TURNALL Holdings Limited last week reported a dip in half-year profits for the period to June 2013 to US$1,4 million, down from US$2,5 million in 2012.
Managing director John Jere (JJ) chats with Zimbabwe Independent business reporter Taurai Mangudhla (TM) on the challenges affecting the company as well as strategic initiatives underway to improve operations going forward. Below are excerpts:
TM: In your update, you spoke about US$2,5 million capital expenditure having been made in the current year. Can you give a breakdown of the expenditure and the source of funding?
JJ: We did lease finance for about half that amount and the other half came from internally-generated resources. So, what we did is we tried as much as possible to utilise that resource and be able to implement these projects despite the difficult environment. I think the key issue is how we capacitate the business for the future, given the environment that we are currently in.
TM: What was the cost of the lease finance and can you specify in which areas you allocated the funding?
JJ: The cost was the usual 15-16% and it was from local banks. In terms of allocation of the capital, we put it into the machines and we have commissioned a new tile plant.
TM: I am sure the new tile plant is in line with your focus to grow the higher end market product offering, what is the rationale behind the re-orientation?
JJ: The idea is we carry whatever we have because we have capacity for low cost, but we want to make sure that going forward our profit streams are coming equally from the high-end of the market because it’s very important that we do so as a business. We have seen what can happen when the low-end stream market is affected by illiquidity, it crumbles and literally disappears and as a business you are there seeing all these construction projects taking place around you, but you can’t participate because you don’t have the product to tap into that market segment and that has been the premise for this strategic decision.
TM: Are there any other general investment initiatives in the pipeline besides the re-orientation?
JJ: We are actually going to invest in this area, which is the high-end market, that’s what we are going to invest in, so we will spend capital on whatever we invest in. We will spend probably another US$3 million to US$4 million in the next one or two years in that area to solidify our presence. Turnall must be the brand in construction and I think it is.
TM: At your AGM, you said exports to South Africa are supposed to account for 20% of volumes in the not-too-distant future, but it appears they are underperforming. What are the challenges?
JJ: The issue is that orders will be there, but then when you make sales in South Africa, you have to make sure you get paid because if you don’t get paid you have serious problems in that part of the world.
What we have been doing is even if we get an order we still insist on payment first, but some customers were saying “you supply me and I pay you”. We have been trying to secure that. We have tried to secure guarantees from Treasury. Once they are done, someone holding them will then approach a bank and say “I have got these guarantees worth so much can you now do trade finance with me, advance me money to pay these guys.” This process has been taking time; so we have to be patient.
TM: It’s been a while since you took a decision to push cash sales to smaller wholesalers over credit terms to the traditional corporates. Has it paid off and have you managed to strike a balance between boosting numbers and cutting loss risks?
JJ: We have managed to strike a balance because places like Siyaso is where they pay cash; when the informal sector has cash they pay, whereas corporate debtors are the problem, but you want the volumes to come from the corporate debtors and you are trying to balance that.
You have got these Siyaso guys who can pay cash immediately for a truck, but the other guys can buy 10 trucks; so you have a situation, it hasn’t been easy. I am sure even as newspapers, you have felt the liquidity problem, it has been tough where there is no liquidity.
TM: Still on the issue of liquidity, can you explain in full how you said it affects your pipe business?
JJ: It’s a funding issue really, because for as long as there is no foreign direct investment for big pipe projects, you won’t see pipes moving. So, we need to see that happening. The projects are massive and they are there.
We have some of the pipes belonging to people who say make them and we will pay, but you make the pipes and they don’t have cash, so you are now battling whether to give them and then they pay you late. You have to manage that, but what a business wants is liquidity. Once there is liquidity and you have projects running, this business flies.
TM: Lastly, do you feel you can achieve your breakeven targets for year-end after losing two months to elections?
JJ: Certainly, we can still do it. We will try.