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| HWW - Hardware Warehouse - Reviewed Final Results For The Year Ended | 17 Sep 2009 |
HWW
HWW
HWW - Hardware Warehouse - Reviewed Final Results For The Year Ended
30 June 2009
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")
REVIEWED FINAL RESULTS
for the year ended 30 June 2009
- Hardware Warehouse Revenue up 32.5%
- Group Revenue up 43.8%
- Hardware Warehouse EBITDA up 9.6%
- Group EBITDA up 2.9%
- Hardware Warehouse Net asset value up 23.2%
- Group Net asset value up 23.5%
- Group stores up 31.3%
CONDENSED CONSOLIDATED INCOME STATEMENT
COMPANY GROUP
Reviewed Audited Reviewed Audited
12 months 12 months 12 months 12 months
ended ended ended ended
30 June 30 June 30 June 30 June
2009 2008 2009 2008
R`000 R`000 R`000 R`000
Revenue 292 131 220 449 317 067 220 504
Cost of sales (223 631) (170 802) (243 204) (170 802)
Gross profit 68 500 49 647 73 863 49 702
Other operating 3 210 3 210
income
Administration (2 463) (800) (2 719) (800)
expenses
Personnel costs (25 354) (17 073) (28 392) (17 073)
Operating expenses (24 920) (16 700) (28 446) (16 759)
Profit from 15 766 15 284 14 309 15 280
operations
Investment income 1 592 450 578 452
Finance costs (3 153) (1 304) (3 262) (1 304)
Profit before 14 205 14 430 11 625 14 428
taxation
Taxation (4 022) (3 968) (3 301) (3 968)
Profit for the year 10 183 10 462 8 324 10 460
attributable to
equity holders
Earnings per share
(expressed in cents
per share)
- basic and diluted
earnings per share 11,85 15,69
- Headline and
diluted headline 11,86 15,49
earnings per share
- Dividends per - -
ordinary share
CONDENSED CONSOLIDATED BALANCE SHEET
for the year ended 30 June 2009
COMPANY GROUP
Reviewed Audited Reviewed Audited
2009 2008 2009 2008
R`000 R`000 R`000 R`000
ASSETS
NON-CURRENT ASSETS
Property, plant and 14 982 11 664 30 668 11 664
equipment
Goodwill 9 528 9 483 11 708 9 491
Related party loans 31 580 6 945 - -
Investments in 3 864 1 - -
subsidiaries
Deferred tax 212 - 974 -
60 166 28 093 43 350 21 155
CURRENT ASSETS
Inventories 61 058 55 485 72 873 55 485
Trade and other 5 642 5 655 13 327 5 672
receivables
Cash and cash equivalents 1 798 758 2 197 761
68 498 61 898 88 397 61 918
TOTAL ASSETS 128 664 89 991 131 747 83 073
EQUITY AND LIABILITIES
EQUITY
Share capital 16 16 14 14
Share premium 17 798 19 489 9 300 10 991
Share based payment 176 - 176 -
reserve
Retained earnings 28 106 17 921 26 246 17 922
46 096 37 426 35 736 28 927
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing 18 835 3 733 23 557 3 733
borrowings
Related party loans 2 815 - 1 791 1 555
Deferred tax - 11 - 11
21 650 3 744 25 348 5 299
CURRENT LIABILITIES
Interest bearing 3 376 2 226 3 678 2 226
borrowings
Operating lease accrual 894 752 894 752
Taxation payable 1 780 4 123 1 849 4 123
Provisions 2 737 1 780 2 737 1 780
Trade and other payables 41 776 30 270 48 244 30 285
Bank overdraft 10 355 9 670 13 261 9 681
60 918 48 821 70 663 48 847
TOTAL LIABILITIES 82 568 52 565 96 011 54 146
TOTAL EQUITY AND 128 664 89 991 131 747 83 073
LIABILITIES
NET ASSET VALUE PER SHARE
(CENTS) 59.17 46.78 45.87 40.00
TOTAL NET ASSET VALUE 46 096 37 426 35 736 28 927
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2009
Share Treasury Share Treasury
Capital share premium shares
capital
R`000 R`000 R`000 R`000
Balance at 1 July 2007 - - - -
Audited 10
Profit for the year - - - -
Issue of shares - - 14 997 -
private placement 3
Issue of shares - share (1) 6 499 (6 499)
empowerment trust 1
Rights issue 2 - - -
Purchase of shares - (1) - (1 999)
share purchase scheme -
Share issue expenses - - (2 007) -
Total changes 6 (2) 19 489 (8 498)
