Document and storage management specialist Metrofile say its full-year headline earnings fall by almost 50 per cent due to low-volume growth across the business and a challenging trading environment. However, it expects the strategic initiatives to support recovery in the financial performance. CNBC Africa is joined by Shivan Mansingh, Chief Financial Officer, Metrofile for more.
Document and storage management specialist Metrofile says its full-year headline earnings fell by almost 50 per cent due to low-volume growth across the business and a challenging trading environment. However, it expects the strategic initiatives to support recovery in the final performance. I'm joined by Shivan Mansingh, who is the CFO at Metrofile. Shivan, thank you so much for your time. I mean, as I mentioned in my intro, you saw low-volume growth across the business and you characterized the trading period as challenging. Take me through where some of the pain points or where some of the challenges were as you reflect back on the year that was. Great. Good afternoon and to you and your listeners as well. From a Metrofile perspective, we've obviously not had a great year. This is off the back of growing top line 16% in the prior year, where revenue is fairly flat year-on-year. There are fundamentally four main parts to Metrofile, the first being our storage business that performed quite well, that grew by 5%. But really where we had problems was around our product business, where we sell various products into offices, as well as our recorded conversion business, where we convert physical into paper. Our cloud business, nevertheless, that business did quite well. We saw double-digit growth, but fundamentally problems in our product business, as well as our paper to digital conversion business, along with higher interest rates and our finance costs increasing by 17% impacted our business quite significantly. You mentioned that you have limited control over interest rates, but you have introduced measures to limit the impact of the other two areas going forward. Take me through what those measures entail and how confident you are that it will be able to help you turn that corner? Absolutely. If one goes back to the first half set of results, we started seeing some of these challenges. A lot of the initiatives were implemented in the second half of the financial year. Obviously, from a numbers perspective, this does take a bit of time to bleed through the numbers. We've already completed a large portion of those strategic initiatives with still some to go, one of which is we've exited our business that produces certain of these products, a business called Tidy Files, where we manufacture files and folders that you'd typically see if you'd go to the hospital or the doctor. That's been closed and that's no longer as part of Netrofile anymore. We've gone through various cost reduction activities, as well as changing certain operational measures within the business. That's mostly in South Africa. That's been better down. In the Middle East, where we saw a significant drop off in profit, that was mainly due to competitive environment pressure. We are a bit cautious in the Middle East in terms of seeing a bit of a recovery, but certainly from a South Africa perspective, while I'm track in terms of the recovery plan, that we're already starting to see the fruits of that post year end. Can you give me a little bit more color in terms of that competitive environment in the Middle East? What are you competing on? Is it price? Is it more players coming into the market? I think we had a bit of a perfect storm in the Middle East over the last 12 months. We had a new entrance into the market, as well as market consolidation. Really just two players in the markets that have come in and both have adopted a custom acquisition strategy in terms of what we've seen. Significant impact on pricing. Our top line there has been growing in double digits for the last few years and continues to grow, but it's really on pricing where we've had to drop to fundamentally compete and retain customers. We see that as a short term measure, which we hope to recover from in the short to medium term, but really it's new competitors in the market and fierce pricing. Let's talk about the other operations outside of the UAE. Give me a sense of the operating environment and whether you're seeing challenges on that front. So I think we operate in Botswana and Mozambique as well. Those territories have grown quite nicely and are fairly stable. The territory we unfortunately took in impairments as well in the current year was our business in Kenya. That business has been performing reasonable but relative to the acquisition many, many years back. We do expect more. We have a new management team in Kenya that started about, I would say, about 10 months ago and we were hopeful that that business moves even further in the right direction and demonstrates the growth that we expected to. The one thing I'm curious about, I mean, I know during the period that was, you decided to close the tidy files manufacturing component. Take me through when you're sitting around with the rest of the team around the boardroom table, what has to happen before you make that really tough decision to be able to want to close a certain division, given the fact that obviously it does have retrenchment and closure costs, etc. What is the final resort before you make a decision like that? So we've been looking at this business for a decent amount of years. I think COVID was an accelerant specifically around files and folders in the market where we saw a drop-off. So having looked at this business, it's sort of been on the radar for the last few years, to be honest. And the intention was to embark on a turnaround strategy to try and facilitate growth, but we've embarked on a number of initiatives to try and ensure that we exit the business, but we do so in a