CSI is a market leading industrial conglomerate that comprises two principal business units, namely:

  • Global Roofing Solutions (“GRS”), one of the largest metal roofing and roofing accessory manufacturers in South Africa, servicing the construction and roofing industries in South Africa and Sub-Saharan Africa; and
  • Stalcor, one of the top three distributors of stainless steel and aluminium products in South Africa, servicing customers in the fabrication sector and steel merchants.

CSI’s combining of its project based businesses (GRS) and its trading businesses (Stalcor) has promoted synergies and created balanced revenue and cash flow streams for the group.

The CSI businesses are pedigreed, having:

  • highly established brands in the construction and steel fabrication industries;
  • trading histories spanning over 50 years;
  • a profitable and highly sought after African footprint;
  • innovative and skilled management teams;
  • a stable work force of approximately 1,000 people;
  • a high growth history over the past 6 years – which bears testament to effective counter cyclical economic strategies; and
  • expected double digit growth over the next 3 years, despite a slow growth economy.

CSI’s African operations are all profitable, driven by strong local management teams who have partnered with relevant developers, construction companies and contractors. The African footprint would be difficult and costly to replicate, and creates a competitive advantage for the Company. CSI is and will be realising continued high growth coming from its African operations.

Corporate Structure

The corporate and ownership structure of CSI is as follows:

CSI is currently wholly owned by Tiso Blackstar (a Maltese company dual listed on the Johannesburg Stock Exchange and the London Stock Exchange), through its wholly owned subsidiary Tiso Blackstar (Cyprus).

GRS Division

GRS is principally a project based business servicing the metal roofing and roofing accessories market in South Africa. The quality and variation of GRS’ product portfolio is envied by its competitors. The primary products of the division include roofing profiles, steel roofing tiles, flooring profiles and roof sheeting products. The business has operations in South Africa and in seven African countries outside of South Africa, namely Namibia, Zambia, Zimbabwe, Botswana, Mozambique, Ghana and Cote d’ivoire. The GRS division also comprises the business of Helm that manufactures fire and smoke ventilation systems in the main.

The structure of the GRS division is as depicted below:

The operations under GRS are structured as separate companies and the division has a network of branches in all the major centres of South Africa that act as regional distribution hubs. These branches sell significant quantities of roof sheeting coils, roof sheeting lengths, tiles and related products.

Stalcor

Stalcor is a metals trading business, processing and distributing stainless steel, aluminium and carbon steel products sourced both locally and abroad. The division has enjoyed a top three market share position in South Africa over the past 43 years acting as a significant distributor for major steel manufacturers, including Columbus Stainless (stainless steel) and Hulamin (aluminium).

The structure of the Stalcor division is depicted below:  

The operations of Stalcor, are conducted through branches across the country, including in Cape Town, Durban, Bloemfontein, East London, Port Elizabeth, Nelspruit and Rustenburg.

History

The historical milestones of CSI are summarised in the table below.

HISTORICAL MILESTONES

2001

·     Dorbyl Limited, a multi-disciplinary engineering company listed on the JSE Stock Exchange, held the businesses of:

–      Baldwin Steel (established 1922)

–      HHR (established 1958)

–      Brownbuilt Metal Sections (established 1964)

–      Stalcor (established 1973)

·     These businesses were held as divisions by Dorbyl Limited through the years

2002

·     Management buyout of the Baldwin Steel and Stalcor businesses by Kulungile Metals from Dorbyl Limited

2003

·     Management buyout of the HHR and Brownbuilt businesses by Global Roofing Solutions Proprietary Limited from Dorbyl Limited

2007

·     Kulungile Metals sold to KMG Steel, a company controlled by Tiso Blackstar

2008

·     Global Roofing Solutions Proprietary Limited sold to KMG Steel

·     World economic crisis affects the businesses of Baldwins division of KMG Steel negatively, constraining cash resources mostly, and resulting in the subsequent sale of Baldwin Steel during 2011

2010

·     South Africa hosts FIFA soccer world cup, which has some positive impacts on the demand from the construction sector and the products of all the businesses under KMG Steel

