As the global economic outlook remains uncertain, property investors should brace themselves for a slowdown in the capital appreciation of their existing assets.

SOUTH African listed property was the second-best performing asset class last month, returning 6,68%, beaten only by equities, which recorded a total return of 8,05%, but the sector’s outlook for the year is still uncertain.

South Africans will have an opportunity to own properties in Germany and the UK by buying shares in Redefine International, which is expected to have an initial market capitalisation of R2,5bn.

Lonrho had increased its stake in prefabricated buildings manufacturer Kwikbuild to just more than 70% and planned to increase its stake in agricultural processor Rollex SA, CEO Geoffrey White said last week.

Kwikbuild has a major share of the South African market, and has businesses in Mozambique and Zambia, while Rollex is one of SA’s largest agriprocessing companies supplying fresh produce to local and overseas customers.

The investments, being funded by proceeds from a recent private placement that raised £25m, were part of a strategy to own majority stakes in the companies in which it is investing across Africa.

White said the private placement had given Lonrho, listed on London’s AIM market, enough cash to expand in the five areas of infrastructure, transport, hotels, agribusiness and support services in 17 countries, including SA.

Once a sprawling conglomerate which, at its peak in 1995, had about 90 companies, Lonrho has restructured, selling assets to pay debt and return cash to shareholders. It is now an investment holding group targeting selected markets in Africa, where White said there were sustainable returns for the patient investor.

“We have so far raised £25m, the bulk of which we intend to deploy to increase our stake in some of our businesses,” he said.

“Our intention is to have a majority stake of at least more than 51% in key businesses and that is the reason we have increased our shareholding in Kwikbuild from 62% to about 71%. We are also looking at increasing our shareholding in Rollex from 51% to a significant amount.”

Kwikbuild has benefited largely from government tenders in SA, where it has supplied prefabricated clinics and classrooms in rural areas. It plans to expand to countries such as Angola and Democratic Republic of Congo, as well as in east Africa.

Rollex is packing and delivering fresh produce and fish to local customers Pick n Pay and Woolworths and, in Europe, to Marks & Spencer, Tesco and Sainsbury’s.

The company, operated as a subsidiary of Lonrho Agriculture, has a large, chilled bonded warehouse at OR Tambo airport.

White said Rollex was growing its export markets. It had begun shipping fish from Namibia to the US and Europe, and had opened new markets in the Middle East and Scandinavia. “There is general demand for African fresh produce and we are sourcing our products not only from SA but elsewhere in Africa.”

There were plans to expand agriprocessing facilities in Angola, Malawi, Mali and Zimbabwe.

White said Lonrho was consolidating and expanding in Zimbabwe through LonZim. He said the country was recovering, and still had “a relatively highly educated labour force with an industrious working culture” as well as good infrastructure.

LonZim’s portfolio covers sectors such as aviation, hotels, IT and pharmaceuticals.

Avis Rent A Car has admitted that the government’s multi billion-rand public transport projects, the Gautrain and bus rapid transit system, pose a competitive threat to the company.

The Coega Development Corporation has embarked on an aggressive promotional campaign across Europe.

The International Downtown Association’s (IDA’s) – the world leader and champion for vital and liveable city centres -chose The Central City as the Downtown of the Month

Ceramic Industries reported an 18.3% decline in headline earnings per share to 376.1 cents for the six months ended January from 460.2 cents a year ago.

South African tile and sanitary ware manufacturer Ceramic Industries (CRM) on Tuesday reported an 18.3% decline in headline earnings per share to 376.1 cents for the six months ended January from 460.2 cents a year ago.

An interim dividend of 110 cents per share was declared.

Revenue was 2.8% higher at R720.8 million, while operating profit was 17.6% lower at R92.8 million.

The group said the trading environment remained difficult for the period, in line with expectations, as demand slowed and consumers continued to rein in discretionary spending.

Although government continued its water, sanitation and housing infrastructure projects, there were indications of reduced activity ahead of the national elections to be held in April. As a result, demand for tiles and sanitary ware declined year on year.

International tile and sanitaryware factories have cut back on production capacity in reaction to the global economic slowdown.

While this lowered the risks associated with a global oversupply of tiles and sanitaryware, inventory levels across the industry are high, placing additional pressure on pricing in the local market and limiting Ceramic Industries' ability to recoup increased input costs.

The group said while the South African tile factories delivered a solid performance given the current environment, margins were negatively affected as cost pressure persisted and efficiencies were reduced by lower volumes.

The slowdown in government infrastructure spend had a more pronounced affect on the sanitaryware division which produced disappointing results.

The group's overall performance was also affected by a poor performance from the Australian factory, Centaurus.

Tile revenue improved by 6.3% to R609.8 million, but tile sales volumes declined by 2.8% in line with reduced demand.

The group, however, successfully increased overall selling prices by 5.3%. Reported sanitaryware revenue of R111 million was down 12.7%, reflecting the adverse market conditions.

Cash flow from operations declined by 26.7% to R136.5 million in line with lower profitability.

Looking ahead, Ceramic Industries said although interest rates are expected to continue easing in the second half of the financial year, discretionary spending will remain under pressure with subdued demand in the new housing market.

In addition, the group anticipates that the slower activity levels in the government's infrastructure and housing and sanitation programmes will persist for at least the next six months.

Although the demand for tiles has slowed, the group has demonstrated its ability to manufacture fashionable tiles and improve service levels and is positioned to continue benefitting from import substitution with a high quality and competitively priced offering.

The focus remains on optimising internal efficiencies at the lower current production levels to dampen the effects of ongoing cost inflation, it said.

The factories in the group's sanitaryware division are starting to overcome their internal challenges, although there remains much to be achieved. Betta and Sphinx will continue to focus on improving internal efficiencies to ensure their competitiveness.

Based on current market demand levels, the bath factory remains a challenge. In order to utilise excess production capacity, the division has also developed a new strategy to accelerate exports to Europe and the United Kingdom.

Ceramic Industries has invested over R450 million of internally generated funds in additional production capacity over the last few years. No additional investments will be made in the immediate future, and the group is well positioned to take advantage of any increase in consumer demand.

Although the outlook remains uncertain, Ceramic Industries' well-established factories, its strong balance sheet and broad customer base should enable it to continue generating acceptable results, it concluded.

Source: I-Net Bridge

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.

It 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.

Madison Property Fund Managers have reported an interim distribution of 39 cents per linked unit for the period to 30 June 2008, representing an 8.3% increase from the prior interim distribution period