Construction World December 2017

COVER STORY

“We are faced with the challenge that our schooling system is not yielding enough learners with sufficient maths and science marks to get the engineering qualifications that we need. Transformation is always going to be a challenge unless we get that right.” struggling to keep up with demand, but more recently, since the water crises, the outlook there is also starting to look a bit bleak. AfriSam’s readymix business vies with Lafarge as the biggest readymix producer in the country. “If you take readymix, aggregates and cement into account, AfriSam is an attractive business. We consume a large percentage of our own cement through our readymix business, and in turn we consume a large percentage of aggregate though our readymix business. We have a channel and a route-to-market in the form of our readymix business which can produce about 4 million cubic metres of concrete per annum,” says Tomes “AfriSam is holding its own in terms of its ready-mix concrete and aggregates businesses, but is facing much stiffer competition on the cement side because of the oversupply situation and newer entrants with slightly more energy efficient plants,” he admits. The impact of multi-national mergers on smaller players Tomes says that the consolidation that is seen around the world, is now increasingly also happening in Africa. “Lafarge and Holcim consolidated their operations, while Heidelberg is another multinational with a significant presence in Africa. The Dangote Group has roughly 30 million tons of installed capacity in Africa. “Multinationals have a diversified portfolio around the world so they can take advantage of growth in areas of increased demand, and offset this against low growth areas. Players like AfriSam and PPC are concentrated on the southern tip of Africa. For many years it was ok: South Africa was the leading economy on the continent, but things have changed,” he says. “Smaller and independent players must either make peace with the fact that they are a small player and therefore operate very lean structures whilst looking for opportunistic growth; something which is proving extremely difficult at the moment or they need start to think about consolidation, as this will enable them to strengthen balance sheets collectively and set them up for the growth period which lies ahead,” says Tomes about the proposal to merge with PPC. “The African continent, despite some of its challenges, still

AfriSam is a diversified business. Its Aggregates business has the capacity to produce in excess of 10 million tons of aggregate annually.

remains the last big growth opportunity. Soon the continent will have more than one billion people, many of whom are still living in under developed rural areas. With the expected urbanisation likely to happen over the next 10 to 20 years, Africa is certainly the place to be if you are in the cement or infrastructure related industries. In the short to medium term however, AfriSam and PPC need to pursue the opportunity to create a strong national cement champion in South Africa, which is the home base and still accounts for more than half the income for both companies. On the back of a strong home base, degeared balance sheets and leaner structures, a merged entity will be in a much stronger position to deal with some of the current headwinds whilst aggressively pursuing growth in a more structured and slightly less risky way on the continent” says Tomes. Having said that though, the two companies should be careful not to get completely distracted by all these merger negotiations. “As AfriSam, we still have a business to run and customers to serve, which is why we continue to look for ways of improving our profitability and sustaining our business and leave the negotiations up to the deal makers.” Possible future growth A growth opportunity is the limestone deposit that AfriSam owns in the Western Cape. “For years now we have not considered exploiting the opportunity that this deposit offers us, mainly due to timing and the current oversupply of cement in South Africa. In addition we had to settle down the business after the Holcim deal: We had to bring new shareholders on board and restructure our balance sheet for the next wave of growth,” says Tomes. “AfriSam has enjoyed good support from its shareholders and we are encouraged by the continued support as well as interest shown by other potential partners to establish a long term presence in the Western Cape. We currently supply all our readymix operations with cement from our Ulco plant and have started targeting other cement users in the area as well. Establishing a cement plant in the Western Cape will allow us to reduce the cost of cement to our readymix concrete operations, whilst being able to pursue other users more

aggressively. Establishing a fully integrated plant could cost anything in excess of R3-billion, so one option might be to start with a cement mill and bagging plant and only build the kiln once there is sufficient demand to support that level of investment. We already have an approved EIA and discussions with potential partners regarding plant design, funding etc. are ongoing.” In conclusion Tomes says that AfriSam aims to consolidate its South African base, strengthen the balance sheet, get costs under control, remain competitive, continue to be cash generative and give shareholders confidence that the business is on the right trajectory. “And when growth comes, we will be in a good position to justify a major capital expenditure,” he says. 

The growth opportunity for the company is the limestone deposit the company owns in the Western Cape, which will allow for AfriSam to establish a cement factory.