Up until a couple of years ago, Dawood Lawrencepur's core business was the manufacturing and sale of fabrics and yarn, which generated more than 96 percent of its revenue as of 2012. But the company has been selling off all its units and their assets. The company has formed two wholly owned subsidiaries - Reon Energy Limited and Tenaga Generasi Limited. The former provides 'energy-starved customers with renewable energy solutions' while the latter is 'an independent power producer (IPP) project that consists of the construction, operation and maintenance of a wind farm.' Now, Dawood Lawrencepur's goal is to be the leading renewable energy solutions company in Pakistan, with a turnover of more than Rs 10 billion by 2020.
PRIOR PERFORMANCE The main focus of the company has been to accelerate progress on renewable energy amidst a challenging textile industry. This has been a prudent move perhaps, as the graph indicates that the discontinued operations have all been yielding severe net losses. It appears that Dawood Lawrencepur's textile business has been suffering long before the textile industry deteriorated to the near-doomed stage it is at today.
But to say that the continued operations are doing better might be misleading; the company's two reportable segments - listed as discontinued textile operations and renewable energy (provided only in the 2014 accounts) - both made losses in 2013. Moreover, the renewable energy segment made an enormous Rs 219 million loss in 2014 compared to discontinued textile operations' Rs 83 million profits that year!
But Dawood Lawrencepur's bottom line has always received a more-than-generous cushion from its other income, which has sometimes even amounted to more than the firm's revenues. This is why in FY10 and FY11, net profits were actually greater than the gross profits. This other income is mainly comprised of dividend income from Dawood Hercules Corporation Limited and gains on the sale of its businesses.
As far as the company's new direction is concerned, renewable energy does show some promise; gross margins from this segment were an impressive 21 percent and 25 percent in FY13 and FY14, respectively. This shows that the core business is strong and profitable. Unfortunately, a ton of administrative, selling and distribution expenses were incurred and the segment failed to maintain profitability. This might be because this segment of the company is still fledgling.
RECENT PERFORMANCE For the six months ended 2015, Dawood Lawrencepur's financials appear unpleasant; although gross profit skyrocketed and gross margins doubled year-over-year, the SG&A expenses rained on the parade. Even the other income - which was the equivalent of the company's net sales for the period - was not enough to cushion the company from the bottom line loss. Nevertheless, the loss for this period was far lesser compared to a year ago.
Renewable energy business turnover for the period was higher by 42 percent year-on-year. In line with low seasonal demand, textiles sales (part of the discontinued operations) plummeted by 71 percent year-on-year. However, the company continues to benefit from the ownership of the Lawrencepur brand; it operates the namesake brand under license and has increased its retail presence all over the country by establishing branded outlets in key cities while also running an integrated marketing campaign to strengthen brand equity. It continues to reap benefits for the shareholders in the form of royalty income.
As mentioned earlier, the company is in a transitional phase and as such, the strengthening of core functions like supply chain and engineering had an enormous impact on the bottom line. But in the long run, these expenses are expected to pay off.
OUTLOOK Dawood Lawrencepur has installed a number of small to medium sized solar and biogas solutions across the country. The company has won a number of solar projects in the first half of the year and is on its way to establish itself as a big player in the renewable energy market.
Shortly after its inception in 2014, Reon won two of the biggest solar energy projects in the country. Moreover, the Tenaga Generasi wind project is also progressing on track, expected to be completed by the end of 2016. Renewable energy is a lucrative market. Although it's taking a beating in the short run, Dawood Lawrencepur looks set in the long run.
===================================================================
Dawood Lawrencepur Limited
===================================================================
Rs (Million) 1HCY15 1HCY14 YoY
===================================================================
Net Sales 85 60 42%
Cost of Sales 61 52 17%
Gross Profit 23 8 188%
GP Margin 27% 13%
Other Income 84 79 6%
Selling & Distribution Expenses 57 46 24%
Administrative Expenses 79 57 39%
Worker's welfare fund - 4 -
Finance Cost 15 16 -6%
Taxation 9 17 -47%
Profit After Tax -53 -52 2%
From Continuing Operations
Profit After Tax -39 -225 -83%
From Discontinuing Operations
Net Loss -92 -277 -67%
NP Margin -108% -462%
Earnings per share - Continuing Operations -0.89 -0.89 0%
Earnings per share - Disontinuing Operation -0.66 3.81 -117%
===================================================================
Source: company accounts