responsible manner. We have multiple meetings, multiple engagements, various scenarios, and ultimately the last resort is to close the business down. And unfortunately, given where the business is and was, we took that decision. Fortunately, though, the business was closed, but a lot of the assets and the brand were sold to another company, and we're hopeful that they'll continue the brand going forward. You took me through some of the action plans that you have implemented to address the challenges and also touched on that enhanced focus on customer service. The one thing you mentioned here is that as a result of some of the initiatives you've embarked on, you're seeing that pipeline growth come through at least over the past month or so, both in the secure storage as well as the digitization side. And then there's that part where you're seeing positive activities in the public sector. Do you have an indication as to what's driving those positive activities in the public sector and whether that could be sustainable? I think fundamentally it comes down to decision-making. The elections was obviously around May last year, well, sorry, this year, our last financial year, and that led to a number of delayed decisions, if you can call it that, specifically in that sector, and also to an extent in the private sector. We're seeing decisions come back, although not as much as we expected to. It's more of a gradual feedback. But fundamentally, in terms of our prospects, we're quite optimistic around our traditional storage business. We accept that it's not going to, with people moving away from paper more and more, one would be surprised how much paper is still used in the market. We expect our warehouses to remain full over the next short to medium term. And really our focus in terms of opportunity is the conversion element from physical into a digital format and then supplying workflow solutions as well as our cloud services, where we see significant opportunity going forward. We've had a bit of a blip over the last six months, six to 12 months, but certainly we've taken measures to make sure that we align ourselves to those areas of growth in the market.
Theme: Metrofile reports a nearly 50% drop in full-year earnings, outlines strategic initiatives to overcome challenges and drive recovery
Document and storage management specialist Metrofile has recently reported a significant decline of almost 50% in its full-year headline earnings. This drop has been attributed to low-volume growth across the business and a challenging trading environment. Shivan Mansingh, the Chief Financial Officer at Metrofile, discussed the company's performance and future outlook in an interview with CNBC Africa. The year was characterized by a stagnation in revenue growth, in contrast to a 16% increase seen in the previous year. Metrofile consists of four main divisions, with the storage business performing well with a 5% growth. However, challenges were encountered in the product business, which sells various office products, and the recorded conversion business. The cloud business saw double-digit growth, but struggles were evident in the product and paper-to-digital conversion arms. The increase in interest rates and finance costs by 17% further impacted the company's overall performance. Addressing the challenges faced during the year, Mansingh highlighted strategic initiatives that have been put in place to support the company's recovery. These include exiting the product manufacturing business Tidy Files, implementing cost reduction measures, and operational adjustments in South Africa. Despite facing competitive pressures in the Middle East market, Mansingh expressed optimism about the recovery plan's progress and the early positive outcomes observed post-year end. The Middle East market witnessed intensified competition with the entry of new players adopting aggressive pricing strategies, leading to pricing pressures and a need for Metrofile to adjust its pricing to retain market share. In addition to the Middle East, Metrofile operates in territories like Botswana and Mozambique, which have shown growth and stability. However, the business in Kenya faced challenges, resulting in impairments, although a new management team has been appointed to steer the business towards growth. One significant decision taken by Metrofile during the year was the closure of the tidy files manufacturing component due to declining demand accelerated by the COVID-19 impact. The decision-making process involved thorough evaluation and numerous engagements before arriving at the resolution to close the underperforming division. Mansingh outlined the company's focus on enhancing customer service and implementing action plans to address the challenges faced. He mentioned that positive developments have been observed in pipeline growth, particularly in secure storage and digitization, as well as in the public sector. The recent activities in the public sector have been attributed to delayed decision-making post-elections, with an optimistic outlook on the traditional storage business and opportunities in digital conversion, workflow solutions, and cloud services. Despite the temporary setbacks experienced in the past months, Metrofile remains confident in its strategic direction and the alignment of its business model with the evolving market demands. The company aims to leverage its strengths and capitalize on growth opportunities to drive performance and regain momentum in the coming months.
"Despite the temporary setbacks experienced in the past months, Metrofile remains confident in its strategic direction and the alignment of its business model with the evolving market demands."
Metrofile, full-year earnings, revenue growth, strategic initiatives, challenges, competitive environment, cost reduction, recovery plan, market expansion, digital conversion, customer service, public sector, growth opportunities