Accéntuate has 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, says CEO Fred Platt.
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 notes.
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 describes the competition from Europe as “increasing and aggressive”, despite the weak rand pushing up the costs of imports into South Africa.
He says 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. Also, the employees at many of Safic’s customers are affiliated to Numsa, leading to reduced demand as they scaled back operations.
Inventory levels declined as expected during the first part of the period. However, explains 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 indeed has been 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 impacted negatively on production during December, says FloorworX MD Donald Platt, and continued to disrupt production during January and February.
He says 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 have failed to increase predictability in electricity supply, says Fred Platt.
Accéntuate’s Environmental Solutions Division comprises 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 comprises the Ion Exchange Safic water treatment business, a partnership with Ion Exchange India.
Platt says the division has received more enquiries and opportunities to tender for business, and that it is in a number of discussions with potential customers on a range of water treatment solutions.
It has almost reached a break-even point in trading during the period under review.
Looking into the future, Platt says Accéntuate is continuing its focus on expanding its customer base, while reducing costs and improving efficiencies.
Safic is expected to expand its reach into the process and specialist chemicals markets over the next few years, while the FloorworX plant is to increase volumes in an effort to improve economies of scale. This business is also set to expand further into Africa, with Nigeria looking especially promising.
The company will also continue to focus on possible acquisitions.
Load-shedding remains a major concern, with the potential to impact negatively on manufacturing recoveries and the cost of manufacturing, reiterates Platt.
Management is investigating solutions to mitigate this risk. This will require additional capital expenditure during the second half of the financial year.
“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,” says Platt.
Safic’s operations, as well as all group administrative functions, are already powered by generators.