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Distribution and Warehousing Network Limited
Integrated Report
2014
CONTENTS
OVERVIEW
About this report
2
Financial results at a glance
4
Corporate
6
Group at a glance
9
Leadership
15
Strategy and performance
19
The DAWN model
19
Chairman’s Report
24
Chief Executive Officer’s Report
25
Chief Financial Officer’s Report
30
Forward-looking statement
36
Contextual analysis
37
Operating environment
39
Stakeholder engagement
43
Materiality
54
Value
57
Capitals
57
Value chain
60
OPERATIONAL
Building segment
63
Infrastructure segment
68
Solutions segment
70
CORPORATE GOVERNANCE
Where this icon appears in the Integrated Report,
comprehensive information is available on the web
at www.dawnltd.co.za and on the CD which is
affixed to the inside back cover of this Integrated
Report.
123
Where this icon appears in the Integrated Report,
it refers to further information which is available
elsewhere in the Integrated Report.
Risk management
73
Governance and compliance structure
77
Combined assurance
78
Corporate Governance Report
81
Report of the Remuneration Committee
93
Report of the Social, Ethics and Transformation Committee
114
SUSTAINABILITY
122
SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
127
SHAREHOLDERS’ INFORMATION
163
DAWN Integrated Report 2014
OVERVIEW
DAWN’s vision is to be recognised as the
MASTER DISTRIBUTOR in its targeted industry
sectors, famous for its SPIRIT OF
ENTREPRENEURSHIP
1
2
DAWN Integrated Report 2014
About this report
The Board of Directors of Distribution and Warehousing Network Limited (DAWN) is pleased to present the Integrated
Report for the year ended 30 June 2014 to stakeholders, which has been prepared in accordance with the principles and
practices contained in the King Code of Governance Principles for South Africa 2009 (King III), Discussion Papers issued
by the South African Integrated Reporting Committee (IRC) and the International Integrated Reporting Framework (IIRC)
issued in December 2013. The annual financial statements have been 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.
The primary objective of this Integrated Report is to demonstrate the ability of DAWN to create and sustain value. The
Integrated Report will 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 2014
Integrated Report addresses all businesses, which comprise the South African operations and the sub-Saharan African
and Indian Ocean islands operations, in the form of subsidiaries, joint ventures and associates, in the financial reporting
elements as well as on sustainability matters, unless specifically indicated otherwise. The sustainability data was collated
from all the subsidiaries with the final consolidation into the DAWN Group.
The adoption of integrated reporting principles is a developmental and evolutionary process and it may take a number of
years to fully implement these principles and achieve the desired level of reporting. This report, nevertheless, offers
stakeholders a more holistic view of DAWN’s operations and provides insight on both financial and non-financial matters
for the year ended 30 June 2014.
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 the complete set of annual financial
statements, the Sustainability Report and the King III Register.
DAWN Integrated Report 2014
About this report
continued
ASSURANCE, COMPARABILITY AND RESTATEMENTS
A combined assurance model is applied to provide a coordinated approach to all assurance activities. Internal Audit
followed an assurance process in respect of the data disclosed in the Sustainability Report 2014. The carbon footprint
data is based on Scope 1 and Scope 2 emissions as well as two emissions from Scope 3 (Business Travel and
Packaging), which data has been verified by Global Carbon Exchange. BBBEE data is based on all South African
operations, which data has been verified by Empowerdex. EcoPartners provided an assessment on DAWN’s 2014 Safety,
Health and Environmental programmes.
Most of the performance measures included in this Report have comparative figures and, unless specifically stated
otherwise, cover the financial year of the Group.
On 1 July 2013, the accounting policy for joint ventures was changed to be in line with the requirements of IFRS 11.
Previously, investments in joint ventures were proportionately consolidated by the Group. In terms of IFRS 11,
proportionate consolidation is no longer allowed. The equity method of accounting for investments in joint ventures has
been adopted by the Group and comparative results have been restated accordingly.
In the 2014 financial year the Income Statement was restated for the disposal group held-for-sale (Cobra, ISCA,
Apex Valves, Vaal, Libra, Exipro – collectively referred to as the Watertech Companies). The Statement of Financial
Position was not restated for the disposal group. Apex Valves South Africa Proprietary Limited, which forms part of the
disposal group, was an associate of the Group up to 1 February 2013. The restatement resulted in the associate’s profits
(R0,9 million) and amortisation (R0,1 million) being disclosed under the ‘profits from discontinued operations’ line in the
Income Statement for the prior year.
FEEDBACK REQUEST
The Board welcomes feedback on DAWN’s Integrated Report 2014 from stakeholders. Please contact Mr Jan Beukes,
Risk and Compliance Officer, at [email protected] with any questions or queries on this report.
FORWARD-LOOKING STATEMENTS
Certain statements in this report are forward-looking statements which DAWN believes are reasonable and take into
account 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 environment and fluctuations in commodity prices and exchange rates. As a result, these forward-looking
statements are not guarantees 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 forwardlooking statements attributable to the Group or any member thereof or any persons acting on their behalf are expressly
qualified in their entirety by the cautionary statements above and below. DAWN expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking statements contained herein or to reflect any
change in their expectations with regard thereto or any change in events, conditions or circumstances on which any such
forward-looking statement is based. The forward-looking statements have not been reviewed nor audited by the Group’s
external auditors, PricewaterhouseCoopers Inc.
APPROVAL OF THE INTEGRATED REPORT
The 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 in the year under review. The Board authorised the
Integrated Report for release on 6 November 2014.
For and on behalf of the Board
RL Hiemstra
DA Tod
JAI Ferreira
Independent Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
3
4
DAWN Integrated Report 2014
Financial results at a glance
Highlights
Operating
profit
Revenue
before impairments
and derecognitions
grew by
15%
R4,4 billion
to
Dividend
before impairments
and derecognitions
at
grew by
18%
to
EBITDA
16,5 cents per share
R327 million
exceeds cash generated
from operations
R107 million
Revenue
R’million
Operating profit
R’million
5 000
500
4 000
400
3 000
300
2 000
200
1 000
100
0
0
2005 2006
2007
2008
2009
2010
2011
2012
2013
Restated
2014
2005 2006
2007
2008
2009
2010
2011
2012
2013
Restated
2014
DAWN Integrated Report 2014
5
Financial results at a glance
continued
SEGMENT CONTRIBUTION
TO GROUP OPERATING PROFIT
SEGMENT CONTRIBUTION
TO GROUP REVENUE
(before impairments and derecognitions)
3%
9%
5%
8%
7%
56%
57%
36%
36%
47%
21%
44%
73%
79%
22%
36%
2012
2012
2013
2012
2013
Building
Infrastructure
2014
2014
Solutions
SHARE PRICE PERFORMANCE
1 130
1 040
950
860
770
680
Jun
2013
Jul
2013
Aug
2013
Sep
2013
Oct
2013
Nov
2013
DAWN
Dec
2013
Jan
2014
Feb
2014
JSE All Share Index
Headline earnings per share
cents
80
60
40
20
0
2011
2012
2013
Restated
2014
Apr
2014
May
2014
Jun
2014
Building and Construction Materials Sector
Net asset value per share
cents
Total assets
R’million
4 000
800
3 500
700
3 000
600
2 500
500
2 000
400
1 500
300
1 000
200
500
100
0
0
2010
Mar
2014
2010
2011
2012
2013
Restated
2014
2010
2011
2012
2013
Restated
2014
61%
6
DAWN Integrated Report 2014
Corporate
VISION
The vision of DAWN is to be recognised as the Master Distributor in its targeted industry sectors, famous for its spirit
of entrepreneurship.
DAWN’s interpretation of its vision encompasses:
Suppliers: to be the preferred route to market for its supplier base.
Customers: to be a significant supplier of the widest range of appropriate products required by the targeted customer
base.
Distribution: to achieve optimal competitive advantage through its logistics capability.
Manufacturing: to hold strategic ownership in low-cost, high-quality manufacturers of leading brands.
Entrepreneurship: continue to grow the footprint, both organic and via acquisitions, local and regional.
The roadmap to realising the vision consists of five pillars:
Customer centricity: to provide a superior end-to-end customer experience by becoming totally customer-centric in
everything the Group does.
Planning, sourcing and forecasting: to vastly improve these processes in order to optimise inventory, drive down
working capital and exceed customer expectations.
World-class logistics capability: to achieve the highest standard of logistics performance to deliver optimally on
customer centricity, planning, sourcing and forecasting.
Africa business development strategy: to optimise first mover advantage in exploiting the opportunity, thereby
sustaining DAWN’s strong growth path.
People and culture: drive and develop a value system and company culture which support the business vision and
strategy.
DAWN Integrated Report 2014
Corporate
continued
VALUES
DAWN’s value system is reflected in:
•
the Ten Traits of a DAWN Leader, which outlines the values the Group continuously inculcates in its people; and
•
the Core Values, which reflect the approach of the Board and govern the actions of DAWN.
DAWN’s Code of Ethical Conduct underpins its value system.
The Ten Traits of a DAWN Leader
The Ten Traits of a DAWN Leader are:
•
Self-actualisation.
•
Decisiveness.
•
Ownership.
•
Effective communication.
•
Conviction.
•
Empowering others.
•
Collaborative leadership.
•
Effective delegation.
•
Receptive listening.
•
Self-belief.
Core Values
The Core Values, set by the Board, dictate that all DAWN’s people will:
•
act honestly and fairly with due skill, care and diligence in the interests of DAWN’s customers, having due regard
and respect for diversity;
•
avoid any act that reflects adversely on our honesty, trustworthiness or competence;
•
accept accountability for all our actions and decisions;
•
refrain from any behaviour that can be classified as unlawful, discrimination or harassment;
•
not tolerate any form of unlawful or criminal conduct including, but not limited to, bribery and corruption;
•
ensure a culture of responsible corporate citizenship including, but not limited to, promoting the importance of a
sustainable environment; and
•
have respect for human rights, human dignity and social justice.
This set of values guides and underpins the mind-set and approach of the Board of Directors and management. The
Executive Committee, who makes the strategic decisions of the Group, is comfortable that these values reflect their
approach to their accountability as the highest decision-making body of the Group.
8
DAWN Integrated Report 2014
Corporate
continued
Ethics
The Board believes that good and balanced corporate governance creates an environment in which free enterprise has
the opportunity to prosper. It is of the opinion that effective leadership is the core of good governance as leaders
define the strategy, provide the direction and establish the values and ethics that will influence and guide practices and
behaviour to ensure sustainable performance. The Board considers the short- and long-term impacts of the strategy
on the economy, society and the environment.
The Board regards high ethical standards as non-negotiable. The Code of Ethical Conduct has been adopted to give
effect to the Group’s core values and to guide its relationships with all its stakeholders and other relevant role-players
as well as to outline its commitment to them.
DAWN’s Code of Ethical Conduct is binding on all directors, managers and employees.
This conduct is also expected from independent contractors, agents, service providers and business partners,
irrespective of their status as a natural person, legal person or other entity. Compliance with the Code of Ethical
Conduct is integrated in the operations of the Group.
The Board ensures that its conduct and that of management align to the values and are adhered to in all aspects of its
business.
The Board ensures that all deliberations, decisions and actions of the Board and executive management are based on
the four values underpinning good governance – responsibility, accountability, fairness and transparency and that each
director adheres to the duties of a director. Ethical risks and opportunities are incorporated in the risk management
process.
The Board ensures that the Company is seen to be a responsible corporate citizen and that it builds and sustains an
ethical corporate culture in the Company. To this end an Integrated Report is presented to stakeholders annually,
which incorporates sustainability reporting, addressing the economic, social and environmental impact of the Group
with measurable data being reported.
Whistle-blowing
A whistle-blowing mechanism has been in place since December 2006 for the reporting of suspected irregularities and
unethical behaviour. The Group’s measurement of its ethics and compliance programme includes the Code of Ethical
Conduct which is distributed and communicated to each employee. DAWN uses an outsourced, anonymous, toll-free
hotline, which is managed by KPMG. All reports are submitted to the Chief Audit Executive, Chief Financial Officer and
Risk and Compliance Officer, who ensure that all incidents are logged, investigated, actioned (if necessary), reported to
the Executive Committee and resolved. There is a strong focus on staff awareness of this facility through regular
distribution of the newsletter, posters and the intranet. Copies of the Code of Ethical Conduct and Whistle-Blowing
Policy are available on the Company’s website www.dawnltd.co.za.
DAWN Integrated Report 2014
Group at a glance
ORGANISATIONAL PROFILE
Distribution and Warehousing Network Limited (DAWN) is listed in the Construction and Materials – Building Materials
and Fixtures sector of the JSE Limited and its head office is based in Germiston, Gauteng.
The Group 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.
DAWN has significant proprietary brands and agency agreements with prominent suppliers and also sources branded
products from a well-established supplier network, both locally and internationally.
The Group has two main operating segments, namely Building and Infrastructure, reflecting the main exposures to the
markets it serves. These two are supported by the Solutions segment, which specialises in the support functions on a
world-class operating mindset.
A focused cluster approach allows for the benefits of synergies and cost reduction, while capacity is optimised at
cluster operations. The Group’s Solutions segment provides a crucial competitive advantage, enabling distribution
costs which are significantly below the logistics industry average. It also assists the Group to contain costs across all
businesses and to significantly reduce stock losses.
DAWN distributes approximately 50 000 product lines sourced through more than 2 700 suppliers to over 13 000
customers in the building and infrastructure sectors. DAWN Logistics offers just-in-time break-bulk distribution through
its fleet of more than 190 vehicles on a national basis with over-border deliveries to Botswana, Swaziland and Lesotho.
Products are distributed through an international, strategically positioned distribution network in sub-Saharan African
countries such as South Africa, Angola, Botswana, Democratic Republic of Congo, Lesotho, Mauritius, Mozambique,
Namibia, Nigeria, Swaziland, Tanzania, Zambia and Zimbabwe. In addition to South Africa, manufacturing operations
are located in Botswana and Namibia with joint venture manufacturing operations in Mauritius and Tanzania and an
associate in Angola.
DAWN’s reach extends way beyond these 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.
The scale of DAWN is reflected in the annual financial statements which are published on the Group’s website at
www.dawnltd.co.za.
10
DAWN Integrated Report 2014
Group at a glance
continued
Milestones
1997
•
1998
•
Establishment of Wholesale Housing
Supplies (WHS)
– 1997 to 2014
2003
•
Incledon, a company with its primary
investment being an effective equity holding
•
Acquisition by City Investment Holdings of
in Incledon DPI, an entity which focuses
WHS
mainly on the wholesale of plumbing and
engineering goods and equipment in the civil
City Investment Holdings, through the
and construction sectors
disposal of the manufacturing businesses
and the acquisition of wholesale distribution
companies, is transformed into a wholesale
2004
distribution company
•
Acquisition of Saffer from Boumat Limited
•
DAWN’s strategic change in direction – to be
•
Revenue exceeds R1 billion for the first time
•
Ukhamba Holdings, through its whollyowned subsidiary, Dream World Investments
239, acquires 33,47% of DAWN. 10 million
deferred ordinary shares, with a vesting
a vertically integrated distribution and trading
period over five years, are issued to
specialist
1999
•
Ukhamba to bring the effective BBBEE
shareholding in DAWN by Ukhamba to
City Investment Holdings is renamed
38,8%. Ukhamba is a broad-based black-
Distribution and Warehousing Network
owned investment holding company whose
Limited (DAWN) and the listing is transferred
beneficiaries include some 15 000 historically
to the Industrial – Retail sector of the JSE
•
disadvantaged individuals and a number of
Acquisition from Barlows of Hardware
community trusts
Distributors SA, now trading as WHDsa
2000
Acquisition of 30,43% of the equity in
•
The DAWN Share Trust is created
•
Acquisition of the assets of Windoor, a
•
AFF, a manufacturer and distribution of
kitchen fittings, hinges and related products,
for R15,2 million
focused hardware and tool wholesaler, now
•
trading as Stability
2001
•
2002
•
manufacturer and supplier of taps and
related accessories, for a consideration of
Strate
R145 million
DAWN’s listing is transferred to the
2005
•
Systems, DAWN Packaging and DAWN
Merchandising
DAWN Cargo is created as a separate profit
centre and the fleet of vehicles in the Group
is expanded
DAWN embarks on an extensive share
repurchase programme and obtains
shareholder approval to repurchase 98,2
million shares (33% of the issued share
capital) at a cost of R46,35 million
Establishment of DAWN HR Solutions,
DAWN Marketing & Design, DAWN Business
Materials and Fixtures sector of the JSE
•
Acquisition of 77,6% of Cobra Watertech, a
DAWN’s shares are dematerialised under
Construction and Materials – Building
•
Acquisition of 76% of the share capital of
•
The DAWN Academy is launched
DAWN Integrated Report 2014
11
Group at a glance
continued
Milestones
2006
•
•
Acquisition of 79% of the share capital of
Libra Bathrooms and Amanzi Bath Works,
manufacturers and distributors of
bathroomware, at a combined cost of R21
million and merging the two entities under
Libra
Acquisition of the business of ISCA, a leading
tap and mixer supplier, for R98,2 million
•
Acquisition of the business of Vaal
Sanitaryware, a manufacturer of ceramic
sanitaryware through both vitreous china and
fireclay production, for R23 million
•
2008
Acquisition of a 100% shareholding in DPI
Holdings, the leading supplier of PVC pipes
and fittings to the building and infrastructure
sectors and also a 50% shareholder in
Incledon DPI and a number of decentralised
engineering trading entities in the major
regions as well as cross-border
manufacturers, for a consideration of R50,5
million
Acquisition of the remaining 69,57% interest
in Incledon (see 2003) for a consideration of
•
Establishment of DAWN International
•
Acquisition of the business of Roco Fittings
for R55 million and formation of the DAWN
Kitchen Fittings division with AFF
•
•
Acquisition of a 49% interest in Electroline for
R0,8 million
•
Gauteng trading operations move to a
centralised distribution facility in Germiston
2009
•
Debt reduction and debt restructuring
process mainly through a capital raising of
R300 million by way of a rights issue (41,7
million shares)
•
Acquisition of the business of Plexicor, an
acrylic bath manufacturer based in
Pietermaritzburg, for R8 million
2010
•
Reporting segments are changed from that
of Trading and Manufacturing to that of
Building and Infrastructure, and Support
Services
•
The Group adopts a focused cluster
approach to allow for the extraction of
R33,8 million
2007
Acquisition of a 49% interest in Heunis Steel
for R50 million
Acquisition of a 49% interest in Halsted
Investments (Lasher Tools) for a
consideration of R60,9 million
•
•
– 1997 to 2014 continued
synergies and cost reduction
•
Revenue exceeds R3 billion
•
DAWN is rated first in the Sunday Times Top
100 Companies
•
Formation of AST as a joint venture with
Franke Holding AG. AST offers warehouse
and distribution facilities for branded product
ranges in Africa and the adjacent Indian
Ocean islands, as well as showroom and
office facilities
•
Acquisition of a 49% shareholding in Sangio
Pipe, a manufacturer of high density
polyethylene and polypropylene pipes in
KwaZulu-Natal, for R5,5 million
•
Acquisition of a 33,3% shareholding in
Plastic Investments International Limited
(Fibrex S.A.R.L.), a plastic pipe extrusion
operation in Angola, for R13,3 million
•
Disposal of interest in Halsted Investments
(Lasher Tools) for R70 million
12
DAWN Integrated Report 2014
Group at a glance
continued
Milestones
2011
•
Acquisition of a 49% interest in Apex Valves
for R4,2 million
•
•
– 1997 to 2014 continued
2014
•
focusing on the wholesale and distribution of
Electroline becomes a wholly-owned
irrigation products, pipe, pipe fittings and
subsidiary with the acquisition of the
hardware to the agricultural sector, with a
remaining shares for R0,4 million
49% shareholding
Acquisition of final stake in Cobra for R31,7
•
fittings, for a total consideration of R20
Establishment of DAWN Business
million
Development
•
The Support Services segment is renamed
•
collaborative, proactive, partnership-based
brassware, for R5 million (a company in the
approach to in-house customer
disposal group)
relationships
•
An additional 15,67% shareholding to a total
of 49% in Plastic Investments International
•
•
Kwikot becomes DAWN’s joint venture
Limited (Fibrex S.A.R.L.) is acquired for
partner in AST
R11,2 million
DAWN Cargo and DAWN Distribution
•
Centres adopt a unified approach and are
•
Acquisition of a further 11,4% voting
acquired amounted to R16,5 million
•
business
which increases the Group’s interest to
•
the acquisition by Grohe of a 51% interest in
Acquisition of a 51% interest in Ubuntu
the Watertech Companies (Cobra, ISCA,
Plastics, a company principally involved in
Apex, Exipro, Vaal and Libra) and the
the fabrication of plastic pipe fittings, for
entering into of distribution agreements to
R7,4 million
•
with a particular focus on energy, waste,
infrastructure and process optimisation, to
Group companies and selected external
companies
•
ensure the enhancement of DAWN’s
DAWN Projects is established to provide
specialised project management services,
DAWN Financial Solutions is formed to
render assistance to Group companies on
monthly financial reporting
Agreement is entered into between DAWN
and Grohe Luxembourg Four SA (Grohe) for
over Apex Valves
•
The start-up of Wilhelm Import Network
(WiiN), an upmarket bathroom fittings
interest of Apex Valves for R7,8 million,
60,5% resulting in DAWN obtaining control
100% of Sangio Pipe is obtained through a
share buy-back. The amount of net assets
collectively referred to as DAWN Logistics
2013
Acquisition of a 49% shareholding in Exipro
Manufacturing, a producer of plumbing
DAWN Solutions to reflect a more
2012
Acquisition of a 51% shareholding in Swan
Plastics, a manufacturer of PVC pipes and
million to own 100% of the business
•
The start-up of IPS & Distribution, a business
distribution footprint
•
DAWN receives its inaugural Standard and
Poor’s rating, a credit rating of zaA-. The
Group embarks on a debt restructuring
programme and a world-class treasury
function is established
DAWN Integrated Report 2014
Group structure
Distribution and Warehousing
Network Limited
BUILDING
Trading
Manufacturing
DISPOSAL GROUP HELD-FOR-SALE
Associate
Angola
Zimbabwe
Mozambique
Mauritius
Zambia
Tanzania
DRC
Nigeria
Joint Ventures
Associate
INFRASTRUCTURE
Trading
Manufacturing
DPI International
Namibia
Mauritius
Botswana
Tanzania
Angola
Associate
Associate
SOLUTIONS
Joint Ventures
13
14
DAWN Integrated Report 2014
Geographical footprint
United Kingdom
Grand Cayman
Antigua
Dominica
Barbados
Grenada
Trinidad
Guyana
Jamaica
Belgium
India
St. Lucia
St. Vincent
Hong Kong
Spain
Malta
Malaysia
Sri Lanka
Greece
Singapore
Maryland (U.S.A.)
Guyana
G
y
Bahrain
Mauritaniaa
M
U.A.E.
U.A
A
Brazil
Nigeria
Chile
Southern
Sout
out
uthern Su
Sudan
Ghana
Australia
Uganda
Uga
ga dda
gand
Seychelles
Kenya
Tanzania
Zam
Zambia
Angola
Mozambique
Mo
z mb
Malawi
Ma
M
Mala
wii
Mauritius
ZZimbabwe
Zim
Zimba
i
bw
wee
w
Namibiaa BBotswana
otswana
na
Swaziland Madagascar
Lesotho
South Africaa
D.R.C.
Argentina
St. Helena
New Zealandd
DAWN’s presence
DAWN’s reach
DAWN Integrated Report 2014
Leadership
INDEPENDENT NON-EXECUTIVE DIRECTORS
RL Hiemstra (58) *
x+
º
LM Alberts (74) *
x+
º
OS Arbee (55) *
x+
º
Independent Non-Executive Chairman
BAcc (Hons); CA(SA)
Independent Non-Executive Director
BSc Eng; MBL
Independent Non-Executive Director
BAcc, CA(SA), H Dip Tax
Date appointed: 30 June 1998
Date appointed: 30 August 2001
Date appointed: 15 December 2004
Other directorships: Non-Executive
Director of Imperial Holdings Limited
as from 30 September 2012
Other membership: Member of the
Engineering Council of South Africa
(ECSA)
Tak Hiemstra has recently retired as
Executive Director: Strategic Planning
of Imperial Holdings Limited. He was
formerly the Chief Executive Officer of
Imperial Bank. He has twenty years’
experience in corporate finance affairs
and contributes to the Board of
DAWN through corporate strategic
planning. Tak was appointed
Chairman of DAWN with effect from
1 July 2011 and retired as executive
director from Imperial Holdings
Limited at the end of September
2012 and also resigned as director of
Ukhamba Holdings (Pty) Ltd on that
date. He is therefore an independent
non-executive director of DAWN as
from 30 September 2012.
Lou Alberts is an electrical engineer
with more than forty years’
experience in technical management
as well as in the business field,
where he has held various executive
directorships. He was actively
involved in the unbundling of the
Boumat group in 1999, where he
was the Chief Executive Officer, and
has also served on the board and
council of SEIFSA. He currently
consults to the building industry, both
locally and internationally. Lou was
the Chairman of the DAWN Group
until 30 June 2011, upon which date
he retired as Chairman, but agreed
to continue as an independent nonexecutive director.
Other directorships: Director of
Imperial Holdings Limited and a
number of Imperial Group
subsidiaries in South Africa, United
Kingdom and Germany.
Osman Arbee was a senior partner
at Deloitte & Touche and spent 23
years with Deloitte & Touche in
various roles, which included being a
Board member and Executive
Committee member. He joined
Imperial Holdings Limited on
1 September 2004 and is the Group
Chief Financial Officer of Imperial
Holdings Limited.
DM Mncube (54)
Independent Non-Executive Director
MCom Business Management; MSc Forest Products
Date appointed: 1 May 2014
Other directorships: York Timber Holdings Limited; Food and Trees for Africa; Forest Sector
Charter Council; Rolfes Group Limited
Dinga Mncube has 20 years’ executive experience in forestry, timber processing and the paper
and pulp industry.
He has previously chaired the National Forests Advisory Council, Forestry South Africa and has
been a board member of Sappi Southern Africa. Amongst other achievements, Mr Mncube played
a leading role in the revival of Project Grow, an award-winning enterprise development programme
at Sappi. He also played a key role in driving Sappi’s R814 million black economic empowerment
transaction in 2010.
15
16
DAWN Integrated Report 2014
Leadership
continued
NON-EXECUTIVE DIRECTORS
M Akoojee (35)
VJ Mokoena (54) #
Non-Executive Director
BAcc (Hons) Acc; CA(SA); CFA
Non-Executive Director
BA (UJ); Post-Graduate Diploma in Management (Wits); Executive Development
Programme (New York)
Date appointed: 23 June 2011
Other directorships: Director of
Ukhamba Holdings (Pty) Ltd
Mohammed is the executive director
responsible for mergers, acquisitions,
strategy and investor relations for the
Imperial Group. He joined Imperial
Holdings Limited in 2009, having
previously worked within the
corporate finance and investment
banking team at Investec. Prior to
joining Investec, Mohammed worked
for Nedbank Securities as an
investment analyst. He was
appointed to the Imperial Executive
Committee in January 2011 and to
their Board in November 2013.
Date appointed: 22 June 2011
Other directorships: Non-executive director of Eqstra Holdings Limited and Ukhamba
Holdings (Pty) Ltd; Trustee of Imperial and Ukhamba Community Development Trust;
Founder and Chairman of Ninathi Investment Holdings (Pty) Ltd; Director of Ukhamba
Holdings (Pty) Ltd
Veli Mokoena was appointed to the Imperial Board on 17 March 2004 and with the
unbundling of Eqstra from the Imperial Group in April 2008, resigned from the Imperial
Board and joined the Eqstra board.
Veli was the Chief Executive Officer of Ukhamba Holdings, the Group’s BBBEE partner,
and served on the DAWN Board from December 2004 until February 2011. He
resigned in February 2011 and formed Ninathi Investment Holdings (Pty) Ltd. Veli was
re-appointed to the DAWN Board in June 2011.
EXECUTIVE DIRECTORS
DA Tod (58) º ^
Chief Executive Officer
Date appointed: 30 June 1998
Derek Tod is an executive with approximately thirty-five years’ experience in business
management and retail distribution on a national basis. Derek was appointed Managing Director
of DAWN in 1998 and played a pivotal role in the successful implementation of a turnaround
strategy at DAWN which involved a complete change of direction. Derek’s in-depth knowledge
and experience of the building materials supply industry expand across into the manufacturing
environment which drove a highly successful backward integration strategy at DAWN since 2004.
JA Beukes (46) ^ • #
Risk and Compliance Officer
BCom (Hons) Acc
Date appointed: 20 August 1998
After completing his articles, Jan joined the Group as Financial Manager in 1994 and was
appointed Group Financial Director in 1998. In 2006 he assumed the position as the Chief
Executive of the Trading division and was appointed Chief Operating Officer of DAWN in 2008.
He was appointed as Chief Risk Officer in 2010 and Group Compliance Officer in 2012.
DAWN Integrated Report 2014
Leadership
continued
EXECUTIVE DIRECTORS continued
JAI Ferreira (36) º ^ •
GD Kotzee (53) ^
Chief Financial Officer
CA(SA); Harvard (MDP)
CEO Africa Operations and DAWN
Manufacturing
B Eng (Met), MBL Unisa
Date appointed: 30 November 2007
Dries Ferreira is a Chartered Accountant (SA) who completed his articles at
PricewaterhouseCoopers Inc. He has nine years’ experience in the finance field. He
joined the DAWN Group in November 2005 as Group Financial Manager and was
appointed Chief Financial Officer in 2007. In 2008, Dries successfully completed the
Harvard Management Development Programme.
RD Roos (47) ^ • #
Executive Director
BCom (Hons); MBA
Date appointed: 14 December 2009
René Roos completed her BCom (Hons) at the
University of Johannesburg in 1989 and an
MBA at Wits Business School in 1999. She
joined Lonrho in 1990 as HR consultant,
seconded to a platinum refinery as HR Manager
in 1992. René joined Saffer in 1997 in the role of
Group HR Manager. She was appointed as
Chairperson of the Support Services Forum in
2004 and as Chief Executive of the Support
Services division (now DAWN Solutions) in July
2006. In 2014, René was appointed
chairperson of the newly formed DAWN
Strategy Committee.
Date appointed: 1 January 2009
After qualifying as a metallurgical
engineer through Iscor’s pupil
engineering bursary scheme,
Gerhard has worked for various
companies involved in
manufacturing local and
international branded products.
Some of these positions included
Quality and Manufacturing
Manager at Copalcor Rolled
Metals, General Manager at
Dorbyl, Managing Director and
later Divisional Manager Africa and
Middle East at Franke Kitchen
Systems, a Swiss-owned
company. Gerhard is also on the
Board of SAPPMA. Mr GD Kotzee
was appointed to the DAWN
Board on 6 November 2014.
PRESCRIBED OFFICERS
CJ Bishop (57) º ^
Chief Operating Officer
CA(SA)
Date appointed: 1 March 2010
Collin has twenty-five years’ experience in corporate finance, both locally and abroad, originating
with PricewaterhouseCoopers in London and culminating in his appointment as Managing
Partner of PwC’s Corporate Finance Lead Advisory division. In 1998 Collin started Bishop
Corporate Finance (Pty) Ltd and was lead advisor to all DAWN’s acquisitions and disposals until
his appointment in 2010 as Chief Operating Officer of DAWN.
17
18
DAWN Integrated Report 2014
Leadership
continued
PRESCRIBED OFFICERS continued
M Coetzee (56)
CEO Sanitaryware cluster
National Diploma in Costing
Date appointed: 1 August 2008
Martin Coetzee has extensive manufacturing experience having spent twenty-four years with the
Murray and Roberts group of companies and he successfully ran Borbet SA, an aluminium
wheel rim manufacturing plant in Port Elizabeth, for twelve years. He joined Vaal Sanitaryware on
1 August 2008 as Managing Director and in June 2009 was appointed CEO of the DAWN
Sanitaryware cluster, which incorporates the Vaal, Libra and Plexicor brands.
DK Ferguson (55) ^
RP Haynes (67) ^
GR Johnston (50) • ^
Chief Procurement Officer
BCom (Commercial Law)
DAWN Brands Executive
CEO Logistics division
BSc (Operations Research), MBA
Date appointed: 1 March 1992
Dave Ferguson started his career in
the services industry after obtaining
his BCom degree at the University of
the Witwatersrand. He joined
Hardware Distributors in 1992 as
Financial Manager. The business was
acquired by DAWN in 1999 and he
was appointed Group Financial
Director of Wholesale Housing
Supplies (Pty) Ltd in 2000, Chief
Executive Officer of the division in
2010 and Chief Procurement Officer
for the DAWN Group in July 2014.
Dave also joined DAWN’s Executive
Committee on 1 July 2014.
Date appointed: 1 July 2010
Bob Haynes has over forty-two
years’ experience serving at many of
the forerunners to the Group, starting
at AECI, to Sasol Polymers and
finally Group 5. After his appointment
in 1969 as a resin chemist and
plastics systems service consultant,
he transferred to the commercial
operations of AECI to spearhead the
technical development of plastic
product systems in the civils, mining
and construction sectors. His
marketing career with Duropenta and
DPI Plastics spanned a period of
twenty-five years. Bob’s range of
technical and marketing skills has
now been combined into a single
function at DAWN to drive Group
specifications and company brands.
PJ van Niekerk (59) ^
Date appointed: 25 June 2007
Prior to joining DAWN in 2007,
Graeme spent 17 years in various
companies in the manufacturing sector
in management positions ranging from
Material Procurement Manager,
Production Manager, Operations
Manager at private companies to
Managing Director at Bruply Doors
(Pty) Ltd (a company owned by
Steinhoff Limited), whereafter he
started his own business, The Door
Group CC. In 2007 Graeme was
appointed as the Divisional Director
responsible for all warehouses in the
DAWN Group. Graeme is currently
responsible for DAWN Logistics, which
comprises the DAWN Distribution
Centres, DAWN Cargo and DAWN
Merchandising and was appointed to
DAWN’s Executive Committee on
1 July 2014.
CEO DAWN International cluster
Diploma in Financial Management; BCompt; Executive
Leadership Programme (UNISA)
Date appointed: 1 September 1999
* Audit Committee
#
Pieter van Niekerk started his career in finance at Eloptro
(a division of Denel) in 1976 whereafter he held various
financial management positions at Sunripe Fruits, Kentron
and T&N Holdings until his appointment as Financial
Director at DPI Plastics in 1999. Pieter was appointed
CEO of DAWN International and to the DAWN Executive
Committee in 2009. Pieter resigned from DAWN on
15 July 2014.
Social, Ethics and Transformation
Committee
^ Executive Committee
•
IT Steering Committee
+
Nomination Committee
x
Remuneration Committee
o
Risk Committee
DAWN Integrated Report 2014
Strategy and performance
THE DAWN MODEL
DAWN’s business model gives expression to its vision to be positioned as –
•
a trading
•
and distribution company
•
with strategic investments in anchor brands
A trading and distribution company
DAWN’s key competencies are logistics and trading. DAWN’s preeminent goal is to be a leading force in the
distribution of plumbing, hardware and infrastructural products. To achieve this goal, it is necessary to also be a
leading distributor of the products to ensure maximum volumes of product into the distribution channel. DAWN’s
strategy is therefore to focus its efforts on the logistics and trading side of the business, which will facilitate the
greatest future growth prospects.
DAWN’s trading division has established an unrivalled customer base in South Africa and is similarly expanding this
expertise into southern Africa through its Africa division, Africa Saffer Trading and Incledon International.
19
20
DAWN Integrated Report 2014
The DAWN Model
continued
Strategic investments in anchor brands
In order to have meaningful influence on the core branded products traded and distributed by DAWN, the Group
originally embarked on a strategy to acquire significant stakes in manufacturers of such branded product, and will
continue to do so.
In order to sustain the cost effectiveness of and grow the core distribution competency of DAWN, it is a fundamental
requirement to be the master distributor of these branded products. This includes brands in which DAWN has an
investment, but also those of manufactured brands in which DAWN has no investment.
DAWN’s strategy to globalise manufacturing operations will:
•
provide access to global technology and research and development;
•
expedite product development through the access to international resources and intellectual property;
•
render access to global manufacturing technology expertise;
•
facilitate global dispersion of manufactured product through owned, established channels;
•
add the volume of the global partner to local volumes, enabling the required investment in technology;
•
afford opportunity for international production rationalisation and quick global access to partners’ existing
networks; and
•
improve the returns from manufacturing operations.
Cash resources generated from transactions with global partners will allow:
•
acquisition of controlling stakes in trading entities;
•
acquisition of significant minority stakes in brand manufacturers in complementary sectors;
•
the adding of additional trading and distribution volumes to DAWN’s model; and
•
the replacement of turnover and earnings lost in the globalising of manufacturing businesses’ transactions.
The Five Pillars for continued development of the DAWN Model
Customer Centricity: Provide a superior end-to-end customer experience by becoming totally customer centric in
everything the Group does.
Planning, Sourcing and Forecasting: Vastly improve these processes in order to optimise inventory, drive down
working capital and exceed customer expectations.
World-class Logistics Capability: Achieve the highest standard of logistics performance to deliver optimally on
customer centricity and planning, sourcing and forecasting.
Africa Business Development Strategy: Optimise first mover advantage in exploiting the opportunity, thereby
sustaining DAWN’s strong growth path.
People and culture drive and develop a value system and company culture which support the business vision and
strategy
DAWN Integrated Report 2014
The DAWN Model
continued
Target Operating Model
•
Being a customer-centric organisation, the markets and customers are highlighted at the top of the Target
Operating Model diagram on pages 22 and 23.
123
•
These markets or customer segments are serviced by a consolidated Trading focus. This includes all trading
entities both within and outside of South Africa. It also plays a coordinator role for Manufacturing’s sales and
branding functions.
•
Logistics is a core strength and competitor barrier-to-entry for DAWN. Accordingly, it is raised to an appropriate
level within the Target Operating Model. The main inventory customer service contact point is through Logistics.
•
Manufacturing is clustered into the current three main focus areas. Trading will co-ordinate their sales activities
and integrate their planning with the rest of the Group.
•
Shared services are split into four areas: corporate, strategic, business systems and support. The need for
further development of strategic services and business systems is highlighted.
•
External suppliers are seen as an integral part of the Target Operating Model and are thus included in the
diagram.
21
22
DAWN Integrated Report 2014
Target Operating Model
SOUTH AFRICA
MARKETS | CUSTOMERS
CORPORATE SERVICES
•
•
•
•
Finance
Public Relations
Strategy
Risk Management
Wholesale &
Retail
Construction
& Projects
Contractors
Agriculture
Large
Corporates
Municipalities
Mining
Multinationals
EXPORTS
TRADING
South Africa
SHARED SERVICES
Strategic
• Strategic Planning Management
• Continuous Improvement
Initiatives
– Direct sales
– Brand
Management
Additional services to be added as
required
Business Systems
• Business & Systems Analysis
• Process Optimisation
• Business Process Management
• ICT Infrastructure Management
• Programme Management
Support
• Product/Technical Support
• HRM Services
• Finance & Administration
• Marketing Collateral & Events
• Merchandising Services
EXTERNAL
SUPPLIERS
• Local
• International
MANUFACTURING
PROCUREMENT, COMMERCIAL AND OPERATIONS MANAGEMENT
LOGISTICS
• DAWN Distribution
Centres/Warehousing
• DAWN Cargo
• Customer Services
DAWN Integrated Report 2014
AFRICA
REGIONS | COUNTRIES | MARKETS | CUSTOMERS
Retailers
Agents
Distributors
Industries
Projects
TRADING
Africa
Various DAWN Africa Trading Entities
LOGISTICS MODEL
Angola
Mauritius
Zimbabwe
Zambia
Mozambique
Tanzania
DRC
Nigeria
• Transport
• Warehousing
EXTERNAL SUPPLIERS
MANUFACTURING
• International
• Satellite Facilities
DPI International
Namibia
Mauritius
Botswana
Tanzania
Angola
Joint Ventures
Associate
PROCUREMENT, COMMERCIAL AND OPERATIONS MANAGEMENT
23
24
DAWN Integrated Report 2014
Chairman’s report
DAWN’s results for the year were impacted by a challenging environment, marked by a
slowdown in the economy where GDP growth of 2,2% in the first half of F2014 slowed to
zero in the second half; the sudden, sharp decline in the rand which resulted in a significant
negative currency effect at AST; the five-month platinum mine strikes which had an indirect
effect on the Group’s rural consumers in these areas; excessive rainfall in Gauteng in March
2014 which hampered building activity; disruptions caused by the elections in May 2014; and
start-up losses in new businesses in the Group.
