China ‘is a rival in construction’

Published May 13, 2011

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The future “playing field” of the construction industry would be wider than South Africa and Chinese companies would grab all of this work if local contractors were not careful, listed construction materials group Afrimat warned yesterday.

Andries van Heerden, the chief executive of Afrimat, said projects in countries like Zambia, Tanzania and Mozambique were being driven by the commodities boom, with demand for commodities such as copper, iron ore and coal being driven by demand from China and India.

“The Chinese are moving extremely fast and if we (local companies) don’t move fast, they will get it all,” he said.

Van Heerden said the construction market had also moved away from large scale projects to smaller projects valued at between R300 million to R400m, which suited Afrimat “perfectly” but not the large construction groups.

“The herd behaviour of companies rushing to get the big projects is over and there is a need to focus on smaller projects out in the sticks,” he said.

He said projects would be spread over a wider geographic area and there would be an increased number of opportunities, adding that there was an increase in non-government spending although the infrastructure environment remained attractive.

The country still had a serious infrastructure backlog and the compound growth in expenditure from February 2007 to February this year was 16.5 percent for roads and 20.5 percent for low-cost housing, Van Heerden said.

However, negatives were rising fuel prices, with fuel accounting for 10 percent of Afrimat’s total costs; the more complex legislative environment created by the mining charter; talks of nationalisation; and royalties to the state, which wiped R4m off Afrimat’s bottom line this year, he said.

Afrimat yesterday reported a 3.9 percent increase in headline earnings a share to 53.3c in the year to February from 51.3c in the previous year.

Van Heerden said the growth in headline earnings a share was achieved despite an effective 5.6 percent reduction due to the group’s black economic empowerment (BEE) transaction and the impact of new royalty-related mining legislation.

Afrimat has repurchased 4.9 million of its own shares in the three years up to February since its BEE deal and a further 653 128 shares in its current financial year to date.

Van Heerden said the group was well on the way to getting rid of the dilution from its BEE transaction. He said its share repurchasing was not aggressive buying but repurchasing its own shares when the price was right and the cash was available.

Revenue added 9.8 percent to R854.5m from R778m. Operating profit rose marginally to R109.8m from R108.9m as the operating margin deteriorated to 12.9 percent from 14 percent.

A final dividend of 11c a share – from 10c the previous year – increased the total dividend for the year to 17c from 16c the previous year.

Afrimat shares advanced 4.23 percent to close at R3.70. - Roy Cokayne

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