DAW - Distribution And Warehousing Network Limited - Unaudited interim
DAW
DAW
DAW - Distribution And Warehousing Network Limited - Unaudited interim
results for the six months ended 31 december 2009 condensed 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 2009
CONDENSED INCOME STATEMENT
Unaudited Unaudited
Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2009 2008 2009
change R`000 R`000 R`000
Revenue (16) 1 871 856 2 219 025 3 957 256
Net operating expenses (370 784) (347 558) (727 670)
Write-down of associate
held for sale - - (34 832)
Operating profit (48) 121 080 235 100 245 635
Finance income 7 111 17 375 27 395
Finance expense (48 392) (74 499) (153 271)
Share of profit of
associates
(79) 5 540 26 913 30 666
Profit before income tax 85 339 204 889 150 425
Income tax expense (23 161) (48 147) (34 780)
Profit for the period (60) 62 178 156 742 115 645
STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2009 2008 2009
change R`000 R`000 R`000
Profit for the period
Other comprehesive income
(net of taxation) 62 178 156 742 115 645
- Share-based payments
movement 2 145 6 246 (7 225)
- Currency translation
differences (7 989) (8 397) (45)
Total comprehensive income
for the period 56 334 154 591 108 375
Attributable to:
Equity holders of the
Company (61) 59 968 152 244 112 451
Minority interest 2 210 4 498 3 194
62 178 156 742 115 645
Included above:
Depreciation and
amortisation 27 332 23 430 57 337
Operating lease charges 31 015 20 081 79 452
Determination of headline
earnings
Attributable profit 59 968 152 244 112 451
Adjustment for the
after-tax effect of:
- Net reversal of
impairment of assets - - (2 608)
- Write down of associate
held for sale - - 34 835
- Net profit on disposal of
property, plant
and equipment (1 288) (95) (977)
Headline earnings (61) 58 680 152 149 143 701
Statistics
Number of ordinary shares (`000)
- in issue 240 242 193 464 198 576
- held in treasury 7 726 7 726 7 726
- Share Incentive Trust 12 967 12 967 12 967
Deferred ordinary shares
in issue (`000) 2 000 2 000 2 000
Weighted average number
of shares (`000)
- for earnings per share
183 732 174 771 175 975
- for diluted earnings
per share* 196 699 187 738 188 942
Headline earnings per
share (cents) (63) 31,9 87,1 81,7
Earnings per share (cents) (63) 32,6 87,1 63,9
Diluted earnings per
share (cents)* (62) 30,5 81,1 59,5
Operating profit (%) 6,5 10,6 7,1
*Dilutionary impact of shares to be issued in terms of the Share Incentive
Trust.
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited
Audited
31 December 31 December 30 June
2009 2008 2009
R`000 R`000 R`000
Assets
Non-current assets 795 367 837 589 795 151
Property, plant and equipment 353 468 340 462 357 489
Intangible assets* 271 986 272 523 277 373
Investment in associates 86 074 184 688 81 253
Deferred tax assets 52 538 39 916 49 104
Other receivables* 31 301 - 29 932
Current assets 1 414 560 1 610 935 1 511 116
Inventory 686 264 750 872 769 834
Trade and other receivables*
667 634 761 210 690 067
Derivative financial
instruments - - 193
Cash and cash equivalents 60 662 98 853 51 022
Investment in associate
held for sale - - 70 000
Total assets 2 209 927 2 448 524 2 376 267
Equity and liabilities
Capital and reserves 1 183 495 924 635 839 700
Ordinary shareholders` equity 1 164 741 897 465 821 868
Minority interest in equity 18 754 27 170 17 832
Non-current liabilities 214 735 293 115 224 244
Interest-bearing liabilities 97 662 164 786
93 368
Non-interest-bearing
liabilities 12 142 18 316 20 543
Deferred profit* 52 873 60 643 59 008
Deferred tax liabilities* 52 058 49 370 51 325
Current liabilities 811 697 1 230 774 1 312 323
Trade and other payables* 542 489 622 276 676 932
Derivative financial
instruments - - 932
Current portion of borrowings 83 497 256 737 283 365
Bank overdraft 171 956 303 279 328 771
Income tax liabilities 13 755 48 482 22 323
Total equity and liabilities 2 209 927 2 448 524 2 376 267
Capital commitments 55 150 60 942 105 528
Future commitments
Operating leases 219 286 461 095 437 503
Value per share
Asset value per share
- net asset value (cents) 525,7 513,5 456,9
- net tangible asset value
(cents) 403,0 357,6 302,7
- market price (cents) 720 775 650
Market capitalisation (R`000) 1 729 742 1 499 348 1 290 745
Net financial gearing
ratio (%)** 25,5 61,8 71,4
Current asset ratio (times)
1,7 1,2 1,2
* Comparative figures have been adjusted to conform to changes in
presentation and classification in the current year as a result of the
amendments to the Germiston property sale and lease agreements and
finalisation of prior year business combinations.
