Coatings, which distributes paint brands Plascon and Midas, traded strongly last month just after raising its prices for decorative coatings 5% in September, showing the market had accepted the increase, CEO André Lamprecht said yesterday.
The latest price increase comes after a full 12-month period to end-September when Freeworld did not raise its price because of difficult trading conditions, as spending on new residential and commercial developments has slowed for several successive years.
Recent economic indicators, such as rising household savings rates, real gross domestic product growth in the mining, construction and government spending sectors in the March quarter, substantial committed new office developments, especially in Gauteng, and improving trends in contracts awarded to architects and quantity surveyors, suggested that “the tide was turning ”, he said.
But Freeworld’s latest price increase was not enough to compensate for the steady rise in input costs. These rose more than 25% in April and January, and started to slow in recent months and were at 16% last month.
In the year to September, Freeworld’s revenue, at R2,7 bn, was marginally higher than last year’s record R2,69bn.
After higher costs and a write- down of forward contracts necessitated by the stronger rand, headline earnings dropped to 69c a share from 106c last year. The total dividend for the year was raised to 15c from 10c.
In the past year Freeworld has invested R101m in capital projects and launched three new product ranges. It also exercised its option to buy the North American intellectual property rights to Canadian company Napier’s range of eco-friendly cleaning and wood restoration products, and used part of its internal cash flows to repay long-term debt, bringing down its net gearing to 28,9% from 31,4% last year.
Freeworld’s decorative coatings division, which contributes about two-thirds of revenue and operating profit, had expanded its reach by using new channels and locations, Lamprecht said.
For example, it had become a significant supplier to as part of its strategy to reach the lower income market and had also expanded into African countries where turnover had risen 8,3% on average in rand terms.
In its performance division, which includes supplying coatings to the car-making industry, profit was affected by the reduction in car units manufactured, but the situation was turning around, Lamprecht said.
Freeworld was awarded vendor status by Cape Town for its RemovAll brand, an eco-friendly product used to clean graffiti.
Lamprecht said Freeworld would continue to seek suitable acquisitions that fit into its vision of becoming a world-class coatings multinational, operating in areas or products that offered superior growth. Africa accounted for 4% of the global coatings market and Asia-Pacific for about 34%.
Opportunities in Asia-Pacific included selling products to the growing urbanised population as well as the industrial sector.
mathewsc@bdfm.co.za