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HWW
HWW
HWW - Hardware Warehouse - Unaudited Interim Results for the period ended 31
December 2011
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")
UNAUDITED INTERIM RESULTS for the period ended 31 December 2011
Revenue - Hardware Warehouse business up 21.29% (2010: up 16.29%)
Group profit from operations up 21.29% (2010: up 72.84%)
Group net asset value per share is 40.09 cents (30 June 2011: 35.75 cents)
Group interest bearing borrowings down 19.99% to R24,781m (30 June 2011: R
30,975m)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 December 2011
GROUP
Unaudited Unaudited Audited
six six 12
months months months
ended ended ended
31 31 30
December December June
2011 % Change 2010 2011
R`000 R`000 R`000
Continuing operations
Revenue 231 997 5.83 219 223 354 177
Cost of sales (187 130) 6.11 (176 360) (282 363)
Gross profit 44 867 4.68 42 863 71 814
Other income 323 (45.44) 592 906
Administration expenses (1 414) (12.55) (1 617) (1 879)
Personnel costs (18 932) 3.78 (18 243) (30 055)
Other expenses (18 020) 0.28 (17 969) (30 628)
Profit from operations 6 824 21.29 5 626 10 158
Investment income 136 (65.74) 397 167
Finance costs (2 554) (4.88) (2 685) (5 592)
Share of profit of
associate 71 100.00 - -
Profit before taxation 4 477 34.12 3 338 4 733
Taxation (1 142) (144.33) 2 576 (1 365)
Profit for the period
from continuing
operations 3 335 (43.61) 5 914 3 368
Discontinued operations
Loss for the period
from discontinued - - - (2 775)
operations
Profit for the period 3 335 (43.61) 914 593
Attributable to:
Owners of parent
Profit for the period
from continuing
operations 3 283 (44.49) 5 914 3 369
Loss for the period
from discontinued - - - (2 775)
operations
Profit for the period
attributable to owners
of the parent 3 283 (44.49) 5 914 594
Non-controlling
interest
Profit / (Loss) for the
period from continuing
operations 52 100.00 - (1)
Profit / (Loss) for
the period attributable
to non-controlling
interest 52 100.00 - (1)
3 335 (43.61) 5 914 593
Earnings / (Loss) per
share (expressed in
cents per share)
Total basic and diluted
earnings / (loss) per
share 4.73 (44.48) 8.52 0.86
- basic and diluted
earnings per share from
continuing operations 4.73 (44.48) 8.52 4.85
- basic and diluted
loss per share from
discontinuing
operations - - - (3.99)
Additional information
Headline and diluted
headline earnings from
continuing operations
per share in cents 4.83 (43.11) 8.49 5.11
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2011
GROUP
Unaudited Unaudited Audited
31 31 30
December December June
2011 2010 2011
R`000 R`000 R`000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 28 431 31 107 34 220
Goodwill 9 807 12 038 9 807
Investments 71 - -
Related party loans 2 655 932 3 544
Deferred tax 4 271 5 140 5 585
45 235 49 217 53 156
CURRENT ASSETS
Inventories 68 925 73 236 51 993
Trade and other receivables 13 666 14 621 8 567
Taxation receivable 167 - 668
Cash and cash equivalents 2 882 3 049 2 975
Non-current asset held for sale 5 677 - -
91 317 90 906 64 203
TOTAL ASSETS 136 552 140 123 117 359
EQUITY AND LIABILITIES
EQUITY
Share capital 14 14 14
Share premium 9 300 9 300 9 300
Non-controlling interest 52 - -
Share based payment reserve 474 389 427
Retained earnings 21 391 23 428 18 108
31 231 33 131 27 849
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing borrowings 5 455 25 003 10 857
Related party loans 1 620 586 214
Deferred tax 119 143 836
7 194 25 732 11 907
CURRENT LIABILITIES
Related party loans 20 7 20
Interest bearing borrowings 17 686 3 173 19 884
Taxation payable 120 1 380 122
Operating lease accruals 903 1 307 1 068
Trade and other payables 61 731 60 023 40 641
Provisions 3 064 2 038 3 160
Bank overdraft 14 603 13 332 12 708
98 127 81 260 77 603
TOTAL LIABILITIES 105 321 106 992 89 510
TOTAL EQUITY AND LIABILITIES 136 552 140 123 117 359
NET ASSET VALUE PER SHARE
(CENTS) 40.09 42.53 35.75
TOTAL NET ASSET VALUE 31 231 33 131 27 849
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 December 2011
Treasur
Share y Share Treasury
capital share premium shares
capital
R`000 R`000 R`000 R`000
Balance at 01 July 2010 - (2) 17 798 (8 498)
Audited 16
Total comprehensive
profit for the period - - - -
Long term share - - -
incentives -
Non-controlling interest - - -
acquired -
Total changes - - - -
Balance at 31 December (2) 17 798 (8 498)
2010 - Unaudited 16
Total comprehensive loss - - -
for the period -
Long term share - - -
incentives -
Non-controlling interest - - -
acquired -
Total changes - - - -
Balance at 30 June 2011 - (2) 17 798 (8 498)
Audited 16