Balance at 30 June 2008 (2) 19 489 (8 498)
- Audited 16
Profit for the year - - - -
Long term share - - -
incentives -
Share buyback - - (1 691) -
Total changes - - (1 691) -
Balance at 30 June 2009 (2) 17 798 (8 498)
- Reviewed 16
Total Retained Share
share earnings based Total
capital payment equity
reserve
R`000 R`000 R`000 R`000
Balance at 1 July 10 7 462 -
2007 - 7 472
Audited
Profit for the year - 10 460 - 10 460
Issue of shares - 15 000 - -
private placement 15 000
Issue of shares - - - -
share empowerment -
trust
Rights issue 2 - - 2
Purchase of shares - (2 000) - -
share purchase scheme (2 000)
Share issue expenses (2 007) - - (2 007)
Total changes 10 995 10 460 - 21 455
Balance at 30 June 11 005 17 922 -
2008 - Audited 28 927
Profit for the year - 8 324 - 8 324
Long term share - - 176
incentives 176
Share buyback (1 691) - - (1 691)
Total changes (1 691) 8 324 176 6 809
Balance at 30 June 9 314 26 246 176
2009 - Reviewed 35 736
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
COMPANY GROUP
Reviewed Audited Reviewed Audited
12 months 12 months 12 months 12 months
ended Ended ended Ended
30 June 30 June 30 June 30 June
2009 2008 2009 2008
R`000 R`000 R`000 R`000
Profit before tax 14 205 14 430 11 625 14 428
Adjustments for:
Depreciation of
Property, plant
and equipment 3 138 1 964 3 432 1 965
Loss / (profit) on
disposal of 4 (187) 4 (187)
property, plant
and equipment
Interest received (1 592) (450) (578) (452)
Finance costs paid 3 153 1 304 3 262 1 304
Movements in
operating lease 142 163 142 163
accruals
Movements in share
based payment 176 - 176 -
reserve
Movements in 957 635 957 635
provision
Changes in working
capital:
Inventories (5 573) (22 580) (17 388) (22 580)
Trade and other 13 (2 992) (7 655) (3 009)
receivables
Trade and other 11 506 5 483 17 959 5 498
payables
Cash generated
from / (absorbed 26 129 (2 230) 11 936 (2 235)
by) operations
Interest received 1 592 450 578 452
Finance costs paid (3 153) (1 304) (3 262) (1 304)
Taxation paid (6 589) (3 196) (6 563) (3 194)
Net cash generated
from /(absorbed
by) operating 17 979 (6 280) 2 689 (6 281)
expenses
Cash flows from
investing
activities
Purchase of
property, plant (10 406) (7 797) (22 523) (7 797)
and equipment
Proceeds on
disposal of 86 407 86 407
property, plant
and equipment
Goodwill paid on
acquisition of
businesses (45) (6 984) (2 217) (6 991)
Net cash absorbed
by investing (10 365) (14 374) (24 654) (14 381)
activities
16 252 2 695 21 276 2 696
2 815 - 236 1 555
(24 635) (6 945) - -
(1 691) - (1 691) -
- - - (2 000)
- 19 495 - 12 995
(7 259) 15 245 19 821 15 246
355 (5 409) (2 144) (5 416)
(8 912) (3 503) (8 920) (3 504)
(8 557) (8 912) (11 064) (8 920)
NOTES TO THE CONDENSED RESULTS
for the year ended 30 June 2009
1. BASIS OF PREPARATION
The consolidated financial results have been prepared in accordance with
International Financial Reporting Standards (IFRS), the Companies Act,
Act 61 of 1973, South Africa, as amended, and the Listings Requirements
of the JSE Limited. These consolidated financial statements contain the
information required in terms of IAS 34 - Interim Financial Reporting.
The consolidated financial results incorporate accounting policies which
have been consistently applied with those in the annual financial
statements for the year ended 30 June 2008.
The board acknowledges its responsibility for the preparation of the
consolidated 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 consolidated financial results have been reviewed by BDO Spencer
Steward (Johannesburg) Inc. Their unmodified review report is available
for inspection at the group`s registered office.
