Life is not easy in the construction industry, even in South Africa; but Protech Khuthele’s history is an object lesson in how to entrench and expand a niche capability.
Protech Khuthele started life as a small contractor 22 years ago. Its headquarters is still in Lanseria, between Johannesburg and Pretoria, and its core business is still civil engineering; but today it is part of Protech Khuthele Holdings, a group of companies listed on the JSE with a turnover in 2011 of R1.07 billion. It has also evolved into rather a different company, as CFO Nellis Wolmarans explains: “We started with general urban contracting—water supply, sewage systems, some road work, a little building even. As the company grew we decided to specialise in what we call fast-track contracting and to specialise in bulk earthworks.”
The company gathered expertise in the groundwork that has to be done before construction starts. For example, a tall building in a town may need excavation down to 20 metres to accommodate its foundations and below-ground spaces—a precision operation when there are other buildings nearby. By 2007, Protech Khuthele had grown to a point where it made sense to go public, and accordingly the company was listed in 2007. In the run-up to the IPO, the directors firmed up the policies that supported the business model they believed would give them a distinct advantage in the market. Fast-track contracting is something all operators would like to aspire to, but to deliver it depends on having control over the assets, specifically the plant.
Many contractors prefer to hire plant as they need it. There is an advantage in keeping capital equipment off the books but Protech Khuthele opts to own through its sister company Pela Plant the bulk of the equipment it deploys, and to maintain a ‘new’ fleet of over 300 units of plant consisting of excavators, dump trucks, bulldozers, and specialised items. Every unit is new ex-works and replaced after just 4,000 operating hours or approximately two years. This results in close to zero downtime in the life of a unit, where downtime is the biggest cause of delay in execution.
To make this model work, Protech Khuthele has a relationship with its plant suppliers (of which Bell Equipment and Mercedes are the largest) that’s closer to symbiosis than partnership. The OEM maintains the vehicles, and is happy to buy them back with 4,000 hours on the clock—with one careful owner and a detailed service history they are eminently saleable.
The contracting division consisting of Protech Khuthele and Pela Plant generates 86 per cent of group turnover, the remainder coming from geotechnical consulting services and Protech Readymix, which owns and operates 25 mixer trucks and claims the shortest lead time in the industry.
Though its margins were squeezed, Protech Khuthele managed to increase its revenue by 43 per cent and turn a profit in the financial year ending in February 2011. In the present climate, especially in construction, that’s a stellar performance, and it’s no surprise to learn that it was not achieved by digging foundations for buildings or in road construction: in the last three years the company has established a position in the mining industry. “We don’t get involved in the run-of-mine operations in which mining contractors use 100-ton trucks or draglines to shift ore: the biggest truck we use is the Bell B40 articulated dump truck. But we have identified a niche among the major clients for the smaller equipment range. They have infrastructure requirements for tailings dams, access roads, discard dumps, topsoil and overburden stripping and many other things. We are exploiting that fully.”
Within South Africa the bulk of Protech Khuthele’s current work is related to coal mining in Mpumalanga Province for the biggest operators like Xstrata and BHP Billiton. South Africa’s continued dependence on coal to generate the energy it so badly needs is well known, and together with growing demand for other resources is likely to keep the mining sector booming for the next decade.
These are the ideal clients for Protech Khuthele, which can meet the stringent operational and safety demands of the mining industry. “To comply with mine safety you need the latest equipment and a very high spec,” says Wolmarans. “After we take delivery of a brand new high specification unit we still have to spend up to R200,000 on it to bring it to mine safety specs.” This includes fitting cameras and monitors to give 360-degree visibility from the cab, or fire protection systems that are in advance of standard.
Its ability to comply with these standards, together with the dependability of the new equipment, gives the company a distinct advantage in the market and raises the barrier to entry beyond the reach of the many contractors who bid for township projects, he adds. Bidding for mine contracts is among a smaller group of pre-qualified peer companies, with comparable cost structures. Protech Khuthele has been conspicuously successful in this field, with a pipeline of some R1.4 billion over the coming year to 18 months, and is continuously (though selectively) bidding for the right size of contract. “We would rather have five jobs at R100 million than one at R500 million: even though it may be spread between the same four or five clients it spreads the risk.”
Just recently Protech Khuthele has started to extend its reach outside of South Africa and has secured contracts in Botswana, Tanzania and as far afield as Sierra Leone, where it is carrying out the preparatory work for the railway that will carry iron ore from African Minerals’ Makeni mine to the port. Some 25 units are deployed in Sierra Leone with as many personnel, and Bell Equipment has an on-site presence to keep the plant running at better (because units often work beyond the specified nine hour day) than 100 per cent utilisation.
The projects in Tanzania are both at gold/uranium mines, and mark a new departure for Protech Khuthele in that these are for new clients. “The Mkuju River Mine is a project of an Australian company, Mantra Mining,” says Wolmarans. “It’s an open cast mine and we are in the initial phase, creating a 50 kilometre access road.” There will be more work to follow on this project and on a project for Shanta Gold at Singida, further to the north in Tanzania.
Going forward, Protech Khuthele will be in an excellent position to work with new clients like Mantra and Shanta as well as following its existing mining clients in South Africa into African markets. The ability to ship heavy plant to the centre of Sierra Leone and remote mine locations in Tanzania and carry out specialised operations in record time is one few, if any, competitors will match.
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