Johannesburg - Civil engineering group Protech Khuthele Holdings' R71m acquisition Readymix has not borne fruit due to the operating environment being a "trying" one, says its CEO.
On Monday, the group reported revenue growth of 91% to R702.7m, and a 61% rise in operating profit to R156m for the year to end-February. However, the Readymix division dampened the group's operating margins - which reduced to 22% from 26% a year ago. "Without Readymix, margins would have remained at 26%," CEO Gerald Chapman told Fin24.com.
Readymix, which Protech bought on February 29 2008, gave Protech exposure to ready-mix concrete products in the Gauteng and North West provinces.
Chapman said the high cost of inputs like cement and aggregates, combined with cement shortages in November and December and rain over summer didn't bode well for the business. "Last year was an extremely trying year and most of the business lost money.
"We had three times the annual average rain in the last quarter of the year, and there were 30 days that builders couldn't work for during that quarter.
"When times were flying we struggled to get concrete. Unfortunately when we looked into our crystal ball [at the time of acquiring the business], it wasn't as clear as we thought. But the company is still part of our strategy and we aren't planning to get rid of it," said Chapman.
Chapman said that in the group's other businesses the group still executed most of their work during the rainy weather in the fourth quarter. "The weather is a big issue for any construction company, but it's about managing the weather," he said. Besides Readymix, its divisions are Protech Khuthele (which engages in earthworks, civil works and mining infrastructure); Impact Compaction, road-testing division Sarts and plant hire provider Pela Plant.
Shifting sectors
Chapman said the global economic recession "has come home to us more realistically now. In the first half of the year, people thought it could turn and would turn internationally, and that we at home were more isolated and in a little bubble. However, in the second half of the year there was no doubt that its effect for us has been worse than expected."
The recession created a slowdown in the mining and the private sectors, two sectors which Protech operates in: "But we're still seeing activity there. It's not like things have come to a standstill."
Government in February announced a R787bn three-year infrastructure upgrade programme. Chapman said "there's no doubt that work is available in that space, but it's going to be about the timing of the [programme's] rollout."
According to Chapman, the group's business model has kept margins going, helping it shift away from certain sectors when they do not offer value.
Output in the South African mining industry has declined as demand from developed markets has waned in light of the financial crisis, leading to cost-cutting and job losses.
"We got an idea about a year ago that things would slow in platinum, which is why we moved our focus to coal. Even though the mining sector did slow in general, it didn't apply to coal, which kept us quite busy during the financial year," said Chapman.
He said that during the period, the group was involved in two platinum projects, and they were fortunate that no contracts were cancelled during the slowdown.
Healthy work in progress
Protech has secured work worth R420m for financial 2010: "We also have about R200m-odd in work recommended for us, and we're just waiting for the appointments," Chapman said.
Over the 2009 financial year, Protech's share price on the JSE has lost 66% - falling from 235c at end February 2008 to 80 cents at end-February 2009. Since then, the share has gained 4% (to May 8).
Its parent index - the construction and materials index (J235) - lost 51% over the year to end-February 2009, but since has recovered 18%.
Protech shares went unchanged on Monday morning at 83c.
- Fin24.com