Wednesday, 16 September 2009 02:00

Cashbuild targets rural areas for expansion

Cashbuild, which is reaping rewards for opening stores in rural areas, expects to spend R200m on opening 10 new stores and refurbishing old ones.

Friday, 13 March 2009 02:00

Fund puts $20m in SA firm

Global investment company Kingdom Zephyr has invested $20m in South African power infrastructure and heavy building materials company Buildworks.

BUILDING materials retailer Iliad Africa on Monday posted a marginal earnings increase for the year to December, weighed down heavily by a sharp drop in demand in the residential building sector.

Eugene BenekeCEO Eugene Beneke said a significant increase in distribution expenses and tougher market conditions had also brought the operating margin under pressure.

He said fuel price hikes of more than 50% accounted for the bulk of the extra costs, which had seen margins drop from 8,3% to 7,7%.

Headline earnings per share rose 5% to 177c while headline earnings increased 1% to R249,7m from R247m in the previous comparable year. The group posted a 10% rise in turnover to R4,6bn, 8% of which it said was attributable to the successful integration of recent acquisitions.

However, the group said its focus on operating efficiencies, cost controls and group procurement had offset the effects of the downward pressures on demand and resulted in healthy cash flows. The JSE-listed company sources, distributes, wholesales and retails general and specialised building materials through its 112 stores.

“Operating profit nonetheless rose by 2%, again highlighting the success of Iliad’s strategic focus on its decentralised owner-manager business ethos and its ability to focus on internal efficiencies, its financial disciplines and its improved procurement skills,” Beneke said.

“Working capital was again well managed, resulting in good cash flow for the year,”

Beneke said slowing activity had been particularly evident in the residential market as demand continued to contract, with the most pronounced effect in larger towns and metropolitan centres.

“The start of several new housing developments has been postponed, given the state of the market, protracted effects of the introduction of national credit legislation, concerns about power supplies and the slow pace of regulatory approvals.

“The nonresidential market, which until now has countered slowing residential activity, began to reflect the downturn as the rate of growth (measured by building plans passed) slowed in the second half, albeit off an extremely high base. The market for additions and alterations, which is directly correlated to personal disposable income, has slowed, but should improve once falling interest rates take effect.”

Beneke said trading conditions in the current year were expected to remain tough, but that Iliad had the means to ride the turmoil.

He said given the healthy balance sheet, Iliad was looking to grow through acquisitions. “Although tougher market conditions are expected to impact on group turnover, Iliad will leverage its conservative debt structure and strong cash-generative ability to generate the cash flow required to fund anticipated acquisition opportunities.”

 

Tuesday, 02 September 2008 02:00

Fuel costs strain Iliad operating profit

BUILDING material retail company Iliad Africa says mounting fuel costs are unlikely to ease pressure on operating profit soon.

Construction IndustryThe company said yesterday that earnings per share rose 9% to 76,9c in the six months to June 30. Turnover increased 14% to R2,2bn, with 5% of this increase attributable to the integration of recent acquisitions National Tile Traders and B-One.

Iliad said operating profit rose 9% as a result of significant increases in distribution expenses.

Fuel price hikes of about 75% accounted for the bulk of the extra cost. “In the absence of a significant drop in fuel prices, we do not anticipate being able to reduce the distribution costs in the short term.”

According to the company, the slowing activity was particularly evident in the residential market.

“The start of several new housing developments has been postponed due to the current state of the market, the effects of the National Credit Act, concerns about power supplies and the slow pace of regulatory approvals.”

Furthermore, the nonresidential market, which until now had countered slowing activity in the residential market, had started to come under pressure. The market for additions and alternations had also slowed.

According to Iliad, its general building materials division recorded solid results, capitalising on its established presence in secondary towns and “management’s superior ability to leverage trading skills by servicing a wider geographic area around each outlet”.

Iliad’s general building materials division store network expanded with the opening of an outlet in Lydenburg, Mpumalanga. “Site negotiations are under way for several stores in other growth areas.”

For its part, the specialised building materials division produced a muted performance. The penetration of the nonresidential market had offset the drop-off on the residential side.

Margins were also under severe pressure in this project based market. “As expected, the wholesale cluster continued on its growth path, despite the market slowdown.”

Iliad said it had entered the second half of the financial year on a sound footing. “Major focus on operating efficiencies, cost controls and group procurement will ensure effects of the downward pressures on demand will be offset.”