The executives reviewed DAWN’s strategy and broadened its vision to focus on the Group’s
core competencies with an expansion into global territories through its agreement with Grohe
Luxembourg Four SA. DAWN’s proven expertise in trading and distribution, underpinned by
retaining a minority stake in manufacturing brands, is the Group’s key differentiator in the markets in which it operates. The
benefits of the transaction for the Group are:
•
DAWN retains its existing distribution rights for a minimum of three years and also obtains the exclusive rights in
certain high-growth African markets to distribute the brands of the Watertech companies, being Cobra, ISCA, Apex
Valves, Vaal, Libra and Exipro, as well as the Grohe brand. It will also increase DAWN volumes to enable full utilisation
of excess logistics capacity over time.
•
DAWN’s returns from the 49% it retains in Grohe DAWN Watertech Holdings, the joint venture company with Grohe
which houses the Watertech companies, will increase. Grohe DAWN Watertech Holdings will receive benefits from the
global Grohe group factories and will have access to a global distribution network outside southern Africa for its
exports, access to leading research and development and the ability to source products and components at better
costs, as well as the opportunity for global production rationalisation.
•
The transaction will result in the utilisation of excess capacity at the Watertech companies, thereby improving
recoveries.
The expansion of DAWN’s geographical reach will enhance the Group’s trading and distribution capabilities and differentiate
it as the master distributor of branded products in sub-Saharan Africa and the Indian Ocean islands. Innovation is a constant
in the Group’s businesses, ranging from product concepts to production processes and business systems, which will now
be further enhanced through its access to a global production network based on German precision engineering.
DAWN’s support of local initiatives, promotion of local development and employment opportunities created in local
communities result in the businesses of the Group being well regarded in the communities in which they operate. DAWN’s
procurement philosophy entails support of local manufacturers and only imports as a defensive strategy to protect market
share where there is no alternative local product in that bracket, typically more at the lower end of the market. Through the
purchasing of local products, job opportunities are created in South Africa and the consumer’s spending power is increased.
DAWN strives to enhance shareholder value and the positive headline earnings per share trend from F2013 continued into
the first half of F2014, however, results for the second half were impacted by the challenges outlined above, resulting in
headline earnings for the year decreasing by 24% from 66,1 cents per share to 50,1 cents per share.
DAWN’s policy is to pay dividends once a year on an approximately 4 times cover. In view of the R150 million net cash
inflow after the Grohe transaction, the elimination of high capital expenditure and working capital-heavy businesses as well
as the current expansionary capital expenditure programmes coming to an end over the next six months, the Board has
declared a dividend of 16,5 cents per share, an approximately 2 times cover on earnings per share, which is a temporary
reduced cover.
The contribution of DAWN’s management and staff, the continued support and meaningful engagement of our stakeholders,
the strategic input of my fellow directors and the commitment of the Chief Executive Officer, Derek Tod, and his executive
team are greatly valued and appreciated.
The Board welcomes Mr Dinga Mncube as independent non-executive director of the Board with effect from 1 May 2014
and looks forward to his contribution to the Group.
The bedding down of acquisitions made during the year, the pursuit of new acquisitions and business opportunities and the
implementation of the change in strategy will form the platform for growth in the year ahead and underpin performance in
the future.
RL Hiemstra
Independent Non-Executive Chairman
DAWN Integrated Report 2014
Chief Executive Officer’s report
The Group delivered disappointing trading results for the year in a challenging
economic environment. Trading conditions in South Africa during the last quarter of the
year became increasingly disruptive, compounded by the detrimental effects of
prolonged labour unrest and declining consumer demand.
Performance
Growth during the first half of F2014 was attributable to the Infrastructure segment’s
strong performance, however, the second half was weak as the building market, in
particular, was extremely tough and the Infrastructure segment’s growth normalised
somewhat off the high base set in the first half. Interest paid was up markedly due to the debt raised to fund
substantial, planned capital expenditure, the recent acquisitions and the initial losses in two new start-up businesses
as well as funding of higher working capital requirements.
The Group’s positive headline earnings per share trend from F2013 continued into the first half of F2014, but
challenges in the second half resulted in headline earnings per share being down 67% from the second half of F2013.
Headline earnings for the full year therefore decreased by 24% to 50,1 cents per share. These are unsatisfactory
results and the Group has initiated various steps to address these matters.
Furthermore, the transaction entered into with Grohe Luxembourg Four SA (Grohe) is the first step towards the
achievement of the Group’s refocused long-term strategy.
The Grohe transaction
Group strategy and rationale for the transaction
123
DAWN’s approach to a strategic refocus is detailed on pages 19 to 23 of the Integrated Report. DAWN’s current base
for growth is premised upon its core competency of trading and distribution where DAWN has the proven expertise
required to manage approximately 50 000 product lines. This provides DAWN with key advantages in the marketplace.
Firstly, DAWN’s business model is very sensitive to volume throughput, with critical trading mass and economies of
scale at the core of its operating structure, hence the importance of the acquisition of further volumes. Secondly, high
barriers to entry exist, given that DAWN has the largest distribution capability in southern Africa providing 100%
coverage of the markets for building materials and for infrastructure products. Finally, DAWN’s ability to offer a onestop package for just-in-time, break-bulk delivery and the provision of credit is its competitive advantage which attracts
the customer into DAWN.
As a long-term strategy it is imperative for DAWN to be the master distributor of branded products in its markets, this
being the true way to sustain cost effectiveness and grow the Group’s distribution volumes. The achievement of the
necessary volumes is not only dependent on increased distribution of DAWN’s own brands, but also of brands that the
Group does not own.
Internationalising DAWN was an obvious next step, which came with its own challenges.
DAWN’s manufacturing volumes are insufficient to justify the investment needed in technologically advanced, high
volume equipment to stay ahead of the competition. This left DAWN with two choices – acquiring an international
manufacturer, the cost of which was clearly prohibitive; or, joining forces with an international manufacturer and
bringing globalisation to DAWN’s South African factories, and this is the route DAWN chose.
The solution to global growth came in the form of Grohe Luxembourg Four SA (Grohe). Grohe is by far the largest
sanitary fitting and solutions business in the world. The Grohe group will become DAWN’s global partner and has a
global production network based on German precision engineering. DAWN will have access to Grohe’s facilities and
skills in Japan (Lixil), China (where it has a market-leading position through Joyou), Germany (Grohe), Portugal, Canada
and the USA (American Standard).
25
26
DAWN Integrated Report 2014
Chief Executive Officer’s report
continued
Structure of the transaction
Structure – pre-transaction
DAWN
100%
100%
100%
Main Street 1254
DCH
61%
100%
Apex
Valves
Vaal
100%
ISCA
100%
Libra
100%
49%
Exipro
WHS
Cobra
Other DAWN
manufacturing
companies
• DPI
(100%)
• Sangio
(100%)
• Heunis
(49%)
• Ubuntu
(51%)
• Swan
(51%)
• Pro-Max *
(60%)
• AST
(51%)
• WiiN
(60%)
• DAWN HR (58%)
• DAWN Marketing
& Design
(80%)
* Acquired subsequent to year-end.
The transaction involves all DAWN’s watertech and sanitaryware companies being Cobra, ISCA, Apex Valves, Exipro,
Vaal and Libra (the Watertech group of companies) which, with the exception of Exipro and Apex Valves, were all
100% owned by DAWN at year-end.
Structure – post-transaction
DAWN
Grohe
51%
49%
100%
100%
100%
Grohe DAWN
Watertech Holdings
DCH
100%
100%
APEX
Valves
Vaal
100%
ISCA
100%
Grome
* Acquired subsequent to year-end.
100%
Libra
49%
Exipro
WHS
100%
Cobra
Other DAWN
manufacturing
companies
• DPI
(100%)
• Sangio
(100%)
• Heunis
(49%)
• Ubuntu
(51%)
• Swan
(51%)
• Pro-Max *
(60%)
• AST
(51%)
• WiiN
(60%)
• DAWN HR (58%)
• DAWN Marketing
& Design
(80%)
DAWN Integrated Report 2014
Chief Executive Officer’s report
continued
After the transaction Grohe will hold 51% of these companies through Grohe DAWN Watertech Holdings and DAWN
will hold 49% of that company.
Grohe DAWN Watertech Holdings now owns 100% of the Watertech group of companies, including the important
addition of Grome, DAWN’s joint distribution company with Grohe, but excluding Exipro Manufacturing, which is 49%
held.
Grohe has a call option which gives it the right to increase its stake in Grohe DAWN Watertech Holdings to 75,1%.
This option is exercisable after ten years but must be exercised before the completion of twelve years from the date of
acquisition. The option price is the greater of 9 multiplied by R1 billion or 9 multiplied by the actual EBITDA at that time
multiplied by the percentage acquired. If Grohe exercises its call option, DAWN has a put option on the same terms,
should it so wish.
Most importantly, it has been agreed that an annual dividend equating to 33% of the consolidated distributable profit,
and after providing for any debt servicing for the next twelve months, will be paid out pro rata to Grohe DAWN
Watertech Holdings shareholders.
The Grohe DAWN Watertech Holdings Executive Committee includes Julian Henco as Chief Executive Officer, who is
well known for putting Hansgrohe on the map in southern Africa, and myself as Chief Operating Officer.
Benefits to DAWN shareholders
Grohe will globalise DAWN’s building manufacturing base to maximise DAWN’s growth in Africa. DAWN, for the 51%
of the Watertech group of companies sold, receives many benefits:
•
Firstly, DAWN has the distribution rights of the Watertech group of companies as well as the Grohe brand in
sub-Saharan Africa and the Indian Ocean islands, excluding Nigeria, through its owned, established channels;
–
–
•
DAWN’s presence in high growth markets such as the Democratic Republic of the Congo, Mozambique
and Zambia will be expanded hereby. Within this territory, DAWN receives:
º
the exclusive distribution rights to Grohe and Joyou products as well as the exclusive Logistics
rights for three years for the distribution of Grohe DAWN Watertech Holdings’ products. DAWN is
confident that this agreement will continue well beyond the three years; and
º
the non-exclusive trading distributorship of Grohe DAWN Watertech Holdings’ products;
DAWN’s volumes will increase to enable full utilisation of its excess logistics capacity over time.
Secondly, DAWN will see higher returns from the 49% shareholding it retains in Grohe DAWN Watertech
Holdings as well as:
–
access to the low-cost manufacturing platform at Joyou, China and benefits from the global Grohe and
Lixil group factories;
–
access to Grohe’s extremely strong reputation for quality, technology, design and sustainability, which
includes:
º
sourcing products and components at better costs;
º
access to a global distribution network outside southern Africa;
º
access to leading research and development;
º
opportunity for global production rationalisation; and
º
quick global access to Grohe’s existing ranges;
•
It is most encouraging that Lixil and Grohe have committed to a non-binding objective of growing EBITDA of the
Watertech group of companies by approximately 17% per annum (more than R1 billion in ten years); and
•
Most importantly, this transaction will result in the utilisation of excess capacity at the Watertech group of
companies, thereby improving recoveries.
27
28
DAWN Integrated Report 2014
Chief Executive Officer’s report
continued
Salient details
The Grohe transaction will realise significant value for DAWN. DAWN will receive R880 million in cash in respect of of
Grohe’s acquisition of a 51% holding in the Watertech companies. This is based on 9 multiplied by the pre-transaction
EBITDA of R191 million and translated into a price: earnings ratio of 18.
Competition Commission approval of the transaction was obtained on 23 October 2014.
The R880 million will be reduced by R130 million, comprising DAWN’s share of a loan to the joint venture company
and the purchase cost of Grome, a net debt adjustment, transaction costs and the reversal of management fees,
resulting in a consideration of R750 million.
The R750 million will initially be applied to settle all Group debt, amounting to R600 million, leaving R150 million cash
on hand.
Financial effects
The once-off transaction costs of approximately R18 million cannot be set off against the substantial profit and shown
separately as an expense and this will negatively impact on the first half of F2015. The acquisition by Grohe of 51% of
the earnings (R46 million) leaves a gap in DAWN’s future earnings and needs to be replaced. This will be done through
acquisitions.
The acquisition targets have to conform to strict criteria, being:
•
businesses in complementary sectors (eg electrical and branded goods);
•
preferably control of branded trading businesses; and/or
•
significant minority stakes in brand manufacturers.
These acquisitions must provide additional trading and distribution volumes which can be applied to the existing
DAWN customer base, thereby improving economies of scale once again.
DAWN is once again in discussion with various targets, all being quality brands with price: earnings ratios ranging from
6 to 9. This implies an average price: earnings ratio of 7 times, which will require an investment of about R320 million
to replace the R46 million earnings sold, before DAWN adds in all the other benefits from the transaction, as outlined
above.
DAWN will progressively use the cash on hand as well as new debt to acquire various businesses in line with the
Group’s core competency. The Group’s self-imposed limit to debt is that it should never be more than 2,5 times
EBITDA. Should the economy worsen, DAWN could reduce this limit to 2 times EBITDA.
Overall, the transaction is a very satisfying first step in the fulfilment of DAWN’s long-term strategy.
e-Merge
The Group’s business systems renewal programme, which has been branded ‘eMerge’ has now been running for
three years.
The Group has grown dramatically over the last decade through its strategy of backward integration, aggressive
trading drive and expansion into Africa. DAWN’s growth strategy has added significantly to its economies of scale
advantage, which in turn is supported by its focused collaboration model.
With the Group’s growth, complexity has been added which requires more sophisticated planning, reporting and
communication processes – both with the internal and external participants in the Group’s supply-chain.
DAWN Integrated Report 2014
Chief Executive Officer’s report
continued
This is the rationale for DAWN embarking on this far-reaching business systems renewal programme, which will reach
conclusion within the next financial year. Emerge incorporates some of the world’s best information technology
systems and is one of the most significant capital expenditure programmes the Group has ever engaged in, both in
terms of the cost and the intended benefits. Not only will the programme add to employees’ ability to achieve the
objectives and outputs that they are accountable for, but it will significantly improve DAWN’s efficiencies, customer
service and productivity as well as ensure that Group companies retain their competitive edge, resilience and
sustainability.
Significant progress has been made over the financial year in the roll-out of eMerge:
•
The Transport Management System is now fully operational and the optimisation phase (final phase) has
commenced and will be complete within the next eighteen months. The direct costs of this system has already
been recovered through the cost benefits from improved fleet management efficiencies and fuel savings.
•
The first ‘go live’ phases of the Warehouse Management System have been finalised and integration with the
TMS will follow, resulting in a high level of automation with significant cost, productivity and customer service
benefits.
•
The Group-wide ERP system has been designed and built. All DAWN sites will be live on this system by the end
of F2015.
Not only will the eMerge programme bring massive benefits in streamlining and optimising the Group’s business
processes, measurement and control systems and customer service capabilities, but it will also create the platform for
sustainable expansion.
Management priorities for F2015
Trading conditions in South Africa are expected to remain tough, compounded by the impacts of a rising interest rate
climate, its impact on consumer demand and low economic growth exacerbated by labour action.
The Group will continue to focus on delivering real organic growth and unlocking synergies while actively seeking out
acquisitive opportunities to complement DAWN’s existing product and service offering. The full benefits of our recent
acquisitions and integration benefits should be evident going forward. Innovative technological value-adding solutions
will foster continued growth.
Management will focus on improving asset management in order to increase returns in our existing businesses while
extracting value from the acquisitions that have been concluded.
DAWN has embarked on a global growth path with the conclusion of the Grohe transaction and opportunities
presented hereby will be exploited to the fullest to increase DAWN’s offering and reach.
Appreciation
In closing, I wish to thank our customers, suppliers and business partners who continue to support us and show
their confidence in the Group. Most especially I would like to extend my heartfelt gratitude to our Chairman,
Mr Tak Hiemstra, the Board and my executive team for their unfailing support, insight and wisdom during the year.
Together with that of our employees, their contributions have been invaluable during these challenging times.
DA Tod
Chief Executive Officer
6 November 2014
29
30
DAWN Integrated Report 2014
Chief Financial Officer’s report
This report provides information on the financial position and performance of the Group
and should be read in conjunction with the summarised financial statements included in
this Integrated Report as well as the annual financial statements presented on DAWN’s
website
Overview of operating environment
The main events during the past year for the Group centred on the following six
headings:
Credit rating and establishment of a world-class treasury function
DAWN was awarded its inaugural formal credit rating by Standard and Poor’s as National scale A- for the Group’s
long-term borrowings and A-2 for short-term borrowings. The Group also introduced an improved treasury function
which now runs on world-class principles in terms of full scope risk and treasury management. This allows the Group
to manage its liquidity positions for the short- as well as the long-term in an efficient manner and at the same time
dramatically reducing the risks.
Restructure of bank borrowings
On 14 October 2013 the Group’s debt was restructured and the Group’s R250 million term debt facility and R250
million general short-term banking facilities were replaced with R400 million term debt and R200 million revolving credit
facilities from ABSA. The borrowing rate was improved from 9,4% effective with our previous lenders to 6,72% with
ABSA (like-for-like prior to the repo rate changes during the year under review).
Resuming of dividend payment
DAWN paid a dividend of 16,5 cents per share on 2 December 2013, the first time in four years, amounting to R40
million.
Expansionary programmes
Two large scale medium-term capital expenditure programmes were initiated in the Group during the previous two
financial years. Vaal’s factory automation project of R60 million is designed to improve the yield of that factory and was
initiated during March 2013 and was concluded post year-end 2014. The second is the new Enterprise Resource
Planning system the Group is implementing for a total cost of R117 million, which was started during the 2012
financial year and will be concluded during the 2015 financial year.
The spend for the current financial year amounted to R194,1 million (continuing operations – R91 million) of which
R153 million related to expansionary programmes. The Group claimed R42,2 million (continuing operations – R9,2
million) under the Department of Trade and Industry’s (DTI) Manufacturing Competitiveness Enhancement Programme
(MCEP) against these capital expenditure programmes.
Working capital expanded by R218,0 million (continuing operations – R224 million). This is unpacked in more detail
under the working capital section of this report.
Acquisitions
The Group also broadened its footprint in the Infrastructure segment with R71 million being spent on:
•
acquiring a 51% share in Swan Plastics, a PVC pipe manufacturing company, for R20 million (effective 1 August
2013);
•
acquiring an additional 15,67% share in Fibrex, our Angolan-based pipe manufacturing interest, for R11,2 million
(effective 1 April 2014); and
•
acquiring, through a share buy-back by Sangio, the remaining 51% share in Sangio effective 1 June 2014. The
net assets acquired amounted to R16,5 million; and
in the Building segment:
•
acquiring a 49% share in Exipro, a Swaziland-based brass component manufacturer, for R5 million (effective
1 March 2014).
DAWN Integrated Report 2014
Chief Financial Officer’s report
continued
Large corporate activity
On 30 June 2014, DAWN signed an agreement whereby Grohe Luxembourg Four SA (Grohe) will acquire 51% of the
shares in the Watertech Companies (Cobra, ISCA, Vaal, Libra, Apex Valves and Exipro) triggering proceeds of R880
million. Shareholders voted in favour of the transaction on 15 September 2014. Competition Commission approval
was granted on 23 October 2014, without any conditions. The effective date of the transaction will therefore be
31 October 2014.
DAWN also acquired the remaining 39,53% shareholding of Apex Valves for R6 million. DAWN, after year-end, owns
100% of Apex Valves. This was a required transaction to prepare the disposal group for the Grohe transaction.
DAWN also purchased 60% of the shares in Pro-Max, a branded welding product and consumables trading company,
for R5,9 million, subject to certain performance conditions. This acquisition is entirely vendor financed until all
performance conditions are met, estimated to be a 12-month period to 30 June 2015.
From an operations point of view, the year ended 30 June 2014 was characterised by strong growth in the first half
due to strong performance from the Infrastructure segment and a weak second half attributable to a slowdown in
economic growth, a protracted platinum mining industry strike and a consumer which is heavily indebted under an
interest rate cycle change. The Group’s operating model being significantly backward integrated during such a cycle
makes it tough to manage an efficient working capital and profitability profile.
Comparative figures and restatements
The annual financial statements and the financial information presented in this report take full account of the
amendments required with the adoption of IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements
and IFRS 12: Disclosure of Interest in Other Entities whereby all joint venture investments are now accounted for on an
equity accounted basis, similar to the treatment of investments in associates. Comparative figures have been restated
accordingly.
123
IFRS 5: Non-Current Assets Held-for-Sale and Discontinued Operations was applied in respect of the agreement
signed with Grohe on 30 June 2014 for the acquisition by Grohe of the controlling interest in the Watertech
Companies. Further details of the transaction are outlined on pages 25 to 28. The Watertech Companies are
accounted as an asset held-for-sale and in accordance with IFRS 5 these entities have been disclosed as a disposal
group.
Performance
Despite the tough operating environment the Group managed to grow its revenue from continuing operations by 18%
to R4,4 billion, most of this growth being generated in the Infrastructure segment, further supported by the acquisitions
concluded in this segment during the course of the financial year.
Operating profit improved by 15% from R93,1 million to R107,0 million before the impact of impairments and gain on
derecognitions. Unfortunately, due to the persistently tough building market, the Group had to impair the carrying value
of goodwill on two businesses, DAWN Kitchen Fittings (impaired by R33,6 million) and AST (impaired by R7,8 million).
The Group also had to account for a once-off gain on Sangio as part of the step-up to 100% holding at year-end. Net
impairments and derecognitions totalled R26,5 million. After impairments, the Group operating profit amounted to
R80,5 million, which was down 13% from the prior year’s R92,4 million.
The Group margin was maintained at 2,4%. Due to tough market conditions, the Building margin halved to 1,7%,
while Infrastructure’s improved margin of 4,4% was within the target range guided at the interim stage. Solutions saw a
decrease in margin to 2,2%.
31
32
DAWN Integrated Report 2014
Chief Financial Officer’s report
continued
Operating expenses increased by 17,5%, including acquisitions. Excluding acquisitions, operating expenses grew by
10,4%.
Revenue and operating profit
R’million
R’million
5 000
500
4 000
400
3 000
300
2 000
200
1 000
100
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
Revenue
Operating profit
Net finance charges
Net finance cost increased to R58,3 million. Average net debt for the period increased to R613 million, mainly as a
result of:
•
the substantial R194 million capital expenditure programme;
•
acquisitions and start-up funding of R71 million; and
•
funding of the working capital expansion of R218 million.
Income from associates and joint ventures performed disappointingly at a loss of R18,8 million, with poor
performances from both the Building and Infrastructure segments. It is worth outlining the record performance from
Heunis Steel despite a tough building market. Heunis Steel managed to increase its earnings by an impressive 85%.
Headline earnings
The Group’s positive headline earnings per share trend from F2013 continued into the first half of F2014, but a number
of factors impacted the results of the second half, where headline earnings was down 67% on the second half of
F2013. Earnings per share, mainly as a result of the impairments outlined, was down 53% from 66,7 cents per share
to 31,6 cents per share and headline earnings per share was down 24% from 66,1 cents per share to 50,1 cents per
share.
Impairments
Intangible assets impaired during the year amounted to R41,4 million. A R33,6 million impairment relates to DAWN
Kitchen Fittings where a persistently tough building market resulted in an impaired view on the medium-term
performance from this business. Detailed impairment calculations indicated that insufficient value will be generated
through cash generation to cover all the non-financial assets in the business. The further R7,8 million impairment
pertains to goodwill carried against the Africa Saffer Trading group (AST) investments. The AST group, of which DAWN
owns 51%, wrote down its investment in the Nigerian-based trading operation as a result of poor performance for a
prolonged period of time.
DAWN Integrated Report 2014
Chief Financial Officer’s report
continued
Cash flow analysis
R’million
F2014
F2013
Cash opening balance
116
81
Cash generated from operations
334
329
-218
Working capital changes
-84
Net finance charges
-70
Tax paid
-46
Investing and financing activities
-169
123
-33
-45
Cash closing balance
202
116
Cash generated from operations, including the disposal group, before working capital changes, increased by 2% to
R334 million (F2013: R329 million), exceeding the Group’s EBITDA of R327 million.
Although net working capital absorbed cash, this was mainly as a result of increased revenue and inventory holding.
Investing activities increased strongly to R258 million comprising investments of R37 million, an outflow of R34 million
pertaining to joint ventures and associates, R194 million in respect of capital expenditure – R41 million for maintenance
and R153 million of expansionary capital expenditure. Expansionary capital expenditure included R45 million for
software in respect of the Enterprise Resource Planning system, R81 million in respect of machinery and equipment
and R14 million for expansion of the fleet. The Group claimed R42,2 million in government grants (continuing
operations – R9,2 million) under the DTI’s MCEP.
Cash utilised in financing activities increased significantly due to the ABSA term debt of R600 million which was raised,
countered by the settlement of the term debt with FirstRand Bank Limited and The Standard Bank of South Africa
Limited of R176 million.
For the first time in four years, DAWN declared a dividend of 16,5 cents per share on 2 December 2013, amounting to
R40 million.
Working capital analysis
R’billion
%
5
50
4
40
3
30
2
20
1
10
Reportable revenue
0
Working capital ratio
0
Jun
2009
Dec
2009
Jun
2010
Dec
2010
Jun
2011
Dec
2011
Jun
2012
Dec
2012
Jun
2013
Dec
2013
Jun
2014
33
34
DAWN Integrated Report 2014
Chief Financial Officer’s report
continued
Net working capital at 50 days is in line with the Group’s working capital target of 55 days. Debtors’ management
remains a key discipline of the Group and at 58 days it exceeds the Group’s objective of less than 55 days by three
days due to increased revenue. Bad debts remained below 0,1% of revenue.
The objective is to have inventory days covered by creditors’ days. Inventory days increased to 67 days due to the
impact of inflation caused by the weakening of the rand against other major currencies, but mainly due to the stock
build-up in Trading as a result of the erratic second-half building market. Volatile market conditions make it very difficult
to efficiently run a factory, resulting in the trading companies carrying more inventory than optimal in an attempt to
smooth the demand on the manufacturing environment. Clearly, DAWN will not be in this position in future in the
Building segment now that control of the factories has been sold. Creditor funding declined to 75 days but still
amounts to more than the inventory days.
It is worth pointing out that inventory on the statement of financial position increased by R131 million during the year,
which included the growth through acquisitions (total of R79 million increase) of Swan Plastics, Sangio Pipe, Wilhelm
Import Network (WiiN) and Incledon Zambia.
Debt structure
R’million
%
100
600
500
80
400
60
300
40
200
20
100
0
Jun
2008
Dec
2008
Jun
2009
Dec
2009
Jun
2010
Dec
2010
Jun
2011
Dec
2011
Jun
2012
Dec
2012
Jun
2013
Net-interest-bearing debt
Dec
2013
Jun
2014
0
Gearing %
The average net debt of the Group between reporting periods tends to be higher than at year-end. During the year the
net debt to equity ratio averaged 40%.
The net debt at year-end closed at R508 million. On average the net debt during the financial year amounted to R613
million. The net debt increased due to inflation in the working capital cycle as well as acquisitions but was further
adversely affected by the shortfall in earnings in the second half.
DAWN was awarded a National scale A- credit rating for its term borrowings and an A-2 credit rating for its short-term
borrowings by Standard & Poor’s in September 2013 and reconfirmed during September 2014. On 14 October 2013
the Group's debt was restructured and the Group’s R250 million term debt facility and R250 million general short-term
banking facilities was replaced with R400 million term debt and R200 million revolving credit facilities from ABSA. The
borrowing rate was improved from 9,4% effective with our previous lenders to 6,72% with ABSA (like-for-like prior to
the repo rate changes during the year under review).
Dividends
A dividend of 16,5 cents per share has been approved – indicating an approximately 2 times cover on earnings per
share. DAWN’s policy is to pay dividends once per year, on an approximately 4 times cover. This year DAWN has
temporarily reduced cover to 2 times in order to maintain a dividend of 16,5 cents per share. This decision is
supported by the anticipated R150 million net cash inflow (R880 million gross) after the Grohe transaction, the
elimination of high capital expenditure and working capital-heavy businesses as well as the current expansionary
capital expenditure programmes coming to an end over the next six months.
DAWN Integrated Report 2014
Chief Financial Officer’s report
continued
Short-term focus areas for finance
The DAWN Group’s action plans for the year ahead requires very specific support from finance and will entail:
•
successfully executing the comprehensive cost eradication programme;
•
adopting a focused approach on working capital management improvement;
•
bedding down of acquisitions; and
•
managing the costs associated with the change in strategy, such as the costs of the transactions, the
investments in structure, resources and people – all of which have a long-term benefit.
The finance team
The finance team has been strengthened over a period of three years and the results are starting to reflect in the levels
of technical competency and the expanded impact on the respective businesses at operational level. One key
performance measure that is reflected is the quality of the numbers with reduced variances on elements such as
forecasts and audit fees.
A fully fledged corporate treasury function has been established. Interaction with banks, internal financing, forecasting
reviews from a cash management perspective, decision-making in respect of the strategy with the resultant cash
implications were aspects that were competently addressed during the year.
The finance function in DAWN has thus further entrenched its role as support function to operations. To this end the
milestones that have been put in place stand as stepping stones to becoming a world-class finance team.
JAI Ferreira
Chief Financial Officer
6 November 2014
35
36
DAWN Integrated Report 2014
Forward-looking statement
Annualised key performance ratios
The key financial performance indicators are monitored by the Executive Committee against medium-term objectives. The focus is
driven by the level of invested capital required to generate desired levels of returns. Each business unit in the Group has clearly defined
performance objectives and results are tracked accordingly.
Achieved in:
Post-Grohe transaction, annualised
Dividend per share (cents per share)
Return on invested capital (before impairments) (%)
(Weighted Average Cost of Capital = 10,5%)
Free cash flow (excluding interest) (R’million)
Cash conversion ratio (%)
F2014
F2013
Goal
16,5
9,0
16,5
12,1
4 x cover
>16%
41
16
186
76
>100
>75
The cash conversion ratio excludes expansionary capital expenditure of R153 million (F2013: R85 million), acquisition-related
investments of R71 million and dividend payments of R40 million.
The reduction in earnings resulted in the return on invested capital, before impairments, at 9% not meeting the target of 16%. Working
capital expansion led to free cash flow targets falling short and will be corrected systematically through F2015. This resulted in the cash
conversion ratio target not being met.
Outlook
The building sector in South Africa remains tough, with Building Plans Passed declining and just barely in positive territory. In addition,
the first quarter of F2015 experienced a R10 million indirect negative impact on sales from the NUMSA strike in July 2014.
Although the necessary corrective action has been taken at DAWN Kitchen Fittings, with the business at a break-even position for the
first quarter of F2015 and well-known brands added to enhance the total Trading division’s range of products, these factors will
unfortunately not fully compensate for the negatives in the first half of F2015. The short-term target margin is now set at 2% to 4% and
expected to be at the low-end of the range for the next reporting period following the Watertech companies no longer being part of
DAWN’s profit before interest and taxation (PBIT) due to the Grohe transaction. The medium-term target is set at 5% to 7%. As
committed, the Group will be adding more businesses to the Building segment over time, with margins to be updated accordingly.
In the Infrastructure segment, the upward trend of the DPI order book is encouraging and after a post-election slump in contracts
awarded, the Incledon order book is now picking up. The effect of the recent NUMSA strike impacted this segment in July and August
2014 by R28 million at PBIT level. The Group expects to claw this amount back in the second half of F2015.
The closure of the Group’s largest competitor’s PVC pressure pipe production plant, subsequent to DAWN’s year-end, further
consolidated the market and allowed for a good improvement in orders and margins. The Swan Plastics and Ubuntu Plastics
acquisitions have made further gains in market share.
The short-term margin target remains the same at 3% to 5% and are expected to be at the low-end of the range for the next reporting
period, while the 5% to 8% target margin range is maintained for the medium-term.
In the Solutions segment, the Group expects growth only from the second half of F2015 due to DAWN Cargo’s anticipated growth
through the integration of the remaining DAWN Infrastructure manufacturing operations, whilst still achieving cost-savings to those
businesses and the systematic roll-out of the distribution businesses to cross-border operations.
The Group’s international businesses are set to increase the contribution from business in Africa to Group revenue from 20% to 33%
over time, assisted by the benefits of the Grohe transaction and creating a strong base for expansion into surrounding regions.
Exports into Africa are a major focus. DPI in Africa is looking at increasing growth, including acquisitions, and AST will now be the
distribution arm of all DAWN and Grohe products in Africa, a significant step-change opportunity.
In summary, the Group is experiencing healthy growth at the top line and are likely to maintain gross margins at both the Building and
Infrastructure segments before once-off costs. Expansionary capital expenditure will comparatively be much lower than the first half of
F2014. There is an aggressive focus on cutting costs, the losses at DAWN Kitchen Fittings have been stemmed and the working
capital cycle will become more normalised now that the Watertech and Sanitaryware manufacturing businesses are no longer
controlled. These businesses should also provide an improvement in performance from associates.
Unfortunately these positives, however, will be more than negated by the R18 million once-off Grohe transaction costs, the R38 million
PBIT impact of the five-week NUMSA strike in July and August 2014 and the under-recoveries related to this strike, as well as high
finance costs in the first half.
The Group therefore expects the first half headline earnings of F2015 to be substantially down on the high base of the first half of
F2014.
However, due to lower finance costs, as well as the benefits of cost cuts and the significant upside of the Grohe transaction, earnings
are expected to increase from the second half as the benefits of the additional trading and distribution volumes come into play.
This specific forecast has not been reviewed nor reported on by the Company’s auditors.
DAWN Integrated Report 2014
Contextual analysis
DAWN’s strategy towards realising its vision is underscored by its understanding of the environment within which the
Group operates as well as the threats and opportunities posed by that environment. DAWN has analysed the
environment on three levels:
•
the macro environment, where DAWN looked at relevant global mega trends;
•
the South African and African business environment; and
•
the micro environment, being the current DAWN reality.
MACRO-ENVIRONMENT: GLOBAL MEGA TRENDS
Resource scarcity: The globe is faced with limited supplies of natural resources which are being depleted at
sometimes alarming rates. This, together with increasing carbon emissions, is placing pressure on companies to adopt
green business practices.
Emerging markets: Future decades will see the world economy shift from west to east and north to south. Rapid
income growth in Asia and, to a lesser extent, South America and Africa will see billions of people transition out of
poverty and into the middle income classes. The world is experiencing the greatest economic shift in history as the
global middle class grows by another billion people in the next ten years. With China and India leading the change,
more than 90% of the world’s middle class will live in emerging markets by 2030, up from the current 50%.
The digital era: There is an increased movement to online connection to deliver and access services, obtain
information and perform transactions such as shopping and working. New operating models will disrupt traditional
models.
37
38
DAWN Integrated Report 2014
Contextual analysis
continued
SOUTH AFRICAN POLITICAL ENVIRONMENT
Economic growth has been dragged down by a litany of domestic shortcomings amid a downturn in business and
consumer confidence.
Consensus amongst local economists seems to be that the main impediments were structural, home-brewed factors
such as labour unrest, electricity constraints and policy uncertainty that came with 2014 being an election year.
Service delivery protests featured prominently across South Africa with the number of protests since the beginning of
2014 not being exceptional, but the number of killing of protesters being significant. Since the beginning of 2014,
SAPS revealed that Gauteng alone had experienced more than 500 protests, of which 100 had turned violent. The
escalation of these protests was also tracked by a research group, Municipal IQ, which showed a sharp increase in
protest action since 2009. These protests are viewed as ‘service delivery’, ‘rebellion of the poor’, ‘municipal revolt’ or
‘ring of fire’. Researchers from the University of Johannesburg (UJ) found that anger and frustration lie at the heart of
these protest, with the high level of unemployment among young people being a key factor. The reasons for
community protests were varied. According to UJ's research, the top five grievances were about service delivery in
general, housing, water and sanitation, political representation and electricity. Corruption, municipal administration,
roads, unemployment, demarcation, land, health and crime also featured.
The country’s leadership is coming under great pressure from the media and civil society.
There has been a rise in militancy among unionised workers. In late June 2014 platinum mineworkers ended a fivemonth strike, the longest and costliest in the mining industry, which had been orchestrated by the Association of
Mineworkers and Construction Union (AMCU), an upstart and unaligned union. There has been a proliferation of strikes
with an attendant loss of income. The degree to which South Africa is able to navigate the fraught terrain of industrial
relations and avoid another crippling round of strikes will be a critical factor in the improvement of economic
conditions.
The impact on broader growth and government finances prompted Fitch to put South Africa on a negative outlook and
Standard & Poor’s to cut its credit rating.
Goals of the National Development Plan 2030
Average growth of
5,4 % by 2030
Global
competitiveness
Increase state
capacity
Increase employment
from 13 million to 24 million
Reduce
corruption
Gross fixed investment
from 17% to 30%
Per capita income from
R50 000 to R120 000
Increase share of national income
from bottom 40% from 6% to 10%
Reduce carbon emissions
per unit of power by one-third
Gini coefficient falls
from 0,69 to 0,6
DAWN Integrated Report 2014
Contextual analysis
continued
Robust implementation of the National Development Plan (NDP) would have a catalytic effect on growth and
confidence, but to achieve this will require a change in the country’s culture and inertia. An active and focused
commitment to implementation of the NDP by all role players in society and the economy will bring about improved
business and consumer confidence generally. South Africa also needs to build a societal consensus about the
imperative to put growth and employment creation as its core objectives.
Private sector response
Business is in a holding pattern, adopting a wait-and-see approach. According to Grant Thornton International nearly
40% of executives believe politics affect their decisions and about 65% are postponing their investment decisions with
46% considering offshore investments. The global economic outlook has strengthened and there is a moderately
higher demand for South African exports. The South African economy has shown growth of about 2% – 2,5%, with
the rand remaining vulnerable. The South African Reserve Bank announced a repurchase rate hike of 25 basis point to
5,75% per annum, effective from 18 July 2014.
MICRO ENVIRONMENT
The Group’s return on invested capital has been declining over the recent period. Volume turnover growth since 2008
has been slow due to market conditions, compensated by inflation. Unpredictable demand patterns and alignment
with factory planning resulted in a build-up of slow-moving stock leading to unacceptable high stock levels.
Inappropriate increasing stock levels require ever increasing interest-bearing debt with pending future interest rate
increases. Competitor growth is proving to be strategic growth without earnings. There are pressures for shorter lead
times and lower costs, driven mainly by overseas manufacturers such as the German lead times and Chinese cost
competitiveness.
DAWN’s strong position in South Africa is not yet uniformly repeated in the rest of Africa – with specific reference to:
•
brand recognition and demand;
•
logistics capabilities;
•
management, product and technical skills levels; and
•
business and customer relationships.
OPERATING ENVIRONMENT
The Building segment benefits mainly from residential activity, which constitutes approximately 65% of the market (and
where the bulk of DAWN’s products are targeted, ie finishing), compared to non-residential activity, where DAWN’s
involvement is limited to technical and specified products. DAWN companies extract significant benefit from activity in
the upgrade and renovations market due to the higher percentage spend on finishing.
The size of the building materials market in which DAWN participates is estimated at R137 billion (2013: R126 billion)
per annum to June 2014 by BMI, namely products supplied to the market via merchants, with recorded building
activity at R49,7 billion (residential: R33,1 billion) (2013: R48,5 billion (residential: R32,4 billion)). Recorded additions
and alterations was R24,4 billion (2013: R11,4 billion) with unrecorded additions and alterations estimated at R54,1
billion (2013: R47,8 billion) per annum by BMI.
Total buildings completed in South Africa increased by 2% (2013: increased by 12%) year-on-year. Recorded additions
and alterations decreased by 9% year-on-year. DAWN is most affected by homes bigger than 80m², which decreased
by 8% (2013: increased by 10%) year-on-year, and apartments and townhouses, which grew by 5% (2013: 27%).
Residential activity will continue to be impacted by economic developments, the state of household finances and the
level of consumer confidence. The demand for and supply of new housing as well as additions and alterations to
existing housing will be reflective of these factors.
These sentiments impacted on the outlook of industry merchants which resulted in a destocking of the industry
pipeline stock. Merchants are operating with minimum stock levels and rely on quick replenishment from shorter
manufacturing lead times as well as just-in-time wholesalers.
39
DAWN Integrated Report 2014
Contextual analysis
continued
Prospects indicated through Building Plans Passed
Building Plans Passed, a leading indicator of future building activity (building in the pipeline), have historically proven to
be good indicators of actual spend in the six- to twelve-month period ahead. The graph below outlines Buildings
Completed and Building Plans Passed over the last 20 years. Buildings completed declined back to negative territory
in 2014 with Building Plans Passed declining again in 2014, although still positive, but only just. The first half of F2015
saw the square meterage of buildings decline in double digits, especially in Additions and Alterations, the market in the
building sector in which DAWN is most active.
