ShareData · TABLE OF CONTENTS DAWN’S PROFILE INTEGRATED REPORTING APPROACH 2 About this report 4...
Transcript of ShareData · TABLE OF CONTENTS DAWN’S PROFILE INTEGRATED REPORTING APPROACH 2 About this report 4...
D A W NDistribution & Warehousing Network
INTEGRATED REPORT 2017
TABLE OF CONTENTS
DAWN’S PROFILE
INTEGRATED REPORTING APPROACH2 About this report
4 Integrated value creation process
GROUP AT A GLANCE5 Group structure at the date of publication
6 Geographic footprint
7 10-yearfinancialreviewanddefinitions
EXECUTIVE REPORTS12 Chairman’s report
15 Chiefexecutiveofficers’reviews
20 Chieffinancialofficer’sreport
SOCIAL AND RELATIONSHIP CAPITAL26 Stakeholder engagement
GOVERNANCE30 Governance and compliance framework
31 Leadership
31 – Board of directors
34 – Executive committee
36 Corporate governance at DAWN
45 The governance of risk
49 Combined assurance
52 Report of the remuneration committee
76 Report of the social, ethics and transformation committee
SUSTAINABILITY79 Financial capital
80 Human capital
87 Natural capital
ANNUAL FINANCIAL STATEMENTS90 Certificationbycompanysecretary
91 Statement of responsibility and approval by the board of directors
93 Report of the audit committee
97 Directors’ report
103 Independent auditor’s report
109 Consolidated and separate income statements
110 Consolidated and separate statements of comprehensive income
111 Consolidatedandseparatestatementsoffinancialposition
112 Consolidated statement of changes in equity – group
113 Consolidated statement of changes in equity – company
114 Consolidatedandseparatestatementsofcashflows
115 Accounting policies
129 Notestotheannualfinancialstatements
213 Interest in subsidiaries, associate companies and joint ventures
SHAREHOLDERS’ INFORMATION216 Analysis of shareholding at 31 March 2017
217 Analysis of shareholding after the rights offer
218 JSE performance
218 Shareholders’ diary
ANNUAL GENERAL MEETING219 Notice of annual general meeting
Form of proxy (Attached)
Corporate information (Inside back cover)
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Distribution & Warehousing Network Limited | | Integrated report 2017
A SOUTH AFRICAN ICON
SOUTH AFRICA
Distribution and Warehousing Network Limited (DAWN) is listed in the Construction and
Materials–BuildingMaterialsandFixturessectoroftheJSELimitedanditsheadofficeis
based in Germiston, Gauteng.
The group manufactures and distributes quality branded hardware, sanitaryware, plumbing,
kitchen, engineering and civil products through an international, strategically positioned
footprint in southern Africa.
DAWNhassignificantproprietarybrandsandagencyagreementswithprominentsuppliers
and also sources branded products from a well-established supplier network, both locally and
internationally.
DAWN distributes approximately 50 000 product lines sourced through more than 2 700
suppliers to over 10 000 customers in the building and infrastructure sectors. DAWN Logistics
offersjust-in-timebreak-bulkdistributionthroughitsfleetofmorethan190vehiclesona
national basis with over-border deliveries to Botswana, Swaziland, Lesotho and Namibia.
DAWN’S PROFILE
“We are changing the culture, holding people accountable.”
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The board of directors of Distribution and Warehousing Network Limited (DAWN) is pleased to present the integrated report for the year ended 31 March 2017 to stakeholders, which has been prepared in accordance with the principles and practices containedintheKingCodeofGovernancePrinciplesforSouthAfrica2009(KingIII).Theannualfinancialstatementshavebeen prepared in accordance with International Financial Reporting Standards (IFRS), the JSE Listings Requirements, the Companies Act of South Africa, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee. Sustainability information has been prepared referencing Global Reporting Initiatives (GRI) Guidelines 4.
APPROACHThe primary objective of this integrated report is to provide a greater understanding of the group’s strategy, its business model and its major impacts across economic, social and environmental aspects as well as insight into how the group is managed. The 2017 integrated report addresses all businesses, which comprise the South African operations and the sub-Saharan African andIndianOceanislandsoperations,intheformofsubsidiaries,jointventuresandassociates,unlessspecificallyindicatedotherwise. Sustainability information focuses on DAWN’s subsidiaries as at 31 March 2017 (joint ventures and associates have beenexcluded)andthesustainabilitydatawascollatedfromallthesubsidiarieswithfinalconsolidationintotheDAWNgroup.
Acompletesustainabilityreporthasnotbeenpreparedforthe2017financialyearandasynopsisoffinancial,socialandenvironmental indicators is presented on pages 79 to 89.
The adoption of integrated reporting principles is a developmental and evolutionary process and it may take several years to fully implement these principles and achieve the desired level of reporting. This report, nevertheless, offers stakeholders a more holisticviewofDAWN’soperationsandprovidesinsightonbothfinancialandnon-financialmattersfortheyearended31March2017.
As the concepts and practices of integrated reporting develop, management will aim to improve disclosures and application as deemed appropriate.
The integrated report is also available online at www.dawnltd.co.za together with additional sustainability data and information and the King III Register.
ASSURANCE, COMPARABILITY AND RESTATEMENTSA combined assurance model is applied to provide a coordinated approach to all assurance activities.
An internal assurance process, which included management review and risk-based assurance from internal audit, was followed in respect of the data disclosed in the sustainability synopsis and information and data disclosed on the web. The carbon footprint data is based on Scope 1, Scope 2 and Scope 3 (business travel) emissions.
Mostoftheperformancemeasuresincludedinthisreporthavecomparativefiguresand,unlessspecificallystatedotherwise,coverthefinancialyearofthegroup.
FEEDBACK REQUESTThe board welcomes feedback on DAWN’s integrated report 2017 from stakeholders. Please contact the chief of staff, René Roos, on [email protected] with any questions or queries on this report.
ABOUT THIS REPORT
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Distribution & Warehousing Network Limited | | Integrated report 2017
FORWARD-LOOKING STATEMENTSCertain statements in this report are forward-looking statements which DAWN believes are reasonable and consider information available up to the date of the report. Results could, however, differ materially from those set out in the forward-looking statements as a result of, amongst other factors, changes in economic and market conditions, changes in the regulatory environmentandfluctuationsincommoditypricesandexchangerates.Asaresult,theseforward-lookingstatementsarenotguarantees of future performance and are based on numerous assumptions regarding DAWN’s present and future business models, strategy and the environments in which it operates.
All subsequent oral or written forward-looking statements attributable to the group or any member thereof or any persons acting ontheirbehalfareexpresslyqualifiedintheirentiretybythecautionarystatementsaboveandbelow.DAWNexpresslydisclaimsany obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein or toreflectanychangeintheirexpectationswithregardtheretooranychangeinevents,conditionsorcircumstancesonwhichany such forward-looking statement is based. The forward-looking statements have neither been reviewed nor audited by the group’s external auditors, PricewaterhouseCoopers Inc.
APPROVAL OF THE INTEGRATED REPORTThe board of directors acknowledges its responsibility to ensure the integrity of the integrated report. The board has accordingly applied its mind to the integrated report and in the opinion of the board the integrated report addresses all material issues, and presents fairly the integrated performance of the organisation and its impacts. The integrated report has been prepared in line with best practice to the extent possible for the year under review. The board approved the integrated report on 23 August 2017.
For and on behalf of the board
Diederik Fouché Edwin Hewitt Independent non-executive chairman Chiefexecutiveofficer
ABOUT THIS REPORT continued
DAWNbelievesthatthevalueofitsbusinessisareflectionofthequalityofthecapitalunderpinningit,whichyieldsamodelthat is sustainable in the long-term. The group invests in its capitals to ensure its future, leadership and accountability and to generate value for its stakeholders.
INTEGRATED VALUE CREATION PROCESS
Financial
Manufactured
Intellectual
Human
Social andrelationship
Natural
Financial
Manufactured
Intellectual
Human
Social andrelationship
Natural
Inputs OutcomesOutputsBusinessactivities
Strategy and resource allocation
OutlookPerformance
Risks and opportunities
Gov
erna
nce
Governance
Business model
Business model
Vision and Mission
Vision and Mission
External environment
External environment
Value creation
Value creation
CAPITALSCAPITALS
F
M
I
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SR
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M
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Distribution & Warehousing Network Limited | | Integrated report 2017
The icon pertaining to the specific capital has been applied throughout the content as an indicator of where the specific capital is discussed.
INTEGRATED VALUE CREATION PROCESS continued
Financial
Manufactured
Intellectual
Human
Social andrelationship
Natural
Financial
Manufactured
Intellectual
Human
Social andrelationship
Natural
Inputs OutcomesOutputsBusinessactivities
Strategy and resource allocation
OutlookPerformance
Risks and opportunities
Gov
erna
nce
Governance
Business model
Business model
Vision and Mission
Vision and Mission
External environment
External environment
Value creation
Value creation
CAPITALSCAPITALS
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The group had two main operating segments, namely building and infrastructure, supported by the solutions segment. This reflectedthemainmarketsitserved.Thegroupamendeditsreportingstructureat31March2017fromthepreviousthreesegmentsofbuilding,infrastructureandsolutionstotradingandmanufacturingtobetterreflecttheactivitiesofthegroup,asopposed to the markets in which it operates. The structure below depicts the group as at the publication date, being 23 August 2017.
GROUP STRUCTURE
MA
NU
FAC
TUR
ING
TRA
DIN
G
BUILDING INFRASTRUCTURE
SOUTH AFRICA
#
* Associates# Joint ventures
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Distribution & Warehousing Network Limited | | Integrated report 2017
Products are distributed through a strategically positioned national distribution network. Various African countries are serviced through the export divisions of the various DAWN subsidiaries.
DAWN’s reach extends way beyond South African borders through its products that are exported to about 50 countries in sub-Saharan Africa, Asia, Australia, Europe, the Middle East, New Zealand and South America.
DAWN imports from Australia, Belgium, China, Denmark, Egypt, France, Germany, Hong Kong, Hungary, India, Israel, Italy, Korea, Malaysia, New Zealand, Portugal, Sicily, Spain, Taiwan, Turkey, the United Kingdom and the United States of America.
GEOGRAPHIC FOOTPRINT
DAWN’s presence
South Africa Swaziland
MozambiqueNamibia
ZambiaTanzania
Angola
BotswanaMauritius
DAWN is in the process of exiting from these
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10-YEAR REVIEWFGROUP
12 monthsended
31 March2017
R’000
12 monthsended
31 March2016R’000
Restated9 months
ended31 March
2015R’000
12 monthsended
30 June2014
R’000
Restated12 months
ended30 June
2013R’000
Restated12 months
ended30 June
2012R’000
12 monthsended
30 June2011
R’000
12 monthsended
30 June2010
R’000
12 monthsended
30 June2009
R’000
12 monthsended
30 June2008
R’000
INCOME STATEMENTS
Revenue 4 300 864 4 993 092 3 616 640 4 435 948 3 763 476 4 228 261 3 792 631 3 618 391 3 957 256 3 935 752
Operating (loss)/profit (468 818) (661 358) 454 323 80 461 252 660 163 172 33 070 207 868 245 635 411 294 Operating (loss)/profit before depreciation, amortisation, impairments and derecognitions of previous held interests (370 350) 22 125 (50 283) 134 841 328 653 232 459 170 110 267 164 302 972 449 832
Depreciation, amortisation, impairments and derecognitions (98 468) (683 483) 504 606 (54 380) (75 993) (69 287) (137 040) (59 296) (57 337) (38 538)
Net finance charges (58 588) (71 070) (36 484) (58 278) (52 451) (51 966) (46 531) (56 511) (125 876) (94 357)
Share of (loss)/profit in investments accounted for using the equity method (41 042) (5 891) 10 877 (18 763) 16 491 5 709 (706) 5 211 30 666 35 461
(Loss)/profit before income tax (568 448) (738 319) 428 716 3 420 216 700 116 915 (14 167) 156 568 150 425 352 398
Attributable (loss)/earnings (637 371) (762 936) 479 120 74 135 156 296 84 331 (30 325) 109 177 112 451 267 204
Headline (loss)/earnings (569 354) (157 116) (66 508) 117 606 155 005 83 033 38 085 98 914 143 701 260 954
Dividends paid 21 969 7 260 40 017 38 752 – – – – 30 042 –
Repayment of share premium – – – – – – – – 34 966 47 866
STATEMENTS OF FINANCIAL POSITION
Non-current assets 674 594 888 987 1 448 121 565 390 902 791 798 532 737 819 827 449 795 151 796 763
Property, plant and equipment 225 794 236 278 252 379 208 621 423 455 367 837 373 996 353 986 357 489 307 592
Intangible assets 65 126 66 433 149 060 175 326 271 356 238 574 218 099 271 253 277 373 250 686
Deferred tax assets 68 298 98 400 103 157 39 560 52 210 56 964 57 308 77 934 49 104 35 646
Trade and other receivables – – – – – – – 36 826 29 932 45 000
Investments in associates and joint ventures 296 261 453 496 913 635 141 883 155 770 135 157 – – – –
Derivative financial instruments 19 115 34 380 29 890 – – – – – – –
Current assets 1 297 183 1 796 657 2 276 557 1 835 172 2 114 804 1 824 203 1 778 512 1 671 087 1 511 116 1 877 190
Assets classified as held-for-sale 6 652 – 34 337 1 212 274 – – 42 466 – 70 000 –
Total assets 1 978 429 2 685 644 3 759 015 3 612 836 3 017 595 2 622 735 2 558 797 2 498 536 2 376 267 2 673 953
Share capital and reserves 375 147 1 016 548 1 850 563 1 487 230 1 455 777 1 269 990 1 173 669 1 197 163 821 868 747 372
Non-controlling interests 47 975 39 664 33 974 35 756 11 400 2 099 1 261 18 797 17 832 21 630
Total equity 423 122 1 056 212 1 884 537 1 522 986 1 467 177 1 272 089 1 174 930 1 215 960 839 700 769 002
Non-current liabilities 302 995 349 034 293 432 494 139 273 121 224 036 116 802 398 886 224 244 263 683
Interest-bearing borrowings 58 275 73 216 60 458 447 090 215 745 155 500 40 027 252 022 93 368 110 405
Non-interest-bearing borrowings – 2 643 5 013 – – 1 782 835 16 563 20 543 44 320
Deferred profit 28 749 34 076 39 403 18 425 26 150 31 943 37 735 61 536 59 008 61 000
Derivative financial instruments 78 217 89 454 55 980 – 3 080 7 008 6 990 6 526 – –
Retirement benefit obligation 5 066 5 100 6 035 5 820 5 462 6 141 5 979 – – –
Deferred tax liabilities 25 762 22 185 17 969 22 804 22 684 24 519 25 236 62 239 51 325 47 958
Share-based payment liabilities 5 329 4 883 – – – – – – – –
Operating lease liabilites 101 597 110 363 105 236 – – – – – – –
Trade and other payables – 7 114 3 338 – – – – – – –
Current liabilities 1 250 724 1 280 398 1 562 709 1 298 805 1 277 297 1 126 610 1 267 065 883 690 1 312 323 1 641 268
Borrowings 448 176 357 381 505 385 303 943 195 866 258 578 476 186 215 712 612 136 636 374
Other 802 548 923 017 57 324 994 862 1 081 431 868 032 790 879 667 978 700 187 1 004 894
Liabilities directly associated with assets classified as held-for-sale 1 588 – 18 337 296 909 – – – – – –
Total equity and liabilities 1 978 429 2 685 644 3 759 015 3 612 836 3 017 595 2 622 735 2 558 797 2 498 536 2 376 267 2 673 953
OTHER DATANumber of employees employed by the group (company and its subsidiaries) 2 341 2 984 3 064 4 543 3 937 3 744 3 839 3 966 4 274 4 480
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Distribution & Warehousing Network Limited | | Integrated report 2017
GROUP
12 monthsended
31 March2017
R’000
12 monthsended
31 March2016R’000
Restated9 months
ended31 March
2015R’000
12 monthsended
30 June2014
R’000
Restated12 months
ended30 June
2013R’000
Restated12 months
ended30 June
2012R’000
12 monthsended
30 June2011
R’000
12 monthsended
30 June2010
R’000
12 monthsended
30 June2009
R’000
12 monthsended
30 June2008
R’000
INCOME STATEMENTS
Revenue 4 300 864 4 993 092 3 616 640 4 435 948 3 763 476 4 228 261 3 792 631 3 618 391 3 957 256 3 935 752
Operating (loss)/profit (468 818) (661 358) 454 323 80 461 252 660 163 172 33 070 207 868 245 635 411 294 Operating (loss)/profit before depreciation, amortisation, impairments and derecognitions of previous held interests (370 350) 22 125 (50 283) 134 841 328 653 232 459 170 110 267 164 302 972 449 832
Depreciation, amortisation, impairments and derecognitions (98 468) (683 483) 504 606 (54 380) (75 993) (69 287) (137 040) (59 296) (57 337) (38 538)
Net finance charges (58 588) (71 070) (36 484) (58 278) (52 451) (51 966) (46 531) (56 511) (125 876) (94 357)
Share of (loss)/profit in investments accounted for using the equity method (41 042) (5 891) 10 877 (18 763) 16 491 5 709 (706) 5 211 30 666 35 461
(Loss)/profit before income tax (568 448) (738 319) 428 716 3 420 216 700 116 915 (14 167) 156 568 150 425 352 398
Attributable (loss)/earnings (637 371) (762 936) 479 120 74 135 156 296 84 331 (30 325) 109 177 112 451 267 204
Headline (loss)/earnings (569 354) (157 116) (66 508) 117 606 155 005 83 033 38 085 98 914 143 701 260 954
Dividends paid 21 969 7 260 40 017 38 752 – – – – 30 042 –
Repayment of share premium – – – – – – – – 34 966 47 866
STATEMENTS OF FINANCIAL POSITION
Non-current assets 674 594 888 987 1 448 121 565 390 902 791 798 532 737 819 827 449 795 151 796 763
Property, plant and equipment 225 794 236 278 252 379 208 621 423 455 367 837 373 996 353 986 357 489 307 592
Intangible assets 65 126 66 433 149 060 175 326 271 356 238 574 218 099 271 253 277 373 250 686
Deferred tax assets 68 298 98 400 103 157 39 560 52 210 56 964 57 308 77 934 49 104 35 646
Trade and other receivables – – – – – – – 36 826 29 932 45 000
Investments in associates and joint ventures 296 261 453 496 913 635 141 883 155 770 135 157 – – – –
Derivative financial instruments 19 115 34 380 29 890 – – – – – – –
Current assets 1 297 183 1 796 657 2 276 557 1 835 172 2 114 804 1 824 203 1 778 512 1 671 087 1 511 116 1 877 190
Assets classified as held-for-sale 6 652 – 34 337 1 212 274 – – 42 466 – 70 000 –
Total assets 1 978 429 2 685 644 3 759 015 3 612 836 3 017 595 2 622 735 2 558 797 2 498 536 2 376 267 2 673 953
Share capital and reserves 375 147 1 016 548 1 850 563 1 487 230 1 455 777 1 269 990 1 173 669 1 197 163 821 868 747 372
Non-controlling interests 47 975 39 664 33 974 35 756 11 400 2 099 1 261 18 797 17 832 21 630
Total equity 423 122 1 056 212 1 884 537 1 522 986 1 467 177 1 272 089 1 174 930 1 215 960 839 700 769 002
Non-current liabilities 302 995 349 034 293 432 494 139 273 121 224 036 116 802 398 886 224 244 263 683
Interest-bearing borrowings 58 275 73 216 60 458 447 090 215 745 155 500 40 027 252 022 93 368 110 405
Non-interest-bearing borrowings – 2 643 5 013 – – 1 782 835 16 563 20 543 44 320
Deferred profit 28 749 34 076 39 403 18 425 26 150 31 943 37 735 61 536 59 008 61 000
Derivative financial instruments 78 217 89 454 55 980 – 3 080 7 008 6 990 6 526 – –
Retirement benefit obligation 5 066 5 100 6 035 5 820 5 462 6 141 5 979 – – –
Deferred tax liabilities 25 762 22 185 17 969 22 804 22 684 24 519 25 236 62 239 51 325 47 958
Share-based payment liabilities 5 329 4 883 – – – – – – – –
Operating lease liabilites 101 597 110 363 105 236 – – – – – – –
Trade and other payables – 7 114 3 338 – – – – – – –
Current liabilities 1 250 724 1 280 398 1 562 709 1 298 805 1 277 297 1 126 610 1 267 065 883 690 1 312 323 1 641 268
Borrowings 448 176 357 381 505 385 303 943 195 866 258 578 476 186 215 712 612 136 636 374
Other 802 548 923 017 57 324 994 862 1 081 431 868 032 790 879 667 978 700 187 1 004 894
Liabilities directly associated with assets classified as held-for-sale 1 588 – 18 337 296 909 – – – – – –
Total equity and liabilities 1 978 429 2 685 644 3 759 015 3 612 836 3 017 595 2 622 735 2 558 797 2 498 536 2 376 267 2 673 953
OTHER DATANumber of employees employed by the group (company and its subsidiaries) 2 341 2 984 3 064 4 543 3 937 3 744 3 839 3 966 4 274 4 480
Page 10
1. Headline earnings per share
Profitattributabletoordinaryshareholdersadjustedforanylosses
or gains of a capital nature and other items as set out in the
headline earnings per share accounting circular (SAICA circular
3/2012) divided by the weighted number of shares in issue during
the year.
2. Attributable earnings per share
Profitattributabletoordinaryshareholdersdividedbytheweighted
number of shares in issue during the year.
3. Fully diluted earnings per share
Profitattributabletoordinaryshareholdersdividedbytheweighted
number of shares in issue during the year, inclusive of incentive
shares to be issued.
4. Net asset value per share
Ordinary shareholders’ interest (excluding non-controlling interests)
divided by the number of ordinary shares in issue at year-end and
including deferred ordinary shares, net of treasury and incentive
shares.
5. Net tangible asset value per share
Net asset value per share excluding intangible assets.
6. Return on ordinary shareholders’ funds
Net comprehensive income attributable to ordinary shareholders
as a percentage of ordinary shareholders’ funds at beginning of the
year.
10-YEAR REVIEW continued
F
GROUP Definitions
12 monthsended
31 March2017
R’000
12 monthsended
31 March2016R’000
Restated9 months
ended31 March
2015R’000
12 monthsended
30 June2014
R’000
Restated12 months
ended30 June
2013R’000
Restated12 months
ended30 June
2012R’000
12 monthsended
30 June2011
R’000
12 monthsended
30 June2010
R’000
12 monthsended
30 June2009
R’000
12 monthsended
30 June2008
R’000
Ordinary share statisticsWeighted average shares (’000)
For earnings per share 236 744 239 686 237 057 234 517 234 517 234 063 233 681 202 235 175 975 174 771
For fully diluted earnings per share 236 744 240 417 239 263 239 890 237 875 238 567 233 681 216 676 188 942 187 738
Shares in issue (’000) 236 744 242 243 242 243 241 843 241 443 240 243 240 243 240 243 198 576 191 464
Shares held in treasury (’000) 30 875 30 875 – 6 733 7 726 7 726 8 718 8 258 7 726 7 726
Share Incentive Trust (’000) – – – – – – – – 12 967 12 967
Deferred ordinary shares (’000) – – – 400 800 2 000 2 000 2 000 2 000 4 000
Market capitalisation (R’000) 244 665 968 972 1 574 579 2 636 088 1 839 795 1 477 494 1 535 152 1 849 871 1 290 745 2 393 303
Market price (cents) 101 400 650 1 090 762 615 639 770 650 1 250
Headline (loss)/earnings per share (cents) 1 (240,49) (65,55) (28,06) 50,51 66,10 38,03 16,30 48,91 81,66 149,31
Attributable (loss)/earnings per share (cents) 2 (269,22) (318,31) 202,11 31,62 66,65 35,47 (12,98) 53,99 63,90 152,89
Fully diluted (loss)/earnings per share (cents) 3 (269,22) (317,34) 200,25 30,90 65,71 34,80 (12,98) 50,39 59,52 142,33
Net asset value per share (cents) 4 158,46 440,66 794,87 647,25 620,76 541,53 488,53 511,64 456,89 427,63
Net tangible asset value per share (cents) 5 130,95 412,95 788,68 572,49 501,38 435,88 397,75 395,71 302,69 284,19
Dividend per share (cents) – – 16,5 16,0 – – – – 35,00 –
Capital repayment per share (cents) – – – – – – – – – 25,00
Returns on productivity
Return on ordinary shareholders’ funds (%) 6 (62,1) (41,6) 32,0 5,5 12,3 7,1 (2,5) 13,3 15,1 51,8
Return on total assets (%) 7 (23,7) (24,6) 12,1 2,2 8,2 6,1 1,3 8,3 10,3 15,4
Asset turnover ratio 8 6,3 3,7 1,7 2,2 2,6 2,8 2,9 2,3 3,8 4,1
Operating profit margin 9 (9,2) (0,3) (2,2) 2,4 5,5 3,9 0,9 5,7 7,1 10,5
Turnover per employee (R’000) 1 837 1 673 1 180 1 650 1 087 1 054 923 854 885 879
Solvability and liquidity
Financing cost cover (times) 10 (6,75) (0,20) (2,19) 1,84 4,82 3,14 0,71 3,68 2,20 4,36
Debt:equity ratio 11 86,84 29,53 8,43 32,46 10,30 15,80 30,30 21,10 71,40 68,20
Current asset ratio 12 1,04 1,40 1,46 1,41 1,65 1,61 1,40 1,89 1,20 1,13
Acid-test ratio 13 0,62 0,78 0,86 0,90 0,92 0,91 0,76 1,05 0,62 0,67
Page 11
Distribution & Warehousing Network Limited | | Integrated report 2017
GROUP Definitions
12 monthsended
31 March2017
R’000
12 monthsended
31 March2016R’000
Restated9 months
ended31 March
2015R’000
12 monthsended
30 June2014
R’000
Restated12 months
ended30 June
2013R’000
Restated12 months
ended30 June
2012R’000
12 monthsended
30 June2011
R’000
12 monthsended
30 June2010
R’000
12 monthsended
30 June2009
R’000
12 monthsended
30 June2008
R’000
Ordinary share statisticsWeighted average shares (’000)
For earnings per share 236 744 239 686 237 057 234 517 234 517 234 063 233 681 202 235 175 975 174 771
For fully diluted earnings per share 236 744 240 417 239 263 239 890 237 875 238 567 233 681 216 676 188 942 187 738
Shares in issue (’000) 236 744 242 243 242 243 241 843 241 443 240 243 240 243 240 243 198 576 191 464
Shares held in treasury (’000) 30 875 30 875 – 6 733 7 726 7 726 8 718 8 258 7 726 7 726
Share Incentive Trust (’000) – – – – – – – – 12 967 12 967
Deferred ordinary shares (’000) – – – 400 800 2 000 2 000 2 000 2 000 4 000
Market capitalisation (R’000) 244 665 968 972 1 574 579 2 636 088 1 839 795 1 477 494 1 535 152 1 849 871 1 290 745 2 393 303
Market price (cents) 101 400 650 1 090 762 615 639 770 650 1 250
Headline (loss)/earnings per share (cents) 1 (240,49) (65,55) (28,06) 50,51 66,10 38,03 16,30 48,91 81,66 149,31
Attributable (loss)/earnings per share (cents) 2 (269,22) (318,31) 202,11 31,62 66,65 35,47 (12,98) 53,99 63,90 152,89
Fully diluted (loss)/earnings per share (cents) 3 (269,22) (317,34) 200,25 30,90 65,71 34,80 (12,98) 50,39 59,52 142,33
Net asset value per share (cents) 4 158,46 440,66 794,87 647,25 620,76 541,53 488,53 511,64 456,89 427,63
Net tangible asset value per share (cents) 5 130,95 412,95 788,68 572,49 501,38 435,88 397,75 395,71 302,69 284,19
Dividend per share (cents) – – 16,5 16,0 – – – – 35,00 –
Capital repayment per share (cents) – – – – – – – – – 25,00
Returns on productivity
Return on ordinary shareholders’ funds (%) 6 (62,1) (41,6) 32,0 5,5 12,3 7,1 (2,5) 13,3 15,1 51,8
Return on total assets (%) 7 (23,7) (24,6) 12,1 2,2 8,2 6,1 1,3 8,3 10,3 15,4
Asset turnover ratio 8 6,3 3,7 1,7 2,2 2,6 2,8 2,9 2,3 3,8 4,1
Operating profit margin 9 (9,2) (0,3) (2,2) 2,4 5,5 3,9 0,9 5,7 7,1 10,5
Turnover per employee (R’000) 1 837 1 673 1 180 1 650 1 087 1 054 923 854 885 879
Solvability and liquidity
Financing cost cover (times) 10 (6,75) (0,20) (2,19) 1,84 4,82 3,14 0,71 3,68 2,20 4,36
Debt:equity ratio 11 86,84 29,53 8,43 32,46 10,30 15,80 30,30 21,10 71,40 68,20
Current asset ratio 12 1,04 1,40 1,46 1,41 1,65 1,61 1,40 1,89 1,20 1,13
Acid-test ratio 13 0,62 0,78 0,86 0,90 0,92 0,91 0,76 1,05 0,62 0,67
7. Return on total assets
Operatingprofitbeforefinancecharges,theresultsofassociates
and income tax as a percentage of total assets.
8. Asset turnover ratio
Ratio of revenue to total assets less current liabilities and non-
controlling interest in equity.
9. Operatingprofitmargin
Operatingprofitonordinaryactivitiesasapercentageofrevenue.
10. Financing cost cover
Operatingprofitdividedbynetfinancingcost.
11. Debt:equity ratio
Ratio of net interest-bearing debt to total shareholders’ interest,
including non-controlling interests and cash and cash equivalents.
12. Current ratio
The ratio of current assets to current liabilities.
13. Acid-test ratio
The ratio of current assets less inventory to current liabilities.
Page 12
DAWN AND SOUTH AFRICA’S ECONOMIC LANDSCAPETheSouthAfricaneconomyhasofficiallymovedintoarecession.DatafromStatisticsSouthAfricaindicatedthatthefirstquarter contraction was led by weak manufacturing and trade, with manufacturing falling by 3,7% and trade falling by 5,9%. This suggests that high unemployment and stagnant wages are dragging down South Africa’s long-suffering consumer sector.
Politicalinstability,highunemploymentandcreditratingdowngradeshavealsodamagedbusinessandconsumerconfidenceinSouth Africa. The rand extended its losses against the dollar, while government bonds also weakened.
DAWN’S KEY ACTIONS DURING THE YEARAgainst this background, the operational losses incurred in F2016 worsened in F2017. The board and management, therefore, focused diligently in the year under review on aspects which would ensure DAWN’s sustainability. These include continued focus on the following areas:
• identifying the key areas which must be addressed to facilitate a turnaround;
• implementingthefirstphaseoftheturnaroundplan,whichcomprisedthedown-sizing,closureandconsolidationofbusinesses,therebyreducingthepermanentcostbasebyR125million,excludinginflation;
• findingabest-fitchiefexecutiveofficerandchieffinancialofficertoreplaceinterimchiefexecutiveofficer,StephenConnelly,whohasbeenappointedexecutivedeputychairman;andoutgoingchieffinancialofficer,DavidAustin,whoresigned effective 30 June 2017; and
• recapitalising the group through a rights offer.
During the year the board focused on building the executive management team for the future through making the following appointments:
• EdwinHewittwasappointedchiefexecutiveofficerwitheffectfrom1April2017.Edwinbringsaproven,successfulturnaroundtrackrecord.PriortohisappointmentaschiefexecutiveofficerofDAWN,EdwinwasappointedasthechiefrestructuringofficertothegroupinFebruary2017.Themomentumoftheturnaroundplan,whichwasstartedinthepreviousyear,wasacceleratedbyEdwininhisroleaschiefrestructuringofficerandwill,intheyearahead,befurthergalvanisedbyhisappointmentaschiefexecutiveofficerandhisenhancedexecutiveteam.
• FollowingEdwin’sappointment,StephenConnelly,whohasbeentheinterimchiefexecutiveofficerduringtherestructuringand down-sizing, became executive deputy chairman, and will support the executive in this role until December 2017. Stephen’simpactonthegrouphasbeensubstantialduringtheinitialturnaroundphase.Heplayedasignificantroleinthefinalisationofthegroup’srecapitalisationprogrammeandhiseffortsaremuchappreciated.
• ChrisBooyenswasappointedasfinancialdirectorandchieffinancialofficerwitheffectfrom1May2017.ChrisisaCA(SA)withmorethan40years'experienceofwhichfiveyearshavebeeninthebuildingandmaterialssupplyindustry.HewasgroupfinancialdirectorofIliadAfricaand,priortothat,financialexecutiveandexecutivedirectoratvariousTigerBrandssubsidiaries.
CHAIRMAN’S REPORT
This year DAWN faced the harshest trading conditions yet since the market crash of 2008. The company commenced its turnaround programme in F2016 and progressed it in F2017 with the down-sizing, closure and consolidation of businesses to match the revenue generation reality of a very challenging economic environment.
Looking forward, it is important to look past the challenging economic conditions to focus on regaining market share andimprovingefficienciesfortheDAWNbusinessmodelsto work optimally.
Diederik Fouché
Page 13
Theboardisconfidentthatthisnewexecutive management team has the skills and expertise to deal assertively with the challenges DAWN continues to face.
A new board member was also appointed in F2017. Akhter Moosa was appointed as an independent non-executive director and chairman of the audit and risk committee with effect from 28 March 2017. Akhter’s background adds further value to the board, as he is an audit and risk committee member of the Competition Tribunal, a disciplinary committee member of the Independent Regulatory Board of Auditors, an advisor to SANRAL’s audit committee and has recently been appointed as a board member at SAA.
Post year-end, two non-executive directors were appointed to the board, namely Charles Boles (independent) and Theunis deBruyn.CharleshasexperienceincorporatefinanceandhashadsignificantexposuretotheindustriesandmarketswhereDAWN is positioned. Theunis is a shareholder and non-executive director of RECM and Calibre Limited who, through its subsidiary RAC Investment Holdings (Pty) Ltd, acquired 16,76% of DAWN during April 2017 on the conclusion of the rights issue.
We welcome these directors to the board and look forward to their contributions.
CORPORATE GOVERNANCE The board of DAWN is responsible for ensuring that the activities of the group take place according to sound governance processes and structures that ensure ethical behaviour while supporting the group’s recovery strategy. Group executive management is accountable to the board for the group’s performance and progress against stated targets.
Sub-committees of the board have clear mandates for the governance of the board’s major areas of responsibility, including auditandfinancialcontrols,risk,strategydevelopment,remuneration,transformationandsafety.Detailsoftheactivitiesaresetout in the integrated report.
SUPPORT TO EXECUTIVES ON STAKEHOLDER ENGAGEMENTThe board continued to work closely with the management team in F2017 to ensure appropriate engagement with stakeholders. Engagement is an integral part of developing an understanding of DAWN’s stakeholders’ needs, interests and expectations and assists the group with strategic, sustainable decision-making. Collaboration and regular interaction with all stakeholder groups are essential to DAWN’s long-term resilience and to the effectiveness of its integrated sustainability approach. DAWN considers its various stakeholders as partners in its endeavours and has adopted a stakeholder-inclusive approach in determining material challenges and opportunities within the group.
ECONOMIC OUTLOOK AND HOW IT IMPACTS DAWNInflationdecreasedforthefourthmonthinarowinJuly2017,remainingwithintheSouthAfricanReserveBank’stargetrangeof3% to 6%. The annual consumer price index (CPI) eased to 4,6% in July 2017, the lowest level recorded since September 2015. In July 2017, the South African Reserve Bank revised its economic growth outlook for the country downwards, from 1% to 0,5% forthisyear.Followingontheimprovedinflationoutlookandthedeterioratedgrowthoutlook,therepurchaseratewasreducedby 25 basis points to 6,75% per annum from 21 July 2017.
InthefirstweekofApril2017,Standard&Poor’sGlobalRatingsandFitchRatingsbothdowngradedSouthAfricatosub-investment grade. In June 2017, Moody’s Investors Service downgraded South Africa to Baa3, one notch above sub-investment grade.
Againstthisbackgroundofaslowingeconomyandwithlimitedprospectsofanysignificantimprovementindomesticeconomicconditions to stimulate consumer disposable income, the trading environment is likely to remain constrained for the foreseeable future.
SouthAfricaisalsoexperiencingthelowestbusinessconfidencelevelsseeninthelasteightyears.
TheBuildingConfidenceIndex,afterreachingitshighestlevelinmorethanayearof43pointsinQ12017(whichisstill7pointsbelowequilibrium),fellsharplyto32pointsinQ22017.Moreover,allofthesub-subsectorsmeasuredregisteredadeclineinconfidence.Thishasonlyhappenedinfiveotherinstancessincetheindexwasfirstcompiledin1997.Underpinningthefallinconfidencewasadeteriorationinbuildingactivityaswellasasharpdropinoverallprofitability.Continuedlowsales,coupledwithrisinginputcosts,weighedsignificantlyonindustryprofitabilityinQ22017.Thefallinconstructionactivityisconsistentwithan environment of constrained public sector capital expenditure.
CHAIRMAN’S REPORT continued
Distribution & Warehousing Network Limited | | Integrated report 2017
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Unless the economy deteriorates markedly in F2018 from current levels, it is important for DAWN to look past the challenging market conditions and to focus on regaining market share for the business model, in particular, to work optimally. In the trading segment, this will be achieved by strongly positioning the group as the master distributor of its product lines to target industries. By refocusing the organisation on the basic principles and success factors upon which DAWN was built, the group has the opportunity to claw back market share and grow the bottom line. Similarly, in the manufacturing segment, the group is focusing onsubstantiallyincreasingvolumethroughputandeliminatinginefficiencies.Refertopages17and18ofthechiefexecutiveofficers'reviews.
The turnaround plan has been cemented in strategies and converted into business plans. In line with the group’s new approach of decentralised management, authority has been devolved to individual business units to ensure they can account for their profitperformancetotheexecutivecommitteeonamonthlybasis.
It is the board’s intention that the implemented strategies, discussed above, be instrumental in bringing DAWN back to profitability.Theturnaroundprocessisgainingtraction,includingarenewedfocusonDAWN’scorebusinessthroughaback-to-basics approach.
The board, however, felt it prudent to draw attention to the timing risks of DAWN’s turnaround, as certain potential events and conditions could give rise to uncertainty that may cast doubt on the group’s ability to continue as a going concern. These potentialeventsandconditionsaresetoutinthechieffinancialofficer’sreportonpage20.
AsannouncedonSENSon2August2017,DAWNbreachedoneofthefinancialcovenantscontainedinthetermsheetgoverning the group's banking facilities with Absa Bank Limited. Based on engagements by the group to date, Absa Bank Limitedhasformallycondonedthebreach.Refertopage25ofthechieffinancialofficer'sreportforfurtherinformation.
APPRECIATIONI extend my deepest gratitude to my fellow board members for their unwavering support and guidance, particularly through the restructuring, re-engineering and turnaround process. Their participation in a large number of additional meetings over and above the usual participation requirements of a board, and their guidance and monitoring of the progress of the group during the year, are very much appreciated. I look forward to their continued strategic input as we steer DAWN towards a new future.
Many thanks and appreciation to our executive management team and all personnel who have done a great job in very tough conditions.
Finally, my appreciation goes out to all our stakeholders for their support in exceptionally trying circumstances.
Diederik Fouché Independent non-executive chairman
23 August 2017
CHAIRMAN’S REPORT continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
REVIEW FROM THE OUTGOING INTERIM CEO, STEPHEN CONNELLY Ibecametheinterimchiefexecutiveofficeron1June2016afterDerekTod’sretirementfromthegroup,atapointwhentheeconomy was in a downward trajectory, which worsened as the year progressed. DAWN was losing money in many areas, notably in Sangio Pipe, Incledon, its associate Grohe DAWN Watertech (GDW) and most of the African operations. WHS, DPI PlasticsandSwanPlasticswereprofitable,butsalesinthesebusinessesstartedtoreflectthepressurefromthedecliningeconomyandlossessoonfollowed.Thefirstpriority,therefore,wastostopthelosses.
It became clear that the tactic of chasing sales based on price, particularly in DAWN’s largest business, WHS, was not working – sales volumes did not improve and margins weakened. The executive team did its best to reverse this, but with limited success, given the culture of the business to sell mainly on price. Establishing a culture of accountability has also taken longer than envisaged. Spending by DAWN’s various customers continued to decline as the economy weakened during the 2017 financialyear.This,inturn,impactedDAWN’sturnaroundprogramme,resultinginalongerimplementationtimeandmoredrastic action than previously anticipated.
Furthermore, there had been an exodus of skills in the businesses, particularly in Incledon. There were additional skills losses during the year and, in particular, the loss of two of the three remaining executive directors shortly after the F2016 year-end as a consequence of two reportable irregularities. Valuable institutional knowledge was thus lost to the business and needed to be rebuiltinaverydifficulttradingenvironment.Inaddition,newmanagingdirectorswereappointedatWHSandIncledon.
SNAPSHOT OF F2017First half of the year
April to September 2016
The group incurred a R52 million operational loss. In addition, there was R286 million (pre-tax) in down-sizing costs and impairments due to the actions taken to right-size the business and stop the losses.
Second half of the year
From October 2016 to March 2017
InthemonthsofOctoberandNovember2016thegrouppostedoperationalprofits,butafurtherdropinsalespushedthegroupbackintolossesfortheremainderofthefinancialyearandnecessitatedfurtherremedialaction.ThegroupincurredaR65 million (pre-tax) operational loss. In addition, there was R63 million in further down-sizing costs and impairments. DAWN’s permanentcostbasehasbeenreducedbyR125millionperannum(excludinginflation)overthepasttwoyears.
Impairments included those in Heunis Steel, GDW and an onerous lease provision. DAWN also experienced cash constraints due to the losses and the cash costs of the remedial action. It became clear that a rights offer was required in order to ensure the group’s survival.
CHIEF EXECUTIVE OFFICERS’ REVIEWS
Tobetterreflectthegroup’soperations,insteadofreportingon the contribution of the building, infrastructure and solutions segments to group results, DAWN now reports on the contributions of the trading and manufacturing segments. The solutions segment has been integrated into the rest of the business.
Thechiefexecutiveofficer'sreviewthisyearissplitintoareviewfromStephenConnelly,whomanagedthegroupfrom1June2016to31March2017,aswellasaforward-lookingreviewfromEdwinHewitt,thenewchiefexecutiveofficerwhowasappointedon 1 April 2017.
Stephen Connelly
Page 16
Post year-end events
• Proceeds of a R358 million rights issue were received which, crucially, gives management time to complete the turnaround andgivessuppliersandcustomersconfidenceinthesurvivalofthegroup.
• New management appointed:
– Permanentchiefexecutiveofficer–EdwinHewitt;
– Newchieffinancialofficer–ChrisBooyens;and
– New managing director at DPI Plastics.
• In April, always a slow month due to the number of public holidays, the group posted a loss, but in May and June it posted profitsoncemore.
• GDW postponed reporting, which delayed DAWN’s results by two weeks to the middle of July 2017.
• As advised in the cautionary announcement disseminated on SENS on 11 July 2017, which cautionary announcement was renewed on 23 August 2017, the terms of the proposed transaction are still being negotiated regarding the potential disposal of DAWN’s 49% holding in GDW. It is the view of the DAWN board that the transaction, if successfully concluded, will be a positive step in the turnaround process of the group.
APPRECIATIONI thank those employees who remained loyal to the group and continued to work hard despite the adverse circumstances. We continuedtoimplementdifficultchangesthisyear.Irealisethesewerehard,withmanyofyouseeingyourcolleaguesleave.Thank you for your continued belief and commitment to the group.
To the executive management team, I thank you for the long hours and huge effort you have put into working with me to turn DAWN around.
Toourcustomersandsuppliers,thankyouforyoursupportindifficultconditions.PleasebeassuredthatF2018willbeayearwhere you see DAWN revert to its previous high standards of service.
WithEdwinHewitt’sappointmentaschiefexecutiveofficerinApril2017,Ibecameexecutivedeputychairmanofthegroup.My new (temporary) role is to act as support and a soundboard for the executive team until December 2017. The board and I welcome Edwin’s clear-sighted, focused, no-nonsense approach to turning DAWN around. He has already made a clear impact on the business and I wish him and his team every success with phase two of the turnaround programme in F2018.
Stephen Connelly Executive deputy chairman (interimchiefexecutiveofficerforF2017)
23 August 2017
CHIEF EXECUTIVE OFFICERS’ REVIEWS continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
REVIEW FROM THE INCOMING CEO, EDWIN HEWITT
INTRODUCTION
Iwasappointedasthegroup’snewchiefexecutiveofficeraftertheF2017year-end,somyreviewfocusesonwhatiscurrentlybeing implemented in the group, as well as the outlook.
TURNAROUND UPDATEAs outlined in Stephen’s review, phase one of the turnaround focused on the down-sizing, closure and consolidation of businesses to match the new sales reality. This process is being continued in phase two, together with restoring the business’ fundamentals through a number of strategic interventions:
1. Decentralisation of the business and the appointment of new management After my appointment, it quickly became apparent that a number of basic business premises were not in place. Most
importantly,thegrouplackedacultureofaccountability.Thisisbeingfirmlyaddressingthroughthecreationofdefinedbusiness plans and budgets, supported by focused weekly meetings tracking progress thereon and identifying whether corrective action is required to remain on track.
New managing directors have been appointed at WHS, Incledon and DPI Plastics. These senior managers are highly capableindividualswithsignificantexperienceandareabletotakeresponsibilityfortheperformanceoftheirrespectivebusinesses.
2. Stabilising the balance sheet A core part of DAWN’s turnaround strategy involves an aggressive focus on managing working capital, including
monitoring daily sales, cash, margins and stock.
The management team is mindful that DAWN is obliged to meet the new bank covenants on EBITDA and working capitaloutlinedinthechieffinancialofficer’sreport.TheimmediatefocusremainsonreturningthegrouptosustainableprofitabilityandprogresshasbeenmadeinthisregardpostF2017year-end,withmostgroupbusinessescurrentlyoperating at breakeven or slightly better. It is important to note that any further deterioration in the economy could result in a return to losses.
3. Increaseefficiencies
Trading
Thekeytogreaterefficienciesandarecoveryinthetradingsegmentistorecouplostmarketsharethroughregainingmasterdistributorstatus.Increasedefficiencieshavetobeimplementedthroughoutthesupply-chain,includingtheactivemanagement of volume-related term agreements.
CHIEF EXECUTIVE OFFICERS’ REVIEWS continued
Thegrouphasbeenthroughaverydifficultperiod,witha severe decline in its markets and numerous internal issues to address. However, I believe the DAWN business model is sound and, as a new management team, we are committed to doing everything possible to secure the group’sturnaround.
Edwin Hewitt
Page 18
Being a master distributor is fundamental to DAWN’s business model. In DAWN’s largest segment, trading, a number of issues led to the group losing this status over the past few years. During the economic boom years leading up to the crash of 2008/2009, WHS, the single largest business in the group, took a decision to wholesale multiple brands when their preferred local manufacturers could not keep up with WHS’ customer demand. As normality returned to the market, WHS continued with this practice, competing with their traditional suppliers. As a result, traditional suppliers were forced to try and establish alternative routes to market resulting in the loss of DAWN’s master distributor status.
As the trading segment’s business model operates optimally on high sales volumes, the effects of volume and related revenuedeclines,asseenthroughoutF2017,exacerbatedbythelossofmasterdistributorstatus,hadasignificantlynegative effect on the business. This reached breaking point when revenue turned sharply negative in the second half of F2017 as a result of the further decline in the economy. The competition for a slice of the pie in a smaller market became extremelyharshandthegroupsawitsvolume-driventradebenefitsdecline.This,inturn,impactedcashflowsandputpressure on the group’s ability to pay its creditors timeously. At the same time, the group’s stock levels became bloated andimbalanced.Therestrictedcashflowsinhibitedtheabilitytobuynewstock,whichledtosuppliersincreasinglygoingaround DAWN, direct to the customers, further worsening revenue.
Inaddition,thegroup’sserviceefficiencyslippedinF2017.However,thereisalreadyasignificantdriveunderwaytoimprove levels of service, including the restoration of supplier and customer relationships. DAWN’s distribution capability, geographic reach, storage capacity, route-to-market development and ability to break bulk providing the customer with on-time-in-full delivery (OTIF) is a key differentiator as a master distributor. Restoring a world class OTIF and credit funding, executedefficiently,willbringmarketsharebacktothegroup.
Furthermore,thereisopportunityforasignificantrationalisationofproductacrossthegrouptodecreaseduplicatedproductsandtoensurefocusonspecificpartnerbrands.
Reducing the turnover of employees to less than 10% is a key element of the turnaround strategy. Staff turnover reached anunacceptablelevelof30%duringF2017and,withspecificinterventions,hasalreadyimprovedto21%postyear-end.Thesalesteamisbeingre-energisedthrougharevisedrewardandincentiveplan,clarifiedoperatingmodel,updatedproducttrainingandastrategicfocusoncustomersandcustomerservice.AspartofDAWN'smarketingstrategy,thefleetof sales representative vehicles have been branded to increase DAWN's exposure and create awareness of the refreshed DAWN brand.
Manufacturing
Thegroup’smanufacturingbusinessesarelargelycost-inefficient(withtheexceptionofSwanPlastics).Thereismorescope for cost reduction.
Thefocusonestablishingworld-classmanufacturingandproductionefficienciesisbeingpromotedbytheappointmentofatechnically-accomplishednewmanagingdirectoratDPIPlastics.Oneofhisfirstprioritiesistore-engineerthefactoriesto ensure lower factory breakeven points, including reducing the PVC factory’s breakeven point by at least 18%.
Itisimportanttomakefurtherinroadsintothehigher-marginbuildingfittingsmarkettoreplacereducedgovernmentspend and to also increase the group’s share of the HDPE market.
SwanPlasticsisalow-cost,veryefficientPVCproductmanufacturer,deliveringgoodreturnsinatoughmarket.
4. Understanding the issues through the eyes of our customers and suppliers As mentioned above, the restoration of supplier and customer relationships will be key to regaining the master distributor
role. Since my appointment, I have visited a large number of customers and suppliers to understand their issues and address their concerns.
BasedontheresultsoftheAugust2016customersurvey,whichwerereconfirmedduringacustomerstoretourinMay2017,customersandsuppliersreallyneedandwantDAWNtofulfilthemasterdistributorrole.ThishasreconfirmedthatDAWN’s business model is sound and the group has made good headway with restoring its master distributor status in the months post-year-end.
CHIEF EXECUTIVE OFFICERS’ REVIEWS continued
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Customers
DAWN provides access to quality brands and product ranges for its customers, as well as optimal load delivery, assisting customerswithworkingcapitalefficienciesthroughprovidingcredit,OTIF,just–in-timedeliveryandprovidingproductandmarket insight and expertise. Management has re-negotiated all major supply agreements to ensure the group works closely with its customers to achieve synergies, which will promote market and sales growth for the customer and DAWN. This will allow DAWN to once again add value to the customers’ business proposition and ultimately create a single point of procurement for its brands.
Suppliers
DAWN provides its suppliers with access to the market through a single channel. By regaining master distributor status, the groupwillprovidesupplierswithpull-throughdemandfromDAWN’scustomers.DAWNalsoprovidesefficienciesontherouteto market, a wide geographic footprint, break-bulk services and the provision of credit to the smaller retailers. DAWN has developed an expertise in credit provision, which is a valuable advantage as most suppliers cannot carry this risk. The provision of all these services allows the group’s suppliers to focus on their core businesses of manufacturing.
CONCLUSIONThe restructuring and improvements already made, together with the key strategic and operating initiatives implemented in the lastfewmonthsandthosecurrentlyunderway,haveensuredthatthegroupisdoingallitcantoreturntosustainableprofitability.
Care has been taken to retain the group’s geographic reach to ensure that, when growth returns to the group’s markets, it is well positioned to capitalise on the opportunities which will arise.
Asamanagementteam,thefocusisfirmlyondeliveringontheshort-termactionplan,tocompletetheturnaroundandtoachieveatleastabreakevenpositioninF2018,providedthereisnofurthersignificantweakeningoftheeconomy.Itshouldbenotedthatthesecondhalfofthefinancialyearistraditionallyweakerasaresultofseasonalityandstrikesareariskiflabournegotiations cannot be concluded successfully.
Overthemedium-term,thegroupwillfocusonachievingprofitabilityinF2019andmeetingprofitbeforeinterestandtaxation(PBIT) margins in F2020 of 5% in the trading segment and 12% in the manufacturing segment.
APPRECIATIONOn behalf of my management team, I would like to thank all our employees. In an extremely challenging working environment, your hard work on the turnaround and resilience are greatly appreciated.
I am receiving exceptional support from the board and the management team, above and beyond the call of duty, and I thank them.
Toourcustomers,suppliers,bankersandshareholders,yourcontinuedsupportindifficultconditionsistrulyappreciatedandwelook forward to a close working relationship with you going forward.
Asthenewchiefexecutiveofficer,Ireaffirmmyandthemanagementteam’scommitmenttodoingallwecantomoveDAWNalong the road to sustainable recovery.
Edwin Hewitt Chiefexecutiveofficer
23 August 2017
CHIEF EXECUTIVE OFFICERS’ REVIEWS continued
Page 20
INTRODUCTIONAsdescribedinthereviewsofthechairmanandchiefexecutiveofficers,growthintheeconomyremainedsubduedandthenbecamesignificantlyworseinthesecondhalfofF2017againstthebroadersettingofadifficultglobaleconomicenvironment.
DAWN’s performance was particularly badly hit from December 2016 due to the festive season period of subdued trading and theshrinkingoftheeconomyinthefirstquarterof2017by0,7%.Againsttheseconditions,DAWNpostedalosspershareand headline loss per share for F2017 of 269,2 (F2016: 318,3) cents per share and 240,5 (F2016: 65,6) cents per share, respectively.
After-tax write-downs and impairments of R352,2 million were recorded in F2017, following impairments of R642,4 million in F2016.
The sustained adverse performance resulted in DAWN having to approach shareholders for a rights issue of R358 million thisyear,ofwhichaR200millionportionwasrequiredtorepaybridgingfinanceandthebalancetofundfutureoperations.InDecember2016,DAWNreceivedR50millionbridgingfinancefromAbsaBankLimited(Absa).ThiswasrepaidinJanuary2017after obtaining the proceeds from the sale of Heunis Steel. A further repayment of R75 million was made to Absa in April 2017 to reduce the revolving credit facility to R100 million. The facility extends until 31 March 2018. The overall focus remains on returningthegrouptosustainableprofitability.
GOING CONCERN ASSESSMENT IN CONTEXTTheboardbelievesthatthegroupissolventandliquidforthe12monthsfollowing14July2017,basedoncashflowforecastsprepared and available facilities, and therefore deemed the going concern basis of preparation appropriate. The auditors, PricewaterhouseCoopersInc,concurredwiththisviewandissuedanunmodifiedauditopinionontheannualfinancialstatements for the year ended 31 March 2017.
The board, however, felt it prudent to draw attention to the timing risks of DAWN’s turnaround as certain potential events and conditionscouldgiverisetoamaterialuncertaintythatmaycastsignificantdoubtonthegroup’sabilitytocontinueasagoingconcern. These potential events and conditions include:
• no further material deterioration in the economy;
• theachievementoftheforecastcashflowinanuncertaineconomy;and
• maintaining the group’s ability to fund short-term liquidity requirements, which is dependent on adequate funding facilities.
The auditor’s report, therefore, included a Material Uncertainty Related to Going Concern thereby highlighting a matter in the annualfinancialstatementsfundamentaltousers’understanding.
Management is actively addressing the group’s short-term challenges, with actions including corporate restructuring activities and alternative funding options.
Forfurtherinformationregardingthegoingconcernassessment,pleaserefertonote44onpage212oftheannualfinancialstatements.
CHIEF FINANCIAL OFFICER’S REPORTF
Chris Booyens
Theresultsweresignificantlyaffectedbytheright-sizingcosts, associated with phase one of DAWN's turnaround plan, as well as the continued challenging market conditions, the impact of the widespread drought in South Africa and poor operating performance of the group.
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INCOME STATEMENT
Sales and gross marginRevenueforthefullyeardeclinedby13,9%,comprisinga9,9%and18,4%decreaseinthefirstandsecondhalfoftheyear,respectively.RevenueatR4,3billionforF2017wasdownfromaroundR5,0billion(roundedup)inthepreviousfinancialyear.
CostofgoodssoldofR3,5billionwasdownfromR3,9billioninF2016andreflectsthereductioninvolumesoffsetbytheincrease in unit costs. The gross margin percentage declined by four percentage points to 18,0%. Volumes declined by 19%.
Thelowermargin,togetherwiththelowerrevenue,resultedingrossprofitdecreasingfromR1,1billioninF2016toR777,5million in F2017, a decrease of 29,0%.
The trading segment, mainly comprising WHS and Incledon, experienced a 19% decline in revenue to R3,1 billion (F2016: R3,9 billion). WHS and Incledon revenues declined by 10% and 38%, respectively, due to the depressed economy, as well as lower government spend on infrastructure and service levels.
Revenue from the manufacturing segment, mainly comprising DPI Plastics and Swan Plastics, declined by 10% to R1,5 million (F2016: R1,6 billion), with DPI Plastics contributing a double-digit decline following a decline in water infrastructure spend. Margin deterioration in a very competitive market, together with lower volumes, remains a concern.
ExpensesExpenses,beforerestructuringcosts,decreasedby5%ina5%-to-6%inflationenvironmentandreflectthegroup’sfocusoncost reduction. The main expense drivers remain employment costs, vehicle transportation expenditure and building occupancy costs, which account for 66% of total expenses. Total depreciation amounted to R41,1 million, considerably less than the R55,4 million charged in F2016. Amortisation of intangible assets amounted to R13,9 million and is in line with that of the previous year.
Restructuring costsOnce-off restructuring costs amounted to R349 million before tax and comprise closure costs, retrenchment costs and the impairment of investments.
Operating lossThe operating loss for the year to 31 March 2017 was R468,8 million compared to R661,4 million for F2016, an improvement of 29,1%.
CHIEF FINANCIAL OFFICER’S REPORT continued
F2017 RESULTS SUMMARYDAWN produced an operating loss (EBIT) of R468,8 million for F2017. Adding back impairments and restructuring costs of R349,1 million, the operating lossreducedtoR119,8million.AR52millionlosswasincurredinthefirsthalf. The adjustment for impairments and write-downs before tax increased fromR286,0millioninthefirsthalftoR349,1millionforthefullyear.TheR286millionincurredinthefirsthalfcomprisedmainlyclosurecostsatWHS,Incledon and Sangio Pipe, as well as the costs of reducing the scale of the African businesses. Further costs recognised in the second half include impairments on Heunis Steel, sold in January 2017, Grohe DAWN Watertech (GDW) impairments and additional onerous lease obligations.
Page 22
Finance chargesNetfinancechargesamountedtoR58,6million,comparedtoR71,1millioninF2016,mainlyduetotheR34,0millionraisedontheSwanPlasticsputoptionlastyearnotrepeatingtothesameextent.TransactioncostsrelatingtobridgingfinanceanddealcostsamountedtoR11,4million,classifiedasfinanceexpenses.InterestpaidtofinanciersatR46,0millionincreasedby24%.This was attributable both to increased borrowings and an increase in interest rates.
AssociatesLosses from associates amounted to R41,0 million and compare to a loss of R5,9 million in F2016. GDW reported sharply down revenue. This, together with cost and margin pressure, resulted in a loss after tax of R111,5 million. DAWN’s 49% share of this loss was R54,6 million.
Although Heunis Steel continued to perform strongly, the need for liquidity necessitated a decision to sell the business. DAWN's 49% was sold for R50 million in January 2017.
Loss before taxationLoss before taxation amounted to R568,4 million compared to last year’s loss of R738,3 million.
TaxationThe effective tax rate was 9,8%. The difference to the statutory rate was mainly attributable to losses incurred in separate statutoryentitiesforwhichtherewasnotaxreliefintheformofset-offagainstfutureprofits,impairmentexpensesnotdeductibleand tax losses for which no deferred tax assets were raised.
Attributable lossThe loss at attributable level was R637,4 million and compares to a loss in the previous year of R762,9 million.
STATEMENT OF FINANCIAL POSITIONThestatementoffinancialpositionat31March2017reflectedthatthegroupwassolventandwasstrengthenedbytherightsissueaftertheendofthefinancialyear.Thisalsoaddressedtheliquidityconstraintatthattime.Itisessentialthatthegroupreturnstosustainableprofitabilitytoremainbothsolventandliquid.The group's going concern assessment is outlined in note 44 on page 212.
Property, plant and equipmentProperty, plant and equipment decreased from R236,3 million in F2016 to R225,8 million at year-end. Additions to enterprise resourceplanning(ERP)software,generators,thevehiclefleetandplantandequipmentamountedtoR56,9million,offsetbydisposals of R14,4 million.
Depreciation charged was R41,1 million. During the comparable period in the previous year, additions amounted to R95,9 million and the depreciation charge was R55,4 million.
Intangible assetsIntangible assets comprised software (R55,7 million), goodwill (R1,2 million), trademarks (R3,2 million) and customer relationships (R5,0 million), totalling R65,1 million. Amortisation for the year of R13,9 million was marginally lower than that of thepreviousfinancialyear.
Aconsiderableportionoftheimpairmentsmadeoverthelastfewfinancialyearsrelatedtointangibleassets.
CHIEF FINANCIAL OFFICER’S REPORT continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
Working capital after down-sizing costs R247 million over the last two years
STATEMENT OF CASH FLOWS
Working capital Net working capital days at 31 March 2017 were 47 days, which comprised debtor days at 38 days and inventory days at 54 days,offsetbycreditordaysat45days.Inventoryindaysshowedasignificantreductioncomparedtothepreviousyear,inpartattributable to the closure of some operations. The accounts receivable collection period also showed a pleasing reduction of seven days over that of the previous year. Creditor funding in monetary terms and days outstanding decreased as a result of creditors now being paid on terms.
CashflowAs a result of trading losses, cash invested in operations was R371,6 million, offset by a reduction in working capital of R416,1 million.NetfinancechargesandtaxationpaidamountedtooutflowsofR51,4millionandR22,3million,respectively.InvestingandnetfinanceactivitiesresultedinaninflowofR68,0million,comprisinginflowsininvestingactivitiesofR29,7millionandfinancingactivitiesofR38,3million.
