BUILDING: Tale Of Two Cape Builders
Recent Western Cape Business News
JUST how tough (and tricky) the building supplies market is at the moment was probably perfectly illustrated in the contrasting performances by two highly rated Cape contenders, Afrimat and Mazor.
Although these companies service very different markets, their respective performances are probably quite telling as regards the ebbs and flows of large contract work in the broader construction sector at this delicate juncture of the economic cycle.
Afrimat, if anything, looks like the last man standing (tall) amongst the Western Cape based building supplies specialists.
It posted a 13% hike in revenue to R778 million and a 15% increase in pre-tax profits to R109 million for the year to end February 2010.
Afrimat’s performance stands in stark contrast to recent results achieved by Portland (owned by WG Wearne) and Megamix/Villiers-dorp Quarries (owned by Qargent Industrial).
Perhaps the biggest reason for Afrimat’s robust showing could be its geographic diversity with earnings contributions – which were once heavily weighted towards the Western Cape and KwaZulu-Natal – now spread more evenly throughout SA.
The group is also in the fortunate position of servicing some large scale public sector infrastructure projects. This would include work around the Medupi and Kusile power stations as well as road contracts countrywide.
Aggregates once again showed up well for Afrimat with this division accounting for around three-quarters of total operating profits with a hefty of R84 million.
Interestingly, one of the star performers for the aggregates division was the Denver Quarry in Port Elizabeth.
Afrimat’s readymix cement division was a tad more brittle – especially in the Western Cape. CEO Andries van Heerden reported that readymix concrete was severely affected by a sharp decline in volumes in the region due to a ‘generally poor economy’.
While it seems Afrimat’s Cape markets took further strain during the year, it seems van Heerden is still hopeful of a short to medium term recovery.
He believes the Western Cape will deliver more project allocations such as the N1 and N2 Winelands road projects (which are currently out to tender).
Mazor – which specialises in steel, aluminium and glass cladding – appeared to hit the doldrums in the second half of the year to end February 2010.
After a very encouraging interim showing (when revenue and profits were up substantially), Mazor finished the financial year with turnover slightly down 7.5% at R274 million and bottom line income almost halved to R34 million (previous year: R64 million).
Group CEO Ronnie Mazor bemoans the cancellation of public and private sector projects during the second half of the financial year due to the lack of available funding and credit concerns around the global financial crisis.
He says the slowdown was felt in slower regional economies like the Western Cape – Mazor’s traditional operating base.
Mazor also says profit margins were also hammered by intensified competition in the contracting market.
A divisional review shows operating profit from aluminium dropping from R31 million in 2009 to R22.5 million, while the steel division saw a fall in operating profits from R49 million in 2009 to R34 million.
Mazor’s fledgling glass division – which moved into the Port Elizabeth market in April via Independent Glass - posted a bigger loss of R9.5 million despite hiking turnover by over R20 million to R63 million.
Mazor says the short-term outlook for Mazor Aluminium and Mazor Steel remains weak. But he says the construction market will most likely rebound in 2011 when projects become more viable on a loosening of credit restrictions and the increased availability of funds.
Fortunately for both Afrimat and Mazor both companies have the resources to ride out further market pressures. Both companies have healthy cash balances that even allow the respective directors the luxury of declaring generous dividends to shareholders.
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