Verimark, which imports 95% of its products, is feeling the effects of the rand weakening on its top-line growth. It made a foreign exchange loss of R1.5 million for the six months to August 31, compared with R212 000 in the same reporting period last year.
The company, with a market capitalisation of R45.7 million, saw its revenue remaining flat, only notching up 0.5% to R183.5 million. Its operating loss slowed by 26.5% to R2.98 million and retail sales (through the till) increased by 6%.
Over the past six months, the rand weakened by more than 12% against the dollar and 48.4% over the last four years. CEO Michael van Straaten says this is the single biggest challenge for Verimark but also not unique to the company.
“For the last four years we have been paying double for products as a result of the rand,” says Van Straaten. The weakness of the local currency is hurting Verimark’s earnings for the third year in a row of its 37-year history.
To counter the rand’s volatility, Verimark is looking at supplying certain international markets with its products in the next 12 months. “Given the pressures of the rand we cannot put our eggs in one basket. We need to come up with products continuously that we can supply to international markets,” he says.
Nearly ten years ago, Verimark was supplying its products to 50 countries; largely Australia, Brazil, Canada and more. Although, Van Straaten says there is not a strategy for going abroad, there is scope to grow its exports in markets where it already has exposure to.
Verimark is discerning about its geographic exposure if the recent discontinuation of its Singapore operation is anything to go by. Van Straaten says the operation was “too small and did not gain the traction expected”. The discontinuation is in progress and is expected to reach completion in the “next few months” where it expects to make losses of R367 000.
Verimark has two other options; increase the selling price of its products or focus on local procurement of goods. It prefers the latter over the former. Van Straaten says sourcing locally depends on which products are in question given intellectual property clauses. “For example, it’s easy to duplicate beauty and skin care products while it might be difficult for vacuum cleaners.” It’s going to take time before its local sourcing business takes off, he says.
In recent years, Verimark imported 85% of its products and the balance was produced. Verimark is cautiously treading on increasing selling prices, as this might drag down earnings as the retailer recently experienced.
It increased selling prices twice in 12 months from last year, which saw sales drop by 6%. Price increases were on a variety of household appliances, beauty and fitness products, toys and cookware.
“If we absorbed the weakness of the rand, we would not have made a profit. There is no middle or an easy way in dealing with the currency.
If you increase prices by 10% then you might see a drop in earnings. Price increases will have that type of impact. You cannot increase prices to the point of your cost of goods,” he says.
No interim dividend was declared.
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