Cashflowismanagedonadailybasis.Anexecutivecommitteetaskteammeetsatleastweeklytoreviewthecashflowprojectionsandtodebateactionstomanagecashflowandprofitability.
3,9
3,0
3,5
4,0
4,5
5,0
5,5 Rolling 12-month revenue (left-hand side)
10
12
14
16
18
20
22
24
Working capital asa % of turnover
Target mean of15% (right-handside)
R’billion %
4,34,5
4,8
5,1 5,0
4,7
4,318%
15%18% 16% 16%
17%
12%13%
Working capital analysis
CHIEF FINANCIAL OFFICER’S REPORT continued
Page 24
CHIEF FINANCIAL OFFICER’S REPORT continued
SEGMENTAL RESULTSSummary of results based on the historic reporting structure (as at 31 March 2017)
Building segment
Revenuefromthebuildingsegmentdeclinedby10,9%fromR2,5billiontoR2,3billion,mainlyattributabletosignificantlylowervolumes in WHS.
ThebuildingsegmentdeliveredanoperationallossofR54,5millioncomparedtoanoperationalprofitofR16,0millioninF2016and a loss before interest and taxation of R244,0 million, with an operating margin of -10,8%. This was substantially worse than the loss of R464,5 million and margin of -18,4% in F2016.
Infrastructure segment
Revenue from the infrastructure segment declined by 18,5% from R2,4 billion to R2,0 billion, mainly attributable to lower income streams in Incledon and Sangio Pipe.
TheinfrastructuresegmentdeliveredanoperationallossofR60,4millioncomparedtoanoperationalprofitofR33,7millioninF2016, a loss before interest and taxation of R124,5 million, with an operating margin of -6,3% as a result of losses incurred in SangioPipeandDPIPlastics,slightlyoffsetbySwanPlastics’profit.AlthoughthiswasanimprovementfromthelossofR158,5million and the margin of -6,5% in F2016, it was still too far below budget.
Solutions segment
The solutions segment’s revenue declined by 3,1% from R571,4 million to R553,7 million. A loss before interest and taxation of R42,7 million (F2016: R61,2 million) was incurred.
Summary of results based on the new reporting structure (as from 1 April 2017)
Trading segment
This segment comprises WHS and Incledon, as well as a number of smaller businesses, DAWN Kitchen Fittings, Hamilton’s Brushware SA and DAWN Africa Trading. Revenue decreased by 19% to R3,1 billion against the comparative period in F2016. Margins reduced by 1,8%.
The loss position worsened, with the loss before interest and taxation increasing by R116,1 million to R325,6 million.
Cash flow F2017 R'million
F2016 R'million
Opening cash balance 69,9 1,4
Cash generated from operations (371,6) 49,0
Working capital changes 416,1 25,3
Net finance charges (51,4) (37,9)
Tax paid (22,3) (20,9)
Investing and net financing activities
68,0 53,0
Closing cash balance 108,7 69,9
Explanation (R'million) F2017 R'million
F2016 R'million
Investing activities 29,7 (29,6)
• Disposals/acquisitions 59,3 (7,0)
• Proceeds from disposal 21,9 22,8
• Capital expenditure (ERP software, generators, fleet, property and equipment)
(51,5) (45,4)
Net financing activities 38,3 82,6
• Net debt inflow (including R200 million new bridging facility and R25 million in Absa repayment)
175,0 206,7
• Net debt outflows (114,7) (85,9)
• Treasury shares Nil (30,9)
• Dividend (22,0) (7,3)
Cashflowanalysis
Page 25
Distribution & Warehousing Network Limited | | Integrated report 2017
Manufacturing segment
This segment comprises DPI Plastics and Swan Plastics, as well as a few smaller businesses, Ubuntu Plastics, NPC in Namibia and associate Grohe DAWN Watertech. Revenue decreased by 10% to R1,5 billion as a direct result of the decrease in DPI Plastics.
The segment reported a loss of R89,6 million compared to a loss of R436,2 million last year.
OTHER MATTERS
During the year reportable irregularities were reported by the external auditors to the Independent Regulatory Board of Auditors with respect to the transactions relating to an operating lease liability and the Swan Plastics written put. The external auditors haveconfirmedtotheIndependentRegulatoryBoardofAuditorsthattheseirregularitiesarenotcontinuing.Fulldisclosureonthematterwasmadeinthe2016annualfinancialstatements.
FINANCIAL FOCUS AREAS FOR F2018
Funding future growth: Thecyclicalityoffundingrequirementsandtheplannedreturnofoperationstoprofitablegrowthnecessitate access to appropriate and adequate funding facilities. Various funding options are being explored and facilities will be structured to ensure future growth requirements are met.
Working capital management: Net working capital in the group comprises mainly accounts receivable, as creditors are expected to fund inventory. As a result, and despite the improvements in inventory and receivables achieved in F2017, the working capital position is expected to remain tight. Working capital management continues to receive high focus and recent improvements have resulted in a pleasing improvement to the group’s borrowings.
Standardisation of business practices: Numerous legacy systems and disparate business practices resulted in a lack of consistency throughout the group. The ERP implementation creates the opportunity to standardise on best practice and ensure it is used to best advantage.
Taxation: The complexity of the various types of taxation, as well as a more aggressive stance by SARS, has elevated tax compliancetoasignificantfinancialrisk.Astructuredapproachwillbefollowedtoensurecompliancetoallformsoftaxation.
Covenants: As announced on SENS on 2 August 2017, DAWN, as at the June 2017 measurement date, breached one of the financialcovenantscontainedinthetermsheetgoverningthegroup’sbankingfacilitieswithAbsaBankLimited.Thisisasaresultofthegrouplaggingbehinditsbudgetedprofitability.Basedonengagementsbythegrouptodate,AbsaBankLimitedhasformally condoned the breach. The group continues to work closely with its bank to maintain adequate funding facilities whilst the turnaround plan is being executed.
APPRECIATION
The2017financialyearbroughtwithitmanychallenges.Iwouldliketoacknowledgetheinvaluablecontributionofallthestaffinthefinancefunctionandextendmyappreciationfortheirhardworkandcommitmenttomaintaininghighstandardsofreportingand disclosure to stakeholders.
I would like to express my thanks to the audit and risk committee as well as the group’s internal audit, governance, risk and complianceteam.Theirdiligenceandprofessionaloversightofthegroup’sfinances,internalcontrolsandrelatedmattersisappreciated by me, the executive committee, colleagues and the board.
Chris Booyens Chieffinancialofficer
23 August 2017
Page 26
STAKEHOLDER ENGAGEMENTSR
Stakeholder Who are our stakeholders What matters to them? How we engage with them? Activities during F2017 and feedback we received
Shareholders and the investment community
Providers of share capital and the primary risk takers within the business.
The generation of sustainable, market-related returns on their investment by DAWN, together with timely, relevant, open and ongoing communication on DAWN’s activities and performance as well as the creation of an informed perception of the DAWN group, whereby more accurate expectations are ensured and a positive investment environment is created.
Formal engagement through SENS, results presentations, investorupdates,workshopsandspecificmeetingsinaccordance with the JSE Listings Requirements and as required by DAWN and its investors.
The group, through various mechanisms, seeks feedback from analystsandthefinancialpressoninformationtheyrequireatboth the half-year and year-end. DAWN’s executive committee ensures that investor presentations provide the information requiredbyanalystsandthefinancialpressandthatkeysentiments are addressed. This also applies to all statutory and supporting documentation presented at the half-year and year-end.
Shareholders are given the opportunity to put questions to the board at the annual general meeting and all other shareholder meetings and presentations.
DAWN’s integrated report, sustainability information and annualfinancialstatementsarepublishedannuallywithinanacceptable timeframe after each year-end. These reports seek to provide shareholders, and other stakeholders, with an in-depth understanding of the group’s strategy, value drivers, governance, reward systems as well as actual performance on various aspects,includingbothfinancialandnon-financialperformance.
• The group concluded a renounceable rights offer on 12 April 2017, raising R358 million and increasing the company’s issued share capital to 600 372 480 shares.
• The board presented both the interim and year-end results formally to the Investment Analyst Society.
• Board members embarked on a roadshow as well as scheduled meetings with major shareholders and institutional investors, after the required SENS announcements, to keep them abreast of developments at DAWN.
• The chairman of the board met with major shareholders to clarify the group’s remuneration policies and to seek their input into remuneration-related benchmarks and other matters.
Banks, funders and insurance companies
Primary bankers who provide working capital, foreign exchange services and general transactional banking facilities; and credit underwriters who provide insurance on trade and other receivables to manage credit risk in accordance with group policy.
Stableandsoundfinancialmanagementofthebusinessand the management of funding within the parameters set by the agreements entered into between DAWN and its funders, supported by regular updates and communicationondevelopmentsinDAWN’sfinancialsphere.
Banks and funders – regular detailed formal and informal engagement, primarily through audits, annual facility reviews, exchange control applications and ad hoc funding requirements, in a transparent manner, to ensure high levels of trust.
Insurance – regular structured engagements including upfront credit assessments of customers and facility limits being agreed, followed by ongoing reporting on customers’ trading levels and payment history.
• DAWNreceivedbridgingfinanceofR200millionfromInvestec through an unsecured facility while awaiting the proceeds of the rights offer. The full R200 million was repaid on 18 April 2017.
• As at the June 2017 measurement date, DAWN breached oneofthefinancialcovenantscontainedinthetermsheetgoverning the group’s banking facilities with Absa Bank Limited. Based on engagements by the group to date, Absa Bank Limited has formally condoned the breach.
• Relationships and communication with banks and funders are maintained on an ongoing basis to ensure facilities remain in place for DAWN's liquidity requirements.
Regulators Industry associations and various regulatory bodies who ensure that the group adheres to all applicable laws, regulations, codes and corporategovernance,specificallytheJSE,Department of Trade and Industry, Department of Water Affairs and Forestry, South African Revenue Service, South African Reserve Bank, the Competition Commission and the Department of Labour.
Compliance with laws and regulations that are designed to protect stakeholders, primarily through the submission of regular statutory returns and the timely collection and payment of duties and taxes.
Highly regulated formal communication and submission ofreturnsatspecifieddatesaswellaslimitedinformalcommunication.
• Management interacted with the JSE’s Proactive Monitoring Paneltoensurethatthefinancialstatementsarealignedtorequirementsandbestpractice,withspecificreferencetoIFRS applications.
• The Competition Tribunal handed down a decision pertaining to a market allocation arrangement between DPI Plastics and Sangio Pipe. The legal process to determine the penalty quantum is currently underway, however, the group believes, supported by legal advice, that an appeal will be successful.
Customers Retailers and contractors in the hardware, sanitaryware, plumbing, kitchen, engineering and civil industries.
To gain access to DAWN’s quality product and service offerings and obtain solutions that will achieve the desired outcomes for customers’ respective businesses through the group’s 100% coverage of the southern African market facilitated by its “milk-run” distribution model combined with its break-bulk and just-in-time service.
Regular site visits by all levels of management to maintain healthy relationships, supply information around products and services and obtain feedback from customers.
• Numerous surveys were conducted with customers to determine their needs, perceptions and expectations.
• Executive management embarked on a roadshow to address the needs and issues raised by customers and to establish actions going forward. This process will continue on an ongoing basis.
Suppliers External and partly or wholly-owned local and international manufacturers who supply the ranges which DAWN trades in, being hardware, sanitaryware, plumbing, kitchen, engineering and civil products, in accordance with the group’s procurement policy.
To render an ongoing and commercially viable supply of the products and services DAWN requires, aligned to DAWN’s break-bulk, just-in-time distribution model, with reciprocalbenefitstoboththesupplierandthegroup,thereby ensuring long-term relationships.
Formal service level agreements are entered into with suppliers. Regular meetings are scheduled between suppliers and varying levels of management, with supplier conferences being facilitated by the national team annually.
• Topmanagementvisitedallsignificantsupplierstoreinforcerelationships.
• Terms of trade have been renegotiated with suppliers.
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Distribution & Warehousing Network Limited | | Integrated report 2017
Stakeholder Who are our stakeholders What matters to them? How we engage with them? Activities during F2017 and feedback we received
Shareholders and the investment community
Providers of share capital and the primary risk takers within the business.
The generation of sustainable, market-related returns on their investment by DAWN, together with timely, relevant, open and ongoing communication on DAWN’s activities and performance as well as the creation of an informed perception of the DAWN group, whereby more accurate expectations are ensured and a positive investment environment is created.
Formal engagement through SENS, results presentations, investorupdates,workshopsandspecificmeetingsinaccordance with the JSE Listings Requirements and as required by DAWN and its investors.
The group, through various mechanisms, seeks feedback from analystsandthefinancialpressoninformationtheyrequireatboth the half-year and year-end. DAWN’s executive committee ensures that investor presentations provide the information requiredbyanalystsandthefinancialpressandthatkeysentiments are addressed. This also applies to all statutory and supporting documentation presented at the half-year and year-end.
Shareholders are given the opportunity to put questions to the board at the annual general meeting and all other shareholder meetings and presentations.
DAWN’s integrated report, sustainability information and annualfinancialstatementsarepublishedannuallywithinanacceptable timeframe after each year-end. These reports seek to provide shareholders, and other stakeholders, with an in-depth understanding of the group’s strategy, value drivers, governance, reward systems as well as actual performance on various aspects,includingbothfinancialandnon-financialperformance.
• The group concluded a renounceable rights offer on 12 April 2017, raising R358 million and increasing the company’s issued share capital to 600 372 480 shares.
• The board presented both the interim and year-end results formally to the Investment Analyst Society.
• Board members embarked on a roadshow as well as scheduled meetings with major shareholders and institutional investors, after the required SENS announcements, to keep them abreast of developments at DAWN.
• The chairman of the board met with major shareholders to clarify the group’s remuneration policies and to seek their input into remuneration-related benchmarks and other matters.
Banks, funders and insurance companies
Primary bankers who provide working capital, foreign exchange services and general transactional banking facilities; and credit underwriters who provide insurance on trade and other receivables to manage credit risk in accordance with group policy.
Stableandsoundfinancialmanagementofthebusinessand the management of funding within the parameters set by the agreements entered into between DAWN and its funders, supported by regular updates and communicationondevelopmentsinDAWN’sfinancialsphere.
Banks and funders – regular detailed formal and informal engagement, primarily through audits, annual facility reviews, exchange control applications and ad hoc funding requirements, in a transparent manner, to ensure high levels of trust.
Insurance – regular structured engagements including upfront credit assessments of customers and facility limits being agreed, followed by ongoing reporting on customers’ trading levels and payment history.
• DAWNreceivedbridgingfinanceofR200millionfromInvestec through an unsecured facility while awaiting the proceeds of the rights offer. The full R200 million was repaid on 18 April 2017.
• As at the June 2017 measurement date, DAWN breached oneofthefinancialcovenantscontainedinthetermsheetgoverning the group’s banking facilities with Absa Bank Limited. Based on engagements by the group to date, Absa Bank Limited has formally condoned the breach.
• Relationships and communication with banks and funders are maintained on an ongoing basis to ensure facilities remain in place for DAWN's liquidity requirements.
Regulators Industry associations and various regulatory bodies who ensure that the group adheres to all applicable laws, regulations, codes and corporategovernance,specificallytheJSE,Department of Trade and Industry, Department of Water Affairs and Forestry, South African Revenue Service, South African Reserve Bank, the Competition Commission and the Department of Labour.
Compliance with laws and regulations that are designed to protect stakeholders, primarily through the submission of regular statutory returns and the timely collection and payment of duties and taxes.
Highly regulated formal communication and submission ofreturnsatspecifieddatesaswellaslimitedinformalcommunication.
• Management interacted with the JSE’s Proactive Monitoring Paneltoensurethatthefinancialstatementsarealignedtorequirementsandbestpractice,withspecificreferencetoIFRS applications.
• The Competition Tribunal handed down a decision pertaining to a market allocation arrangement between DPI Plastics and Sangio Pipe. The legal process to determine the penalty quantum is currently underway, however, the group believes, supported by legal advice, that an appeal will be successful.
Customers Retailers and contractors in the hardware, sanitaryware, plumbing, kitchen, engineering and civil industries.
To gain access to DAWN’s quality product and service offerings and obtain solutions that will achieve the desired outcomes for customers’ respective businesses through the group’s 100% coverage of the southern African market facilitated by its “milk-run” distribution model combined with its break-bulk and just-in-time service.
Regular site visits by all levels of management to maintain healthy relationships, supply information around products and services and obtain feedback from customers.
• Numerous surveys were conducted with customers to determine their needs, perceptions and expectations.
• Executive management embarked on a roadshow to address the needs and issues raised by customers and to establish actions going forward. This process will continue on an ongoing basis.
Suppliers External and partly or wholly-owned local and international manufacturers who supply the ranges which DAWN trades in, being hardware, sanitaryware, plumbing, kitchen, engineering and civil products, in accordance with the group’s procurement policy.
To render an ongoing and commercially viable supply of the products and services DAWN requires, aligned to DAWN’s break-bulk, just-in-time distribution model, with reciprocalbenefitstoboththesupplierandthegroup,thereby ensuring long-term relationships.
Formal service level agreements are entered into with suppliers. Regular meetings are scheduled between suppliers and varying levels of management, with supplier conferences being facilitated by the national team annually.
• Topmanagementvisitedallsignificantsupplierstoreinforcerelationships.
• Terms of trade have been renegotiated with suppliers.
STAKEHOLDER ENGAGEMENT continued
Page 28
STAKEHOLDER ENGAGEMENT continued
Stakeholder Who are our stakeholders What matters to them? How we engage with them? Activities during F2017 and feedback we received
Employees A diverse range of individuals of varying skills,expertise,qualifications,experienceand nationalities (including race and gender diversity) employed across the group to add value to all stakeholders.
Career and personal development in a work environment that ensures job security and appropriate rewards for performance.
Daily formal and informal engagement to ensure staff receives the necessary guidance, motivation, feedback and recognition.
• An electronic newsletter – DAWN In Touch – was created during the year and is distributed to employees monthly to keep them abreast of developments in the group.
• The remuneration structure of sales representatives has been adjusted favourably and branded vehicles were supplied to them to enhance their marketing efforts.
• A retention bonus was paid to key staff and share options were awarded under the long-term incentive plan (LTIP) and share appreciation rights (SAR) schemes.
• No salary increases were awarded in July 2016, but the remuneration committee recommended increases to take effect in July 2017, which the board has approved and which increases have been implemented.
• The owner-driver scheme continued and around 40% of vehicles are now owned by the drivers.
• Retrenchment of 377 employees, as a consequence of the group restructure and turnaround plan, were completed duringtheyear.DAWNassistedwiththefindingofalternativeemployment(50%successrate)andprovidentandfinancialadvisorsmetwithemployeestoassistwiththeirfinancialplanning.
Trade unions Organisations of workers in the same skilled occupations or related skilled occupations who act together to secure favourable working conditions for all their respective members.
Maintaining good working relationships and obtaining consensus on any decisions or projects that may result in changes in working conditions or in DAWN’s operational requirements through engaging on collective employment issues and communicating potential changes affecting labour.
Union representatives are elected to liaise with management on matters affecting union members. Human resources managers are responsible for managing the relationship with the employee unions and relevant industrial labour organisations.
Meetings are held with the bargaining councils, as required. Engagement occurs on strategic level as well as on operational and tactical levels, thereby improving both management and the unions’ commitment to common values and objectives.
• Plant level union relations are generally healthy and regular – in-depth consultations and negotiations take place. The unions were involved, as prescribed, in all restructuring consultations over the period.
Communities The areas in which DAWN’s operations are located and the people participating in and related to the group’s activities.
The creation of partnerships to best facilitate integrated sustainability initiatives and to collaborate in a way that furthers social and environmental agendas for the greater good of the community.
A consistent approach to community development is adopted and engagement is ongoing as partnerships dictate or stakeholder needs require.
• DAWN companies contributed to an orphanage, home for disabled people and a safe house in communities.
• The group provided an administration learnership and a production technology learnership for unemployed individuals in the communities where its employees reside.
• The company and staff donated and participated in Slipper Day where funds were donated to Reach for a Dream.
• Donations of bottles of water, to assist with the drought relief in affected communities, were made by the Free State branches.
Media Media includes every broadcasting and narrowcasting medium such as newspapers, magazines, TV, radio, billboards (including signage on trucks), direct mail, telephone, fax and internet.
To educate and inform the respective audiences of developments in the building and infrastructure sectors, adding DAWN’s voice to the public debate, as well as to communicate the group’s performance and contribution to the economy, including its product and service offerings.
Marketing activities – A central marketing function consults with companies in the DAWN group on the development of their respective marketing plans and ensures that the plans are executed within an approved marketing budget and within specifiedtimelines,includedintherespectivemarketingplans.
Interactions with the press–interviewsandpressbriefingsaregiven to members of the media. These take the form of one-on-one time with DAWN executives and key spokespeople across the group as well as updates relevant to the group’s performance and business activities.
• During the last year, the group engaged with the media, as and when requested. Going forward a proactive communications approach will be implemented.
Government – national, provincial and local
Members of local, provincial and national government with particular emphasis on those involved in infrastructure development.
DAWN is, and is seen to be, an active participant in driving the economic, social and environmental upliftment of the country.
DAWN, through its participation in infrastructure development, engages with both local and provincial government on these projects, either directly or indirectly. Relationships with government departments are maintained at good levels. This applies across the three spheres of government, with particular reference to the infrastructure development activities of local government, and respect and support for the democratic process at this level. The primary methods of engagement with government are through formal meetings and tender processes. Meetings are held with government, as required.
• Government and municipal spending on water infrastructure plunged from H1 F2017, with a severe lag in tenders being awarded.
• DAWN’s liquidity deteriorated further due to acute delays in payments from government on work completed.
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Distribution & Warehousing Network Limited | | Integrated report 2017
Stakeholder Who are our stakeholders What matters to them? How we engage with them? Activities during F2017 and feedback we received
Employees A diverse range of individuals of varying skills,expertise,qualifications,experienceand nationalities (including race and gender diversity) employed across the group to add value to all stakeholders.
Career and personal development in a work environment that ensures job security and appropriate rewards for performance.
Daily formal and informal engagement to ensure staff receives the necessary guidance, motivation, feedback and recognition.
• An electronic newsletter – DAWN In Touch – was created during the year and is distributed to employees monthly to keep them abreast of developments in the group.
• The remuneration structure of sales representatives has been adjusted favourably and branded vehicles were supplied to them to enhance their marketing efforts.
• A retention bonus was paid to key staff and share options were awarded under the long-term incentive plan (LTIP) and share appreciation rights (SAR) schemes.
• No salary increases were awarded in July 2016, but the remuneration committee recommended increases to take effect in July 2017, which the board has approved and which increases have been implemented.
• The owner-driver scheme continued and around 40% of vehicles are now owned by the drivers.
• Retrenchment of 377 employees, as a consequence of the group restructure and turnaround plan, were completed duringtheyear.DAWNassistedwiththefindingofalternativeemployment(50%successrate)andprovidentandfinancialadvisorsmetwithemployeestoassistwiththeirfinancialplanning.
Trade unions Organisations of workers in the same skilled occupations or related skilled occupations who act together to secure favourable working conditions for all their respective members.
Maintaining good working relationships and obtaining consensus on any decisions or projects that may result in changes in working conditions or in DAWN’s operational requirements through engaging on collective employment issues and communicating potential changes affecting labour.
Union representatives are elected to liaise with management on matters affecting union members. Human resources managers are responsible for managing the relationship with the employee unions and relevant industrial labour organisations.
Meetings are held with the bargaining councils, as required. Engagement occurs on strategic level as well as on operational and tactical levels, thereby improving both management and the unions’ commitment to common values and objectives.
• Plant level union relations are generally healthy and regular – in-depth consultations and negotiations take place. The unions were involved, as prescribed, in all restructuring consultations over the period.
Communities The areas in which DAWN’s operations are located and the people participating in and related to the group’s activities.
The creation of partnerships to best facilitate integrated sustainability initiatives and to collaborate in a way that furthers social and environmental agendas for the greater good of the community.
A consistent approach to community development is adopted and engagement is ongoing as partnerships dictate or stakeholder needs require.
• DAWN companies contributed to an orphanage, home for disabled people and a safe house in communities.
• The group provided an administration learnership and a production technology learnership for unemployed individuals in the communities where its employees reside.
• The company and staff donated and participated in Slipper Day where funds were donated to Reach for a Dream.
• Donations of bottles of water, to assist with the drought relief in affected communities, were made by the Free State branches.
Media Media includes every broadcasting and narrowcasting medium such as newspapers, magazines, TV, radio, billboards (including signage on trucks), direct mail, telephone, fax and internet.
To educate and inform the respective audiences of developments in the building and infrastructure sectors, adding DAWN’s voice to the public debate, as well as to communicate the group’s performance and contribution to the economy, including its product and service offerings.
Marketing activities – A central marketing function consults with companies in the DAWN group on the development of their respective marketing plans and ensures that the plans are executed within an approved marketing budget and within specifiedtimelines,includedintherespectivemarketingplans.
Interactions with the press–interviewsandpressbriefingsaregiven to members of the media. These take the form of one-on-one time with DAWN executives and key spokespeople across the group as well as updates relevant to the group’s performance and business activities.
• During the last year, the group engaged with the media, as and when requested. Going forward a proactive communications approach will be implemented.
Government – national, provincial and local
Members of local, provincial and national government with particular emphasis on those involved in infrastructure development.
DAWN is, and is seen to be, an active participant in driving the economic, social and environmental upliftment of the country.
DAWN, through its participation in infrastructure development, engages with both local and provincial government on these projects, either directly or indirectly. Relationships with government departments are maintained at good levels. This applies across the three spheres of government, with particular reference to the infrastructure development activities of local government, and respect and support for the democratic process at this level. The primary methods of engagement with government are through formal meetings and tender processes. Meetings are held with government, as required.
• Government and municipal spending on water infrastructure plunged from H1 F2017, with a severe lag in tenders being awarded.
• DAWN’s liquidity deteriorated further due to acute delays in payments from government on work completed.
STAKEHOLDER ENGAGEMENT continued
Page 30
Distribution and Warehousing Network Limited and its subsidiaries fully support the King Report on Governance for South Africa 2009 and the King Code of Governance for South Africa 2009 (King III). The board and individual directors are committed to the principles of transparency, integrity and accountability and accept their duty and responsibility to ensure that the principles set outintheCodeofCorporatePracticesandConduct,asdefinedintheKingIIIReport,areobserved.
TheboardissatisfiedthatthegroupcomplieswiththeJSEListingsRequirementsaswellaswithallmaterialprovisionsofKingIII, as has been reported in the corporate governance register which is available on DAWN’s website at www.dawnltd.co.za.
The board will review the application of King IV during the year ahead and will report thereon in the 2018 integrated report.
A governance and compliance framework has been agreed between the group and its subsidiary boards. The policies, procedures and processes of the group are adopted and implemented at subsidiary companies.
GOVERNANCE
GOVERNANCE AND COMPLIANCE FRAMEWORK
DAWN BOARDRisk tolerance/appetite Reporting
Combined assurance framework
AUDIT AND RISK COMMITTEE IT STEERING COMMITTEE
SOCIAL, ETHICS ANDTRANSFORMATION
COMMITTEE
REMUNERATION COMMITTEE
NOMINATION COMMITTEE
Company secretary
EXECUTIVE COMMITTEECEO
Risk management and governanceInternal audit
IT Governance
Controlenvironment
IT generalcontrols
Internalfinancialcontrol review
SustainabilityRiskmanagement
Compliance
Environmental/health and safety
Complianceframework
Func
tiona
l
Adm
inist
rativ
e
DAWN business systems
• Risks
• Standards
• Disaster recovery
Ethics
• Fraud and irregularities
• Ethics hotline
Reporting GRI/SRICombined assurance plan
Projects
• Carbon reduction
• BBBEE
• Energy saving/renewable energy
• Waste reduction
• Operational risk/opportunity• Tactical risk/opportunity• Strategic risk/opportunity• Project risk/opportunity
• Competition Act
• Companies Act
• Consumer Protection Act
• Occupational Health and Safety Act
• National Credit Act
• JSE
• King III
• Income Tax Act
• BBBEE
• Third party assurance
• Group safety, health and environment function
• Legal
• Policies and procedures
• Ethics
• Delegation of authority
• Declaration of interest
Risk-based
• Risks
• Performance
• Cycle
Effectiveness
AUDIT RISK
Page 31
Distribution & Warehousing Network Limited | | Integrated report 2017
LEADERSHIPH
BOARD OF DIRECTORS
Independent non-executive directors
Diederik Fouché (63)
Independent non-executive chairman
CA(SA);MCom;HigherDiplomaTaxLaw(WITS);HigherDiplomaBusinessProcessing(WITS)
Date appointed: 1 November 2015
Chairman of the nomination committee and member of the remuneration committee
Diederik was a PwC partner for 34 years and head of PwC Southern Africa Consumer, Industrial Products and Services industry practice (“CIPS”) for 17 years. He served as member of the PwC Southern Africa and Africa board and was chairman ofthefinanceandriskcommittee.HealsorepresentedthefirmonthePwC Europe, Middle East and Africa CIPS committee. He has extensive experience in the consumer industrial products and services industry and has engaged with clients, global experts and industry on various surveys, trends and strategic issues. He has provided clients with merger and acquisition transaction structuring and support.
External appointments: Currently serves as the lead independent non-executive director on the board of Astral Foods Ltd, as well as a member of the audit committee of Thebe
Investment Corporation (Pty) Ltd.
Lou Alberts (76)
Lead independent director
BScEng;MBL
Date appointed: 30 August 2001
Chairman of the remuneration committee and member of the audit and risk committee and the nomination committee
Lou has more than 40 years’
experience in technical
management as well as in the
businessfield,wherehehasheld
various executive directorships.
He participated in the unbundling
of the Boumat group in 1999,
where he was the CEO, and has
also served on the board and
council of SEIFSA. He consults to
the building industry, both locally
and internationally. Lou retired as
chairman of DAWN on 30 June
2011 and is the lead independent
director.
External appointments: None.
Charles Boles (48)
Independent non-executive director
CA(SA);HDipTax;HDipCompanyLaw;MBA(cumlaude)
Date appointed: 20 July 2017
Charles was a partner in the
corporatefinancedivisionof
PricewaterhouseCoopers, where
after he joined Investec Bank’s
corporatefinanceandprivate
equity division. At Investec he was
instrumental in the establishment
and subsequent listing on the JSE
of First SA Food Holdings Ltd. He
served as a non-executive director
on First SA Food Holdings Ltd’s
board until its delisting, following a
management buy-out led by Ethos
Private Equity. Charles founded and
is the owner of Titanium Capital, a
financialservicesfirm.
External appointments: Currently
serves as a non-executive director
on the boards of Hulamin Ltd and
Interwaste Ltd.
Akhter Moosa (65)
Independent non-executive director
CA(SA)
Date appointed: 28 March 2017
Chairman of the audit and risk committee from 28 March 2017 and member of the remuneration committee and the nomination committee from 14 July 2017
Akhter completed his BCom at the
University of Durban-Westville, his
BComHonsatUnisaandqualified
as a chartered accountant in 1978.
He has extensive experience at
board level.
External appointments: Currently serves as a member
of the disciplinary committee
of the Independent Regulatory
Board of Auditors; advisor to the
audit committee of SANRAL Ltd;
member of the audit and risk
committee of the Competition
Tribunal; and non-executive
director of SAA.
Ages at publication date, being 23 August 2017.
Page 32
LEADERSHIP continued
Independent non-executive directors continued
Non-executive directors
Dinga Mncube (57)
Independent non-executive director
MComBusinessManagement;MSc Forest Products
Date appointed: 1 May 2014
Member of the audit and risk committee
Dinga has over 20 years’ executive experience in forestry, timber processing and the paper and pulp industry, has chaired various forestry bodies and has been a board member of Sappi Southern Africa. He played a leading role in the revival of Project Grow, an award-winning enterprise development programme at Sappi, and drove Sappi’s R814 million BBBEE deal in 2010.
External appointments: Currently serves as non-executive director of York
Timber Holdings Ltd, Rolfes Holdings Ltd and Siyaqhubeka Forests (Pty) Ltd.
Veli Mokoena (57)
Non-executive director
BA(UJ);Post-GraduateDiploma in Management (Wits);ExecutiveDevelopmentProgramme(NewYork)
Date appointed: 22 June 2011
Chairman of the social, ethics and transformation committee
Veli was appointed to the Imperial board on 2004 and, with the unbundling
of Eqstra from the Imperial Group in 2008, joined the Eqstra board. He was
the CEO of Ukhamba Holdings, the Imperial Group’s BBBEE partner, until his
resignation in 2011.
External appointments: Founder of Ninathi Investment (Pty) Ltd and
non-executive chairman of Ukhamba Holdings (Pty) Ltd, a major BBBEE
shareholder of DAWN.
Theunis de Bruyn (49)
Non-executive director
CA(SA)
Date appointed: 20 July 2017
After serving articles at Ernst & Young, Theunis joined Ford SA as assistant
treasurer.FromtherehejoinedHuysamerStalsstockbrokingfirm(thereafter
sold to ABN AMRO) where he later headed up research. Theunis is the
founder and managing director of Calibre Capital (Pty) Ltd and a founding
shareholder of RECM & Calibre Ltd, a major shareholder of DAWN.
External appointments: Currently serves as non-executive director of RECM
& Calibre Ltd, ELB Group Ltd and Sentula Mining Ltd.
George Nakos (40)
Non-executive director
BCom(cumlaude);CA(SA);CFA;PLD(Harvard)
Date appointed: 12 November 2015
GeorgeiscurrentlyemployedasgroupcorporatefinanceexecutiveofImperial
Holdings Ltd. From 2000 to 2015, George was employed in various senior
corporatefinancepositionsbyInvestecBankandglobalcoordinatorofthe
naturalresourcescorporatefinanceteam.
External appointments: Member of the executive committee of Imperial
Holdings Ltd.
BOARD OF DIRECTORS continued
Page 33
Distribution & Warehousing Network Limited | | Integrated report 2017
LEADERSHIP continued
Executive directors
Stephen Connelly (65)
Executive deputy chairman
Date appointed: 1 April 2016
Member of the executive committee and audit and risk committee from a risk perspective from 1 April 2016
Stephen joined Hudaco
Industries Ltd in 1992 as
CEO and retired in 2014.
On 1 April 2016, he was
appointed to the DAWN
board as independent
non-executive director. As
from 1 June 2016 Stephen
assumed the role of interim
CEO. With effect from 1 April
2017, on the appointment
of Edwin Hewitt as CEO,
Stephen was appointed as
executive deputy chairman
of DAWN.
External appointments: Non-executive director of
Hudaco Industries Ltd.
Edwin Hewitt (51)
MDipTech;NHDip(MetallurgicalEngineering);NDip(MetallurgicalEngineering);InternationalExecutiveProgram(IMP),USA;ManagementDevelopment Programme
Chiefexecutiveofficer
Date appointed: 1 April 2017
Memberoftheexecutivecommittee;member of the audit and risk committee from a risk perspective from1April2017;memberofthesocial, ethics and transformation committee from 14 July 2017
Edwin was appointed chief restructuringofficeratDAWNinFebruary 2017, working with a major bank,whereheplayedasignificantroleinfinalisingarecapitalisationprogramme.
Prior to working at DAWN, Edwin was thechiefrestructuringofficeratcementproducer PPC, working with four major banks to restructure the debt and major risks. He also previously served asgroupchiefexecutiveofficerofCapital Africa Steel and fabrication and manufacturing division head as well as group executive director at Murray & Robert.
With effect from 1 April 2017, Edwin has been appointed chief executive officerofDAWN.
External appointments: None.
Chris Booyens (60)
Chieffinancialofficerandfinancialdirector
BCompt(Hons);CA(SA)
Date appointed: 1 May 2017
Member of the executive committee and audit and risk committee from a risk perspective from 1 May 2017
Chris held numerous positions infinancialmanagement,ina number of sectors which included engineering, transport and logistics, mining, food, pharmaceuticals, industrial gasses and several years’ in the building materials industry asIliadAfrica’sgroupfinancialdirector. He also previously servedasfinancialexecutiveand executive director at various Tiger Brands subsidiaries. He was previously a director at Harmony Gold Mining, The Cold Chain, Enterprise Foods and Adcock Ingram Pharmaceuticals. He has significantexperienceinlistedenvironments and in turnaround situations.
External appointments: None.
René Roos (50)
Chief of staff
BCom(Hons);MBA
Date appointed: 14 December 2009
Member of the the executive committee, the social, ethics and transformation committee and chairman of the IT steering committee
René completed her BCom (Hons) degree at UJ in 1989 and her MBA at Wits Business School in 1999. She joined the group in 1997 as HR executive and has been a member of the executive committee since 1999. She was appointed as chairperson of the shared services unit in 2004 and became CEO thereof when it was set up as a group division in 2007. René served on various subsidiary boards of directors over the duration of her employment with DAWN, including Wholesale Housing Supplies, Springset, United Express and recently, Hamilton’s. She is currently group chief of staff and serves as strategic business partner for Incledon and Roco.
External appointments: None.
BOARD OF DIRECTORS continued
Page 34
LEADERSHIP continued
EXECUTIVE COMMITTEE
Edwin Hewitt (51)
Chiefexecutiveofficer
Date appointed: 1 April 2017
Member of the executive committee and member of the audit and risk committee from a riskperspectivefrom1April2017;member of the social, ethics and transformation committee from 14 July 2017
As Edwin is an executive director, his brief curriculum vitae is disclosed on page 33.
Stephen Connelly (65)
Executive deputy chairman
Date appointed: 1 April 2016
Member of the executive committee and audit and risk committee from a risk perspective from 1 April 2016
As Stephen is an executive director, his brief curriculum vitae is disclosed on page 33.
Chris Booyens (60)
Chieffinancialofficerandfinancialdirector
BCompt(Hons);CA(SA)
Date appointed: 1 May 2017
Member of the executive committee and member of the audit and risk committee from a risk perspective from 1 May 2017
As Chris is an executive director, his brief curriculum vitae is disclosed on page 33.
Hanré Bester (38)
Groupfinancialmanager
CA(SA);Mcom(Tax)
Date appointed: 5 July 2010
Member of the executive committee from 1 April 2017
HanréhasbeenwithgroupforsevenyearsasgroupfinancialmanagerandservedasinterimfinancialdirectorduringthefirsthalfofF2017.HanréqualifiedasCA(SA)atPricewaterhouseCoopersIncandspentsixyearsintaxconsulting before joining the DAWN group.
René Roos (50)
Chief of staff
BCom(Hons);MBA
Date appointed: 14 December 2009
Member of the executive committee, social ethics and transformation committee and the IT steering committee
As René is an executive director, her brief curriculum vitae is disclosed on page 33.
Sandy Visser (44)
Group HR executive
BCom Industrial Psychology
Date appointed: 1 October 2015
Member of the executive committee from 1 April 2017
Sandy has extensive experience in the corporate human resources arena having managed the human resources integration and due diligence on mergers and acquisitions, change and culture change management programmes and the full human resources executive function. She developed various human resources measurement systems, including a human capital measurementtoolthatcanmeasurefinancialcalculationsofpeopleasanassetonthestatementoffinancialposition.Herexperienceincludesmanagement positions at Coricraft (Pty) Ltd, The Standard Bank of South Africa, Ellerines and the Mathobo Group.
Vanessa White (38)
Group governance, risk and compliance executive
MPhilInternalAuditing;BComHonsInternalAuditing(cumlaude);BComFinancialAccounting(cumlaude);CIA;CISA;CCSA
Date appointed: 1 August 2015
Member of the executive committee from 1 September 2016
Vanessa joined the group as group internal audit executive and was subsequently promoted to the position of group governance, risk and compliance executive. She performed her articles at KPMG and continued intheconsultingfield,firstlyasco-ownerofasmallindependentconsultingpractice, and thereafter at Deloitte, specialising in enterprise risk management and internal audit. Vanessa’s experience in governance, risk and compliance across a range of industries allows her to contribute to strengthening the group’s governance, risk management, compliance and control processes.
Page 35
Distribution & Warehousing Network Limited | | Integrated report 2017
Nic de Waal (53)
Managing director of DPI Plastics
NDip Electrical Engineering: Heavy Current
Date appointed: 1 April 2017
Member of the executive committee from 1 April 2017
Nic has about 38 years’ experience in the manufacturing environment in southern Africa. He has been instrumental in the implementationofsignificantcost-reductions at companies in the automotive, mining and electrical sectors, through the improvement ofefficiencies,consolidationof plants, centralisation of manufacturing facilities and the automisation of manufacturing lines.
LEADERSHIP continued
EXECUTIVE COMMITTEE continued
Steve du Toit (52)
ChiefexecutiveofficerofWHS
BSc;MBA
Date appointed: 1 April 2016
Member of the executive committee from 1 April 2016
Steve has more than 20 years’ executive experience directing substantial southern African businesses as well as being the delegate carrying responsibilities for all business activities for a large multinational listed company. His skills focus on safety, people development, innovation, customer service, operationalefficiencies,working capital management, employee engagement and a strategic sustainable agenda encompassing people, planet andprofit.
Craig Rankin (36)
Managing director of Incledon
BCom(Hons);CA(SA)
Date appointed: 1 June 2016
Member of the executive committee from 1 April 2017
Craig has a demonstrated history of success in working in the construction industry. As a chartered accountant, he isfinanciallyastute,buthasan entrepreneurial bias with skills in strategic planning, general management and negotiation. He has the ability and desire to build, lead and work with strong teams. Previous positions include beingthechieffinancialofficerofIncledon,financialmanagerof Saint-Gobain Gyproc and corporatefinancialmanageratAfriSam.
Page 36
A summary of DAWN’s compliance with the principles contained in chapter 2 of King III is outlined below:
BOARD COMPOSITIONThe unitary board of directors of DAWN is chaired by Diederik Fouché, an independent non-executive director. Lou Alberts, the leadindependentdirector,re-appointedwitheffectfrom14July2017,fulfilsanunderpinningroletothechairman.Theboardcompositionreflectsanappropriatemixofexecutiveandnon-executivedirectors.
Specifically,on31March2017itcomprisedsixnon-executivedirectors,withfourbeingindependent,andthreeexecutivedirectors. The board included three black directors, translating into one-third black representation, with gender diversity translating into 11% through one of the directors being a female. On 29 June 2017, the board adopted a gender equality policy with the overall objective of the policy being to provide a guideline for enhancing gender equality in the workplace andtointegrategenderintogrouppractices.Thepolicyrecommendsthedevelopmentofspecificinterventionstomeetthedevelopmental needs of women to ensure and drive empowerment with the overall aim of achieving gender equality in the workplace. The scope of the policy extends equally to all employees of the group and its subsidiaries.
On 1 April 2017, Stephen Connelly was appointed as executive deputy chairman, following the appointment of Edwin Hewitt aschiefexecutiveofficeronthesamedate.DavidAustinresignedaschieffinancialofficerandfinancialdirectoron17March2017,effective30June2017.ChrisBooyenswasappointedaschieffinancialofficerandfinancialdirectoron1May2017.Witheffect from 20 July 2017, Charles Boles has been appointed as independent non-executive director and Theunis de Bruyn as non-executive director.
Theboardwilltherefore,forF2018,comprisetwelvedirectors,ofwhomeightarenon-executivewithfivebeingindependent,and four executive directors.
The board structure allows the non-executive directors to provide independent judgement on issues of strategy, performance, resources, transformation, diversity, employment equity and evaluation of performance and standards of conduct.
While executive directors have service contracts and restraint agreements, they are also shareholders.
MEETING ATTENDANCEAttendance at board meetings by the directors during the period 1 April 2016 to 31 March 2017 follows.
Special Special Special Special Special Special
1 Apr 2016
26 Apr 2016
10 Jun 2016
29 Jun 2016
14 Jul 2017
31 Aug 2016
14 Nov 2016
15 Dec 2016
26 Jan 2017
21 Feb 2017
22 Mar 2017
Diederik Fouché (Chairman) √ √ √ √ √ √ √ √ √ √ √
Lou Alberts √ √ Telecon √ Apology √ √ Telecon Telecon √ √
David Austin ¹ n/a n/a n/a n/a n/a n/a √ √ √ √ √
Hanré Bester ² n/a n/a n/a n/a n/a √ √ n/a n/a n/a n/a
Jan Beukes ³ √ √ √ √ Apology n/a n/a n/a n/a n/a n/a
Stephen Connelly n/a √ √ √ √ √ √ √ √ √ √
Dries Ferreira ³ √ √ √ √ √ n/a n/a n/a n/a n/a n/a
Saleh Mayet 4 √ Apology Telecon √ √ √ √ Telecon √ n/a n/a
Dinga Mncube √ √ Apology √ √ √ √ √ √ √ √
Veli Mokoena √ √ √ √ Apology √ √ Telecon √ √ √
George Nakos √ Telecon Telecon √ Apology √ Apology Telecon Apology Telecon Apology
René Roos √ √ √ √ √ √ √ √ √ √ √
Derek Tod 5 √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a
¹Appointedon18November2016;resignedon17March2017,effective30June2017.² Appointed on 14 July 2016. ³ Resigned on 14 July 2016. 4 Resigned on 20 February 2017.5 Retired on 31 May 2016.
CORPORATE GOVERNANCE AT DAWN
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Distribution & Warehousing Network Limited | | Integrated report 2017
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND EXECUTIVE COMMITTEETherolesofthechairmanandchiefexecutiveofficerareseparate.
The role of the chairman is formalised and the chairman’s ability to add value, and his performance against what is expected of his role and function, are assessed annually by the board. The board elects a chairman on an annual basis. The chairman is responsible for the effective leadership of the board as contemplated in King III. The board considers the number of outside chairmanships held and ensures a proper succession plan for the position of chairman.
Thedailymanagementofthegroup’saffairsisdelegatedtothechiefexecutiveofficer,whoco-ordinatestheimplementationofboard policy through the executive committee.
The executive committee comprises:
Designation
David Austin Chief financial officer (until 30 June 2017)
Hanré Bester Group financial manager (interim chief financial officer from 14 July 2016 to 18 November 2016)
Chris Booyens Chief financial officer (from 1 May 2017)
Stephen Connelly Chief executive officer (until 31 March 2017)
Executive deputy chairman (from 1 April 2017)
Nic de Waal Managing director – DPI Plastics
Steve du Toit Chief executive officer – WHS
Edwin Hewitt Chief executive officer (from 1 April 2017)
Graeme Johnston WHS supply-chain management director (until 31 May 2017)
Craig Rankin Managing director – Incledon
René Roos Chief of staff
Sandy Visser Group human resources executive
Vanessa White Group governance, risk and compliance executive
DAWNhasidentifieditsprescribedofficersasthemembersoftheexecutivecommitteewhoarenotexecutivedirectors.
APPOINTMENT OF DIRECTORSDirectors, both executive and non-executive, are appointed for their skill and experience. The appointment of new directors requires the unanimous approval of the board. The board established a formal orientation programme to familiarise incoming directorswiththegroup’soperations,seniormanagementanditsbusinessenvironmentandtoinductthemintheirfiduciaryduties and responsibilities. The board also provides input regarding senior management appointments. The company secretary assists with the director induction and continuing professional development training programmes. The induction and ongoing training programmes of the board incorporate risk governance as well as an overview of and any changes to laws, rules, codes andstandardsapplicableonthecompanytoenabledirectorstosufficientlyfamiliarisethemselveswiththegeneralcontentthereof to discharge their legal duties.
The board has the authority to remove any director without shareholder approval.
The rotation of all directors is every three years, as outlined in the company's memorandum of incorporation. The chairman rotates in his capacity as a director.
ROLE AND RESPONSIBILITIESThe board provides effective leadership based on an ethical foundation and ensures that the company is seen to be a responsible corporate citizen. The board ensures that the company’s ethics are managed effectively and ensures that all deliberations are based on the four values underpinning good governance – responsibility, accountability, fairness and transparency.
CORPORATE GOVERNANCE AT DAWN continued
Page 38
The board meets at least quarterly to initiate, evaluate and monitor business matters which have an impact on the wellbeing of the group and its stakeholders. These include setting group strategy, determining policy and instituting control measures.
The board appreciates that strategy, risk, performance and sustainability are inseparable and gives effect to this by contributing to and approving the strategy; identifying key performance and risk areas; ensuring that the strategy will result in sustainable outcomes; and, considering sustainability as a business opportunity that guides strategy formulation. DAWN’s strategy is summarised on pages 17 to 19.
Theboardtakesfinalresponsibilityforacquisitionsanddisposals,approvescapitalexpenditureandappraisesproposalsfromthe executive and other board committees.
Theboardgivesstrategicdirectiontothegroup,appointsthechiefexecutiveofficerandensuresthatsuccessionisplanned.
A formal succession planning policy was adopted by the remuneration committee. The non-executive directors take responsibility for ensuring that the chairman encourages proper deliberation of all matters requiring the board’s attention. The board ensures that there is an appropriate balance of power and authority on the board so that no one individual or block of individuals can dominate the board’s decision-making process.
The board ensures that the group complies with all relevant laws, regulations and codes of business practice and that it communicates with its shareholders and relevant internal and external stakeholders openly, promptly and with substance prevailing over form.
The board and its committees are supplied with full and timely information which enables them to discharge their responsibilities and have unrestricted access to all group information, records, documents and property. Non-executive directors have access to management and may even meet separately with them, without the attendance of executive directors.
RISK MANAGEMENT AND MATERIALITYThe board has a comprehensive system of control ensuring that risks are mitigated and the group’s objectives are attained.
This control environment sets the tone of the group and covers ethical values, management’s philosophy and the competence of employees.
Theboardidentifiesthekeyriskareasandkeyperformanceindicatorsforthegroup.Theseareregularlyupdatedandparticularattention is given to technology and systems as the board is ultimately responsible for the governance of information technology.
Theboarddefineslevelsofmateriality,reservingspecificpowertoitselfanddelegatingothermatterswiththenecessarywrittenauthority to management. These matters are monitored and evaluated on a regular basis.
SUSTAINABILITYThe board regards sustainability as a business opportunity to create value on social, economic and environmental levels. The objective of the group’s sustainability programme is to eliminate or minimise adverse consequences for the group on the community and the environment and to improve the impact of the group’s operations on the economic life of the community.
INDEPENDENCE ASSESSMENTTheboardhasadoptedapolicyontheindependenceofdirectors.Thetestofindependenceisdefinedas“Independentofmanagement and any business or other relationship that could materially interfere with the exercise of objective, unfettered or independent judgement by the director or the director’s ability to act in the best interests of the DAWN group”.
The board evaluated and concluded that as at 31 March 2017 four of the six non-executive directors were independent accordingtotheCompaniesActdefinition.
GeorgeNakosandVeliMokoenaarenotconsideredindependentintermsofthedefinitionduetotheirrepresentationofasignificantshareholderofthecompany.
One of the non-executive directors on the board has served a term exceeding nine years. The board reviewed the independence of Lou Alberts and, after due consideration, concluded that his long association with the group has not impaired his integrity, impartiality and objectivity and that he has retained his ability to act independently.
CORPORATE GOVERNANCE AT DAWN continued
Page 39
Distribution & Warehousing Network Limited | | Integrated report 2017
ROTATION OF DIRECTORSIn terms of the company’s memorandum of incorporation, Diederik Fouché and Dinga Mncube retire by rotation at the forthcoming annual general meeting. The retiring directors are eligible and available for re-election. Shareholders will be requested to pass resolutions to ratify the appointments of Edwin Hewitt, Akhter Moosa, Chris Booyens, Charles Boles and Theunis de Bruyn at the annual general meeting to be held on Friday, 24 November 2017.
ANNUAL BOARD EVALUATIONAn annual evaluation of the board was conducted in 2017 and consisted of a questionnaire being completed by all board members. The results were collated by the company secretary and passed on to the board who assessed the results. The board concluded that the organisation’s performance versus that of its peers and comparisons of industry are to be aggressively considered in a manner that enhances comprehensive risk oversight.
This annual evaluation is comprehensive, encompassing all aspects of the board’s responsibilities. It covers the effectiveness of the board as a whole.
Nomination for re-appointment of a director only occurs after evaluation of performance and attendance at meetings by the director.
Thechairmanannuallyappraisesthechiefexecutiveofficerandtheresultsofthisappraisalareconsideredbytheremunerationcommitteetoguideitinitsevaluationoftheperformanceandremunerationofthechiefexecutiveofficer.
BOARD CHARTERThe purpose of the charter is to regulate the parameters within which the board will operate and to ensure the application of the principles of good corporate governance in all dealings by, in respect and on behalf of, the company and furthermore to set out the roles and responsibilities of the board and individual directors, including the composition and relevant procedures of the board as well as the various legislation and regulations affecting their conduct.
The board charter was reviewed and approved by the board on 22 March 2017 and is available for inspection at the company’s registeredoffice.
BOARD COMMITTEESSpecificresponsibilitieshavebeenformallydelegatedtoboardcommitteeswithdefinedtermsofreference,lifespanandfunction, clearly agreed upon reporting procedures and a written scope of authority. The committees are appropriately constituted with due regard to the skills required by each committee and the committees’ terms of reference are reviewed once a year. There is transparency and full disclosure from the board committees to the board. Board committees are free to take independent outside professional advice as and when necessary and are subject to regular evaluation by the board to ascertain their performance and effectiveness.
The board committees are the:
• Audit and risk committee;
• Remuneration committee;
• Nomination committee;
• Social, ethics and transformation committee; and
• IT steering committee.
CORPORATE GOVERNANCE AT DAWN continued
Page 40
AUDIT AND RISK COMMITTEEDuring the year under review the audit committee and the risk committee were combined into one committee, the audit and risk committee. The audit and risk committee’s membership constitutes the following:
DesignationArea of responsibility Date appointed Date resigned
Saleh Mayet Independent non-executive director and chairman of the committee
Audit and risk 29 May 2015 20 February 2017
Akhter Moosa Independent non-executive director and chairman of the committee
Audit and risk 28 March 2017
Lou Alberts Independent non-executive director Audit and risk 30 June 1998
Dinga Mncube Independent non-executive director Audit and risk 23 May 2014
David Austin Chieffinancialofficerandfinancialdirector
Risk 18 November 2016 30 June 2017
Hanré Bester Chieffinancialofficerandfinancialdirector
Risk 14 July 2016 18 November 2016
Dries Ferreira Chieffinancialofficerandfinancialdirector
Risk 23 May 2014 14 July 2016
Stephen Connelly Chiefexecutiveofficer/executivedeputy chairman
Risk 1 April 2016
Steve du Toit Chiefexecutiveofficer–WHS Risk 29 August 2016
Edwin Hewitt and Chris Booyens were appointed as members of the audit and risk committee, from a risk perspective, with effect from 1 April 2017 and 1 May 2017, respectively.
The group governance, risk and compliance executive, Vanessa White, has a standing invitation to meetings.
Attendance at meetings by members of the audit and risk committee during the period 1 April 2016 to 31 March 2017 is outlined below.
Audit only
Auditonly
Special
20 Apr 2016
22 Jun 2016
29 Jun 2016
29 Aug 2016
9 Nov 2016
16 Mar 2017
Saleh Mayet (chairman) ¹ √ √ √ √ √ n/a
Lou Alberts √ √ √ √ √ √
David Austin ² n/a n/a n/a n/a n/a √
Hanré Bester ³ n/a n/a n/a √ √ n/a
Dinga Mncube √ √ √ √ √ √
Akhter Moosa (chairman) 4 n/a n/a n/a n/a n/a n/a
Dries Ferreira 5 n/a n/a √ n/a n/a n/a
Stephen Connelly n/a n/a √ √ √ √
Steve du Toit n/a n/a √ √ √ √
¹ Resigned with effect from 20 February 2017.
²Appointedon18November2016;resignedon17March2017,effective30June2017.
³Appointedon14July2016;resignedon18November2016.4 Appointed with effect from 28 March 2017.5 Resigned 14 July 2016.
The chairman of the board attended all the above meetings as an invitee.
CORPORATE GOVERNANCE AT DAWN continued
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AuditThereportontheauditfunctionsoftheauditandriskcommitteeisoutlinedonpages93to96oftheannualfinancialstatements, in accordance with the Companies Act and the JSE Listings Requirements.
RiskThe overall objective of the committee is to effectively communicate and oversee the process, models and frameworks for managing risk across the group to:
• safeguard the group’s assets and investments;
• support business objectives and sustainability under normal as well as under adverse operating conditions; and
• behave responsibly towards all stakeholders having a legitimate interest in the group.
Whilst the board is ultimately responsible for the maintenance of an effective risk management process, the committee assists the board in assessing the adequacy of the risk management process to ensure that:
• the group has implemented an effective policy and plan for risk management that will enhance the group’s ability to achieve its strategic objectives; and
• the disclosure regarding risk is comprehensive, timely and relevant.
The committee utilises a heat risk-mapping process aimed at identifying key risk areas and related mitigations. It assesses and addresses, inter alia, physical and operational risk, HR risk, technology risk, business continuity and disaster recovery, credit and market risk and governance and compliance risk. This assists the board in its assessment and management of risk.
The audit and risk committee ensures that IT risks are adequately addressed and obtains appropriate assurance that controls are in place and effective in addressing IT risks in line with group risk appetite and external governance requirements.
An evaluation has been performed of the group governance, risk and compliance executive as well as the risk committee. The board considers the process of risk management to be effective in meeting its intended objectives.
The terms of reference of the audit committee and risk committee were reviewed, updated and approved by the board on 22 March2017andisavailableatthecompany’sregisteredofficeforinspection.
REMUNERATION COMMITTEEThe report of the remuneration committee is set out on pages 52 to 75.
NOMINATION COMMITTEEDuring the year, the nomination committee comprised Diederik Fouché (chairman), Saleh Mayet and Lou Alberts. On 20 February 2017, Saleh resigned as independent non-executive director and member of the committee.
Thechiefexecutiveofficer,financialdirector,headofhumanresources,othermembersofseniormanagement(asmayberequired), assurance providers, professional advisors and board members may attend nomination committee meetings, but by invitation only and may not vote. The company secretary is the secretary of this committee and assists the committee with the appointment of directors.
Attendance of meetings by members of the nomination committee during the period 1 April 2016 to 31 March 2017 is outlined below.
Telecon
18 Apr 2016
10 May 2016
22 Jun 2016
1 Nov 2016
15 Dec 2016
8 Mar 2017
Diederik Fouché (Chairman) √ √ √ √ √ √
Lou Alberts √ √ √ √ √ √
Saleh Mayet ¹ √ √ √ √ √ n/a
¹ Resigned with effect from 20 February 2017.
Effective 14 July 2017, Akhter Moosa was appointed as a member of the nomination committee.
CORPORATE GOVERNANCE AT DAWN continued
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A formal policy details procedures for appointment to the board.
The role of the committee is to assist the board to ensure that the board has the appropriate composition for it to execute its duties effectively. The committee annually reviews the board’s required mix of skills, experience and other qualities to assess the effectiveness of the board, its committees and the contribution of each director.
Should any vacancies arise on the audit functions of the audit and risk committee, the board will, on recommendation of thenominationcommittee,fillsuchvacancywithin40businessdays,asstipulatedintheCompaniesAct,no71of2008,asamended.
Formal agreements exist between non-executive directors and the company.
Executive directors have service contracts and restraint agreements and are appointed on the basis of their skills, experience and level of contribution to and impact on the group’s activities. Non-executive directors are selected on the basis of industry knowledge and their professional skills and experience to enhance organisational decision-making.
All directors are subject to election by shareholders, retire by staggered rotation and stand for re-election in accordance with the company’s memorandum of incorporation. At least one-third of the directors of the company retire by annual rotation at the company’s annual general meeting.
Thenamesofdirectorssubmittedforelectionorre-electionareaccompaniedbysufficientbiographicalinformationtoenableshareholders to make an informed decision in respect of their election.
The board performs an evaluation of the effectiveness of the nomination committee annually.
Thetermsofreferenceofthenominationcommitteewasreviewedandratifiedbytheboardon22March2017andisavailableatthecompany’sregisteredofficeforinspection.
SOCIAL, ETHICS AND TRANSFORMATION COMMITTEEThe board is committed to the spirit and principles of broad-based black economic empowerment (BBBEE), including socioeconomic development objectives, and to this end a social, ethics and transformation committee was established.
The committee assists the board in ensuring that there are appropriate strategies and policies in place to progress transformation.
The committee seeks to address any and all issues pertaining to the transformation of the group into an organisation that is not only relevant in the context of a democratic South Africa, but also to ensure that the composition of the group is fully representative of the cultural landscape that is prevalent in the country and to ensure that DAWN is a leader in the implementation of HR and IR practices that recognise the equality of all individuals. DAWN seeks to implement, through careful and considered processes, measures that support the group’s long-term goal of delivering sustainable returns to all shareholders and stakeholders alike.
Thesocial,ethicsandtransformationcommittee’sstatutory-specificfunctionsincludethemonitoringofthecompany’sactivities,having regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters outlined in the Companies Act, no 71 of 2008, as amended.
In addition, and complementary to its statutory duties in terms of the Companies Act, the committee assists DAWN to discharge its business sustainability with respect to the implementation of practices that are consistent with good corporate citizenship.
Thetermsofreferenceofthesocial,ethicsandtransformationcommitteeisreviewedannually,wasratifiedbytheboardon 22March2017andisavailableatthecompany’sregisteredofficeforinspection.
Thecommitteeprioritisesobjectivesidentifiedbytheboardandtargetsaresetforattainingresultsonmatterspertainingtosocial aspects, ethics, sustainability and transformation. The social, ethics and transformation report appears on pages 76 to 78 of the integrated report.
CORPORATE GOVERNANCE AT DAWN continued
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IT STEERING COMMITTEEThe use of technology is a continuing focus area in the DAWN group. The board assumes the responsibility for the governance of information technology (IT) and places it on the board agenda.
The board recognises the important role that IT governance plays in the management of risks and the achievement of group objectives and has approved a long-term investment for the implementation of warehousing and distribution management systems as well as an Enterprise Resource Planning (ERP) system across the group to add value to the business and mitigate risks.
Aligned to the implementation of the ERP system and maturing IT environment, management is making progress towards alignment to leading IT Control Frameworks, such as ITIL, and Control Objectives for Information and Related Technology Control Framework (COBIT) to ensure an appropriate IT governance model that helps in delivering value from IT and understanding and managing the risks associated with IT. The framework also aims to bridge the gap between business requirements, control needs and technical issues and ensures the integrity of information and information systems. Included is a key focus on information availability, information security, information technology operations, asset management and compliance to laws and regulations.
BrendanClarkistheappointedchiefinformationofficer(CIO)andhastwentyyears’experienceintheITindustry.HisqualificationsincludeaNationalDiplomainElectricalEngineering:LightCurrentandElectronicCommunicationaswellasIT-relatedcertificationsandcertificates.