 

JSE-listed construction company Group Five yesterday reported a strong performance for the year to June, despite tougher trading conditions in the second half of its trading period.

Mike UptonIt was able to ride global stock markets turmoil, higher interest rates, a weaker rand and load shedding in the first half of the year thanks to a buoyant construction sector and its product and geographic diversification strategy.

“Against these factors, we believe our strategy of balancing our portfolio of businesses in targeted geographic spread where we have strong markets in African resources and high-growth economies in the Middle East made us much more resilient to the turbulence than before,” said CEO Mike Upton.

The group said revenue rose 16% to R8,9bn from R7,7bn in the previous period, while operating profit before fair value was up 62% as Group Five shifted its focus from private to larger public sector infrastructure projects and consolidated its operations abroad.

Fully diluted headline earnings per share increased 70% to 398c from 233c in the previous year. Disposal of its 3,5% stake in a highway in Hungary had resulted in the fair value adjustment of R111m, the group said.

Cross-border operations, including activities in the Middle East and eastern Europe as well as the rest of Africa, accounted for 34% of total revenue with the rest being generated locally.

Overall operating margin before fair value adjustments improved from 5,1% to 7,1% after all costs, and cash generated from operations rose to R1,8bn for the year to June.

Upton said the results reflected the group’s continued shift from a “pure contractor to that of a diversified construction services, materials and investment group with product and geographic diversification”.

The construction division remained the group’s largest revenue contributor, turning over 79,5% of total revenue and 60% of operating profit. The group reported a record 12-month construction order book of R8,5bn, a growth of 76% from last year, while the current total order book stood at R14bn.

Construction materials and investments and concessions respectively contributed 7,7% and 6,5% of total group revenue and 22,3% and 8,4% of operating profit.

“The construction market, especially in SA, is very healthy and likely to remain so for the foreseeable future in the key sectors in which Group Five has strategically positioned itself,” Upton said. “The opportunities in the order book provide us with the scope to choose higher-margin contracts, improve cash-flow management and maximise our allocation of resources.”

Internationally, Upton said the group would continue focusing on African resources and power markets and continued growth in eastern Europe and the Middle East.

In SA, it would pay particular attention to public sector spending in such areas as low-cost housing, infrastructure public-private partnerships, power generation, roads and water.

“The group has a clear strategy and a balanced portfolio of business diversification aligned to the markets we serve. Given this, we expect to continue on our growth trajectory next year, with strong earnings,” Upton said.

 

Monday, 26 May 2008 02:00

Building industry heads for slowdown

ACTIVITY in the building industry is expected to slow significantly this year as residential and nonresidential property developers feel the strain of higher interest rates, inflation and electricity problems.

Construction IndustryInterest rates have gone up 4,5 percentage points since June 2006, pushing household debt costs to 11% of disposable income. This curbed consumer spending and halted a seven year rally in property prices.

With more interest rate hikes expected this year as the Reserve Bank battles to rein in inflation, analysts say the building industry is expected to weaken even further.

The sector has been experiencing a downturn since late last year, but the slowdown is said to be quite significant in the residential property development market.

Statistics SA figures released last week show building plans passed for the private sector in the first quarter were 1,7% down on the previous first quarter’s.

At the same time, residential building plans passed (half the total) fell 8,9% in a trend stemming from higher interest rates and lower property prices.

Wayne Basson, an industry analyst at international credit insurer Coface, said building plans passed for new houses levelled towards the end of last year, and were declining. This suggested a turn for the worse in building activity this year.

About 5%-8% fewer houses were expected to be built this year as developers felt the pinch of higher interest rates and building materials costs. The cost of materials such as cement and bricks rose as manufacturers tried to keep up with rising producer price inflation, which stood at 11,8% in March.

Cement sales, a key building indicator, peaked, and the growth rate fell sharply.

“It is anticipated that the number of residential buildings completed this year will decline 5%-8%. Even nonresidential building plans passed have declined, despite this sector expecting to show an upturn,” Basson said.

FNB industry analyst John Loos believes that the completions decline will be even higher than that.

“I believe that we may have a decline in completions in excess of 20% for 2008 in SA as a whole, which implies a significant further deterioration in the level of residential building activity,” said Loos.

He said electricity supply problems were also restricting the pace of new developments in some cases.

“On top of all of this, the global economic slowdown adds to prospects for slower economic growth, and thus job creation and residential demand in 2008,” he said.

