CONSTRUCTION: Strong Foundations On The Balance Sheet
Recent Western Cape Business News
CAPE TOWN’s two major construction aligned companies Afrimat and Mazor once again endured mixed fortunes in the first half of their 2012 financial years.
While trading conditions appear anything but vibrant, both Afrimat and Mazor can face down the next 18 months with some confidence thanks to their prudence in retaining strong balance sheets since their respective listings on the JSE.
While so many other construction aligned companies spent the boom times between 2005 to mid-2008 chasing (over-priced) acquisitions to build operational span, both Afrimat and Mazor – save for a few small and well-priced strategic acquisitions - refrained from indulging in wild bouts of corporate action.
At the end of August last year both Mazor and Afrimat each still had over R60 million of free cash on its balance sheet. Should dour trading conditions persist there may well be one or two opportunities for Mazor and Afrimat (intriguingly trading under a cautionary) to pick up strategic assets for a song.
Afrimat’s six month trading period was quite astounding with the company holding bottom line earnings at R45 million – the same level as the previous year. Encouragingly revenue was up 11% to R507 million – thanks to Afrimat’s product and geographic diversity.
The fact that Afrimat opted to declare a half-year dividend of 6c/share must speak volumes about management’s confidence for calendar 2012.
CEO Andries van Heerden says the group still faces challenging conditions in the building and construction sector, but noted that small pockets of improvement are emerging (most notably the Western Cape). “Our mining and aggregates division is performing very well in terms of volumes, especially in the Western Cape where we have secured a number of new projects.”
Van Heerden is confident Afrimat’s widening of focus from exclusively large scale infrastructure projects is the right move, and is being borne out by the continuing trend in the market towards more dispersed, smaller projects in remote areas.
“In this regard our wide geographical footprint and mobile crushing capability are proven advantages.”
Mazor, although it has lately shifted out of its core Western Cape stronghold and into glass, does not have the luxury Afrimat’s product diversify or regional spread.
Still, Mazor showed real signs of recovery when it reported an increase of almost 40% in turnover to R115 million and (more importantly) an increase in margins to close to 18%.
Mazor CEO Ronnie Mazor says there are positive signs of improvement in the construction sector in certain regions of the country with an increased number of projects coming to market in the residential, commercial and industrial sectors.
He adds that development finance is becoming more accessible than previously, translating into new construction projects.
Mazor says construction projects in the Cape have increased substantially. “A healthy number of these are large-scale projects, and Mazor is well-positioned to benefit from this growth.” But Mazor cautions that notwithstanding the increase in project volumes, in the medium-term margins are expected to remain under strain while excess capacity persists.
“We will continue to focus on growth through potential acquisitions with a particular emphasis on distribution and manufacture of construction materials,” he says.
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