Review of the year
|R million||Year ended
30 June 2020
30 June 2019
|Revenue||11 943||12 851||(7.1%)|
|Average Funds Employed||4 151||4 157||(0.1%)|
The division experienced depressed trading conditions driven by reduced industrial and construction demand as a result of the very poor economic conditions that have been experienced in South Africa, which was evident way before COVID-19 become a feature. This was further compounded by severe restrictions placed on all our businesses during the COVID-19 lockdown.
Trading profit contracted 47% to R393 million. A stand-out feature over the year, however, has been our excellent cash generation which is commendable considering the same difficult environment is being felt by our customers and suppliers alike.
Gross profit margins declined due to lower factory recoveries, while trading margins were well controlled. It is very pleasing that the operating expenses were well managed, decreasing by 2% including restructuring costs, which has been a commendable achievement in these uncertain and unpredictable times.
As can be expected following the severe restrictions that were put in pace during the various lockdown levels, sales from our trade-related division were severely constrained. Plumblink's revenue mix continued to shift away from contract sales to the insurance sector and trade sales. Its large footprint and well-regarded, sought-after product range continues to ensure its competitiveness, but the market environment has been more challenging than anticipated. Bidvest's former electrical businesses was amalgamated into the trade cluster of the Commercial Products division, with a new management structure put in place and various operating changes made.
Building activity during the period under review was extremely hard hit, resulting in the traditional wholesale activities and Versalec experiencing tough trading conditions. The specialist businesses fared better, particularly Cabstrut, Electech and MVLV.
The electrical businesses are being assessed for better efficiency and profitability. Management changes, technology introductions, branch restructuring as well as better positioning for the growing renewable energy sector, are all being carefully considered with changes implemented where necessary.
Despite the difficult operating environment, there were some excellent performances within certain of our businesses, specifically from G Fox, which delivered exciting product innovations and new contracts, ending the year as the largest profit contributor to the division. Afcom excelled, improving gross profit without effecting a decline in operating costs. The warehousing operations increased profits with Bidvest Materials Handling producing a pleasing performance, ensuring good margin management by delivering a larger rental fleet and a better product mix, which assisted in achieving its result.
In some instances, because of the lockdown, there have been two months of absolutely no activity, and sectors such as the catering, DIY/Tools/Workwear, leisure, packaging and the general industrial clusters all reported declining trends. Most of our businesses in Commercial Products were plagued by lower demand, poor factory recoveries and lower margins, with the operations in Namibia delivering a poor result.
We have completed detailed and in-depth reviews of each business within the division and have taken the appropriate action where necessary. This is leading to an improved cost base and enhanced efficiencies, which will contribute to better profitability into the future.
There is evidence of commodity and product price increases as well as product shortages in the market. Our strategic intent is to ensure that we are optimally positioned to take advantage of the uptick in certain markets. Our scale advantage is important, and we are expecting a level of market share gain and opportunity to flow from our stock availability.
While tough trading conditions are expected to continue, our intensified focus on product and margin management will remain key focus areas, particularly given the prevailing currency volatility.