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The investment has paid off, but it is time for the company to fund further expansion off its own cash resources rather than by issuing shares to raise cash.
This was the message from Beige CEO Mark di Nicola in an interview with Fin24.com.
Beige released its full year results for the year ending March 2008 on Tuesday.
The company's operating profit increased by 50% to R33m and headline earnings per share rose from 2.07 cents to 2.28 cents.
Beige is a leading manufacturer and distributor of cosmetics, household products, toiletries and body care products for the South African and international markets.
Shareholder reward
While Beige management have always appeared to have a knack for putting the company back together again, shareholders would have seen the number of shares in issue doubling over the last financial year to more than 1.6bn and must surely have worried about dilution of value.
But di Nicola has reassured shareholders that this is not likely to continue.
"Unless something dramatic comes along (in the form of an acquisition), we expect to deploy our cash resources," he said.
Despite the additional paper being issued, shareholders have seen some reward for their patience.
The share price has more than doubled to touch a high of 31c before falling back to the current price of 25c. The company has also issued preference shares to existing shareholders and declared a dividend on these shares, an encouraging sign.
In terms of cash resources, the company had around R50m in the bank at the end of the last financial period.
State of play
Many an investor will attest that too often they have seen companies that grow by issuing shares rampantly, becoming highly diluted and unwieldy investments. Often management forgets to focus on operational issues in return for spectacular growth figures.
"We took a decision to sacrifice some margin in return for improved predictability of earnings," said di Nicola.
He pointed out that volume counted a lot in the contract packing and manufacturing industry and by increasing the number of longer term contracts, the business could enjoy four months lead time on confirmed orders and improved forecasting on orders of up to 12 months.
Di Nicola said that this might give some clues as to potential future acquisitions.
He confirmed that the company would not necessarily tie itself to acquisitions in the contract packing and household product lines but would consider branching out into pharmaceutical or chemical industries if they made good strategic fits.
He pointed out that the food, pharmaceutical and chemical industries all enjoyed overlap in the form of similar technologies and legislation and as a result could provide synergies for existing operations. * The writer holds shares in Beige.
- Fin24.com