Growth in the lower end of the housing market was, however, expected to remain robust as the government continued to spend substantially in a bid to reduce the housing backlog among the poor.

 

Transport Minister Jeff Radebe has brushed off concerns about the effect of a power shortage on SA’s readiness for the Soccer World Cup, saying that transport preparations were progressing well.

Thursday, 08 May 2008 02:00

PPC to raise cement prices again in July

PPC, which has already increased the price of its cement 8,5% this year, said the hike of about 5% in July was meant to bring cement prices in line with March’s producer price inflation of 11,8%.

Construction IndustryThe increase will drive up construction costs generally, and the costs of the government’s infrastructure spending programme.

PPC CE John Gomersall said the increases were needed due to higher input costs, such as electricity, fuel and transport, which he said had risen well above producer inflation. He said the rise in the price of cement was a global phenomenon, and prices were being pushed by rising energy costs.

“Our electricity costs have increased 14% already; coal has gone up 30% on average; diesel is up 28% and our delivery costs have gone up 19% for the year to date.

“W e expect another increase in July to bring our overall increase for the year above 11% ,” he said. An increase in the price of cement is set to result in a further escalation in construction costs and, in particular, drive up the cost of the government’s infrastructure spending programme now worth more than R500bn, as well as projects such as the Gautrain.

Increased costs in the government’s infrastructure project will put a heavier burden on the national purse. Higher prices could also have further inflationary effects.

Higher costs are also likely to contribute to a slowdown in the residential property development sector, which is already feeling the pinch of higher interest rates and the National Credit Act.

The price of cement and other building materials have soared considerably in the past couple of years due to a boom in the construction sector, driven largely by government investment in infrastructure in preparation for the 2010 Soccer World Cup.

The increase in prices prompted the Competition Commission in October last year to look at the building materials and construction sectors with a view to investigate anticompetitive practices that might have driven up the costs of the government’s spending.

The commission has been concerned by some trends, including price increases in construction running substantially above inflation.

At the time, the commission noted building material prices were up about 80% since 2000 and across a range of items, from bricks to cement to steel.

Yesterday PPC announced healthy results for its half-year to March, despite a slight decline in regional demand for cement. Revenue grew 13% to R2,9bn, and operating profit rose 9% to R1,077bn compared with the same period last year. Headline earnings per share improved 16%, boosted partly by a reduction in the effective normal taxation and secondary tax on companies. The company declared a dividend of 45c a share.

PPC said demand for cement in southern Africa fell 1,3% for the period due to the combination of high rainfall, the Easter holidays falling in March this year and a softening of demand from the residential sector.

The residential sector had largely been hit by the combined effects of the National Credit Act and higher interest rates, while high rainfall had slowed expansion projects.

The company said the decline in residential construction was likely to limit industry regional cement demand growth this year to between 2% and 4%.

However, Gomersall said the effects of the slowdown in the residential sector had been offset by the continued increase in government and private sector infrastructure spending.

PPC’s share price gained 69c, or 1,8%, to R39,64, yesterday, valuing it at about R21bn.



Thursday, 03 April 2008 02:00

Buildmax floats new shares to raise capital

DIVERSIFIED supplier of equipment and open cast mining services and construction materials Buildmax revised its listing on the JSE main board, yesterday floating 179 million new shares to raise about R310m in capital.

Construction IndustryCEO Paul de Klerk said the group would use the funds to reduce debt and finance growth.

Buildmax’s share price opened at R2,25, a 25% premium to the R1,80 per share in the pre-listing private placement, giving it a market capitalisation of R2bn on listing of the new shares from a mere R100m previously.

Foreign investors took about 40% of the private placement. The group raised a further R61m by the issuing of 40- million new shares to a black economic empowerment consortium led by Vuwa Investments, an existing shareholder in its subsidiary Buildco.

The capital raised would be used partly to fund the acquisition of Diesel Power. Through this acquisition, as well as that of Buildco, Buildmax has repositioned itself as a supplier of equipment, mining services and construction material.

This is expected to drive growth with revenue forecast to grow to R1,7bn, profit from operations to R373m and profit after tax to R201m.

 

Wednesday, 19 March 2008 02:00

Cashbuild proves that cash is still king

Cashbuild is reaping the rewards of staying away from risky credit offerings and selling to lower-income South Africans who are unaffected by rising interest rates

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