Crown Publications - Dawn announces year-end results to June 2010

During the year, the group amended its operating structure from that of Trading and Manufacturing to that of Building and Infrastructure segments. This was necessitated by the evolution of market dynamics over the last few years, which has made it important to manage the businesses and report according to the markets they serve.

This focused cluster approach allows for the extraction of synergies and cost reduction, while capacity is enhanced at cluster operations. The group's Support Services division continued to provide a crucial competitive advantage, enabling distribution costs which are half the logistics industry average. It also assists the group to contain costs across all businesses and to significantly reduce stock losses.

FINANCIAL SUMMARY

Revenue was down 8,6% to R3,6-billion (2009: R4-billion) o Volumes were down 9%, with prices flat
Operating profit was down 15,5% to R208-million (2009: R246-million) o Excluding the impact of DPI and Incledon, the two divisions worst impacted by infrastructure delays, operating profit would have been up 16%
Earnings per share was down 15,5% to 54 cents (2009: 63,9 cents per share), with headline earnings per share down 40,1% to 48,9 cents (2009: 81,7 cents)
Operating margin of 5,7% (2009: 6,2%) was an improvement from the low of 2,6% during the second half of the 2009 financial year, when the group experienced the worst market conditions since inception
Balance sheet management remained a priority o A R400-million debt reduction programme was completed near the end of H1 2010, which mainly consisted of a R300-million rights issue and the R70- million from the sale of Lasher o A debt restructuring, with a new multi-bank platform introduced, improved borrowing rates and a correction between short and long term funding, also took place o Gearing is now at its lowest level in the past eight years at 21,1% and total net debt at 30 June 2010 amounted to R282-million o Bad debt levels remained below 0,1% of revenue
Net asset value per share was 12,1% higher at 512,1 cents (2009: 456,9 cents)

"Although the majority of the group's businesses contained within the Building segment (representing 67% of revenue) posted a strong performance, with operating profit in this segment increasing by 8%, the severe slowdown in the infrastructure spend in South Africa continued to have a significant impact on the rest of our businesses," says Dawn CEO Derek Tod.

"Against these tough conditions, the early rightsizing of our business for current levels of activity and our competitive advantages of just in time delivery, our integrated model that results in efficiencies, as well as our tested brands, assisted us again to buffer against continued lack of infrastructure spend. Without the infrastructure businesses of DPI and Incledon, operating profit for the group would have increased by 16%. Margins, although not at levels we want, have also improved from its lows during the second half of last year."

Looking forward Todd said: "The benefits from the actions taken during the past financial year will flow through in the new financial year. These include a stringent focus on cost management and the full impact of interest savings through reduced debt and better borrowing rates.
"On an operational level, an improvement is expected at DPI Plastics and Incledon through internal action taken. Although the short term outlook for government infrastructure projects remains bleak after the 2010 World Cup-related spend, the Infrastructure segment focuses on priority spend in critical areas, such as water infrastructure projects, which are likely to turn up first. However, the timing of the awarding of contracts and tenders remains uncertain.
"On the Building side, we anticipate some volume improvements as the market slowly starts to recover, particularly in the second half of the new financial year. The Consumer Protection Act should assist in containing sub-standard imports, with Dawn's leading brands and comprehensive after-sales service and warranties, set to capitalise on this. Our business model has already demonstrated its robustness during the current financial year.
"As a management team we will continue to focus on sales growth, margin maintenance, productivity improvement and cash and working capital management. Provided that market demand does not deteriorate further, we anticipate better prospects mainly from the second half of the 2011 financial year."

OPERATIONAL SUMMARY

Building - 63% of revenue

Revenue was down 7% to R2,4-billion (2009: R2,6-billion), while operating profit was up 8% to R247-million (2009: R229-million). Operating margin was up from 8,7% to 10,1%.
This segment outperformed a very weak building market, assisted by market share gains due to the strength of its brands and customer reliance on Dawn's just-in-time value-added service and branded product offering.
There was also some restocking by merchants in the latter part of the year, as well as an increase in consequential housing activity. The Dawn Watertech Division, comprising Cobra and Isca, delivered record earnings
The early rightsizing in these businesses also assisted the performance

Infrastructure - 31% of revenue

Revenue was down 16% to R1 214-billion (2009: R1 445-billion), with an operating profit loss of R34-million and margin decreasing from 4% to -2,8%.

Overall volumes in the Infrastructure segment were down 17,8% year-on-year due to the severe downturn in infrastructure-related demand. This slowdown led to under-recoveries and an operating loss in DPI Plastics and in Sangio Pipe, which had a knock-on effect on group results. The group took a strategic decision to limit the volume decline and consequent effects, although this resulted in lower margins. The 12% decline in PVC input prices also had a deflationary impact on this business segment
The cross-border operations were also hard hit during the period, as the impact of the recession increased north of South Africa's borders.

Services - 6% of revenue

The strategy for creating Support Services continued to pay off in the year, as it presented a unique opportunity to contain or drive costs down.

Revenue was maintained at R214-million (2009: R213-million), with operating profit down 42% to R8-million (2009: R13-million) and operating margin down to 3,9% (2009: 6,3%).

Capacity was maintained to accommodate the group strategy
There was a significant reduction in stock losses and total costs only increased by 2,5%, mainly due to salary and fuel price increases