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| HWW - Hardware Warehouse - Reviewed Reults For The Year Ended 30 June 2008 | 25 Sep 2008 |
HWW
HWW
HWW - Hardware Warehouse - Reviewed Reults For The Year Ended 30 June 2008
HARDWARE WAREHOUSE LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2007/004302/06)
Share code: HWW & ISIN: ZAE000104253
("Hardware Warehouse" or "the group")
REVIEWED REULTS FOR THE YEAR ENDED 30 JUNE 2008
- Revenue up by 74.6% to R220.5 million
- Profit attributable to ordinary shareholders up 70.4% to R10.5 million
- Headline earnings up 95.9% to R10.3 million
- Headline earnings per share up 47% to 15.5 cents per share
- Number of stores up by 45%
CONDENSED CONSOLIDATED GROUP BALANCE SHEET
Reviewed Audited
at at
30 June 30 June
2008 2007
R`000 R`000
ASSETS
NONCURRENT ASSETS
Property, plant and equipment 11 664 6 052
Goodwill 9 491 2 500
21 155 8 552
CURRENT ASSETS
Inventories 55 485 32 905
Trade and other receivables 5 672 2 663
Cash and cash equivalents 761 1 416
61 918 36 984
TOTAL ASSETS 83 073 45 536
EQUITY AND LIABILITIES
EQUITY
Share capital 14 10
Share premium 10 991 -
Retained earnings 17 922 7 462
28 927 7 472
LIABILITIES
NONCURRENT LIABILITIES
Interest bearing borrowings 3 733 2 202
Deferred tax 11 74
3 744 2 276
CURRENT LIABILITIES
Interest bearing borrowings 2 226 1 061
Operating lease liability 752 589
Related party loans 1 555 -
Taxation payable 4 123 3 287
Provisions 1 780 1 145
Trade and other payables 30 285 24 787
Bank overdraft 9 681 4 919
50 402 35 788
TOTAL LIABILITIES 54 146 38 064
TOTAL EQUITY AND LIABILITIES 83 073 45 536
NET ASSET VALUE PER SHARE (cents) - 40 15
2008: shares in issue / 2007: proforma
number of shares per prospectus
TOTAL NET ASSET VALUE 28 927 7 472
CONDENSED CONSOLIDATED GROUP INCOME STATEMENT
Reviewed Audited
12 months 12 months
ended 30 ended 30
June 2008 June 2007
R`000 R`000
REVENUE 220 504 126 285
Cost of sales (170 802) (98 313)
Gross profit 49 702 27 972
Other operating income 210 1 040
Personnel costs (17 073) (10 348)
Administrative costs (800) (586)
Other operating expenses (16 759) (8 405)
Profit from operations 15 280 9 673
Investment income 452 84
Finance costs (1 304) (665)
Profit before taxation 14 428 9 092
Taxation (3 968) (2 952)
Profit for the year attributable to 10 460 6 140
equity holders
Earnings per share (expressed in cents per
share)
- basic and diluted earnings per share 15.69 12.28
- headline and diluted headline earnings 15.49 10.54
per share
- dividends per ordinary share - 35 159
CONDENSED CONSOLIDATED GROUP STATEMENT OF CHANGES OF EQUITY
Share Treasu Share Treasur
capit ry premi y
al share um shares
capita
l
R`000 R`000 R`000 R`000
Balance at 1 July 2006 10 - - -
Profit for the year - - - -
Dividend paid - - - -
Total changes - - - -
Balance at 1 July 2007 10 - - -
- Audited
Profit for the year - - - -
Issue of shares - 3 - 14 -
private placement 997
Issue of shares - share 1 (1) 6 499 (6 499)
trust
Purchase of shares - - (1) - (1 999)
share scheme
Rights issue 2 - - -
Share issue expenses - - (2 -
007)
Total changes 6 (2) 19 (8 498)
489
Balance at 30 June 2008 16 (2) 19 (8 498)
- Reviewed 489
Total Retain Total
share ed equity
capital earnin
gs
R`000 R`000 R`000
Balance at 1 July 2006 10 4 838 4 848
Profit for the year - 6 140 6 140
Dividend paid - (3 (3 516)
516)
Total changes - 2 624 2 624
Balance at 1 July 2007 10 7 462 7 472
- Audited
Profit for the year - 10 460 10 460
Issue of shares - 15 000 - 15 000
private placement
Issue of shares - share - - -
trust
Purchase of shares - (2 000) - (2 000)
share scheme
Rights issue 2 - 2
Share issue expenses (2 007) - (2 007)
Total changes 10 995 10 460 21 455
Balance at 30 June 2008 11 005 17 922 28 927
- Reviewed
CONDENSED CONSOLIDATED GROUP CASHFLOW STATEMENT
Reviewe Audited
d
12 12
months months
ended ended
30 June 30 June
2008 2007
R`000 R`000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 14 428 9 092
