Distribution and Warehousing Network Limited FY 2012 results

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Distribution and Warehousing Network Limited FY 2012 results

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Distribution and Warehousing Network Limited FY 2012 results

  1. 1. Distribution and Warehousing Network Limited www.dawnltd.co.za GRAPHICULTURE Condensed Consolidated STATEMENT OF CASH FLOWS for the year ended 30 June Audited Audited % 2012 2011 change R’000 R’000 Cash generated from operations 45 236 766 163 400 Working capital changes 30 557 (18 562) Net finance charges paid (55 235) (50 796) Income tax paid (36 822) (37 688) Cash flow from operating activities 211 175 266 56 354 Cash flow from investing activities (35 112) (92 326) Cash flow from financing activities (41 261) (38 456) Increase/(decrease) in cash resources 98 893 (74 428) Cash resources at beginning of year (34 526) 39 902 Exchange losses on cash and bank overdrafts (2 458) – Cash resources at end of year 61 909 (34 526) DISTRIBUTION AND WAREHOUSING NETWORK LIMITED (Incorporated in the Republic of South Africa) • (Registration number 1984/008265/06) • (“DAWN” or “the Group” or “the Company”) Alpha code: DAW • ISIN: ZAE000018834 • E-mail: info@dawnltd.co.za Registered office: Cnr Barlow Road and Cavaleros Drive, Jupiter Ext 3, Germiston, 1401 Directors: RL Hiemstra* (Chairman), DA Tod (Chief Executive Officer), LM Alberts^ , M Akoojee*, OS Arbee*, JA Beukes, JAI Ferreira, VJ Mokoena^ , S Mthembi-Mahanyele^ , RD Roos * Non-executive ^ Independent non-executive Company secretary: JA Beukes • Transfer secretaries: Computershare Investor Services Proprietary Limited, 70 Marshall Street, Marshalltown, 2001 (PO Box 61051, Marshalltown, 2107) • Sponsor: Deloitte & Touche Sponsor Services (Pty) Limited Condensed Consolidated INCOME STATEMENT for the year ended 30 June Audited Audited % 2012 2011 change R’000 R’000 Revenue 12 4 228 261 3 792 631 Cost of sales (3 193 127) (2 848 747) Gross profit 10 1 035 134 943 884 Net operating expenses (871 962) (842 105) Operating profit before impairments and derecognition of investments 60 163 172 101 779 Impairment of goodwill – (49 446) Net loss on derecognition of previously held interests – (19 263) Operating profit 163 172 33 070 Finance income 11 808 28 629 Finance expense (63 774) (75 160) Profit/(loss) after net financing cost 111 206 (13 461) Impairment of associates – (625) Results of associates 5 709 (81) Profit/(loss) before taxation 116 915 (14 167) Income tax expense (32 584) (14 689) Profit/(loss) for the year 84 331 (28 856) Profit/(loss) attributable to: Owners of the parent 83 033 (30 325) Non-controlling interest 1 298 1 469 Profit/(loss) for the year 84 331 (28 856) Condensed Consolidated STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June Audited Audited 2012 2011 R’000 R’000 Profit/(loss) for the year 84 331 (28 856) Other comprehensive income: – Exchange differences on translating foreign operations 2 740 (1 190) – Effects of cash flow hedges (683) 1 563 – Taxation related to components of other comprehensive income 191 (306) Other comprehensive income for the year net of taxation 2 248 67 Total comprehensive income/(loss) 86 579 (28 789) Total comprehensive income/(loss) attributable to: Owners of the parent 85 109 (30 077) Non-controlling interest 1 470 1 288 86 579 (28 789) Included above: Depreciation and amortisation 65 947 68 330 Operating lease rentals 81 678 73 032 Determination of headline earnings Attributable earnings/(loss) 83 033 (30 325) Adjustment for the after-tax effect of: Net profit/(loss) on disposal of property, plant and equipment 3 567 (720) Impairment of property, plant and equipment 2 405 528 Loss on derecognition of previously held interests – 19 263 Impairment of intangible assets – 48 714 Impairment of associate – 625 Headline earnings 89 005 38 085 Statistics Number of ordinary shares (’000) – in issue 240 243 240 243 – held in treasury (7 726) (8 718) Deferred ordinary shares in issue (’000) 2 000 2 000 Weighted average number of shares (’000) – for earnings per share 234 063 233 681 – for diluted earnings per share 238 567 233 681 Earnings/(loss) per share (cents) 35,47 (12,98) Headline earnings per share (cents) 133 38,03 16,30 Diluted earnings per