Expansion, acquisitions deal blow to SA French profit

Posted On Thursday, 02 October 2008 02:00 Published by eProp Commercial Property News
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ALTX-listed distributor of tower cranes SA French’s profit fell in the year to June, knocked down by costs of expansion and acquisitions of additional units to meet an upsurge in demand in the rental market.

Quentin van BredaThe costs were associated with new branches opened early this year in Cape Town and Durban as well as finance charges linked to the acquisition of additional units for the rental market.

Net profit fell to R6,9m compared with R12,7m in the previous year and headline earnings per share dropped to 4,68c from 10,12c. Revenue increased 25,7% to R152m from R121m while operating profit declined 36,8% to R12,9m.

The company’s gross profit margin decreased 2,7% from 25,2% to 22,5%, which it said was largely because of currency volatility.

CEO Quentin van Breda said the results were “satisfactory” despite “challenging” market conditions.

He the said opening of new branches and the acquisition of the new fleet was a capital intensive exercise that required a substantial investment on the company's part.

While developing infrastructure was costly and the initial costs were in most cases once off, management felt strongly that it was necessary to establish a national presence.

Van Breda said most of the expenses were budgeted for and SA French expected the investment to pay dividends in both the short and long term. “It is, however, undoubtedly the correct route to follow and as an emerging business model it will certainly generate substantial future cash flows,” he said.

“Despite challenging market conditions we have delivered satisfactory maiden results. We can now boast the biggest and most comprehensive tower crane rental fleet in Africa. The benefits and annuity income generated by a new fleet of tower cranes with an average lifespan of 20 years are undeniable.”

The company had to acquire new rental units after a spike in demand for crane rentals as a result of the uncertainty caused by the electricity shortages, the company said.

The electricity supply crisis earlier this year caused uncertainty for many of its key clients in the construction industry. This resulted in delays in the awarding of several infrastructure projects and construction companies responded by restricting or delaying capital expenditure decisions such as the purchase of tower cranes, it said.

“This change in market dynamic resulted in a change of focus in SA French’s business. The group has experienced an increase in demand for crane rentals as many of its clients were seeking to keep costs variable until there was certainty on power supply,” SA French said.

 

Last modified on Tuesday, 08 October 2013 09:16

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