Recession strips back Freeworld earnings
November 18, 2009
By Roy Cokayne
The difficult trading environment caused by the recession knocked the financial performance of Freeworld Coatings in the year to September.
The listed paint and coatings manufacturer yesterday said diluted earnings a share declined by a third to 70c from R1.05 in the previous year despite revenue remaining steady at R2.7 billion against last year's record high of R2.69bn. Operating profit declined by 19 percent to R321.7 million from R396.9m.
André Lamprecht, Freeworld Coatings' chief executive, yesterday attributed the lower operating profit to a 5 percent lower trading result, a R9m higher depreciation charge as a consequence of a capital expenditure programme and the impact of fair value adjustments on financial instruments.
Lamprecht said the group had a long established policy of taking forward cover for imported raw materials and capital expenditure items, which in the past had served it well.
The strengthening of the rand during the financial year resulted in the group recording a mark-to-market fair value loss on financial instruments of R26.2m compared with a profit of R15.4m last year.
Lamprecht said the company produced a solid set of results for the year in the tough recessionary economic conditions.
"We continue to invest in the business with over R100m in capital investment over the past year and the recent launch of three exciting new product ranges."
Lamprecht said the performance of DuPont Freeworld, which supplies paint products to vehicle makers, was severely affected by motor manufacturers cutting back on production.
The decorative coatings division achieved turnover of R2bn, similar to last year, while earnings before interest, tax, depreciation and amortisation (Ebitda) excluding fair value adjustments declined 3 percent to R296.3m.
The performance coatings division's turnover increased slightly to R1bn but Ebitda excluding fair value adjustments dropped by 13 percent to R129.5m because of margin pressure, largely from customers abroad.
Lamprecht said the company was well positioned to take advantage of any upturn when it came because it had strong brands, a comprehensive product range and a wide distribution area both in South Africa and surrounding territories.
"We continually evaluate the extension of our footprint and a number of specific opportunities are currently being evaluated, including some outside South Africa. The business will continue to pursue suitable acquisition opportunities that fit its strategic direction," he said.
A final dividend of 7c a share was declared, lifting the dividend for the full year to 12c.
The shares closed 3.2 percent higher at R8 yesterday.
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