Year-on-year percentage change in Buildings Completed and Building Plans Passed, including Additions and
Alterations (m2)
%
35
30
25
20
15
10
5
Square metres
0
-5
-10
-15
-20
-25
-30
-35
-40
Total buildings completed
Total Building Plans Passed
12 per Mbv. average (total buildings completed)
12 per Mbv. average (total building plans passed)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1998
1996
1995
-45
1994
40
Year-on-year percentage change in Buildings Completed, including Additions and Alterations (m2)
%
Year-to-date Actual
130
Year-to-date Forecast
110
90
70
50
30
10
-10
-30
-50
Jan 2014
Feb 2014
Residential building
Mar 2014
Apr 2014
May 2014
Jun 2014
Non-residential buildings
Jul 2014
Aug 2014
Sep 2014
Additions and Alterations
Oct 2014
Nov 2014
Dec 2014
Total
DAWN therefore anticipates that during the first half of F2015 low volumes will continue and markets will remain
difficult.
DAWN Integrated Report 2014
Contextual analysis
continued
Infrastructure prospects
Spend in the infrastructure improved significantly, with expenditure projected to increase by double digit rates over the
next three years. Market share of water projects as a percentage of total construction increased from 34% in the first
quarter of calendar 2013 to 39% in the second quarter of 2014. Despite an overall sideways movement in general civil
construction spend, DAWN believes that the water spend should continue to perform well and that this momentum will
continue, as indicated by the graph below. (Source: Industry Insight).
Department of Water Affairs and Forestry budget
Rm
12 000
9 000
6 000
3 000
0
2007/2008
2008/2009
2009/2010
2010/2011
2011/2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
The upward trend of the record DPI and Incledon order books is encouraging. These order books are as a result of
orders picking up after the post-election slump and demand stabilising after the strike in the mining industry.
Total DPI outstanding order book
Indexed
3,5
Value
3,0
6-month average
2,5
2,0
1,5
0,5
0,5
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
41
42
DAWN Integrated Report 2014
Contextual analysis
continued
Total Incledon outstanding order book (R’million)
Indexed
6,5
Value
6-month average
4,5
2,5
0,5
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Jun-13
Oct-13
Feb-14
Jun-14
The peak in Incledon’s order book at the end of the prior financial year pertains to a once-off ductile pipe contract.
The need for basic services in South Africa is not only very apparent, but is also critical from a political and social
perspective.
According to the 2014 national budget, Government spending on infrastructure tallied R1 trillion over the past five
years and will amount to R847 billion over the next three years.
Investment in infrastructure is viewed as a key means of improving the economy’s competitiveness, especially that of
its domestic producers. Since the global financial crisis, government has initiated a coordinated infrastructure
investment programme, organised into 17 Strategic Integrated Projects to catalyse opportunities in mining, industry,
agriculture and services across the country.
The Department of Water Affairs and Forestry is set to focus its main effort over the next three years on providing bulk
infrastructure for water and sewage. The 2014 Estimates of National Expenditure pegs total department spending at
R12,5 billion in 2014/15, R16,1 billion in 2015/16 and R17,2 billion in 2016/17. The spending focus over the mediumterm will be on providing bulk infrastructure for water and wastewater treatment works which link water sources to
local government infrastructure. Of the total R45 billion to be spent over this period, about R28 billion is earmarked for
the Department's regional implementation and support programme and about R11 billion for its water infrastructure
management programme.
Water and sewer spend is likely to continue to outperform other sectors in construction over the medium-term. This
bodes well for the Group’s Infrastructure segment.
Cross-border prospects
The opportunities presented by the cross-border markets in which DAWN International operates, remain attractive,
particularly as they are liberated through globalisation and the development of true democracies. Growth in Africa is a
key strategy of the Group and DAWN’s target is to increase the contribution from the business in Africa to Group
revenue from 20% to 30% over time, assisted by the benefits of the Grohe transaction which creates a strong base for
expansion into surrounding regions.
Solutions prospects
The DAWN Solutions segment represents the pinnacle of DAWN’s philosophy of collaboration, through which the
Group establishes its competitive edge by leveraging economies of scale, obtained from consolidating and centralising
critical service functions. During the first half of F2015, DAWN Solutions will continue to be impacted by the roll-out of
the new world-class business systems.
DAWN Integrated Report 2014
Stakeholder engagement
STAKEHOLDER ENGAGEMENT
123
The DAWN Board has identified ten key stakeholder groups with whom it engages in a structured and inclusive
manner aimed at establishing and maintaining open and transparent, mutually beneficial relationships. DAWN is in the
process of re-affirming each group’s most material concerns and responses and these will be incorporated in business
plans across the Group. This is considered to be an evolving process, subject to change as engagements develop. A
focus group, reporting to the Strategy Committee, has been established to re-evaluate all stakeholder engagement
processes and to align the processes to The DAWN Model (refer pages 19 to 23), thereby enhancing communication
channels. Part of this process is to identify clear feedback mechanisms for each stakeholder group.
Communities
Customers
Shareholders and
the investment
community
Suppliers
Banks, funders
and
insurance companies
Regulators
Media
Employees
Trade unions
Government –
national, provincial
and local
Regulation
Specific contracts
Responsibilities to society
Co-operative engagement
43
44
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder engagement programme
Stakeholder
Shareholders and the investment community
Why we engage
• To create an informed perception of the DAWN Group whereby more
accurate expectations are ensured and a positive investment environment
is created.
• To provide current and future shareholders with relevant and timeous
information.
• To minimise the potential for reputational risk by ensuring that DAWN’s
image as well as the trust placed in DAWN by shareholders continue to
improve.
How we engage
• Formal engagement through SENS, the DAWN website, formal results
presentations, investor updates, workshops and specific meetings.
• The Group’s public relations and media communications service providers
seek feedback from analysts and the financial press on information they
require.
• DAWN’s Executive Committee ensures that investor presentations provide
the information required by analysts and the financial press and that key
sentiments are addressed.
• Shareholders are given the opportunity to put questions to the Board at
the annual general meeting and all other shareholder presentations.
A graph depicting the major shareholders of the Group is shown on
page 53.
123
What we engage on
• Performance of the Group.
• Business strategy and expectations.
• Economic, social and environmental risks and opportunities.
• Progress against the Group’s key performance indicators.
Frequency of engagement
• Financial results and documentation are published in accordance with the
JSE Listings Requirements.
• DAWN’s website is updated as soon as financial information is in the
public domain.
• Investor presentation are held after the half-year and year-end results are
released.
• Formal presentations to the investment community are held, other than
results presentations, as required.
How we measure our
engagement
• DAWN’s share price.
• Voting on resolutions at the annual general meeting.
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Banks, funders and insurance companies
Why we engage
• To gain support and leverage on issues of common interest in the
financial arena.
How we engage
• Meetings are conducted by DAWN’s Chief Executive Officer and Chief
Financial Officer with funders regarding Group and ad hoc funding
requirements.
• Divisional financial directors conduct meetings with the respective
business’ bankers regarding day-to-day requirements.
What we engage on
• Group funding engagement
Performance against covenants are addressed and funders are supplied
with management accounts as well as rolling cash flow forecasts.
Frequent contact with providers of finance ensure that funders are kept
abreast of conditions in the market sectors in which DAWN operates.
• Day-to-day operational engagement
Engagement ensures that the day-to-day operational activities with the
bank run smoothly.
• Ad hoc funding requirements
Meetings with potential funders are held when the need arises for
additional funding due to a potential acquisition or when significant
funding is required.
Frequency of engagement
• Meetings are held twice per annum in respect of Group funding
requirements.
• Weekly meetings are held in respect of day-to-day operational
requirements with the business’ bankers.
• Bank balances are monitored daily and a variance analysis is undertaken.
How we measure our
engagement
• Interest rates.
• Bank charges.
• Access to liquidity.
45
46
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Customers
Why we engage
• To become a more customer-centric business, aligning our products and
service offering to our customers’ needs.
• To enhance awareness of the brands of the DAWN Group as well as the
Group’s preferred suppliers and thereby grow revenue.
• To drive new opportunities.
• To increase our customers’ awareness and understanding of sustainability
issues.
How we engage
• Product/brand advertising is undertaken to create brand awareness and
to market products as permissible by marketing codes.
• Regular customer visits by all levels of management.
What we engage on
• Product quality, style, value and innovation.
• Product choice and availability.
• Evaluation of customer satisfaction.
• Effective, timeous resolution of customer queries, concerns and problems.
• Promotion of a culture of customer excellence throughout the Group.
• Value-added product offering to grow the customer’s business over time.
• Assisting customers’ cash flow requirements through DAWN’s just-in-time
break-bulk distribution model.
Frequency of engagement
• Each company’s sales director and managing director visit each of the
company’s top 20 customers by revenue at least twice per year for a
meeting with the senior management of the customer.
• Sales representatives visit customers on a continuous basis.
How we measure our
• Revenue.
engagement
• Gross profit.
• Market share.
• Product availability.
• Customer surveys.
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Suppliers
Why we engage
• To deliver consistent quality and standards, drive resource efficiency and
drive new and innovative products.
• To establish and strengthen relationships.
• To support the development of small black-owned businesses and job
creation.
• To explore new business opportunities.
How we engage
• DAWN businesses interact with suppliers through on-site meetings,
presentations and supplier forums.
• Information sessions with new and existing suppliers are held.
What we engage on
• Inform suppliers of DAWN’s procurement processes and requirements.
• Infrastructure and logistical support.
• Risks and opportunities.
• Product innovation.
• BBBEE.
• Resource efficiency.
• Social and environmental responsibility in the supply-chain.
• To communicate customer needs.
Frequency of engagement
• The managing director of each company in the DAWN Group identifies a
member of the senior management team who will be the most
appropriate to visit each of the company’s top 20 suppliers by value at
least twice per year for a meeting with the senior management of the
supplier.
How we measure our
engagement
• Compliance or non-compliance with Service Level Agreements is
reported to the designated senior manager who addresses the items
with the supplier. Targets are agreed and monitored by both parties.
47
48
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Employees
Why we engage
• DAWN recognises that successful businesses are built on loyal, motivated
and happy employees.
• To share relevant information and get input and feedback.
• To develop a high-performance organisation.
• To enable access to recognition, development opportunities, good
working conditions and competitive remuneration.
• To increase employee awareness and level of understanding of
sustainability issues.
How we engage
• All managers are required to keep an open line of communication with
their staff to ensure that any grievances are resolved in a timeous manner.
• An anonymous tip-off line gives employees the opportunity to raise
concerns, should they wish to remain anonymous.
• Formal appraisal meetings are held with agreed upon key performance
indicators and quarterly follow-up sessions.
What we engage on
• Business strategy, developments and performance.
• Reward and recognition.
• Training and development.
• Employee wellness.
• BBBEE and transformation.
• Key sustainability issues.
• Individual performance appraisals.
Frequency of engagement
• Ongoing and daily communication at all levels.
• As required by employees.
• An annual awards ceremony, at each individual business entity, is held to
reward outstanding employee performance.
How we measure our
• Staff turnover rate.
engagement
• Culture and climate surveys.
• Training spend versus company-aligned training plans.
• BBBEE scorecards.
• Performance review cycles.
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Trade Unions
Why we engage
• To engage on collective employment issues and communicate potential
changes affecting labour.
How we engage
• Union representatives are elected to liaise with management on matters
affecting union members and human resource managers are responsible
for managing the relationship with the employee unions and relevant
industrial labour organisations.
What we engage on
• Wages and conditions of employment.
• Manufacturing sector issues.
Frequency of engagement
• Meetings are held with the bargaining councils as required.
How we measure our
engagement
• Labour action.
• Labour attitude.
Stakeholder
Media
Why we engage
• To influence stakeholder perceptions, build the DAWN brand as well as
product brands and market the business and products.
• Raise the profile of key sustainability issues in South Africa.
How we engage
Interactions with the media can be split into two categories.
• Marketing activities
DAWN Marketing & Design is consulted when a company in the DAWN
Group develops a marketing plan, ensuring that the plan is executed
within an approved marketing budget and that the timing of marketing
activities is included in the marketing plan.
• Interactions with the press
Interviews and press briefings are given to members of the media. These
take the form of one-on-one time with DAWN executives and key
spokespeople across the Group, and regular update sessions to discuss
pertinent issues relevant to the Group’s business activities.
Other means of engaging the media include proactive press releases,
targeted interventions through specialist agencies and the use of digital and
social media platforms.
What we engage on
• Interim and annual results of the DAWN Group and corporate finance
activities.
• Business and consumer issues.
• Macroeconomic issues that affect the building and construction industries.
• Product information.
• Key sustainability issues.
Frequency of engagement
• Media interaction occurs on an ongoing basis.
How we measure our
engagement
• Press coverage.
49
50
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Regulators
Why we engage
• To discuss issues of mutual concern, as well as to anticipate and assess
potential policy and regulatory impact.
How we engage
• DAWN is regulated by several stakeholders including the JSE Limited,
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. The Group
seeks to maintain relationships of trust and transparency with all
regulators.
• The Compliance function guides business units before and during
submissions to and meetings with regulators.
• A log of all interactions with regulators is maintained and the outcomes of
these interactions are reported to the Risk Committee.
What we engage on
• Engagement with industry bodies such as SEIFSA and SAPPMA
regarding industry matters.
Frequency of engagement
• This is an ongoing process which escalates when new requirements and
legislation are introduced.
How we measure our
engagement
• Monitoring the log of interactions to determine perceived risks and
opportunities.
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Government – national, provincial and local
Why we engage
• To discuss issues of mutual concern, optimise opportunities and minimise
the risks associated with infrastructure development.
• To anticipate and assess potential policy and regulatory impact.
• Participation in environmental compliance matters.
How we engage
• 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 generally very good.
This applies across the three spheres of government, with particular
reference to the developmental activities of local government and respect
and support for the democratic process at this level.
• The primary method of engagement with government is formal meetings
and tender processes.
What we engage on
• Manufacturing businesses engage with local government on matters
such as energy consumption and constructive strategies on the
management of power outages.
Frequency of engagement
• Meetings are held with government as required.
How we measure our
engagement
• Outcome of engagement on, for example, energy consumption and the
management of power outages.
• Compliance statutes.
• Regular inspections with no material findings.
51
52
DAWN Integrated Report 2014
Stakeholder engagement
continued
Stakeholder
Communities
Why we engage
• To provide viable and sustainable solutions in response to local and
national priorities.
• To invest in socio-economic development.
How we engage
• The Group employs a consistent approach to community development.
• DAWN’s operations and activities have a significant economic impact on
the communities where they are located. In addition to local employment,
DAWN supports local manufacturers and will only import products as a
defensive strategy or when the equivalent product is not available locally.
• New branches in rural growth nodes.
What we engage on
• Socio-economic development, particularly in the education sector.
• Education initiatives which pertain to the industry in which DAWN
operates.
• Skills development.
• Job creation.
• Health and other general welfare.
Frequency of engagement
• This is an ongoing engagement.
How we measure our
engagement
• Informal feedback to DAWN’s businesses in the respective communities.
DAWN Integrated Report 2014
Stakeholder engagement
continued
DAWN shareholders
A graphical presentation of DAWN’s distribution of shareholders is depicted in the pie-charts below. Non-public
shareholders constitute 0,86% of the shareholders with public shareholders comprising 99,14%. DAWN directors and
associates and prescribed officers amount to 7,2% of the non-public shareholding.
2,30%
8,71%
2,28%
7,65%
9,09%
3,42%
6,62%
6,54%
38,88%
7,12%
38,71%
6,73%
38,24%
11,54%
2013
2014
2012
11,25%
7,76%
7,61%
28,69%
7,47%
23,80%
25,59%
Number of shareholders
Number of shares
2014
2013
2012
2014
2013
2012
Private companies
43
33
28
94 018 790
93 471 718
91 873 965
Mutual funds
56
70
71
69 394 433
61 776 317
57 178 808
100
91
93
18 775 713
18 381 507
17 939 199
69
79
74
17 209 339
27 863 772
27 033 162
1 239
1 278
1 198
15 810 382
15 976 193
16 167 423
13
21
19
5 573 880
5 493 235
8 217 831
Nominees and Trusts
Retirement funds
Individuals
Insurance companies
Public companies, other corporations, investment
companies, banks and brokers, endowment funds,
medical schemes and close corporations
90
96
90
21 060 367
18 480 162
21 832 516
1 610
1 668
1 573
241 842 904
241 442 904
240 242 904
53
54
DAWN Integrated Report 2014
Materiality
MATERIALITY
Materiality is defined as determining the relevance and significance of an issue to DAWN and its stakeholders, with a
material issue being that issue that will influence the decisions, actions and performance of DAWN or its stakeholders
and materially prevent or affect the achievement of strategic objectives. Responsiveness pertains to how DAWN
demonstrates its response to its stakeholders and its accountability to them. The stakeholder engagement process
reflects the needs and expectations of stakeholders, identifies shortcomings and prevents material misstatements that
may affect stakeholders and is accessible to stakeholders.
DAWN established a policy and procedures to enhance its stakeholder-inclusiveness approach, thereby ensuring a
structure within which to determine materiality. The material issues defined, and its responses thereto, will in the future
be published in the Integrated Report.
Reporting pertains to both the Integrated Report and the Sustainability Report. The four principles for defining report
content are Materiality, Stakeholder Inclusiveness, Sustainability Context and Completeness. The image below
indicates which of the reporting principles are applicable in the different process steps. Stakeholder inclusiveness, in
varying degrees, applies to the whole process.
Topics
Aspects
STEP 1
Identification
STEP 2
Prioritisation
Sustainability
Context
Materiality
Disclosures on Management Approach + Indicators
STEP 3
Validation
Completeness
Stakeholder Inclusiveness
STEP 4
Review
Sustainability Context
Stakeholder Inclusiveness
REPORT
DAWN Integrated Report 2014
Materiality
continued
The Executive Committee assumes responsibility for the process that will be followed for defining material aspects and
boundaries for reporting content, in terms of the Global Reporting Initiative’s G4 Guidelines, which process is
summarised below.
Step 1 – Identification
Relevant topics, being those that may reasonably be considered important for reflecting DAWN’s relevant economic,
environmental and social impact or influencing the assessments and decision of stakeholders, will be identified. The
identification of relevant topics will involve consideration of the relevant impacts related to all DAWN’s activities,
products, services and relationships, regardless of whether these impacts occur within or outside of the organisation.
For each identified relevant topic, the Executive Committee will assess the impacts related to it and identify the
boundary. Boundaries will be described in sufficient detail to identify:
•
where exactly within the organisation itself the impacts occur;
•
where outside the organisation the impacts occur; and
•
whether the impacts occur both within and outside of DAWN.
Step 2 – Prioritisation
After the identification of the relevant topics, the Executive Committee will prioritise them. The materiality principle
states that reporting should cover topics that reflect the organisation’s significant economic, environmental and social
impacts or, substantively influence the assessments and decision of stakeholders. Consequently, to determine whether
a topic is material, qualitative analysis, quantitative assessment and discussion are needed. DAWN’s strategy and the
context of its activities are important elements of this analysis and discussion. The prioritisation will be based on the
Principles of Materiality and Stakeholder Inclusiveness.
Influence on stakeholder assessments and decisions
The proper stakeholder engagement process is two-way in nature, systematic and objective. The analysis of the topics
identified by stakeholders may include:
•
each stakeholder group’s perception of DAWN’s impact on the stakeholder group;
•
each stakeholder group’s perception of the group’s dependency on DAWN;
•
the geographical location of stakeholders and the significance of the topic to their region;
•
the diversity and range of stakeholders who express interest and/or are affected;
•
the expectations of stakeholders regarding action and response to a topic; and
•
the expectations of stakeholders regarding transparency on a particular topic.
The process may, in addition, include the degree to which stakeholders:
•
are interested in, affected by, or have potential to be affected by the impacts of DAWN’s activities, products,
services and relationships;
•
have the ability to influence outcomes within DAWN; and
•
are invested in the successes or failures of DAWN.
55
56
DAWN Integrated Report 2014
Materiality
continued
Significance of the organisation’s economic, environmental and social impacts
The aim of this analysis is to prioritise those topics that may positively or negatively influence DAWN’s ability to deliver
on its vision and strategy. To prioritise topics for reporting, DAWN’s assessment will include, among others, the
following elements:
•
the likelihood of an impact;
•
the severity of an impact;
•
the likelihood of risks or opportunities arising from a topic;
•
how critical the impact is for the long-term performance of DAWN; and
•
the opportunity for DAWN to grow or gain advantage from the impact.
Among other possible elements, the analysis may include:
•
current and future financial and non-financial implications;
•
impacts on the strategies, policies, processes, relationships and commitments of DAWN; and
•
impacts on competitive advantage and/or management excellence.
Once relevant material topics have been identified, thresholds will be determined and the level of coverage in the
report of each topic will be determined.
Step 3 – Validation
The validation step will assess all identified material relevant topics against the Principle of Completeness prior to
gathering the information to be reported.
The validation step involves assessing the material topics against:
Scope – the range of topics covered in a report;
Aspect Boundaries – the description of where impacts occur for each material relevant topic; and
Time – the completeness of selected information with respect to the reporting period.
Validation will be undertaken with the aim of ensuring a report provides a reasonable and balanced representation of
DAWN’s sustainability performance, including both its positive and negative impacts.
The list of material relevant topics identified for inclusion in the report will be approved by the senior decision-maker of
DAWN, the Executive Committee.
Step 4 – Review
A review will take place after the report had been published and DAWN is preparing for the next reporting cycle. The
review will focus on the relevant topics that were material in the previous reporting period and will also consider
stakeholder feedback. The findings will inform and contribute to the Identification Step for the next reporting cycle.
DAWN Integrated Report 2014
Value
CAPITALS
tua
lc
Hu
Financial
capital
Manufactured
capital
Socia apital
lc
Natural capital
ital
cap
an
Intellec
l
ta
pi
m
a
The Integrated Reporting Framework defines capitals as ‘stocks of value’ that are increased, decreased or transformed
through the activities and outputs of a business. DAWN believes that the value of its business is a reflection of the
quality of the capitals underpinning it, which yields a model that 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.
57
58
DAWN Integrated Report 2014
Capitals
continued
Financial capital
DAWN has adopted a triple bottom line approach in its reporting as it acknowledges the dependence on other forms
of capital in the creation of financial value. DAWN enhances its financial capital by:
•
optimising the financial performance of the Group through the application of sound business principles;
•
ensuring that the Group’s financial measures reflect the value of the other five forms of capital;
•
valuing intangible assets such as brand and reputation to reflect their contribution to shareholder value;
•
internalising environmental and social costs and benefits and assigning an economic value to them;
•
managing opportunities, risks and corporate governance issues;
•
demonstrating a positive stance on, and management of, sustainability issues to improve access to financial
capital or reducing financing costs by meeting socially responsible investment criteria and reducing insurance
premiums as sustainability opportunities and risks are managed;
•
ensuring equitable use of the wealth created;
•
honouring relationships with stakeholders; and
•
assessing the wider economic impacts of DAWN’s activities, products and services on society and the
communities in which the Group operates.
Manufactured capital
Manufactured capital refers to material goods and infrastructure owned, leased or controlled by DAWN that contribute
to production or service provision, but do not become embodied in its output. Manufactured capital is important for
the sustainable development of DAWN in two ways. Firstly, the efficient use of manufactured capital enables DAWN to
be flexible, responsive to market or societal needs, innovative and faster in getting its products and services to market.
Secondly, manufactured capital and technology reduce resource use and focus more on human creativity, thus
enhancing both efficiency and sustainable development. Excellence arises from the efficiency of processes.
Intellectual capital
Individual businesses in the DAWN Group drive the concept of innovation in its business models, systems, production
processes and through research and development on its product lines. Innovations in technology, design, projects and
operations constitute the pillars of operational improvements. Patents have been registered on certain products. The
Group focuses on quality branded products in all its areas of operations, over and above its proprietary brands. The
roll-out of the phased approach IT systems upgrade continues with the implementation of a Group-wide Enterprise
Resource Planning system.
Human capital
Human capital incorporates the health, knowledge, skills, intellectual outputs, motivation and capacity for relationships
of the individual. At DAWN it includes the elements needed for employees to engage in productive work and the
creation of wealth, thereby achieving a better quality of life. Human capital is also about dignity, joy, passion, empathy
and integrity. DAWN acknowledges the importance of a healthy, motivated and skilled workforce. Key intangible assets
that the Group uses to create wealth are intellectual capital and knowledge management. The DAWN Group seeks to
achieve exemplary fulfilment of its commitment to its employees, in a healthy environment free of discrimination, in
which it can attract and foster talent on the basis of a long-term vision.
DAWN Integrated Report 2014
Capitals
continued
Social capital
123
DAWN relies on social relationships and interactions to assist the Group in achieving its objectives. Internally social
capital takes the form of DAWN values that assist employees to work cohesively, thereby enabling the Group to
operate effectively. Externally, social structures assist in creating a climate of consent and understanding, or a licence
to operate, in which trade is possible. DAWN also relies on wider socio-political structures to create a stable society in
which to operate. DAWN’s engagement with its ten key stakeholders is the platform for growth of its social capital.
(See pages 43 to 52)
Open dialogue with stakeholders reinforces the decision-making process and achieves the support of those that are
affected by DAWN’s activities. The concept of and commitment to sustainability also includes the Group’s suppliers
and it means assuming the responsibility of working with them on their own training and in developing new solutions,
while managing any risks in the supply-chain. DAWN ensures the ethical sourcing of materials and fair treatment of
suppliers, customers and citizens. DAWN subscribes to an open, transparent and fair governance system.
Natural capital
Natural capital refers to the natural resources and processes needed by DAWN to produce its products and render its
services. Included are technologies that absorb, neutralise or recycle waste; resources (some of which are renewable
and others are not); and processes, such as climate regulation and the carbon cycle.
DAWN is aware of the strategic importance of efficiency in the use of resources that feed the production processes.
Projects have commenced to reduce the Group’s energy consumption, water usage through recycling and re-use of
water as well as waste reduction and re-use of waste. DAWN systematically pursues the most productive and efficient
use of resources and land. The Group is committed to reducing its carbon footprint.
59
60
DAWN Integrated Report 2014
Value chain
DAWN contracts with suppliers locally and internationally, with approximately 10% of products being imported, as DAWN’s strategy is
vested in procuring from local manufacturers in support of local communities and the Group has a defensive import approach. DAWN
currently sources its products through more than 2 700 suppliers and procured goods to the value of R4,6 billion during the financial year.
DAWN’s value chain refers to its ownership and influence to bring its products to market and ultimately to its end of life. The value chain is
interconnected in a multiple of ways, not unlike an ecosystem or a web. The connections in this chain drive the Group’s decision-making.
The quality of the Group’s planning, coupled with an analysis of market demand, shape the manufacturing choices DAWN makes. Efficient
manufacturers create little to no scrap and turn what remains back into material inputs for new products. Insights gained from its customers,
impact how the Group designs its products. Ownership of or minority stakes in manufacturing companies as well as a well-established
supplier network mean better quality control and assessment of environmental and social impacts. Through DAWN Logistics the Group’s
ability to gather and track data on transportation emissions is enhanced and also ensures products get to where they need to be at the right
time at the right price. Each choice has financial, environmental and social impacts that are intertwined and mutually dependent.
Manufacturing
Recycling
Manufacturing businesses
which are owned or where
the Group has a minority
stake afford the Group the key benefits of
ownership of premium brands, optimisation of
the supply-chain and diversification of sources of
revenue.
Some of the raw materials used in the
manufacturing processes at DAWN's
manufacturing companies are recyclable input
materials. Wooden pallets are refurbished and
products are manufactured from scrapped and
broken pallets.
11% of
An enterprise
materials
development business
used were
manufacture new pallets from
recycled input
scrapped and broken pallets
materials.
with the resultant a saving in
tonnes of timber used.
Specifications departments, with its turnkey
solutions offerings, increase the value of
DAWN's products which are specified into
projects. Quality of manufactured products are
further supported by the accreditations which
the products carry as well as above average
after-sales service and support.
The Group manufactures
products for the
infrastructure, residential
and commercial sectors.
86 824 tonnes of raw
materials were used
during F2014 of which
9 538 tonnes were
recycled input
materials.
Local suppliers
DAWN's business strategy
is based on the supply of
locally manufactured quality products, either
owned or through third-party suppliers. By
purchasing local products, job opportunities are
created in local communities and the purchasing
power of consumers locally is strengthened. The
Group sources branded
products from a wellestablished supplier
80% of products were
network.
sourced locally during
F2014.
Imported products
Trading
Warehousing
DAWN Distribution
Centres is a highly specialised provider
of warehouse and related facilities
management solutions to its internal
client base with operations in Germiston,
Cape Town, Durban, Port Elizabeth,
Nelspruit, Bloemfontein, Polokwane and
East London. A sophisticated
warehouse
management
Electricity projects
system ensures
in F2014 resulted in a
optimal
carbon reduction of
stockholding,
approximately
stock picking and
4 041 tonnes of
control.
CO e.
DAWN adopts a defensive
approach on imports, or
when the equivalent product
is not available locally,
mainly to protect market share. The Group has
agency agreements with prominent
20% of products were
international suppliers as well as
imported during
relationships with manufacturers abroad
F2014.
that manufacture to specifications under
DAWN's quality codes.
2
Trading
companies
are differentiated in the
marketplace through its ability to
offer retailers, merchants and
hardware stores products
relating to plumbing,
sanitaryware and hardware in
any quantities, nationally, on a
consistent basis. This allows
retailers the benefit of optimal
working capital management.
The product range, with its
extensive line offering, provides a
one-stop shop
opportunity.
More than
50 000 line items are
offered.
DAWN Integrated Report 2014
Showrooms
Lifestyle Design Centres
have been established
in Johannesburg, Cape
Town, Port Elizabeth and Durban, with
innovators in design, quality and
expertise, all under one roof. Its offering
Lifestyle Design
includes expert advice, training
Centres are of particular
facilities, guarantees, service, latest
benefit to architects and
trend-setters, latest technology,
contractors.
demonstration areas, conference
facilities and a complete home solution.
Customers
Distribution
DAWN Cargo has the capability to
service the Group’s entire customer
base across South Africa with crossborder deliveries to Botswana,
Swaziland and Lesotho. DAWN Cargo
provides a significant competitive
advantage to the Group and its
subsidiaries through its national reach
and by offering a competitive delivery
service. Customers benefit
from the just-in-time
break-bulk
DAWN Cargo has a
capability.
fleet of more than 190
trucks of which 48
participate in the ownerdriver scheme.
DAWN distributes quality branded
hardware, sanitaryware, plumbing, kitchen,
engineering and civil products. DAWN
Merchandising provides an in-store merchandising
service in all the national chain stores to all Group
companies. This ensures professional and effective
representation and display of pre-packed and
concept product ranges. Presence at the backdoor
of the chain stores also assists with
stock loss prevention and
expedites the pull through
The Group has more
of DAWN products onto
than 13 000 customers in
retail shelves.
the building and
infrastructure sectors.
After-sales
service
The Group offers
warranties on its
products and
technical support
on installations.
Exports
Saffer International,
During F2014 exports
and exports from the various
comprised 18% of Group activity
operating businesses in the
with products being exported to
Group, has been established as
about 50 countries in sub-Saharan
the vehicle through which
Africa, Asia, Australia, Europe, the
markets abroad can most
Middle East, New Zealand and
effectively be accessed.
South America.
For the past 60 years
Cobra has manufactured a
steadily increasing range of SABSapproved taps, mixers and plumbing
accessories. A key component of
its standard sales basket of
goods is replacement parts,
which are guaranteed
for 10 years.
Solutions
A centralised business system, marketing and design,
human resources, packaging, merchandising, financial and
projects solutions are offered to DAWN Group companies,
as well as to external customers. The benefits of a shared
services strategy are cost containment through pooling of resources and
elimination of duplication as well as optimised efficiencies through
adopting and driving best practice.
Collaboration is a cornerstone
principle driven assertively
throughout the Group.
61
DAWN Integrated Report 2014
OPERATIONAL
BUILDING
INFRASTRUCTURE
SOLUTIONS
B
I
S
DAWN’s pre-eminent goal is to be a leading
force in the distribution of plumbing, hardware
and infrastructural products with unrivalled
logistics capability
B
DAWN Integrated Report 2014
Building segment
Trading
Manufacturing
Associate
Disposal group held-for-sale
Angola
Mauritius
Zimbabwe
Mozambique
Tanzania
DRC
Zambia
Nigeria
Joint Ventures
Building segment contribution to Group revenue
9%
44%
47%
63
64
DAWN Integrated Report 2014
B
Building
continued
OVERVIEW
The building market remained extremely tough. Although price increases assisted a revenue improvement of 8% to
R2,1 billion, profit before interest and taxation (PBIT) was down 45% to R36,2 million (2013: R66,1 million) and
headline earnings per share down 20%.
The main negative impact on performance was in the second half of the year, driven by five key factors. The first four
of these were once-off and included the following:
•
The five-month platinum mine strikes which had an indirect effect on the Group as the rural consumers in these
areas, which are responsible for the cash sales of most of the Group’s key customers, had virtually no disposable
income. This, in turn, affected off-take outside the mining areas as the miners had no money to send home.
•
Gauteng experienced excessive rainfall in March 2014, which meant a loss in plumbing groundwork, with the
election causing further disruptions in May 2014.
•
The significant negative currency effect at AST.
•
Wilhelm Import Network (WiiN), the new upmarket bathroom fittings business, and the new AST operations in
Tanzania and the Democratic Republic of the Congo posted start-up losses.
Excluding these four factors, the Building segment’s headline earnings per share would have been down 10% in the
second half of F2014 compared to the actual 41%.
The fifth factor was the slowdown in the economy, where GDP growth of 2,2% in the first half of F2014 slowed to zero
in the second half. This put the already stretched consumer under even more pressure.
Against this, the official buildings completed numbers for the year were down almost 11%, with the Group’s key
markets of recorded and unrecorded additions and alterations particularly hard hit.
The Segment’s joint venture in Africa, AST, was affected by the negative currency impact. AST also impaired its
Nigerian business by R19,3 million. Heunis Steel, an associate investment, did extremely well and posted a record
result.
Sales increased at both Watertech (Cobra, ISCA and Apex Valves) and Sanitaryware (Vaal and Libra), with Watertech’s
gross contribution slightly down and Sanitaryware showing an improved contribution. These two clusters are now
held-for-sale in line with the Grohe transaction.
OUTLOOK
Trading
The Trading cluster comprises WHS (Saffer Bathroom & Plumbing, WHDsa, Saffer International), DAWN Business
Development (DAWN Kitchen Fittings, DAWN Power Tools, Electroline, Stability, Wholesale Building Materials), WiiN
and AST.
Markets remain tough with Building Plans Passed declining and just barely in positive territory. In addition, quarter one
of F2015 has seen an R10 million indirect negative impact on PBIT from the NUMSA strike in July 2014.
Unfortunately the positive forces in Trading will not fully compensate for the negatives in the first half of F2015.
Positive initiatives include:
•
Necessary corrective action has been taken at DAWN Kitchen Fittings and a new management team has been put
in place. This business is already at a break-even position for the first quarter of F2015.
•
Some well-known brands have been added to enhance the Trading cluster’s range of products and a positive
impact is expected from the second half of F2015.
B
DAWN Integrated Report 2014
Building
continued
•
As the Watertech and Sanitaryware clusters are no longer in the Trading cluster’s PBIT mix, the Trading short-term
margin has now been set at 2% to 4%, expected to be at the low end of the range at the interim stage in F2015.
The medium-term target is at 5% to 7%, bearing in mind that the Trading cluster’s margin peaked at 8% at the top
of the market.
Manufacturing
Heunis Steel, an associate company, experienced a record F2014 and management continues to be innovative to
further improve this world-class operation.
Disposal group held-for-sale
The Watertech (Cobra, ISCA, Apex Valves) cluster’s strong focus on correcting gross margins has started to bear fruit.
In the Sanitaryware (Vaal and Libra) cluster, Vaal is performing well and Libra is receiving strong focus after a weak
F2014. The biggest improvement will come from Libra in F2015, attributable to price increases which recovered higher
input costs.
Joint venture
AST is growing off a low base after impairment of the Nigerian operation in F2014. DAWN’s focus in AST is centred on
turning around Nigeria and Angola.
Overall
DAWN will be adding more businesses to the Building segment over time and the target margins will be updated
accordingly.
65
66
DAWN Integrated Report 2014
DAWN International
Trading
Trading
Manufacturing
Manufacturing
DPI International
Namibia
Angola
Mauritius
Mauritius
Tanzania
Botswana
DRC
Tanzania
Zambia
Angola
Zimbabwe
Mozambique
Joint Ventures
Associate
Nigeria
Joint Ventures
Cluster contribution to Group revenue
20%
20%
2013
2014
80%
80%
South Africa
2014
R1 562 million
2013
R1 275 million
Africa and Indian Ocean islands
DAWN International comprises AST, Saffer International, DPI International (the manufacturing businesses in Africa and
Mauritius), Incledon International and DAWN’s manufacturing companies’ exports. These products are distributed to
about 50 countries in sub-Saharan Africa, Australia, New Zealand, South America, the Middle East, Asia and Europe.
DAWN International’s contribution is included in the Building and Infrastructure segments’ results. To provide additional
disclosure, the revenue of this entity is discussed separately and includes associates and joint ventures at 100%, as
well as intercompany sales before eliminations.
DAWN Integrated Report 2014
DAWN International
continued
Growth in Africa is a key strategy of the DAWN Group. Having started expansion into Africa and the Indian Ocean
islands nine years ago, the Group is pleased with the strong progress achieved. Revenue from international activities
has increased from less than R150 million in F2005 to R1,6 billion for F2014. Revenue is made up as follows:
•
Exports from South Africa grew by 24%;
•
DPI International’s factories in Africa grew revenue by 26%; and
•
AST continued to entrench its African presence through its trading business, showing a 7% growth.
Outlook
The Group’s target is to increase the contribution from business in Africa to Group revenue from 20% to 30% over
time, assisted by the benefits of the Grohe transaction which creates a strong base for expansion into surrounding
regions.
DAWN’s exports into Africa are a major focus and progress will be enhanced by the Grohe transaction. DPI
International in Africa is looking at increasing growth, including acquisitions and new start-up businesses. AST will now
be the distribution arm of all DAWN and Grohe products in Africa – a step-change opportunity.
67
68
I
DAWN Integrated Report 2014
Infrastructure segment
Trading
Manufacturing
DPI International
Namibia
Associate
Botswana
Angola
Associate
Mauritius
Tanzania
Joint Ventures
Infrastructure segment contribution to Group revenue
9%
44%
47%
I
DAWN Integrated Report 2014
Infrastructure
continued
OVERVIEW
The Infrastructure segment performed relatively well, with revenue up by 30% to R2,2 billion (2013: R1,7 billion) and
profit before interest and taxation (PBIT) up 69% to R99,3 million (2013: R58,7 million) and headline earnings per share
up 6% from 19,8 cents per share to 21,1 cents per share.
This performance was achieved despite the R9 million direct impact on PBIT due to the protracted mining strike in the
second half.
Another factor affecting the performance of the Infrastructure segment was the higher finance charges for acquisitions
and working capital necessary to fund growth.
Manufacturing
DPI performed very well in the second half, with strong volumes through sanitation civil engineering contracts won and
a 50% increase in exports to Africa. DPI International also experienced a solid second half. DPI’s results include the
first full-year contribution from the Swan Plastics and Ubuntu Plastics acquisitions. PBIT for the year was therefore
133% up and headline earnings per share up 96%.
Sangio Pipe incurred a once-off expense on the purchase price of Sangio Pipe to increase its stake. The remaining
associates, mainly Fibrex in Angola, performed disappointingly.
Trading
Incledon’s second half came off the very high base of the Group’s R120 million ductile pipe contract in F2013. The
business also experienced delays in project awards after the strong levels of activity in the run-up to the elections.
PBIT for the year was therefore up 48% and headline earnings per share up 47%.
IPS & Distribution, the Group’s associate start-up business in the agricultural sector, incurred expected losses.
OUTLOOK
The upward trend of the record DPI and Incledon order books is encouraging. These order books are as a result of
orders picking up after the post-election slump and demand stabilising after the mining strike. The closure of the
Infrastructure segment’s largest competitor’s PVC pressure pipe production post year-end has further consolidated the
market and allowed for a good improvement in orders and margins. The Swan Plastics and Ubuntu Plastics
acquisitions have meant further gains in market share.
The effect of the recent NUMSA strike impacted the Infrastructure segment in July 2014 and August 2014 by R28
million at PBIT level and the cluster expects to claw this amount back in the second half of F2015.
Manufacturing
The PVC businesses of DPI and Swan Plastics expect to see the benefits from new capital expenditure initiatives by
the second half of F2015. At Sangio Pipe, the HDPE business which will be consolidated for F2015, scrap rates are
declining after the commissioning of the new large bore extruders and will remain a strong focus in F2015. The
recently acquired fabrication business, Ubuntu Plastics, specialises in high value-added products and continues to
expand its product range.
