Raubex uncertain about South African construction industry’s future

Raubex uncertain about South African construction industry’s future

13th May 2019

By: Simone Liedtke
Writer

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Infrastructure development and construction materials group Raubex’s 2019 financial year was characterised by a lack of work, coupled with violent community unrest that affected several of its sites, CEO Rudolf Fourie said on Monday.

The adverse conditions resulted in Raubex having to rightsize a number of its operations, but this was offset by the group’s diversification strategy coming to fruition during the year.

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The company’s earnings a share for the year ended February 28 decreased by 86.3% year-on-year to 31.9c, while headline earnings a share decreased by 75.1% to 57c.

Revenue decreased by 0.3% year-on-year to R8.52-billion, while operating profit decreased by 69.2% to R207-million.

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Profit before tax decreased by 71.8% to R180.7-million.

Despite the challenges, the materials division recorded stable results, with activities focused on materials handling and screening services provided to the mining industry, as well as commercial quarrying operations throughout Southern Africa, having supported the group’s earnings for the year.

This will continue to differentiate the group from the overall construction sector.

“Good progress has [also] been made in the affordable housing space where conditions are more favourable,” Fourie commented, adding that the company was also benefiting from its participation in projects selected under government’s Renewable Energy Independent Power Producer Procurement Programme, where a solid order book of work has been secured.

OPERATIONAL OVERVIEW

The group’s materials division diversifies the group from the construction industry and was the main contributor to the group’s operating profit for the financial year, mitigating the losses reported in the roads and earthworks division, Raubex said on Monday.

Stable conditions have been experienced in the mining services sector where operations

have been predominantly focused on diamonds, gold, coal, copper, platinum and iron-ore during the year.

Certain diamond mining contracts reached completion towards the end of the financial year. This work has been mainly replaced with work in the coal sector. A total of 233 employees were retrenched by the division owing to end of life and changes in scope of certain mining contracts, with retrenchment costs of R17.1-million being incurred.

Commercial quarrying operations have experienced an overall increase in volumes of about 12% off a low base from the prior year, with site-specific pockets of improvement. However,

community unrest at certain sites and Eskom’s load-shedding have had a negative impact on

operations.

Contract crushing operations continue to experience weak demand in line with the low level

of activity in the overall construction sector.

Revenue for the division increased by 6.5% to R2.75-billion while operating profit decreased by 2.2% to R358.5-million. The divisional operating profit margin decreased to 13%, with the division having incurred capital expenditure (capex) of R260.6-million for the year.

The division has a secured order book of R1.93-billion.

Meanwhile, the roads and earthworks division experienced a significant reduction in the volume of road construction and maintenance work from the public sector.

The teams in this division were able to partially replace the order book with work on roads operated by concessionaires. However, the subsidiaries which supply asphalt and bitumen to Raubex contracts, as well as to the external market, experienced a significant decrease in earnings owing to lower volumes supplied. The volume of asphalt sold decreased by about 30% from the prior year.

Owing to the lower volume of work, the division embarked on rightsizing initiatives during the year to reduce excess capacity. The division has, however, retained some excess capacity in anticipation of an increase in public sector spend and said it would review its position and market conditions in the year ahead.

The rightsizing initiatives resulted in 443 employees being retrenched in the division with one-off retrenchment costs of R24.8-million incurred.

In addition to the lack of infrastructure spend in the road construction sector, the results for

the year were also adversely affected by violent community unrest in certain areas which

impacted on production efficiencies.

The results for this division also include a present value charge and work in progress

adjustment with respect to the accounts receivable balance due from the Road Development Agency, in Zambia, for R116.7-million and the goodwill impairment charge of R51.5-million.

Operationally, an onerous contract was completed on the Moloto road. This contract incurred an operating loss of R36.3-million for the year.

Revenue for the division decreased by 20.7% to R3.63-billion and operating profit decreased by 184.9% to an operating loss of R245.8-million.

The divisional operating profit margin decreased to an operating loss margin of 6.8%, while the division incurred capex of R61-million during the year.

The division has a secured order book of R3.19-billion, which excludes the two Zambia Link 8000 contracts that have been suspended.

Further, the group’s infrastructure division experienced favourable conditions during the year and has continued to expand its affordable housing and commercial building operations.

Excess capacity was absorbed in the second half of the year owing to the start of

work in the renewables energy sector, where Raubex secured four contracts valued at R729-million.

Outside of South Africa, Raubex noted that work in Cameroon has progressed well and that a conservative approach to revenue recognition has been adopted.

Further, the acquisition of Westforce Construction in Western Australia which was effective January 1, 2018, had delivered its first 12-month set of results post-acquisition and has contributed to the growth in this division.

The division undertook limited rightsizing of its operations during the year in anticipation of

future work, which resulted in 48 employees being retrenched and one-off retrenchment

costs of R1.4-million being incurred.

Revenue for the division increased by 55.1% to R2.13-billion and operating profit increased by 488.5% to R94.3-million.

The divisional operating profit margin increased to 4.4%, while incurring capex of R99.3-million.

The division has a secured order book of R2.89-billion.

Internationally, revenue increased by 37.4% to R1.53-billion while operating profit decreased by 33% to R126.3-million.

Operating profit margin decreased to 8.3%.

The international order book has decreased to R1.13-billion and is included in the group’s divisional order books. The two Link 8000 road contracts in Zambia, which have R791.6-million of work left to complete, have been excluded from the group’s order book.

The group’s secured order book, therefore, decreased by 2.2% to just over R8-billion. Of the total order book, 14.1% represents contracts outside of South Africa in the rest of Africa and Western Australia.

Raubex expects overall conditions in the South African construction sector to remain

challenging and the short-term outlook uncertain