Verimark looking to turn fortunes around

CEO Mike van Straaten said the period under review had been a "challenging" one for the company.

"The bulk of the problem was the exchange rate. In other words the cost of goods increased‚ this is where we felt the most pain‚" he said.

Although the adjustment in selling prices of the group's products‚ introduced in June‚ led to an almost immediate drop in sales volumes‚ it said sales were beginning to increase again as consumers were adjusting to the new pricing structure.

The direct response retailer reported a pre-tax loss of R3.8m for the period‚ compared with a pre-tax profit of R13.1m in the previous first half. Revenue slipped 0.8% to R194.6m.

Verimark said total expenses increased by only 1% compared to the prior year.

Van Straaten said the previous two years‚ in which Verimark recorded sales growths of 38% and 33% respectively‚ had put an enormous strain on the company's existing infrastructure and cost structure and the company had been unable to extract the intended cost savings due to delays in moving to its new warehouse and head office facility.

"Unfortunately‚ the duplication of our costs continued in the review period due to the fact that we were operating from four different sites rather than one. However‚ all stock at our old warehouse was moved to the new centralized warehouse in September and the other two warehouses will be moving in November‚" he said.

The unexpected delay in the completion of Verimark's new‚ double the size head office and warehouse‚ will continue to impact negatively on hurt efficiencies and costs until January 2013 when occupation is expected‚ yesterday's results statement said.

No dividend was declared for the period under review.

Verimark supplies up to 2‚000 retailers with its products and has 80 stores across the country.

Notwithstanding the challenges experienced in the past‚ the group said its the medium and long term prospects remain positive.

The company‚ whose products include the 'Floorwiz' and the 'Pool Gobbler Pro'‚ has embarked on an intensive recruitment drive to attract senior managers to complement its existing management team‚ which will further accelerate the rate of new product introductions to the market and allow the business to explore a number of new business opportunities currently under consideration.

An increased number of tested new products will also be launched in the current six months‚ Verimark said.

In August‚ when Verimark warned shareholders it would report a headline loss per share‚ it said part of its problems were it was out of stock on two key products.

Verimark said it rejected an inbound shipment from a specific supplier due to the product being out of specification.

This resulted in rework of the product by the supplier‚ which caused a two month out of stock situation. In the second instance‚ Verimark had taken a decision to replace an existing product with a substantially more improved version. Unfortunately‚ the introduction of the new product was delayed and resulted in an out of stock situation.