The turnaround interventions initiated at AltX-listed steel retailer Alert Steel have resulted in a marked improvement in the company's performance but supply constraints and a deteriorating operating environment are hampering the company's return to profitability.
In the company's annual report‚ published‚ chairman Mr Malcolm McCulloch and chief executive Mr Johan du Toit said that the effectiveness of the remedial measures is evident in Alert Steel's results for the year ended June 30th 2012.
They noted that in addition to the successful implementation of the restructuring strategy‚ aimed at returning Alert Steel to long-term profitability by returning to its core business of steel retailing‚ Alert Steel's fortunes were also dependent on the health of the industry‚ which had continued to deteriorate in the year under review.
They said that "Total steel production in South Africa decreased 22% from May last year to May this year‚ principally because of disruptions at the country's major steel mills‚ while demand for steel and steel related products has declined sharply owing to the lack of new developments in the construction sector‚ which accounts for around 60% of the total demand for steel."
They added that "As a result of these mill disruptions‚ stock supply was intermittent and this impacted on the year's trading. We also had to contend with two industry strike actions during the year and cash flow constraints impacted our ability to pay suppliers within terms."
They noted that cash flow and stock supply problems were resolved once the funds from the rights offer underwriters were advanced and that the company had returned to normal trading terms from May this year.
The biggest area of growth for the company has been in the company's Alert Express containers and by the end of the year 27 of these converted shipping containers had been deployed. These mobile retail units‚ strategically located in the growing rural sectors‚ are quick to deploy‚ cheap to operate and generate attractive profit margins. They said that "We expect these containers to be major revenue-generators for the company going forward."
Looking ahead, they said that the first three months of trading continued to be challenging and that they did not expect conditions to improve for the rest of the year. They said that "In light of these conditions‚ we reviewed Alert Steel's business plan and based our forecast of the company's results to June 2013 on the assumption that there will be no improvement in the operating environment. However‚ even under this worst-case scenario‚ we expect to see an improvement on the 2012 year's results‚"