3. COMMENTARY ON RESULTS
NATURE OF BUSINESS
Hardware Warehouse is a retailer of low cost building materials and
associated products, selling directly to predominantly cash paying
customers including homebuilding, home improvers, contractors, traders
and government organisations. It is fast becoming the low cost building
material retailer of choice in its selected markets. Whilst a large
portion of the group`s customer base falls within the lower to middle
income rural groups, we have identified that our customers` needs are
changing, in that they are becoming more aspirational, and the group will
continue to adapt accordingly. With the acquisition of the On-Tap
franchise, incorporating Tiles-On-Tap, in a portion of the region of the
Eastern Cape, the group has diversified its base to include: urban
customers, middle to high LSM groups, plumbing and other contractors.
Acknowledging that the buying of materials to build or improve a home can
be a significant expenditure and a daunting process to its target market,
the group has developed a specific environment and approach to make the
selection of products both comfortable and understandable, with a strong
emphasis on supplying quality products at competitive prices.
FINANCIAL PERFORMANCE
These are the group`s second set of annual results since listing on AltX
in September 2007. Notwithstanding the severe economic downturn,
specifically within the residential building market, the group has
clearly demonstrated its ability to perform during trying times. For the
purposes of comparison it would be prudent to comment separately on
Hardware Warehouse Limited and its newly acquired subsidiary, On-Tap
Border (Proprietary) Limited - the latter subsidiary only having traded
for the 7 months of the period under review. Seasonality - the
business`s turnover is very seasonal. The first six months (July to
December) contributed 53.5% to annual turnover and the second six months
(January to June) only 46.5%. With overheads fairly constant throughout
the year, the effect on net profits on the first and second six month
periods is substantial. This should be taken into account when assessing
the financial performance of the second half of the year.
SEGMENTAL INFORMATION
Revenue: 2009 2008 % change
Total R317.1m R220.5m 43.8
Hardware Warehouse R292.1m R220.4m 32.5
On-Tap Border (Pty) R 26.5m -
Other segments R 0.6m R 0.1m
Inter segment sales (R 2.2m) -
EBITDA: 2009 2008 % change
Total R17.7m R17.2m 2.9
Hardware Warehouse R18.9m R17.2m 9.6
On-Tap Border (Pty) (R 1.2m) -
Hardware Warehouse Limited
Revenue grew by 32.5% to R292m and on a store for store comparable basis by
17.6%. Stripping out estimated deflation of 2% and with due consideration to
the negative economic environment, the company is pleased with a comparable
real growth in store sales of 19.6%. The company`s specific inflationary
environment did an about turn during the last 8 months, with metal reducing by
42% in cost price. Metal is the main contributing factor to our deflation of
2% (cement is excluded from these calculations). During the financial year
under review the company strategically bolstered its management and systems
infrastructure in anticipation of the next store growth phase.
Notwithstanding the resultant effect on overheads, Hardware Warehouse Limited
has done exceptionally well to report an EBITDA growth of 9.6%. During the
calendar years 2010 to 2012, the company will be capable of a further strong
store roll-out programme, having put in place the correct infrastructure base
to support expansion. Given the current economic environment and the
bolstered overhead base, the company expects the 2010 financial year to be a
difficult year. However, the benefits of the growth strategy remain promising
in the medium term. There are 17 Hardware Warehouse stores, of which there
are 15 in the Eastern Cape, 1 in Kwa-Zulu Natal and 1 in Mpumalanga.
Subsidiary: On-Tap (Border) (Proprietary) Limited
The December 2008 conclusion of the acquisition of this business was
unavoidably not well timed. This business focuses on the upper end of the
market in residential and commercial markets. However, Hardware Warehouse
will continue to give attention to the benefits envisaged at the time of
acquisition, namely: the companies specialised plumbing supply skills, the gap
in the rural, peri-urban and government tendering market for plumbing
suppliers and the synergies of trading plumbing products through the existing
Hardware Warehouse stores. This approach will ensure that the four On Tap
stores revenue base will change to reflect a stronger cash base and less
reliance on the bonded, interest sensitive, upper end market. On-Tap Border
(Proprietary) Limited added an additional R26.5m to turnover (7 months) and
reported an EBITDA loss of R1.156 million. The 2 original stores purchased
made a profit during the current period, however the overhead expenses for the
two newly opened stores resulted in the loss for On-Tap Border (Proprietary)
Limited in the current year. Management expects the original existing stores
to remain profitable and the new stores to become profitable in the financial
year ended 30 June 2010.
