Turnall building capacity to compete in 2013 and beyond

Turnall building capacity to compete in 2013 and beyond
Published: 10 June 2013
Turnall Holdings reiterated its $300 million annual turnover target by 2015 even as its F12 financial performance weakened compared with F11 as MD John Jere told analysts yesterday that they are building capacity in the business to compete in 2013 and beyond.
 
"It's a question everybody asks me if we will achieve this $300 million figure…the focus for the business has been to build capacity. We know the environment has been challenging but I think the key for us is how we build capacity. When the business environment changes we should be ready to perform at the highest level," he said.
 
Jere said there has been growth in the mining and financial services sectors which had a positive impact on the firm. However, he pointed out that there are more negative factors than positive factors.
 
He mentioned that liquidity constraints, delays in customer payments, low FDI flows, subdued demand, increased competition and high interest rates (of between 18-25%) negatively impacted the turnover of the group in the period under review.
 
He noted that the group's capital utilisation for 2012 was at 55%.
 
"As a business we were faced with key strategic decisions that we had to make. One of them was that we had to align what was happening in the business to what was happening in the operating environment …up to April we were 16% ahead of last year but we realised problems in stock, debtors and cash flows…," said Jere.
 
The firm reduced emphasis on growing volumes and decided to focus more on cost control and strategic positioning through capacity building.
 
On competition, Jere said; "competition remains stiff, because of a lot of imports coming through and a Chinese manufacturer who also came on board. The competition however, was price-based competition…and there has been a 10% drop in our product prices."
 
He indicated that since 2010 Turnall had not made any price increases yet inputs prices always go up.
 
The company's volumes are all in the negative primarily due to the change in the strategy to deal with the changing environment.
 
Jere said strategic partnership is important and the firm is mainly partnering with distributors and they are getting daily deposits directly from distributors.
 
Export volumes for the period under review came down by 12% to $73 565 and this was a deliberate tactic to delay exports because the firm wanted to put in place payment instruments.
 
"Our exports numbers for F12 were not as high as we anticipated primarily because we needed to put safeguards in place in terms of payments. We are dealing with government institutions in South Africa and I think one thing that we want to make sure of is that we are paid," he said.
 
He added that the firm has put a lot of effort in F13 in developing structures that ensure that they are paid for their goods and services sold on credit.
 
Looking at the firm's export market, Jere indicated that they are already established in SA where they now have offices and a warehouse. He highlighted that they are aiming at "growing that operation so that it plays a significant role in the Reconstruction and Development Programme projects in SA."
 
The group is also aiming at expanding markets in Mozambique, Malawi, Angola, Zambia, Botswana and Namibia.
 
Furthermore, he noted that Turnall will also be focusing on the interesting developments in Mozambique, Tete where they will be providing a special type of product required there.
 
Jere also took note of opportunities that are coming up in the Zambian Nkana Water Bond whom they are already manufacturing pipes for.
 
Presenting on the financial highlights, finance director Robert Dube said the firm changed its strategic thrust to working capital management rather than volume growth and are looking at selling to quality customers who purchase using cash.
 
"There has been rationalisation of distributorship networks as we weed out those debtors who did not pay up for credits…we are looking to sell to quality customers who would pay back ," he said.
 
He noted that margins have been maintained and effort is being applied in maintaining it. The gross profit margin was at 29.1% compared with 30% in 2011.
 
As mentioned by Dube, the administrative expenses were at $6.6 million from $6.4million whilst the profit before tax was at $1.2 million from $5.1 million.
 
"We've managed to control the costs, but under administrative expenses you can see that it has slightly gone up, the reason being when you cut down on all the other activities your overhead structure remains the same," he noted.
 
He also added that the group's earnings per share was at 0.21c. Meanwhile the net finance costs were at $3.1 million against the $2.3 million posted in the prior period and according to Dube this was mainly due to the short term borrowings which have existed throughout the year.
 
Commenting on the borrowings, Dube noted that although they are still high, management has made efforts to reduce them since they eroded the firm's profitability. He said the group will restructure their borrowings and look at refinance using PTA bank facilities which charge 6% versus 18% on short term bank borrowings.
 
The group's EBITDA came down to $6.7 million from $9.2 million.
 
Jere also said that starting June the firm will be producing the concrete tile for their market and they will channel cash towards the non-asbestos plant in Bulawayo.
 
"Not much has been happening in the pressure pipes and sewer pipes market primarily because of funding problems.
 
"A number of government funded projects that we've been targeting; if you look at the disbursement rate is around 3-4% in the budget in 2012 towards sewer and pressure pipes for water reticulation so we didn't benefit a lot."
 
He noted that raw materials have remained almost the same whereby they continue to acquire cement from local suppliers although they continue importing fibre.
 
"We continue to import chrysotile fibre from Brazil and from Russia but there are developments on the local mine which we are pleased to talk about. We have started since November-December receiving some fibre coming from our local markets.
 
"We have now started doing projects which afforded them to produce about 30-40% of our requirements in terms of fibre which means that we have to reduce the amount of fibre that we're importing," he said.
 
No dividend was declared as the group seeks to strengthen its working capital position and at the same time take advantage of some of the new opportunities that have arisen in the export market particularly in South Africa.

- zfn
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