Divisional reports

Commercial Products

Sustainability

48% of employees are women

15% less electricity used at manufacturing facilities

Russel Hobbs launched energy efficient product range

Sustainably recycled unusable IT spares

Howard Greenstein, chief executive
Margins were well managed and cash generation significantly higher.”
Howard Greenstein, chief executive

Salient features

  • Trading profit 13.2% down at R617 million while revenues increased 1.7%
  • ROFE: 24.6%
  • Overall gross margin higher and margins well managed across all businesses
  • Strategic re-set underway within certain businesses
  • The consumer cluster’s growth largely unchanged, but industrial businesses impacted by tough market conditions
  • Excellent cash generation
  • Online sales strategy gaining traction
  • Plumblink opened its 100th branch

Review of the year

The division offers products and services within the consumer and industrial sectors of the South African market.

Generally, margins were well managed across the division with the gross margin increasing year-on-year and overall cash generation significantly higher. Operating expenses remain a key imperative in this constrained market environment and management has increased attention on those businesses where costs require a greater focus. The supply chain and other system efficiencies are being enhanced.

The consumer unit, which supplies most large retailers in South Africa with a variety of market-leading brands and products, did well considering current market circumstances. Trading conditions softened noticeably in the second half of the year. Many products within the superior brand portfolio have maintained robust demand, which was the main reason for sustained profitability. During these times of market constraint, customer interactions are being augmented, together with a focus on supply chain efficiencies to further improve margin management. The contribution from Home of Living Brands increased, which is commendable. MotoQuip and Interbrand both had an excellent year with the businesses achieving double digit trading profit growth. Academy Brushware’s trading profit was down. Yamaha had an average performance with trading profit only slightly up, but commendable under the circumstances. Yamaha has also expanded its footprint.

The decimation of the South African construction and infrastructural development sector severely hampered the industrial businesses. While the mining industry is showing some signs of growth, it was not sufficient to offset the declines in other sectors.

Product price points across all businesses are being revaluated, while business models in some instances, are being re-set. Niche businesses areas, among them, Burncrete and Plumblink, performed well, principally as a result of good margin management and cost control. Afcom, Berzacks, Bidvest Material Handling and Buffalo Tapes all experienced declines in trading profit. G Fox, which this year included the acquisition of Industrial Safety Products, delivered an acceptable result. Matus and Vulcan were down. Rentech continues to be harshly affected by the downturn in the country’s construction and power sectors, with several measures being implemented to reverse this trend.

Looking forward

It is not anticipated that the South African business environment will change markedly over the next year. Currency volatility, energy cost and supply limitations as well as labour disruptions are expected to continue impacting meaningful growth. Management, therefore, remains fully cognisant that margin management remains crucial and an enhanced cost focus has been placed on all units within this division. Certain strategic initiatives, including possible acquisitions, leadership changes, improving distribution processes, and the opening of new premises and branches, will offset the difficult environment to some degree.