Distribution and Warehouse Network, or DAWN, which makes hardware, sanitaryware and the like, and distributes it around Africa and South Africa, is a kind of model for what South African businesses are supposed to be doing – as a manufacturer and exporter it has duly benefited from the weakening rand, and it has embraced the rest of Africa as an opportunity, moving early into exporting its products up north.
These two things – the weak rand and the rest of Africa – have been bandied around as key forces in rejuvenating South African industry forever, but it’s not too often you see them actually having the kind of bottom-line impact you’d like. Thus, it’s refreshing to look over DAWN’s results and see the rand and the continent driving earnings and profits as they should. Companies like this give one hope for domestic manufacturing and industrials. – FD
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ALEC HOGG: Distribution and Warehousing Network – better known as DAWN – released interim results today. The company’s Chief Executive Derek Todd is with us in the studio. Derek, margins are improving. You’re quite upbeat about the future.
DEREK TODD: Alec we believe we’ve been through a very difficult five years, as most of the world has and we’re starting to see a little bit of steam starting to come through. As you rightly said, we have a wonderful country, a country of opportunity – a lot of opportunity – and it’s just a matter of making sure your capacity and capability is appropriate to your visions.
GUGULETHU MFUPHI: Your numbers were also impacted by the Rand. Had the Rand not depreciated so strongly, how different would the numbers be today?
DEREK TODD: I think the numbers would be very similar. The fact that the Rand actually depreciated is normally a benefit for DAWN. The real decline in the Rand took place between May and June – I think the amount is 19 or 20 percent this year – over the whole of last year. However, in that one or two-month period, it declined by 11 percent, so you had quite a shock to the system in terms of price changes. The ability to try to get the price that had been building up, up until that point before it dropped by a further 11 and actually, through into the marketplace with people having to accept quite a radical change in your pricing levels – quite difficult. Certainly, DAWN as a company, benefits from a weaker rand obviously, because of the exports and the competitiveness.
GUGULETHU MFUPHI: Your operating costs also went up ever so slightly…the plastics division, as well.
DEREK TODD: Yes, we’ve certainly been measuring over the last three years, and if you take the average or the mean of the three, we have managed to contain costs at seven percent per annum over the last three years. Prior to that, we adjusted the platform quite radically once the crisis hit, so at that point we made some serious adjustments to the business. At the time, we took somewhere in the order of two hundred million Rands’ worth of costs out of the business.
ALEC HOGG: There’s been an interesting story…the turnaround or eventual rebound. If you were to take a train ride from Johannesburg to Durban and you were to say how your business is positioned now, where on that journey would it be?
DEREK TODD: I would say the original vision for the business was one of firstly, a trading company supported by distribution capability and then we backward integrated into brands. In effect, we have a basket of product now that is supported on a very capable distribution mechanism and we have the ability to have saved an enormous amount of costs in distribution. In our given sector, we are certainly one of the most competitive distributors.
ALEC HOGG: So where are you on that train ride?
DEREK TODD: I’m in Durban already.
ALEC HOGG: Are you at the end-result?
DEREK TODD: I would say we probably – right now- are somewhere around about Estcourt.
ALEC HOGG: Okay, so you’re getting close to maximum potential. What about Africa – the African continent? You do talk in your results about Zambia.
DEREK TODD: We went into Africa some eight years ago. We had three components of our entry. The one is manufacturing in Africa, the one is trading in Africa, and the other is exporting our brands out of our local manufacturing companies. Africa is a big opportunity place at this point in time, not only seen by us in South Africa but certainly, by major European and American players. Everybody sees South Africa as their access into Africa. Certainly, from our point of view, we believe we went in eight years ago and we’ve had the bloody noses. We’re not saying we’re not going to have some bloody noses again. It’s possible. It’s a very diverse continent, but we certainly believe we’re an early entrant, we’re getting our act together, and we see it becoming…it’s currently 21 percent of revenue. We would like to drive it – by still growing the local market – up to about 30 to 35 percent of the business. That’s the objective.
ALEC HOGG: He’s giving us a good story. Gugu wants to go out and buy your shares, don’t you, Gugu – that quickly? It’s a great story, isn’t it? Are you going to be able to deliver on this and if so, what kind of delivery? If we say the economy grows at two percent and inflation at six percent, we’d expect around eight to ten for just a mediocre business’ earnings growth. What kind of numbers are you putting on the table?
DEREK TODD: Well, you know our past was one of pretty solid earnings growth. We really performed and perhaps believed a bit of our own press at the time. Then the crisis arrived and we had to go back and learn some very interesting lessons. We’ve gone through all those lessons now. We certainly don’t intend forgetting any of them. However, from our point of view we certainly believe we want to grow the business quite significantly over the next two to three years.
ALEC HOGG: What’s that…20/30/40 percent?
DEREK TODD: Are you talking earnings growth? Obviously, I’m a very optimistic person. I see it as being a lot more than that.
