Publications
Partners
Johannesburg - Distribution and Warehousing Network [JSE:DAW] (Dawn) on Wednesday reported a 63% decline in headline earnings per share to 31.9c for the six months ended December 2009, from 87.1c a year ago. As in previous years, no interim dividend was declared.
Revenue for the period declined 16% to R1.872bn, resulting from price deflation of 9% and a 7% decrease in volumes. Operating profit fell 48% to R121.1m and the company said excluding the impact of DPI and Incledon, the two divisions which suffered the worst effects from infrastructure delays, operating profit would have been down 33%.
Profit for the period was 60% lower at R62.2m and headline earnings declined 61% to R58.7m.
The company, which manufactures and distributes quality branded hardware, sanitaryware, plumbing, kitchen, engineering and civil products, said even though the six months to December 2009 improved strongly from the results posted for the second half of last year, it continued to experience the worst market conditions since its inception.
Volumes remained depressed due to a weak building sector and infrastructure project delays, with the largest operating profit decline coming from DPI and Incledon. Cross-border currencies also depreciated, which reversed the group's foreign exchange profit in the comparative period to a foreign exchange loss.
A severe downturn in infrastructure-related demand was aggravated by significant price deflation in PVC, which led to under-recoveries and an operating loss in DPI, which had a knock-on effect on group results.
During the period, the company significantly strengthened the balance sheet through a debt restructuring and a debt reduction process. The support services division enabled the group to implement cost reductions across all businesses and the headcount was reduced by 15%, with the benefits due to reflect from the second half of the financial year.
The relocation of the Libra factory to Vaal has been successfully concluded and Libra is now an efficient, low breakeven operation. The post-period R4m acquisition of Plexicor, an acrylic bath manufacturer based in Pietermaritzburg, will contribute to improved efficiencies between the two factories.
In order a new CEO was appointed with effect from March 1 2010 to bolster the capacity and depth of the Dawn executive management team.
Collin Bishop has a long-standing relationship with the group, having acted as the corporate adviser on mergers and acquisitions over the last decade. As such, he has an intimate knowledge and understanding of group strategies and financial drivers.
Looking ahead, the group said through the focus on cost management, a R180m annualised saving, including R48m finance cost savings, will be realised from H2 2010, with the full impact of interest savings through lower gearing and better borrowing rates.
Going forward, a turnaround is expected at DPI, Incledon and Plexicor, the company said. DPI's factory loading levels have already improved significantly.
Improved margins and government's priority spend in water and sanitation should benefit the group across the board, with a particularly positive impact on DPI and Incledon.
Libra is also set on a turnaround path, with factory optimisation and a return to profit in the second half of the year.
"All other businesses should improve due to a return of an inflationary environment on input prices, although this is still dependent on volumes not declining further.
"Dawn is now right-sized for the market, without having compromised capacity for any upturn. Furthermore, new product lines continued to be introduced across the group, which will benefit Dawn's earnings going forward," it said.
Inventory pipelines are significantly depleted and any recovery in demand will be preceded by increased stocking and restocking of the pipeline, which will benefit all Dawn companies.
"In line with the actions taken, the board therefore believes that there will be an improvement in H2 2010 on this period, with better prospects anticipated from F2011 if the infrastructure and building sectors recover as expected," Dawn concluded.
- I-Net Bridge
