MANUFACTURING: KayDav Scores On Better Trading
Recent Western Cape Business News
WOOD board and panel specialist KayDav has consolidated its position in Cape Town by pulling off a sizeable property transaction in April after reporting encouraging profit growth numbers in the 2011 financial year.
KayDav – via its wholly owned subsidiary Sign and Seal Trading 154 – acquired a property letting enterprise and related immovable property in Bamboesvlei Road, Ottery for almost R14 million.
It may seem a little illogical for KayDav, which has only recently re-focused on its core wood distribution business, to be venturing into property endeavours. But the company is acquiring the properties in order to secure tenure of the premises, which currently houses KayDav’s head office as well as its Ottery warehouse.
Although KayDav will need to fund the property transaction, the deal will unleash longer-term savings as escalating rentals are taken out of the equation.
Despite the extra spending, CEO Gary Davidson stresses KayDav is still operating from a sound financial base to provide a platform for its activities.
He adds that KayDav remains focused on increasing its market share and profitability while maintaining and improving working capital efficiency.
In terms of servicing the extra gearing incurred on the property transaction, KayDav can also take considerable comfort from its year to end December 2011 profit performance.
KayDav, which supplies mainly wood-based panels to the construction, shop-fitting and furniture industries, managed to push up turnover by 5% to R484 million. The thin-margined manufacturing now only comprises some R41 million of turnover, the balance coming from the board distribution division.
Davidson says the lack of selling price inflation (as a result of the over supply of wood based panels) continues to slow top line sales growth.
But he notes that despite the lack of selling price inflation KayDav is able to return to historical gross margins after the significant pressure experienced on gross margins during the previous financial year.
This means KayDav’s gross profit showed an encouraging 15% spike to R151 million.
Even more heartening is that operating profits increased by more than 50% to R26.4 million with Davidson pointing out that the increase in operating expenses (R125 million) is only 7% above the previous year. Almost all the operating profit was generated through the board distribution division with just R184 000 generated by the manufacturing activities.
It seems like the remaining manufacturing capacity will really serve in-house needs, and in this regard KayDav also acquired two manufacturing machines for around R830 000.
Looking ahead to the 2012 financial year, Davidson notes that while supply still exceeds demand for wood based panels and is pressuring selling prices, the company has noticed signs of increased demand during the first quarter of 2012.
“These early signs bode well for 2012 but are tempered by the ongoing uncertainty about local and global economic growth. We therefore expect moderate growth for the 2012 financial year.”
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