While revenue at Accéntuate was up 7% for the six months ended December 31, margin pressure and increased operating expenses saw operating profit before tax and interest drop to R5.3-million, down from the R10.1-million reported
for the same period in 2012.

The Accéntuate group serves the South African construction, chemicals, infrastructure development and water treatment markets.

CEO Fred Platt said on Monday that the half-year saw reduced sales to the public sector, leading to a 6% decline in production volumes at the FloorworX East London plant.

It remained unclear what effect the May national elections would have on public sector demand during the second half of the financial year.

Increased input costs owing to the weakening rand, general price pressures and growing distribution costs, as a result of higher fuel prices, also played a role.

Increased fuel and energy costs added R3-million to the group’s costs in the six months under review compared with the same period in 2012.

FloorworX contributed 78% of group revenue.

Accéntuate’s flooring division continued to target increased business in the private sector and export markets.

“The underlying businesses have performed reasonably despite increasing market pressure and have achieved a fair measure of successes towards expanding their customer bases beyond those traditionally serviced by FloorworX and Safic,” said Platt.

Chemicals business Safic contributed 22% to group revenue, lifting revenue by 7% compared with the corresponding year-ago period.

This included an increase in revenue from recurring business, now accounting for 35% of Safic’s business, which remained a focus within the division.

“The supply of chemicals, cleaning solutions and equipment to the mining and industrial sectors remains a substantial component of Safic’s business. [However], these sectors continue to experience considerable economic
pressures,” noted Platt.

“Satisfactory progress has been made in line with the two-year board-approved plan for the restructuring of the sales function, aimed at diversifying the customer base. This will provide the structure from which to build future growth.”

Safic wished to diversify from the gold- and platinum mining sectors, which used heavy-duty degreasers, for example.

“We can’t see these sectors turn around any time soon, so we are targeting the coal and base-metal sectors as additional markets,” said Platt.

The South African gold and platinum mining sector had been suffering a series of labour strikes in recent years.

Electricity costs at the Safic plant had increased from R300 000 a month, five years ago, to R1-million a month, added Safic MD Eric Platt.

“The Suntups [flooring] and Degrachem [speciality metal treatment products] acquisitions were successfully concluded and implemented during the period,” noted Platt. “They have begun adding value to the group. Both businesses are
contributing in line with initial expectations.”

He said divisions such as Safic and ION Exchange Safic should contribute significantly more to group profitability.

“Although ION Exchange Safic has not yet reached break-even, we maintain the view that this venture will become a meaningful contributor to the success of the group in the years ahead.”

ION Exchange Safic, which is a partnership between ION Exchange India and Safic, provided water treatment technologies and solutions to the Southern African market.

Despite some project approval delays, Accéntuate had managed to grow this business’ customer base.

Discussions with a number of potential clients continued. The rate of market penetration had been somewhat slower than originally expected, with additional marketing and set-up costs incurred.

The joint venture had been awarded phase 1 of a project with a gold mining company, and was looking forward to more phases.

General economic conditions for the second half of the financial year were expected to remain challenging owing to the upcoming national elections, as well as rand volatility, noted Platt.

However, the order book for the flooring division had recently increased, and it was anticipated that the school upgrade programme announced by government would gain momentum in a number of provinces.

Accéntuate would continue to identify potential acquisitions, while also managing costs, said Platt.

“Opportunities remain evident in the water treatment arena and management is optimistic that marketing efforts will be rewarded in the second half of the financial year.”

Any acquisitions would most likely “be to existing channels”, he added.