2011 saw a change in strategic direction to meet market conditions which have been prevailing and anticipated to continue. Following an earlier matrix analysis of core competancies versus opportunities, the company restructured around two main competance centres and revenue streams.
The matrix analysis reveraled that two divergent core competancies would secure adequate revenue streams in reshaping the strategic possibilities. The finance crisis has threatened to render activity tactical and therefore both higher risk and lower long term reward scenarios. However, the new strategy as mentioned plays to the market and maintains direction and development of the core business and creative skills required for the long term growth and enrichment of the firm.
The two focus areas are divergent : namely within purchasing, specifically oil field drilling equipemtn and education. Education took little adjustment to place resources into the public sector and excellent performance was rewarded with extended contracts utilising more than 80% of capacity. Moving into oil related markets required some major realignment however, with the route chosen being tactically through shipping supplies. Oil drilling is one of the few industrial markets showing double figure growth since the finance crisis and resulting recession began in Q3 2008.
Another key factor is the willingness to accept a far higher level of risk and to take advantage of subdued prices in capital assets. The company moved from renting large premises with high upkeep to leveraging their new income to buy new premises which are smaller and more economic. The additional cost of leasing premises in the new location for purchasing is expected to be offset by tax deductions and the proximity to a long term market centre.
Income growth was then projected as negative with a positive cash flow expected only by September. However the company was forced to meet market demands and relocate the major competance centre of purchasing to the customer and supplier centre some 120 km to the south. Growth is expected to be low with cautious estimates and a degree of dependency on reduced tax burden in order to generate enough gross margin for any profitability in 2011. The following two years however are anticipated to be a period of high growth in top line while projected costs can be contained within those of today. Cost pressures in the new location are expected but a longer term lease is to be secured mid Q2.
So to summarise in 2011 the firm was able to utilise its non material assets, namely intellectual property and hired-out services, to leverage into their own premises and enter a new, high growth market which is running counter recessionary in line with dollar-barrel price.
Through 2012 we will maintain financial stability and aim to grow income by 4%. In terms of profitability, Tax deductions are yet to be fully negotiated so we continue to issue our long standing profit warning while maintaining strict cost control and willingness to reduce expenses further in the event of unforseen circumstances. The small surplus from tax deduction pay out 2011 paid out in june 2012 however this is expected to be consumed by the loss of income during the summer period and holiday payments to employees at this point.
2013 is expected to be a major growth year with more lucrative contracts in both public and private sectors being sought before competitors are expected to be in a position to react. This is in part a willingness to accept higher risk to exploit opportunities than most competitors, but due to turbulent times an alternative strategy of slower growth and consolidaiton of current revenue streams with potential for cost reduction in 2012-13 is also in place. This would postpone higher risk movements and reloactions to 2014.