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Accéntuate ups profit; laments strike, load shedding impact

 Accéntuate ups profit; laments strike, load shedding impact

Photo by Duane Daws

2nd March 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Accéntuate had recovered well from the severe impact of the National Union of Metalworkers of South Africa (Numsa) strike in July, to produce pleasing results for the six months ended December 31, said CEO Fred Platt on Monday.

Trading for the remaining five months proved steady with evidence of improved demand and an increase in sales of 9% over the corresponding period. Operating expenses increased marginally – 2.2% – compared with the same period in 2013, he noted.

Turnover at the flooring and chemicals group increased 9%, to R170.5-million, while profit for the period increased from R3.1-million, to R4.5-million.

Profits increased despite gross margins remaining under pressure, as reduced volumes, owing to the strike, and competition took their toll.

Platt described the competition from Europe as “increasing and aggressive”, despite the weak rand pushing up the costs of imports into South Africa.

He said the strike affected flooring manufacturer FloorworX, as well as chemicals producer Safic, costing the company roughly R2.5-million in profit.

FloorworX production came to an almost complete halt during July. In turn, the employees at many of Safic’s customers were affiliated to Numsa, leading to reduced demand as they scaled back operations.

Inventory levels reduced as planned during the first portion of the period. However, explained Platt, the levels of locally manufactured products were deliberately increased during the last few months in 2014, in anticipation of load shedding, expected to affect production during the first part of 2015, as was indeed the case.

LOAD SHEDDING TOLL
FloorworX contributed 78% to group revenue.

Sales increased by 11% following a marginal improvement in demand during the period, particularly from the schools sector.

Demand from the general construction sector remained subdued.

Load shedding had impacted negatively on production during December, said FloorworX MD Donald Platt, and continued to disrupt production during January and February.

He said load shedding of two hours equated to seven hours of lost production.

“We have to dump all the material on the line, and then we also need to clean the equipment and get the boilers back up.

“Load shedding is our biggest risk at the moment.”

Talks with Eskom and the Buffalo City municipality had failed to increase predictability in electricity supply, said Fred Platt.

Accéntuate’s Environmental Solutions Division comprised the Safic business operations, which contributed 22% to the group revenue.

Safic increased trade in its new target markets, especially the contract cleaning, screeds and adhesives, speciality chemicals and water treatment areas.

This growth continued to offset the decline in demand by the traditional mining and industrial customers, which had been evident for some time.

Turnover increased by 2.4% to R39.2-million, while cash operating costs decreased by 3.5%.

Accéntuate’s Water Treatment Division comprised the Ion Exchange Safic water treatment business, which was a partnership with Ion Exchange India.

Platt said the division had received more enquiries and opportunities to tender for business, and that it was in a number of discussions with potential customers on a range of water treatment solutions.

It had almost reached a break-even level in trading during the period under review.

Looking into the future, Platt said Accéntuate was continuing its focus on expanding its customer base, while reducing costs and improving efficiencies.

Safic was expected to expand its reach into the process and specialist chemicals markets over the next few years, while the FloorworX plant was to increase volumes in an effort to improve economies of scale. This business was also set to expand further into Africa, with Nigeria looking especially promising.

Platt added that South African businesses should not view Africa as an area where only high margins would suffice.

“I believe this is a big inhibitor for South African trade in Africa. Businesses think they can charge $10 for goods they sell at R10 in the local market.”

The reduction in fuel prices should benefit Accéntuate’s second-half results, although there was not yet much evidence of lower prices in many other petrochemical derivative products, used in the group’s production processes.

The company would also continue to focus on possible acquisitions.

Load shedding was a major concern, with the potential to impact negatively on manufacturing recoveries and the cost of manufacturing, reiterated Platt.

Management was investigating solutions to mitigate this risk. This would require additional capital expenditure during the second half of the financial year.

Accéntate was investigating alternative energy options for its FloorworX plant that included generators, as well as a solar termal solution.

“We are looking at options to keep the plant going for four hours, as well as solutions that would ensure we can, at the very least, do a proper shutdown,” said Platt.

Safic’s operations, as well as all group adminstration functions, were already powered by generators.

Accéntuate did not declare an interim dividend.

Edited by Creamer Media Reporter

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