** Includes cash and cash equivalents and excludes vendor and related party
finance.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
2009 2008 2009
R`000 R`000 R`000
Balance at
beginning of period 839 700 769 002 769 002
Total comprehensive income
for the period 56 334 154 591 108 375
Capital distribution released
from the Share Incentive Trust - - (643)
Capitalisation award - - (34 966)
Capitalisation award elected - - 34 966
Dividend paid - - (30 042)
Transactions with minority
equity holders (1 288) 1 042 (6 992)
Issue of ordinary shares 288 749 - -
Balance at end of period 1 183 495 924 635 839 700
SEGMENTAL ANALYSIS
Operating
profit
before Share of
finance profit of
Revenue charges associates Assets
R`000 R`000 R`000 R`000
December 2009
(Unaudited)
Manufacturing
division 737 053 63 859 4 926 1 039 277
Trading
division 1 464 995 58 391 614 999 332
Support Services
division 92 780 9 423 - 74 726
Head office and other - (12 475) - 44 056
Consolidation and
unallocated (422 972) 1 882 - 52 536
1 871 856 121 080 5 540 2 209 927
December 2008
(Unaudited)
Manufacturing
division 942 740 119 055 25 789 1 217 304
Trading
division 1 666 440 116 058 1 124 1 066 338
Support Services
division
97 399 15 850 - 56 529
Head office and other - (12 919) - 68 439
Consolidation and
unallocated (487 554) (2 944) - 39 914
2 219 025 235 100 26 913 2 448 524
June 2009 (Audited)
Manufacturing
division 1 744 240 147 943 30 577 1 148 796
Trading
division 2 995 766 138 178 89 1 090 656
Support Services
division 185 484 13 394 - 56 388
Head office and other - (47 115)* - 31
323
Consolidation and
unallocated (968 234) (6 765) - 49 104
3 957 256 245 635 30 666 2 376 267
Depreciation
Capital and
Liabilities expenditure amortisation
R`000 R`000 R`000
December 2009
(Unaudited)
Manufacturing
division 459 944 19 959 15 080
Trading
division 389 008 10 314
10 052
Support Services
division 70 230 424 1 395
Head office and other 41 420 1 157 805
Consolidation and
unallocated 65 830 - -
1 026 432 31 854 27 332
December 2008
(Unaudited)
Manufacturing
division 617 822 40 399 10 360
Trading
division 440 580 9 103 5 696
Support Services
division 45 711 8 335 6 667
Head office and other 321 939 1 785 707
Consolidation and
unallocated 97 838 - -
1 523 890 59 622 23 430
June 2009 (Audited)
Manufacturing
division 672 645 66 363 30 435
Trading
division 470 484 16 388 12 153
Support Services
division 42
459 10 603 13 233
Head office and other 276 397 1 944 1 516
Consolidation and
unallocated 74 582 - -
1 536 567 95 298 57 337
No secondary segmental information is disclosed as there are no separately
defined segments that will contribute more than 10% of revenue, results or
assets.
*Includes write-down of associate held for sale adjustment.
CONDENSED GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months 6 months 12 months
31 December 31 December 30 June
% 2009 2008 2009
change R`000 R`000 R`000
Cash generated
from operations (47) 137 597 257 428 316 393
Working capital changes (47 194) 14 560 38 787
Net finance charges paid (42 650) (55 992) (117 183)
Income tax paid (35 113) (32 769) (71 854)
Cash flow from operating
activities (93) 12 640 183 227 166 143
Cash flow from investing
activities 44 482 (115 879) (155 405)
Cash flow from financing
activities (179 408) (69
439) (56 110)
Proceeds from rights offer 288 749 - -
Cash dividend paid - - (30 042)
Increase/(decrease) in cash
resources 166 463 (2 091) (75 414)
Cash resources at beginning
of period (277 749) (202 335) (202 335)
Cash resources at end
of period (111 286) (204 426) (277 749)
Financing cost cover (times) 2,93 4,12 1,95
COMMENTARY
Group profile
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 African countries and Mauritius.
Results overview
Market dynamics
Even though the six months to December 2009 improved strongly from the
results posted for the second half of last year, the Group continued to
experience the worst market conditions since its inception.
Volumes therefore remained depressed due to a weak building sector and
infrastructure project delays, with the largest operating profit decline
coming from DPI and Incledon. Cross-border currencies also depreciated, which
reversed the Group`s foreign exchange profit in the comparative period to a
foreign exchange loss.
During the period 59% of Group revenue came from the building sector. Despite
a sharp decline in South Africa`s recorded building activities, unrecorded
refurbishments and upgrades somewhat mitigated these poor markets. Although
rural demand started to show the effects of retrenchments on consumer
spending, it still exceeded growth in urban areas.
Banks started to ease credit restrictions, however, the benefits will only
flow through when improved confidence levels start to convert into new
building activity. The Group experienced some growth in regional developments
resulting from consequential building activity in high growth energy and
mining areas, specifically in the Northern Cape and Limpopo.
The infrastructure sector contributed 41% of Group revenue. The Group
continued to experience significant pressure from
delays in contracts and the
non-awarding of civil and municipal tenders. In addition a further slowdown
in municipal and civil customer spend and payments was experienced.
