Dawn hurt as subsidiary stumbles

DISTRIBUTION and Warehousing Network (Dawn) says its turnaround strategy for the year ended-March has been hit by a loss at Grohe Dawn Watertech.

DISTRIBUTION and Warehousing Network (Dawn), a maker of construction and building materials, says its turnaround strategy for the year ended-March has been “severely impacted” in the second six months by a loss at Grohe Dawn Watertech (GDW), in which it holds a 49% minority stake.

In an operational update yesterday, Dawn said the unquantified loss at the subsidiary had an adverse effect on the total earnings of the group.

The share fell 1.15% to end at R4.30. The group said the loss at GDW was due mainly to the delayed approval of working capital funding facilities by the controlling shareholder, Grohe, which directly affected the efficiency of the five factories in GDW.

Grohe, based in Germany, is a sanitary fittings manufacturer owned by Japan’s Lixil Group.

“This impact was most visible in the disrupted supply chain of product into the market, which also negatively impacted the revenue and results of the building trading segment of Dawn,” the company said.

Executives did not respond to questions on why funding had been withheld. Dawn also blamed the group’s underperformance on a slowdown in government infrastructure spend, and erratic payments. The group also blamed losses on difficult trading conditions and currency losses in its rest-of-Africa operations.

Grohe had implemented comprehensive changes to GDW’s management team and board. These parties had initiated a turnaround strategy at the subsidiary that was now in the process of being finalised by the managing shareholder for review by Dawn.

Stephen Connelly, the newly appointed interim CEO of Dawn, effective June 1, will join the GDW board. He will be supported by outgoing CEO Derek Tod, who will stay on the GDW board for the “foreseeable future”.

Mr Connelly was previously the CEO of Hudaco Industries, a distributor of branded automotive, industrial, and electrical consumables.

Ron Klipin, portfolio manager at Cratos Capital, said yesterday that the recent Dawn-Grohe tie-up on GDW looked positive, as Grohe had greater expertise in manufacturing.

“In addition, it can open up export markets for Dawn. The lack of funding could be an administrative problem (related to the change of control of GDW). I don’t believe funding is being deliberately withheld,” he said.

Dawn said its turnaround strategy included identifying further performance improvements and operational efficiencies, and reviewing the exit of noncore and loss-making businesses.

The company said it was successful in further reducing operating costs this year and “promised savings objectives” of R90m had been achieved.

Dawn also blamed the group’s underperformance on a slowdown in government infrastructure spend, and erratic payments