·     Global Roofing Solutions Proprietary Limited buys Helm Engineering and Country Roofing (in Namibia)

2011

·     As a result of challenges of the world economic crisis on the businesses of Baldwin Steel and Stalcor especially, KMG Steel undertakes strategic restructurings

·     Corporate restructurings;

–      Baldwin Steel sold to Robor Steel (intervention to stem the ongoing operating losses and negative cash flows incurred by this division)

–      Global Roofing Solutions Proprietary Limited  sold to Blackstar Group SE (underpinned by a strategy to prevent cross-contamination by the Baldwin Steel losses of the modest profitability and ‘bankable’ balance sheet of Global Roofing Solutions)

–      KMG Steel renamed to Stalcor Proprietary Limited

·     Capital restructurings;

–      Stalcor Proprietary Limited  shareholders  (of which Tiso Blackstar was the majority) recapitalised the business with R50 million (necessary to ‘rescue’ the business from certain failure)

–      Recapitalisation of the financing facilities of Stalcor Proprietary Limited  with a new debtors discounting and stock financing facility from Sasfin Bank (the business found it difficult to get support from banking institutions at this time)

·     New management at Stalcor;

–      Tiso Blackstar appointed Chris Ransome and Paul Miot as Executive Chairman and Managing Director respectively

 

2012

·     New management team implemented a turnaround strategy for Stalcor Proprietary Limited, which included:

–      A complete clean-up of the balance sheet – resulting in approximately R32 million in write-offs – to achieve a simple balance sheet of tangible and realizable assets with known liabilities

–      Strict implementation of cash management, liquidity and solvency disciplines

–      Re-composition of all inventories – to achieve the right stock, right location, right value

–      Re-composition of staff – great motivated experienced people to replace ‘dead wood’

–      Aggressive sales volume growth with improved margins

–      Focus on re-establishing the branches in Cape Town and Durban

 
 

2012

·     Tiso Blackstar approved a strategy for the Global Roofing Solutions Proprietary Limited businesses, whereby:

–      Global Roofing Solutions Proprietary Limited closed its aging paint plant, which had for over 20 years, in competition with ArcelorMittal and Safal Steel, been painting galvanised coil used as raw material in the manufacture of the company’s roof cladding products; and

–      The HHR and Brownbuilt Gauteng operations were consolidated into a single location in Boksburg North. This resulted in the discontinuation of HHR’s onerous lease of its Isando premises

2013

·     Management restructurings at Global Roofing Solutions Proprietary Limited;

–      Tiso Blackstar appointed Chris Ransome and Paul Miot as Executive Chairman and Managing Director respectively

2015

·      Stalcor Proprietary Limited and Global Roofing Solutions Proprietary Limited were consolidated (merged) and the establishment of Consolidated Steel Industries was completed.

·      Combined business created the necessary financial scale and balance between project based and trading based businesses to compete with its peers

2016

·      GRS and Stalcor’s Gauteng-based operations are relocated ‘under one roof’ in its 51,000m2 facility in Isando, Johannesburg

Industry and Market

 

CSI’s operations are influenced by both the markets in which its customers conduct their business and the stainless steel and aluminium industries. In general, the company is influenced on the supply side by producers of steel products (galvanised, plated, stainless etc.) and aluminium flat and long products, and on the demand side mainly by the construction, engineering and mining industries.

CSI principally purchases its steel from South African steel manufacturers. These manufacturers (ArcelorMittal, Columbus Stainless and Hulamin) have had challenging times in the recent past, influenced mostly by an oversupply of product in the global market. This oversupply has been driven largely by the Chinese market, which produces around 50% of world steel, and offers its local producers significant support in the form of subsidies to make them low cost producers. This had a major impact on countries such as South Africa in terms of imports versus consumption of locally produced products.

