Nu-World earnings drop

Net operating income declined 15.6% to R57.739 million for the period, despite group turnover being for the half-year being up 18.9% to R1.251 billion.

"The weaker rand and higher fuel and commodity prices are driving up input prices across our product range," the group said on Tuesday, 6 May.

It added that operating margins had also come under pressure in an intensely competitive South African marketplace.

"Australia, the United Kingdom and the USA are experiencing similar aggressive competition in tight market conditions and as a consequence, operating margins for the Group decreased by 1.9% to 4.6% (February 2007: 6.5%)."

The group noted however that the issues surrounding Eskom's power supply and pricing had opened up new opportunities for generators and appliances powered by alternative fuels, including gas, paraffin, solar and ethanol.

"Our Conti generators now range in size from small price-entry 850W 2-stroke petrol motors to huge 110KVA 3-phase diesel engines. We are actively building our range of gas appliances from price-entry table-top cookers to heaters and extending our offering of gas stoves. Paraffin heaters and cookers are in huge demand and we have launched an ethanol gel cooker as a safer alternative energy cooking option," it added.

Looking ahead, Nu-World said it was evident that the average South African consumer was under financial pressure. As a result, retailers and wholesalers were reporting a contraction in the rate of sales growth, more particularly within interest rate sensitive product categories.

But it added: "Notwithstanding difficult and aggressively competitive market forces, Nu-World has achieved growth in revenue and continues to pursue new opportunities for growth."

It said the group looked to its diversification to sustain growth. "We are diversified across a broad range of product categories and 21 leading international and local brands. In Southern Africa, we are diversified across LSM groupings, from price-entry to top-end.

In addition, the group is diversified globally, with operating subsidiaries serving Australasia, the United Kingdom, the USA. and Canada.

"A number of years of sustained economic growth has supported a structural change within the economy. The economy now comprises a broader middle class, comprising a growing number of consumers with a higher discretionary spend, within the LSM 7 to 10 categories.

"Directors are of the view that 2008 will be a difficult year, but with cost-cutting initiatives underway, lower inventory target levels and higher stock turns, new product initiatives and range extensions, the group will weather the challenging times and deliver sustained growth in the medium and long-term," the group said.

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