share (cents) 34,80 (12,98) Diluted headline earnings per share (cents) 129 37,31 16,30 Operating profit (%) 3,9 0,9 Condensed Consolidated STATEMENT OF FINANCIAL POSITION as at 30 June Audited Audited 2012 2011 R’000 R’000 ASSETS Non-current assets 777 131 737 819 Property, plant and equipment 378 031 373 996 Intangible assets 247 778 218 099 Investments in associates 93 771 88 416 Deferred tax assets 57 551 57 308 Current assets 1 894 254 1 778 512 Inventories 826 711 852 424 Trade and other receivables 833 650 773 497 Cash and cash equivalents 231 518 150 903 Derivative financial instruments 677 165 Current tax receivable 1 698 1 523 Assets held for sale Subsidiary held for sale – 42 466 Total assets 2 671 385 2 558 797 EQUITY AND LIABILITIES Capital and reserves 1 272 241 1 174 930 Equity attributable to equity holders of the Company 1 269 990 1 173 669 Non-controlling interest 2 251 1 261 Non-current liabilities 228 070 116 802 Borrowings 157 282 40 862 Deferred profit 31 943 37 735 Deferred tax liabilities 25 614 25 236 Retirement benefit obligation 6 223 5 979 Derivative financial instruments 7 008 6 990 Current liabilities 1 171 074 1 267 065 Trade and other payables 867 951 766 601 Current portion of borrowings 282 958 476 186 Derivative financial instruments 928 464 Deferred profit 5 793 8 150 Income tax liabilities 13 444 15 664 Total equity and liabilities 2 671 385 2 558 797 Capital commitments 36 504 16 969 Future commitments Operating leases 428 138 459 351 Net cash/(overdraft) 61 909 (34 526) Net interest-bearing debt 201 053 332 656 Value per share Asset value per share – net asset value (cents) 541,53 * 488,53 – net tangible asset value (cents) 435,88 * 397,85 – market price (cents) 615 639 Market capitalisation (R’000) 1 477 494 1 535 152 Net financial gearing ratio (%)** 15,8 30,3 Current asset ratio (times) 1,6 1,4 * Shares calculated net of treasury shares. ** Includes cash and cash equivalents. Condensed Consolidated STATEMENT OF CHANGES IN EQUITY for the year ended 30 June Audited Audited 2012 2011 R’000 R’000 Opening balance 1 174 930 1 215 960 Total comprehensive income/(loss) for the year 86 579 (28 789) Treasury shares acquired (281) (3 522) Treasury shares used to settle share-based payment obligation 8 407 – Acquisition of non-controlling interest in subsidiaries – (33 880) Recycling of foreign currency translation reserve on derecognition of subsidiaries – 2 466 Recycling of foreign currency translation reserve on derecognition of joint venture – 18 126 Share-based payment charge 11 493 4 924 Settlement of share-based payment obligation (8 407) – Dividends paid to minorities in subsidiary (480) (355) Balance at the end of the year 1 272 241 1 174 930 Associates Infrastructure DPI over-border operations Building Associates Distribution and Warehousing Network Limited AUDITED RESULTS for the year ended 30 June 2012 Condensed Consolidated SEGMENTAL ANALYSIS for the year ended 30 June DAWN Head Office and Building Infrastructure Solutions consolidation * Total R'000 R'000 R'000 R'000 R'000 2012 Revenue 2 618 342 1 640 114 307 515 (337 710) 4 228 261 Revenue after intersegment elimination reallocated 2 588 607 1 623 335 16 319 – 4 228 261 Depreciation and amortisation (31 668) (19 388) (13 382) (1 509) (65 947) Operating profit/(loss) 159 510 42 975 (1 634) (37 679) 163 172 Net finance income/(expense) (39 241) (18 761) (2 211) 8 247 (51 966) Share of profit of associates 2 483 3 226 – – 5 709 Tax expense (35 480) (7 853) 2 302 8 447 (32 584) Net profit/(loss) after tax 87 272 19 587 (1 543) (20 985) 84 331 Assets 1 890 471 765 725 403 769 (388 580) 2 671 385 Liabilities 1 305 119 487 936 421 605 (815 516) 1 399 144 Capital expenditure** 71 823 3 191 15 897 – 90 911 2011 Revenue 2 494 827 1 315 544 241 083 (258 823) 3 792 631 Revenue after intersegment elimination reallocated 2 489 600 1 297 271 5 760 – 3 792 631 Depreciation and amortisation (32 690) (17 902) (15 826) (1 913) (68 331) Operating profit/(loss) before impairments and derecognitions 168 858 (32 481) (10 547) (24 051) 101 779 Impairment of intangibles and derecognitions (53 039) 133 _ (15 803) (68 709) Operating profit/(loss) after impairments and derecognitions 115 819 (32 348) (10 547) (39 854) 33 070 Net finance income/ (expense) (52 282) 2 088 (1 643) 5 306 (46 531) Share of profit/(loss) of associates (incl impairment of associate) (983) 277 – – (706) Goodwill impairment 62 554 (29,983) (12,190) (34 548) (14 167) Tax expense (32 899) 14 765 (1 782) 5 227 (14 689) Net profit/(loss) after tax 29 655 (15 218) (13 972) (29 321) (28 856) Assets 1 881 157 770 613 322 181 (415 154) 2 558 797 Liabilities 1 241 896 508 463 335 186 (701 678) 1 383 867 Capital expenditure 56 069 23 377 13 915 910 94 271 * Head office and consolidation predominantly include elimination of intergroup sales, profits and losses and intergroup receivables and payables and other unallocated assets and liabilities contained with the vertically integrated Group. ** Includes expenditure on intangibles. COMMENTARY DAWN Solutions INTRODUCTION DAWN 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 Group has two main operating segments, namely Building and Infrastructure, supported by the Solutions segment. The Building segment has three clusters –Trading, Watertech and Sanitaryware and three associates – Apex Valves, Heunis Steel and Saffer Union in Nigeria. The Infrastructure segment consists of two businesses, DPI and Incledon, and two associates – Sangio Pipe and Angolan-based Fibrex. The DAWN Solutions segment comprises DAWN Logistics (DAWN Cargo and DAWN Distribution Centres), DAWN HR Solutions, DAWN IT, DAWN Marketing & Design, DAWN Merchandising and DAWN Packaging. RESULTS OVERVIEW The Board is pleased with the improvement in results during the year, with a 133% increase in headline earnings per share, increasing to 38 cents per share. The Group focused on extracting benefits from the restructuring which took place over the last three years, most notably in the cost base. During the year, this allowed the Group to extract the full benefits of volume increases. Inventory controls improved considerably as part of the Group’s strong focus on cash flow management. In the Infrastructure businesses, DAWN benefited from additional volume throughput as well as improved efficiencies. Although volumes stabilised in the Building businesses, margin pressure continued, which diluted overall Group performance. Building segment – 57% of Group revenue (before inter-group eliminations) As expected, the Building market remained tough and weakened further during the second half of the year. The decline in buildings completed continued, albeit at a slower rate. The competitive environment was exacerbated by increased imports. The most prominent markets in which the Building segment operates are the residential market and the recorded and unrecorded additions and alterations markets. The residential market showed a 5% improvement, the first improvement in three years, but recorded additions and alterations declined by 8%. It is therefore pleasing that the Building segment managed to deliver a 3% increase in revenue, which included a 1% improvement in volumes as well as price increases of 2%. This again highlights that the unrecorded additions and alterations market continues to support the Group. The decrease in operating profit for the year has been limited to 6% to R160 million (F2011: R169 million), mainly attributable to tight operating expenditure controls. The relatively stronger Rand in F2011 resulted in increased competition from imports in F2012, as the exchange rate effect takes time to flow through the system. It therefore follows that the weaker Rand prevailing in F2012 should result in reduced price competition from imports in F2013. Gross margins in the Building segment remained under pressure due to customers’ requirements for higher quality products at lower prices. However, operating expenses were contained at 3%, resulting in the operating profit margin only reducing slightly to 6,3% (F2011: 6,8%) in an extremely competitive environment. All three clusters in the segment (Trading, Watertech and Sanitaryware) were affected by increased price competition and customer affordability constraints, forcing customers to buy lower down the price spectrum. The Trading cluster saw further volume pressure as customers across the board reduced or maintained their stock at low levels. However, AST’s (a joint venture company in the Trading cluster) move from a loss to a meaningful profit boosted performance to an 