MANUFACTURING: Macadams Turns Up the Heat In Second Half
Recent Western Cape Business News
AFTER posting a modest R6.7 million profit in the interim period ending June, Blackheath-based baking supplies company Macadams came storming back in the second half to post full year profits of R41 million.
That means Macadams – which bemoaned a delay in spending on capital projects amongst its client base during the interim period – generated around three-quarters of its annual profits in the second six month trading period.
Macadams, historically speaking, has been a seasonal business. But second half trading usually accounted for between 60% to 65% of annual business rather than 75%.
Macadam’s resurgent second half performance allowed its holding company, Universal Industries (which also owns commercial refrigeration interests via Blackheath-based Colcab) to post a respectable performance for the year to end December 2009.
Universal CEO Daryl Paynter says Macadams had a challenging year with revenue decreasing by 13% to R295 million (2008: R338 million).
He says while the decline in revenue is disappointing, management remains confident that this was due to prevailing economic conditions rather than the loss of market share.
Paynter says food retailers are still reporting satisfactory earnings which, coupled with strong balance sheets, boded well for continued investment in new outlets and the upgrading of existing stores.
But he cautions that the slowdown in retail property development has impacted on the availability of new sites and that new store roll-outs will probably be limited until activity in the retail property market improve.
Paynter reassures, though, that there is a significant installed base of products that has a useful life estimated at between six and eight years. “The ongoing replacement of product already makes up a significant portion of revenue.”
It seems Macadams – normally a prolific exporter of baking systems and ovens – regained traction of offshore markets. Export revenue has always been a significant component of the business, traditionally fluctuating between 25% and 35% of total revenue.
Paynter discloses that for the year under review export revenue amounted to 29% of total revenue. “Having invested in additional resources to service the export market, we expect exports to improve in 2010.”
Marsden, Universal’s bakeware division that specialises in supplying baking tins and pans, had a reasonable year. Paynter says Marsden is investing in a semi-automated plant that will increase production capacity and efficiency.
Other moves are also afoot with Macadams set to shortly relocate to a new purpose built 17 000sq m factory that will offer improved production flow and warehousing. The Marsden facility will also relocate to the same facility – resulting in operational synergies and cost savings.
The relocation will cost Universal R5 million – a cost comfortably covered by the group’s available cash balances of R110 million.
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