Risks to the business

Credit risk rises in line with insolvencies. However, our businesses have robust processes in place. A risk of mounting concern is syndicated theft. Many of our businesses maintain stocks of high value items of relatively small size and low weight – prime targets for criminal gangs. We have stepped up our security measures. Dismissals for dishonesty rose sharply during the year.

Metal price and currency fluctuations are an abiding concern. Experienced management mitigates rather than eradicates the risk. Adverse consequences are most severe when one long-term trend reaches a tipping point and another trend in the opposite direction takes hold. This occurred towards the end of calendar 2008, putting pressure on margins while heightening the inventory management challenge.

The recession introduced new aspects of “people risk”; specifically, talent retention. On the face of it, rising uncertainty about job prospects in deteriorating business conditions would seem to discourage job-hopping, especially when staff can continue to benefit from training and development. Yet we continue to lose some experienced staff.

One reason was the high level of incentivisation within our division. The variable portion of a staff member’s pay can be quite high. When business conditions deteriorate, so do opportunities to earn performance bonuses. This reduces net take-home pay. In these circumstances, staff taking a short-term career view may see financial advantage in a move to a competitor offering a high basic wage with a low bonus component.

Ways of responding to this challenge are being considered.

Technology risk for us is principally a matter of correct ERP selection and implementation. We take a painstaking, step-by-step approach to ensure we adopt simple, flexible systems that can do today’s job while looking forward to tomorrow’s possibilities.

Organisational culture Despite such challenges, ours remains a highly entrepreneurial and incentive-based culture. Our business covers numerous sectors – electrical product manufacture and distribution, appliances and services, office furniture manufacture and supply, stationery, packaging enclosures, catering equipment and sewing and embroidery machines. The common characteristics are a strong work-ethic and pride in performance within one’s own niche. Our businesses are often industry leaders and our teams push hard to stay at the forefront of developments. Future A new future is unfolding in every industry in which we are engaged. We not only have to learn to survive fast-changing conditions, but how to thrive. The future belongs to the fast learners.

Paper-based information management and filing solutions have been identified as a growth area.

New opportunities will open up as South Africa enters the era of costly electricity. Appropriate product lines are already in development. In skills-starved South Africa, turnkey solutions are highly attractive. Voltex Solutions is ready to pursue this opportunity.

We will also remain alert for new acquisitions as value opportunities may occur in such a challenging business environment.

A recovery of copper prices in the early weeks of the new period may create renewed trading opportunities, while our furniture businesses are hopeful that their markets will strengthen off their current lows.

A difficult first half is in prospect, though business conditions are expected to improve in quarters three and four. For the full year, the division will seek revenue growth of marginally above 10%, with trading profit up by a similar amount.

Forecasting over a longer time-span is difficult in view of volatile conditions and continuing changes to the business climate.

VOLTEX ELECTRICAL DISTRIBUTION

The general deterioration of business conditions put our customer-base under pressure; especially mining where expansion plans went on hold in the face of falling commodity prices. The construction sector was also hit.

Some low-cost residential developments continued, but other projects stalled as the value of approved building plans fell by 40%. Commercial developments were focused on smaller niche centres. Some benefit was derived from infrastructure projects connected to Gautrain and the World Cup, but concern is mounting about the projects pipeline post-2010.

Falling demand and the depressed copper price led to write-downs on copper-related product lines totalling R34 million. Competitive pricing enabled branches to keep trading. Stock management became crucial. Stock levels had been reduced by R200 million by year-end.

Debt collection was also stepped up and debtors fell by approximately R200 million. Vigilance will be maintained. Many contractors have difficulty meeting their obligations. Our credit hand-overs are up 55% year-on-year.

Training efforts were intensified. Added attention was paid to computer familiarisation ahead of ERP implementation and operational subjects such as delivery administration, selling skills and warehouse issues.

Many manufacturers have moved to short-term working, constraining demand. Copper prices stabilised toward year-end and teams were poised to seek new growth. The effort will be spearheaded by Voltex Solutions, the proactive provider of complete turnkey solutions. The in-house Voltex LS brand is well placed to benefit from this strategy. Export potential into Africa will receive close attention