18% increase in profit before interest and taxation. In the Watertech cluster, Cobra was most affected by the customer move to lower-priced products, but managed a strong 29% increase in exports. Although Isca products fit the price range for current market conditions, margins on imported components were squeezed by the exchange rate. This was the case for all importers of taps and mixers. The Sanitaryware cluster reduced their loss of R19 million in the first half to R2 million in the second half. Notwithstanding an improved result, performance remained below expectations. The Ceramics business, Vaal, made a small loss, mainly due to retrenchment costs. The benefit of this has already been seen from the last quarter of F2012. Acrylics, comprising Libra and Plexicor, continued to underperform and constituted the bulk of the loss incurred by the Sanitaryware cluster. Volumes in the sector in which Acrylics operates reduced significantly, resulting in a significant competitor exiting the market. With fewer players left, improved volume benefits are expected in F2013. Infrastructure segment – 36% of Group revenue (before inter-group eliminations) The Infrastructure segment has improved its results for the third consecutive half-year reporting period and delivered an operating profit of R43 million for the year. This represents a R75 million turnaround from F2011. Revenue increased by 23%, of which 16% related to volume increases. This result was achieved despite the severe impact of the national strike in July 2011. The two businesses in the segment, DPI and Incledon, both saw substantially improved margins and volumes. The improvement in the awarding of civils projects, particularly water- and sewer-related projects, continued, which allowed the cluster to operate at strong levels of capacity utilisation. Civil tenders awarded have increased in value by 7% in the last year, with a strong order book. The smaller number of players in the cluster’s key markets assisted both volume throughput and margins. The water and sanitation infrastructure is in disrepair in most areas of South Africa and volume levels appear promising. The operating margin improved from a loss of 2,5% to a positive 2,6%. Some scale benefits and efficiency improvements were achieved in F2012. Although the current operating margin was a pleasing improvement, margins are still lower than the Group’s desired levels. Market share gains were experienced in both Incledon and DPI, increasing the segment’s total market share since F2010 from 29% to 37%. Break-even levels are also lower as a result of the restructuring undertaken over the last three years. The cost reduction exercise resulted in significant savings, further supported by improved scrap and production output rates. Loading consistency from key annual supply contracts resulted in improved efficiencies. DPI’s operating profit moved from a loss of R36 million in F2011 to a profit of R17 million in the year under review. Volume growth of 20% was achieved, assisted by the benefits of the stronger sales structure and recent market consolidation, as well as an improvement in market share in fittings. Excluding the lost production during the strike in July 2011, DPI exceeded its benchmark production. The order book is robust, with some key supply contracts in the mining space providing loading consistency on the capacity that was added in the last quarter of F2012. Further contracts were won. Revenue increased by 26%, with sales of higher-margin product up 20% year-on-year. Incledon’s operating profit moved from R7 million in F2011 to R26 million in the year under review. The business improved turnover by 20% year-on-year. Volumes increased due to more civils awards, as well as an increase in mining-related spend, with municipal demand contributing 35% of Incledon’s total revenue for the year. Gross margins improved pleasingly, with the largest increase emanating from higher-margin engineering product sales. DAWN Solutions – 7% of Group revenue (before inter-group eliminations) DAWN Solutions renders a crucial competitive advantage to the Group through delivering warehouse and distribution services at much lower rates than the logistics industry average. It assists in containing costs across all businesses and significantly