The IT steering committee assists the board in its responsibility for IT governance and facilitates the integration of the IT strategy into group companies’ strategic and business processes. A robust process has been implemented to identify, and exploit, where appropriate, opportunities to improve the performance and sustainability of the group, in line with triple bottom line objectives, through the use of IT.
The committee’s members were Dries Ferreira (chairman), Jan Beukes, René Roos and Brendan Clark. Dries and Jan resigned as executive directors and members of the committee on 14 June 2016. Hanré Bester was appointed to the committee on 14 July 2016. Following Dries' resignation, René was appointed interim chairman of the committee.
The group governance, risk and compliance executive has a standing invitation to meetings and executives from business units attend meetings by invitation.
Attendance of meetings by members of the IT steering committee during the period 1 April 2016 to 31 March 2017 is outlined below.
23 Jun2016
21 Oct2016
Dries Ferreira (chairman) ¹ √ n/a
René Roos (chairman) √ √
Hanré Bester √ √
Jan Beukes ¹ √ n/a
Brendan Clark √ √
¹ Resigned 14 July 2016.
The board receives assurance from management and independent assurance on the effectiveness of IT internal controls from internal audit and/or independent parties, when required.
The implementation of the group’s new ERP system has allowed further improvements in the effective use of technology throughout the audit process.
Theauditandriskcommitteefulfilsanoversightroleoftheriskmanagementprocessandspecificallyoverseesfinancialreportingrisks,internalfinancialcontrols,fraudrisksandITrisksasitrelatestofinancialreportingandthegoingconcernofthegroup.
The terms of reference of the IT steering committee was reviewed, updated and approved by the committee on 31 March 2017 andisavailableatthecompany’sregisteredofficeforinspection.
CORPORATE GOVERNANCE AT DAWN continued
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INSIDER TRADINGThe group has a formal policy, established by the board and implemented by the company secretary, prohibiting dealing in securitiesbydirectors,officersandotherselectedemployeesfromtheendoftherespectivereportingperiodtothedateoftheannouncementofthefinancialresultsorinanyotherperiodconsideredpricesensitive.
COMPANY SECRETARYAll directors have access to the advice and services of the company secretary and there is an agreed procedure by which directors as well as the board committees may obtain independent professional advice at the company’s expense, should they deem this necessary.
The company secretary provides guidance to the board as a whole and to individual directors with regard to how their responsibilities should properly be discharged in the best interests of the group. The company secretary also oversees the inductionofnewdirectorsandassiststhechairmanandthechiefexecutiveofficerindeterminingtheannualboardplan,boardagendas and formulating governance and board-related issues. The company secretary assists with the evaluation of the board and its committees as well as of the directors.
The company secretary ensures that the board charter and the terms of reference of board committees are reviewed and updated annually.
The board appointed iThemba Governance and Statutory Solutions (Pty) Ltd as company secretary and is represented by Ms ClaireLindsay(FCIS),whohasfifteenyears’experienceascompanysecretaryinthelistedenvironment,andtheboardissatisfiedthattheiThembateamhasthenecessaryskillsandexperiencetofulfilthisfunctionwiththerequiredempowermentfromtheboard.Theboardconfirmsthatanarm'slengthrelationshipwiththecompanysecretaryismaintained.
Theboardhasduringtheyearunderreviewconsideredandsatisfieditselfofthecompetence,qualificationsandexperienceofthe company secretary.
CORPORATE GOVERNANCE AT DAWN continued
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RISK MANAGEMENTThe group’s risk management framework aims to:
• align strategy with risk appetite and tolerance;
• improvedecision-makingwhichimprovesthegroup’sriskprofile;
• promote the strategic and coordinated procurement of a quality order book;
• ensure equitable commercial terms and conditions are contracted;
• promote continuous improvement through the application of key lessons learnt;
• improvepredictabilityandbuildshareholderconfidence;
• build robust organisational risk structures and facilitate timeous interventions to promote long-term sustainability; and
• promotetheefficientandproactiveutilisationofopportunities.
Ranking2017[2016]
Top strategic risks threatening the achievement of the business plan Current mitigation strategies
Residual risk rating
Impact on business
plan
1 [1] Group performance in current market conditions
The weakened economy and current marketing conditions have resulted in sales volumes consistently not meeting forecasted targets.
The inability to respond quickly to adjust the DAWN group business model to the new market and economic reality, whilst simultaneously providing shareholders with an adequate return, could render the group irrelevant if not managed at a critical level.
Substantial board and executive level effort has been invested in evaluating and adjusting the DAWN group business model to restore it in termsofprofitabilityandshareholderreturninthefaceofadifficulteconomy.
Mitigation measures include the streamlining of core operations and closure of non-core operations to save further costs; the appointment and refocus of executive specialist skills to align the business model to market demands; the engagement of restructuring and performance optimisation advisors; and systems capability enhancement initiatives, all whilst maintaining focus on the group’s traditional competitive advantages in its chosen market.
Extreme Extreme
2 [2] Liquidity management
Continued pressure on group bankingfacilitiesandcashflowdue to overinvestment in stock, loss-making operations, slowed collections (government), in-country currency risk exposure (Africa) as well as disrupted business cash flowswithEnterpriseResourcePlanning(ERP)costoutflows.
Negative impact of higher funding cost on earnings achievement.
The rights offer has alleviated the immediate risk, but the group remains focused on restoring the necessary disciplines relating to accuratecashflowforecastingand intelligent working capital management. Each DAWN group entity’s performance is monitored on a weekly basis to ensure that its performance meets expected levels and any performance gaps are addressed as a matter of urgency.
Initiatives are further underway to reduceunplannedoutflowpotentialthrough a formal review/elimination of loss-making entities and relationships.
Extreme High
THE GOVERNANCE OF RISK
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Ranking2017[2016]
Top strategic risks threatening the achievement of the business plan Current mitigation strategies
Residual risk rating
Impact on business
plan
3 [3 new] GDW group performance
Inability of Grohe DAWN Watertech (GDW) to recover and perform according to expected levels, impacting negatively on the DAWN group’s investment portfolio and performance.
GDW has focused its efforts on identifying/reducing losses and optimising its production, facilities and supply-chain through investment by way of funds, technical know-how and through the employment of additional skills and competencies.
High High
4 [4] Exposure to slowed government infrastructure spend
High dependence on government spending and civil contracts and minesspecificallyimpactingIncledonand the pipe manufacturing entities DPI, Sangio and Swan.
Further impact of delayed projects andcancellations,influencingstockorderingandcashflow.
The infrastructure segment has been critically evaluated to determine measures to further reduce costs and optimise production in line with market demands.
Mitigation measures include the engagement of new specialist skills and streamlining of operations as well as a continued refocus of market strategies towards a more sustainable product mix and sales model.
High High
5 [6] Meeting expectations as master distributor
Customerservicelevelsaredifficultto maintain due to the impact of erratic demand patterns as well as the unpredictability of market requirements. Forecasting remains a challenge.
Dichotomy exists between customer expectations for high service levels and low cost.
Managingfixedcostsversusvariablevolumes is a challenge in the current low-volume economic climate.
As a part of the turnaround strategy there is a key focus on achieving the DAWN Master Distributor Vision across group entities.
There has been continuous engagement with customers and principals by senior executives and a revision of the group's value offering in light of changing customer demands. DAWN has further invested in its sales force to ensure that its levels of service are improved.
Various cost-saving initiatives have been rolled out as part of the turnaround project with a view to providing a cost effective service to the market.
High Medium
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Ranking2017[2016]
Top strategic risks threatening the achievement of the business plan Current mitigation strategies
Residual risk rating
Impact on business
plan
6 [7&8] Workingcapitalinefficiencies
The group is still in the process of optimising working capital to gainthenecessaryefficienciestoperform at optimal levels. Although improvement has already been made, there are still legacy issues which are being addressed:
Stock: Over-investment in stock due to the negative impact on accuracy of demand planning as a result of change in customer buying patterns towards cheaper products and commodity items, combined with erratic demand patterns.
Debtors: More than 90% of sales are on credit – a deterioration in the percentage of collections could lead to an increase in bad debts and funding required to fund debtors. This is especially a risk for Incledon. The increased deterioration in the percentage of collections, which could lead to possible bad debts, is areflectionofthecurrenteconomicclimate.
In terms of stock, work has continued in the areas of demand planning, product range, as well as stock movement and storage optimisation. The focus on stock models has continued with the reduction of investment in slow-moving stock versus fast-moving commodity items. Stock level targets are being monitored by all entities and the chief executives of the respective subsidiary companies.
In terms of debtors, a high focus on credit policies and strict application of credit terms is maintained.
The group continues to follow a strict policy of credit insurance which assures that the bulk (approximately 85%) of credit is insured across the group. Approximately 60% of Incledon’s credit is insured due to the nature of the insurable book. There is a continuous focus on collaboration between the credit insurance providers, independent credit specialists and the legal collection team with a heightened monitoring by DAWN executives to mitigate the higher risk.
High Medium
7 [5] IT systems – Latent ERP implementation issues
Although implementation of the ERP systems across the group has largely beenfinalised,thegroupisstillina post-implementation settlement phase where a few issues are still being addressed and optimisation initiatives are underway.
This impacts on work processes and productivity and places an additional burden on key resources.
There is an experienced project and ERP management team dealing with issuesidentified.
Collaboration with service providers is ongoing to resolve latent product issues.
The board and executive team have appointed additional specialists to evaluate the ERP and supporting IT environment with a view to further identifying any gaps and areas which can be enhanced to promote the optimal running of the system and IT platform.
High Medium
THE GOVERNANCE OF RISK continued
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Ranking2017[2016]
Top strategic risks threatening the achievement of the business plan Current mitigation strategies
Residual risk rating
Impact on business
plan
8 [9 new] Transformation
Inability to comply with the new BBBEE codes effectively in order to ensure continued optimal economic performance and take advantage of related economic opportunities.
Transformation remains a key focus area and high group priority.
In addition to approved and implemented policies to address transformation and regular monitoring and reporting at entity level, the DAWN social, ethics and transformation committee has implemented additional meetings aimed solely at monitoring progress of each entity in terms of key BBBEE objectives.
High Medium
9 [10 new] Skills attraction and retention
The group has experienced a high staff turnover at all levels. Ensuring continuous attraction, succession planning and skills retention remain a challenge in the group’s current financialsituation.
DAWN’s “people” strategy is a high priority in the turnaround plan. The group has continued with programmes aimed at improving the culture and leadership of the group and initiatives to assist with attracting, developing and retaining core talent, including surveys, training, mentorship/ leadership programmes, performance incentives and benchmarking initiatives.
Medium Medium
10 (new) Compliance risk management
The group has highlighted a need to foster a culture of enhanced proactive management of actual or potential non-compliance to laws, regulations and contracts.
The board and executive team have invested in further enhancing compliance risk management awareness across the group through additional training and workshops as well as enhanced monitoring by the board and executive on compliance matters.
Medium Medium
THE GOVERNANCE OF RISK continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
A combined assurance model is applied to provide a coordinated approach to all assurance activities.
The combined assurance model aims to optimise the assurance coverage obtained from management, internal assurance providers and external assurance providers on the risk areas affecting the group. Within DAWN there are a number of assurance providers that either directly or indirectly provide certain assurances over the adequacy and effectiveness of those controlsthatmitigatetherisksasidentifiedduringtheriskassessmentprocessdescribedonpages45to48.
Collectively, the activities of these assurance providers, each representing a line of defence for the group, are referred to as the combined assurance model.
4thline of defence
OVERSIGHT • Board of directors
• Board committees
3rdline of defence
INDEPENDENTASSURANCE
• Internal audit
• External audit
• Other
2ndline of defence
INTERNALASSURANCE
• Risk management
• Compliance
• Health and safety
• Other
1stline of defence
MANAGEMENT-BASED
ASSURANCE
• Risk management
• Compliance
• Health and safety
• Other
The DAWN group has taken an approach designed to meet the objectives of combined assurance in a pragmatic and cost-effective manner.
PROCESSThe development of DAWN’s combined assurance model entailed the following:
• riskidentification;
• identificationofcontrols;
• identificationofassuranceproviders;
• assessment of assurance activities against controls; and
• conclusion and development of action plans.
ASSURANCE PROVIDERS
Management-based assuranceManagement oversight, including strategy implementation, key performance indicators and performance measurement, control self-assessmentsandcontinuousmonitoringmechanismsandsystemsareincludedinthefirstlineofdefence.
COMBINED ASSURANCE
Page 50
Internal assuranceRisk management, compliance, health and safety and quality assurance processes are included in this second line of defence. These functions are responsible for maintaining policies, minimum standards, risk management performance, monitoring and reporting.
Independent assurance
Internal audit
Internal audit is an independent appraisal function, which examines and evaluates the activities and the appropriateness of the systemsofinternalcontrol,riskmanagementandgovernanceprocesses.Theauditandriskcommitteeissatisfiedthatinternalaudit’s functions align with the group’s internal audit charter.
External audit
The audit and risk committee is responsible for recommending the external auditor for appointment by shareholders and for ensuring that the external auditor carries out an annual audit of all the group’s subsidiaries in accordance with international auditing standards and reports in detail on the results of the audit both to the management of the group’s divisions and to the audit and risk committee. The external auditor is the main external assurance provider for the board in relation to the group’s financialresultsforeachfinancialyear.
Board and oversight committeesIn addition to the board of directors, the following board committees provide assurance as stated below:
• Auditandriskcommittee–withregardtofinancialandinternalcontrolsoutlinedinitstermsofreferenceandtheenterprise-wide risk management framework.
• Remuneration committee – with regard to controls in the remuneration sphere.
• Nomination committee – in relation to board diversity, succession planning and corporate governance structures.
• Social, ethics and transformation committee – with regard to oversight of the group’s controls in the sphere of ethics, corporate social responsibility, sustainability and transformation.
• IT steering committee – with regard to oversight of the group's information technology systems.
The audit and risk committee has reviewed the combined assurance results for the group to satisfy itself that appropriate assuranceactivitiesareinplaceinrelationtothecontrolsoperatingoverkeyrisksandcontrolsidentifiedintheriskmanagement.
BOARD ASSESSMENT OF THE GROUP’S SYSTEMS OF INTERNAL CONTROLS AND RISK MANAGEMENTAttheboardmeetingheldon12July2017,theboardofdirectorshasconfirmedthatnothinghascometotheirattentionorarose out of the internal control self-assessment process, internal audit or year-end external audits that causes the board to believethatthegroup’ssystemsofinternalcontrolsandriskmanagementarenoteffectiveorthattheinternalfinancialcontrolsdonotformasoundbasisforthepreparationofreliablefinancialstatements.Theboard’sopinionisbasedonthecombinedassurances of external and internal auditors, management and the audit committee as well as central business systems and HR functions.
COMBINED ASSURANCE continued
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ASSURANCEThe data in this report has been assured to the extent set out below.
TheannualfinancialstatementsappearingonDAWN’swebsitehavebeenauditedbytheindependentauditors,PricewaterhouseCoopers Inc, and their audit report appears on pages 103 to 108 oftheannualfinancialstatements.
DAWN’smanagementanddirectorsareresponsibleforthepreparationandpresentationoftheidentifiedsustainabilityinformation, as incorporated in the 2017 sustainability data and information, and for the information contained in the integrated report,inaccordancewiththeirinternallydefinedprocedures.DAWN’smanagementanddirectorsarealsoresponsibleformaintaining adequate records and internal controls that are designed to support the reporting process.
The audit committee has reviewed the sustainability issues in the sustainability data and in the integrated report to ensure that theyarereliableandthatthereisnoconflictwiththefinancialinformation.
Information contained within the sustainability data and content and disclosures from certain external sources have been independentlyverified,suchasthebroad-basedblackeconomicempowermentrating(Empowerdex).Thegroupinternalauditdepartment independently provided risk-based assurance on the sustainability data. External independent assurance may in the future be sought for the sustainability report.
COMPLIANCEDAWN complies with all relevant legislation.
COMBINED ASSURANCE continued
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The remuneration report is intended to provide an overview and understanding of the group’s remuneration philosophy and practiceswithspecificemphasisonexecutiveandnon-executiveremuneration.
The remuneration committee assists the board in ensuring that the company remunerates directors and executives fairly and responsibly and that the disclosure of director and executive remuneration is accurate, complete and transparent.
TERMS OF REFERENCE The remuneration committee serves as a sub-committee of the board to monitor and strengthen the objectivity and credibility of the remuneration and bonus system for the executive directors. The duties of the remuneration committee further include, amongst others:
• scrutinisingallemployeebenefits,benefitsinkind,retirementbenefitsandotherfinancialarrangementstoensurethesearejustified,correctlyvaluedandsuitablydisclosed;
• reviewing the provisions of executive employment contracts with a particular focus on severance payments;
• ensuring alignment of the remuneration and human resources strategies and policies with the group’s business strategy, needs and the desired culture;
• determining the group’s general policy on executive directors and senior management remuneration to ensure fair and responsible remuneration practices, including bonus and incentive schemes;
• reviewing and measuring annual bonuses for the executives and senior management team against individual and corporateperformancetargets,bothfinancialandsustainabilityrelated,whichtargetsmustbereviewedannuallytoremainappropriate;
• consideringandrecommendingforapprovalbytheboardallelementsoftheremunerationofthechiefexecutiveofficerandexecutive directors;
• regularly reviewing incentive schemes to ensure their continued contribution to shareholder value, guarding against unjustifiedwindfallsandinappropriategainsfromtheoperationofshare-basedincentives;
• determining any grants to executive directors and senior management made pursuant to the group’s management share-based scheme;
• approving or recommending general salary increases for non-bargaining employees and mandates for negotiations with trade unions, where appropriate;
• ensuring the adequacy of retirement and healthcare funding for executives and senior management;
• ensuring that the structures, policies and procedures facilitate good management and utilisation of human resources;
• endeavouring to ensure adequate succession plans for the executive and senior management;
• ensuring adequate consideration of policies for the group in respect of HIV/Aids management, skills development and employment equity;
• ensuring compliance to all statutory and best practice requirements regarding labour and industrial relations management; and
• consideringandfulfillingsuchotherdutiesasdefinedbytheboard,fromtimetotime.
The remuneration committee serves as a party to monitor and strengthen the objectivity and credibility of the remuneration and bonus system for the executive directors.
Ex gratia payments and bonuses payable to executive directors are to be reviewed and recommended to the board for review and presented to shareholders at the annual general meeting or a general meeting of shareholders, for approval.
Thesecretaryshallincorporatetheapprovedminutesofmeetingsoftheremunerationcommitteeinthemeetingfilespreparedfor meetings of the board for noting purposes.
The committee has reviewed group remuneration policies to ensure that these are aligned with the company’s strategy and linked to company and individual performance.
During the year under review, the terms of reference of the remuneration committee was reviewed and updated by the committee on 1 November 2016, approved by the board on 14 November 2016, and is available for inspection at the company’s registeredoffice.
REPORT OF THE REMUNERATION COMMITTEE
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MEMBERSHIPThe remuneration committee comprised independent non-executive directors Lou Alberts (chairman), Diederik Fouché and Saleh Mayet until Saleh’s resignation on 20 February 2017. The committee approved the appointment of Akhter Moosa to replace Saleh as a member of the committee.
The remuneration committee meets at least four times annually and the attendance at meetings held during the period 1 April 2016 to 31 March 2017 was as follows:
Telecon
18 Apr 2016
10 May 2016
22 Jun 2016
1 Nov 2016
15 Dec 2016
8 Mar 2017
Lou Alberts (chairman) √ √ √ √ √ √
Diederik Fouché √ √ √ √ √ √
Saleh Mayet ¹ √ √ √ √ √ n/a
¹ Resigned with effect from 20 February 2017.
Effective 14 July 2017, Akhter Moosa was appointed as a member of the remuneration committee.
Thechiefexecutiveofficer,thefinancialdirectorandthechiefofstaffattendmeetingsbyinvitation.
Directors that are members of the remuneration committee are excluded from the review of their own remuneration.
The general objective of the group’s remuneration policy is to ensure that DAWN can attract, motivate and retain appropriately skilled,qualifiedandexperiencedemployees.Remunerationisaimedatmatchingindividualcontributiontogroupperformance,within the framework of market forces, ensuring DAWN’s ability to retain top talent while protecting shareholders’ interests and thegroup’sfinancialhealth.
Intermsoftheremunerationpolicy,short-term(annual)incentivesarebasedonfinancialperformanceandindividualkeyperformanceindicators(KPIs),withtheweightingofearningsfavouringfinancialperformance.Themainobjectiveoftheindividual KPIs is to drive strategic business goals and to recognise individuals for retention purposes. Long-term incentives are basedongroupfinancialperformanceheadlineearningspershare(HEPS)andreturnoninvestedcapital(ROIC)andtaketheform of share incentives.
The company’s remuneration policy, summarised below, will be presented to shareholders at the annual general meeting to be held on Friday, 24 November 2017 and shareholders will be requested to cast a non-binding advisory vote thereon.
AsaresultofthelossesincurredbyDAWNforthefinancialperiodended31March2017,nobonuseswillbepaidforfinancialperformance and limited bonuses for individual KPI results, driven by the imperative to retain key skills. This principle has been agreed with shareholders during the course of the year.
SUMMARY OF THE REMUNERATION POLICY
Principles of remunerationThegroup’sremunerationpolicyprovidesaflexibleandcompetitiveremunerationstructure,whichisreferencedtoappropriatebenchmarks,reflectsmarketpracticeandistailoredtothespecificcircumstancesofthegroup.Thepolicyaimstoattractandretain high-calibre employees and to motivate them to develop and implement the group’s business strategy to optimise long-term shareholder value creation.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 54
12 months ended
31 March 2017
12 months ended
31 March2016
9 months ended
31 March2015
12 months ended
30 June2014
12 months ended
30 June2013
12 months ended
30 June2012
Total number of employees 2 341 2 984 3 064 4 543 3 937 3 744
Total compensation paid to employees (R’000) 702 146 728 633 560 637 904 996 787 758 684 553
Increase in cost as a % of net wealth created (%) * Negative Negative Negative 17 27 (45)
Total compensation as a % of revenue (%) 16 15 16 17 17 11
* Compensation for 2015 has been annualised.
Short-term (annual) bonus entitlements may or may not be guaranteed depending on seniority levels of employees and on regulatory requirements, such as bargaining council agreements and collective agreements with trade unions. The structure applied is as follows:
The remuneration committee will, based on the policy, consider the affordability of the overall short-term incentive (STI) payable, consideringaguidelinemaximumof15%ofprofitbeforeinterestandtax.Whenthe15%capisbreached,STIwillonlybepaidto employees with critical skills and key talent, with due regard to the impact on the group if their skills are not retained, and the liquidity and solvency of the group after the payment of the STI.
EmployeesRemuneration of employees may be subject to regulatory requirements, such as bargaining council agreements and collective agreements with trade unions. In the absence thereof, remuneration is based on individual and company performance as well as market trends.
Remunerationmaytypicallycompriseelementsoffixedremunerationandperformance-based(at-risk)remuneration.Certainemployees have an element of their remuneration at-risk. The proportion of an employee’s total remuneration that is at-risk, increases with seniority and with the individual’s ability to impact the performance of the company.
Executive bonuses
(not guaranteed)
Non-guaranteed 13th cheque based on affordability
Guaranteed 13th cheques based on collective agreements
REPORT OF THE REMUNERATION COMMITTEE continued
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A bi-annual performance review process assesses the degree to which each qualifying employee is satisfying the requirements of his/her role and the degree to which established performance objectives have been achieved.
Executivedirectors’andprescribedofficers’remunerationAprescribedofficer,intermsoftheCompaniesAct,no71of2008,asamended,meanstheholderofanoffice,withinacompany.DAWNhasidentifieditsprescribedofficersasthemembersoftheexecutivecommittee.Prescribedofficersaredesignated to be key management personnel in terms of IAS 24.
DAWN benchmarks the remuneration of its executives annually against the market in general, as well as against a carefully selected comparator group, to ensure effective alignment. DAWN uses the services of expert third parties in its annual benchmarking process.
Fixed salary
Theexecutives’fixedsalaryisstructuredonacost-to-companybasiswithalimitedrangeofprescribedandelectivefringebenefits,suchasretirementfund(prescribed),medicalaidandtravelallowance.
Variable income – short-term incentive scheme
Theshort-termincentiveprogrammeconsistsofanannualcashbonusthatislinkedtotheachievementoffirstly,predefinedcompany and secondly, personal performance measures for each executive. The ratio of company versus personal performance measuresis70%:30%forexecutivedirectorsandprescribedofficersand60%:40%forallotheremployeeswhoparticipateinthe STI scheme.
On-target-earnings (OTE) or target bonuses are based on seniority levels and is a percentage of annual guaranteed pay. The following policy will be applied:
TABLE 1
Management level On-target-earnings
Chiefexecutiveofficer 100%
Executive directors 75%
Prescribedofficers 70%
Subsidiary executives 60%
Senior employees reporting to group or subsidiary executive committee members 50%
Other managers who qualify for variable pay 40%
Companyperformanceismeasuredthroughtwoparameters:PBIT(profitbeforeinterestandtax)andROICorspecificworkingcapital parameters, as appropriate. The ratio is 50%:50%, but may be varied by the board, based on group priorities. For example, an executive director’s short-term incentive (STI) may consist of 70% company performance parameters, of which 35% will be earned based on PBIT and 35% based on ROIC or working capital.
A system of three-tier targets is used to determine bonuses earned for company performance (see Table 2). The bonus payable toanexecutivewillbeequaltothetargetbonus,ifthespecifiedtargetwasmet.Shouldthetargetbemissed,buttheminimumthreshold still be achieved, a lower percentage of the target bonus will be payable. Should the target be exceeded and the stretch target be achieved, then a higher percentage than the target bonus will be payable.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 56
Commercial measures
Continuousimprovement
measures
Culture andbehaviourmeasures
Corporate riskmeasures
CustomerDevelopment
andinnovation Process optimisation
and data integrity
Cost containment
Teamdevelopment
Behaviourintegrity
CollaborationGovernance
People andinfrastructuremanagement
Serviceintegrity
Sales/turnover
Margin andworking capital
DAWN applies the following three-tier target model to calculate bonuses earned for company performance, using a linear sliding scale from threshold to stretch:
TABLE 2
Performanceparameter
Weightingfor
executivesand
prescribedofficers
Weightingfor all otherparticipants Measure
Threshold(50% of OTE)
Target(100% of OTE)
Stretch(150% of
OTE)
PBIT As determined by the
remuneration committee and approved by
the board
As determined by the
remuneration committee and approved by
the board
Target set by the board
Annual targets as set by the board, based on group and shareholder requirements
ROIC or working capital
WACC or target set by
the board
Annual targets as set by the board, based on group and shareholder requirements
Bonus earnings are determined by the level of actual performance against the three-tier target table below. Bonus calculations are based on a linear sliding scale from 50% to 150% of OTE.
TABLE 3
Performance level achieved % of target bonus earned
Below threshold 0%
Threshold 50%
Target 100%
Stretch 150%
Personal performance is measured, based on an individual scorecard. Each participant will have an annual personal KPI scorecard.
A standard template, as depicted below, is used and then customised for each executive role.
REPORT OF THE REMUNERATION COMMITTEE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
Targets for the different management levels will be set as follows:
TABLE 4
Position PBIT ROIC /WC Personal
Chiefexecutiveofficer Group level Group level Personal scorecard
Financialdirector/Chieffinancialofficer Group level Group level Personal scorecard
Group governance, risk and compliance executive
Group level Group level Personal scorecard
Chief of staff Group level Group level Personal scorecard
Group HR executive Group level Group level Personal scorecard
Subsidiary CEOs/managing directors and executive committee members
Subsidiary level Subsidiary level Personal scorecard
In order to protect the group against bonus payments that are not affordable, the following rules will apply with respect to calculated bonuses for company performance (ie for PBIT and ROIC/working capital (WC):
TABLE 5
Group PBIT achieved (actual as % of budget) % payable of calculated bonus pertaining to company performance
51%+ Full calculated bonus
25% to 50% 25% to 50% of calculated bonus
<25% 0% payable
The above provisions will not apply to calculated KPI bonuses.
DAWN executive committee and selected subsidiary executive committee members who earned short-term incentives may choose to be rewarded in DAWN shares, subject to the rules of the deferred bonus plan rules.
Variable income – long-term incentives (LTI)
The company’s LTI plan is designed to link senior executives’ reward with performance targets that drive sustainable growth in shareholder value over the long-term.
The DAWN group’s LTI plan takes the form of a share incentive scheme in terms of which senior executives may, at the board’s discretion and in accordance with the scheme rules, be granted share rights which will vest only on the achievement of certain performance thresholds and service conditions.
LTI awards may be made annually to qualifying employees, based on the following allocation framework:
TABLE 6
Management level Share scheme
Annual value of unvested shares at grant date = below ratio x guaranteed annual pay
DAWN executive committee
Combination of deferred bonus plan (DBP) and long-term incentive plan (LTIP)
Up to 100% combined DBP and LTIP
Steering committee (managing directors of business units)
Combination of DBP and LTIP
Up to 90% combined DBP and LTIP
Headofficecriticalstaff LTIP Up to 60%
Company executive committee members LTIP Up to 45%
Business unit heads and heads of department reporting to company executive committee members
Share appreciation rights (SAR)
Up to 25%
REPORT OF THE REMUNERATION COMMITTEE continued
Page 58
LTIP awards will always have a three-year vesting period, with all rights being forfeited should the employee leave the company’s employ before the vesting date.
Vesting criteria will be company performance-based, with headline earnings per share (HEPS) contributing 70% of the vesting condition and ROIC 30% on the LTIP and SAR awards only. DBP participation has no vesting conditions other than remaining in the employment of the DAWN group.
The remuneration committee recommends to the board the vesting targets for each tranche of share incentives. The recommended vesting targets will set a threshold, a target and a stretch level for both HEPS and ROIC as outlined in the table below:
TABLE 7
Performance parameter Target Threshold Target Stretch
HEPS
Required cents per share as set by the remuneration committee and the board
80% 100% 120%
ROICDAWN weighted average cost of capital rate
Weighted average cost of capital
Weighted average cost of capital +4%
Weighted average cost of capital +8%
A graduated vesting scale will be applied, based on the above set targets. Share award calculations will be based on a linear sliding scale from 50% to 150%.
TABLE 8
Performance level achieved % of target bonus earned
Below threshold 0%
Threshold 50%
Target 100%
Stretch 150%
The board, in terms of the DAWN share incentive schemes approved by the shareholders, approves the award of share rights to directors and selected senior level employees to increase proprietary interest of employees in the success of the group, to encourage employees to promote the interest and the continued growth of the group and to encourage employees to continue to render their best service to the group.
Three share schemes, based on equity-settled share appreciation rights, conditional long-term incentive awards and a deferred bonus plan, with vesting conditional on the achievement of set performance requirements, carry a vesting period of three years after which the vested incentives become exercisable, were approved by shareholders in a general meeting on 6 December 2006.
Share incentive scheme (equity-settled)
Thegrantpriceoftheserightsandawardsareequaltothefive-dayvolumeweightedaveragetradedmarketpriceofthesharespreceding the date of the grant. Rights and awards are conditional on performance conditions being met.
Theconditionsfocusonthegroup’searningsgrowth.Thevestingpriceoftheserightsandawardsisthefive-dayweightedaverage traded market price of the shares preceding the date of vesting. The values accruing to participants are as follows:
• SAR: Appreciation between the strike price and the vesting price;
• LTIP: Difference between zero strike price and vesting price; and
• DBP: Value of each matching share at a zero-strike price.
REPORT OF THE REMUNERATION COMMITTEE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
Conditions of employment
The company complies with relevant legislation in determining minimum terms and conditions for the appointment of executive directors. A notice period of between one month and three months generally applies.
External appointments
Executivedirectorsarenotpermittedtoholdexternaldirectorshipsorofficeswithouttheapprovaloftheboard.Ifsuchapprovalis granted, directors may retain the fees payable from such appointments, unless related to companies which are part of the DAWN group. In any event, it may not be more than two directorships and full disclosure must be made to the group ethics officer.
Policy on employment contracts
In relation to contracts with executive directors, the committee, subject to circumstances, will maintain the following policy:
• Fixed term contracts should not exceed three years but may provide for an extension;
• Allagreementsshouldcontainarestraintoftradeclausewithatermofnotlessthanayear,clearlydefiningthecompany’sprotectable interest;
• Contracts should not commit the company to pay on termination arising from the director’s failure;
• Balloon payments on termination are not seen as fair remuneration policy; and
• If a director is dismissed because of a disciplinary procedure, a shorter notice period should apply without entitlement for compensation for the shorter notice period. If a dismissal takes place because of a gross misconduct, no notice period should apply.
Non-executive directors’ remuneration
Terms of service
While shareholders appoint non-executive directors at annual general meetings, interim board appointments may be made between annual general meetings in terms of group policy. Such interim appointees may not serve beyond the following annual general meeting, though they may make themselves available for re-election by shareholders, with such appointments being ratifiedbyshareholdersattheannualgeneralmeeting.
Non-executive directors serve until such time as, in accordance with the company’s memorandum of incorporation, they are required to retire by rotation, at which point they may seek re-election.
Fees
The non-executive directors’ compensation consists of a base fee, payable quarterly, with additional fees for serving on sub-committees of the board and for attending special board meetings. The board has the discretion to apply penalties for non-attendanceofmeetings.FeesareexclusiveofVATpayments.Individualboardmembersmaytakeonspecificadhoctasksoutsidethenormaldutiesassignedbytheboard.Insuchcasestheboarddeterminesafixedfeeforthework.
Non-executivedirectorsmayfromtimetotimebemembersofDAWN’sadvisorycommittee,forwhichafixedhourlyfeewillapply.
Expenses such as travel and accommodation in relation to board-approved activities, as well as relevant training, are reimbursed.
Non-executive directors’ fees are reviewed annually and are determined by the board (following consultation with the remuneration committee) having regard to fees paid to non-executive directors of comparable companies and, where considered necessary, the board may seek external advice on this subject. Non-executive directors’ fees are approved by shareholders at the annual general meeting.
Based on external review of the group’s non-executive directors’ fees and remuneration practices, the shareholders will be requested to approve to the policy as outlined on pages 53 to 60.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 60
Setting remuneration and review procedures • DAWN and its subsidiaries review remuneration packages once per annum during July.
• The board is responsible for making decisions in respect of the remuneration of directors and, in particular, the group chiefexecutiveofficer.Itdoessowiththeassistanceandadviceoftheremunerationcommittee.Indeterminingthelevelandmake-upofthegroupchiefexecutiveofficer’sandseniorexecutives’remuneration,theremunerationcommitteemay obtain independent advice on the appropriateness of remuneration packages, given remuneration trends of other companies, from which the recommendations are made to the board.
• Each year the remuneration committee will review the remuneration of senior executives and make recommendations to the board for any changes to those remuneration packages; recommend proposed short-term incentive and/or long-term incentive performance awards after performance evaluation procedures and on the recommendation of the group chief executiveofficer.
• Thegroupchiefexecutiveofficerisultimatelyresponsiblefor:
– recommendations to the board relating to the remuneration of executive directors of all group entities; and
– delegating responsibility for decisions relating to remuneration of staff to line managers within the different subsidiaries or business units.
• Ex gratia payments and bonuses payable to executive directors are to be reviewed and recommended to the board for review and presented to shareholders at the annual general meeting or a general meeting of shareholders, for approval.
• The responsibilities of managers or supervisors in respect to remuneration for employees are:
– ensuringthataccurateroledescriptionsareinplace,withsufficientdetailonelementsrequiredtoallowconsistentassessment and comparison to be undertaken;
– conducting effective assessments of employee performance; and
– optimising the alignment with the company’s remuneration practices and other employment matters.
Disclosure of remunerationUnless an applicable law, regulation or the JSE Listings Requirements require otherwise, all information about an individual staff member’sremunerationwillbeconfidential.
Disclosure of or discussions about remuneration with staff members, other than between the direct manager and staff member, are strictly forbidden and, where this policy is breached, management may take corrective action.
Where remuneration must be disclosed in terms of regulatory requirements, total remuneration reported will include appropriate valuesforallelementsofremuneration,incorporatingfixedremuneration,performance-basedremunerationcomprisingpayments made or value provided for at-risk components.
Re-election of directorsBothexecutiveandnon-executivedirectorsaresubjecttoelectionbyshareholdersatthefirstannualgeneralmeetingfollowingtheir appointment and are then required to retire in accordance with the board retirement plan.
The appointment of a non-executive director may be terminated without compensation if that director is not re-elected by shareholders or otherwise in accordance with the company’s memorandum of incorporation.
EXECUTIVE REMUNERATIONDetailsofexecutivedirectors’andprescribedofficers’fullremunerationaredisclosedonpages207to210oftheannualfinancialstatements.
A calculation is done on the maximum expected potential dilution as a result of incentive awards and is disclosed in diluted earnings per share in note 10 on page 139 of the integrated report.
REPORT OF THE REMUNERATION COMMITTEE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
Salary R’000
Company contribution medical aid
and provident
fundR’000
Leave payR’000
OtherR'000
TotalR’000
Unrestrictedshare
scheme*R'000
2017
Directors
David Austin 1 1 414 264 – – 1 678 –
Hanré Bester 2 655 49 – – 704 –
Jan Beukes 3 798 162 255 1 500 2 715 –
Stephen Connelly 4 870 – – – 4 870 –
Dries Ferreira 3 816 113 151 – 1 080 –
René Roos 1 977 304 – – 2 281 –
Derek Tod 4 1 469 212 1 084 – 2 765 –
11 999 1 104 1 490 1 500 16 093 –
Prescribedofficers
Luis Baeta 5 1 996 372 – 1 689 4 057 –
Steve du Toit 6 2 883 485 – – 3 368 –
Dave Ferguson 7 556 88 – – 644 –
Graeme Johnston 1 588 236 – – 1 824 –
Vanessa White 8 588 70 – – 658 –
7 611 1 251 – 1 689 10 551 –
19 610 2 355 1 490 3 189 26 644 –
2016
Directors
Jan Beukes 3 675 477 – – 4 152 –
Dries Ferreira 2 158 295 – – 2 453 1 447
Gerhard Kotzee 9 2 253 333 – – 2 586 –
René Roos 1 635 256 – – 1 891 1 452
Derek Tod 4 227 818 – – 5 045 –
13 948 2 179 – – 16 127 2 899
Prescribedofficers
Colin Bishop 1 092 104 – – 1 196 –
Dave Ferguson 1 616 246 – – 1 862 –
Graeme Johnston 1 427 211 – – 1 638 –
4 135 561 – – 4 696 –
18 083 2 740 – – 20 823 2 899
¹Appointedon18November2016;resignedon17March2017,effective30June2017.
² Appointed on 14 July 2016, resigned on 18 November 2016. ³ Resigned with effect from 14 July 2016. 4 Retired on 31 May 2016. 5 Resigned with effect from 31 January 2017. 6 Appointed with effect from 1 April 2016 . 7 Resigned with effect from 30 March 2017. 8 Appointed on 1 September 2016. 9 Resigned with effect from 29 February 2016.
* Refer to note 42 – loans to other related parties.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 62
STEPHEN CONNELLY – CHIEF EXECUTIVE OFFICER (EXECUTIVE DIRECTOR)
Stephenwasappointedasindependentnon-executivedirectorofDAWNon1April2016andasinterimchiefexecutiveofficeron 1 June 2016. With effect from 1 April 2017, Stephen assumed the role of executive deputy chairman.
12 months ended
31 March 2017
R'000
Fixed salary 4 870
Variable salary – short-term –
Otherbenefits–retirementandmedicalaidcontributions –
Total remuneration realised 4 870
Variable salary – long-term
On 6 September 2017, Stephen was awarded the equivalent of 2 175 834 share options as part of a cash-settled scheme linked to the LTIP scheme, with a vesting date of 30 June 2019.
DEREK TOD – CHIEF EXECUTIVE OFFICER (EXECUTIVE DIRECTOR)
Derekretiredaschiefexecutiveofficereffective31May2016.
12 months ended
31 March 2017
R’000
12 months ended
31 March 2016
R’000
12 months indicative
annualised 2015R'000
9 months ended
31 March 2015R’000
12 months ended
30 June 2014
R’000
12 months ended
30 June 2013
R’000
Fixed salary 1 469 4 227 4 097 3 073 4 027 3 610
Variable salary – short-term – – 2 086 2 086 2 307 2 295
Leave pay 1 084 – – – – –
Otherbenefits–retirementand medical aid contributions 212 818 804 603 753 676
Total remuneration realised 2 765 5 045 6 987 5 762 7 087 6 581
Variable salary – long-term
On 24 June 2011, Derek was awarded 294 000 share options as part of the SAR scheme with a vesting date of 30 June 2014. On 12 April 2012, Derek was awarded 1 250 000 share options as part of the LTIP with a vesting date of 30 June 2015. As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During 2015, Derek was awarded 679 854 and 169 163 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June 2017. Due to Derek’s retirement, these options have lapsed.
DAVID AUSTIN – FINANCIAL DIRECTOR (EXECUTIVE DIRECTOR)
Davidwasappointedasfinancialdirectoron18November2017.On17March2017,heresignedasfinancialdirector,effective30 June 2017.
12 months ended
31 March 2017
R'000
Fixed salary 1 414
Variable salary – short-term –
Otherbenefits–retirementandmedicalaidcontributions 264
Total remuneration realised 1 678
REPORT OF THE REMUNERATION COMMITTEE continued
Page 63
Distribution & Warehousing Network Limited | | Integrated report 2017
Variable salary – long-term
On 6 September 2017, David was awarded 1 680 672 share options as part of the LTIP scheme with a vesting date of 30 June 2019. Due to David’s resignation on 12 March 2017, these options have lapsed.
HANRÉ BESTER – INTERIM FINANCIAL DIRECTOR (EXECUTIVE DIRECTOR)
On14July2016Hanréwasappointedinterimfinancialdirectorandresignedon18November2016,followingDavidAustin’sappointment.
12 months ended
31 March 2017
R'000
Fixed salary 655
Variable salary – short-term –
Otherbenefits–retirementandmedicalaidcontributions 49
Total remuneration realised 704
Variable salary – long-term
On 1 December 2013, 150 000 share options were awarded to Hanré as part of the LTIP with a vesting date of 1 December 2016. A further 85 946 share options were awarded to Hanré with a vesting date of 1 December 2016. As a result of poor earnings, management and the remuneration committee have decided that these two open tranches will not vest.
During 2017, Hanré was awarded 116 939 share options as part of the LTIP, with a vesting date of 30 June 2019.
DRIES FERREIRA – FINANCIAL DIRECTOR (EXECUTIVE DIRECTOR)
Dries resigned as an executive director of DAWN on 14 July 2016.
12 months ended
31 March 2017
R’000
12 months ended
31 March 2016
R’000
12 months indicative
annualised 2015R'000
9 months ended
31 March 2015R’000
12 months ended
30 June 2014
R’000
12 months ended
30 June 2013
R’000
Fixed salary 816 2 031 1 891 1 418 1 830 1 612
Variable salary – short-term – – 731 731 1 013 750
Leave pay 151 – – – – –
Otherbenefits–retirementand medical aid contributions 113 295 284 213 259 233
Total remuneration realised 1 080 2 326 2 906 2 362 3 102 2 595
Variable salary – long-term
On 24 June 2011, Dries was awarded 910 000 share options as part of the LTIP, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R7,4 million. On 12 April 2012, Dries was awarded 750 000 share options as part of the LTIP with a vesting date of 30 June 2015. On 1 December 2013, a further 400 000 share options were awarded as part of the LTIP with a vesting date of 1 December 2016. As a result of poor earnings, management and the remuneration committee have decided that these two open tranches will not vest.
During 2015, Dries was awarded 312 331 share options and 59 291 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June 2017. Due to Dries’ resignation, these options lapsed on 14 July 2016.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 64
JAN BEUKES – RISK AND COMPLIANCE OFFICER (EXECUTIVE DIRECTOR)
Jan resigned as executive director of DAWN on 14 July 2016.
12 months ended
31 March 2017
R’000
12 months ended
31 March 2016
R’000
12 months indicative
annualised 2015R'000
9 months ended
31 March 2015R’000
12 months ended
30 June 2014
R’000
12 months ended
30 June 2013
R’000
Fixed salary 798 2 395 2 260 1 695 2 223 2 105
Variable salary – short-term – – 725 725 – –
Leave pay 255 – – – – –
Otherbenefits–retirementand medical aid contributions 162 477 457 343 427 401
Other * 1 500 – – – – –
Total remuneration realised 2 715 2 872 3 442 2 763 2 650 2 506
* A provision has been made for a potential liability.
Variable salary – long-term
On 24 June 2011, Jan was awarded 110 000 share options as part of the LTIP and 160 000 share options as part of the SAR with a vesting date of 30 June 2014, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R1,9 million. On 12 April 2012, Jan was awarded 500 000 share options as part of the LTIP with a vesting date of 30 June 2015. As a result of poor earnings, management and the remuneration committee have decided that this open tranche will not vest. During 2015, Jan was awarded 398 770 share options and 62 838 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June 2017. Due to Jan’s resignation, these options lapsed on 14 July 2016.
RENÉ ROOS – CHIEF OF STAFF (EXECUTIVE DIRECTOR)
12 months ended
31 March 2017
R’000
12 months ended
31 March 2016
R’000
12 months indicative
annualised 2015R'000
9 months ended
31 March 2015R’000
12 months ended
30 June 2014
R’000
12 months ended
30 June 2013
R’000
Fixed salary 1 977 1 635 1 557 1 168 1 513 1 311
Variable salary – short-term – – 300 300 710 324
Otherbenefits–retirementand medical aid contributions 304 256 247 185 233 217
Total remuneration realised 2 281 1 891 2 104 1 653 2 456 1 852
Rene’sfixedsalaryincreasedby21%*fromF2016toF2017(F2015(annualised)toF2016:5%;F2014toF2015(annualised):3%; F2013 to F2014: 15%*; F2012 to F2013: 32,1%*).
*IncreasesinfixedsalaryexceedingCPIwereawardedtoclosethegapbetweencurrentpayandthedesiredmarketpercentile,basedonherrole and responsibilities.
Based on the achievement of F2013 KPIs, René received a short-term variable salary of R710 000 in F2014 (F2013: R324 000; F2012: R53 000). The achievement of the F2014 KPIs resulted in a short-term variable salary of R300 000, payable in F2015.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 65
Distribution & Warehousing Network Limited | | Integrated report 2017
Variable salary – long-term
On 24 June 2011, René was awarded 820 000 share options as part of the LTIP and 160 000 share options as part of the SAR with a vesting date of 30 June 2014, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R6,8 million. On 12 April 2012, Rene was awarded 500 000 share options as part of the LTIP with a vesting date of 30 June 2015. As a result of poor earnings, management and the remuneration committee have decided that this open tranche will not vest. During 2015, Rene was awarded 280 068 share options and 24 324 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June 2017.
During 2017, René was awarded 973 548 share options as part of the LTIP scheme, with a vesting date of 30 June 2019.
LUIS BAETA – MANAGING DIRECTOR: WHS (PRESCRIBED OFFICER)
Luis resigned from DAWN with effect from 31 January 2017.
12 months ended
31 March 2017
R'000
Fixed salary 1 996
Variable salary – short-term –
Otherbenefits–retirementandmedicalaidcontributions 372
Other * 1 689
Total remuneration realised 4 057
*Luis’employmentwasterminatedbymutualagreementandasettlementamountwaspaidintermsoftheseparationagreement.
Variable salary – long-term
During 2014, Luis was awarded 15 000 share options as part of the LTIP scheme, with a vesting date of 31 December 2016. During 2015, Luis was awarded 181 639 share options and 4 054 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 31 December 2017. During 2016, Luis was awarded 818 361 share options as part of the LTIP scheme, with a vesting date of 31 March 2018. As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During 2017, Luis was awarded 975 169 share options as part of the LTIP scheme, with a vesting date of 30 June 2019. Due to Luis’ resignation, these options lapsed on 31 January 2017.
STEVE DU TOIT – CHIEF EXECUTIVE OFFICER: WHS (PRESCRIBED OFFICER)
StevewasappointedaschiefexecutiveofficerofDAWNinfrastructuresegmentandmemberoftheexecutivecommitteeon 1April2016.HewastransferredtotheroleofchiefexecutiveofficerofWHSon1January2017.
12 months ended
31 March 2017
R'000
Fixed salary 2 883
Variable salary – short-term –
Otherbenefits–retirementandmedicalaidcontributions 485
Total remuneration realised 3 368
Variable salary – long-term
On 6 September 2016, Steve was awarded 1 428 571 share options as part of the LTIP scheme with a vesting date of 30 June 2019.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 66
DAVE FERGUSON – CHIEF PROCUREMENT OFFICER (PRESCRIBED OFFICER)
Effective31July2016,Davewasnolongeramemberoftheexecutivecommitteeandthereforenotaprescribedofficer.Heresigned from DAWN with effect from 30 March 2017.
12 months ended
31 March 2017
R’000
12 months ended
31 March 2016
R’000
12 months indicative
annualised 2015R'000
9 months ended
31 March 2015R’000
Fixed salary 556 1 616 1 621 1 216
Variable salary – short-term – – 120 120
Otherbenefits–retirementandmedicalaidcontributions 88 246 232 174
Total remuneration realised 644 1 862 1 973 1 510
Variable salary – long-term
On 12 April 2012, Dave was awarded 820 000 share options as part of the LTIP and 160 000 share options as part of the SAR with a vesting date of 30 June 2014, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R2,8 million. On 12 April 2012, Dave was awarded 250 000 share options as part of the LTIP with a vesting date of 30 June 2015. On 1 December 2013, Dave was awarded 901 000 share options as part of the LTIP with a vesting date of 31 December 2016. As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During 2015, Dave was awarded 298 550 share options and 9 730 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June 2017. These awards have lapsed as a result of his termination of employment on 30 March 2017.
GRAEME JOHNSTON – SUPPLY-CHAIN MANAGEMENT DIRECTOR: WHS (PRESCRIBED OFFICER)
12 months ended
31 March 2017
R’000
12 months ended
31 March 2016
R’000
12 months indicative
annualised 2015R'000
9 months ended
31 March 2015R’000
Fixed salary 1 588 1 427 1 273 955
Variable salary – short-term – – 150 150
Otherbenefits–retirementandmedicalaidcontributions 236 211 185 139
Total remuneration realised 1 824 1 638 1 608 1 244
Graeme’sfixedsalaryincreasedby11%fromF2016toF2017(F2015(annualised)toF2016:12,1%).
The achievement of the F2014 KPIs resulted in a short-term variable salary of R150 000, payable in F2015.
Variable salary – long-term
On 12 April 2012, Graeme was awarded 300 000 share options as part of the LTIP with a vesting date of 30 June 2015. On 1 December 2013, Graeme was awarded 20 000 share options as part of the LTIP with a vesting date of 31 December 2016. As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest.
During 2015, Graeme was awarded 133 784 share options and 12 162 share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June 2017. On 1 December 2015, Graeme was awarded 400 000 share options as part of the DBP scheme, with a vesting date of 31 March 2018. As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest.
During 2017, Graeme was awarded 779 221 share options as part of the LTIP scheme, with a vesting date of 30 June 2019.
REPORT OF THE REMUNERATION COMMITTEE continued
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VANESSA WHITE – GROUP GOVERNANCE, RISK AND COMPLIANCE EXECUTIVE (PRESCRIBED OFFICER)
Vanessa was appointed as group governance, risk and compliance executive and member of the executive committee on 1 September 2016.
12 months ended
31 March 2017
R'000
Fixed salary 588
Variable salary – short-term –
Otherbenefits–retirementandmedicalaidcontributions 70
Total remuneration realised 658
Variable salary – long-term
On 6 September 2016, Vanessa was awarded 95 143 share options as part of the LTIP scheme with a vesting date of 30 June 2019.
NON-EXECUTIVE REMUNERATIONThere are no short- or long-term incentive schemes for non-executive directors. Exceptions apply only where non-executive directorspreviouslyheldexecutiveofficeandqualifyforunvestedbenefitsresultingfromtheirperiodofemploymentwiththecompany.Therearenopensionbenefitsfornon-executivedirectors.Shareholderswillberequestedtoapprovethenon-executivedirectors’remunerationforthe2018financialyearattheannualgeneralmeetingtobeheldonFriday,24November2017.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 68
FEES FOR 2017The table below provides an analysis of the emoluments paid to non-executive directors for the 12 months ended 31 March 2017.
COMMITTEES
Board member
fees R'000
AdvisoryR’000
Audit and risk
R’000
Remune-ration
andnomina-
tionR’000
Social, ethics and
transfor-mation
R'000OtherR’000
Sub-sidiaryboard
feesR'000
TotalR’000
Non-executive directors
2017
Lou Alberts 245 200 110 125 – 102 – 782
Diederik Fouché 800 – – – – 156 – 956
Saleh Mayet ¹ 219 – 192 36 – 111 – 558
Dinga Mncube 245 – 110 – – 124 – 479
Veli Mokoena 245 – – – 115 84 302 746
Akhter Moosa ² – – – – – – – –
George Nakos 245 – – – – 59 – 304
31 March 2017 1 999 200 412 161 115 636 302 3 825
2016Mohammed Akoojee ³ 72 – – – – – – 72
Lou Alberts 124 118 74 80 – – – 396
Diederik Fouché 104 – – 34 – – – 138
Tak Hiemstra 4 143 – 43 29 – – – 215
Saleh Mayet 104 – 104 42 – – – 250
Dinga Mncube 124 – 31 – – – – 155
Veli Mokoena 124 – – – 50 – – 174
George Nakos 5 52 – – – – – – 52
31 March 2016 847 118 252 185 50 – – 1 452
¹ Resigned on 20 February 2017.² Appointed on 28 March 2017.³ Resigned on 11 November 2015.4 Retired on 31 October 2015.5 Appointed on 12 November 2015.
REPORT OF THE REMUNERATION COMMITTEE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
FEES FOR 2018At the annual general meeting to be held on Friday, 24 November 2017, shareholders will be requested to approve the non-executive directors’ remuneration by special resolution in terms of section 66(9) of the Companies Act, granting authority to pay fees for services as directors, which will be valid with effect from 1 April 2017 until the conclusion of the annual general meeting pertainingtothe2018financialyear,asfollows:
p PROPOSED 2018 2017
Base fee R
Penalty for non-
attendanceR
Base fee R
Penalty for non-
attendanceR
BOARD
Chairman of the board (all-inclusive fee) 800 000 17 000 800 000 17 000
Board member 245 000 12 000 245 000 12 000
AUDIT AND RISK COMMITTEE
Chairman of the committee 215 000 17 000 215 000 17 000
Committee member 110 000 12 000 110 000 12 000
REMUNERATION COMMITTEE; NOMINATION COMMITTEE
Chairman of the committee 125 000 17 000 125 000 17 000
Committee member 40 000 6 000 40 000 6 000
SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE
Chairman of the committee 115 000 17 000 115 000 17 000
Committee member 40 000 6 000 40 000 6 000
LEAD INDEPENDENT
Member 200 000 200 000
Fees payable to non-executive directors are exclusive of value added tax.
The penalty for non-attendance as chairman of a meeting would be paid to the member who stood in as chairman of that meeting.
The fee for additional meetings would be: chairman – R25 000; member – R18 000.
Lou Alberts has again been appointed as lead independent director and, therefore, the fee of R200 000 will be presented to shareholders for approval at the annual general meeting.
Executive directors receive no director or committee fees for their services as directors in addition to their normal remuneration.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 70
DIRECTORS AND PRESCRIBED OFFICERS' SHAREHOLDINGThedirectorsandprescribedofficersheldaggregatedirectandindirectbeneficialinterestsof1,2%(2016:8%)intheissuedshare capital of the company, being 242 242 904 shares, at the end of the reporting period, as follows:
Number of ordinary shares
Beneficial
TotalDirect Indirect
At 31 March 2017 2 855 250 120 000 3 005 250
Directors 2 727 723 – 2 727 723
Executive directors 516 667 – 516 667
René Roos 516 667 – 516 667
Non-executive directors 2 111 056 120 000 2 231 056
Lou Alberts 1 989 285 20 000 2 009 285
Diederik Fouché 100 000 100 000 200 000
Veli Mokoena 21 771 – 21 771
Prescribed officers 127 527 – 127 527
Graeme Johnston 127 527 – 127 527
At 31 March 2016 14 197 970 5 234 840 19 432 810
Directors 13 168 654 5 234 840 18 403 494
Executive directors 11 157 598 5 034 840 16 192 438
Jan Beukes ¹ 3 513 021 – 3 513 021
Dries Ferreira ¹ 372 333 – 372 333
René Roos 1 126 667 – 1 126 667
Derek Tod ² 6 145 577 5 034 840 11 180 417
Non-executive directors 2 011 056 200 000 2 211 056
Lou Alberts 1 989 285 – 1 989 285
Diederik Fouché – 200 000 200 000
Veli Mokoena 21 771 – 21 771
Prescribed officers 1 029 316 – 1 029 316
Dave Ferguson 3 901 789 – 901 789
Graeme Johnston 127 527 – 127 527
¹ Resigned with effect from 14 July 2016.² Retired on 31 May 2016.3Effective31July2016,nolongeraprescribedofficer;resignedwitheffectfrom30March2017.
REPORT OF THE REMUNERATION COMMITTEE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
Changes in shareholding subsequent to the reporting dateThefollowingchangesintheshareholdingofdirectorsandprescribedofficersoccurredaftertheyear-endandaredisclosedasat 23 August 2017:
Number of ordinary shares
Beneficial
TotalDirect Indirect
Directors 2 479 767 116 097 423 118 577 190
Non-executive directors 2 407 557 116 097 423 118 504 980
Lou Alberts 2 159 718 49 567 2 209 285
Charles Boles * – 15 160 000 15 160 000
Theunis de Bruyn * – 100 640 017 100 640 017
Diederik Fouché 247 839 247 839 495 678
Prescribed officers 72 210 – 72 210
Hanré Bester 72 210 – 72 210
* Appointed with effect from 20 July 2017.
Asat23August2017,thedirectorsandprescribedofficersthereforeheldaggregatedirectandindirectbeneficialinterestsof19,8% in the issued share capital of the company, being 600 372 480 shares.
Thecompanyhasnotbeennotifiedofanymaterialchangeindirectorsandprescribedofficers'interestsduringtheperiod31March 2017 to the date of this report, other than as disclosed above.
INTEREST OF DIRECTORS IN CONTRACTSThedirectorshavecertifiedthattheyhadnomaterialinterestinanytransactionofanysignificancewiththecompanyoranyofits subsidiaries.
SHARE INCENTIVE SCHEMEDerek Tod retired on 31 May 2016 and Dries Ferreira and Jan Beukes resigned as executive directors on 14 July 2016, therefore their share options lapsed.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 72
Movements in the number of share options outstanding and their related weighted average grant prices are as follows:
Grantdate
Vestingdate Note
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Openingnumber
ofshare
options‘000
Number of shareoptions
awardedduring
the year‘000
Number of shareoptions
forfeitedduring
the year‘000
Closing number of share options
‘000
At 31 March 2017
Executive directors
David Austin 1 – 1 681 (1 681) –
6 Sep 2016 30 Jun 2019 LTIP – 179 – 1 681 (1 681) –
Jan Beukes 2 462 – (462 –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 399 – (399) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 63 – (63) –
Dries Ferreira 2 771 – (771) –
1 Dec 2013 1 Dec 2016 1 LTIP – 611 400 – (400) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 312 – (312) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 59 – (59) –
René Roos 964 974 – 1 938
24 Jun 2011 30 Jun 2014 1 SAR 628 233 160 – – 160
12 Apr 2012 30 Jun 2015 1 LTIP – 611 500 – – 500
4 Dec 2014 30 Jun 2017 1 LTIP – 651 280 – – 280
4 Dec 2014 30 Jun 2017 1 DBP – 310 24 – – 24
6 Sep 2016 30 Jun 2019 LTIP – 179 – 974 – 974
Derek Tod 3 849 – (849) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 680 – (680) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 169 – (169) –
1 938
Note 1: As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest.
1Appointedon18November2016;resignedon17March2017,effective30June2017.2 Resigned effective 14 July 2016.3 Retired on 31 May 2016.
1 As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest. ^ LTIP: Long-term Incentive Plans, SAR: Share Appreciation Rights; DBP: Deferred Bonus Plan
REPORT OF THE REMUNERATION COMMITTEE continued
Page 73
Distribution & Warehousing Network Limited | | Integrated report 2017
Grantdate
Vestingdate Note
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Openingnumber
ofshare
options‘000
Number of shareoptions
awardedduring
the year‘000
Number of shareoptions
forfeitedduring
the year‘000
Closing number of share options
‘000
Prescribedofficers
Luis Baeta 1 1 019 975 (1 994) –
1 Dec 2013 31 Dec 2016 1 LTIP – 901 15 – (15) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 182 – (182) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 4 – (4) –
1 Dec 2015 30 Jun 2018 1 LTIP – 540 818 – (818) –
6 Sep 2016 30 Jun 2019 LTIP – 179 – 975 (975) –
Hanré Bester 2 236 117 (150) 203
1 Dec 2013 31 Dec 2016 1 LTIP – 901 150 – (150) -
4 Dec 2014 30 Jun 2017 1 LTIP – 651 86 – – 86
6 Sep 2016 30 Jun 2019 LTIP – 179 – 117 – 117
Steve du Toit 3 – 1 429 – 1 429
6 Sep 2016 30 Jun 2019 LTIP – 179 – 1 429 – 1 429
Dave Ferguson 4 579 (579) – –
12 Apr 2012 30 Jun 2015 1 LTIP – 611 250 (250) – –
1 Dec 2013 31 Dec 2016 1 LTIP – 901 20 (20) – –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 299 (299) – –
4 Dec 2014 30 Jun 2017 1 DBP – 310 10 (10) – –
Graeme Johnston 566 779 (20) 1 325
1 Dec 2013 31 Dec 2016 1 LTIP – 901 20 – (20) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 134 – – 134
4 Dec 2014 30 Jun 2017 1 DPB – 310 12 – – 12
1 Dec 2015 30 Jun 2018 1 LTIP – 400 400 – – 400
6 Sep 2016 30 Jun 2019 LTIP – 179 – 779 – 779
Vanessa White 5 – 95 – 95
6 Sep 2016 30 Jun 2019 LTIP – 179 – 95 – 95
2 568
1 Resigned with effect from 31 January 2017.
²Appointedon14July2016;resignedon18November2016.3 Appointed with effect from 1 April 2016.4 Resigned with effect from 30 March 2017.5 Appointed on 1 September 2016.