Trading
The recovery of the mining sector after the 2014 debilitating and protracted strike remains critical and it is therefore
very encouraging that Incledon has secured large, three to five-year contracts at Harmony, Sasol and Anglo Thermal
Coal. The big project DAWN is waiting for is the significant Department of Water Affairs and Forestry annual contract,
which has not yet been awarded. Incledon’s margin targets remain the same at 3% to 5% in the short-term, expected
to be at the lower end at the interim stage, and 5% to 8% in the medium-term.
Associates
DPI International in Africa is improving off a low base in F2014. Elections in Tanzania should spur activity and boost
demand.
Fibrex, based in Angola, has seen the Angolan government starting spend since May 2014 and there are a number of
large projects underway.
IPS & Distribution, the start-up associate company trading in the agricultural space, needs to find more traction in the
market after its initial losses.
69
70
S
DAWN Integrated Report 2014
Solutions segment
Solutions segment contribution to Group revenue
9%
44%
47%
S
DAWN Integrated Report 2014
Solutions
continued
OVERVIEW
DAWN Solutions’ revenue of R433,0 million increased by 18,5% and profit before interest and taxation (PBIT) was
down 31% from R14,0 million to R9,6 million. This performance was mainly driven by three major impacts on the
largest business in the segment, Logistics’ earnings:
•
In line with the Group’s objective of becoming world-class in logistics, a new warehouse management system is
being phased in. Although a big improvement, it has resulted in temporary cost increases as the old system falls
away and the new system takes over section by section.
•
In an effort to assist Group companies operating in a tough trading environment, the Solutions segment took
over DPI and Incledon logistics, which included an additional 24 vehicles, at low prices.
•
The renewal of rentals resulted in an IFRS-required lease smoothing charge, which negatively impacted earnings
in F2014.
The other DAWN Solutions operations maintained results compared to last year.
OUTLOOK
In the first half of F2015, DAWN Solutions will continue to be impacted by the roll-out of the new world class business
systems. Growth is only anticipated from the second half of F2015 onwards, attributable to:
•
Dawn Cargo is expected to grow through the integration of the remaining DAWN Infrastructure manufacturing
operations, which include Swan Plastics, Ubuntu Plastics and Sangio Pipe, whilst still achieving cost-savings to
those businesses. Infrastructure added to the system in F2014 will be utilised and trucks for return trips from the
coast to inland will be filled.
•
The systematic roll-out of DAWN Solutions’ distribution businesses to the Group’s cross-border operations will
further improve earnings for both parties through consolidation of loads, providing economies of scale.
•
In the medium-term, DAWN Solutions should see greater economies of scale after the Grohe transaction as the
combined higher volume throughput will utilise the excess warehousing capacity that has been experienced
since F2009.
•
Lastly, the other services businesses in DAWN Solutions will focus on growing its non-Group client base.
71
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DAWN Integrated Report 2014
CORPORATE
GOVERNANCE
Corporate governance entails balancing the
interests of DAWN’s stakeholders and provides
the framework for attaining the Group’s objectives
DAWN Integrated Report 2014
Risk management
The Board recognises that risk management is a dynamic process and that the risk framework should be robust
enough to effectively manage and react to change in an efficient and timeous manner.
Formalisation of a risk management framework is the responsibility of the Group’s Board of Directors. The framework
ensures:
•
risk taking within levels acceptable to the Group as a whole and within the constraints of the relevant business
units; and
•
improved risk management and control.
The identification of risks and opportunities is vigorous, systematic and involves every level of the organisation. A
comprehensive risk management policy is entrenched throughout the Group.
Having regard to the fact that managing risk is an inherent part of the Group’s activities, risk management and the
ongoing improvement in corresponding control structures remain a key focus of management in building a successful
and sustainable business.
DAWN has performed a strategic risk review at both Group and divisional level. The results of this exercise have
allowed management and the Board to focus on risk mitigation strategies and processes. The Risk Committee
monitors the progress of the implementation of the above processes, with written submissions and presentations
being done by management at least twice per year.
The structure of the Group promotes the active participation of executive management in all of the operational and
strategic decisions affecting their business units. This creates a strong culture of ownership and accountability.
Senior management plays an active role in the risk management process and is responsible for the implementation,
ongoing maintenance of and ultimate compliance with the risk process as it applies to each business unit. The Board
is kept abreast of developments through formalised reporting structures, ongoing communication with management,
regular management meetings at operating entity level and through representation of executive members of the Board
on certain of the forums responsible for the management of risk at an operating entity level.
DAWN Internal Audit provides a written assessment on the risk management process to the Board. The Group
remains committed to employing the highest calibre of staff to ensure a strong financial and operational infrastructure
within each of the business units.
73
74
DAWN Integrated Report 2014
Risk management
continued
Group Risk Management Framework
The Group’s Risk Management Framework aims to:
•
align strategy with risk tolerance;
•
improve decision-making which improves the Group’s risk profile;
•
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;
•
improve predictability and build shareholder confidence;
•
build robust organisational risk structures and facilitate timeous interventions to promote long-term sustainability;
and
•
promote the efficient and proactive utilisation of opportunities.
2
1
3
FUNCTIONAL SUPPORT
STRATEGIC RISK MANAGEMENT
Strategic risk is evaluated to achieve long-term business
objectives. Direction is set for organic and acquisitive
growth to access new markets and create new capacity,
and applies to acquisitions, disposals, new business
development and timely and needed leadership
intervention.
Dedicated functional support
for risk management has been
created at Group level and
within operations, including
enterprise functional
leadership, risk management
monitoring, risk-based audit
programmes and operational
risk focus.
ORGANISATIONAL RISK
The Group’s operating boards
have been tasked with the
governance of risk in each of
their respective operating
entities. The Risk Committee
reviews each business’ risk
register and submits a
consolidated DAWN risk
register to the Board.
STRATEGIC
CORPORATE
OPERATIONAL
4
REPUTATIONAL RISK
MANAGEMENT
The Board has adopted a
Stakeholder Framework to
measure and manage external
perceptions of the DAWN
Group. Each stakeholder
group’s material concerns and
responses are in the process
of being re-affirmed by DAWN
and will be incorporated in
business plans across the
Group.
5
OPERATIONAL RISK
MANAGEMENT
Operational risk is continuously
evaluated to ensure
achievement of targeted
profits.
6
5
CORPORATE RISK MANAGEMENT
Corporate risk management relates to
a range of portfolios at Group level,
which addresses various forms of risk
including risk management policies
and procedures, the Code of Ethical
Conduct, regulatory compliance,
commercial and legal oversight,
integrated assurance, IT business
continuity and disaster recovery,
treasury, debt covenants, insurance,
crisis communication and forensic
investigations.
DAWN Integrated Report 2014
Risk management
continued
Key risks with control and/or mitigation strategies
Top risks that are threatening
the achievement of the
business plan
Current controls and new
strategies/action plans that are
being implemented to mitigate risk
or to realise benefit
Residual
risk
ratings
Impact on
business
plan –
F2015
1 (1)
Market conditions and weak
economy resulting in low sales
volumes and pressure on margins
(mainly building-related activity).
Low levels of disposable income.
Increase in interest rates (cycle of
increases to follow).
All manufacturing businesses are
targeting projects to reduce
manufacturing costs at current
volume throughput through
optimisation of production planning
and product innovation and
re-engineering.
E
High
2 (8)
Industrial action – mining strikes
created an environment of union
aggression and general demand
for high increases.
Maintain good relationships with staff
and unions. New wage agreements
were negotiated in June 2014. Staff
loyalty schemes are being explored.
H
High
3 (3)
Over-investment in stock due to
the major negative impact on
accuracy of demand planning as
a result of a change in customer
buying patterns towards cheaper
products and commodity items,
combined with erratic demand
patterns.
A major focus on stock models and
the reduction of investment in slowmoving stocks versus fast-moving
commodity items. Agreed stock level
targets.
H
High
4 (4)
Pressure on Group banking
facilities and cash flow due to
over-investment in stock and
capital expansion projects (Vaal
and eMerge, the Group’s
Enterprise Resource Planning
system). Negative impact of
higher funding cost on earnings
achievement.
Aggressive stock reduction drive to
reduce lazy capital – commitments in
place from all businesses.
H
High
5 (5)
IT systems – impact of
implementation process of new
software and Enterprise Resource
Planning system.
Reduce implementation risk through
highly experienced project
management team and systematic
phased implementation approach.
H
Medium
6 (2)
Customer service levels are
difficult to maintain due to the
impact of erratic demand patterns
as well as the unpredictability of
market requirements on the
accuracy of demand planning.
A major focus on customer service
levels through market surveys and
customer visits by senior and
executive staff. Strict measurement
and control of stock availability of
commodity items. Customer
Relationship Management systems
are included in the IT upgrade.
H
High
2014 rating
(2013 rating
in brackets)
75
76
DAWN Integrated Report 2014
Risk management
continued
2014 rating
(2013 rating
in brackets)
Top risks that are threatening
the achievement of the
business plan
Current controls and new
strategies/action plans that are
being implemented to mitigate risk
or to realise benefit
Residual
risk
ratings
Impact on
business
plan –
F2015
7 (7)
High dependence on government
spending and civil contracts.
Refocus product strategies towards
more sustainable markets and
profitable products. Accelerate the
repositioning process. Position the
business to gain access to
government projects at acceptable
risk levels.
H
Medium
8 (6)
Brand erosion – impact on
achievement of sales and margin
expectations.
Product innovation and new product
launches in all manufacturing
operations with the main aim being
revitalised aesthetics as well as price
competitiveness in the mid-range
and below. Subsequent to year-end,
this risk was addressed with DAWN
partnering with Grohe, a global
manufacturer with global technology
giving DAWN access to global
markets.
H
Medium
9 (10)
More than 90% of sales are on
credit – a deterioration in the
percentage of collections could
lead to possible bad debts.
Market intelligence shows funding
of undercapitalised contractors
and municipalities.
High focus on credit policies and
strict application of credit terms.
Collection incentives have been
implemented. The strict policy of
credit insurance assures that the
bulk of credit is insured.
L
Low
10 (9)
Performance recovery at Vaal and
Libra. Impact of the
implementation of new high
pressure casting technology on
business continuity.
Major focus on performance
improvement through a combination
of production and marketing
initiatives with expense reduction.
Market share growth is a key priority
for Acrylic products. A high pressure
casting project has been negotiated
with the manufacturer of equipment
to be supplied and installed under
the supervision of DAWN Projects.
L
Low
E – Extreme
H – High
M – Moderate
L – Low
DAWN Integrated Report 2014
GOVERNANCE AND COMPLIANCE STRUCTURE
DAWN’s governance and compliance structure is depicted below:
DAWN BOARD
Risk tolerance/appetite
Reporting
Company
Secretary
Combined assurance framework
AUDIT COMMITTEE
RISK COMMITTEE
SOCIAL, ETHICS AND
TRANSFORMATION
COMMITTEE
IT STEERING
COMMITTEE
CEO
NOMINATION
COMMITTEE
EXECUTIVE COMMITTEE
IT Governance
Strategy
Committee
DAWN Business Systems
• Risks
• Standards
• Disaster Recovery
Internal Audit
REMUNERATION
COMMITTEE
Effectiveness
Risk management and
governance
Trading
Operations
Committee
Manufacturing
Operations
Committee
Ethics
Risk-based
• Risks
• Performance
• Cycle
• Fraud and irregularities
• Ethics hotline
Control
Environment
IT General
Controls
Risk management
Sustainability
• Operational risk/opportunity
• Tactical risk/opportunity
• Strategic risk/opportunity
Internal
Financial
Control Review
Reporting GRI A/SRI
Combined assurance plan
Projects
• Carbon reduction
• BBBEE
• Energy saving/renewable energy
• Waste reduction
Compliance
Environmental/
Health and Safety
• Third party assurance
• Group Safety, Health and
Environment function
•
•
•
•
•
•
Competition Act
Companies Act
Consumer Protection Act
National Credit Act
JSE
King III
Compliance
framework
•
•
•
•
•
Legal
Policies and procedures
Ethics
Delegation of authority
Declaration of interest
Treasury
Committee
77
78
DAWN Integrated Report 2014
Combined assurance
COMBINED ASSURANCE
A combined assurance model is applied to provide a coordinated approach to all assurance activities.
123
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 the Board and management with certain
assurances over the adequacy and effectiveness of those controls that mitigate the risks as identified during the risk
assessment process described on pages 74 to 76. Collectively the activities of these assurance providers are referred
to as the combined assurance model.
DAWN Group has taken an approach designed to meet the objectives of combined assurance in a pragmatic and
cost-effective manner.
Process
The development of DAWN’s combined assurance model entailed the following:
•
Risk identification.
•
Identification of controls.
•
Identification of assurance providers.
•
Assessment of assurance activities against controls.
•
Conclusion and development of action plans.
Assurance providers
Management-based assurance
Management oversight, including strategy implementation, key performance indicators and performance
measurement, control self-assessments and continual monitoring mechanisms and systems are included.
The Board obtains formal assurance from the Risk Committee, through the Audit Committee, annually on the
effectiveness of the risk management processes, including the operation of internal controls over financial and IT risks,
compliance with legislation and the ethical and sustainable management of the business. This assurance is confirmed
by Internal Audit.
Internal assurance
Risk management (adopting an effective enterprise-wide risk management framework), compliance, health and safety
and quality assurance departments are included. These departments are responsible for maintaining policies, minimum
standards, oversight and risk management performance and reporting.
Independent assurance
Internal Audit
Internal Audit is an independent appraisal function, which examines and evaluates the activities and the
appropriateness of the systems of internal control, risk management and governance processes. The Audit Committee
is satisfied that Internal Audit has met its responsibilities for the year with respect to its Terms of Reference.
The Chief Audit Executive (CAE) reports to the Director: Risk and Compliance on day-to-day matters, and functionally
to the Chairman of the Audit Committee. Audit plans are presented in advance to the Audit Committee and are based
on an assessment of risk areas involving an independent review of the Group’s own risk assessments. The CAE
attends and presents its findings to the Audit Committee.
The objective of Internal Audit is to assist the Board in the effective discharge of its responsibilities. Internal Audit is a
key assurance provider and provides the Board with a report of its activities which, along with other sources of
assurance, is used by the Board reporting on its assessment of the Company’s system of internal controls and risk
management.
DAWN Integrated Report 2014
Combined assurance
continued
External Audit
The Audit 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 Committee. The external auditor is the main external assurance provider for the Board in
relation to the Group’s financial results for each financial year.
The Audit Committee regularly reviews the external auditor’s independence and maintains control over the non-audit
services provided by the external auditors.
Pre-approved permissible non-audit services performed by the external auditors include taxation and due diligence
services. The external auditors are prohibited from providing non-audit services, including valuation and accounting
work, where their independence might be compromised by later auditing their own work. Other non-audit services
provided by the external auditors are required to be specifically approved by the Audit Committee.
The external auditor rotates the designated audit partner at least every five years.
Oversight committees
The following committees provide assurance as stated below:
•
The 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.
•
The Remuneration Committee – with regard to controls in the remuneration sphere.
•
The Nomination Committee – in relation to Board diversity, succession planning and corporate governance
structures.
•
The Risk Committee – with regard to the enterprise-wide risk management framework.
•
The Audit Committee – with regard to financial and internal controls outlined in its Terms of Reference.
The Audit Committee has reviewed the combined assurance framework for the Group to satisfy itself with
management’s initial conclusions and will continue to review it as part of its role in oversight of risk management.
In the light of its review of the combined assurance framework, the Audit Committee has recommended to the Board
that appropriate assurance activities are in place in relation to the controls operating over each risk identified in the risk
management process.
Board assessment of the Group’s systems of internal controls and risk management
Nothing has come to the attention of the Board or arose out of the internal control self-assessment process, Internal
Audit or year-end external audits that causes the Board to believe that the Group’s systems of internal controls and
risk management are not effective or that the internal financial controls do not form a sound basis for the preparation
of reliable financial statements. The Board’s opinion is based on the combined assurances of external and internal
auditors, management and the Audit Committee as well as central Business Systems and HR functions.
Assurance
The data in this report has been assured to the extent set out below. The Group accepts that this limited assurance is
not ideal, but DAWN’s approach to combined assurance is at an early stage.
The annual financial statements appearing on DAWN’s website have been audited by the independent auditors,
PricewaterhouseCoopers Inc, and their audit report appears on page 14 of the annual financial statements.
DAWN’s management and directors are responsible for the preparation and presentation of the identified sustainability
information, as incorporated in the 2014 Sustainability Report, and for the information contained in the Integrated
Report, in accordance with their internally defined procedures. DAWN’s management and directors are also
responsible for maintaining adequate records and internal controls that are designed to support the reporting process.
79
80
DAWN Integrated Report 2014
Combined assurance
continued
The Audit Committee has reviewed the sustainability issues in the Sustainability Report and in the Integrated Report to
ensure that they are reliable and that there is no conflict with the financial information.
The G4 GRI Guidelines has removed the application level approach, as well as the plus score applied to an assured
report. The G4 process requires organisations to make a critical decision early in the reporting process regarding the
extent of disclosures. This choice does not impact on the report’s quality or acceptability as a Sustainability Report,
rather it allows users to meet the requirements of the Guidelines without subjecting themselves to the criticism or the
pressure of improving their compliance score. Because G4 reinforces the process of identifying material aspects and
disclosing and reporting on only those aspects relevant to the organisation, it has become, if not impossible, certainly
irrelevant to prepare and compare compliance scores.
The Guidelines offer two options for organisations to prepare a Sustainability Report in accordance with the Guidelines.
The two options are Core and Comprehensive. The key differences between these two options are:
•
for the Core option, the General Standard Disclosures are limited to 34 items. In addition, the Disclosure on
Management Approach for each identified material aspect and at least one Specific Standard Disclosure
indicator related to each identified material aspect must be reported on; or
•
for the Comprehensive option, an additional 21 governance disclosure items and a further two ethics and
integrity disclosure items are required in terms of the General Standard Disclosures. In addition, the Disclosures
on Management Approach and all indicators associated with the identified material aspects must be reported
on.
In F2014, DAWN selected the Comprehensive option for reporting. In the year ahead a focused approach will be
applied to the determination of materiality of aspects, with a view to moving towards reporting on the Core option in
the future.
Information contained within the Sustainability Report and disclosures from certain external sources have been
independently verified, such as the carbon footprint report (Global Carbon Exchange) and Broad-Based Black
Economic Empowerment rating (Empowerdex). EcoPartners provided feedback on DAWN’s 2014 Safety, Health and
the Environment assessment. The Chief Audit Executive provided independent assurance on the Sustainability Report.
External independent assurance will in the future be sought for the Sustainability Report.
COMPLIANCE
Other reporting principles and frameworks used in the compilation of the Integrated Report and the Sustainability
Report include:
•
International Financial Reporting Standards (IFRS);
•
JSE Listings Requirements;
•
King III;
•
South African Companies Act;
•
Protection of Personal Information Act (POPI);
•
Employment Equity Act;
•
Labour Relations Act;
•
Skills Development Act;
•
Basic Conditions of Employment Act;
•
Global Reporting Initiative;
•
DTI Codes of Good Practice;
•
Occupational Health & Safety Act (OHSA);
•
National Environmental Management Laws Amendment Act; and
•
Discussion Papers issued by the South African Integrated Reporting Committee (IRC) and the International
Integrated Reporting Framework (IIRC).
The Integrated Report and the Sustainability Report are also available online at www.dawnltd.co.za.
DAWN Integrated Report 2014
Corporate Governance report
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 out in the Code of Corporate Practices and Conduct, as defined in the
King III Report, are observed.
The Board is satisfied that the Group complies with the JSE Listings Requirements as well as with all material
provisions of the King III Report, as has been reported in the Corporate Governance Register which is available on
DAWN’s website at www.dawnltd.co.za.
A summary of the principles contained in Chapter 2 of the King Code is outlined below:
BOARDS AND DIRECTORS
The unitary Board of Directors of DAWN, chaired by Mr RL Hiemstra, an independent non-executive director, reflects
an appropriate mix of executive and non-executive directors. Specifically, it comprises six non-executive directors, of
whom four are independent, and four executive directors.
This 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.
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 takes final responsibility for acquisitions and disposals, approves capital expenditure and
appraises proposals from the Executive and other Board Committees.
The Board gives strategic direction to the Group, appoints the Chief Executive Officer and ensures that succession is
planned. A formal Succession Planning Policy was adopted by the Remuneration Committee. The non-executive
directors take responsibility for ensuring that the chair 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.
81
82
DAWN Integrated Report 2014
Corporate Governance report
continued
The roles of the Chairman and Chief Executive Officer are separate.
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, is assessed annually by the Board. The Board elects a chairman on an annual basis.
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. 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.
The 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.
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. Nonexecutive directors have access to management and may even meet separately with them, without the attendance of
executive directors.
The Board defines levels of materiality, reserving specific power to itself and delegating other matters with the
necessary written authority to management. These matters are monitored and evaluated on a regular basis.
The Board identifies the key risk areas and key performance indicators for the Group. These are regularly updated and
particular attention is given to technology and systems as the Board is ultimately responsible for the governance of IT.
Directors, 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 directors with the Group’s operations, senior management and its business environment and to
induct them in their fiduciary duties 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 and standards applicable on the Company to enable
directors to sufficiently familiarise themselves with the general content thereof to discharge their legal duties.
The Board has the authority to remove any director without shareholder approval.
The daily management of the Group’s affairs is delegated to the Chief Executive Officer, who co-ordinates the
implementation of Board policy through the Executive Committee. The Chairman annually appraises the Chief
Executive Officer and the results of this appraisal are considered by the Remuneration Committee to guide it in its
evaluation of the performance and remuneration of the Chief Executive Officer.
The 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.
The Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, the Risk and Compliance Officer, and the
Chief Executives of DAWN Solutions, Africa Operations and DAWN Manufacturing, Logistics as well as the Group
Procurement Officer form the Executive Committee.
DAWN Integrated Report 2014
Corporate Governance report
continued
Board representation
Board balance
Independence assessment
2014
The Board adopted a Policy on the Independence of
Directors. The test of independence is defined as
“Independent of management and any business or other
relationship that could materially interfere with the
exercise of objective, unfettered or independent
judgement by the director of the director’s ability to act in
the best interests of the DAWN Group.”
2013
2012
2011
Executive Directors
Non-Executive Directors
Board composition
2014
All non-executive directors are required to complete an
independence questionnaire to establish whether they
meet the objective independence criteria of King III. The
completed questionnaires are evaluated by the Board as
a whole and the Board concluded that four of the six
non-executive directors are independent according to the
King III definition.
Messrs M Akoojee and VJ Mokoena are not considered
independent in terms of the King III definition due to their
representation of a significant shareholder of the
Company.
2013
2012
2011
Executive
Directors
Non-Executive
Directors
Independent
Non-Executive Directors
Board race balance
2014
Three of the non-executive directors on the Board have
served a term exceeding nine years. The Board reviewed
the independence of Messrs LM Alberts, OS Arbee and
RL Hiemstra and, after due consideration, concluded
that their long association with the Group has not
impaired their integrity, impartiality and objectivity and
that they have retained their ability to act independently.
Lead Independent Director
2013
The Board adopted a Lead Independent Director Charter
which sets out the role and responsibilities of the lead
independent director and Mr LM Alberts was appointed
Lead Independent Director.
2012
2011
Black Directors
White Directors
Board gender balance
2014
2013
2012
2011
Male
Female
83
84
DAWN Integrated Report 2014
Corporate Governance report
continued
Attendance at meetings
The number of meetings attended by each of the members of the Board during the period 1 July 2013 to 30 June
2014 is as follows:
Member
RL Hiemstra
Independent Non-Executive
Chairman
11 Sept
2013
6 Nov
2013
13 Mar
2014
23 May
2014
26 Jun
2014
√
x
√
√
√
LM Alberts
Independent Non-Executive
√
√
√
√
√
M Akoojee
Non-Executive
√
√
√
√
x
OS Arbee
Independent Non-Executive
√
√
x
√
√
VJ Mokoena
Non-Executive
√
√
√
√
√
DA Tod
Chief Executive Officer
√
√
√
√
√
JAI Ferreira
Chief Financial Officer
√
√
√
√
√
JA Beukes
Executive Director
√
√
√
√
√
RD Roos
Executive Director
√
√
√
√
√
DM Mncube *
Independent Non-Executive
n/a
n/a
n/a
√
√
S Mthembi-Mahanyele**
Independent Non-Executive
√
n/a
n/a
n/a
n/a
* Appointed on 1 May 2014.
** Resigned on 11 September 2013.
In terms of the Company’s Memorandum of Incorporation, Messrs RL Hiemstra and JA Beukes retire by rotation at the
forthcoming annual general meeting. The retiring directors are eligible and available for re-election.
Annual Board evaluation
An annual evaluation of the Board and each of its sub-committees was conducted in 2014 and consisted of a
questionnaire being completed by all Board and sub-committee members. The results were collated by the Company
Secretary and passed on to the Board who assessed the results. The Board concluded that no actions were required
as a result of input received from the evaluation process.
This annual evaluation is comprehensive, encompassing all aspects of the Board’s responsibilities. It covers both
individual member contributions and the effectiveness of the Board as a whole.
Board Charter
Purpose and objectives
The 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.
Roles and responsibilities of the Board
As its primary function, the Board is responsible to determine the Company’s strategic direction and to exercise
prudent control over the Company and its affairs.
The Board and the individual directors will at all times act in the best interest of the Company and adhere to all relevant
legal standards of conduct.
DAWN Integrated Report 2014
Corporate Governance report
continued
In fulfilling its function, the Board will at all times:
•
provide effective leadership on an ethical foundation;
•
act as the focal point for, and custodian of, corporate governance by managing its relationship with
management, the shareholders and other stakeholders of the Company along with sound corporate governance
principles;
•
appreciate that strategy, risk, performance and sustainability are inseparable and to give effect to this by:
–
contributing to and approving the strategy;
–
satisfying itself that the strategy and business plans do not give rise to risks that have not been
thoroughly assessed by management;
–
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;
•
ensure that the Company is and is seen to be a responsible corporate citizen by having regard to not only the
financial aspects of the business of the Company but also the impact that business operations have on the
environment and the society within which it operates;
•
ensure that the Company’s ethics are managed effectively;
•
ensure that the Company has an effective and independent Audit Committee;
•
be responsible for the governance of risk and proactively and effectively manage risk in the organisation;
•
be responsible for information technology (IT) governance;
•
ensure that the Company complies with applicable laws and considers adherence to non-binding rules and
standards;
•
ensure that there is an effective risk-based Internal Audit;
•
ensure proper management of the relationship between the company and all its stakeholders so as to protect
and, where possible, enhance the reputation of the Company;
•
ensure the integrity of the Company’s Integrated Report;
•
act in the best interests of the Company by ensuring that individual directors:
–
adhere to legal standards of conduct;
–
are permitted to take independent advice in connection with their duties following an agreed procedure;
–
disclose real or perceived conflicts to the board and deal with them accordingly; and
–
deal in securities only in accordance with the policy adopted by the Board;
•
continuously monitor the solvency and liquidity of the Company; and
•
commence business rescue proceedings as soon as the Company is financially distressed.
The Board:
•
is responsible for the appointment of the Chief Executive Officer and Chief Financial Officer and ensures a
proper process of performance management and succession planning in respect of these positions;
•
implemented a formal Governance Framework for the Group;
85
86
DAWN Integrated Report 2014
Corporate Governance report
continued
•
with the support of the Nomination Committee, adopted remuneration policies that are fair, responsible and
aligned with the strategy of the Company while linked to individual performance. A Remuneration Report is
included in the Integrated Report and the remuneration philosophy is submitted to shareholders annually for a
non-binding, advisory vote;
•
via the Nomination Committee, provides input regarding senior management appointments, remuneration and
succession plans;
•
elected a Chairman of the Board that is an independent non-executive director; and
•
appointed and evaluated the performance of the Chief Executive Officer.
Delegation
The Board delegates certain functions to well-structured committees but without abdicating its own responsibilities.
Delegation is formal and involves the following:
•
Formal Terms of Reference are established and approved for each committee of the Board.
•
The committees’ Terms of Reference are reviewed once a year.
•
The committees are appropriately constituted with due regard to the skills required by each committee.
•
The Board establishes a framework for the delegation of authority to management.
Responsibilities of individual directors
In fulfilling his/her responsibility to the Company, a director will at all times:
•
act in the best interest of the Company, in good faith and with integrity and adhere to all relevant legal standards
of conduct;
•
conduct himself/herself in a professional manner;
•
avoid any conflict of interest between his/her personal affairs and that of the Company or, where unavoidable,
disclose any such conflict or potential conflict;
•
disclose any information that he/she may be aware of that is material to the Company and which the Board is
not aware of, unless such director is bound by ethical or contractual obligations of non-disclosure;
•
only use his/her powers for the purposes for which they were conferred upon him/her and not to gain an
advantage for himself/herself or a third party or to harm the Company in any way;
•
only act within his/her powers as formally delegated by the Board;
•
keep all information gained in his/her capacity as a director strictly confidential;
•
use his/her best endeavours to attend Board and relevant Board Committee meetings where at all possible and
devote appropriate preparation time ahead of each meeting to ensure that he/she is in a position to contribute
to Board and committee discussions and to make informed decisions on matters placed before the Board or
Board Committee;
•
exhibit the degree of skill and care as may be reasonably expected from a person of his/her skill and
experience, but also exercise both the care and skill any reasonable person would be expected to show in
looking after their own affairs; and
•
actively participate in and contribute to Board deliberations in a constructive and frank manner under the
leadership and guidance of the Chairman.
Individual directors will be expected to participate in the Company’s induction programme on appointment and attend
such professional development programmes as deemed necessary by the Chairman, based on the outcome of the
annual assessment of the director’s performance.
DAWN Integrated Report 2014
Corporate Governance report
continued
Directors who are not able to attend any of the meetings of the Board will submit a formal apology, with reasons, to
the Chairman or Company Secretary.
The directors are entitled to have access, at reasonable times, to all relevant Company information and to
management. Such access shall be arranged through the Chairman of the Board or the Chief Executive Officer.
Development of directors
A formal induction programme is in place for new directors who are also provided with a letter of appointment.
Inexperienced directors will be assisted, with guidance from the Chairman, to participate in mentoring programmes,
where available.
The need for continuing professional development programmes will be identified as part of the annual assessment of
the performance of the directors.
Directors will be provided with regular briefings on changes in risks, laws and the environment, but will also be
expected to keep abreast of developments in the business environment and markets that may have a material impact
on the business.
Evaluation
The evaluation of the Board, its committees and individual directors, including the chairman, is performed every year.
Board Committees
Specific responsibilities have been formally delegated to Board Committees with defined Terms of Reference, life span
and function, 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 Committee;
•
Risk Committee;
•
Remuneration Committee;
•
Nomination Committee;
•
Social, Ethics and Transformation Committee; and
•
IT Steering Committee.
Audit Committee
123
The Report of the Audit Committee is outlined on pages 131 to 134.
Risk Committee
The Risk Committee’s membership constitutes as independent non-executive directors OS Arbee (Chairman),
LM Alberts and RL Hiemstra and the executive directors being DA Tod and JAI Ferreira, and CJ Bishop as a member
of executive management. The Chairman of the Audit Committee is also the Chairman of the Risk Committee. The
executive responsible for enterprise-wide risk, Mr JA Beukes, is an ex officio member of the Committee. Internal Audit
has a standing invitation to meetings.
87
88
DAWN Integrated Report 2014
Corporate Governance report
continued
The number of meetings attended by each of the members of the Risk Committee during the period 1 July 2013 to 30
June 2014 is as follows:
5 Sept
2013
5 Mar
2014
17 Jun
2014
OS Arbee (Chairman)
√
√
√
LM Alberts
√
√
√
CJ Bishop
√
√
√
JAI Ferreira
√
√
√
RL Hiemstra
√
√*
√
DA Tod
√
√
√
Member
* Attendance via teleconforence.
The 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 is responsible for performing all the functions necessary to fulfil its role, including:
•
overseeing the development and annual review of a policy and plan for risk management to recommend for
approval to the Board;
•
monitoring the implementation of the policy and plan for risk management occurring through risk management
systems and processes;
•
evaluating and implementing King III Practice Notes;
•
making recommendations to the Board concerning the levels of tolerance and appetite for risk and monitoring
that risks are managed within the levels of tolerance and appetite as approved by the Board;
•
overseeing that the risk management plan is widely disseminated throughout the Group and integrated in the
day-to-day activities of the Group;
•
ensuring that risk management assessments are performed on a continuous basis;
•
ensuring that frameworks and methodologies are implemented to increase the possibility of anticipating
unpredictable risks;
•
ensuring that management considers and implements appropriate risk responses;
•
ensuring that continuous risk monitoring by management takes place;
•
liaising closely with the Audit Committee to exchange information relevant to risk;
DAWN Integrated Report 2014
Corporate Governance report
continued
•
expressing the Risk Committee’s formal opinion to the Board on the effectiveness of the system and process of
risk management; and
•
reviewing reporting concerning risk management that is to be included in the Integrated Report for it being
timely, comprehensive and relevant.
The Committee utilises a heat risk-mapping process aimed at identifying key risk areas and key performance
indicators. 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 Board has satisfied itself that the Chief Risk Officer, Mr JA Beukes, is suitably experienced who has access to and
interacts regularly on strategic matters with the Board and/or appropriate Board Committees and executive
management.
The performance of the Committee is evaluated by the Board once a year.
Remuneration Committee
123
The Remuneration Report is set out on pages 93 to 113.
Nomination Committee
The Nomination Committee comprises RL Hiemstra (Chairman), OS Arbee and LM Alberts. The Chief Executive Officer,
Chief Financial Officer, Head of Human Resources and other members of senior management, as may be required,
assurance providers, professional advisors and Board members may be in attendance at 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.
10 Oct
2013
20 Jun
2014
RL Hiemstra (Chairman)
√
√
LM Alberts
√
√
OS Arbee
√
√
Member
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.
The Committee performs all the functions necessary to fulfil its role, including the following:
•
ensuring the establishment of a formal process for the appointment of directors, being:
–
the identification of suitable members for the Board;
–
performance of reference and background checks of candidates prior to nomination in accordance with
the recommendations required for listed companies by the JSE;
–
the formalisation of the appointment of directors through an agreement between the Company and the
director; and
–
the overseeing of the development of a formal induction programme for new directors;
•
ensuring that inexperienced directors are developed through a mentorship programme;
•
overseeing the development and implementation of continuing professional development programmes for
directors;
89
90
DAWN Integrated Report 2014
Corporate Governance report
continued
•
ensuring that directors receive regular briefings on changes in risks, laws and the environment in which the
Company operates;
•
considering the performance of directors and taking steps to remove directors who do not make an appropriate
contribution;
•
driving an annual process to evaluate the Board, Board Committees and individual directors;
•
finding and recommending to the Board a replacement for the Chief Executive Officer when that becomes
necessary; and
•
ensuring that formal succession plans for the Board, Chief Executive Officer and senior management
appointments are developed and implemented.
Formal agreements exist between non-executive directors and the Company.
Executive directors have service contracts and restraint agreements, where applicable, 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 who do not have
fixed term employment contracts with the Company retire by rotation at the Company’s annual general meeting.
The names of directors submitted for election or re-election are accompanied by sufficient biographical information to
enable shareholders to make an informed decision in respect of their election.
The Board performs an evaluation of the effectiveness of the Nomination Committee annually.
Social, Ethics and Transformation Committee
The Board is committed to the spirit and principles of Broad-Based Black Economic Empowerment (BBBEE), including
corporate social investment objectives, and to this end a Social, Ethics and Transformation Committee was
established, comprising VJ Mokoena (Non-Executive Chairman), RD Roos (Executive Director) and JA Beukes
(Executive Director) as well as members of executive management A Grobbelaar and L van de Venter, who have a
standing invitation to attend the Social, Ethics and Transformation Committee meetings. Mr L van de Venter is the
Group Ethics Officer. 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. Its role is not to redress the
imbalances that exist in society per se, but 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 do not detract from the Group’s long-term goal of delivering sustainable returns to all
shareholders and stakeholders alike.
The Social, Ethics and Transformation Committee statutory-specific functions include the monitoring of the Company’s
activities, 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 Act, the Committee assists DAWN to discharge
its business sustainability with respect to the implementation of practices that are consistent with good corporate
citizenship with particular focus on:
•
the King III Code of Governance Principles;
•
the DAWN Group’s ethics and sustainability commitments:
DAWN Integrated Report 2014
Corporate Governance report
continued
123
•
BBBEE requirements as described in the DTI’s combined generic scorecard (excluding ownership targets) and
associated Codes of Good Practice;
•
DAWN’s transformation commitments as described in the transformation strategy in the Committee’s Terms of
Reference and each business unit’s specific BBBEE plans;
•
environmental commitments as described in the DAWN Environmental Policy Framework, which is in the
process of being developed;
•
Corporate Social Investment (CSI) commitments as outlined in the annual CSI plan and approved by the Board;
and
•
triple bottom line reporting requirements as described in the JSE Limited’s Social Responsibility Investment
Index (SRI).
The Committee prioritises objectives identified by the Board and targets are set for attaining results on matters
pertaining to social, ethics, sustainability and transformation matters. The Social, Ethics and Transformation Report
appears on pages 114 to 121 of the Integrated Report.
DAWN IT Steering Committee
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. An IT governance framework for the Group has been developed by using Control
Objectives for Information and Related Technology Control Framework (COBIT 3), which provides management with an
IT governance model that helps in delivering value from IT and understanding and managing the risks associated with
IT. COBIT 3 also helps bridge the gap between business requirements, control needs and technical issues and is a
control model to meet the needs of IT governance and ensure the integrity of information and information systems.
The Board receives independent assurance on the effectiveness of IT internal controls.
The IT Steering Committee assists the Board in its responsibility for IT governance. Its members are JAI Ferreira
(Chairman), RD Roos, JA Beukes and B Clark. Mr B Clark is the appointed Chief Information Officer (CIO). Attendance
at meetings during the period 1 July 2013 to 30 June 2014 was as follows:
27 Aug
2013
24 Jan
2014
18 Feb
2014
30 May
2014
JAI Ferreira (Chairman)
√
√
√
√
JA Beukes
√
√
√
√
B Clark
√
√
√
√
RD Roos
√
√
√
√
Member
The Chief Operating Officer and the Chief Audit Executive have a standing invitation to meetings and executives from
business units attend meetings by invitation.
The functions of the IT Steering Committee are:
•
the management of business risks;
•
high service availability;
•
agility in responding to changing business requirements;
•
automation and integration of the enterprise value chain; and
•
ensuring compliance with internal policies, selected industry standards, external laws and regulations.
91
92
DAWN Integrated Report 2014
Corporate Governance report
continued
IT Steering Committee Terms of Reference
For IT to be successful in delivering against business requirements, the IT Steering Committee has adopted the
COBIT 3, as required by the Board. COBIT 3 has been selected as it assists in the IT Governance process by:
•
making a link to the business requirements;
•
organising IT activities into a generally accepted process model;
•
identifying the major IT resources to be leveraged; and
•
defining the management control objectives to be considered.
Formal Terms of Reference for the IT Steering Committee has been adopted by the Board. In the attainment of these
goals, key areas of responsibility have been identified:
•
organisational structure, relationships, frameworks and processes;
•
strategic alignment;
•
value delivery;
•
resource management;
•
risk management; and
•
performance management.
The Risk Committee ensures that IT risks are adequately addressed and obtains appropriate assurance that controls
are in place and effective in addressing IT risks. The Audit Committee considers IT as it relates to financial reporting
and the going concern of the Company as well as the use of technology to improve audit coverage and efficiency.
GROUP BOARDS
123
A governance framework has been agreed between the Group and its subsidiary boards and is outlined on page 77 of
the Integrated Report. The policies, procedures and processes of the Group are adopted and implemented at
subsidiary companies.
COMPANY SECRETARY
All 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 Group’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 induction of new directors and assists the Chairman and the Chief Executive Officer in determining the
annual board plan, board agendas 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
regularly updated.
The Board appointed iThemba Governance and Solutions (Pty) Ltd as Company Secretary. iThemba is managed by
Ms Annamarie van der Merwe (BIuris, LLB, LLM), who has more than 20 years’ experience as company secretary in
the listed environment, and the Board is satisfied that the iThemba team has the necessary skills and experience to
fulfil this function with the required empowerment from the Board to properly fulfil her duties.
The Board has during the year under review considered and satisfied itself of the competence, qualifications and
experience of the Company Secretary.
DAWN Integrated Report 2014
Report of the
Remuneration Committee
INTRODUCTION
The Remuneration Report is intended to provide an overview and understanding of the Group’s remuneration
philosophy and practices with specific emphasis on executive and non-executive remuneration.