reducing warehouse and logistics stock losses. However, for these objectives to result in strong profits for the business, sufficient scale is needed. The current small profit reported for the period is therefore a pleasing performance as the Group continues to build on the strategy of ensuring throughput for this business. During the year, the segment’s revenue increased by 28% to R308 million. DAWN Solutions’ logistics services provide the major competitive advantage for the Group. As DAWN Cargo and DAWN Distribution Centres are integrally linked through the same management team and income sources, the two entities will from now on be reported as DAWN Logistics. The focus of DAWN HR, DAWN Marketing & Design, DAWN IT and DAWN Packaging is on attracting further non-Group business, whilst suppressing costs to Group companies. These businesses managed to double profit before interest in F2012. DAWN Solutions is approaching sufficient volume to continue to build on its profitable base. DAWN International DAWN International’s contribution is included in the Building and Infrastructure segments’ results. To provide additional disclosure, the revenue of this entity is discussed separately. DAWN’s expanded geographic footprint into Africa and the Indian Ocean islands started seven years ago. The Group is pleased with the strong progress achieved. Revenue from this source has increased from less than R150 million in F2005 to a current level of R1,1 billion (gross pre-eliminated revenue including 100% of joint ventures and associates). This comprises R557 million in exports (a 22% increase year-on-year); five DPI manufacturing outlets in Africa, where revenue increased by 9% in F2012 on the back of strong performances in Namibia, Tanzania, Angola and Mauritius and the weaker Rand that supported growth in profit before interest; as well as five outlets in the Group’s AST joint venture with Kwikot, where revenue increased by 22%. Earnings growth was achieved in Zambia, Zimbabwe and Mozambique. Although some improvements were achieved, Nigeria and Angola remain challenging due to the political environment in those countries. Opportunities in Africa remain attractive and DAWN’s businesses are gaining momentum due to the vast building and infrastructure needs in various countries on the continent and the general need for DAWN’s products. FINANCIAL RESULTS During the year, the Group experienced market share gains, price increases and improved volumes. Revenue increased by 12% to R4,2 billion (F2011: R3,8 billion), with volumes increasing by 7% and prices by 5%. Operating profit increased by 60% to R163,2 million (F2011: R101,8 million). Operating expense increases were managed tightly and were successfully kept to a 3,5% increase year-on-year, well below the inflation rate. The Group operating margin increased from 2,7% to 3,9%, mainly due to the improvement in the Infrastructure segment. The average debt for the period was R441 million (R424 million in F2011), largely due to a fluctuation in working capital balances attributable to volatile demand patterns. The average debt did however reduce significantly during the last quarter to end the financial year on R201 million net debt. The Group’s gearing ratio is 15,8% Income from associates returned to a profit of R5,7 million driven by improved performances at Sangio Pipe and Fibrex through their infrastructure-related activities. Heunis Steel and Apex Valves, both of whom are mainly exposed to the building sector, maintaining earnings. Earnings per share improved from a loss of 13 cents per share to a profit of 35,5 cents per share. Headline earnings per share of 38 cents per share showed an increase of 133% from 16,3 cents per share reported for the prior year. Working capital management continued to be a focus area and showed a substantial improvement. Debtors’ days were tightly managed but increased to 55 days (F2011: 51 days) as a result of higher levels of sales activity towards the end of the reporting period. Bad debts remained below 0,1% of revenue. Although volatile demand patterns continued, particularly in the Building segment, inventory levels showed a significant improvement. Creditor days increased to 67 days, although we do not expect it to remain at this level. Net working capital at 75 