Verimark finds import-linked price hikes deter customers

Verimark's Mike van Straaten says that for the first time in 37 years the company has hiked prices twice in one year because of currency fluctuations. Image: Think Sales

Verimark reported a 5% slide in sales to R430.5m as price increases caused by the recent rand/dollar exchange curbed customer s' enthusiasm for the company's mainly imported product lines.

These include a variety of household appliances‚ cookware‚ automotive care lines‚ toys‚ and beauty and fitness products.

This was an untimely top-line setback‚ as new efficiencies gained from consolidating its warehousing and distribution facilities into one unit fattened up the gross margin to over 40% (from 36%).

Although operational cash flow was a sturdy R39m (equivalent to 34c a share) and headline earnings came in markedly higher at 17c a share‚ Verimark opted to err on the side of caution by not declaring a dividend.

No dividend for the year

Verimark has a policy of paying out 50% of its net income in dividends‚ but Chief Executive Mike van Straaten stressed a need to preserve capital with the company set to start its Christmas product buying in August or September. "We don't want to be caught short when we have to buy products for our strongest sales period."

He said a dividend - possibly a special distribution depending on the underlying operational performance - could be considered in the new financial year.

But Verimark has a tricky financial year ahead with the rand - which has lost 20% against the dollar over the last financial year - still trading at weak levels.

Van Straaten said a careful balance was needed when hiking prices to customers to match the increased import cost.

He said if the company matched the increased import costs with a price hike to customers‚ the revenue line would be harmed. "We have to find a middle ground where we can recover some of the cost and still retain our clients."

Van Straaten said for the first time in Verimark's 37-year history there were two price hikes in a financial year.

He said Verimark increased prices in June on average by between 10% and 12%‚ and then instituted another price hike in February‚ just before the close of the financial year.

Van Straaten said one tactic for the new financial year was to increase the mix of "lower priced" products. "The consumer is much more inclined to accept an increase on a R199 item than a R4‚999 item."

In the year under review‚ Van Straaten said Verimark scored strong sales from its beauty products (Jean Robere hair styling brands and the Rox wrinkle remover) as well as its food processing products.