Total comprehensive - - -
profit for the period -
Long term share - - -
incentives -
Total changes - - - -
Balance at 31 December (2) 17 798 (8 498)
2011 - Unaudited 16
Share
Total based Equity
share Retaine payment attributable
capital d reserve to parent
earning
s
R`000 R`000 R`000 R`000
Balance at 01 July 2010 -
Audited 9 314 17 514 349 27 177
Total comprehensive - -
profit for the period 5 914 5 914
Long term share - - 40
incentives 40
Non-controlling interest - - -
acquired -
Total changes - 5 914 40 5 954
Balance at 31 December 9 314 23 428 389
2010 - Unaudited 33 131
Total comprehensive loss - (5 320) -
for the period (5 320)
Long term share - - 38
incentives 38
Non-controlling interest - - -
acquired -
Total changes - (5 320) 38 (5 282)
Balance at 30 June 2011 - 9 314 18 108 427
Audited 27 849
Total comprehensive - 3 283 -
profit for the period 3 283
Long term share - - 47
incentives 47
Total changes - 3 283 47 3 330
Balance at 31 December 9 314 21 391 474
2011 - Unaudited 31 179
Non-controlling Total
interest equity
R`000 R`000
Balance at 01 July 2010 - -
Audited 27 177
Total comprehensive -
profit for the period 5 914
Long term share
incentives - 40
Non-controlling interest -
acquired -
Total changes - 5 954
Balance at 31 December -
2010 - Unaudited 33 131
Total comprehensive loss (1)
for the period (5 321)
Long term share -
incentives 38
Non-controlling interest 1
acquired 1
Total changes - (5 282)
Balance at 30 June 2011 - -
Audited 27 849
Total comprehensive 52
profit for the period 3 335
Long term share -
incentives 47
Total changes 52 3 382
Balance at 31 December 52
2011 - Unaudited 31 231
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 December 2011
GROUP
Unaudited Unaudited Audited
six six 12
months months months
ended 31 ended 31 ended
December December 30 June
2011 2010 2011
R`000 R`000 R`000
Profit before taxation from
continuing operations 4 477 3 338 4 733
Loss before taxation from
discontinued operations - - (8 309)
Profit / (Loss) before taxation 4 477 3 338 (3 576)
Adjustments for:
Depreciation of property, plant
and equipment 1 736 1 750 3 829
Impairment of goodwill - - 2 231
Loss / (Profit) on disposal of
property, plant and equipment 87 (35) (184)
Share of profit from associate (71) - -
Investment income (136) (397) (761)
Finance costs 2 554 2 685 5 871
(Decrease) / Increase in
operating lease accruals (165) 10 (229)
Increase in share based payment
reserve 47 40 78
Changes in working capital:
(Increase) / Decrease in
inventories (16 932) (6 602) 11 727
(Increase) / Decrease in trade
and other receivables (5 099) (792) 872
Increase / (Decrease) in trade
and other payables 21 090 13 155 (2 998)
(Decrease) / Increase in
provisions (96) (960) 162
Cash generated from operations 7 492 12 192 17 022
Investment income 136 397 761
Finance costs (2 554) (2 685) (5 871)
Taxation paid (46) (2 841) (3 277)
Net cash generated from operating
activities 5 028 7 063 8 635
Cash flows absorbed by investing
activities
Purchase of property, plant and
equipment (1 797) (3 238) (10 239)
Proceeds on disposal of property,
plant and equipment 86 273 1 799
Goodwill paid on acquisition of
businesses - (375) (375)
Disposal of discontinued - - 925
operation
Net cash absorbed by investing
activities (1 711) (3 340) (7 890)
Cash flows absorbed by financing
activities
(Decrease) / Increase in interest
bearing borrowings (7 600) (2) 2 865
Increase / (Decrease) in loans
from related parties 1 406 190 (169)
Decrease / (Increase) in loans to
related parties 889 (932) 87
Increase in non-controlling
interest - - 1
Net cash absorbed by financing
activities (5 305) (744) 2 784
Net (decrease) / increase in cash
and cash equivalents (1 988) 2 979 3 529
Cash and cash equivalents at the
beginning of the period (9 733) (13 262) (13 262)
Cash and cash equivalents at the
end of the period (11 721) (10 283) (9 733)
Current assets 2 882 3 049 2 975
Current liabilities (14 603) (13 332) (12 708)
(11 721) (10 283) (9 733)
NOTES TO THE CONDENSED CONSOLIDATED RESULTS
for the period ended 31 December 2011
BASIS OF PREPARATION
The condensed consolidated financial results have been prepared under the
supervision of the Financial Director, L A Rhind, in accordance with the
recognition and measurement requirements of International Financial Reporting
Standards ("IFRS"), the Companies Act, 2008, the Listings Requirements of the
JSE Limited, the interpretations adopted by the International Accounting
Standards Board, South African interpretations of Generally Accepted Accounting
Practice (the AC500 series) and IAS34: Interim Financial Reporting.
