Cape cements business

Cape Cement Business - [http://planaid.co.uk/communities/3/000/001/633/893//images/7745362.png]

The broader construction industry appears to be suffering some woes with sector stalwarts like cement giant PPC – which has a substantial Western Cape presence, Aveng and Murray and Roberts – appearing to be under some strain. But there is a fair amount of evidence that the Western Cape construction/infrastructure sector is rather vibrant, and that local companies are still in fine fettle.

In recent years two JSE listed construction sector aligned companies – Durbanville-based aggregate supplier Afrimat and Tableview-based claddings specialists – have become proxies for local building activity.

Afrimat reported its headline earnings up 15% in the year to end March – thanks mainly to a strong performance of the mineral producing operations across all regions. Afrimat was also successful in reinforcing its operating margin to 16, 3% (from 14% last year) and improving its cash generated from operations to R320m (from R262m.)

Afrimat CEO Andries van Heerden explained that a shift towards more valuable products in the product mix enhanced earnings – even though the company was affected by overall lower sales volumes. He said all Afrimat’s processing plants were fully operational and strategically positioned to deliver excellent service to customers. Afrimat is likely to stay on the front foot, with Van Heerden stressing that new business development remained a key component of the company’s growth strategy.

“The dedicated business development team continues to successfully identify and pursue opportunities in existing markets, as well as in anticipated new high growth areas in southern Africa.”

In April this year Afrimat clinched its largest acquisition made to date when it acquired Cape Lime for R276m – which not only opens additional markets but would have added a not insubstantial R29,5m in profit after tax to the company on a pro forma basis.

Cape Lime has operations at Vredendal and Robertson, and its products are used for water purification, soil treatment, effluent treatment and building. With Cape Lime onboard, Van Heerden believed Afrimat was well positioned to capitalise on its strategic initiatives.

“These include continued growth from an excellent asset base, selective acquisitions and greenfield expansion projects.”

For the year to end February Mazor reported its key aluminium division enjoyed a good year with an improved performance from its manufacturing operations. Encouragingly, CEO Ronnie Mazor expected both top and bottom line as well as margins to continue improving.

He added the aluminium division was also well-positioned to weather increased input costs. Mazor said the company’s steel division also saw increased activity in the year. But he said rising material costs would remain a challenge.

Overall, Mazor’s revenue was up a lively 31% to R492m with the aluminium division posting a strong 61% in sales to R281m. More impressive was that operating profit rose 246% to R41m compared with a loss of R28m in the previous financial year.

Mazor pointed out that R19,4m invested in new plant – predominantly to automate and improve efficiencies in the steel and glass divisions. Looking to the financial year ahead, it was heartening that Mazor contended that despite some economic challenges in South Africa the company was confident it was on a sound footing.

“Being predominantly (Western) Capebased and given that the Cape economy is growing faster than the rest of the country we believe that we are all well-positioned to take advantage of future growth.”

Mazor reckoned the company would benefit from the uptick in the residential market – “which will in turn drive demand for retail, as well as tourism especially in Cape Town.”

He added that Mazor was also seeing increased demand for big box warehouses for the logistics industry. Outside the realms of Afrimat and Mazor, there were also other indications that Western Cape construction activity was still ticking over reassuringly in the low cost housing market.

Construction and engineering specialist Esor recently reported an affordable housing project in Khayelitsha will be undertaken in joint venture with the Khayelitsha Community Trust. Esor CEO Wessell van Zyl said the bankability study and contractual agreements were currently being finalised.

“We will develop 368 stands that are already serviced with a further potential 1,000 mixed-use opportunities over three to five years.”

He said Esor was awaiting approval for the ready-to-build design for affordable housing of R400,000 to R500,000 a unit. Low cost housing developer Calgro reported recently that its first 629 units in the Belhar project were well underway and bulk infrastructure upgrades on the future phases were expected to commence shortly. Calgro estimated that this would see an additional 3,000 units coming into the market.