THE REMUNERATION COMMITTEE
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 duties of the Remuneration Committee include:
•
scrutinising all directors’ and executives’ benefits, benefits in kind, retirement benefits and other financial
arrangements to ensure these are justified, correctly valued and suitably disclosed;
•
reviewing the provisions of executive employment contracts;
•
ensuring alignment of the remuneration and human resources strategies and policies with the Group’s business
strategy, needs and the desired culture and individual performance;
•
ensuring that the mix of fixed and variable pay, in cash, shares and other elements, meets the Company’s needs
and strategic objectives;
•
determining the Group’s general policy on executive directors and executive management remuneration to
ensure fair and responsible remuneration practices, including bonus and incentive schemes;
•
reviewing and recommending the annual performance targets (financial and sustainability related) of executives
for approval by the Board and to review and recommend to the Board the payment of annual bonuses against
achievement of the said targets;
93
94
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
•
annually considering and recommending for approval by the Board the remuneration of the executive directors,
approving remuneration of executive management and advising on the remuneration of non-executive directors;
•
regularly reviewing incentive schemes to ensure their continued contribution to shareholder value, guarding
against unjustified windfalls and inappropriate gains from the operation of share-based incentives and to make
appropriate recommendations to the Board in this regard;
•
determining any grants to executive directors and executive management made pursuant to the Group’s
management share-based scheme, including early vesting of share-based schemes at the end of employment;
•
approving or recommending general salary increases for non-bargaining employees and mandates for
negotiations with trade unions, where appropriate; and
•
considering and fulfilling such other duties as defined by the Board, from time to time.
The Committee has reviewed Group remuneration policies to ensure that these are aligned with the Company’s
strategy and linked to individual performance.
Membership
The Remuneration Committee comprised LM Alberts (Chairman of the Remuneration Committee), OS Arbee
(Independent Non-Executive Director) and RL Hiemstra (Independent Non-Executive Director) during the 2014 financial
year.
The Remuneration Committee meets at least twice annually and the attendance at meetings held during the period 1
July 2013 to 30 June 2014 was as follows:
10 Oct
2013
20 Jun
2014
LM Alberts (Chairman)
√
√
OS Arbee
√
√
RL Hiemstra
√
√
The Chief Executive Officer and Chief Financial Officer attend meetings by invitation.
Directors that are members of the Remuneration Committee are excluded from the review of their own remuneration.
The Company’s remuneration policy, summarised below, will be presented to shareholders at the annual general
meeting and will be requested to cast a non-binding advisory vote thereon.
SUMMARY OF THE REMUNERATION POLICY
DAWN’s Remuneration Policy was approved by shareholders at the annual general meeting on 26 November 2013.
There were no amendments to the Policy during the year and the policy will again be submitted to shareholder for
approval by a non-binding advisory vote at the annual general meeting on 5 December 2014.
The general objective of the Group’s Remuneration Policy is to ensure that DAWN can attract, motivate and retain
appropriately skilled, qualified and experienced employees. Remuneration is aimed at matching individual contribution
to Group performance, within the framework of market forces, while protecting shareholders’ interests and the Group’s
financial health.
Principles of remuneration
The Group’s Remuneration Policy provides a flexible and competitive remuneration structure, which is referenced to
appropriate benchmarks, reflects market practice and is tailored to the specific circumstances of the Company. The
Policy aims to attract and retain high-calibre employees and to motivate them to develop and implement the Group’s
business strategy in order to optimise long-term shareholder value creation.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
2014 *
Total number of employees
2013 *
4 543
3 937
904 996
770 297
Increase in cost as a % of net wealth created (%)
17
27
Total compensation as a % of revenue (%)
17
17
Total compensation paid to employees (R’000)
* Including disposal group.
Employees
Remuneration 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. Remuneration may typically comprise elements of fixed remuneration and
performance-based (at-risk) remuneration. Certain employees 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. An 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.
Executive directors’ and prescribed officers’ remuneration
A prescribed officer, in terms of the Companies Act, No 71 of 2008, as amended, means the holder of an office, within
a company. DAWN has identified its prescribed officers as the members of the Executive Committee and cluster
heads. Prescribed officers are designated to be key management personnel in terms of IAS 24.
Executive directors’ and prescribed officers’ remuneration comprises the following key elements:
Fixed salary
Variable salary –
short-term
Variable salary –
long-term
Cash bonus
Share incentive scheme
Other benefits
Retirement and medical
aid contributions
Travel allowances
Remuneration to the executives consists of a fixed and variable salary, as well as the possibility of participation in a
long-term incentive programme. These components create a well-balanced remuneration reflecting individual
performance and responsibility, both short-term and long-term, as well as the overall performance of the Group and
individual subsidiaries.
The objectives of the remuneration policy, in respect of executive remuneration, are to:
•
apply key short-term and long-term performance indicators including financial and non-financial measures of
performance;
•
demonstrate a clear relationship between individual performance and remuneration;
•
apply an appropriate balance between fixed and variable remuneration, reflecting the short- and long-term
performance objectives appropriate to the DAWN Group’s circumstances and goals;
•
link rewards to the creation of value to shareholders; and
•
ensure their total remuneration is competitive by market standards.
95
96
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
The Company aims to reward the Group CEO and senior executives with a level and mix of remuneration
commensurate with their position and accountability. The mix of remuneration will include a fixed salary together with
both short- and long-term variable components.
Fixed salary
The executives’ fixed salary shall be competitive and based on the individual executive’s responsibilities and
performance.
The fixed salary is structured so that the senior executives have the option to receive their fixed annual remuneration in
cash and a limited range of prescribed and elective fringe benefits such as travel allowance, medical aid and retirement
benefits.
Variable salary – short-term
The short-term incentive programme consists of an annual performance bonus that is linked to financial performance
parameters and personal Key Performance Indicators (KPIs). These will typically be targeted up to a maximum value of
one times the fixed annual remuneration.
Typically KPIs and assessment criteria include:
•
meeting of pre-determined growth in revenues and other financial performance indicators;
•
meeting strategic and operational objectives; and
•
assessed personal effort and contribution.
The rationale for non-financial performance bonuses is to reward executives for strategic, sustainability and
transformation orientated achievements. However, poor performance in the non-financial variables could override the
good performance in terms of financial criteria, ie unethical or non-compliant behaviour cannot be compensated for by
good financial performance.
The short-term incentive programme may result in a pay-out per year equal to a specified maximum amount or may
be uncapped, depending on the requirements of the business as determined and recommended by the DAWN
Executive Committee and approved by the DAWN Board of Directors and the Remuneration Committee.
Variable salary – long-term
The Company’s long-term incentive plan is designed to link senior executives’ reward with key performance indicators
that drive sustainable growth in shareholder value over the long-term. Long-term incentives are share-based incentives
and the value of unvested shares/options will typically be targeted to a maximum value of 1,5 x guaranteed annual
pay.
The DAWN Group’s long-term incentive 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 performance rights
which will only vest on the achievement of certain performance hurdles and service conditions. The vesting period is
typically three years from date of award.
Mechanism for allocation of long-term incentives
The table below outlines the decision-making guideline followed by the Remuneration Committee to approve the
allocation of long-term incentives to individual participants.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
Value of shares at
grant date as a % of
guaranteed annual pay
Management Level
Share Scheme
DAWN Executive Committee
Long-Term Incentive Plan (LTIP)
and Deferred Bonus Plan (DBP)
Up to 150%
Steering Committee
LTIP and DBP
Up to 100%
Company Executive Committee members
Share Appreciation Rights (SAR)
Up to 75%
Shares and options may not be encumbered, transferred or sold in any way before they have been released.
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.
The shareholders, in a general meeting on 6 December 2006, approved the proposed amendment to the DAWN
Share Trust’s deed allowing for the purchase of unrestricted shares in the equity of DAWN with funding provided by the
DAWN Share Trust. In terms of this amendment the funding so provided must be repaid on the earlier of termination of
employment or seven years from the date of the advance of the funding. The directors may require the relevant
employee to provide security for any funding provided, provided that the unrestricted shares may not be encumbered
to provide security for the funding.
Three share schemes, based on equity-settled share appreciation rights, conditional long-term incentive awards and a
deferred bonus plan, were approved by shareholders in a general meeting on 6 December 2006.
Participants are identified in terms of the rules of the three schemes and are invited to participate on the following
bases:
SAR
Eligible employees receive annual grants of SAR, which are conditional rights to receive DAWN shares equal to the
value of the difference between the exercise price and the grant price. SAR vesting are conditional on the achievement
of set performance requirements. SAR carry a vesting period of three years after which vested SAR become
exercisable. Unexercised SAR lapse four years after vesting.
LTIP
Eligible employees receive annual grants of conditional awards. Conditional awards vest after a three-year performance
period if, and to the extent that, set performance conditions have been satisfied. If, and to the extent that performance
conditions have been satisfied at the vesting date, the relevant company in the DAWN Group procures the delivery of
DAWN shares to settle the value of the vested portion of the conditional awards.
DBP
Eligible employees are permitted to participate in the deferred bonus plan up to the maximum value of the annual
bonus by lodging DAWN shares to the same value in escrow. A matching award is made to the participant after a
three-year period on the condition that the participant retains the DAWN shares for the full three-year period.
Share Incentive Scheme (Equity Settled)
The grant price of these rights and awards are equal to the five-day volume weighted average traded market price of
the shares preceding the date of the grant. Rights and awards are conditional on performance conditions being met.
97
98
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
The conditions focus on the Group’s earnings growth. The vesting price of these rights and awards is the five-day
weighted average 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.
Terms of service
The Company complies with relevant legislation in determining minimum terms and conditions for appointment of
executive directors. Unless stated otherwise in the contract of employment, a notice period of one month applies.
External appointments
Executive directors are not permitted to hold external directorships or offices without the approval of the Board. If such
approval is granted, directors may retain the fees payable from such appointments.
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;
•
All agreements should contain a restraint of trade clause with a term of not less than a year, clearly defining the
Company’s protectable 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 as a result 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. Nonexecutive 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 will be structured on a 60:40 basis, with 60% guaranteed remuneration
and 40% subject to attendance of all meetings. Service on sub-committees of the Board may entitle members to
additional payment, subject to work load and at the discretion of the Board.
Individual Board members may take on specific ad hoc tasks outside the normal duties assigned by the Board. In
such cases the Board determines a fixed fee for the work.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
Non-executive directors may from time to time be members of DAWN’s Advisory Committee, for which a fixed hourly
fee will apply.
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.
Setting remuneration and review procedures
•
DAWN and its subsidiaries review remuneration packages once per annum at the beginning of the financial year.
•
The Board is responsible for making decisions in respect of the remuneration of directors and, in particular, the
Group Chief Executive Officer. It does so with the assistance and advice of the Remuneration Committee. In
determining the level and make-up of the Group Chief Executive Officer’s and senior executives’ remuneration,
the Remuneration Committee may 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 shortterm incentive and/or long-term incentive performance awards after performance evaluation procedures and on
the recommendation of the Group Chief Executive Officer.
•
The Group Chief Executive Officer is ultimately responsible for:
•
–
recommendations to the Board relating to the remuneration of executive directors of all Group entities;
and
–
delegates responsibility for decisions relating to remuneration of non-executive staff to line managers
within the different subsidiaries or business units.
The responsibilities of managers or supervisors in respect to remuneration for non-executive employees are:
–
ensuring that accurate role descriptions are in place, with sufficient detail on elements required to allow
consistent assessment and comparison to be undertaken;
–
conducting effective assessments of employee performance; and
–
to optimise alignment with the Company’s remuneration practices and other employment matters.
Disclosure of remuneration
Unless an applicable law, regulation or JSE Listings Requirements require otherwise, all information about an individual
staff member’s remuneration will be confidential.
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 has to be disclosed in terms of regulatory requirements, total remuneration reported will include
appropriate values for all elements of remuneration, incorporating fixed remuneration, performance-based
remuneration comprising payments made or value provided for at risk components.
Re-election of directors
Both executive and non-executive directors are subject to election by shareholders at the first annual general meeting
following their 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.
99
100
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
EXECUTIVE REMUNERATION
Details of executive directors’ and prescribed officers’ full remuneration are disclosed on pages 102 and 103 of the
annual financial statements.
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 2 on pages 151 and 152 of the Integrated Report.
DA Tod – Chief Executive Officer
2014
R’000
2013
R’000
Fixed salary
4 027
3 610
Variable salary – short-term
2 307
2 295
753
676
7 087
6 581
–
–
7 087
6 581
Other benefits – retirement and medical aid contributions
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr Tod’s fixed salary increased by 12% from 2013 to 2014.*
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr Tod received a short-term variable salary of
R2 307 000 compared to R2 295 000 in 2013.
2014 KPIs
2014
weighting
%
Revenue growth
14,0
Gross contribution
10,5
Operating expenses management
10,5
Working capital management
7,0
Return on investment capital
14,0
Headline earnings per share growth
14,0
Discretionary
30,0
TOTAL
100,0
Variable salary – long-term
On 24 June 2011, Mr Tod was awarded 1 744 000 shares as part of the LTIP and 294 000 shares as part of the SAR
with a vesting date of 30 June 2014, subject to Remuneration Committee approval. On 12 April 2012, Mr Tod was
awarded 1 250 000 shares as part of the LTIP with a vesting date of 30 June 2015. This open tranche is not expected
to vest.
* Increase in fixed salary exceeding 7% has been awarded to close the gap between current pay and the desired market
percentile.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
JAI Ferreira – Chief Financial Officer
2014
R’000
2013
R’000
Fixed salary
1 830
1 612
Variable salary – short-term
1 013
750
259
233
3 102
2 595
–
–
3 102
2 595
Other benefits – retirement and medical aid contributions
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr Ferreira’s fixed salary increased by 14% from 2013 to 2014.*
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr Ferreira received a short-term variable salary of
R1 013 000 compared to R750 000 in 2013.
2014 KPIs
2014
weighting
%
Overall health of the Group’s Statement of Financial Position:
– Working capital models
20,0
– Capital adequacy for long-term growth
25,0
Compliance with regulatory body and contractual obligation requirements
25,0
Return on invested capital
20,0
Discretionary
10,0
TOTAL
100,0
Variable salary – long-term
On 24 June 2011, Mr Ferreira was awarded 910 000 shares as part of the LTIP and 160 000 shares as part of the
SAR with a vesting date of 30 June 2014, subject to Remuneration Committee approval. On 12 April 2012, Mr Ferreira
was awarded 750 000 shares as part of the LTIP with a vesting date of 30 June 2015. On 1 December 2013 a further
400 000 shares were awarded as part of the LTIP with a vesting date of 1 December 2016. The last two open
tranches are not expected to vest.
* Increase in fixed salary exceeding 7% has been awarded to close the gap between current pay and the desired market
percentile.
101
102
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
CJ Bishop – Chief Operating Officer (Prescribed Officer)
2014
R’000
2013
R’000
Fixed salary
2 457
2 103
Variable salary – short-term
1 472
870
294
254
–
901
4 223
4 128
–
–
4 223
4 128
Other benefits – retirement and medical aid contributions
Other fees
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr Bishop’s fixed salary increased by 17% from 2013 to 2014.*
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr Bishop received a short-term variable salary of
R1 472 000 compared to R870 000 in 2013.
2014 KPIs
2014
weighting
%
Revenue growth
14,0
Gross contribution
10,5
Operating expenses management
10,5
Working capital management
7,0
Return on investment capital
14,0
Headline earnings per share growth
14,0
Discretionary
30,0
TOTAL
100,0
Variable salary – long-term
On 24 June 2011, Mr Bishop was awarded 1 360 000 shares as part of the LTIP and 160 000 shares as part of the
SAR with a vesting date of 30 June 2014, subject to Remuneration Committee approval. On 12 April 2012, Mr Bishop
was awarded 1 250 000 shares as part of the LTIP with a vesting date of 30 June 2015. This open tranche is not
expected to vest.
* Increase in fixed salary exceeding 7% has been awarded to close the gap between current pay and the desired market
percentile.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
JA Beukes – Risk and Compliance Officer (Executive Director)
Fixed salary
Variable salary – short-term
Other benefits – retirement and medical aid contributions
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
2014
R’000
2013
R’000
2 223
2 105
–
–
427
401
2 650
2 506
–
–
2 650
2 506
Fixed compensation and benefits
Mr Beukes’ fixed salary increased by 6% from 2013 to 2014.
Variable salary – short-term
Mr Beukes declined to receive any variable salary – short-term awards.
2014 KPIs
2014
weighting
%
Group Internal Audit (risk-based)
40,0
Executive role being fulfilled as it pertains to mergers and acquisitions
10,0
Full operational content of environmental and risk management being implemented
to allow public reporting against same
30,0
Return on invested capital – DAWN Group
10,0
Department of Trade & Industry incentives/Manufacturing Competitiveness
Enhancement Programme claims
10,0
TOTAL
100,0
Variable salary – long-term
On 24 June 2011, Mr Beukes was awarded 110 000 shares as part of the LTIP and 160 000 shares as part of the
SAR with a vesting date of 30 June 2014, subject to Remuneration Committee approval. On 12 April 2012, Mr Beukes
was awarded 500 000 shares as part of the LTIP with a vesting date of 30 June 2015. This open tranche is not
expected to vest.
103
104
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
RD Roos – Executive Director
2014
R’000
2013
R’000
1 513
1 311
Variable salary – short-term
710
324
Other benefits – retirement and medical aid contributions
233
217
2 456
1 852
–
–
2 456
1 852
Fixed salary
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Ms Roos’ fixed salary increased by 15% from 2013 to 2014.*
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Ms Roos received a short-term variable salary of
R710 000 compared to R324 000 in 2013.
2014 KPIs
2014
weighting
%
Profit before interest and taxation of DAWN Solutions
25,0
Return on invested capital – DAWN Solutions
25,0
Warehousing system implementation as project eMerge
20,0
DAWN Human Resources strategic value add
7,5
Integration of new acquisitions/associates
5,0
Discretionary
12,5
Group BBBEE scorecard – level 4
TOTAL
5,0
100,0
Variable salary – long-term
On 24 June 2011, Ms Roos was awarded 820 000 shares as part of the LTIP and 160 000 shares as part of the SAR
with a vesting date of 30 June 2014, subject to Remuneration Committee approval. On 12 April 2012, Ms Roos was
awarded 500 000 shares as part of the LTIP with a vesting date of 30 June 2015. This open tranche is not expected
to vest.
* Increase in fixed salary exceeding 7% has been awarded to close the gap between current pay and the desired market
percentile.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
GD Kotzee – Chief Executive Officer: Africa Operations and DAWN Manufacturing (Executive
Director)
Mr Kotzee was appointed to the DAWN Board on 6 November 2014.
2014
R’000
2013
R’000
2 061
1 929
Variable salary – short-term
408
230
Other benefits – retirement and medical aid contributions
325
305
2 794
2 464
–
–
2 794
2 464
Fixed salary
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr Kotzee’s fixed salary increased by 7% from 2013 to 2014.
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr Kotzee received a short-term variable salary of
R408 000 compared to R230 000 in 2013.
2014 KPIs
2014
weighting
%
Infrastructure cluster development
50,0
Return on investment capital
25,0
Value added expansion
20,0
Discretionary
TOTAL
5,0
100,0
Variable salary – long-term
On 24 June 2011, Mr Kotzee was awarded 400 000 shares as part of the LTIP with a vesting date of 30 June 2014,
subject to Remuneration Committee approval. On 12 April 2012, Mr Kotzee was awarded 500 000 shares as part of
the LTIP with a vesting date of 30 June 2015. This open tranche is not expected to vest.
105
106
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
M Coetzee – Chief Executive Officer: Sanitaryware (Prescribed Officer)
2014
R’000
2013
R’000
1 441
1 336
Variable salary – short-term
518
350
Other benefits – retirement and medical aid contributions
279
270
2 238
1 956
–
–
2 238
1 956
Fixed salary
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr Coetzee’s fixed salary increased by 8% from 2013 to 2014.
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr Coetzee received a short-term variable salary of
R518 000 compared to R350 000 in 2013.
2014 KPIs
2014
weighting
%
Achievement of Profit before Interest and Taxation, Return on Invested Capital, Gross Profit budgets
50,0
Finalisation of capital expenditure programme (including of successful installation of new kit) and
adjustment of old and new factory model; roll out of 5-year production and business plan
19,0
Driving a focus on business initiatives outside of Saffer; measuring the Sales Directors in
positioning new and current products into a broader base of the market, including the
AST operations. Development and implementation of a Saffer/independent trading plan.
19,0
FTG specification drive
4,5
Achieve BBBEE scorecard levels as per commitment to DAWN Transformation Committee
7,5
TOTAL
100,0
Variable salary – long-term
On 1 December 2013, Mr Coetzee was awarded 20 000 shares as part of the LTIP with a vesting date of 1 December
2016. This open tranche is not expected to vest.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
RP Haynes – Brand Executive (Prescribed Officer)
2014
R’000
2013
R’000
Fixed salary
942
877
Variable salary – short-term
113
190
Other benefits – retirement and medical aid contributions
194
180
1 249
1 247
–
–
1 249
1 247
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr Haynes’ fixed salary increased by 7% from 2013 to 2014.
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr Haynes received a short-term variable salary of
R113 000 compared to R190 000 in 2013.
2014 KPIs
2014
weighting
%
Driving the Group specification process to derive maximum value from specifications activity
45,0
Ensure that Group company marketing strategies address brand building objectives
35,0
Ensure that Group company strategies are aligned to DAWN objectives
20,0
TOTAL
Variable salary – long-term
Mr Haynes does not participate in long-term incentives schemes.
100,0
107
108
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
PJ van Niekerk – Chief Executive Officer: DAWN International (Prescribed Officer)
2014
R’000
2013
R’000
1 547
1 518
Variable salary – short-term
240
180
Other benefits – retirement and medical aid contributions
225
209
2 012
1 907
–
–
2 012
1 907
Fixed salary
Total cash remuneration
Gains on exercise of long-term incentive awards
Total taxable remuneration realised
Fixed compensation and benefits
Mr van Niekerk’s fixed salary increased by 2% from 2013 to 2014.
Variable salary – short-term
On achievement of the key performance indicators (KPIs) below, Mr van Niekerk received a short-term variable salary
of R240 000 compared to R180 000 in 2013.
2014 KPIs
2014
weighting
%
AST
Nigeria and Angola operations’ Profit before Interest and Taxation and Return on Invested
Capital budgets
35,0
Other AST operations’ Profit before Interest and Taxation and Return on Invested Capital budgets
25,0
Export sales of DAWN companies (achievement of consolidated turnover budget)
30,0
Development and effective launching of new operations
10,0
TOTAL
Variable salary – long-term
On 31 December 2010, Mr van Niekerk was awarded 400 000 shares as part of the LTIP with a vesting date of
30 June 2014, subject to Remuneration Committee approval. On 12 April 2012, Mr van Niekerk was awarded
500 000 shares as part of the LTIP with a vesting date of 30 June 2015, which shares have been forfeited.
Mr van Niekerk resigned from the DAWN Group on 15 July 2014.
100,0
109
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
NON-EXECUTIVE REMUNERATION
There are no short- or long-term incentive schemes for non-executive directors. Exceptions apply only where non-executive
directors previously held executive office and qualify for unvested benefits resulting from their period of employment with the
Company.
There are no pension benefits for non-executive directors.
Shareholders will be requested to approve the non-executive directors’ remuneration for the 2015 financial year at the annual
general meeting to be held on Friday, 5 December 2014.
Fees for 2014
The table below provides an analysis of the emoluments paid to non-executive directors for the year ended 30 June 2014.
Committees
Board
member
fees Advisory
R’000
R’000
Social,
RemuneraEthics
Audit tion and
and
and
Nomi- TransforRisk
nation
mation
R’000
R’000
R’000
Total
R’000
Non-executive directors
2014
M Akoojee
OS Arbee
LM Alberts
RL Hiemstra
DM Mncube ^
VJ Mokoena
SD Mthembi-Mahanyele *
113
113
113
227
9
113
28
–
–
108
–
–
–
–
–
113
68
68
–
–
–
–
45
74
45
–
–
–
–
–
–
–
–
45
–
113
271
363
340
9
158
28
June 2014
716
108
249
164
45
1 282
2013
M Akoojee
OS Arbee
LM Alberts
RL Hiemstra
VJ Mokoena
SD Mthembi-Mahanyele *
107
107
107
214
107
107
–
–
102
–
–
–
–
107
64
64
–
–
–
43
70
43
–
–
–
–
–
–
43
–
107
257
343
321
150
107
June 2013
749
102
235
156
43
1 285
^ Mr DM Mncube was appointed as independent non-executive director on 1 May 2014.
* Ms SD Mthembi-Mahanyele resigned as independent non-executive director on 11 September 2013.
110
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
Fees for 2015
At the annual general meeting to be held on 5 December 2014, shareholders will be requested to approve the following
increases in 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 July 2014 until 30 June 2015 as
follows:
Current fee
Fee from
1 July 2014 to
30 June 2015
Chairman
226 800
240 400
Non-Executive Directors
113 400
120 200
Chairman of Audit Committee
113 400
120 200
Chairman of Risk Committee
113 400
120 200
Chairman of Remuneration Committee
73 700
78 100
Chairman of Nomination Committee
73 700
78 100
Chairman of Social, Ethics and Transformation Committee
45 400
48 100
Member of Audit Committee
68 100
72 100
Member of Risk Committee
68 100
72 100
Member of Remuneration Committee
45 400
48 100
Member of Nomination Committee
45 400
48 100
Executive directors receive no director or committee fees for their services as directors in addition to their normal remuneration
as employees.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
DIRECTORS’ AND PRESCRIBED OFFICERS’ INTEREST IN THE SHARE CAPITAL OF THE
COMPANY
The directors held in aggregate direct and indirect beneficial interests of 7,2% (2013: 7,2%) in the issued share capital of the
Company at the end of the reporting period, as follows:
Number of ordinary shares
Beneficial
Direct
Indirect
Total
At 30 June 2014
12 502 075
4 916 315
17 418 390
At 30 June 2013
12 502 075
4 916 315
17 418 390
Directors
12 476 235
4 659 829
17 136 064
Executive directors
JA Beukes
JAI Ferreira
DA Tod
RD Roos
9 508 362
3 403 231
296 837
5 501 417
306 877
4 659 829
–
–
4 659 829
–
14 168 191
3 403 231
296 837
10 161 246
306 877
Non-executive directors
LM Alberts
RL Hiemstra
VJ Mokoena
2 967 873
1 766 285
1 197 998
3 590
–
–
–
–
2 967 873
1 766 285
1 197 998
3 590
25 840
–
5 000
20 840
256 486
256 486
–
–
Prescribed officers
CJ Bishop
GD Kotzee
PJ van Niekerk
282
256
5
20
326
486
000
840
The Company has not been notified of any material change in these interests during the period 30 June 2014 to the date of
this report.
INTEREST OF DIRECTORS IN CONTRACTS
The directors have certified that they had no material interest in any transaction of any significance with the Company or any of
its subsidiaries.
111
112
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
SHARE OPTIONS
Movements in the number of share options outstanding and their related weighted average grant prices are as follows:
Grant
date
Vesting
date
Note
Type
of share
incentive
scheme^
Grant
date
strike
price
cents
Grant
date
valuation
price
cents
Opening
number
of
share
options
‘000
Number
of share
options
awarded/
(forfeited)
during
the year
‘000
Closing
number
of
share
options
‘000
770
–
770
Executive directors
2014
JA Beukes
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
110
–
110
12 Apr 2012
30 Jun 2015
2
LTIP
–
611
500
–
500
24 Jun 2011
30 Jun 2014
1
SAR
628
234
160
–
160
1 820
400
2 220
JAI Ferreira
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
110
–
110
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
800
–
800
12 Apr 2012
30 Jun 2015
2
LTIP
–
611
750
–
750
1 Dec 2013
1 Dec 2016
2
LTIP
–
901
–
400
400
24 Jun 2011
30 Jun 2014
1
SAR
628
234
160
–
160
1 480
–
1 480
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
110
–
110
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
710
–
710
12 Apr 2012
30 Jun 2015
2
LTIP
–
611
500
–
500
24 Jun 2011
30 Jun 2014
1
SAR
628
234
160
–
160
3 288
–
3 288
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
244
–
244
24 Jun 2011
30 Jun 2014
1
LTIP
–
381
1 500
–
1 500
RD Roos
DA Tod
12 Apr 2012
30 Jun 2015
2
LTIP
–
611
1 250
–
1 250
24 Jun 2011
30 Jun 2014
1
SAR
628
234
294
–
294
2 770
–
2 770
Prescribed officers
CJ Bishop
24 Jun 2011
30 Jun 2014 1
LTIP
–
381
110
–
110
24 Jun 2011
30 Jun 2014 1
LTIP
–
381
1 250
–
1 250
12 Apr 2012
30 Jun 2015 2
LTIP
–
611
1 250
–
1 250
24 Jun 2011
30 Jun 2014 1
SAR
628
234
160
–
160
20
20
1 Dec 2013
1 Dec 2016
LTIP
–
901
–
20
20
900
–
900
M Coetzee
2
GD Kotzee
24 Jun 2011
30 Jun 2014 1
LTIP
–
381
400
–
400
12 Apr 2012
30 Jun 2015 2
LTIP
–
611
500
–
500
900
(500)
400
31 Dec 2010
30 Jun 2014 1
LTIP
–
532
400
–
400
12 Apr 2012
30 Jun 2015 2
LTIP
–
611
500
(500)
–
PJ van Niekerk
^ LTIP: Long-Term Incentive Plans, SAR: Share Appreciation Rights
1.
2.
Vesting is subject to Remuneration Committee approval.
Open tranches are not expected to vest.
DAWN Integrated Report 2014
Report of the Remuneration Committee
continued
DAWN’s share price at 30 June 2014 was 1 090 cents (2013: 762 cents).
The volatility input to the pricing model is a measure of the expected price fluctuations of the DAWN share price over the life
option structure. Volatility is measured as the annualised standard deviation of the daily price changes in the underlying shares.
The weighted average fair value of the rights and awards granted was determined using a modified binomial tree model to
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:
SAR
R’000
LTIP
R’000
DBP
R’000
Share-based payment reconciliation
Opening balance
Income statement charge
Income statement charge – Disposal group
Income statement reversal #
Vested
1 309
1 072
56
(1 128)
–
47 003
24 725
1 290
(22 664)
(12 688)
1 281
–
–
–
–
49
25
1
(23
(12
Closing balance
1 309
37 666
1 281
40 256
# Reversal
Total
R’000
593
797
346
792)
688)
of Income Statement charge in respect of the 2012 and 2014 schemes on the basis that the shares are not expected to
vest. The tranches have non-market conditions (HEPS-related) attached.
The following table reconciles the number of shares and rights outstanding:
SAR
number of
shares
’000
Share rights and awards granted
Opening balance
Issued
Forfeited and cancelled
Vested ^
Closing balance
LTIP
DBP
number of number of
shares
shares
’000
’000
933
440
(15)
–
15 198
1 505
(534)
(1 336)
–
–
–
–
16 131
1 945
(549)
(1 336)
1 358
14 833
–
16 191
^ During May 2014, 1 335 627 shares vested.
APPROVAL
The Report of the Remuneration Committee has been approved by the Board of Directors of DAWN.
Signed for and on behalf of the Remuneration Committee
LM Alberts
Chairman of the Remuneration Committee
Total
number of
shares
’000
113
114
DAWN Integrated Report 2014
Report of the
Social, Ethics and Transformation
Committee
INDEPENDENT NON-EXECUTIVE DIRECTORS
DAWN’s Social, Ethics and Transformation Committee is chaired by VJ Mokoena (Non- Executive Director), with its
other members being RD Roos (Executive Director) and JA Beukes (Executive Director) as well as members of
executive management, L van de Venter, Divisional Director: DAWN HR Solutions (the Group Ethics Officer) and A
Grobbelaar, Divisional Director: DAWN Marketing & Design.
Attendance at meetings held during the period 1 July 2013 to 30 June 2014 was as follows:
14 Oct
2013
14 Feb
2013
9 Jun
2014
VJ Mokoena (Chairman)
√
√
√
JA Beukes
√
√
√
A Grobbelaar
√
√
√
RD Roos
√
√
√
L van de Venter
√
√
√
Member
DAWN Integrated Report 2014
2013
ROLE AND DUTIES OF THE COMMITTEE
The primary role of the Social, Ethics and Transformation Committee is to assist the Board in ensuring that it
discharges its fiduciary duties and obligations in respect of the Group’s businesses’ transformation in accordance with
the Committee’s Terms of Reference as well as in compliance with BBBEE and employment equity legislation.
The development and empowerment of historically disadvantaged South Africans is essential to the economic and
social sustainability of the country. DAWN acknowledges its role in the corporate environment and has taken
progressive steps towards ensuring compliance with the BBBEE Act, the BBBEE Codes and the Employment Equity
Act.
The Committee’s Terms of Reference, which were updated during the year, govern the Committee’s responsibilities
and objectives.
Over and above the statutory duties and responsibilities of the Committee, the Committee assists DAWN to discharge
its business sustainability obligations in respect of the implementation of practices that are consistent with good
corporate citizenship.
Social
The Committee’s social responsibilities entail the review of the report on labour and employment with reference to:
•
the Company’s standing in terms of the International Labour Organisation Protocol on decent work and
working conditions;
•
the Company’s employment relationships and its contribution towards the educational development of its
employees; and
•
the management of associated risks.
Ethics
The Committee’s ethics responsibilities include the review of ethics activities and the evaluation of the adequacy and
effectiveness of these actions. This includes, inter alia, the:
•
review of the ethics hotline feedback and actions taken; and
•
review of the Group’s Ethics Officer’s feedback on ethics training, awareness and other actions.
Sustainability
The Committee’s sustainability framework responsibilities include the evaluation of DAWN’s sustainable management
practices in terms of four criteria, namely the suitability of:
•
objectives associated with each sustainability initiative;
•
structures to achieve objectives;
•
systems and controls to track achievement of objectives; and
•
incentives to promote executive commitment to objectives.
The Committee furthermore:
•
devises and regularly reviews the Group Sustainability Policy, subject to approval by the Board;
•
provides advice about sustainability trends and issues and the relevance of these for sustainability practice in
the Group;
•
provides guidance relative to the desired scope and objectives of DAWN’s business sustainability process;
115
116
DAWN Integrated Report 2014
Report of the Social, Ethics and Transformation Committee
continued
•
provides guidance and monitors progress relative to the initiatives required to maintain a listing in the JSE
Limited’s Socially Responsible Investment Index;
•
provides guidance relative to the sufficiency of the policy framework that is required to promote good
sustainability practice such as Environmental, Socio-Economic Development, BBBEE and stakeholder
engagement policies;
•
provides guidance relative to the initiatives required to demonstrate meaningful commitment to this policy
framework;
•
remains informed of the sustainability risks recorded in the Group risk register and provides related input to the
Risk Committee, as appropriate;
•
reviews Health and Safety reports;
•
monitors the quality of stakeholder relationships with particular emphasis on employee, supplier, community
and government relationships;
•
reviews and monitors progress toward achievement of sustainability objectives as described in the Group’s
annual Sustainability Report; and
•
reviews audits performed by independent parties in relation to sustainability.
Transformation
The Committee’s transformation responsibilities include:
•
providing guidance relative to the initiatives required to demonstrate meaningful commitment to BBBEE and
transformation;
•
reviewing and monitoring the current status of divisional and Group BBBEE scorecard points;
•
reviewing and monitoring the progress towards achievement of BBBEE scorecard targets;
•
reviewing and monitoring the progress towards achievement of transformation objectives;
•
reviewing and monitoring compliance with relevant legislation, such as the requirements of the Department of
Labour in respect of employment equity; and
•
reviewing audits performed by independent parties in relation to transformation.
In October 2014, DAWN was recognised as a Level 4 (2013: Level 4) contributor in accordance with the BBBEE
Codes following an independent verification by Empowerdex. The Group scored 68,31% (2013: 65,66%) equating to
an A rating with a procurement recognition of 100%.
An overview of the Group’s rating is outlined below:
DTI code
Ownership
Management control
Verified
scorecard
2014
Verified
scorecard
2013
20,10
19,88
5,29
6,51
Employment equity
2,33
2,34
Skills development
5,32
0,79
Preferential procurement
15,27
16,14
Enterprise development
15,00
15,00
Socio-economic development
Overall score (points)
LEVEL
5,00
5,00
68,31
65,66
2
4
DAWN Integrated Report 2014
Report of the Social, Ethics and Transformation Committee
continued
A comprehensive BBBEE rating exercise was also undertaken for all Group companies. A significant overall
improvement has been achieved through a concerted focus on transformation in the Group, as reflected by the
contributor statuses below:
Procurement
recognition
level
2013
Entity
Contributor
status
2014
Contributor
status
2013
Overall
rating
2014
Overall
rating
2013
Procurement
recognition
level
2014
Cobra Watertech
(Pty) Ltd
Level 4
Level 4
A
A
100%
100%
DAWN Human
Resources (Pty) Ltd
Level 1
Level 1
AAA +
AAA +
135%
135%
DAWN Marketing &
Design (Pty) Ltd
Level 1
Level 2
AAA +
AAA +
135%
135%
DPI Plastics (Pty) Ltd
Level 3
Level 3
AA
AA
115%
115%
Incledon
Level 3
Level 4
AA
A
115%
100%
ISCA (Pty) Ltd
Level 3
Level 3
AA
AA
115%
115%
Libra Bathrooms
(Pty) Ltd
Level 4
Level 4
A
A
100%
100%
Vaal Sanitaryware
(Pty) Ltd
Level 4
Level 4
A
A
100%
100%
Wholesale Housing
Supplies (Pty) Ltd
Level 4
Level 4
A
A
100%
100%
The achievement of the transformation has been included amongst the individual companies’ executives’ key
performance indicators and the executive committees of the various companies bear the responsibility to drive the
change.
BROAD-BASED BLACK ECONOMIC EMPOWERMENT
Ownership
Ukhamba Holdings Proprietary Limited has an effective interest of 31,31% (2013: 32,03%) in DAWN through its
wholly-owned subsidiaries, Dream World Investments 239 Proprietary Limited and Monyetla Marketing Proprietary
Limited. Ukhamba is a broad-based black-owned investment holding company whose beneficiaries include some
15 000 historically disadvantaged individuals and a community trust which benefits 11 000 learners in the south of
Johannesburg.
Management control
Board representation
The Board of the Company at 30 June 2014 included four black directors, translating into 40% black representation.
117
118
DAWN Integrated Report 2014
Report of the Social, Ethics and Transformation Committee
continued
Employment equity
DAWN prioritises the advancement of historically disadvantaged groups and promotes the achievement of
employment equity objectives in its recruitment and employee development policies. The status of employment equity
targets are reported to the Department of Labour on an annual basis. Career advancement and skills development
programmes are aligned with each business’ employment equity targets.
As verified by Empowerdex, black employees constitute 80,61% (2013: 77,67%) of DAWN’s total permanent
employee base with black female representation constituting 17,90% (2013: 14,66%).
The Board has placed emphasis on employment equity and skills development and, to carry out the mandate,
members of the Social, Ethics and Transformation Committee will be participating in the various company committees
to ensure that these objectives are met and enhanced going forward.
Skills development
All companies have established skills development forums which are combined with the employment equity forums
and consultation regarding workplace skills plans and progress reports is channelled through the forums.
The DAWN Group operates a Management Development Programme (MDP), with one MDP in the trading operations
and the other MDP in the manufacturing operations. Both these programmes are presented by an accredited external
supplier.
Several technical skills training initiatives are continuously being conducted within DAWN companies to ensure
expertise levels are kept up to date. Individual development plans have also been developed for specific employees or
employee groupings to assist and drive personal development as well as to drive the succession planning within the
Group.
The Group’s latest skills development plan was submitted to the Wholesale & Retail SETA. Skills development spend
on black staff amounted to R8 504 895 (2013: R1 368 569). This includes prepayments in respect of learnerships
where the training contract period extends beyond the year-end.
Preferential procurement
DAWN’s commitment to increasing procurement of goods and services from black-owned and/or black female-owned
businesses was reaffirmed during the year and concerted endeavours to grow the supplier base will continue, despite
the obstacles which prevent foreseeable achievement of the Department of Trade and Industry’s target.
Approved suppliers are categorised in accordance with the BBBEE Codes and their status is monitored on a
continuous basis.
The Group continues to conduct supplier awareness sessions in an attempt to encourage its suppliers to seek
accreditation and further their BBBEE compliance levels.
During the year DAWN’s total measured procurement spend amounted to R4,6 billion (2013: R3,6 billion). The total
BEE procurement as a percentage of total measured procurement spend was at a verified level of 85,92% (2012:
86,00%).
Enterprise development
Enterprise development seeks to promote the development of black-owned and small, medium and micro businesses
in DAWN in support of expanding the pool of entrepreneurial skills in the country and increasing the base of qualified
suppliers in South Africa. The Social, Ethics and Transformation Committee pledged its commitment towards such
initiatives and active plans are in place to structure and implement enterprise development objectives with identified
suppliers and service providers. Senior executives have taken responsibility to accelerate enterprise development with
selected partners.
Enterprise development as a percentage of net profit after tax was at a verified level of 14,11% (2013: 6,51%).