General Group Financial Performance Comments
Notwithstanding the challenging economic environment, underpinned by the worst
recession in 17 years, the Board is extremely pleased with the group results.
These results clearly reflect the resilience of the business model and bode
well for the group during the expected economic recovery. In support of the
growing operations base a new position was created, Senior Operations Manager,
Garreth Sutherland from Edcon, was appointed. This position reflects the
group`s emphasis on store performance and controls.
OPERATIONAL PERFORMANCE
The stores operated well during this difficult period and despite not having
the benefit of inflation on cost pricing compared to FYE 2008, the improvement
on EBITDA of 9.6% for the Hardware Warehouse stores is noteworthy. Currently
the group comprises of 21 stores in total.
CASH FLOW
Hardware Warehouse Limited
Cash Flow generated from operations (before tax) grew a pleasing R26.1m as
working capital management improved.
Group
Cash Flow generated from operations (before tax) grew a pleasing R11.9m as
working capital management improved. This being after working capital
requirements for On-Tap Border (Proprietary) Limited is taken into account.
NOTEWORTHY COMMENTARY
As envisaged before the time of listing, the group would require access to
capital to fund growth. Having embarked on the planned store growth and the
acquisition of On-Tap Border (Proprietary) Limited the normal financing
channels, during the downturn, became unavailable.
This placed the business under certain cash flow pressures which were resolved
with a fixed rate, 3 year term private loan of R15 million which was obtained
on 29 May 2009. The effect on earnings of the group for the year of this loan
was an interest expense of R261 437. When the market returns to a modicum of
normality, the Board will explore cheaper financing options. During the first
half of the year under review the group re-purchased 2 100 000 shares at an
average price of 80c per share.
PROSPECTS AND FUTURE PERFORMANCE
During 2009 Hardware Warehouse has prepared for the next expected push of
store roll-out. The resultant strategic investments in management and
systems, coupled with the current economic environment, will probably hinder
the group`s financial performance for the year ending 30 June 2010. However,
we do expect the benefits of new stores to support this strategy and earnings,
as South Africa possibly exits the current economic downturn during the second
half of the 2010 financial year. Importantly, the group will use the
established store beach-heads in KZN and Mpumalanga to expand in line with its
near-term strategy. Management attention will continue to extract the
benefits of the On Tap Border (Proprietary) Limited acquisition and position
this division for growth during the expected improvement in the building
materials retail environment. The Importing business has now reached critical
mass and we look forward to earnings contributions from this investment during
the financial year ending 30 June 2010.
These comments on future performance have not been reviewed or reported upon
by the group`s Auditors.
DIVIDENDS
The Board has not made a decision on its dividend policy for the financial
year ending 30 June 2010 as we await a clearer indication on improvements in
the economic environment. No dividend will be declared for the current year
in line with the group`s growth objectives.
GOVERNMENT TENDERING
Government tendering on low cost housing continues to receive management
attention and we believe the unfortunate backlog in delivery in the Eastern
Cape will shortly receive serious government attention. This is already
proving evident. To this end the group will continue to position itself as a
serious player in the provinces it operates.
APPRECIATION
The commitment and dedication of our management team and staff, coupled with
numerous service providers, has ensured that we achieved good results during
relatively hard times, and we look forward to a continuation of this in the
tough year ahead. I would also like to thank the group`s board members and
advisors for guidance over the past year, and look forward to the year ahead
with enthusiasm.