1 As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest.
^ LTIP: Long-term Incentive Plans, SAR: Share Appreciation Rights; DBP: Deferred Bonus Plan
Participation in a cash-settled scheme during the year under review was as follows:
Grantdate
Vestingdate
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Openingnumber
ofshare
options‘000
Number of shareoptions
awardedduring
the year‘000
Number of shareoptions
forfeitedduring
the year‘000
Closing number of share options
‘000
Cash-settled scheme
Stephen Connelly 2 176 – 2 176
6 Sep 2016 30 Jun 2019 LTIP 231 – – 2 176 – 2 176
REPORT OF THE REMUNERATION COMMITTEE continued
Page 74
Subsequent to year-end, the following share options were awarded:
Grantdate
Vestingdate
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Number of shareoptions
awarded‘000
Closing number of share options
as at 23 August
2017 ‘000
Executive directors
Edwin Hewitt 1 4 600 4 600
25 Apr 2017 30 Jun 2019 LTIP – 103 4 600 4 600
1Appointedaschiefexecutiveofficerwitheffectfrom1April2017.
^ LTIP: Long-term Incentive Plans.
Movements in the number of share options outstanding and their related weighted average grant prices are as follows:
Risk- free
interestrate
Vola-tility
Divi- dend yield
Marketprice perright and
awardper
share 2
cents
Allo-cation(strike)
price atvesting 3
cents
Valuationper right
per share 4
cents
Totalnumber
of rightsgranted
’000
Share Appreciation Rights (SARs)
2017 rights granted 8,5 42,7 1,7 231 231 79 741
Total SARs 741
Long-Term Incentive Plans (LTIPs)
2015 rights granted 1 7,0 n/a 1,7 700 – 651 1 310
2016 rights granted 1 7,0 n/a 1,7 433 – 400 498
2017 rights granted 7,0 n/a 1,7 231 – 180 4 936
Total LTIPs 6 744
Deferred Bonus Plan (DBPs)
2015 rights granted 1 7,0 n/a 1,7 700 – 651 83
Total DBPs 83
Total number of share options granted 7 568
1 Share grants are not expected to vest.2 Market price at date of grant.3ValuationforIFRS2–Share-basedpaymentchargestoprofitandloss.4 LTIPs have a nil strike price.
REPORT OF THE REMUNERATION COMMITTEE continued
Page 75
Distribution & Warehousing Network Limited | | Integrated report 2017
REPORT OF THE REMUNERATION COMMITTEE continued
DAWN’s share price at 31 March 2017 was 101 cents (31 March 2016: 400 cents).
ThevolatilityinputtothepricingmodelisameasureoftheexpectedpricefluctuationsoftheDAWNsharepriceoverthelifeoption structure. Volatility is measured as the annualised standard deviation of the daily price changes in the underlying shares.
Theweightedaveragefairvalueoftherightsandawardsgrantedwasdeterminedusingamodifiedbinomialtreemodeltovaluethe SARs and the Monte Carlo valuation model for the valuation of the LTIPs.
The following table sets out the reconciliation of the share-based payment reserve:
SARR’000
LTIPR’000
DBPR’000
Other R’000
TotalR’000
31 March 2017
Share-based payment reserve reconciliation
Opening balance 1 309 31 579 1 322 5 351 39 561
Income statement charge 96 2 604 – – 2 700
Closing balance 1 405 34 183 1 322 5 351 42 261
GR GROUP OUP
31 March2017
R'000
31 March2016
R’000
Aggregate number of shares available to the new schemes 18 793 18 793
Share rights and awards granted (new schemes) (7 567) (7 423)
Number of share rights and awards available, but not engaged 11 226 11 370
APPROVALThe report of the remuneration committee has been approved by the board of directors of DAWN.
Signed for and on behalf of the remuneration committee
Lou Alberts Chairman of the remuneration committee
23 August 2017
Page 76
The social, ethics and transformation committee assists the board in monitoring the group’s corporate citizenship. The committee is governed by a formal charter and has an independent role.
This report of the social, ethics and transformation committee is presented in accordance with the requirements of the Companies Act
MEMBERSHIPMembership of the social, ethics and transformation committee comprised Veli Mokoena (non-executive chairman), René Roos (executive director) and Jan Beukes (executive director) as well as a member of executive management, Alison Grobbelaar. On 14 June 2016, Jan resigned as executive director of the company and member of the committee. On 8 March 2017, Alison resigned as member of the committee.
Thegroupethicsofficerandthegroupgovernance,riskandcomplianceexecutivehavestandinginvitationstomeetingsandother members of management attend by invitation.
Attendance at meetings by members of the social, ethics and transformation committee during the period 1 April 2016 to 31 March 2017 is outlined below.
15 Jun 2016
27 Sep 2016
3 Nov 2017
8 Mar 2017
Veli Mokoena (chairman) √ √ √ √
Jan Beukes ¹ √ √ n/a n/a
René Roos √ √ √ √
Alison Grobbelaar ² √ √ √ n/a
¹ Resigned on 14 July 2016.
² Resigned with effect from 8 March 2017.
Effective 14 July 2017, Edwin Hewitt was appointed as a member of the social, ethics and transformation committee.
ROLE OF THE COMMITTEEThe social, ethics and transformation committee has, apart from its statutory duties, as primary focus areas:
• definingofsocialandethicsmechanisms;
• transformation objectives; and
• sustainability issues.
Social, ethics and transformation
Social
The social, ethics and transformation committee receives reports on labour and employment, with reference to decent work and working conditions. A high-level review of the company’s standing in terms of the International Labour Organisation Protocol and the implementation of the ten principles as set out in the United Nations Global Compact Principles is performed. Related employment practices include the company’s employment relationships, and its contribution toward the educational development of its employees, as well as the management of associated risks.
REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE
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Distribution & Warehousing Network Limited | | Integrated report 2017
REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE continued
Ethics
The committee reviews the ethics activities and evaluates the adequacy and effectiveness of these actions, including:
• the ethics hotline feedback and action taken;
• the implementation of the ethics management programme in the company;
• the values of the company;
• ethical risks and opportunities;
• the code of ethical conduct; and
• thegroupethicsofficer’sfeedbackonethicstraining,awarenessandotheractions.
Transformation
The DAWN group acknowledges that for black economic empowerment to be sustainable, it must be broad-based. The group adopts a holistic approach to empowerment, addressing skills development, employment equity, promotion in the workplace, procurement practices which support developing businesses and suppliers, enterprise creation and equity ownership in the group.
In order for the group to remain competitive, improve market position and leverage new business opportunities, thereby enhancingprofitability,itisimperativethatitnotonlycomplieswiththerequirementsoftheBroad-BasedBlackEconomicEmpowerment Act and related Codes of Good Practice, but that transformation is accelerated to bring the majority of historically disadvantaged individuals into the mainstream economy by also providing meaningful economic participation and to share in wealth creation resulting from economic activities.
The group is driving an increased focus on transformation across the group and, to this end, a transformation policy has been approved.
Transformation goals and objectives pertain to equal opportunity employment, diversity management, recruitment and selection, remunerationrewardandbenefits,leadershipdevelopment,culture,employeewellbeing,traininganddevelopmentandinternalcommunication.
Each subsidiary’s executive team is accountable for the transformation strategy and plan of their business and is required to supply feedback to the committee on regular intervals. The group is affected by the changes in the BBBEE codes, but has done considerable work to minimise any deterioration in its scorecards.
CORPORATE SOCIAL INITIATIVESThe corporate social initiatives are managed centrally by the social, ethics and transformation committee.
The group provided an administration learnership for unemployed disabled individuals in the communities where DAWN’s employees reside. DAWN also provided a production technology learnership for unemployed individuals.
HouseholditemsandcashdonationsweremadetoTsholofeloBabySanctuary,anon-profitorganisationwhocaresforabandoned babies. A vehicle was also donated for the transportation of the children. Financial assistance was furthermore provided to:
• ActionforBlindandDisabledChildren,anon-profitorganisationwhichspecialisesintrainingthesechildrenonhowtobecome productive, by way of computer training through voice-activated systems;
• CommunityProvisionandSocialServices(Compass),anon-profitorganisationcaringforhomelesswomenandchildren;
• Oliver’sHouse,anon-profitorganisationfocusingonearlychildhood,education,skillsandcommunitydevelopmentforthedisadvantaged; and
• a programme, which the group embarked on, to invest in the tertiary education and employment skills of young unemployed individuals.
DAWN and its employees participated in Slipper Day, where funds raised were donated to Reach for a Dream.
The Free State branches coordinated for staff to donate bottles of water to assist with the drought relief in affected communities.
Various donations of stock were made to black-owned businesses as part of DAWN’s contribution to enterprise and supplier development.
SR
Page 78
SUSTAINABILITYThe committee evaluated DAWN’s sustainable management practices in terms of four criteria. These are the suitability of:
• objectives associated with each sustainability initiative;
• structure to achieve objectives;
• systems and controls to track achievement of objectives; and
• incentives to promote executive commitment to the objectives.
The group embarked on its seventh formalised sustainability data gathering process, but did not publish a comprehensive sustainability report in 2017. A synopsis of sustainability matters is outlined on pages 79 to 89 with additional information published on the group’s website www.dawnltd.co.za.
ANNUAL WORK PLANTheannualworkplanfor2017wasprepared,takingcognisanceofgapsidentifiedinthesustainabledevelopmentdatagathering process. Implementation processes take into account the medium- to long-term sustainability goals and the evolving nature thereof. Therefore, strategies, policies and procedures continue to be updated and mechanisms implemented. These processes and initiatives form part of the scope of the social, ethics and transformation committee’s annual work plan.
A corporate citizenship policy was reviewed and adopted by the board on 22 March 2017 and will be implemented across the DAWN group.
Signed for and on behalf of the social, ethics and transformation committee
Veli Mokoena Chairman of the social, ethics and transformation committee
23 August 2017
REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
DAWN produces a sustainability report annually, with the date of the most recent previous report being 31 March 2015. A comprehensivesustainabilityreportwasnotpreparedforthe2016and2017financialyears,butinformationwasgatheredanddata collated for publication in the integrated report and on DAWN’s website.
Every effort has been made to ensure data accuracy and completeness. There is, however, the possibility of small inconsistenciesduetohumanerrorinrecordingandcollating,anddifferencesininterpretationofdefinitions.
DatahavemainlybeencollatedforDAWN’ssubsidiarycompanies,unlessspecificallyindicatedotherwise,fortheeconomic,environmental and social indicators for the year 1 April 2016 to 31 March 2017, and sustainability data collation coincides with DAWN’sfinancialreportingcycle.
Financialdatahavebeenextractedfromtheconsolidatedannualfinancialstatementsandincludeallbusinesses(subsidiaries,associates, joint ventures and cross-border operations). Intergroup transactions have been eliminated. The basis for reporting onthefinancialelementsisinaccordancewiththegroup’saccountingpolicieswhichareavailableonthegroup’swebsiteonwww.dawnltd.co.za.
DataareonlyreportedwhereconsideredtobeofsufficientaccuracyandarereportedaccordingtotheG4GRIguidelines.Ongoing efforts are being made to improve the data quality and to broaden the content in the range of indicators.
FINANCIAL CAPITAL
Value added statementValue added is the measure of wealth created by the group in its operations by ‘adding value’ to the cost of raw materials, products and services purchased. The statement below summarises the total wealth created and shows how it was shared by employees and other stakeholders that contributed to its creation. Also set out below is the amount retained and reinvested in the group for the replacement of assets and the further development of operations.
2017R'000
2016R'000
Revenue from goods and services 4 300 864 4 993 092
Less: Cost of goods and services (4 070 954) (4 867 300)
Value added from trading operations 229 910 125 792
Add: Interest received on investments 3 316 3 460
Total value added 233 226 129 252
Utilised as follows:
Employees
Salariesandbenefits 702 146 728 633
Providers of capital
Interest on borrowings 61 904 74 530
Government – company tax 51 608 19 613
Current 17 818 13 045
Deferred 33 790 6 568
815 658 822 776
Retained for reinvestment
Depreciation and amortisation 54 939 69 412
Income retained in the business (637 371) (762 936)
(582 432) (693 524)
Total utilisation of value added 233 226 129 252
F
SUSTAINABILITY AT A GLANCE
Page 80
Exchanges with government, including amounts collected on their behalf2017
R'0002016
R'000
Employee taxes 94 762 123 509
Company taxes 20 562 20 950
Value added tax and sales tax 59 872 93 080
Customs and excise duty 49 793 41 405
HUMAN CAPITAL
EmploymentDAWN’s employment strategy focuses on employee initiatives, social conditions and sustaining jobs in the supply base as well as occupational health and safety. DAWN’s employees are the foundation of the business that enable the execution of the group’sbusinessstrategytodeliversustainableprofitgrowth.Thegroup’sfocusisonattracting,engagingandretainingthebest talent to deliver on its strategic plan. DAWN’s employment brand is built on a combination of its culture, its leadership, its product brands and its reputation.
DAWN’svisionoftransformationistranslatedintostrategiesandspecifictargetsandplanswhicharemonitoredandgovernedbytheboard.Transformationplansandtargetsarereflectedintheleadershipandotherrelevantemployees’performancegoals.
The group’s subsidiaries employ 2 341 (F2016: 2 984) people and the segmental breakdown of employees as well as the employment by race, gender, age group and region are graphically depicted below:
SUSTAINABILITY AT A GLANCE continued
0
500
1 000
1 500
2 000
2 500
3 000Female
Male
20172016
803
643
2 181
1 698
Employmentbygenderprofile
Page 81
Distribution & Warehousing Network Limited | | Integrated report 2017
SUSTAINABILITY AT A GLANCE continued
0
200
400
600
800
1 000Directors
Management
Other
20172016
15
12
74
62
714 569
Levels of female employment
0
500
1 000
1 500
2 000
2 500
3 000Fixed term
Full-time
20172016
142
162
2 842
2 179
Employment(full-timeandfixedterm)
0
500
1 000
1 500
2 000
2 500
3 000
Female (foreign nationals)
Coloured female
Indian female
White female
Black female
Male (foreign nationals)
Coloured male
Indian male
White male
Black male
20172016
1 428 1 084
137
259
284
114
326
2410
114
237
225107
219
193
59
170
127
0
1
Employment by race and gender
Page 82
Staff turnover
The internationally recognised way of calculating labour turnover is as follows: employees who resign, are retrenched, retire, leave due to mutually agreed settlements and long-term contracts that are ended.
Number of employees leaving during periodx 100
Average number employed during period
The absenteeism issues are most prevalent in the manufacturing businesses, due to the nature of the industry and operating environment. The HR strategies approved for the manufacturing businesses have elements aimed at improving the causes of absenteeism.
The staff turnover rate for DAWN and its subsidiaries, based on the above calculations, has been 31% (F2016: 30,56%) for the 2017financialyearwithanabsenteeismrateof2,87%(F2016:1,36%).
SUSTAINABILITY AT A GLANCE continued
0
500
1 000
1 500
2 000
2 500
3 000Over 50
Between 30 and 50
Under 30
20172016
457
1 886
641481
1 546
314
Employment by age group
0
500
1 000
1 500
2 000
2 500
3 000Zambia (37/27)
Western Cape (450/386)
North West (19/0)
Northern Cape (13/0)
Namibia (61/66)
Mpumalanga (131/80)
Mozambique (22/22)
Limpopo (109/56)
KwaZulu-Natal (556/386)
Gauteng (1 264/1 166)
Free State (114/30)
Eastern Cape (166/122)
Democratic Republic of Congo (10/0)
Botswana (20/0)
Angola (12/0)
20172016
Employment by region
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Distribution & Warehousing Network Limited | | Integrated report 2017
Labour/Management relationsThe number of unionised employees is listed below and constitutes 39,8% (F2016: 33,5%) of the group’s workforce.
Trade unionisation
DAWNKitchenFittings
Pro-MaxWeldingConsu-mables
Hamilton'sBrushware
SA IncledonDPI
PlasticsSwan
PlasticsUbuntuPlastics
DAWNlogistics TOTAL
SATAWU 3 2 16 21
SACCAWU 24 325 349
NUM 1 1
BCAWU 1 1
NUMSA 6 8 168 94 39 103 418
CEPPAWU 6 17 23
GIWUSA 2 23 5 30
SACWU 37 37
SOLIDARITY 1 1
UCIMESHAWU 2 2Number of unionised employees 9 39 6 36 208 94 39 452 883
Definitions:
SATAWU – South African Transport and Allied Workers Union
SACCAWU – South African Commercial, Catering and Allied Workers Union
NUM – National Union of Mine Workers
BCAWU – Building, Construction and Allied Workers Union
NUMSA – National Union of Metalworkers of South Africa
CEPPAWU – Chemical, Energy, Paper, Printing, Wood and Allied Workers Union
GIWUSA–GeneralIndustriesWorkers’UnionofSouthAfrica
UCIMESHAWU – United Chemical Industries Mining Electrical State Health and Aligned Workers Union
Occupational health and safety
Workplace injuries
Lost time injury reporting has improved overall throughout the group, hence the slight rise in the Disabling Injury Frequency Rate (DIFR) for the period 1 April 2016 to 31 March 2017.
The group is working towards zero incidents through training and awareness programmes, improved housekeeping practices and manager-employee relationships.
A calculation was done of DAWN’s subsidiaries’ DIFR, which resulted in a rate of 1,10% (F2016: 1,19%) calculated on 200 000 hours worked with 24 (F2016: 25) disabling injuries.
SUSTAINABILITY AT A GLANCE continued
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Occupational and healthcare clinics and initiatives
On-site occupational clinics are operational at the following manufacturing plants:
• DPI Plastics, Roodekop and Bellville
Where no on-site clinic is available, such as warehousing and distribution outlets, employees are referred to outsourced occupational health services, for matters such as lifting equipment operator medical examinations, vision screening, injury on duty cases and other occupational work-related cases such as noise-induced hearing loss. Focus has also given to occupational hygiene risk assessments in terms of health-related recommendations.
A Wellness Day was held on the 30 November 2016, where staff were offered the following assistance and services:
• HIV testing, counselling and long-term assistance;
• General health testing eg blood pressure, cholesterol, weight management; and
• General health improvement eg eating and exercise advice.
More than 25% of the group's staff took part in all the above activities voluntarily and enjoyed the day and found it most useful.
Statistics were received of where staff health issues are to enable DAWN to focus on providing solutions to assist them.
Training and education One of DAWN’s key strategic elements is to “Re-energise and focus learning and development”. During the year the focus has been on sales and product training and leadership development.
DAWN Academy
The DAWN Academy was relaunched in 2016 with the philosophy that was coined by Nelson Mandela – “Education is the powerful tool that can change the world”. DAWN focused on two accredited learnerships for purposes of succession and leadership development.
SUSTAINABILITY AT A GLANCE continued
0,5
1,0
1,5
2,0
%
Apr 2016
May 2016
Jun 2016
Jul 2016
Aug 2016
Sept 2016
Oct 2016
Nov 2016
Dec 2016
Jan 2017
Feb 2017
Mar 2017
Group DIFR
1,20 1,08 1,16 1,13 1,14 1,02 1,16 1,05 1,06 0,93 1,65 0,62
Disabling injury frequency rate
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Distribution & Warehousing Network Limited | | Integrated report 2017
The IMPI (“young warrior”) programme is focused on up and coming talent who are new to the business or entering business butwithpotentialforgrowth.Thelearnershipsaimatteachingbusinessskills,industryspecificskillsandfundamentalleadershipskills.Thisprogrammealsofulfilsthegroup’saimsstatedinlastyear’sreportoftraininginAfrica,asDAWNalsohasdelegatesfrom other African countries.
The ASSEGAI (“the spear”) programme is a LDP programme that is accredited and competes very favourably with leadership programmes run by many tertiary institutions. DAWN has selected current junior and middle managers which have been identifiedasfutureleadersofthegroup.
The THENGISA (“to sell”) programme is aimed at sales leadership aimed at all the group’s levels of sales management to teach them the key skills and dynamics of leading sales staff. The programme was developed and tested, but will only be fully launched in F2018.
Skills development
The employment equity and skills development forums are in place to provide quality assurance in terms of training and development as well as transformation across all companies. The workplace skills plans, derived from the training plans and annual training reports, have been submitted as per the Skills Development Act requirements.
A number of learnerships have been implemented across the group namely:
• Wholesale and retail supervision learnership;
• Production technology learnership; and
• Plastics manufacturing learnership.
Theselearnershipsincludepermanentemployeesandunemployedlearnersrecruitedasfixedtermemployees.Theseinterventions form part of the transformation strategy. Apprenticeships are also underway at DPI Plastics in order to create a pool of competent trades within manufacturing. This includes trades such as tool, jig- and die-makers, ATRAMI Setters and Millwrights. These are some of the trades considered as scarce skills within the industry.
Training hours
During F2017 a total of 13 060 hours (F2016: 19 288 hours) were spent on internal and external training of employees. The number of employees trained was 866 (F2016: 414).
Statistics
Data has been collated by employee category as well as by gender and race and are depicted below.
0
200
400
600
800
1 000Fixed term employment
Unskilled and defined decision-making
Semi-skilled and discretionary decision-making
Skilled technical and academically qualified workers, junior management, supervisors, foremen and superintendents
Professionally qualified and experienced specialists and middle-management
Senior management
Top management20172016
76
116
495
138
2614 1
1049
208
10332121
Number of employees trained by employment category
SUSTAINABILITY AT A GLANCE continued
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SUSTAINABILITY AT A GLANCE continued
0
5 000
10 000
15 000
20 000Fixed term employment
Unskilled and defined decision-making
Semi-skilled and discretionary decision-making
Skilled technical and academically qualified workers, junior management, supervisors, foremen and superintendents
Professionally qualified and experienced specialists and middle-management
Senior management
Top management20172016
2 448
2 458
6 733
699
478228 16
3 720
1 392
6 735
6 076
1 16519010
Number of hours trained by employment category
0
200
400
600
800
1 000 Foreign nationals
Coloured
Indian
White
Black
20172016
1
3
68
49
19
94
589
252
131
75
Number of employees trained by race
0
5 000
10 000
15 000
20 000Female
Male
20172016
155
711
112
303
Number of employees trained by gender
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Distribution & Warehousing Network Limited | | Integrated report 2017
Going forward Leadership and the implementation of a culture of a “High Performance Organisation” is the focus for human capital in the year ahead. Some of these elements cover the following:
• Ensuring DAWN is an organisation that is well led through development and coaching of its leaders; retention and recruitment of top leadership talent; and ensuring that all leaders have line of sight of the DAWN strategy.
• Building the organisation on clear behaviours that all staff believe in and align to. Ensuring that these behaviours are imbedded in the organisation and are not just spoken about.
• Creating a culture of passion for customers among all DAWN’s people from sales to administrative staff.
• Embedding a sense of ownership and accountability amongst all staff by giving them line of sight of the DAWN strategy and assisting them to see and be proud of their role in achieving that strategy.
• Having an engaged workforce by implementing the following:
– Management systems which reward and recognise high performance.
– Management systems that address unsatisfactory performance.
– The organisation is considered an employer of choice.
– Employee capabilities are aligned with strategic priorities.
NATURAL CAPITAL
Carbon footprintFor the year ended 31 March 2017, activities of DAWN’s subsidiaries generated a carbon footprint of 47 529 CO2e tonnes (F2016: 63 392 CO2e tonnes). This includes all activities under Scope 1 and Scope 2 as well as business travel under Scope 3.
Scope 1
Diesel and petrol jointly are the second most important energy carriers in the DAWN group with 2,92 million litres of diesel (F2016: 3,93 million litres) and 1,51 million litres of petrol (F2016: 1,38 million litres) being used – resulting in 11 226 CO2e tonnes from transport and distribution (F2016: 13 665 CO2e tonnes). Diesel is primarily used in the transportation component of the distribution model to get manufactured goods to wholesale locations as well as to deliver wholesale goods to retail customers. Petrol is primarily used by sales personnel to promote and sell products. A small amount of diesel is being used in factoriesandwarehousesbyforklifts.Basedonlowmateriality(<1%)andinsignificantchangesintheinstalledequipmentthatcause fugitive emissions from previous periods (refrigeration and air-conditioning) – a weighted average from the last three periods results in an estimate of 604 CO2e tonnes for F2017.
Historically,thethirdmostsignificantindividualcontributortothecarbonfootprintwasintheformofnaturalgasconsumption,however, in F2017 no reporting companies used any natural gas.
Scope 2
The primary contributor to the carbon footprint emanated from Scope 2 emissions in the form of electricity consumption of 35 152 MWh (F2016: 46 702 MWh). The solar PV plant has been excluded in this reporting period. Electricity is used at all of the 35 locations across the group with large consumption being recorded at particularly the pipe manufacturing locations. Reporting is based on the 17 subsidiary businesses.
N
SUSTAINABILITY AT A GLANCE continued
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The top three subsidiaries, in order of magnitude, are DPI Plastics (20 563 MWh), Swan Plastics (9 536 MWh) and DDC (3 263 MWh).
During the year back-up power generators have been installed at the PVC pipe manufacturing businesses in the manufacturing segment.
Scope 3
A selected category under scope 3 has been taken under review, with the support of a third-party. This process assured the gatheringofreliabledataandverificationofdataprovided.Businesstravelonaflightandcarrentalbasisaccountedfor 440 CO2e tonnes (F2016: 1 829,7 CO2e tonnes).
Summary
In summary during F2017, energy in the form of electricity, diesel, petrol and LPG gas accounted for 47 529 CO2e tonnes (F2016: 63 392 CO2e tonnes) of carbon emissions which amounted to 99,1% (F2016: 96,2%) of the total carbon footprint of the group.Fugitiveemissionsfromtherefillofair-conditionersandrefrigerationplants,togetherwithbusinesstravel,madeuptheremainder of the emissions.
Verification
The carbon footprint data is based on Scope1 and Scope 2 emissions as well as business travel which is a Scope 3 emission. Risk-based assurance was provided by internal audit in this regard.
MaterialsTheMaterialSafetyDataSheetsspecificationsgovernthepurchaseofallmaterialsandtheoperationalpracticesappliedutilising them. Environmentally safe purchases and practices are enforced by extensive data audit and training.
Materials used by DAWN’s subsidiaries consisted of polymer and HDPE totalling 49 110 tonnes of which 5 974 tonnes were recycled input materials, translating into 1,08% recycled input materials.
2017 2016
Electricity (CO2e tonnes)
Fuel (diesel and petrol)(CO2e tonnes)
Business travel (CO2e tonnes)
Fugitives (CO2e tonnes)
LPG (litres)
36 209
11 266
440
47 257
13 665
1 830604
36
Graphical representation of DAWN’s carbon footprint
SUSTAINABILITY AT A GLANCE continued
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Distribution & Warehousing Network Limited | | Integrated report 2017
WaterInF2016,watersources(largeroofedareasandaborehole)havebeenidentifiedattheDDCinGermistonforthesupplyofpotable water produced on site. A balance between production and use was established.
During the year piping routes from roof catchment to a reservoir were determined and a borehole was drilled. Water quality proved a challenge, due to high levels of iron and other heavy metals. The borehole delivered a yield of 18 kilolitre per day. In mitigation,filtrationtreatmentandpumpingsolutionswerespecifiedandsourced.Additionally,amajorwaterleakwasidentifiedonsite.Thefixingofthisleakresultedinasignificantportionofthewaterusagereductiononsite,whichwillbevisibleinfutureperiods.
ThefiltrationplantcameintoeffectinMay2017.Priortothisplantbeingoperationalandtheunknownleakonsitebeingfixed,Germistonsitewasconsumingapproximately90000litresofwaterperday.Uponrectificationofthewaterleak,consumptiondropped to approximately 70 000 litres per day.
The borehole/watershed supply is current producing approximately 2 000 litres of potable water per day, meaning the balance of the consumption is being drawn from the municipality supply. The aim over the next year is to reduce this even further, resulting in an off-grid water supply to the Germiston site.
ADDITIONAL INFORMATIONThe following additional information is available on DAWN’s website www.dawnltd.co.za.
• Sustainability performance data;
• Supply-chain; and
• Accreditations.
SUSTAINABILITY AT A GLANCE continued
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LEVEL OF ASSURANCETheseannualfinancialstatementshavebeenauditedincompliancewiththeapplicablerequirementsoftheCompaniesActofSouth Africa.
AUDITORSPricewaterhouseCoopers Inc.Registered Auditors
PREPARERPreparedbyYolandivandenBerg(CA(SA)),seniorgroupfinancialaccountant,underthesupervisionofHanréBester(CA(SA)),groupfinancialmanagerandChrisBooyens(CA(SA)),chieffinancialofficerandfinancialdirector.
PUBLISHED14 July 2017
CERTIFICATION BY COMPANY SECRETARYIn terms of Section 88(2)(e) of the Companies Act 71 of 2008, as amended, I certify that, to the best of my knowledge and belief,thecompanyhas,inrespectofthefinancialyearreportedupon,lodgedwiththeCompaniesandIntellectualPropertyCommission all returns required of a public company in terms of the Act and that all such returns are true, correct and up to date.
Claire Lindsay
On behalf of: iThemba Governance and Statutory Solutions Proprietary LtdCompany secretary
14 July 2017
ANNUAL FINANCIAL STATEMENTSF
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Distribution & Warehousing Network Limited | | Integrated report 2017
STATEMENT OF RESPONSIBILITY AND APPROVAL BY THE BOARD OF DIRECTORSfor the year ended 31 March 2017
The directors are required in terms of the Companies Act, No 71 of 2008 to maintain adequate accounting records and are responsibleforthecontentandintegrityoftheannualfinancialstatementsandrelatedfinancialinformationincludedinthisreport.Itistheirresponsibilitytoensurethattheannualfinancialstatementsfairlypresentthestateofaffairsofthegroupasattheendofthefinancialyearandtheresultsofitsoperationsandcashflowsfortheperiodthenended,inconformitywithInternational Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the annualfinancialstatements.
TheannualfinancialstatementsarepreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)andare presented in terms of the disclosure requirements as set out in the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council,theJSEListingsRequirementsandtherequirementsoftheCompaniesAct,2008.Theannualfinancialstatementsarebased upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.
Thedirectorsacknowledgethattheyareultimatelyresponsibleforthesystemofinternalfinancialcontrolestablishedbythegroup and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a cost-effectivemanner.Thestandardsincludetheproperdelegationofresponsibilitieswithinaclearlydefinedframework,effectiveaccounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the group and all employees are required to maintain the highest ethical standards in ensuring the group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risk cannot be fully eliminated, the group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.
The directors are of the opinion, based on the information and explanations given by management, that the system of internal controlprovidesreasonableassurancethatthefinancialrecordsmaybereliedonforthepreparationoftheannualfinancialstatements.However,anysystemofinternalfinancialcontrolcanprovideonlyreasonable,andnotabsolute,assuranceagainstmaterial misstatement or loss.
GOING CONCERN ASSESSMENT DAWN posted losses for both the years ended 31 March 2016 and 2017 of R762,9 million and R637,4 million, respectively. Indeterminingtheappropriatebasisofpreparationoftheannualfinancialstatements,thedirectorsarerequiredtoconsiderwhether the group can continue to operate as a going concern for the foreseeable future, to 14 July 2018.
After the rights issue in April 2017, DAWN had banking facilities available of R200 million, comprising a R100 million revolving creditandaR100milliongeneralbankingfacility.Todetermineifthegroupwillbeagoingconcernforthenextfinancialyearandupto14July2018,managementpreparedcashflowforecastsforeachofthematerialsubsidiaries.Theseforecastsweresubjected to further sensitivity tests and included the estimated intra-month peak funding requirements. Management also consideredthebusinesses’abilitytomeetitsfinancialobligationsforthe12monthsfollowingapprovaloftheannualfinancialstatements. The analysis considered the current challenging market conditions, which negatively affects the performance of the groupandmanagement’sturnaroundplanbeingexecutedincludingareturntosustainableprofitability,furthercostreductionsandoptimisationofworkingcapital.Theresultingcashflowprojectionswerecomparedtoavailablefundingfacilities.Theforecastprofitabilityandtheabilityoftheunderlyingbusinesstomeettheforecastsisanareaofuncertainty.
Theeffectofafurtherdeteriorationintheeconomicoutlookanditspotentialimpactonthegroup’scashflowandfundingfacilities were also considered as an uncertainty.
The group’s ability to fund its short-term liquidity requirements is dependent on adequate funding facilities. The forecasts indicatethatthecovenantsonthefacilitiesareexpectedtobebreached.Managementisseekingclarificationfromtheirbankersin this regard. Breaching covenants creates a risk for the group of losing its facilities.
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Part of management’s plans to address this include the corporate restructuring activities and alternative funding options, which are being considered.
Theseeventsandconditionsgiverisetoamaterialuncertaintythatmaycastsignificantdoubtaboutthegroup’sabilitytocontinue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Theexternalauditorsareresponsibleforindependentlyauditingandreportingonthegroup’sannualfinancialstatements.Theannualfinancialstatementshavebeenexaminedbythegroup’sexternalauditorsandtheirreportispresentedon pages 103 to 108.
Theannualfinancialstatementssetoutonpages109to215,whichhavebeenpreparedonthegoingconcernbasis,wereapproved by the board of directors on 12 July 2017 and were signed on its behalf by:
Diederik Fouché Edwin Hewitt Chris Booyens Chairman Chiefexecutiveofficer Financialdirector
STATEMENT OF RESPONSIBILITY AND APPROVAL BY THE BOARD OF DIRECTORS continued
for the year ended 31 March 2017
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Distribution & Warehousing Network Limited | | Integrated report 2017
REPORT OF THE AUDIT AND RISK COMMITTEEfor the year ended 31 March 2017
During the year under review, the audit committee and the risk committee were merged into one committee, the audit and risk committee. The committee currently operates with separate terms of reference, one for audit and one for risk, but during the year ahead the terms of reference will be combined, thereby rendering an audit and risk committee charter.
Thetermsofreferenceoftheauditcommitteeandtheriskcommitteewerereviewedandratifiedbytheboardon22March2017andareavailableatthecompany’sregisteredofficeforinspection.
PURPOSE
Theauditandriskcommitteemeetsthreetimesduringthefinancialyeartodiscussissuesofaccounting,auditing,internalcontrolsandfinancialreporting.Theauditcommittee’stermsofreferencedealsadequatelywithitsmembership,authorityand duties.
The committee has an independent role with accountability to both the board and shareholders. The committee does notassumethefunctionsofmanagement,whichremaintheresponsibilityoftheexecutivedirectors,officersandothermembers of senior management.
Theauditandriskcommitteefulfilsanoversightroleregardingfinancialreportingrisks,internalfinancialcontrols,fraudriskasitrelatestofinancialreportingandinformationtechnologyrisksasitrelatestofinancialreporting.
The committee considers whether or not the interim report should be subject to an independent review by the auditors.
Further information on risk policies, strategies, management and indicators appear in the corporate governance report of the integrated report.
MEMBERSHIP
On 18 November 2016 shareholders approved the appointment of Saleh Mayet (chairman), Lou Alberts and Dinga Mncube as members of the audit and risk committee. Saleh resigned as independent non-executive director and chairman of the audit and risk committee on 20 February 2017. With effect from 28 March 2017, Akhter Moosa was appointed to the board of DAWN as an independent non-executive director and as chairman of the audit and risk committee.
Akhter Moosa (chairman), Lou Alberts and Dinga Mncube are proposed as members of the audit and risk committee, responsibleforauditmatters,forthe2018financialyear.
These directors’ brief curriculum vitae can be found on pages 31 and 32 in the integrated report. A resolution to this effect will be presented to shareholders at the annual general meeting to be held on Friday, 24 November 2017.
Theboardissatisfiedthatthedirectors’integrity,impartialityandobjectivityarenotinanywaycompromisedandassuchsatisfiestherequirementsofsection94(4)oftheCompaniesAct,2008.
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REPORT OF THE AUDIT AND RISK COMMITTEE continued
for the year ended 31 March 2017
Attendance at meetings held during the period 1 April 2016 to 31 March 2017 was as follows:
Audit only
Auditonly
Special
AUDIT AND RISK COMMITTEE20 Apr
201622 Jun
201629 Jun
201629 Aug
20169 Nov 2016
16 Mar 2017
Saleh Mayet (chairman) (audit and risk) ¹ √ √ √ √ √ n/a
Lou Alberts (audit and risk) √ √ √ √ √ √
Hanré Bester (risk) ² n/a n/a n/a √ √ n/a
Dinga Mncube (audit and risk) √ √ √ √ √ √
Dries Ferreira (risk) ³ n/a n/a √ n/a n/a n/a
Stephen Connelly (risk) 4 n/a n/a √ √ √ √
Steve du Toit (risk) 5 n/a n/a √ √ √ √
David Austin (risk) 6 n/a n/a n/a n/a n/a √
¹ Resigned with effect from 20 February 2017.
²Appointedon14July2016;resignedon18November2016.
³ Resigned with effect from 14 July 2016.4 Appointed with effect from 1 April 2016.5 Appointed with effect from 1 April 2016.6 Appointed with effect from 18 November 2016.
The chairman of the board attended all the above meetings as an invitee.
The external auditors and appropriate members of executive management attend the meetings by invitation. Internal audit attends audit and risk committee meetings and provides reports to the committee.
YEAR UNDER REVIEW
Theauditandriskcommitteehasmetperiodicallytoconsiderandtoactuponitsstatutorydutiesandfunctionsandtheboardconfirmsthat the committee has during the review year performed the duties mandated to it by the board.
The committee oversaw the integrated reporting process in accordance with its terms of reference and, in particular, the committee:
• regarded all factors and risks that may impact on the integrity of the integrated report, including factors that may predispose managementtopresentamisleadingpicture,significantjudgementsandreportingdecisionsmade,aswellasanyevidencethatbrings into question previously published information and forward-looking statements or information;
• reviewedtheannualfinancialstatements;
• reviewed the disclosure of sustainability issues in the sustainability report and in the integrated report to ensure that it is reliable anddoesnotconflictwiththefinancialinformation;
• recommended the integrated report for approval by the board; and
• reviewedthecontentofthesummarisedfinancialinformationtodetermineifitprovidesabalancedview.
The board has assigned oversight of the group’s risk management function to the audit and risk committee.
EXTERNAL AUDIT
In terms of the Companies Act, the Committee had nominated PricewaterhouseCoopers Inc. as the independent auditor and Isak Buys as the designated partner, for appointment for the 2017 audit. This appointment was approved by shareholders at the annual general meetingon18November2016.ThecommitteehassatisfieditselfthroughenquirythattheauditorofDAWNisindependentasdefinedby the Companies Act 2008, as amended, and as per the standards stipulated by the auditing profession.
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Distribution & Warehousing Network Limited | | Integrated report 2017
REPORT OF THE AUDIT AND RISK COMMITTEE continued
for the year ended 31 March 2017
Requisiteassurancewassoughtandprovidedbytheauditorthatinternalgovernanceprocesseswithintheauditfirmsupportanddemonstrate the claim to independence.
The committee, in consultation with executive management, agreed to the engagement letter, terms, nature and scope of the audit functionandauditplanforthe2017financialyear.Thebudgetedfeeisconsideredappropriatefortheworkthatcouldreasonablyhavebeenforeseenatthattime.Thefinaladjustedfeewillbeagreedoncompletionoftheaudit.Auditfeesaredisclosedinnote4onpage133ofthe2017annualfinancialstatements.
There is a formal procedure that governs the process whereby the auditor is considered for non-audit services and each engagement letter for such work is reviewed and approved by the committee. Non-audit services rendered during the year under review included tax accounting and compliance services; providing assurance on information included in the preparation ofthecertificateforconveyancingpurposesforWholesaleHousingSuppliesProprietaryLimited;renderingexpatriateadministration services; and assisting with the renewal of employment permits for the secondment of two employees to Zambia. PricewaterhouseCoopersAdvisoryconductedanindependentreviewofDAWN'scashflowmodel,whichreviewwasindependentof the audit.
Meetings are held with the auditor where management is not present and no matters of concern were raised. The external auditors have unrestricted access to the chairman of the audit and risk committee.
The committee has again nominated, for approval at the annual general meeting to be held on Friday, 24 November 2017, PricewaterhouseCoopersInc.astheexternalauditor,andIsakBuysasthedesignatedauditor,forthe2018financialyear.ThecommitteeconfirmsthattheauditoranddesignatedauditorareaccreditedbytheJSELimited.
INTERNAL AUDIT
Thegroupinternalauditfunctionoperateswithindefinedtermsofreferenceinaccordancewiththeinternalauditcharterandthegroupinternalauditexecutivereportstothegroupriskandcomplianceofficeronday-to-dayactivitiesandfunctionallytothechairmanoftheauditandriskcommittee.Theinternalauditfunctionisregardedasbeingsufficientlyindependentofactivitiesaudited. The internal audit plan is reviewed and adjusted on a continuous basis to ensure effectiveness and is based on the relevantdegreeofinherentrisk.Theinternalauditplanforthe2017financialyearwasreviewedandapprovedbytheauditandrisk committee.
In compliance with internal auditing standards, the board, through its audit and risk committee, ensures that the Internal audit functionissubjecttoindependentqualityreviewatperiodsofatleastonceeveryfiveyears,withthefirstreviewconductedinOctober 2013 and the next one scheduled for March 2018.
INTERNAL CONTROL
Thegroupmaintainssystemsofinternalcontrol,whichincludefinancial,operationalandcompliancecontrols.
The committee is responsible for reviewing the functioning of the internal control system, the reliability and accuracy of the financialinformationprovidedbymanagementaswellasthatprovidedfordisseminationtootherusersoffinancialinformation,whether the group should continue to use the services of the current external auditors, any accounting or auditing concerns identifiedasaresultoftheexternalaudit,thegroup’scompliancewithlegalandregulatoryprovisions,itsmemorandumofincorporation, code of ethical conduct and by-laws.
The board of directors is accountable for establishing appropriate risk and control policies. Executive management is responsible for monitoring, reviewing and communicating these controls and policies through the organisation. Corrective actions are taken to addresscontroldeficienciesandotheropportunitiesforimprovingthesystems,astheyareidentified.
Allprocesseshavebeeninplacefortheyearunderreviewanduptothedateoftheapprovaloftheannualfinancialstatementsandthedirectorsarenotawareofandthereisnoknownmaterialbreakdowninthefunctioningoftheinternalfinancialcontrolsthat has occurred during the year under review to render the control environment ineffective.
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ANNUAL FINANCIAL STATEMENTS AND ACCOUNTING POLICIES
The audit and risk committee hasreviewedtheaccountingpoliciesandthefinancialstatementsofthegroupandthecompanyandissatisfiedthattheyareappropriateandcomplywithInternationalFinancialReportingStandards.
Theauditandriskcommitteeandtheboardareconfidentthatithastakenandcontinuestotakeallthenecessarystepsto execute its responsibilities in terms of the Companies Act of South Africa and the principles of good governance as contemplated by the King Code on Corporate Governance.
The audit and risk committee has considered the 2016 JSE Report on Proactive Monitoring and has taken the appropriate actiontoapplythefindings.
Theauditandriskcommitteefulfilleditsmandateandrecommendedtheannualfinancialstatementsfortheyearended 31March2017forapprovaltotheboard.Theboardapprovedtheannualfinancialstatementson12July2017 andthefinancialstatements will be open for discussion at the annual general meeting.
EVALUATION OF THE FINANCIAL DIRECTOR AND THE FINANCE FUNCTION
Theauditandcommitteeconfirmsthatithassatisfieditselfoftheexpertiseandexperienceof:
• HanréBester,theactingfinancialdirectorfortheperiod14July2016to18November2016;
• DavidAustin,financialdirectorfrom18November2016untilhisresignationon17March2017,effective30June2017;and
• ChrisBooyens,appointedwitheffectfrom1May2017,andbeingthefinancialdirectorassumingresponsibilityfortheannualfinancialstatementsfortheyearended31March2017.
Theauditandriskcommitteehasconsidered,andhassatisfieditselfof,theappropriatenessoftheexpertiseandadequacyofresourcesofthefinancefunctionandexperienceoftheseniormembersofmanagementresponsibleforthefinancefunction.
WHISTLE-BLOWING
The code of ethical conduct and whistle-blowing policy are intended to assist individuals who believe they have discovered serious malpractice or impropriety to take the appropriate action. The committee is assured that these arrangements provide for proportionateandindependentinvestigationofmattersreportedandforsuitablefollow-upaction.Thecommitteeissatisfiedthatinstances of whistle-blowing were appropriately dealt with during the year under review. Copies of the code of ethical conduct and fraud policy are available on the company’s website www.dawnltd.co.za.
ASSURANCE
TheauditandriskcommitteeissatisfiedthatDAWNhasoptimisedtheassurancecoverageobtainedfrommanagementandinternal and external assurance providers in accordance with an appropriate combined assurance model.
APPROVAL
The report of the audit and risk committee has been approved by the board of directors of DAWN.
Signed for and on behalf of the audit and risk committee
Akhter Moosa Chairman of the audit and risk committee
14 July 2017
REPORT OF THE AUDIT AND RISK COMMITTEE continued
for the year ended 31 March 2017
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Thedirectorstakepleasureinpresentingtheirreport,whichformspartoftheconsolidatedfinancialstatementsfortheyearended31March2017.Theconsolidatedfinancialstatementspresentedonpages109to215setoutfullythefinancialposition,resultsofoperationsandcashflowsofthegroupandthecompanyfortheyearended31March2017.
NATURE OF BUSINESS
DAWN manufactures and distributes quality branded hardware, sanitaryware, plumbing, kitchen, engineering and civil products through an international, strategically positioned branch network in South Africa and selected countries in the rest of Africa and Mauritius.
LISTING INFORMATION
Distribution and Warehousing Network Limited is listed in the Construction and Materials – Building Materials and Fixtures sector of the JSE Limited under the share code: DAW. The company’s ISIN number is ZAE000018834.
REGISTERED ADDRESS
The holding company’s registered address is:
Cnr Barlow Road and Caveleros Drive, Jupiter Ext 3, Germiston, 1401.PostNet Suite number 100, Private Bag X1037, Germiston, 1400.
YEAR UNDER REVIEW
Group results summary
2017R’000
2016R’000
%change
Statementoffinancialposition
Total assets 1 978 429 2 685 644 (26)
Total liabilities 1 555 307 1 629 432 (5)
Financial gearing ratio (%) 86,8 29,5 >100
Net asset value per share (cents) 158,46 440,66 >(100)
Net tangible asset value per share (cents) 130,95 412,95 (68)
Income statement
Revenue 4 300 864 4 993 092 (14)
Operating loss before impairments and derecognitions (395 624) (14 351) >100
Impairments and derecognitions (73 194) (647 007) 89
Operating loss (468 818) (661 358) 29
Netfinancecharges (58 588) (71 070) 18
Share of loss in investments accounted for using the equity method (41 042) (5 891) >(100)
Income tax expense (51 608) (19 613) >(100)
Attributable loss (637 371) (762 936) 16
Headline loss (569 354) (157 116) >(100)
Loss per share (cents) (269,22) (318,31) 15
Headline loss per share (cents) (240,49) (65,55) >(100)
Ananalysisofthegroup’sresultsisdisclosedinthereportofthechieffinancialofficeronpages21to25.
DIRECTORS’ REPORTfor the year ended 31 March 2017
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DIRECTORS’ REPORT continued
for the year ended 31 March 2017
Disposal
Associate
Heunis Steel Proprietary Limited was disposed of on 31 January 2017. DAWN sold its 49% share in the entity for R50 million. R27 million was received as the consideration amount for disposal and R23 million was received in the form of a dividend.
The value of the investment was R91,7 million, resulting in an impairment of R41,7 million.
SPECIAL RESOLUTIONS
At the annual general meeting of the company held on 18 November 2016, shareholders approved two of the three special resolutions.
• Special resolution number 1: Granting the company a general authority for the repurchase of its own shares.
• Specialresolutionnumber2:Approvingthenon-executivedirectors’feesforthe2017financialyear.
• Specialresolutionnumber3:Grantingthecompanytheauthoritytoprovidefinancialassistancetoanycompanyor corporation which is related or inter-related to the company in terms of the requirements of section 45 of the Companies Act, No 71 of 2008.
Special resolution number 1 was not adopted by shareholders.
At the forthcoming annual general meeting of the company to be held on Friday, 24 November 2017, the special resolutions approved on 18 November 2016 will again be presented to shareholders for approval.
DIVIDEND
No dividend has been proposed or declared for the year under review. Resumption of dividend payments is dependent on theboard’sviewsofwhenthemajorityofDAWN’sunderlyingbusinesseswillbefirmlyinprofit.
SHARE CAPITAL
Further details of the authorised and issued share capital of the company are provided in note 19 to the consolidated annual financialstatements.Duringtheyearunderreviewtherewasnorepurchaseofsharesandnoshareswereissuedforcash.
REPURCHASE OF SECURITIES
During the year under review no securities were repurchased by the Company.
DAWN SHARE SCHEME
The aggregate number of shares available to the scheme at year-end, but not issued, is outlined below. All the shares have been taken up.
31 March 2017
R’000
31 March 2016
R’000
Aggregate number of shares available to the new scheme 18 793 18 793
Share rights and awards granted (new schemes) (7 567) (7 423)
Number of share rights and awards available, but not engaged 11 226 11 370
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DIRECTORS
Director Designation Date appointed Date resigned
Diederik Fouché Independent non-executive chairman 1 November 2015
Lou Alberts Lead independent director 10 August 2001
Stephen ConnellyInterim chief executive officer 1 April 2016
Executive deputy chairman 1 April 2017
Edwin Hewitt Chief executive officer 1 April 2017
Derek Tod Chief executive officer 30 June 1998 31 May 2017
Chris Booyens Financial director 1 May 2017
David Austin Financial director 18 November 2016Resigned on 17 March
2017, effective 30 June 2017
Hanré Bester Financial director 14 July 2016 18 November 2016
Dries Ferreira Financial director 30 November 2007 14 July 2016
Jan Beukes Executive director 20 August 1998 14 July 2016
Saleh Mayet Independent non-executive director 20 May 2015 20 February 2017
Dinga Mncube Independent non-executive director 1 May 2014
Veli Mokoena Non-executive director 22 June 2011
Akhter Moosa Independent non-executive director 28 March 2017
George Nakos Non-executive director 12 November 2015
René Roos Executive director 14 December 2009
Akhter Moosa was appointed to the board on 28 March 2017 as an independent non-executive director and chairman oftheauditandriskcommittee.EdwinHewittwasappointedaschiefexecutiveofficerwitheffectfrom1April2017andChrisBooyenswasappointedaschieffinancialofficerandfinancialdirectorwitheffectfrom1May2017.ResolutionsforratificationbyshareholdersofAkhterMoosa,EdwinHewittandChrisBooyens'appointmentsareincludedinthenoticeofannual general meeting in the integrated report.
In terms of the company’s memorandum of incorporation, Diederik Fouché and Dinga Mncube retire by rotation at the forthcoming annual general meeting. The retiring directors are eligible and available for re-election.
SECRETARY
The secretary of the company is iThemba Governance and Statutory Solutions Proprietary Limited.
DIRECTORS’ SHAREHOLDING
Thedirectorsheldinaggregatedirectandindirectbeneficialinterestsof1,2%(2016:8,0%)intheissuedsharecapitalofthecompany at the reporting date, the details whereof appear on page 70 of the report of the remuneration committee.
Thecompanyhasnotbeennotifiedofanymaterialchangeindirectors’interestsduringtheperiod31March2017tothedate of this report, other than as disclosed on page 71 of the report of the remuneration committee.
DIRECTORS’ EMOLUMENTS
Details of the directors’ emoluments are set out on page 61 of the report of the remuneration committee.
DIRECTORS’ REPORT continued
for the year ended 31 March 2017
Page 100
DIRECTORS’ INTEREST IN CONTRACTS
No material contracts involving directors’ interest were entered into during the year under review.
LITIGATION
On 23 March 2017, the Competition Tribunal (the Tribunal) handed down a decision in which it determined that DAWN Consolidated Holdings (Pty) Ltd (DCH), a subsidiary of DAWN, through the wholly-owned subsidiary DPI Plastics (Pty) Ltd of DCH, engaged in a market allocation arrangement with Sangio Pipe (Pty) Ltd (Sangio), in which DCH had a 49% interest at the time.
In such cases penalties are usually determined as a percentage of affected turnover and affected turnover is usually that related to the market allocation arrangement in question. The ultimate penalty will be judged across a number of variables and parameters that are in the judgment of the Tribunal.
The legal process to determine the penalty quantum is currently underway, however the group believes, supported by legal advice that an appeal will be successful.
SHAREHOLDING ANALYSIS
A presentation of the company’s shareholding is set out on pages 216 and 217.
BORROWING POWERS
The group has unlimited borrowing powers permitted in terms of the company’s memorandum of incorporation.
SUBSIDIARIES, ASSOCIATE COMPANIES AND JOINT VENTURES
Details of the holding company’s interest in subsidiaries, associate companies and joint ventures are set out on pages 213 to215oftheannualfinancialstatements.Detailsofindebtednesstotheholdingcompanyaresetoutonpage205oftheannualfinancialstatements.
As outlined in the trading update published on SENS on 12 July 2017, although the board believes the group is solvent and liquid for the 12 months following the date of the auditors signing of this year’s results on 14 July 2017, certain potential eventsandconditionsgiverisetoamaterialuncertaintythatmaycastsignificantdoubtonthegroup’sabilitytocontinueasagoingconcernbasedoncashflowforecastspreparedagainstthebackdropofavailablefacilities.Forfurtherinformationrefer to note 44 on page 212.
Management is actively addressing the group’s short-term challenges, with actions including corporate restructuring activities and alternative funding options.
EVENTS AFTER THE REPORTING DATE
Changes to the board of directors
Chiefexecutiveofficer
EdwinHewittwasappointedchiefrestructuringofficeratDAWNinFebruary2017,workingwithamajorbank,whereheplayedasignificantroleinfinalisingarecapitalisationprogrammeforthegroup.Witheffectfrom1April2017,EdwinhasbeenappointedchiefexecutiveofficerofDAWN.
With effect from 1 April 2017, on the appointment of Edwin Hewitt as CEO, Stephen Connelly who has been the interim CEO of DAWN since 1 June 2016, was appointed as executive deputy chairman of DAWN.
DIRECTORS’ REPORT continued
for the year ended 31 March 2017
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Chieffinancialofficer
On17March2017,DavidAustinresignedasfinancialdirectorandchieffinancialofficer.Davidresignedasadirectorwitheffect from 30 June2017.ChrisBooyenswasappointedfinancialdirectorandchieffinancialofficerofDAWNwitheffectfrom 1 May 2017.
Rights offerDAWN shareholders are referred to the circular dated Monday, 20 March 2017 regarding the renounceable rights offer for up to R358 million, which concluded on 12 April 2017.
The rights offer consisted of an offer of 358 129 576 million ordinary shares in the ratio of 147,83904 rights offer shares for every 100 ordinary shares held by shareholders on the record date of the rights offer, at a subscription price of R1,00 per rights offer share.
Following the conclusion of the rights offer, the total issued share capital of the company increased to 600 372 480 shares.
Borrowings
Revolving credit facility
On 15 October 2015, Absa Bank Limited granted the group a revolving credit facility of R200 million. This facility ended on 7 October 2016 and was re-negotiated to 7 October 2017. The new facility had similar characteristics, but had a quarterly step-down of R25 million per quarter in respect of the revolving credit facility, which started on 7 October 2016 and would have concluded on 7 July 2017. This agreement was re-negotiated and signed in December 2016 for a reduced facility of R175 million after a R25 million repayment was made in October 2016. A further repayment of R75 million was made on 12 April 2017 to reduce the facility to R100 million. The facility extends until 31 March 2018. Accounts receivable have been ceded and a general notarial bond has been registered over inventory.
Bridgingfinancefacility
On23December2016,DAWNreceivedR50millionbridgingfinancefromAbsaBankLimited,whichamountwasrepaidon31 January 2017, after obtaining the proceeds from the sale of Heunis Steel Proprietary Limited.
DAWNreceivedR200millionfundingfromInvestecasbridgingfinancethroughanunsecuredfacility.TwoR100milliontranches were received on 24 February 2017 and 6 March 2017, respectively. The full R200 million was repaid on 18 April 2017 from the proceeds of the rights offer.
Further details on borrowings are disclosed in note 23 on page 169.
DisposalsBoutique Baths Proprietary Limited
DAWN entered into an agreement to dispose of its 76% shareholding in Boutique Baths Proprietary Limited for a consideration of R3 million, effective 28 April 2017.
Asaresult,BoutiqueBathsProprietaryLimitedhasbeenderecognisedandclassifiedasheld-for-saleandalossonderecognition of R0,34 million was realised at year-end.
Aqualia DPI Proprietary Limited
DAWN entered into an agreement to dispose of its 50% interest in the joint venture with Aqualia DPI Proprietary Limited, incorporating Aqua Science Proprietary Limited, for a consideration of 1 Mauritian Rupee, effective 30 June 2017.
Fibrex – Fabrica deArt.DE.F.B. Sinteticas, S.A.R.L. (Fibrex)
On 1 April 2017, the group entered into an agreement for the acquisition of the remaining 51% shareholding from the majority shareholder in Plastic Investments International Limited, of which Fibrex is a wholly-owned subsidiary, under obligation. Defalcation on the part of the majority shareholder enabled DAWN to acquire the shareholding for a consideration of Rnil, as the shareholder surrendered his shares to DAWN. The provisional amount of net assets acquired amounted to R10,0 million.
On 15 June 2017, the board of directors of DAWN resolved to dispose of Fibrex in its entirety during F2018 in an effort to recover the losses incurred by the business.
DIRECTORS’ REPORT continued
for the year ended 31 March 2017
Page 102
Grohe DAWN Watertech (GDW)
As announced on SENS on 11 July 2017, the group has concluded a non-binding memorandum of understanding with the controlling shareholders of GDW for the potential disposal of DAWN’s 49% holding in the company to that shareholder. No pricehasbeenagreedforthetransactionasyet.Thereisnocertaintythatthenegotiationswillleadtodefinitiveandbindingagreements and therefore no certainty that the transaction will ultimately be concluded and implemented.
The intention of both parties is that DAWN remains the long-term master distributor for the GDW product range in southern Africa. It is the view of the DAWN board that this transaction would be a positive step in the turnaround process of the group.
Going concern assessment DAWN posted losses for both the years ended 31 March 2016 and 2017 of R762,9 million and R637,4 million, respectively. Indeterminingtheappropriatebasisofpreparationoftheannualfinancialstatements,thedirectorsarerequiredtoconsiderwhether the group can continue to operate as a going concern for the foreseeable future, to 14 July 2018.
After the rights issue in April 2017, DAWN had banking facilities available of R200 million, comprising a R100 million revolving credit and a R100 million general banking facility. To determine if the group will be a going concern for the next financialyearandupto14July2018,managementpreparedcashflowforecastsforeachofthematerialsubsidiaries.These forecasts were subjected to further sensitivity tests and included the estimated intra-month peak funding requirements.Managementalsoconsideredthebusinesses’abilitytomeetitsfinancialobligationsforthe12monthsfollowingapprovaloftheannualfinancialstatements.Theanalysisconsideredthecurrentchallengingmarketconditions,which negatively affects the performance of the group and management’s turnaround plan being executed including a return tosustainableprofitability,furthercostreductionsandoptimisationofworkingcapital.Theresultingcashflowprojectionswerecomparedtoavailablefundingfacilities.Theforecastprofitabilityandtheabilityoftheunderlyingbusinesstomeettheforecasts is an area of uncertainty.
Theeffectofafurtherdeteriorationintheeconomicoutlookanditspotentialimpactonthegroup’scashflowandfundingfacilities were also considered as an uncertainty.
The group’s ability to fund its short-term liquidity requirements is dependent on adequate funding facilities. The forecasts indicatethatthecovenantsonthefacilitiesareexpectedtobebreached.Managementisseekingclarificationfromtheirbankers in this regard. Breaching covenants creates a risk for the group of losing its facilities.
Part of management’s plans to address this include the corporate restructuring activities and alternative funding options, which are being considered.
Theseeventsandconditionsgiverisetoamaterialuncertaintythatmaycastsignificantdoubtaboutthegroup’sabilitytocontinue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
DATE OF AUTHORISATION FOR ISSUE OF ANNUAL FINANCIAL STATEMENTS
Theannualfinancialstatementshavebeenauthorisedforissuebytheboardofdirectorson12July2017.Noauthoritywasgiventoanyonetoamendtheannualfinancialstatementsafterthedateofissue.
AUDITORS
The auditors, PricewaterhouseCoopers Inc., and the designated auditor, Isak Buys, have indicated their willingness to continueinofficefortheensuingyear.Theauditandriskcommitteehassatisfieditselfoftheindependenceoftheauditorsand the designated auditor.
A resolution to reappoint them as auditors will be proposed at the next annual general meeting scheduled to take place on Friday, 24 November 2017.
DIRECTORS’ REPORT continued
for the year ended 31 March 2017
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To the Shareholders of Distribution and Warehousing Network Limited
REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
Our opinionInouropinion,theconsolidatedandseparatefinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedandseparatefinancialpositionofDistributionandWarehousingNetworkLimited(theCompany)anditssubsidiaries(togethertheGroup)asat31March2017,anditsconsolidatedandseparatefinancialperformanceanditsconsolidatedandseparatecashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandardsandtherequirementsoftheCompanies Act of South Africa.
What we have audited
DistributionandWarehousingNetworkLimited’sconsolidatedandseparatefinancialstatementssetoutonpages109to215comprise:
• theconsolidatedandseparatestatementsoffinancialpositionasat31March2017;
• the consolidated and separate income statements for the year then ended;
• the consolidated and separate statements of comprehensive income for the year then ended;
• the consolidated and separate statements of changes in equity for the year then ended;
• theconsolidatedandseparatestatementsofcashflowsfortheyearthenended;and
• thenotestothefinancialstatements,whichincludeasummaryofsignificantaccountingpolicies.
Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’sresponsibilitiesfortheauditoftheconsolidatedandseparatefinancialstatements section of our report.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
Independence
We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional ConductforRegisteredAuditors(IRBACode) and other independence requirements applicable to performing audits of financialstatementsinSouthAfrica.WehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeIRBACodeandinaccordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B).
Material uncertainty relating to going concernWedrawattentiontoNote44inthefinancialstatements,whichindicatesthattheGroupincurredanetlossofR637.4mduringthe year ended 31 March 2017. As stated in Note 44, these events or conditions, along with other matters as set forth in Note 44,indicatethatamaterialuncertaintyexiststhatmaycastsignificantdoubtontheGroup’sabilitytocontinueasagoingconcern.Ouropinionisnotmodifiedinrespectofthismatter.