DAWN Integrated Report 2014
Report of the Social, Ethics and Transformation Committee
continued
Socio-economic development
The socio-economic development initiatives are managed centrally by the Social, Ethics and Transformation
Committee.
The Group is in the process of adopting a programmatic approach to its socio-economic development initiatives with
the main objective being to commit broadly to skills development for the industry, specifically targeting schools,
professionals and artisan development, whilst maintaining a reduced responsive approach as is graphically depicted
below.
g
rtin
Rep
o
po
rtin
Re
g
Social, Ethics and Transformation Committee
Operating
business’ socioeconomic
development
Funding
Funding
Funding
Professionals
Artisans
Schools
Responsive approach:
Operations receive appeals
for funding and approve
funding within the
parameters of the socio-
Programmatic approach:
Based on needs analysis, targeted programmes identified, developed and implemented.
economic development
framework.
The socio-economic development programme is based on three main pillars.
PILLAR
1
COMMUNITIES AND THE ENVIRONMENT
Touch Africa is a unique, innovative concept that uplifts impoverished villages and
communities within the borders of southern Africa. Within the Eastern Cape in the
communities of Loerie, Willowmore, Storms River, Kareedouw and Saaimanshoek both
artisans and labourers are employed and, together with the Touch Africa project team,
renovation of schools, clinics and community halls are done. The project is based on
refurbishment. DAWN participates by supplying products, financial sponsorships and
training of artisans.
DAWN is a principal member of the World Wildlife Foundation, South Africa (WWF-SA)
and subscribes to its vision being – “to inspire collective custodianship of our natural
heritage with passion, integrity and enthusiasm”. Conservation projects include education,
marine, freshwater, fynbos, climate change, grasslands, forests, species and Karoo.
119
120
DAWN Integrated Report 2014
Report of the Social, Ethics and Transformation Committee
continued
DAWN also supports The People Upliftment Programme (POPUP), a non-profit
organisation which is primarily a training facility providing skills development and training
for unemployed and disempowered individuals with a holistic approach to the upliftment
of under-privileged communities. People without work (literally from the streets) are given
two weeks’ life skills training and food for which they pay a token R50,00 in the first
phase. The second phase is focused on more specific training such as secretarial and
catering with plumbers training which commenced in 2013. DAWN contributed R1,7
million to POPUP during the 2013 financial year which was utilised for the training
materials for the training of plumbers to POPUP and also assisted them with the building
of plumber training facilities, the provision of food, basic medical services and job
placement. During 2014 DAWN expanded its involvement to POPUP’s Enterprise Village
where DAWN funded labour and supplied sanitaryware products for the refurbishment of
two premises, Soshanguve and Savokop. DAWN also became involved, as a third party,
in POPUP’s accredited plumbers training programme. DAWN contributes towards a
start-up kit for successful plumbers who, in collaboration with POPUP, start their own
businesses.
POPUP’s success rate of placing of individuals in suitable jobs, after having completed the
second phase of training, is 60%. Individuals who participate in POPUP’s upliftment and
training programmes have the ability to enter the workplace with a certificate stating their
skills as well as with a good set of values.
DAWN is currently reviewing further support in the education sector where contributions
would most likely be in the form of product-support for the refurbishment of ablution
facilities and the provision of bursaries at school level.
In terms of the Department of Trade and Industry’s definition of socio-economic
development, non-monetary contributions are included. DAWN does not currently record
the time spent by management or staff on socio-economic development initiatives with a
rand value attached. This aspect of record-keeping is on the agenda to be implemented
and to be reported on in future Sustainability Reports.
PILLAR
2
INDUSTRY
The second socio-economic development initiative is a partnership between DAWN, the
Plumbing Institute Registration Board (a body created to regulate the work and output
standards of the plumbing trade) and WaterSmith Training Centre. It involves the
development of training materials for the development of plumbers and solar installation
specialists. The focus is on trainees from historically disadvantaged communities and
simultaneously contributes to capacity building in the industry where DAWN’s products
are utilised.
DAWN Integrated Report 2014
Report of the Social, Ethics and Transformation Committee
continued
PILLAR
3
AD HOC FINANCIAL CONTRIBUTIONS
Several ad hoc financial support donations were made during F2014 to deserving
charities, such as:
• Blessing Social Development Centre, an organisation providing computer literacy,
jewellery and bead-making training and supplying dry ingredients to HIV-infected
individuals as well as food parcels to abused women and children;
• Compass, an organisation providing food and shelter to abused women and children;
• Deo Gloria House, an organisation providing care for underprivileged children where
DAWN assisted with finances for schoolwear and stationery;
• Girls and Boys Town SA, an organisation caring for children and ensuring that they
receive immediate residential care, a sound education and professional guidance and
support where DAWN sponsors one child;
• National Sea Rescue, an organisation saving lives at the coastal areas as well as at
rivers, lakes and dams;
• SA Medical and Education Foundation, an organisation providing equal healthcare to
individuals, regardless of situation and stance where DAWN assisted with finances for
equipment for babies;
• Somerset Hospital, where DAWN made a financial contribution towards ICU
equipment;
• The Haven Care Centre, an organisation providing shelter, food and clothing to
underprivileged individuals within the community, as and when required;
• Action for Blind and Disabled Children, an organisation providing food, shelter and
constant care for blind and disabled children; and
• Acting Angels, an organisation education children in rural communities.
The Group does not have systems in place to monitor and evaluate the impact on beneficiaries and reporting consists
of socio-economic development reports required for BBBEE verification.
Socio-economic development as a percentage of net profit after tax was at a verified level of 1,91% (2013: 1,32%).
ANNUAL WORK PLAN
The Annual Work Plan has been drafted, taking cognisance of gaps identified in the sustainable development data
gathering process. Implementation processes have commenced in 2013, but in view of the medium- to long-term
sustainability goals and evolving nature thereof, 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.
SUSTAINABILITY
The Committee reviewed DAWN’s objectives associated with each sustainability initiative. The Group embarked on its
fourth formalised sustainability data gathering process and the 2014 Sustainability Report has been prepared in
accordance with the Global Reporting Initiative Guidelines and the G4 Comprehensive Option has been applied in the
year under review. The results are shown and reported on in the Sustainability Report, which is available on the
Group’s website www.dawnltd.co.za.
Signed for and on behalf of the Social, Ethics and Transformation Committee
VJ Mokoena
Chairman of the Social, Ethics and Transformation Committee
121
122
DAWN Integrated Report 2014
SUSTAINABILITY
Ensuring a culture of responsible corporate
citizenship including, but not limited to, promoting
the importance of a sustainable environment
DAWN Integrated Report 2014
Sustainability
continued
STATEMENT BY THE CEO
The full 2014 Sustainability Report, including sustainability performance data and commentary on economic,
environmental and social indicators, is available online at www.dawnltd.co.za.
How does DAWN report on sustainable development?
DAWN recognises its responsibility to report financial and non-financial information that is relevant and material to its
stakeholders. The Group’s sustainability agenda is supported by a commitment to incorporating social, environmental,
economic and ethical factors into the Group’s strategic decision-making. It extends to evaluating how these factors
affect the business – including all of its stakeholders – and what risks and opportunities these factors present. The
Group adopts measures to mitigate risks and takes advantage of opportunities.
DAWN has adopted a values-based approach to sustainability imperatives and will ensure that strategy and activities
in this regard are integrated with the vision, mission and value system of the Group.
The Sustainability Report should be regarded as complementary to DAWN’s Integrated Report.
What is DAWN’s approach to sustainability?
The changing expectations regarding the role of business in society – reflected in corporate citizenship, transformation,
sustainable development and regulatory imperatives – add to the complexity and cost of running a business. DAWN
recognises that its long-term success depends on how effectively and transparently it addresses environmental and
social issues, such as transformation, resource depletion and climate change.
There are two strategic approaches to sustainability. The one is compliance-driven where enterprises follow what is
mandated and regulated, making minimal investments to operate within legal regulations and conform to minimum
expectations. The other is a pro-active approach to creatively search for new solutions to sustainability issues, which
can also be used as a source of competitive advantage. The Group’s approach is focussed on a pro-active approach
underpinned by a compliance base, while remaining cognisant of business imperatives.
What are the sustainability challenges in South Africa?
123
In South Africa, we are faced with the dual challenge of transforming society as well as addressing the broader set of
social and environmental issues. The Group is committed to sustainable development and, to this end, DAWN’s Social,
Ethics and Transformation Committee’s Terms of Reference has been revised to include the broader scope of
transformation, social, ethics and sustainability responsibilities. The Committee’s annual work plan for 2014 created the
platform for effective implementation of these responsibilities across the Group over a targeted timespan. For further
information, please refer to the Social, Ethics and Transformation Committee’s Report on pages 114 to 121 of the
Integrated Report.
How are sustainability principles integrated in DAWN’s businesses?
Discussions were held with the cluster heads and key members of management on what sustainable development
means in their businesses to assist them with integrating sustainability principles into their operations. In DAWN
sustainable development is about finding ongoing improvements in operational efficiencies, ensuring long-term
profitability and refining its collaboration model within the Group as well as with its stakeholders and in the wider
communities in which it operates. Protecting the environment and its ability to support our natural and human
resources is crucial for DAWN’s economic growth and job creation and, as such, sustainability has been placed as a
fixed agenda item at Board and Executive Committee meetings.
123
124
DAWN Integrated Report 2014
Sustainability
continued
How will DAWN report on sustainability in the future?
Management has committed to adopt the Global Reporting Initiative’s G4 sustainability reporting guidelines and even
though the effective date for implementation is only for reports published after 31 December 2015, the Group, for the
first time, report in terms of G4 sustainability reporting guidelines in its 2014 Sustainability Report. G4 has an increased
emphasis on the need for organisations to focus the reporting process and final report on those topics that are
material to their business and their key stakeholders. This materiality focus will make DAWN’s Sustainability Report
more relevant, more credible and more user-friendly, thereby enabling the Group to better inform markets and society
on sustainability matters. The G4 Guidelines offers two options to an organisation in order to prepare its sustainability
in accordance with the Guidelines – the Core option and the Comprehensive option. The Core option contains the
essential elements of a Sustainability Report and provides the background against which an organisation
communicates the impacts of its economic, environmental and social and governance performance. The
Comprehensive option builds on the Core option by requiring additional Standard Disclosures of the organisation’s
strategy and analysis, governance, ethics and integrity. In addition, the organisation is required to communicate its
performance more extensively by reporting all Indicators related to identified material Aspects. DAWN adopted the
Comprehensive option in its 2014 Sustainability Report, and a materiality framework for the Group will be established
during F2015.
DA Tod
Chief Executive Officer
DAWN Integrated Report 2014
Sustainability
continued
GRAPHICAL REPRESENTATION OF DAWN’S CARBON FOOTPRINT
1 264
840
537
494
9 100
12 160
8 976
9 754
2014
1 970
2013
2 716
65 755
57 918
Scope 1 – Diesel (in plant and distribution)
Scope 3 – Business Travel
Scope 1 – Natural Gas
Scope 3 – Packaging
Scope 1 – Petrol
Non-Kyoto gases *
Scope 2 – Electricity
* The GHG Protocol Corporate Standard states that GHG emissions from non-Kyoto Protocol refrigerant gas refills and direct CO2 emissions
from biogenic combustion should be reported separately from the scopes.
EMPLOYMENT BY RACE AND GENDER
3 000
16,5%
2 500
15,5%
14,9%
2 000
1 500
Black male
83,5%
Black female
Indian male
84,5%
1 000
31,8%
30,5%
500
68,2%
69,5%
30,3%
41,7%
58,3%
32,9%
69,7%
67,1%
Indian female
85,1%
58,0%
42,0%
30,4%
31,8%
59,4%
68,2%
69,6%
40,6%
Coloured male
Coloured female
White male
White female
0
2014
2013
2012
125
126
DAWN Integrated Report 2014
Sustainability
continued
KEY SUSTAINABILITY CHALLENGES AND ACTIONS
The table below depicts the Group’s identified sustainability-related challenges that can be aggregated to Group level
and which can be sensibly governed by the Group with a common set of policies and reporting protocols.
Key challenges
Actions
Developing a comprehensive sustainability
and management framework and setting
uniform sustainability targets that suit
DAWN’s organisational structure and
culture, without damaging its decentralised
culture, independence and entrepreneurial
flair.
The development of a comprehensive sustainability management
framework is an evolving process as integrated reporting develops.
The Social, Ethics and Transformation Committee has been tasked
with sustainability as one of its key focus areas to assist with this
process.
Developing an effective sustainability data
collection system. DAWN’s decentralised
and multi-faceted structures make data
collation a challenge.
Improvements are continuously being made to the data definitions
and the data collection process. Additional non-financial data will
be expanded and ongoing improvements will be made as more
effective collation systems are implemented.
Continuing compliance with intensifying
environmental regulations, resulting in
higher compliance costs.
The businesses in the Group are responsible for identifying local
regulations and national legislation relevant to their businesses and
this forms part of their risk management process. The Group Risk
and Compliance Officer regularly advises businesses of new
legislation. Where material, businesses have dedicated staff to
manage compliance. DAWN has contracted within EcoPartners, an
external service provider, to assist with environmental compliance
at all Group businesses.
Climate change poses a challenge for
business globally.
Various capital projects have been approved for DAWN’s South
African operations to reduce its carbon footprint. Key projects
during F2014 included initiatives to further reduce energy
consumption, recycle and re-use of water as well as an intensified
focus on waste reduction.
Attracting and retaining skilled staff
(including senior historically disadvantaged
individuals)
Most businesses are affected by skills shortages and invest in
employee training and learnerships. Employee well-being
programmes are being developed for implementation at the
respective businesses.
Labour unrest
Labour strike action in the face of wage negotiations could, as with
all companies, impact the Group, its customers and suppliers.
F2014 saw some of the most intensive and prolonged strike
actions, particularly in the mining sector. In addition, the Group
experienced an indirect negative impact on profit before interest
and tax of R10 million on the Building segment and a R28 million
impact on the Infrastructure segment, together with underrecoveries resulting from the NUMSA strike in July and August
2014. DAWN HR is implementing measures across the Group to
minimise the threat of internal strikes and engagement with the
employee unions and relevant industrial labour organisations is
increased to assist with the mitigation of the risks associated with
labour unrest.
Establishing more effective programmes for
managing HIV/AIDS in the workplace.
HIV/AIDS remains a challenge as it has the potential to affect the
Group’s workforce, customers, the supply-chain and the economic
development of the communities in which DAWN operates. The
Group seeks to provide education and awareness training for all its
employees and offers access to voluntary counselling and testing
as well as extending its focus to broader health issues through its
health and safety programmes. DAWN has an HIV/AIDS policy,
which has been adopted by the Board on 11 September 2013, to
further improve the effectiveness of engagements.
DAWN Integrated Report 2014
Summary Consolidated
FINANCIAL STATEMENTS
2014
127
128
DAWN Integrated Report 2014
Contents to the summary consolidated
FINANCIAL STATEMENTS
PAGE
Statement of compliance by the Company Secretary
129
Statement of responsibility and approval by the Board of Directors
130
Audit Committee Report
131
Directors’ Report
135
Independent Auditor’s Report
142
Consolidated Income Statement
143
Consolidated Statement of Comprehensive Income
144
Consolidated Statement of Financial Position
145
Consolidated Statement of Changes in Equity
146
Consolidated Statement of Cash Flows
147
Notes to the summary consolidated financial statements
149
DAWN Integrated Report 2014
LEVEL OF ASSURANCE
These annual financial statements have been audited in compliance with the applicable requirements of the Companies
Act of South Africa.
AUDITORS
PricewaterhouseCoopers Inc.
Registered Auditors
PREPARER
JAI Ferreira CA(SA)
Financial Director
PUBLISHED
13 October 2014
Statement of
COMPLIANCE by the COMPANY SECRETARY
We certify that the Company has lodged with the Companies and Intellectual Property Commission (CIPC) in respect of the year
ended 30 June 2014, all such returns as required to be lodged by a public company in terms of the Companies Act as amended,
and that all such returns are true, correct and up to date.
iThemba Governance and Statutory Solutions (Pty) Ltd
Company Secretary
Johannesburg
13 October 2014
129
130
DAWN Integrated Report 2014
Statement of RESPONSIBILITY and
APPROVAL by the Board of Directors
as at 30 June 2014
The summary consolidated financial statements are the responsibility of the directors of Distribution and Warehousing
Network Limited. The summary consolidated financial statements should be read in conjunction with the consolidated
and separate annual financial statements for the year ended 30 June 2014, which are prepared in accordance with
International Financial Reporting Standards (IFRS) and are 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, the JSE Listings Requirements and the
requirements of the Companies Act, 2008. The annual financial statements are based upon accounting policies
consistently applied and supported by reasonable and prudent judgements and estimates.
The directors acknowledge that they are ultimately responsible for the system of internal financial control established by
the Group 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 effective manner.
The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting
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 control provides reasonable assurance that the financial records may be relied on for the preparation of the
annual financial statements. However, any system of internal financial control can provide only reasonable, and not
absolute, assurance against material misstatement or loss.
The directors have reviewed the Group’s cash flow forecast for the next twelve months and, in the light of this review
and the current financial position, they are satisfied that the Group has or has access to adequate resources to
continue in operational existence for the foreseeable future. The going concern basis has therefore been adopted in
preparing the annual financial statements.
123
The external auditors are responsible for independently auditing and reporting on the Group’s annual financial
statements. The annual financial statements have been examined by the Group’s external auditors and their report
is presented on page 14 of the annual financial statements. The Independent Auditor’s Report on the summary
consolidated financial statements is presented on page 142 of the Integrated Report.
The annual financial statements, which have been prepared on the going concern basis, and from which these
summary consolidated financial statements have been derived, were approved by the Board of Directors on
13 October 2014 and were signed on its behalf by:
RL Hiemstra
DA Tod
JAI Ferreira
Chairman
Chief Executive Officer
Financial Director
For the full annual financial statements please visit www.dawnltd.co.za. Should you require an electronic copy
(by e-mail) or would like to request a hard copy, please contact the Risk and Compliance Officer, Mr JA Beukes, at
the registered office of the Company, Corner Barlow Road and Caveleros Drive, Jupiter Ext 3, Germiston (PostNet
Suite number 100, Private Bag X1037, Germiston, 1400) or by e-mail at [email protected].
DAWN Integrated Report 2014
AUDIT COMMITTEE Report
as at 30 June 2014
The Audit Committee was established with Terms of Reference from the Board. The Audit Committee Terms of Reference are
available for inspection at the Company’s registered office.
PURPOSE
The Audit Committee meets three times during the financial year to discuss issues of accounting, auditing, internal controls and
financial reporting.
The Audit Committee’s Terms of Reference deals189 adequately with its membership, authority and duties.
The Committee is responsible for reviewing the functioning of the internal control system, the reliability and accuracy of the financial
information provided by management as well as that provided for dissemination to other users of financial information, whether the
Group should continue to use the services of the current external auditors, any accounting or auditing concerns identified as a result
of the external audit, the Group’s compliance with legal and regulatory provisions, its Memorandum of Incorporation, Code of Ethical
Conduct and by-laws.
The Committee has an independent role with accountability to both the Board and shareholders. The Committee does not assume
the functions of management, which remain the responsibility of the executive directors, officers and other members of senior
management.
The duties of the Audit Committee include reviewing the scope and results of the external audit and its cost effectiveness, as well as
the independence and objectivity of the external auditors. Where the auditors supply non-audit services to the Group, the Audit
Committee reviews the nature and extent of such services, seeking to balance the maintenance of objectivity and value for money.
The Committee considers whether or not the interim report should be subject to an independent review by the auditors. It also
reviews the annual financial statements and the appropriateness of the accounting policies adopted by the Group.
The Committee fulfils an oversight role of the risk management process and specifically oversees:
123
•
financial reporting risks;
•
internal financial controls;
•
fraud risks as it relates to financial reporting; and
•
IT risks as it relates to financial reporting.
Further information on risk policies, strategies, management and indicators appear on pages 73 to 76 and in the Corporate
Governance Report on pages 87 to 92 of the Integrated Report.
YEAR UNDER REVIEW
The Audit Committee has met periodically to consider and to act upon its statutory duties and functions and the Board confirms
that the Committee has during the review year performed the duties mandated to it by the Board.
The Committee oversaw the integrated reporting process 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
management to present a misleading picture, significant judgements and reporting decisions made, as well as any evidence
that brings into question previously published information and forward-looking statements or information;
•
reviewed the annual financial statements and summarised integrated information;
131
132
DAWN Integrated Report 2014
Audit Committee Report
continued
•
commented in the annual financial statements on the financial statements, the accounting practices and the effectiveness of
the internal financial controls with regard to:
–
accounting policies adopted and any changes in accounting policies and practices;
–
significant financial estimates based on judgement which are included in the annual financial statements;
–
the appropriateness of major adjustments processed at the interim stage and at year-end;
–
the going concern assumption;
–
compliance with both local and international accounting standards;
–
whether the annual financial statements present a balanced and understandable assessment of the Group’s position,
performance and prospects;
–
the directors’ statement included in the annual financial statements, including the statement on effectiveness of the
systems of internal control;
•
reviewed the disclosure of sustainability issues in the Sustainability Report and in the Integrated Report to ensure that it is
reliable and does not conflict with the financial information;
•
recommended the Integrated Report for approval by the Board;
•
reviewed the content of the summarised financial information for whether it provides a balanced view; and
•
engaged the external auditors to provide assurance on the summarised financial information.
The duties performed and responsibilities discharged during the year under review also included:
123
123
•
the annual review of the Terms of Reference;
•
reviewing the expertise, resources and experience of the Group’s finance function, the results of which are disclosed on
page 134;
•
considering the performance of the Chief Financial Officer (refer page 134);
•
evaluating the independence of the Group’s external auditors;
•
reviewing significant cases of employee conflicts of interest, misconduct or fraud;
•
considering other topics defined by the Board from time to time and investigating any activity, which the Committee in its sole
discretion, considers to fall within the scope of its powers; and
•
reviewing compliance with legal, statutory and regulatory matters, particularly the Companies Act, No 71 of 2008, as
amended, and King III.
The Board has assigned oversight of the Group’s risk management function to the Risk Committee. The Chairman of the Audit
Committee is also the Chairman of the Risk Committee and ensures that information relevant to these committees is transferred
regularly. The Audit Committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud risk as it
relates to financial reporting and information technology risks as it relates to financial reporting.
The Audit Committee Terms of Reference have been reviewed and the scope thereof has been broadened to be fully compliant with
the requirements of King III and the Companies Act no 71 of 2008, as amended.
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
proportionate and independent investigation of matters reported and for suitable follow-up action. The Committee is satisfied that
instances of whistle-blowing were appropriately dealt with during the year under review. Copies of the Code of Ethical Conduct and
Whistle-Blowing Policy are available on the Company’s website www.dawnltd.co.za.
DAWN Integrated Report 2014
Audit Committee Report
continued
MEMBERSHIP
123
The Audit Committee comprised independent non-executive directors Messrs OS Arbee (Chairman), LM Alberts and RL Hiemstra
during the 2014 financial year. Mr RL Hiemstra, the Chairman of the Board, is a member of the Audit Committee as the Board, on
recommendation of the Nomination Committee, believes that the benefits of his extensive financial skills and knowledge outweigh
any other consideration. Shareholders approved the appointment of the Audit Committee members for the 2014 financial year at
the annual general meeting held on Tuesday, 26 November 2013. These directors’ brief curriculum vitae can be found on page 15
of the Integrated Report. Shareholder approval on the re-appointment of the above members for the 2015 financial year will be
sought at the annual general meeting to be held on Friday, 5 December 2014.
The Board is satisfied that the directors’ integrity, impartiality and objectivity are not in any way compromised and as such satisfies
the requirements of section 94(4) of the Companies Act, 2008.
Attendance at meetings held during the period 1 July 2013 to 30 June 2014 was as follows:
5 Sept
2013
5 Mar
2014
17 Jun
2014
OS Arbee
√
√
√
LM Alberts
√
√
√
RL Hiemstra
√
√
√
The external auditors and appropriate members of executive management attend the meetings by invitation. Internal Audit
attends Audit Committee meetings and provides reports to the Committee.
EXTERNAL AUDIT
In terms of the Companies Act, the Committee had nominated PricewaterhouseCoopers Inc as the independent auditor and
Mr DJ Fouche as the designated partner, for appointment for the 2014 audit. This appointment was approved by shareholders
at the annual general meeting on 26 November 2013. The Committee has satisfied itself through enquiry that the auditor of
DAWN is independent as defined by the Companies Act 2008, as amended, and as per the standards stipulated by the
auditing profession.
Requisite assurance was sought and provided by the auditor that internal governance processes within the audit firm support
and demonstrate the claim to independence.
The Committee, in consultation with executive management, agreed to the engagement letter, terms, nature and scope of the
audit function and audit plan for the 2014 financial year. The budgeted fee is considered appropriate for the work that could
reasonably have been foreseen at that time. The final adjusted fee will be agreed on completion of the audit. Audit fees are
disclosed in note 4 on page 42 of the 2014 annual financial statements.
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. 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 Committee.
The Committee has again nominated, for approval at the annual general meeting to be held on Friday, 5 December 2014,
PricewaterhouseCoopers Inc as the external auditor. The current designated auditor, Mr DJ Fouche, is retiring and the
designated audit partner for appointment for the F2015 audit is Mr I Buys. The Committee confirms that the auditor and
designated auditor are accredited by the JSE Limited.
INTERNAL AUDIT
The Group Internal Audit function operates within defined Terms of Reference in accordance with the Internal Audit Charter
and the Chief Audit Executive reports to the Director: Risk and Compliance Officer on day-to-day activities and functionally to
the Chairman of the Audit Committee. The Internal Audit function is regarded as being sufficiently independent of activities
audited. The Internal Audit plan is reviewed and adjusted on a continuous basis to ensure effectiveness and is based on the
relevant degree of inherent risk. The Internal Audit plan for the 2014 financial year was reviewed and approved by the Audit
Committee.
In compliance with King III, the Board, through its Audit Committee, will ensure that the Internal Audit function is subject to
independent quality review at periods of at least once every three years, with the first review conducted in October 2013.
133
134
DAWN Integrated Report 2014
Audit Committee Report
continued
INTERNAL CONTROL
The Group maintains systems of internal control, which include financial, operational and compliance controls.
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 address control deficiencies and other opportunities for improving the systems, as they are identified. The
Board, operating through its Audit Committee, provides oversight of the financial reporting process.
All processes have been in place for the year under review and up to the date of the approval of the annual financial
statements and the directors are not aware of and there is no known material breakdown in the functioning of the internal
financial controls that has occurred during the year under review to render the control environment ineffective.
ANNUAL FINANCIAL STATEMENTS AND ACCOUNTING PRACTICES
The Audit Committee has reviewed the accounting policies and the financial statements of the Group and the Company and is
satisfied that they are appropriate and comply with International Financial Reporting Standards.
The Audit Committee fulfilled its mandate and recommended the annual financial statements for the year ended
30 June 2014 for approval to the Board. The Board approved the annual financial statements published on the Group’s
website www.dawnltd.co.za on 13 October 2014 and the financial statements will be open for discussion at the annual general
meeting.
EVALUATION OF THE GROUP FINANCIAL DIRECTOR AND THE FINANCE FUNCTION
The Audit Committee confirms that it has satisfied itself of the appropriateness of the expertise and experience of the Chief
Financial Officer of the Group, Mr JAI Ferreira.
The Audit Committee has considered, and has satisfied itself of, the appropriateness of the expertise and adequacy of
resources of the finance function and experience of the senior members of management responsible for the finance function.
ASSURANCE
The Audit Committee is satisfied that DAWN has optimised the assurance coverage obtained from management and internal
and external assurance providers in accordance with an appropriate combined assurance model.
APPROVAL
The Report of the Audit Committee has been approved by the Board of Directors of DAWN.
Signed for and on behalf of the Audit Committee
OS Arbee
Chairman of the Audit Committee
13 October 2014
DAWN Integrated Report 2014
DIRECTORS’ Report
continued
for the year ended 30 June 2014
The directors take pleasure in presenting their report, which forms part of the audited consolidated and separate financial
statements for the year ended 30 June 2014. The annual financial statements published on www.dawnltd.co.za set out fully the
financial position, results of operations and cash flows of the Group for the year ended 30 June 2014.
GROUP RESULTS SUMMARY
2014
R’000
Restated
2013
R’000
%
change
3 612 836
1 792 944
32,57
647,25
572,49
3 017 595
1 550 418
8,67
625,62
509,91
20
16
>100
3
12
4 435 948
107 043
(26 582)
80 461
(58 278)
(18 763)
(14 760)
92 859
74 135
117 606
31,6
50,1
3 763 476
93 068
(677)
92 391
(27 432)
17 763
(17 244)
93 535
156 296
155 005
66,7
66,1
18
15
>100
(13)
>100
>(100)
(14)
(1)
(53)
(24)
(53)
(24)
Statement of Financial Position
Total assets
Total liabilities
Financial gearing ratio (%)
Net asset value per share (cents)
Net tangible asset value per share (cents)
Income Statement
Revenue
Operating profit before impairment and derecognitions
Impairments and derecognitions
Operating profit
Net finance charges
Share of (loss)/profit in investments accounted for using the equity method
Income tax expense
Profit from discontinued operations (attributable to owners of the parent)
Attributable earnings
Headline earnings
Earnings per share (cents)
Headline earnings per share (cents)
The Group’s operations are classified into three main operating segments, namely Building, Infrastructure and Solutions. The most
prominent markets in which the Building segment operates are the residential market and the recorded and unrecorded additions
and alterations markets, whereas the Infrastructure segment carries its dominant exposure to the civils sector, specifically the waterand sewer-related infrastructure and allied market activity.
Details of the segmental analysis of the Group are set out in note 2 of the annual financial statements.
On 1 July 2013, the accounting policy for joint ventures was changed to be in line with the requirements of IFRS 11. Previously,
investments in joint ventures were proportionately consolidated by the Group. In terms of IFRS 11, proportionate consolidation is no
longer allowed. The equity method of accounting for investments in joint ventures has been adopted by the Group and comparative
results have been restated accordingly.
On 23 May 2014, the DAWN Board decided to enter into a transaction with Grohe Luxembourg Four SA (Grohe) for the acquisition
by Grohe of a 51% interest in the Watertech Companies (Cobra Watertech Proprietary Limited, ISCA Proprietary Limited, Vaal
Sanitaryware Proprietary Limited, Libra Bathrooms Proprietary Limited, Apex Valves South Africa Proprietary Limited and Exipro
Manufacturing Proprietary Limited). This resulted in DAWN accounting for the Watertech Companies as an asset held-for-sale and
accordingly, in terms of IFRS 5, these entities have been disclosed as a disposal group. The Income Statement was restated for the
2013 financial year with the net operating profit from the disposal group shown below the tax line, with the same treatment in
respect of the current year.
135
136
DAWN Integrated Report 2014
Directors’ Report
continued
for the year ended 30 June 2014
The effects of the treatment in terms of IFRS 5 on the consolidated Income Statement is shown below:
Revenue
Operating profit
Profits from discontinued operations
2014
(Decrease)/
increase
2013
(Decrease)/
increase
(756 280)
(143 392)
92 859
(683 771)
(151 391)
93 535
There was no impact on attributable earnings for both the 2014 and 2013 financial years as a result of the treatment in terms of
IFRS 5.
No restatement of the Statement of Financial Position was performed for the prior year. The Statement of Financial Position for the
current year includes the disposal group’s assets and liabilities as assets held for sale and liabilities held for sale, respectively. The
Statement of Cash Flows reflects both the continuing operations and disposal group’s cash flows aggregated.
Apex Valves South Africa Proprietary Limited, which forms part of the disposal group held-for-sale, was an associate of the Group
up to 1 February 2013. The restatement resulted in the associate’s profits (R0,9 million) and amortisation (R0,1 million) being
disclosed under the ‘profits from discontinued operations’ line in the Income Statement for the prior year.
Income Statement
Group revenue increased by 18% to R4,4 billion (F2013: R3,8 billion), supported by a 3% improvement in volumes and a 7%
inflation in the Group’s selling prices with acquisitions contributing 8%. Operating profit improved by 15% to R107,0 million (F2013:
R93,1 million), before the impact of impairments and derecognitions. Unfortunately, due to the persistently tough building market,
the Group had to impair the carrying value of goodwill on two businesses, DAWN Kitchen Fittings (impaired by R33,6 million) and
AST (impaired by R7,8 million). The Group also had to account for a once-off gain on Sangio Pipe as part of the step-up to 100%
holding at year-end. Net impairments and de-recognitions totalled R26,5 million.
After impairments, the Group operating profit amounted to R80,5 million, which was down 13% from the prior year’s R92,4 million.
The Group’s operating margin was maintained at 2,4%. Due to tough market conditions, the Building margin halved to 1,7% while
Infrastructure’s improved margin of 4,4% was within the target guided at the interim stage. Solutions saw a decrease in margin to
2,2%.
Operating expenses increased by 17,6% including acquisitions. Excluding acquisitions, operating expenses grew by 10,4%.
Net finance cost increased to R58,3 million. Average net debt for the period increased to R613 million, mainly as a result of the
substantial R194 million capital expenditure programme, acquisitions and start-up funding of R71 million and funding of the working
capital expansion of R218 million.
Income from associates and joint ventures performed disappointingly at a loss of R18,8 million, with poor performances from both
Building and Infrastructure segments, as outlined in the operational overview.
Earnings per share, mainly as a result of the impairments outlined, was down 53% from 66,7 cents per share to 31,6 cents per
share and headline earnings per share was down 24% from 66,1 cents per share to 50,1 cents per share.
Statement of Financial Position
With the accounting requirements due to the Grohe transaction, the businesses held-for-sale are now no longer accounted for in
the respective lines of the Statement of Financial Position.
The Group’s pre-Grohe net working capital amounted to 90 days. Post the transaction, the remaining subsidiaries’ working capital
no longer has such long lead times and reduced to 50 days.
This has resulted in working capital as a percentage of revenue improving from 20% to 15%. The Group’s new maximum threshold
for this ratio is 15%.
Although up from last year’s 41 days, the 50 days’ net working capital in F2014 is within the Group’s new working capital target of
55 days.
Debtor days were 58 days, slightly above the Group’s 55 days target due to strong revenue growth.
DAWN Integrated Report 2014
Directors’ Report
continued
for the year ended 30 June 2014
The Group’s objective is to have stock days covered by creditors’ days. The F2014 stock days increased to 67 days due to the
impact of inflation based on the weakening of the Rand against other major currencies and due to the stock build-up in Trading as
a result of the erratic second-half building market. Volatile market conditions make it very difficult to efficiently run a factory, resulting
in the trading companies carrying more inventory than optimal.
The Group will not be in this position in future on the Building segment side following the sale of control of the factories to Grohe.
Creditor funding declined to 75 days, which more than covered stock days.
Statement of cash flows
In line with IFRS requirements, the held-for-sale businesses of Watertech and Sanitaryware are still accounted for as under the
control of DAWN in the statement of cash flows.
Therefore, cash generated before working capital changes from all DAWN-controlled operations amounted to R334 million, up 2%
year-on-year. EBITDA amounted to R327 million.
As outlined in the Statement of Financial Position, the Group’s working capital increased by R218,3 million.
Investing activities included:
–
the acquisition of Swan Plastics and Exipro Manufacturing, the step-up in holdings in Sangio Pipe and Fibrex and the startup ventures of WiiN, IPS & Distribution, AST Tanzania and AST Democratic Republic of the Congo. All of this totalled
R71 million; and
–
R194 million of total capital expenditure, of which R153 million was expansionary capital expenditure. Total capital
expenditure included the roll-out of the Group’s new Enterprise Resource Planning system of R50 million, the increase in the
Group’s logistics capability of R20 million and the Vaal automation project of R60 million. Benefits from these projects will flow
from the new financial year. The Group also awaits the pay-out of R30 million of Manufacturing Competitiveness
Enhancement Programme government grants from the Department of Trade and Industry.
Financing activities include the refinancing of the Group’s borrowing facilities, as well as raising the required funding for the planned
investing activities.
The closing cash balance was R121,8 million against R116,2 million last year.
The Group’s policy is to pay dividends once per year, on an approximately four times cover. This year the cover was temporarily
reduced to two to maintain a dividend of 16,5 cents per share. This decision is supported by the R150 million net cash inflow (R880
million gross) after the Grohe transaction, the elimination of high capital expenditure and working capital-heavy businesses as well
as the current expansionary capital expenditure programmes coming to an end over the next six months.
REVIEW OF ACTIVITIES
The Building segment contributed 44% to Group revenue. The building market remained extremely tough. Although price increases
assisted a revenue improvement of 8% to R2,1 billion, profit before interest and taxation (PBIT) was down 45% to R36,2 million
(2013: R66,1 million) and headline earnings per share down 20%.
The Infrastructure segment contributed 47% to Group revenue. The segment performed relatively well, with revenue up by 30% to
R2,2 billion (2013: R1,7 billion) and PBIT up 69% to R99,3 million (2013: R58,7 million) and headline earnings per share up 6% from
19,8 cents per share to 21,1 cents per share. This performance was achieved despite the R9 million direct impact on PBIT due to
the protracted mining strike in the second half.
The DAWN Solutions segment contributed 9% to Group revenue. DAWN Solutions’ revenue of R433,0 million increased by 18,5%
and PBIT was down 31% from R14,0 million to R9,6 million.
ACQUISITIONS DURING THE YEAR
On 1 July 2013, a 49% shareholding was purchased in IPS & Distribution and Proprietary Limited. IPS & Distribution is a start-up
business focusing on the wholesale and distribution of pipe, pipe fittings and hardware to the agricultural sector.
Effective 1 August 2013, a 51% shareholding was acquired in Swan Plastics Proprietary Limited for a total consideration of R20
million. Swan Plastics Proprietary Limited specialises in the manufacture of PVC pipes and fittings. The provisional amount of net
assets acquired amounted to R35,5 million.
A 49% shareholding was acquired in Exipro Manufacturing Proprietary Limited, a producer of plumbing brassware, for a
consideration of R5 million with effect from 1 March 2014.
137
138
DAWN Integrated Report 2014
Directors’ Report
continued
for the year ended 30 June 2014
An additional 15,67% shareholding in Fibrex S.A.R.L. was acquired on 1 April 2014 for a consideration of R11,2 million, adding to
the 33,33% interest previously held. The total interest in Fibrex S.A.R.L. is 49% and the investment continues to be accounted for
as an associate.
On 1 June 2014, DAWN acquired an additional 51% shareholding in Sangio Pipe Proprietary Limited through a share buy-back by
Sangio Pipe Proprietary Limited for R42,5 million, adding to the 49% interest previously held. Consequently, Sangio Pipe Proprietary
Limited was derecognised as an associate and was subsequently re-recognised as a subsidiary of the Group in line with the
requirements of IFRS 3(R). A gain of R14,8 million was recognised as a result of measuring at fair value the equity interest held
before the business combination. The amount of net assets acquired amounted to R16,5 million.
DISPOSAL GROUP HELD-FOR-SALE
On 30 June 2014, Grohe and DAWN entered into an agreement whereby Grohe would acquire a 51% interest in the Watertech
Companies. As part of the preparatory steps, the Watertech companies were transferred from DAWN to Main Street 1254
Proprietary Limited on 31 July 2014. Grohe will acquire 51% of the shares of Main Street 1254 Proprietary Limited on the effective
date, which is expected to be 31 October 2014, or on a date as agreed between Grohe and DAWN, but not later than 30 April
2015.
The acquisition consideration for the transaction will be R880 million, to be settled in cash. Proceeds of the transaction shall be
applied by DAWN to repay debt and to acquire businesses as they are identified in DAWN’s areas of core competency.
SPECIAL RESOLUTIONS
At the annual general meeting of the Company held on 26 November 2013, shareholders approved three special resolutions.
•
Special resolution number 1 granted the Company a general authority for the repurchase of its own shares.
•
Special resolution number 2 approved the non-executive directors’ fees for the 2013 financial year.
•
Special resolution number 3 granted the Company the authority to provide financial assistance to any company or
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.
At the forthcoming annual general meeting of the Company to be held on Friday, 5 December 2014, the special resolutions
above will again be presented to shareholders for approval.
DIVIDEND
The Board declared a gross dividend of 16,5 cents per ordinary share, out of income reserves, for the year ended 30 June
2014 (2013: 16,5 cents).
The dividend will be subject to the Dividends Tax that was introduced with effect from 1 April 2012. In accordance with
paragraphs 11.17(a)(i) and (x) and 11.17(c) of the JSE Listings Requirements the following additional information is disclosed:
•
The dividend has been declared out of income reserves;
•
The local Dividend Tax rate is 15% (fifteen per centum);
•
The net local dividend amount is 14,025 per ordinary share for shareholders liable to pay the Dividend Tax;
•
No Secondary Tax on Companies (STC) credits will be utilised;
•
DAWN has 242 242 904 ordinary shares in issue (which includes 7 726 146 treasury shares); and
•
DAWN’s income tax reference number is 9375171718.
