JSE-listed building and infrastructure sector supplier Dawn reported a big drop in interim headline earnings as markets remained “cut-throat”, CEO Derek Tod said on Thursday.
“Although we anticipated that the decline would continue into the first half of this reporting period, we didn’t realise just how tough it would be,” he said, announcing a 52% decline in headline earnings a share.
Dawn posted headline earnings of 15,2c a share, compared with 31,9c a share in the first half of the 2010 financial year. Headline earnings a share were 11% lower than the 17c a share achieved in the previous half-year, indicating a slowing in the rate of the decline.
“To paint a picture of just how difficult it is out there, volumes and prices in the majority of our businesses have declined sharply for four successive reporting periods now,” Tod stated.
Operating profit declined by 48% to R63-million from the corresponding period’s R121-million.
“Reduced volumes and the delay in corrective market strategy resulted in substantially lower margins at 3,4% against 6,5% achieved a year ago, and significant losses. Although we achieved market gains, its effect was diluted by the volume declines,” he noted.
Dawn’s revenue decreased marginally from R1,87-billion in the first half of 2010 to R1,84-billion in the current reporting period.
The company owns brands such as Cobra taps and Vaal Sanitaryware, as well as pipe manufacturer DPI Plastics.
Dawn’s building division contributed 58% of group revenue, while its infrastructure division contributed the balance.
The building division completed 21% fewer buildings in the six months and recorded a 1% decline in revenue.
Tod noted that competition was “cut-throat” and added that margins were under severe pressure.
“In these tough times, sale at a lower margin is better than no sale at all. We are now in competition for a piece of a smaller pie,” he said.
COO Collin Bishop added that the strong rand also negatively impacted on exports and increased import competition.
“Further, salary increases were delayed in the first half of the 2010 financial year, which made it necessary in the first half of 2011,” he noted.
Meanwhile, the infrastructure division saw disappointing results with industry awards down 40%. The division reported a 3% decline in revenue, while volumes fell by 7%.
Another reason for the decline was a concealed accounting error, which had a R6-million negative impact on the volumes and profit of the business.
However, the company still grew its market share and reduced costs.
Dawn aimed to improve its profitability with further cost reductions of about R11-million for the second half of the 2011 financial year.
Tod pointed out that working capital was unlikely to improve until market volumes increase.
“We are moving our focus from cost-cutting, efficiency evaluations and right-sizing to growing our market share. Even a small improvement in volumes will have a positive impact on the bottom line,” he said.