INDEPENDENT AUDITOR’S REPORT
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INDEPENDENT AUDITOR’S REPORT continued
Our audit approach
Overview
Overall group materiality
• Overall group materiality: R21m, which represents 0.5% of consolidated revenue.
Group audit scope
• We have performed full scope audits over 18 components which include financiallysignificantandfinanciallyinconsequentialcomponents.Theaggregate of all audited components account for more than 98% of the consolidatedrevenue,consolidatedprofitbeforetaxandconsolidatedtotalassets of the Group.
Key Audit Matters
• Material uncertainty relating to going concern; and
• Impairment assessment of business units and cash generating units (CGUs)
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated andseparatefinancialstatements.Inparticular,weconsideredwherethedirectorsmadesubjectivejudgements;forexample,inrespectofsignificantaccountingestimatesthatinvolvedmakingassumptionsandconsideringfutureeventsthatareinherentlyuncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Materiality
Thescopeofourauditwasinfluencedbyourapplicationofmateriality.Anauditisdesignedtoobtainreasonableassurancewhetherthefinancialstatementsarefreefrommaterialmisstatement.Misstatementsmayariseduetofraudorerror.Theyareconsideredmaterialifindividuallyorinaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisoftheconsolidatedfinancialstatements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materialityfortheconsolidatedfinancialstatementsasawholeassetoutinthetablebelow.These,togetherwithqualitativeconsiderations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluatetheeffectofmisstatements,bothindividuallyandinaggregateonthefinancialstatementsasawhole.
Overall group materiality R21m
How we determined it 0.5% of consolidated revenue
Rationale for the materiality benchmark applied
We chose revenue as the benchmark because, in our view, it is currently the most relevant benchmark in the Dawn Group and against which the performance of the Group’s trading can be measured by users given the volatility in the profitbeforetaxnumberinthecurrent&recentyears.Undercurrenteconomicconditions the Revenue line is considered the driver of the trading business. We chose 0.5% which is lower than the normal quantitative materiality rule of thumb usedforprofit-orientedcompaniesinthissector(1%)givenqualitativefactorssuchasexternaldebtlevels,investorprofilesandgroupaggregationrisk.
Materiality
Group scoping
Key audit matters
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How we tailored our group audit scope
Wetailoredthescopeofourauditinordertoperformsufficientworktoenableustoprovideanopinionontheconsolidatedfinancialstatementsasawhole,takingintoaccountthestructureoftheGroup,theaccountingprocessesandcontrols,andtheindustry in which the Group operates.
EachfinanciallysignificantcomponentoftheGroupwassubjecttoafullscopeauditofitsfinancialreportinginformationsubmitted to the Company. Financially inconsequential components were also included in the group reporting scope as per management’s request. These component audits and their materiality were aligned to their statutory work to avoid duplication of auditeffort.Inaggregatethefullscopeauditsaccountformorethan98%oftheconsolidatedrevenue,consolidatedprofitbeforetax and consolidated total assets of the Group.
Thegroupengagementteammetwiththecomponentauditorsofeachofthesignificantcomponents.Theteamalsoengagedwith the remaining component auditors by means of an inspection of their working papers and required reporting documents which included a comprehensive memorandum of work performed. The group engagement team centralised the testing of the liquidity and impairment assessments. In order to obtain audit evidence in respect of components not part of the full scope audit, the group engagement team inspected the management accounts and performed analytical review procedures.
Key audit matters
Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditoftheconsolidatedandseparatefinancialstatementsofthecurrentperiod.Thesematterswereaddressedinthecontextofourauditoftheconsolidatedandseparatefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparate opinion on these matters.
In addition to the matter described in the Material Uncertainty Related to Going Concern section above, we have determined the matter described below to be the key audit matter to be communicated in our report.
INDEPENDENT AUDITOR’S REPORT continued
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Key audit matter How our audit addressed the key audit matter
Impairment assessment of business units and cash generating units (CGUs)
Refer to the accounting policies, pages 116 and 117 (Consolidation), pages 119 and 120 (Intangible assets), page 120 (Impairmentofnon-financialassets),note11 (Property, plant and equipment) on pages 140 to 143 and note 12 (Intangible assets) on pages 143 to 148.
Year-end impairment tests were performed by the directors and they concluded that the recoverable amounts are greater than the current carrying amount of cash-generating units(CGUs),andthatthereissufficientheadroom between the current carrying values and the determined values in use of the business units.
Therearesignificantjudgementsinvolvedin forecasting future turnover and in turn, cashflows.Theprimarydriverinfutureearnings is a combination of trading volumesandtheexpectedgrossprofitmargin achievable. Taking into account the slowdown in revenue, purchase volumes in the newly negotiated rebate agreements with suppliers might not be met and as a result, the group could forego anticipated rebate income.
Sales volumes are dependent on customers achieving their own indicated volumes and the ability of the Group to secure ongoing business from current customers, as well as winning new Infrastructure and Building segment business in future.
We considered this to be a matter of most significancetoourauditasthevaluesin use are highly sensitive to changes in futurecashflowsincludedinthemodelsand changes in the relevant discount rates and given the impairment indicators evident from the business performance.
We evaluated the composition and magnitude of management’s future cashflowforecastsfortheirrespectiveCGUsbyrecalculatingthefreecashflowthatarisesfromthebudgetedrevenuelevelsandchallengingassumptions. This included testing management’s assumptions (volume and price growth, margins, working capital investment, capital expenditures and long term growth rates) for reasonability by inspecting signed agreements, understanding the rebate structure and newly formed rebate agreements, comparison to external and industry benchmarks, and comparison to future market volume forecasts.
Wecomparedtheprocessfollowedindeterminingthesecashflowforecaststo past practice. These were also compared to board approved budgets and forecasts.
The 2015 and 2016 actual results were compared to the forecasts for those years, to identify any situations where actual results achieved were different frombudgetedresults.Inrespectofdifferencesthatwereidentified,weinquired of management and inspected documentation to understand the reasons for the differences. To assess whether similar deviations could occur in future, we held discussions with management, inspected industry and economic forecasts, obtained an understanding of the actions implemented by management and by assessing once off costs included in the results.
The discount rates and growth rates included in the impairment assessments were assessed as follows:
• As a reasonability test, we used our valuations expertise to independently calculate the discount rates used in the models, taking into account independently obtained data. The discount rates applied were accepted as falling within a reasonable range.
• Long term growth rates in South Africa were independently assessed by comparison to economic and industry forecasts. Based on our procedures, the growth rates applied were accepted as falling within a reasonable range. Where short term growth rates deviated from the norm that was applied in other businesses, we inspected the underlying business plans to assess management’s view of the growth in market share.
We tested the mathematical accuracy of the models and made use of our valuations expertise to assess whether generally accepted valuation methodology was applied.
We performed sensitivity calculations on the impairment assessments to determine the degree by which the key assumptions (discount rates and long term growth rates) needed to change in order to trigger an impairment. We discussed these with management and considered the likelihood of such changes occurring.
We also used our valuation expertise to assess the impact of the South African credit downgrade on the applied discount rates.
Based on the outcome of the procedures described above, we accepted management'sconclusionsinrespectoftheforecastfuturecashflows.
INDEPENDENT AUDITOR’S REPORT continued
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Other informationThe directors are responsible for the other information. The other information comprises the Directors’ Report, the Audit Committee’sReportandtheCompanySecretary’sCertificateasrequiredbytheCompaniesActofSouthAfrica,andtheotherinformation as contained in the Integrated Report, which we obtained prior to the date of this auditor’s report. Other information doesnotincludetheconsolidatedandseparatefinancialstatementsandourauditor’sreportthereon.
Ouropinionontheconsolidatedandseparatefinancialstatementsdoesnotcovertheotherinformationandwedonotexpressan audit opinion or any form of assurance conclusion thereon.
Inconnectionwithourauditoftheconsolidatedandseparatefinancialstatements,ourresponsibilityistoreadtheotherinformationidentifiedaboveand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeconsolidatedandseparatefinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.
If, based on the work we have performed on the other information we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
ResponsibilitiesofthedirectorsfortheconsolidatedandseparatefinancialstatementsThedirectorsareresponsibleforthepreparationandfairpresentationoftheconsolidatedandseparatefinancialstatementsinaccordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and forsuchinternalcontrolasthedirectorsdetermineisnecessarytoenablethepreparationofconsolidatedandseparatefinancialstatements that are free from material misstatement, whether due to fraud or error.
Inpreparingtheconsolidatedandseparatefinancialstatements,thedirectorsareresponsibleforassessingtheGroupandtheCompany’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’sresponsibilitiesfortheauditoftheconsolidatedandseparatefinancialstatementsOurobjectivesaretoobtainreasonableassuranceaboutwhethertheconsolidatedandseparatefinancialstatementsasawhole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered materialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedandseparatefinancialstatements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
• Identifyandassesstherisksofmaterialmisstatementoftheconsolidatedandseparatefinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientand appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
INDEPENDENT AUDITOR’S REPORT continued
Page 108
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubton the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and / or Company to cease to continue as a going concern.
• Evaluatetheoverallpresentation,structureandcontentoftheconsolidatedandseparatefinancialstatements,includingthedisclosures,andwhethertheconsolidatedandseparatefinancialstatementsrepresenttheunderlyingtransactionsandevents in a manner that achieves fair presentation.
• Obtainsufficientappropriateauditevidenceregardingthefinancialinformationoftheentitiesorbusinessactivitieswithinthegrouptoexpressanopinionontheconsolidatedfinancialstatements.Weareresponsibleforthedirection,supervisionand performance of the group audit. We remain solely responsible for our audit opinion.
Wecommunicatewiththedirectorsregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Fromthematterscommunicatedwiththedirectors,wedeterminethosemattersthatwereofmostsignificanceintheauditoftheconsolidatedandseparatefinancialstatementsofthecurrentperiodandarethereforethekeyauditmatters.Wedescribethesematters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.
Report on other legal and regulatory requirements In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that PricewaterhouseCoopers Inc. has been the auditor of Distribution and Warehousing Network Limited for 21 years.
PricewaterhouseCoopers Inc. Director: I BuysRegistered Auditor
Johannesburg 14 July 2017
INDEPENDENT AUDITOR’S REPORT continued
Page 109
Distribution & Warehousing Network Limited | | Integrated report 2017
GROUP COMPANY
Note2017
R’0002016
R’0002017
R’0002016
R’000
Revenue 3 4 300 864 4 993 092 – –
Cost of sales 4 (3 523 327) (3 897 870) – –
Grossprofit 777 537 1 095 222 – –
Operating expenses 4 (1 205 786) (1 153 046) (10 966) (4 747)
Administrative and selling expenses (790 030) (649 620) (7 554) (2 728)
Distribution and warehousing expenses (328 396) (490 801) – –
Other operating expenses (87 360) (12 625) (3 412) (2 019)
Other operating income 5 32 625 43 473 2 741 14 172
Operating(loss)/profitbeforeimpairmentsand derecognitions of previously held interests (395 624) (14 351) (8 225) 9 425
Net gain/(loss) on derecognition of subsidiaries 4;38 1 202 (4 592) – –
Impairments 4 (74 396) (642 415) (125 400) (396 321)
Operating loss (468 818) (661 358) (133 625) (386 896)
Finance income 6 3 316 3 460 77 092 50 694
Finance expenses 7 (61 904) (74 530) (63 467) (37 250)
Lossafternetfinancingcosts (527 406) (732 428) (120 000) (373 452)
Share of loss in investments accounted for using the equity method 14 (41 042) (5 891) – –
Loss before taxation (568 448) (738 319) (120 000) (373 452)
Income tax expense 9 (51 608) (19 613) (2 724) (4 340)
Loss for the year (620 056) (757 932) (122 724) (377 792)
Profitattributableto:
Owners of the parent (637 371) (762 936) – –
Non-controlling interests 22 17 315 5 004 – –
Loss for the year (620 056) (757 932) (122 724) (377 792)
Earnings per share (cents) 10 (269,22) (318,31) – –
Diluted earnings per share (cents) 10 (269,22) (317,34) – –
The notes as set out on pages 115 to212areanintegralpartoftheseconsolidatedfinancialstatements.
CONSOLIDATED AND SEPARATE INCOME STATEMENTSfor the year ended 31 March 2017
Page 110
CONSOLIDATED AND SEPARATE STATEMENTS OF COMPREHENSIVE INCOMEfor the year ended 31 March 2017
GROUP COMPANY
Note2017
R’0002016
R’0002017
R’0002016
R’000
Loss for the year (620 056) (757 932) (122 724) (377 792)
Other comprehensive income
Itemsthatwillnotbereclassifiedtoprofitor loss:
Effects of retirement benefit obligations 27 91 1 009 – –
Tax-related components (25) (282) – –
66 727 – –
Itemsthatmaybesubsequentlyreclassified toprofitorloss:
Exchange differences recycled through profit/loss 7 164 (6 611) – –
Exchange differences on translating foreign operations (1 423) 626 – –
Cash flow hedging reserve 24 858 (1 023) – –
Tax-related components 24 (240) 286 – –
6 359 (6 722) – –
Total other comprehensive income/(loss) 6 425 (5 995) – –
Total comprehensive loss (613 631) (763 927) (122 724) (377 792)
Total comprehensive (loss)/income attributable to:
Owners of the parent (630 946) (768 931) – –
Non-controlling interests 17 315 5 004 – –
(613 631) (763 927) – –
Thenotesassetoutonpages115to212areanintegralpartoftheseconsolidatedfinancialstatements.
Page 111
Distribution & Warehousing Network Limited | | Integrated report 2017
GROUP COMPANY
Note2017
R’0002016
R’0002017
R’0002016
R’000
ASSETSNon-current assetsProperty, plant and equipment 11 225 794 236 278 – –Intangible assets 12 65 126 66 433 – –Investments in subsidiaries 13 – – 681 783 681 783 Investments in associates and joint ventures 14 296 261 453 496 116 520 116 520 Derivative financial instruments 24 19 115 34 380 19 115 34 380 Deferred tax assets 26 68 298 98 400 – – Trade and other receivables 16 – – 27 334 35 424
674 594 888 987 844 752 868 107 Current assetsInventories 15 519 378 800 082 – –Trade and other receivables 16 660 325 910 020 451 523 435 154Cash and cash equivalents 17 108 741 80 006 75 346 36 520Derivative financial instruments 24 632 249 1 220 8 910 Current tax assets 8 107 6 300 4 809 1 988
1 297 183 1 796 657 532 898 482 572Assetsclassifiedasheld-for-sale 18 6 652 – – –Total assets 1 978 429 2 685 644 1 377 650 1 350 679 EQUITY AND LIABILITIESEquityCapital and reserves attributable to equity holders of the companyShare capital and share premium 19 376 170 376 170 376 170 376 170Retained income 8 851 646 222 216 326 339 050 Other reserves 20 (9 874) (5 844) – –Share capital and reserves 375 147 1 016 548 592 496 715 220 Non-controlling interests 22 47 975 39 664 – –Total equity 423 122 1 056 212 592 496 715 220 LiabilitiesNon-current liabilitiesBorrowings 23 58 275 75 859 25 418 31 924 Derivative financial instruments 24 78 217 89 454 6 000 25 430 Deferred profit 25 28 749 34 076 – –Deferred tax liabilities 26 25 762 22 185 3 749 2 548Retirement benefit obligation 27 5 066 5 100 – –Share-based payment liabilities 21 5 329 4 883 – –Operating lease liabilities 29 101 597 110 363 – –Trade and other payables 31 – 7 114 – –
302 995 349 034 35 167 59 902 Current liabilitiesTrade and other payables 31 785 735 890 581 32 075 29 811Borrowings 23 448 176 357 381 716 692 536 836 Operating lease liabilities 29 5 204 2 776 – –Derivative financial instruments 24 588 8 664 1 220 8 910Deferred profit 25 5 327 5 327 – –Current tax liabilities 5 694 7 728 – – Share-based payment liabilities 21 – 7 941 – –
1 250 724 1 280 398 749 987 575 557 Liabilitiesdirectlyassociatedwithassetsclassifiedas held-for-sale 18 1 588 – – – Total liabilities 1 555 307 1 629 432 785 154 635 459 Total equity and liabilities 1 978 429 2 685 644 1 377 650 1 350 679
Thenotesassetoutonpages115to212areanintegralpartoftheseconsolidatedfinancialstatements.
CONSOLIDATED AND SEPARATESTATEMENTS OF FINANCIAL POSITIONas at 31 March 2017
Page 112
Note
Sharecapital
and share
premiumR’000
Otherreserves
R’000
Retainedearnings
R’000
Equityattribu-table to
companyR’000
Non-conrol-
linginterests
R’000Total
R’000
Balance at 1 April 2015 as reported 376 170 57 022 1 417 371 1 850 563 33 974 1 884 537
Total comprehensive (loss)/income for the year – (5 995) (762 936) (768 931) 4 589 (764 342)
(Loss)/profit for the year – – (762 936) (762 936) 5 004 (757 932)
Other comprehensive loss for the year – (5 995) – (5 995) (415) (6 410)
Dividends paid – – (7 260) (7 260) – (7 260)
Total contributions by and distributions to owners of the company recognised directly in equity – (56 871) (953) (57 824) 1 101 (56 723)
Share-based payment – charge/(reversal) for the year – 27 (953) (926) – (926)
Treasury shares acquired – (30 875) – (30 875) – (30 875)
Transfer to liability 20 – (26 381) – (26 381) – (26 381)
Transactions with non-controlling interests 21 – 358 – 358 (823) (465)
Business combinations 36 – – – – 1 924 1 924
Balance at 31 March 2016 376 170 (5 844) 646 222 1 016 548 39 664 1 056 212
Balance at 1 April 2016 as reported 376 170 (5 844) 646 222 1 016 548 39 664 1 056 212
Total comprehensive income/(loss) for the year – 6 425 (637 371) (630 946) 17 475 (613 471)
(Loss)/profit for the year – – (637 371) (637 371) 17 315 (620 056)
Other comprehensive income for the year – 6 425 – 6 425 160 6 585
Dividends paid – – – – (21 969) (21 969)Total contributions by and distributions to owners of the company recognised directly in equity – (10 455) – (10 455) 12 805 2 350
Share-based payment – charge for the year – 2 700 – 2 700 2 700
Transactions with non-controlling interests – (13 155) – (13 155) 12 805 (350)
Balance at 31 March 2017 376 170 (9 874) 8 851 375 147 47 975 423 122
Note 19 22
Thenotesassetoutonpages115to212areanintegralpartoftheseconsolidatedfinancialstatements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY – GROUPfor the year ended 31 March 2017
Distribution & Warehousing Network Limited | | Integrated report 2017
Page 113
Sharecapital
and share premium
R’000
Retainedincome
R’000Total
R’000
TotalequityR’000
Balance at 1 April 2015 376 170 716 842 1 093 012 1 093 012
Total comprehensive loss for the year – (377 792) (377 792) (377 792)
Loss for the year – (377 792) (377 792) (377 792)
Balance at 31 March 2016 376 170 339 050 715 220 715 220
Balance at 1 April 2016 376 170 339 050 715 220 715 220
Total comprehensive loss for the year – (122 724) (122 724) (122 724)
Loss for the year – (122 724) (122 724) (122 724)
Balance at 31 March 2017 376 170 216 326 592 496 592 496
Note 19
Thenotesassetoutonpages115to212areanintegralpartoftheseconsolidatedfinancialstatements.
STATEMENT OF CHANGES IN EQUITY – COMPANYfor the year ended 31 March 2017
Page 114
STATEMENTS OF CASH FLOWSfor the year ended 31 March 2017
GROUP COMPANY
Note2017
R’0002016
R’0002017
R’0002016
R’000
Cashflowsfromoperatingactivities
Cash generated from/(utilised in) operations 32 44 507 74 306 (11 550) 1 725
Finance income received 3 316 3 460 77 093 50 694
Finance expense paid (54 751) (41 318) (63 467) (37 250)
Income tax paid 33 (22 268) (20 950) (4 344) (7 766) Net cash (utilised in)/generated from operating activities (29 196) 15 498 (2 268) 7 403
Cashflowsfrominvestingactivities
Additions to property, plant and equipment 34 (38 421) (41 534) – –
Additions and development of intangible assets 36 (13 066) (3 847) – –
Finance lease receipts – – 1 268 12 276
Proceeds on disposals of property, plant and equipment 35 21 876 6 245 – –
Proceeds on disposals of interest in associate 14 27 000 – – –
Dividends received from associates/joint ventures 14 24 699 567 – –Loan proceeds/(repayments) from joint ventures and associates 7 592 119 487 (463) 111 934
Acquisition of further interest in subsidiary 13 – – – (831 345)
Loan proceeds from subsidiaries – – – 745 800
Disposal of held-for-sale asset 18 – 16 000 – –
Acquisition of businesses through business combinations 37 – (7 003) – –
Net cash generated by investing activities 29 680 89 915 805 38 665
Cashflowsfromfinancingactivities
Proceeds from borrowings 964 10 408 1 227 –
Proceeds from Absa Bank Limited facility – 198 770 – 198 770
Proceeds from bridging finance facility 250 000 – 250 000 –
Repayment of bridging finance facility (50 000) – (50 000) –
Repayment of borrowings (9 642) (38 672) (81 671) (10 436)
Repayment of Absa Bank Limited facility (25 000) – (25 000) –
Repayment of trade finance facilities (54 270) (140 457) (54 270) (140 457)
Instalment sale payments (28 742) (15 342) – –
Finance lease payments (18 568) (12 525) – (16 120)
Dividends paid to non-controlling interest holders (21 969) (7 260) – –
Treasury shares acquired – (30 875) – –
Acquisition of non-controlling interest 22 (350) (465) – –Netcashgeneratedfrom/(utilisedin)financing activities 42 423 (36 418) 40 286 31 757
Total cash movement for the year 42 907 68 995 38 823 77 825Translation effects on foreign cash and cash equivalents balances (1 344) (531) – (518)Cash and cash equivalents derecognised with subsidiaries disposed of (2 755) – – –Cash and cash equivalents derecognised of held-for-sale group (7) – – –
Cash and cash equivalents at beginning of the year 69 892 1 428 36 523 (41 302)
Cash and cash equivalents at end of the year 17 108 693 69 892 75 346 36 523
Thenotesassetoutonpages115to212areanintegralpartoftheseconsolidatedfinancialstatements.
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Theprincipalaccountingpoliciesadoptedinthepreparationoftheseconsolidatedfinancialstatementsaresetoutbelow. These policies have been consistently applied to all the years presented, unless otherwise stated.
1.1 Basis of preparation
TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)andtherequirementsoftheSouthAfricanCompaniesAct.Theseconsolidatedfinancialstatements have been prepared under the historical cost convention with the exception of:
• derivativefinancialinstruments;
• available-for-sale assets; and
• retirementbenefitobligations.
ThepreparationoffinancialstatementsinconformitywithIFRSrequirestheuseofcertaincriticalaccountingestimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimatesaresignificanttotheconsolidatedfinancialstatementsaredisclosedinnote1.25totheaccountingpolicies.
New standards and interpretations
Accounting policy developments include new standards issued, amendments to standards, and interpretations issuedoncurrentstandards.Thesedevelopmentsresultedinthefirst-timeadoptionofnewandrevisedstandardswhich require additional disclosures.
Standards, amendments and interpretations effective in 2017
Management considered the effect of the amendments and new standard below, effective for annual periods beginningonorafter1January2016andconcludedthat,exceptforAmendmenttoIAS1–Presentationoffinancialstatements, the amendments and new standard had no impact on the group.
AmendmentstoIFRS10–ConsolidatedfinancialstatementsandIAS28–Investmentsinassociatesandjointventures(effectivedatepostponedindefinitely)
• Amendment to IFRS 11 – Joint arrangements
• Amendment to IFRS 12 – Disclosure of interests in other entities
• IFRS 14 – Regulatory deferral accounts
• AmendmenttoIAS1–Presentationoffinancialstatements
• Amendments to IAS 16 – Property, plant and equipment and IAS 38 – Intangible assets
• Amendments to IAS 16 – Property, plant and equipment and IAS 41 – Agriculture
• AmendmenttoIAS27–Consolidatedandseparatefinancialstatements
AmendmenttoIAS1–Presentationoffinancialstatementsdidnothaveasignificantimpactonthegroupsavefor:
• derivativefinancialinstruments;
• available-for-sale assets; and
• retirementbenefitobligations.
Standards and amendments issued but not effective
The group has evaluated the effect of all new standards, amendments and interpretations that have been issued but which are not yet effective. Based on the evaluation, management does not expect these standards, amendments andinterpretationstohaveasignificantimpactonthegroup’sresultsanddisclosures. Page
115
Page 116
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
Effective for annual periods beginning on or after 1 January 2017:
• AmendmenttoIAS7–Cashflowstatements
• Amendment to IAS 12 – Income taxes
Effective for annual periods beginning on or after 1 January 2018:
• IFRS 2 – Share-based payment
• IFRS 4 – Insurance contracts
• IFRS9–FinancialInstruments(2009and2010)–Financialliabilities,Derecognitionoffinancialinstruments,Financial assets, General hedge accounting
• IFRS 15 – Revenue from contracts with customers
• AmendmenttoIFRS9–‘Financialinstruments’,ongeneralhedgeaccounting
• IAS 40 – Investment property
• IFRIC 22 – Foreign currency transactions and advance consideration
Management is currently considering the effect of the following standard and expects it to have an impact on the group.
Effective for annual periods beginning on or after 1 January 2019:
• IFRS 16 – Leases
Annual improvement project
InSeptember2014,theIASBissuedannualimprovementstoIFRSs2012–2014Cycle,whichcontainsfiveamendmentstofourstandards,excludingconsequentialamendments,andareeffectiveforthefirsttimefor 31 March 2017 year-ends:
The following standards have been affected by the project:
• IFRS 5 – Non-current assets held-for-sale and discontinued operations
• IFRS7–Financialinstruments:Disclosures(CondensedInterimFinancialStatements)
• IFRS7–Financialinstruments:Disclosures(ServicingContracts)
• IAS19–Employeebenefits
• IAS34–Interimfinancialreporting
The amendments have been adopted by the group.
1.2 Consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group and are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.
Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by the group. Refer to pages 213 and 214 for a list of the subsidiaries.
Transactions with non-controlling interests
The group treats transactions with non-controlling interests, that do not result in a loss of control, as transactions with equity owners of the group.
Page 117
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
Associates
Associatesareallentitiesoverwhichthegrouphassignificantinfluence,butnotcontrol,generallyaccompanyingashareholding of between 20% and 50% of the voting rights.
Investments in associates are initially accounted for at cost and subsequently using the equity method of accounting whereby the carrying amount of the investment is increased or decreased to recognise the group’s share of post-acquisitionprofitandlossesintheassociate.
Accounting policies of associates have been changed, where necessary, to ensure consistency with the policies adopted by the group. Refer to page 215 for a list of the associates.
Joint arrangements
The group has assessed the nature of its joint arrangements and determined them to be joint ventures. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. The group’s interest in jointly controlled entities is accounted for by applying the equity method. In applying the equity method, account is taken of the group’s share of accumulated retained earnings and movements in reserves from the effective dates on which the companies became joint ventures and up to the effective datesofdisposal.Thegroupdoesnotrecogniseitsshareofprofitsorlossesfromthejointventurethatresultfromthegroup’s purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of the current assets, or an impairment loss.
Undertheequitymethod,theinvestmentinjointventuresisinitiallyrecognisedinthestatementoffinancialpositionat cost. Subsequent to acquisition date the carrying amount of the investment is adjusted with changes in the group’s share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount of the investment and is not amortised or separately tested for impairment. The share of the results of operations of joint venturesisreflectedinprofitorloss.Thisistheprofitorlossattributabletoequityholdersofjointventuresandisthereforeprofitaftertaxandnon-controllinginterestsinthesubsidiariesofjointventures.
Accounting policies of joint ventures have been changed, where necessary, to ensure consistency with the policies adopted by the group. After application of the equity method, the group determines whether it is necessary to recognise an impairment loss on the group’s investments in joint ventures. The group determines at each reporting date whether there is any objective evidence that the investments in joint ventures are impaired. If this is the case the group calculates the amount of impairment as the difference between the recoverable amount of joint ventures and its carrying valueandrecognisestheamountinprofitorloss.
Upon loss of joint control over the joint venture, the group measures and recognises any remaining investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retainedinvestmentandproceedsfromdisposal,isrecognisedinprofitorloss.
Refer to page 215 for a list of the joint ventures.
Common control transactions
Where applicable, common control transactions are accounted for on a predecessor accounting basis.
1.3 Broad-Based Black Economic Empowerment (BBBEE) Shares were issued to Ukhamba at par value during December 2004. These shares vested upon issuance. The group
elected to apply the exemption available in IFRS 1 to share-based payment transactions. The BBBEE transaction with Ukhamba was therefore not subject to the provisions of IFRS 2 as the rights to the shares were granted and vested prior to 1 January 2005.
1.4 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker, the executive committee, who is responsible for allocating resources, assessing performance of the operating segments and making strategic decisions.
Page 118
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
1.5 Foreign currency translation
Functional and presentation currency
Itemsincludedinthefinancialstatementsofeachofthegroup’sentitiesaremeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(‘thefunctionalcurrency’).Theconsolidatedfinancialstatementsarepresented in Rands, which is the company’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency balances are translated into the functional currency using the exchange rates prevailing at the reporting date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifyingcashflowhedgesandqualifyingnetinvestmenthedges.Foreignexchangegainsandlossesthatrelatetoborrowingsandcashandcashequivalentsarepresentedintheincomestatementwithin‘financeincomeorcost’.Allother foreign exchange gains and losses are presented in the income statement within ‘other (losses)/gains – net’.
Group companies
Theresultsandfinancialpositionofallthegroupentities(noneofwhichhasthecurrencyofahyperinflationaryeconomy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
• assetsandliabilitiesforeachstatementoffinancialpositionpresentedaretranslatedattheclosingrateatthedateofthatstatementoffinancialposition;
• income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
• all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other comprehensive income. If a foreign entity were to be sold, such exchange differences would be recognised in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate.
1.6 Property, plant and equipment Property, plant and equipment are tangible assets held by the group for use in supply of goods or for administrative
purposes and are expected to be used during more than one period.
Landandbuildingscomprisemainlyoffactoriesandoffices.Landandbuildingsareshownathistoricalcostlessdepreciation for buildings and impairments. Property, plant and equipment are stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only whenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtothegroupandthecostoftheitemcan be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance arechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.
Page 119
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Item Estimated useful life
Buildings 10 to 25 years
Plant and machinery 10 to 25 years
Furniture and fixtures 3 to 5 years
Motor vehicles – delivery
– other
6 years; 20% residual
5 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are recognised in the income statement.
1.7 Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the considerationtransferredoverthegroup’sinterestinnetfairvalueofthenetidentifiableassets,liabilitiesandcontingentliabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.
Goodwill on acquisition of subsidiaries is included in ‘intangible assets’.
Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses. Any impairment is recognisedimmediatelyinprofitorloss,intheincomestatement,andisnotsubsequentlyreversed.
Gains and losses on the disposal of an entity include the carrying amount of goodwill allocated to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generatingunitsorgroupsofcash-generatingunitsthatareexpectedtobenefitfromthebusinesscombinationinwhichthegoodwillarose,identifiedaccordingtooperatingsegment.
Trademarks, brand names and customer relationships
Trademarks, brand names and customer relationships are recognised at fair value of the intangible assets acquired in businesscombinations.Certaintrademarksandbrandnameshavebeenassessedbymanagementasindefiniteusefullife intangible assets.
Theseindefinitelifeintangibleassetsaretestedforimpairmentannually.Separatelyacquiredtrademarksandlicensesare shown at historical cost.
Computer software
Software costs associated with maintaining computer software programmes are recognised as an expense as incurred.
Developmentcoststhataredirectlyattributabletothedesignandtestingofidentifiableanduniquesoftwareproductscontrolled by the group are recognised as intangible assets when the following criteria are met:
• it is technically feasible to complete the software product so that it will be available for use;
• management intends to complete the software product and use it or sell it;
• there is an ability to use or sell the software product;
• itcanbedemonstratedhowthesoftwareproductwillgenerateprobablefutureeconomicbenefits;
Page 120
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
• adequatetechnical,financialandotherresourcestocompletethedevelopmentandtouseorsellthesoftwareproduct are available; and
• the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Amortisation and useful lives
Amortisation is calculated using the straight-line method to allocate the cost of intangible assets over their estimated useful lives. The useful lives of trademarks, brand names, customer relationships and software are assessed annually. Thetrademarksandbrandnameshaveestimatedusefullivesofbetweenfiveandtenyearsandthecustomerrelationships’usefulliveshavebeenestimatedbetweenfiveandtenyears.Thesoftwarehasanestimatedusefullifeofbetweenfiveandtwelveyears.
The useful lives of the above assets are reviewed at each reporting period to determine whether events and circumstancescontinuetosupportanindefiniteusefullifeassessmentforthatasset.Iftheydonot,thechangeintheusefullifeassessmentfromindefinitetofinitewillbeaccountedforasachangeinanaccountingestimate.
Subsequently impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicateapotentialimpairment(forindefinitelifetrademarks).Informationusedinpost-taxdiscountratesaresourcedfrom independent sources and calculated for each cash-generating unit based on current market information and specificcash-generatingunitrisk.
Impairmentofnon-financialassets
Assetsthathaveindefiniteusefullivesorintangibleassetsthatarestillindevelopmentarenotsubjecttoamortisationand are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiablecashflows(cash-generatingunits).Theidentifiedcash-generatingunitsarenotbiggerthantheidentifiedoperatingsegments.Non-financialassetsotherthangoodwillthatcouldsufferpotentialimpairmentarereviewedforpossible reversal of the impairment at each reporting date.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generatingunits,orgroupsofcash-generatingunits,thatisexpectedtobenefitfromthesynergiesofthecombination.Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.
1.8 Government grants Grants from the government are recognised as a receivable at their fair value when there is reasonable assurance that
the grant will be received and the group will comply with all the conditions attached to the grant. Government grants relating to assets are deducted against the carrying amount of the assets.
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1.9 Financial instruments
Classification
Thegroupclassifiesfinancialassetsandfinancialliabilitiesintothefollowingcategories:
• Financialassetsandliabilitiesatfairvaluethroughprofitorloss
• Loans and receivables
Classificationdependsonthepurposeforwhichthefinancialinstrumentswereobtained/incurredandtakesplaceatinitial recognition.
Classificationisre-assessedonanannualbasis,exceptforderivativesandfinancialassetsdesignatedasatfairvaluethroughprofitorloss,whichshallnotbeclassifiedoutofthefairvaluethroughprofitorlosscategory.
Financialassetsandliabilitiesatfairvaluethroughprofitorloss
Financialassetsandliabilitiesatfairvaluethroughprofitandlossarefinancialassetsandliabilitiesheldfortrading.
Thesefinancialassetsandliabilitiesareclassifiedinthiscategoryifacquiredprincipallyforthepurposeofsellingorsettlingintheshortterm.Derivativesarealsoclassifiedasheldfortradingunlesstheyaredesignatedashedges.
Assetsandliabilitiesinthiscategoryareclassifiedascurrentassetsandliabilitiesiftheyareexpectedtobesettledwithin12months,otherwisetheyareclassifiedasnon-current.
Derivativefinancialinstruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The fair value of various derivative instruments used for hedging purposes is disclosed in note 24.
Cashflowhedge
Theeffectiveportionofchangesinfairvalueofderivativefinancialinstrumentsthataredesignatedandqualifyascashflowhedgesarerecognisedinothercomprehensiveincomeandarepresentedwithinequityinthehedgereserve.Thecumulative gain or loss in the hedge reserve is recognised in the consolidated income statement in the periods when the hedgeditemwillaffecttheprofitorloss(i.e.whentheunderlyingincomeorexpenseisrecognised).Wherethehedgeditem is of a capital nature, the cumulative gain or loss recognised in the hedge reserve is transferred to the carrying amount of the asset when the asset is recognised.
When a hedging instrument expires or is sold, or when the group revokes the designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in the hedge reserve and is recognised in accordance with the above policy when the transaction occurs. If the underlying hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in the hedge reserve with respect to the hedging instrument is recognised immediately in the income statement.
Fromtimetotimecertainderivativefinancialinstrumentsdonotqualifyforhedgeaccounting,notwithstandingthatthederivativesareheldtohedgedidentifiedexposures.Anychangesinthefairvalueofaderivativeinstrument,orpartofaderivativeinstrumentthatdonotqualifyforhedgeaccountingareclassifiedas‘ineffective’andrecognisedimmediatelyin the income statement.
Fair value hedge – Foreign Exchange Contracts
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributed to the hedged risk.
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Trade and other receivables
Trade receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables.
Significantfinancialdifficultiesofthedebtor,probabilitythatthedebtorwillenterbankruptcyorfinancialreorganisation,and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the recoverable amount. The amount of the provision is recognised in the income statement within other ‘operating expenses’.
Other receivables
Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactive market.
They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Theseareclassifiedasnon-currentassets.Thegroup’sloansandreceivablescompriseloanstogroupcompanieswhich are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowingsincurrentliabilitiesonthestatementoffinancialposition.
Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
Loans to/(from) group companies
These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.
Loanstogroupcompaniesareclassifiedasloansandreceivables.
Loansfromgroupcompaniesareclassifiedasfinancialliabilitiesmeasuredatamortisedcost.
1.10 Offsettingfinancialinstruments Financialassetsandliabilitiesareoffsetandthenetamountreportedinthestatementoffinancialpositionwhenthere
is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
1.11 Impairmentoffinancialassets
Assets carried at amortised cost
Thegroupassessesattheendofeachreportingperiodwhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentlossesare incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.
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1.12 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is predominantly determined on a weighted
average cost basis.
However,forthemanufacturingentitiesmainlystandardcostingisusedwhichisevaluatedagainstthefirst-infirst-out(FIFO)method,thetradingentitiesmainlyusetheweightedaveragemethod.Thecostoffinishedgoodsandwork-in-progress comprises raw materials, direct labour, transport and handling costs, other direct costs and related production overheads (based on normal operating capacity) and excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
1.13 Disposal groups held-for-sale Disposalgroupsareclassifiedasassetsandliabilitiesheld-for-salewhentheircarryingamountistoberecovered
principally through a sale transaction and a sale is highly probable. They are stated at the lower of the carrying amount and fair value less cost to sell.
1.14 Share capital Ordinarysharesareclassifiedasequity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
1.15 Treasury shares Sharesinthecompanyheldbywholly-ownedsubsidiaries,areclassifiedastreasurysharesandareheldatcoston
consolidation. These shares are disclosed as a deduction from the issued and weighted average number of shares and the cost price of these shares is deducted from the group’s equity.
Dividends received on treasury shares are eliminated on consolidation.
1.16 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated
at amortised cost and any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings areclassifiedascurrentliabilitiesunlessthegrouphasanunconditionalrighttodefersettlementoftheliabilityforatleast twelve months after the reporting date.
1.17 Tax
Current income tax
The charge for current income tax is based on results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income.
Deferred tax assets and liabilities
Deferred income tax is provided, using the liability method, on temporary differences arising between the tax bases of assetsandliabilitiesandtheircarryingamountsintheconsolidatedfinancialstatements.Deferredtaxliabilitiesarenotaccounted for if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transactionaffectsneitheraccountingnortaxableprofitorloss.
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Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferredincometaxassetsarerecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainst which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.
1.18 Employeebenefits
Pension obligations
Thegrouppaysfixedcontributionsintodefinedcontributionplans(adefinedcontributionplanisapensionplanunderwhichthegrouppaysfixedcontributionsintoaseparateentity(afund)).Thegrouphasnolegalorconstructiveobligationstopayfurthercontributionsifthefunddoesnotholdsufficientassetstopayallemployeesthebenefitsrelating to employee service in the current and prior periods.
The group pays the contributions to publicly administered pension insurance plans on a mandatory, contractual or voluntary basis. The group has no further payment obligations once the contributions have been paid. The contributions arerecognisedasanemployeebenefitexpenseintheincomestatementwhentheyaredue.
Other post-employment obligations
Thegroupprovidespost-employmentmedicalcareforcertainoftheirretirees.Theexpectedcostsofthesebenefitsareaccruedovertheperiodofemploymentusingamethodologysimilartothatofdefinedbenefitpensionplans.
Actuarialprofitandlossesarisingfromexperienceadjustments,andchangesinactuarialassumptionsarechargedorcredited to other comprehensive income in the period in which they arise.
Valuationsoftheseobligationsarecarriedoutonaperiodicbasisbyprofessionallyqualifiedindependentactuariesusing the projected unit credit method. The post-employment obligations are not funded.
Terminationbenefits
Terminationbenefitsarepayablewhenemploymentisterminatedbythegroupbeforethenormalretirementdate,orwheneveranemployeeacceptsvoluntaryredundancyinexchangeforthesebenefits.ThegrouprecognisesterminationbenefitswhentheentitycannolongerwithdrawtheofferofthesebenefitsandwhentheentityrecognisescostsforarestructuringthatiswithinthescopeofIAS37andincludesthepaymentofterminationbenefits.
Profit-sharingandbonusplans
Thegrouprecognisesaliabilityandanexpenseforbonusesandprofit-sharing,basedonaformulathattakesintoconsiderationtheprofitattributabletothecompany’sshareholdersaftercertainadjustments.Thegrouprecognisesaprovision where contractually obliged or where there is a past practice that has created a constructive obligation.
In instances where these liabilities are calculated with reference to DAWN shares, but to be settled in cash, the liability is disclosed as a share-based payment liability (note 21).
Short-termemployeebenefits
Employee entitlements to short-term bonus, annual leave and long service awards are recognised when they accrue to employees.
An accrual is made for the estimated liability for short-term bonus, annual leave and long service awards as a result of services rendered by employees up to the reporting date.
Share incentive scheme
The group operates a share incentive scheme through Share Appreciation Rights, Long-Term Incentive Plans and Deferred Bonus Plans. IFRS 2 (share-based payments) is applied to account for these schemes. The IFRS 2 value is recognised in the income statement over the vesting period attached to each tranche of allocations. An IFRS 2 equity reserve is created in anticipation of settling the obligations created in terms of the abovementioned equity-settled schemes.
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Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all the specifiedvestingconditionsaretobesatisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.
At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
1.19 Provisions Provisions are recognised when the group has a present legal or constructive obligation, as a result of past events,
forwhichitisprobablethatanoutflowofresourceswillberequiredtosettletheobligation,andtheamounthasbeenreliably estimated. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation usingapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation. The increase in the provision due to passage of time is recognised as an interest expense.
Onerous contracts
Acontractisconsideredasonerouswhentheexpectedeconomicbenefitstobederivedbythegroupfromthecontractare lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with thecontract.Theprovisioniscalculatedbasedondiscountedcashflowstotheendofthecontract.
Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 30.
1.20 Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the
ordinary course of the group’s activities. Revenue is shown net of value-added tax, estimated returns, rebates and discountsandaftereliminatingsaleswithinthegroup.Refertonote2ofthefinancialstatementsforadescriptionofrevenue streams of the group.
Revenueisrecognisedtotheextentthatitisprobablethateconomicbenefitswillflowtothegrouporcompanyandwhentheamountoftherevenuecanbereliablymeasuredandspecificcriteriahavebeenmetforeachofthegroup’sactivities as described below.
Sales of goods
Sales of goods are recognised when a group entity has delivered products to the customer, the customer has accepted the products and all risks and rewards associated with them have been transferred from the entity to the customer, there is no further group management involvement in the products and collectability of the related receivables is reasonably assured.Salesarerecordednetofvolumediscounts.Salesarerecordedbasedonpricesspecifiedinsalescontracts,net of volume discounts. Volume discounts are assessed based on anticipated annual purchases.
Products are often sold with a right of return. Accumulated experience is used to estimate and provide for such returns at the time of sale.
Services rendered
Services rendered are recognised in the accounting period in which the services are rendered, by reference to the stageofcompletionofthespecifictransaction,assessedbasedontheactualserviceprovidedasaproportionofthetotal services to be provided. Services rendered by the solutions segment comprise various logistical, IT, marketing, packaging and HR services to mainly in-group companies. Refer to the segment note (note 2).
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Interest income
Interest income is recognised on a time-proportion basis using the effective interest rate method. When a loan receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cashflowdiscountedatoriginaleffectiveinterestrateoftheinstrument,andcontinuesunwindingthediscountasinterest income. Interest income on impaired loans and receivables is recognised using the original effective interest rate.
Dividend income
Dividend income is recognised when the right to receive payment is established.
1.21 Cost of sales Cost of sales includes the historical cost of merchandise and overheads appropriate to the distribution thereof.
1.22 Leases
Finance leases
The group leases certain property, plant and equipment. Leases of property, plant and equipment, where the group has substantiallyalltherisksandrewardsofownership,areclassifiedasfinanceleases.Financeleasesarecapitalisedatthe lease’s commencement at the lower or the fair value of the leased property and the present value of the minimum leasepayments.Eachleasepaymentisallocatedbetweentheliabilityandfinancechargestoachieveaconstantrateonthefinancebalanceoutstanding.Thecorrespondingrentalobligations,netoffinancecharges,areincludedinlong-termpayables.Theinterestelementofthefinancecostischargedtotheincomestatementovertheleaseperiodto produce a constant periodic rate of interest on the remaining balance of the liability for each period. Depreciation is recognised over the shorter of the useful life of the asset or the lease term.
Operating leases
Leaseswherethelessorretainssubstantiallyalltherisksandrewardsofownershipareclassifiedasoperatingleases.Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
Deferredprofitonsale-and-operatingleasebacktransactions
Profitinrespectofpropertiessoldintermsofsale-and-operatingleasebacktransactionsarerecognisedintheincomestatement on a straight-line basis over the term of the lease.
Finance lease agreements
DAWNleasesproperty,plantandequipmenttocompaniesinthegroupthroughfinanceleaseagreements.Theseintercompanyfinanceleaseagreementsaretreatedasreceivables.
Finance income is allocated to accounting periods over the duration of the leases by the effective interest rate method, whichreflectstheextentandcostofleasefinanceincomeearnedineachaccountingperiod.
1.23 Dividend distribution Dividenddistributiontothecompany’sshareholdersisrecognisedasaliabilityinthegroup’sfinancialstatementsinthe
period in which the dividends are approved by the company’s shareholders.
1.24 Borrowing costs Generalandspecificborrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofqualifying
assets, which are assets that necessarily take a substantial period to get ready for their intended use or sale, are added to the cost of those assets, until the assets are substantially ready for their intended use or sale. Investment income earnedonthetemporaryinvestmentofspecificborrowingspendingtheirexpenditureonqualifyingassetsisdeductedfromtheborrowingcostseligibleforcapitalisation.Allotherborrowingcostsarerecognisedinprofitorlossintheperiodin which they are incurred.
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1.25 Critical accounting estimates and judgements Managementmakesjudgements,estimatesandassumptionsinthepreparationofthefinancialstatementsthataffect
the disclosures and amounts of assets, liabilities, income, expenses and equity.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,seldomequaltherelatedactualresults.Theestimatesandassumptionsthathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow.
Estimatedimpairmentofgoodwillandintangibleassetsclassifiedashavingindefiniteusefullives
Thegrouptestsannuallywhethergoodwillandintangibleassetswithindefiniteliveshavesufferedanyimpairment,inaccordance with the accounting policy stated in note 1.7. The recoverable amounts of certain cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (note xx).
Thegroupassessesonanannualbasiswhethertheclassificationofindefinitelifeintangibleassetsisappropriate.
Asperthegroup’sassessment,goodwill,trademarksandbrandnamesareappropriatelyclassifiedasindefinitelifeintangible assets.
Demand forecasting impacting on working capital investment and impairment
The group has made investment in working capital based on management’s assumptions and estimates of future demand for the group’s products and the customers’ ability to settle outstanding debts for credit sales when it becomes due.
Impairment risk is managed through policies and provisions and raised based on various factors including age and quality of inventory and trade receivables.
Fairvalueofderivativesandthefinancialinstruments
Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarketisdeterminedbyusingvaluationtechniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The group used various methods as set out in note xx.
Taxation
Judgement is required in determining the provision for income taxes due to the complexity of legislation in various jurisdictions where the group operates. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises liabilities for anticipated tax auditissuesbasedonestimatesofwhetheradditionaltaxeswillbedue.Wherethefinaltaxoutcomeofthesemattersis different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Thegrouprecognisesthenetfuturetaxbenefitrelatedtodeferredincometaxassetstotheextentthatitisprobablethat the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred incometaxassetsrequiresthegrouptomakesignificantestimatesrelatedtoexpectationsoffuturetaxableincome.Estimatesoffuturetaxableincomearebasedonforecastcashflowsfromoperationsandtheapplicationofexistingtaxlawsineachjurisdiction.Totheextentthatfuturecashflowsandtaxableincomediffersignificantlyfromestimates,theability of the group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.
IFRS 2
Equity-settled schemes
IFRS 2 adjustments are calculated based on option pricing models for the share option schemes in operation.
The charge is based on certain assumptions applied to the calculation models such as vesting period, conditions, risk free rate, volatility factors and dividend yields. IFRS 2 charges are reversed to the income statement where there is not an expectation, based on management’s earnings projections, of vesting. Refer to the share incentive schemes (equity settled) note (note 21) for the major assumptions made on the new share incentive scheme.
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Deferredprofit
Thedeferredprofitrealisedonthesaleofpropertyisrecognisedintheincomestatementonastraight-linebasisoverthe term of the lease. The term of the lease is based on management’s best estimate of the period of occupation, being the shortest renewable lease period from commencement (note 25).
Residual values and useful lives
The useful economic lives and residual values of items of property, plant and equipment and tangible assets are estimated annually. The actual lives and residual values may vary depending on a variety of factors.
Estimates made of contingent liabilities
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessmentofsuchcontingenciesinherentlyinvolvestheexerciseofsignificantjudgementandestimatesoftheoutcome of future events. Disclosure is made in note 30 of the contingent liabilities that the group is exposed to.
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2. SEGMENT INFORMATION
The operating segments are based on reports reviewed by the executive committee who makes the strategic decisions of the group, and who is therefore the chief operating decision-making body of the group.
Reportable segmentsTheexecutivecommitteeassessestheperformanceoftheseoperatingsegmentsbasedonoperatingprofit.
Headofficeandotherreconcilingitemsmainlycompriseheadofficeandotheroperatingsegmentsnotmeetingthequantitative thresholds required by IFRS 8.
GROUP
BuildingR’000
Infra-structure
R’000
DAWNSolutions
R’000
Head office(1)
and otherreconciling
itemsR’000
Total R’000
2017
Revenue 2 281 638 1 972 066 553 676 (506 516) 4 300 864
Depreciation and amortisation (6 617) (29 606) (18 146) (570) (54 939) Operating loss before impairments and derecognitions of previously held interests (182 028) (113 801) (42 577) (57 218) (395 624)
Impairments and derecognitions of previously held interests (61 956) (10 669) (132) (437) (73 194)Operating loss after impairments and derecognitions of previously held interests (243 984) (124 470) (42 709) (57 655) (468 818)
Net finance (expense)/income (22 226) (46 065) (4 449) 14 152 (58 588)
Share of (losses)/profit from associates and joint ventures (42 881) 1 870 (31) – (41 042)
Tax income/(expense) 38 289 (5 406) 12 222 (96 713) (51 608)
Net loss after tax (270 802) (174 071) (34 967) (140 216) (620 056)
Assets 1 340 651 692 127 218 292 (272 641) 1 978 429
Liabilities 879 312 692 998 420 382 (437 385) 1 555 307
Capital expenditure (2) 2 185 45 653 21 757 347 69 942
2016
Revenue 2 530 920 2 420 004 571 360 (529 192) 4 993 092
Depreciation and amortisation (11 974) (34 017) (23 053) (368) (69 412)Operating (loss)/profit before impairments and derecognitions of previously held interests (54 128) (1 871) 4 586 37 062 (14 351)
Impairments and derecognitions of previously held interests (410 406) (156 583) (65 829) (14 189) (647 007) Operating (loss)/profit after impairments and derecognitions of previously held interests (464 534) (158 454) (61 243) 22 873 (661 358)
Net finance expense (25 766) (32 981) (1 885) (10 438) (71 070)
Share of (losses)/profit from associates and joint ventures (12 171) 4 304 1 976 – (5 891)
Tax income/(expense) 7 880 (31 965) 16 216 (11 744) (19 613)
Net (loss)/profit after tax (494 591) (219 096) (44 936) 691 (757 932)
Assets 1 157 172 961 776 582 561 (15 865) 2 685 644
Liabilities 1 394 930 747 848 649 354 (1 162 700) 1 629 432
Capital expenditure (2) 6 379 55 049 82 508 (3 997) 139 939
(1)Otherreconcilingitemsconsistofcorporateandconsolidationadjustments.Thesepredominantlyincludeeliminationofintergroupsales,profits,lossesandintergroupreceivablesandpayablesandotherunallocatedassetsandliabilitiescontainedwithintheverticallyintegratedgroup.Headofficeandotherreconciling items is not considered to be an operating segment.
(2)Includes expenditure on property, plant and equipment and intangibles. Government grants received are deducted from the capital expenditure amount.
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2. SEGMENT INFORMATION continued
Reportable segmentsThe group is organised into three reportable segments:
• Building segment: Consists of manufacture and wholesale trading of hardware, sanitaryware, bathroomware, plumbing, kitchen and other building materials
The building segment consists of trading and manufacturing clusters:
Trading – Wholesale Housing Supplies (trading as Saffer Bathroom & Plumbing and WHDsa)
– DAWN Business Development – a division of Wholesale Housing Supplies (trading as Wholesale Building Materials, DAWN Power Tools, Electroline and Stability) and DAWN Kitchen Fittings (trading as AFF and Roco)
– Saffer International
– Distribution and Warehousing Network Africa (DAT) (formerly Africa Saffer Trading (AST))
– Pro-Max Welding Consumables
– Hamilton’s Brushware SA
– Boutique Baths (disposed of subsequent to year-end in April 2017)
Manufacturing – Heunis Steel – associate (disposed of in January 2017)
– Grohe DAWN Watertech – associate
º Cobra
º ISCA
º Apex Valves
º Vaal Sanitaryware (Ceramic)
º Libra Bathrooms and Plexicor (Acrylic)
º Exipro Manufacturing
• Infrastructure segment: Consists of manufacture and wholesale trading of engineering, civil products, piping systems, valves and related accessories.
The infrastructure segment consists of trading and manufacturing clusters:
Trading – Incledon
Manufacturing
– DPI (trading as DPI Plastics)
– DPI International
– Sangio Pipe
– Swan Plastics
– Ubuntu Plastics
• Solutions segment: Consists of services such as warehousing, distribution, marketing, IT support, pre-packaging, merchandising and HR, provided mainly to group companies.
The solutions segment includes the following:
– DAWN Business Systems
– DMD Marketing SA
– DAWN Financial Solutions
– DAWN HR Solutions
– DAWN Logistics (DAWN Cargo and DAWN Distribution Centres)
– DAWN Merchandising
– DAWN Projects
– College of Production Technology – associate
Managementhasdeterminedthattheoperatingsegmentsaresufficiently aggregated.
Page 131
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
2. SEGMENT INFORMATION continued
Future disclosure
The executive committee, being the chief operating decision-making body of the group, assessed the reportable segments of the group and determined that reporting from a trading and manufacturing perspective would be more meaningful. These segments are therefore also reported this year, as it constitutes the future disclosure.
GROUP
TradingR’000
Manu-facturing
R’000
Head office(1)
and otherreconciling
itemsR’000
Total R’000
2017
Revenue 3 142 060 1 461 433 (302 629) 4 300 864
Depreciation and amortisation (17 196) (27 705) (10 038) (54 939) Operating loss before impairments and derecognitions of previously held interests (324 834) (17 699) (53 091) (395 624)
Impairments and derecognitions of previously held interests (716) (71 909) (569) (73 194)Operating loss after impairments and derecognitions of previously held interests (325 550) (89 608) (53 660) (468 818)
Net finance (expense)/income (43 009) (31 640) 16 061 (58 588)
Share of losses from associates and joint ventures (1 041) (39 970) (31) (41 042)
Tax income/(expense) 61 093 (9 782) (102 919) (51 608)
Net loss after tax (308 507) (171 000) (140 549) (620 056)
Assets 1 230 640 802 630 (54 841) 1 978 429
Liabilities 1 255 378 525 380 (225 451) 1 555 307
Capital expenditure (2) 13 079 45 076 11 787 69 942
2016
Revenue 3 860 068 1 629 838 (496 814) 4 993 092
Depreciation and amortisation (31 385) (30 639) (7 388) (69 412)Operating (loss)/profit before impairments and derecognitions of previously held interests (106 604) 48 454 43 799 (14 351)
Impairments and derecognitions of previously held interests (102 803) (484 654) (59 550) (647 007)
Operating loss after impairments and derecognitions of previously held interests (209 407) (436 200) (15 751) (661 358)
Net finance expense (38 576) (22 686) (9 808) (71 070)
Share of (losses)/profit from associates and joint ventures 646 (8 513) 1 976 (5 891)
Tax income/(expense) 3 601 (22 057) (1 157) (19 613)
Net loss after tax (243 736) (489 455) (24 741) (757 932)
Assets 1 700 509 301 081 684 054 2 685 644
Liabilities 1 546 179 537 410 (454 157) 1 629 432
Capital expenditure (2) 35 495 55 464 48 980 139 939
(1)Otherreconcilingitemsconsistofcorporateandconsolidationadjustments.Thesepredominantlyincludeeliminationofintergroupsales,profits,losses and intergroup receivables and payables and other unallocated assets and liabilities contained within the vertically integrated group. Head officeandotherreconcilingitemsisnotconsideredtobeanoperatingsegment.
(2)Includes expenditure on property, plant and equipment and intangibles. Government grants received are deducted from the capital expenditure amount.
Page 132
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
2. SEGMENT INFORMATION continued
General Intersegment transactions are entered into under the normal commercial terms and conditions. The revenue from
external parties is measured in a manner consistent with that in the income statement.
Segment assets consist primarily of property, plant and equipment, intangible assets (including goodwill), investments in associates, deferred tax assets, inventories, trade and other receivables and cash and cash equivalents.
Segmentliabilitiescompriseborrowings,deferredprofit,deferredtaxliabilities,derivativeinstruments,tradeandotherpayables and income tax liabilities.
Capital expenditure comprises additions to property, plant and equipment and intangible assets (notes 11 and 12).
The group’s reporting currency is in South African Rand. The majority of group companies are domiciled in South Africa and mainly serve the South African market. The result of revenue from external customers in South Africa is R4,1 billion (2016: R4,7 billion) and the total revenue from external customers from other countries is R243 million (2016: R322,8 million).
Thetotalofnon-currentassets,otherthanfinancialinstrumentsanddeferredtaxassetslocatedinSouthAfrica,isR573 million (2016: R715,6 million).
GROUP2017
R’0002016
R’000
INCOME STATEMENTS
3. REVENUE
Sale of goods 4 189 641 4 872 702
Services rendered 111 223 120 390
4 300 864 4 993 092
4. EXPENDITURE BY NATURECost of sales
Cost of goods and services sold
Cost of inventories expensed during the period 3 298 954 3 648 947
Employee compensation and benefit expense (note 8) 121 451 133 907
Transportation expenses 82 240 91 827
Depreciation 20 682 23 189
3 523 327 3 897 870
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
R’0002016
R’000
4. EXPENDITURE BY NATURE continued
Operating expenses
a. Depreciation on property, plant and equipment
Depreciation for the group 41 072 55 393
Less: Depreciation included in cost of sales (20 682) (23 189)
Less: Depreciation included in transportation expenses (8 983) (9 747)
11 407 22 457
b. Amortisation
Intangible assets 13 867 13 757
Interest capitalised amortised – 262
13 867 14 019
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
c.Auditors’remuneration
Audit fees – current 9 535 7 271 – 335
– prior year 1 030 2 078 – –
Taxation services 21 16 – –
Other services 676 389 – –
11 262 9 754 – 335
d. Operating lease rentals
Land and buildings 81 019 98 576 – –
Plant, equipment and vehicles 11 131 13 730 – –
92 150 112 306 – –
e. Operating expenses
Employee compensation and benefit expense (note 8) 580 695 594 726 4 322 1 452
Transportation expenditure (including depreciation) 102 489 130 946 – –
Computer expenditure 74 226 67 069 – –
Bad debts 47 804 22 575 – –
Onerous lease (note 31) 41 514 11 069 – –
Security 25 009 18 253 – –
Consultancy services 22 135 23 176 – –
Page 134
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
4. EXPENDITURE BY NATURE continued
e.Operatingexpenses(continued)
Insurance 15 419 13 579 – –
Repairs and maintenance 14 262 19 274 – –
Travel 12 836 15 519 – –
Communication 12 329 16 369 – –
Electricity 11 380 9 230 – –
Commissions to third parties 8 869 10 675 – –
Staff welfare 8 768 8 317 – –
Bank charges 8 284 7 190 1 553 364
Legal fees 8 156 6 165 1 653 549
Postage, printing and stationery 6 503 6 807 – –
Relocation expenses 4 553 96 – –
Corporate Social Investment 3 803 (930) – 825
Advertising costs 3 388 4 960 – –
Settlement of guarantee – 1 194 – 1 194
Other expenses 64 678 8 251 3 438 28
1 077 100 994 510 10 966 4 412
f.Impairmentsand(gain)/lossonderecognition ofsubsidiaries,jointventuresandassociates
Impairments
Impairment of receivable in respect of Wilhelm Import Network available-for-sale asset – 9 597 – 427
Impairment of loans and other receivables – Wilhelm Import Network – 7 395 – 3 698
Impairment of intangible assets (note 12) 290 127 480 – –
– Indefinite life 132 71 179 – –
– Defined life 158 56 301 – –
Impairment of other debtors 2 547 – – –
Impairment of investment in associates and joint ventures (note 14) 65 104 450 214 – –
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
4. EXPENDITURE BY NATURE continued
f.Impairmentsand(gain)/lossonderecognition ofsubsidiaries,jointventuresandassociates(continued)
Impairment of property, plant and equipment (note 11) 6 455 47 729 – –Impairment of investment in subsidiary – Wholesale Housing Supplies – – – 248 397
Impairment on loan receivables – – 125 400 143 799
DAWN Africa Trading (DAT) – – 32 488 79 149
Pro-Max Welding Consumables – – 47 126 45 286 Sangio Pipe – – 23 046 19 364
Incledon KZN – – 18 041 –
Incledon – – 3 951 –
DPI Holdings – – 748 –
Impairments 74 396 642 415 125 400 396 321Derecognitions
Derecognitions of net (gain)/loss on subsidiaries and associates (note 38) (1 202) 4 592 – –
Total impairments and derecognitions 73 194 647 007 125 400 396 321
Net operating expenses 1 278 980 1 800 053 136 366 401 068 Total cost of sales, distribution costs, other operating expenses, impairments and derecognitions 4 802 307 5 697 923 136 366 401 068
Page 136
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
5. OTHER OPERATING INCOME
Commission income 66 347 – –
Commission income – related parties (note 42) 8 573 8 488 – –
Profit on disposal of property, plant and equipment 7 256 1 623 – –
Deferred profit released (note 25) 5 327 5 327 – –
Sale of scrap 1 511 441 – –
Recovery of sundry debtor balance written off 1 354 – – –
Rental income 861 659 – –
Management fees received – joint venture (note 42) 13 276 – –
Net foreign exchange loss (909) (848) (1 424) (214)
Receipt of contingent asset (Grohe DAWN Watertech) – 15 091 – –
Derivative financial instrument fair value adjustment – put option 4 165 5 000 4 165 5 000
Prescription of old debtor balances – 3 308 – –
Other income 4 408 3 761 – 9 386
32 625 43 473 2 741 14 172
6. FINANCE INCOME
Related parties (note 42) 2 431 2 255 76 872 50 478
Bank deposits 754 738 220 216
Revenue authorities 67 7 – –
Other interest 64 460 – –
3 316 3 460 77 092 50 694
7. FINANCE EXPENSES
Bank borrowings 42 093 23 993 38 321 20 855
Trade finance 6 716 3 631 6 716 3 630
Instalment sale agreements 6 106 5 056 – –
Finance lease agreements 4 733 3 770 4 418 2 008
Written put – Swan Plastics (note 24) 1 080 33 984 – –
Post-employment benefit obligation 490 496 – –
Revenue authorities 432 22 432 5
Related parties (note 42) 32 434 13 580 10 752
Other interest 222 3 144 – –
61 904 74 530 63 467 37 250
Page 137
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
8. EMPLOYEE BENEFIT EXPENSESalaries and wages 586 326 609 439 4 295 1 452
Repayment of bonuses (Derek Tod and Dries Ferreira) – (7 000) – –
Commissions to sales force 59 378 60 208 – –
Pension costs – defined contribution plans 39 519 42 987 – –
Net share-based payments – share scheme (1 041) 27 – –
– BEE scheme – 4 883 – –
Medical aid 17 594 17 910 27 –
Post-employment medical aid 370 179 – –
702 146 728 633 4 322 1 452
Included in:
702 146 728 633 4 322 1 452
Cost of sales 121 451 133 907 – –
Operating expenses 580 695 594 726 4 322 1 452
Directors’andprescribedofficers’emolumentsareincludedintheaboveandalsodisclosedseparatelyinnote43.
