Construction materials company Sephaku Holdings (SepHold) achieved a 75.9% year-on-year increase in basic earnings a share to 12.83c for the six months ended September 30, as a result of a significantly improved performance during the period.

Headline earnings a share increased by 77.3% year-on-year to 12.59c.

Group net profit increased by 79.2% year-on-year to R26.51-million, while the Metier Mixed Concrete division’s revenue increased by 4.5% to R468-million.

SepHold’s revenue increased by 4.5% to R468-million as a result of an increase in Metier’s sales volumes.

Group operating profit for the period was lower at R22.71-million, but net profit increased to R26.52-million as a result of the increase in subsidiary Sephaku Cement’s (SepCem’s) equity accounted profit.

SepCem has a December financial year-end as it is also a subsidiary of Dangote Cement. SepCem’s equity accounted profit increased to R16.2-million for the six months ended June 30.

Commenting on the results, SepHold CEO Dr Lelau Mohuba said SepCem’s interim profit improved significantly as cement price increases held in most markets, resulting in a 5.4% year-on-year revenue increase to R1.16-billion.

“Into SepCem’s third quarter, we have observed increased activity by blenders and importers, which has placed downward pressure on cement volumes as demand remains stagnant. The cement landscape continues to be stable with isolated incidences of intense competition for highly profitable markets,” Mohuba elaborated.

A 3.2% reduction in cost of sales, he added, as a result of a cost efficiency programme, contributed to higher profitability.

SepCem's cost saving efforts contributed to a 30% increase in interim earnings before interest, taxes, depreciation and amortisation of R256-million, compared with R197-million in 2017.

The operating and net profits achieved were R170-million and R45-million, respectively.

SepCem's net profit increased by 86.8% year-on-year to R30.57-million for the period.

Meanwhile, Mohuba said Metier’s interim performance reflected a tough operating environment, which was characterised by low mixed concrete volumes and pricing. These factors resulted in intense competition that significantly impacted on the subsidiary’s profitability in the interim period.

The division’s net profit decreased by 35.9% year-on-year to R20.3-million.

Its revenue increased by 4.5% to R468-million as a result of an increase in sales volumes.

Despite the challenging trading environment, Métier repaid R18-million in debt during the interim period. By financial year-end, the subsidiary will have repaid R36-million in capital and about R12-million in interest.

Additionally, Mohuba highlighted that group management continues to apply various strategies to improve efficiencies to support sales volumes and margins.

“The group anticipates a tough operating environment in the second half of the financial year and to that effect, SepHold has started a cost management programme to reduce head office expenses.”

The programme includes reducing the size of the board of directors from ten to seven. Board members, who have resigned, namely Mpho Makwana, Rose Raisibe Matjiu and Kenneth Capes, will not be replaced.

“These board changes and additional efforts focused on head office activities are anticipated to reduce expenses over the next year. We remain cautiously optimistic about the next 18 to 24 months and anticipate that the efforts by the government to stimulate the economy will yield positive outcomes,” Mohuba said on Tuesday.

The company will also implement cost management structures at its head office, which include reducing travelling expenses and other non-critical operational activities.

Looking ahead, SepHold noted that, considering the recent downward revision of the country’s gross domestic product growth forecast by International Monetary Fund and Moody’s, the constrained trading environment will persist in the short to medium term.

Industry cement volumes are expected to decrease by between 5% and 10% year-on-year as demand continues to be muted. The mixed concrete market is expected to be tough for the next 18 to 24 months as demand declines or stagnates and the construction industry undergoes restructuring, the company said.

“The group's focus for the next 24 months is to reduce debt, reduce head office expenses, complete the fleet efficiency improvement programme at Metier and continue to evaluate opportunities to enhance shareholder value,” the company concluded.