Business / Companies
Radar reported a depressed set of results
27 Sep 2011 at 04:34hrs | Views
Despite the satisfactory performance by Border Timbers, Radar reported a depressed set of results, due to a myriad of problems at McDonald Bricks and UBM. Turnover at $37.1 million was up 49% against $24.9 million for the prior period, (falling short of the initial budget of $40 million).The PBT was also less than expected at $2.7 million down from $3.3 million due to unsustainable payroll costs (about 4,000 employees and unsustainable negotiations by the NECs). Other issues included above plan repair and maintenance costs because of poor workmanship and continuous breakdowns and high cost of energy (coal, electricity and fuel). High pilferages also led to stock write offs of about $1.4 million at UBM, and $200,000 at McDonald Bricks whilst management issues, in the two units were also a huge play leading to hands off management in some divisions and weak credit controls.
Border Timbers contributed the bulk (59%) of the turnover, whilst McDonaland Bricks contributed 23% and UBM 18%. Roundwood production at BTL went up 40%, McDonald Bricks production up 43% whilst minimum KVI volume increases were noted at UBM. Operating margins were impacted by R&M spend, with $2.3 million spent at Border Timbers and $1 million at McDonald Bricks. Staff costs were high at $9.7 million (FY 2010: $6.6 million), translating to 27% of turnover. Finance costs amounted to $1.9 million up from $673,595 due to short term working capital borrowings. A total of $4.6 million was spent on capex ($2 million on plant development and $2.6 million on PPE). The profit before tax totalled $2.7 million, a 19% decline from FY 2010, whilst an attributable loss of $253,927 was registered (FY 2010: $5.8 million).
On the balance sheet, the capital strain reflected in the weak current ratio at 0.7x down from 0.9x driven by high short term borrowings at $12.0m. The increase in receivables ($4.6 million up from $3.3 million) came from Border Timbers, whilst decline in stocks was attributable to UBM ($6.6 million down from $7 million).
Divisional performance shows a $10.6 million turnover from UBM although overall profitability was negated by a number of factors culminating in a $3.3 million operating loss. The issues include, a hands off management system which led to poor buying tendencies, poor stock turnovers, high bad debts amounting to $300,000 and a $1.4 million stock write off due to pilferage. At McDonald Bricks there was strong demand for all grades of bricks which saw the revenue growing by 26% to $2.8 million on a high volume of 36.0m bricks up from 25 million bricks. The bottomline was however adversely impacted by power outages necessitating the use of more expensive generators, and a $216,000 fraud which occurred during the year. New management team have since been put in place at the two units.
In a trading update management advised that revenue for the two months post year end amounted to $6.6 million (against a budget of $8.0m). Shortage of creosote is affecting the poles production but efforts are being made to obtain it from overseas. Arson fires at Sheba and Charter resulted in a loss of 920ha, although salvage operations have commenced. Management forecast to produce between 200,000m3 and 240,000m3 of roundwood and about 47.0m bricks at McDonald Bricks. This will translate to revenues of about $29 million for Border Timbers and $6 million for McDonald Bricks. UBM is a concern in view of its high cost and need for funding, management is considering the unit's future. The group intends to restructure its debt, and lower the short term borrowings to $10 million from $12 million. They are currently in negotiations for a $7 million long term debt (at about 8% all in cost) which will be used to fund capex projects.
Plans are to spend a further $8 million in FY 2012, under the ongoing asset replacement program to be completed in two years.
Radar has a significant asset base, and with the root causes of poor performance noted and addressed we could see the business turning around its fortunes. The disposal of UBM will be a further plus, as it free the company of unnecessary debt.
Nothando Zungu of Imara Stockbrokers say they feel the business is still restructuring, and short term performance may not be too bright. However given that its a tightly held stock, downside is likely to be limited.
Border Timbers contributed the bulk (59%) of the turnover, whilst McDonaland Bricks contributed 23% and UBM 18%. Roundwood production at BTL went up 40%, McDonald Bricks production up 43% whilst minimum KVI volume increases were noted at UBM. Operating margins were impacted by R&M spend, with $2.3 million spent at Border Timbers and $1 million at McDonald Bricks. Staff costs were high at $9.7 million (FY 2010: $6.6 million), translating to 27% of turnover. Finance costs amounted to $1.9 million up from $673,595 due to short term working capital borrowings. A total of $4.6 million was spent on capex ($2 million on plant development and $2.6 million on PPE). The profit before tax totalled $2.7 million, a 19% decline from FY 2010, whilst an attributable loss of $253,927 was registered (FY 2010: $5.8 million).
On the balance sheet, the capital strain reflected in the weak current ratio at 0.7x down from 0.9x driven by high short term borrowings at $12.0m. The increase in receivables ($4.6 million up from $3.3 million) came from Border Timbers, whilst decline in stocks was attributable to UBM ($6.6 million down from $7 million).
Divisional performance shows a $10.6 million turnover from UBM although overall profitability was negated by a number of factors culminating in a $3.3 million operating loss. The issues include, a hands off management system which led to poor buying tendencies, poor stock turnovers, high bad debts amounting to $300,000 and a $1.4 million stock write off due to pilferage. At McDonald Bricks there was strong demand for all grades of bricks which saw the revenue growing by 26% to $2.8 million on a high volume of 36.0m bricks up from 25 million bricks. The bottomline was however adversely impacted by power outages necessitating the use of more expensive generators, and a $216,000 fraud which occurred during the year. New management team have since been put in place at the two units.
In a trading update management advised that revenue for the two months post year end amounted to $6.6 million (against a budget of $8.0m). Shortage of creosote is affecting the poles production but efforts are being made to obtain it from overseas. Arson fires at Sheba and Charter resulted in a loss of 920ha, although salvage operations have commenced. Management forecast to produce between 200,000m3 and 240,000m3 of roundwood and about 47.0m bricks at McDonald Bricks. This will translate to revenues of about $29 million for Border Timbers and $6 million for McDonald Bricks. UBM is a concern in view of its high cost and need for funding, management is considering the unit's future. The group intends to restructure its debt, and lower the short term borrowings to $10 million from $12 million. They are currently in negotiations for a $7 million long term debt (at about 8% all in cost) which will be used to fund capex projects.
Plans are to spend a further $8 million in FY 2012, under the ongoing asset replacement program to be completed in two years.
Radar has a significant asset base, and with the root causes of poor performance noted and addressed we could see the business turning around its fortunes. The disposal of UBM will be a further plus, as it free the company of unnecessary debt.
Nothando Zungu of Imara Stockbrokers say they feel the business is still restructuring, and short term performance may not be too bright. However given that its a tightly held stock, downside is likely to be limited.
Source - Imara Stockbrokers
