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Demand for low-end goods helps Beige
The downturn had brought a surge in demand for contract manufacturer Beige Holdings's lower-value products, mitigating lower appetite for its high-end lines, says CEO Mark di Nicola.
The pharmaceutical and cosmetic manufacturer said on Friday, 2 July 2010, full-year net profit for the year ended March fell to R13,4m from R29,1m a year earlier.
Slippery trend slope
The trend to lower-value products was visible in hand soap, one of Beige's most important products. "A liquid hand soap would fetch maybe R30 a bottle," Di Nicola said, "whereas a bar of soap might be R5."
He said Beige had sold about 40% less liquid soap in the year to March, but saw an increase in bar soap sales of about 80%.
The company said it moved from "traditional long production runs to just-in-time short production runs for large customers", which contributed to a gross profit decline of 1.6% to R117m.
"Last year there was a focus by all businesses on disposable income and working capital. That drive to reduce costs has seen companies reduce stockholdings and increase the frequency of orders, which has hurt our margins," Di Nicola said.
Increasing production
While Beige had no immediate targets for acquisitions, it was focusing on organic growth in the form of increased production.
"At our Durban factory we've been establishing a new facility that will double the factory's bar soap output, and add 30% to group production."
The company was also increasing investment in research and development, and was looking at manufacturing operations in neighbouring countries.
A possible move into Nigeria had been abandoned, however.
Takeover issues
The R26m acquisition in 2008 of a Midrand manufacturing site had offered an opportunity to consolidate existing operations, but that had led to a strike between July and February as the company struggled to integrate workers.
The issue had been "resolved" in February when Beige dismissed the entire workforce.
The company was also still suffering from the fallout from its 2007 takeover of packaging company Crystal Pack, whose previous owners had allegedly overstated its profits.
The National Prosecuting Authority was finalising investigations into the affair, Di Nicola said, and Beige was awaiting the outcome before deciding whether to proceed with a civil case.
The drive to restore profitability at Crystal Pack was having a negative effect on Beige, he said.
Source: Business Day
Source: I-Net Bridge
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