This severe downturn in infrastructure-related demand was aggravated by
significant price deflation in PVC, which led to under-recoveries and an
operating loss in DPI, which had a knock-on effect on Group results.
Financial results
Revenue decreased by 16% to R1,872 billion (2009: R2,219 billion) resulting
from price deflation of 9% and a 7% decrease in volumes. A substantial
portion of the revenue of the Manufacturing division is inter-group and is
eliminated on consolidation. In the period, a total of R423 million (2009:
R488 million) was eliminated.
Operating profit declined by 48% to R121 million (2009: R235 million).
Excluding the impact of DPI and Incledon, the two divisions worst impacted by
infrastructure delays, operating profit would have been down 33%.
Earnings per share of 32,6 cents (2009: 87,1 cents per share) was 63% lower,
with headline earnings per share of 31,9 cents (2009: 87,1 cents) decreasing
by 63%.
Although it was a very disappointing performance, the Group`s operating
margin of 6,5% (2009: 10,6%) was an improvement from the low of 2,6% during
the second half of the 2009 financial year. Manufacturing`s operating margin
improved from 3,6% to 8,7% during the second half, with Trading`s operating
margin improving from 1,7% to 4,0%.
During the period, balance sheet management remained a priority. The Group
therefore concluded a R400 million debt reduction programme near the end of
H1 F2010, which mainly
consisted of a R300 million rights issue and the R70
million from the sale of Lasher. Gearing is now at its lowest level in the
past 10 years at 25% with total net debt at 31 December 2009 amounting to
R306 million. The Group also concluded a debt restructuring during January
2010, with a new multi-bank platform introduced, improved borrowing rates and
a correction between short and long term funding.
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 28% to R41,3 million (2009: R57,1 million),
resulting mainly from the declining trend in interest rates, and the lower
average debt levels of R618 million compared to R775 million during the
comparative period.
Net asset value of 525,7 cents (2009: 513,5 cents) per share was 2,4% higher.
The negative impact of foreign currency conversions in cross-border
operations resulted in a foreign exchange loss of R1,2 million compared to a
gain of R13,5 million in H1 F2009.
Working capital received a strong focus from management and inventory reduced
by a further R70 million during the period since 30 June 2009. Overall
working capital days improved to a net 44 days at 31 December 2009.
Management actions
As outlined above, the balance sheet was significantly strengthened through a
debt restructuring and a debt reduction process.
The Support Services division enabled the Group to implement cost reductions
across all businesses. The Group`s headcount was reduced by 15%, with the
benefits due to reflect from the second half of the financial year.
The relocation of the Libra factory to Vaal has been successfully concluded
and Libra is now an efficient, low breakeven operation. The post-period R4
million acquisition of Plexicor, an acrylic bath manufacturer based in
Pietermaritzburg, will contribute to improved efficiencies between the two
factories.
The Group`s management reporting structure was flattened and businesses
structured more effectively within clusters. This will improve information
flow and decision making. The focused cluster approach will also allow for
the extraction of synergies and cost reduction, while capacity is enhanced at
cluster operations.
In order to bolster the capacity and depth of the Dawn executive management
team, a new Chief
Operating Officer was appointed with effect from 1 March
2010. Collin Bishop has a long-standing relationship with the Group, having
acted as the corporate advisor on mergers and acquisitions over the last
decade. As such he has an intimate knowledge and understanding of Group
strategies and financial drivers.
Jan Beukes has taken on the role of Risk and Internal Audit Officer with
effect from 1 March 2010, giving greater impetus and focus to corporate
governance compliance issues.
Basis of preparation
The Board acknowledges its responsibility for the preparation of the
condensed consolidated financial statements for the six months ended 31
December 2009 in accordance with IAS 34: Interim Financial Reporting, JSE
Limited Listings Requirements and the South
African Companies Act.
The Group financial results from which these condensed financial statements
were derived have been prepared on the historical cost basis, excluding
financial instruments which are fair valued, and conform to International
Financial Reporting Standards (IFRS). The accounting policies are consistent
with those applied in the annual financial statements for the year ended 30
June 2009, with the exception of the adoption of IAS 1 Revised - Presentation
of Financial Statements. The condensed consolidated financial statements do
not include all the information required by IFRS for full financial
statements.
Events after balance sheet date
The Group acquired the business of Plexicor, an acrylic bath manufacturer,
with effect from 1 January 2010 for an effective purchase consideration
of R4
million.
The Group concluded its debt restructuring agreement with the Standard Bank
of South Africa Limited and FirstRand Bank Limited on 29 January 2010. The
total debt in the Group was structured into appropriate term funding to
secure alignment between the Group`s cash flows and debt repayment
requirements.
Management is not aware of any material events that occurred subsequent to
the interim period, other than as outlined above. There has been no material
change in the Group`s contingent liabilities since the period-end.
Prospects
Through the focus on cost management, a R180 million annualised saving
(including R48 million finance cost savings) will be realised from H2 2010,
with the full
impact of interest savings through lower geari
