Johannesburg - Distribution and warehousing Network [JSE:DAW]
Dawn on Friday reported a 64% decline in diluted headline earnings per share to 16.3 cents for the year ended June 2011 from 45.6c a year, as the downturn in the economy had a material impact on the company's results. Earnings per share was a loss of 13c compared to a profit of 54c a year ago.
The board considers it prudent to conserve cash until the market recovers and therefore did not propose a dividend in respect of the 2011 financial year.
Revenue increased by 4.8% to R3.8bn, with organic growth amounting to 2.5% despite a volume decrease of 1%. Operating profit, before the impact of impairments and once-off non-operational write-offs, decreased by 49% to R102m.
The group said operating expenses increased by 19% mainly as a result of abnormal cost increases such as electricity (up 43%), catch-up salary increases (up 17%), after no increases were awarded for the preceding 18 months, as well as R19m of once-off costs relating to foreign exchange losses, retrenchment costs and relocation costs.
Operating expenses also increased as a result of investment in new capacity which management considered to be time crucial. This related to the development of new products, streamlining efficiencies at Vaal and Cobra factories as well as new capability investments at DPI, which is expected to deliver benefits in the future.
The group said although the infrastructure segment improved its performance, it is still in a loss position. The building segment operating margin was 6.8% and the Infrastructure margin was a loss of 2.2%, before the impact of once-off adjustments.
Dawn manufactures and distributes branded hardware, sanitaryware, plumbing, kitchen, engineering and civil products through a national branch network in SA, as well as in selected countries in the rest of Africa and Mauritius. It has two operating segments - building and infrastructure, supported by the solutions segment.
Looking ahead, Dawn said although there are some positive signs of growth starting to resume in the building and infrastructure markets, it expects this growth to be both protracted and erratic.
The year ahead will see an intensified focus on returns with direct intervention by group executives in working capital management, forecasting and monitoring of individual companies. The challenge remains to align stockholding with volatile demand patterns.
The group's stock systems are being further improved through the enhancement of customer sales history analysis to strengthen stock availability. Its just-in-time stock availability offering to merchants will remain a key focus area to maximise its logistics advantage.
Capital allocation will be monitored continually and it is considered paramount that cash is generated from improvements in working capital as well as profitability across the board, with specific focus on loss-making businesses.
Improved volumes will be a necessity to assist factory recoveries. Benefits should flow through from the development of new products at all manufacturing entities, with aesthetics and 'green' product development enjoying particular focus. Although these initiatives will ensure increased growth, it is uncertain over what timeframe due to the current unpredictability of the markets.