In compliance with the requirements of Strate the following dates are applicable:
Last date to trade “CUM” dividend
Friday, 21 November 2014
Trading “EX” dividend commences
Monday, 24 November 2014
Record date
Dividend payment date
Friday, 28 November 2014
Monday, 1 December 2014
No dematerialisation or rematerialisation of share certificates will be allowed during the period Monday, 24 November 2014 to
Friday, 28 November 2014, both days inclusive.
DAWN Integrated Report 2014
Directors’ Report
continued
for the year ended 30 June 2014
SHARE CAPITAL
Further details of the authorised and issued share capital of the Company are provided in note 21 to the annual financial
statements.
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.
Aggregate number of shares available to the scheme
Shares issued
Shares available, but not issued
2014
’000
2013
’000
18 793
(16 191)
18 793
(16 131)
2 602
2 662
DIRECTORS
Full details of directors
Nationality
Official
RL Hiemstra ^
DA Tod *
M Akoojee **
LM Alberts ^
OS Arbee ^
JA Beukes *
JAI Ferreira *
DM Mncube ^
VJ Mokoena **
RD Roos *
SD Mthembi-Mahanyele ^
South
South
South
South
South
South
South
South
South
South
South
Independent Non-Executive Chairman
Chief Executive Officer
* Executive
** Non-executive
African
African
African
African
African
African
African
African
African
African
African
^
Lead Independent Director
Chief Financial Officer
Date of
appointment
30 June 1998
30 June 1998
23 June 2011
30 August 2001
15 December 2004
20 August 1998
30 November 2007
1 May 2014
22 June 2011
14 December 2013
1 May 2010
(resigned
11 September 2013)
Independent non-executive
In terms of the Company’s Memorandum of Incorporation, Messrs RL Hiemstra and JA Beukes 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 (Pty) Ltd.
DIRECTORS’ SHAREHOLDING
The directors held in aggregate direct and indirect beneficial interests of 7,2% (2013: 7,2%) in the issued share capital of the
Company at the end of the reporting period. The Company has not been notified of any material change in these interests
during the period 30 June 2014 to the date of this report.
139
140
DAWN Integrated Report 2014
Directors’ Report
continued
for the year ended 30 June 2014
The beneficial interest, direct and indirect, of the directors in office at the date of this report is as follows:
Number of ordinary shares
Beneficial
Direct
Indirect
Total
At 30 June 2014
12 502 075
4 916 315
17 418 390
At 30 June 2013
12 502 075
4 916 315
17 418 390
Directors
12 476 235
4 659 829
17 136 064
Executive directors
JA Beukes
JAI Ferreira
DA Tod
RD Roos
9 508 362
3 403 231
296 837
5 501 417
306 877
4 659 829
–
–
4 659 829
–
14 168 191
3 403 231
296 837
10 161 246
306 877
Non-executive directors
LM Alberts
RL Hiemstra
VJ Mokoena
2 967 873
1 766 285
1 197 998
3 590
–
–
–
–
2 967 873
1 766 285
1 197 998
3 590
25 840
–
5 000
20 840
256 486
256 486
–
–
Prescribed officers
CJ Bishop
GD Kotzee
PJ van Niekerk
282
256
5
20
326
486
000
840
DIRECTORS’ EMOLUMENTS
123
Details of the directors’ emoluments are set out in the Report of the Remuneration Committee on pages 100 to 110.
DIRECTORS’ INTEREST IN CONTRACTS
No material contracts involving directors’ interest were entered into during the current year.
SHAREHOLDING ANALYSIS
123
A graphical presentation of the Company’s shareholding is set out on page 55 of the Integrated Report with full disclosure being
outlined on pages 164 and 165.
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 110 and 111
of the annual financial statements. Details of indebtedness to the holding Company are set out on page 101 of the annual financial
statements.
EVENTS AFTER THE REPORTING PERIOD
Apex Valves South Africa Proprietary Limited
Subsequent to the year-end, DAWN acquired the remaining 39,53% shareholding in Apex Valves South Africa Proprietary Limited
for a purchase consideration of R6 million, payable on 31 October 2014. This resulted in the Group obtaining 100% control over
Apex Valves.
DAWN Integrated Report 2014
Directors’ Report
continued
for the year ended 30 June 2014
Pro-Max Welding Consumables Proprietary Limited
A 60% share was acquired in Pro-Max Welding Consumables Proprietary Limited (Pro-Max) for a provisional cash consideration of
R5,9 million. The cash consideration to be paid is dependent on Pro-Max meeting certain targets as set out in the sale of shares
agreement between the Group and Pro-Max. Pro-Max specialises in the manufacturing and distribution of welding equipment and
consumables. The effective date of the transaction was 1 July 2014. The provisional amount of net assets acquired amounted to
R2,9 million. The initial accounting of the business combination had not been finalised at the time of authorisation of the annual
financial statements for issue.
Watertech Companies
Shareholders are referred to a notice of general meeting announcement dated 18 August 2014 in relation to a category 1
acquisition of a 51% indirect interest in the Watertech Companies by Grohe, together with a call option in favour of Grohe to acquire
an additional 24,1% indirect shareholding in the Watertech Companies from DAWN after a 10-year period, and if such option is
exercised by Grohe, or Grohe’s indirect shareholding has otherwise increased to 75,1% and the option for DAWN to sell its
remaining 24,9% interest in the Watertech Companies to Grohe.
The general meeting of DAWN shareholders was held on Monday, 15 September 2014. The special resolution and the ordinary
resolution, as set out in the notice of general meeting to shareholders, dated 18 August 2014, were unanimously approved by
shareholders present or represented and voting at the meeting.
At the date of the annual financial statements, Competition Commission approval had not yet been obtained. Shareholders will be
notified when all the conditions precedent have been met.
Dividend
The Board declared a dividend of 16,5 cents per ordinary share, from income reserves, in respect of the year ended 30 June 2014
(2013: 16,5 cents per ordinary share). The dividend was declared on 9 October 2014.
Other
Management is not aware of any other material events that occurred subsequent to the end of the reporting period. There has been
no material change in the Group’s contingent liabilities since the year-end.
AUDITORS
The auditors, PricewaterhouseCoopers Inc, have indicated their willingness to continue in office for the ensuing year. The Audit
Committee has satisfied itself of the independence of the auditors. The current designated auditor, Mr DJ Fouche, is retiring and the
designated auditor for F2015 is Mr I Buys. The Audit Committee has satisfied itself of Mr I Buys’ independence. A resolution to
reappoint them as auditors will be proposed at the next annual general meeting scheduled to take place on Friday,
5 December 2014.
141
142
DAWN Integrated Report 2014
INDEPENDENT AUDITOR’S Report
123
The summary consolidated financial statements of Distribution and Warehousing Network Limited, set out on pages
143 to 161, which comprise the summary consolidated Statement of Financial Position as at 30 June 2014 and the
summary consolidated Income Statement and the summary consolidated Statements of Comprehensive Income,
Changes in Equity and Cash Flows for the year then ended, and related notes, are derived from the audited
consolidated financial statements of Distribution and Warehousing Network Limited for the year ended 30 June 2014.
We expressed an unmodified audit opinion on those consolidated financial statements in our report dated 13 October
2014. Our auditor’s report on the audited consolidated financial statements contained an Other Matter paragraph:
“Other reports required by the Companies Act” (refer below).
The summary consolidated financial statements do not contain all the disclosures required by International Financial
Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial
statements. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the
audited consolidated financial statements of Distribution and Warehousing Network Limited.
DIRECTORS’ RESPONSIBILITY FOR THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
The company’s directors are responsible for the preparation of a summary of the audited consolidated financial
statements in accordance with the JSE Limited’s (JSE) requirements for summary financial statements, set out in the
basis of preparation note to the summary consolidated financial statements, and the requirements of the Companies
Act of South Africa as applicable to summary financial statements, and for such internal control as the directors
determine is necessary to enable the preparation of summary consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures,
which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on
Summary Financial Statements”.
OPINION
In our opinion, the summary consolidated financial statements derived from the audited consolidated financial
statements of Distribution and Warehousing Network Limited for the year ended 30 June 2014 are consistent, in all
material respects, with those consolidated financial statements, in accordance with the JSE’s requirements for
summary financial statements, set out in the basis of preparation note to the summary consolidated financial
statements, and the requirements of the Companies Act of South Africa as applicable to summary financial statements.
OTHER REPORTS REQUIRED BY THE COMPANIES ACT
The “Other Reports Required by the Companies Act” in our audit report dated 13 October 2014 states that as part of
our audit of the consolidated financial statements for the year ended 30 June 2014, we have read the Directors’
Report, the Audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether
there are material inconsistencies between these reports and the audited consolidated financial statements. These
reports are the responsibility of the respective preparers. The paragraph also states that, based on reading these
reports, we have not identified material inconsistencies between these reports and the audited consolidated financial
statements. The paragraph furthermore states that we have not audited these reports and accordingly do not express
an opinion on these reports. The paragraph does not have an effect on the summary consolidated financial statements
or our opinion thereon.
PricewaterhouseCoopers Inc.
Director: DJ Fouche
Registered Auditor
2 Eglin Road
Sunninghill
2157
13 October 2014
DAWN Integrated Report 2014
Consolidated
INCOME STATEMENT
for the year ended 30 June 2014
GROUP
2014
R’000
Restated *
2013
R’000
Revenue
4 435 948
3 763 476
Cost of sales
(3 413 417)
(2 891 692)
Gross profit
Operating expenses
1 022 531
(929 835)
871 784
(797 872)
(528 777)
(395 396)
(5 662)
(460 682)
(330 337)
(6 853)
14 347
19 156
107 043
(41 424)
14 842
93 068
–
(677)
Operating profit
Finance income
Finance expenses
80 461
8 795
(67 073)
92 391
20 028
(47 460)
Profit after net financing costs
Share of (loss)/profit in investments accounted for using the equity method
22 183
(18 763)
64 959
17 763
Profit before taxation
Income tax expense
3 420
(14 760)
82 722
(17 244)
(Loss)/profit from continuing operations
(11 340)
65 478
Profit from discontinued operations
(attributable to owners of the parent)
92 859
93 535
Profit for the year
81 519
159 013
Profit attributable to:
Owners of the parent
Non-controlling interests
74 135
7 384
156 296
2 717
81 519
159 013
Administrative and selling expenses
Distribution and warehousing expenses
Other operating expenses
Other operating income
Operating profit before impairments and
derecognition of investments
Impairment of intangible assets
Net gain/(loss) on derecognition of previously held interests
* Refer note 9.
143
144
DAWN Integrated Report 2014
Consolidated
statement of COMPREHENSIVE INCOME
for the year ended 30 June 2014
GROUP
2014
R’000
Restated *
2013
R’000
81 519
159 013
Other comprehensive income – to be subsequently
reclassified to profit or loss:
Exchange differences on translating foreign operations
Effects of cash flow hedges
Hedge movement through equity
Recycling of hedge through profit/(loss)
3 686
4 095
–
4 095
3 517
906
106
800
Effects of retirement benefit obligations
Tax related to components of other comprehensive income
(280)
(1 191)
Total other comprehensive income
6 310
4 169
Total comprehensive income
87 829
163 182
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
80 445
7 384
160 465
2 717
87 829
163 182
(12 414)
92 859
66 930
93 535
80 445
160 465
Profit for the year
Total comprehensive income attributable to equity
shareholders arising from:
Continuing operations
Discontinued operations
* Refer note 9.
–
(254)
DAWN Integrated Report 2014
Consolidated
statement of FINANCIAL POSITION
as at 30 June 2014
GROUP
Restated *
2013
R’000
Restated *
2012
R’000
208 621
175 326
–
50 357
91 526
39 560
423 455
271 354
–
52 246
103 526
52 210
367 837
238 574
–
41 386
93 771
56 964
565 390
902 791
798 532
665 107
1 007 731
154 123
223
7 988
929 631
909 867
269 579
5 338
389
786 219
807 219
228 581
644
1 540
1 835 172
2 114 804
1 824 203
Assets of disposal group classified as held-for-sale
1 212 274
–
–
Total assets
3 612 836
3 017 595
2 622 735
Equity
Capital and reserves attributable to equity holders of the Company
Share capital
Share premium
Retained income
Treasury shares
Share-based payment reserve
Hedging reserve
Foreign currency translation reserve
Change in ownership reserve
Retirement benefit obligation reserve
2 422
373 748
1 093 315
(6 733)
40 256
–
2 413
(17 989)
(202)
2 422
373 748
1 057 932
(6 733)
49 593
(2 826)
(1 273)
(17 086)
–
2 422
373 748
901 636
(6 733)
23 677
(3 478)
(4 718)
(16 564)
–
Share capital and reserves
Non-controlling interests
1 487 230
35 756
1 455 777
11 400
1 269 990
2 099
Total equity
1 522 986
1 467 177
1 272 089
2014
R’000
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments in joint ventures
Investments in associates
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Current tax assets
EQUITY AND LIABILITIES
LIABILITIES
Non-current liabilities
Borrowings
Deferred profit
Deferred tax liabilities
Retirement benefit obligation
Derivative financial instruments
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Deferred profit
Current tax liabilities
Total liabilities
Liabilities of disposal group classified as held-for-sale
Total equity and liabilities
* Refer note 9.
745
150
684
462
080
154 425
31 943
24 519
6 141
7 008
494 139
273 121
224 036
986 574
303 943
23
5 393
2 872
1 060 653
195 866
93
5 793
14 892
849 997
258 578
928
5 793
11 314
1 298 805
1 277 297
1 126 610
1 792 944
1 550 418
1 350 646
296 906
–
–
3 612 836
3 017 595
2 622 735
447
18
22
5
090
425
804
820
–
215
26
22
5
3
145
146
DAWN Integrated Report 2014
Consolidated statement of
CHANGES IN EQUITY
for the year ended 30 June 2014
Attributable to owners of the parent
Balance at 1 July 2012
Foreign
Change
Share-
currency
in
Retirement
Equity
Non-
based
trans-
owner-
benefit
attribu-
control-
Share
Share
Treasury
payment
Hedging
lation
Retained
table to
ling
capital
premium
shares
reserve
reserve
reserve
reserve
ship obligation
reserve
earnings
Company
interest
Total
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
R’000
2 422
373 748
(6 733)
23 677
(3 478)
(4 718) (16 564)
–
901 636
1 269 990
2 099 1 272 089
Total comprehensive
–
–
–
–
652
3 445
–
–
156 296
160 393
2 955
163 348
Profit for the year
–
–
–
–
–
–
–
–
156 296
156 296
2 955
159 251
– Continuing operations
–
–
–
–
–
–
–
–
62 761
62 761
2 717
65 478
– Discontinued operations
–
–
–
–
–
–
–
93 535
93 535
238
93 773
Other comprehensive income
–
–
–
–
652
3 445
–
–
–
4 097
–
4 097
–
–
–
25 916
–
–
(522)
–
–
25 394
6 346
31 740
–
–
–
25 916
–
–
–
–
–
25 916
–
25 916
–
–
–
–
–
–
–
–
–
–
(1 430)
(1 430)
income for the year
Total contributions by
and distributions to
owners of the Company
recognised directly in
equity
Share-based payment charge
Dividends paid to noncontrolling| interests
Change in ownership reserve
– control not lost
Business combinations
–
–
–
–
–
–
(522)
–
–
(522)
–
(522)
–
–
–
–
–
–
–
–
–
–
7 776
7 776
2 422
373 748
(6 733)
49 593
(2 826)
(1 273) (17 086)
–
1 057 932
1 455 777
11 400 1 467 177
2 422
373 748
(6 733)
49 593
(2 826)
(1 273) (17 086)
–
1 057 932
1 455 777
11 400 1 467 177
Balance at 30 June 2013
(Restated)
Balance at 1 July 2013
(Restated)
Total comprehensive
–
–
–
–
2 826
3 686
–
(202)
74 135
80 445
8 469
88 914
Profit for the year
income for the year
–
–
–
–
–
–
–
–
74 135
74 135
8 469
82 604
– Continuing operations
–
–
–
–
–
–
–
–
(18 724)
(18 724)
7 384
(11 340)
– Discontinued operations
–
–
–
–
–
–
–
–
92 859
92 859
1 085
93 944
Other comprehensive income
–
–
–
–
2 826
3 686
–
(202)
–
6 310
–
6 310
Dividends paid
–
–
–
–
–
–
–
–
(38 752)
(38 752)
–
(38 752)
–
–
–
(9 337)
–
–
(903)
–
–
(10 240) 15 887
5 647
–
–
–
3 351
–
–
–
–
–
3 351
–
3 351
–
–
–
(12 688)
–
–
–
–
–
(12 688)
–
(12 688)
–
–
–
–
–
–
–
–
–
–
(3 031)
(3 031)
–
–
–
–
–
–
(903)
–
–
(903)
–
(903)
–
–
–
–
–
–
–
–
–
–
18 918
18 918
2 422
373 748
(6 733)
40 256
–
(202) 1 093 315
1 487 230
Total contributions by
and distributions to
owners of the Company
recognised directly in
equity
Share-based payment charge
Share-based payment –
vesting of options
Dividends paid to noncontrolling interests
Change in ownership reserve
– control not lost
Business combinations
Balance at 30 June 2014
2 413 (17 989)
35 756 1 522 986
DAWN Integrated Report 2014
Consolidated statement of
CASH FLOWS
for the year ended 30 June 2014
GROUP
2014
R’000
Restated *
2013
R’000
Cash flows from operating activities
115 762
294 511
Finance income
Cash generated from operations
8 498
10 170
Finance expense
(92 727)
(54 723)
Income tax paid
(69 975)
(46 402)
–
–
(38 442)
203 556
Dividends received
Net cash (utilised in)/generated from operating activities
Cash flows from investing activities
Additions to property, plant and equipment
(148 658)
(95 696)
Additions and development of intangible assets
(45 417)
(28 120)
Proceeds on disposals of property, plant and equipment
16 338
7 153
Acquisition of businesses
(37 160)
(6 901)
Treasury shares purchased
(12 688)
–
Proceeds from joint ventures and associates
28 823
6 430
Loan advances granted to joint ventures and associates
(59 646)
(8 981)
Proceeds from sale of investment in DPI Ichweba
–
1 000
Loan advances to other Group entities
–
–
(258 408)
(125 115)
Net cash utilised in investing activities
Cash flows from financing activities
Proceeds from borrowings
607 995
2 084
Repayment of borrowings
(167 087)
(17 910)
Government grants recognised
11 216
–
Instalment sale payments
(17 161)
(18 238)
Finance lease payments
(11 304)
(8 152)
–
(522)
Transactions with non-controlling interest holders
(3 031)
(1 430)
Dividends paid
Dividends paid to non-controlling interest holders
(38 752)
–
Net cash generated by/(utilised in) financing activities
381 876
(44 168)
85 026
34 273
577
1 087
Total cash movement for the year
Translation effects on foreign cash and cash equivalents balances
Cash and cash equivalents of disposal group held-for-sale at end of the year
(80 063)
–
Cash and cash equivalents at beginning of the year
116 225
80 865
Cash and cash equivalents at end of the year
121 765
116 225
* Refer note 9.
147
148
DAWN Integrated Report 2014
Summary consolidated
SEGMENTAL ANALYSIS
for the year ended 30 June 2014
Building
2014 (Audited)
Revenue
Depreciation and amortisation
Operating profit/(loss) before
impairments and
derecognitions
Impairments and
derecognitions
Operating profit/(loss) after
impairments and
derecognitions
Net finance income/(expense)
Share of profit/(losses) of
associates (including
impairment of associate)
Tax expense
Profit/(loss) after tax from
continuing operations
Profit after tax from
discontinued operations
Assets
Liabilities
Capital expenditure (2)
2013 (Audited Restated)
Revenue
Depreciation and amortisation
Operating profit/(loss) before
impairments and
derecognitions
Impairments and derecognitions
Operating profit/(loss) after
impairments and
derecognitions
Net finance income/(expense)
Share of profit/(losses) of
associates (including
impairment of associate)
Tax expense
Profit/(loss) after tax from
continuing operations
Profit after tax from
discontinued operations
Assets
Liabilities
Capital expenditure (2)
Continuing
operations
R’000
Discontinued
operations
R’000
2 129 568
(4 979)
(3)
Total
R’000
Infrastructure
R’000
756 280
(26 733)
2 885 848
(31 712)
2 248 705
(25 370)
124 444
160 654
99 343
(41 424)
–
(41 424)
(5 214)
(12 907)
124 444
(41 608)
(21 599)
(5 793)
Head Office (1)
and other
Discon- (3)
DAWN reconciling
tinued
Solutions
items operations
R’000
R’000
R’000
(375 321)
(521)
(756 280)
26 733
4 435 948
(49 317)
9 616
(19 178)
(143 392)
107 043
–
–
14 842
–
(26 582)
119 230
(54 515)
99 343
(24 632)
9 616
(4 136)
(4 336)
2 932
(143 392)
22 073
80 461
(58 278)
384
(16 983)
(21 215)
(22 776)
2 836
(21 046)
–
(1 722)
–
3 025
(384)
27 759
(18 763)
(14 760)
(45 515)
–
(45 515)
56 502
3 758
(26 085)
–
(11 340)
–
1 110 968
1 026 514
9 762
65 150
1 212 274
296 906
107 494
65 150
2 323 242
1 323 420
117 256
–
1 183 195
726 457
32 821
–
571 925
583 472
39 331
27 709
(465 526)
(543 499)
–
–
–
–
(107 494)
92 859
3 612 836
2 089 850
81 914
1 974 384
(4 310)
683 711
(31 164)
2 658 095
(35 474)
1 731 121
(20 951)
365 421
(15 848)
(307 450)
(1 335)
(683 711)
31 164
3 763 476
(42 444)
66 081
–
141 135
–
207 216
–
59 342
(677)
14 036
–
(36 135)
–
(151 391)
–
93 068
(677)
66 081
(11 461)
141 135
(22 501)
207 216
(33 962)
58 665
(11 652)
14 036
(2 183)
(36 135)
(2 136)
(151 391)
22 501
92 391
(27 432)
4 086
(15 395)
829
(33 960)
4 915
(49 355)
13 677
(14 815)
–
(3 393)
–
14 373
(829)
35 946
17 763
(17 244)
43 311
–
43 311
45 875
8 460
(32 168)
–
65 478
–
2 184 405
1 468 106
85 265
–
–
85 265
2 184 405
1 468 106
–
869 508
530 577
–
499 956
508 813
8 270
(536 274)
(957 078)
–
–
–
93 535
3 017 595
1 550 418
76 756
–
76 756
22 484
53 778
–
–
153 018
36 210
432 996
(18 447)
Total
R’000
(1)
Other reconciling items consist of corporate and consolidation adjustments. These predominantly include elimination of intergroup sales, profits, losses and
intergroup receivables and payables and other unallocated assets and liabilities contained within the vertically integrated Group. Head Office and other
reconciling 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.
(3)
Discontinued operations include results from the Watertech group of companies as well as consolidation and elimination adjustments related to the
Watertech group of companies.
DAWN Integrated Report 2014
Notes to the summary consolidated
FINANCIAL STATEMENTS
for the year ended 30 June 2014
1.
BASIS OF PREPARATION
These consolidated annual financial statements comprise a summary of the audited consolidated annual financial
statements of the Group for the year ended 30 June 2014 that was approved by the Board on 13 October 2014.
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited’s
(JSE) requirements for summary financial statements and the requirements of the Companies Act applicable to
summary financial statements. The JSE requires summary financial statements to be prepared in accordance with the
framework concepts, the measurement and recognition requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and must also, as a
minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in
the preparation of the consolidated financial statements from which the summary consolidated financial statements
were derived are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the
previous consolidated annual financial statements, except for the effects of IFRS 11 and IFRS 5 as outlined in note 8.
The preparation of the summary consolidated annual financial statements has been supervised by the Group Financial
Director, JAI Ferreira CA(SA).
GROUP
2.
2014
Restated
2013
Number of shares in issue at the end of the year *
241 843
241 443
Less: Treasury shares held in a subsidiary at the end of the year – weighted
Add: Deferred ordinary shares in issue at the end of the year *
241 843
(7 726)
400
241 443
(7 726)
800
Weighted average number of ordinary shares in issue (’000)
Add: Shares to be issued in terms of share incentive schemes
234 517
5 373
234 517
3 358
Weighted average number of ordinary shares for diluted earnings
per share (’000)
239 890
237 875
EARNINGS PER ORDINARY SHARE
Basic
Basic earnings per ordinary share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year, excluding ordinary shares purchased by the Company,
incentive shares and held as 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.
Weighted average number of ordinary shares in issue (’000)
* During the year deferred ordinary shares were converted into ordinary shares. This resulted in an equal reduction in the total
number of deferred ordinary shares in issue.
149
150
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
GROUP
2.
2014
Restated
2013
31,62
66,65
EARNINGS PER ORDINARY SHARE continued
Basic earnings per share (cents)
(7,98)
26,76
(18 724)
234 517
62 761
234 517
39,60
39,89
92 859
234 517
93 535
234 517
Fully diluted earnings per share (cents)
30,90
65,70
From continuing operations (cents)
(7,81)
26,38
(18 724)
239 890
62 761
237 875
38,71
39,32
From continuing operations (cents)
Attributable earnings (R’000)
Weighted average number of ordinary shares in issue (’000)
From discontinued operations (cents)
Attributable earnings (R’000)
Weighted average number of ordinary shares in issue (’000)
Attributable earnings (R’000)
Weighted average number of ordinary shares in issue (’000)
From discontinued operations (cents)
Attributable earnings (R’000)
Weighted average number of ordinary shares in issue (’000)
92 859
93 535
239 890
237 875
74 135
156 296
Headline earnings (R’000)
Attributable earnings
Adjustment for the after-tax and non-controlling interest effects of:
Net (profit)/loss on disposal of property, plant and equipment
Impairment of intangible assets
Tax effect on disposal of property, plant and equipment and impairment
of intangible assets (trademarks)
Non-controlling interest effect on disposal of property, plant and equipment
Net (profit)/loss on derecognition of previously held interest
Headline earnings adjustments related to associates and joint ventures
Headline earnings adjustments related to disposal group
Headline earnings per share (cents)
From continuing operations (cents)
Headline earnings (R’000)
Weighted average number of shares in issue (’000)
From discontinued operations (cents)
Headline earnings (R’000)
Weighted average number of shares in issue (’000)
(1 331)
41 424
117
–
(367)
1
(14 842)
19 043
(22)
–
677
(1 772)
(456)
(291)
117 606
155 005
50,15
66,10
10,75
26,30
25 203
234 517
61 761
234 517
39,40
39,80
92 403
93 244
234 517
234 517
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
GROUP
3.
2014
Restated
2013
Authorised at 30 June
725 893 603 ordinary shares of 1 cent each
10 000 000 deferred ordinary shares of 1 cent each
7 259
100
7 259
100
Balance at the end of the year
7 359
7 359
373 748
373 748
SHARE CAPITAL
Share premium
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.
Number of
Issued
At 30 June 2012
Deferred
Number of
deferred
Total
Ordinary
ordinary
Share
Treasury
ordinary
ordinary
number of
shares
shares
premium
shares
Total
shares
shares
shares
R’000
R’000
R’000
R’000
R’000
240 242 904 2 000 000 242 242 904
2 402
20
373 748
(6 733)
369 437
–
12
(12)
–
–
–
800 000 242 242 904
2 414
8
373 748
(6 733)
369 437
–
–
–
373 748
(6 733)
369 437
Deferred ordinary shares
converted to ordinary
shares
At 30 June 2013
1 200 000 (1 200 000)
241 442 904
Deferred ordinary shares
converted to ordinary
shares
At 30 June 2014
400 000
241 842 904
(400 000)
–
4
400 000 242 242 904
2 418
(4)
4
Shares repurchased by a subsidiary and held in treasury amounted to 7 726 146 shares (2013: 7 726 146 shares),
which are disclosed as a reduction of equity in the Statement of Changes in Equity. During the 2010, 2011, 2012 and
2014 financial years a further 531 430, 304 374, 47 104 and 1 335 627 shares respectively were acquired in order to
cover the Group’s obligations in terms of the share incentive schemes at a total cost of R8,66 per share (2010), R7,65
per share (2011), R5,96 per share (2012) and R9,50 per share (2014).
Deferred ordinary shares were converted into ordinary shares in terms of shareholders’ approval.
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.
151
152
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
GROUP
4.
2014
R’000
Restated
2013
R’000
–
–
6 900
29 146
36 306
300
14 296
73 074
36 046
123 976
Plant and equipment
Furniture and fittings
Land and buildings
–
–
–
2 109
4
116
Intangible assets – software
–
–
–
2 229
36 046
126 205
92 186
337 237
34 719
81 916
317 315
50 397
464 142
449 628
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
Furniture and fittings
Motor vehicles
Intangible assets – software
Capital expenditure authorised but not contracted for at the reporting date is
as follows:
Total capital commitments
It is intended to finance capital expenditure from working capital generated
within the Group and available finance facilities.
Operating lease commitments
The Group leases various premises, equipment and plant and machinery under
non-cancelable operating lease agreements.
The leases have varying terms, escalation clauses and renewal rights. The lease
expenditure charged to the Income Statement during the year is disclosed in
note 4 of the annual financial statements.
The future aggregate minimum lease payments under non-cancellable
operating leases are as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
GROUP
5.
2014
R’000
Restated
2013
R’000
1 833
13 500
–
1 553
9 500
759
15 333
11 812
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.
Bank guarantees issued
Suretyships and other cessions
Other
DPI Plastics received unconditional corporate leniency from the Competition Commission regarding price collusion in
the PVC industry. No fines were imposed and the matter was concluded during May 2014.
The Company has provided limited letters of support to certain of the subsidiaries within the Group. The Company has
also provided short-term guarantees in favour of certain suppliers to subsidiaries within the Group. No material
liabilities are anticipated.
6.
DISPOSAL GROUP HELD-FOR-SALE
On 30 June 2014, Grohe Luxembourg Four AG (Grohe) and Distribution and Warehousing Network Limited (DAWN)
entered into an agreement whereby Grohe would acquire a 51% interest in the Watertech Group of companies
consisting of Cobra Watertech Proprietary Limited, ISCA Proprietary Limited, Vaal Sanitaryware Proprietary Limited,
Libra Bathrooms Proprietary Limited, Apex Valves South Africa Proprietary Limited and Exipro Manufacturing
Proprietary Limited. As part of the preparatory steps, the Watertech Companies were transferred from DAWN to Main
Street 1254 Proprietary Limited (Main Street 1254) on 31 July 2014. Grohe will acquire 51% of the shares of Main
Street 1254 on the effective date, which is expected to be 31 October 2014, or on a date as agreed between Grohe
and DAWN, but not later than 30 April 2015. As a result of the transaction, the Watertech Group of companies is
classified as a disposal group held-for-sale in terms of IFRS 5.
In line with the requirements of IFRS 5 par 38, the Consolidated Income Statement for June 2013 has been restated to
account for the Watertech Group of companies as a disposal group held-for-sale. In terms of IFRS 5 paragraph 40,
the Consolidated Statement of Financial Position for June 2013 was not restated to reflect the held-for-sale
classification. Refer to note 48 of the annual financial statements where the effects of the restatement is further
explained.
On 1 March 2014 the Group acquired a 49% interest in Exipro Manufacturing Proprietary Limited (Exipro) for an
amount of R5 million. This amount is included in the assets of the disposal group classified as held-for-sale. Exipro’s
share of profit amounted to R0,4 million. Acquisition costs amounted to R0,4 million and have been recognised as part
of operating expenses in profit and loss.
153
154
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
6.
DISPOSAL GROUP HELD-FOR-SALE continued
GROUP
2014
R’000
Restated
2013
R’000
128 761
(69 945)
(25 587)
50 631
(56 286)
(9 032)
33 229
(14 687)
329 807
170 374
24 159
5 384
466 522
80 063
135 965
–
–
–
–
–
–
–
1 212 274
–
Non-current liabilities
Trade and other payables
Other current liabilities
46 953
236 283
13 670
–
–
–
Total
296 906
–
Revenue
Expenses
756 280
(634 577)
683 711
(553 993)
Profit before tax of discontinued operations
Income tax expense
121 703
(27 759)
129 718
(35 944)
93 944
93 773
92 859
1 085
93 535
238
93 944
93 773
Operating cash flows
Investing cash flows
Financing cash flows
Total cash flows
(a)
Assets of disposal group classified as held-for-sale
Property, plant and equipment
Intangible assets
Other non-current assets
Investment in associate
Inventory
Cash and cash equivalents
Other current assets
Total
(b)
Liabilities of disposal group classified as held-for-sale
Analysis of the result of discontinued operations, and the result recognised
on the re-measurement of assets or disposal group, is as follows:
Profit after tax of discontinued operations
Attributable to:
Owners of the parent
Non-controlling interests
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
7.
BUSINESS COMBINATIONS
30 June 2014
Swan Plastics Proprietary Limited
On 1 August 2013 the Group acquired a 51% interest in Swan Plastics Proprietary Limited for a total consideration of
R20 million. Swan Plastics Proprietary Limited is principally involved in the manufacturing of PVC products and water
waste systems.
Goodwill of R1,2 million arose from the acquisition, largely consisting of the synergies and economies of scale
expected from the acquisition.
Swan Plastics Proprietary Limited contributed an operating profit of R13,6 million and revenue of R256,8 million since
the acquisition date. If the acquisition had occurred on 1 July 2013, Group revenue would have been R27,3 million
more, and operating profit for the period would have increased by R2,2 million. These amounts have been calculated
based on consistent application of the Group’s accounting policies.
The amount of net assets acquired amounted to R35,5 million and non-controlling interests of R16,7 million was
recognised. Acquisition-related costs amounted to R1,7 million, and have been recognised as part of operating
expenses in profit and loss. Trade receivables with a fair value of R45 million has been included and none of these are
considered to be doubtful. Non-controlling interest has been calculated based on the fair value of net assets. The
goodwill and other intangible assets arising from the business combination are not expected to be deducted for
income tax purposes.
Sangio Pipe Proprietary Limited
On 1 June 2014 Sangio Pipe Proprietary Limited repurchased its shares held by the majority shareholder (51%). This
resulted in the Group obtaining 100% of the share capital of Sangio Pipe Proprietary Limited, previously an associate.
Goodwill of R19,0 million arose from the acquisition, largely consisting of the synergies and economics of scale
expected from the acquisition and a net gain of R14,8 million was recognised as a result of measuring at fair value the
Group’s 49% equity interest held before the business combination.
Sangio Pipe Proprietary Limited contributed an operating profit of R0,9 million and revenue of R33,1 million since the
acquisition date. If the acquisition had occurred on 1 July 2013, Group revenue would have been R330,1 million more,
and operating profit for the period would have increased by R12,1 million. These amounts have been calculated based
on consistent application of the Group’s accounting policies.
The amount of net assets acquired amounted to R16,5 million.
Acquisition-related costs amounted to R1,8 million and have been recognised as part of operating expenses in profit
and loss. Trade receivables with a fair value of R34,6 million has been included and R1,0 million has been provided for
as doubtful. The goodwill and other intangible assets arising from the business combination are not expected to be
deducted for income tax purposes.
155
156
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
7.
BUSINESS COMBINATIONS continued
The fair value of assets acquired, liabilities assumed, intangible assets and the non-controlling interest at the
acquisition date are set out below.
Swan Plastics
Proprietary
Limited
Sangio Pipe
Proprietary
Limited
Total
Consideration at acquisition date:
R’000
R’000
R’000
Cash
Fair value of previously held interest
20 000
–
–
35 507
20 000
35 507
Total purchase consideration
20 000
35 507
55 507
Fair
value
R’000
Fair
value
R’000
Fair
value
R’000
Recognised amounts of identifiable
assets acquired and liabilities
assumed:
Property, plant and equipment
Trademarks
Customer relationships
Inventory
Trade and other receivables
Cash and cash equivalents
6
8
12
13
46
1
939
182
110
618
121
487
21 301
13 088
17 850
39 078
64 941
588
28 240
21 270
29 960
52 696
111 062
2 075
Assets
88 457
156 846
245 303
Borrowings
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Provisions
(1
(38
(3
(6
(3
762)
163)
163)
537)
354)
(51 250)
(77 102)
(266)
(8 306)
(3 380)
Liabilities
(52 979)
(140 304)
(193 283)
Total identifiable net assets
Less: Non-controlling interest
Goodwill
35 478
(16 709)
1 231
16 542
–
18 965
52 020
(16 709)
20 196
Purchase consideration
20 000
35 507
55 507
Cash flow from acquisitions
Total purchase consideration
Less: Cash and cash equivalents acquired
Less: Fair value of previously held interest
20 000
(1 487)
–
35 507
(588)
(35 507)
55 507
(2 075)
(35 507)
Total cash outflow/(inflow) from acquisitions
18 513
(588)
(53
(115
(3
(14
(6
012)
265)
429)
843)
734)
17 925
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
7.
BUSINESS COMBINATIONS continued
30 June 2013 (Restated)
Apex Valves South Africa Proprietary Limited
On 1 February 2013 the Group acquired an additional 11,4% interest in Apex Valves South Africa Proprietary Limited
which resulted in the Group obtaining control over Apex Valves South Africa Proprietary Limited, previously an
associate. The total consideration transferred amounted to R10 million, including the fair value of previously held
interest of R7,8 million.
Provisional goodwill of R4,4 million arose from the acquisition, largely consisting of the synergies and economics of
scale expected from the acquisition and a gain of R1,7 million was recognised as a result of measuring at fair value the
Group’s 49% equity interest held before the business combination.
Apex Valves South Africa Proprietary Limited contributed an operating profit of R0,7 million and revenue of R16,9
million since the acquisition date. If the acquisition had occurred on 1 July 2012, Group revenue would have been
R25,5 million more, and operating profit for the period would have increased by R2,6 million. These amounts have
been calculated based on consistent application of the Group’s accounting policies.
The fair value of assets acquired and liabilities assumed will be finalised within the next financial year. The provisional
amount of net assets acquired amounted to R9,2 million and non-controlling interests of R3,6 million was recognised.
Acquisition-related costs amounted to R0,3 million and have been recognised as part of operating expenses in profit
and loss. Trade receivables with a fair value of R3,9 million has been included and R0,2 million has been provided for
as doubtful.
Ubuntu Plastics Proprietary Limited
On 1 March 2013 the Group acquired a 51% interest in Ubuntu Plastics Proprietary Limited for a total consideration of
R7,4 million. Ubuntu Plastics Proprietary Limited is principally involved in the fabrication of pipe and pipe fittings.
A provisional goodwill allocation of R5,9 million arising from the acquisition largely consists of the synergies and
economies of scale expected from the acquisition.
Ubuntu Plastics Proprietary Limited contributed an operating profit of R0,7 million and revenue of R14,7 million since
the acquisition date. If the acquisition had occurred on 1 July 2012, Group revenue would have been R29,4 million
more, and operating profit for the period would have increased by R2,9 million. These amounts have been calculated
based on consistent application of the Group’s accounting policies.
The fair value of the assets acquired and liabilities assumed will be finalised within the next financial year. The
provisional amount of net assets acquired amounted to R5,7 million and non-controlling interests of R4,2 million was
recognised. Trade receivables with a fair value of R8,9 million has been included and none of these are considered
to be doubtful. A contingent consideration of R2,4 million was raised at fair value and paid on 8 July 2013. The
contingent consideration was based on net asset value. Non-controlling interests has been calculated based on the
proportionate share in net assets. The goodwill is not expected to be deducted for income tax purposes.
During 2014 the acquisition vendor amounting to R2,4 million was settled. An additional amount of R0,6 million was
paid in respect of the acquisition.
157
158
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
7.
BUSINESS COMBINATIONS continued
The provisional fair value of these assets, liabilities and intangibles assets are set out below.
Apex Valves
(South Africa)
Proprietary
Limited
R’000
Ubuntu Plastics
Proprietary
Limited
R’000
Total
R’000
2 230
7 812
4 999
–
7 229
7 812
–
2 393
2 393
10 042
7 392
17 434
Recognised amounts of identifiable
assets acquired and liabilities
assumed:
Fair
value
R’000
Fair
value
R’000
Fair
value
R’000
Property, plant and equipment
Inventory
Trade and other receivables
Cash and cash equivalents
1 487
7 660
3 958
201
1 881
2 265
9 056
127
3 368
9 925
13 014
328
13 306
13 329
26 635
Borrowings
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Provisions
–
(3 867)
(97)
(80)
(70)
(1 415)
(6 150)
(70)
–
(38)
(1 415)
(10 017)
(167)
(80)
(108)
Liabilities
(4 114)
(7 673)
(11 787)
Total identifiable net assets
Less: Non-controlling interest
Provisional goodwill
9 192
(3 554)
4 404
5 656
(4 222)
5 958
14 848
(7 776)
10 362
Purchase consideration
10 042
7 392
17 434
Cash flow from acquisitions:
Total purchase consideration
Less: Cash and cash equivalents acquired
Less: Fair value of previously held interest
Less: Contingent consideration
10 042
(201)
(7 812)
–
7 392
(127)
–
(2 393)
17 434
(328)
(7 812)
(2 393)
2 029
4 872
6 901
Consideration at acquisition date:
Cash
Fair value of previously held interest
Contingent consideration
(Acquisition vendor)
Total purchase consideration
Assets
Total cash flow from acquisitions
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
8.
