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Infrastructure input provider feels effects of slowing economy

9th October 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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JSE-listed Accéntuate experienced first-hand how the South African economy had slowed over the last few months, with a potentially solid financial year losing steam towards the finish line.

Reporting financial results for the year ended June 30, the group serving the construction, chemicals, infrastructure development and water treatment markets in South Africa, noted that turnover for the year increased by 3.4% to R318.6-million, compared with the previous financial year.

Profit for the year, however, dipped to R4.7-million.

“The group was negatively impacted on by industrial action, load-shedding, the general slowdown in the construction and industrial sectors and currency volatility,” said CEO Fred Platt.

He added that the year under review had been noteworthy for the distinguishing characteristics of each quarter.

“The first quarter began with the metal industry strike in July 2014, which affected both customer [demand] and manufacturing volumes, and resulted in a major shortfall against budgeted results.”

The group did, however, see increased demand and improved recoveries, as a result of higher production throughput during the second quarter.

This led to a reasonable set of results for the half year, noted Platt.

“Despite a slow start to the third quarter, March proved to be an all-time record production and sales month for Accéntuate. Unfortunately this momentum did not continue for the balance of the financial year, with economic activity across all sectors tailing off noticeably during the fourth quarter.

“It was a bit like 2008. We came back from Easter and all activity just dried up.”

Accéntuate’s flooring division contributed 79% of group revenue, with divisional revenue increasing by 4.9% to R251-million.

However, margins were under pressure due to the metal industry strike that halted production at Accéntuate’s East London plant for a month.

Other negatives included sluggish domestic demand, the impact of load-shedding on production efficiencies and recoveries and extreme rand volatility.

Platt said the effect of load-shedding had been felt beyond the manufacturing process, adversely impacting on production planning, procurement, inventories and customer demand.

“However, divisional management responded well to these challenges by focusing on costs and flexible work practices, as well as exploring additional markets for the supply of domestically-manufactured products.”

The group’s Environmental Solutions division, which comprised the SAFIC operations, contributed the remaining 21% of group revenue.

“Although revenue in this business declined marginally to R74.9-million and margins were under pressure, operating profit almost doubled owing to extremely effective cost containment and efficiency improvement measures,” said Platt.

“Again, this was despite having to deal with a number of challenges, which included the spill-over of the platinum-sector strike, the metals-industry strike, load-shedding and currency volatility.”

Ion Exchange SAFIC, a water treatment partnership between Accéntuate, SAFIC and Ion Exchange India, was yet to deliver positively to the group’s profit line.

While lined up for a number of contracts, Platt admitted that the company would have to improve its empowerment credentials to bolster its opportunities at government level.

Looking ahead, Platt said he did not expect economic conditions to ease in the foreseeable future.

The group would continue to assess acquisition opportunities, either within its existing sphere of business, or in allied industries.

Following the “normalisation of shareholder relations” within the group in the past year, which saw a number of shareholders depart the company, Platt was positive that the company was set to grow.

“It is important to get size, to get critical mass, to make an impact. R1-billion in turnover is our first objective.

“It is very expensive to be a listed company.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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