Padenga targets cost reduction

Padenga targets cost reduction
Published: 28 March 2014
Padenga Holdings is targeting strategic cost reduction in the year and is also targeting 80% onward sales as finished skins to the first tier market, group CE Gary Sharp told analysts yesterday.

"The group is targeting strategic cost reduction in the year by use of technology. The period of transition precipitated by change in FY end is over and we are targeting 80% onward sales as finished skins to the first tier market," he said.

Giving the prospects of the group in the local market he noted that the group will pursue raw skin price increase against this objective.

Sharp stated that they're aiming to reduce the crocodile growing period by ending culling in October.

"Operational refinements will improve growth prospects and skin quality," he added.

Presenting on the financial highlights, group FD Oliver Kamundimu indicated that there was revenue growth of around 50% to $26.9 million for the 18 months to December 31, 2013.

He indicated that the group's PBT went up to $4.9 million versus $4.6 million while cash generated from operations improved to $48.2 million against $44.1 million recorded in the prior period.

CAPEX increased to $3.6 million against $0.8 million.

"We achieved our budget cull and skin sales numbers which was about 43 000 locally and 13 000 skins in the US. We managed to achieve our contracted skins size which was 46.3cm and we were awarded an increase per centimetre by our major suppliers," he noted.

Furthermore, Kamundimu said expenses for the period under review were 4% below budget while export meat volumes were down due to a depressed demand in both Europe and Asia.

He noted that they achieved alligator sales of 5 943 skins in November 2013 against 7 882 skins in November 2012.

"The group deliberately postponed the harvest of 2 400 alligators from November 2013 to April 2014 to achieve increased margin on medium size skins," said Kamundimu.

Production volumes increased three-fold with 22 310 animals to harvest in 2014. He said despite the illiquid money market environment they still managed to reduce their local cost of borrowings whilst the weakening Rand contributed to lower import costs.

In the period under review, there was a strong demand for premium skins.

The operating profit margin went down to 21% from 30%.

Giving the revenue drivers, Kamundimu noted that the total skin volumes increased to 56 825 versus 43 049 while total skin revenue improved to $25.65 million against $16.74 million. The total meat volumes went up to 280 219 from 244 416 and total meat revenue dropped to $539 423 from $989 403.

The group's total assets increased to $55.23 million from $42.29 million while trade and other receivables went down to $2.304 million from $8.071 million.

Moving to the operational review, Sharp said they will stop forcing cull offtakes to meet financial year targets and they will also reduce skin handling defects and improve meat quality by spreading culling over a longer period.

"The ultimate objective is to increase the proportion of finished skins our customer sells onward to first tier luxury brands," he noted.

Under alligators he stated that they successfully produced their first alligator crops out of the new Winnie farm and they constructed two additional barns to achieve annual capacity of 20 000 skins.

On foreign review he said the sale of alligator skin will more than double in 2014 as they focus on increasing throughput at the skinning services plant and the meat plant.

Aggregated analysts comment: The change in year end hides the outstanding work done by the management team to significantly improve the quality of the skins produced by the local operation and impressive growth of the US operation.

The market is often skeptical of local companies that choose to expand beyond the country's borders and Padenga had the vision to do so on another continent in a different time zone. Not only is the US operation profitable and well capitalized, the management team has the confidence to expand aggressively going forward. What's impressive about these ambitions is that there is consensus amongst analysts that the management team has the competence and leadership to realistically achieve its targets.

On the local bourse, there are only a few companies with strong operating cash flows that can be expected to sustainably pay dividends going forward. Padenga is one of few companies that are also set to enjoy robust growth.
- zfn
Tags: Padenga,

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