The financial statements have been prepared using accounting policies that
comply with IFRS and which are consistent with those applied in the preparation
of the financial statements for the year ended 30 June 2011.
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.
COMMENTARY ON RESULTS
NATURE OF BUSINESS
The Group`s primary business is that of retailing building materials ("Hardware
Warehouse Business"). Previously it also operated a Plumbing and Sanitary ware
business ("Plumbing Business"), but has now reverted to its original "pure play"
business of retailing of building materials.
Hardware Warehouse Business
The Hardware Warehouse Business is a geographically diversified retailer of
quality building and construction material, and operates in the expanding rural
and peri-urban cash consumer market. With a customer base that includes DIY
individuals, rural buying groups, bakkie builders, small to medium contractors
and government, the Hardware Warehouse Business model continues to prove its
resilience during the pro-longed downturn in the industry.
Plumbing Business
During late 2008, the Group acquired the franchise rights, covering a portion of
the Eastern Cape, of a Plumbing and Sanitary ware retailer. On 30 June 2011, the
Groups ownership in the Plumbing Business was reduced to that of a non-
controlling interest (49% interest was retained), and overall management control
was relinquished.
FINANCIAL PERFORMANCE
Hardware Warehouse Business
The period under review has been a positive one for the Hardware Warehouse
Business. Management is pleased with the achievements. Revenue growth is on an
upward trend, and has continued this trend in the months of January and February
2012. Overhead expenses have increased materially, mainly due to the costs
associated with building and maintaining the required infrastructure, in
preparation for accelerated growth. The retention of staff capacities for the
future growth has been a key medium to long term strategy, and management have
avoided any short term actions such as retrenchments. Management has stuck to
this investment strategy. The natural result of this strategy is a limited
positive effect to the net profit of the business, notwithstanding strong
revenue growth since listing in 2007.
Plumbing Business
The Plumbing Business is now profitable, and contributed R71 356 profit to the
Groups Consolidated Results for the period under review. The Groups 49% portion
of the profit before tax is reflected under "Share of Profit of Associate" in
the Condensed Consolidated Statement of Comprehensive Income. The Group`s
exposure to financial risk in respect of the plumbing business is limited.
FINANCIAL HIGHLIGHTS
Earnings per share decreased from 8.52 cents per share to 4.73 cents per share.
This decrease is as a result of the recognition of a once-off deferred tax
credit in the corresponding six month period. Group earnings before taxation
increased by 34.12% to R 4,477 million from R 3,338 million. Group profit from
operations increased by 21.29% to R 6,824 million from R 5,626 million.
Hardware Warehouse Business
For the six months under review, revenue from continuing operations increased by
21.3% (2010: 16.3%). On a store for store basis, the revenue improvement was
16.9% (2010: 8.6%). The gross profit margin slipped to 19.03% from 19.28% in the
comparative six month period of the previous year. This was largely due to the
continued competitive environment of the industry. Earnings before interest and
tax grew marginally by 1.34%.
STORE OPENINGS
No new stores were added during this six month period, and the store count
remains at 17. However, two new stores are planned for opening during the tail
end of this financial year ending June 2012. A further two stores are planned to
open by June 2013. In the interim, the planned settlement of the high interest
bearing AAA Investments (Proprietary) Limited ("AAA Investments") loan has
required management to adopt a cautious store roll-out programme.