EVENTS AFTER THE REPORTING PERIOD
Pro-Max Welding Consumables Proprietary Limited
A 60% share was acquired in Pro-Max Welding Consumables Proprietary Limited (Pro-Max) for a provisional cash
consideration of R5,9 million. The cash consideration to be paid is dependent on Pro-Max meeting certain targets as
set out in the sale of shares agreement between the Group and Pro-Max. Pro-Max specialises in the manufacturing
and distribution of welding equipment and consumables. The effective date of the transaction was 1 July 2014. The
provisional amount of net assets acquired amounted to R2,9 million.
Apex Valves South Africa Proprietary Limited
An additional 39,53% shareholding was acquired in Apex Valves South Africa Proprietary Limited (Apex Valves) on 30
July 2014 in addition to the 60,47% previously owned. This resulted in the Group obtaining 100% control over Apex
Valves. A cash consideration of R6 million is to be paid on 31 October 2014.
Watertech Companies
Shareholders are referred to a notice of general meeting announcement dated 18 August 2014 in relation to a
category 1 acquisition of a 51% indirect interest in the building manufacturing companies of DAWN (“the Watertech
Companies”) by Grohe Luxembourg Four S.A. (“Grohe”), together with a call option in favour of Grohe to acquire an
additional 24,1% indirect shareholding in the Watertech Companies from DAWN after a 10-year period, and if such
option is exercised by Grohe, or if Grohe's indirect shareholding has otherwise increased to 75,1%, the option for
DAWN to sell its remaining 24,9% indirect interest in the Watertech Companies to Grohe.
The general meeting of DAWN shareholders was held on Monday, 15 September 2014. The special resolution and the
ordinary resolution, as set out in the notice of general meeting to shareholders, dated 18 August 2014, were
unanimously approved by shareholders present or represented and voting at the meeting.
At the date of the annual financial statements, Competition Commission approval had not yet been obtained.
Shareholders will be advised when all the conditions precedent have been met.
Dividend
The Board declared a dividend of 16,5 cents per ordinary share, from income reserves, in respect of the year ended
30 June 2014 (2013: 16,5 cents per ordinary share). The dividend was declared on 9 October 2014.
Other
Management is not aware of any other material events that occurred subsequent to the end of the reporting period.
There has been no material change in the Group’s contingent liabilities since the year-end.
159
160
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
9.
RESTATEMENTS
Restatement – Adoption of IFRS 11
On 1 July 2013, the accounting policy for joint ventures was changed to be in line with the requirements of IFRS 11.
Previously, investments in joint ventures were proportionately consolidated by the Group. In terms of IFRS 11,
proportionate consolidation is no longer allowed. The equity method of accounting for investments in joint ventures has
been adopted by the Group and comparative results have been restated accordingly. The effects of the change in
accounting policy on the consolidated Income Statements, Statements of Financial Position and Cash Flow
Statements for the comparative periods are disclosed below:
Impact on Statement of Financial Position
Previously
reported
June
2013
Restated
June
2013
Increase/
(decrease)
June
2013
R’000
R’000
R’000
440 214
279 954
–
107 746
52 940
978 366
942 484
275 510
5 338
389
423 455
271 354
52 246
103 526
52 210
929 631
909 867
269 579
5 338
389
Equity
Equity attributable to equity holders of the Company
Non-controlling interest
1 455 777
11 608
1 455 777
11 400
Liabilities
Borrowings
Deferred profit
Deferred tax liabilities
Retirement benefit obligation
Derivative financial instruments
Trade and other payables
Current portion of borrowings
Derivative financial instruments
Deferred profit
Current tax liabilities
224 324
26 150
24 569
5 518
3 080
1 088 948
219 613
93
5 793
17 468
215
26
22
5
3
1 060
195
Assets
Property, plant and equipment
Intangible assets
Investments in joint ventures
Investments in associates
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Current tax assets
745
150
684
462
080
653
866
93
5 793
14 892
(16
(8
52
(4
759)
600)
246
220)
(730)
(48 735)
(32 617)
(5 931)
–
–
–
(208)
(8 579)
–
(1 885)
(56)
–
(28 295)
(23 747)
–
–
(2 576)
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
9.
RESTATEMENTS continued
Impact on Income Statement
Previously
reported
June
2013
R’000
Restated
June
2013
R’000
Increase/
(decrease)
June
2013
R’000
Revenue
Cost of sales
4 588 344
(3 396 154)
4 447 187
(3 294 538)
(141 157)
101 616
Gross profit
Net operating expenses
1 192 190
(939 530)
1 152 649
(908 867)
(39 541)
30 663
Operating profit
Finance income
Finance expense
252 660
10 465
(62 916)
243 782
10 517
(60 451)
(8 878)
52
2 465
Profit after net financing costs
Share of profit from associates and joint ventures
200 209
16 491
193 848
18 592
(6 361)
2 101
Profit before taxation
Income tax expense
216 700
(57 465)
212 440
(53 188)
(4 260)
4 277
Profit for the year
159 235
159 252
17
Profit attributable to:
Owners of the parent
Non-controlling interest
156 296
2 939
156 296
2 956
–
17
159 235
159 252
17
Previously
reported
June
2013
R’000
Restated
June
2013
R’000
Increase/
(decrease)
June
2013
R’000
Impact on Statement of Cash Flows
Cash generated from operations before working
capital changes
Working capital changes
Net finance costs paid
Net income tax paid
341 219
(29 358)
(46 914)
(50 312)
327
(33
(44
(46
Net cash generated from operating activities
Net cash utilised in investing activities
Net cash utilised in financing activities
214 635
(130 091)
(41 092)
203 556
(125 115)
(44 168)
(11 079)
4 976
(3 076)
43 452
61 909
(1 739)
34 273
80 865
1 087
(9 179)
18 956
2 826
103 622
116 225
12 603
Increase in cash resources
Cash resources at beginning of the year
Exchange gains/(losses) on cash and cash equivalents
Cash resources at end of year
712
201)
553)
402)
(13
(3
2
3
507)
843)
361
910
161
162
DAWN Integrated Report 2014
Notes to the summary consolidated financial statements
continued
for the year ended 30 June 2014
9.
RESTATEMENTS continued
Restatement – Disposal group held-for-sale disclosed as discontinued operations
On 30 June 2014, Grohe Luxembourg Four AG (Grohe) and Distribution and Warehousing Network Limited (DAWN)
entered into an agreement whereby Grohe would acquire a 51% interest in the Watertech Group of companies
consisting of Cobra Watertech Proprietary Limited, ISCA Proprietary Limited, Vaal Sanitaryware Proprietary Limited,
Libra Bathrooms Proprietary Limited, Apex Valves South Africa Proprietary Limited and Exipro Manufacturing
Proprietary Limited. As part of the preparatory steps, the Watertech Companies were transferred from DAWN to Main
Street 1254 Proprietary Limited (Main Street 1254) on 31 July 2014. Grohe will acquire 51% of the shares of Main
Street 1254 on the effective date which is expected to be 31 October 2014 or on a date as agreed between Grohe
and DAWN, but not later than 30 April 2015.
The effect of this transaction is that the Watertech Group of companies is accounted for as a disposal group held-forsale.
In line with the requirements of IFRS 5 paragraph 38, the consolidated Income Statement for June 2013 has been
restated to account for the Watertech Group of companies as a disposal group held-for-sale. In terms of IFRS 5
paragraph 40, the consolidated Statement of Financial Position for June 2013 was not restated to reflect the held-forsale classification.
Impact on consolidated Income Statement
Restated *
June
2013
R’000
Restated ^
June
2013
R’000
Increase/
(decrease)
June
2013
R’000
Revenue
Cost of sales
4 447 187
(3 294 538)
3 763 476
(2 891 692)
(683 711)
402 846
Gross profit
Net operating expenses
1 152 649
(908 867)
871 784
(779 393)
(280 865)
129 474
Operating profit
Finance income
Finance expense
243 782
10 517
(60 451)
92 391
20 028
(47 460)
(151 391)
9 511
12 991
Profit after net financing costs
Share of profit from associates and joint ventures
193 848
18 592
64 959
17 763
(128 889)
(829)
Profit before taxation
Income tax expense
212 440
(53 188)
82 722
(17 244)
(129 718)
35 944
Profit for the year
159 252
65 478
(93 774)
–
93 535
93 535
Profit for the year
159 252
159 013
(239)
Profit attributable to:
Owners of the parent
Non-controlling interest
156 296
2 956
156 296
2 717
–
(239)
159 252
159 013
(239)
Profit from discontinued operations (attributable to owners
of the parent)
There has been no impact on previously reported earnings per share and attributable earnings to equity holders of the
Company.
* Restatement in terms of IFRS 11.
^ Restatement in terms of IFRS 5.
DAWN Integrated Report 2014
SHAREHOLDERS’
INFORMATION
Creating an informed perception of the DAWN
Group whereby more accurate expectations are
ensured and a positive investment environment is
created
163
164
DAWN Integrated Report 2014
Analysis of
shareholding
Listed below is an analysis of holdings extracted from the register of ordinary shareholders at 30 June 2014.
Number of
shareholders
%
of total
582
658
236
98
36
36,15
40,87
14,66
6,09
2,24
1 610
100,00
Banks/Brokers
Close Corporations
Endowment Funds
Individuals
Insurance Companies
Investment Companies
Medical Schemes
Mutual Funds
Nominees and Trusts
Other Corporations
Private Companies
Public Companies
Retirement Funds
22
24
18
1 239
13
4
6
56
100
13
43
3
69
1,37
1,49
1,12
76,96
0,81
0,25
0,37
3,48
6,21
0,81
2,67
0,19
4,29
Total
1 610
Portfolio size
1 – 1 000
1 001 – 10 000 shares
10 001 – 100 000 shares
100 001 – 1 000 000 shares
1 000 001 shares and over
Total
Number of
shares held
101
337
480
798
188
0,10
1,02
3,21
11,98
83,69
241 842 904
100,00
2
7
28
202
248
465
765
961
402
%
of total
DISTRIBUTION OF SHAREHOLDERS
2 072
400
611
15 810
5 573
1 551
586
69 394
18 775
14 933
94 018
905
17 209
886
583
017
382
880
007
572
433
713
302
790
000
339
0,86
0,17
0,25
6,54
2,30
0,64
0,24
28,69
7,76
6,17
38,87
0,37
7,12
100,00
241 842 904
100,00
14
0,87
137 805 229
56,98
7
3
3
0,43
0,19
0,19
17 136 064
282 326
112 660 693
7,09
0,12
46,58
1
0,06
7 726 146
3,19
Public shareholders
1 596
99,13
104 037 675
43,02
Total
1 610
100,00
241 842 904
100,00
PUBLIC/NON-PUBLIC SHAREHOLDERS
Non-public shareholders
Directors and Associates
Prescribed Officers
Holding 10% or more
Treasury Stock – Wholesale Housing Supplies
Proprietary Limited
DAWN Integrated Report 2014
Analysis of shareholding
continued
In accordance with section 56(7)(b) of the Companies Act and paragraph 8.63 of the JSE Limited Listings
Requirements holdings greater than 5% of issued shares have to be disclosed. DAWN has elected to disclose
holdings greater than 3%.
BENEFICIAL SHAREHOLDERS WITH A HOLDING GREATER THAN 3% OF ISSUED SHARES
Number of
shares held
Ukhamba Holdings Proprietary Limited *
Coronation Fund Managers
Investec
Cityhold Staff Trading Account
Old Mutual
Boles Family Trust
Wholesale Housing Supplies Proprietary Limited
Total
77
34
16
13
13
13
7
733
927
950
889
866
250
726
%
of total
488
205
869
189
492
000
146
32,14
14,44
7,01
5,74
5,73
5,48
3,19
178 343 389
73,74
INSTITUTIONAL SHAREHOLDERS WITH A HOLDING GREATER THAN 3% OF ISSUED SHARES
Number of
shares held
%
of total
Coronation Fund Managers
Investec Asset Management
Old Mutual Investment Group
64 414 675
18 261 882
11 069 741
26,63
7,55
4,58
Total
93 746 298
38,76
* The shares are held in Ukhamba Holdings Proprietary Limited’s subsidiaries, Dream World Investments 239 Proprietary Limited and Monyetta
Marketing Proprietary Limited.
165
166
DAWN Integrated Report 2014
JSE Limited performance
Market price per share
Closing at year-end (cents)
Highest (cents)
Lowest (cents)
Market capitalisation (R’000)
Number of transactions recorded
Value of shares traded (R’000)
Volume of shares traded (’000)
Volume traded to number in issue (%)
2014
2013
1 090
1 197
740
2 636 088
3 583
211 019
22 848
9,4
762
925
599
1 839 795
2 246
109 535
15 749
6,52
DAWN Integrated Report 2014
Shareholders’ diary
Financial year-end
30 June
2014
Six-month interim report
Profit statement for the year
Integrated Report
Record date to be recorded in the register to be eligible to receive the notice
of annual general meeting
Mailing of Integrated Report
No change statement released on SENS
Thursday, 13 March
Tuesday, 14 October
Thursday, 6 November
Friday, 24 October
Saturday, 8 November
Monday, 10 November 2014
Last day to trade in order to be eligible to vote at the annual general meeting
Friday, 21 November
Record date to be recorded in the register to be eligible to participate in and vote
at the annual general meeting
Friday, 28 November
Lodging of proxy forms with transfer secretaries by 10:00 on
Annual general meeting at 10:00 on
Wednesday, 3 December
Friday, 5 December
Dividend
Last date to trade “CUM” dividend
Friday, 21 November
Trading “EX” dividend commences
Monday, 24 November
Record date
Dividend payment date
Friday, 28 November
Monday, 1 December
No dematerialisation or rematerialisation of share certificates will be allowed during the period Monday, 24 November
2014 to Friday, 28 November 2014, both days inclusive.
167
168
DAWN Integrated Report 2014
Notice of
annual general meeting
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”)
Notice is hereby given that the annual general meeting of the shareholders of DAWN will be held in the Acacia
Boardroom of the Company at the DAWN Showroom, 18 Ealing Crescent, Cnr Main Road and Bryanston Drive,
Bryanston on Friday, 5 December 2014 at 10:00 (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 to provide reasonably satisfactory identification before being entitled to participate in or vote at the annual
general meeting. Forms of identification that will be accepted include original and valid identity documents, driver’s
licences and passports.
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, 24 October 2014
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, 28 November 2014. Accordingly, the last day to trade in order to be
eligible to vote at the annual general meeting is Friday, 21 November 2014.
For the purpose of approving resolutions, the support of more than 50% (fifty percent) of the voting rights exercised on
the resolution by shareholders present in person, or represented by proxy, at the annual general meeting is required,
unless otherwise indicated.
Shareholders are referred to the explanatory notes as attached to the notice of the annual general meeting for
additional information, including abbreviated profiles of the directors standing for re-election.
PRESENTATION OF ANNUAL FINANCIAL STATEMENTS AND REPORTS
The consolidated audited annual financial statements for the Company and the Group, including the external
Independent Auditor’s Report, the Audit Committee Report and the Directors’ Report for the year ended 30 June
2014, have been distributed as required and will be presented to shareholders at the annual general meeting.
123
The summary consolidated audited annual financial statements, together with the abovementioned reports are set out
on pages 129 to 161 of the Integrated Report.
REPORT FROM SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE
123
In accordance with Companies Regulation 43(5)(c), issued in terms of the Companies Act 71 of 2008, 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 114 to 121 of the Integrated Report.
DAWN Integrated Report 2014
Notice of annual general meeting
continued
ORDINARY RESOLUTION NUMBER 1
Re-appointment of directors
Messrs RL Hiemstra and JA Beukes retire by rotation and, being eligible, offer themselves for re-election as directors
of the Company. Mr DM Mncube was appointed to the Board subsequent to the previous annual general meeting.
Accordingly, shareholders are requested to consider and, if deemed fit, approve the separate ordinary resolutions set
out below.
Ordinary resolution number 1.1
“RESOLVED that the re-appointment of Mr RL Hiemstra 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 Mr JA Beukes as an executive director of the Company be and is hereby
approved.”
Ordinary resolution number 1.3
“RESOLVED that the appointment by the Board of Mr DM Mncube, effective 1 May 2014, as an independent nonexecutive director be and is hereby ratified and confirmed.”
Ordinary resolution number 1.4
“RESOLVED that the appointment by the Board of Mr GD Kotzee, effective 6 November 2014, as an executive director
be and is hereby ratified and confirmed.”
ORDINARY RESOLUTION NUMBER 2
Re-appointment of auditors
“RESOLVED that the reappointment of PricewaterhouseCoopers Inc., Registered Auditors, represented by Mr I Buys,
upon the recommendation of the current Audit Committee, as independent auditors of the Company be and is hereby
approved.”
ORDINARY RESOLUTION NUMBER 3
Appointment of Audit Committee members for the year ending 30 June 2015
It is proposed that the non-executive directors as indicated below be appointed as members of the Audit Committee.
Ordinary resolution number 3.1
“RESOLVED that the appointment of Mr OS Arbee as member of the Audit Committee until the conclusion of the next
annual general meeting of the Company in 2015 be and is hereby approved.”
Ordinary resolution number 3.2
“RESOLVED that the appointment of Mr LM Alberts as member of the Audit Committee until the conclusion of the next
annual general meeting of the Company in 2015 be and is hereby approved.”
Ordinary resolution number 3.3
“RESOLVED that the appointment of Mr RL Hiemstra as member of the Audit Committee until the conclusion of the
next annual general meeting of the Company in 2015, subject to his re-election as a director pursuant to ordinary
resolution number 1.1, be and is hereby approved.”
169
170
DAWN Integrated Report 2014
Notice of annual general meeting
continued
ORDINARY RESOLUTION NUMBER 4
Authority 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.”
ORDINARY RESOLUTION NUMBER 5
Advisory endorsement of the remuneration policy
123
“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) as set
out in the Report of the Remuneration Committee contained in the Integrated Report on pages 94 to 99.”
SPECIAL RESOLUTION NUMBER 1
General authority to the Company to repurchase its own shares
“RESOLVED as a special resolution that the Company, or a subsidiary, be and hereby is authorised, by way of general
authority as contemplated in section 48 of the Companies Act no 71 of 2008, as amended, (“Act”) to acquire from
time to time any of the issued ordinary shares of the Company, upon such terms and conditions and in such amounts
as the directors of the Company may from time to time determine, but subject to the Memorandum of Incorporation of
the Company, the provisions of the Act and the Listings Requirements of the JSE Limited (“JSE”).
It is recorded that the Listings Requirements of the JSE require, inter alia, that the Company or a subsidiary may make
a general acquisition of shares issued by the Company only if:
•
the repurchase of the ordinary shares is effected through the order book operated by the JSE trading system
and done without any prior understanding or arrangement between the Company and the counterparty;
•
at any point in time the Company may only appoint one agent to effect any repurchases on its behalf;
•
this general authority shall only be valid until the next annual general meeting of the Company, provided that it
shall not extend beyond 15 (fifteen) months from the date of passing of the general authority to repurchase
shares;
•
the maximum price at which the shares may be acquired will be 10% (ten percent) above the weighted average
market value at which such ordinary shares are traded on the JSE, for such ordinary shares for the 5 (five)
business days immediately preceding the date on which the transaction is effected;
•
any such acquisition shall not, in any one financial year, exceed 10% (ten percent) of the Company’s issued
ordinary shares or 242 million (two hundred and forty two million) shares as at the passing of the general
authority;
•
the Company or its subsidiaries may not repurchase ordinary shares during a prohibited period as defined in
paragraph 3.67 of the JSE Listings Requirements;
•
the repurchase may only be effected, if the shareholder spread requirements as set out in paragraphs 3.37 to
3.41 of the JSE Listings Requirements are still met after such repurchase;
•
should derivatives be used, such authority is limited to paragraphs 5.72(c) and (d) and 5.84(a) of the JSE
Listings Requirements;
DAWN Integrated Report 2014
Notice of annual general meeting
continued
•
a statement will be issued by the directors that, after considering the maximum effect of such repurchase, for a
period of at least 12 (twelve) months after the date of the notice of the annual general meeting:
–
the Company and the DAWN Group will be able to repay its debts in the ordinary course of business;
–
the assets of the Company and the DAWN Group fairly valued according to International Financial
Reporting Standards and on a basis consistent with the last financial year of the Company ended
30 June 2014, exceed its liabilities;
–
the Company and the DAWN Group have adequate share capital and reserves;
–
the Company and the DAWN Group have sufficient working capital for their requirements;
•
the directors undertake not to effect a repurchase unless they are satisfied that the working capital requirements
of the Company are adequate for its requirements; and
•
when the Company has cumulatively repurchased 3% (three percent) of the initial number of the relevant class
of securities, and for each 3% (three percent) in aggregate of the initial number of that class acquired thereafter,
an announcement must be made. Such announcement must be made as soon as possible and in any event by
not later than 08:30 on the second business day following the day on which the relevant threshold is reached or
exceeded.”
In order for this special resolution number 1 to be adopted, the support of at least 75% (seventy-five per cent) of the
total number of votes, which the shareholders present or represented by proxy at this meeting are entitled to cast, is
required.
Additional disclosure requirements required in terms of paragraph 11.26 of the JSE Listings
Requirements
Material changes
No material changes have occurred since the end of the last financial period, being 30 June 2014, and the date of this
notice of annual general meeting.
Directors’ responsibility statement
123
The directors of Distribution and Warehousing Network Limited as set out on pages 13 to 15 of the Integrated Report:
•
have considered all the statements of fact and opinion in the Integrated Report to which this notice is attached;
•
accept, individually and collectively, full responsibility for such statements; and
•
declare that, to the best of their knowledge and belief, such statements are correct and no material facts have
been omitted, the omission of which would make any such statements false or misleading and that they have
made all reasonable enquiries to ascertain such facts and that this notice contains all information required by
law and the JSE Listings Requirements.
Litigation statement
Distribution and Warehousing Network Limited nor its subsidiaries is party to any legal or arbitration proceedings
(including such proceedings which are pending or (threatened) which may have or have had in the previous 12 (twelve)
months a material effect on the Group’s financial position.
171
172
DAWN Integrated Report 2014
Notice of annual general meeting
continued
Other disclosure in terms of paragraph 11.26 of the JSE Listings Requirements
The JSE Listings Requirements require the following disclosures, which are contained in the Integrated Report:
Requirements
Reference
123
Directors
Pages 13 to 15
123
Major shareholders
Page 164
123
Directors’ interests in securities
Page 140
Share capital of the Company
Page 151
123
SPECIAL RESOLUTION NUMBER 2
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 until such time as
rescinded or amended by shareholders by way of a special resolution:
R’000
Chairman
240 400
Non-Executive Directors
120 200
Chairman of Audit Committee and
Chairman of Risk Committee
120 200
Chairman of Remuneration Committee
and Chairman of Nomination Committee
78 100
Chairman of Social, Ethics and Transformation Committee
48 100
Committee members
–
Audit; Risk
72 100
–
Remuneration; Nomination
48 100
In order for this special resolution number 2 to be adopted, the support of at least 75% (seventy-five per cent) of the
total number of votes, which the shareholders present or represented by proxy at this meeting are entitled to cast, is
required.
SPECIAL RESOLUTION NUMBER 3
Authority to provide financial assistance to any company or corporation which is related or interrelated 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
DAWN Integrated Report 2014
Notice of annual general meeting
continued
the Companies Act, each as presently constituted and as amended from time to time), to grant financial
assistance, as contemplated in section 44 of 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 deems fit; and
(ii)
123
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 presently constituted and as amended from time to time) to grant direct or indirect
financial assistance, as contemplated in section 45 of the Companies Act, to a related or inter-related (as
defined in section 1 of the Companies Act) company or corporation or to a member of a related or inter-related
corporation or to a person related to any such company or corporation on such terms and conditions as the
board of directors of the Company deems fit.”
The percentage of voting rights that will be required for this resolution to be adopted is more than 75% of the 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 2014 on
pages 173 and 174 respectively.
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 special resolution number 1.
Proxies
A 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.
A form of proxy is attached for the convenience of certificated shareholders and “own name” dematerialised
shareholders of the Company who are unable to attend the annual general meeting, but who wish to be represented
thereat. In order to be valid, duly completed forms of proxy must be received by the Company’s Transfer Secretaries,
Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box
61051, Marshalltown, 2107), not later than 10:00 on Wednesday, 3 December 2014.
Shareholders’ rights regarding proxies in terms of section 58 of the 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.
173
174
DAWN Integrated Report 2014
Notice of annual general meeting
continued
(2)
(3)
(4)
(5)
(6)
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).
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.
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.
The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s authority to
act on behalf 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).
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.
DAWN Integrated Report 2014
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 participate to the transfer secretaries at the address below, to be received by the transfer secretaries
at least five business days prior to the annual general meeting in order for the transfer secretaries to arrange for the
shareholder (and its representative) to provide reasonably satisfactory identification to the transfer secretaries for the
purposes of section 63(1) of the Companies Act, 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 Middlemiss
Representing: iThemba Governance and Statutory Solutions (Pty) Ltd
Company Secretary
Johannesburg
6 November 2014
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”)
Registered Office:
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, 70 Marshall Street, Marshalltown, 2001
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
175
176
DAWN Integrated Report 2014
Annual general meeting
explanatory notes
Presentation of annual financial statements
At the annual general meeting, the directors must present the annual financial statements for the year ended 30 June
2014 to shareholders, together with the reports of the directors, the Audit Committee and the auditors. These are
contained within the Integrated Report.
Presentation of report from Social, Ethics and Transformation Committee
Regulation 43 to the Companies Act of 2008 requires that the Social and Ethics Committee reports to shareholders at
the annual general meeting on matters within the Committee’s mandate.
Ordinary resolution numbers 1.1 to 1.3 – Rotation of directors
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 below.
RL Hiemstra (58)
Independent Non-Executive Chairman
BAcc (Hons); CA(SA)
Date appointed: 30 June 1998
Other directorships: Non-executive Director of Imperial Holdings Limited as from 30 September 2012
Tak Hiemstra has recently retired as Executive Director: Strategic Planning of Imperial Holdings Limited. He was
formerly the chief executive officer of Imperial Bank. He has twenty years’ experience in corporate finance affairs and
contributes to the Board of DAWN through corporate strategic planning. Tak was appointed Chairman of DAWN with
effect from 1 July 2011 and retired as executive director from Imperial Holdings Limited at the end of September 2012
and also resigned as director of Ukhamba Holdings (Pty) Ltd on that date. He is therefore an independent nonexecutive director of DAWN as from 30 September 2012.
JA Beukes (46)
Risk and Compliance Officer
Company Secretary
BCom (Hons) Acc
Date appointed: 20 August 1998
After completing his articles, Jan joined the Group as Financial Manager in 1994 and was appointed Group financial
director in 1998. In 2006 he assumed the position as the Chief Executive of the Trading division and was appointed
Chief Operating Officer of Distribution and Warehousing Network Limited in 2008. He was appointed as Chief Risk
Officer in 2010 and Group Compliance Officer in 2012.
DAWN Integrated Report 2014
Annual general meeting explanatory notes
continued
DM Mncube (54)
Independent Non-Executive Director
MCom Business Management; MSc Forest Products
Date appointed: 1 May 2014
Other directorships: York Timber Holdings Limited; Food and Trees for Africa; Forest Sector Charter Council; Rolfes
Group Limited
Dinga Mncube has 20 years’ executive experience in forestry, timber processing and the paper and pulp industry. He
has previously chaired the National Forests Advisory Council, Forestry South Africa and has been a board member of
Sappi Southern Africa. Amongst other achievements, Mr Mncube played a leading role in the revival of Project Grow,
an award-winning enterprise development programme at Sappi. He also played a key role in driving Sappi’s R814
million black economic empowerment transaction in 2010.
GD Kotzee (53)
CEO Africa Operations and DAWN Manufacturing
B Eng (Met), MBL Unisa
Date appointed: 1 January 2009
After qualifying as a metallurgical engineer through Iscor’s pupil engineering bursary scheme, Gerhard has worked for
various companies involved in manufacturing local and international branded products. Some of these positions
included Quality and Manufacturing Manager at Copalcor Rolled Metals, General Manager at Dorbyl, Managing
Director and later Divisional Manager Africa and Middle East at Franke Kitchen Systems, a Swiss-owned company.
Gerhard is also on the Board of SAPPMA. Mr GD Kotzee was appointed to the DAWN Board on 6 November 2014.
Ordinary resolution number 2 – Re-appointment of auditors
PricewaterhouseCoopers has indicated its willingness to continue in office and ordinary resolution 2 proposes the reappointment of that firm as the Company’s auditors with effect from 1 July 2014. Section 90(3) of the Companies Act
requires the designated auditor to meet the criteria as set out in section 90(2) of the Act. The Board of Directors of the
Company is satisfied that both PricewaterhouseCoopers Incorporated (“PwC”) and the designated auditor,
Mr I Buys, meet all relevant requirements and, on recommendation of the Audit Committee, it is proposed that PwC be
re-appointed.
123
Ordinary resolution numbers 3.1 to 3.3 – Appointment of Audit Committee
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 Companies Act. Regulation 42 to the Companies Act specifies that one third of the members of the Audit
Committee must have appropriate academic qualifications or experience in the areas as listed in the regulation.
The Board of Directors of the Company is satisfied that the proposed members of the Audit Committee meet all
relevant statutory requirements. The appointment of Mr RL Hiemstra as member of the Audit Committee will be
subject to his re-election as director of the Company. As indicated in the Corporate Governance Report forming part
of the Integrated Report, the Chairman of the Board is also proposed for appointment as a member of the Audit
Committee. This is not in full compliance with the recommendations of the King III Report and an explanation for the
non-application of this recommendation has been provided on page 133 of the Integrated Report.
Brief biographical details of Mr RL Hiemstra are provided above. In addition, the brief biographical details of Messrs
OS Arbee and L Alberts are as follows:
177
178
DAWN Integrated Report 2014
Annual general meeting explanatory notes
continued
OS Arbee (55)
Independent Non-Executive Director
B Acc, CA (SA), H Dip Tax
Date appointed: 15 December 2004
Other directorships: Director of Imperial Holdings Limited and a number of Imperial Group subsidiaries in South Africa,
United Kingdom and Germany.
Osman Arbee was a senior partner at Deloitte & Touche and spent 23 years with Deloitte & Touche in various roles,
which included being a Board member and Executive Committee member. He joined Imperial Holdings Limited on
1 September 2004 and is the Group Chief Financial Officer of Imperial Holdings Limited.
LM Alberts (74)
Independent Non-Executive Director
BSc Eng; MBL
Date appointed: 30 August 2001
Other membership: Member of the Engineering Council of South Africa (ECSA)
Lou Alberts is an electrical engineer with more than forty years’ experience in technical management as well as in the
business field, where he has held various executive directorships. He was actively involved in the unbundling of the
Boumat group in 1999, where he was the Chief Executive Officer, and has also served on the board and council of
SEIFSA. He currently consults to the building industry, both locally and internationally. Lou was the Chairman of the
DAWN Group until 30 June 2011, upon which date he retired as Chairman, but agreed to continue as an independent
non-executive director.
Ordinary resolution number 4 – Signing authority
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.
Ordinary resolution number 5 – Remuneration philosophy and policy
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.
Special resolution number 1 – General authority to repurchase shares
Section 48 of the Companies Act authorises the Board of Directors of a Company to approve the acquisition of its
own shares subject to the provisions of section 48 and section 46 having been met. The JSE Listings Requirements
require the shareholders of the Company to approve the authority to repurchase shares and the approval of a 75%
majority of the votes cast by shareholders present or represented by proxy at the annual general meeting for special
resolution number 1 to become effective. The directors of the Company do not have any specific intentions for utilising
this general authority at the date of this annual general meeting.
DAWN Integrated Report 2014
Annual general meeting explanatory notes
continued
Special resolution 2 – Directors’ remuneration
In terms of section 66(8) and section 66(9) of the 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
of a special resolution. Executive directors are not specifically remunerated for their services as directors but as
employees of the 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.
Special resolution 3 – Financial assistance to related and inter-related companies
To the extent necessary under section 44 and 45 of the Companies Act, to authorise the Board of Directors of the
Company to provide financial assistance as contemplated under section 44 of the Companies Act in connection with
the issuance of any securities issued or to be issued by the Company or any related or inter-related Company and to
authorise the board of directors of the Company to provide financial assistance as contemplated under section 45 of
the Companies Act to a related or inter-related (as defined in section 1 of the Companies Act) Company or corporation
or to a member of a related or inter-related corporation or to a person related to any such Company or corporation.
The Board will not authorise any financial assistance in terms of the above unless it has considered and is satisfied
that:
I.
considering all reasonably foreseeable financial circumstances of the Company at that time, the Company will,
immediately after providing the financial assistance to related or inter-related companies, satisfy the solvency
and liquidity test as required in terms of the Companies Act;
II.
the terms under which any financial assistance is proposed to be given are fair and reasonable to the Company;
and
III.
any conditions or restrictions in respect of the granting of any financial assistance as set out in the Company’s
Memorandum of Incorporation have been met.
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
Shareholders are hereby notified in terms of section 45(5) of the Companies Act that the Board has passed the same
resolution to take effect on the passing of this special resolution by shareholders.
Shareholders are also advised that the Board is satisfied that after providing the financial assistance, the Company will
satisfy the solvency and liquidity tests and that the terms under which the financial assistance is proposed to be given
are fair and reasonable to the Company.
179
180
DAWN Integrated Report 2014
DAWN Integrated Report 2014
Distribution and Warehousing Network Limited
Registration number 1984/008265/06 • Incorporated in the Republic of South Africa
JSE code: DAW • ISIN: ZAE000018834
(“DAWN” or “the Company”)
FORM OF PROXY – ANNUAL GENERAL MEETING
FOR COMPLETION BY CERTIFICATED SHAREHOLDERS OR OWN NAME DEMATERIALISED SHAREHOLDERS ONLY
If 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, 5 December 2014, at DAWN
Showroom, 18 Ealing Crescent, Cnr Main Road and Bryanston Drive, Bryanston 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 by no later than 10:00 on Wednesday,
3 December 2014. 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:
Fax: (area code:
)
)
Telephone: (Home) (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 deemed fit, passing, with or without modification, the special and ordinary resolutions to be proposed thereat and at any adjournment
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
Ordinary resolution number 1
Re-appointment of directors
Ordinary resolution number 1.1
Mr RL Hiemstra
Ordinary resolution number 1.2
Mr JA Beukes
Ordinary resolution number 1.3
Mr DM Mncube
Ordinary resolution number 1.4
Mr GD Kotzee
Ordinary resolution number 2
To confirm the reappointment of PricewaterhouseCoopers Inc as auditors and
Mr I Buys as the designated auditor
Ordinary resolution number 3
Appointment of Audit Committee members for the year ending 30 June 2015
Ordinary resolution number 3.1
Mr OS Arbee
Ordinary resolution number 3.2
Mr LM Alberts
Ordinary resolution number 3.3
Mr RL Hiemstra
For
Against
Abstain
DAWN Integrated Report 2014
Number of votes (one per share)
RESOLUTION
For
Against
Abstain
Ordinary resolution number 4
Authorising the directors to implement the special and ordinary resolutions
Ordinary resolution number 5
To endorse the Company’s remuneration policy and its implementation
Special resolution number 1
Issue a general authority to the Company to repurchase its own shares
Special resolution number 2
Approval of non-executive directors’ fees
Special resolution number 3
Authority to provide financial assistance to any company or corporation which is related
or inter-related to the Company
Signed at
on
2014
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.
5.
6.
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 by the DAWN shareholder. The person whose name
appears first on the form of proxy and who is present at the annual general
meeting will be entitled to act as proxy to the exclusion of those whose
names follow.
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.
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, in respect
of all the DAWN shareholder’s votes exercisable thereat. A DAWN
shareholder 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.
This form of proxy must be received by the transfer secretaries,
Computershare Investor Services Proprietary Limited, Ground Floor, 70
Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107),
by no later than 10:00 on Wednesday, 3 December 2014.
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 notes and instructions, provided that the chairperson is satisfied
as to the manner in 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 stands first in the register of shareholders in respect of
such shares or his/her proxy, 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.
DAWN Integrated Report 2014
Distribution and Warehousing Network Limited
Registration number 1984/008265/06 • Incorporated in the Republic of South Africa
JSE code: DAW • ISIN: ZAE000018834
(“DAWN”)
FORM OF ELECTION TO RECEIVE INTEGRATED/INTERIM
REPORTS AND OTHER SHAREHOLDER COMMUNICATIONS
ELECTRONICALLY
DAWN is in the process of establishing a database to distribute their Integrated/Interim Reports, Circulars and other shareholder
communications electronically to shareholders who prefer this type of communication instead of hard copies.
A shareholder may also elect not to receive any copies of the aforementioned communications if he/she is a certificated shareholder.
Dematerialised shareholders, who do not wish to receive copies of reports, should advise their CSDP or Stockbroker to amend their flags
accordingly on the BDA System.
In order for DAWN to furnish you with an electronic copy or record not to send any of these communications to you, please
provide the transfer secretaries, Computershare Investor Services (Pty) Ltd, with the following information:
Name:
COY code/Holder number:
Postal address:
E-mail address:
Telephone numbers:
Home:
Work:
Cell:
YES:
NO:
Fax number:
Copy of shareholder
communications required
(either an electronic or
a hard copy):
Kindly complete the above details, where applicable, and return this shareholder communication form to Computershare Investor Services (Pty)
Ltd, PO Box 61051, Marshalltown 2107 or fax/e-mail to:
Fax number:
(011) 688-5248
E-mail :
[email protected]
Should any of the above details change, please advise Computershare Investor Services (Pty) Ltd in order that they may amend their records
accordingly.
The information supplied above will be treated with the utmost confidentiality and will only be used for the purpose for which it is provided.
Signed at
on
2014
Signature
Assisted by (if applicable)
Name
(Please print in BLOCK LETTERS)
Capacity
Signature
DAWN Integrated Report 2014
DAWN Integrated Report 2014
Map to the
annual general meeting venue
DAWN Showroom
18 Ealing Crescent
Cnr Main Road and Bryanston Drive
Bryanston
DAWN Integrated Report 2014
DAWN Integrated Report 2014
Corporate information
Incorporated in the Republic of South Africa
Registration Number: 1984/008265/06
Listed on the JSE Limited
JSE share code: DAW
ISIN: ZAE000018834
COMPANY SECRETARY
iThemba Governance and Statutory Solutions (Pty) Ltd
Monument Office Park
Block 5, Suite 102
79 Steenbok Ave
Monument Park
Pretoria
PO Box 25160
Monument Park, 0105
REGISTERED OFFICE
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
PostNet Suite number 100
Private Bag X1037
Germiston, 1400
Tel: +27 11 323 0450
Fax: +27 11 323 0466
Website: www.dawnltd.co.za
DIRECTORS
RL Hiemstra
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
DA Tod
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
M Akoojee
79 Boeing Road East
Bedfordview, 2007
Johannesburg
LM Alberts
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
OS Arbee
79 Boeing Road East
Bedfordview, 2007
Johannesburg
JA Beukes
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
JAI Ferreira
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
DM Mncube
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
VJ Mokoena
32 Electron Road
Isando, 1609
RD Roos
Cnr Barlow Road and Caveleros Drive
Jupiter Ext 3
Germiston, 1401
INTERNET
Website: www.dawnltd.co.za
e-mail: [email protected]
AUDITORS
PricewaterhouseCoopers Inc.
2 Eglin Road
Sunninghill, 2157
Johannesburg
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Ltd
70 Marshall Street
Marshalltown, 2001
PO Box 61051
Marshalltown, 2107
Tel: +27 11 370 5000
Fax: +27 11 370 5271
SPONSOR
Deloitte & Touche Sponsor Services (Pty) Ltd
Building 8, Deloitte Place
The Woodlands
20 Woodlands Drive
Woodmead, 2196
Private Bag X6
Gallo Manor, 2052
Tel: +27 11 806 5000
Fax: +27 11 806 5666
GRAPHICULTURE
DISTRIBUTION AND WAREHOUSING
NETWORK LIMITED
Distribution and Warehousing Network Limited
Cnr Barlow Road and Caveleros Drive,
Jupiter Ext 3, Germiston, 1401
South Africa
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