Distribution and Warehousing Network (Dawn) has sold its 49% noncontrolling interest in Grohe Dawn Watertech (GDW) to the Lixil Corporation of Japan for R324.5m.
Dawn’s share price shot up 20% after the announcement. But closed 11% firmer at R1.06.
The maker of a broad range of industrial, sanitaryware and kitchen products has struggled amid the crises in SA’s mining, construction and building industries and, more recently, agriculture. It will use the proceeds to pay down group debt of R200m and settle capital gains tax arising from the sale.
GDW comprised about 10% of Dawn’s total revenues.
Dawn will now become master distributor in sub-Saharan Africa for Lixil, one of the world’s biggest suppliers of water, housing, building and kitchen technologies. Lixil already owned the controlling 51% of GDW shares through Grohe, a sanitaryware maker based in Germany that is a wholly owned Lixil subsidiary.
"We got top price and are going to pay off our debt and stay in a partnership [with Lixil] as master distributor," Dawn CEO Edwin Hewitt said on Thursday.
In late 2014, Dawn, known as the maker of Cobra taps and Vaal sanitaryware brands, sold 51% of GDW to Germany’s Grohe. This happened just as Europe’s biggest sanitaryware maker was being sold to the Lixil building materials company. At the time Dawn had aimed to globalise its manufacturing operations.
Lixil president Kinya Seto said on Thursday that sub-Saharan-Africa markets had great growth potential, but after the initial investment Lixil made in 2014, "the general economic situation in SA became more challenging. Without making these changes … our ability to turn around and grow the business was limited," he said.
Dawn said the latest transaction did not compromise the intent of the original GDW deal, as Dawn remained a long-term master distributor for the GDW product range in SA, Botswana, Swaziland, Namibia, Lesotho, Zambia, Zimbabwe, Malawi, Mozambique, Seychelles, Ghana, Rwanda, Tanzania and the Democratic Republic of the Congo.
Hewitt said GWD products would now be complemented by Grohe and Lixil products.
"This transaction is the best course of action for Dawn and allows us to become debt-free," he said. The sale was key to the implementation of Dawn’s turnaround plan to restore the business to profitability, Hewitt said. In its annual results to March 2016, Dawn posted a R758m net loss. It was followed by an attributable loss of R637m in the year to March 2017.
The company will reinvest in streamlining the core master distribution operations, now renamed Dawn Trading.
Dawn’s remaining manufacturing and trading businesses include pipe and fittings makers DPI Plastics, Swan Plastics and Ubuntu Plastics.