Adjustments for:
Depreciation of property, plant and 1 965 762
equipment
Profit on disposal of property, plant and (187) (19)
equipment
Interest received (452) (84)
Finance costs paid 1 304 665
Movements in operating lease assets and 163 313
accruals
Increase / (Decrease) in provisions 635 (91)
Changes in working capital:
Inventories (22 (11
580) 003)
Trade and other receivables (3 009) (320)
Trade and other payables 5 498 12 089
Cash (absorbed by) / generated by (2 235) 11 404
operations
Interest received 452 84
Finance costs paid (1 304) (665)
Taxation paid (3 194) (1 766)
NET CASH (ABSORBED BY) / FROM OPERATING (6 281) 9 057
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (7 797) (4 496)
Proceeds on disposal of property, plant and 407 36
equipment
Goodwill paid on acquisition of businesses (6 991) (2 500)
NET CASH ABSORBED BY INVESTING ACTIVITIES (14 (6 960)
381)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in interest bearing borrowings 2 696 1 223
Increase in loans from related parties 1 555 -
Acquisition of treasury shares (2 000) -
Issue of shares 12 995 -
Dividends paid - (3 516)
NET CASH FROM / (ABSORBED BY) FINANCING 15 246 (2 293)
ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENT (5 416) (196)
CASH AND CASH EQUIVALENT AT THE BEGINNING (3 504) (3 308)
OF THE YEAR
CASH AND CASH EQUIVALENT AT THE END OF THE (8 920) (3 504)
YEAR
COMMENTARY
OVERVIEW
It is with pleasure that the Board announces a set of results that exceeds our
prospectus pre-listing forecasts. These welcome results are pleasing,
specifically given the current challenging retail market environment, senior
management`s time allocation to the listing process and a 45% growth in our
retail branch complement. We believe this performance is indicative of sound
operational management throughout the company. Our unique yet simple business
model, we are certain, contributed to these results.
2. FINANCIAL PERFORMANCE
The retail sector has begun to exhibit the effects of higher interest rates and
elevated fuel and electricity costs, coupled with electricity supply
disruptions. This scenario is largely negatively underscored by the current
global credit crisis. Our customer base, however, is not extensively exposed to
these current economic disruptions and is significantly historically immune to
interest rate cycles. Housing at this level of the market is largely a need, and
any downturns are offset by government spend.
Despite the inflationary conditions of late 2007 and early 2008, we achieved
satisfactory real growth, and the positive effects of this inflationary period
are expected to filter through in the first six months of our 2009 results.
Revenue grew to R220.5 million. This exceeds the forecast per the prospectus
despite the economic downturn in the retail sector. The increase is as a result
of both new and existing stores. New stores added 43.4% to revenue, and pre-
existing stores contributed 31.2% to this performance. This organic growth is
pleasing on an industry-comparative basis, specifically as it reflects an 11%
real growth.
Strict fiscal discipline and management of overheads contributed to controlled
expenditure on operating expenses. This is despite additional overheads
attributable to being listed. The company also invested substantially in
infrastructure, gearing itself for expansion opportunities. These additional
costs did not have a negative impact on Earnings Before Interest, Tax,
Depreciation and Amortisation ("EBITDA") to revenue ratio, which remained at
6.8% (EBITDA adjusted by R1 million for headline earnings in the prior year).
Headline earnings grew by 95.9% to R10.3 million.
Inventory Holdings - At the financial year-end, the company had extraordinary
large inventory holdings. This is as a result of buy-ins of products prior to
price increases during the three months leading up to the financial year-end.
