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Pain before gain, says DAWN

Return to profitability expected in 2019.

The share price of JSE-listed construction materials group Distribution and Warehousing Network (DAWN) dropped by 4.49% to 85c on Friday on the back of disappointing annual results.

The share price has dropped 71.81% in the past year and 86.58% over the past five years.

On Friday the group reported an attributable loss of R637.4 million for the year ended March 31 2017 compared to a loss of R762.8 million in the previous financial year. Headline earnings per share however widened materially from 65.6c in FY2016 to 250,5c.

Commenting on the results the group said it reflected the cost of downsizing, including after-tax write-downs and impairments of R352.2 million. This was the first part of the turnaround the group committed to in 2016 in an effort to steer the group back towards profitability in 2019.

Poor market conditions, the impact of the drought and a poor operating performance are also reflected in the results, the group said.

Asked to expand on the poor operating performance, DAWN CEO Edwin Hewitt said over time the group lost focus and failed to adapt to changed conditions. With pressure on liquidity it failed to provide the right stock to clients. He said in some cases its suppliers tried to compete with DAWN.

Hewitt said DAWN temporarily lost its master distributor status due to under-serviced clients and unbalanced stock, which impacted volumes sold. “Master distributor status is crucial, as it ensures the volumes necessary for the successful functioning of DAWN’s business model. One of the key issues for F2018 will be to regain lost marketshare,” he said.

Hewitt vowed to work with his new management to “bring discipline back into the business” with a strong focus on cashflow, sales, margins and product range.

During the reporting period the group reduced head count by 634 and normalised operating expenses decreased by 5%. Revenue however decreased by almost 14% from R5 billion to R4.3 billion.

Against the background of almost 87% net gearing the group did a R385 million rights issue, the proceeds of which it received after year-end. R200 million of this was used to repay bridging finance, R75 million to repay Absa Bank Limited and the balance to fund future operations.

DAWN has concluded a non-binding Memorandum of Understanding with Lixil, the Japanese controlling shareholder of Grohe DAWN Watertech to buy DAWN’s 49% stake at a price that is still being negotiated. Hewitt told Moneyweb the proposed transaction can release funds to DAWN which will be used to reduce debt and invest in its core business.

“As DAWN will retain its master distributor status, the original intent of the transaction will remain intact and will allow us to continue driving sales in South Africa and the rest of Africa,” Hewitt said.

The second part of DAWN’s turnaround strategy will focus on restoring fundamentals, Hewitt said. That includes improving manufacturing efficiencies, re-engineering operations for lower factory breakeven points and rationalising product spread.

In the trading section the group will focus on reclaiming master distribution status addressing on-time-in-full delivery, just-in-time delivery, re-energising staff, restoring supplier and customer relationships and actively-managing volume-related term agreements.

Strategic focus areas include the decentralisation of the business structure, driving cross-selling to regain marketshare, transforming the business and implementing further downsizing.

The group does not expect any meaningful improvement in the challenging economic environment and hopes to at least break even in the FY2018. 



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Can’t understand why management took so long to rectify the situation – 5 years ago their numbers were turning south but they waited and waited to take any action. Once Tod left the bad news seems to have escalated

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ZAR / Euro



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