Dawn cuts 700 employees in six months

Without a material turnaround in its financial position in the near future, the group faces a solvency risk

FINANCIALLY troubled Distribution and Warehousing Network (Dawn) retrenched and terminated the employment of more than 700 employees and labour-broker staff across the group in the six months to September.

The listed manufacturer and distributor of plumbing and hardware brands, which last week received a firm offer which, if successful, would lead to its delisting from the JSE, said on Friday that the largest portion of the terminations was based on operational requirements.

In November last year, Dawn reported that it had retrenched about 1 300 people in the past two years, and in that month had handed retrenchment notices to a further 143 people in its Wholesale Housing Supplies (WHS) business.

Edwin Hewitt, the chief executive of Dawn, said the group’s management and board had decided to close DPI, the group’s pipe-manufacturing business, while WHS, its main sanitaryware and hardware trading and distribution business, was restructured further.

Hewitt said the process of curtailing costs at DPI started last year with the closure of its Cape Town manufacturing plant, with the business facing dire operating conditions because of reduced government spending.

He said “crippling strike action” in the plastics industry, which to date had lasted seven weeks, had placed severe strain on the business and the group.

The high density polyethylene (HDPE) plant had to be closed in September, and DPI attempted to regain revenue by changing its route-to-market strategy through a collaboration with WHS.

“Despite these actions, the business continued to be in a substantial loss-making position and consumed an unbearable level of the group’s cash flow, placing the sustainability of the group as a whole at risk.

“As a result of the financial position, and with no other viable alternatives, management and the board decided to proceed with the closure process,” he said.

Hewitt said the cash received by the group through the rights issue and proceeds from the sale of assets was “used to repay the group’s existing debt and cover the transaction costs, leaving little capital available to invest in the turnaround”.

Hewitt admitted that Dawn’s board investigated various options in light of the group’s financial position, including its sale as a whole, disposing of separate entities in the group and, as a “worst-case scenario”, commencing with business rescue proceedings.

He said the board’s objective was to ensure the best outcome for the group’s stakeholders, including shareholders, creditors, 1 250 employees, 4 000 customers and 1 000 suppliers.

Hewitt said Dawn continued to face liquidity constraints and, unless there was a material turnaround in the company in the near future, “it faces a looming solvency risk”.

The firm offer from Polanofield, owned by former Dawn chief executive Derek Tod and Gonsalves Baeta, to acquire Dawn’s entire issued share capital by way of a scheme of arrangement for R5.8 million was supported by Dawn’s board, major shareholders, bankers, insurers and landlords.

Dawn on Friday reported a 180 percent increase in the diluted headline loss a share to 38.38 cents in the six months to September from a loss of 13.73c in the prior period.

Revenue dropped by 21 percent to R1.36 billion from R1.7bn.

The operating loss widened by 586 percent to R108.6m from R15.8m.

Dawn’s interim results were released after the JSE had closed on Friday. Its shares ended the day unchanged at 2c.