra
has been a valuable DAWN board member for a number of years and the Group
welcomes him in his new role. The Board also wishes to thank Mr Alberts for his
valuable contributions over the years and look forward to continue working with
him as a board member.
DIVIDEND
No dividend has been declared or proposed for the interim period ended 31
December 2010.
On behalf of the Board
LM Alberts DA Tod
Chairman Chief Executive Officer
Johannesburg
10 March 2011
The presentation to investors is available on the DAWN website.
www.dawnltd.co.za
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED
Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3,
Germiston, 1401
E-mail: info@dawnltd.co.za
Directors: LM Alberts* (Chairman), DA Tod (Chief Executive Officer), OS Arbee*,
JA Beukes, JAI Ferreira, RL Hiemstra*,
S Mthembi-Mahanyele; RD Roos
*Non-executive
Company secretary: JAI Ferreira
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Marshalltown, 2001
PO Box 61051, Marshalltown, 2107
Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited
www.dawnltd.co.za
Date: 10/03/2011 08:00:49 Produced by the JSE SENS Department.
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