CASH FLOW
The cash flow position of the Group improved during the period under review, and
management plans to improve it further in the next six months to June 2012. In
this period, the improvement is largely due to: 1) the downsizing of, and then
disposing of the majority of the shares in the Plumbing Business; 2) improved
inventory management resulting from the newly implemented computer system, and
range rationalisation and 3) positive cash flow from realisation of the deferred
tax asset. Further improvements have been made in the months following December
2011, with the sale of one of the fixed properties. A second fixed property is
in the final stages of negotiation of being sold, which will generate further
cash flow for the group.
DEBT REDUCTION
The interest-bearing debt of the Group has been reduced, and by 30 June 2012,
will have been reduced further. Positive cash flows from operating activities
have been utilised to reduce expensive interest bearing debt. R5 million of the
R15 million loan from AAA Investments was repaid in December 2011. One of the
Group`s investment properties has been sold, and the net proceeds thereof, being
R4.3 million, will be applied towards reducing the AAA Investments loan by a
further R5 million. Funding for the repayment of the balance of R5 million of
the AAA Investments loan is in the final stages of negotiations, and this will
be utilised to settle the loan (due to be repaid on 29th May 2012).
After the repayment of the R15 million loan, the Group will continue to be in a
position to fund its operations and planned growth.
NOTEWORTHY COMMENTARY
Since the rationalisation and sale of the Plumbing Business in June 2011,
management have continued with intense focus on extracting added value from: the
new computer system, Risk Management through the expanding Internal Audit
Department, expansion of certain ranges and convenience shopping of "Product
Smalls" such as lighting, electrical, basic plumbing, etc. In addition, much
attention has been given to range re-alignment of inventory items, in line with
regional specific demands and customer trends.
PROSPECTS FOR THE FUTURE
The Board will continue to consider strategic alliances on a value add basis to
give growth prospects impetus, in addition to increasing the benefits of greater
buying power.
SEGMENT INFORMATION
Hardware
Warehouse Plumbing Other Inter
Business Business segments segments Group
-
discontin
ued
operation
Unaudited Unaudited Unaudited Unaudite Unaudite
six six six d six d six
months months months months months
ended 31 ended 31 ended 31 ended 31 ended 31
December December December December December
2011 2011 2011 2011 2011
R`000 R`000 R`000 R`000 R`000
Statement of comprehensive income
Revenue 231 791 - 3 082 (2 876) 231 997
Profit from 6 105 - 672 47 6 824
operations
Profit before 4 288 - 159 30 4 477
taxation
Statement of financial position
Segment assets 127 460 - 24 842 (15 750) 136 552
Segment 97 154 - 21 933 (13 766) 105 321
liabilities
Other segment items
Depreciation 1 732 - 4 - 1 736
Capital 1 797 - - - 1 797
expenditure
Hardware
Warehouse Plumbing Other Inter
Business Business segments segments Group
-
discontin
ued
operation
Unaudited Unaudited Unaudited Unaudite Unaudite
six six six d six d six
months months months months months
ended 31 ended 31 ended 31 ended 31 ended 31
December December December December December
2010 2010 2010 2010 2010
R`000 R`000 R`000 R`000 R`000
Statement of comprehensive income
Revenue 191 105 29 891 1 041 (2 814) 219 223
Profit / (Loss)
from operations
6 024 (1 404) 895 111 5 626
Profit / (Loss) 5 823 (2 963) 367 111 3 338
before taxation
Statement of financial position
Segment assets 140 303 22 857 18 620 (41 657) 140 123
Segment
liabilities 94 622 36 209 20 667 (44 506) 106 992
Other segment items
Depreciation 1 389 356 5 - 1 750
Capital
expenditure 3 238 - - - 3 238
Hardware
Warehouse Plumbing Other Inter
Business Business segments segments Group
-
discontin
ued
operation
Audited Audited Audited Audited Audited
twelve twelve twelve twelve twelve
months months months months months
ended 30 ended 30 ended 30 ended 30 ended 30
June June June June June
2011 2011 2011 2011 2011
R`000 R`000 R`000 R`000 R`000
Statement of comprehensive income
Revenue 354 588 47 278 2 082 (2 493) 401 455
(Loss) / Profit (18 071) (8 309) 1 646 26 853 2 119
from operations
(Loss) / Profit (19 126) (8 309) 702 23 157 (3 576)
before taxation
Statement of financial position
Segment assets 107 962 - 24 135 (14 738) 117 359
Segment 80 793 - 21 444 (12 727) 89 510
liabilities
Other segment items
Depreciation 3 188 633 8 - 3 829
Capital 9 896 291 52 - 10 239
expenditure
CHANGES IN COMPOSITION OF THE GROUP
The changes in the composition of the group have been disclosed in the Annual
Report for the year ended 30 June 2011.