2015 trade statistics show that South Africa imported around 489,000 tons of steel from China in the first five months of 2015, more than double the 240,000 tons imported in the first five months of 2014[1]. The impact of these global macroeconomic factors has been mostly represented locally by the number of retrenchments in the steel and aluminium industries. The local industry has called for interventions from the South African government in order to support local production, including the use of import tariffs on certain products from China.

 Read article 

Commentary from the department of trade and industry, and particularly commentary from Ministers Rob Davies and Ebrahim Patel, indicate that the industry is seen as a matter of national priority and key initiatives will be put in place to ensure a turnaround in the sector.

 Importantly, CSI is a purchaser of steel and not a steel producer. Accordingly, steel price fluctuations are directly absorbed by CSI’s customer base as and when they occur. To further minimise adverse price fluctuations on the carrying value of stock-in-trade, CSI’s inventory levels and composition are closely monitored, with inventory kept at around 60 days. This ensures that steel price fluctuations are efficiently traded with minimal impact to sales margins, yet maintaining sufficient levels to mitigate the risk of supply interruptions from the local mills.

Virtually all of CSI’s steel requirements can be substituted with imported product (from China, Europe and other large steel producing countries). CSI’s management continue to actively engage directly with reputable foreign suppliers to obtain maximum benefit from import opportunities.

Operations Review

Global Roofing Solutions

a)   Division Description

The primary business of GRS is in the roofing sector of the construction industry, being one of the largest metal roofing and roofing accessory manufacturers in South Africa, with highly regarded brands across their product types. The primary products of the division include roofing profiles, steel roofing tiles, flooring profiles and roof sheeting products. Through its subsidiary Helm Engineering, GRS also offers products in ventilation and guttering, all of which form a key part of the construction sector.

GRS is represented country wide and has a network of branches in all major centres of South Africa and Africa that act as regional manufacturing and distribution hubs. These branches sell significant quantities of roof sheeting coils, roof sheeting lengths, tiles and related products.

GRS also operates a fleet of mobile rolling plants. A mobile mill is a purpose built and fully contained ‘factory-on-wheels’, fitted with a motorised coiler capable of handling 10 ton coils with a high daily rolling capacity. The mobile mills allow for the on-site profiling of flat coil for customers, and have expanded GRS’ reach to customers.

GRS South Africa operations

GRS South Africa represents GRS’ operations in the Western Cape, KwaZulu Natal, Free State, Mpumalanga, Limpopo and Gauteng provinces. Notably, almost one fifth of the sales made by these operations are to approved South African roofing installers, but relate to projects in African countries.

GRS operates leading brands in the South African roofing sector, namely the Brownbuilt and HHR brands. Brownbuilt, established in 1964, is a roofing brand that pioneered the manufacture of concealed-fix roofing profiles in South Africa, which has given a practical alternative to the traditional pierced fix technology. Through the Brownbuilt brand, GRS also introduced the first mobile rolling plant in South Africa. These mobile plants enable efficiency in the logistical chain involved in roofing material, particularly with respect to roofs of large span. Currently, GRS has ten such mobile rolling plants, with a further two expected to be commissioned over the coming months.

Through HHR, which has been a manufacturer of steel products for the roofing industry in South Africa since 1958, GRS has advanced innovation, product range and quality in the sector. HHR held the patent for the world-renowned Inverted Box Rib roof sheeting profile.

GRS Africa operations

Around 3 years ago, GRS started trials and research to access the Sub-Saharan Africa region. This initiative has resulted in GRS Africa now having a fully-fledged operational presence and capacity in Namibia, Botswana, Zambia, Zimbabwe and Mozambique, with mobile milling presence and capacity in Ghana and Cote d’ivoire, West Africa, offering the full range of GRS products. The phenomenal success of GRS’ expansion into Africa has been driven by the following key factors:

  • strong local management, well known to GRS;
  • partnering with South African developers, construction companies and contractors;
  • announcing its presence by establishing GRS factories and warehousing in those countries;
  • transacting principally in South African Rand (ZAR) as opposed to taking forex risk;
  • strong and determined support from GRS SA’s operations and management; and
  • a decisive and entrepreneurial approach to conducting business in Africa.