days is well within the working capital target of 80 days. The strong focus on cash flow management resulted in a 45% improvement in the cash generated from operations to end the year at R237 million. This was further supported by a net decrease in working capital due to the significant reduction in inventory, resulting in a cash inflow of R31 million. Investing activities included R91 million in essential capital expenditure. This comprised a R23 million investment in fleet renewal, new warehousing and distribution systems, as well as a new Enterprise Resource Planning system for Isca. The balance of R68 million was used to maintain the manufacturing and trading capacity of the Group. Interest cost cover (excluding impairments and once-off costs) is 4,4 times (F2011: 3,7 times) and the debt service (including total capital and interest repayments) covered by free cash flow generated by the Group is 2,0 times (F2011: 0,5 times). Net interest-bearing debt of R201 million at 30 June 2012 is at its lowest levels and equates to approximately one year’s free cash flow. The AST subsidiary held for sale of R42,5 million at 30 June 2011 was de-recognised during the current year and the Group acquired a 51% shareholding in Africa Saffer Trading (new AST joint venture with Kwikot, a local manufacturer of water heating systems, who acquired the 49% interest from the Group during July 2011). BASIS OF PREPARATION The Board acknowledges its responsibility for the preparation of the condensed consolidated annual financial statements for the year ended 30 June 2012 in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), the presentation and disclosure requirements of IAS 34 Interim Financial Reporting, the AC 500 Standards as issued by the Accounting Practices Board or its successor, the Listings Requirements of the JSE Limited and the requirements of the South African Companies Act on a basis consistent with the prior year. The condensed consolidated annual financial statements have been extracted from the audited annual financial statements and have been prepared by Mr JAI Ferreira (CA(SA)), Financial Director, and were approved by the Board on 12 September 2012. The accounting policies are consistent with those applied in the annual financial statements for the year ended 30 June 2011. These results have been audited by the Group’s auditors, PricewaterhouseCoopers Inc., and their unmodified audit opinion is available for inspection at the Company’s registered office. PROSPECTS DAWN’s cost base and revenue generating capacity are now positioned to take maximum advantage of market improvements. Any improvement in volumes will have a direct impact on the bottom line. The Group anticipates the following further improvements, by segment, in F2013: • An improvement in the performance in the Building segment as the Sanitaryware cluster turns around; • The recovery in the market for the Infrastructure segment to be sustained due to contracts already secured in the government and private sectors; • Profits in Logistics to improve as its achievement of scale facilitates the roll-out of its business model; and • DAWN International to continue gaining momentum, with substantial opportunities offered by infrastructure growth in Africa, having set a sound base over the last seven years. The Board therefore anticipates further improvements in F2013. This general forecast has not been reviewed nor audited by the Company’s auditors. EVENTS AFTER THE REPORTING PERIOD The Group concluded new agreements with its lenders whereby the term debt of R193,8 million of the Group has been restructured to a bullet payment profile due to be settled on 31 August 2015 only. Management is not aware of any other 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 year-end. DIVIDEND The Board considers it prudent to conserve cash as the early part of a market recovery requires working capital investment. It therefore does not propose a dividend in respect of the 2012 financial year. It is the Board’s intention to resume dividend payments in due course. RL Hiemstra DA Tod Johannesburg Non-Executive Chairman Chief Executive Officer 13 September 2012 The presentation to investors is available on the DAWN website. www.dawnltd.co.za

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