IMJ Senar SC Miller
Executive Chairman Chief Executive Officer
17 September 2009
4. SEGMENT INFORMATION
Hardware Other Inter segment
Warehouse On Tap segments transactions Group
Reviewed Reviewed Reviewed Reviewed Reviewed
12 months 7 months 12 months 12 months 12 months
ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June
2009 2009 2009 2009 2009
R`000 R`000 R`000 R`000 R`000
Income
Statement
Revenue 292 131 26 475 625 (2 164) 317 067
Operating
profit 15 766 (1 450) (7) - 14 309
Balance
Sheet
Segment 128 664 23 777 17 284 (35 163) 131 747
assets
Segment
liabilities 82 568 25 634 19 458 (28 834) 96 011
Other
segment
items
Depreciatio 3 138 294 - - 3 432
n
Capital
expenditure 10 406 1 989 - 12 259 24 654
5. 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 attributable to equity holders of
the parent:
2009 2008
R`000 R`000
Total earnings attributable to equity holders 8 324 10 460
Non headline earnings
Add / (less) loss / (profit) on sale of
property, 4 (187)
plant and equipment
Tax effect of adjustments (1) 52
Headline earnings 8 327 10 325
Weighted average number of ordinary shares in
issue 70 217 66 667
(R`000)
Total number of shares in issue (R`000) 77 900 80 000
6. ACQUISITION OF BUSINESS
2009
R`000
Gonubie Tiles on Tap (Bath and Tile
Warehouse)
Assets
Property, plant and equipment 230
Fair value 230
On Tap Border (Proprietary) Limited
Assets
Property, plant and equipment 1 614
Liabilities
Interest bearing borrowings (845)
Fair value 769
Golden Dividend 235 (Proprietary) Limited
Assets
Property, plant and equipment 1 010
Liabilities
Related party loan (1 014)
Fair value (4)
Amber Mountain Investments 111
(Proprietary) Limited
Assets
Property, plant and equipment 4 826
Trade and other receivables 257
Cash and cash equivalents 40
Liabilities
Interest bearing borrowings (2 117)
Related party loan (3 491)
Trade and other payables (1)
Fair value (486)
Senar Investments 151 (Proprietary)Limited
Assets
Property, plant and equipment 7 860
Deferred taxation 42
Trade and other receivables 429
Cash and cash equivalents 352
Liabilities
Interest bearing borrowings (2 219)
Related party loan (1 897)
Trade and other payables (150)
Current income tax (69)
Fair value 4 348
Goodwill 2 217
Total acquisitions 7 074
2008
The group spent R7 146 000 on acquisitions. Goodwill of R6 990 663
has been recognised on these acquisitions which relates to the
group`s estimates of the favourable returns to be generated from
these acquisitions.
2009
On 1 July 2008 the acquisition of an existing granite and tile
retailer in Gonubie became effective. The acquisition was paid for
in cash. It was not a material acquisition.
On 1 December 2008 the acquisition of Ngami Trading CC`s "On Tap"
franchise stores in the Eastern Cape became effective. The total
consideration (subject to profit adjustments) was R3 000 000. This
consideration was settled in cash.
On 1 August 2008 the acquisition of a property company in Mdantsane
became effective. This company owns a piece of vacant land, which is
not material to the group.
On 30 June, the acquisition of two property companies became
effective. The sellers of the majority of these shares are related
parties to the group. The companies house the Group`s head offices
and one of the group`s trading stores in Butterworth.
All of the above acquisitions were made for strategic growth reasons,
except for the property companies which were purchased in order to
bolster the fixed property base of the Group.
7. CHANGES IN SHARE CAPITAL AND SHARE PREMIUM
2009 2008
R`000 R`000
Issued and fully paid:
77 900 000 Ordinary shares of 0.02 cents each
(2008: 16 16
80 000 000 Ordinary shares of 0.02 cents
each)
Treasury share capital (2) (2)
14 14
Share premium 21 496 21 496
Share costs written off against share premium (2 007) (2 007)
Treasury shares at cost (8 500 000 shares at
a (8 498) (8 498)
Premium of 99.98)
Share buyback (1 691) -
9 300 10 991
9 314 11 005
Reconciliation of shares issued:
Reported at incorporation 10 10
Issue of shares - rights issue 2 2
Issue of shares - Hardware Warehouse 1 1
Empowerment Trust
Issue of shares - private placement 3 3
Share buyback - -
Balance as at 30 June 2009 16 16
Between 17 and 19 November 2008 the company bought back 2 100 000 shares at an
average price of 80c per share.
8. RELATED PARTY TRANSACTIONS
Other than disclosed above, there has been no significant changes in
the related party relationships since the previous year or
significant transactions during the year other than those in the
normal course of business.
9. POST-BALANCE SHEET EVENTS
No significant transactions which require disclosure have occurred since the
year end.
10. CORPORATE INFORMATION
Registered office
17 Vincent Road, Vincent, East London, 5247
Postal address
PO Box 19728, Tecoma, East London, 5214
Directors
IMJ Senar (Executive 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
BDO Spencer Steward (Johannesburg) Inc
Designated Adviser
Merchantec (Proprietary) Limited
Date: 17/09/2009 07:30:01 Produced by the JSE SENS Department.
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