Johannesburg - Results posted by consumer electronics and appliance manufacturer and distributor Amalgamated Appliance Holdings (Amap) for the year to end-June 2007 have borne testimony to the slowdown in South African consumer spending.

The company is responsible for brands such as Russell Hobbs and Sansui in SA.

While Statistics SA figures show that sales of household furniture, appliances and equipment were 13.5% lower than those registered in June 2006, Amap reported a 43% decline in headline earnings over the same period to 36.1c/share.

The 8% decline in revenue to just under R2bn (compared with R2.15bn in 2006) reflects "tougher than expected" trading conditions in the company's electronics division, in which market growth rates slowed in certain key categories and aggressive price-cutting by competitors put further pressure on margins (which went from 8.4% on the operating level in 2006 to 6.6% in 2007) and volumes.

Further adding to cost pressures was a major increase in logistics costs as a result of a crisis at a key service provider, said chairperson Jack Cohen. Ultimately, the knock-on effect of these issues resulted in lower factory use and higher stock levels.

Amap says the electronics division's performance is contrasted by a good showing in the appliance division, although the company does not break down the financials for each of these divisions.

Lay-offs

The company has devised a short-term action plan to deal with the problems encountered. Besides identifying and pruning non-contributing activities and aiming to turn fixed costs into variable ones through restructuring of sales and admin (which resulted in some staff being laid off), the company is adjusting its product-selection processes to keep stock levels falling.

Also, Amap has learned that whopping sales figures can ironically come back to bite in the form of warranty costs on faulty DVD players and the like. To stem this, the company is looking to change its product mix and vendor selection.

The cost of transport is another area that's burning a hole in the pocket. Says Cohen senior: "We had been in an arrangement for three years which benefited us greatly, with transport suppliers having absorbed the increase in costs.

When the time came for us to renegotiate, however, it was clear that we would either have to see costs increase or see a transport company go under."

New TV-making, SABC digitisation opportunities

A key growth area for Amap is the start of production of LCD TV screens at its Atlantis plant under the Sansui, Polaroid and Tedelex brands, following a R20m capex investment.

Electronics head Alan Nossel says 2 000 units have already come off the production line, and that the introduction of a major new brand is imminent. Also, demand from a major unnamed retailer is "considerable". Given that local production results in a duty saving of 25%, the demand is high.

Added to this, the company has secured a major global brand as a new customer for its cathode ray tube (CRT) TVs, with a trial order of 25 000 underway. Should this be successful, it could double.

A big opportunity

Amap also stands in line to win big from the country's move to high-definition TV - as it is one of four companies (including Altech's UEC) in talks with the Department of Trade and Industry for the manufacturing of the units.

"Given that there are 7.5 million televisions in South Africa now, this is a big opportunity for us," says CEO Sheldon Cohen.

A technical committee (on which Amap serves) is currently finalising the specifications for the boxes, following which manufacturers can get an idea of cost.

Amap also expects to conclude an empowerment transaction in the 2007/8 financial year which would benefit the company and its new shareholders in acquiring government work.

Appliances offerings extended

On the appliance side, the popular Russell Hobbs brand offering is being extended to include crockery, cutlery and floor-ware. Also, a thermal kettle which retains water temperatures up to six hours after boiling will be entering the market and is likely to be well-received as consumers become more energy-conscious.

- Fin24