Number of persons employed by subsidiaries of the group at year-end
GROUP2017
Number2016
Number
Full-time 2 179 2 842
Fixed term 162 142
2 341 2 984
Page 138
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continuedGROUP COMPANY
2017R’000
2016R’000
2017R’000
2016R’000
9. INCOME TAX EXPENSENormal tax expense
Current tax
Current income tax – current period 19 022 15 386 3 031 2 530
Current income tax – arising from prior year adjustment (1 204) (2 341) (1 508) –
17 818 13 045 1 523 2 530
Deferred tax
Originating and reversing temporary differences – current year 29 837 6 568 1 201 1 810
Deferred tax arising from prior period adjustments 3 953 – – –
33 790 6 568 1 201 1 810
Tax expense for the period 51 608 19 613 2 724 4 340
% % % %
Reconciliationofrateoftaxationbasedonprofit before tax and results of discontinued operations, associatesandjointventures
South African normal tax rate ~ 28,0 28,0 28,0 28,0
Adjustedfor:
Disallowed expenditure (9,1) (23,2) (31,4) (29,2)
– Capital items ¹ (4,7) (6,8) (2,1) (29,8)
– Impairments and derecognitions ² (4,4) (16,4) (29,3) 0,6
Exempt income ³ 1,2 0,4 – –
Prior year adjustments (0,5) 0,4 1,3 –
– Current tax 0,2 0,3 1,3 –
– Deferred tax (0,7) 0,1 – –
Tax losses for which no deferred tax asset was recognised 4 (29,7) (7,6) – –
Foreign tax rate difference 5 0,5 (0,3) – –
Withholding tax (0,1) (0,1) (0,2) –
Capital Gains Tax (0,1) (0,2) – –
Effective rate (9,8) (2,6) (2,3) (1,2)
~ The effective tax rate reconciliation base rate is the South African statutory tax rate of 28%.
1 Disallowed expenditure – Capital items relate to expenditure of a capital nature not deductible for tax purposes.
2 Disallowed expenditure – Impairment and derecognitions relate to impairments of intangibles.
3 Exempt income relates to non-taxable income.
4ThegroupdidnotrecognisedeferredtaxofR118,7million(2016:R46,3million)inrespectoflossesamountingtoR424million
(2016:R165,3million)whichcanbecarriedforwardagainstfuturetaxableincome.
5TheforeigntaxratedifferenceadjustmentrelatestothedifferencebetweentheSouthAfricantaxrateandthevarioustaxratesof
other countries.
Refer to note 24 for tax relating to components of other comprehensive income.
Page 139
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
10. EARNINGS PER ORDINARY SHARE
Basic
Basicearningsperordinaryshareiscalculatedbydividingtheprofitattributabletoequityholdersofthecompanybythe weighted average number of ordinary shares in issue during the year, excluding ordinary shares acquired by the company, incentive shares and treasury shares.
Diluted Diluted earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares.
GROUP2017 2016
Weighted average number of ordinary shares in issue (’000)
Number of shares in issue at the end of the year 236 744 242 243
236 744 242 243
Less: Treasury shares held in a subsidiary at the end of the year – weighted – (2 557)
Weighted average number of ordinary shares in issue (’000) 236 744 239 686
Add: Shares to be issued in terms of share incentive schemes – 731
Weighted average number of ordinary shares for diluted earnings per share (’000) 236 744 240 417
Basic earnings per share (cents) (269,22) (318,31)
Attributable earnings (R’000) (637 371) (762 936)
Weighted average number of ordinary shares in issue (’000) 236 744 239 686
Fully diluted earnings per share (cents) (269,22) (317,34)
Attributable earnings (R’000) (637 371) (762 936)
Weighted average number of ordinary shares in issue (’000) 236 744 240 417
Headline earnings (R’000)
Attributable earnings (637 371) (762 936)
Adjustmentfortheafter-taxandnon-controllinginteresteffectsof:
Net profit on disposal of property, plant and equipment (7 256) (1 623)
Impairment of intangible assets 290 127 480
Impairment of property, plant and equipment 6 455 47 729
Impairment of other assets 67 651 453 715
Tax effect on disposal of property, plant and equipment and impairment of intangible assets (trademarks) 332 (20 545)
Non-controlling interest 1 747 (949)
Net (profit)/loss on derecognition of previously held interest (1 202) 4 592
Headline earnings adjustments related to associates and joint ventures – (4 579)
Headline earnings (569 354) (157 116)
Headline earnings per share (cents) (240,49) (65,55)
Headline earnings (R’000) (569 354) (157 116)
Weighted average number of shares in issue (’000) 236 744 239 686
Page 140
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
STATEMENTS OF FINANCIAL POSITION
GROUP2017 2016
CostR’000
Accumu-lated
deprecia-tion andimpair-mentsR’000
CarryingvalueR’000
CostR’000
Accumu-lated
deprecia-tion andimpair-mentsR’000
CarryingvalueR’000
11. PROPERTY, PLANT AND EQUIPMENT
Land and buildings 69 456 (44 454) 25 002 54 728 (31 783) 22 945
Plant and machinery 306 244 (173 970) 132 274 338 589 (209 272) 129 317
Furniture and fixtures 59 674 (44 774) 14 900 62 263 (42 670) 19 593
Motor vehicles 104 445 (50 827) 53 618 113 238 (48 815) 64 423
Total 539 819 (314 025) 225 794 568 818 (332 540) 236 278
GROUP
Land andbuildings
R’000
Plant andmachinery
R’000
Furniture and
fixturesR’000
Motorvehicles
R’000Total
R’000
Reconciliation of property, plant and
equipment 2017
Balance at the beginning of the year 22 945 129 317 19 593 64 423 236 278
Additions 12 430 35 069 2 763 6 613 56 875
Disposals (8 703) (1 161) (846) (3 696) (14 406)
Disposals of subsidiaries – (3 637) (1 198) (314) (5 149)
Foreign exchange movements 4 – (185) (96) (277)
Impairments (44) (6 324) (87) – (6 455)
Depreciation (1 630) (20 990) (5 140) (13 312) (41 072)
Balance at the end of the year 25 002 132 274 14 900 53 618 225 794
Page 141
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP
Land andbuildings
R’000
Plant andmachinery
R’000
Furniture and
fixturesR’000
Motorvehicles
R’000Total
R’000
11. PROPERTY, PLANT AND EQUIPMENT continued
Reconciliation of property, plant and
equipment 2016
Balance at the beginning of the year 37 031 136 695 25 394 53 259 252 379
Additions 6 778 56 834 5 479 26 780 95 871
Additions through business combinations (note 37) – 4 044 29 121 4 194
Disposals (1 087) (1 774) (429) (1 332) (4 622)
Disposals of subsidiaries – – (217) – (217)
Transfers 70 (615) 545 – –
Foreign exchange movements (42) 340 (131) (81) 86
Government grant received (2 417) (5 874) – – (8 291)
Impairments (12 948) (33 232) (1 541) (8) (47 729)
Depreciation (4 440) (27 101) (9 536) (14 316) (55 393)
Balance at the end of the year 22 945 129 317 19 593 64 423 236 278
Depreciation expense of R20,7 million (2016: R23,2 million) has been charged in cost of goods and services sold, R9,0 million (2016: R9,7 million) in transportation expenses and R11,4 million (2016: R22,5 million) in operating expenses (refer note 4).
During the prior year the group received grants from the Department of Trade and Industry (DTI) under its Manufacturing Competitiveness Enhancement Programme (MCEP) for the construction of its long-term assets. The MCEP is one of the key action programmes of the Industrial Policy Action Plan of the DTI. The MCEP encourages manufacturers to upgrade their production facilities in a manner that sustains employment and maximises value-addition in the short and medium-term. MCEP grants to the value of Rnil million (2016: R5,9 million) have been deducted from the carrying value of machinery and equipment and Rnil million (2016: R2,4 million) have been deducted from the carrying value of land and buildings.
Assetssubjecttofinancelease
GROUP2017 2016
CostR’000
Accumu-lated
deprecia-tion andimpair-mentsR’000
CarryingvalueR’000
CostR’000
Accumu-lated
deprecia-tion andimpair-mentsR’000
CarryingvalueR’000
Land and buildings 2 224 (2 224) – 2 224 (2 224) –
Plant and machinery 34 221 (29 277) 4 944 21 459 (17 298) 4 161
Furniture and fixtures 5 509 (5 509) – 5 524 (4 571) 953
Motor vehicles 14 615 (6 022) 8 593 15 827 (4 608) 11 219
Total 56 569 (43 032) 13 537 45 034 (28 701) 16 333
Page 142
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
11. PROPERTY, PLANT AND EQUIPMENT continued
A register containing the information required by Regulation 25(2) of the Companies Regulations, 2011 is available for inspectionattheregisteredofficeofthecompany.
Assetsacquiredunderinstalmentsaleandfinanceleaseagreementsareencumberedassecurityforrepaymentoftheinstalmentsaleandfinanceleaseliabilities(note23).
Lease rentals amounting to R81,0 million (2016: R98,6 million) relating to the lease of land and buildings and R11,1 million (2016: R13,7 million) relating to the lease of plant, equipment and vehicles are included in the income statement (note 4).
Impairments
2017
Impairments of R6,5 million in the building and infrastructure segments amounted to R0,1 million and R6,4 million, respectively. The building segment impairments relate to the closure of operations in Africa and the infrastructure segment impairments relate to the rationalisation of products in DPI Plastics' Cape Town operation.
GROUP
Land andbuildings
R’000
Plant andmachinery
R’000
Furniture and
fixturesR’000
TotalR’000
Impairments breakdown
Building – – 87 87
DAWN Africa Trading Mozambique – – 87 87
Infrastructure 44 6 324 – 6 368
DPI Plastics – 6 234 – 6 234
Sangio Pipe – 90 – 90
Pipex Plastics Botswana 44 – – 44
44 6 324 87 6 455
2016
Property, plant and equipment to the value of R47,7 million was impaired during 2016, consisting of leasehold improvementsoverpropertyofR12,9million,plantandmachineryofR33,2millionandfurnitureandfittingsofR1,5million.
GROUP
Land andbuildings
R’000
Plant andmachinery
R’000
Furniture and
fixturesR’000
Motorvehicles
R’000Total
R’000
Impairments breakdown
Building 2 267 3 540 – 8 5 815
Pro-Max Welding Consumables 706 3 540 – 8 4 254
DAWN Africa Trading Mozambique 1 561 – – – 1 561
Infrastructure 1 900 21 318 – – 23 218
Sangio Pipe 1 900 21 318 – – 23 218
Solutions 8 781 8 374 1 541 – 18 696
DAWN Distribution Centre 8 781 8 374 1 541 – 18 696
12 948 33 232 1 541 8 47 729
Page 143
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
11. PROPERTY, PLANT AND EQUIPMENT continued
Impairments in the building, infrastructure and solutions segments amounted to R5,8 million, R23,2 million and R18,7 million, respectively.
Theseassetswereimpairedonthebasisthatthediscountedcashflowsdidnotsupportthecarryvalueoftheproperty,plant and equipment of the businesses.
Pro-Max Welding Consumables Proprietary Limited, Distribution and Warehousing Network Africa Proprietary Limited and Sangio Pipe Proprietary Limited had impairments in the prior year relating to intangibles. The further impairments were necessitated by a deterioration in the markets the entities operate in, further losses and reduction in turnover volume. Due to reduced volumes, but greater handling cost, the assets in DAWN Distribution Centre were impaired.
The following pre-tax discount rates were used for impairment testing purposes:
COMPANYPre-tax
discount rate
Pro-Max Welding Consumables 29,54%
DAWN Africa Trading Mozambique 38,96%
Sangio Pipe 25,12%
DAWN Distribution Centre 26,45%
GROUPIndefinite life Defined life
TotalR’000
GoodwillR’000
Trade-marks
and brandnamesR’000
Trade-marks
and brandnamesR’000
Customerrelation-
shipsR’000
SoftwareR’000
12. INTANGIBLE ASSETS
At March 2017
Cost 55 388 17 166 18 257 38 485 122 420 251 716
Accumulated amortisation and impairment (54 145) (17 166) (14 998) (33 522) (66 759) (186 590)
Carrying value 1 243 – 3 259 4 963 55 661 65 126
At 31 March 2016
Cost 55 388 17 166 18 257 38 485 109 692 238 988
Accumulated amortisation and impairment (54 013) (17 166) (13 365) (30 502) (57 509) (172 555)
Carrying value 1 375 – 4 892 7 983 52 183 66 433
At 31 March 2017
Balance at the beginning of the year 1 375 – 4 892 7 983 52 183 66 433
Additions – – – – 13 066 13 066
Disposals – – – – (214) (214)
Impairments (132) – – – (158) (290)
Foreign exchange movements – – – – (2) (2)
Amortisation – – (1 633) (3 020) (9 214) (13 867)
Balance at the end of the year 1 243 – 3 259 4 963 55 661 65 126
Page 144
GROUPIndefinite life Defined life
TotalR’000
GoodwillR’000
Trade-marks
and brandnamesR’000
Trade-marks
and brandnamesR’000
Customerrelation-
shipsR’000
SoftwareR’000
12. INTANGIBLE ASSETS continued
At 31 March 2016 52 040 17 166 11 370 17 137 51 347 149 060
Balance at the beginning of the year
Additions – – – – 73 927 73 927
Additions through business combinations (note 37) 3 348 – – 1 179 – 4 527
Interest capitalised – – – – 1 986 1 986
Government grants received (21 568) (21 568)
Impairments (54 013) (17 166) (3 918) (5 151) (47 232) (127 480)
Amortisation – – (2 560) (5 182) (6 277) (14 019)
Balance at the end of the year 1 375 – 4 892 7 983 52 183 66 433
Amortisation expense of R13,9 million (2016: R14,0 million) is included in operating expenses (note 4). Borrowing costs of Rnil million (2016: R2,0 million) directly attributable to the qualifying assets pertaining to the Enterprise Resource Planning project, which take a substantial period of time before it is brought into use, were capitalised.
Intangibleassetsidentifiedthroughbusinesscombinations
2017
No new business combinations have been entered into during the current year.
2016
Additions to intangible assets through business combinations were as follows:
GROUP
GoodwillR’000
Indefinitelife
R’000
Customer relation-
shipsR’000
Definedlife
R’000Total
R’000
Intangiblesidentified
Building 3 348 3 348 1 179 1 179 4 527
Boutique Baths 3 348 3 348 1 179 1 179 4 527
3 348 3 348 1 179 1 179 4 527
Additions to intangible assets through business combinations of R4,5 million in 2016 relate to the acquisition of a 76% share in Boutique Baths Proprietary Limited on 1 April 2015. Goodwill recognised on this acquisition amounts to R3,3 million. The pre-discount rate used was 25,5%.
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
Page 145
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
12. INTANGIBLE ASSETS continued
Impairment of intangible assets
2017
Goodwill totalling R0,1 million was impaired in DAWN Human Resource Solutions Proprietary Limited as a result of the closure of this entity as at 31 March 2017.
Software to the value of R0,2 million was impaired in DAT Mozambique as the entity is in the process of being closed down.
Details relating to impairment of intangible assets were as follows:
GROUP
GoodwillR’000
Trade-marksR’000
Indefinitelife
R’000
Trade-marksR’000
Customerrelation-
shipsR’000
SoftwareR’000
Definedlife
R’000Total
R’000
Impairments breakdown
2017
Building – – – – – 158 158 158
DAWN Africa Mozambique – – – – – 158 158 158
Solutions 132 – 132 – – – – 132
DAWN Human Resource Solutions 132 – 132 – – – – 132
132 – 132 – – 158 158 290
2016
Building 5 453 – 5 453 3 165 3 852 83 7 100 12 553
Hamilton’s Brushware SA 2 105 – 2 105 2 547 2 652 – 5 199 7 304
Boutique Baths 3 348 – 3 348 – 983 – 983 4 331
DAWN Business Development – – – 618 – – 618 618
WHS Trading – – – – 217 83 300 300
Infrastructure 48 560 17 166 65 726 753 1 299 – 2 052 67 778
Ubuntu Plastics 6 037 – 6 037 753 1 267 – 2 020 8 057
Incledon (IPS division) 2 250 – 2 250 – – – – 2 250
Incledon (Incledon division) 40 273 17 166 57 439 – 32 – 32 57 471
Solutions – – – – – 47 149 47 149 47 149
DAWN Business Systems – – – – – 47 149 47 149 47 149
54 013 17 166 71 179 3 918 5 151 47 232 56 301 127 480
Page 146
12. INTANGIBLE ASSETS continued
2016
Intangible assets totalling R7,3 million were impaired in Hamilton’s Brushware Proprietary Limited (Hamilton’s). Hamilton’s specialises in the manufacturing and retail distribution of brushware. These intangible assets were impaired on the basis that thediscountedcashflowsdidnotsupportthecarryvalueofthenon-monetaryassetsofthebusiness.Synergiesidentifiedatacquisition did not materialise, further exacerbated by the current economic outlook.
Intangible assets totalling R4,3 million were impaired in Boutique Baths Proprietary Limited (Boutique Baths). Boutique Baths specialises in the manufacturing and distribution of unique, luxury baths. These intangible assets were impaired on the basis that the business is not aligned with DAWN’s model of distribution and wholesale on an economies of scale basis and did not meet the return criteria set at acquisition date.
Intangibles totalling R0,9 million were impaired in Wholesale Housing Supplies (Business Development and WHS Trading divisions). DAWN Business Development and WHS Trading are the wholesale distribution arms of DAWN focussing on the sanitarywareandhardwarebusiness.Theseintangibleassetswereimpairedonthebasisthatthediscountedcashflowsdidnot support the carry value of the business units to which it relates to.
The discount rates used for additions during the year were as follows:
COMPANYPre-tax
discount rate
Hamilton’s Brushware SA 27,8%
Boutique Baths 25,5%
DAWN Business Development 26,8%
WHS Trading 24,6%
UbuntuPlasticsProprietaryLimitedfabricatespipeandpipefittingsinbothPVCandHDPEmarkets.Theseintangibleassetswereimpairedonthebasisthatthediscountedcashflowsdidnotsupportthecarryvalueofthenon-monetaryassetsofthebusiness, mainly due to a slowdown in the HDPE market, also experienced in other areas of DAWN over the last two years.
IPS and Incledon, both divisions of Incledon Proprietary Limited, are the wholesale arm of the infrastructure segment. Intangibles in this business were impaired due the losses incurred, mainly due to reduced government and mining spend, as well as losing market share.
COMPANYPre-tax
discount rate
Ubuntu Plastics 26,9%
Incledon 23,5%
Impairments of R47,1 million in the solutions segment consisted mainly of impairments to the recently developed IT software projectinIncledonandDAWNDistributionCentres,wherethediscountedcashflowsdidnotsupportthecarryvalueofthenon-monetary assets of the business unit.
COMPANYPre-tax
discount rate
DAWN Business Systems 21,3%
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
12. INTANGIBLE ASSETS continued
General
Goodwill, trademarks and brand names are allocated to their respective underlying cash-generating units. The respective companiesacquiredaredefinedastheunderlyingcash-generatingunitswhichsupportthevaluationofthegoodwill,trademarks and brand names.
Whereacash-generatingunitisidentifiedasaseparateunitwithinabusiness,thisunitisclassifiedasaseparatecash-generating unit.
Trademarksandbrandnamesarerecognisedasindefiniteusefullifeintangibleassetswhenananalysisoftherelevantunderlyingfactorsconfirmthatthereisnoforeseeablelimittotheperiodoverwhichtheassetisexpectedtogeneratenetcashinflowsfortheentity.Thisassumptionisfurtherunderpinnedbythestrongpresencethesetrademarksandbrand names carry in the marketplace.
Goodwill and indefinite life intangible assets are allocated to the following cash-generating units:
GROUPIndefinitelifegoodwilland intangible assets
Goodwill
2017R’000
2016R’000
Building 13 13
Wholesale Housing Supplies 13 13
Infrastructure 1 230 1 230
Swan Plastics 1 230 1 230
Solutions – 132
DAWN Human Resource Solutions – 132
1 243 1 375
The impairment test for goodwill, intangible assets and property, plant and equipment identifies the recoverable amount of a cash-generating unit determined based on value-in-use.
Value-in-use calculations use pre-tax cash flow projections based on financial budgets approved by management and cover a three-year period. Pre-tax discount rates are used which equate to the cash-generating unit’s Weighted Average Cost of Capital. The estimated growth rates applied are in line with that of the industry in which the cash-generating unit operates and are materially similar to assumptions of external market sources. The cash-generating unit’s recoverable amount is most sensitive to the growth rate assumptions applied. Growth rates for impairment testing purposes beyond three years were assumed at 6%.
Assumptions were based on management’s past experience and best estimates regarding forecasts. Management determined budgeted gross margin based on past performance and its expectations of market developments. The discount rates used are pre-tax and reflect the appropriate risk associated with the industry and respective businesses.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
12. INTANGIBLE ASSETS continued
A segment-level summary of the key assumptions used for value-in-use calculations is as follows:
GROUP
Building%
Infrastructure%
Solutions%
2017
Growth rate ¹ 6,0 6,0 n/a
Pre-tax discount rate 20,3 20,5 n/a
2016
Growth rate ¹ 6,0 6,0 6,0
Pre-tax discount rate 24,2 24,5 23,9
¹ Compoundedweightedaveragegrowthrateusedtoextrapolatecashflowsbeyondthebudgetperiod.
Intangible assets with defined useful lives and property, plant and equipment are tested for impairment if conditions are identified which might be indicative of a potential reduction in the value in use or net realisable value compared to its carrying value.
Amortisationofintangibleassetscarriedatdefinedusefullives
Intangibleassetsrecognisedasdefinedlifeintangibleassetsarecarriedatcostlessaccumulatedamortisation.Amortisation is calculated using the straight-line method to allocate the cost of these assets over their useful lives. Trademarks are amortised over periods ranging from six to twenty years and customer relationship over periods ranging fromfivetotenyears.
Theimpairmentcalculationsweretestedforsensitivitytosignificantchangesinthekeyassumptionsused.Thebasisforsensitivitytestingwasthebudgetedoperatingprofitusedinthevalue-in-usecalculationwhichwas10%and20%lower.
Ifthebudgetedoperatingprofitusedinthevalue-in-usecalculationhadbeen10%or20%lowerinthecash-generatingunits, this would have resulted in impairments over intangible assets and property, plant and equipment as follows:
• Building segment – Rnil million (2016: R60,4 million) and Rnil million (2016: R1,3 million), respectively; and
• Infrastructure segment – Rnil million (2016: R71,4 million) and Rnil million (2016: R20,7 million), respectively.
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
13. INVESTMENTS IN SUBSIDIARIES
Shares at cost less amounts written off – – 681 783 930 180
Impairment of investment in Wholesale Housing Supplies – – – (248 397)
Loans receivable from subsidiaries (refer note 42 – related parties) – – – –
Net investment in subsidiaries – – 681 783 681 783
Loans to the value of R816,0 million have been capitalised to the investment in the prior year.
A listing of the group’s principal subsidiaries is set out on pages 213 and 214 of the annual financial statements.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY
2017R’000
2016R’000
2017R’000
2016R’000
14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
The amounts recognised in the statement of financial position are as follows:
Associates 296 261 441 500 116 520 116 520
Joint ventures – 11 996 – –
Balance at the end of the year 296 261 453 496 116 520 116 520
Reconciliation of investments in associates and joint ventures
GROUP COMPANY
AssociatesR’000
Jointventures
R’000Total
R’000Associates
R’000
2017
Balance at the beginning of the year 441 500 11 996 453 496 116 520
Share of (losses)/profits (41 871) 829 (41 042) –
Share of (losses)/profits prior to amortisation (41 191) 829 (40 362) –
Amortisation of intangible assets (net of deferred tax) (680) – (680) –
Disposal of Heunis Steel (27 000) – (27 000) –
Other movements 1 125 – 1 125 –
Foreign currency translation reserve – (515) (515) –
Dividend received (note 42) ^ * (24 699) – (24 699) –
Impairment of investments (52 794) (12 310) (65 104) –
– Heunis Steel (41 707) – (41 707) –
– Grohe DAWN Watertech (11 087) – (11 087)
– ASTIZ trading as DAT Zimbabwe – (9 821) (9 821) –
– DPI Simba – (1 375) (1 375) –
– Aqua Science – (1 114) (1 114) –
Balance at the end of the year 296 261 – 296 261 116 520
^ Dividends of R1,7 million received by DAWN Human Resource Solutions Proprietary Limited from College of Production Technology
Proprietary Limited.
* Dividends of R23,0 million received by DAWN Consolidated Holdings Proprietary Limited from Heunis Steel Proprietary Limited.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES continued
Reconciliation of investments in associates and joint ventures (continued)
GROUP COMPANY
AssociatesR’000
Jointventures
R’000Total
R’000Associates
R’000
2016
Balance at the beginning of the year 884 359 29 276 913 635 116 520
Share of losses (3 925) (1 966) (5 891) –
Share of losses prior to amortisation 321 (1 966) (1 645) –
Amortisation of intangible assets (net of deferred tax) (4 246) – (4 246) –
Share of losses allocated against loan account (148) – (148) –
Other movements (5 023) – (5 023) –
Foreign currency translation reserve (385) 2 089 1 704 –
Dividend received (note 42) ^ – (567) (567) –
Impairment of investments (433 378) (16 836) (450 214) –
– Grohe DAWN Watertech (384 642) – (384 642) –
– Fibrex (48 736) – (48 736) –
– Aqualia DPI – (2 630) (2 630) –
– DPI Simba – (14 206) (14 206) –
Balance at the end of the year 441 500 11 996 453 496 116 520
^ Dividend received by DPI Holdings Proprietary Limited from Aqualia DPI Proprietary Limited.
Impairment of investments
2017AssociatesHeunis Steel Proprietary Limited was disposed of as at 31 January 2017. The group sold its 49% share in the entity for R50,0 million. R27,0 million was received as the consideration amount for disposal and R23,0 million was received in the form of a dividend.
The carrying value of the investment in the group's accounts was R91,7 million, resulting in an impairment of R41,7 million.
The group's investment in Grohe DAWN Watertech (GDW) was impaired with R11,0 million in the current year. The continuation of management disruptions, supply-chain and funding shortfalls from the prior year caused severe losses, which led to a further impairment.
Joint venturesDPISimbawasimpairedinthepreviousfinancialyear.Allequityaccountedprofits(R1,4million)forthecurrentyearwereimpaired as the future of the entity is still uncertain.
ASTIZ (Private) Limited was disposed of as at 1 February 2017. The impairment amount recognised as a result of the disposal was R9,8 million.
Aqualia DPI Proprietary Limited was impaired in the prior year. The economic conditions of Mauritius affected the investment in Aqua Science in a similar way, and as a result the investment in Aqua Science Proprietary Limited was impaired (R1,1 million) in the current year.
2016AssociatesImpairment of investments in associates in the building segment relates to investments in Grohe DAWN Watertech Proprietary Limited (GDW) and in the infrastructure segment in Fibrex S.A.R.L. (Fibrex).
GDW consists of the Watertech companies, mainly situated in South Africa, and includes brands like Cobra, ISCA, Grohe in South Africa, Vaal, Libra, Apex and Exipro. During October 2014, a transaction to dispose of 51% to Grohe Luxembourg Four S.A. (Grohe) was concluded. Synergies, including export opportunities, did not materialise. Management disruptions, supply chain and funding shortfalls caused severe losses, which will take some time to correct. This exacerbated price and volume pressures.
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14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES continued
Fibrex, a pipe factory in Angola experienced areducingturnoverprofileoverthelastnumberofyears,withmajorpressures in respect of political instability, reduction in infrastructure spend by government, increased local competition and availability of foreign exchange, all of which contributed to the impairment.
Inbothinstancesvalue-in-usecalculationsindicatedthatdiscountedcashflowsdidnotsupportthecarryingvalueoftheentities’ non-monetary assets nor its carry value.
The following discount rates were used for impairment testing purposes:
COMPANYPre-tax
discount rate
Grohe DAWN Watertech 20,0%
Fibrex 24,7%
Joint ventures
Impairment of investments in joint ventures occurred in the Infrastructure segment in respect of Aqualia DPI Proprietary Limited and DPI Simba Limited.
Aqualia DPI Proprietary Limited is situated in Mauritius and the reduction in demand for infrastructure spend in the captive market, with reduced export opportunities, resulted in negative returns.
DPI Simba Limited is situated in Tanzania and political instability and elections dampened the demand for infrastructure spend and DPI Simba Limited experienced negative returns for consecutive years.
Inbothinstancesvalue-in-usecalculationsindicatedthatdiscountedcashflowsdidnotsupportthecarryvalueoftheentities’ non-monetary assets nor its carry value.
The following discount rates were used for impairment testing purposes:
COMPANYPre-tax
discount rate
DPI Simba 24,5%
Aqualia DPI 23,4%
Associates and joint ventures have control over their cash. Loan advances and receipts and dividends require the approval of DAWN and the joint venture partners.
Associates and joint ventures may be subject to regulatory restrictions, including exchange control, in their respective countries from time to time.
Acquisitions and derecognitions of investments in associates and joint ventures
2017
No acquisitions in associates or joint ventures have been made during the current year.
DAWN disposed of its investment in Heunis Steel Proprietary Limited as at 31 January 2017 for a consideration of R27,0 million.
2016
No new acquisitions in associates or joint ventures have been made during the current year.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES continued
Summarisedfinancialinformationforassociatesandjointventuresofthegroup*
GROUP
Grohe DAWN
WatertechR’000
Otherassociates^
R’000
Jointventures #
R’000
Total31 March
2017R’000
2017
Income statement information
Revenue 1 270 850 48 254 196 643 1 515 747
Finance income 1 404 944 – 2 348
Finance expense (52 874) (360) (6 351) (59 585)
Income tax expense (55 640) (694) (1 513) (57 847)
Loss after tax before non-controlling interest (111 527) (13 673) (6 605) (131 805)
Loss after tax after non-controlling interest (111 527) (13 673) (6 605) (131 805)
Depreciation and amortisation (41 427) (4 177) (7 833) (53 437)
Other comprehensive income – 11 802 4 356 16 158
Total comprehensive loss (111 527) (1 871) (2 248) (115 646)
Statementoffinancialpositioninformation
Current assets 1 025 906 31 246 98 131 1 155 283
Non-current assets 1 445 407 100 796 45 289 1 591 492
Current liabilities 792 957 29 194 84 641 906 792
Non-current liabilities 56 141 – 20 099 76 240
Current financial liabilities (excluding trade and other payables and provisions) 379 259 6 497 48 390 434 146
Non-current financial liabilities (excluding trade and other payables and provisions) 6 329 – 18 206 24 535
Total overdraft (52 288) (37 193) (36 496) (125 977)
Net asset value (at 100%) 1 622 215 102 848 38 680 1 763 743
DAWN’s interest (%) 49 – – –
Net asset value of joint venture (at DAWN’s share) 794 885 50 396 19 341 864 622
Group adjustments to investment (504 313) (44 707) (19 341) (568 361)
Intangible assets recognised net of deferred tax – 4 795 – 4 795
Amortisation of intangible assets recognised net of deferred tax (4 808) (766) – (5 574)
Control premium (110 281) – – (110 281)
Net debt adjustment 6 505 – – 6 505
Impairment of investment (395 729) (48 736) (19 341) (463 806)
Equity accounted losses allocated against loan account – – – –
Carrying amount of investment 290 572 5 689 – 296 261
*Onlyassociatesandjointventuresatyear-endhavebeenincludedinthesummarisedfinancialinformation.
^ Includes Fibrex S.A.R.L, DPI Rooftiles Proprietary Limited and College of Production Technology Proprietary Limited.
# Includes Aqualia DPI Proprietary Limited, DPI Simba Limited and DAWN Africa Tanzania Limited.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
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14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES continued
GROUP
HeunisSteelR’000
Grohe DAWN
WatertechR’000
Otherasso-
ciates^R’000
Jointventures #
R’000
Total31 March
2016R’000
2016
Income statement information
Revenue 292 708 1 363 981 109 660 242 515 2 008 864
Finance income – 13 214 14 502 2 27 718
Finance expense (2 664) (52 249) (2 486) (7 193) (64 592)
Income tax expense (11 778) (31 096) (4 408) (1 457) (48 739)
Profit/(loss) after tax before non-controlling interest 30 287 (54 249) 12 476 (4 208) (15 694)
Profit/(loss) after tax after non-controlling interest 30 287 (53 729) 12 476 (4 208) (15 174)
Depreciation and amortisation (2 746) (46 196) (6 291) (8 439) (63 672)
Dividends received from joint venture – – – 567 567
Other comprehensive income/(loss) – – 11 836 (4 882) 6 954
Total comprehensive income/(loss) 30 287 (53 729) 24 312 (9 090) (8 220)
Statementoffinancialpositioninformation
Current assets 120 040 1 299 795 73 278 169 847 1 662 960
Non-current assets 52 000 1 521 084 152 256 53 472 1 778 812
Current liabilities 35 103 862 460 81 797 134 945 1 114 305
Non-current liabilities 18 343 224 677 38 098 32 772 313 890
Current financial liabilities (excluding trade and other payables and provisions) 13 155 493 842 15 539 55 466 578 002
Non-current financial liabilities (excluding trade and other payables and provisions) 18 343 195 674 38 098 29 018 281 133
Total cash/(overdraft) 32 666 (135 863) 15 077 (32 279) (120 399)
Net asset value (at 100%) 118 594 1 733 742 105 639 55 602 2 013 577
DAWN’s interest (%) 49 49 – – –
Net asset value of joint venture (at DAWN’s share) 58 111 849 534 51 758 28 832 988 235
Group adjustment to investment 19 663 (493 226) (44 340) (16 836) (534 739)
Intangible assets recognised net of deferred tax 25 587 – 4 795 – 30 382
Amortisation of intangible assets recognised net of deferred tax (5 924) (4 808) (382) – (11 114)
Control premium – (110 281) – – (110 281)
Net debt adjustment – 6 505 – – 6 505
Impairment of investment – (384 642) (48 736) (16 836) (450 214)
Equity accounted losses allocated against loan account – – (17) – (17)
Carrying amount of investment 77 774 356 308 7 418 11 996 453 496
*Onlyassociatesandjointventuresatyear-endhavebeenincludedinthesummarisedfinancialinformation.
^ Includes Fibrex S.A.R.L, DPI Rooftiles Proprietary Limited and College of Production Technology Proprietary Limited.
#IncludesAqualiaDPIProprietaryLimited,DPISimbaLimited,ASTIZ(Private)Limited(formerlyAfricaSafferTradingProprietary
Limited(Zimbabwe))andDAWNAfricaTanzaniaLimited(formerlyAfricaSafferTradingProprietaryLimited(Tanzania)).
There are no contingent liabilities relating to the group’s interest in associates.
The year-end of Fibrex S.A.R.L. and Saffer Union (West Africa) Limited is 31 December, as required by legislation in Angola and Nigeria, respectively.
Page 154
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
R’0002016
R’000
15. INVENTORIES
The amounts attributable to the different categories are as follows:
Raw materials 39 394 49 548
Components and consumables 3 048 3 419
Work-in-progress 642 909
Finished goods 476 294 746 206
519 378 800 082
Inventory balances are presented at the lower of cost and net realisable value.
The cost of inventories recognised as an expense and included in ‘inventories expensed during the year’ amounted to R3,3 billion (2016: R3,6 billion) (note 4). A write-down of inventories of R137,9 million (2016: R51,9 million) was recognised in cost of sales. The write-down was necessitated by the slowdown in the economy and the rate of sales of products. Various South African and other African branches were closed, which also contributed to the write-downs. The group entered into a programme of rationalising product ranges by reducing the variety of product lines and focussing on core suppliers and products.
A general notarial bond has been registered as security over the majority of inventory (note 23).
GROUP COMPANY
2017R’000
2016R’000
2017R’000
2016R’000
16. TRADE AND OTHER RECEIVABLES
Trade receivables 624 288 804 351 127 821
Less: Provision for receivables impaired (78 831) (78 249) – –
Trade receivables – net 545 457 726 102 127 821
Discounts receivable 19 775 47 324 – –
Prepayments and deposits 41 597 42 643 1 472 –
Related party loans (note 42) 30 040 41 299 434 170 416 996
Insurance claims 7 357 13 264 – –
Value Added Tax 12 774 30 768 3 295 –
Other receivables 3 325 8 620 265 2 914
Intercompany finance lease
– Current – – 12 194 14 423
– Non-current – – 27 334 35 424
Trade and other receivables 660 325 910 020 478 857 470 578
Included in:
Non-current assets – – 27 334 35 424
Current assets 660 325 910 020 451 523 435 154
660 325 910 020 478 857 470 578
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16. TRADE AND OTHER RECEIVABLES continued
The fair values of current trade and other receivables approximate their carrying values.
The majority of trade receivables have been ceded as security for borrowings (note 23).
Trade receivables that are within the prescribed trading terms are considered to be fully performing. As at 31 March 2017, trade receivables of R457,6 million (2016: R555,3 million) were fully performing.
Trade receivables can be categorised in the following performance categories:
GROUP
Fullyperforming
R’000
Past due and not
impairedR’000
Impairedand
partiallyprovided
forR’000
TotalR’000
2017
Building 271 307 34 385 35 066 340 758
Infrastructure 185 316 47 089 50 067 282 472
DAWN Solutions 954 76 – 1 030
Head office and other reconciling items 1 27 – 28
457 578 81 577 85 133 624 288
2016
Building 320 061 66 917 31 601 418 579
Infrastructure 233 992 99 768 39 250 373 010
DAWN Solutions 1 267 10 718 – 11 985
Head office and other reconciling items 2 775 – 777
555 322 178 178 70 851 804 351
Credit quality of trade and other receivables
The credit quality of trade and other receivables that are neither past nor due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates.
Trade receivables past due but not impaired
As at 31 March 2017, trade receivables of R81,6 million (2016: R178,2 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. Payment cessions over contractors and credit insurance exist over these trade receivables.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
16. TRADE AND OTHER RECEIVABLES continued
The ageing analysis of these trade receivables is as follows:
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
Up to three months 53 246 128 928 – –
Three to six months 28 331 49 250 – –
Total past due but not impaired 81 577 178 178 – –
Trade and other receivables impaired
The ageing of these receivables is as follows:
Three to six months 6 209 10 267 – –
Over six months 78 924 60 584 – –
Total impaired and partially provided for 85 133 70 851 – –
As at 31 March 2017, trade receivables of R85,1 million (2016: R70,9 million) were impaired and the risk component of R78,8 million (2016: R78,2 million) was provided for. The individually impaired receivables mainly relate to independent customers, who trade in difficult economic circumstances. It was assessed that a portion of the receivables is expected to be recovered.
There is no concentration of credit risk with respect to trade receivables, as the group has a large and fragmented number of customers.
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies (all balances are disclosed in South African Rand):
South African Rand 632 906 866 802 478 857 470 578
Other currencies 27 419 43 218 – –
660 325 910 020 478 857 470 578
Movements on the group provision for impairment of trade receivables are as follows:
Balance at the beginning of the year 78 249 39 730 – –
Provision for receivables impaired 23 135 37 807 – –
Receivables written off as uncollectible (22 138) (3 738) – –
Disposal of subsidiaries (770) – – –
Acquisition of subsidiaries – 301 – –
Foreign exchange movements on conversion (1 477) 313 – –
Unused amounts reversed 1 832 3 836 – –
Balance at the end of the year 78 831 78 249 – –
The creation and usage of provision for impaired receivables have been included in other operating expenses in the income statement. Amounts charged to the provision account are generally written off, when there is no expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above.
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16. TRADE AND OTHER RECEIVABLES continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
Intercompanyfinanceleasereceivables
Gross finance lease liabilities – minimum lease payments:
– No later than one year – – 15 471 17 706
– Later than one year and no later than two years – – 13 855 13 714
– Later than two years no later than five years – – 16 392 26 266
– – 45 718 57 686
Future finance charges – – (6 190) (7 839)
Present value finance lease liabilities – – 39 528 49 847
The present value of finance lease liabilities is as follows:
– No later than one year – – 12 194 14 423
– Later than one year and no later than two years – – 11 883 11 420
– Later than two years no later than five years – – 15 451 24 004
– – 39 528 49 847
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
17. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of:
Bank balances 108 738 80 003 75 346 36 520
Short-term bank deposits 3 3 – –
108 741 80 006 75 346 36 520
For purposes of the statements of cash flows, cash and cash equivalents include the following:
Cash at bank and on hand and short-term bank deposits 108 741 80 006 75 346 36 520
Bank overdrafts and call loans (included in note 23 (borrowings)) (48) (10 114) – –
108 693 69 892 75 346 36 520
The group’s bank balances are managed through cash management process and interest is charged on a net basis.
The effective interest rate on short-term bank deposits averaged 7,5% (2016: 7,3%) for the year under review.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
17. CASH AND CASH EQUIVALENTS continued
Unutilised bank overdraft facilities amounted to R100 million at 31 March 2017 (2016: R100 million). Bank overdraft facilities carry an interest rate at the prime rate plus 2,0% (2016: less 1,5%).
The carrying amounts of the group’s cash and cash equivalents are denominated in the following currencies (all balances are disclosed in South African Rand):
South African Rand 97 307 64 372 75 346 36 520
Other currencies 11 434 15 634 – –
108 741 80 006 75 346 36 520
18. DISPOSAL GROUP AND OTHER ASSETS/LIABILITIES HELD-FOR-SALE
2017
Boutique Baths Proprietary Limited
DAWN entered into an agreement to dispose of its 76% shareholding in Boutique Baths Proprietary Limited for a consideration of R3 million, effective 28 April 2017.
Asaresult,BoutiqueBathsProprietaryLimitedhasbeenderecognisedandclassifiedasheld-for-saleandalossonderecognition of R0,34 million was realised at year-end.
2016
The group had no disposal group or other assets/liabilities held-for-sale.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
18. DISPOSAL GROUP AND OTHER ASSETS/LIABILITIES HELD-FOR-SALE continued
GROUP2017
R’0002016
R’000
SUMMARY
Total assets of disposal group classified as held-for-sale 6 652 –
Total liabilities of disposal group classified as held-for-sale 1 588 –
Equity of disposal group classified as held-for-sale 2 064 –
Boutique Baths
(a) Assets of disposal group classified as held-for-sale 6 652 –
(b) Liabilities of disposal group classified as held-for-sale 1 588 –
(c) Equity of disposal group classified as held-for-sale 2 064 –
Boutique Baths
The cash flows as well as the income statement results have been included in the group results
(a) Assetsofdisposalgroupclassifiedasheld-for-sale
Property, plant and equipment 3 768 –
Inventory 2 056 –
Cash and cash equivalents 7 –
Other current assets 821 –
Total 6 652 –
(b) Liabilitiesofdisposalgroupclassifiedasheld-for-sale
Non-current liabilities – –
Trade and other payables 802 –
Other current liabilities 786 –
Total 1 588 –
(c) Equityofdisposalgroupclassifiedasheld-for-sale
Non-controlling interest 2 064 –
Total 2 064 –
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
19. SHARE CAPITAL AND SHARE PREMIUM
Authorised
725 893 603 ordinary shares of 1 cent each 7 259 7 259 7 259 7 259
10 000 000 deferred ordinary shares of 1 cent each 100 100 100 100
Balance at the end of the year 7 359 7 359 7 359 7 359
The authorised share capital of the company consists of 725 893 603 ordinary shares of 1 cent each and 10 000 000 deferred ordinary shares of 1 cent each.
Page 160
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
19. SHARE CAPITAL AND SHARE PREMIUM continued
Issued
Number of
ordinaryshares
Number of
deferredordinary
shares
Total number
ofshares
Ordinaryshares
R’000
Deferredordinary
sharesR’000
Sharepremium
R’000Total
R’000
2017 242 242 904 – 242 242 904 2 422 – 373 748 376 170
2016 242 242 904 – 242 242 904 2 422 – 373 748 376 170
Shares repurchased by a subsidiary and held in treasury amounted to nil shares (2016: 5 498 937 shares), which are disclosedasareductionofequityinthestatementofchangesinequity.Duringthe2016financialyearafurther 5 498 937 shares were acquired in order to cover the group’s obligations in terms of the share incentive schemes at a total cost of R5,61 (2016) per share.
The remaining unissued shares are under the control of the directors until the next annual general meeting, subject to the Listings Requirements of the JSE Limited.
20. OTHER RESERVES
Note
Share-based
payment reserve
R’000
Hedgingreserve
R’000
Change in owner-
shipreserve
R’000
TreasurysharesR’000
Foreigncurrency
transla-tion
reserveR’000
Retire-ment
benefitobligation
reserveR’000
Total –other
reservesR’000
Balance at 31 March 2015 65 915 – (8 378) – (282) (233) 57 022
Total comprehensive (loss)/income for the year – (737) – – (5 985) 727 (5 995)
Share-based payment – charge for the year 27 – – – – – 27
Treasury shares acquired – – – (30 875) – – (30 875)
Transfer to liability 21 (26 381) – – – – – (26 381)
Transactions with non-controlling interests 22 – – 358 – – – 358
Balance at 31 March 2016 39 561 (737) (8 020) (30 875) (6 267) 494 (5 844)
Total comprehensive income for the year – 618 – – 5 741 66 6 425
Share-based payment – charge for the year 2 700 – – – – – 2 700
Transactions with non-controlling interests – – (13 155) – – – (13 155)
Balance at 31 March 2017 42 261 (119) (21 175) (30 875) (526) 560 (9 874)
Note 21 24 22
21. SHARE-BASED PAYMENT RESERVE AND SHARE-BASED PAYMENT LIABILITY
Share scheme
Share incentives in the form of Share Appreciation Rights (SARs), Long-Term Incentive Plan (LTIPs) awards and Deferred Bonus Plan (DBPs) awards are offered to directors and to selected senior employees and aim to retain key skills in the group and to create a proper reward system.
The schemes normally have a vesting period of three years and lapse after seven years, if not exercised. Allocation grants are approved by DAWN’s remuneration committee.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
21. SHARE-BASED PAYMENT RESERVE AND SHARE-BASED PAYMENT LIABILITY continued
Thegrantpriceoftheserightsandawardsareequaltothefive-dayvolumeweightedaveragetradedmarketpriceoftheshares preceding the date of the grant. Rights and awards are conditional upon performance conditions being met. The conditionsfocusonthegroup’searningsgrowth.Thevestingpriceoftheserightsandawardsisthefive-dayweightedaverage traded market price of the shares preceding the date of vesting. The values accruing to participants are as follows:
– SAR: Appreciation between the strike price and the vesting price;
– LTIP: Difference between zero strike price and vesting price; and
– DBP: Appreciation between the strike price and the vesting price.
Other share-based payment related transactions
Duringtheprioryear,specificLTIPtrancheswereofferedtoemployeeswhichwasmodifiedduringtheprioryearandtransferred from the share-based payment reserve to a share-based payment liability. These were settled in cash during the current and prior year.
A company in the group entered into a transaction with a BEE partner on 1 April 2015 to acquire 49% of a subsidiary for a nominal amount of R49. The value of the assets acquired by the BEE partner is R 9,7 million. At 49% the value acquired is R4,9 million. The transaction is disclosed as a share-based payment transaction in terms of IFRIC 8.
During the current year the group entered into a cash-settled scheme with Stephen Connelly. The terms are similar to LTIPs with a vesting date of 30 June 2019.
Movements in the number of share options outstanding and their related weighted average grant prices are as follows:
Risk- free
interestrate
Vola-tility
Divi- dend yield
Marketprice perright and
awardper
share 2
cents
Allo-cation(strike)
price atvesting 3
Valuationper right
per share 4
cents
Totalnumber
of rightsgranted
’000
Share Appreciation Rights (SARs)
2017 rights granted 8,5 42,7 1,7 231 231 79 741
Total SARs 741
Long-Term Incentive Plans (LTIPs)
2015 rights granted 1 7,0 n/a 1,7 700 – 651 1 310
2016 rights granted 1 7,0 n/a 1,7 433 – 400 498
2017 rights granted 7,0 n/a 1,7 231 – 180 4 936
Total LTIPs 6 744
Deferred Bonus Plan (DBPs)
2015 rights granted 1 7,0 n/a 1,7 700 – 651 83
Total DBPs 83
Total number of share options granted 7 568
1 Share grants are not expect to vest.
2 Market price at date of grant.
3ValuationforIFRS2–Share-basedpaymentchargestoprofitandloss.
4 LTIPs have a nil strike price.
Page 162
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
21. SHARE-BASED PAYMENT RESERVE AND SHARE-BASED PAYMENT LIABILITY continued
DAWN’s share price at 31 March 2017 was 101 cents (31 March 2016: 400 cents).
ThevolatilityinputtothepricingmodelisameasureoftheexpectedpricefluctuationsoftheDAWNsharepriceoverthe life option structure. Volatility is measured as the annualised standard deviation of the daily price changes in the underlying shares.
Theweightedaveragefairvalueoftherightsandawardsgrantedwasdeterminedusingamodifiedbinomialtreemodelto value the SARs and the Monte Carlo valuation model for the valuation of the LTIPs.
The following table sets out the reconciliation of the share-based payment reserve:
2017SAR
R’000LTIP
R’000DBP
R’000Other R’000
TotalR’000
Share-based payment reserve reconciliation
Opening balance 1 309 31 579 1 322 5 351 39 561
Income statement charge 96 2 604 – – 2 700
Closing balance 1 405 34 183 1 322 5 351 42 261
Other R’000
TotalR’000
Share-based payment liability reconciliation
Opening balance 12 824 12 824
Income statement reversal – Cash-settled transaction 446 446
Income statement charge – Watertech transaction ** (4 185) (4 185)
Settlement (3 756) (3 756)
Closing balance 5 329 5 329
**WatertechreferstoaspecificWatertech-relatedsharetransactionandwassubsequently
transferred to share-based payment liability during 2016.
2017R’000
2016R’000
Included in:
Non-current liabilities 5 329 4 883
Current liabilities – 7 941
5 329 12 824
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
21. SHARE-BASED PAYMENT RESERVE AND SHARE-BASED PAYMENT LIABILITY continued
The following table reconciles the number of shares and rights outstanding in respect of the share-based payment reserve:
2017
SARnumber of
shares’000
LTIPnumber of
shares’000
DBPnumber of
shares’000
Other schemes
’000
Totalnumber of
shares’000
Share rights and awards granted
Opening balance 773 760 – – 1 533
Issued 889 7 985 – – 8 874
Forfeited and cancelled (921) (3 809) – – (4 730)
Closing balance 741 4 936 – – 5 677
GROUP2017
R’0002016
R’000
Aggregate number of shares available to the new schemes 18 793 18 793
Share rights and awards granted (new schemes) (7 567) (7 423)
Number of share rights and award available, but not engaged 11 226 11 370
2016SAR
R’000LTIP
R’000DBP
R’000Other R’000
TotalR’000
Share-based payment reserve reconciliation
Opening balance 1 309 34 301 1 322 28 983 65 915
Income statement charge – (2 722) – – (2 722)
Income statement charge – other retention schemes 1 – – – 2 749 2 749
Transferred from reserves to liability – – – (26 381) (26 381)
Specific LTIP tranches transferred to share-based payment liability 1 – – – (8 906) (8 906)
Watertech transaction scheme transferred to share-based payment liability 2 – – – (17 475) (17 475)
Closing balance 1 309 31 579 1 322 5 351 39 561
1Otherretentionschemesrelatetoemployeebenefitschemesapprovedbytheremunerationcommittee,formingpartoftheLTIP
scheme, subsequently transferred to share-based payment liability during 2016.
2WatertechtransactionschemereferstospecificWatertech-relatedsharetransactionsandsubsequentlytransferredtoshare-based
payment liability during 2016.
Page 164
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
21. SHARE-BASED PAYMENT RESERVE AND SHARE-BASED PAYMENT LIABILITY continued
SARR’000
LTIPR’000
DBPR’000
Other R’000
TotalR’000
Share-based payment liability reconciliation
Opening balance – – – – –
Income statement charge – Incledon KZN Proprietary Limited ³ – – – 4 883 4 883
Specific LTIP tranches transferred from share-based payment reserve to share- based payment liability ¹ – – – 8 906 8 906
Watertech transaction scheme transferred from share-based payment reserve to share-based payment liability 2 – – – 17 475 17 475
Settlement 4 – – – (18 440) (18 440)
Closing balance – – – 12 824 12 824
¹ Otherrelatestoemployeebenefitschemesapprovedbytheremunerationcommittee,whichdonotformpartoftheLTIP/SARsharescheme.
² WatertechtransactionschemereferstospecificWatertech-relatedsharetransactionsandsubsequentlytransferredtoshare-based
payment liability during 2016.
³ Incledon KZN Proprietary Limited expense relates to a BEE transaction explained above.
4 Otherretentionschemesrelatetoemployeebenefitschemesapprovedbytheremunerationcommittee,formingpartoftheLTIPscheme,subsequently transferred to share-based payment liability during 2016.
2016
SARnumber of
shares’000
LTIPnumber of
shares’000
DBPnumber of
shares’000
Other schemes
’000
Totalnumber of
shares’000
Shares rights and awards granted
Opening balance 933 5 723 484 1 669 8 809
Issued – 1 579 – 232 1 811
Transferred to IAS 19 – – – (1 901) (1 901)
Forfeited and cancelled (160) (6 542) (484) (7 186)
Closing balance 773 760 – – 1 533
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
22. NON-CONTROLLING INTERESTS AND CHANGES IN OWNERSHIP RESERVE
GROUP
Non-controlling interests2017
R’0002016
R’000
Balance at the beginning of the year 39 664 33 974
Share of attributable earnings for the year – continuing operations 17 315 5 004
Non-controlling interests in business combination (note 37) – 1 924
Dividends (21 969) –
Foreign currency translation reserve 160 (415)
Non-controlling interests acquired in subsidiaries 12 805 (823)
Balance at the end of the year 47 975 39 664
2017
The transactions with non-controlling interest acquired relate to the acquisition of the remaining 10% shareholding in Distribution and Warehousing Network Africa Proprietary Limited as at 1 March 2017 for R1.
Dividends of R19,5 million were paid to Swan Plastics Proprietary Limited non-controlling interest shareholders.
Dividends of R2,0 million and R0,5 million were also paid to Ubuntu Plastics Proprietary Limited and DAWN Africa Mozambique non-controlling interest shareholders, respectively.
2016
The transactions with non-controlling interest acquired related to the acquisition of Boutique Baths Proprietary Limited (note 37 – Business Combinations). DAWN also acquired the remaining shareholding of 25,83% in Pro-Max Welding Consumables Proprietary Limited which resulted in a R0,4 million change to non-controlling interest. An additional 5% was acquired in Hamilton’s Brushware SA Proprietary Limited for R0,4 million with a R0,4 million movement in non-controlling interest.
Page 166
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
22. NON-CONTROLLING INTERESTS AND CHANGES IN OWNERSHIP RESERVE continued
Summarisedfinancialinformationfornon-controllinginterestofthegroup*
2017 2016
GROUP
SwanPlastics
R’000
Other entities *
R’000
Totalnon-
control-ling
interests31 March
2017R’000
SwanPlastics
R’000
Otherentities*
R’000
Distri-bution
andWare-
housingNetwork
Africa R’000
Totalnon-
control-ling
interests31 March
2016R’000
% holding 51 51 90
Income statement information
Revenue 402 387 150 738 553 125 374 559 141 075 175 150 690 784
Finance income 897 112 1 009 1 037 53 36 1 126
Finance expense (1 385) (3 675) (5 060) (1 470) (3 846) (5 782) (11 098)
Income tax (expense)/income (11 339) (815) (12 154) (11 312) (483) 1 479 (10 316)
Profit/(loss) after tax before non-controlling interest 29 481 2 065 31 546 29 472 1 048 (36 175) (5 655)
Profit/(loss) after tax after non-controlling interest 29 481 2 065 31 546 29 472 1 048 (28 067) 2 453
Depreciation and amortisation (4 825) (2 263) (7 088) (4 761) (2 127) (1 907) (8 795)
Dividends paid to non-controlling interest 19 515 1 960 21 475 6 918 – – 6 918
Other comprehensive income – – – – – 3 598 3 598
Total comprehensive income/(loss) 29 481 2 065 31 546 29 472 1 048 (32 577) (2 057)
Statementoffinancial position information
Current assets 103 253 48 192 151 445 85 451 54 759 94 002 234 212
Non-current assets 26 820 31 003 57 823 28 576 31 671 18 386 78 633
Current liabilities 72 173 54 758 126 931 45 115 59 199 121 864 226 178
Non-current liabilities 12 152 8 857 21 009 13 255 9 842 1 949 25 046
Current financial liabilities (excluding trade and other payables and provisions) 9 221 32 732 41 953 3 370 32 509 83 024 118 903
Non-current financial liabilities (excluding trade and other payables and provisions) 9 065 7 941 17 006 10 939 9 162 1 685 21 786
Total cash 14 819 2 443 17 262 5 856 3 118 9 287 18 261
Operating cash flows 47 343 350 47 693 20 181 1 447 (39 764) (18 136)
Investing cash flows (2 531) (552) (3 083) (4 576) (8 625) (889) (14 090)
Financing cash flows (35 849) (1 026) (36 875) (16 131) 6 902 51 565 42 336
Total cash flows 8 963 (1 228) 7 735 (526) (276) 10 912 10 110
*Onlynon-controllinginterestsatyear-endhavebeenincludedinthesummarisedfinancialinformation.TheseentitiesconsistofBoutique
BathsProprietaryLimited(76%shareholding),UbuntuPlasticsProprietaryLimited(51%shareholding)andHamilton’sBrushwareSA
ProprietaryLimited(74%shareholding).
Page 167
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
22. NON-CONTROLLING INTERESTS AND CHANGES IN OWNERSHIP RESERVE continued
GROUP
Changes in ownership reserve 2017
R’0002016
R’000
Balance at the beginning of the year (8 020) (8 378)
Current year transactions:
Transactions with non-controlling interest (13 155) 358
Distribution and Warehousing Network Africa (12 805) –
Pro-max Welding Consumables (350) 310
Hamilton's Brushware SA – 48
Balance at the end of the year (21 175) (8 020)
The changes in ownership reserve arise out of the additional shareholding acquired in subsidiaries, which did not result in a change of control.
ACQUISITION BREAKDOWN
GROUP
Acquisition of non-controlling interest in subsidiary
Amount paid percashflowstatement
R’000
Effect on non-
controlling interest
R’000
Effect on changes in ownership
R’000
2017
Pro-Max Welding Consumables 350 – 350
Distribution and Warehousing Network Africa additional 10% investment (90% to 100%) – (12 805) 12 805
Breakdown as at 31 March 2017 350 (12 805) 13 155
The remaining shareholding of 10% were acquired in Distribution and Warehousing Network Africa (DAT) on 1 March 2017. This resulted in a R12,8 million increase in the changes in ownership reserve.
2016
Hamilton’s Brushware SA additional 5% investment (69% to 74%) 380 428 (48)
Pro-Max Welding Consumables additional 25,84% investment (74,16% to 100%) 85 395 (310)
Breakdown as at 31 March 2016 465 823 (358)
2017
A change of 13,3% in the purchase consideration to Pro-Max Welding Consumables Proprietary Limited was made during the current year, amounting to R0,35 million.
2016
Additional shares of 12,5% and 13,33% were acquired in Pro-Max Welding Consumables Proprietary Limited on 30 June 2015 and 31 March 2016, respectively. This resulted in a R0,3 million decrease in the changes in ownership reserve.
An additional share of 5% was acquired in Hamilton’s Brushware SA Proprietary Limited on 1 July 2015 for an amount of R0,4 million. This resulted in a R0,05 million decrease in the changes of ownership reserve.
