Building materials supplier Iliad appears to be experiencing the upside of a 2013 decision to cull several lossmaking divisions, this week posting a dramatic 80% increase in headline earnings per share (HEPS) to 72.3c for the year ended December 31.

The company’s operating profit increased to R133-million for the 12 months, while net finance charges dropped 6% year-on-year to R9.1-million, enabling the company to declare a full-year dividend of 22c a share.

Comparable group revenue for the period increased by 2.2% to R4.36-billion, which the company said reflected the continued subdued trading environment and competitiveness of the industry. 

CEO Eugene Beneke told Engineering News Online on Tuesday that the substantial improvement in earnings, besides other indicators, reflected the continuing benefits of the group’s portfolio adjustments, which saw the disposal of lossmaking businesses Ferreiras, National Tile Traders, Thorpe Timber Company and Timber Preservation Services.

“The revenue line shows that it is still very competitive out there. A competitive revenue environment, negated by gross margin improvements and well managed expenses with good cash flow and strong balance sheet contributed to this increase in [HEPS].

“Despite these conditions, we were able to achieve a 1.2% improvement in gross margins, mainly due to internal efficiencies,” he said, ahead of the group’s Wednesday results presentation.

Additionally, year-on-year expenses increased by “only” 0.8%, reflecting the impact of the 2013 portfolio adjustments and the focus on expense management to partially negate costs associated with investing in key strategic initiatives.

Noting that the past few years had been a challenging period for the building materials supply industry, with low gross domestic product growth, increasing industry inflation of some 4.5% and conservative bank lending criteria, Beneke noted that the group’s ongoing focus on procurement efficiencies and improving cost structures had countered these conditions to some extent.

Under these circumstances, Iliad’s general building materials division achieved mixed results, with the inland subdivision achieving a 3% increase in revenue, and the coastal subdivision recording a revenue decrease of 2.9%.

Noting that the revenue trends in the group’s coastal divisions had “not lived up to expectations”, Beneke said the decline was largely owing to the level of infrastucture spend in KwaZulu-Natal and the Western Cape not living up to expectations, while the contractor’s environment remained under pressure.

“It’s also not that easy getting building plans approved, given some of the infrastructure challenges we’ve got in the country,” he commented.

He added that the group was not considering possible store closures but was, on the contrary, looking at opportunities for new store openings and was currently undertaking feasibility studies on possible expansion in KwaZulu-Natal to create critical mass.

“We don’t think that the revenue trend [from the coastal regions] is a long-term issue, as the reality is that the Western Cape and KwaZulu-Natal are two of the biggest contributors to gross domestic product. While there may be short-term dynamics, it doesn't necessarily impact on the long-term growth expectations of these regions,” he commented.

The specialised building materials division, meanwhile, reported comparable store revenue growth of 8.6%, benefiting from the various portfolio adjustments.

Beneke added that expanding the group’s footprint and enhancing customer satisfaction would remain a priority in the year ahead. 

“Market indicators are now reflecting opportunities for real growth going forward and we remain convinced that we have set the foundation to take advantage of these.

“We anticipate gradual 2015 revenue growth in a year that will continue to be challenging and competitive,” said Beneke.  

He added that the group was observing a “gradual” improvement in building industry confidence levels and planned to leverage its newly integrated enterprise resource planning platform to facilitate various projects to improve its competitive position. 

“We’ve been through a significant [number] of changes over the last few years to put out a result which is comfortably our best result of the last four or five years and shows the underlying health of the group. This is a sound platform from which we’re looking for key opportunities to expand the business,” he concluded.

Iliad ended the year with net cash reserves of R97.1-million, compared with net cash of R38.8-million the year before, owing to significantly higher cash profits and the proceeds of the prior year’s disposals.