The prices of steel and timber related products rose between 20% and 80%. These
items make up a large part of our sales, and therefore it was essential to take
advantage of buying in inventory at the old prices. The positive effect of these
buy-ins is mentioned in our financial performance above.
These buy-ins will be worked out of the system by the end of the busy December
trading period, thus generating cash of at least R10 million and strengthening
the liquidity position.
3. REVIEW OF OPERATIONS
During the year under review, five stores were added to close on 16 stores. This
included two by way of acquisition and three new sites. Our first footprint into
the Kwazulu-Natal province was made when an existing 20 year old business was
bought in Mtubatuba, near Richards Bay. Revenue contribution from this branch
has exceeded expectations. The second acquisition, also a family owned business
of over 20 years, was made in Queenstown. Both businesses are currently being
rebranded and revamped with the Hardware Warehouse touch.
The Board remains confident of achieving further acquisitive growth.
Significant effort was also put into the Bath and Tile Warehouse Brand, and the
first concept store was opened in November 2007. The first stand-alone store
started trading towards the end of the financial year. An additional two sites
have been secured, and these stores will be opening during the 2009 financial
year. Where full stand alone stores are not warranted, a store within a store
concept will be rolled out over the next financial year in current Hardware
Warehouse stores.
The product range has been expanded across all categories in general, including
tiles and sanitary ware. There remains large scope for growth across the
building material/hardware range, but the overall range will remain limited, in
line with our business model of simplicity.
Urban and product diversification will continue following expansion into new
regions. The demand for the products we sell is strong, and we are confident of
continued, steady growth.
The Rebranding project was completed in most of the stores during this year. Two
of the more mature stores still require refurbishing, and this will be done in
the 2009 financial year.
4. SIGNIFICANT EVENTS
The company listed on the Alternative Exchange of the JSE Limited ("JSE"), on 28
September 2007. A relatively small amount of R15 million was raised by way of
private placement. The purpose of listing was to lay the foundation to raise
further funds when required for rapid expansion by way of acquisitions.
5. PROSPECTS
It is our intention to couple organic with acquisitive growth, favouring
acquisitive growth, given the current value opportunities in the market.
Over the next 12 months, we intend to grow on our base in Kwazulu-Natal and to
aggressively seek acquisitive opportunities in Limpopo and Mpumalanga. This
would extend our footprint to four provinces and about 70% of our potential
South African customer base in a relatively short period.
Following expansion of our South African customer base, we are currently seeking
strong alliances for SADC expansion in late 2009 and early 2010. It is within
Africa that we strongly believe our unique and simplistic business model will
enable further growth, specifically for margins.
6. DIVIDENDS
In line with the prospectus, no dividends have been paid during the period under
review, nor do the directors recommend payment of a dividend.
7. CHANGES TO THE BOARD
An additional independent non-executive director, Tony Long, was appointed to
the board on 4 June 2008. His experience and input has already been most
valuable to the Board and as Chairman of the Audit Committee.
8. APPRECIATION
The directors would like to thank the management and staff of the group for
their hard work and dedication during the past, extremely busy year, as well as
the shareholders and suppliers for their continued invaluable support. We will
continue to add value to all the stakeholders of Hardware Warehouse Limited.
NOTES TO THE CONSOLIDATED CONDENSED RESULTS
1. BASIS OF PREPARATION
The condensed consolidated annual financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS"), the
Companies Act (Act 61 of 1973) of South Africa, as amended, and the JSE Listings
Requirements. The condensed consolidated annual financial statements contain the
information required in terms of IAS 34 - Interim Financial Reporting.
The condensed consolidated financial statements incorporate accounting policies
which have been consistently applied. The group has adopted IFRS 7 Financial
instruments: Disclosure, which became effective for this financial year.
The board acknowledges its responsibility for the preparation of the condensed
annual financial statements in accordance with IFRS, the Companies Act (Act 61
of 1973) of South Africa, as amended, and the JSE Listings Requirements.
2. REVIEW REPORT
The condensed consolidated annual financial statements have been reviewed by
Charteris & Barnes CA (SA), Registered Auditors. Their unqualified review report
is available for inspection at the group`s registered office.
3. SEGMENT INFORMATION
Segment information has not been presented as the group is at present a single
segment business. All stores are collectively managed and, as such, management
does not review performance based on separate segments.
