HomeBusiness DigestPelhams’ profit margins spike

Pelhams’ profit margins spike

In a statement attached to the company’s financial results, chairman  Oliver Chidawu  said   the securitisation of the debtors’ book, which currently sits at US$10 million,  primarily  funded  operations  and  improved  the level of  trading despite the absence  of  sustainable funding . The debtors book grew  by 197%. This saw income increasing from US$273 000  to US$2,3 million, immensely contributing to  group  profitability. 

The company improved its credit terms, which were increased to a maximum of 24 months, up from 18 months, a move which lifted credit sales. This strategy underpinned   the sales growth of 95% against the prior year comparative of 115%.

“This  was  a  deliberate  strategy, mindful of the low disposable income in the   market  and lending  by  financial institutions  at  micro level to spread  risk,” Chidawu  said.

Group revenue grew by 95% to US$16,7 million, up from US$8,6 million  in  2011. Profit before tax of US$2,1 million compared to US$144 454 the previous  year. Cost of sales increased to US$12,3 million from US$6 million the  prior year. Finance costs grew to US$2, 1 million, up from US$670 045 in 2011.

The company said it would augment its securitisation structures which continue to  sustain operations, adding it would require a long term funding structure, something that has been missing since  2009. Pelhams CEO Oswald Masoha said the company needed to be capitalised so that it did not rely on the securitisation of the debtors book to unlock funding.

“If we were using our own shareholders’ funds, the entire US$2,2 million incurred in finance costs would have gone straight to the bottom line. Further to this, if we have adequate capital, it improves our strategic sourcing and we can improve our margins by importing more of the lines that give us better margins,” he said. 

Tradewinds, the company’s manufacturing unit, maintained its contribution to group revenue of 5%. However, the continued increase in local production costs had a negative impact on margins, which reduced to 27% against a prior year comparative of 30%.

Pelhams’ sales mix for the year was largely skewed towards locally-manufactured products, which earn lower margins compared to imports.  The  company  said  it  would  continue   to pursue   its  strategy  of  importing  to  improve  supply  and  margins  due  to  high  costs of production  locally .

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