GRS Africa’s expansion into Africa was funded through cash generated by GRS’ South African operations with direct and indirect GRS sales into Africa now comprising approximately 35% of total GRS sales and year on year growth of 36%. GRS Africa distribution channels include:

  • direct supply to contracting companies;
  • supply to South African contractors for African projects;
  • erecting of roofs (Botswana only);
  • supply to retailers; and
  • supply to steel merchants in the market.

Helm Engineering

Helm was established in 1989, and manufactures and sells a broad spectrum of fire and smoke ventilation systems, louvers, flashings and industrial rainwater guttering systems in galvanized, aluminium, stainless steel and pre-painted material. This dynamic product offering has resulted in Helm being a leading business in its field that is involved in various major building projects on the African sub-continent.

b)   Footprint and Facilities

GRS’ operational footprint is predicated upon its strategy of servicing South Africa and Africa through regions. The diagram below depicts the footprint and categorization:

The majority of GRS’ manufacturing is done from the landmark Isando facility in the Gauteng province. During January 2016, GRS entered into a lease agreement with Growthpoint Properties for the listed real estate company’s largest industrial property.

The 51,000m2 facility comprises:

  • CSI head office including CSI shared services (administration, human resources, IT and credit);
  • GRS, Stalcor head offices;
  • Branch offices for GRS and Stalcor;
  • Fully equipped GRS and Helm factory of approximately 25,000m2 ; and
  • Stalcor warehouse of approximately 20,000m2.

 

The factory houses the major manufacturing profiling machinery for GRS, arranged in production lines based on the different product types. The factory is split into 9 production lines.  Stock in the form of steel and aluminium coils and sheets is received at the facility’s warehouse sections, with approximately 2 months production in stock kept on the premises.

The photos below show the some of the features of the facility.

GRS also has manufacturing capacity in major regions of operation. The table below gives a summary of the manufacturing floor space across all regions of GRS’ operations:

GRS also operates mobile rolling plants that enable efficiency in the logistical chain involved in roofing material, particularly with respect to roofs of large span. Currently, GRS has ten such mobile rolling plants, with a further two expected to be commissioned over the coming months. Below is a photo depicting a typical mobile rolling plant:

GRS is a SABS ISO 9001:2008 certified company, with the requisite audits performed on a regular basis. The division has developed and implemented a comprehensive health and safety programme in compliance with the Occupational Health and Safety Act of 1993. A comprehensive re-cycling waste programme has been implemented in collaboration with a certified waste collector (CAS Enviro) whereby waste is collected and sorted on a daily basis. The programme also makes provision for the collection and disposition of hazardous waste.

GRS also make use of the services of a competent security service provider on a 24/7 basis for the protection of property. Strict access control for vehicles and workforce is also applied.

a)   Products & Brands

GRS boasts leading South African roofing brands under the Brownbuilt and HHR banners, servicing the construction and roofing markets in South Africa and Sub-Saharan Africa, predominately through well-known trade names as set out below:

Notably, GRS has achieved Agrément Certification for its Klip-Lok 406 and Arma-Tile products

GRS products have for the past 50 years contributed to the looks of a variety of large and interesting construction projects including:

  • the Coca Cola Dome in Midrand;
  • the Velodrome in Cape Town;
  • the River Boat at Lakeside Mall, Johannesburg;
  • the unusual British Airways flight simulator next to OR Tambo International Airport;
  • multi-nationals warehouses for Nestle, Parmalat, Bridgestone and Unilever; and
  • King Shaka International Airport in KZN.

Many major new malls and entertainment venues in the country are also adorned by a GRS roof including:

  • the Irene Village Mall in Pretoria;
  • Greenstone Mall in Bedfordview;
  • Woodlands Boulevard in Pretoria;
  • Traderoutes Mall in Lenasia; and
  • Silverstar Casino and the Suncoast Casino in Kwa-Zulu Natal.

The table below gives a breakdown of the products of Helm.

