OPERATIONAL REVIEW: INDUSTRIAL FOOTWEAR

Profile

Industrial Footwear comprises three divisions:

United Fram, manufacturers of Inyati and other leading brands of industrial leather protective footwear;

Wayne Plastics, manufacturers of PVC gum boots for local and export markets; and

Mossop Western Leathers, supplying leather to the footwear and leather goods industries.

Year under review

United Fram

United Fram delivered a healthy operating return during 2005 despite volumes being slightly below expectation.

Volumes were affected by imports as a result of a strong rand and a market slowdown in the latter part of the year. As a result a strategic decision was made to import products to supplement the existing range and to partially substitute local manufacture. This was implemented from January 2006.

A new set of rubber sole moulds is to be commissioned to upgrade and enhance local production, which will benefit the operation as it will then become the only direct PU/rubber direct injection process manufacturer in South Africa, thereby differentiating its products from competitors.

With the imported product range, new moulds and the appointment of a marketing coordinator the prospects for 2006 look promising.

Wayne Plastics (Wayne)

This has been a successful year in which there were significant changes in this market with competitors upgrading facilities and increasing output. Positively, however, the switch to an alternative raw material supply enabled the purchase of a substantial quantity of material at greatly reduced prices, improving margins considerably.

2006 will be an exciting year at Wayne, as a new plant to manufacture raw material was commissioned in December 2005 and is operating efficiently. The plant will reduce dependence on third-party suppliers and deliver significant cost savings.

New moulds are being developed for both heavy-duty and lightweight boots, which should be operational towards the end of 2006. This, together with new production equipment commissioned in February 2006, should make Wayne one of the leading PVC gumboot manufacturers in the world.

An improvement in revenues and margins is expected in 2006.

Mossop Western Leathers (Mossop)

Mossop is the largest tannery in South Africa, supplying bovine leathers to the footwear and leather goods industries. The company, established in 1846, is situated in Wellington in the Western Cape and employs 220 people at two plants, a wet-blue operation and a crust and finishing plant.

Mossop is the major supplier to local footwear manufacturers, and also exports leather to the UK, Spain, Portugal, India and the Far East. Products are mainly focused on the school shoe market and include grain leathers, PUcoated leathers and suede-related leathers.

The South African shoe and leather manufacturing industries experienced a difficult year, due to imports from countries and continents with protected economies such as South America, the Indian subcontinent and China. Rand strength also facilitated the entrance of new overseas leather suppliers to South Africa, which impacted negatively on price and volumes.

Despite these adverse conditions, Mossop generated acceptable profits due to efficient hide procurement, strict cost control and manufacturing efficiencies.

2006 will see Mossop improving on its strengths and hedging itself against currency fluctuations by diversifying into the furniture industry and by establishing a trading business dealing with selected imported leathers.