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New entrant Sephaku brings competition


22 February 2013

Publication: Business Day
Author: Alistair Anderson

Established cement companies are confident of improving sales even with new entrant Sephaku bringing added production into the market later this year.

Analysts, however, believe cement makers need a boost from government projects.

Stanlib equity analyst Anashrin Pillay says he expects South Africa’s cement industry to “chug along a bit beyond the country’s gross domestic product (GDP) growth” this year. Well, the market would probably grow at between 4% and 5% without infrastructure spend, so it can move with the momentum of GDP growth,” he says.

Economist forecasts in South Africa have the economy growing at between 2.5% and 3% this year.

South Africa consumes about 12-million tons of cement a year. This is with producers running at 70% capacity. Capacity is at about 50% in the Western Cape where construction is quiet, which is disappointing, Mr Pillay says. “Barely anyone is building in the Western Cape.”

He says once the government makes announcements on specific infrastructure projects, there will be a lag of about 18 months, after which we will see big earnings and profit returns for cement makers.

“Cement companies will have projects going forward, but they are not going to hit capacity as an industry for a while,” he says. Stanlib holds shares in PPC, the largest manufacturer of cement in the country. PPC has between 30% and 35% of the cement market in South Africa. Mr Pillay says Stanlib is confident that the state’s multibillion-rand infrastructure plan will bring about returns, even if not all of the 17 strategic integrated projects earmarked by it are executed.

“PPC has 25% margins at the bottom of the current business cycle. It is an infrastructure play and will not face serious contractor risk.” Mr Pillay says PPC ticks many boxes for Stanlib.

“PPC is financially savvy. Foreigners are taking to the African strategy. It is gaining 21% of its revenue from African countries that are not SA. These are Zimbabwe, Botswana and Mozambique. By 2016 they hope to get this up to 40%,” Mr Pillay says.

He admits that PPC and the other big local cement firms such as AfriSam, Lafarge and APC Cement will lose market share to Sephaku, but believes the older companies will adjust to the challenges.

Sephaku is using funds from its Nigerian partner, Dangote Cement, to build its Aganang cement plant. Sephaku believes it can operate at a low cost because its plant will use new technology, while PPC and others have plants that are decades old. Mr Pillay says investors must bear in mind that if the Sephaku plant goes off line for whatever reason, the company will not produce cement.

Sephaku is the first new entrant to the local cement production market to open its own new plant since 1934. It is working with Sinoma, a Chinese company with experience in building cement plants. Sephaku is also building a cement mill near Delmas in Mpumalanga. Sephaku CEO Pieter Fourie says his group is looking to produce 2.5-million tons of cement a year by next year.

Mr Fourie believes new technology will make his company an attractive place for customers.

Some insiders feel Sephaku will use the same inputs as other cement companies, but Mr Fourie believes the new plant will be very efficient and has confidence in his staff’s ability to meet early targets. Mr Pillay reckons Sephaku will hit 1-million tons a year once its operations are under way. This sees the company taking up 10%-12% of national market share.

The other threat to South Africa’s cement producers are importers whose cement sales make up about 5% of the market. Last year, certain Pakistani cement was criticised by people in the industry who said it was low quality and did not hold up in practice. Pakistan’s Trade Commission in South Africa last year defended products made by a Pakistani cement company, Lucky Cement, saying they met all quality standards in South Africa and were also cheaper than established, locally manufactured equivalents.

Lafarge had said it was considering approaching the International Trade Administration Commission of South Africa to protect the local market from what it deemed cheap, low-quality cement from Pakistan. Various local cement manufacturers this year said importers were bringing in underweight bags of cement.

But the National Regulator for Compulsory Specification says investigations show that noncompliance is very uncommon and the body is not concerned. It puts the incidence of quality noncompliance of imported cement at about 8%.

Full Financial Analysis


Bodibeng Trading Proprietary Limited

Founded by Mr Gaopalelwe Olebogeng from the Verdwaal Village in the North West province who is the sole managing member of Bodibeng Trading Proprietary Limited. Mr Gaopalelwe has previous experience in plant cleaning that he acquired during his tenure as a plant cleaner at another cement company in Lichtenburg. Bodibeng Trading Proprietary Limited employs 36 employees from the local community and currently has a short-term contract with SepCem which includes mentorship to ensure that it effectively provides the plant cleaning services at Aganang.


Mancamane Trading Enterprise

Mancamane is a black female-owned enterprise that started operating in 2010 as a plant cleaning, construction and mining supply company. Ms Daisy Maseko, a renowned entrepreneur, founded the enterprise in the Delmas area, Mpumalanga province and currently employs 28 permanent staff. SepCem adopted Mancamane into the enterprise development programme in 2014. The company is currently supplying plant cleaning services to the Delmas grinding plant and has demonstrated the ability to grow sustainably.


MM&JK Cleaning Projects Proprietary Limited

In 2014, SepCem contracted the cleaning services of MM&JK Cleaning Projects, an enterprise established in 2013 by Mr Sipho Mazibuko from a village called Springbokpan in the North West province. SepCem identified MM&JK Cleaning Projects as a well-managed enterprise that is appropriately suited to benefit from the programme. In the case of MM&JK, SepCem has partnered with another major industrial organisation to mentor Sipho.

The partner’s role is to assist MM&JK Cleaning Projects with inproving its cleaning skills through training, providing cleaning equipment and required detergents. SepCem’s role is to develop Sipho’s business management skills including cost management, record keeping and negotiation. SepCem is assisting MM&JK to develop a marketing strategy to increase its customer base to reduce the single-customer dependency risk and ensure that the company is sustainable. MM&JK Cleaning Projects currently has a three-year contract with SepCem for general cleaning at Aganang and employs 14 permanent staff.



Millicent’s Enterprise

Millicent’s Enterprise is 100% black female-owned and was founded by Ms Millicent Mahlabe, an entrepreneur from Delmas in the Mpumalanga province. The company was selected for the programme because it has historically demonstrated the ability to supply large contracts but lacks administration skills. Millicent’s has a good reputation and positive track record of being able to cater for large provincial government events.

SepCem secured Millicent’s catering services in 2013 for its canteen at the Delmas plant that provides meals to 150 employees. Millicent’s currently has seven permanent employees and several contract employees who are sourced as and when required.