Dawn reaped the rewards of increased government spend on water infrastructure and increased sales in Africa, among other factors, as it on Thursday reported a 18% jump in operating profit, to R158.9-million for the half-year ended December 31, compared with the same period in 2012.

Revenue was up 17%, to R2.62-billion.

CEO of the building and infrastructure products supplier and manufacturer, Derek Tod, said in Johannesburg that rand weakness, taking its toll on importers, would only really benefit the group in the second half of the financial year.

“We don’t see the rand coming back materially in the next year or so.”

Dawn manufactured Vaal Sanitaryware and Cobra taps locally, for example.

Dawn’s building division saw a 5% drop in operating profit for the six-month period, to R116-million, as “market conditions kept on bumping along the bottom”, noted COO Collin Bishop.

Revenue was up 7%, to R1.75-billion.

The decline was rather unfortunate as the division traditionally performed best in the first half of the financial year.

“South Africans are really feeling the pinch in terms of their disposable income,” commented Tod.

Dawn’s infrastructure division was the star performer for the six months under review, recording a 106% jump in operating profit, to R54-million. Revenue was up 33%, to R1.27-billion.

This division serviced the civil engineering and mining sectors, with the latter “severely affected by strikes during this period”, said Bishop. However, he noted that the Department of Water Affairs had increased spending 46% from 2011/12 to 2012/13, with water projects as percentage of total construction spend up from 25.7%, to 33.7%, in 2013.

“We have seen a marked uptick in water tenders issued in February,” added Bishop.

Dawn had increased revenue outside South Africa, largely into Africa, by 16%, from R689-million for the six months ended December 31, 2012, to R797-million (21% of toal revenue) for the period under review.

A new Incledon (pipe, valves and tube specialist) trading company had been established in Zambia, with a production facility also planned for this country. An Incledon trading company was being established for the north of Mozambique, as well as an AST (building materials supplier) trading outlet.

Dawn was also now active in the Democratic Republic of the Congo and Tanzania.

MANUFACTURING EXPANSION
Given the tough circumstances importers faced owing to rand weakness, Dawn was expanding its manufacturing capacity.

The group’s capital expenditure (capex) budget for the 2014 financial year was R150-million, said CFO Dries Ferreira.

The first half of the year saw R87-million spent in expansionary capex, of which R30-million would be refunded by the Department of Trade and Industry’s Manufacturing Competitiveness Enhancement Programme.

Just less than R20-million was spent on increased automation at Vaal Sanitaryware.

Tod was confident that this arm of Dawn’s business could take increased market share from importers.

Looking ahead to the rest of the financial year, labour unrest and increased strain on the consumer could upset the Dawn growth story.

However, Dawn’s building division should see the benefit of recent price increases, as well as increased demand from property and mining house developers.

Infrastructure spend in South Africa should continue, with Africa continuing to show strong growth, said Tod.

“We believe our country is the land of opportunity, and we want to take advantage of these opportunities.”