For the second year running our revenue grew by 33%, despite the significant shift away from producing for one brand to diversifying our customer base. Demand for our garments and other products continues to grow and we are particularly excited at the prospect of providing sporting apparel for the international brands we represent here in sub-Saharan Africa.
The accompanying graph illustrates the rapid growth in Impahla’s business as well as the relative gross margin (gross profit over revenue)per year.
Measuring the gross margin, managing efficiency
During the period between 2011 and 2013, we experienced fast growth in manufacturing capacity as we implemented our strategy to own and control our supply chain. By the end of 2013, we had acquired new businesses and production lines and more than doubled our staff. Not surprisingly, though gross profit margin remained above 30%, our operating profit margin (operating profit over revenue)dropped from 9% to only 1.8% over the same period.
Our next phase was to bed down our acquisitions not only to deliver to order, on time, at best quality and at a competitive price, but to do so efficiently. With the help
of the clothing industry, we implemented a continuous improvement programme, known as ‘lean manufacturing’. As a result, we improved our operating margin from 1.8% last year to 7.0% this year (2012/13: 9%).
Smart software tracks the workflow of every product, and time-based costing is used to measure the efficiency of every worker. This has improved the accuracy of our calculations and our ability to supervise and benchmark our efficiency and performance. On the other hand, we motivate the team through our bonus scheme, which accrues bonuses to the entire manufacturing line, rather than to individuals, encouraging our employees to help each other perform better for the whole team.
Going forward, experts from the CTCC will conduct assessments, coach our employees and provide assistance along the way. This expert assistance will be funded by the IDC.
Minimising costs, maximising working capital
We insist that management leads by example in keeping costs under control. Each function in the business continuously looks out for small areas of savings, from stationery to delivery routes. All purchases have to be well motivated and signed off by the managing director. This habit of frugality eventually reduces overheads, thus freeing up working capital.
This year, despite 34% growth in sales, we managed to keep inventory levels at less than 1% up on last year; thus in real terms,inventory levels were down 25% in proportion to turnover. Likewise, accounts payable was reduced by 9% to R23.8 million.
Improving customer relationsGood relations with our customers drive our business. For Impahla, improving our reputation and goodwill with our customers is the sum of everything we do. Thus our management of this issue, as well as the way we monitor and report on it, are embodied in the performance of every other issue we have reported on in this document.
Developing management capacityThis was a year in which we rationalised our production lines and strengthened our team at all levels through skills development and internal promotions. Subsequent to the fast expansion over the previous two years, we focused on building the capacity of both our supervisors and senior management. We promoted seven employees as supervisors and hired a manufacturing director, as well as a product planning and quality assurance manager.
During the period under review, Impahla purchased new assets to the value of R11.5 million (2013/14: R4.8 million) to increase our production capacity and efficiency.
In order to reduce ongoing rentals to external landowners, we bought our own properties with their existing production facilities and consolidated our production lines. Smaller investments were made in plant, equipment and IT.
Expansion is being financed through existing cash flow and bank overdraft facilities, until the IDC’s 2014 grant funding becomes available. Cash and cash equivalents have consequently been further reduced from -R2.8 million to -R5.5 million at year end.
Should further financing requirements not be available from the IDC, the company may raise funds through directors’ loans, underwritten by privately held property. In order to avoid potential stresses on the ownership team, Impahla needs to find a way of acting on the policy of paying directors’ loans before dividends.
As a business that depends on high-tech equipment to produce our wares without disruption, we need to ensure that these machines remain in good working condition. Disruptions that result in our failing to deliver on time, consequently impact the lead times we can offer our clients, and therefore on our bottom line.
We have our own on-site technicians responsible for implementing an ongoing preventative maintenance programme, as well as fixing any production line problems that may arise. When new equipment is installed, our technicians are trained in its use and maintenance. For some of the more specialised machines, external technicians are brought in to service the equipment, or make repairs when breakdowns occur.