DISCONTINUED OPERATIONS
The details of the discontinued operations have been disclosed in the Annual
Report for the year ended 30 June 2011.
COMPARABILITY OF FINANCIAL INFORMATION
It should be noted that the Plumbing Business is included as an associate in the
31 December 2011 financial information. This company was a subsidiary during the
period 31 December 2010 and was consolidated as such. For the year ended 30 June
2011, it was included as a discontinued operation. For this reason, the
financial information is not directly comparable.
HEADLINE AND DILUTED HEADLINE EARNINGS / (LOSS) PER SHARE
The earnings and weighted average number of ordinary shares used in
the calculation of headline and diluted earnings per share are as
follows:
Reconciliation of total earnings to headline earnings attributable to equity
holders of the parent:
Unaudited Unaudited
31 31 Audited
December December 30 June
2011 2010 2011
R`000 R`000 R`000
Total earnings for the period 3 283 5 914 594
Adjustments:
Add impairment of goodwill - - 2 231
Add / (less) loss / (profit)on
disposal of property, plant
and equipment 87 (35) 247
Taxation effect of adjustments (16) 14 (69)
Fair value loss on
discontinued operations - - 315
Headline earnings 3 354 5 893 3 318
Headline earnings from 3 354 5 893 3 547
continuing operations
Headline earnings from - - (229)
discontinued operations
Weighted average number of 69 400 69 400 69 400
ordinary shares in issue
(Excluding treasury shares)
(`000)
Total number of shares in
issue (`000) 77 900 77 900 77 900
Headline and diluted headline
earnings per share in cents 4.83 8.49 4.78
Headline and diluted headline
earnings from continuing
operations per share in cents 4.83 8.49 5.11
Headline and diluted headline
loss from discontinued
operations per share in cents - - (0.33)
CHANGES IN SHARE CAPITAL AND SHARE PREMIUM
There were no changes in share capital and share premium during the financial
period ended 31 December 2011.
RELATED PARTY TRANSACTIONS
There have been no significant changes in the related party
relationships since the previous year or significant transactions
during the period under review other than those in the normal
course of business.
In the year to 30 June 2011, the loan to the Plumbing Business from
Hardware Warehouse Business was impaired to the extent of
R26,582,530 which impairment was eliminated on consolidation.
Hardware Warehouse Business` disposed of 51% of its share in the
Plumbing Business which resulted in loss of control and the
Plumbing Business being accounted for as an associate.
ACQUISITION OF BUSINESS
Unaudited Unaudited Audited
six months six months 12 months
ended ended ended
31 December 31 December 30 June
2011 2010 2011
R`000 R`000 R`000
Mpumalanga Branch
Net asset value - - -
Goodwill - 375 375
Consideration - 375 375
EVENTS AFTER THE END OF THE REPORTING PERIOD
Subsequent to period end, one of the subsidiaries sold investment property, with
a carrying value of R5 677 313 for R 10 011 000 after costs.
No further significant transactions which require disclosure have occurred since
the end of the period under review to the date of this announcement.
CHANGES TO THE COMPOSITION OF THE BOARD
On 16 September 2011, Mrs. EL Mason was appointed to the Board to fill the
vacancy created by the resignation of an Independent Non-executive Director.
DIVIDENDS
No interim dividend will be declared for the period under review in line with
cash resources being allocated to the reduction of the AAA Investments loan and
the roll-out of branches.
APPRECIATION
The strong revenue growth since listing and the expansion of the Group`s
geographic footprint continues. Our appreciation in supporting and assisting
with this growth is extended to our staff, suppliers, advisors and the Board of
directors.
Ivan Senar
Chairman
28 March 2012
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 19514, Tecoma, 5214
Directors
IMJ Senar, Chairman; SC Miller, Chief Executive Officer; LA
Rhind, Financial Director; NE Woollgar, Independent Non-
executive Director; EL Mason, Independent Non-executive
Director.
Contact details
Tel: +27 43 783 3000
Fax: +27 43 748 2668
Web: www.hwwh.co.za
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
Auditors
BDO South Africa Inc
Designated Advisor
Merchantec Capital
Date: 28/03/2012 14:10:01 Produced by the JSE SENS Department.
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