While JSE-listed Distribution and Warehousing Network (Dawn) was not pleased with its financial results for the “disruptive and difficult” 2014 financial year, the company was excited about its recently announced joint venture (JV) agreement with Grohe International, which placed it on a new global growth path, CEO Derek Tod said on Tuesday.

During the 12 months ended June 30, Dawn’s profit declined, from R159-million in the prior financial year, to R81.51-million.

Headline earnings per share (HEPS) dropped by 24% year-on-year to 50.1c, while earnings a share, at 31.6c, were 53% lower than that of the prior year.

“We are by no means downplaying the short-term dip in earnings, but far more important is the future of the group and that we are positioning it to achieve significant upside, within South Africa, in Africa and internationally,” Tod said at a presentation of the company’s full-year results, pointing out that the Grohe transaction was only the first step in the company’s strategic refocusing process. 

In terms of the JV agreement, which was still subject to Competition Commission approval, Grohe would buy 51% of Dawn’s Watertech and Sanitaryware companies for R880-million, to be managed under a new company, Main Street, in which Dawn would hold 49%.

The benefits for Dawn related to this transaction included an increase in production volumes to enable full use of the company’s existing logistics capabilities and access to Grohe’s global distribution network.

Meanwhile, also speaking at the results presentation, Dawn CFO Dries Ferreira pointed out that the company had seen strong earnings growth during the first half of the 2014 financial year on the back of strong performance from its infrastructure segment, with HEPS of 41.1c having been reported for the first six months. However, during the second half of the financial year, a weak building market and weaker results from the infrastructure segment led to HEPS of only 9c.

Further, during the 2014 financial year, Dawn’s revenue grew by 18% to R4.4-billion; however, as a result of the persistently tough building conditions, Dawn had to impair the carrying value of goodwill on two businesses, namely Dawn Kitchen Fittings and Africa Saffer Trading (AST).

Dawn also had to account for a one-off gain on Sangio Pipe as part of the step-up to 100% holding at year-end.

Net impairments and derecognitions for the period under review 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.

BUSINESS SEGMENTS
During the financial year under review, Dawn’s building segment, which made up 44% of group revenue, saw a 20% decline in HEPS.

Ferreira explained that the building segment’s performance was impacted on by five main factors, four of which were one-off factors. The five factors were the mining strikes during the first half of the year, excessive Gauteng rainfall, election-related disruptions, a negative currency effect on AST and start-up losses at Dawn’s WiiN and AST operations in Africa.

In addition, weak second-half gross domestic product growth, which meant that consumers were stretched further, also negatively impacted on the building division.

Meanwhile, Dawn’s infrastructure businesses, which made up 46% of total group revenue, saw a 6% increase in HEPS to 21.2c.

Ferreira stated that this division had performed well; however, it had been negatively affected by the mining strikes, as well as by higher finance charges on acquisitions and working capital needed to fund growth.

Further, Dawn’s solutions segment’s profit before interest and taxes declined by 31% to R9.6-million owing to a weak logistics performance.

OUTLOOK
Tod said that, as a result of the R18-million one-off Grohe transaction cost, the impact of the National Union of Metalworkers of South Africa strike in July and August, as well as high finance costs, on Dawn’s results for the first half of the 2015 financial year was expected to be substantially lower than that of the first half of the 2014 financial year.

However, from the second half of the 2015 financial year, the group expected to see the benefits of cost cuts and significant upside from the Grohe transaction.

“The Grohe transaction has changed the face of the group. We see improvements in earnings from the second half [of the 2015 financial year], as we see the benefits of the additional trading and distribution volumes come into play,” Tod said.

Dawn declared a dividend of 16.5c for the 2014 financial year, which was in line with that declared at the end of the prior financial year.