Dawn sells 51% of Swan Plastics

• Minority shareholders buy back control as listed company consolidates business to return to profitability

Distribution and Warehousing Network has sold the 51% equity shareholding in Swan Plastics held by subsidiary Dawn Consolidated Holdings.

Distribution and Warehousing Network (Dawn) has sold the 51% equity shareholding in Swan Plastics held by subsidiary Dawn Consolidated Holdings (DCH) to minority shareholders Michael Swanson, Phillip Cotterill and Desmond Robins.

The maker of industrial, sanitaryware and kitchen products said it would use the proceeds for working capital, and reducing its interest burden and associated gearing.

The effective date of the sale, which does not require shareholder approval, will be announced when it arises.

The crises in SA’s mining and construction industries and, more recently, agriculture have put pressure on Dawn.

Swan Plastics is involved in the manufacture of PVC products and water waste systems.

The purchase price for the shares and claims is R35m in cash. The bulk is payable within seven days of signing the sale agreement, with another R5m due by April 3 2018. Interest will be charged at the prime rate.

“In terms of the agreements entered into at the time of DCH’s investment in Swan Plastics, a call option was entered into between the shareholders in 2013,” Dawn said on Thursday.

The group said that in terms of the call option, DCH was obliged to purchase the minority shareholders’ equity in and claims against Swan Plastics if certain events occurred.

“As a result, this call option was disclosed as a derivative liability in the audited Dawn group financial statements as at March 31 2017 to the value of R72.2m,” Dawn said.

The minority shareholders had indicated they wanted to trigger the call option, but it was agreed that DCH would dispose of the remaining shareholding for R35m instead.

The derivative liability would be de-recognised from the effective date of the sale.

For the year to March 2016, Dawn posted a net loss of R758m. It then posted an attributable loss of R637m in the year to March 2017. In April 2017, the company raised R350m in a rights offer.

The group said the focus in financial 2017 was on closing and consolidating businesses to return to profitability in a “deteriorating” domestic economy. Staff numbers were cut by 643 from a total 3,200 in the year.

To this end, Dawn also has written undertakings from five shareholders holding 72.5% of the company’s total shares that they will vote in favour of the sale of its 49% interest in Grohe Dawn Watertech to Japan’s Lixil building and materials group.

The names of the shareholders have not been disclosed and a meeting date for general shareholders to implement the deal is not yet known.

Lixil will buy Dawn’s 49% stake in Grohe Dawn Watertech for about R324.5m. The holding contributed about 10% of Dawn’s annual revenue.

Lixil already holds a 51% controlling stake in Grohe Dawn Watertech, a maker of sanitaryware, including Cobra taps and the Vaal ceramics brand.

Under the terms of the share purchase agreement, Dawn will use the proceeds of the sale to pay down group debt of R200m and settle capital gains tax arising from the transaction.

Anthony Clark, an analyst at Vunani Securities, had earlier said that Dawn’s recovery plan, as detailed by recently appointed CEO Edwin Hewitt, was highly credible.

THE FOCUS IN 2017 WAS ON CLOSING AND CONSOLIDATING BUSINESSES … IN A ‘DETERIORATING’ DOMESTIC ECONOMY