Contract delays slash Dawn's earnings
September 9, 2009
By Florence de Vries
A delay in the awarding of infrastructure-related projects severely impacted the earnings of distribution and warehousing group Dawn in the year to June.
Around R80 million, or two-thirds of the financial year's earnings decline, sprouted from infrastructure-related businesses, such as Dawn's DPI and Incledon companies.
Fluctuations in raw materials prices and the exchange rate accounted for a quarter of the decline in earnings.
"Furthermore a R22m loss in one of our manufacturing businesses, Libra, dealt another blow to this set of results," chief executive Derek Tod said.
Some analysts believe the bath and sanitaryware business is a "difficult one to get right" since these items are mostly purchased for use in new homes - a sector that has slowed down significantly of late.
Dawn, a manufacturer and distributor of branded hardware, sanitaryware, plumbing, kitchen and civil construction products, had a tough time when demand in this division grew in the review period.
According to Tod, the group's biggest source of revenue (about 60 percent) came from Libra and as a result of the weakening rand, the volumes in this division grew significantly.
"We didn't have the management control in place and under the circumstances did not cope very well."
This resulted in a 10 percent impact on earnings.
Even so, Tod believes Dawn did the best that it could under the circumstances.
"In the review period we took swift action with strong cost management and the flattening of our management reporting structure ensured increased control and quicker decision-making within the volatile markets," he said.
Group revenue increased by 1 percent to R4bn while operating profit decreased by 32 percent to R280m . This was calculated before a R35m fair value adjustment in terms of the group's sale of its stake in Lasher.
Headline earnings a share decreased by 45 percent to 81.7 cents while the operating margin was reduced to 7.1 percent from 10.5 percent mainly due to the negative impact of lower volumes in a weaker economy and delayed infrastructure contracts.
Several groups operating alongside Dawn have experienced the lack of activity in residential or metropolitan areas negatively, while earnings had dropped substantially.
Tod said companies operating in rural areas had the benefit of a "cash-based environment" although the number of retrenchments countrywide would continue to mar profits into the next year.
Negative sentiment in the renovations and residential market slashed headline earnings for JSE-listed Ceramic Industries, while building materials retailer Iliad Africa reported a 72 percent drop in earnings recently.
"But we remain cautiously optimistic as I am sure refurbishments and upgrades will pick up as the lower expense interest burden lifts." Tod said consumers were likely to renovate homes when the worst of the recession dissipated.
Dawn fell 4.1 percent to R7.
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