4. 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
2008 2007
R`000 R`000
Total earnings attributable to equity 10 460 6 140
holders
Non headline earnings
Less profit on sale of property, plant and (187) (19)
equipment
Less profit on sale of trading name - (1 000)
Tax effect of adjustments 52 151
Headline earnings 10 325 5 272
Weighted average number of ordinary shares 66 667 50 000
in issue (`000)
5. ACQUISITION OF BUSINESSES
2008 2007
R`000 R`000
Mthatha
Fair value
- -
Mtubatuba
Assets
Property, plant and equipment
102 -
Liabilities
Interest bearing borrowings
(174) -
Fair value
(72) -
In-Line Trading 142 (Proprietary)
Limited
Assets
Trade and other receivables -
297
Cash and cash equivalents -
1
Liabilities
Trade and other payables -
(290)
Fair value -
8
Queenstown
Assets
Property, plant and equipment
219 -
Fair value
219 -
Goodwill 6 991 2 500
Total acquisitions 7 146 2 500
2008
On 15 October 2007, the group acquired the business of an existing
hardware retailer in Mtubatuba. The
acquisition was paid for in cash.
On 23 January 2008 the group acquired 100% of the shares in In-Line
Trading 142 (Proprietary) Limited. This company historically traded
at a loss and the price for the acquisition was set at the par
value of the shares acquired.
The fair value of the receivables
acquired is:
2008
R`000
Contractual amounts 339
receivable
Estimated cash flows not (42)
recoverable
Fair value
297
On 12 May 2008, the group acquired the business of an existing
hardware retailer in Queenstown. The
acquisition was paid for in cash.
Goodwill of R6 990 663 has been recognised on these additions which
relates to the group`s estimates
of the favourable returns to be generated from these acquisitions.
The acquisitions were made for strategic growth reasons.
2007
On 1 September 2006 the group entered into a joint venture to
operate a hardware store in Mthatha. On
1 February 2007 the group paid R2 500 000 to acquire full control
over the joint venture.
Goodwill of R2 500 000 has been recognised on this addition which
relates to the group`s estimate
of the favourable returns to be generated from this acquisition.
The acquisition was made for strategic growth reasons.
6. CHANGES IN SHARE CAPITAL AND SHARE PREMIUM
2008 2007
R`000 R`000
Issued and fully paid:
80 000 000 ordinary shares of 0.02 cents
each (2007: 10 000 ordinary shares of R1 16 10
each)
Treasury share capital (2) -
14 10
Share premium 21 496 -
Share issue costs written off against share (2 007) -
premium
Treasury shares at cost (8 498) -
10 991 -
11 005 10
Reconciliation of shares issued:
Reported at incorporation 10 10
Issue of shares - rights issue 2 -
Issue of shares - Hardware Warehouse 1 -
Empowerment Trust
Issue of shares - private placement 3 -
Balance as at 30 June 2008 16 10
The company increased its authorised share capital and undertook a 1:
5 000 share split which changed the share capital from 10 000
ordinary R1 shares to 80 000 000 ordinary shares of 0.02 cents each.
The company undertook a rights issue in September 2007 to existing
shareholders of 8 500 000 shares.
The company then issued 6 500 000 shares to the Hardware Warehouse
Empowerment Trust in September 2007. The shareholders of the company
also sold 2 000 000 shares to the Hardware Warehouse Share Purchase
Scheme
Subsequent to this, the company pursued a private placement of its
shares in terms of which 15 000 000 shares were issued at a premium
of 99.98 cents per share for R15 000 000.
7. RELATED PARTY TRANSACTIONS
Other than disclosed above, there has been no significant change in related
party relationships since the previous year or significant transactions during
the year other than in the normal course of business.
8. COMMITMENTS AND POST-BALANCE SHEET EVENTS
Subsequent to year end the group concluded an agreement to purchase an existing
business in Gonubie. This is not a material acquisition.
Subsequent to year end the group has entered into negotiations with a business
in the Eastern Cape area. The matter is still pending, inter alia, Competition
Committee approval.
SC MILLER LA RHIND
Chief Executive Officer Financial Director
25 September 2008
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), HA Long
(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
Charteris & Barnes CA (SA)
Designated Advisor
Merchantec (Proprietary) Limited
Date: 25/09/2008 07:05:05 Produced by the JSE SENS Department.
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