HUNYANI Holdings is expecting a full year operating profit in October to be higher than 2013 but the pre-tax will be lower because of one-off profits on property disposals which were earned last year.Managing director Mr Dave Bain told the annual general meeting yesterday that the first quarter was quiet because of the annual shut-downs.
“Therefore volumes in the period were low.”
However, in terms of performance Bain noted that the group was on budget in volume terms but turnover was below expectations.
“This is because there is downward pressure on price from customers. Competition is intense and the weak Rand is exacerbating the situation.
“Because of the slowdown of the South African economy, companies there are employing marginal costing strategies to gain export volumes.”
Mr Bain also added that the number of customers was also shrinking. As a result, Mr Bain said,there was considerable pressure on margins.
“We are below budget at operating profit level. ‘Careful’ treasury and cash flow management had resulted in a net interest earned position, which had improved the pre-tax position.
“But the economic environment is not as friendly.”
The group had spent $2 million in capex, mostly in cartons, labels and corrugated. Mr Bain said the group would work on projects in the Corrugated tobacco section.
“This will be presented to the board shortly for consideration.”
Corrugated, Mr Bain said, had a pleasing start to the year with some expected tobacco orders contributing to higher than expected volumes.
The tobacco size is expected to increase again and this will benefit the division in the second half. However, growth is also expected in export volumes for both commercial and tobacco to Mozambique, Zambia and Malawi.
“Overall, the division is performing in line with expectations although the local market is extremely competitive and volumes are volatile.”
Cartons and Labels had a difficult start of the year.
Bain said the division is still settling after the move from Bulawayo but the division was now technically capable with the new Roland printer.
He added that the speed-master printer would be commissioned later this month.
“We are hopeful this will improve performance in the label market.”
Mr Bain said the division is still performing below expectations but was now profitable and well ahead of last year.
“All markets are down on budgeted volumes but this is related to the economy and not lost market share. Price reductions are being forced on us and consumers literally can’t afford current prices of shelf products.”
Mr Bain said the division will be below budget but considerably better than the prior year. Flexible products are also below budget because of the intense competition on both SO bags and tobacco wrapping.
“As a result, price and margins have dropped as we defended market share. Volumes were down. The division had entered into a supply arrangement for teas sacks to Malawi with Nampak Malawi.
“This market is growing and we are now exploring possibilities with other sack products and tobacco wrapping. Local commercial volumes are down in fast foods and general flat bags.
“The results of this unit will therefore be down on expectations.”
Softex had just returned to profitability after considerable focus from the shareholders.
“We are forecasting a better than expected performance from this operation but this will be contingent on an improvement in the quality of tissue wadding that is being converted.”
Mr Bain said the situation on the farms remain unchanged.
The Eagles Nest and Greenacres joint venture were operational but Mganga had ceased operating due to the presence of squatters.
The group would continue with the restructuring programme that commenced in 2012.
“Having concluded the process of selling or shutting non-performing entities we are focusing on investing in continuing operations under the Corporate Capital Plan and aggressively implementing cost reduction programmes.”
Cost reduction to date had been on retrenchments but Mr Bain noted that the group would be happier in a position of strong growth coupled with employment creation.
The headcount is at 425 against 2 500 employees eight years ago.
“Still we believe that our approach of less is more will ultimately enhance performance and earnings.”
The final stage of restructuring and repositioning will be concluded in the first half of 2014.
At the AGM directors fees for the past year were approved at US$39 830 (2012: US$38 505) while auditors fees of US$103 716 were also approved.
The group changed its auditors Ernst & Young to Deloitte & Touche. EY had been auditing for the group since 1997. —* FinX.*