Page 168
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
23. BORROWINGS
Non-current
Interest-bearing borrowings
Bank borrowings 7 925 9 409 – –
Instalment sale liabilities 20 749 25 354 – –
Finance lease liabilities 29 601 38 453 25 418 31 924
58 275 73 216 25 418 31 924
Non-interest-bearing borrowings
Related parties and non-controlling shareholders’ loans (note 42) – 1 343 – –
Acquisition vendors – 1 300 – –
– 2 643 – –
Total non-current borrowings 58 275 75 859 25 418 31 924
Current
Interest-bearing borrowings
Bank overdraft and call loans 48 10 114 – –
Bank borrowings 376 035 199 889 375 000 198 770
Instalment sale liabilities 9 957 20 024 – –
Finance lease liabilities 13 215 18 834 11 637 14 181
Directors’ and family members’ loans (note 42) 6 5 329 – –
Trade finance 31 958 86 228 31 958 86 228
Other borrowings 10 670 10 578 – –
Related parties and non-controlling shareholders' loans (note 42) – – 202 060 198 212
441 889 350 996 620 655 497 391
Non-interest-bearing borrowings
Other borrowings 4 399 4 884 – –
Acquisition vendors – 1 300 – –
Related parties and non-controlling shareholders’ loans (note 42) 1 888 201 96 037 39 445
6 287 6 385 96 037 39 445
Total current borrowings 448 176 357 381 716 692 536 836
Total borrowings 506 451 433 240 742 110 568 760
Other interest-bearing borrowings bear interest at a rate varying between 3% and 8,5% (2016: varying between 2,82% and 9,25%).
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
23. BORROWINGS continued
Inventory – General notarial bonds 598 864 739 688 – –
Accounts receivable – Cession of book debts 542 685 655 483 – –
1 141 549 1 395 171 – –
The security listed in the table covers the group's:
Revolving credit facility 175 000 200 000 175 000 200 000
175 000 200 000 175 000 200 000
2017
Revolving credit facility
On 15 October 2015, Absa Bank Limited granted the group a revolving credit facility of R200 million. This facility ended on 7 October 2016 and was re-negotiated to 7 October 2017. The new facility had similar characteristics, but had a quarterly step-down of R25 million per quarter in respect of the revolving credit facility, which started on 7 October 2016 and would have concluded on 7 July 2017. This agreement was re-negotiated and signed in December 2016 for a reduced facility of R175 million after a R25 million repayment was made in October 2016. A further repayment of R75 million was made on 12 April 2017 to reduce the facility to R100 million. The facility extends until 31 March 2018. Accounts receivable have been ceded and a general notarial bond has been registered over inventory.
Bridgingfinancefacility
On23December2016,DAWNreceivedR50millionbridgingfinancefromAbsaBankLimited,whichamountwasrepaidon 31 January 2017, after obtaining the proceeds from the sale of Heunis Steel Proprietary Limited.
DAWNreceivedR200millionfundingfromInvestecasbridgingfinancethroughanunsecuredfacility.TwoR100milliontranches were received on 24 February 2017 and 6 March 2017, respectively. The full R200 million was repaid on 18 April 2017 from the proceeds of the rights offer at a subscription price of R1,00 per rights offer share. Further details are disclosed in the directors’ report on page 101.
Asset-basedfinancingfacility
Asset-basedfinancingbeingR65,4million(2016:R116,4million)issecuredovertheassetsassetoutinnote11.
Covenants
The details of the covenant measures are as follows:
Required31 March
2017 Required31 March
2016
Total debt/EBITDA < 2.5:1 In breach < 2.5:1 In breach
Interest cover > 4.0:1 In breach > 4.0:1 In breach
Accounts receivable and inventory > 3.0:1 In breach > 3.0:1 4,3
Accounts receivable – CGIC covered debtors > 1.5:1 In breach > 1.5:1 4,8
As indicated above DAWN has breached, and is in the process of renegotiating its debt position and covenants with Absa Bank Limited.
Thepricinghasprovisionallybeenindicatedandreflectsadeterioratedcreditpositionaswellasmovementsinthegeneral yield curve. Security requirements remain unchanged.
The carrying amount of the loan in default at year-end was R175 million (R175 million of a RCF) and Rnil general banking limit (R100 million of a general banking facility).
Page 170
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
23. BORROWINGS continued
2016
A revolving credit facility of R200 million was granted with Absa Bank Limited on 15 October 2015.
The current facility ends 7 October 2016 and has been re-negotiated to 7 October 2017. The new facility has similar characteristics but will have a quarterly step-down of R25 million per quarter in respect of the revolving credit facility (RCF) starting 7 October 2016 and ending 7 July 2017. Accounts receivable have been ceded and a general notarial bond has been registered over inventory.
As indicated DAWN breached some of its covenants in 2016 and accordingly approached ABSA for a waiver of the relevant covenant measures.
ABSA consented to the non-compliance (breach) of the covenants and waived the event of default. Thepricinghasprovisionallybeenindicatedandreflectsadeterioratedcreditpositionaswellasmovementsinthe
general yield curve.
Security requirements remain unchanged.
The carrying amount of the loan in default is R200 million (R200 million of a RCF) and Rnil general banking limit (R100 million of a general banking facility).
The exposure of the group’s borrowings to interest rate changes and the contractual repricing dates at the end of the reporting period is as follows:
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
Six months or less 328 154 131 573 515 533 291 420
Six to twelve months 113 734 219 423 105 122 205 971
One to five years 55 941 70 737 25 418 31 924
Over five years 2 335 2 479 – –
500 164 424 212 646 073 529 315
The maturity of non-current borrowings is as follows(excludinginstalmentsaleandfinancelease liabilities):
Later than one year and no later than two years 2 584 3 322 – –
Later than two years and no later than five years 3 970 4 860 – –
Later than five years 1 371 1 227 – –
7 925 9 409 – –
Instalment sale liabilities – minimum payments:
No later than one year 10 482 21 368 – –
Later than one year and no later than two years 12 326 11 811 – –
Later than two years and no later than five years 7 890 13 075 – –
Later than five years 962 1 251 – –
31 660 47 505 – –
Future finance charges (954) (2 127) – –
Present value of instalment sale liabilities 30 706 45 378 – –
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
23. BORROWINGS continued
The present value of instalment sale liabilities is as follows:
No later than one year 9 957 20 024 – –
Later than one year and no later than two years 12 010 11 291 – –
Later than two years and no later than five years 7 777 12 812 – –
Later than five years 962 1 251 – –
30 706 45 378 – –
Grossfinanceleaseliabilities–minimumleasepayments:
No later than one year 16 492 23 574 14 914 18 369
Later than one year and no later than two years 18 038 16 965 13 855 13 808
Later than two years and no later than five years 14 475 27 399 14 475 23 320
49 005 67 938 43 244 55 497
Future finance charges (6 189) (10 651) (6 189) (9 392)
Present value of instalment sale liabilities 42 816 57 287 37 055 46 105
Thepresentvalueoffinanceleaseliabilitiesisasfollows:
No later than one year 13 215 18 834 11 637 14 181
Later than one year and no later than two years 16 067 13 815 11 883 11 056
Later than two years and no later than five years 13 534 24 638 13 535 20 868
42 816 57 287 37 055 46 105
% % % %
The effective annual interest rates at the end of the reporting period were as follows:
Bank borrowings
– Working capital facilities 12,5 9,0 12,5 9,0
– Long-term debt 10,5 9,0 10,5 9,0
– Short-term debt 10,5 9,0 – –
Loans from shareholders, directors and family members 8,5 8,5 8,5 9,0
Instalment sale liabilities 10,8 9,5 – –
Finance lease liabilities 10,0 9,5 10,0 9,2
Trade finance 14,7 13,4 14,7 13,5
Related party loans – – 8,3 7,0
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUPCarrying amounts Fair values
2017R’000
2016R’000
2017R’000
2016R’000
23. BORROWINGS continued
The carrying amounts and fair values of non-current borrowings of the group are as follows:
Bank borrowings 7 925 9 409 7 925 9 409
Instalment sale liabilities 20 749 25 354 20 749 25 354
Finance lease liabilities 29 601 38 453 29 601 38 453
58 275 73 216 58 275 73 216
Thefairvaluesofbankborrowingsandrelatedpartyloansarebasedondiscountedcashflowsusinganappropriatemarket-related interest rate at the reporting date.
Thecarryingamountsofcurrentborrowingsapproximatetheirfairvalues,astheimpactofdiscountingisnotsignificant.
Thefairvaluesoffinanceleaseandinstalmentsaleobligationsareestimatedasthepresentvalueoffuturecashflows,discounted at the market-related interest rate at the reporting date.
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
The carrying amounts of the group’s borrowings are denominated in the following currencies (all balances are disclosed as South African Rands):
South African Rand 494 109 412 954 742 110 568 760
Other currencies 12 342 20 286 – –
506 451 433 240 742 110 568 760
Borrowing facilities
The group has the following contracted borrowing facilities:
Floating rate
Expiring within one year 440 854 339 481 620 655 497 391
Expiring beyond one year 51 545 66 486 25 418 31 924
492 399 405 967 646 073 529 315
Fixed rate
Expiring within one year 1 035 11 515 – –
Expiring beyond one year 6 730 6 730 – –
7 765 18 245 – –
Total interest-bearing borrowings (excluding acquisition vendors) 500 164 424 212 646 073 529 315
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24. DERIVATIVE FINANCIAL INSTRUMENTS
Fair value estimation
The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates to terminate the contractsatthestatementoffinancialpositiondate.
Derivativefinancialinstruments
Thetablebelowanalysesfinancialinstrumentscarriedatfairvalue,byvaluationmethod.Thedifferentlevelshavebeendefinedasfollows:
• Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
GROUP
Level2017
R’0002016
R’000
ASSETS
Non-current assets
Put option – Grohe DAWN Watertech 3 19 115 34 380
Current assets
Forward foreign exchange contracts – valued at fair value through profit/loss 2 632 249
Total assets 19 747 34 629
LIABILITIES
Non-current liabilities
Call option – Grohe DAWN Watertech 3 6 000 25 430
Written put – Swan Plastics 3 72 217 64 024
Total non-current liabilities 78 217 89 454
Current liabilities
Forward foreign exchange contracts – valued at fair value through profit/loss 2 364 7 272
Forward foreign exchange contracts – designated as cash flow hedges 2 224 1 392
Total current liabilities 588 8 664
Total liabilities 78 805 98 118
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continued
24. DERIVATIVE FINANCIAL INSTRUMENTS continued
COMPANY
Level2017
R’0002016
R’000
ASSETS
Non-current assets
Put option – Grohe DAWN Watertech 19 115 34 380
Current assets
Forward foreign exchange contracts – valued at fair value through profit/loss 2 1 220 8 910
Total assets 20 335 43 290
LIABILITIES
Non-current liabilities
Call option – Grohe DAWN Watertech 3 6 000 25 430
Current liabilities
Forward foreign exchange contracts – valued at fair value through profit/loss 2 1 220 8 910
Total liabilities 7 220 34 340
Thefairvalueoffinancialinstrumentstradedinactivemarketsisbasedonquotedmarketpricesatthestatementoffinancialpositiondate.Amarketisregardedasactiveifquotedpricesarereadilyandregularlyavailablefromanexchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularlyoccurringmarkettransactionsonanarm’slengthbasis.Thequotedmarketpriceusedforfinancialassetsheld by the group is the current bid price. These types of instruments are included in level 1. DAWN carries no level 1 financialinstruments.
Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarket(forexample,over-the-counterderivatives)is determined by using valuation techniques. These valuation techniques maximise the use of observable market data whereitisavailableandrelyaslittleaspossibleonentityspecificestimates.Ifallsignificantinputsrequiredtofairvalueaninstrumentareobservable,theinstrumentisincludedinlevel2.Ifoneormoreofthesignificantinputsisnotbasedonobservable market data, the instrument is included in level 3.
Specificvaluationtechniquesusedtovaluefinancialinstrumentsinclude:
• Quotedmarketpricesordealerquotesforsimilarinstruments.
• Thefairvalueofinterestrateswapsiscalculatedasthepresentvalueoftheestimatedfuturecashflowsbasedonobservable yield curves.
• The fair value of forward foreign exchange contracts is determined using forward exchange rates at the statement offinancialpositiondate,withtheresultingvaluediscountedbacktopresentvalue.
• Othertechniques,suchasdiscountedcashflowanalysis,areusedtodeterminefairvaluefortheremainingfinancialinstruments.
All of the resulting fair value estimates are included in level 2.
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24. DERIVATIVE FINANCIAL INSTRUMENTS continued
Forward exchange contracts
The foreign exchange contracts in the above are shown at the year-end values for similar contracts maturing at the same date.
Open forward exchange contracts (at contracted rates) can be analysed as follows:
Rand amount
‘000
Foreign amount ‘000
Weighted average forward
exchange rate
2017
US Dollar – buy 44 552 3 308 13,5
US Dollar – sell 328 24 13,5
Euro – buy 3 222 223 14,4
Euro – sell 85 6 14,5
2016
US Dollar – buy 86 857 5 275 16,5
US Dollar – sell 28 901 1 810 15,9
Euro – buy 13 562 752 18,0
2017
The settlement dates on open forward exchanges contracts range between one and seven months from 31 March 2017.
2016
The settlement dates on open forward exchanges contracts range between one and six months from 31 March 2016.
Hedge reserve
2017
At31March2017,thegroupheldonederivativefinancialinstrumentthatwasdesignatedasacashflowhedgeofafuture forecast transaction. This was hedging of:
• future capital expenditure payment by forward foreign exchange contract.
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24. DERIVATIVE FINANCIAL INSTRUMENTS continued
Theeffectiveportionofthecumulativenetchangeinthefairvalueofthederivativefinancialinstrumentdesignatedasacashflowhedgeisincludedinthehedgereserve.Theperiodsinwhichtherelatedcashflowsareexpectedtooccuraresummarised below:
2017
Less than one year
R’000 Total R’000
Future capital expenditure payments 119 119
Total net loss (net of tax) included within hedge reserve 119 119
Tax on cash flow hedge 46 46
Total loss included within hedge reserve 165 165
Movementinthecashflowhedgereserve
Cashflow hedge
reserve R’000
At 31 March 2016 – gross 1 023
Deferred tax (286)
Closing balance net of deferred tax – 31 March 2016 737
Opening balance net of deferred tax – 1 April 2017 737
Gross movement (before deferred tax) (858)
Revaluation gross 957
Reclassification to profit and loss – gross (711)
Transfer to property, plant and equipment – gross (1 104)
Deferred tax 240
Closing balance net of deferred tax – 31 March 2017 119
2016
At31March2016,thegroupheldvariousderivativefinancialinstrumentsthatweredesignatedascashflowhedgesoffuture forecast transactions. These were hedging of:
• future capital expenditure payments by forward foreign exchange contracts; and
• future inventory payments by forward foreign exchange contracts.
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24. DERIVATIVE FINANCIAL INSTRUMENTS continued
Theeffectiveportionofthecumulativenetchangeinthefairvalueofderivativefinancialinstrumentsdesignatedasacashflowhedgeisincludedinthehedgereserve.Theperiodsinwhichtherelatedcashflowsareexpectedtooccuraresummarised below:
2016
Less than one year
R’000 Total R’000
Contracts to hedge
Future capital expenditure payments 465 465
Future inventory payments 272 272
Total net loss (net of tax) included within hedge reserve 737 737
Tax on cash flow hedge 286 286
Total loss included within hedge reserve 1 023 1 023
Hedge accounting
2017
Derivative instrument at year-end:
2017
Nominal amount of
hedging instrument
and hedged
item R’000
Hedge rates
Carrying amount of
the hedging instrument *
R’000
Change in value of the
hedging instrument
used for calculating
hedgeineffec-
tivenessfor 2017
R’000
Change in value of the hedge item
used for calculating
hedgeineffec-
tivenessfor 2017
R’000
Change in the value of the hedging instrument recognised
in other compre-hensive
income ***R’000
Hedge ineffec-
tivenessrecognisedinprofitor
loss **R’000
Cashflowhedges
Capital expenditure (up to three months) 1 333
ZAR/EUR
17,43 224 (224) (165) 165 (58)
*Hedginginstrumentsarelocatedwithinthederivativefinancialinstrumentscaptiononthestatementoffinancialposition.
**Hedgeineffectivenessisrecognisedintheotheroperatingincome(netforeignexchangeloss/gain–note5)captionintheincome
statement.
*** Including deferred tax effect.
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continued
24. DERIVATIVE FINANCIAL INSTRUMENTS continued
Carrying amount of the hedged item equals the nominal value of the hedging instrument.
2016
Nominal amount of
hedging instrument
and hedged
item R’000
Hedge rates
Carrying amount of
the hedging instrument *
R’000
Change in value of the
hedging instrument
used for calculating
hedgeineffec-
tivenessfor 2017
R’000
Change in value of the hedge item
used for calculating
hedgeineffec-
tivenessfor 2017
R’000
Change in the value of the hedging instrument recognised
in other compre-hensive
income ***R’000
Hedge ineffec-
tivenessrecognisedinprofitor
loss **R’000
Cashflowhedges
Capital expenditure (up to three months) 8 652
ZAR/EUR 17,46 – 19,34 730 (730) 646 (646) (84)
Inventory (up to three months) 3 484
ZAR/EUR 17,40 99 (99) 71 (71) (28)
Inventory (up to five months) 5 010
ZAR/USD 16,84 – 17,37 563 (563) 306 (306) (257)
*Hedginginstrumentsarelocatedwithinthederivativefinancialinstrumentscaptiononthestatementoffinancialposition.
**Hedgeineffectivenessisrecognisedintheotheroperatingincome(netforeignexchangeloss/gain–note5)captionintheincomestatement.
*** Including deferred tax effect.
Carrying amount of the hedged item equals the nominal value of the hedging instrument.
Call and put option – Grohe DAWN Watertech
The Watertech transaction included a call option in favour of Grohe to acquire an additional 24,1% indirect shareholding in the Watertech companies from DAWN after a ten-year period and, if such option is exercised by Grohe, or if Grohe’s shareholding has otherwise increased to 75,1%, the option for DAWN to put its remaining 24,9% indirect interest in the Watertech companies to Grohe.
The put option of R19,1 million (2016: R34,4 million) and a call option of R6,0 million (2016: R25,4 million) were recognised at their fair values. A 50%/50% probability was assumed and the consideration in future will be determined as an earning multiple. The Monte Carlo valuation method was used and the assumptions are set out below.
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24. DERIVATIVE FINANCIAL INSTRUMENTS continued
Inputs and assumptions
Materiality 2017 2016
Spot equity (100% holding) (R’000) Low 830 000 1 645 000
Spot EBITDA (100% holding) (R’000) Low (20 000) 200 000
Spot value of P/EBITDA (%) Low (41,50) 8,2
Spot DAWN shareholding (%) High 49,0 49,0
Spot Acqui Co shareholding (%) High 51,0 51,0
Control premium (%) Medium 15,0 15,0
Case 2 probability High Unspecified Unspecified
Long-term mean: P/EBITDA High 9,0 9,0
Reversion factor (%) High 40,0 40,0
Equity volatility (%) Medium 35,0 35,0
Probability: Growth in EBITDA per annum (%) Implied 73,0 40,0
Probability: Decline in EBITDA per annum (%) Implied 27,0 40,0
Risk-free rate LowBESA Swap
CurveBESA Swap
Curve
Dividend yield (%) Low 0,0 0,0
Debt in cash High Section 5.10 Section 5.10
Written put option – Swan Plastics
In August 2013, a subsidiary of DAWN gave the remaining 49% shareholders in Swan the right to put their shares at a 5 price earnings ratio based on the average of the prior two years’ earnings. After six years there will be a deemed offer and a deemed acceptance of the remaining 49%. At inception the valuation is accounted for in retained earnings as part ofequityandtheprofitandlossimpactisaccountedforasafinanceexpenseandanemploymentexpense.Thewrittenput disclosed in derivatives and the employment liability disclosed in trade and other payables – non-current (note 31) werereclassifiedtoderivativesintheprioryearaspartoftheconditionsoftheagreementwereattained.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
25. DEFERRED PROFIT
Theanalysisofdeferredprofitisasfollows:
Balance at the beginning of the year 39 403 44 730 – –
Deferred profit released (5 327) (5 327) – –
Balance at the end of the year 34 076 39 403 – –
Deferredprofitisreflectedonthestatementof financialpositionasfollows:
Deferred profit – non-current portion 28 749 34 076 – –
Deferred profit – current portion 5 327 5 327 – –
Deferred profit – total 34 076 39 403 – –
Thedeferredprofitconsistsofthesaleandoperatinglease-backoftheGermistonpropertyduring2009andthePietermaritzburgpropertyduring2010.Thedeferredprofitisreleasedtoprofitandlossonastraight-linebasisovermanagement’s estimate of the remaining lease term.
Germiston property
The full lease period including all renewals is twenty years. It is the intention of the group to occupy the property for aperiodoffifteenyearsandtheremainingbalancewillbeamortisedoveraremainingperiodofsixyears,beingtheremainder of the intended period of occupation.
Pietermaritzburg property
Theinitialleaseperiodisfortenyearsandthegrouphastheoptiontorenewtheleaseforafurtherfiveyears.Theintention of the group is to sub-lease the property for the remainder of the lease period, until 2019.
26. DEFERRED TAX Net deferred tax asset
Net deferred tax is calculated on all temporary differences under the liability method using a South African statutory rate of 28% (2016: 28%).
Thefollowingamountsareshownintheconsolidatedstatementoffinancialposition(aggregatedbasedonsubsidiarycompanies):
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
The deferred tax assets and deferred tax liabilities arereflectedonthestatementoffinancialpositionas follows:
Total deferred tax assets 68 298 98 400 – –
Total deferred tax liabilities (25 762) (22 185) (3 749) (2 548)
Net deferred tax assets 42 536 76 215 (3 749) (2 548)
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GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
26. DEFERRED TAX continued
The gross movement on the deferred tax account is as follows:
Balance at the beginning of the year 76 215 85 188 (2 548) (737)
Acquisition of subsidiary – (330) – –
Disposal of subsidiaries (24) – – –
Income statement charge – temporary differences (29 837) (6 179) (1 201) (1 811)
– prior year adjustment (3 953) – – –
Charged directly to equity (265) 4 – –
Deferred tax impact in associates and joint ventures 438 (1 954) – –
Foreign exchange movement on conversion (38) (125) – –
Income statement charge – change in tax rate – (389) – –
Balance at the end of the year 42 536 76 215 (3 749) (2 548)
The group did not recognise deferred tax assets of R229,7 million (2016: R76,7 million) in respect of cumulative tax losses amounting to R820,4 million (2016: R292,6 million) which can be carried forward against future taxable income.
Movement in deferred tax assets and liabilities
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax liabilities
GROUP
Capital allowances
‘R000
Intangible assets and
other R’000
Total R’000
At 31 March 2015 (30 142) (21 028) (51 170)
Debited to the income statement 3 570 25 451 29 021
Change in tax rate (389) – (389)
Exchange differences (70) – (70)
Derecognition of joint ventures – – –
Acquisition of businesses – (330) (330)
Derecognition of joint ventures – (1 954) (1 954)
At 31 March 2016 (27 031) 2 139 (24 892)
(Debited)/credited to the income statement 5 131 (11 908) (6 777)
Exchange differences 18 – 18
At 31 March 2017 (21 882) (9 769) (31 651)
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
26. DEFERRED TAX continued
Deferred tax assets
GROUP
ProvisionsR’000
Deferredprofit
and operating
lease liabilities
R’000
Assessedlosses and
otherR’000
Total R’000
At 31 March 2015 52 793 42 112 41 453 136 358
(Debited)/credited to the income statement (15 744) (181) (19 275) (35 200)
Exchange differences (55) – – (55)
Charged to equity – – 4 4
At 31 March 2016 36 994 41 931 22 182 101 107
(Debited)/credited to the income statement 30 507 (41 931) (15 589) (27 013)
Exchange differences (55) – – (55)
Disposal of subsidiary (24) – – (24)
Charged to equity – – 172 172
At 31 March 2017 67 422 – 6 765 74 187
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current assets against currenttaxliabilitiesandwhenthedeferredtaxesrelatetothesamefiscalauthority.
Recognition of deferred tax assets
The group discloses a deferred tax asset on the basis where:
• theutilisationofthedeferredtaxassetisdependentonfuturetaxableprofitsinexcessoftheprofitsarisingfromthe reversal of existing taxable temporary differences and that such deferred tax assets are expected to be utilised within a period not exceeding three years; and
• the entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates.
COMPANY
Deferred tax is raised relating to a call and put option which is expected to materialise in future. Deferred tax has been raised at the South African capital gains tax rate.
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GROUP2017
R’0002016
R’000
27. RETIREMENT BENEFIT OBLIGATION
Certain of the employees of DPI Plastics Proprietary Limited are entitled to medical aid benefits in terms of the DPI group of companies' post-retirement medical benefit plan. The plan is unfunded.
Theamountsrecognisedinthestatementoffinancialpositionaredetermined as follows:
Present value of unfunded obligations 5 066 5 100
Movement for the year
Balance at beginning of year 5 100 6 035
Benefits paid (460) (457)
Movement directly through equity (91) (1 009)
– changes in demographic assumptions (69) (607)
– changes in financial assumptions (22) (402)
Net expense recognised in profit or loss 517 531
Balance at end of year 5 066 5 100
The amounts recognised in the income statement were as follows:
Current service cost 27 34
Interest cost 490 497
Totalincludedinemployeebenefitsexpenseandinterest 517 531
IncreaseR’000
DecreaseR’000
Theeffectsofa1%movementintheassumedhealthcarecostinflationratewere as follows:
Effect on the defined benefit obligation – * – *
The effects of a 1% movement in the assumed discount rate were as follows:
Effect on the defined benefit obligation 316 355
Thelatestactuarialvaluationofthepost-employmentmedicalbenefitplanwascarriedouton31March2017.Thegroupperforms a valuation at least every three years.
* Thelimitsonincreasesinthesubsidiespaidbytheemployerresultinincreasesbelowtherateofhealthcareinflationof8,5%per
annum.Themaximumincreasepossibleintermsofthesubsidisationpolicyis8%perannum,subjecttotheincreasenotexceedingthe
rateofCPIinflationwhich,forthepurposeofthisvaluation,hasbeenassumedtobe6,79%perannum.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
%2016
%
27. RETIREMENT BENEFIT OBLIGATION continued
The expected contributions for the 2018 financial year are R0,56 million.
The principal assumptions used in the valuation were as follows:
Discount rates used 9,85 10,06
Healthcare cost inflation 8,50 8,50
Continuation of membership at retirement 100,00 100,00
Consumer price index inflation 6,79 7,47
Average retirement age 65 years 65 years
Mortality
Various assumptions regarding future mortality experience were made. These are based on PML 80 and PFL 80 c=2010 mortality tables for interest of mortality after retirement and SA 80–90 (light) ultimate tables for rates of mortality before retirement.
28. RETIREMENT FUNDS (DEFINED CONTRIBUTIONS FUNDS) Thepolicyofthegroupistoprovideretirementbenefitstoitsemployees.Thegrouphasbeenparticipatinginvarious
Provident Funds. The majority of contributions are made to South African funds namely: The Sanlam Provident Fund (from November 2011), The Metal Industries Provident Fund, The CIN Provident Fund and Borwa Provident Fund. Thesefundsareclassifiedasdefinedcontributionfunds.
Thecontributionspaidbythegrouptofundobligationsforthepaymentofretirementbenefitsarechargedagainsttheincome statement as and when incurred. The group contributed R 41.1 million to the various funds (2016: R44,0 million) for the year under review, Of these contributions, R39,1 million (2016: R42,1 million) was contributed to provident funds in South Africa and R 1,9 million (2016: R1,9 million) was contributed to provident funds outside of South Africa.
Additional information relating to provident fund contributions made to provident funds in South Africa
Allthefundsareinasoundfinancialpositionattheirlatestfinancialyear-end.
A total of 1 916 employees (2016: 2 357 employees) are members of the above South African funds.
Belowaretherelevantfundsaswellastheirlatestfinancialstatus:
Funding 2017
%
Funding 2016
%
Number of employees
2017
Number of employees
2016
The Sanlam Provident Fund 100,0 100,0 1 742 2 087
The Metal Industries Provident Fund 100,0 100,0 95 204
The CIN Provident Fund 100,0 100,0 60 66
Borwa Provident Fund 100,0 – 19 –
1 916 2 357
A total of 121 employees (2016:136 employees) are members of the foreign funds.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
R’0002016
R’000
29. OPERATING LEASE LIABILITIES AND COMMITMENTS
Capital commitments
Capital expenditure contracted for at the reporting date but not yet incurred and recognised in the financial statements is as follows:
Plant and equipment 9 998 –
Motor vehicles – 4 178
Intangible assets – software – 5 512
Total capital commitments 9 998 9 690
Itisintendedtofinancecapitalexpenditurefromfundsgeneratedwithinthegroupandavailablefinancefacilities.
Operating lease commitments
The group leases various premises as well as equipment and plant and machinery under non-cancellable operating lease agreements.
The leases have varying terms and escalation clauses. The lease expenditure charged to the income statement during the year is disclosed in note 4.
Leases have varying terms between current and December 2023. The leases with determinable escalations are charged to the income statement on a straight-line basis and liabilities are raised for the difference between the lease payment and thechargerecognisedintheincomestatement.Theliabilitiesareclassifiedbasedonthetimingofthereversalwhichwilloccur between short-term and long-term.
GROUP2017
R’0002016
R’000
Operating lease liabilities
Non-current 101 597 110 363
Current 5 204 2 776
106 801 113 139 The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than one year 104 981 103 550
Later than one year and not later than five years 338 355 484 556
Later than five years 132 687 70 500
576 023 658 606
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
30. CONTINGENCIES
The group has contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities.
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
Bank guarantees issued 4 898 4 053 640 219 726 949
Suretyships 5 500 5 500 373 433 –
Contingent liabilities 8 000 – – –
18 398 9 553 1 013 652 726 949
2017
On 23 March 2017, the Competition Tribunal (“the Tribunal”) handed down a decision in which it determined that DAWN Consolidated Holdings Proprietary Limited (“DCH”), a subsidiary of DAWN, through the wholly-owned subsidiary DPI Plastics Proprietary Limited of DCH, engaged in a market allocation arrangement with Sangio Pipe Proprietary Limited (“Sangio”), in which DCH had a 49% interest at the time.
In such cases penalties are usually determined as a percentage of affected turnover and affected turnover is usually that related to the market allocation arrangement in question. The ultimate penalty will be judged across a number of variables and parameters that are in the judgment of the Tribunal.
The legal process to determine the penalty quantum is currently underway, however the group believes, supported by legal advice that an appeal will be successful.
2016
The Competition Commission of South Africa referred a complaint to the Competition Commission Tribunal regarding allegations of market allocation between DPI Plastics Proprietary Limited and Sangio Pipe Proprietary Limited. Based on legal advice, the matter will be defended and the Group expects that the matter will be favourably concluded.
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
31. TRADE AND OTHER PAYABLESTrade payables 573 830 766 218 – –
Accrued expenses and other payables 115 407 75 345 32 075 29 811
Leave accrual 19 497 21 798 – –
Discounts payable 24 418 23 265 – –
Onerous lease contracts 52 583 11 069 – –
Total trade and other payables 785 735 897 695 32 075 29 811
Included in:
Non-current liabilities – 7 114 – –
Current liabilities 785 735 890 581 32 075 29 811
Total trade and other payables 785 735 897 695 32 075 29 811
Trade and other payables are unsecured and are payable within a period of twelve months.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
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GROUP2017
R’0002016
R’000
31. TRADE AND OTHER PAYABLES continued
Additional disclosure relating to onerous lease contracts
Balance at the beginning of the year 11 069 –
Provisions made during the year 41 514 11 069
Balance at the end of the year 52 583 11 069
The onerous lease contracts provision relates to four premises, located in Pietermaritzburg, Polokwane, Bloemfontein and Nelspruit, which were raised against operating lease expenses.
During the current year various branches were closed and leases settled amounting to R41,5 million. Provision for onerous leases were raised for properties vacated in Polokwane, Bloemfontein and Nelspruit. It is the intention of the group to trade out of the main centres, namely Germiston, Cape Town, Durban and Port Elizabeth.
The Pietermaritzburg lease, which ends on 31 March 2020, is included in the solutions segment. The lease on this property is non-cancellable and is currently being partly sub-let until 29 February 2020. Only the unavoidable costs have been provided for.
The Centurion lease, which ends on 1 May 2018, is included in the infrastructure segment. The IPS business was movedfromtheCenturionpremisesintotheIncledonpremisesinGermistonduringthepriorfinancialyearduetothebusinesses merging. The lease was settled during the current year.
The provision is expected to be utilised over the remaining lease periods and it has been discounted.
The carrying amounts of trade and other payables approximate their fair value.
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
The carrying amounts of the group’s trade and other payables are denominated in the following currencies (all balances are disclosed in South African Rand):
South African Rand 563 770 733 300 – –
Other currencies 10 060 32 918 – –
573 830 766 218 – –
The carrying amounts of the group’s trade andotherpayableswhicharenotfinancialinstruments are denominated in South African Rand and consist of:
Accrued expenses and other payables 115 407 75 656 32 075 29 811
Leave accrual 19 497 21 798 – –
Discounts payable 24 418 23 265 – –
Onerous lease contracts 52 583 10 758 – –
211 905 131 477 32 075 29 811
Total trade and other payables 785 735 897 695 32 075 29 811
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANYSTATEMENTS OF CASH FLOWS 2017
R’0002016
R’0002017
R’0002016
R’000
32. CASH GENERATED FROM OPERATIONSLoss before taxation (568 448) (738 319) (120 000) (373 452)
Adjustmentsfor: 196 880 787 335 107 609 377 450
Depreciation 41 072 55 432 – –
Amortisation of government grants – (39) – –
Amortisation 13 867 14 019 – –
Impairment of property, plant and equipment 6 455 47 729 – –
Impairment of intangible assets 290 127 480 – –
Impairment of loan receivable – – 125 400 143 799
Net profit on disposal of property, plant and equipment (7 256) (1 623) – –
Net share-based payment charge (1 041) 4 910 – –
Deferred profit (5 327) (5 327) – –
Finance income (3 316) (3 460) (77 093) (50 694)
Finance expense 61 904 74 530 63 467 37 250
Share of losses of associates and joint ventures 41 042 5 891 – –
Other employee benefit charges – (4 744) – –
Operating lease liabilities (6 338) 6 149 – –
Foreign exchange losses on operating activities 1 333 551 – –
Fair value movement of derivative – call and put option Grohe DAWN Watertech (4 165) (5 000) (4 165) (5 000)
Post-retirement benefit obligation 370 179 – –
Net (gain)/loss on derecognition of previously held interests (1 202) 4 592 – –
Impairment of investment in subsidiary – Wholesale Housing Supplies – – – 248 397
Impairment of other assets – Wilhelm Import Network – 7 395 – 3 698
Impairment of investment in associates, joint ventures and other debtors 67 651 450 214 – –
Derivative movements (8 459) 8 459 – –
Changes in working capital: 416 075 25 290 841 (2 273)
Decrease in inventories 274 731 134 555 – –
Decrease/(increase) in trade and other receivables 241 892 49 831 (1 424) (656)
(Decrease)/increase in trade and other payables (100 548) (159 096) 2 265 (1 617)
Cash generated from/(utilised in) operations 44 507 74 306 (11 550) 1 725
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
33. RECONCILIATION OF INCOME TAX PAID DURING THE YEARIncome tax liability/(asset) at beginning of year 1 428 8 583 (1 988) 3 248
Current tax for the year recognised in profit or loss 17 818 13 045 1 523 2 530
Interest and other movements 609 (203) – –
Tax relief on equity settled instruments – 953 * – –
Income tax asset/(liability) at the end of the year 2 413 (1 428) 4 809 1 988
Income tax paid during the year 22 268 20 950 4 344 7 766
* Income tax was transferred to equity due to the tax impact of the difference between cash and equity settled share schemes.
34. ADDITIONS TO PROPERTY, PLANT AND EQUIPMENTLand and buildings 12 430 6 778 – –
Plant and machinery 35 069 56 834 – –
Furniture and equipment 2 763 5 479 – –
Motor vehicles 6 613 26 780 – –
Additions to property, plant and equipment 56 875 95 871 – –
Non-cash additions financed by instalment sale and finance leases (18 454) (46 046) – –
Government grants received – (8 291) – –
Total additions to property, plant and equipment 38 421 41 534 – –
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP COMPANY2017
R’0002016
R’0002017
R’0002016
R’000
35. PROCEEDS FROM DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
Net book amount of assets disposed of 14 620 4 622 – –
Net profit on disposal of plant and equipment 7 256 1 623 – –
Total proceeds from sale of property, plant and equipment 21 876 6 245 – –
36. ADDITIONS TO AND DEVELOPMENT OF INTANGIBLE ASSETS
Software
– additions 13 066 73 927 – –
– IT assets transferred to associate against loan account – (48 512) – –
Government grants received – (21 568) – –
Total intangible additions 13 066 3 847 – –
37. BUSINESS COMBINATIONS
2017
No new business acquisitions have been entered into during the current year.
2016
Boutique Baths Proprietary Limited
A 76% share was acquired in Boutique Baths Proprietary Limited (Boutique Baths) for a consideration of R7 million. Boutique Baths specialises in the manufacturing and distribution of unique, luxury baths. The effective date of the transaction was 1 April 2015.
BoutiqueBathscontributedoperatingprofitofR0,7millionandrevenueofR11,8millionsincetheacquisitiondate.
The amount of net assets acquired amounted to R5,6 million and non-controlling interests of R1,9 million was recognised. Goodwill recognised on this acquisition amounts to R3,3 million. Intangible assets have been allocated in terms of IFRS 3(R).
Non-controlling interest has been calculated based on the proportional share in net assets. The goodwill is not expected to be deducted for income tax purposes.
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37. BUSINESS COMBINATIONS continued
The fair value of assets acquired, liabilities assumed, intangibles assets and the non-controlling interest at the acquisition date are set out below.
Boutique Baths
Proprietary Limited
R’000
Consideration at acquisition date:
Cash 7 006
Total purchase consideration 7 006
Recognisedamountsofidentifiableassetsacquiredandliabilitiesassumed:Fair value
R’000
Property, plant and equipment 4 194
Customer relationships 1 179
Inventory 1 611
Trade and other receivables 691
Cash and cash equivalents 3
Assets 7 678
Trade and other payables (1 450)
Deferred tax liabilities (330)
Provisions and accruals (316)
Liabilities (2 096)
Total identifiable net assets 5 582
Less: Non-controlling interest (1 924)
Goodwill 3 348
Purchase consideration 7 006
Cashflowfromacquisitions:
Total purchase consideration 7 006
Less: Cash and cash equivalents acquired (3)
Totalcashoutflowfromacquisitions 7 003
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
38. NET GAIN/(LOSS) ON DERECOGNITION OF SUBSIDIARIES (LOSS OF CONTROL)
Date of derecognition
GROUP
2017R’000
2016R’000
Carrying amount of net asset value 1 202 (4 592)
Gain/(loss) on the derecognition of subsidiaries 1 202 (4 592)
Net gain on sale of shares in Braveheart Financial Services Proprietary Limited 31 May 2016 512 –
Net loss on derecognition of investment in Africa Swiss Trading (DAT Angola) 31 Aug 2016 (13 144) –
Net gain on derecognition of investment in Africa Saffer Trading (Mauritius) (DAT Mauritius) 30 Sep 2016 2 084 –
Net gain on derecognition of investment in Distribution and Warehousing Network Africa Trading Congo (DAT Congo) 31 Oct 2016 7 795 –
Net gain on derecognition of investment in ASTIZ (DAT Zimbabwe) 1 Feb 2017 4 298 –
Net loss on derecognition of investment in Boutique Baths 28 Apr 2017 (343) –
Net loss on derecognition of investment in Saffer Union (West Africa) (SUWA) – (7 399)
Net gain on derecognition of investment in Wilhelm Import Network – 2 807
2017
The group realised a net gain of R1,2 million relating to the derecognition of non-core investments, mostly relating to investments in Africa.
2016
The group realised a net loss of R4,6 million with the derecognition of Wilhelm Import Network Proprietary Limited (WiiN) and Saffer Union (West Africa) Limited (SUWA).
WilhelmImportNetworkwasclassifiedasheld-for-saleintheprioryear.WiiNwasdisposedofinSeptember2015andaccordingly losses incurred during 2016 were derecognised, resulting in a gain on derecognition. SUWA was disposed of in January 2016 and derecognised, resulting in a loss on derecognition.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
39. FINANCIAL ASSETS BY CATEGORY
GROUP
Loans and receivables
R’000
Assets at fair value
through profitor
lossR’000
TotalR’000
The accounting policies for financial instruments have been applied to the line items below:
GROUP – 2017
Trade and other receivables * 618 728 – 618 728
Cash and cash equivalents 108 741 – 108 741
Derivative financial instruments ** – 19 747 19 747
Total 727 469 19 747 747 216
GROUP – 2016
Trade and other receivables * 867 377 – 867 377
Cash and cash equivalents 80 006 – 80 006
Derivative financial instruments ** – 34 629 34 629
Total 947 383 34 629 982 012
* Excluding pre-payments.
**Derivativefinancialinstruments(note24).
40. FINANCIAL LIABILITIES BY CATEGORY
GROUP Liabilities
at fair value through
profit and loss
R’000
Other financial
liabilities at amortised
cost R’000
TotalR’000
The accounting policies for financial instruments have been applied to the line items below:
2017
Borrowings – 506 403 506 403
Trade and other payables * – 766 238 766 238
Bank overdrafts and call loans – 48 48
Derivate financial instruments ** 78 805 – 78 805
Total 78 805 1 272 689 1 351 494
2016
Borrowings – 423 126 423 126
Trade and other payables * – 875 897 875 897
Bank overdrafts and call loans – 10 114 10 114
Derivate financial instruments ** 98 118 – 98 118
Total 98 118 1 309 137 1 407 255
* Excluding leave pay and including VAT which is a contractual payment.
**Derivativefinancialinstruments(note24).
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT
Financial risk management
Theresponsibilityofoverallfinancialriskofthegroupvestswiththeboardofdirectors,whichhasanoverallresponsibility to ensure the group operates within acceptable risk parameters. The board is assisted in this function by the audit and risk committee.
Thegroup’sactivitiesexposeittoavarietyoffinancialrisks:marketrisk(includingcurrencyrisk,fairvalueinterestraterisk,cashflowinterestrateriskaswellaspricerisk),creditriskandliquidityrisk.
Thegroup’sobjectivewithfinancialriskmanagementistoprotecttheunderlyingbusinessoperationsagainstthosefinancialriskswhichmayinfluenceitsincomenegatively.
Accordingly, the group does not assume speculative positions and hedge the exposures and risks expeditiously, where possible.
Foreign exchange risk
The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures.
Foreign exchange risk arises when future commercial transactions, recognised assets or liabilities and net investments are denominated in a currency that is not the entity’s functional currency, which is South African Rand. Exposures consist primarily of exposures with respect to the US Dollar and Euro as well as exposure to foreign exchange due to operations in African countries including Angola, Botswana, Democratic Republic of the Congo, Mauritius, Mozambique, Tanzania Zimbabwe and Zambia.
Forwardforeignexchangecontractsareenteredintotomanageexposuretofluctuationsinforeigncurrencyexchangeratesonspecifictransactions.Ingeneral,thegroup’spolicyistoenterintoforwardforeignexchangecontractstocovernet foreign currency exposure.
Forwardforeignexchangecontractsareusedtohedgetheforeignexchangeriskincashflowsforunrecognisedfirmcommitments relating to purchases of property, plant and equipment or inventory.
Fortheyearended31March2017,derivativefinancialinstrumentsincludedderivativesusedtohedgeforeigncurrency,including hedging of future capital expenditure and inventory payments, totalling R0,7 million (net liability) (2016: R1,4 million (net liability)).
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT continued
Thegroup’ssignificantexposuretoforeigncurrencyriskwasasfollows:
GROUP
Functional currency Rand exposed to:
Trade and other
receivables R’000
Trade and other payables
R’000
Foreign overdrafts and bank
borrowingsR’000
Cash and cash
equivalentsR’000
Foreign exchange
contracts – net sell/buy
R’000Total
R’000
2017
Botswana Pula 1 001 (50) – 3 292 – 4 243
Euro 23 (1 755) – – (228) (1 960)
Mozambican Metical 114 (1 378) – 1 502 – 238
US Dollar 1 090 (2 454) (4 414) 1 034 272 (4 472)
Zambian Kwacha 15 076 (1 794) (613) 4 090 – 16 759
Total 17 304 (7 431) (5 027) 9 918 44 14 808
2016
Angolan Kwanza 853 (777) (3) 500 – 573
Botswana Pula 7 450 (2 578) (7 452) 16 (2) (2 566)
British Pound – – – – (4) (4)
Congolese Franc 686 (1 923) (477) 17 – (1 697)
Euro – (2 218) – – (971) (3 189)
Mauritian Rupees 94 (60) (1 067) 4 – (1 029)
Mozambican Metical 8 381 (954) (3 811) 589 – 4 205
US Dollar 683 (16 455) (4 852) 1 975 (7 438) (26 087)
Zambian Kwacha 13 477 (2 225) (1 112) 9 585 – 19 725
Total 31 624 (27 190) (18 774) 12 686 (8 415) (10 069)
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continuedGROUP
2017R’000
2016R’000
41. RISK MANAGEMENT continued
Thegroup’ssignificantexposuretoforeigncurrencyriskwasasfollows:
Sensitivity analysis
A 10% weakening of the Rand against the above currencies as at 31 March 2017 would have increased/(decreased) equity and post-tax profit by:
Angolan Kwanza – 41
Botswana Pula 305 (185)
Congolese Franc – (122)
Euro (141) (230)
Mauritian Rupees – (74)
Mozambican Metical 17 303
US Dollar (322) (1 878)
Zambian Kwacha 1 207 1 420
Total 1 066 (725)
This analysis assumes that all other variables, in particular interest rates, remain constant.
A 10 percent strengthening of the Rand against the above currencies as at 31 March would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all variables remain constant. The concentration of risk in respect of foreign currencies is considered low. The lack of liquidity experienced in the African countries had a negative effect on the availability of currency for repatriation and repayment of foreign obligations as well as the availability of hedging instruments in the affected foreign countries. Alternative hedging mechanisms were deployed to assist in the foreign exchange management.
Cashflowandfairvalueinterestraterisk
The group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the group tocashflowinterestraterisk.Borrowingsincurredatfixedratesexposethegrouptofairvalueinterestraterisk.Thegroup’s borrowings are denominated mainly in Rand and mainly at variable interest rates.
The effective interest rates on bank overdrafts are disclosed in note 23. Interest rates on other borrowings are disclosed in note 23.
Inter-companyfinancialassistanceisprovidedorsimilartermsandconditionsandinspecifictheinterestrates,toensure(as provided in the market place) no interest rate mismatch is created.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT continued
The table below analyses the group’s sensitivity to interest rate movements with respect to variable rates. The group doesnothavesignificantexposuretofixedrateinstruments.
GROUP2017
R’0002016
R’000
At 31 March
Total borrowings 506 451 433 240
Less: Fixed rate borrowings (7 765) (18 245)
Less: Non-interest-bearing borrowings (6 287) (9 028)
Less: Cash and cash equivalents (108 741) (80 006)
Net variable rate debt 383 658 325 961
Net variable rate exposure 383 658 325 961
Interest rate change (2%) 7 673 6 519
Negative impact on earnings (after tax) 5 525 4 694
For further details on borrowing exposures and related maturity dates refer to note 23.
Price risk
Thegroupisnotexposedtoequitysecuritiespriceriskasthegroupdoesnotgenerallyhaveinvestmentsclassifiedontheconsolidatedstatementoffinancialpositioneitherasavailable-for-saleoratfairvaluethroughprofitandloss.BoutiqueBathsisclassifiedasanavailable-for-saleassetandproceedswerereceivedon24May2017,subsequenttoyear-end.
Credit risk management
Creditriskwithinthegrouptowardsfinancialinstitutionsandserviceprovidersarisesfromcashandcashequivalents,derivativeinstrumentsanddepositswithbanksandfinancialinstitutions,aswellascreditexposuretocustomers,including outstanding receivables and committed transactions.
Transactions may be conducted with both local and international counterparties. All such counterparties are assessed onanannualbasistoensurecreditworthinessandtheevaluationswillbebasedonthefinancialstrengthofthecounterparty as published by a recognised rating agency. No investment will be made with any counterparty with a short-term national rating of lower than: P-1 (Moody’s), A-1 (S&P), F1+ (Fitch).
Credit limits are set for individual counterparty legal entities and not on a counterparty group basis.
Theexposuretofinancialinstitutionsandserviceprovidersaremonitoredonanongoingbasisandreportedmonthlytothe executive committee.
The granting of credit is controlled by a formal application process. If there is no independent rating, then risk control and thecompanyexecutivecommitteeassessthecreditqualityofthecustomer,takingintoaccountitsfinancialposition,pastexperience and other factors and ongoing credit evaluations are performed based on these criteria. Individual risk limits are set based on internal or external ratings in terms of the approved delegation of authority approved by the board. Trade and other receivables are covered by credit insurance according to group policy. When no insurance is available, a mandate is approved within the delegation of authority framework. Potential concentration of credit risk consists mainly within trade receivables. Trade receivables are presented net of the provision for doubtful debt.
Credit risk also arises within the group towards subsidiaries, joint ventures, related parties and associates.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT continued
The intercompany loans are being restructured to support the DAWN treasury position as the internal banker for the group. Accordingly, the loanswillvaryfrombeingshort-termtofive-yeartermdebtwithmarket-relatedinterestrates,terms and conditions. Loans to associates and related parties are provided at market-related interest rates based on the credit assessment of the entity and, where required, additional security such as general notarial bonds, cessions and personal suretyship by shareholders are obtained. Liquidity and solvency tests are assessed as part of the loan approval processandminimumfinancialcovenantcriteriaarerequiredaspartofongoingreportingandassessment.Short-termexposures have notional credit limits imposed, which are monitored on an ongoing basis.
The exposure to subsidiaries, joint ventures, associates and related parties are monitored on an ongoing basis and reported monthly to the executive committee.
Credit quality of trade receivables can be analysed as follows:
GROUP2017
R’0002016
R’000
Group 1 35 250 74 947
Group 2 470 975 573 822
Group 3 79 593 94 736
Group 4 38 470 60 846
Total 624 288 804 351
Group1–newcustomers(lessthansixmonths).
Group2–existingcustomers(morethansixmonths)withnodefaults(nobaddebtwrite-offs/hand-overs)inthepast.
Group3–existingcustomers(morethansixmonths)withsomedefaultsinthepast.
Group 4 – customers with defaults, no trading and handed over. This category of trade receivables relates mainly to contractors and subcontractors exposed to statal and parastatal bodies. Appropriate security policies are in place to limit risks in this category.
Management does not expect any losses from non-performance by these counterparties.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT continued
National credit ratings of banks where balances are held are:
GROUP
2017 2016
Short-term National rating
Standard & Poor's
Investec Bank Limited A-1
Barclays Africa Group B A-2
ABSA Bank Limited A-1 A-1
FirstRand Limited B A-1
FirstRand Bank Limited A-1 A-1
Nedbank Limited A-1
Moody's
Investec Bank Limited P-1
ABSA Bank Limited P-1 P-1
FirstRand Bank Limited P-1 P-1
The Standard Bank of South Africa Limited P-1 P-1
Nedbank Limited P-1
Fitch
Investec Bank Limited F1+
Barclays Africa Group F1+ F1+
ABSA Bank Limited F1+ F1+
Standard Bank Group Limited F1+ F1+
The Standard Bank of South Africa Limited F1+ F1+
Nedbank Limited F1+
Liquidity risk management
Prudentliquiditymanagementimpliesmaintainingsufficientcashandavailabilityoffundingthroughanadequateamountof committed credit facilities and funding sources.
Thegroupmanagesliquidityriskthroughthecompilationandmonitoringofcashflowforecasts,aswellasensuringthatadequate borrowing facilities are maintained. Repayments of term borrowings are structured to match the expected cash flowsfromtheoperationstowhichtheyrelate,wherepossible.
Thegrouputilisesthecreditfacilitiesofvariousfinancialinstitutionsandhasbeenabletooperatewithinthesefacilities.There is currently a concentration of liquidity risk as a result of the restructured debt position and transactional banking withthesamefinancialinstitution.Thisisbeingmonitoredandwillbeamendedassoonasthegroupisinapositiontodoso.Thegroupestablishedfacilitiesforspecialisedasset-basedfinancewithfinancialinstitutionstoreduceconcentration risk.
Thefundingofgrowthinthegroupforworkingcapitalrequirementswillcontinuetousecreditfacilitiesfromfinancialinstitutions as well as other feasible corporate market funding mechanisms for working capital. The funding of growth inthegroupofacapitalnaturewillutilisesuitablefundingsourcesavailableinthecorporatemarketandfromfinancialinstitutions.
Thetablebelowanalysesthegroup’sfinancialliabilitiesthatwillbeexpectedtobesettledonanetbasisintorelevantmaturity groupings based on the remaining period at reporting date to the contractual maturity date. The amounts disclosedinthetablearethecontractualundiscountedcashflows.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT continued
GROUP
Carrying amount
R’000
Gross contractualcashflows
R’000
Less than one year
R’000
Between two and
fiveyearsR’000
Over fiveyears
R’000
2017
Overdraft 48 48 48 – –
Borrowings (excluding overdraft) 506 403 506 403 448 127 55 941 2 335
Trade and other payables~ 766 238 766 238 766 238 – –
Derivative financial instruments 59 058 59 058 45 943 – 13 115
Total 1 331 747 1 331 747 1 260 356 55 941 15 450
2016
Overdraft 10 114 10 114 10 114 – –
Borrowings (excluding overdraft) 423 126 423 126 347 267 73 380 2 479
Trade and other payables ~ 875 897 875 897 868 783 7 114 –
Derivative financial instruments 63 489 63 489 63 489 – –
Total 1 372 626 1 372 626 1 289 653 80 494 2 479
~ Excludespost-employmentmedicalaid,deferredprofitandtheaccrualforleave.
Ananalysisofderivativefinancialinstruments,whichwillbesettledonagrossbasis,isdisclosedinnote24.
Fair value estimation
The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates to settle the contracts at the reporting date.
The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values.
Thefairvalueoffinancialliabilitiesfordisclosurepurposesisestimatedbydiscountingthefuturecontractualcashflowsatthecurrentmarketinterestratethatisavailabletothegroupforsimilarfinancialinstruments.
Capital risk management
The group manages its capital to safeguard the group’s ability to maintain a sound net debt position and to provide adequate return on capital employed.
Thecapitalstructureofthegroupconsistsofdebt,whichincludestheborrowings(excludingderivativefinancialliabilities)disclosedinnote23,andequityasdisclosedinthestatementoffinancialposition.
The group monitors capital structure on the basis of the gearing ratio and balanced with monitoring debt levels against cash generation of the group.
It is DAWN’s intention to maintain the gearing ratio below 2,5 times projected EBITDA.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
41. RISK MANAGEMENT continued
The gearing ratio at 31 March 2017 (2016: 31 March) was as follows:
GROUP2017
R’0002016
R’000
Total borrowings 506 451 433 240
Less: Cash and cash equivalents (108 741) (80 006)
Less: Loans receivable (30 257) (41 300)
Net debt 367 453 311 934
Total equity 423 122 1 056 212
Net debt/equity ratio (%) 86,8 29,5
The net debt to equity ratio increased during the year due to some increase in debt, but mostly a reduction in equity.
42. RELATED PARTIES
The group entered into transactions and has balances with related parties as listed below. These include associates, joint ventures and directors. Transactions that are eliminated on consolidation are not included. Transactions with related parties are effected on a commercial basis and related party debts are repayable on a commercial basis.
A listing of the group’s principal subsidiaries, joint ventures and associates is set out on pages 213 to 215 of the annual financialstatements.Fortransactionswithdirectorsrefertonote43(directors’andprescribedofficers’emoluments).
The following transactions were carried out with related parties:
GROUP2017
R’0002016
R’000
a) Sales of goods and services
Joint ventures
DPI group 1 022 3 764
Distribution and Warehousing Network Africa group 3 191 16 282
4 213 20 046
Associates
Heunis Steel (12) 36
College of Production Technology 61 –
Grohe DAWN Watertech 104 033 146 490
104 082 146 526
Total sales of goods and services 108 295 166 572
b) Purchases of goods
Associates
Heunis Steel 3 499 7 662
Grohe DAWN Watertech 529 747 534 705
Total purchases of goods 533 246 542 367
c) Commission paid
Braveheart Financial Services (group’s insurance broker) 911 1 278
Total commission paid 911 1 278
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
R’0002016
R’000
42. RELATED PARTIES continued
d) Commission received
Distribution and Warehousing Networking Africa received from Grohe DAWN Watertech 8 573 6 523
Namibia Plastic Converters received from Grohe DAWN Watertech – 1 409
Wholesale Housing Supplies commission received from Distribution and Warehousing Network Africa – 556
Total commission received 8 573 8 488
e) Interest received
Associates
Grohe DAWN Watertech 2 327 2 098
2 327 2 098
Other
Interest received from directors via DAWN Share Trust 104 157
– JAI Ferreira 42 78
– RD Roos 62 79
104 157
Total interest received (refer to note 6) 2 431 2 255
f) Interest paid
Associates
Grohe DAWN Watertech – 18
– 18
Other
Interest paid to shareholders 32 416
32 416
Total interest paid 32 434
g) Management fees received
Joint Ventures
Distribution and Warehousing Network Africa 13 276
Total management fees (refer to note 5) 13 276
h) Dividends received
Joint Ventures
DPI group – 567
– 567
Associates
College of Production Technology 1 699 –
Heunis Steel 23 000 –
24 699 567
Total dividends received (refer to note 14) 24 699 –
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
R’0002016
R’000
42. RELATED PARTIES continued
i) Discounts received
Associates
Grohe DAWN Watertech 48 132 90 129
Fibrex – 75
Total discounts received 48 132 90 204
Year-end balances arising from sales/purchases of goods/services
j) Trade and other receivables
Joint Ventures
Distribution and Warehousing Network Africa 11 050 16 336
DPI group 1 259 2 195
12 309 18 531
Associates
Heunis Steel 37
Fibrex 364 234
Grohe DAWN Watertech 17 762 16 910
College of Production Technology – 1
18 126 17 182
Total trade and other receivables 30 435 35 713
k) Loans to other related parties and non-controlling shareholders
Joint ventures
Distribution and Warehousing Network Africa 278 928
DPI group – 635
278 1 563
Associates
Grohe DAWN Watertech 29 762 36 356
29 762 36 356
Other
Loans to directors via DAWN Share Trust – unrestricted share scheme funding: * – 2 899
– JAI Ferreira (note 43) – settled on 14 July 2016 – 1 447
– RD Roos (note 43) – settled on 31 December 2016 – 1 452
Braveheart Financial Services (insurance broker) – 481
– 3 380
Total loans to other related parties and non-controlling shareholders 30 040 41 299
* IntermsofthetrustdeedoftheDAWNShareTrust(“theTrust”),asamendedbyDAWNshareholders on 6 December 2006, stipulate that employees may obtain funding from the Trusttoprocureunrestrictedshares.Thetermsoftheseloansareatarm’slengthandrepayable within seven years or when employment terminates.
Page 204
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
GROUP2017
R’0002016
R’000
42. RELATED PARTIES continued
l) Trade and other payables
Associates
Grohe DAWN Watertech 86 598 138 758
Heunis Steel – 325
Total trade and other payables 86 598 139 083
m) Loans from other related parties, associate and non-controlling shareholders
Distribution and Warehousing Network Africa – non-controlling shareholders – 1 543
Swan Plastics – non-controlling shareholders 1 888 –
Total loans from other related parties and non-controlling shareholders 1 888 1 543
n) Loans from related parties
Loansfromdirectorsandkeymanagementofthegroup(andtheirfamilies):
Balance at the beginning of the year 5 329 5 634
Loans received from directors during the year 105 14 024
Loan repayments to directors (5 460) (14 745)
Interest paid 32 416
Total loans from related parties 6 5 329
Loans from directors and family members are unsecured and have no specific terms of repayment, bearing interest at 8,50% (2016: 8,50%). The loans are payable on demand. As a result, the loans are recorded at their nominal value (note 23).
