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Johannesburg - Steel merchant Argent Industrial reported it has spent about R182m expanding its manufacturing capacity and infrastructure over the past financial year.
Some of the money went to the purchase of a 9 700m⊃2 facility by the group's steel trading division in the Western Cape, as well as the construction of a 12 300⊃2 factory for the home and office products division in Johannesburg.
The latter increased Argent's manufacturing capacity by 40% for its toolroom services division, "enabling it to enter the heavy industrial shelving market", said Argent.
Most of the transactions were in the latter part of its financial year to end-March, when it became apparent Argent couldn't rely on its steel trading business (with a large exposure to the automobile industry), which had been responsible for up to half of its revenues until the global recession came knocking.
Argent said it had produced "an unavoidable below par set of results" reflecting a 25% drop in operating profit.
"That is just the reality of the economy," said CE Treve Hendry.
He said the company was taking advantage of the lower asset prices to expand its geographic footprint and invest in infrastructure.
"The recession is a big opportunity to correct our cost base and to expand the geographic presence," said Hendry. On the cost reduction, Hendry said Argent has reduced work hours at its automobile division to cut costs. It won't be laying off any staff, however.
The group also purchased steel products manufacturer and distributor Burbage Iron Craft (BIC) in the UK. Hendry said about 50% of the UK company's imports come from Argent in South Africa.
However, the company's ability to make further acquisitions seems limited. Of the R182m infrastructure investments and acquisitions, Argent had to raise R115m funding. But that left it with a negative cash position of R63.7m in the bank, against a R24.5m deficit previously. Its gearing was "contained to" 29.9%, which Hendry said is "in line with what we like".
Argent's net profit fell to R116.9m from R200m the previous year. The steel trading division revenue contribution fell to a third of the R1.9bn group revenue, after formerly accounting for half the group's revenue.
The home and office products division, which manufactures home improvement and office equipment, doubled it revenue to R606m. Hendry said he sees the revenue mix changing further into the future, in favour of other manufacturing divisions other than steel.
- Fin24.com
