Dawn buys assets from Group Five for R110m

pretoria - listed building and construction company group five has sold vaal sanitaryware and its 40 percent stake in pvc plastic piping company dpi holdings to dawn, the listed manufacturer and distributor of major local plumbing and hardware brands, for r110 million.

mike lomas, group five's chief executive, said yesterday that the rationale for the disposal was that the group did not believe it was able to add a lot more value to vaal sanitaryware, while dpi, which was 60 percent owned by sasol, was not really in its mainstream business.

he added that group five wanted to get involved in the upsurge in construction work and concentrate management time and effort on its core business.

to some extent, the disposals would dent group five's revenue and profit in the next financial year, but with the uptick in the economy, the group would be able to take up this slack quite quickly.

together, the businesses probably accounted for between 5 percent and 6 percent of group five's total revenue.

the transaction was effective from june, lomas said.

however, dawn financial director jan beukes said it was expected that it would be effective from september 1 because the dpi acquisition was still being submitted to the competition commission for approval. the commission had already approved the vaal sanitaryware acquisition.

dawn's rationale for the acquisitions was that it was a continuation of the strategy it embarked on when it acquired cobra watertech about 18 months ago.



dawn was involved in the wholesale distribution of plumbing and hardware. the acquisitions involved the vertical integration of the main brands it distributed.

beukes said dawn used to distribute more than 50 percent of the production output of cobra watertech and was in a similar situation with regard to vaal sanitaryware. "it made sense to get closer to the production and participate more actively in the marketing and production planning."

both vaal sanitaryware and dpi were non-performing businesses and dawn had a number of strategic plans that it had to implement urgently. it was therefore premature to give any indication of the effect of the acquisitions on dawn's earnings, he said.

beukes said dawn intended to double the production capacity of vaal sanitaryware, which it believed was the reason for it not producing positive financial results.

vaal sanitaryware had a workforce of 380 and the intention was to retain this level or increase it.

however, beukes said the scenario at dpi was slightly different because the market capacity for pvc piping was running at about 50 percent utilisation. "we will have to implement some restructuring. dpi employs 880 people and initially there will be some retrenchments."

dawn shares rose 0.6 percent to r8.40 yesterday, while group five was 0.83 percent higher at r29.24. the construction and materials sector rose 1.2 percent.