COMPANY2017
R’0002016
R’000
o) Interest received
Subsidiaries 74 544 48 403
Associates 2 328 2 075
Total interest received 76 872 50 478
p) Interest paid
Subsidiaries 13 580 10 734
Associates – 18
Total interest paid 13 580 10 752
Page 205
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
COMPANY2017
R’0002016
R’000
42. RELATED PARTIES continued
q) Loans receivable
LoansreceivableclassifiedastradeandotherreceivablesbyDistribution and Warehousing Network from:
Subsidiaries 404 408 387 698
Associates 29 762 29 298
Total loans receivable 434 170 416 996
r) Loans payable
LoanspayableclassifiedasborrowingsbyDistributionandWarehousing Network
Subsidiaries 298 097 237 657
Total loans payable 298 097 237 657
s) Directors and prescribed officers’ emoluments (refer to note 43)
– Non-executive directors 3 525 1 452
– Executive directors 16 093 16 127
– Prescribed officers 10 551 4 696
30 169 22 275
Number ofshares
'000
Number ofshares
'000
t) Directorsandprescribedofficers’shareholding (refer to the report of the remuneration committee – pages 72 and 73)
u) Share Incentive Schemes (equity and cash-settled) (refer to note 43)
– Non-executive directors 1 938 6 160
– Prescribed officers 2 568 1 445
Equity-settled 4 506 7 605
Cash-settled 2 176 –
v) Interest in subsidiaries, associates and joint ventures (refer pages 213 to 215)
w) Analysis of shareholders (refer page 216)
Page 206
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
43. DIRECTORS AND PRESCRIBED OFFICERS’ EMOLUMENTS
Directors’ emoluments for the year ended 31 March 2017 are outlined as follows:
COMMITTEES
Board member
fees R'000
AdvisoryR’000
Audit and risk
R’000
Remune-ration
andnomina-
tionR’000
Social, ethics and
transfor-mation
R'000OtherR’000
Sub-sidiaryboard
feesR'000
TotalR’000
Non-executive directors
2017
Lou Alberts 245 200 110 125 – 102 – 782
Diederik Fouché 800 – – – – 156 – 956
Saleh Mayet ¹ 219 – 192 36 – 111 – 558
Dinga Mncube 245 – 110 – – 124 – 479
Veli Mokoena 245 – – – 115 84 302 746
Akhter Moosa ² – – – – – – – –
George Nakos 245 – – – – 59 – 304
31 March 2017 1 999 200 412 161 115 636 302 3 525
2016Mohammed Akoojee ³ 72 – – – – – – 72
Lou Alberts 124 118 74 80 – – – 396
Diederik Fouché 104 – – 34 – – – 138
Tak Hiemstra 4 143 – 43 29 – – – 215
Saleh Mayet 104 – 104 42 – – – 250
Dinga Mncube 124 – 31 – – – – 155
Veli Mokoena 124 – – – 50 – – 174
George Nakos 5 52 – – – – – – 52
31 March 2016 847 118 252 185 50 – – 1 452
¹ Resigned on 20 February 2017.² Appointed on 28 March 2017.³ Resigned on 11 November 2015.4 Retired on 31 October 2015.5 Appointed on 12 November 2015.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
43. DIRECTORS AND PRESCRIBED OFFICERS’ EMOLUMENTS continued
Salary R’000
Company contribution medical aid
and provident
fundR’000
Leave payR’000
OtherR'000
TotalR’000
Unrestrictedshare
scheme*R'000
2017
Directors
David Austin 1 1 414 264 – – 1 678 –
Hanré Bester 2 655 49 – – 704 –
Jan Beukes 3 798 162 255 1 500 2 715 –
Stephen Connelly 4 870 – – – 4 870 –
Dries Ferreira 3 816 113 151 – 1 080 –
René Roos 1 977 304 – – 2 281 –
Derek Tod 4 1 469 212 1 084 – 2 765 –
11 999 1 104 1 490 1 500 16 093 –
Prescribedofficers
Luis Baeta 5 1 996 372 – 1 689 4 057 –
Steve du Toit 6 2 883 485 – – 3 368 –
Dave Ferguson 7 556 88 – – 644 –
Graeme Johnston 1 588 236 – – 1 824 –
Vanessa White 8 588 70 – – 658 –
7 611 1 251 – 1 689 10 551 –
19 610 2 355 1 490 3 189 26 644 –
2016
Directors
Jan Beukes 3 675 477 – – 4 152 –
Dries Ferreira 2 158 295 – – 2 453 1 447
Gerhard Kotzee 9 2 253 333 – – 2 586 –
René Roos 1 635 256 – – 1 891 1 452
Derek Tod 4 227 818 – – 5 045 –
13 948 2 179 – – 16 127 2 899
Prescribedofficers
Colin Bishop 1 092 104 – – 1 196 –
Dave Ferguson 1 616 246 – – 1 862 –
Graeme Johnston 1 427 211 – – 1 638 –
4 135 561 – – 4 696 –
18 083 2 740 – – 20 823 2 899
¹Appointedon18November2016;resignedon17March2017,effective30June2017.
² Appointed on 14 July 2016, resigned on 18 November 2016. ³ Resigned with effect from 14 July 2016. 4 Retired on 31 May 2016. 5 Resigned with effect from 31 January 2017. 6 Appointed with effect from 1 April 2016 . 7 Resigned with effect from 30 March 2017. 8 Appointed on 1 September 2016. 9 Resigned with effect from 29 February 2016.
* Refer to note 42 – loans to other related parties.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
43. DIRECTORS AND PRESCRIBED OFFICERS’ EMOLUMENTS continued
Executivedirectorsandprescribedofficersparticipateinshareincentiveschemes,designedtorecognisethecontributions of senior staff to the growth of the company’s equity.
Within limits imposed by shareholders, rights are allocated to directors and senior staff. The equity-linked compensation benefitsforexecutivedirectorsandprescribedofficersaresetoutbelow.Refertonote20–share-basedpaymentreserve.
Grantdate
Vestingdate Note
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Openingnumber
ofshare
options‘000
Number of shareoptions
awardedduring
the year‘000
Number of shareoptions
forfeitedduring
the year‘000
Closing number of share options
‘000
Executive directors
At 31 March 2017
DA Austin 1 – 1 681 (1 681) –
6 Sep 2016 30 Jun 2019 LTIP – 179 – 1 681 (1 681) –
JA Beukes 2 462 – (462 –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 399 – (399) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 63 – (63) –
JAI Ferreira 3 771 – (771) –
1 Dec 2013 1 Dec 2016 1 LTIP – 611 400 – (400) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 312 – (312) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 59 – (59) –
RD Roos 964 974 – 1 938
24 Jun 2011 30 Jun 2014 1 SAR 628 233 160 – – 160
12 Apr 2012 30 Jun 2015 1 LTIP – 611 500 – – 500
4 Dec 2014 30 Jun 2017 1 LTIP – 651 280 – – 280
4 Dec 2014 30 Jun 2017 1 DBP – 310 24 – – 24
6 Sep 2016 30 Jun 2019 LTIP – 179 – 974 – 974
DA Tod 4 849 – (849) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 680 – (680) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 169 – (169) –
1 938
Note 1: As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest.
1 Appointedon18November2016;resignedon17March2017,effective30June2017.2 Resigned on 14 July 2016, effective 31 October 2016.3 Resigned on 14 July 2016, effective 31 October 2016. 4 Retired on 31 May 2016.
^LTIP:Long-termIncentivePlans,SAR:ShareAppreciationRights;DBP:DeferredBonusPlan.
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Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
Grantdate
Vestingdate Note
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Openingnumber
ofshare
options‘000
Number of shareoptions
awardedduring
the year‘000
Number of shareoptions
forfeitedduring
the year‘000
Closing number of share options
‘000
Prescribedofficers
L Baeta 1 1 019 975 (1 994) –
1 Dec 2013 31 Dec 2016 1 LTIP – 901 15 – (15) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 182 – (182) –
4 Dec 2014 30 Jun 2017 1 DBP – 310 4 – (4) –
1 Dec 2015 30 Jun 2018 1 LTIP – 540 818 – (818) –
6 Sep 2016 30 Jun 2019 LTIP – 179 – 975 (975) –
H Bester 2 236 117 (150) 203
1 Dec 2013 31 Dec 2016 1 LTIP – 901 150 – (150) -
4 Dec 2014 30 Jun 2017 1 LTIP – 651 86 – – 86
6 Sep 2016 30 Jun 2019 LTIP – 179 – 117 – 117
SG du Toit 3 – 1 429 – 1 429
6 Sep 2016 30 Jun 2019 LTIP – 179 – 1 429 – 1 429
DK Ferguson 4 579 (579) – –
12 Apr 2012 30 Jun 2015 1 LTIP – 611 250 (250) – –
1 Dec 2013 31 Dec 2016 1 LTIP – 901 20 (20) – –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 299 (299) – –
4 Dec 2014 30 Jun 2017 1 DBP – 310 10 (10) – –
GR Johnston 566 779 (20) 1 325
1 Dec 2013 31 Dec 2016 1 LTIP – 901 20 – (20) –
4 Dec 2014 30 Jun 2017 1 LTIP – 651 134 – – 134
4 Dec 2014 30 Jun 2017 1 DPB – 310 12 – – 12
1 Dec 2015 30 Jun 2018 1 LTIP – 400 400 – – 400
6 Sep 2016 30 Jun 2019 LTIP – 179 – 779 – 779
VS White 5 – 95 – 95
6 Sep 2016 30 Jun 2019 LTIP – 179 – 95 – 95
2 568
1 Resigned with effect from 31 January 2017.
²Appointedon14July2016;resignedon18November2016.3 Appointed with effect from 1 April 2016.4 Resigned with effect from 30 March 2017.5 Appointed on 1 September 2016.
Grantdate
Vestingdate Note
Typeof share
incentivescheme^
Grant date
strikepricecents
Grant date
valuationpricecents
Openingnumber
ofshare
options‘000
Number of shareoptions
awardedduring
the year‘000
Number of shareoptions
forfeitedduring
the year‘000
Closing number of share options
‘000
Cash-settled scheme
SJ Connelly 2 176 2 176
6 Sep 2016 30 Jun 2019 LTIP 231 – – 2 176 – 2 176
^ LTIP: Long-term Incentive Plans, SAR: Share Appreciation Rights; DBP: Deferred Bonus Plan
1 As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest.
43. DIRECTORS AND PRESCRIBED OFFICERS’ EMOLUMENTS continued
Page 210
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
43. DIRECTORS AND PRESCRIBED OFFICERS’ EMOLUMENTS continued
Aprescribedofficer,intermsoftheCompaniesActno71of2008,asamended,meanstheholderofanoffice,withinacompany.DAWNhasidentifieditsprescribedofficersasthemembersoftheexecutivecommitteeandclusterheads.PrescribedofficersaredesignatedtobekeymanagementpersonnelintermsofIAS24.
All executive directors are eligible for an annual performance-related bonus payment linked to appropriate group and business sector targets. The structure of the individual annual bonus plans and awards are decided by the group remuneration committee.
Directors’andprescribedofficers’emolumentsarepaidbyvarioussubsidiarieswithinthegroup.
44. EVENTS AFTER THE REPORTING DATE
Changes to the board of directors
Chiefexecutiveofficer
EdwinHewittwasappointedchiefrestructuringofficeratDAWNinFebruary2017,workingwithamajorbank,whereheplayedasignificantroleinfinalisingarecapitalisationprogrammeforthegroup.Witheffectfrom1April2017,EdwinhasbeenappointedchiefexecutiveofficerofDAWN.
With effect from 1 April 2017, on the appointment of Edwin Hewitt as CEO, Stephen Connelly who has been the interim CEO of DAWN since 1 June 2016, was appointed as executive deputy chairman of DAWN.
Chieffinancialofficer
On17March2017,DavidAustinresignedasfinancialdirectorandchieffinancialofficer,effective30June2017.ChrisBooyenswasappointedfinancialdirectorandchieffinancialofficerofDAWNwitheffectfrom1May2017.
Rights offer DAWN shareholders are referred to the circular dated Monday, 20 March 2017 regarding the renounceable rights offer
for up to R358 million, which concluded on 12 April 2017.
The rights offer consisted of an offer of 358 129 576 million ordinary shares in the ratio of 147,8 rights offer shares for every 100 ordinary shares held by shareholders on the record date of the rights offer, at a subscription price of R1,00 per rights offer share.
Following the conclusion of the rights offer, the total issued share capital of the company increased to 600 372 480 shares.
Page 211
Distribution & Warehousing Network Limited | | Integrated report 2017
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
44. EVENTS AFTER THE REPORTING DATE
Borrowings
Revolving credit facility
On 15 October 2015, Absa Bank granted the group a revolving credit facility of R200 million. This facility ended on 7 October 2016 and was re-negotiated to 7 October 2017. The new facility had similar characteristics, but had a quarterly step-down of R25 million per quarter in respect of the revolving credit facility, which started on 7 October 2016 and would have concluded on 7 July 2017. This agreement was re-negotiated and signed in December 2016 for a reduced facility of R175 million after a R25 million repayment was made in October 2016. A further repayment of R75 million was made on 12 April 2017 to reduce the facility to R100 million. The facility extends until 31 March 2018. Accounts receivable have been ceded and a general notarial bond has been registered over inventory.
Bridgingfinancefacility
On23December2016,DAWNreceivedR50millionbridgingfinancefromAbsaBankLimited,whichamountwasrepaidon 31 January 2017, after obtaining the proceeds from the sale of Heunis Steel Proprietary Limited.
DAWNreceivedR200millionfundingfromInvestecasbridgingfinancethroughanunsecuredfacility.TwoR100milliontranches were received on 24 February 2017 and 6 March 2017, respectively. The full R200 million was repaid on 18 April 2017 from the proceeds of the rights offer. Further details are disclosed in note 23 on page 169.
Disposals
Boutique Baths Proprietary Limited
DAWN entered into an agreement to dispose of its 76% shareholding in Boutique Baths Proprietary Limited for a consideration of R3 million, effective 28 April 2017.
Asaresult,BoutiqueBathsProprietaryLimitedhasbeenderecognisedandclassifiedasheld-for-saleandalossonderecognition of R0,34 million was realised at year-end.
Aqualia DPI Proprietary Limited
DAWN entered into an agreement to dispose of its 50% interest in the joint venture with Aqualia DPI Proprietary Limited, incorporating Aqua Science Proprietary Limited, for a consideration of 1 Mauritian Rupee, effective 30 June 2017.
Fibrex – Fabrica deArt.DE.F.B. Sinteticas, S.A.R.L. (Fibrex)
On 1 April 2017, the group entered into an agreement for the acquisition of the remaining 51% shareholding from the majority shareholder in Plastic Investments International Limited, of which Fibrex is a wholly-owned subsidiary, under obligation. Defalcation on the part of the majority shareholder enabled DAWN to acquire the shareholding for a consideration of Rnil, as the shareholder surrendered his shares to DAWN. The provisional amount of net assets acquired amounted to R10,0 million.
On 15 June 2017, the board of directors of DAWN resolved to dispose of Fibrex in its entirety during F2018 in an effort to recover the losses incurred by the business.
Grohe DAWN Watertech (GDW)
As announced on SENS on 11 July 2017, the group has concluded a non-binding memorandum of understanding with the controlling shareholders of GDW for the potential disposal of DAWN’s 49% holding in the company to that shareholder. No price has been agreed for the transaction as yet. There is no certainty that the negotiations will lead todefinitiveandbindingagreementsandthereforenocertaintythatthetransactionwillultimatelybeconcludedandimplemented.
The intention of both parties is that DAWN remains the long-term master distributor for the GDW product range in southern Africa. It is the view of the DAWN board that this transaction would be a positive step in the turnaround process of the group.
Page 212
NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2017
continued
44. EVENTS AFTER THE REPORTING DATE continued
Going concern assessment DAWN posted losses for both the years ended 31 March 2016 and 2017 of R762,9 million and R637,4 million,
respectively.Indeterminingtheappropriatebasisofpreparationoftheannualfinancialstatements,thedirectorsarerequired to consider whether the group can continue to operate as a going concern for the foreseeable future, to 14 July 2018.
After the rights issue in April 2017, DAWN had banking facilities available of R200 million, comprising a R100 million revolving credit and a R100 million general banking facility. To determine if the group will be a going concern for the next financialyearandupto14July2018,managementpreparedcashflowforecastsforeachofthematerialsubsidiaries.These forecasts were subjected to further sensitivity tests and included the estimated intra-month peak funding requirements.Managementalsoconsideredthebusinesses’abilitytomeetitsfinancialobligationsforthe12monthsfollowingapprovaloftheannualfinancialstatements.Theanalysisconsideredthecurrentchallengingmarketconditions,which negatively affects the performance of the group and management’s turnaround plan being executed including areturntosustainableprofitability,furthercostreductionsandoptimisationofworkingcapital.Theresultingcashflowprojectionswerecomparedtoavailablefundingfacilities.Theforecastprofitabilityandtheabilityoftheunderlyingbusiness to meet the forecasts is an area of uncertainty.
Theeffectofafurtherdeteriorationintheeconomicoutlookanditspotentialimpactonthegroup’scashflowandfundingfacilities were also considered as an uncertainty.
The group’s ability to fund its short-term liquidity requirements is dependent on adequate funding facilities. The forecasts indicatethatthecovenantsonthefacilitiesareexpectedtobebreached.Managementisseekingclarificationfromtheirbankers in this regard. Breaching covenants creates a risk for the group of losing its facilities.
Part of management’s plans to address this include the corporate restructuring activities and alternative funding options, which are being considered.
Theseeventsandconditionsgiverisetoamaterialuncertaintythatmaycastsignificantdoubtaboutthegroup’sabilitytocontinue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
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Distribution & Warehousing Network Limited | | Integrated report 2017
Acti-vities
Percentage interest
Issued share
capital (Rands)
Class of
share Country2017 2016
1. Subsidiaries in which Distribution and Warehousing network Limited has a direct interest
DAWN Consolidated Holdings Proprietary Limited H 100 100 381 Ord RSA
Wholesale Housing Supplies Proprietary Limited B 100 100 1 000 Ord RSA
2. Subsidiaries in which Distribution and Warehousing Network Limited has an indirect interest
Subsidiaries
Boutique Baths Proprietary Limited B 76 76 100 Ord RSA
Distribution and Warehousing Network Africa Proprietary Limited H 100 90 500 Ord RSA
Shares held by Distribution and Warehousing Network Africa Proprietary Limited in:
Africa Swiss Trading Limitada B – 100 9 000 Ord Angola
Distribution and Warehousing Network Africa Trading Congo S.A.R.L. B – 51 177 049 Ord Congo
DAWN Africa Mozambique, LDA B 90 90 11 906 Ord Mozambique
DAWN Africa Proprietary (Zambia) Limited B 100 100 8 440 Ord Zambia
Africa Saffer Trading (Mauritius) Limited B 90 90 2 850 Ord Mauritius
DAWN Human Resource Solutions Proprietary Limited A 100 100 1 000 Ord RSA
DMD Marketing SA Proprietary Limited A 100 100 – Ord RSA
DPI Holdings Proprietary Limited H 100 100 1 000 Ord A RSA
DPI International Limited H 100 100 1 031 Ord Mauritius
DPI Plastics Proprietary Limited C 100 100 2 479 Ord RSA
Franmore Investments Proprietary Limited A 100 100 100 Ord Namibia
Hamilton’s Brushware Proprietary Limited B 74 74 100 Ord RSA
Incledon DPI Proprietary Limited B 100 100 1 000 Ord RSA
Incledon DPI Proprietary Limited A 100 100 100 Ord Botswana
Incledon KZN Proprietary Limited B 51 51 – Ord RSA
Incledon Proprietary Limited B 100 100 1 000 Ord RSA
Incledon Zambia Limited B 100 100 16 951 Ord Zambia
Namibia Plastic Converters Proprietary Limited C 100 100 201 Ord Namibia
Pipex Plastics Botswana Proprietary Limited C 100 100 742 391 Ord Botswana
Pro-Max Welding Consumables Proprietary Limited B 100 87 120 Ord RSA
Sangio Pipe Proprietary Limited C 100 100 51 Ord RSA
Swan Plastics Proprietary Limited C 51 51 1 000 Ord RSA
Ubuntu Plastics Proprietary Limited C 51 51 100 Ord RSA
INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURESfor the year ended 31 March 2017
Page 214
INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURESfor the year ended 31 March 2017
continued
Acti-vities
Percentage interest
Issued share
capital (Rands)
Class of
share Country2017 2016
3. Subsidiaries, associates and joint ventures, which are dormant and in the process of derecognition
Almar Aluminium Proprietary Limited D 100 100 1 461 696 Ord RSA
Almar Extrusions Proprietary Limited D 100 100 1 000 Ord A RSA
Almar Marketing Proprietary Limited D 100 100 100 Ord RSA
Avrutec Proprietary Limited D 100 100 1 Ord RSA
Bathing Paradise Proprietary Limited D 100 100 100 Ord RSA
City Non-Ferrous Metals Proprietary Limited D 100 100 2 000 Ord RSA
City Wires Proprietary Limited D 100 100 100 Ord RSA
Caslead Properties Proprietary Limited D 100 100 100 Ord RSA
Cobra Brands Proprietary Limited D 100 100 37 609 Ord A RSA
Courier Internet Exchange Proprietary Limited D 100 100 100 Ord RSA
DAWN 101 Investments Proprietary Limited (Formerly Springset Proprietary Limited) D 100 100 170 000 Ord RSA
DAWN Cargo Proprietary Limited D 100 100 100 Ord RSA
DAWN Consolidated Properties Proprietary Limited D 100 100 100 Ord RSA
DAWN Kitchen Fittings Proprietary Limited B 100 100 100 Ord RSA
DAWN Logistics Proprietary Limited D 100 100 1 000 Ord RSA
DAWN Management Services Proprietary Limited D 100 100 100 Ord RSA
Delivery Deluxe Proprietary Limited D 100 100 100 000 Ord RSA
DPI Kwanzi Proprietary Limited D 100 100 100 Ord RSA
Electroline Proprietary Limited B 100 100 100 Ord RSA
Geyser Technology Proprietary Limited D 100 100 100 Ord RSA
Incledon Proprietary Limited D 100 100 46 Ord RSA
Inex Trading Proprietary Limited D 100 100 68 000 Ord RSA
Insyst Cape Town Proprietary Limited D 100 100 100 Ord RSA
Insyst Durban Proprietary Limited D 100 100 100 Ord RSA
Insyst Johannesburg Proprietary Limited D 100 100 100 Ord RSA
La-Co Africa Marketing Proprietary Limited D 100 100 1 000 Ord RSA
Monocraft Proprietary Limited D 100 100 400 Ord RSA
Romson Properties Proprietary Limited D 100 100 100 Ord RSA
Royal Express Services Proprietary Limited D 100 100 2 Ord RSA
Saffer Angola S.A.R.L.* D 100 100 115 278 Ord Angola
Saffer International Proprietary Limited D 100 100 1 000 Ord RSA
Skillco Proprietary Limited D 100 100 100 Ord RSA
Springset (Natal) Proprietary Limited D 100 100 20 000 Ord RSA
Springset Alloys Proprietary Limited D 100 100 100 Ord RSA
Stability Wholesale Hardware Proprietary Limited D 100 100 10 200 Ord RSA
Stylus Industries Proprietary Limited D 100 100 300 000 Ord RSA
Vaal Mac Holdings Proprietary Limited D 100 100 10 000 Ord RSA
Veloset Proprietary Limited D 100 100 100 Ord RSA
Wholesale Housing Supplies East London Proprietary Limited D 100 100 100 Ord RSA
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Distribution & Warehousing Network Limited | | Integrated report 2017
Acti-vities
Percentage interest
Issued share
capital (Rands)
Class of
share Country2017 2016
4. Joint ventures
Aqualia DPI Proprietary Limited C 50 50 251 366 Ord Mauritius
Aqua Science Proprietary Limited C 50 50 5 100 000 Ord Mauritius
DPI Simba Limited C 50 50 5 600 000 Ord Tanzania
Shares held by Distribution and Warehousing Network Africa Proprietary Limited in:
ASTIZ (Private) Limited B – 55 1 530 Ord Zimbabwe
DAWN Africa Tanzania Limited B 51 51 225 328 Ord Tanzania
5. Associates
Grohe DAWN Watertech Proprietary Limited H 49 49 490 Ord RSA
Shares held by Grohe DAWN Watertech Proprietary Limited in:
Apex Valves South Africa Proprietary Limited C 100 100 300 000 Ord RSA
Cobra Watertech Proprietary Limited C 100 100 51 918 Ord RSA
Exipro Manufacturing (Swaziland) Proprietary Limited C 49 49 100 Ord Swaziland
Grohe South Africa Proprietary Limited B 100 100 300 Ord RSA
ISCA Proprietary Limited C 100 100 518 Ord RSA
Libra Bathrooms Proprietary Limited C 100 100 3 549 Ord RSA
Vaal Sanitaryware Proprietary Limited C 100 100 212 Ord RSA
Braveheart Financial Services Proprietary Limited A – 30 30 Ord RSA
College of Production Technology Proprietary Limited A 49 49 300 Ord RSA
DPI Rooftiles Proprietary Limited B 39 39 1 000 Ord RSA
Heunis Steel Proprietary Limited B – 49 100 Ord RSA
Shares held by Plastic Investments International Limited H 49 49 25 Ord Mauritius
Fibrex – Fabrica deArt.De.F.b. Sinteticas, S.A.R.L. C 100 100 174 Ord Angola
Activities
A – Other; B – Wholesale trading; C – Manufacturing; D – Dormant; H – Investment holding company
Percentageinterestreflectvotingpower.
* The DAWN group has effective control of the board of directors of Saffer Angola S.A.R.L. by means of an additional deciding vote.
INTEREST IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURESfor the year ended 31 March 2017
continued
Page 216
SHAREHOLDER SPREADNumber of
shareholdings %Number of
shares %
1 - 1 000 shares 617 32,34 242 518 0,10
1 001 - 10 000 shares 701 36,74 2 834 011 1,17
10 001 - 100 000 shares 435 22,80 15 506 777 6,40
100 001 - 1 000 000 shares 123 6,45 38 717 612 15,98
1 000 001 shares and over 32 1,67 184 941 986 76,35
Total 1 908 100,00 242 242 904 100,00
DISTRIBUTION OF SHAREHOLDERSNumber of
shareholdings %Number of
shares %
Banks 8 0,42 481 715 0,20
Close corporations 28 1,47 853 660 0,35
Endowment fund 20 1,05 1 492 480 0,62
Individuals 1 466 76,83 35 746 389 14,76
Insurance companies 12 0,63 5 018 509 2,07
Medical schemes 6 0,31 525 388 0,22
Mutual funds 58 3,04 67 326 548 27,79
Other corporations 11 0,58 163 249 0,07
Private companies 72 3,77 87 527 427 36,13
Public companies 2 0,10 950 210 0,39
Retirement funds 75 3,93 14 802 145 6,11
Treasury shares 1 0,05 5 511 429 2,28
Trusts 149 7,82 21 843 755 9,02
Total 1 908 100,00 242 242 904 100,00
PUBLIC/NON-PUBLIC SHAREHOLDERSNumber of
shareholdings %Number of
shares %
Non-public shareholders 9 0,47 86 500 167 35,71
Directors and associates 5 0,27 2 727 723 1,13
Prescribed officers 1 0,05 127 527 0,05
Empowerment 2 0,10 78 133 488 32,25
Treasury shares 1 0,05 5 511 429 2,28
Public shareholders 1 899 99,53 155 742 737 64,29
Total 1 908 100,00 242 242 904 100,00
BENEFICIAL SHAREHOLDERS HOLDING 3% OR MORE
Number of shares %
Ukhamba Holdings (Pty) Ltd 78 133 488 32,25
Coronation Fund Managers 40 028 372 16,52
Boles Family Trust 13 260 000 5,47
Tod, DA 11 100 000 4,58
Investec 10 852 379 4,48
Total 153 374 239 63,31
ANALYSIS OF SHAREHOLDINGas at 31 March 2017
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ANALYSIS OF SHAREHOLDINGas at 28 April 2017, after the rights issue
SHAREHOLDER SPREADNumber of
shareholdings %Number of
shares %
1 - 1 000 shares 595 29,90 228 586 0,04
1 001 - 10 000 shares 591 29,70 2 243 774 0,37
10 001 - 100 000 shares 465 23,37 19 450 940 3,24
100 001 - 1 000 000 shares 279 14,02 77 812 921 12,96
1 000 001 shares and over 60 3,02 500 636 259 83,39
Total 1 990 100,00 600 372 480 100,00
DISTRIBUTION OF SHAREHOLDERSNumber of
shareholdings %Number of
shares %
Banks/brokers 15 0,75 1 341 890 0,22
Close corporations 29 1,46 3 108 242 0,52
Endowment funds 14 0,70 2 583 791 0,43
Individuals 1 522 76,48 56 541 054 9,42
Insurance companies 14 0,70 16 340 383 2,72
Medical schemes 6 0,30 1 308 965 0,22
Mutual funds 60 3,02 180 947 176 30,14
Other corporations 13 0,65 749 239 0,12
Private companies 77 3,87 264 994 276 44,14
Public companies 2 0,10 1 715 959 0,29
Retirement funds 76 3,82 38 513 286 6,41
Trusts 162 8,14 32 228 219 5,37
Total 1 990 100,00 600 372 480 100,00
PUBLIC/NON-PUBLIC SHAREHOLDERSNumber of
shareholdings %Number of
shares %
Non-public shareholders 10 0,50 244 630 419 40,75
Directors and associates 5 0,25 3 069 915 0,51
Prescribed officers 1 0,05 127 527 0,02
Empowerment 2 0,10 127 133 488 21,18
Holdings more than 10% 1 0,05 100 640 017 16,76
Treasury shares 1 0,05 13 659 472 2,28
Public shareholders 1 980 99,50 355 742 061 59,25
Total 1 990 100,00 600 372 480 100,00
BENEFICIAL SHAREHOLDERS HOLDING 3% OR MORE
Number of shares %
Ukhamba Holdings (Pty) Ltd 127 133 488 21,18
RAC Investment Holdings (Pty) Ltd 100 640 017 16,76
Coronation Fund Managers 88 134 887 14,68
Investec 35 176 403 5,86
Investment Solutions 18 538 339 3,09
Total 369 623 134 61,57
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2017 2016
Market price per share
Closing at year-end (cents) 101 400
Highest (cents) 440 680
Lowest (cents) 100 350
Market capitalisation (R’000) 244 665 968 972
Number of transactions recorded 4 290 3 715
Value of shares traded (R’000) 101 075 228 934
Volume of shares traded (’000) 37 528 45 029
Volume traded to number in issue (%) 15,5 18,6
SHAREHOLDERS’ DIARY
JSE PERFORMANCE
Financial year-end 31 March
2016
Six-month interim report Friday, 16 November
2017
Profitstatementfortheyear Friday, 14 July
Integrated report Wednesday, 23 August
Record date to be recorded in the register to be eligible to receive the notice of annual general meeting
Friday, 18 August
Mailing of integrated report Friday, 25 August
No change statement released on SENS Friday, 25 August
Last day to trade to be eligible to vote at the annual general meeting Tuesday, 14 November
Record date for purposes of determining entitlement to participate and vote at the annual general meeting
Friday, 17 November
Six-month interim report Wednesday, 22 November
Lodging of proxy forms with transfer secretaries before the commencement of the annual general meeting at 10:00 on
Friday, 24 November
Annual general meeting at 10:00 Friday, 24 November
Results of annual general meeting published on SENS Friday, 24 November
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DISTRIBUTION AND WAREHOUSING NETWORK LIMITEDRegistration number 1984/008265/06Incorporated in the Republic of South AfricaShare code: DAW • ISIN: ZAE000018834(“DAWN” or “the company” or “the group”)
Notice is hereby given that the annual general meeting of the shareholders of DAWN will be held at DAWN Training Centre, Cnr Barlow Road and Caveleros Drive, Jupiter Ext 3, Germiston at 10:00 on Friday, 24 November 2017 (SA time), to deal with the business as set out below and to consider and, if deemed appropriate, pass the ordinary and special resolutions set out in this notice.
Kindly note that in terms of section 63(1) of the Companies Act of 2008, meeting participants (including proxies) will be required toprovidereasonablysatisfactoryidentificationbeforebeingentitledtoparticipateinorvoteattheannualgeneralmeeting.Formsofidentificationthatwillbeacceptedincludeoriginalandvalididentitydocuments,driver’slicencesandpassports.
The board of directors of the company has determined that the record date in terms of section 59(1) of the Companies Act, no 71 of 2008, as amended (“the Companies Act”) for the purpose of determining which shareholders of the company are entitled to receive notice of the annual general meeting is Friday, 18 August 2017 and the record date for purposes of determining which shareholders of the company are entitled to participate in and vote at the annual general meeting is Friday, 17 November 2017. Accordingly, the last day to trade in order to be eligible to vote at the annual general meeting is Tuesday, 14 November 2017.
PRESENTATION OF ANNUAL FINANCIAL STATEMENTS AND REPORTSTheconsolidatedauditedannualfinancialstatementsforthecompanyandthegroup,includingtheexternalindependentauditor’s report, the audit committee report and the directors’ report for the year ended 31 March 2017, have been distributed as required and will be presented to shareholders at the annual general meeting.
Theconsolidatedauditedannualfinancialstatements,togetherwiththeabovementionedreports,aresetoutonpages90to215of the integrated report.
REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEEIn accordance with Companies Regulation 43(5)(c), issued in terms of the Companies Act, the chairman of the social, ethics and transformation committee, or in the absence of the chairman any member of the committee, will present the committee’s report to shareholders at the annual general meeting. The report of the social, ethics and transformation committee is set out on pages 76 to 78 of the integrated report.
ORDINARY RESOLUTIONSTheminimumpercentageofvotingrightsrequiredforordinaryresolutions1to6belowtobeadoptedismorethan50%(fiftypercent) of the voting rights exercised on each of the resolutions by shareholders present or represented by proxy.
Ordinary resolution number 1Re-appointment and ratification of appointment of directors
Diederik Fouché and Dinga Mncube retire by rotation and, being eligible, offer themselves for re-election as directors of the company. Edwin Hewitt, Akhter Moosa, Chris Booyens, Charles Boles and Theunis de Bruyn were appointed to the board subsequent to the previous annual general meeting and resolutions are presented to ratify their appointments.
Accordingly,shareholdersarerequestedtoconsiderand,ifdeemedfit,approvetheseparateordinaryresolutionssetoutbelow.
Ordinary resolution number 1.1
“RESOLVED that the re-appointment of Diederik Fouché as an independent non-executive director of the company be and is hereby approved.”
Ordinary resolution number 1.2
“RESOLVED that the re-appointment of Dinga Mncube as an independent non-executive director of the company be and is hereby approved.”
Ordinary resolution number 1.3
“RESOLVEDthattheappointmentbytheboardofEdwinHewittasanexecutivedirectorandchiefexecutiveofficerofDAWN,effective1April2017,beandisherebyratifiedandconfirmed.”
NOTICE OF ANNUAL GENERAL MEETING
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Ordinary resolution number 1.4
“RESOLVED that the appointment by the board of Akhter Moosa, effective 28 March 2017, as an independent non-executive director be and is hereby ratified and confirmed.
Ordinary resolution number 1.5
“RESOLVED that the appointment by the board of Chris Booyens, effective 1 May 2017, as an executive director and financial director of DAWN be and is hereby ratified and confirmed.”
Ordinary resolution number 1.6
“RESOLVED that the appointment by the board of Charles Boles, effective 20 July 2017, as an independent non-executive director of DAWN, be and is hereby ratified and confirmed.”
Ordinary resolution number 1.7
“RESOLVED that the appointment by the board of Theunis de Bruyn, effective 20 July 2017, as a non-executive director of DAWN, be and is hereby ratified and confirmed.”
EXPLANATORY NOTE
In accordance with the company’s memorandum of incorporation, one third of the directors are required to retire at each annual general meeting and may offer themselves for re-election. In addition, any person appointed to the board of directors following the previous annual general meeting is required to retire and is eligible for election at the next annual general meeting.
Brief biographical details of each of the directors standing for re-election and ratification are set out on pages 31 to 33 of the integrated report.
Ordinary resolution number 2Re-appointment of auditors
“RESOLVED that the reappointment of PricewaterhouseCoopers Inc., Registered Auditors, represented by Isak Buys as the audit partner, upon the recommendation of the current audit committee, as independent auditors of the company be and is hereby approved for the financial year ending 31 March 2018.”
EXPLANATORY NOTE
PricewaterhouseCoopers Inc. (PwC) has indicated its willingness to continue in office and ordinary resolution 2 proposes the re-appointment of that firm as the company’s auditors with effect from 1 April 2017. Section 90(3) of the Companies Act requires the designated auditor to meet the criteria as set out in section 90(2) of the Companies Act.
The board of directors of the company is satisfied that both PwC and the designated auditor, Isak Buys, meet all relevant requirements and, on recommendation of the audit committee, it is proposed that PwC be re-appointed.
Ordinary resolution number 3Appointment of audit committee members for the year ending 31 March 2018
It is proposed that the independent non-executive directors as indicated below be appointed as members of the audit committee.
Ordinary resolution number 3.1
“RESOLVED that, subject to the passing of ordinary resolution number 1.4, the appointment of Akhter Moosa as member and chairman of the audit committee until the conclusion of the next annual general meeting of the company in 2018 be and is hereby approved.”
Ordinary resolution number 3.2
“RESOLVED that the appointment of Lou Alberts as member of the audit committee until the conclusion of the next annual general meeting of the company in 2018 be and is hereby approved.”
Ordinary resolution number 3.3
“RESOLVED that, subject to the passing of ordinary resolution number 1.2, the appointment of Dinga Mncube as member of the audit committee until the conclusion of the next annual general meeting of the company in 2018 be and is hereby approved.”
NOTICE OF ANNUAL GENERAL MEETING continued
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EXPLANATORY NOTE
In terms of section 94(2) of the Companies Act, a public company must at each annual general meeting elect an audit committee comprising at least three members who are non-executive directors and who meet the criteria of section 94(4) of the CompaniesAct.Regulation42totheCompaniesActspecifiesthatonethirdofthemembersoftheauditcommitteemusthaveappropriateacademicqualificationsorexperienceintheareasaslistedintheregulation.
Theboardofdirectorsofthecompanyissatisfiedthattheproposedmembersoftheauditcommitteemeetallrelevantstatutoryrequirements. Brief biographical details of Akhter Moosa, Lou Alberts and Dinga Mncube appear on pages 31 and 32 of the integrated report.
Ordinary resolution number 4Advisory endorsement of the remuneration policy
“RESOLVED to approve, as a non-binding advisory vote, the company’s remuneration policy (excluding the remuneration of the non-executive directors for their services as directors and members of board committees) for the year ending 31 March 2018 as set out in the report of the remuneration committee contained in the integrated report 2017 on pages 53 to 60.”
EXPLANATORY NOTE
The King Report on Corporate Governance for South Africa, 2009 (King III) recommends that the remuneration philosophy of the company be submitted to shareholders for consideration and for an advisory, non-binding vote to provide shareholders with an opportunity to indicate should they not be in support of the material provisions of the remuneration philosophy and policy of the company. The board of directors has adopted a remuneration policy and therefore shareholders are requested to cast a non-bindingadvisoryvoteontheremunerationpolicywhichwillbeeffectiveforthe2018financialyear.
Ordinary resolution number 5General authority to directors to allot and issue authorised but unissued ordinary shares
“RESOLVED that, as required by and subject to the memorandum of incorporation and the requirements of the Companies Act and the JSE Listings Requirements, from time to time, the directors are, as a general authority and approval, authorised, as they intheirdiscretionthinkfit,toallotandissuetheunissuedordinarysharesofthecompany,subjecttothefollowing:
• anysuchissueofsharesshallbeto“publicshareholders”asdefinedbytheJSEListingsRequirementsandnotto“relatedparties”;
• this authority shall only be valid until the next annual general meeting of the company, provided it shall not extend beyond 15 months from the date of this annual general meeting;
• a paid press announcement giving details, including the impact on net asset value and earnings per share, will be publishedatthetimeofanysuchallotmentandissueofsharesrepresenting,onacumulativebasiswithinonefinancialyear,5%(fivepercent)ormoreofthenumberofsharesofthatclassinissuepriortoanysuchissues;
• issues of shares (excluding issues of shares exercised in terms of any company group share incentive scheme) in any onefinancialyear,shallnot,inaggregate,exceed5%(fivepercent)ofthenumberofsharesoftherelevantclassofthecompany’s issued share capital; and
• in determining the price at which an allotment and issue of shares will be made in terms of this authority, the maximum discount permitted will be 10% (ten percent) of the weighted average traded price on the JSE of the class of shares to be issued measured over the 30 business days prior to the date that the price of issue is determined or agreed between the company and the party/ies subscribing for the shares.”
EXPLANATORY NOTE
To authorise the directors, as required by the company’s memorandum of incorporation and subject to the provisions of section 41 of the Companies Act, to allot and issue at their discretion the unissued but authorised ordinary shares in the share capital ofthecompanyand/orgrantoptionstosubscribefortheunissuedshares,representingnotmorethan5%(fivepercent)ofthenumber of ordinary shares in the issued share capital of the company as at 24 November 2017 for such purposes and on such terms and conditions as they may determine, provided that such transaction(s) has/have been approved by the JSE Limited and are subject to the JSE Listings Requirements, which authority shall endure until the next annual general meeting of the company.
NOTICE OF ANNUAL GENERAL MEETING continued
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Ordinary resolution number 6Authority to implement the special and ordinary resolutions
“RESOLVED that, any director of the company or the company secretary be and is hereby authorised to do all such things, sign all such documents and take all such actions as may be necessary for or incidental to the implementation of the special and ordinary resolutions as set out in this notice of the annual general meeting.”
EXPLANATORY NOTE
Authority is required to do all such things and sign all documents and take all such action as necessary to implement the resolutions set out in the notice and approved at the annual general meeting. It is proposed that the company secretary and/or any director be authorised accordingly.
SPECIAL RESOLUTIONS
Special resolution number 1
Approval of non-executive directors’ fees
“RESOLVED, as a special resolution:
• that the Company be and is hereby authorised to pay remuneration to its directors for their services as directors, as contemplated in section 66(8) and 66(9) of the Companies Act of 2008; and
• that the remuneration structure and amounts as set out below, be and is hereby approved for the period 1 April 2017 until the conclusion of the 2018 annual general meeting at which time it may be rescinded or amended by shareholders by way of a special resolution:
PROPOSED 2018 2017
Base fee R
Penalty for non-
attendanceR
Base fee R
Penalty for non-
attendanceR
BOARD
Chairman of the board (all-inclusive fee) 800 000 17 000 800 000 17 000
Board member 245 000 12 000 245 000 12 000
AUDIT AND RISK COMMITTEE
Chairman of the committee 215 000 17 000 215 000 17 000
Committee member 110 000 12 000 110 000 12 000
REMUNERATION COMMITTEE; NOMINATION COMMITTEE
Chairman of the committee 125 000 17 000 125 000 17 000
Committee member 40 000 6 000 40 000 6 000
SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE
Chairman of the committee 115 000 17 000 115 000 17 000
Committee member 40 000 6 000 40 000 6 000
LEAD INDEPENDENT
Member 200 000 200 000
Fees payable to non-executive directors are exclusive of value added tax.
The penalty for non-attendance as chairman of a meeting would be paid to the member who stood in as chairman of that meeting. The fee for additional meetings would be: Chairman – R25 000; Member – R18 000.
Inorderforthisspecialresolutionnumber2tobeadopted,thesupportofatleast75%(seventy-fivepercent)ofthetotalnumber of votes, which the shareholders present or represented by proxy at this meeting are entitled to cast, is required.
NOTICE OF ANNUAL GENERAL MEETING continued
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EXPLANATORY NOTE
In terms of section 66(8) and section 66(9) of the Companies Act, a company may pay remuneration to directors for their services as directors unless otherwise provided by the memorandum of incorporation and on approval of shareholders by way ofaspecialresolution.Executivedirectorsarenotspecificallyremuneratedfortheirservicesasdirectors,butasemployeesofthe company and as such, the resolution as included in the notice requests approval of the remuneration paid to non-executive directors for their services as directors of the company. Furthermore, an additional fee for the lead independent director is proposed.
Further information is outlined in the report of the remuneration committee on page 69 of the integrated report.
Special resolution number 2Authority to provide financial assistance to any company or corporation which is related or inter-related to the company
“RESOLVED as a special resolution that:
(i) for purposes of section 44 of the Companies Act, the board of directors of the company, at any time and from time to time during the period of 2 (two) years commencing on the date of this special resolution, be and is hereby authorised (subject to compliance with the requirements of the company’s constitutional documents and the Companies Act, each aspresentlyconstitutedandasamendedfromtimetotime),tograntfinancialassistance,ascontemplatedinsection44of the Companies Act, to any person or entity for the purpose of, or in connection with, the subscription of any securities issued or to be issued by the company or a related or inter-related company, or for the purchase of any securities of the company or a related or inter-related company, on such terms and conditions as the board of directors of the company deemsfit;and
(ii) for the purposes of section 45 of the Companies Act, the board of directors of the company, at any time and from time to time during the period of 2 (two) years commencing on the date of this special resolution, be and is hereby authorised (subject to compliance with the requirements of the company’s constitutional documents and the Companies Act, each as presentlyconstitutedandasamendedfromtimetotime)tograntdirectorindirectfinancialassistance,ascontemplatedinsection45oftheCompaniesAct,toarelatedorinter-related(asdefinedinsection1oftheCompaniesAct)companyor corporation or to a member of a related or inter-related corporation or to a person related to any such company or corporationonsuchtermsandconditionsastheboardofdirectorsofthecompanydeemsfit.”
The percentage of voting rights that will be required for this resolution to be adopted is at least 75% of the total number of votes exercisable by shareholders, present in person or by proxy, is required to pass this resolution. The “voting instructions” and “shareholder rights” remain unchanged and are detailed in the company’s integrated report on pages 225 and 226, respectively.
EXPLANATORY NOTE
To the extent necessary under section 44 and 45 of the Companies Act, to authorise the board of directors of the company toprovidefinancialassistanceascontemplatedundersection44oftheCompaniesActinconnectionwiththeissuanceofany securities issued or to be issued by the company or any related or inter-related company and to authorise the board of directorsofthecompanytoprovidefinancialassistanceascontemplatedundersection45oftheCompaniesActtoarelatedorinter-related(asdefinedinsection1oftheCompaniesAct)companyorcorporationortoamemberofarelatedorinterrelatedcorporation or to a person related to any such company or corporation.
Theboardwillnotauthoriseanyfinancialassistanceintermsoftheaboveunlessithasconsideredandissatisfiedthat:
I. consideringallreasonablyforeseeablefinancialcircumstancesofthecompanyatthattime,thecompanywill,immediatelyafterprovidingthefinancialassistancetorelatedorinter-relatedcompanies,satisfythesolvencyandliquiditytestasrequired in terms of the Companies Act;
II. thetermsunderwhichanyfinancialassistanceisproposedtobegivenarefairandreasonabletothecompany;and
III. anyconditionsorrestrictionsinrespectofthegrantingofanyfinancialassistanceassetoutinthecompany’smemorandum of incorporation have been met.
NOTICE OF ANNUAL GENERAL MEETING continued
Page 224
This general authority is necessary for the company to continue making loans to subsidiaries as well as granting letters of support and guarantees in appropriate circumstances. A general authorisation from shareholders avoids the need to refer each instance to shareholders for approval with the resulting time delays and expense. If approved, this general authority will expire at the end of two years. It is, however, the intention to renew the authority annually at the annual general meeting.
NOTIFICATIONS
Shareholdersareherebynotifiedintermsofsection45(5)oftheCompaniesActthattheboardhaspassedthesameresolutionto take effect on the passing of this special resolution by shareholders.
Shareholdersarealsoadvisedthattheboardissatisfiedthatafterprovidingthefinancialassistance,thecompanywillsatisfythesolvencyandliquiditytestsandthatthetermsunderwhichthefinancialassistanceisproposedtobegivenarefairandreasonable to the company.
To transact such other business as may be required at an annual general meeting.
VOTING AND PROXIES
The shareholders of the company will be entitled to attend the general meeting and to vote on the resolutions set out above.
On a show of hands, every DAWN shareholder who is present in person, by proxy or represented at the general meeting shall have one vote (irrespective of the number of shares held in the company), and on a poll, which any shareholder can request, every DAWN shareholder shall have for each share held by him/her that proportion of the total votes in the company which the aggregate amount of the nominal value of that share held by him bears to the aggregate of the nominal value of all the shares issued by the company.
In terms of the JSE Listings Requirements any shares currently held by the DAWN Share Incentive Trust will not be taken into account in determining the results of voting on JSE-related resolutions.
ProxiesA DAWN shareholder entitled to attend and vote at the annual general meeting may appoint one or more persons as its proxy to attend, speak and vote in its stead. A proxy need not be a shareholder of the company.
Aformofproxyisattachedfortheconvenienceofcertificatedshareholdersand“ownname”dematerialisedshareholdersofthe company who are unable to attend the annual general meeting, but who wish to be represented thereat. It is requested that proxy forms be forwarded so as to reach the transfer secretaries, Computershare Investor Service Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 (PO Box 61051, Marshalltown, 2107), before the commencement of the annual general meeting; provided that the chairperson of the annual general meeting may in his discretion accept proxies reaching the transfer secretaries before the commencement of the annual general meeting.
Shareholders’ rights regarding proxies in terms of section 58 of the Companies Act are as follows:
(1) At any time, a shareholder of a company may appoint any individual, including an individual who is not a shareholder of that company, as a proxy to –
(a) participate in, and speak and vote at, a shareholders’ meeting on behalf of the shareholder; or
(b) give or withhold written consent on behalf of the shareholder to a decision contemplated in section 60.
NOTICE OF ANNUAL GENERAL MEETING continued
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(2) A proxy appointment –
(a) must be in writing, dated and signed by the shareholder; and
(b) remains valid for –
(i) one year after the date on which it was signed; or
(ii) any longer or shorter period expressly set out in the appointment, unless it is revoked in a manner contemplated in sub-section (4) (c), or expires earlier as contemplated in subsection (8) (d).
(3) Except to the extent that the Memorandum of Incorporation of a company provides otherwise –
(a) shareholder of that company may appoint two or more persons concurrently as proxies, and may appoint more than one proxy to exercise voting rights attached to different securities held by the shareholder;
(b) a proxy may delegate the proxy’s authority to act on behalf of the shareholder to another person, subject to any restriction set out in the instrument appointing the proxy; and
(c) a copy of the instrument appointing a proxy must be delivered to the company, or to any other person on behalf of the company, before the proxy exercises any rights of the shareholder at a shareholders meeting.
(4) Irrespective of the form of instrument used to appoint a proxy –
(a) the appointment is suspended at any time and to the extent that the shareholder chooses to act directly and in person in the exercise of any rights as a shareholder;
(b) the appointment is revocable unless the proxy appointment expressly states otherwise; and
(c) if the appointment is revocable, a shareholder may revoke the proxy appointment by –
(i) cancelling it in writing, or making a later inconsistent appointment of a proxy; and
(ii) delivering a copy of the revocation instrument to the proxy, and to the company.
(5) Therevocationofaproxyappointmentconstitutesacompleteandfinalcancellationoftheproxy’sauthoritytoactonbehalf of the shareholder as of the later of –
(a) the date stated in the revocation instrument, if any; or
(b) the date on which the revocation instrument was delivered as required in sub-section (4)(c)(ii).
(6) A proxy is entitled to exercise, or abstain from exercising, any voting right of the shareholder without direction, except to the extent that the instrument appointing the proxy otherwise provides.
Any shareholder of the company who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the general meeting should he/she decide to do so.
Dematerialised shareholders of the company, other than “own name” dematerialised shareholders of the company, who have not been contacted by their CSDP or broker with regard to how they wish to cast their votes, should contact their CSDP or broker and instruct their CSDP or broker as to how they wish to cast their votes at the Company’s annual general meeting in order for their CSDP or broker to vote in accordance with such instructions. This must be done in terms of the agreement entered into between such dematerialised shareholders of the Company and the relevant CSDP or broker. If your CSDP or broker does not obtain instructions from you, they will be obliged to act in terms of your mandate furnished to them.
NOTICE OF ANNUAL GENERAL MEETING continued
Page 226
NOTICE OF ANNUAL GENERAL MEETING continued
ELECTRONIC PARTICIPATION
Should any shareholder wish to participate in the annual general meeting by way of electronic participation, that shareholder should make application in writing (including details as to how the shareholder or its representative can be contacted) to so participatetothetransfersecretariesattheaddressbelow,tobereceivedbythetransfersecretariesatleastfivebusinessdaysprior to the annual general meeting in order for the transfer secretaries to arrange for the shareholder (and its representative) toprovidereasonablysatisfactoryidentificationtothetransfersecretariesforthepurposesofsection63(1)oftheCompaniesAct, 2008 and for the transfer secretaries to provide the shareholder (or its representative) with details as to how to access any electronic participation to be provided. The company reserves the right to elect not to provide for electronic participation at the annual general meeting in the event that it determines that it is not practical to do so. The costs of accessing any means of electronic participation provided by the company will be borne by the shareholder so accessing the electronic participation. Shareholders are advised that participation in the annual general meeting by way of electronic participation will not entitle a shareholder to vote. Should a shareholder wish to vote at the annual general meeting, he/she may do so by attending and voting at the annual general meeting either in person or by proxy.
By order of the board
Claire Lindsay Company secretary FCIS
Representing: iThemba Governance and Statutory Solutions (Pty) Ltd Johannesburg
23 August 2017
DISTRIBUTION AND WAREHOUSING NETWORK LIMITED Registration number 1984/008265/06 Incorporated in the Republic of South Africa Share code: DAW • ISIN: ZAE000018834 (“DAWN” or “the company” or “the group”)
Registeredoffice: Cnr Barlow Road and Caveleros Drive, Jupiter Ext 3, Germiston, 1401
Postal address: PostNet suite number 100, Private Bag X1037, Germiston, 1400
Transfer secretaries: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 PO Box 61051, Marshalltown, 2107
Sponsor: Deloitte & Touche Sponsor Services Proprietary Limited, Building 8, Deloitte Place, The Woodlands, 20 Woodlands Drive, Woodmead, 2196 Private Bag X6, Gallo Manor, 2052
Distribution & Warehousing Network Limited | | Integrated report 2017
FORM OF PROXY
Distribution and Warehousing Network LimitedRegistration number 1984/008265/06 • Incorporated in the Republic of South Africa
JSE code: DAW • ISIN: ZAE000018834(“DAWN” or “the company”)
FOR COMPLETION BY CERTIFICATED SHAREHOLDERS OR OWN NAME DEMATERIALISED SHAREHOLDERS ONLYIf you wish to appoint a proxy to act on your behalf at the annual general meeting of DAWN shareholders to be held at 10:00 on Friday, 24 November 2017, at DAWN Training Centre, Cnr Barlow Road and Caveleros Drive, Jupiter Ext 3, Germiston and at any adjournment or postponement thereof, please complete and return this form of proxy (also see the notes overleaf).
If dematerialised shareholders of the company, other than “own name” dematerialised shareholders of the company have not been contacted by their CSDP or broker with regard to how they wish to cast their votes, they should contact their CSDP or broker and instruct their CSDP or broker as to how they wish to cast their votes at the company’s annual general meeting in order for their CSDP or broker to vote in accordance with such instructions. Dematerialised shareholders of the company who are not “own name” dematerialised shareholders of the company and who wish to attend the company’s annual general meeting must obtain their necessary Letter of Representation from their CSDP or broker, as the case may be, and submit same to the transfer secretaries to be received prior to the commencement of the annual general meeting at 10:00 on Friday, 24 November 2017. This must be done in terms of the agreement entered into between the dematerialised shareholder of the company and their CSDP or broker. If the CSDP or broker, as the case may be, does not obtain instructions from such dematerialised shareholders of the company, it will be obliged to act in terms of the mandate furnished to it, or if the mandate is silent in this regard, to abstain from voting.
Full name: I/We (BLOCK LETTERS)
of (address)
Telephone: (Work) (area code: ) Telephone: (Home) (area code: )
Fax: (area code: ) Cell number:
E-mail:
being the holder(s) of DAWN ordinary shares, hereby appoint:
1. or failing him/her,
2. or failing him/her,
3. the chairperson of the general meeting,
as my/our proxy to vote for me/us on my/our behalf at the annual general meeting of DAWN shareholders, which will be held for the purpose of considering, and if deemedfit,passing,withorwithoutmodification,thespecialandordinaryresolutionstobeproposedthereatandatanyadjournment thereof and to vote for and/or against such resolutions and/or abstain from voting in respect of the DAWN shares registered in my/our name/s as follows: Please indicate with an “X” the instructions to your proxy in the spaces provided below. In the absence of such indication the proxy will be entitled to exercise his/her discretion in voting.
Number of votes (one per share)RESOLUTION For Against AbstainOrdinary resolution number 1 Re-appointmentandratificationofappointmentofdirectors
Ordinary resolution number 1.1 Diederik FouchéOrdinary resolution number 1.2 Dinga MncubeOrdinary resolution number 1.3 Edwin HewittOrdinary resolution number 1.4 Akhter MoosaOrdinary resolution number 1.5 Chris BooyensOrdinary resolution number 1.6 Charles BolesOrdinary resolution number 1.7 Theunis de Bruyn
Ordinary resolution number 2 ToconfirmthereappointmentofPricewaterhouseCoopersIncasauditorsand Isak Buys as the designated auditor
D A W NDistribution & Warehousing Network
FORM OF PROXY continued
Number of votes (one per share)RESOLUTION For Against AbstainOrdinary resolution number 3 Appointment of audit committee members for the year ending 31 March 2018
Ordinary resolution number 3.1 Akhter MoosaOrdinary resolution number 3.2 Lou AlbertsOrdinary resolution number 3.3 Dinga Mncube
Ordinary resolution number 4 Toendorsethecompany’sremunerationpolicyanditsimplementationOrdinary resolution number 5 Authorising the directors to allot and issue authorised but unissued ordinary sharesOrdinary resolution number 6 Authorising the directors to implement the special and ordinary resolutions Special resolution number 1 Approvalofnon-executivedirectors’feesSpecial resolution number 2 Authoritytoprovidefinancialassistancetoanycompanyorcorporationwhichisrelated or inter-related to the company
Signed at on 2017
Signature
Assisted by (if applicable)
Name Capacity Signature
(Please print in BLOCK LETTERS)
PLEASE READ THE NOTES BELOW
Notes:
1. Only shareholders who are registered in the register of the company under their “own name” may complete a form of proxy or attend the general meeting. This includes shareholders who have not dematerialised their shares or who have “own name” dematerialised shares. A proxy need not be a shareholder of the company.
2. Dematerialised shareholders who have not elected “own name” registration in the register of the company through a CSDP and who wish to attend the annual general meeting, must instruct their CSDP or broker to provide them with the necessary Letter of Representation to attend.
3. Dematerialised shareholders who have not elected “own name” registration in the register of the company through a CSDP and who are unable to attend, but wish to vote at the annual general meeting, must timeously provide their CSDP or broker with their voting instructions in terms of the custody agreement entered into between that shareholder and the CSDP or broker.
4. A DAWN shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the spaces provided with or without deleting “the chairperson of the general meeting”, but any such deletion must be initialled bytheDAWNshareholder.Thepersonwhosenameappearsfirstontheformofproxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.
5. On a show of hands, every shareholder of the company present in person or represented by proxy shall have one vote only. On a poll a shareholder who is present in person or represented by a proxy shall be entitled to that proportion of the total votes in the company which the aggregate amount of the nominal value of the shares held by him/her bears to the aggregate amount of the nominal value of all the shares issued by the company.
6. Please insert the number of shares in the relevant spaces according to how you wish your votes to be cast. If you wish to cast your votes in respect of a lesser number of DAWN shares exercisable by you, insert the number of DAWN shares held in respect of which you wish to vote. Failure to comply with the above will be deemed to authorise and compel the chairperson, if the chairperson is an authorised proxy, to vote in favour of the resolutions, or to authorise any other proxy to vote for or against the resolutions or abstain from voting as he/she deems fit,inrespectofalltheDAWNshareholder’svotesexercisablethereat.ADAWNshareholder or its/his/her proxy is not obliged to use all the votes exercisable by the DAWN shareholder or its/his/her proxy, but the total of the votes cast and in respect whereof abstention is recorded may not exceed the total of the votes exercisable by the DAWN shareholder or its/his/her proxy.
7. It is requested that proxy forms be forwarded so as to reach the transfer secretaries, Computershare Investor Service Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196 (PO Box 61051, Marshalltown, 2107), before the commencement of the annual general meeting; provided that the chairperson of the annual general meeting may in his discretion accept proxies reaching the transfer secretaries before the commencement of the annual general meeting.
8. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed, should such shareholder wish to do so.
9. Any alteration or correction made to this form of proxy must be initialled by the signatory(ies).
10. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the transfer secretaries or waived by the chairperson of the general meeting.
11. The completion and lodging of this form of proxy will not preclude the relevant DAWN shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such DAWN shareholder wish to do so.
12. The chairperson of the annual general meeting may accept or reject any form of proxy which is completed and/or received other than in accordance with these notesandinstructions,providedthatthechairpersonissatisfiedastothemannerin which the DAWN shareholder wishes to vote.
13. This form of proxy shall not be valid after the expiration of six months from the date when it was signed.
14. Where there are joint shareholders of shares any one of such persons may vote at the annual general meeting in respect of such joint shares as if he/she were solely entitled thereto; but if more than one of such joint holders are present or represented at the general meeting, that one of the said persons whose name standsfirstintheregisterofshareholdersinrespectofsuchsharesorhis/herproxy, as the case may be, shall alone be entitled to vote in respect thereof.
15. DAWN shareholders who hold shares in DAWN through a nominee should advise their nominee or, if applicable, their CSDP or broker timeously of their intention to attend and vote at the annual general meeting or to be represented by proxy thereat in order for their nominee or, if applicable, their CSDP or broker to provide them with the necessary Letter of Representation to do so or should provide their nominee or, if applicable, their CSDP or broker timeously with their voting instruction should they not wish to attend the annual general meeting in person, in order for their nominee to vote in accordance with their instruction at the annual general meeting.
Distribution & Warehousing Network Limited | | Integrated report 2017
DISTRIBUTION AND WAREHOUSING NETWORK LIMITEDIncorporated in the Republic of South AfricaRegistration Number: 1984/008265/06Listed on the JSE LimitedJSE share code: DAWISIN: ZAE000018834
COMPANY SECRETARYiThemba Governance and Statutory Solutions (Pty) LtdBuilding A72 Regency DriveRoute21OfficeParkIrene 0157PO Box 25160Monument Park, 0105
REGISTERED OFFICECnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401PostNet Suite number 100Private Bag X1037Germiston, 1400Tel: +27 11 323 0450Fax: +27 11 323 0466Website: www.dawnltd.co.za
DIRECTORS AS AT PUBLICATION DATE, BEING 23 AUGUST 2017Lou AlbertsCnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Charles Boles(appointed with effect from 20 July 2017)Cnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Chris Booyens(appointed with effect from 1 May 2017)Cnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Stephen ConnellyCnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Theunis de Bruyn(appointed with effect from 20 July 2017)Cnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Diederik FouchéCnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Edwin Hewitt(appointed with effect from 1 April 2017)Cnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Dinga MncubeCnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
Veli Mokoena32 Electron RoadIsando, 1609
Akhter MoosaCnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
George Nakos79 Boeing Road EastBedfordview, 2007Johannesburg
René RoosCnr Barlow Road and Caveleros DriveJupiter Ext 3Germiston, 1401
INTERNETWebsite: www.dawnltd.co.zae-mail: [email protected]
AUDITORSPricewaterhouseCoopers Inc.2 Eglin RoadSunninghill, 2157Johannesburg
TRANSFER SECRETARIESComputershare Investor Services (Pty) LtdRosebank Towers15 Biermann AvenueRosebank, 2196PO Box 61051Marshalltown, 2107Tel: +27 11 370 5000Fax: +27 11 370 5271
SPONSORDeloitte & Touche Sponsor Services (Pty) LtdBuilding 8, Deloitte PlaceThe Woodlands20 Woodlands DriveWoodmead, 2196Private Bag X6Gallo Manor, 2052Tel: +27 11 806 5000Fax: +27 11 806 5666
CORPORATE INFORMATION
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D A W NDistribution & Warehousing Network
INTEGRATED REPORT 2017
Cnr Barlow Road & Cavaleros Drive, Jupiter Ext 3, Germiston
Postnet Suite No. 100, Private Bag X1037, Germiston, 1400
Tel: +27 11 323 0000 Fax: +27 11 323 0466
www.dawnltd.co.za