Distribution and Warehousing Network (Dawn), a maker and distributor of building materials and hardware products for mining, industry and agriculture, posted an attributable loss of R637m in the year to March.
This comes after it delayed releasing its annual results on June 30, saying there was an “unexpected and material delay” in the reporting of results by its associate firm, Grohe Dawn Watertech (GDW), in which it holds 49%.
The group says the focus in financial 2017 was on downsizing, by closing and consolidating businesses to return to profitability in a “deteriorating” South African economy. Staff numbers were cut by 643 out of a total of 3,200 in the year.
“We are doing many things in each of these businesses,” CEO Edwin Hewitt said on Friday. He had recently replaced Stephen Connelly, formerly CEO of JSE-listed industrial products supplier Hudaco Industries. Connelly had helped stabilise Dawn in a 12-month contract period and had become executive deputy chairman of the group.
Hewitt said Dawn was looking at achieving breakeven in financial 2018 — provided the domestic economy did not fall further — and was budgeting for a profit in financial 2019.
Dawn had recently raised R350m in a rights offer. It said the first part of the turnaround had been completed, but the latest results were heavily affected by right-sizing costs, continued poor market conditions and the effect of widespread drought.
Nearly 70% of revenues come from trading, with the remainder from its manufacturing businesses.
Dawn last week signed a nonbinding memorandum of understanding with the 51% shareholders of GDW for the potential disposal of its minority shareholding. There was no certainty the transaction would be concluded. But if the proposed sale went ahead Dawn would remain long-term master distributor for GDW’s product range in Southern Africa.
In the past two financial years, Dawn reported losses of about R1.4bn amid the delayed approval of working capital for GDW. This came as a slew of executives left the group at the same time Lixil, a Japanese building materials conglomerate, bought GDW majority shareholder, German bathroom and kitchen fittings firm Grohe.
GDW was worth less than 1% of the Lixil-Grohe merger. It appeared the merging companies “neglected” GDW, which had put further strain on Dawn.
“Dawn released yet another very poor set of numbers as it continues to suffer the consequences of bad decisions made by the prior weak management team,” said Meyrick Barker, an analyst at Kagiso Asset Management. “Impairments total in excess of R1bn over the previous three years. The new CEO and chief financial officer started making the difficult choices of rationalising the group. But Dawn’s immediate future remains challenging.”