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 says the half-year saw reduced sales to the public sector, leading to a 6% decline in production volumes at the FloorworX East London plant.
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.
It remains unclear what effect the May national elections will have on public-sector demand during the second half of the financial year.
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 well 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,” says 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 remains 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,” notes 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,” says Platt.
The South African gold and platinum mining sectors have suffered a series of labour strikes in recent years.
Electricity costs at the Safic plant have increased from R300 000 a month, five years ago, to R1-million a month, adds Safic MD Eric Platt.
“The Suntups [flooring] and Degrachem [speciality metal treatment products] acquisitions were successfully concluded and implemented during the period,” notes Platt. “Both businesses are contributing in line with initial expectations.”
He says divisions such as Safic and ION Exchange Safic should contribute significantly more to group profitability.
“Although ION Exchange Safic has not yet reached breakeven, 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, provides water treatment technologies and solutions for the Southern African market.
Despite some project approval delays, Accéntuate has managed to grow this business’s customer base.
Discussions with a number of potential clients continue. The rate of market penetration has been somewhat slower than originally expected, with additional marketing and set-up costs incurred.
The joint venture has been awarded Phase 1 of a project being implemented by a gold mining company and is looking forward to more phases.
General economic conditions for the second half of the financial year are expected to remain challenging, owing to the upcoming national elections, as well as rand volatility, notes Platt.
However, the order book for the flooring divi- sion has recently increased, and it is expected that the school upgrade programme announced by government will gain momentum in a number of provinces.