Carlmac Steel, a company controlled by Malcolm McCulloch and Carlo Di Nicola, together with members of the existing management team have acquired all the shares of Murray and Roberts' reinforcing and steel bar business, Murray and Roberts Steel.The company will retain the name and branding of Reinforcing Steel Contractors (RSC). The company operates from 15 established operations across South Africa and envisage developing a footprint of operations in Africa.
The company has been operating since 1980 and is the leading supplier of wire mesh, reinforcing steel bar and fixing solutions to the construction industry.
Carlmac has acquired this business during a difficult period for the construction industry. Is this the right time to be buying a business of this type?
Although conditions are difficult, the volume of reinforcing bar remains greater than historically low levels. Both the controlling shareholders of Carlmac have been in the construction and the steel industry for a long time and they both understand the cyclical nature of the industry. Building a business is a long-term initiative that requires diligence and passion if the business is to prosper.
Murray and Roberts has been trying to sell the business for some time and its financial performance is below acceptable levels. What do you plan to do with the business and why do you think you can make a difference?
We are confident we can lift the fortunes of the business. The poor historical performance is a result of many challenges that the business and industry have had to face over the last number of years.
By far, the biggest challenge has been coping with the sharp drop in demand after the completion of the 2010 FIFA World Cup and other major infrastructure projects. Also, the end of the collusive practices that distorted the competitive environment of the whole construction sector has forced the industry to reevaluate the manner in which it competes and the appropriate value-add services to customers.
These issues, combined with significant overcapacity and poor leadership, have meant that the major players in the industry have underperformed.
A further issue has been that, worldwide, the steel industry has particularly high price fluctuations. More recently, a surplus of international steel capacity has meant that international steel prices have been at historically low levels.
How do you intend to improve and differentiate this business?
At the heart of any business are people. For a business to prosper, the people who work in the business every day must feel that they have a purpose and that their efforts can make a difference. This difference is measured in profits but also by the satisfaction of delivering a service to customers that results in repeat business.
While a business often only considers the short-term goals and, eventually, customers, staff and other stakeholders will find themselves disappointed. This will also impact negatively on employment, training and sustainability. Such an environment is not conducive to value creation.
To prosper, the business must be built with long-term goals in mind. These would include a range of value initiatives including pricing evaluation, improving efficiency and service levels and ensuring continuity of supply.
The primary steel-manufacturing companies are likely to continue to face pressure from government to sell steel at a 'developmental' steel price, although the price of steel is set in global terms.
South Africa is a high-cost manufacturer of steel with prices of all raw material inputs determined by global markets and the price of electricity and labour, which are much higher than other competing country manufacturers. The country's domestic volumes are also modest in global terms.
Unless the primary industry manages to improve its profitability in the short term, it will attract less and less private-sector investment.
Ultimately, steel in South Africa will become a much more scarce product and, accordingly, it should eventually be priced at a level that recognises its scarcity.
Companies like RSC are relationship driven. Over the last few years these relationships have become more short term. Many of the contractors have also found themselves managing their own affairs in a similar way. This creates an adverserial approach and diminishes trust on a range of issues.
The service we provide is critical to the successful outcome of most construction projects and should be valued and developed with this in mind.
Relationships with our customers need to be developed on a foundation that provides value to the customer but also enables us to grow our business. These should be long-term relationships aimed at ensuring that a win-win result is obtained.
Many of these solutions will take time to implement and both parties should see the value in a sustainable long-term relationship.
How do you see the steel price moving over the next period?
Over the short term, we see the price being volatile with an upward trend. Over the longer term, in dollar terms, the price will remain weak but with rand volatility and the other challenges facing the steel manufacturing industry, we think the price of steel is likely to increase in rands more markedly with a falling dollar exchange rate.