Turnall's volumes to surge 20% by year end

Published: 27 May 2014

Turnall MD John Jere told the AGM today that the cash model adopted by the company in 2014 as opposed to the credit sale model was met with resistance therefore affecting volumes although they firmed up in April and May as they are forecasting sustained growth up to year end.

"In adopting the model, management was aware that we were going to meet with some resistance and therefore we had to be prepared to forego profits if we were to generate the cash flows and change customer mind-sets around the cash model.

"Despite a slow start and the change of model towards a cash model, volumes have firmed up in April and May and we are forecasting sustained growth up to year end. We're expecting volumes growth of about 20% over last year driven by concrete tiles which were not there for the full year 2013. The tile and speciality business is forecast to contribute 25% in turnover at $12.5 million," he said.

Giving a trading update for the first 4 months to April Jere noted that given the liquidity constraints and therefore the generally difficult operating environment, Turnall's strategy going into 2014 was focused on working capital management as opposed to market share growth.

The key pillars on this strategy, as indicated by Jere included cash generation in an effort to improve cash flows through improved cash collections and inventory reduction.

"To that end, a cash model was adopted as key in 2014 as opposed to the credit sale model which has been in place since dollarisation.

"When we came into the new year we were aware of the liquidity issues and the constraints which were impacting demand. Demand generally was subdued in the first 4 months of the year and our capacity utilisation was around 45% (vs 55% in the prior period)," said Jere.

Sales declined by 17% to 16 000tonnes while gross profit margins were lower than previous year.

Commenting on working capital management, he said; "Net working capital has come down by $2.2 million mainly due to trade and other receivables reduction of $4.6 million. Debtors have also come down from $17.5 million to $13.0 million. The thrust is to reduce this number to around $10 million by year end."

Jere also noted the reduction in inventories by $300 000. Meanwhile, the amount generated from reduction in debtors and inventories has been applied to reduce trade payables and borrowings.

Trade payables were as a result reduced by $2.5 million while borrowings have been reduced by $800 000 and they are currently in discussions to re-finance their borrowings.

"The PTA $5 million has been fully paid and we have approached the same for working capital facility to refinance local expensive debt. In addition and on the back of the current cash model, these efforts should see the debt reduce to around $3 million by end of year," he added.

Moving to the outlook, Jere indicated that they expect exports growth to contribute $3.5 million, turnover growth of 16% to $50 million and an improved profit.

On the working capital front, he stated that the group is anticipating a debtor's book of around $10 million against 2013's $17.5 million, borrowings of around $3 million vs $9 million recorded in the prior period which should significantly help in lowering their interest payment for 2014 and beyond.

"Given a net asset value per share of 5 cents, my view is that the current share price is not a reflection of the fundamentals in the company given the prospects for growth going forward," noted Jere.

All the directors were reappointed at a directors' fee of $147 075 and the auditors KPMG were also reappointed at a fees of $70 000.

- zfn

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