BUILDING materials retailer Iliad Africa on Monday posted a marginal earnings increase for the year to December, weighed down heavily by a sharp drop in demand in the residential building sector.

CEO Eugene Beneke said a significant increase in distribution expenses and tougher market conditions had also brought the operating margin under pressure.

He said fuel price hikes of more than 50% accounted for the bulk of the extra costs, which had seen margins drop from 8,3% to 7,7%.

Headline earnings per share rose 5% to 177c while headline earnings increased 1% to R249,7m from R247m in the previous comparable year. The group posted a 10% rise in turnover to R4,6bn, 8% of which it said was attributable to the successful integration of recent acquisitions.

However, the group said its focus on operating efficiencies, cost controls and group procurement had offset the effects of the downward pressures on demand and resulted in healthy cash flows. The JSE-listed company sources, distributes, wholesales and retails general and specialised building materials through its 112 stores.

“Operating profit nonetheless rose by 2%, again highlighting the success of Iliad’s strategic focus on its decentralised owner-manager business ethos and its ability to focus on internal efficiencies, its financial disciplines and its improved procurement skills,” Beneke said.

“Working capital was again well managed, resulting in good cash flow for the year,”

Beneke said slowing activity had been particularly evident in the residential market as demand continued to contract, with the most pronounced effect in larger towns and metropolitan centres.

“The start of several new housing developments has been postponed, given the state of the market, protracted effects of the introduction of national credit legislation, concerns about power supplies and the slow pace of regulatory approvals.

“The nonresidential market, which until now has countered slowing residential activity, began to reflect the downturn as the rate of growth (measured by building plans passed) slowed in the second half, albeit off an extremely high base. The market for additions and alterations, which is directly correlated to personal disposable income, has slowed, but should improve once falling interest rates take effect.”

Beneke said trading conditions in the current year were expected to remain tough, but that Iliad had the means to ride the turmoil.

He said given the healthy balance sheet, Iliad was looking to grow through acquisitions. “Although tougher market conditions are expected to impact on group turnover, Iliad will leverage its conservative debt structure and strong cash-generative ability to generate the cash flow required to fund anticipated acquisition opportunities.”