Amap profit sinks, looks to 2010

Johannesburg - Amalgamated Appliance Holdings (Amap) on Tuesday reported a diluted headline loss per share of 28.3 cents for the year ended June 2009 from a loss of 6 cents per share a year ago.

Revenue from continuing operations was down 35% to R1.044bn, while net loss for the year from continuing operations was down 346% to R63.4m, after a loss a year ago of R14.2m.

No dividend was declared.

The group said the year under review was defined by the economic recession and its impact on the consumer goods sector.

Amap said the need to discount the Intellipower power inverter range of products had the most significant impact on the business. The downturn resulted in reduced demand on the national electricity grid and power outages ceased.

Furthermore, as a result of the drop in world battery prices due to the fall in commodity prices of lead and copper and the fact that stock received was not of the required specification, which is the subject of a claim for refund, the company decided to discount the product. The loss attributable to this product line amounted to R65.7m before tax.

Fierce competition necessitated that Amap change its model of selling consumer electronic products to the retail trade. It no longer procures and warehouses product based on market research or demand. Instead orders are now only placed on a "back to back" basis. This change resulted in substantial staff retrenchments, stock clearance sales and forex losses.

As part of the group restructuring all trading has been channeled to one company. In line with this strategy trademarks and goodwill to the value of R5.8m before tax were fully impaired.

The change of the consumer electronic sales model together with the programme initiated in the prior year to integrate the back office functions and reduce fixed overheads has seen the staff complement reduce from 466 employees to 204 employees excluding manufacturing staff.

The impact of the downturn also resulted in short time, layoffs and retrenchments at the Group's appliance factory in Pinetown and electronics factory in Atlantis.

Negotiations with various interested parties were initiated for the sale of the Tedelex Manufacturing, Tedelex Properties (Atlantis) and the Atlantis TV factory operation - a division of Tedelex Trading. These assets are therefore classified as "held for sale" in the balance sheet.

Outsourcing services

On the positive side, housewares under the Russell Hobbs brand was launched during May 2009. Feedback from consumers and the retail trade has been good and all indications are that the introduction of this new product category bodes well for the future.

Sales in the categories of small domestic appliances and sewing machines continue to be pleasing. Whilst year on year revenue was slightly lower, gross profits grew marginally and the brands maintained their respective market shares.

In spite of the trading conditions Amap was able to generate R230.7m through working capital improvements. Cash generated by operations amounted to R152.9m. Management is confident that the business will continue to generate cash through inventory control, overhead savings and the benefits of improved product category selection that has been implemented.

Looking ahead, the group said although trading continues to be tough, it is positive about the future. Restructuring has resulted in a lower overhead base, positive cash generation and a virtually ungeared balance sheet. Significant inroads have been made with new product categories and initial indications of an export drive into Africa have been encouraging.

The prospect of lower interest rates will have a positive impact on consumer spending in the categories of goods in which the group trades and the 2010 Soccer World Cup is also expected to increase general demand for consumer durable goods. In light of this, Amap expects to improve operational performance in the new year.

- I-Net Bridge