Monday, March 23, 2009

South African Building supplier eyes import-substitution prospects as currency dives

The JSE-listed Dawn group says the last six months of 2008 was a tale of two quarters, with the first delivering solid results, followed by three months during which the effects of the global financial crisis became all too clear.

“In July, business was still reasonable . . . but at the end of September, volumes started to come off. October and November are normally our peak months, but this time, they went in the opposite direction. In the new year, January was good, February not so good, and March is looking better,” says CEO Derek Tod.

Dawn is a manufacturer and distributor of hardware, sanitary- ware, plumbing, kitchen, engineering and civil products.

Tod says Dawn last year saw an increasing dependence on its just-in-time and break-bulk delivery, as retailers preferred to operate with reduced stock levels in a higher interest rate environment, as well as owing to tighter market liquidity.

He adds that the sharp weakening of the rand has created import substitution opportunities for Dawn’s locally made products, while it is also increasing the company’s export competitiveness. In fact, the company has witnes- sed the increased liquidation of building product importers over the last six months.

Other positives include the fact that some local mining and industrial projects still pushed ahead in the last quarter of 2008, despite the global credit crunch.

“Lastly, as we have consistently seen over many years, even during very tough times, renovation and refurbishment in the building industry continue, as people upgrade their houses rather than buy new,” says Tod.

Factors impacting on the group adversely include industrywide destocking, mainly from the last quarter of 2008, and volume and margin pressures resulting from the market slowdown, which have affected factory loading within the group.

Another negative factor has been delays in the awarding of tenders amounting to around R1-billion in the civil and muni- cipal markets, which is one of Dawn’s main development areas.

Tod says most of the R1-billion in delayed tenders is in the civil and municipal water and sewerage industries, with the majority of these valued under R5-million. He expects most of these tenders to be awarded later this year.

“There is still a lot of work, but anything of meat is going to be delayed until after the election – until everybody understands who the new boss is. It has always [been] like this.”