Stalcor

a)     Division Description

Stalcor is one of the top three South African distributors and processors of stainless steel, aluminium and carbon steel products sourced both locally and abroad. The processing of steel is centred around recently installed coil slitting and cut-to-length capabilities. The division has enjoyed a top three market share position in South Africa over the past 43 years, acting as a significant distributor for major steel manufacturers, including Columbus Stainless (stainless steel) and Hulamin (aluminium).

Stalcor has a national branch network located in Johannesburg, Durban, Cape Town and Port Elizabeth. The division contributed around 48% to the CSI turnover for the year ended 30 June 2017.

Currently, Stalcor accounts for between 25% and 30% of all sales of stainless steel made by Columbus Stainless to its South African distributor network and approximately 40% of Hulamin’s aluminium sales to its local distributor network.

Divisional Structure/Operational Footprint

The division’s head office is a 15,000m2 warehousing and distribution facility in Isando Gauteng (part of the 51 000m2 facility), with a total stockholding capacity of approximately R140 million. Its national footprint is serviced through service delivery centres in Cape Town, Durban, Port Elizabeth and Gaborone (Botswana). This extended branch network collectively provides the business with an additional 12,000m2 of warehousing space bringing the total collective operational capacity to 27,000m2 under roof.

 

Each service centre owns and manages its own delivery fleet ensuring a just-in-time service. Stalcor’s collective delivery capacity exceeds 130 tons per day collectively. The table below gives a summary of the manufacturing floor space across all regions of operations together with the delivery fleet across all regions.

 

Region

Floor space (in m2)

Delivery fleet (all regions)

Isando (GP)

15,000

3x 14 ton vehicles

8x 8 ton vehicles

4x 6 ton vehicles

10x 4t vehicles

5x 1 ton vehicle

Epping (WC)

4,500

Mount Edgecombe (KZN)

4,000

Port Elizabeth (EC)

1,500

Gaborone (Botswana)

1,000

Products

Stalcor’s products span across three industrial metal types, namely stainless steel, aluminium and carbon steel. The products are in the form of either coils, plates, sheets, profiles or pipes and tubes.

Key product lines include:

Stainless steel flat products

These are products in sheet, coil and plate format of multiple lengths, widths and alloys. The dominant producer in South Africa is Columbus Stainless which currently produces between 80% and 90% of product consumed in South Africa. This amounts to a supply of 65,000 to 75,000 tons into the local market on an annual basis, of which 40,000 tons is sold directly by Columbus Stainless into high volume customers such as the automotive industry.

Stainless steel long products

These products comprise round and square tube, solid bar, flat, round, hex and square, welded pipe and fittings, and angles. None of these products are manufactured locally (with the exception of tube). Stalcor achieves the product diversification of long products by importing from multiple mills in Asia and Europe.

Stalcor purchases between 2500 and 3,000 tons of stainless steel long products annually from various international partners, which represents a 30% market share in the South African market.

 

Aluminium products

Hulamin Aluminium is a major supplier of flat and long products to the local market.  Stalcor is Hulamin’s biggest distributor across both long and flat products in South Africa purchasing and selling approximately 3 500 tons of aluminium flat products per annum. As is the case with stainless steel products, there are instances of import from Asian suppliers of products in order to meet local demand specifications and needs.

Stalcor are stockists and suppliers of a wide range of:

  • stainless steel in a variety of duplex, austenitic and ferritic grades of coil, sheet, long products, plate, tubes and pipes;
  • aluminium in various alloys in coil, sheets, plate, tread plate, architectural products and customer-bespoke extruded products; and
  • hot rolled, cold rolled, galvanized and pre-painted, sheets, coil and plate in commercial, certified and wear resistant qualities.

The table below gives a summary of some of Stalcor’s products:

Notably, all Stalcor products comply with ASTM standards

While Stalcor supports local manufacturing, the division sources some products overseas so as to offer a diverse stock holding, allowing customers the opportunity to purchase a complete basket of goods and allowing Stalcor to remain competitive. The importing effort is made up of products that aren’t manufactured or available locally in both stainless steel and aluminium flat and sections.