JSE-listed building materials supplier Dawn was confident that the corporate actions it had taken in recent months would deliver an improved performance in the second half of its 2010 financial year, while a pickup in South Africa’s building and infrastructure sectors would lead to improved earnings in 2011.

The supplier on Wednesday reported a 60% drop in net profit to R62,2-million for the six months ended December 31, 2009, in a period that CEO Derek Tod described as the worst the group had ever experienced.

Revenues had declined by 16% to R1,9-billion, compared with R2,2-billion the year before, as volumes had remained depressed, owing to a weak building sector and infrastructure project delays.

Building revenues had declined by 2% in the six months, while infrastructure revenues fell 22%.

While the first-half of the 2010 financial year had shown some improvements on that of the second half of the previous financial year, difficulties had remained.

The building sector had remained weak, with a 4% decline in completed buildings between the first half of the 2009 financial year and the first half of the 2010 financial year.

Retrenchments had also started impacting on the rural areas where strong demand had previously been recorded.

The resultant fall in volumes had been offset, to some extent, through unrecorded additions and alterations, as well as housing demand near new energy and mining expansion projects.

Meanwhile, volumes in the infrastructure sector also continued to decline, given the delays in infrastructure-related contracts and the non-awarding of tenders.

Tod noted that the group’s DPI and Incledon businesses had experienced their largest-ever operating profit declines, as these businesses were severely impacted on by the infrastructure delays.

The DPI business, which formed part of the group’s manufacturing division, and Incledon, which formed part of the group’s trading division, had also suffered as a result of a 29% drop in polyvinyl chloride (PVC) prices.

DPI recorded a 38% decline in revenues and caused the manufacturing division’s operating margin to decline to 8,7%, down from 12,6% the year before.

Tod said that the group was aiming to get its operating margin for the division back to a double-digit figure as soon as possible.

Foreign exchange losses of R1,2-million had also negatively impacted on Dawn’s results.

Nevertheless, the group had completed its R400-million debt reduction programme in the six months and had achieved cost savings of about R130-million.

The group was confident of a turnaround in its major business units, particularly DPI and Incledon.

Further, Tod also noted that the group’s 2010 full-year earnings would be supported through the resumption in growth of refurbishments and alterations, as a result of an increase in the number of bonds granted and improved sentiment.

New housing projects, which became necessary as new power stations and mining projects were developed, along with government maintenance of public buildings could also benefit the group.

Nevertheless, Tod said that the building sector was unlikely to “recover significantly” until the second half of 2011.

INFRASTRUCTURE OPPORTUNITIES

Meanwhile, Tod noted that while national, provincial and municipal spending log jams remained a concern, along with electricity supply constraints and questions around the sustainability of the global economic recovery, the infrastructure sector continued to offer the group many opportunities.

Infrastructure projects in Africa were starting to pick up, while the higher oil price was expected to stimulate spending.

Domestically, service delivery constraints were becoming critical issues, said Tod.

Also, if certain maintenance projects were not dealt with, these would become larger reconstruction projects, he added.

Dawn expected to benefit from public spending on water and sanitation and healthcare infrastructure, as well as spending on the construction of schools, prisons and affordable housing.

Tod noted that the group’s infrastructure-related earnings could start improving from the first half of 2011.