The continued depreciation of the rand hurt Verimark’s turnover for the year to February, resulting in product price increases and slow volume growth, the direct response retailer said yesterday.
However, the company, which sells imported products through retailers and its 82 stand-alone stores, was able to weather the storm through operational cost savings as a result of centralising and consolidating its distribution centres.
The group recorded a decrease in revenue of 5.2 percent to R430.5 million from R454.1m in the previous year.
Operating profit, including the one-off costs of the group’s black economic empowerment structure, increased from R16.6m to R29.6m.
Headline earnings a share doubled from 8.4c in the previous period to 16.9c.
Verimark’s chief executive, Michael van Straaten, said the continued depreciation of the rand over the past three years had hurt the group.
The rand had depreciated “in the region of 58 percent in the past three years”.
“In the reporting period alone it depreciated by about 20 percent, but we were not able to pass all the costs on to the consumers. We unfortunately had to absorb some of these costs,” he said.
“Even though our cost of product over this period increased similarly, we elected not to increase our selling prices to the same extent, given the impact that it would have had on our sales volumes,” Van Straaten said.
Verimark was able to increase its prices by between 10 percent and 15 percent in the past year.
The expected reduction in gross profit due to reduced revenue was more than offset by cost saving initiatives and an improvement in operational efficiencies.
Van Straaten said Verimark was able to work on the consolidation of its four distribution warehouses into one.
“The reason Verimark embarked on a serious cost savings exercise over the past two years was we had worked from four different warehouses and there were a lot of inefficiencies with stock control and other issues,” he said.
Verimark had improved its systems and cost increases were now below the inflation rate. “This shows that all the hard work in past few years was finally paying off.”
These initiatives had a direct impact on the management of working capital, which, in turn, resulted in significant improvements in the group’s cash flow.
Working capital was reduced by R13.3m and the net cash position improved by R20m year on year.
During the year, more than 3.5 million products were delivered to Verimark customers, with over 85 000 deliveries from the new head offices and centralised warehouse.
“Despite the present exchange rate challenges, we are structurally and operationally in a much better position to capitalise on an improvement in economic conditions and will be very well placed to take advantage of local and international opportunities,” Van Straaten said.
Verimark shares gained 2.67 percent to close at 77c on the JSE yesterday.