National technology distributor Rectron has registered a 20% increase in net profit for the financial year ended 30 June 2008, despite lower revenue in tough economic conditions.
Financial manager Gerhard Malan explains that Rectron has been improving the efficiency of its business processes and is now cash-flush, and feeling extremely positive about the year ahead.
Rectron's revenue for the 2008 financial year was R1.4 billion, about R60 million down from last year. However, net profit is at just under R35 million, compared to R31.4 million in the previous financial year.
Profit before tax is at just under R50 million for the 2008 financial year, compared to just over R40 million in the 2007 financial year. Administrative costs are, however, up about R4 million, from R38.4 million in the last financial year, to R42.4 million this financial year.
Malan says one of the main drivers for the company's cost savings was a decision to move to smaller premises. "We are saving R500 000 per month on rent," he explains. The company's administrative division moved to the new premises in February and the factory moved at the end of July.
In addition, Rectron got a welcome cash injection through negotiating a bulk pay-out after finding a higher-paying tenant to take over the remaining eight years of its 10-year lease on its previous premises. This cash was then reinvested into the new premises and a better conveyer system for the factory.
The loss in revenue is a function of "the squeeze in the economy", as well as the company letting go of HP's business, says Malan.
Despite injecting quite a bit of money into the business through investments in warehousing and inventory, as well as general investments worth R40 million, Rectron still has R100 million in hand at year-end, double what it had at the same time last year.
Malan says the positive cash position has resulted in the company's interest expense falling between R6 million to R7 million, and interest received rising nearly R2 million.
The coming year has some big business in the pipeline for Rectron, with the SA Democratic Teachers Union recently signing a deal potentially worth R330 million with the company under which it wants to roll out EEEPC laptops to 240 000 teachers across the country.
In addition, Rectron recently landed the contract to distribute Dutch personal navigation system TomTom in SA, after the GPS company terminated its two-year relationship with the Core Group.
"We are certainly looking forward to the new year," says Malan.
He adds the company is still in the process of drawing up its targets for next year, but a realistic target is to aim for between an 8% and 10% increase in turnover, with profit going up between R50 million and R60 million.
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